UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
- ----- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
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OR
- ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 1-7184
B. F. SAUL REAL ESTATE INVESTMENT TRUST
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(Exact name of registrant as specified in the charter)
Maryland 52-6053341
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8401 Connecticut Avenue,
Chevy Chase, Maryland 20815
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(Address of principal executive office) (Zip Code)
(301) 986-6000
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(Registrant's telephone number, including area code)
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 requirement for the past 90 days. Yes X No
--- ---
The number of Common Shares of Beneficial Interest, $1 Par Value,
outstanding as of August 14, 2001, was 4,826,910.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
(a) Consolidated Balance Sheets at June 30, 2001 and
September 30, 2000
(b) Consolidated Statements of Operations for the three-month
and nine-month periods ended June 30, 2001 and 2000
(c) Consolidated Statements of Comprehensive Income and Changes in
Shareholders' Equity (Deficit) for the three-month
and nine-month periods ended June 30, 2001 and 2000
(d) Consolidated Statements of Cash Flows for the Nine-month
periods ended June 30, 2001 and 2000
(e) Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations:
(a) Financial Condition
Real Estate
Banking
(b) Liquidity and Capital Resources
Real Estate
Banking
(c) Results of Operations
Three months ended June 31, 2001 compared to
three months ended June 31, 2000
Nine months ended June 30, 2001 compared to
Nine months ended June 30, 2000
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports On Form 8-K
Consolidated Balance Sheets
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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June 30 September 30
(In thousands) 2001 2000
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ASSETS
Real Estate
Income-producing properties
Hotel $ 256,567 $ 209,861
Office and industrial 164,166 148,581
Other 2,825 3,991
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423,558 362,433
Accumulated depreciation (136,237) (124,184)
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287,321 238,249
Land parcels 43,070 39,716
Construction in progress 14,886 49,096
Cash and cash equivalents 11,025 18,129
Other assets 88,511 85,674
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Total real estate assets 444,813 430,864
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Banking
Cash and other deposits 387,008 388,233
Federal funds sold and securities purchased under agreements to resell 65,000 40,000
Loans held for sale 342,953 126,108
Loans held for securitization and sale 300,000 70,000
Investment securities (market value $46,189 and $45,559, respectively) 45,702 45,648
Trading securities 7,477 3,797
Mortgage-backed securities (market value $1,570,855 and $1,025,540, respectively) 1,593,387 1,046,809
Loans and leases receivable (net of allowance for losses of $60,018 and $54,018, respectively) 7,822,769 8,105,031
Federal Home Loan Bank stock 118,114 97,676
Real estate held for investment or sale (net of allowance for losses of $84,030 and
$80,954, respectively) 34,113 49,386
Property and equipment, net 413,803 362,469
Goodwill and other intangible assets, net 27,664 25,270
Interest only strips, net 35,266 16,763
Other assets 264,487 312,339
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Total banking assets 11,457,743 10,689,529
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TOTAL ASSETS $ 11,902,556 $ 11,120,393
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LIABILITIES
Real Estate
Mortgage notes payable $ 319,385 $ 307,214
Notes payable - secured 207,000 200,000
Notes payable - unsecured 50,264 47,463
Deferred gains - real estate 113,045 112,834
Accrued dividends payable - preferred shares of beneficial interest 20,948 25,885
Other liabilities and accrued expenses 33,294 44,971
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Total real estate liabilities 743,936 738,367
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Banking
Deposit accounts 7,198,212 7,037,789
Borrowings 617,844 540,349
Federal Home Loan Bank advances 2,342,284 1,946,971
Other liabilities 406,946 300,971
Capital notes -- subordinated 250,000 250,000
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Total banking liabilities 10,815,286 10,076,080
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Commitments and contingencies
Minority interest held by affiliates 84,830 79,028
Minority interest -- other 218,307 218,307
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TOTAL LIABILITIES 11,862,359 11,111,782
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SHAREHOLDERS' EQUITY
Preferred shares of beneficial interest, $10.50 cumulative, $1 par value, 90 million shares
authorized, 516,000 shares issued and outstanding, liquidation value $51.6 million 516 516
Common shares of beneficial interest, $1 par value, 10 million shares authorized,
6,641,598 shares issued 6,642 6,642
Paid-in surplus 92,943 92,943
Deficit (18,399) (49,642)
Accumulated other comprehensive gain 343 --
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82,045 50,459
Less cost of 1,814,688 common shares of beneficial interest in treasury (41,848) (41,848)
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TOTAL SHAREHOLDERS' EQUITY 40,197 8,611
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,902,556 $ 11,120,393
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The Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statements of Operations
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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For the Three Months Ended For the Nine Months Ended
June 30 June 30
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(In thousands, except per share amounts) 2001 2000 2001 2000
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REAL ESTATE
Income
Hotels $ 28,511 $ 27,188 $ 77,357 $ 70,503
Office and industrial (including $1,179, $820, $2,816 and $1,853
of rental income from banking segment, respectively) 10,548 9,140 30,982 24,880
Other 509 692 1,729 2,318
---------------- -------------- -------------- --------------
Total income 39,568 37,020 110,068 97,701
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Expenses Direct operating expenses:
Hotels 16,435 15,659 47,488 43,350
Office and industrial properties 3,130 2,450 8,427 6,869
Land parcels and other 282 341 925 975
Interest expense 12,697 11,903 37,734 34,454
Capitalized interest (103) (326) (524) (793)
Amortization of debt expense 201 173 617 491
Depreciation 4,249 3,588 12,312 11,086
Advisory, management and leasing fees - related parties 3,113 2,951 8,937 8,145
General and administrative 348 793 1,452 3,560
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Total expenses 40,352 37,532 117,368 108,137
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Equity in earnings of unconsolidated entities 2,076 1,734 6,074 5,712
Gain on sale of property 3,170 999 5,715 999
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REAL ESTATE OPERATING INCOME (LOSS) $ 4,462 $ 2,221 $ 4,489 $ (3,725)
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BANKING
Interest income
Loans and leases $ 172,629 $ 169,190 $ 530,660 $ 461,148
Mortgage-backed securities 16,455 18,527 47,953 57,373
Trading securities 1,043 233 1,704 970
Investment securities 682 660 2,060 1,957
Other 3,202 4,316 11,247 18,517
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Total interest income 194,011 192,926 593,624 539,965
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Interest expense
Deposit accounts 58,699 58,637 191,066 155,674
Borrowings 42,758 45,605 133,208 128,108
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Total interest expense 101,457 104,242 324,274 283,782
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Net interest income 92,554 88,684 269,350 256,183
Provision for loan and lease losses (16,683) (10,760) (50,622) (34,522)
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Net interest income after provision for loan losses 75,871 77,924 218,728 221,661
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Other income
Servicing and securitization income 10,907 8,718 49,530 21,655
Deposit servicing fees 25,538 23,294 74,646 63,691
Gain (loss) on trading securities, net 3,732 (1,879) 13,057 1,672
Loss on real estate held for investment or sale, net 5,246 252 3,637 (189)
Gain (loss) on sales of loans, net 176 4,916 3,111 (639)
Other 8,008 8,214 24,476 20,143
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Total other income 53,607 43,515 168,457 106,333
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Continued on following page.
Consolidated Statements of Operations (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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For the Three Months Ended For the Nine Months Ended
June 30 June 30
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(In thousands, except per share amounts) 2001 2000 2001 2000
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BANKING (Continued)
Operating expenses
Salaries and employee benefits $ 48,001 $ 49,249 $ 147,434 $ 145,245
Loan 10,382 5,715 32,402 8,652
Property and equipment (including $1,179, $820, $2,816 and $1,853
of rental expense paid to real estate segment, respectively) 9,054 8,072 26,261 23,380
Marketing 2,351 2,997 8,040 8,006
Data processing 7,479 5,762 20,558 18,290
Depreciation and amortization 8,542 8,106 25,398 24,085
Deposit insurance premiums 365 321 1,074 1,795
Amortization of goodwill and other intangible assets 612 642 1,785 2,028
Other 12,612 14,674 38,728 40,502
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Total operating expenses 99,398 95,538 301,680 271,983
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BANKING OPERATING INCOME $ 30,080 $ 25,901 $ 85,505 $ 56,011
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TOTAL COMPANY
Operating income $ 34,542 $ 28,122 $ 89,994 $ 52,286
Income tax provision 10,735 8,395 27,588 15,114
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Income before extraordinary item and minority interest 23,807 19,727 62,406 37,172
Extraordinary item:
Loss on early extinguishment of debt, net of taxes -- (140) -- (140)
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Income before minority interest 23,807 19,587 62,406 37,032
Minority interest held by affiliates (2,926) (2,360) (8,116) (4,102)
Minority interest -- other (6,329) (6,329) (18,985) (18,985)
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TOTAL COMPANY NET INCOME $ 14,552 $ 10,898 $ 35,305 $ 13,945
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NET INCOME AVAILABLE TO COMMON
SHAREHOLDERS $ 13,198 $ 9,544 $ 31,243 $ 9,883
NET INCOME PER COMMON SHARE
Income before extraordinary item and minority interest $ 4.65 $ 3.81 $ 12.08 $ 6.86
Extraordinary item:
Loss on early extinguishment of debt, net of taxes -- (0.03) -- (0.03)
---------------- -------------- -------------- --------------
Income before minority interest 4.65 3.78 12.08 6.83
Minority interest held by affiliates (0.61) (0.49) (1.68) (0.85)
Minority interest -- other (1.31) (1.31) (3.93) (3.93)
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NET INCOME PER COMMON SHARE $ 2.73 $ 1.98 $ 6.47 $ 2.05
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The Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statements of Comprehensive Income and Changes in Shareholders' Equity (Deficit)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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For the Three Months Ended For the Nine Months Ended
June 30 June 30
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(Dollars in thousands) 2001 2000 2001 2000
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COMPREHENSIVE INCOME
Net income $ 14,552 $ 10,898 $ 35,305 $ 13,945
Other comprehensive income:
Net unrealized holding gains (losses) 1,958 (7) 343 (10)
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TOTAL COMPREHENSIVE INCOME $ 16,510 $ 10,891 $ 35,648 $ 13,935
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CHANGES IN SHAREHOLDERS' EQUITY
PREFERRED SHARES OF BENEFICIAL INTEREST
Beginning and end of period (516,000 shares) $ 516 $ 516 $ 516 $ 516
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COMMON SHARES OF BENEFICIAL INTEREST
Beginning and end of period (6,641,598 shares) 6,642 6,642 6,642 6,642
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PAID-IN SURPLUS
Beginning and end of period 92,943 92,943 92,943 92,943
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DEFICIT
Beginning of period (31,597) (66,242) (49,642) (63,884)
Net income 14,552 10,898 35,305 13,945
Minority interest in capital contribution -- -- -- (2,697)
Dividends:
Real Estate Trust preferred shares of beneficial interest:
Distributions payable (1,354) (1,354) (4,062) (4,062)
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End of period (18,399) (56,698) (18,399) (56,698)
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ACCUMULATED OTHER COMPREHENSIVE INCOME
Beginning of period (1,615) 3 -- 6
Net unrealized holding gains (losses) 1,958 (7) 343 (10)
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End of period 343 (4) 343 (4)
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TREASURY SHARES
Beginning and end of period (1,814,688 shares) (41,848) (41,848) (41,848) (41,848)
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TOTAL SHAREHOLDERS' EQUITY $ 40,197 $ 1,551 $ 40,197 $ 1,551
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The Notes to Consolidated Financial Statements are an integral part of these statements.
