UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 000-21628
HAVEN BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-3153802
(I.R.S. Employer Identification No.)
615 MERRICK AVENUE, WESTBURY, NEW YORK 11590
(Address of principal executive offices) (Zip Code)
(516) 683-4100
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 9,123,819 shares of the Registrant's common stock
outstanding as of July 31, 2000.
HAVEN BANCORP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the
three months and six months ended June 30,
2000 and 1999 4
Consolidated Statement of Changes in
Stockholders' Equity for the six months
ended June 30, 2000 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-26
Item 3. Quantitative and Qualitative Disclosures
about Market Risk 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security
Holders 27-28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
Signature Page
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
June 30, December 31,
2000 1999
--------- ------------
ASSETS
Cash and due from banks $ 56,677 $ 41,479
Money market investments 5,753 1,238
Securities available for sale (Note 3) 931,342 937,299
Loans held for sale 7,838 82,709
Federal Home Loan Bank of NY stock, at cost 27,865 27,865
Loans receivable:
First mortgage loans 1,797,390 1,777,208
Cooperative apartment loans 4,692 3,669
Other loans 22,901 25,948
--------- ---------
Total loans receivable 1,824,983 1,806,825
Less allowance for loan losses (17,235) (16,699)
--------- ---------
Loans receivable, net 1,807,748 1,790,126
Premises and equipment, net 34,460 35,928
Accrued interest receivable 16,637 15,825
Other assets 42,296 33,381
--------- ---------
Total assets $2,930,616 $2,965,850
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $2,153,957 $2,080,613
Borrowed funds 643,131 749,232
Other liabilities 24,978 30,422
--------- ---------
Total liabilities 2,822,066 2,860,267
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 30,000,000 shares authorized,
9,918,750 shares issued; 9,119,219 and 9,000,237 shares
outstanding at June 30, 2000 and December 31, 1999, respectively 100 100
Additional paid-in capital 53,190 52,336
Retained earnings, substantially restricted 94,926 89,083
Accumulated other comprehensive loss:
Unrealized loss on securities available for sale, net of tax effect (29,674) (25,465)
Treasury stock, at cost (799,531 and 918,513 shares at June
30, 2000 and December 31, 1999, respectively) (8,155) (8,934)
Unallocated common stock held by Bank's ESOP (795) (934)
Unearned common stock held by Bank's Recognition Plans and Trusts (206) (231)
Unearned compensation (836) (372)
--------- ---------
Total stockholders' equity 108,550 105,583
--------- ---------
Total liabilities and stockholders' equity $2,930,616 $2,965,850
========= =========
See accompanying notes to consolidated financial statements.
3
HAVEN BANCORP, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
---- ---- ---- ----
Interest income:
Mortgage loans $33,555 $27,630 $67,457 $52,515
Other loans 568 786 1,073 1,636
Mortgage-backed securities 12,793 12,686 25,650 25,336
Money market investments 113 39 260 69
Debt and equity securities 4,822 3,095 9,148 5,160
------ ------ ------- ------
Total interest income 51,851 44,236 103,588 84,716
------ ------ ------- ------
Interest expense:
Deposits:
Savings accounts 4,501 5,015 9,017 9,684
NOW accounts 289 419 671 743
Money market accounts 642 440 1,171 859
Certificate accounts 16,081 12,071 31,652 23,824
Borrowed funds 10,519 8,371 21,666 15,480
------ ------ ------ ------
Total interest expense 32,032 26,316 64,177 50,590
------ ------ ------ ------
Net interest income before provision for loan losses 19,819 17,920 39,411 34,126
Provision for loan losses 585 880 1,150 1,555
------ ------ ------ ------
Net interest income after provision for loan losses 19,234 17,040 38,261 32,571
------ ------ ------ ------
Non-interest income:
Loan fees and servicing income 342 422 606 927
Mortgage banking income 171 677 1,255 2,945
Retail banking fees 5,811 3,865 10,677 6,944
Net gain on sales of interest-earning assets - 1,234 126 1,569
Insurance, annuity and mutual fund fees 2,252 2,168 4,421 4,143
Other 141 182 235 317
------ ------ ------ ------
Total non-interest income 8,717 8,548 17,320 16,845
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 8,541 10,927 19,578 21,967
Occupancy and equipment 3,156 3,439 6,765 6,783
Real estate owned operations, net 79 (33) (97) (184)
Federal deposit insurance premiums 120 254 228 508
Restructuring (recoveries) charges (180) - 6,877 -
Other 5,304 5,662 11,144 10,800
------ ------ ------ ------
Total non-interest expense 17,020 20,249 44,495 39,874
------ ------ ------ ------
Income before income tax expense 10,931 5,339 11,086 9,542
Income tax expense 3,845 2,011 3,899 3,614
------ ------ ------ ------
Net income $7,086 $3,328 $7,187 $5,928
====== ====== ====== ======
Net income per common share: Basic $ 0.80 $ 0.38 $ 0.81 $ 0.68
====== ====== ====== ======
Diluted $ 0.76 $ 0.37 $ 0.77 $ 0.66
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
4
HAVEN BANCORP, INC.
Consolidated Statement of Changes in Stockholders' Equity
Six months ended June 30, 2000 (Unaudited)
Accumulated
Other Unallocated Unearned
Additional Comprehen- Common Common
Common Paid-In Retained sive Treasury Stock Held Stock Held Unearned
Total Stock Capital Earnings Loss Stock by ESOP by RRP Compensation
(Dollars in thousands) ----- ------ ---------- -------- ---------- -------- ----------- ---------- ------------
Balance at December 31, 1999 $105,583 100 52,336 89,083 (25,465) (8,934) (934) (231) (372)
Comprehensive Income:
Net income 7,187 - - 7,187 - - - - -
Other comprehensive income, net of tax
Net unrealized depreciation on
securities available for sale, net
of reclassification adjustment (1) (4,209) - - - (4,209) - - - -
-------
Comprehensive Income 2,978 - - - - - - - -
Dividends declared (note 5) (1,344) - - (1,344) - - - - -
Treasury stock issued for RRP and deferred
compensation plan (40,164 shares) - - 389 - - 258 - - (647)
Stock options exercised, net of tax
effect (80,570 shares) (note 4) 643 - 122 - - 521 - - -
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits 507 - 343 - - - 139 25 -
Amortization of deferred compensation plan 183 - - - - - - - 183
------- --- ------ ------ ------ ------ ------ ----- -----
Balance at June 30, 2000 $108,550 100 53,190 94,926 (29,674) (8,155) (795) (206) (836)
======= === ====== ====== ====== ====== ====== ===== =====
(1) Disclosure of reclassification adjustment:
(in thousands) Six months ended
June 30, 2000
------------------
Net unrealized holding loss arising during period $ (4,127)
Less: reclassification adjustment for net gains included in net income 82
------
Net unrealized loss on securities available for sale $ (4,209)
======
See accompanying notes to consolidated financial statements.
