EXHIBIT 13.0
Annual Report 1996
This report contains statements that are forward-looking in
nature within the meaning of the Private Securities Litigation
Reform Act of 1995 and 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 markets in
which Haven operates, fiscal and monetary policy, competitive
products and pricing, credit risk management and changes in
regulations affecting financial institutions and other risks and
uncertainties discussed from time to time in the Company's SEC
filings.
Table of Contents
President's Letter 1
Financial Highlights 4
A Year of Achievement 5
Selected Financial and Other Data 12
Management's Discussion and Analysis 14
Consolidated Financial Statements 27
Notes to Consolidated Financial Statements 31
Independent Auditors' Report 54
Directors and Officers/Directory 55
Stockholder Information 56
Dear Fellow Stockholders,
This past year will undoubtedly prove to be one of the most
pivotal in Haven Bancorp's recent history. In addition to
building upon our considerable earnings momentum, we embarked on
a path we believe will produce tremendous rewards for our
shareholders and customers alike.
We typically like to take this opportunity to look back to see
how successful we have been in accomplishing our goals for the
year. We have more than once described 1995 as a "turning point"
and "the first of many more years of improving, positive results"
for Haven. Also, we have referred to 1996 as a year in which we
expected to carry on many of the initiatives we set in place,
such as reinvigorating our mortgage loan origination efforts,
developing innovative new products and services for our expanding
customer base and the start of our supermarket banking strategy.
In addition, we noted Haven's improvement in return on average
equity to 9.3% for 1995 and stated our interim target return for
1996 to be 12%.
Haven Bancorp earned a record $9.4 million in 1996, which
included a one-time assessment charge of $6.8 million to
recapitalize the Savings Association Insurance Fund (SAIF).
Excluding the SAIF assessment charge, our earnings would have
been $13.5 million, or a return on average equity of 14.0%.
Mortgage loans originated and purchased during 1996 were more
than two and a half times greater than the comparable volume for
1995 and first mortgages experienced a year to year increase of
53%. We unveiled many new, successful retail products. However,
the most significant event in 1996 was the agreement we reached
with Pathmark Supermarkets, Inc. whereby Columbia Federal Savings
Bank will open a minimum of 44 in-store bank branches throughout
the five boroughs of New York City, Long Island, Westchester and
Rockland counties. These are in addition to the two branches we
currently have open in Edwards Super Food Stores and another in a
ShopRite Supermarket, Inc. The results we have thus far
experienced at our first five supermarket branches give us much
reason to be optimistic about this enormously important venture.
We determined that this project, based on low entry costs, the
magnitude of expected returns and the franchise value it will
ultimately produce, was the clearest course for Haven Bancorp to
enhance shareholder value. We expect this value enhancement to
continue for many years to come.
We believe that Supermarket Banking or, as we call it, "Banking A
La Cart," positions us on the cutting edge of what is certain to
be one of the most significant developments in the distribution
of banking services in the 1990s. Within 18 months, Columbia
expects to have more supermarket branches in the New York area
than any other banking institution. We believe we will rank among
the top-ten supermarket banks in the country.
Supermarket branching is a cost-effective way to extend our
franchise and put our sales force in touch with more prospective
customers than possible through conventional bank branches while
offering the public convenient one-stop shopping. The cost of
opening a supermarket branch is approximately one-fifth the cost
of a traditional branch, and in the typical store we are clearly
visible to some 20,000 prospects each week. At our first five
supermarket branches, we have opened thousands of new accounts
with balances that exceeded our original forecasts. This strategy
not only lengthens our reach into new areas such as Westchester
and Rockland counties, it demonstrates Columbia's commitment to
providing full-service banking seven days a week with extended
customer-friendly hours. Each branch will offer all of our
products and services including checking and savings accounts,
certificates of deposit, home mortgages and home equity loans,
discount brokerage services, mutual funds, annuities and life
insurance.
The outstanding growth in mortgages originated and purchased over
the past eighteen months has resulted in an important shift in
the composition of Haven's balance sheet. For the first time in
three years, total loans exceeded investment securities. Since
loans typically provide a higher yield than investment
securities, such a shift in the mix can have a very positive
effect on gross yields and ultimate profitability, which, in
fact, occurred in 1996. As our growth in loan originations
continues, this positive trend and the resultant effect on asset
yields will similarly follow.
It is important to note that we have undertaken this expansion in
mortgage originations while concurrently maintaining a strict
vigil on our credit standards and asset quality. Haven's overall
asset quality has improved, to the point where our year-end ratio
of non-performing assets to total assets, at 0.94%, was one-third
below the average of all publicly traded thrifts operating in New
York State. Although the challenging credit circumstances we
faced during the first half of this decade are clearly behind us,
the lessons we learned are deeply ingrained on our lending
philosophy and strategies.
In 1996, Columbia celebrated substantial successes in a variety
of retail and commercial services areas. New customers came to
Columbia Federal Savings Bank branches in record numbers to take
advantage of our most popular product, Positively Free Checking.
The wide acceptance of this account demonstrates the customer-
friendly and cost-efficient product positioning we targeted. The
account eliminates monthly charges and has served as a powerful
magnet for us in attracting new accounts. A specially designed
direct marketing program has attracted thousands of new
depositors.
For our retail customers, 1996 was a year of new services and
greater convenience. For instance, with our WealthBuilder Savings
account, Columbia customers can make regular monthly deposits and
earn a guaranteed annual yield of 6%. Our SmartMoney T-Bill CD
Plus earns a monthly variable rate that's always 50 basis points,
or 0.5%, above the 90-day T-Bill rate.
Our Cash-It Club, which offers check cashing and other convenient
services to non-depositors, was introduced at two branches in
1996, with 10 more branches slated to offer the service in the
next 12 months. It not only represents a source of income for the
bank, it serves as a perfect introduction to the bank's products
and services for an entirely new market of potential depositors.
EasyTouch Telephone Banking added significant volume as well in
1996, bringing our array of products and services to thousands
every day from the convenience of a nearby telephone. We plan to
unveil a sophisticated Home Banking system this spring which will
revolutionize access to our products and services. Home Banking
will enable customers to log on to Columbia via their personal
computer and open accounts, check balances, make transfers, and
perform a host of other transactions.
The Internet also came alive for Columbia in 1996, and we made an
impressive showing with a highly informative, extremely user-
friendly Web site. Present and prospective customers who log on
to our Internet site (http://www.cfsb.com) receive a warm welcome
on our Home Page, followed by a logical series of Web pages
packed with information on Columbia's products and services.
Customers can open an account, check on current rates, and even
calculate how much they'll need for a mortgage. Our Internet site
has proven extremely successful, with an average of 5,500 "hits"
- -or visits- each week from interested consumers.
We pride ourselves on creating products that anticipate as well
as respond to the financial needs of our customers. We devote
considerable effort to maintaining close contact with our market.
Through our subsidiary, Columbia Investment Services, Inc., many
current and new customers have begun to explore investment
services with us, and a large number have signed on for products
ranging from stocks, bonds and annuities to mutual funds and life
insurance. The bulk of Columbia's investment sales last year were
in fixed and variable annuities. We broke the $60 million mark in
investment sales for 1996, compared with investments sales of $54
million in 1995. Relative to asset size, Columbia Investment
Services, Inc. ranks within the top 1% in gross sales and profits
among the country's 416 largest commercial banks and thrift
institutions.
In February, 1997, Haven Capital Trust I issued $25 million of
10.46% capital securities and invested the proceeds in Junior
Subordinated Debentures of Haven. Haven intends to use the net
proceeds from the sale of the Junior Subordinated Debentures for
general corporate purposes, which may include capital
contributions to Columbia, the financing of future acquisitions
and the funding of repurchases of the Company's common stock.
On a more personal level, we note the passing of our Director,
Robert J. Webster, who died in September, 1996 following
distinguished and valuable service to the Board for 28 years. In
addition, William J. Claffey retired from the Board in January,
1997 after 26 years of service and Robert M. Cashill resigned
from the Board in February 1997. These three gentlemen each made
significant contributions in guiding Haven to the success we
currently enjoy.
We welcome William J. Jennings II and Michael J. Levine to our
Board of Directors. Mr. Jennings is Managing Director and Chief
of Staff to the Chairman of Salomon Brothers Inc., investment
bankers. Mr. Levine is President of Norse Realty Group &
Affiliates, real estate developers, and a partner of Levine &
Schmutter, Certified Public Accountants. They bring a wealth of
experience and expertise that will add to the existing Board
commitment to enhance shareholder value. We are also pleased to
announce the appointment of Msgr. Thomas J. Hartman, Director of
Radio and Television for the Diocese of Rockville Centre, to the
Board to fill the vacancy created by Mr. Cashill's departure.
As I indicated earlier, this was a year of considerable
accomplishment. It was also a unique beginning of what we believe
will be a major defining point in our Company's future. The
development of supermarket branching is an enormous challenge for
Haven Bancorp. It is a challenge we relish and one that our
employees are singularly prepared to meet with the enthusiasm,
talent and skills they bring to bear. We would not have enjoyed
our significant success nor be poised for such an attractive
future without the support of our loyal customers, stockholders
and dedicated staff to whom I extend my most sincere thanks.
Sincerely,
Philip S. Messina
President & Chief Executive Officer
March 3, 1997
FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share data)
1996 1995
At Year End --------- ---------
Total Assets $1,583,545 1,472,816
Loans, Net 836,882 560,385
Securities Available for Sale 370,105 503,058
Debt Securities Held to Maturity 97,307 127,796
Mortgage-Backed Securities Held to Maturity 197,940 190,714
Real Estate Owned, Net 1,038 2,033
Deposits 1,137,788 1,083,446
Borrowed Funds 326,433 270,583
Stockholders' Equity 99,384 98,519
Non-Performing Assets 14,931 18,910
1996 1995 1994
For the Year ------ ------ ------
Net Interest Income $47,885 41,319 41,202
Provision for Loan Losses 3,125 2,775 13,400
Non-Interest Income 9,554 9,022 6,529
Real Estate Operations, Net 277 1,405 12,253
SAIF Recapitalization Charge 6,800 - -
Other Non-Interest Expense 31,378 30,387 28,888
Income Tax Expense (Benefit) 6,434 7,230 (2,475)
Net Income (Loss) 9,425(1) 8,544 (4,335)
Net Income (Loss) per common share:
Primary 2.12(1) 1.89 (0.94)
Fully Diluted 2.11(1) 1.87 (0.94)
Performance Ratios
Return on Average Assets 0.62% 0.63% (0.35)%
Return on Average Assets excluding
SAIF assessment charge 0.89 0.63 (0.35)
Return on Average Equity 9.83 9.27 (4.90)
Return on Average Equity excluding
SAIF assessment charge 14.04 9.27 (4.90)
Net Interest Margin 3.29 3.17 3.48
Non-Performing Assets to Total Assets 0.94 1.28 2.85
Allowance for Loan Losses to Non-
Performing Loans 77.05 50.80 38.33
(1) Net income excluding the SAIF assessment charge would have
been $13.5 million, or $3.03 per share ($3.01 per share, fully
diluted).
Haven Bancorp, Inc. is the holding company for Columbia Federal
Savings Bank which converted from a federally chartered mutual to
a federally chartered stock savings bank on September 23, 1993.
Columbia Federal is a wholly-owned subsidiary of the holding
company whose principal business is the operation of the Bank.
The Bank, which was organized in 1889, is a community oriented
institution offering deposit products, residential and commercial
real estate loans and a full range of financial services
including discount brokerage, mutual funds, annuities and
insurance. Headquartered in Woodhaven, New York, the Bank serves
its customers through nine full-service banking and five
supermarket banking facilities located in the New York City
Boroughs of Queens and Brooklyn and in Nassau and Suffolk
Counties, New York. The Bank's deposits are insured up to the
maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC").
A Year of Achievement
The future of banking has arrived, and it's revolutionizing the
way financial products and services are reaching consumers.
Columbia Federal Savings Bank's Supermarket Banking program will
give us a presence throughout the New York region - in the form
of "Banking A La Cart."
Columbia has a reputation for outstanding customer service based
on our in-depth knowledge of our customers and a long history of
anticipating and responding to their needs with market specific
products and services. In 1996 we continued to demonstrate this
unique understanding of our constituency in a bold fashion by
embarking on a plan of strategic growth that promises to broaden
our customer base and improve profit-ability. Supermarket Banking
is at the nucleus of our commitment to expansion.
Those unaccustomed to Banking A La Cart may be surprised to
discover a full-service in-store branch right inside their local
supermarket. Every one of these locations reveals our dedication
to meeting our customers' demands for convenient and attractive
products and services, every day of the week.
Our Banking A La Cart branches are a natural outgrowth of our
traditional branch structure. In the supermarket environment,
customers are offered an array of checking and savings accounts,
loan products and mortgages found at every Columbia branch
office. Offerings include financial products and services,
investments, as well as life insurance. Although the typical
supermarket branch measures approximately 500 square feet, the
space is optimized to allow sales associates to interact with
customers in a comfortable setting.