Consolidated Statements of Cash Flows
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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For the Nine Months Ended
June 30
-----------------------------
(In thousands) 2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES
Real Estate
Net income (loss) $ 2,842 $ (2,461)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 12,312 11,077
Early extinguishment of debt, net of taxes -- 140
Gain on sale of property (5,715) --
Increase in accounts receivable and accrued income (1,524) (3,642)
(Increase) decrease in deferred tax asset 4,925 (1,498)
Increase in accounts payable and accrued expenses (10,626) (5,982)
Amortization of debt expense 1,326 1,205
Equity in earnings of unconsolidated entities (6,073) (5,712)
Other 5,679 12,685
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3,146 5,812
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Banking
Net income 32,463 16,406
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Amortization (accretion) of premiums, discounts and net deferred loan fees 6,430 (2,941)
Depreciation and amortization 25,398 24,085
Provision for loan and lease losses 50,622 34,522
Capitalized interest on real estate under development (2,017) (2,771)
Proceeds from sales of trading securities 580,247 226,395
Net fundings of loans held for sale and/or securitization (1,211,151) (542,070)
Proceeds from sales of loans held for sale and/or securitization 825,744 697,009
(Gain) loss on sales of real estate held for sale 6,104 (724)
Provision for losses on real estate held for investment or sale 3,150 350
Gain on trading securities, net (13,057) (1,672)
Increase in interest-only strips (18,503) (8,052)
(Increase) decrease in servicing assets 5,173 (40,513)
(Increase) decrease in goodwill and other intangible assets (2,386) 2,036
(Increase) decrease in other assets 43,191 (25,395)
Increase in other liabilities 32,560 21,379
Minority interest held by affiliates 8,116 4,102
Minority interest - other 7,313 7,313
Other 56,532 63,282
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435,929 472,741
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Net cash provided by operating activities 439,075 478,553
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CASH FLOWS FROM INVESTING ACTIVITIES
Real Estate
Capital expenditures - properties (20,577) (39,469)
Property acquisitions (15,159) (19,517)
Property sales, net 10,991 903
Equity investment in unconsolidated entities 2,201 4,895
Other 2 (22,656)
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(22,542) (75,844)
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Banking
Net proceeds from redemption of Federal Home Loan Bank stock 22,630 4,052
Net proceeds from maturities of investment securities -- 44,000
Net proceeds from sales of real estate 15,908 12,067
Net fundings of loans and leases receivable 42,159 (838,294)
Principal collected on mortgage-backed securities 292,784 193,167
Purchases of Federal Home Loan Bank stock (43,067) (20,414)
Purchases of investment securities (32) (45,048)
Purchases of loans receivable (1,353,712) (1,342,440)
Purchases of property and equipment (76,823) (75,192)
Disbursements for real estate held for investment or sale -- (9,762)
Other 665 15,920
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(1,099,488) (2,061,944)
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Net cash used in investing activities (1,122,030) (2,137,788)
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Continued on following page.
Consolidated Statements of Cash Flows (Continued)
B. F. SAUL REAL ESTATE INVESTMENT TRUST (Unaudited)
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For the Nine Months Ended
June 30
-----------------------------
(In thousands) 2001 2000
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CASH FLOWS FROM FINANCING ACTIVITIES
Real Estate
Proceeds from mortgage financing $ 22,439 $ 92,440
Principal curtailments and repayments of mortgages (10,268) (29,530)
Proceeds from secured note financings 18,000 24,200
Repayments of secured note financings (11,000) (17,000)
Proceeds from sales of unsecured notes 7,038 7,265
Repayments of unsecured notes (4,237) (7,367)
Costs of obtaining financings (680) (1,735)
Dividends paid - preferred shares of beneficial interest (9,000) (7,500)
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12,292 60,773
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Banking
Proceeds from customer deposits and sales of certificates of deposit 32,036,231 28,285,272
Customer withdrawals of deposits and payments for maturing certificates of deposit (31,875,808) (27,150,480)
Net increase (decrease) in securities sold under repurchase agreements 66,021 (117,289)
Advances from the Federal Home Loan Bank 8,075,953 1,571,731
Repayments of advances from the Federal Home Loan Bank (7,680,640) (1,319,030)
Net increase in other borrowings 11,474 44,436
Cash dividends paid on preferred stock (7,313) (7,313)
Cash dividends paid on common stock (12,000) (12,000)
Other 73,416 46,699
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687,334 1,342,026
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Net cash provided by financing activities 699,626 1,402,799
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Net increase (decrease) in cash and cash equivalents 16,671 (256,436)
Cash and cash equivalents at beginning of period 446,362 608,003
-------------- --------------
Cash and cash equivalents at end of period $ 463,033 $ 351,567
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Components of cash and cash equivalents at end of period as presented in the
consolidated balance sheets:
Real Estate
Cash and cash equivalents $ 11,025 $ 8,598
Banking
Cash and other deposits 387,008 287,969
Federal funds sold and securities purchased under agreements to resell 65,000 55,000
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Cash and cash equivalents at end of period $ 463,033 $ 351,567
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Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (net of amount capitalized) 373,704 $ 315,543
Income taxes paid (refunded) (23,951) (56,255)
Shares of Saul Centers, Inc. common stock 5,843 2,790
Transfer of Tysons Park Place to real estate segment from banking segment -- 37,000
Cash received during the year from:
Dividends on shares of Saul Centers, Inc. common stock 3,150 2,790
Distributions from Saul Holdings Limited Partnership 4,895 4,895
Supplemental disclosures of noncash activities:
Rollovers of notes payable - unsecured 2,992 4,242
Loans held for sale exchanged for trading securities 1,413,654 224,261
Loans receivable transferred to loans held for securitization and sale 631,529 514,390
Loans made in connection with the sale of real estate -- 976
Loans receivable transferred to real estate acquired in settlement of loans 376 546
Loans receivable exchanged for mortgage-backed securities held-to-maturity 837,661 4,798
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The Notes to Consolidated Financial Statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. In the opinion of management, the consolidated financial statements reflect
all adjustments necessary for a fair presentation of the Trust's financial
position and results of operations. All such adjustments are of a normal
recurring nature. These financial statements and the accompanying notes should
be read in conjunction with the Trust's audited consolidated financial
statements included in its Form 10-K for the fiscal year ended September
30, 2000. The results of operations for interim periods are not necessarily
indicative of results to be expected for the year.
2. The accompanying financial statements include the accounts of B.F.Saul Real
Estate Investment Trust and its wholly owned subsidiaries (the "Real Estate
Trust"), which are involved in the ownership and development of income-producing
properties. The accounts of the Trust's 80%-owned banking subsidiary, Chevy
Chase Bank, F.S.B., and its subsidiaries ("Chevy Chase" or the "Bank") have also
been consolidated. Accordingly, the accompanying financial statements reflect
the assets, liabilities, operating results, and cash flows for two business
segments: Real Estate and Banking. All significant intercompany balances and
transactions have been eliminated.
3. The Real Estate Trust voluntarily terminated its qualification as a real
estate investment trust under the Internal Revenue code during fiscal 1978. As a
result of the Trust's acquisition of an additional 20% equity interest in the
Bank in June 1990, the Bank became a member of the Trust's affiliated group
filing consolidated federal income tax returns. The current effect of the
Trust's consolidation of the Bank's operations into its federal income tax
return results in the use of the Trust's net operating losses and net operating
loss carryforwards to reduce the federal income taxes the Bank would otherwise
owe.
4. Adoption of Recently Issued Accounting Standards
The Bank adopted Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities"
("SFAS 138) and Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") concurrently on
October 1, 2000. SFAS 138 amends SFAS 133 and addresses several issues causing
implementation difficulties for companies required to apply SFAS 133.
Under SFAS 138 and SFAS 133, all derivative instruments are recognized as either
assets or liabilities in the consolidated balance sheet and measured at fair
value, with any change in the fair value of derivative instruments included in
either current income or other comprehensive income.
At June 30, 2001, the Bank had an unrealized gain of $0.4 million, net of
related taxes, which is included in other comprehensive income and relates to
the changes in the fair value of derivative instruments designated as cash flow
hedges.
5. BANKING:
LOANS HELD FOR SALE:
Loans held for sale is composed of the following:
June 30, September 30,
2001 2000
--------------- ---------------
(In thousands)
Single-family residential $ 331,271 $ 116,480
Home improvement and related loans 11,682 9,628
--------------- ---------------
Total $ 342,953 $ 126,108
=============== ===============
LOAN HELD FOR SECURITIZATION AND SALE:
At June 30, 2001 and September 30, 2000, loans held for securitization and sale
totaled $300,000 and $70,000, respectively, and were composed of automobile
loans.
LOANS AND LEASES RECEIVABLE:
Loans and leases receivable is composed of the following:
June 30, September 30,
2001 2000
---------------- ----------------
(In thousands)
Single-family residential $ 4,329,719 $ 4,896,439
Home equity 338,793 274,355
Real estate construction and ground 459,585 507,461
Commercial real estate and multifamily 31,369 39,917
Commercial 1,266,987 1,015,146
Automobile 628,601 719,276
Subprime automobile 477,437 620,588
Leasing 927,317 568,091
Home improvement and related loans 94,227 77,345
Overdraft lines of credit and other
consumer 31,811 31,608
---------------- ----------------
8,585,846 8,750,226
---------------- ----------------
Less:
Undisbursed portion of loans 741,468 630,205
Unearned discounts and net deferred loan
origination costs (38,409) (39,028)
Allowance for loan losses 60,018 54,018
---------------- ----------------
763,077 645,195
----------------
----------------
Total $ 7,822,769 $ 8,105,031
================ ================
REAL ESTATE HELD FOR INVESTMENT OR SALE:
The Bank's real estate held for investment is carried at the lower of aggregate
cost or net realizable value. The Bank's real estate acquired in settlement of
loans or real estate owned ("REO") is considered to be held for sale and is
carried at the lower of cost or fair value (less estimated selling costs).
Real estate held for investment or sale is composed of the following:
June 30, September 30,
2001 2000
--------------- ---------------
(In thousands)
Real estate held for investment (net of
allowance for losses of $202 for both
periods) $ 925 $ 925
Real estate held for sale (net of allowance
for losses of $83,828 and $80,752,
respectively) 33,188 48,461
--------------- ---------------
Total real estate held for investment or sale $ 34,113 $ 49,386
=============== ===============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Trust has prepared its financial statements and other disclosures on a fully
consolidated basis. The term "Trust" used in the text and the financial
statements included herein refers to the combined entity, which includes B.F.
Saul Real Estate Investment Trust and its subsidiaries, including Chevy Chase
and Chevy Chase's subsidiaries. "Real Estate Trust" refers to B.F. Saul Real
Estate Investment Trust and its subsidiaries, excluding Chevy Chase and Chevy
Chase's subsidiaries. The operations conducted by the Real Estate Trust are
designated as "Real Estate," while the business conducted by the Bank and its
subsidiaries is identified by the term "Banking."
FINANCIAL CONDITION
REAL ESTATE
The Real Estate Trust's investment portfolio at June 30, 2001, consisted
primarily of hotels, office and industrial properties and land parcels.
At June 30, 2001, the hotel portfolio included 18 properties containing 3,578
available rooms and the office and industrial portfolio consisted of 12
properties containing 1,888,000 square feet of gross leasable area.
Over all, the hotel portfolio experienced an average occupancy rate of 66.8% and
a average room rate of $96.35 during the nine-month period ended June 30, 2001.
The fifteen hotel properties owned by the Real Estate Trust throughout the first
nine-month periods of fiscal 2001 and 2000 experienced average occupancy rates
of 66.9% and 69.8%, respectively, and average room rates of $95.24 and $89.53
respectively. Six of these hotels registered improved occupancies and eleven
registered higher average room rates in the current period.
The Real Estate Trust's office and industrial portfolio was 97% leased at June
30, 2001, compared to a leasing rate of 98% at both September 30,2000 and at
June 30, 2000. At June 30, 2001, the office and industrial portfolio had a total
gross leasable area of 1.9 million square feet, of which 119,000 square feet
(6.3%) and 215,000 square feet (11.4%) are subject to leases whose terms expire
in the balance of fiscal 2001 and in fiscal 2002, respectively.
BANKING
General. The Bank's assets grew during the current quarter to $11.5 billion, an
increase of $483.9 million from March 31, 2001. Total loans and leases and
mortgage-backed securities increased $529.4 million during the quarter, funded
primarily through increases in Federal Home Loan Bank advances and other
borrowings. The Bank recorded operating income of $30.1 million during the
quarter ended June 30, 2001, compared to operating income of $25.9 million in
the prior corresponding quarter. Increased net interest income and a gain on the
sale of an office building classified as a commercial REO property were
partially offset by increases in the provision for loan and lease losses and
operating expenses.