5
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six months ended
June 30,
------------------
2000 1999
---- ----
Cash flows from operating activities:
Net income $ 7,187 $ 5,928
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Amortization of cost of stock benefit plans 690 726
Amortization of net deferred loan origination fees (934) (351)
Amortization of premiums and accretion of discounts on loans,
mortgage-backed and debt securities (147) 96
Provision for loan losses 1,150 1,555
Provision for losses on real estate owned 50 20
Deferred income taxes (336) (243)
Net gain on sales of interest-earning assets (126) (835)
Net decrease (increase) in loans held for sale 74,871 (30,736)
Depreciation and amortization 2,175 2,224
Increase in accrued interest receivable (812) (3,261)
Decrease in due to broker - (97,458)
(Decrease) increase in other liabilities (5,425) 26,339
(Increase) decrease in other assets (6,004) 7,843
------ ------
Net cash provided by (used in) operating activities 72,339 (88,153)
------ ------
Cash flows from investing activities:
Net increase in loans (18,368) (239,256)
Proceeds from disposition of assets (including REO) 179 59
Purchases of securities available for sale (92,540) (377,740)
Principal repayments and maturities on securities available for sale 51,958 118,649
Proceeds from sales of securities available for sale 40,328 129,678
Purchases of FHLB stock, net - (1,270)
Net (increase) decrease in premises and equipment (707) 239
------- -------
Net cash used in investing activities (19,150) (369,641)
------- -------
Cash flows from financing activities:
Net increase in deposits 73,344 222,081
Net (decrease) increase in short term borrowed funds (248,446) 227,762
Increase in long term borrowed funds 142,345 28,145
Payment of common stock dividends (1,362) (1,334)
Stock options exercised 643 366
------- -------
Net cash (used in) provided by financial activities (33,476) 477,020
------- -------
Net increase in cash and cash equivalents 19,713 19,226
Cash and cash equivalents at beginning of period 42,717 44,808
------ -------
Cash and cash equivalents at end of period $62,430 $ 64,034
====== =======
Supplemental information:
Cash paid during the period for:
Interest $64,720 $ 50,286
Income taxes 5,765 2,203
Additions to real estate owned 483 622
======= =======
See accompanying notes to consolidated financial statements.
6
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000 and 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION. The accompanying unaudited
consolidated financial statements include the accounts of Haven
Bancorp, Inc. ("Haven Bancorp" or the "Company") and its wholly-
owned subsidiary, CFS Bank ("CFS" or the "Bank") and subsidiaries,
as of June 30, 2000 and December 31, 1999 and for the three-month
and six-month periods ended June 30, 2000 and 1999, respectively.
Material intercompany accounts and transactions have been
eliminated in consolidation. Certain reclassifications have been
made to prior period amounts to conform to the current period
presentation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
necessary adjustments, consisting only of normal recurring accruals
necessary for a fair presentation, have been included. The results
of operations for the three-month and six-month periods ended June
30, 2000 are not necessarily indicative of the results that may be
expected for the entire fiscal year.
These unaudited consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1999.
NOTE 2 - MERGER AGREEMENT WITH QUEENS COUNTY BANCORP, INC. On June
27, 2000, Haven Bancorp, Inc. announced that it had entered into an
Agreement and Plan of Merger, dated as of June 27, 2000 ("Merger
Agreement"), with Queens County Bancorp, Inc., a Delaware
corporation ("Queens"). Queens is the bank holding company parent
of Queens County Savings Bank, a New York State chartered stock
savings bank. The Merger Agreement provides, among other things,
that Haven Bancorp will merge with and into Queens, with Queens
being the surviving corporation ("Merger").
Pursuant to the Merger Agreement, each share of Haven Bancorp's
common stock, par value $0.01 per share ("Haven Common Stock"),
issued and outstanding immediately prior to the Effective Time (as
defined in the Merger Agreement) will be converted into and become
the right to receive 1.04 shares of Queens common stock, par value
$0.01 per share ("Queens Common Stock"), except for (i) shares of
Haven Common Stock held directly or indirectly by Queens, other
7
than shares held in a fiduciary capacity in satisfaction of a debt
previously contracted, (ii) shares held by Haven Bancorp as
treasury stock and (iii) unallocated shares held in Haven Bancorp's
Recognition and Retention Plans. Cash will be paid in lieu of
fractional shares.
The Merger is intended to qualify as a tax-free reorganization.
Consummation of the Merger is subject to the satisfaction of
certain customary conditions, including approval of the Merger
Agreement by the stockholders of both Haven Bancorp and Queens and
approval of the appropriate regulatory agencies.
Haven Bancorp has the right to terminate the Merger Agreement if
(i) the Queens Market Value on the Valuation Date falls below 80%
of the Initial Queens Market Value and (ii) the Queens Ratio is
less than 0.80 times the Index Ratio, unless Queens elects to
increase the Merger Consideration to be received by Haven Bancorp's
stockholders, all as defined and set forth in the Merger Agreement.
In connection with the Merger Agreement, Haven Bancorp granted to
Queens a stock option pursuant to a Stock Option Agreement, dated
as of June 27, 2000, which, under certain limited circumstances,
would enable Queens to purchase up to 19.9% of Haven Bancorp's
issued and outstanding shares of common stock at a price per share
equal to $18.0625.
NOTE 3 - SECURITIES AVAILABLE FOR SALE.
The amortized cost and estimated fair values of securities
available for sale at June 30, 2000 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
Debt and equity securities available for sale:
U.S. Government and Agency obligations $ 114,782 40 (4,727) 110,095
Corporate debt securities 106,227 26 (1,872) 104,381
Preferred Stock 10,650 - (2,014) 8,636
------- ----- ------ -------
231,659 66 (8,613) 223,112
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 11,810 136 - 11,946
FNMA Certificates 117,843 142 (4,891) 113,094
FHLMC Certificates 29,694 157 (213) 29,638
CMOs and REMICS 586,021 446 (32,915) 553,552
------- ----- ------ -------
745,368 881 (38,019) 708,230
--------- ----- ------ -------
Total $ 977,027 947 (46,632) 931,342
========= ===== ====== =======
The net unrealized loss on securities available for sale at June
30, 2000, was reported as a separate component of stockholders'
equity in the amount of $29.7 million, which is net of a tax effect
of $16.0 million.
8
NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the six months ended June 30, 2000 are as follows:
Weighted Average
Options Exercise Price
------- ----------------
Balance at December 31, 1999 1,387,580 $10.13
Granted 25,000 16.72
Forfeited (60,300) 17.92
Exercised (80,570) 8.26
--------- -----
Balance at June 30, 2000 1,271,710 9.98
========= =====
Options exercisable at June 30, 2000 1,099,932 9.09
========= =====
NOTE 5 - DIVIDENDS PAYABLE. On June 22, 2000, the Company's Board
of Directors approved a quarterly cash dividend of $0.075 per
share, payable on July 21, 2000, to shareholders of record as of
July 3, 2000.