Supermarket Banking affords Columbia the opportunity to tap a
vast and varied demographic mix and to offer banking services in
a safe, convenient environment. In order to maximize the benefits
of operating an in-store branch, Columbia sales associates open
accounts and establish relationships by greeting prospective
customers in the aisles and explaining the Bank's offerings in a
simple, friendly manner. As a result, the account process is
facilitated and customers are easily introduced to an assortment
of financial services.
Columbia's premier account! Positively Free Checking! represents
a strong anchor in attracting customers and in creating cross-
selling opportunities. With no minimum balance requirements, no
monthly fees and no per-check charges, Positively Free Checking
has served as a powerful magnet for new depositors, and for new
accounts from current customers. No other bank in Columbia's
marketing area offers such an attractive checking program.
Therefore, depositors who have been locked out of the opportunity
to open a checking account because of the high account charges
and strict balance requirements imposed by other institutions are
heartened to learn that Columbia offers an affordable checking
plan. Columbia continues to appeal to a broad constituency by
offering alternatives to Positively Free Checking in the form of
a variety of interest-earning checking accounts.
Full service for Columbia means catering to the needs of the
community with products and services that make a difference in
people's lives. We've responded to the needs of our marketplace
again in 1996 by making the banking and borrowing process easier
and more convenient in numerous ways. This is evident in our
innovative, user-friendly Web site and our Telephone Banking
program. In 1997 our PC Banking program will let customers bank
conveniently from their home or office computer.
Notwithstanding an increasingly competitive marketplace in 1996,
Columbia Federal Savings Bank doubled its commercial and multi-
family real estate loan production as compared to 1995.
Our disciplined credit and underwriting standards were applied to
larger average loans. Flexible loan structure coupled with longer
terms and more frequent repricings have resulted in significant
efficiencies. Columbia's timely and understanding response to
borrower needs have been responsible for developing and
maintaining strong customer relationships.
The growth of residential lending, which experienced enormous
success in 1996, will be enhanced by in-store banking. Mortgage
customers outside our current market area will soon be able to
establish a full-service banking relationship at future in-store
locations.
The sales associates at each Supermarket Banking location are
well trained in and prepared to advise customers of the wide
variety of residential lending products offered by the Bank. One
example is the Bi-Weekly Mortgage option. This allows mortgage
holders to make payments on a biweekly basis, rather than on a
traditional monthly schedule resulting in savings of thousands of
dollars in interest costs over the life of their loan.
The Bank continues to target home equity credit opportunities.
With a variety of home equity loans and a home equity line of
credit, Columbia serves homeowners from across the region who may
be looking for financing for any purpose, from home improvements
or a new car, to education, a wedding, or even a vacation.
Customers looking for Savings Accounts continue to look to
Columbia, which provides savings packages tailored to virtually
every need. To complement the Banking A La Cart program and as an
incentive for our Supermarket Banking customers, Columbia created
the exclusive SmartShopper's Savings Account. Depositors with a
Positively Free Checking account earn a higher rate when they
open the innovative Smartshopper's Savings Account. Columbia's
Management Savings Account, a multi-tiered savings plan linked to
account balances, once again satisfies the requirements of a
varied customer base by allowing customers to save at their own
pace.
Again responding to the needs of the marketplace, Columbia offers
a range of Certificates of Deposit, as well as the popular
SmartMoney T-Bill CD Plus. This represents another example of a
product innovation by offering a rate that adjusts every month to
one-half of one percentage point over the prevailing 90-day T-
Bill rate.
Columbia's supermarket sales associates are trained and licensed
to offer annuity and life insurance products provided through
Columbia Investment Services, Inc. (CIS), as well as mutual funds
and discount stock and bond brokerage services offered through
CIS's relationship with BHC Securities, Inc. Customers interested
in life insurance are put in touch with a qualified CIS life
insurance specialist. Beginning in 1997, CIS will be dealing
directly with a select group of insurance companies that offer
virtually every type of policy.
Columbia has responded to its customer base by expanding the
Good-Friends, GreatTimes Club. This group grows more popular
every year, and 1996 was no exception. What began as a simple
gathering of people from all segments of the community who get
together to take in local events and visit regional sites, has
expanded enormously. Today this popular travel club attracts
hundreds of community residents to a variety of destinations and
functions. Its horizons are broadening each year: Trips are
slated for Hawaii, Alaska and the Caribbean Islands.
Columbia's Cash-It Club appeals to those who, although not
Columbia depositors, want the convenience of quick and easy check
cashing and bill paying. It represents a viable entree into the
accounts and services offered by Columbia. The Club made its
debut in supermarket branches in 1996 and will be introduced to
10 Banking A La Cart locations in the near future.
As Columbia opens more in-store banking branches in New York
City, Long Island, Westchester and Rockland, more shoppers are
destined to discover the full complement of financial products
and services, all delivered in a convenient, shopper-friendly
manner from true banking professionals.
SELECTED CONSOLIDATED FINANCIAL DATA
December 31,
(In thousands) 1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Total assets $1,583,545 1,472,816 1,268,774 1,229,140 1,168,120
Loans, net 836,882 560,385 512,035 659,808 624,090
Securities available for sale 370,105 503,058 48,189 38,190 94,205
Debt securities held to maturity 97,307 127,796 130,706 19,208 11,275
Mortgage-backed securities held to maturity 197,940 190,714 495,111 412,677 266,579
Real estate owned, net 1,038 2,033 7,844 17,887 22,473
Deposits 1,137,788 1,083,446 1,013,162 986,760 963,718
FHLB advances 178,450 134,175 86,000 55,800 -
Other borrowed funds 147,983 136,408 39,081 80,216 139,777
Stockholders' equity 99,384 98,519 86,235 95,810 55,358
SELECTED FINANCIAL RATIOS AND OTHER DATA
At or For the Years Ended December 31,
(In thousands of dollars, 1996 1995 1994 1993 1992
except per share data) ------ ------ ------ ------ ------
Performance Ratios:
Return on average assets 0.62% 0.63 (0.35) (0.06) 0.25
Return on average assets excluding SAIF
assessment charge (1) 0.89 0.63 (0.35) (0.06) 0.25
Return on average equity 9.83 9.27 (4.90) (1.05) 5.58
Return on average equity excluding SAIF
assessment charge (1) 14.04 9.27 (4.90) (1.05) 5.58
Stockholders' equity to total assets 6.28 6.69 6.80 7.79 4.74
Net interest spread 3.12 2.99 3.34 3.28 3.11
Net interest margin (2) 3.29 3.17 3.48 3.38 3.22
Average interest-earning assets to
average interest-bearing liabilities 103.95 104.23 104.42 102.61 102.24
Operating expenses to average assets (3) 2.04 2.18 2.26 2.26 2.01
Stockholders' equity per share (4) $ 22.98 21.84 18.95 19.49 NA
Asset Quality Ratios:
Non-performing loans to total loans (5) 1.64% 2.97 5.41 9.37 11.28
Non-performing assets to total assets 0.94 1.28 2.85 6.65 8.15
Allowance for loan losses to non-
performing loans (5) 77.05 50.80 38.33 33.83 28.90
Allowance for loan losses to total loans 1.26 1.51 2.07 3.17 3.26
Other Data:
Number of deposit accounts 171,382 155,424 140,701 132,044 122,880
Mortgage loans serviced for others $197,017 219,752 239,844 110,058 138,386
Loan originations and purchases $363,576 143,329 105,219 146,640 63,683
Facilities:
Full service offices 14 9 9 9 10
(1) Excludes the SAIF assessment charge in 1996 of $6.8 million.
(2) Calculation is based on net interest income before provision
for loan losses divided by average interest-earning assets.
(3) For purposes of calculating these ratios, operating expenses
equal non-interest expense less real estate operations, net where
applicable, of $0.3 million, $1.4 million, $12.3 million, $9.4
million and $5.7 million for the five years ended December 31,
1996, respectively. For the five years ended December 31, 1996,
non-performing loan expense of $0.4 million, $0.6 million, $0.9
million, $1.2 million and $1.6 million, respectively, was also
excluded from non-interest expense. For the year ended December
31, 1996, the SAIF assessment charge of $6.8 million was also
excluded.
(4) Not applicable prior to conversion on September 23, 1993.
Based on 4,325,407, 4,511,457 and 4,551,406 shares outstanding at
December 31, 1996, 1995 and 1994, respectively.
(5) For purposes of calculating these ratios, non-performing
loans consist of all non-accrual loans and restructured loans.
SELECTED CONSOLIDATED OPERATING DATA
At or For the Years Ended December 31,
(In thousands of dollars, 1996 1995 1994 1993 1992
except per share data) ------ ------ ------ ------ ------
Interest income $ 109,253 96,434 81,491 79,236 93,481
Interest expense 61,368 55,115 40,289 41,833 56,914
Net interest income 47,885 41,319 41,202 37,403 36,567
Provision for loan losses 3,125 2,775 13,400 6,400 19,843
Net interest income after provision
for loan losses 44,760 38,544 27,802 31,003 16,724
Non-interest income:
Loan fees and servicing income 1,807 2,241 790 943 957
Savings/checking fees 3,378 2,861 2,282 2,205 2,168
Net gain on sales of interest-earning assets 140 126 372 552 3,449
Insurance annuity and mutual fund fees 3,114 2,525 2,025 1,736 2,636
Other 1,115 1,269 1,060 1,072 1,096
Total non-interest income 9,554 9,022 6,529 6,508 10,306
Non-interest expense:
Compensation and benefits 15,737 14,889 13,605 11,809 10,679
Occupancy and equipment 3,478 3,334 3,238 3,631 3,450
Real estate operations, net 277 1,405 12,253 9,401 5,676
SAIF recapitalization charge 6,800 - - - -
Federal deposit insurance premiums 2,327 2,653 2,709 2,554 2,223
Other 9,836 9,511 9,336 9,416 9,125
Total non-interest expense 38,455 31,792 41,141 36,811 31,153
Income (loss) before income tax expense
(benefit) and cumulative effect of
change in accounting principle 15,859 15,774 (6,810) 700 (4,123)
Income tax expense (benefit) 6,434 7,230 (2,475) 1,392 (1,615)
Income (loss) before cumulative effect
of change in accounting principle 9,425 8,544 (4,335) (692) (2,508)
Cumulative effect of change in
accounting principle (1) - - - - 5,487
Net income (loss) $ 9,425(2) 8,544 (4,335) (692) 2,979
Net income (loss) per common share:
Primary $ 2.12(2) 1.89 (0.94) (0.09)(3) NA
Fully diluted $ 2.11(2) 1.87 (0.94) (0.09)(3) NA
(1) This addition to net income relates to the Bank's adoption of
SFAS No. 109 effective January 1, 1992.
(2) Net income excluding the SAIF assessment charge would have
been $13.5 million, or $3.03 per share ($3.01 per share, fully
diluted).
(3) Represents loss per common share for the quarter ended
December 31, 1993 since the stock conversion occurred on
September 23, 1993.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was formed
on March 25, 1993 as the Holding Company for Columbia Federal
Savings Bank ("Columbia" or the "Bank") in connection with the
Bank's conversion from a federally chartered mutual savings bank
to a federally chartered stock savings bank. The Company is
headquartered in Woodhaven, New York and its principal business
currently consists of the operation of its wholly-owned
subsidiary, Columbia Federal Savings Bank. The Company had no
operations prior to September 23, 1993.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one-to four-family, owner occupied residential
mortgage loans. In addition, in times of low loan demand, the
Bank will invest in debt, equity and mortgage-backed securities
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 consist of the interest paid on its deposits and
borrowed funds. The Bank's net income also is affected by its
provision for loan losses as well as non-interest income and
operating expenses consisting primarily of compensation and
benefits, occupancy and equipment, real estate 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.
FINANCIAL CONDITION
The Company had total assets of $1.58 billion at December 31,
1996, compared to $1.47 billion at December 31, 1995, an increase
of $110.7 million, or 7.5%.
The Company's portfolio of debt and equity securities and
mortgage-backed securities ("MBSs") available for sale ("AFS")
totalled $370.1 million, a decrease of $133.0 million, or 26.4%
at December 31, 1996 compared to $503.1 million at December 31,
1995. At December 31, 1996, of the AFS securities portfolio,
$166.2 million were adjustable-rate securities and $203.9 million
were fixed-rate securities. During 1996, there was a continued
shift in interest-earning assets to mortgage loans from MBSs
through management of the Company's AFS portfolio to maximize
yields. Mortgage loan yields are generally higher than those of
MBSs. During 1996, the Company purchased $321.2 million of debt
and equity securities and MBSs for its AFS portfolio, of which
$52.3 million were adjustable-rate and $268.9 million were fixed-
rate. Principal repayments and proceeds from sales of AFS
securities totalled $448.3 million. A portion of the proceeds
from AFS sales were used to fund loan originations and to
purchase bulk whole loan packages totalling approximately $70.0
million.