At June 30, 2001, the Bank's tangible, core, tier 1 risk-based and total
risk-based regulatory capital ratios were 5.29%, 5.29%, 6.83% and 10.51%,
respectively. The Bank's regulatory capital ratios exceeded the requirements
under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989
("FIRREA") as well as the standards established for "well-capitalized"
institutions under the prompt corrective action regulations issued pursuant to
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA").
See "Capital."
In June 2001, as part of its capital and liquidity management strategy, the Bank
exchanged $837.7 million of single family residential loans held in its
portfolio for lower risk-weighted mortgage-backed securities, which the Bank
retained for its own portfolio.
During the quarter ended June 30, 2001, the Bank declared and paid out of the
retained earnings a cash dividend on its Common Stock in the amount of $400 per
share.
Asset Quality. Non-Performing Assets. The following table sets forth information
concerning the Bank's non-performing assets. The figures shown are after
charge-offs and, in the case of REO, after all valuation allowances.
Non-Performing Assets
(Dollars in thousands)
June 30, March 31, September 30,
2001 2001 2000
-------------------- --------------------- ---------------------
Non-performing assets:
Non-accrual loans:
Residential $ 6,562 $ 6,409 $ 5,171
Real estate construction and ground - - 70
Subprime automobile 12,314 12,367 12,026
Other consumer 5,447 6,667 5,399
-------------------- --------------------- ---------------------
Total non-accrual loans (1) 24,323 25,443 22,666
-------------------- --------------------- ---------------------
Real estate owned 117,016 127,137 129,213
Allowance for losses on real estate owned (83,828) (82,811) (80,752)
-------------------- --------------------- ---------------------
Real estate owned, net 33,188 44,326 48,461
-------------------- --------------------- ---------------------
Total non-performing assets $ 57,511 $ 69,769 $ 71,127
==================== ===================== =====================
Allowance for losses on loans and leases $ 60,018 $ 57,018 $ 54,018
Allowance for losses on real estate held for investment 202 202 202
Allowance for losses on real estate owned 83,828 82,811 80,752
-------------------- --------------------- ---------------------
Total allowances for losses $ 144,048 $ 140,031 $ 134,972
==================== ===================== =====================
Ratios:
Non-performing assets, net to total assets (2)(3) - 0.11% 0.16%
Allowance for losses on real estate loans to non-accrual
real estate loans (1) 97.76% 135.26% 167.60%
Allowance for losses on consumer loans and leases to
non-accrual consumer loans (1)(4) 262.07% 206.62% 219.97%
Allowance for losses on loans and leases
to non-accrual loans (1) 246.75% 224.10% 238.32%
Allowance for losses on loans and leases to total loans
and leases receivable (5) 0.70% 0.65% 0.65%
(1) Before deduction of allowances for losses.
(2) Non-performing assets, net are presented after all allowances for losses on loans and leases and real estate
held for investment or sale.
(3) Total allowances for losses on loans and leases and real estate held for investment or sale exceed non-performing assets
at June 30, 2001.
(4) Includes subprime automobile loans.
(5) Includes loans and leases receivable and loans held for sale and/or securitization, before deduction of allowance for losses.
Non-performing assets totaled $57.5 million, after valuation allowances on REO
of $83.8 million, at June 30, 2001, compared to $69.8 million, after valuation
allowances on REO of $82.8 million, at March 31, 2001. In addition to the
valuation allowances on REO, the Bank maintained $60.0 million and $57.0 million
of valuation allowances on its loan and lease portfolio at June 30, 2001 and
March 31, 2001, respectively. The $12.3 million decrease in non-performing
assets for the current quarter was attributable to a net decrease in REO of
$11.1 million and in non-accrual loans of $1.2 million. See "Non-accrual Loans"
and "REO."
Non-accrual Loans. The Bank's non-accrual loans totaled $24.3 million at June
30, 2001, as compared to $25.4 million at March 31, 2001. At June 30, 2001,
non-accrual loans consisted of $6.6 million of non-accrual residential loans and
$17.7 million of non-accrual consumer and other loans compared to non-accrual
residential loans of $6.4 million and non-accrual consumer and other loans of
$19.0 million at March 31, 2001.
REO. At June 30, 2001, the Bank's REO totaled $33.2 million, after valuation
allowances on such assets of $83.8 million as set forth in the following table.
The principal component of REO consists of four planned unit developments (the
"Communities"), all of which are under active development. Only commercial
ground properties remain in two of the four Communities.
Balance Balance
Number Before After Percent
of Gross Charge- Valuation Valuation Valuation of
Properties Balance Offs Allowances Allowances Allowances Total
----------------------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------
Communities 4 $ 139,095 $ 32,509 $ 106,586 $ 78,508 $ 28,078 84.6%
Residential ground 2 3,554 - 3,554 1,689 1,865 5.6%
Commercial ground 1 9,375 2,732 6,643 3,631 3,012 9.1%
Single-family
residential
properties 2 279 46 233 - 233 0.7%
----------------------------------------------------------------------------
Total REO 9 $ 152,303 $ 35,287 $ 117,016 $ 83,828 $ 33,188 100.0%
============================================================================
During the three months ended June 30, 2001, REO decreased $11.1 million
primarily as a result of additional sales in the Communities and other
properties, partially offset by additional capitalized costs.
During the three months ended June 30, 2001, the Bank received revenues of $18.4
million from the disposition of 105 residential lots or units in two of the
Communities ($4.8 million), approximately 12.3 acres of commercial land in two
of the Communities ($3.7 million), one commercial property ($9.7 million) and
one single-family residential property ($0.2 million).
Delinquent Loans. At June 30, 2001, delinquent loans totaled $111.9 million, or
1.3% of loans, compared to $101.3 million, or 1.2% of loans, at March 31, 2001.
The following table sets forth information regarding the Bank's delinquent loans
at June 30, 2001.
Principal Balance
(Dollars in Thousands)
------------------------------------------------------------
Subprime Other Total as a
Real Estate Automobile Consumer Percentage
Loans Loans Loans Total of Loans (1)
------------- ------------- ----------- ----------- -----------
Loans delinquent for:
30-59 days...... $ 5,834 $ 65,070 $ 15,664 $ 86,568 1.0%
60-89 days...... 2,482 19,105 3,746 25,333 0.3%
------------- ------------- ----------- ----------- -----------
Total............ $ 8,316 $ 84,175 $ 19,410 $ 111,901 1.3%
============= ============= =========== =========== ===========
- --------------------------
(1) Includes loans held for sale and/or securitization, before deduction of
valuation allowances, unearned premiums and discounts and deferred loan
origination fees (costs).
Real estate loans classified as delinquent 30-89 days consists entirely of
single-family permanent residential mortgage loans and home equity loans. Total
delinquent real estate loans increased to $8.3 million at June 30, 2001, from
$5.4 million at March 31, 2001.
Total delinquent subprime automobile loans increased to $84.2 million at June
30, 2001, from a seasonal low of $75.1 million at March 31, 2001. Effective
November 9, 2000, the Bank stopped the origination of subprime automobile loans.
The Bank will continue its collection efforts on the existing portfolio.
Other consumer loans delinquent 30-89 days decreased to $19.4 million at June
30, 2001, from $20.8 million at March 31, 2001.
Troubled Debt Restructurings. At June 30, 2001 and March 31, 2001, the Bank had
no troubled debt restructurings.
Real Estate Held for Investment. At June 30, 2001 and March 31, 2001, real
estate held for investment consisted of one property with book value of $1.1
million, net of valuation allowances of $0.2 million.
Allowances for Losses. The following tables show loss experience by asset type
and the components of the allowance for losses on loans and leases and the
allowance for losses on real estate held for investment or sale. These tables
reflect charge-offs taken against assets during the periods indicated and may
include charge-offs taken against assets which the Bank disposed of during such
periods.
Analysis of Allowance for and Charge-offs of Loans and Leases
(Dollars in thousands)
Nine Months Ended Three Months
June 30, Ended
-------------------------------------------- June 30,
2001 2000 2001
--------------------- -------------------- --------------
Balance at beginning of period $ 54,018 $ 58,139 $ 57,018
--------------------- -------------------- --------------
Provision for loan and lease losses 50,622 34,522 16,683
--------------------- -------------------- --------------
Charge-offs:
Single-family residential and home equity (621) (624) (240)
Subprime automobile (37,641) (27,880) (11,086)
Other (13,019) (7,271) (4,828)
--------------------- -------------------- --------------
Total charge-offs (51,281) (35,775) (16,154)
--------------------- -------------------- --------------
Recoveries:
Single-family residential and home equity 73 76 35
Subprime automobile 4,975 1,555 1,848
Other 1,611 1,121 588
--------------------- -------------------- --------------
Total recoveries 6,659 2,752 2,471
--------------------- -------------------- --------------
Charge-offs, net of recoveries (44,622) (33,023) (13,683)
--------------------- -------------------- --------------
Balance at end of period $ 60,018 $ 59,638 $ 60,018
===================== ==================== ==============
Provision for loan losses to average loans and leases (1) (2) 0.78% 0.63% 0.76%
Net loan charge-offs to average loans and leases (1) (2) 0.69% 0.60% 0.63%
Ending allowance for losses on loans and leases to total
loans and leases (2) (3) 0.70% 0.73% 0.70%
(1) Annualized.
(2) Includes loans held for sale and/or securitization.
(3) Before deduction of allowance for losses.
Components of Allowance for Losses on Loans and Leases by Type
(Dollars in thousands)
June 30, 2001 March 31, 2001 September 30, 2000
--------------------------- --------------------------- ---------------------------
Percent of Percent of Percent of
Loans to Loans to Loans to
Amount Total Loans Amount Total Loans Amount Total Loans
-------------- ------------ -------------- ------------ -------------- ------------
Balance at end of period allocated to:
Single-family residential $ 2,686 54.9 % $ 2,686 60.7 % $ 2,686 60.3 %
Home equity 448 4.0 448 3.5 448 3.3
Commercial real estate and multifamily 1,249 0.4 1,394 0.4 893 0.5
Real estate construction and ground 2,032 3.3 4,141 4.9 4,757 3.6
Commercial 5,417 8.3 9,020 6.2 6,904 7.2
Automobile loans and leases 12,534 21.9 11,534 16.6 7,534 16.3
Subprime automobile 32,000 5.6 25,782 6.2 28,782 7.4
Home improvement and related loans 1,523 1.2 1,523 1.1 1,523 1.0
Overdraft lines of credit and
other consumer 490 0.4 490 0.4 491 0.4
Unallocated 1,639 - - - - -
-------------- -------------- --------------
Total $ 60,018 $ 57,018 $ 54,018
============== ============== ==============
Real Estate Held for Investment or Sale
(Dollars in thousands)
Activity in Allowance for Losses
Three Months
Nine Months Ended Ended
June 30, June 30,
----------------------------------------------
2001 2000 2001
-------------------- -------------------- --------------------
Balance at beginning of period:
Real estate held for investment $ 202 $ 202 $ 202
Real estate held for sale 80,752 84,405 82,811
-------------------- -------------------- --------------------
Total 80,954 84,607 83,013
-------------------- -------------------- --------------------
Provision for real estate losses:
Real estate held for sale 3,150 350 1,050
-------------------- -------------------- --------------------
Total 3,150 350 1,050
-------------------- -------------------- --------------------
Charge-offs:
Real estate held for sale:
Residential ground - (64) -
Commercial ground - (3,396) -
Communities (74) (1,233) (33)
-------------------- -------------------- --------------------
Total (74) (4,693) (33)
-------------------- -------------------- --------------------
Balance at end of period:
Real estate held for investment 202 202 202
Real estate held for sale 83,828 80,062 83,828
-------------------- -------------------- --------------------
Total $ 84,030 $ 80,264 $ 84,030
==================== ==================== ====================
Components of Allowance for Losses
June 30, March 31, September 30,
2001 2001 2000
-------------------- -------------------- --------------------
Allowance for losses on real estate
held for investment $ 202 $ 202 $ 202
-------------------- -------------------- --------------------
Allowance for losses on real estate held for sale:
Residential ground 1,689 1,689 1,689
Commercial ground 3,631 3,631 3,631
Communities 78,508 77,491 75,432
-------------------- -------------------- --------------------
Total 83,828 82,811 80,752
-------------------- -------------------- --------------------
Total allowance for losses on real
estate held for investment or sale $ 84,030 $ 83,013 $ 80,954
==================== ==================== ====================
At June 30, 2001, the Bank's total valuation allowances for losses on loans and
leases and real estate held for investment or sale increased to $144.0 million,
from $140.0 million at March 31, 2001. Management reviews the adequacy of the
valuation allowances on loans and leases and real estate using a variety of
measures and tools including historical loss performance, delinquency status,
internal risk ratings, current economic conditions and current underwriting
policies and procedures. Using this analysis, management determines a range of
acceptable valuation allowances.