NOTE 6 - RECENT ACCOUNTING PRONOUNCEMENTS. In June 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". SFAS No. 137 delays the effective date of SFAS
No. 133 to January 1, 2000, for calendar year entities such as the
Company. Management of the Company currently believes the
implementation of SFAS No. 133 will not have a material impact on
the Company's financial condition or results of operations.
NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. There were
8,909,707 basic weighted average shares outstanding and 9,351,520
diluted weighted average shares outstanding for the three months
ended June 30, 2000. There were 8,882,499 basic weighted average
shares outstanding and 9,280,186 diluted weighted average shares
outstanding for the six months ended June 30, 2000. The weighted
average number of shares outstanding does not include 158,915
unallocated shares which are owned by the Employee Stock Ownership
Plan ("ESOP") as of June 30, 2000 in accordance with American
Institute of CPAs Statement of Position 93-6, "Employers'
Accounting for ESOPs".
NOTE 8 - COMPREHENSIVE INCOME (LOSS) - Comprehensive income was
$3.0 million for the six-month period ended June 30, 2000, whereas,
there was a comprehensive loss of $5.7 million for the six-month
period ended June 30, 1999.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") is the
holding company for CFS Insurance Agency, Inc. and CFS Bank ("CFS"
or the "Bank"), a federally chartered stock savings bank. CFS
converted from a mutual to a stock savings bank on September 23,
1993 in conjunction with the issuance of the Bank's capital stock
to Haven Bancorp.
Haven Bancorp's business currently consists primarily of the
business of the Bank. The Bank's principal business has been and
continues to be attracting retail deposits from the general public
and investing those deposits, together with funds generated from
operations primarily in one- to four-family, owner occupied
residential mortgage loans. In addition, the Bank will invest in
debt, equity and mortgage-backed securities ("MBSs") to supplement
its lending portfolio. The Bank also invests, to a lesser extent,
in multi-family residential mortgage loans, commercial real estate
loans and other marketable securities. The Bank's results of
operations are dependent primarily on its net interest income,
which is the difference between the interest income earned on its
loan and securities portfolios and its cost of funds, which
primarily consist of the interest paid on its deposits and borrowed
funds. The Bank's net income also is affected by its non-interest
income, its provision for loan losses and operating expenses
consisting primarily of compensation and benefits, occupancy and
equipment, real estate owned operations, net, federal deposit
insurance premiums and other general and administrative expenses.
The earnings of the Bank are significantly affected by general
economic and competitive conditions, particularly changes in market
interest rates, and to a lesser extent, by government policies and
actions of regulatory authorities.
During the period from June, 1999 through April, 2000, Haven was
engaged in a dispute with PL Capital Group, a large stockholder of
Haven Bancorp common stock, concerning the appointment of Richard
Lashley and Garrett Goodbody to the Haven Bancorp board of
directors and PL Capital Group's proxy solicitation in opposition
to Haven Bancorp's nominees for election to its board of directors.
On April 7, 2000, Haven Bancorp entered into an agreement with PL
Capital Group which provides, among other things, for the
appointment of Messrs. Lashley and Goodbody to the Haven Bancorp
board of directors, which appointment was effected on April 7,
2000, and for the termination of the PL Capital Group's
solicitation.
On June 27, 2000, the Company and Queens County Bancorp, Inc.
(Nasdaq: QCSB) announced the signing of a definitive agreement and
10
plan of merger under which the Company will merge with and into
Queens County Bancorp, Inc. in a transaction valued at
approximately $196 million. Under the terms of the agreement,
which has been unanimously approved by the Boards of Directors of
both companies, the Company's stockholders are expected to receive
1.04 shares of Queens County Bancorp common stock in exchange for
each share of the Company's common stock. The combined entity, to
be named New York Community Bancorp, Inc. (and traded on Nasdaq
under the symbol "NYCB"), will have assets of approximately $5.1
billion and deposits of approximately $3.2 billion prior to a
planned restructuring. Upon completion of the merger, the pro
forma company will have a network of 19 traditional branch offices
and three customer service centers serving Queens and Nassau
counties, and 62 supermarket branches extending throughout the New
York metropolitan area. In Queens, the company will command an 8%
share of the market, ranking third among thrifts. The traditional
branches and customer service centers will operate under the Queens
County Savings Bank banner; the supermarket branches will continue
to operate under the name of the CFS Bank. In order to complete
the merger, the boards of directors of Haven and Queens have each
called special meetings of stockholders to be held tentatively on
September 26, 2000.
ANALYSIS OF CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1999
TO JUNE 30, 2000
ASSETS
The Company had total assets of $2.93 billion at June 30, 2000
compared to $2.97 billion at December 31, 1999. Securities
available for sale ("AFS") decreased by $6.0 million, or 0.6% to
$931.3 million at June 30, 2000 from $937.3 million at December 31,
1999 primarily due to a pre-tax increase of $6.5 million in the
unrealized depreciation on securities available for sale. The
increase in the unrealized depreciation on AFS securities was due
to an increase in general market interest rates during the six
months ended June 30, 2000. During the six months ended June 30,
2000, the Bank purchased $40.7 million of MBSs and $51.8 million of
debt and equity securities. The emphasis on debt and equity
securities was due to the availability of more favorable rates and
shorter durations. These increases were offset by sales and
principal payments of $40.3 million and $52.0 million,
respectively.
Total loans increased by $18.2 million, or 1.0% to $1.82 billion
at June 30, 2000 from $1.81 billion at December 31, 1999. Loan
originations and purchases during the six-month period ended June
30, 2000 totaled $275.9 million (comprised of $190.1 million of
residential one- to four-family mortgage loans, $3.0 million of
home equity loans and lines of credit, $24.4 million of multi-
family loans, $28.5 million of commercial real estate loans and
$29.9 million of construction and land loans). Residential loan
11
originations and purchases include loans originated for sale or
purchased in the secondary market for the six months ended June 30,
2000 totaling $130.8 million. During the first six months of 2000,
the Bank sold $198.4 million of residential loans on a servicing
released basis to third party investors. During the first half of
2000, principal repayments on loans totaled $134.3 million.
LIABILITIES
Deposits increased by $73.3 million, or 3.5% to $2.15 billion at
June 30, 2000 from $2.08 billion at December 31, 1999 primarily due
to deposit inflows from the Bank's supermarket branches. The Bank
had 62 supermarket bank branches as of June 30, 2000 compared to 63
supermarket branches at December 31, 1999. During the first quarter
of 2000, the Bank closed one branch in an Edwards Superstore in
Bayshore, New York and relocated another branch from the Pathmark
Supermarket in Woodmere, New York to the Pathmark Supermarket in
Springfield Gardens, New York.