In November, 1995, the Financial Accounting Standards Board
("FASB") issued an implementation guide for Statement of
Financial Accounting Standards ("SFAS") No. 115. The
implementation guide provided guidance in the form of a question
and answer format and allowed an opportunity from mid-November
1995 to December 31, 1995 for companies to reclassify securities
in the held to maturity portfolio to securities in the AFS
portfolio without tainting the remainder of the portfolio. In
connection with the implementation guide for SFAS No. 115, the
Company reclassified $41.9 million of debt securities and $405.3
million of MBSs previously classified as held to maturity to AFS
securities. The carrying value of the MBSs was adjusted to their
market value, which resulted in increasing the carrying value by
$3.9 million, and increasing stockholders' equity by $2.1
million, which was net of taxes of $1.8 million. The carrying
value of the debt securities approximated market value at the
time of the reclassification.
At December 31, 1996, the debt securities and MBS held to
maturity portfolios totalled $295.2 million, comprised of $60.4
million of adjustable-rate securities and $234.8 million of
fixed-rate securities. During 1996, the Company purchased $45.3
million of debt securities and MBSs for its held to maturity
portfolio. These were all fixed rate securities. Principal
repayments on MBSs and debt securities and maturities and calls
on debt securities held to maturity totalled $69.5 million. The
estimated fair value of the Company's debt securities and MBS
held to maturity portfolios were $3.2 million below the carrying
value of the portfolios at December 31, 1996. It is the Company's
intent to hold these securities until maturity and therefore the
Company does not expect to realize the current unrealized losses
brought about by the current market environment.
Net loans increased by $276.5 million, or 49.3% during 1996 to
$836.9 million at December 31, 1996 from $560.4 million at
December 31, 1995. Loan originations and purchases during 1996
totalled $363.6 million (comprised of $271.1 million of
residential one-to four-family mortgage loans, $83.8 million of
commercial and multi-family real estate loans and $8.7 million of
consumer loans). One-to four-family mortgage loan originations
included $172.3 million of loans purchased in the secondary
market during 1996. Commercial and multi-family real estate loan
originations increased by $41.6 million to $83.8 million in 1996
from $42.2 million in 1995, or 98.6% comprised of $46.3 million
of multi-family loans and $37.5 million of commercial real estate
loans. Total loans increased substantially while the Company
continued towards its objective to shift toward adjustable-rate
loans. At December 31, 1996, total loans were comprised of $301.8
million adjustable-rate loans and $545.8 million fixed-rate
loans. During 1996, principal repayments totalled $91.8 million
and $3.5 million was transferred to REO. During the fourth
quarter, $10.6 million of loans held for sale were returned to
the loan portfolio at their estimated fair value.
Included in other assets at December 31, 1996 was $6.2 million of
net deferred tax assets compared to $4.1 million at December 31,
1995. The increase in the overall deferred tax asset from 1995
was attributable to an increase in the difference between the
financial statement credit loss provision and the tax bad debt
deduction along with a decrease in the deferred tax liability
related to securities marked to market for financial statement
purposes. These increases were partially offset by the deferred
tax liability related to the recapture of a portion of the tax
bad debt reserve per Section 593 of the Internal Revenue Code, as
amended during 1996. (See Note 9 to Notes to Consolidated
Financial Statements). Management believes that the Company's
projected future earnings will allow the Company to generate
future taxable income sufficient to utilize the deferred tax
asset over time.
Deposits totalled $1.14 billion at December 31, 1996, an increase
of $54.3 million, or 5.0% from $1.08 billion at December 31,
1995. Interest credited retained totalled $41.4 million in
addition to deposit growth of $12.9 million. In May, 1996, the
Bank opened its first supermarket branch in an Edwards Super Food
Store in Medford, Long Island. During July, 1996, the Bank opened
its second supermarket branch in a ShopRite store in Uniondale,
Long Island. During September, Columbia and Pathmark Stores, Inc.
entered into an agreement to open approximately 44 full-service
bank branches in Pathmark supermarkets throughout New York City,
Long Island, Westchester and Rockland counties by early 1998.
During the fourth quarter of 1996, two additional supermarket
locations opened, one at an Edwards Super Food Store in West
Babylon, Long Island, and one at a Pathmark Store in Brooklyn,
New York, bringing total deposits for the four locations to $12.1
million at December 31, 1996. Throughout most of 1996, the Bank
continued to experience a transfer of deposits from passbook and
money market accounts into certificates of deposit. As a result,
certificates of deposit increased from 49.2% of deposits at
December 31, 1995 to 52.8% of deposits at December 31, 1996.
Other deposit accounts decreased from 50.8% of deposits at
December 31, 1995 to 47.2% of deposits at December 31, 1996.
Borrowed funds increased 20.6% to $326.4 million at December 31,
1996 from $270.6 million at December 31, 1995. The increase in
borrowings was used to provide funding for loan originations and
whole loan bulk purchases during 1996.
Stockholders' equity totalled $99.4 million, or 6.3% of total
assets at December 31, 1996, an increase of $0.9 million, or 0.9%
from $98.5 million, or 6.7% of total assets at December 31, 1995.
The increase reflects net income of $9.4 million, an increase of
$1.9 million related to the allocation of ESOP stock,
amortization of awards of shares of common stock by the Bank's
Recognition and Retention Plans and Trusts ("RRPs") and
amortization of deferred compensation plan and $0.2 million
related to stock options exercised, net of taxes. These
components were offset by a decrease of $2.9 million in
unrealized appreciation on AFS securities, the purchase of
225,537 shares of treasury stock for $5.5 million and dividends
declared of $2.2 million.
INTEREST RATE SENSITIVITY ANALYSIS
The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are
"interest rate sensitive" and by monitoring an institution's
interest rate sensitivity "gap". An asset or liability is said to
be interest rate sensitive within a specific time period if it
will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount
of interest-earning assets maturing or repricing within a
specific time period and the amount of interest-bearing
liabilities maturing or repricing within the same period. A gap
is considered positive when the amount of interest-earning assets
maturing or repricing exceeds the amount of interest-bearing
liabilities maturing or repricing within the same period. A gap
is considered negative when the amount of interest-bearing
liabilities maturing or repricing exceeds the amount of interest-
earning assets maturing or repricing within the same period.
Accordingly, in a rising interest rate environment, an
institution with a positive gap would be in a better position to
invest in higher yielding assets which would result in the yield
on its assets increasing at a pace closer to the cost of its
interest-bearing liabilities, than would be the case if it had a
negative gap. During a period of falling interest rates, an
institution with a positive gap would tend to have its assets
repricing at a faster rate than one with a negative gap, which
would tend to restrain the growth of its net interest income.
The Company closely monitors its interest rate risk as such risk
relates to its operational strategies. The Company's Board of
Directors has established an Asset/Liability Committee,
responsible for reviewing its asset/liability policies and
interest rate risk position, which generally meets weekly and
reports to the Board on interest rate risk and trends on a
quarterly basis.
The following table sets forth the amounts of interest-earning
assets and interest-bearing liabilities outstanding at December
31, 1996 which are anticipated by the Company, based upon certain
assumptions described below, to reprice or mature in each of the
future time periods shown. Adjustable-rate assets and liabilities
are included in the table in the period in which their interest
rates can next be adjusted. For purposes of this table,
prepayment assumptions for fixed interest-rate assets are based
upon industry standards as well as the Company's historical
experience and estimates. The Company has assumed an annual
prepayment rate of approximately 11% for its fixed-rate MBS
portfolio. The computation of the estimated one-year gap assumes
that the interest rate on passbook account deposits is variable
and, therefore, interest sensitive. During the rising interest
rate environment throughout 1996, these funds were maintained at
an average rate of 2.49%, but may be repriced upward if rates
continue to rise. The Company has assumed that its passbook, NOW
and money market accounts, which totaled $528.2 million at
December 31, 1996, are withdrawn at the annual percentages of
approximately 11%, 5% and 26%, respectively.
More Than More Than More Than More Than
Three One Year Three Five Years Ten Years
Months Three to to Years to to to More Than
(Dollars in thousands) or Less Twelve Months Three Years Five Years Ten Years Twenty Years Twenty Years Total
------- ------------- ----------- ---------- ---------- ------------ ------------ -----
Interest-earning assets:
Mortgage loans (1) $ 65,434 119,134 200,096 206,736 123,095 89,425 - 803,920
Other loans (1) 13,694 6,263 2,686 2,125 6,604 2,150 197 33,719
MBSs held to maturity 8,338 19,308 42,818 42,258 64,194 21,024 - 197,940
Debt securities held to maturity - - 52,249 2,075 12,022 30,961 - 97,307
Securities available for sale 370,105 - - - - - - 370,105
Money market investments 6,869 - - - - - - 6,869
------- ------- ------- ------- ------- ------- ------ ---------
Total interest-earning assets 464,440 144,705 297,849 253,194 205,915 143,560 197 1,509,860
Premiums, net of unearned
discount and deferred fees (2) 10 3 7 6 5 3 - 34
------- ------- ------- ------- ------- ------- ------ ---------
Net interest-earning assets 464,450 144,708 297,856 253,200 205,920 143,563 197 1,509,894
------- ------- ------- ------- ------- ------- ------ ---------
Interest-bearing liabilities:
Passbook accounts 10,019 30,022 100,048 65,252 82,795 57,258 16,313 361,707
NOW accounts 1,461 4,360 56,817 15,200 20,396 11,207 2,075 111,516
Money market accounts 3,592 10,749 21,311 10,017 7,839 1,425 775 5,010
Certificate accounts 170,897 275,273 130,749 24,168 12 - - 601,099
Borrowed funds 205,437 42,413 77,420 620 543 - - 326,433
------- ------- ------- ------- ------- ------- ------ ---------
Total interest-bearing liabilities 391,406 362,817 386,345 115,257 111,585 69,890 18,465 1,455,765
------- ------- ------- ------- ------- ------- ------ ---------
Interest sensitivity gap $73,044 (218,109) (88,489) 137,943 94,335 73,673 (18,268) 54,129
======= ======= ======= ======= ======= ======= ====== =========
Cumulative interest sensitivity gap $73,044 (145,065) (233,554) (95,611) (1,276) 72,397 54,129
======= ======= ======= ======= ======= ======= ======
Cumulative interest sensitivity gap
as a percentage of total assets 4.61% (9.16)% (14.75)% (6.04)% (0.08)% 4.57% 3.42%
Cumulative net interest-earning
assets as a percentage of
interest-sensitive liabilities 118.66% 80.77% 79.52% 92.39% 99.91% 105.04% 103.72%
(1) For purposes of the gap analysis, mortgage and other loans
are reduced for non-performing mortgage loans and other loans but
are not reduced for the allowance for loan losses.
(2) For purposes of the gap analysis, premiums, unearned
discount and deferred fees are pro-rated.
At December 31, 1996, the Company's total interest-bearing
liabilities maturing or repricing within one year exceeded its
total interest-earning assets maturing or repricing within the
same time period by $145.1 million, representing a one year
cumulative gap ratio of negative 9.16%.
In order to reduce its sensitivity to interest rate risk, the
Company's current strategy includes emphasizing the origination
or purchase for portfolio of adjustable-rate loans, debt
securities and MBSs and maintaining an AFS securities portfolio.
During 1996, the Company purchased $49.3 million of adjustable-
rate MBSs which are expected to help protect net interest margins
during periods of rising interest rates. The Company also
purchased $6.0 million of floating rate corporate notes for its
debt securities portfolio. In 1996, the Company originated or
purchased $205.1 million of adjustable-rate mortgage loans.
Historically, the Company has been able to maintain a substantial
level of core deposits which the Company believes helps to limit
interest rate risk by providing a relatively stable, low cost
long-term funding base. At December 31, 1996, core deposits
represented 47.2% of deposits compared to 50.8% of deposits at
December 31, 1995. The Company expects to attract a higher
percentage of core deposits from its supermarket branch locations
as these locations continue to grow and mature.
AVERAGE STATEMENTS OF FINANCIAL POSITION
The following table sets forth certain information relating to
the Company's average consolidated statements of financial
condition and consolidated statements of operations for the three
years ended December 31, 1996 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
by the average balance of assets or liabilities, respectively,
for the periods shown. Average balances are 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.