The allowance for losses on loans secured by real estate and real estate held
for investment or sale totaled $90.4 million at June 30, 2001, which constituted
73.2% of total non-performing real estate assets, before valuation allowances.
During the three months ended June 30, 2001, the Bank recorded net charge-offs
of $0.2 million on these assets. The allowance for losses on real estate held
for sale at June 30, 2001, is in addition to approximately $35.3 million of
cumulative charge-offs previously taken against assets remaining in the Bank's
portfolio at June 30, 2001.
At June 30, 2001 and March 31, 2001, the combined allowance for losses on
consumer loans and leases, including automobile, subprime automobile, home
improvement and related loans, overdraft lines of credit and other consumer
loans was $46.5 million and $39.3 million, respectively. The increase is
primarily due to growth in the portfolio of consumer loans and leases, as well
as increases in loss rates on the consumer portfolio for fiscal 2001. The ratios
of the allowance for losses on consumer loans and leases to non-performing
consumer loans and leases and to outstanding consumer loans and leases increased
to 262.1% and 2.2%, respectively, at June 30, 2001, from 206.6% and 1.9%,
respectively, at March 31, 2001.
Asset and Liability Management. The following table presents the interest rate
sensitivity of the Bank's interest-earning assets and interest-bearing
liabilities at June 30, 2001, which reflects loan amortization and management's
estimate of loan prepayments. Variable rate loans are assumed to mature in the
period in which their interest rates are next scheduled to adjust. Prepayment
rates for the Bank's loans are based on recent actual and market experience.
Statement savings and passbook accounts with balances under $20,000 are
classified based upon management's assumed attrition rate of 17.5%, and those
with balances of $20,000 or more, as well as all NOW accounts, are assumed to be
subject to repricing within six months or less.
Interest Rate Sensitivity Table (Gap)
(Dollars in thousands)
More than More than More than
Six Months One Year Three Years
Six Months through through through More than
or Less One Year Three Years Five Years Five Years Total
--------------- --------------- --------------- -------------- ------------- ---------------
As of June 30, 2001 Real estate loans:
Adjustable-rate $1,900,635 $ 232,957 $ 697,060 $ 402,775 $ 231,040 $3,464,467
Fixed-rate 103,357 78,863 255,307 182,898 506,354 1,126,779
Home equity credit lines and
second mortgages 273,334 19,463 48,628 28,523 56,977 426,925
Commercial 551,382 20,532 65,078 43,771 24,711 705,474
Consumer and other 543,524 371,171 944,265 276,561 23,621 2,159,142
Loans held for sale 342,953 - - - - 342,953
Loans held for securitization and sale 300,000 - - - - 300,000
Mortgage-backed securities 237,390 242,406 360,022 198,303 555,266 1,593,387
Trading securities 1,680 - - - - 1,680
Other investments 236,681 - 45,702 - - 282,383
--------------- --------------- --------------- -------------- ------------- ---------------
Total interest-earning assets 4,490,936 965,392 2,416,062 1,132,831 1,397,969 10,403,190
Total non-interest earning assets - - - - 1,054,553 1,054,553
--------------- --------------- --------------- -------------- ------------- ---------------
Total assets $4,490,936 $ 965,392 $2,416,062 $1,132,831 $ 2,452,522 $ 11,457,743
=============== =============== =============== ============== ============= ===============
Deposits:
Fixed maturity deposits $1,502,002 $ 873,091 $ 384,118 $ 53,733 $ - $2,812,944
NOW, statement and passbook
accounts 1,801,990 44,058 146,742 99,876 212,848 2,305,514
Money market deposit accounts 1,464,642 - - - - 1,464,642
Borrowings:
Capital notes - subordinated - - - 150,000 100,000 250,000
Other 1,369,141 8,130 1,129,616 401,902 51,339 2,960,128
--------------- --------------- --------------- -------------- ------------- ---------------
Total interest-bearing liabilities 6,137,775 925,279 1,660,476 705,511 364,187 9,793,228
Minority interest - - - - 144,000 144,000
Total non-interest bearing liabilities - - - - 1,022,058 1,022,058
Stockholders' equity - - - - 498,457 498,457
--------------- --------------- --------------- -------------- ------------- ---------------
Total liabilities and stockholders'
equity $6,137,775 $ 925,279 $1,660,476 $ 705,511 $ 2,028,702 $ 11,457,743
=============== =============== =============== ============== ============= ===============
Gap $(1,646,839) $ 40,113 $ 755,586 $ 427,320 $ 1,033,782
Cumulative gap $(1,646,839) $(1,606,726) $ (851,140) $ (423,820) $ 609,962
Adjusted cumulative gap as a
percentage of total assets (14.4)% (14.0)% (7.4)% (3.7)% 5.3%
The interest sensitivity "gap" shown in the table represents the sum of all
interest-earning assets minus all interest-bearing liabilities subject to
repricing within the same period. The one-year gap, as a percentage of total
assets, was a negative 14.0% at June 30, 2001, compared to a negative 17.0% at
March 31, 2001. The improvement in the Bank's one-year gap during this period
reflects an increase in the production of short-term adjustable-rate mortgages
with repricing terms of one-year or less, along with an increase in the amount
of loans held for sale and securitization. These increases in earning assets
scheduled to mature or reprice in the next year were partially offset by an
increase in the volume of short-term liabilities used to fund the balance sheet.
The Bank continues to consider a variety of strategies to manage its interest
rate risk position.
Capital. At June 30, 2001, the Bank was in compliance with all of its regulatory
capital requirements under FIRREA, and its capital ratios exceeded the ratios
established for "well-capitalized" institutions under OTS prompt corrective
action regulations.
The following table shows the Bank's regulatory capital levels at June 30, 2001,
in relation to the regulatory requirements in effect at that date. The
information below is based upon the Bank's understanding of the regulations and
interpretations currently in effect and may be subject to change.
Regulatory Capital
(Dollars in thousands)
Minimum Excess
Actual Capital Requirement Capital
--------------------------- --------------------------- ---------------------------
As a % As a % As a %
Amount of Assets Amount of Assets Amount of Assets
--------------- ---------- --------------- ---------- -------------- ----------
Stockholders' equity per financial statements $ 518,872
Minority interest in REIT Subsidiary (1) 144,000
Accumulated other comprehensive income (2) (429)
---------------
662,443
Adjustments for tangible and core capital:
Intangible assets (50,494)
Non-includable subsidiaries (3) (1,416)
Non-qualifying purchased/originated
loan servicing rights (6,684)
---------------
Total tangible capital 603,849 5.29% $ 171,293 1.50% $ 432,556 3.79%
--------------- ========== =============== ========== ============== ==========
Total core capital (4) 603,849 5.29% $ 456,783 4.00% $ 147,066 1.29%
--------------- ========== =============== ========== ============== ==========
Tier 1 risk-based capital (4) 603,849 6.83% $ 353,592 4.00% $ 250,258 2.83%
--------------- ========== =============== ========== ============== ==========
Adjustments for total risk-based capital:
Subordinated capital debentures 250,000
Allowance for general loan and lease losses 60,018
---------------
Total supplementary capital 310,018
---------------
Total available capital 913,867
Equity investments (3) (4,148)
---------------
Total risk-based capital (4) $ 909,719 10.51% $ 707,183 8.00% $ 202,536 2.51%
=============== ========== =============== ========== ============== ==========
(1) Eligible for inclusion in core capital in an amount up to 25% of the Bank's
core capital pursuant to authorization from the OTS.
(2) Under OTS policy, accumulated other comprehensive income is excluded from
regulatory capital.
(3) Reflects an aggregate offset of $0.2 million representing the allowance for
general loan losses maintained against the Bank's equity investments and
non-includable subsidiaries which, pursuant to OTS guidelines, is available as a
"credit" against the deductions from capital otherwise required for such
investments.
(4) Under the OTS "prompt corrective action" regulations, the standards for
classification as "well capitalized" are a leverage (or "core capital") ratio of
at least 5.0%, a tier 1 risk-based capital ratio of at least 6.0% and a total
risk-based capital ratio of at least 10.0%.
OTS capital regulations provide a five-year holding period (or such longer
period as may be approved by the OTS) for REO to qualify for an exception from
treatment as an equity investment. If an REO property is considered an equity
investment, its then-current book value is deducted from total risk-based
capital. The following table sets forth the Bank's REO at June 30, 2001, after
valuation allowances of $83.8 million, by the fiscal year in which the property
was acquired through foreclosure.
Fiscal Year (In thousands)
---------------- -----------------
1990 $ 6,880 (1)(2)
1991 21,198 (2)
1992 -
1993 -
1994 -
1995 4,877 (2)
1996 -
1997 -
1998 -
1999 -
2000 212
2001 21
-----------------
Total REO $ 33,188
=================
- -----------------------
(1) Includes REO, with an aggregate net book value of $4.1 million, which the
Bank treats as equity investments for regulatory capital purposes.
(2) Includes REO, with an aggregate net book value of $28.9 million, for which
the Bank received an extension of the holding periods through August 4,
2001. The Bank has applied to the OTS for an additional extension of the
holding periods for these REO properties.
Although the bank stopped originating new subprime automobile loans effective
November 9, 2000, the Bank's subprime automobile lending portfolio at June 30,
2001 continued to exceed 25% of its Tier 1 capital. As a result, the Bank
remains potentially subject to the supplemental regulatory guidance for subprime
lending, including increased capital requirements of 1 1/2 to 3 times the amount
required for non-subprime assets of the same type.
LIQUIDITY AND CAPITAL RESOURCES
REAL ESTATE
General. The Real Estate Trust's cash requirements include operating expenses,
debt service, debt principal repayment and development and capital expenditures.
During fiscal 2000, 1999 and 1998, the Real Estate Trust generated positive cash
flow from operating activities and is expected to do so for the foreseeable
future. However, the Real Estate Trust's cash flow from operating activities has
historically been insufficient to pay principal and interest on its outstanding
debt securities and to fund development and capital expenditures. These cash
needs have historically been funded through external sources including
additional borrowings and refinancings and proceeds from asset sales.
The Real Estate Trust's other uses for cash include certain discretionary items
such as dividends on its preferred shares, investments in Saul Centers, Inc.,
and other investment opportunities. During fiscal 2000 these discretionary items
totaled approximately $17.4 million. The Real Estate Trust's ability to make
such discretionary expenditures depends in part on the receipt of dividends and
tax sharing payments from Chevy Chase Bank.
Historically, the Real Estate Trust's total cash requirements have exceeded the
cash generated by its operations and the receipt of dividends and tax sharing
payments from Chevy Chase Bank. This condition is currently the case and is
expected to continue to be so for the foreseeable future. The Real Estate
Trust's internal sources of funds, primarily cash flow generated by its
income-producing properties, generally have been sufficient to meet its cash
needs other than the repayment of principal on outstanding debt, including
outstanding unsecured notes sold to the public, the payment of interest on its
senior secured notes, and the payment of development and capital improvement
costs. In the past, the Real Estate Trust funded such cash requirements through
a combination of external funding sources, primarily new financings (including
the sale of unsecured notes), refinancings of maturing mortgage debt, asset
sales and tax sharing payments from the Bank. See the Consolidated Statements of
Cash Flows included in the Consolidated Financial Statements in this report.
Liquidity. For fiscal 2001, the Real Estate Trust's cash requirements for
operating expenses and interest are expected to be met by its revenues from
income-producing properties. Debt maturities, including maturities of unsecured
notes are expected to be funded by new financings and the sales of new unsecured
notes. Development and capital expenditures are expected to be funded in part
from construction financing. To the extent there are any periodic shortfalls,
the Real Estate Trust will rely on its lines of credit.