Deposits in the supermarket branches totaled $908.3 million at June
30, 2000 compared to $842.3 million at December 31, 1999. Core
deposits (comprised of checking, savings and money market accounts)
were equal to 48.8% of total supermarket branch deposits at June
30, 2000 compared to 47.9% in the Bank's eight traditional
branches. Core deposits for the supermarket branches included
$234.1 million of "Liquid Asset" account balances at June 30, 2000.
This account was introduced at the supermarket branches in the
second quarter of 1998 and currently pays an initial rate of 4.25%
for balances over $2,500. Overall, core deposits represented 48.3%
of total deposits at June 30, 2000 compared to 45.4% at December
31, 1999. Borrowed funds decreased by $106.1 million, or 14.2% to
$643.1 million at June 30, 2000 from $749.2 million at December 31,
1999 primarily due to the fact that deposit in-flows and certain
other cash flows during the six months ended June 30, 2000 were
used to pay down borrowings due to lower loan demand.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $108.6 million at
June 30, 2000 from $105.6 million at December 31, 1999. The
increase in stockholders' equity was primarily due to net income of
$7.2 million for the six months ended June 30, 2000. This was
partially offset by an increase of $4.2 million in the unrealized
depreciation on securities available for sale. The unrealized
depreciation on securities available for sale is the result of an
increase in general market interest rates during the six months
ended June 30, 2000. For the six months ended June 30th, dividends
declared totaled $1.3 million, which was offset by the amortization
of awards of shares of stock by the Bank's ESOP, RRPs and deferred
compensation plans and stock option exercises.
12
NON-PERFORMING ASSETS
The following table sets forth information regarding all non-
accrual loans (which consist of loans 90 days or more past due and
restructured loans that have not yet performed in accordance with
their modified terms for the required three-month seasoning
period), restructured loans and real estate owned ("REO").
June 30, December 31,
2000 1999
------------ ------------
(Dollars in Thousands)
Non-accrual loans
One- to four-family $ 3,975 3,663
Cooperative 276 206
Multi-family 274 1,139
Non-residential and other 1,851 1,986
------ ------
Total non-accrual loans 6,376 6,994
------ ------
Restructured loans
One- to four-family 184 314
Cooperative 176 178
Multi-family 216 225
------ ------
Total restructured loans 576 717
------ ------
Total non-performing loans 6,952 7,711
------ ------
REO
One- to four-family 607 268
Cooperative 21 56
------ ------
Total REO 628 324
Less allowance for REO (23) -
------ ------
REO, net 605 324
------ ------
Total non-performing assets $ 7,557 8,035
====== ======
Non-performing loans to total loans 0.38% 0.42
Non-performing assets to total assets 0.26 0.27
Non-performing loans to total assets 0.24 0.26
13
The decrease in non-performing assets was primarily due to a
decrease of $759,000 in non-performing loans from December 31, 1999
to June 30, 2000 which was partially offset by an increase in REO,
net from $324,000 at December 31, 1999 to $605,000 at June 30,
2000. The ratios of non-performing loans to total loans, non-
performing assets to total assets, and non-performing loans to
total assets each declined from December 31, 1999 to June 30, 2000,
primarily due to the growth in the mortgage loan portfolio and a
decline in non-performing loans.
The Bank maintains an allowance for loan losses and an allowance
for REO, which it believes are adequate for possible losses at each
period end. Management's judgment as to possible losses is based
on its review of the loan and REO portfolios and its judgment
regarding prevailing and anticipated economic conditions and a
variety of other factors which have an impact on those portfolios.
Although management believes that the allowances are adequate as of
the period end, additional provisions may be required in the
future.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the six months ended June 30, 2000 and 1999:
June 30, June 30,
2000 1999
------------ -------------
(Dollars in Thousands)
Balance at beginning of period $ 16,699 13,978
Charge-offs:
Residential (299) (835)
Non-residential and other (570) -
------ ------
Total charge-offs (869) (835)
Recoveries 255 318
------ ------
Net charge-offs (614) (517)
Provision for loan losses 1,150 1,555
------ ------
Balance at end of period $17,235 15,016
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.07% 0.07
Ratio of allowance for loan losses to
total loans at the end of the period 0.94 0.97
Ratio of allowance for loan losses to non-
performing loans at the end of the period 247.91 165.68
14
The ratio of net charge-offs to average loans outstanding during
the first six months of 2000 was unchanged from the same period in
1999. The ratio of the allowance for loan losses to total loans
decreased from 97 basis points to 94 basis points for the period
due to an increase of $275.7 million in total loans outstanding at
June 30, 2000 compared to June 30, 1999. The ratio of the
allowance for loan losses to non-performing loans increased between
the periods due primarily to an increase of $2.2 million in the
allowance for loan losses, as well as a $2.1 million decline in
non-performing loans. The Bank's allowance for loan losses was
$17.2 million and $15.0 million at June 30, 2000 and June 30, 1999,
respectively, while non-performing loans totaled $7.0 million and
$9.1 million, respectively, on those dates.
ASSET/LIABILITY MANAGEMENT
The Company has attempted to reduce its exposure to interest rate
risk through the origination and purchase of adjustable-rate
mortgage ("ARM") loans, debt securities and MBSs, maintaining an
AFS portfolio and extending liability maturities in its certificate
of deposit and borrowings portfolios. During the first half of
2000, the Bank originated, or purchased for its portfolio, $58.1
million of residential ARM loans and $82.8 million of multi-family,
commercial real estate and construction ARM loans. During the
six-month period, the Bank purchased $54.6 million of adjustable-
rate debt securities and MBSs. At June 30, 2000, $255.4 million,
or 27.4% of the Company's AFS portfolio were adjustable-rate
securities and $675.9 million, or 72.6% of the portfolio were
fixed-rate securities.
Historically, the Company has been able to maintain a substantial
level of core deposits (comprised of checking, savings and money
market accounts) which the Company believes helps to limit interest
rate risk by providing a relatively stable, low cost, long-term
funding base. At June 30, 2000, core deposits represented 48.3% of
deposits compared to 45.4% of deposits at December 31, 1999.
During the first half of 2000, savings accounts increased by $21.8
million, net of interest, whereas, certificates of deposit
decreased by $24.9 million, net of interest. The number of
checking accounts increased by 1,536, or 0.8% to 195,114 at June
30, 2000 from 193,578 at December 31, 1999. The number of checking
accounts in the supermarket branches increased by 3,580 accounts,
whereas, the number of checking accounts in the remaining branches
declined by 2,044 accounts. The Company expects to attract a
higher percentage of core deposits from its supermarket branch
locations as the supermarket branching program continues to mature.
During the first half of 2000, the Bank replaced $126.5 million of
shorter-term borrowed funds with ten-year, fixed-rate borrowed
funds, which can be called after three years of the borrowing date.
15
LIQUIDITY AND CAPITAL RESOURCES
The Bank is required to maintain minimum levels of liquid assets as
defined by regulations of the Office of Thrift Supervision ("OTS").