1996 1995 1994
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
Assets:
Interest-earning assets:
Mortgage loans $647,516 $53,110 8.20% $503,085 $42,115 8.37% $594,104 $45,277 7.62%
Other loans 35,952 3,638 10.12 40,418 4,215 10.43 36,478 3,417 9.37
MBSs(1) 543,810 37,517 6.90 557,977 37,510 6.72 439,189 25,705 5.85
Money market investments 2,175 176 8.09 4,313 339 7.86 8,344 821 9.84
Debt and equity securities (1) 227,521 14,812 6.51 199,600 12,255 6.14 105,356 6,271 5.95
--------- ------- --------- ------ --------- ------
Total interest-earning assets 1,456,974 109,253 7.50 1,305,393 96,434 7.39 1,183,471 81,491 6.89
Non-interest earning assets 61,120 57,149 54,348
--------- --------- ---------
Total assets 1,518,094 1,362,542 1,237,819
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 373,337 9,314 2.49 405,932 10,105 2.49 499,326 12,458 2.49
Certificate accounts 572,768 32,436 5.66 503,990 29,426 5.84 367,307 17,864 4.86
NOW accounts 111,425 999 0.90 96,242 939 0.98 89,177 923 1.04
Money market accounts 58,108 1,929 3.32 45,472 1,585 3.49 30,502 752 2.47
Borrowed funds 285,951 16,690 5.84 200,788 13,060 6.50 147,112 8,292 5.64
--------- ------- --------- ------ --------- ------
Total interest-bearing liabilities 1,401,589 61,368 4.38 1,252,424 55,115 4.40 1,133,424 40,289 3.55
Other liabilities 20,628 17,946 15,845
--------- --------- ---------
Total liabilities 1,422,217 1,270,370 1,149,269
Stockholders' equity 95,877 92,172 88,550
--------- --------- ---------
Total liabilities and stockholders'
equity $1,518,094 $1,362,542 $1,237,819
Net interest income/net interest ========= ========= =========
rate spread (2) $47,885 3.12% $41,319 2.99% $41,202 3.34%
Net interest-earning assets/net ====== ==== ====== ==== ====== ====
interest margin (3) $55,385 3.29% $52,969 3.17% $50,047 3.48%
Ratio of interest-earning assets ====== ==== ====== ==== ====== ====
to interest-bearing liabilities 103.95% 104.23% 104.42%
====== ====== ======
(1) Includes AFS securities and securities held to maturity.
(2) Net interest rate spread represents the difference between
the average yield on interest-earning assets and the average cost
of interest-bearing liabilities.
(3) Net interest margin represents net interest income before
provision for loan losses divided by average interest-earning
assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1996 AND 1995
GENERAL
The Company reported net income of $9.4 million for 1996 compared
to a net income of $8.5 million for 1995. The $0.9 million
increase in earnings was primarily attributable to an increase of
$12.9 million in interest income, an increase of $0.5 million in
non-interest income and a reduction of $0.8 million in income tax
expense. These factors were mainly offset by interest expense
which increased by $6.3 million, an increase of $0.4 million in
the provision for loan losses and non-interest expense which
increased by $6.7 million (which included the one-time $6.8
million SAIF assessment charge).
INTEREST INCOME
Interest income increased by $12.9 million, or 13.3% to $109.3
million in 1996 from $96.4 million in 1995. The increase was
primarily the result of an increase in interest income on
mortgage loans, and debt and equity securities which were
partially offset by a decrease in interest income on other loans
and money market investments.
Interest income on mortgage loans increased by $11.0 million, or
26.1% to $53.1 million in 1996 from $42.1 million in 1995
primarily as a result of an increase in the average mortgage loan
balance of $144.4 million partially offset by a decrease in
average yield on mortgage loans of 17 basis points. During 1996,
the Bank originated or purchased $354.9 million of mortgage loans
which included $172.3 million of one-to four-family mortgage
loans purchased in the secondary market during 1996. Mortgage
loan originations for 1996 were originated at an average rate of
7.56% compared to 8.03% for 1995. The decline in the average
rate for originations was primarily due to decreases in the rate
indices used for residential and commercial real estate loans.
These indices which are the 30 year treasury bond and the 5 year
treasury note declined 19 and 21 basis points, respectively, for
1996 when compared to 1995. Principal repayments totalled $78.2
million in 1996 compared to $67.0 million in 1995.
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in
interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the
Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect
to (i) changes attributable to changes in volume (changes in
volume multiplied by prior rate), (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume), and
(iii) the net change. The changes attributable to the combined
impact of volume and rate have been allocated proportionately to
the changes due to volume and the changes due to rate.
Year Ended December 31, 1996 Year Ended December 31, 1995
Compared to Compared to
Year Ended December 31, 1995 Year Ended December 31, 1994
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
------ ------ --- ------ ------ ---
Interest-earning assets:
Mortgage loans $11,866 (871) 10,995 (7,351) 4,189 (3,162)
Other loans (455) (122) (577) 390 408 798
MBSs(1) (974) 981 7 7,617 4,188 11,805
Money market investments (173) 10 (163) (341) (141) (482)
Debt and equity securities(1) 1,787 770 2,557 5,778 206 5,984
------ ----- ------ ------ ------ ------
Total 12,051 768 12,819 6,093 8,850 14,943
------ ----- ------ ------ ------ ------
Interest-bearing liabilities:
Passbook accounts (791) - (791) (2,353) - (2,353)
Certificate accounts 3,935 (925) 3,010 7,498 4,064 11,562
NOW accounts 141 (81) 607 1 (55) 16
Money market accounts 424 (80) 344 453 380 833
Borrowed funds 5,067 (1,437) 3,630 3,363 1,405 4,768
------ ----- ------ ------ ------ ------
Total 8,776 (2,523) 6,253 9,032 5,794 14,826
------ ----- ------ ------ ------ ------
Net change in net interest income $ 3,275 3,291 6,566 (2,939) 3,056 117
====== ===== ====== ====== ====== ======
Interest income on other loans decreased by $577,000, or 13.7% to
$3.6 million in 1996 from $4.2 million in 1995 due to a decrease
of $4.5 million in average balances and a decline of 31 basis
points in the average yield. The Bank's consumer loan products
with the exception of equity loan/lines was discontinued in
November 1995. The consumer loan portfolio balance will continue
to amortize until all loans are satisfied except for the
overdraft line-of-credit product.
Interest income on MBSs was $37.5 million for both 1996 and 1995.
The average balance for 1996 decreased by $14.2 million, or 2.5%
to $543.8 million from $558.0 for 1995. This decrease was offset
by the average yield which increased by 18 basis points to 6.90%
for 1996 from 6.72% in 1995. During 1996, the Bank purchased
$161.1 million of MBSs for its AFS portfolio which were offset by
sales totalling $304.2 million. The average balance for 1996 was
down only $14.2 million because 96% of the net change in the MBS
portfolio occurred during the second half of 1996. The sales from
the AFS portfolio were used to fund mortgage loan originations,
purchases of loans in the secondary market and also for managing
the AFS portfolio to improve overall yield and shorten duration
of various securities. The improvement in the overall yield on
MBS securities was due to an increase in market rates during the
first quarter of 1996. During 1996, the Bank also purchased $38.4
million of MBSs for the held to maturity portfolio which were
offset by principal repayments totalling $32.0 million.
Interest income on money market investments decreased by
$163,000, or 48.1% to $176,000 in 1996 from $339,000 in 1995
primarily as a result of a decrease in average balances of $2.1
million in 1996. The decrease in the average balances is the
result of the Company's strategy to take advantage of its
liquidity and invest in higher yielding assets.
Interest on debt and equity securities increased by $2.6 million,
or 20.9% to $14.8 million in 1996 from $12.3 million in 1995
primarily as a result of an increase in the average balance of
$27.9 million and an increase in average yield of 37 basis
points. During 1996, the Company purchased $160.1 million of debt
and equity securities for its AFS portfolio which were offset by
sales totalling $63.5 million. The increase in the overall yield
to 6.51% from 6.14% was due to the acquisition of callable agency
securities and Federal National Mortgage Association ("FNMA")
preferred stock. In addition, during 1996, the Bank purchased
$7.0 million of debt securities for the held to maturity
portfolio offset by principal repayments totalling $37.5 million.
INTEREST EXPENSE
Interest expense increased by $6.3 million, or 11.3% to $61.4
million in 1996 from $55.1 million in 1995. The increase was
partially attributable to an increase in interest on deposits of
$2.6 million, or 6.2% to $44.7 million in 1996 from $42.1 million
in 1995. The increase in interest on deposits was due to an
increase of $64.0 million, or 6.1% in average deposits to $1.12
billion in 1996 from $1.05 billion in 1995. The overall cost of
deposits was 4.00% for both years.
Interest expense on certificate accounts increased by $3.0
million, or 10.2% to $32.4 million in 1996 from $29.4 million in
1995. The average balance of certificate accounts increased by
$68.8 million, or 13.6% to $572.8 million in 1996 from $504.0
million in 1995. The average cost of certificates decreased to
5.66% in 1996 from 5.84% in 1995. During most of 1996, the Bank
continued to experience net outflows from passbook accounts into
its certificates of deposit accounts. In 1996, passbook accounts
experienced an excess of withdrawals over deposits of $16.0
million, while certificates of deposit experienced an excess of
deposits over withdrawals of $36.8 million. Interest expense on
passbook accounts decreased by $791,000, or 7.8% to $9.3 million
in 1996 from $10.1 million in 1995 primarily due to a decrease in
average balances of $32.6 million due to customers seeking higher
yielding investment opportunities including the Bank's
certificates of deposit accounts. The Bank maintained its
passbook rate at 2.49% for both years.
Interest on borrowed funds increased by $3.6 million, or 27.8% to
$16.7 million in 1996 compared to $13.1 million in 1995. Borrowed
funds on an average basis increased by $85.2 million in 1996 due
to an increase in short-term advances with the Federal Home Loan
Bank ("FHLB") and reverse repurchase agreements with brokers to
provide funding for loan originations and partial funding for
residential loans purchased in the secondary market which
included two bulk purchases totalling approximately $70.0
million. The average cost of borrowings decreased to 5.84% in
1996 from 6.50% in 1995 due to a reduction in short and
intermediate term rates during the end of 1995 and the beginning
of 1996.
NET INTEREST INCOME
Net interest income increased by $6.6 million, or 15.9% to $47.9
million in 1996 from $41.3 million in 1995. The average yield on
interest-earning assets increased by 11 basis points to 7.50% in
1996 from 7.39% in 1995, and the average cost of liabilities
decreased by 2 basis points to 4.38% in 1996 from 4.40% in 1995.
The net interest rate spread was 3.12% in 1996 compared to 2.99%
in 1995.
PROVISION FOR LOAN LOSSES
The Bank provided $3.1 million for loan losses in 1996 compared
to $2.8 million in 1995. The provision for loan losses reflects
management's periodic review and evaluation of the loan
portfolio. The increase in the provision for loan losses was due
to the growth in the Bank's residential and commercial mortgage
loan portfolios. As of December 31, 1996, the allowance for loan
losses was $10.7 million compared to $8.6 million at December 31,
1995. As of December 31, 1996, the allowance for loan losses was
1.26% of total loans compared to 1.51% of total loans at December
31, 1995. The decrease was attributable to the growth in the loan
portfolio and a decline in non-performing loans. The allowance
for loan losses was 77.05% of non-performing loans at December
31, 1996 compared to 50.80% at December 31, 1995.
NON-INTEREST INCOME
Non-interest income increased by $532,000, or 5.9% to $9.6
million in 1996 from $9.0 million in 1995. Fee income on savings
and checking accounts increased by $517,000, or 18.1% primarily
due to an increase of approximately 16,000 in the number of
active accounts. Annuity, insurance and mutual fund fees
increased by $589,000, or 23.3% due to an increase of $224,000 in
annuity income, an increase of $200,000 in mutual fund income and
an increase of $165,000 in revenue from the distribution of
traditional life insurance products. The increase in sales of
annuity and mutual fund products by Columbia Investment Services,
Inc. ("CIS"), the Bank's wholly-owned subsidiary, is partially
due to the increased demand for alternative sources of
investments by the Bank's depositors. Approximately 45% of sales
were from withdrawals of deposit balances from the Bank. Finally,
loan fees and servicing income decreased by $434,000, or 19.4% to
$1.8 million in 1996 from $2.2 million in 1995. The decrease was
attributable to prepayment fees on commercial real estate loans
which were higher in 1995 due to the prepayment of several large
commercial real estate loans. During 1996, the Company realized
net gains of $371,000 on the sales of AFS securities which were
offset by an increase of $228,000 in the valuation allowance on
cooperative apartment loans held for sale.
NON-INTEREST EXPENSE
Non-interest expense increased by $6.7 million, or 21.0% to $38.5
million in 1996 from $31.8 million in 1995. The increase in non-
interest expense was primarily due to the SAIF recapitalization
charge of $6.8 million which was recorded in the third quarter of
1996. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 which empowered the Board of
Directors of the FDIC to impose and collect the assessment. The
special assessment rate was 65.7 basis points per $100 of insured
deposits at March 31, 1995. Compensation and benefit costs
increased by $848,000, or 5.7% to $15.7 million in 1996 from
$14.9 million in 1995. Salary costs increased by $1.6 million due
to normal merit increases, staff hired for the supermarket
banking program and an increase in commission costs for CIS.