The Real Estate Trust has a $50.0 million secured revolving credit line with an
unrelated bank. The current maturity date is September 29, 2002 and it may be
extended annually. This facility is secured by a portion of the Real Estate
Trust's ownership in Saul Holdings Partnership and Saul Centers. Interest is
computed by reference to a floating rate index. At June 30, 2001 the Real
Eestate Trust had outstanding borrowings of $3.0 million and unrestricted
availability of $34.7 million.
The Real Estate Trust has an additional $20.0 million revolving credit line with
another unrelated bank. The current maturity date for this line is November 15,
2002. Interest is computed by reference to a floating rate index. At June 30,
2001 the Real Estate Trust had outstanding borrowings of $4.0 million and
unrestricted availability of $18.7 million.
In May 2001, the Real Estate Trust completed the refinancing of one
office/industrial property. The new loan is for $5.0 million, has a 20-year term
and has a fixed interest rate of 7.88%. The Real Estate Trust received
approximately $2.3 million in new funds from the refinancing.
Through June 30, 2001, the Trust has purchased either in the open market or
through dividend reinvestment approximately 2,916,000 shares of common stock of
Saul Centers Inc.(representing 20.6% of such company's outstanding common
stock). As of June 30, 2001 the market value of these shares was approximately
$55.1 million. Substantially all shares have been pledged as collateral with the
Real Estate Trust's credit line banks.
As the owner, directly and through two wholly-owned subsidiaries, of a limited
partnership interest in Saul Holdings Limited Partnership("Saul Holdings
Partnership"), the Real Estate Trust shares in cash distributions from
operations and from capital transactions involving the sale of properties. The
partnership agreement of Saul Holdings Partnership provides for quarterly cash
distributions to the partners out of net cash flow. During the nine-month period
ended June 30, 2001, the Real Estate Trust received total cash distributions of
$4.9 million from Saul Holdings Partnership. Substantially all of the Real
Estate Trust's ownership interest in Saul Holdings Partnership has been pledged
as collateral with the Real Estate Trust's two revolving credit line banks.
The maturity schedule for the Real Estate Trust's outstanding debt at June 30,
2001 for the remainder of fiscal 2001 and subsequent years is set forth in the
following table:
Debt Maturity Schedule
(In thousands)
- --------------------------------------------------------------------------------
Fiscal Mortgage Notes Payable- Notes Payable-
Year Notes Secured Unsecured Total
- --------------------------------------------------------------------------------
2001 (1) $ 23,050 $ 7,000 $ 1,819 $ 31,869
2002 32,474 --- 7,987 40,461
2003 25,974 --- 11,671 37,645
2004 8,564 --- 10,631 19,195
2005 12,807 --- 8,149 20,956
Thereafter 216,516 200,000 10,007 426,523
- --------------------------------------------------------------------------------
Total $319,385 $207,000 $ 50,264 $576,649
================================================================================
(1) July 1, 2001 - September 30, 2001
Of the $319.4 million of mortgage debt outstanding at June 30, 2001, $272.8
million was nonrecourse to the Real Estate Trust.
DEVELOPMENT AND CAPITAL EXPENDITURES. During the quarter ended June 30, 1999,
the Real Estate Trust commenced the development of an 11-story 229-room hotel on
a site adjacent to its Tysons Corner Holiday Inn in McLean, Virginia. The new
hotel was franchised as a Courtyard by Marriott and was projected to cost
approximately $30.0 million. Financing of $25.0 million has been obtained for an
initial period of three years with options for two one-year extensions. This
hotel opened for business on December 15, 2000.
On December 16, 1999, the Real Estate Trust purchased a 4.6 acre site located in
the Cascades Town Center in Sterling, Virginia, for the purpose of constructing
a 152-room Hampton Inn. The purchase price was $1.1 million and the seller was
Chevy Chase Bank. Development costs for the hotel were projected to be $11.3
million. The hotel is being financed with the proceeds of a $9.15 million
mortgage loan, which has a 3-year term, a floating interest rate and two
one-year renewal options. This hotel opened for business on November 27, 2000.
During the quarter ended March 31, 2000, the Real Estate Trust began the
development of a 30,000 square foot office flex building located on a 2.2 acre
site in the Avenel Business Park in Gaithersburg, Maryland. The development cost
$3.2 million, which the Real Estate Trust financed with its bank lines. The
project is 100% leased to a single tenant. In July 2000, the Real Estate Trust
agreed to sell its interest in this project to Saul Centers at a price of $4.2
million, as determined by an independent appraisal. The sale was completed on
October 2, 2000 and the Trust recognized a gain of $383,000 and recorded a
deferred gain of $211,000 on this transaction.
On June 29, 2000, the Real Estate Trust purchased a 6.17 acre site in the
Loudoun Tech Center, a 246-acre business park located in Loudoun County,
Virginia, for $1.1 million. The site was purchased for the purpose of developing
an 81,000 square foot office/flex building to be known as Loudoun Tech Phase I.
The cost of development is projected to be $8.4 million and is being financed by
a $7.1 million construction loan, which has a five-year floating interest rate
and one two-year renewal option. Construction of the base building has been
completed. No leases have been signed as yet for space in the building.
During the quarter ended September 30, 2000, the Real Estate Trust began the
development of a 100,000 square foot office/flex building located on an 8.3 acre
site in Dulles North Corporate Park near other Real Estate Trust projects. The
new building is known as Dulles North Four. Development costs are projected to
be $10.8 million and are being financed with the proceeds of a $9.5 million
construction loan, which has a three-year term, a floating interest rate and two
one-year renewal options. Construction of the base building has been completed.
The Real Estate Trust has obtained a tenant for the entire building; occupancy
is expected during the first quarter of fiscal 2002.
On November 15, 2000, the Real Estate Trust purchased a 19.1 acre land parcel in
Laurel, Maryland, which contained a 150,000 square foot office/warehouse
building. The purchase price was $12.3 million and was financed from the Real
Estate Trust's bank lines. The entire building has been leased to Chevy Chase
under a long-term agreement.
On December 18, 2000, the Real Estate Trust sold its 124-unit San Simeon
Apartment project in Dallas, Texas. The sales price was $2.8 million and the
Trust recognized a gain of $2.1 million on the transaction. The proceeds of the
sale were used to acquire a 10.7 acre parcel of land in Loudoun County,
Virginia, for $2.8 million.
BANKING
Liquidity. The Bank's average liquidity ratio for the quarter ended June 30,
2001, was 5.9%, compared to 6.7% for the quarter ended March 31, 2001.
The Bank did not securitize and sell any loan receivables during the quarter. At
June 30, 2001, the Bank is considering the securitization and sale of
approximately $300.0 million of automobile loan receivables, which consist of
receivables outstanding at June 30, 2001. As part of its operating strategy, the
Bank continues to explore opportunities to sell assets, to securitize and sell
home equity, automobile and home loan receivables and exchange mortgage loans
for MBS to meet liquidity and other balance sheet objectives.
The Bank is obligated under various recourse provisions (primarily related to
credit losses) related to the securitization and sale of receivables. As a
result of these recourse provisions, the Bank maintained restricted cash
accounts and overcollateralization of receivables amounting to $29.9 million and
$27.2 million, respectively, at June 30, 2001, and $31.0 million and $25.9
million, respectively, at March 31, 2001, both of which are included in other
assets in the Consolidated Balance Sheets. In addition, the Bank owned
subordinated automobile receivables-backed securities with carrying values of
$1.7 million and $2.2 million at June 30, 2001 and March 31, 2001, respectively,
which were classified as trading securities in the Consolidated Balance Sheets.
The Bank is also obligated under various recourse provisions related to the swap
of single-family residential loans for mortgage-backed securities issued by the
Bank. At June 30, 2001, recourse to the Bank under these arrangements was $7.1
million, consisting of restricted cash accounts of $4.6 million and
overcollateralization of receivables of $2.5 million. At March 31, 2001,
recourse to the Bank under these arrangements was $8.8 million, consisting of
restricted cash accounts of $6.3 million and overcollateralization of
receivables of $2.5 million.
The Bank also is obligated under a recourse provision related to the servicing
of certain of its residential mortgage loans. At June 30, 2001 and March 31,
2001, recourse to the Bank under this arrangement totaled $3.4 million.
There were no material commitments for capital expenditures at June 30, 2001.
The Bank is developing an office building in Bethesda, Maryland to use as its
new corporate headquarters. The project is expected to be completed during the
summer of 2001.
The Bank's liquidity requirements in fiscal 2001, and for years subsequent to
fiscal 2001, will continue to be affected both by the asset size of the Bank,
the growth of which will be constrained by capital requirements, and the
composition of the asset portfolio. Management believes that the Bank's primary
sources of funds will be sufficient to meet the Bank's foreseeable long-term
liquidity needs. The mix of funding sources utilized from time to time will be
determined by a number of factors, including capital planning objectives,
lending and investment strategies and market conditions.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2001 (the "2001 quarter") COMPARED TO
THREE MONTHS ENDED JUNE 30, 2000 (the "2000 quarter")
REAL ESTATE
The Real Estate Trust recorded income before depreciation and amortization of
$8.9 million and operating income of $4.5 million in the 2001 quarter compared
to income before depreciation and amortization of $6.0 million and operating
income of $2.2 million in the 2000 quarter. The increase in operating income was
largely attributable to improved results from income-producing properties and a
gain from the sale of a property.
Income after direct operating expenses from hotel properties increased $547,000
(4.7%) in the 2001 quarter over the level achieved in the 2000 quarter. This
increase was attributable to an incease of $2,032,000 from acquisition
properties while results from 15 properties owned throughout both quarters
decreased by $1,485,000(13.0%). The increase in total revenue of $1,323,000
(4.9%)exceeded the increase of $776,000 (5.0%) in direct operating expenses. For
the fifteen hotels owned throughout both periods, total revenue decreased by
$2,334,000 (8.7%) and direct operating expenses decreased by $849,000 (5.5%).
Income after direct operating expenses from office and industrial properties
increased $728,000 (10.9%) in the 2001 quarter compared to such income in the
2000 quarter. This increase was attributable to an increase of $722,000 from
acquisition properties while results from the eight properties owned throughout
both quarters increased by $6,000(0.1%). The increase in total revenue of
$1,408,000 (15.4%) exceeded the increase of $681,000 (27.8%) in direct operating
expenses. For the eight properties owned throughout both periods, the increase
in total revenue was $450,000 (6.4%) and the increase in direct operating
expenses was $444,000 (21.3%).
Other income decreased $183,000 (26.4%) during the 2001 quarter, largely due to
lower interest income and lack of apartment income in the current quarter.
Land parcels and other expense decreased $52,000 (15.1%) during the 2001 quarter
due to lack off apartment expenses in the current quarter.
Interest expense increased $794,000 (6.7%)in the 2001 quarter, primarily because
of higher outstanding mortgage balances and higher outstanding bank borrowings.
The average balance of the Real Estate Trust's outstanding borrowings increased
to $573.7 million for the 2001 quarter from $528.1 million for the 2000 quarter.
The increase in average borrowings was the result of mortgage loan refinancings
and higher bank borrowings. The weighted average cost of borrowings was 9.12% in
the 2001 quarter compared to 9.32% in the 2000 quarter.
Capitalized interest decreased $223,000 (68.5%) during the 2001 quarter due to
the lower level of development activity in the current quarter.
Amortization of debt expense increased $28,000 (16.3%) in the 2001 quarter,
primarily due to costs experienced in adding new debt.
Depreciation increased $661,000 (18.4%) in the 2001 quarter as a result of the
addition of new properties and new assets placed in service in the past year.
Advisory, management and leasing fees paid to related parties increased $162,000
(5.5%) in the 2001 quarter from their expense level in the 2000 quarter. The
monthly advisory fee in the 2001 quarter was $363,000 compared to $349,000 in
the 2000 quarter, which resulted in an aggregate increase of $42,000. Management
and leasing fees increased $120,000(6.3%) in the current quarter, reflecting
both higher hotel sales and office rents on which the fees are based.