This requirement, which may be varied by the OTS depending upon
economic conditions and deposit flows, is based upon a percentage
of withdrawable deposits and short-term borrowings. The required
ratio is currently 4%. The Bank's ratio was 5.34% at June 30, 2000
compared to 4.31% at December 31, 1999.
The Company's primary sources of funds are deposits, advances from
the Federal Home Loan Bank of New York ("FHLB-NY"), principal and
interest payments on loans and MBSs and retained earnings.
Proceeds from the sale of AFS securities and loans held for sale
are also a source of funding, as are, to a lesser extent, the sales
of insurance, annuities and securities brokerage activities
conducted by the Company's subsidiary, CFS Insurance Agency, Inc.
and the Bank's subsidiary, CFS Investments, Inc. While maturities
and scheduled amortization of loans and MBSs are somewhat
predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates,
economic conditions, competition and regulatory changes.
The Company's most liquid assets are cash and short-term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At June 30, 2000 and December 31, 1999,
cash and short-term investments totaled $62.4 million and $42.7
million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year, loans held for
sale and AFS securities. Other sources of funds include FHLB
advances, which at June 30, 2000 totaled $489.5 million. An
additional source of funds are sales of securities under repurchase
agreements, which totaled $102.3 million at June 30, 2000.
As of June 30, 2000, the Bank exceeded all regulatory capital
requirements as detailed in the following table:
Tangible Capital Core Capital Risk-Based Capital (3)
-------------------- -------------------- -----------------------
Amount Ratio (1) Amount Ratio (1) Amount Ratio (1)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
Capital for regulatory purposes $180,679 6.07% $180,679 6.07% $196,671 12.69%
Minimum regulatory requirement 59,514 2.00(2) 119,027 4.00(2) 123,970 8.00
------- ---- ------- ---- ------- ----
Excess $121,165 4.07% $ 61,652 2.07% $ 72,701 4.69%
======= ==== ======= ==== ======= ====
16
(1) For tangible and core capital, the ratio is to adjusted total
assets. For risk-based capital, the ratio is to total risk-
weighted assets.
(2) Under the OTS's prompt corrective action regulations, (i) the
tangible capital requirement was effectively increased from 1.50%
to 2.00% since OTS regulations stipulate that an institution with
less than 2.00% tangible capital will be deemed to be classified as
"critically undercapitalized," and (ii) the core capital
requirement was effectively increased from 3.00% to 4.00% because
under the OTS regulations an institution with less than 4.00% core
capital is classified as "undercapitalized".
(3) The OTS requirement that an interest rate risk component be
incorporated into its existing risk-based capital standard has been
indefinitely deferred by the OTS. However, the Bank does not
believe that its risk-based capital requirement would be materially
affected as a result of the interest rate risk component.
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net inter-
est income, which represents the difference between income on
interest-earning assets and expenses on interest-bearing
liabilities. Net interest income is dependent on the average
balances and rates received on interest-earning assets and the
average balances and rates paid on interest-bearing liabilities.
Net income is further affected by the provision for loan losses,
non-interest income, non-interest expense and income taxes.
17
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition
and consolidated statements of income for the three months and six
months ended June 30, 2000 and 1999, respectively, and reflects the
average yield on assets and average cost of liabilities for the
periods indicated. Such yields and costs are derived by dividing
income or expense annualized by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances
were derived from average daily balances. The average balance of
loans includes loans on which the Company has discontinued accruing
interest. The yields and costs include fees which are considered
adjustments to yields.
Three months ended June 30,
2000 1999
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans $1,836,814 $33,555 7.31% $1,487,501 $27,630 7.43%
Other loans 23,708 568 9.58 34,045 786 9.23
Mortgage-backed securities 714,904 12,793 7.16 789,405 12,686 6.43
Money market investments 5,974 113 7.57 2,214 39 7.05
Debt and equity securities 249,112 4,822 7.74 184,011 3,095 6.73
--------- ------ --------- ------
Total interest-earning assets 2,830,512 51,851 7.33 2,497,176 44,236 7.09
Non-interest earning assets 115,829 ------ 166,919 ------
--------- ---------
Total assets 2,946,341 2,664,095
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 653,396 4,501 2.76 637,276 5,015 3.15
Certificate accounts 1,129,751 16,081 5.69 932,977 12,071 5.18
NOW accounts 288,751 289 0.40 238,726 419 0.70
Money market accounts 73,124 642 3.51 56,364 440 3.12
Borrowed funds 665,242 10,519 6.32 607,135 8,371 5.52
--------- ------ --------- ------
Total interest-bearing liabilities 2,810,264 32,032 4.56 2,472,478 26,316 4.26
Other liabilities 31,846 ------ 74,651 ------
--------- ---------
Total liabilities 2,842,110 2,547,129
Stockholders' equity 104,231 116,966
--------- ---------
Total liabilities and stockholders' equity $2,946,341 $2,664,095
========= =========
Net interest income/net interest rate spread $19,819 2.77% $17,920 2.83%
====== ==== ====== ====
Net interest earning assets/net interest margin $20,248 2.80% $24,698 2.87%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 100.72% 101.00%
====== ======
18
Six months ended June 30,
2000 1999
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans $1,845,854 $67,457 7.31% $1,432,368 $52,515 7.33%
Other loans 24,465 1,073 8.77 35,607 1,636 9.19
Mortgage-backed securities 724,717 25,650 7.08 775,820 25,336 6.53
Money market investments 8,938 260 5.82 1,865 69 7.40
Debt and equity securities 238,759 9,148 7.66 158,539 5,160 6.51
--------- ------- --------- ------
Total interest-earning assets 2,842,733 103,588 7.29 2,404,199 84,716 7.05
Non-interest earning assets 119,568 ------- 157,266 ------
--------- ---------
Total assets 2,962,301 2,561,465
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 642,148 9,017 2.81 606,660 9,684 3.19
Certificate accounts 1,135,393 31,652 5.58 912,513 23,824 5.22
NOW accounts 274,704 671 0.49 230,613 743 0.64
Money market accounts 71,698 1,171 3.27 57,175 859 3.00
Borrowed funds 694,448 21,666 6.24 568,617 15,480 5.44
--------- ------ --------- ------
Total interest-bearing liabilities 2,818,391 64,177 4.55 2,375,578 50,590 4.26
Other liabilities 39,581 ------ 67,392 ------
--------- ---------
Total liabilities 2,857,972 2,442,970
Stockholders' equity 104,329 118,495
--------- ---------
Total liabilities and stockholders' equity $2,962,301 $2,561,465
========= =========
Net interest income/net interest rate spread $39,411 2.74% $34,126 2.79%
====== ==== ====== ====
Net interest earning assets/net interest margin $24,342 2.77% $28,621 2.84%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 100.86% 101.20%
====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 2000 AND 1999
GENERAL. The Company reported net income of $7.1 million for the
three months ended June 30, 2000 compared to net income of $3.3
million for the three months ended June 30, 1999. Net interest
income increased $1.9 million from the prior year period and non-
interest income increased $169,000 from the prior year period.