These factors were partially offset by a curtailment gain of
$266,000 which was recorded upon the freeze of the Bank's pension
plan as of July 1, 1996. The curtailment gain coupled with a
decrease in the normal accrual for 1996 reduced pension expense
by $462,000 when compared to the previous year. During 1996, the
Bank accrued a matching contribution for its employee 401(k)
contributions of $120,000. Real estate owned ("REO") operations,
net decreased by $1.1 million, or 80.3% to $277,000 for 1996 from
$1.4 million for 1995. REO expenses incurred on properties in the
portfolio decreased by $669,000 and the provision for REO
decreased by $459,000, respectively, since the REO portfolio
decreased by $995,000, or 48.9% from the previous year. The
annual premium paid for SAIF insurance, exclusive of the SAIF
assessment charge, decreased by $326,000, or 12.3% to $2.3
million for 1996 from $2.7 million for 1995 due to a reduction in
the premium for the fourth quarter of 1996 which included a
rebate for the 1996 overassessment. Finally, other non-interest
expenses increased by $325,000, or 3.4% to $9.8 million for 1996
from $9.5 million for 1995. During 1996, advertising costs
increased by $233,000 to support the Bank's various products and
for the implementation of the supermarket banking program.
Miscellaneous expenses increased by $587,000 due to the
settlement of two legal suits totalling $150,000 and agency fees
incurred to hire staff for the supermarket program. These
increases were partially offset by the reversal of a reserve of
$430,000 for potential losses relating to checks in process of
collection which were held by Nationar. During 1996, the Bank
recovered all of its previously outstanding claims. (See Note 12
to Notes to Consolidated Financial Statements.)
INCOME TAX EXPENSE
Income tax expense was $6.4 million in 1996 compared to $7.2
million in 1995. In the fourth quarter of 1996, the Company
recorded the benefit resulting from a change in the method it
used for determining the federal tax return treatment of its bad
debt reserve. This resulted in a reduction in its effective
federal tax rate for the fourth quarter of 1996 and the entire
year. In the third quarter of 1996, the Company recorded a tax
benefit relating to the method of computing its bad debt reserve
for New York State income tax purposes. Income tax expense for
1996 was reported at an effective tax rate of 40.6% compared to
45.8% in 1995. (See Note 9 to Notes to Consolidated Financial
Statements.)
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1995 AND 1994
GENERAL
The Company reported net income of $8.5 million for 1995 compared
to a net loss of $4.3 million for 1994. The $12.8 million
increase in earnings was primarily attributable to an increase of
$14.9 million in interest income, a decrease of $10.6 million in
the provision for loan losses, a decrease of $9.3 million in non-
interest expense and an increase of $2.5 million in non-interest
income. These were partially offset by an increase in interest
expense of $14.8 million and an increase of $9.7 million in
income tax expense.
INTEREST INCOME
Interest income increased by $14.9 million, or 18.3% to $96.4
million in 1995 from $81.5 million in 1994. The increase was
primarily the result of an increase in interest income on MBSs,
debt securities and other loans which was partially offset by a
decrease in interest income on mortgages and money market
investments.
Interest income on mortgage loans decreased by $3.2 million, or
7.0% to $42.1 million in 1995 from $45.3 million in 1994
primarily as a result of a decrease in the average loan balance
of $91.0 million partially offset by an increase in average yield
of 75 basis points. The decrease in average balances of mortgage
loans is primarily due to the sale of non-performing commercial,
multi-family real estate and cooperative apartment loans and
performing cooperative apartment loans in several bulk sale
transactions during 1994. These sales were partially offset by
loan originations of $132.6 million during 1995 which were
originated at an average rate of 8.03% compared to $83.7 million
of mortgage loans which were originated at an average rate of
7.17% in 1994. Principal repayments totalled $67.0 million in
1995 compared to $64.8 million in 1994.
Interest income on other loans increased by $798,000, or 23.4% to
$4.2 million in 1995 from $3.4 million in 1994 due to an increase
in average yield of 106 basis points coupled with an increase in
average balances of $3.9 million. The increase in average
balances was due primarily to loan originations of $10.7 million
in 1995. The increase in yield was due to higher rates on new
loans originated in 1995.
Interest income on MBSs increased by $11.8 million, or 45.9% to
$37.5 million in 1995 from $25.7 million in 1994 primarily due to
an increase in average balances of $118.8 million and an increase
in average yield of 87 basis points. The increase in average
balances was primarily due to the reinvestment of the proceeds of
the bulk sales of loans and REO during the second half of 1994
into MBSs. In addition, during the second quarter of 1995, the
Company completed a $75 million leverage transaction which
utilized short-term borrowings to purchase floating-rate CMOs.
The increase in yield was primarily due to the purchase of $160.8
million of adjustable-rate MBSs during 1995 and $145.6 million of
adjustable-rate MBSs during 1994 which repriced upward due to the
increase in market interest rates during 1995. The increase in
yield was also attributable to a decrease in premium amortization
since the prepayment rate was slower in 1995 than during 1994.
Interest income on money market investments decreased by
$482,000, or 58.7% to $339,000 in 1995 from $821,000 in 1994
primarily as a result of a decrease in average balances of $4.0
million in 1995. The decrease in the average balances is the
result of the Company's strategy to take advantage of its
liquidity and invest in higher yielding assets.
Interest on debt and equity securities increased by $6.0 million,
or 95.4% to $12.3 million in 1995 from $6.3 million in 1994
primarily as a result of an increase in the average balances of
$94.2 million and an increase in average yield of 19 basis
points. The increase in average balances was due to purchases of
$112.1 million of which $21.8 million were adjustable-rate
securities. These purchases were made to supplement a lack of
loan demand during the first quarter of 1995.
INTEREST EXPENSE
Interest expense increased by $14.8 million, or 36.8% to $55.1
million in 1995 from $40.3 million in 1994. The increase was
primarily the result of an increase in interest on deposits of
$10.1 million, or 31.4% to $42.1 million in 1995 from $32.0
million in 1994. The increase in interest on deposits was
primarily due to an increase of 76 basis points in the average
cost of deposits and an increase of $65.3 million in average
balances of deposits.
Interest expense on certificate accounts increased by $11.5
million, or 64.7% to $29.4 million in 1995 from $17.9 million in
1994. The average balance of certificate accounts increased by
$136.7 million, or 37.2% to $504.0 million in 1995 from $367.3
million in 1994. The average cost of certificates increased to
5.84% in 1995 from 4.86% in 1994. During most of 1995, the Bank
experienced net outflows from passbook accounts into its
certificates of deposit accounts. In 1995, passbook accounts
experienced an excess of withdrawals over deposits of $92.6
million, while certificates of deposit experienced an excess of
deposits over withdrawals of $62.5 million. Interest expense on
passbook accounts decreased by $2.4 million, or 18.9% to $10.1
million in 1995 from $12.5 million in 1994 primarily due to a
decrease in average balances of $93.4 million due to customers
seeking higher yielding investment opportunities including the
Bank's certificates of deposit accounts.
Interest on borrowed funds increased by $4.8 million, or 57.5% to
$13.1 million in 1995 compared to $8.3 million in 1994. Borrowed
funds on an average basis increased by $53.7 million in 1995 due
to an increase in short-term advances with the FHLB and reverse
repurchase agreements with brokers to provide funding for
purchases of debt securities and MBSs with wholesale borrowings
including the Bank's $75.0 million leverage transaction. The
average cost of borrowings increased to 6.50% in 1995 from 5.64%
in 1994 due to increases in market interest rates.
NET INTEREST INCOME
Net interest income increased by $117,000, or 0.3% to $41.3
million in 1995 from $41.2 million in 1994. The average cost of
liabilities increased 85 basis points to 4.40% in 1995 from 3.55%
in 1994, which was partially offset by the average yield on
interest-earning assets which increased by 50 basis points to
7.39% in 1995 from 6.89% in 1994. The net interest rate spread
was 2.99% in 1995 compared to 3.34% in 1994.
PROVISION FOR LOAN LOSSES
The Bank provided $2.8 million for loan losses in 1995 compared
to $13.4 million in 1994. The provision for loan losses
represents management's periodic review and evaluation of the
loan portfolio. The decrease in 1995 when compared to 1994 was
principally due to additional provisions of $7.5 million booked
in 1994 in connection with the bulk sales completed in 1994. As
of December 31, 1995, the allowance for loan losses was $8.6
million compared to $10.8 million at December 31, 1994. The Bank
took charge-offs totaling $5.5 million in 1995, compared to $24.7
million in 1994 which included $14.4 million in connection with
the bulk sales. As of December 31, 1995, the allowance for loan
losses was 1.51% of total loans compared to 2.07% of total loans
at December 31, 1994. The decrease was attributable to the growth
in the loan portfolio and a decline in non-performing loans. The
allowance for loan losses was 50.80% of non-performing loans at
December 31, 1995 compared to 38.33% at December 31, 1994.
NON-INTEREST INCOME
Non-interest income increased by $2.5 million, or 38.2% to $9.0
million in 1995 from $6.5 million in 1994. The increase of $1.5
million in loan fees and servicing income was primarily due to
$975,000 received in prepayment fees on several commercial real
estate loans repaid during the fourth quarter of 1995. Fee income
on savings and checking accounts increased by $579,000, or 25.4%
due to an increase of approximately 7,700 in the number of active
accounts. Annuity, insurance and mutual fund fees increased by
$500,000, or 24.7% due to an increase of $437,000 in annuity
income, an increase of $37,000 in mutual fund income and an
increase of $26,000 in revenue from our new venture, the
distribution of traditional life insurance products. The increase
in sales of annuity and mutual fund products by CIS, the Bank's
wholly-owned subsidiary, is partially due to the increased demand
for alternative sources of investments by the Bank's depositors.
Approximately 49% of sales were from withdrawals of deposit
balances from the Bank.
NON-INTEREST EXPENSE
Non-interest expense decreased by $9.3 million, or 22.7% to $31.8
million in 1995 from $41.1 million in 1994. The decrease is
primarily due to a decrease of $10.8 million in expenses from REO
operations due to provisions on REO losses recorded during 1994
in connection with the bulk sale transactions. Compensation and
benefit expenses increased by $1.3 million, or 9.4% due to normal
merit increases and the implementation of an executive and staff
incentive plan and an increase of $461,000 in the cost of the
ESOP plan due to the significant appreciation in the Company's
stock price. Other miscellaneous expenses increased by $175,000,
or 1.9% when compared to 1994, partially due to additions of
$430,000 to the reserve for possible losses for checks in the
process of collection being held by Nationar. (See Note 12 to
Notes to Consolidated Financial Statements.)
INCOME TAX EXPENSE
The income tax provision was $7.2 million in 1995 compared to a
tax benefit of $2.5 million in 1994. The increase in income taxes
is primarily due to an increase of $22.6 million in income before
income taxes. Income tax expense in 1995 reflects a reduction of
$300,000 in the valuation allowance for the Bank's net deferred
tax asset due to a decline in the deferred tax asset allocated to
state and local taxes.
NON-PERFORMING ASSETS
The following table sets forth information regarding non-
performing assets which include all non-accrual loans (which
consist of loans 90 days or more past due and restructured loans
that have not yet performed in accordance with their modified
terms for the required six-month seasoning period), accruing
restructured loans and real estate owned.
December 31,
(In thousands) 1996 1995 1994
------ ------ ------
Non accrual loans:
One-to four-family $ 4,083 3,800 5,995
Cooperative 431 871 934
Multi-family 1,463 967 5,088
Non-residential and other 4,756 4,167 6,732
------ ------ ------
Total non-accrual loans 10,733 9,805 18,749
------ ------ ------
Restructured loans:
One-to four-family 887 853 815
Cooperative 486 494 502
Multi-family 1,427 3,602 4,071
Non-residential and other 360 2,123 4,162
------ ------ ------
Total restructured loans 3,160 7,072 9,550
------ ------ ------
Total non-performing loans 13,893 16,877 28,299
------ ------ ------
REO, net:
One-to four-family 266 1,148 971
Cooperative 292 723 1,128
Multi-family - 156 -
Non-residential and other 561 184 6,462
------ ------ ------
Total REO 1,119 2,211 8,561
Less allowance for REO (81) (178) (717)
------ ------ ------
REO, net 1,038 2,033 7,844
------ ------ ------
Total non-performing assets $14,931 18,910 36,143
====== ====== ======
During the past three years the Company's expanded loan
workout/resolution efforts have successfully contributed toward
reducing non-performing assets to manageable levels. Since year-
end 1994, non-performing assets have declined by $21.2 million,
or 58.7%, from a level of $36.1 million to $14.9 million at year-
end 1996. The decrease in non-performing assets is reflected in
the following ratios: Non-performing loans to total loans was
1.64% for 1996 compared to 2.97% for 1995 and 5.41% for 1994;
Non-performing assets to total assets was 0.94% for 1996 compared
to 1.28% for 1995 and 2.85% for 1994 and Non-performing loans to
total assets was 0.87% for 1996 compared to 1.15% for 1995 and
2.23% for 1994. There can be no assurance that non-performing
assets will continue to decline.