General and administrative expense decreased $449,000(56.6%) in the 2001
quarter, principally as a result of lower legal and accounting expense.
Equity on earnings of unconsolidated entities reflected earnings of $2,076,000
in the 2001 quarter, an increase of $341,000(19.7%) over the amount recorded in
the 2000 quarter. The improvement was due to increased period-to-period earnings
of Saul Centers.
In May 2001, the Real Estate Trust received $1.9 million in payment on the
condemnation for road improvements of a 3.3 acre piece of its Auburn Hills land
parcel. The gain on this transaction was $710,000.
In June 2001, the Real Estate Trust received $3.0 million from the sale of a 4.8
acre piece of its Circle 75 land parcel in Cobb County, Georgia. The gain on
this transaction was $2,460,000.
BANKING
Overview. The Bank recorded operating income of $30.1 million for the 2001
quarter compared to operating income of $25.9 million for the 2000 quarter. The
increase in income for the 2001 quarter was primarily due to a $10.1 million
increase in other income and a $3.9 million increase in net interest income.
Partially offsetting the increase in income was a $5.9 million increase in
provision for loan and lease losses and a $3.8 million increase in other
non-interest expense.
Net Interest Income. Net interest income, before the provision for loan and
lease losses, increased $3.9 million (or 4.4%) in the 2001 quarter compared to
the 2000 quarter. Included in interest income during the 2001 quarter was $0.1
million recorded on non-accrual assets and restructured loans. The Bank would
have recorded additional interest income of $0.8 million for the 2001 quarter if
non-accrual assets and restructured loans had been current in accordance with
their original terms. The Bank's net interest income in future periods will
continue to be adversely affected by the Bank's non-performing assets. See
"Financial Condition - Asset Quality - Non-Performing Assets."
The following table sets forth, for the periods indicated, information regarding
the total amount of income from interest-earning assets and the resulting
yields, the interest expense associated with interest-bearing liabilities,
expressed in dollars and rates, and the net interest spread and net yield on
interest-earning assets.
Net Interest Margin Analysis
(Dollars in thousands)
Three Months Ended June 30,
------------------------------------------------------------------------------------
2001 2000
------------------------------------------ ----------------------------------------
Average Yield/ Average Yield/
Balances Interest Rate Balances Interest Rate
------------- ------------ ------------- -------------- ----------- -----------
Assets:
Interest-earning assets:
Loans and leases receivable, net (1) $ 8,757,070 $ 172,629 7.89 % $ 8,067,801 $ 169,190 8.39 %
Mortgage-backed securities 1,099,332 16,455 5.99 1,156,908 18,527 6.41
Federal funds sold and securities
purchased under agreements to resell 42,242 464 4.39 78,220 1,062 5.43
Trading securities 74,655 1,043 5.59 15,816 233 5.89
Investment securities 45,698 682 5.97 45,467 660 5.81
Other interest-earning assets 181,940 2,738 6.02 182,818 3,254 7.12
------------- ------------ -------------- -----------
Total 10,200,937 194,011 7.61 9,547,030 192,926 8.08
------------ ------------- ----------- -----------
Noninterest-earning assets:
Cash 262,810 252,223
Real estate held for investment or sale 42,609 49,438
Property and equipment, net 402,624 324,275
Goodwill and other intangible assets, net 28,056 26,283
Other assets 306,289 269,910
------------- --------------
Total assets $ 11,243,325 $ 10,469,159
============= ==============
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposit accounts:
Demand deposits $ 1,355,169 1,600 0.47 $ 1,248,192 2,720 0.87
Savings deposits 893,655 3,012 1.35 934,119 4,313 1.85
Time deposits 2,851,685 42,355 5.94 2,881,435 41,576 5.77
Money market deposits 1,430,810 11,732 3.28 1,093,874 10,028 3.67
------------- ------------ -------------- -----------
Total deposits 6,531,319 58,699 3.59 6,157,620 58,637 3.81
Borrowings 3,115,004 42,758 5.49 2,976,595 45,605 6.13
------------- ------------ -------------- -----------
Total liabilities 9,646,323 101,457 4.21 9,134,215 104,242 4.56
------------ ------------- ----------- -----------
Noninterest-bearing items:
Noninterest-bearing deposits 734,845 549,181
Other liabilities 226,542 182,942
Minority interest 144,000 144,000
Stockholders' equity 491,615 458,821
------------- --------------
Total liabilities and stockholders'
equity $ 11,243,325 $ 10,469,159
============= ==============
Net interest income $ 92,554 $ 88,684
============ ===========
Net interest spread (2) 3.40 % 3.52 %
============= ===========
Net yield on interest-earning assets (3) 3.63 % 3.72 %
============= ===========
Interest-earning assets to interest-bearing liabilities 105.75 % 104.52 %
============= ===========
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Includes loans held for sale and/or securitization. Interest on non-accruing
loans has been included only to the extent reflected in the Consolidated
Statements of Operations; however, the loan balance is included in the average
amount outstanding until transferred to real estate acquired in settlement of
loans.
(2) Equals weighted average yield on total interest-earning assets less weighted
average rate on total interest-bearing liabilities.
(3) Equals annualized net interest income divided by the average balances of
total interest-earning assets.
The following table presents certain information regarding changes in interest
income and interest expense of the Bank during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (change in
volume multiplied by old rate); changes in rate (change in rate multiplied by
old volume); and changes in rate and volume.
Volume and Rate Changes in Net Interest Income
(Dollars in thousands)
Three Months Ended June 30, 2001
Compared to
Three Months Ended June 30, 2000
Increase (Decrease)
Due to Change in (1)
----------------------------------------------------------------------------
Total
Volume Rate Change
--------------------- --------------------- ---------------------
Interest income:
Loans (2) $ 49,552 $ (46,113) $ 3,439
Mortgage-backed securities (894) (1,178) (2,072)
Federal funds sold and securities
purchased under agreements to resell (422) (176) (598)
Trading securities 893 (83) 810
Investment securities 3 19 22
Other interest-earning assets (16) (500) (516)
--------------------- --------------------- ---------------------
Total interest income 49,116 (48,031) 1,085
--------------------- --------------------- ---------------------
Interest expense:
Deposit accounts 13,916 (13,854) 62
Borrowings 10,863 (13,710) (2,847)
--------------------- --------------------- ---------------------
Total interest expense 24,779 (27,564) (2,785)
--------------------- --------------------- ---------------------
Increase in net interest income $ 24,337 $ (20,467) $ 3,870
===================== ===================== =====================
- -------------------------------------------------------------------------------------------------------------------------------
(1) The net change attributable to the combined impact of volume and rate has
been allocated in proportion to the absolute value of the change due to
volume and the change due to rate.
(2) Includes loans held for sale and/or securitization.
Interest income in the 2001 quarter increased $1.1 million (or 0.6%) from the
level in the 2000 quarter as a result of higher average loan and lease portfolio
balances partially offset by decreases in the average yields on that portfolio.
The Bank's net interest spread decreased to 3.40% in the 2001 quarter, from
3.52% in the 2000 quarter. The 12 basis point decrease primarily reflected a
decrease in the average yield of interest-earning assets at a greater rate than
the decrease in the average cost of interest-bearing liabilities. Partially
offsetting this decline was an increase in the average balances of earning
assets at a greater volume than the increase in the average balances of
interest-bearing liabilities. Average interest-earning assets as a percentage of
average interest-bearing liabilities increased to 105.75% for the 2001 quarter,
compared to 104.52% for the 2000 quarter.
Interest income on loans and leases, the largest category of interest-earning
assets, increased by $3.4 million (or 2.0%) from the 2000 quarter primarily
because of higher average balances. Higher average balances of the Bank's
single-family residential loans, which increased $461.3 million (or 9.8%),
resulted in a $7.1 million (or 8.5%) increase in interest income from such
loans. Average balances of commercial loans and home equity loans increased
$162.0 million and $61.1 million, respectively, and contributed to $1.4 million
and $0.1 million increases in interest income from such loans, respectively.
Lower average yields on the loan and lease portfolio partially offset the
effects of the higher average balances.
The average yield on the loan portfolio in the 2001 quarter decreased 50 basis
points (from 8.39% to 7.89%) from the average yield in the 2000 quarter.
Contributing to the lower average yield was a decrease in the yield on
automobile loans, which resulted from management's decision to shift from higher
yielding subprime loans, which have higher risks of default, to lower yielding
prime automobile loans and leases, with relatively lower risk of default.
Average subprime automobile loans as a percentage of total automobile loans and
leases declined to 23.4% during the 2001 quarter from 26.4% during the 2000
quarter.
Interest income on mortgage-backed securities decreased $2.1 million (or 11.2%)
due to lower average balances and a decrease in the average yield on those
securities from 6.41% to 5.99%.
Interest expense on deposits was virtually unchanged from the 2000 quarter. A 22
basis point decrease in the average rate paid on deposits (from 3.81% to 3.59%)
was almost completely offset by the increased average balances. The Bank
continues to use brokered deposits as an alternative funding source.
Interest expense on borrowings decreased $2.8 million (or 6.2%) in the 2001
quarter over the 2000 quarter. A $216.0 million (or 37.7%) decrease in average
balances on securities sold under repurchase agreements coupled with a 161 basis
point decrease in the average yield (from 6.42% to 4.81%) resulted in a decrease
of $4.9 million of interest expense on these borrowings. Partially offsetting
the decrease in interest expense on securities sold under repurchase agreements
was a $343.1 million (or 17.2%) increase in average balances on Federal Home
Loan Bank advances which resulted in an increase of $2.6 million in interest
expense from such borrowings. Provision for Loan and Lease Losses. The Bank's
provision for loan and lease losses increased to $16.7 million in the 2001
quarter from $10.8 million in the 2000 quarter. The $5.9 million increase
primarily reflected increased charge-offs as a result of the maturation of the
Bank's loan portfolio following recent growth. See "Financial Condition - Asset
Quality - Allowances for Losses."
Other Income. Other non-interest income increased to $53.6 million in the 2001
quarter from $43.5 million in the 2000 quarter. The $10.1 million (or 23.2%)
increase was primarily attributable to an increase in gain on trading
securities, net of $5.6 million and an increase in gain on real estate held for
investment or sale, net of $5.0 million. Also contributing to the increase in
other income was an increase in deposit servicing fees of $2.2 million and an
increase in servicing and securitization income of $2.2 million.
The $5.6 million increase in the gains on trading securities was primarily the
result of gains of $2.1 million on sales of mortgage-backed securities related
to mortgage banking activities during the current quarter compared to losses of
$1.9 million in the 2000 quarter. A favorable interest rate environment, coupled
with an increase in the volume of securities sold, led to this increase. Also
contributing to the net gain on trading securities was a gain of $0.8 million on
the sale of a portion of the Bank's interest in Concord EFS, Inc. and an
unrealized gain of $0.8 million on the remaining portion. The Bank's interest in
Star Systems, Inc., an ATM network in which the Bank was a member, was sold to
Concord EFS, Inc. in the March 2001 quarter. Partially offsetting these gains
were losses on the Bank's hedging program of $5.6 million.
Net gains on real estate held for investment or sale increased $5.0 million
resulting primarily from the sale of an office building classified as a
commercial REO property.
Deposit servicing fees increased $2.2 million (or 9.6%) during the 2001 quarter
primarily due to fees generated from the continued expansion of the Bank's
branch and ATM network.
Servicing and securitization income increased $2.2 million (or 25.1%) during the
current quarter primarily as a result of additional servicing related to the
securitization of automobile loan receivables in the March 2001 quarter.
Securitization and sale of automobile loan receivables of $352.9 million in the
June 2000 quarter and $321.9 million in the September 2000 quarter also
contributed to increased servicing and securitization income in the current
quarter. The Bank did not securitize and sell any loan receivables during the
2001 quarter.
Operating Expenses. Operating expenses for the 2001 quarter increased $3.9
million (or 4.0%) from the 2000 quarter. The increase in operating expenses is
largely attributable to an increase in loan expenses. Loan expenses increased
$4.7 million primarily due to an $1.8 million write down in the market value of
the Bank's mortgage servicing assets as a result of increased prepayments during
the current quarter in addition to increased amortization of purchased mortgage
servicing rights acquired in the latter half of fiscal 2000. Partially
offsetting the increased operating expenses was a decrease in other operating
expenses primarily as a result of expenses incurred in the 2000 quarter relating
to the closing and relocation of deposit branches.