Non-interest expense decreased by $3.2 million, or 15.9% to $17.0
million for the three months ended June 30, 2000 from $20.2 million
for the same period in 1999. The decrease in non-interest expense
was due to the restructuring of the residential mortgage division,
the reduction of the Company's workforce and the elimination of
certain discretionary expenses. Income tax expense increased $1.8
million due to an increase of $5.6 million in pre-tax income.
19
NET INTEREST INCOME. Net interest income increased by $1.9
million, or 10.6% to $19.8 million for the three months ended June
30, 2000 from $17.9 million for the three months ended June 30,
1999. The increase was primarily due to an increase in the total
average balance of interest-earning assets of $333.3 million, or
13.3% to $2.83 billion for the three months ended June 30, 2000
from $2.50 billion for the same period last year. This growth is
mainly due to growth in the Bank's residential mortgage loan and
debt and equity securities portfolios. The average yield on
interest-earning assets increased to 7.33% for the three-month
period ended June 30, 2000 from 7.09% for the three-month period in
1999, resulting from the general increase in market interest rates
in 1999 and the first half of 2000. The average cost of interest-
bearing liabilities increased to 4.56% from 4.26% for the three
months ended June 30, 2000 and 1999, respectively. The net
interest spread was 2.77% for the three months ended June 30, 2000
compared to 2.83% for the comparable period in 1999.
Interest income increased by $7.6 million, or 17.2% to $51.9
million for the three months ended June 30, 2000 from $44.2 million
for the three months ended June 30, 1999. The increase was
primarily the result of a $5.9 million increase in interest income
on mortgage loans and an increase of $1.7 million in interest
income on debt and equity securities.
Interest income on mortgage loans increased by $5.9 million, or
21.4% to $33.6 million for the three months ended June 30, 2000,
from $27.6 million for the comparable three-month period in 1999,
primarily as a result of an increase in average balances of
mortgage loans of $349.3 million which was partially offset by a
decrease of 12 basis points in the average yield.
Interest income on debt and equity securities increased by $1.7
million, or 55.8% to $4.8 million for the three months ended June
30, 2000 from $3.1 million for the comparable three-month period in
1999, primarily as a result of an increase in the average balance
outstanding of $65.1 million and an increase in the average yield
of 101 basis points. The increase in average balances between the
periods was primarily due to an emphasis on purchases of debt and
equity securities for the AFS portfolio due to more favorable rates
and shorter durations.
Interest expense increased by $5.7 million, or 21.7% to $32.0
million for the three months ended June 30, 2000 from $26.3 million
for the three months ended June 30, 1999. The increase was the
result of a $3.6 million increase in interest expense on deposits
and an increase of $2.1 million in interest expense on borrowed
funds.
Interest expense on deposits increased by $3.6 million, or 19.9% to
$21.5 million for the three months ended June 30, 2000 from $17.9
20
million for the comparable three-month period in 1999. This
increase was primarily due to the average balance which increased
by $279.7 million, or 15.0% to $2.15 billion for the three months
ended June 30, 2000 from $1.87 billion for the comparable three-
month period in 1999. The increase in deposits was primarily
attributable to the Bank's supermarket banking program. At June
30, 2000, the Bank had 62 supermarket branches operating with
deposits totaling $908.3 million compared to 60 supermarket
branches at June 30, 1999 with deposits totaling $700.4 million.
The increase in the average balance was primarily due to
certificate account balances which increased by $196.8 million, or
21.1% to $1.13 billion for the three months ended June 30, 2000
from $933.0 million for the comparable three-month period in 1999.
Interest expense on certificate accounts increased by $4.0 million,
or 33.2% to $16.1 million for the three months ended June 30, 2000
from $12.1 million in the same period in 1999. The average cost of
certificate accounts was 5.69% for the second quarter of 2000
compared to 5.18% for the second quarter of 1999, primarily due to
the general rise in market interest rates between the periods. The
overall average cost of deposits was 4.01% for the three months
ended June 30, 2000 compared to 3.85% for the second quarter of
1999.
Interest expense on borrowed funds increased by $2.1 million, or
25.7% to $10.5 million for the three months ended June 30, 2000
from $8.4 million for the comparable three-month period in 1999.
Borrowed funds, on an average basis, increased by $58.1 million
between the periods due primarily to the addition of short-term
FHLB advances and securities sold under agreements to repurchase
during the latter part of 1999 in order to complement deposit
growth as a funding mechanism for mortgage loan originations and to
purchase AFS securities as part of the leverage strategy related to
Haven Capital Trust II which was issued during the second quarter
of 1999. The average rate paid on borrowings increased to 6.32%
for the three months ended June 30, 2000 from 5.52% for the prior
year period due to an increase in market interest rates during 1999
and the first half of 2000.
PROVISION FOR LOAN LOSSES. The Bank provided $585,000 for loan
losses for the three months ended June 30, 2000 compared to
$880,000 for the comparable three-month period in 1999. The
provision for loan losses is established based on management's
periodic review and evaluation of the loan portfolio and reflects
the decrease in non-performing loans, as well as the overall growth
in the Bank's loan portfolio.
NON-INTEREST INCOME. Non-interest income increased by $169,000, or
2.0% for the three months ended June 30, 2000 to $8.7 million from
$8.5 million for the comparable three-month period in 1999. Retail
banking fees increased by $1.9 million, or 50.3% to $5.8 million
for the second quarter of 2000 compared to $3.9 million for the
21
same period last year. The increase in retail banking fees is
primarily due to the number of checking accounts which increased by
20,188, or 11.5% to 195,114 accounts at June 30, 2000 from 174,926
accounts at June 30, 1999. A significant portion of this growth is
attributable to the Bank's supermarket banking program. The
supermarket branches generated retail banking fees of $4.5 million
for the second quarter of 2000 compared to $2.9 million for the
second quarter of last year. Insurance, annuity and mutual fund
fees for the second quarter of 2000 increased by $84,000, or 3.9%
to $2.3 million from $2.2 million for the same period last year.
Non-interest income for the second quarter of 2000 included
$171,000 of mortgage banking income compared to mortgage banking
income of $677,000 in the second quarter of 1999. The decrease in
mortgage banking income is due to a decrease in the Bank's loans
held for sale volume as a result of the wind-down and
reorganization of the Bank's residential mortgage origination
operation. The Company did not realize any gains on the sale of
interest earning assets during the second quarter of 2000, whereas,
a gain of $1.2 million was realized during the second quarter of
last year.
NON-INTEREST EXPENSE. Non-interest expense decreased by $3.2
million, or 15.9% for the three months ended June 30, 2000 to $17.0
million from $20.2 million for the comparable three-month period in
1999. The decrease was due to the restructuring of the residential
mortgage division, the reduction of the Company's workforce and the
elimination of certain discretionary expenses beginning in the
first quarter of 2000.