The decrease in non-performing assets in 1996 was primarily due
to continued sales of REO properties and a continued decline in
non-performing loans. During 1996, the Company sold 60 REO
properties with a fair value of $3.1 million. During 1996, 2
restructured loans with a balance of $2.1 million were
reclassified to performing loans since they had performed in
accordance with their modified terms for a period of 18 months
and are no longer considered classified assets. Total non-accrual
loans increased by $928,000 during 1996 due to an increase in
non-residential loans.
The decrease in non-performing assets in 1995 was primarily due
to continued sales of REO properties and a continued decline in
non-performing loans. During 1995, the Company sold 76 REO
properties with a fair value of $8.5 million. During 1995, six
restructured loans with a balance of $3.0 million were
reclassified to performing loans since they had performed in
accordance with their modified terms for a period of 18 months
and are no longer considered classified assets. Also, total non-
accrual loans declined by $8.9 million during 1995 due to the
Company's continued efforts to reduce non-performing loans.
LIQUIDITY
The Bank is required to maintain minimum levels of liquid assets
as defined by the Office of Thrift Supervision ("OTS")
regulations. This requirement, which may be varied by the OTS
depending upon economic conditions and deposit flows, is based
upon a percentage of withdrawable deposits and short-term
borrowings. The required ratio is currently 5%. The Bank's ratio
was 14.99% at December 31, 1996 compared to 10.31% at December
31, 1995.
The Company's primary sources of funds are deposits, principal
and interest payments on loans, debt securities and MBSs,
retained earnings and advances from FHLB and other borrowings.
Proceeds from the sale of AFS securities are also a source of
funding, as are, to a lesser extent, the sales of annuities,
insurance and securities brokerage activities conducted by the
Bank's wholly-owned subsidiary, CIS. While maturities and
scheduled amortization of loans and securities 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 December 31, 1996 and December 31,
1995, cash and short and intermediate-term investments totaled
$35.7 million and $38.9 million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year and AFS
securities. Other sources of funds include FHLB advances, which
at December 31, 1996, totaled $178.4 million. If needed, the Bank
may borrow an additional $11.6 million from the FHLB.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities; investing
activities and financing activities. Net cash provided by (used
in) operating activities, consisting primarily of interest and
dividends received less interest paid on deposits were $10.7
million, $(8.3) million and $45.0 million for the years ended
December 31, 1996, 1995 and 1994, respectively. Net cash used in
investing activities, consisting primarily of disbursements of
loan originations and securities purchases, offset by principal
collections on loans and proceeds from maturities of securities
held to maturity or sales of AFS securities or disposition of
assets including REO were $(117.6) million, $(197.6) million and
$(62.4) million for the years ended December 31, 1996, 1995 and
1994, respectively. Net cash provided by financing activities,
consisting primarily of net activity in deposits and borrowings,
purchases of treasury stock, payments of common stock dividends
and proceeds from stock options exercised were $103.7 million,
$214.3 million and $11.8 million for the years ended December 31,
1996, 1995 and 1994, respectively.
At December 31, 1996, the Bank had outstanding loan commitments
to originate $55.8 million of loans. The Bank also had
commitments to purchase $1.0 million of debt securities. The Bank
believes that it will have sufficient funds available to meet
these commitments. At December 31, 1996, certificates of deposit
which are scheduled to mature in one year or less totalled $446.2
million.
INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power
of money over time and changes due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's
operations. Unlike most industrial companies, nearly all the
assets and liabilities of the Bank are monetary. As a result,
interest rates have a greater impact on the Bank's performance
than do the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or to the
same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to Notes to Consolidated Financial Statements.
STOCK DATA
Haven Bancorp, Inc.'s common stock, listed under the symbol HAVN
is publicly traded on the Nasdaq Stock Market. As of March 5,
1997, the Company had approximately 450 stockholders of record
(not including the number of persons or entities holding stock in
nominee or street name through various brokerage firms) and
4,328,874 outstanding shares of common stock (excluding treasury
shares). The common stock traded in a high and low range of
$291/2 and $221/4 during the year ended December 31, 1996.
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
December 31, December 31,
1996 1995
------------ ------------
ASSETS
Cash and due from banks $ 28,848 $ 29,790
Money market investments 6,869 9,064
Securities available for sale (note 2) 370,105 503,058
Loans held for sale (note 5) - 11,412
Debt securities held to maturity (estimated fair value of $96,324
and $126,811 in 1996 and 1995, respectively) (note 3) 97,307 127,796
Federal Home Loan Bank of NY Stock, at cost 9,890 8,138
Mortgage-backed securities held to maturity (estimated fair value of
$195,682 and $189,551 in 1996 and 1995, respectively) (notes 4 and 8) 197,940 190,714
Loans (note 5):
First mortgage loans 793,556 519,804
Cooperative apartment loans 19,936 10,187
Other loans 34,094 38,967
--------- ---------
Total loans 847,586 568,958
Less allowance for loan losses (note 6) (10,704) (8,573)
--------- ---------
Loans, net 836,882 560,385
Premises and equipment, net 8,820 7,590
Accrued interest receivable (notes 2, 3, 4 and 5) 12,172 10,736
Real estate owned, net (note 6) 1,038 2,033
Other assets (note 9) 13,674 12,100
--------- ---------
Total assets $1,583,545 1,472,816
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 7) $1,137,788 1,083,446
Borrowed funds (note 8) 326,433 270,583
Mortgagors' escrow balances 4,621 3,227
Due to broker 1,000 5,000
Other liabilities (note 9) 14,319 12,041
--------- ---------
Total liabilities 1,484,161 1,374,297
--------- ---------
Commitments and contingencies (notes 6 and 12)
Stockholders' Equity (note 13):
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 10,500,000 shares authorized,
4,959,375 issued; 4,325,407 and 4,511,457 shares
outstanding in 1996 and 1995, respectively 50 50
Additional paid-in capital 48,844 47,331
Retained earnings, substantially restricted (note 13) 65,092 57,919
Unrealized (loss) gain on securities available for sale, net
of tax effect (note 2) (840) 2,083
Treasury stock, at cost (633,968 and 447,918 shares in 1996
and 1995, respectively) (11,049) (6,023)
Unallocated common stock held by ESOP (note 11) (1,854) (2,197)
Unearned common stock held by Bank's Recognition Plans
and Trusts (note 11) (267) (644)
Unearned compensation (note 11) (592) -
--------- ---------
Total stockholders' equity 99,384 98,519
--------- ---------
Total liabilities and stockholders' equity $1,583,545 1,472,816
========= =========
See accompanying notes to consolidated financial statements.
HAVEN BANCORP, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
Years Ended December 31,
------------------------------
1996 1995 1994
------ ------ ------
Interest income:
Mortgage loans $53,110 42,115 45,277
Other loans 3,638 4,215 3,417
Mortgage-backed securities 37,517 37,510 25,705
Money market investments 176 339 821
Debt and equity securities 14,812 12,255 6,271
------- ------ ------
Total interest income 109,253 96,434 81,491
------- ------ ------
Interest expense:
Deposits:
Passbook accounts 9,314 10,105 12,458
NOW accounts 999 939 923
Money market accounts 1,929 1,585 752
Certificate accounts 32,436 29,426 17,864
Borrowings 16,690 13,060 8,292
------ ------ ------
Total interest expense 61,368 55,115 40,289
------ ------ ------
Net interest income before provision for loan losses 47,885 41,319 41,202
Provision for loan losses (note 6) 3,125 2,775 13,400
------ ------ ------
Net interest income after provision for loan losses 44,760 38,544 27,802
------ ------ ------
Non-interest income:
Loan fees and servicing income 1,807 2,241 790
Savings/checking fees 3,378 2,861 2,282
Net gain on sales of interest-earning assets 140 126 372
Insurance annuity and mutual funds fees 3,114 2,525 2,025
Other 1,115 1,269 1,060
------ ------ ------
Total non-interest income 9,554 9,022 6,529
------ ------ ------
Non-interest expense:
Compensation and benefits (notes 10 and 11) 15,737 14,889 13,605
Occupancy and equipment (note 12) 3,478 3,334 3,238
Real estate owned operations, net 277 1,405 12,253
SAIF recapitalization charge (note 7) 6,800 - -
Federal deposit insurance premiums 2,327 2,653 2,709
Other 9,836 9,511 9,336
------ ------ ------
Total non-interest expense 38,455 31,792 41,141
------ ------ ------
Income (loss) before income tax expense (benefit) 15,859 15,774 (6,810)
Income tax expense (benefit) (note 9) 6,434 7,230 (2,475)
------ ------ ------
Net income (loss) $9,425 8,544 (4,335)
====== ====== ======
Net income (loss) per common share: Primary $ 2.12 1.89 (0.94)
====== ====== ======
Fully diluted $ 2.11 1.87 (0.94)
====== ====== ======
See accompanying notes to consolidated financial statements.
HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
The three years ended December 31, 1996
Unrealized
Gain (Loss) Unallocated Unearned
Additional on Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
(In thousands of dollars, Stock Capital Earnings for Sale Stock by ESOP by RRPs Compensation Total
except for share data) ------ ---------- -------- ------------- -------- ----------- ---------- ------------ -----
Balance at December 31, 1993 $ 50 46,303 54,666 - (518) (3,318) (1,373) - 95,810
Net loss - - (4,335) - - - - - (4,335)
Purchase of treasury stock
(365,469 shares) - - - - (4,575) - - - (4,575)
Unrealized appreciation on securities
transferred from held to maturity to
available for sale, net of tax effect - - - 321 - - - - 321
Change in unrealized appreciation on
securities available for sale, net
of tax effect - - - (2,201) - - - - (2,201)
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits - 192 - - - 593 430 - 1,215
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at December 31, 1994 50 46,495 50,331 (1,880) (5,093) (2,725) (943) - 86,235
Net income - - 8,544 - - - - - 8,544
Dividends declared - - (902) - - - - - (902)
Purchase of treasury stock
(75,570 shares) - - - - (1,360) - - - (1,360)
Reissued Treasury Stock contributed to
RRP (9,918 shares) - 49 - - 119 - (168) - -
Stock options exercised and related
tax effect (25,703 shares) - 45 (54) - 311 - - - 302
Unrealized appreciation on securities
transferred from held to maturity to
available for sale, net of tax effect - - - 2,091 - - - - 2,091
Change in unrealized appreciation on
securities available for sale, net
of tax effect - - - 1,872 - - - - 1,872
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits - 742 - - - 528 467 - 1,737
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at December 31, 1995 50 47,331 57,919 2,083 (6,023) (2,197) (644) - 98,519
Net income - - 9,425 - - - - - 9,425
Dividends declared - - (2,229) - - - - - (2,229)
Purchase of treasury stock
(225,537 shares) - - - - (5,516) - - - (5,516)
Treasury Stock issued for deferred
compensation plan (30,081 shares) - 410 - - 372 - - (782) -
Stock options exercised and related
tax effect (9,406 shares) - 104 (23) - 118 - - - 199
Change in unrealized appreciation on
securities available for sale, net
of tax effect - - - (2,923) - - - - (2,923)
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits - 999 - - - 343 377 - 1,719
Amortization of deferred compensation
plan - - - - - - - 190 190
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at December 31, 1996 $ 50 48,844 65,092 (840) (11,049) (1,854) (267) (592) 99,384
==== ====== ====== ====== ====== ====== ===== ===== ======
See accompanying notes to consolidated financial statements.