NINE MONTHS ENDED JUNE 30, 2001 (the "2001 period") COMPARED TO NINE MONTHS
ENDED JUNE 30, 2000 (the "2000 period").
REAL ESTATE
The Real Estate Trust recorded income before depreciation and amortization of
$17.4 million and operating income of $4.5 million in the 2001 period compared
to operating income before depreciation and amortization of $7.9 million and an
operating loss of $3.7 million in the 2000 period. The changes reflect improved
results in operations of hotels and office and industrial properties, partially
reduced by higher interest expense. Additionally, in the 2001 period the Trust
recognized approximately $5.7 million in gains from the sale of three
properties.
Income after direct operating expenses from hotels increased $2,716,000 (10.0%)
in the 2001 period over the level achieved in the 2000 period. This increase was
attributable to an increase of $3,658,000 from acquisition properties while
results from 15 properties owned throughout both period decreased by $942,000
(3.5%). The increase in total revenue of $6,854,000 (9.7%) exceeded the increase
of $4,138,000(9.5%)in direct operating expenses. For the fifteen hotels owned
throughout both periods, the increase in total revenue was $9,000(0.0%) and the
increase in direct operating expenses was $952,000(2.2%). The overall revenue
increase was attributable to the strong performance of the Trust's newly
developed properties.
Income after direct operating expenses from office and industrial properties
increased $4,544,000(25.2%) in the 2001 period compared to such income in the
2000 period. $995,000 (6.9%) of this increase reflected improved results from
the eight properties owned throughout both periods and $3,549,000(18.3%)
reflected results from non-comparable properties. The increase in total revenue
of $6,103,000(24.5%)exceeded the increase of $1,559,000 (22.7%) in direct
operating expenses. For the eight properties owned throughout both periods, the
increase in total revenue was $1,793,000(8.7%)and the increase in direct
operating expenses was $799,000(13.2%).
Other income decreased $589,000(25.4%)during the 2001 period due to lower
interest income and lower apartment income.
Land parcels and other expense decreased $50,000 (5.2%) during the 2001 period,
principally due to lower apartment expense.
Interest expense increased $3,280,000(9.5%) in the 2001 period, primarily
because of higher outstanding mortgage balances and higher bank borrowings.
Average balances of the Real Estate Trust's outstanding borrowings increased to
$556.6 million for the 2001 period from $509.3 million for the 2000 period. The
increase in average borrowings occurred as a result of mortgage loan
refinancings and higher bank borrowings. The weighted average cost of borrowings
was 9.34% in the 2001 period compared to 9.33% in the 2000 period.
Capitalized interest decreased $269,000 (34.0%) during the 2001 period due to
the lower level of development activity in the current period.
Amortization of debt expense increased $126,000(25.7%)in the 2001 period,
primarily due to costs experienced in adding new debt.
Depreciation increased $1,226,000 (11.1%) in the 2001 period as a result of the
additions of new properties and new assets placed in service in the past year.
Advisory, management and leasing fees paid to related parties increased $792,000
(9.7%) in the 2001 period from their expense level in the 2000 period. The
monthly advisory fee in the 2001 period was $363,000 compared to $349,000 in the
prior period, which resulted in an aggregate increase of $126,000(4.0%).
Management and leasing fees increased $666,000(13.3%) in the current period,
reflecting both higher hotel sales and office rents on which the fees are based.
General and administrative expense decreased $2,108,000(59.2%)in the 2001
period, principally because expenses in the 2000 period included a $1.2 million
payment to terminate the Howard Johnsons franchise at one hotel. Other
reductions in the 2001 period resulted from lower legal and accounting costs and
lower abandoned development costs.
Equity in earnings of unconsolidated entities reflected earnings of $6,074,000
for the 2001 period and earnings of $5,712,000 for the 2000 period, an increase
of $362,000(6.3%). The improvement was due to increased period-to-period
earnings of Saul Centers.
BANKING
Overview. The Bank recorded operating income of $85.5 million for the 2001
period compared to operating income of $56.0 million for the 2000 period. The
increase in income for the period was primarily attributable to an increase in
other income of $62.1 million and net interest income of $13.2 million.
Partially offsetting the increase in income were increases in operating expenses
of $29.7 million and provision for loan and lease losses of $16.1 million.
Net Interest Income. Net interest income, before the provision for loan and
lease losses, increased $13.2 million (or 5.1%) in the 2001 period compared to
the 2000 period. Included in interest income during the 2001 period was $0.3
million recorded on non-accrual assets and restructured loans. The Bank would
have recorded additional interest income of $2.8 million for the 2001 period if
non-accrual assets and restructured loans had been current in accordance with
their original terms. The Bank's net interest income in future periods will
continue to be adversely affected by the Bank's non-performing assets. See
"Financial Condition - Asset Quality - Non-Performing Assets."
The following table sets forth, for the periods indicated, information regarding
the total amount of income from interest-earning assets and the resulting
yields, the interest expense associated with interest-bearing liabilities,
expressed in dollars and rates, and the net interest spread and net yield on
interest-earning assets.
Net Interest Margin Analysis
(Dollars in thousands)
Nine Months Ended June 30,
--------------------------------------------------------------------------------
2001 2000
--------------------------------------- ---------------------------------------
Average Yield/ Average Yield/
Balances Interest Rate Balances Interest Rate
------------- ----------- ---------- ------------- ----------- -----------
Assets:
Interest-earning assets:
Loans and leases receivable, net (1) $ 8,671,042 $ 530,660 8.16 % $ 7,354,928 $ 461,148 8.36 %
Mortgage-backed securities 1,011,913 47,953 6.32 1,221,771 57,373 6.26
Federal funds sold and securities
purchased under agreements to resell 48,599 2,021 5.54 170,404 7,173 5.61
Trading securities 37,414 1,704 6.07 20,259 970 6.38
Investment securities 45,677 2,060 6.01 45,339 1,957 5.76
Other interest-earning assets 177,374 9,226 6.94 231,864 11,344 6.52
------------- ----------- ------------- -----------
Total 9,992,019 593,624 7.92 9,044,565 539,965 7.96
----------- ---------- ----------- -----------
Noninterest-earning assets:
Cash 271,759 278,395
Real estate held for investment or
sale 48,986 49,297
Property and equipment, net 385,231 311,828
Goodwill and other intangible assets,
net 26,361 26,960
Other assets 272,431 236,500
------------- -------------
Total assets $ 10,996,787 $ 9,947,545
============= =============
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Deposit accounts:
Demand deposits $ 1,293,327 6,321 0.65 $ 1,203,496 7,901 0.88
Savings deposits 880,298 10,528 1.59 953,705 13,310 1.86
Time deposits 2,968,554 137,004 6.15 2,572,590 105,747 5.48
Money market deposits 1,321,625 37,213 3.75 1,101,966 28,716 3.47
------------- ----------- ------------- -----------
Total deposits 6,463,804 191,066 3.94 5,831,757 155,674 3.56
Borrowings 3,027,321 133,208 5.87 2,848,714 128,108 6.00
------------- ----------- ------------- -----------
Total liabilities 9,491,125 324,274 4.56 8,680,471 283,782 4.36
----------- ---------- ----------- -----------
Noninterest-bearing items:
Noninterest-bearing deposits 668,697 505,232
Other liabilities 212,222 165,244
Minority interest 144,000 144,000
Stockholders' equity 480,743 452,598
------------- -------------
Total liabilities and stockholders'
equity $ 10,996,787 $ 9,947,545
============= =============
Net interest income $ 269,350 $ 256,183
=========== ===========
Net interest spread (2) 3.37 % 3.60 %
========== ===========
Net yield on interest-earning assets (3) 3.59 % 3.78 %
========== ===========
Interest-earning assets to interest-bearing liabilities 105.28 % 104.19 %
========== ===========
- ---------------------------------------------------------------------------------------------------------------------------
(1) Includes loans held for sale and/or securitization. Interest on non-accruing
loans has been included only to the extent reflected in the Consolidated
Statements of Operations; however, the loan balance is included in the average
amount outstanding until transferred to real estate acquired in settlement of
loans.
(2) Equals weighted average yield on total interest-earning assets less weighted
average rate on total interest-bearing liabilities.
(3) Equals annualized net interest income divided by the average balances of
total interest-earning assets.
The following table presents certain information regarding changes in interest
income and interest expense of the Bank during the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to changes in volume (change in
volume multiplied by old rate); changes in rate (change in rate multiplied by
old volume); and changes in rate and volume.
Volume and Rate Changes in Net Interest Income
(Dollars in thousands)
Nine Months Ended June 30, 2001
Compared to
Nine Months Ended June 30, 2000
Increase (Decrease)
Due to Change in (1)
----------------------------------------------------------------------------
Total
Volume Rate Change
--------------------- --------------------- ---------------------
Interest income:
Loans (2) $ 87,265 $ (17,753) $ 69,512
Mortgage-backed securities (10,311) 891 (9,420)
Federal funds sold and securities
purchased under agreements to resell (5,064) (88) (5,152)
Trading securities 813 (79) 734
Investment securities 15 88 103
Other interest-earning assets (3,191) 1,073 (2,118)
--------------------- --------------------- ---------------------
Total interest income 69,527 (15,868) 53,659
--------------------- --------------------- ---------------------
Interest expense:
Deposit accounts 17,831 17,561 35,392
Borrowings 9,295 (4,195) 5,100
--------------------- --------------------- ---------------------
Total interest expense 27,126 13,366 40,492
--------------------- --------------------- ---------------------
Increase in net interest income $ 42,401 $ (29,234) $ 13,167
===================== ===================== =====================
- ----------------------------------------------------------------------------------------------------------------------------------
(1) The net change attributable to the combined impact of volume and rate has
been allocated in proportion to the absolute value of the change due to
volume and the change due to rate.
(2) Includes loans held for sale and/or securitization.
Interest income in the 2001 period increased $53.7 million (or 9.9%) from the
level in the 2000 period as a result of higher average balances of loans and
leases receivable, which were partially offset by slightly lower average yields
on loans and leases receivable.
The Bank's net interest spread decreased to 3.37% in the 2001 period, from 3.60%
in the 2000 period. The 23 basis point decrease primarily reflected an increase
in the average cost of interest-bearing liabilities coupled with a slight
decrease in the average yield of interest-bearing assets. Partially offsetting
this decline was an increase in the average balances of earning assets at a
greater volume than the increase in average balances of interest-bearing
liabilities. Average interest-earning assets as a percentage of average
interest-bearing liabilities increased to 105.28% for the 2001 period, compared
to 104.19% for the 2000 period.
Interest income on loans and leases, the largest category of interest-earning
assets, increased by $69.5 million (or 15.1%), from the 2000 period primarily
because of higher average balances. Higher average balances of the Bank's
single-family residential loans, which increased $697.1 million (or 15.7%),
resulted in a $38.2 million (or 16.3%) increase in interest income from such
loans. Average balances of automobile loans, commercial loans, home equity loans
and real estate construction loans increased $364.8 million, $189.6 million,
$49.8 million and $42.7 million, respectively, and contributed to a $17.1
million, $10.5 million, $3.0 million and $1.8 million increase in interest
income from such loans, respectively. Lower average yields on automobile,
commercial, home equity and real estate construction loans partially offset the
effects of the higher average balances.
The average yield on the loan portfolio in the 2001 period decreased 20 basis
points (from 8.36% to 8.16%), from the average yield in the 2000 period.
Contributing to the lower average yield was a decrease in the yield on
automobile loans, which resulted from management's decision to shift from higher
yielding subprime loans, which have higher risks of default, to lower yielding
prime automobile loans and leases, with relatively lower risk of default.
Average subprime automobile loans as a percentage of total automobile loans and
leases declined to 26.0% during the 2001 period, from 29.6% during the 2000
period. Also contributing to the lower average yield were decreases in the yield
on commercial, home equity and real estate construction loans due to decreases
in the indices on which the interest rates on such loans are based.