Compensation and benefit costs decreased by $2.4 million, or 21.8%
from $10.9 million in the second quarter of 1999 to $8.5 million in
the second quarter of 2000. The decrease was due to the
aforementioned reduction of the Company's workforce and wind-down
of the residential mortgage division.
Occupancy and equipment costs decreased by $283,000, or 8.2% to
$3.2 million for the second quarter of 2000 from $3.4 million for
the same period last year primarily due to the closing of
residential lending offices as a result of restructuring of the
residential mortgage division. The costs incurred for the federal
deposit insurance premiums decreased by $134,000, or 52.8% to
$120,000 for the three months ended June 30, 2000 from $254,000 for
the same period last year due to a legislative change effective
January 1, 2000. The assessment recognized for the second quarter
of 2000 represented the Bank's share of interest due on the
Financing Corporation bonds. The Bank is no longer subject to a
quarterly premium for the SAIF fund due to its current risk
classification. Other operating costs decreased by $358,000, or
6.3 % to $5.3 million for the three months ended June 30, 2000 from
$5.7 million for the same period last year, due primarily to the
restructuring of the residential mortgage lending division and the
elimination of certain discretionary expenses.
22
INCOME TAX EXPENSE. Income tax expense was $3.8 million for an
effective tax rate of 35.2% for the three months ended June 30,
2000 compared to income tax expense of $2.0 million for an
effective tax rate of 37.7% for the comparable period in 1999. The
decrease in the effective tax rate was due to additional tax
savings realized from the formation of the Bank's wholly-owned
subsidiary, CFS Investments New Jersey, Inc., a New Jersey
Investment Company, during the fourth quarter of 1999.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 2000 AND 1999
GENERAL. The Company reported net income of $7.2 million for the
six months ended June 30, 2000 compared to net income of $5.9
million for the six months ended June 30, 1999. Net interest
income increased $5.3 million from the prior year period and non-
interest income increased $475,000 from the prior year period.
Non-interest expense increased by $4.6 million, or 11.6% to $44.5
million for the six months ended June 30, 2000 from $39.9 million
for the six months ended June 30, 1999. The increase was due
primarily to pre-tax restructuring charges of $6.9 million, net of
recoveries totaling $180,000, recognized in the first half of 2000.
The Company recorded a net restructuring charge of approximately
$6.6 million related to the completed sale of parts of the
residential mortgage origination division to M&T Mortgage
Corporation, the sale of the Fishkill, New York office to Summit
Bancorp and the reorganization of the remainder of the division.
The Company also implemented a plan during the first quarter of
2000 to reduce operating expenses through a reduction in the
Company's workforce and the elimination of certain discretionary
expenses. Income tax expense increased $285,000 due to an increase
of $1.5 million in pre-tax income.
NET INTEREST INCOME. Net interest income increased by $5.3
million, or 15.5% to $39.4 million for the six months ended June
30, 2000 from $34.1 million for the six months ended June 30, 1999.
The increase was primarily due to an increase in the total average
balance of interest-earning assets of $438.5 million, or 18.2% to
$2.84 billion for the six months ended June 30, 2000 from $2.40
billion for the same period last year. This growth is mainly due
to growth in the Bank's residential mortgage loan and debt and
equity securities portfolios. The average yield on interest-
earning assets increased to 7.29% for the six-month period ended
June 30, 2000 from 7.05% for the six-month period in 1999,
resulting from the general increase in market interest rates in
1999 and the first half of 2000. The average cost of interest-
bearing liabilities increased to 4.55% from 4.26% for the six
months ended June 30, 2000 and 1999, respectively. The net
interest spread was 2.74% for the six months ended June 30, 2000
compared to 2.79% for the comparable period in 1999.
23
Interest income increased by $18.9 million, or 22.3% to $103.6
million for the six months ended June 30, 2000 from $84.7 million
for the six months ended June 30, 1999. The increase was primarily
the result of a $14.9 million increase in interest income on
mortgage loans and an increase of $4.0 million in interest income
on debt and equity securities.
Interest income on mortgage loans increased by $14.9 million, or
28.5% to $67.5 million for the six months ended June 30, 2000, from
$52.5 million for the comparable six-month period in 1999,
primarily as a result of an increase in average balances of
mortgage loans of $413.5 million.
Interest income on debt and equity securities increased by $4.0
million, or 77.3 % to $9.1 million for the six months ended June
30, 2000 from $5.2 million for the comparable six-month period in
1999, primarily as a result of an increase in the average balance
outstanding of $80.2 million and an increase in yield of 115 basis
points. The increase in average balances between the periods was
primarily due to the leverage strategy related to Haven Capital
Trust II which was issued in May 1999 and an emphasis on purchases
of debt and equity securities for the AFS portfolio due to better
rates and shorter durations.
Interest expense increased by $13.6 million, or 26.9% to $64.2
million for the six months ended June 30, 2000 from $50.6 million
for the six months ended June 30, 1999. The increase was the
result of a $7.4 million increase in interest expense on deposits
and an increase of $6.2 million in interest expense on borrowed
funds.
Interest expense on deposits increased by $7.4 million, or 21.1% to
$42.5 million for the six months ended June 30, 2000 from $35.1
million for the comparable six-month period in 1999. This increase
was primarily due to the average balance of deposits which
increased by $317.0 million, or 17.5% to $2.12 billion for the six
months ended June 30, 2000 from $1.81 billion for the comparable
six-month period in 1999. The increase in deposits was primarily
attributable to the Bank's supermarket banking expansion during
1999. The increase in average balance was primarily due to
certificate account balances which increased by $222.9 million, or
24.4% to $1.14 billion for the six months ended June 30, 2000 from
$912.5 million for the comparable six-month period in 1999.
Interest expense on certificate accounts increased by $7.8 million,
or 32.9% to $31.7 million for the six months ended June 30, 2000
from $23.8 million in the same period in 1999. The average cost of
certificate accounts was 5.58% for the six months ended June 30,
2000 compared to 5.22% for the six months ended June 30, 1999,
primarily due to the general rise in market interest rates between
the periods. The overall average cost of deposits was 4.00% for
the six months ended June 30, 2000 compared to 3.89% for the six
months ended June 30, 1999.
24
Interest expense on borrowed funds increased by $6.2 million, or
40.0% to $21.7 million for the six months ended June 30, 2000 from
$15.5 million for the comparable six-month period in 1999.
Borrowed funds on an average basis increased by $125.8 million
between the periods due primarily to the addition of short-term
FHLB advances and securities sold under agreements to repurchase in
order to complement deposit growth as a funding mechanism for
mortgage loan originations and to purchase AFS securities as part
of the leverage strategy related to Haven Capital Trust II which
was issued in May 1999. The average rate paid on borrowings
increased to 6.24% for the six months ended June 30, 2000 from
5.44% for the prior year period due to an increase in market
interest rates during 1999 and the first half of 2000.