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
Years Ended December 31,
--------------------------
1996 1995 1994
------ ------ ------
Cash flows from operating activities:
Net income (loss) $ 9,425 8,544 (4,335)
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Amortization of cost of stock benefit plans 1,909 1,737 1,388
Amortization of net deferred loan origination fees (245) (433) (71)
Premiums and discounts on loans, mortgage-backed
and debt securities 233 390 2,081
Provision for loan losses 3,125 2,775 13,400
Provision for losses on real estate owned 291 750 10,309
Deferred income taxes 230 5,232 (1,782)
Net gain on sales of interest-earning assets (140) (126) (372)
Depreciation and amortization 878 925 1,208
Increase in accrued interest receivable (1,436) (2,163) (863)
(Decrease) increase in due to broker (4,000) (25,800) 30,800
Increase (decrease) in other liabilities 2,278 1,682 (2,022)
Increase in other assets (1,804) (1,844) (4,747)
------- ------- -------
Net cash provided by (used in) operating activities 10,744 (8,331) 44,994
------- ------- -------
Cash flows from investing activities:
Net increase in loans (269,343) (65,505) (55,080)
Proceeds from disposition of assets (including REO) 4,313 9,703 169,399
Purchases of securities available for sale (321,162) (28,964) (5,000)
Principal repayments on securities available for sale 73,472 2,800 15,015
Proceeds from sales of securities available for sale 374,840 25,152 59,432
Purchases of debt securities held to maturity (6,989) (99,022) (130,537)
Principal repayments, maturities and calls on debt securities
held to maturity 37,511 60,693 -
Purchases of mortgage-backed securities held to maturity (38,357) (175,859) (206,449)
Principal repayment on mortgage-backed securities
held to maturity 32,004 74,163 91,015
Purchases of Federal Home Loan Bank Stock, net (1,752) (1,250) -
Net (increase) decrease in premises and equipment (2,108) 483 (200)
------- ------- -------
Net cash used in investing activities (117,571) (197,606) (62,405)
------- ------- -------
Cash flows from financing activities:
Net increase in deposits 54,342 70,284 26,402
Net increase (decrease) in borrowed funds 55,850 145,502 (10,935)
Increase in mortgagors' escrow balances 1,394 90 920
Purchase of treasury stock (5,516) (1,360) (4,575)
Payment of common stock dividends (2,475) (454) -
Stock options exercised 95 257 -
------- ------- -------
Net cash provided by financing activities 103,690 214,319 11,812
------- ------- -------
Net (decrease) increase in cash and cash equivalents (3,137) 8,382 (5,599)
Cash and cash equivalents at beginning of year 38,854 30,472 36,071
------- ------- -------
Cash and cash equivalents at end of year $35,717 38,854 30,472
======= ======= =======
Supplemental information:
Cash paid during the year for:
Interest $60,187 54,042 39,489
Income taxes 7,824 685 63
Additions to real estate owned 3,470 4,638 7,764
Loans transferred (from) to loans held for sale (10,594) 12,038 170,500
Securities purchased not yet received 1,000 5,000 30,800
Mortgage-backed securities and debt securities held
to maturity transferred to securities available for sale (note 1) - 447,200 82,800
======= ======= =======
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Haven Bancorp, Inc. (the "Holding Company") was formed on March
25, 1993, as the holding company for Columbia Federal Savings
Bank (the "Bank"). On September 23, 1993, the Holding Company
completed its initial public offering of 4,959,375 shares of
common stock in connection with the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered
stock savings bank (the "Conversion"). Concurrent with the
conversion process, the Holding Company acquired all of the
issued and outstanding stock of the Bank with a portion of the
net proceeds.
The accounting and reporting policies of the Holding Company and
the Bank and its subsidiaries (the "Company") conform to
generally accepted accounting principles and to general practices
within the banking industry. The following summarizes the
significant policies and practices:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Holding Company and its subsidiary, the Bank, and
its wholly-owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of each
consolidated statement of financial condition and revenues and
expenses for the year then ended. Actual results could differ
from those estimates.
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and money market investments.
MONEY MARKET INVESTMENTS
Money market investments represent instruments with maturities of
ninety days or less. These investments are carried at cost,
adjusted for premiums and discounts which are recognized in
interest income over the period to maturity.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities", debt and mortgage-backed securities ("MBSs")
which the Company has the positive intent and ability to hold
until maturity are carried at cost, adjusted for amortization of
premiums and accretion of discounts on a level yield method over
the remaining period to contractual maturity, adjusted, in the
case of MBSs, for actual prepayments. Debt and equity securities
and MBSs to be held for indefinite periods of time and not
intended to be held to maturity are classified as available for
sale securities and are recorded at fair value, with unrealized
gains (losses), net of tax, reported as a separate component of
stockholders' equity.
In connection with its adoption of SFAS No. 115 on January 1,
1994, the Company reclassified $19.0 million of debt securities
and $63.8 million of MBSs previously classified as held to
maturity to securities available for sale.
In November, 1995, the Financial Accounting Standards Board
("FASB") issued an implementation guide for SFAS No. 115. The
implementation guide provided guidance in the form of a question
and answer format and allowed an opportunity from mid-November
1995 to December 31, 1995 for companies to reclassify securities
in the held to maturity portfolio to securities in the available
for sale portfolio without tainting the remainder of the
portfolio. In connection with the implementation guide for SFAS
No. 115, the Company reclassified $41.9 million of debt
securities and $405.3 million of MBSs previously classified as
held to maturity to securities available for sale.
Gains and losses on the sale of securities are determined using
the specific identification method and are included in non-
interest income.
LOANS HELD FOR SALE
Loans held for sale are carried at the lower of cost or estimated
market value in the aggregate. Net unrealized losses are provided
for in a valuation allowance created through charges to
operations. Transfers to/from loans held for investment to loans
held for sale are recorded at the lower of cost or estimated
market value in the aggregate.
LOANS
Loans are carried at their unpaid principal balances, less
unearned discounts, net deferred loan origination fees and the
allowance for loan losses. Purchased loans are recorded at cost.
Related premiums or discounts are amortized to expense or
accreted to income using the level-yield method over the
estimated life of the loans.
On January 1, 1995, the Company adopted, on a prospective basis,
SFAS No. 114, "Accounting by Creditors for Impairment of a Loan"
and the amendment thereof, SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures".
These statements require that impaired loans that are within
their scope be measured based on the present value of expected
future cash flows discounted at the loan's effective interest
rate or as a practical expedient, at the loan's current
observable market price, or the fair value of the collateral if
the loan is collateral dependent. The amount by which the
recorded investment of an impaired loan exceeds the measurement
value is recognized by creating a valuation allowance through a
charge to the provision for loan losses. SFAS No. 114 does not
apply to those large groups of smaller-balance homogeneous loans
that are collectively evaluated for impairment, which, for the
Company, include one-to four-family first mortgage loans and
cooperative apartment loans ("residential loans") and consumer
loans. The implementation of SFAS No. 114 and SFAS No. 118 did
not materially affect the Company's consolidated financial
statements.
Loans individually reviewed for impairment by the Company within
the scope of SFAS No. 114 are limited to loans modified in a
troubled debt restructuring ("TDR") and commercial and multi-
family first mortgage loans. The measurement value of the
Company's impaired loans was based on the fair value of the
underlying collateral. The Company's impaired loan identification
and measurement process are conducted in conjunction with the
Company's review of the adequacy of its allowance for loan
losses. Specific factors utilized in the impaired loan
identification process include, but are not limited to,
delinquency status, loan-to-value ratio, the condition of the
underlying collateral, credit history and debt coverage. At a
minimum, such loans are classified as impaired by the Company
when they become past due 90 days. A loan modified in a TDR
subsequent to the adoption of SFAS No. 114 is, except as noted,
considered impaired. A loan modified in a TDR subsequent to the
adoption of SFAS No. 114 is not considered impaired in years
following the restructuring if the restructuring agreement
specifies an interest rate equal to or greater than the rate the
Company was willing to accept at the restructuring date for a new
loan with comparable risk and the loan is not impaired based on
the terms of the restructuring agreement. Loans that were
modified in a TDR prior to the Company's adoption of SFAS No. 114
that are not considered impaired based on the terms of the
restructuring agreement continue to be accounted for under SFAS
No. 15, "Accounting by Debtors and Creditors for Troubled Debt
Restructurings".
The Company places loans, including impaired loans, on non-
accrual status when they become past due 90 days. All interest
previously accrued and not collected is reversed against interest
income, and income is subsequently recognized only to the extent
cash is received until, in management's judgement, a return to
accrual status is warranted.
Cash receipts on impaired loans are applied to principal and
interest in accordance with the contractual terms of the loan
unless full payment of principal is not expected, in which case,
both principal and interest payments received are applied as a
reduction of the carrying value of the loan. For non-performing
impaired loans, interest income is recognized to the extent
received in cash and not otherwise utilized to reduce the
carrying value of the loan. For impaired loans not classified as
non-performing by the Company, interest income is recognized on
an accrual basis as the Company anticipates the full payment of
principal and interest due. The Company's policy is to recognize
income on a cash basis for TDRs for a period of six months, after
which such loans are returned to an accrual status.
The allowance for loan losses is increased by charges to income
and decreased by charge-offs (net of recoveries). Impaired loans
and related reserves have been identified and calculated in
accordance with the provisions of SFAS No. 114. The total
allowance for loan losses has been determined in accordance with
the provisions of SFAS No. 5, "Accounting for Contingencies". The
Company's allowance for loan losses is intended to be maintained
at a level sufficient to absorb all estimable and probable losses
inherent in the loan portfolio. The Company reviews the adequacy
of the allowance for loan losses on a monthly basis taking into
account past loan loss experience, known and inherent risks in
the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying
collateral, current and prospective economic conditions and
current regulatory guidance.
Management believes that the allowance for loan losses is
adequate. While Management uses available information to
recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions and the
reviews of various regulatory agencies.
Loan fees received and certain direct loan origination costs are
deferred, and the net fee or cost is recognized in income using
the interest method over the contractual lives of the related
loans, adjusted for estimated prepayments.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements,
furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Premises and equipment
are depreciated using the straight-line method over the estimated
useful lives of the respective assets except for leasehold
improvements which are amortized over the related lease term or
estimated useful life.
REAL ESTATE OWNED
Real estate properties acquired through loan foreclosure are
recorded at the lower of cost or estimated fair value less
estimated selling costs at the time of foreclosure. Subsequent
valuations are periodically performed by management and the
carrying value may be adjusted by a valuation allowance,
established through charges to income and included in real estate
operations, net to reflect subsequent declines in the estimated
fair value of the real estate. Real estate owned ("REO") is shown
net of the allowance. Operating results of real estate owned,
including rental income, operating expenses, and gains and losses
realized from the sales of properties owned, are also recorded in
real estate operations, net.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing
transactions. Accordingly, the collateral securities continue to
be carried as assets and a borrowing liability is established for
the transaction proceeds.
INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets
and liabilities. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the
enactment date. Additionally, the recognition of net deferred tax
assets is based upon the likelihood of realization of tax
benefits in the future. A valuation allowance would be provided
for deferred tax assets which are determined more than likely not
to be realized.
BENEFIT PLANS
The Company maintains various pension, savings, employee stock
ownership and other benefit plans and programs for its employees,
including the Bank's Retirement Plan covering substantially all
employees who have attained minimum service requirements. The
Bank's funding policy is to make contributions to the plan at
least equal to the amounts required by applicable Internal
Revenue Service regulations. The Bank periodically evaluates the
overall effectiveness and economic value of such programs, in the
interest of maintaining a comprehensive benefit package for
employees. Based on an evaluation of the Retirement Plan in 1996,
the Bank concluded that future benefit accruals under the
Retirement Plan would cease, or "freeze" on July 1, 1996.
Although the benefit accruals are frozen, the Bank will continue
to maintain and provide benefits under its Employee Stock
Ownership Plan and Employee 401(k) Thrift Incentive Savings Plan
("401(k) Plan"). In connection with the Retirement Plan "freeze",
the Bank resumed its matching of contributions to the 401(k) Plan
on July 1, 1996.
Post-retirement and post-employment benefits are recorded on an
accrual basis with an annual provision that recognizes the
expense over the service life of the employee, determined on an
actuarial basis.
STOCK COMPENSATION PLANS
In October, 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 applies to all
transactions in which an entity acquires goods or services by
issuing equity instruments or by incurring liabilities where the
payment amounts are based on the entity's common stock price,
except for employee stock ownership plans. SFAS No. 123 covers
transactions with employees and non-employees.
SFAS No. 123 established a new method of accounting for stock-
based compensation arrangements with employees. The new method is
a fair value based method rather than the intrinsic value based
method that is contained in APB Opinion 25 ("Opinion 25").
However, SFAS No. 123 does not require an entity to adopt the new
fair value based method for purposes of preparing its basic
financial statements. Entities are allowed (1) to continue to use
the Opinion 25 method or (2) to adopt the SFAS No. 123 fair value
based method. For entities not adopting the SFAS No. 123 fair
value based method, SFAS No. 123 requires the entity to display
in the footnotes to the financial statements pro forma net income
and earnings per share information as if the fair value based
method had been adopted. Under the fair value based method,
compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period,
which is usually the vesting period.
The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after
December 15, 1995, though they may be adopted on issuance. The
disclosure requirements are effective for financial statements
for fiscal years beginning after December 15, 1995, or for an
earlier fiscal year for which SFAS No. 123 is initially adopted
for recognizing compensation cost. Pro forma disclosures required
for entities that elect to continue to measure compensation cost
using the Opinion 25 method must include the effects of all
awards granted in fiscal years that begin after December 15,
1994. The Company will continue to apply the Opinion No. 25
method in preparing its consolidated financial statements and
will provide the pro forma disclosures required by SFAS No. 123.
(See Note 11 to Notes to Consolidated Financial Statements.)
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company has utilized interest rate caps to manage its
interest rate risk. Generally, the net settlements on such
transactions used as hedges of non-trading liabilities are
accrued as an adjustment to interest expense over the life of the
agreements.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common and common equivalent share is
calculated by dividing net income (loss) by the weighted average
number of shares of common stock outstanding and common stock
equivalents. Stock options are regarded as common stock
equivalents and therefore considered in net income per common
share calculations if dilutive. Common stock equivalents are
computed using the treasury stock method. The weighted average
number of shares outstanding does not include shares which are
unallocated by the Employee Stock Ownership Plan ("ESOP") in
accordance with American Institute of CPAs ("AICPA") Statement of
Position ("SOP") 93-6, "Employers Accounting for ESOPs".