Interest income on mortgage-backed securities decreased $9.4 million (or 16.4%)
primarily because of lower average balances, partially offset by an increase in
the average interest rates on those securities from 6.26% to 6.32%.
Interest expense on deposits increased $35.4 million (or 22.7%) during the 2001
period due to increased average rates and average balances. The 38 basis point
increase in the average rate on deposits (from 3.56% to 3.94%) resulted from a
shift in the deposit mix towards higher cost certificates of deposit and money
market deposits. The Bank continues to use brokered deposits as an alternative
funding source.
Interest expense on borrowings increased $5.1 million (or 4.0%) in the 2001
period over the 2000 period. A $247.7 million (or 12.7%) increase in average
balances on Federal Home Loan Bank advances, which was slightly offset by the
decrease in the average rate on those borrowings (from 5.65% to 5.57%), resulted
in an increase of $9.2 million in interest expense. The increase in interest
expense on Federal Home Loan Bank advances was partially offset by a $5.0
million decrease in interest expense on securities sold under repurchase
agreements resulting from a $105.4 million (or 20.6%) decrease in the average
balance and a 10 basis point decrease in the average yield (from 5.93% to
5.83%).
Provision for Loan and Lease Losses. The Bank's provision for loan and lease
losses increased to $50.6 million in the 2001 period from $34.5 million in the
2000 period. The $16.1 million increase primarily reflected increased
charge-offs as a result of the maturation of the Bank's loan portfolio following
recent growth. See "Financial Condition - Asset Quality - Allowances for
Losses."
Other Income. Other non-interest income increased to $168.5 million in the 2001
period from $106.3 million in the 2000 period. The $62.2 million (or 58.4%)
increase was primarily attributable to an increase in servicing and
securitization income of $27.9 million and an increase in the net gain on
trading securities of $11.4 million. Also contributing to the increase in other
income was an increase in deposit servicing fees of $11.0 million.
Servicing and securitization income increased $27.9 million (or 128.7%) during
the current period primarily as a result of a $14.1 million gain resulting from
the securitization and sale of $401.5 million of automobile loan receivables in
the 2001 period. Securitization and sale of automobile loan receivables of
$352.9 million in the June 2000 quarter and $321.9 million in the September 2000
quarter also contributed to increased servicing and securitization income in the
current period.
Net gains on trading securities increased $11.4 million over the 2000 period.
The increase was primarily the result of a pre-tax gain of $11.0 million from
the sale of the Bank's interest in Star Systems, Inc. to Concord EFS, Inc. Also
contributing to the increase in net gains on trading securities were gains of
$0.3 million on sales of mortgage-backed securities related to mortgage banking
operations.
Deposit servicing fees increased $11.0 million (or 17.2%) during the 2001 period
primarily due to fees generated from the continued expansion of the Bank's
branch and ATM network.
Operating Expenses. Operating expenses for the 2001 period increased $29.8
million (or 10.9%) from the 2000 period. The increase in operating expenses is
largely attributable to an increase in loan expenses. Loan expenses increased
$23.8 million primarily due to an $9.8 million write down in the market value of
the Bank's mortgage servicing assets as a result of increased prepayments during
the current period, as well as increased amortization of purchased and
originated mortgage servicing rights acquired in the latter half of fiscal 2000.
In addition, the 2000 period included a reduction in loan expenses as a result
of a $6.3 million recovery of prior valuation adjustments recorded against the
Bank's mortgage servicing assets. Salaries and employee benefits increased $2.2
million (or 1.5%) in the current period, and the current period also includes
$3.0 million of expenses related to the closing of its subprime origination
network during December 2000.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this Item is included in Item 2 "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K are set forth below.
EXHIBITS DESCRIPTION
- -------- -----------------------------------------------------------------
3. ORGANIZATIONAL DOCUMENTS
(a) Amended and Restated Declaration of Trust filed with the Maryland
State Department of Assessments and Taxation on June 22, 1990 as
filed as Exhibit 3(a) to Registration Statement No. 33-34930 is
hereby incorporated by reference.
(b) Amendment to Amended and Restated Declaration of Trust reflected
in Secretary Certificate filed with the Maryland State Department
of Assessments and Taxation on June 26, 1990 as filed as Exhibit
3(b) to Registration Statement No. 33-34930 is hereby
incorporated by reference.
(c) Amended and Restated By-Laws of the Trust dated as of February
28, 1991 as filed as Exhibit T3B to the Trust's Form T-3
Application for Qualification of Indentures under the Trust
Indenture Act of 1939 (File No. 22-20838) is hereby incorporated
by reference.
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES
(a) Indenture dated as of March 25, 1998 between the Trust and
Norwest Bank Minnesota, National Association, as Trustee, with
respect to the Trust's 9 3/4% Series B Senior Secured Notes due
2008, as filed as Exhibit 4(a) to Registration Statement
333-49937 is hereby incorporated by reference.
(b) Indenture with respect to the Trust's Senior Notes Due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration No. 33-19909 is hereby incorporated by reference.
(c) First Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit T-3C to the Trust's Form T-3 Application for
Qualification of Indentures under the Trust Indenture Act of 1939
(File No. 22-20838) is hereby incorporated by reference.
(d) Indenture with respect to the Trust's Senior Notes due from One
Year to Ten Years from Date of Issue as filed as Exhibit 4(a) to
Registration Statement No. 33-9336 is hereby incorporated by
reference.
(e) Fourth Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-95506 is hereby
incorporated by reference.
(f) Third Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-91126 is hereby
incorporated by reference.
(g) Second Supplemental Indenture with respect to the Trust's Senior
Notes due from One Year to Ten Years from Date of Issue as filed
as Exhibit 4(a) to Registration Statement No. 2-80831 is hereby
incorporated by reference.
(h) Supplemental Indenture with respect to the Trust's Senior Notes
due from One Year to Ten Years from Date of Issue as filed as
Exhibit 4(a) to Registration Statement No. 2-68652 is hereby
incorporated by reference.
(i) Indenture with respect to the Trust's Senior Notes due from One
Year to Five Years from Date of Issue as filed as Exhibit T-3C to
the Trust's Form T-3 Application for Qualification of Indentures
under the Trust Indenture Act of 1939 (file No. 22-10206) is
hereby incorporated by reference
(j) Indenture dated as of September 1, 1992 with respect to the
Trust's Notes due from One to Ten Years form Date of Issue filed
as Exhibit 4(a) to Registration Statement No. 33-34930 is hereby
incorporated by reference.
(k) First Supplemental Indenture dated as of January 16, 1997 with
respect to the Trust's Notes due from One to Ten years from Date
of Issue filed as Exhibit 4(b) to Registration Statement No.
33-34930 is hereby incorporated by reference.
(l) Second Supplemental Indenture dated as of January 13, 1999 with
respect to the Trust's Notes due from One to Ten Years from Date
of Issuance as filed as Exhibit 4(l) to Registration Statement No.
333-70753 is hereby incorporated by reference.
10. MATERIAL CONTRACTS
(a) Advisory Contract with B.F. Saul Advisory Company effective
October 1, 1982 filed as Exhibit 10(a) to Registration Statement
No. 2-80831 is hereby incorporated by reference.
(b) Commercial Property Leasing and Management Agreement effective
October 1, 1982 between the Trust and Franklin Property Company
filed as Exhibit 10(b) to Registration Statement No. 2-80831 is
hereby incorporated by reference.
(c) Tax sharing Agreement dated June 28,1990 among the Trust, Chevy
Chase Savings Bank F.S.B. and certain of their subsidiaries filed
as Exhibit 10(c) to Registration Statement No. 33-34930 is hereby
incorporated by reference.
(d) Agreement dated June 28, 1990 among the Trust, B.F. Saul Company,
Franklin Development Co., Inc., The Klingle Corporation and
Westminster Investing Corporation relating to the transfer of
certain shares of Chevy Chase Savings Bank, F.S.B. and certain
real property to the Trust in exchange for Preferred Shares of
the Trust filed as Exhibit 10(d) to Registration Statement
No. 33-34930 is hereby incorporated by reference.
(e) Regulatory Capital Maintenance/Dividend Agreement dated May 17,
1988 among B.F. Saul Company, the Trust and the Federal Savings
and Loan Insurance Corporation filed as Exhibit 10(e) to the
Trust's Annual Report on Form 10-K (File No. 1-7184) for the
fiscal year ended September 30, 1991 is hereby incorporated by
reference.
(f) Written Agreement dated September 30, 1991 between the Office of
Thrift Supervision and Chevy Chase Savings Bank, F.S.B. filed as
Exhibit 10(f) to Registration Statement No. 33-34930 is hereby
incorporated by reference.
(g) Amendments to Commercial Property Leasing and Management
Agreement between the Trust and Franklin Property Company dated
as of December 31, 1992 (Amendment No. 5), July 1, 1989
(Amendment No. 4), October 1, 1986 (Amendment No. 3), January 1,
1985 (Amendment No. 2) and July 1, 1984 (Amendment No. 1) filed
as Exhibit 10(o) to Registration Statement No. 33-34930 is hereby
incorporated by reference.
(h) Advisory Contract between B.F. Saul Advisory Company and Dearborn
Corporation dated as of December 31, 1992 filed as Exhibit 10(p)
to Registration Statement No. 33-34930 is hereby incorporated by
reference.
(i) Commercial Property Leasing and Management Agreement between
Dearborn Corporation and Franklin Property Company dated as of
December 31, 1992 filed as Exhibit 10(q) to Registration
Statement No. 33-34930 is hereby incorporated by reference.
(j) Registration Rights and Lock-Up Agreement dated August 26, 1993
by and among Saul Centers, Inc. and the Trust, Westminster
Investing Corporation, Van Ness Square Corporation, Dearborn
Corporation, Franklin Property Company and Avenel Executive Park
Phase II, Inc. as filed as Exhibit 10.6 to Registration Statement
No. 33-64562 is hereby incorporated by reference.
(k) Exclusivity and Right of First Refusal Agreement dated August 26,
1993 among Saul Centers, Inc., the Trust, B. F. Saul Company,
Westminster Investing Corporation, Franklin Property Company, Van
Ness Square Corporation, and Chevy Chase Savings Bank, F.S.B. as
filed as Exhibit 10.7 to Registration Statement No. 33-64562 is
hereby incorporated by reference.
(l) Fourth Amended and Restated Reimbursement Agreement dated as of
April 25, 2000 by and among Saul Centers, Inc., Saul Holdings
Limited Partnership, Saul Subsidiary I Limited Partnership, Saul
Subsidiary II Limited Partnership, Saul QRS, Inc., Franklin
Property Company, Westminster Investing Corporation, Van Ness
Square Corporation, Dearborn, L.L.C., Avenel Executive Park
Phase II, L.L.C., and the Trust.
(m) Amendment to Written Agreement dated October 29, 1993 between the
Office of Thrift Supervision and Chevy Chase Savings Bank, F.S.B.
filed as Exhibit 10(u) to Registration Statement No. 33-34930 is
hereby incorporated by reference.
(n) Registration Rights Agreement dated as of March 25, 1998 among
the Trust, Merrill Lynch and Co., Merrill Lynch, Pierce, Fenner
and Smith Incorporated and Friedman, Billings, Ramsey and Co.,
Inc. as filed as Exhibit 4(c) to Registration Statement
No. 333-49937 is hereby incorporated by reference.
(o) Bank Stock Registration Rights Agreement dated as of March 25,
1998 between the Trust and Norwest Bank Minnesota, National
Association, as Trustee, as filed as Exhibit 4(d) to Registration
Statement No. 333-49937 is hereby incorporated by reference.
- -------------------------------------------------------------------------------
(b) The Registrant did not file any reports on Form 8-K during the
fiscal quarter covered by this report.
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.
B. F. SAUL REAL ESTATE INVESTMENT TRUST
-----------------------------------------------
(Registrant)
Date: August 14, 2001 Stephen R. Halpin, Jr.
----------------- -----------------------------------------------
Stephen R. Halpin, Jr.
Vice President and Chief Financial Officer
Date: August 14, 2001 Bill D. Tzamaras
----------------- -----------------------------------------------
Bill D. Tzamaras
Vice President and Principal Accounting Officer