PROVISION FOR LOAN LOSSES. The Bank provided $1.2 million for loan
losses for the six months ended June 30, 2000 compared to $1.6
million for the comparable six-month period in 1999. The provision
for loan losses is established based on management's periodic
review and evaluation of the loan portfolio and reflects the
decrease in non-performing loans, as well as the overall growth in
the Bank's loan portfolio.
NON-INTEREST INCOME. Non-interest income increased by $475,000, or
2.8% for the six months ended June 30, 2000 to $17.3 million from
$16.8 million for the comparable six-month period in 1999. Retail
banking fees increased by $3.7 million, or 53.8% to $10.7 million
for the six months ended June 30, 2000 compared to $6.9 million for
the same period last year. The supermarket branches generated
savings and checking fees of $8.2 million for the six months ended
June 30, 2000 compared to $5.1 million for the same period last
year. Insurance, annuity and mutual fund fees for the six months
ended June 30, 2000 increased by $278,000, or 6.7% to $4.4 million
from $4.1 million for the same period last year. Non-interest
income for the six months ended June 30, 2000 included $1.3 million
of mortgage banking income compared to mortgage banking income of
$2.9 million in the same period of 1999. The decrease in mortgage
banking income is due to a decrease in the Bank's loans held for
sale volume as a result of the wind-down and reorganization of the
Bank's residential mortgage origination operation. The net gain
realized on sales of interest-earning assets was $126,000 for the
six months ended June 30, 2000 compared to $1.6 million for the
same period last year.
NON-INTEREST EXPENSE. Non-interest expense increased by $4.6
million, or 11.6% for the six months ended June 30, 2000 to $44.5
million from $39.9 million for the comparable six-month period in
1999. The increase was primarily the result of restructuring
charges, net of recoveries, totaling $6.9 million. Excluding the
restructuring charges, non-interest expense decreased by $2.3
million, or 5.7%, for the six months ended June 30, 2000 from the
prior year period. Compensation and benefits costs decreased by
25
$2.4 million, or 10.9% for the six months ended June 30, 2000 to
$19.6 million from $22.0 million for the prior year period due to
the reduction in staff and wind-down of the residential mortgage
division previously discussed. The costs incurred for the federal
deposit insurance premiums decreased by $280,000, or 55.1% to
$228,000 for the six months ended June 30, 2000 from $508,000 for
the same period last year due to a legislative change effective
January 1, 2000. The assessment booked for the first half of 2000
represented the Bank's share of interest due on the Financing
Corporation bonds. The Bank is no longer subject to a quarterly
premium for the SAIF fund due to its current risk classification.
Other operating costs increased by $344,000, or 3.2 % to $11.1
million for the six months ended June 30, 2000 from $10.8 million
for the same period last year, due primarily to the addition of
supermarket branches.
INCOME TAX EXPENSE. Income tax expense was $3.9 million for an
effective tax rate of 35.2% for the six months ended June 30, 2000
compared to income tax expense of $3.6 million for an effective tax
rate of 37.9% for the comparable period in 1999. The decrease in
the effective tax rate was due to additional tax savings realized
from the formation of the Bank's wholly-owned subsidiary, CFS
Investments New Jersey, Inc., a New Jersey Investment Company
during the fourth quarter of 1999.
FORWARD LOOKING STATEMENTS
Safe Harbor Provisions of the Private Litigation Reform Act of 1995
Statements made herein that are forward-looking in nature within
the meaning of the Private Securities Litigation Reform Act of
1995, are subject to risks and uncertainties that could cause
actual results to differ materially. Such risks and uncertainties
include, but are not limited to, those related to overall business
conditions, particularly in the consumer financial services,
mortgage and insurance markets in which Haven operates, fiscal and
monetary policy, competitive products and pricing, credit risk
management, changes in regulations affecting financial institutions
and other risks and uncertainties discussed in Haven's SEC filings,
including its Annual Report on Form 10-K for 1999. Haven disclaims
any obligation to publicly announce future events or developments,
which may affect the forward-looking statements contained herein.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
In management's opinion, there has not been a material change in
market risk from December 31, 1999 as reported in Item 7A of the
Company's Annual Report on Form 10-K for 1999.
26
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of the Bank. At June 30, 2000, the
Bank has a lawsuit related thereto pending, whereby the plaintiffs
are seeking recovery of approximately $12.4 million in actual
damages and an additional $12.4 million of unspecified damages.
The Bank's ultimate liability, if any, which might arise from the
disposition of these claims cannot presently be determined.
Management believes it has meritorious defenses against this action
and has and will continue to defend its position.
Accordingly, no provision for any liability that may result upon
adjudication has been recognized in the accompanying consolidated
financial statements.
On May 18, 1999, the Bank was served with a complaint naming it as
a defendant in a lawsuit. The lawsuit was commenced by the former
president of the Bank's residential mortgage lending division in
the Superior Court of New Jersey, Law Division, Middlesex County.
The plaintiff alleged in this complaint that the Bank terminated
his employment without "cause" as defined in his employment
agreement and further alleged that the Bank breached the employment
agreement and its obligation of good faith and fair dealing. On
July 20, 2000, the Bank and the plaintiff settled the lawsuit to
the satisfaction of both parties. The settlement is not an
admission by either party of any liability or unlawful conduct of
any kind.
The Company is involved in various other legal actions arising in
the ordinary course of business, which, in the aggregate, are
believed by management to be immaterial to the financial position
of the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
May 17, 2000.
(b) Not applicable.
27
(c) At such meeting, the shareholders approved the following
matters:
1. The election of the following individuals as Directors for a
term of 3 years each:
Votes Broker
Votes For Withheld Abstentions Non-Votes
Philip S. Messina 7,117,322 909,339 -0- -0-
Msgr. Thomas J. Hartman 7,601,493 506,168 -0- -0-
Michael A. McManus, Jr. 7,622,521 485,140 -0- -0-
2. The ratification of KPMG LLP as independent auditors of the
Company for the fiscal year ending December 31, 2000, as reflected
by 7,955,995 votes for, 102,278 votes against, 49,388 abstentions
and no broker non-votes.
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.0 Amended and Restated Bylaws of Haven Bancorp,
Inc.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
(i) The Company filed a Form 8-K on April 11, 2000,
which reported information under Item 5 - "Other
Events."
(ii) The Company filed a Form 8-K on April 11, 2000,
which reported information under Item 5 - "Other
Events."
(iii) The Company filed a Form 8-K on April 24, 2000,
which reported information under Item 5 - "Other
Events."
(iv) The Company filed a Form 8-K on June 27, 2000,
which reported information under Item 5 - "Other
Events."
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HAVEN BANCORP INC.
(Registrant)
Date: August 3, 2000 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
Chairman of the Board and
Chief Executive Officer
Date: August 3, 2000 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
29