RECENT ACCOUNTING PRONOUNCEMENTS
In June, 1996, the FASB issued SFAS No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" which establishes accounting and reporting
standards for transfers and servicing of financial assets and
extinguishments of liabilities based on the consistent
application of the financial-components approach. This approach
requires the recognition of financial assets and servicing assets
that are controlled by the reporting entity, the derecognition of
financial assets when control is surrendered, and the
derecognition of liabilities when they are extinguished. This
statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that
are secured borrowings.
This Statement supersedes SFAS No. 76, "Extinguishment of Debt,"
SFAS No. 77, "Reporting by Transferors for Transfers of
Receivables with Recourse," and SFAS No. 122, "Accounting for
Mortgage Servicing Rights," and amends SFAS No. 115 and SFAS No.
65, "Accounting for Certain Mortgage Banking Activities."
SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring
after December 31, 1996. It is to be applied prospectively;
earlier or retroactive application is not permitted. SFAS No.
125, when adopted, is not expected to have a material effect on
the Company's financial statements.
In December, 1996, the FASB issued SFAS No. 127 "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125".
The FASB was made aware that the volume and variety of certain
transactions and the related changes to information systems and
accounting processes that are necessary to comply with the
requirements of SFAS No. 125 would make it extremely difficult,
if not impossible, for some affected enterprises to apply the
transfer and collateral provisions of SFAS No. 125 to those
transactions as soon as January 1, 1997. As a result, the
Statement defers for one year the effective date (a) of paragraph
15 of SFAS No. 125 and (b) for repurchase agreement, dollar-roll,
securities lending, and similar transactions, of paragraphs 9-12
and 237(b) of SFAS No. 125. The provisions of SFAS No. 125 will
continue to be applied prospectively, and earlier or retroactive
application is not permitted.
2. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at December 31 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
--------- ---------- ---------- ---------
1996
Debt and equity securities available for sale:
U.S. Government and agency obligations $121,647 163 (3,058) 118,752
Preferred stock 26,896 433 - 27,329
------- ------ ------ -------
148,543 596 (3,058) 146,081
------- ------ ------ -------
MBSs available for sale:
GNMA Certificates 949 34 - 983
FNMA Certificates 38,230 518 (26) 38,722
FHLMC Certificates 56,863 1,226 (25) 58,064
CMOs and REMICs 126,942 230 (917) 126,255
------- ------ ------ -------
222,984 2,008 (968) 224,024
------- ------ ------ -------
Total $371,527 2,604 (4,026) 370,105
1995
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 59,983 - (76) 59,907
Adjustable-rate MBS Mutual Fund 3,976 - - 3,976
------- ------ ------ -------
63,959 - (76) 63,883
------- ------ ------ -------
MBSs available for sale:
GNMA Certificates 13,594 339 - 13,933
FNMA Certificates 73,613 1,335 (150) 74,798
FHLMC Certificates 129,622 2,042 (116) 131,548
CMOs and REMICs 218,413 1,120 (637) 218,896
------- ------ ------ -------
435,242 4,836 (903) 439,175
------- ------ ------ -------
Total $499,201 4,836 (979) 503,058
======= ====== ====== =======
In connection with the implementation guide for SFAS No. 115
issued in November 1995, $405.3 million of MBSs previously
classified as held to maturity, and carried at amortized cost,
were reclassified to MBSs available for sale. The carrying value
of such MBSs was adjusted to their market value, which resulted
in increasing the carrying value by $3.9 million, and increasing
stockholders' equity by $2.1 million, which was net of taxes of
$1.8 million. In addition, $41.9 million of debt securities
previously classified as held to maturity, and carried at
amortized cost, were classified as available for sale. The
carrying value of these debt securities approximated market value
at the time of the reclassification.
Gross gains of approximately $1,948,000, $126,000 and $639,000
for the years ended December 31, 1996, 1995 and 1994,
respectively, were realized on sales of securities available for
sale. Gross losses amounted to $1,577,000, $0 and $135,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
The Company's portfolio of MBSs available for sale has an
estimated weighted average expected life of approximately 10
years at December 31, 1996. At December 31, 1996, $166.2 million
of MBSs available for sale were adjustable-rate securities.
U.S. Government and agency obligations at December 31, 1996 had
contractual maturities between June 30, 2000 and September 1,
2016.
Accrued interest receivable on securities available for sale
amounted to $4,848,000 and $3,760,000 at December 31, 1996 and
1995, respectively.
3. DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of debt securities held to maturity at
December 31 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
--------- ---------- ---------- ---------
1996
U.S. Government and agency obligations $51,957 16 (876) 51,097
Corporate debt securities 45,350 46 (169) 45,227
------ --- ----- -------
Total $97,307 62 (1,045) 96,324
====== === ===== =======
1995
U.S. Government and agency obligations $82,476 15 (117) 82,374
Corporate debt securities 45,320 - (883) 44,437
------ --- ----- -------
Total $127,796 15 (1,000) 126,811
====== === ===== =======
The amortized cost and estimated fair value of debt securities
held to maturity at December 31 by contractual maturity are shown
below. Actual maturities will differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
1996 1995
Estimated Estimated
Amortized fair Amortized fair
(In thousands) Cost value Cost value
--------- --------- --------- ---------
Due in one year or less $ - - 18 18
Due after one year through five years 54,324 54,212 70,372 69,384
Due after five years through ten years 12,022 11,853 32,481 32,496
Due after ten years 30,961 30,259 24,925 24,913
------- ------- ------- -------
Total $ 97,307 96,324 127,796 126,811
======= ======= ======= =======
Accrued interest receivable on debt securities held to maturity
amounted to $1,318,000 and $1,921,000 at December 31, 1996 and
1995, respectively.
4. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of MBSs held to maturity at December 31 are
summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
--------- ---------- ---------- ---------
1996
FNMA Certificates $ 71,460 185 (1,731) 69,914
FHLMC Certificates 39,889 284 (579) 39,594
CMOs and REMICs 86,591 409 (826) 86,174
------- ---- ------ -------
Total $197,940 878 (3,136) 195,682
======= ==== ====== =======
1995
FNMA Certificates $ 78,995 162 (1,043) 78,114
FHLMC Certificates 41,222 331 (201) 41,352
CMOs and REMICs 70,497 405 (817) 70,085
------- ---- ------ -------
Total $190,714 898 (2,061) 189,551
======= ==== ====== =======
The estimated weighted average expected life of the MBSs held to
maturity portfolio was approximately 5.0 years at December 31,
1996.
At December 31, 1996 and 1995, $10.1 million and $11.9 million,
respectively, of the MBSs held to maturity portfolio consists of
adjustable-rate securities. Such securities had an estimated fair
value of $10.0 million and $11.8 million, respectively.
The privately-issued CMOs and REMICs contained in the Company's
held to maturity and available for sale portfolios have generally
been underwritten by large investment banking firms with the
timely payment of principal and interest on these securities
supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of
credit or subordination techniques. Substantially all such
securities are rated AAA by one or more of the nationally
recognized securities rating agencies. These securities are
subject to certain credit-related risks normally not associated
with U.S. Government and agency mortgage-backed securities. Among
such risks is the limited loss protection generally provided by
the various forms of credit enhancements as losses in excess of
certain levels are not protected. Furthermore, the credit
enhancement itself is subject to the credit worthiness of the
enhancer. Thus, in the event a credit enhancer does not fulfill
its obligations, the MBS holder could be subject to risk of loss
similar to the purchaser of a whole loan pool. Management
believes that the credit enhancements are adequate to protect the
Company from losses, and therefore the Company has not provided
an allowance for losses on its privately issued MBSs.
Accrued interest receivable on MBSs held to maturity amounted to
$1,180,000 and $1,118,000 at December 31, 1996 and 1995,
respectively.
5. LOANS
Loans, net at December 31 are summarized as follows:
(In thousands) 1996 1995
------ ------
First mortgage loans:
Principal balances:
One-to four-family $552,968 320,442
Multi-family 105,341 78,797
Commercial 127,956 111,038
Construction 4,227 5,737
Partially guaranteed by VA or insured by FHA 3,850 4,819
------- -------
794,342 520,833
Less net deferred loan origination fees,
unearned discounts and unamortized premiums (786) (1,029)
------- -------
Total first mortgage loans 793,556 519,804
------- -------
Cooperative apartment loans, net 19,936 10,187
------- -------
Other loans:
Consumer loans 15,938 19,619
Home equity loans 15,677 16,454
Other 2,479 2,894
------- -------
Total other loans 34,094 38,967
------- -------
847,586 568,958
Less allowance for loan losses (10,704) (8,573)
------- -------
Total $836,882 560,385
======= =======
Included in total loans are loans on which interest is not being
accrued and loans which have been restructured with the result
that interest has been reduced or foregone. The principal
balances of these loans are summarized as follows:
December 31,
(In thousands) 1996 1995
------ ------
Non-accrual loans $ 10,733 9,805
Restructured loans 3,160 7,072
------ ------
Total $ 13,893 16,877
====== ======
If interest income on non-accrual loans had been current in
accordance with the original terms, approximately $489,000,
$889,000 and $1,278,000 of interest income would have been
recorded for the years ended December 31, 1996, 1995 and 1994,
respectively. Approximately $220,000, $280,000 and $261,000 of
interest income was recognized on non-accrual loans for the years
ended December 31, 1996, 1995 and 1994, respectively. The Bank
has no obligation to fund any additional monies on these loans.
The amount of interest income that would have been recorded if
restructured loans had been performing in accordance with their
original terms (prior to being restructured) was $505,000,
$714,000 and $967,000 for the years ended December 31, 1996, 1995
and 1994, respectively.
The Bank services for investors first mortgage loans which are
not included in the accompanying consolidated statements of
financial condition. The unpaid principal balances of such loans
were approximately $197.0 million and $219.8 million at December
31, 1996 and 1995, respectively.
The geographical location of the Bank's loan portfolio is
primarily within the New York metropolitan area.
During 1996, $10.6 million of cooperative apartment loans
previously transferred to loans held for sale were returned to
the loan portfolio at their estimated market value.
Accrued interest receivable on loans amounted to $4,826,000 and
$3,640,000 at December 31, 1996 and 1995, respectively.
6. ALLOWANCES FOR LOAN AND REAL ESTATE OWNED LOSSES
Impaired loans and related reserves have been identified and
calculated in accordance with the provisions of SFAS No. 114. The
total allowance for loan losses has been determined in accordance
with the provisions of SFAS No. 5, "Accounting for
Contingencies".
As such, the Company has provided amounts for anticipated losses
that exceed the immediately identified losses associated with
loans that have been deemed impaired. Provisions have been made
and reserves established accordingly, based upon experience and
expectations, for losses associated with the general population
of loans, specific industry and loan types, including residential
and consumer loans which are not subject to the provisions of
SFAS 114.
The following table summarizes information regarding the
Company's impaired loans at December 31:
1996 1995
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
---------- ------- ---------- ---------- -------- ----------
Residential loans:
With a related allowance $ - - - 3,076 517 2,559
Without a related allowance 4,423 - 4,423 1,552 - 1,552
------ ---- ------ ------ ----- ------
Total residential loans 4,423 - 4,423 4,628 517 4,111
------ ---- ------ ------ ----- ------
Multi-family and non-residential loans:
With a related allowance 981 321 660 1,228 243 985
Without a related allowance 5,329 - 5,329 11,611 - 11,611
------ ---- ------ ------ ----- ------
Total multi-family and non-residential
loans 6,310 321 5,989 12,839 243 12,596
------ ---- ------ ------ ----- ------
Total impaired loans $10,733 321 10,412 17,467 760 16,707
====== ==== ====== ====== ===== ======
The Company's average recorded investment in impaired loans for
the years ended December 31, 1996 and 1995 was $9.8 million and
$23.9 million, respectively. Interest income recognized on
impaired loans, which was not materially different from cash-
basis interest income, amounted to $489,000 and $949,000 for the
years ended December 31, 1996 and 1995, respectively.
Activity in the allowance for loan losses for the years ended
December 31 is as follows:
(In thousands) 1996 1995 1994
------ ------ ------
Balance at beginning of year $ 8,573 10,847 21,606
Charge-offs:
One-to four-family (771) (472) (264)
Cooperative (524) (2,142) (8,747)
Multi-family (30) (1,299) (7,932)
Non-residential and other (560) (1,541) (7,798)
------ ------ ------
Total charge-offs (1,885) (5,454) (24,741)
Recoveries 891 405 582
------ ------ ------
Net charge-offs (994) (5,049) (24,159)
Provision for loan losses 3,125 2,775 13,400
------ ------ ------
Balance at end of year $10,704 8,573 10,847
====== ====== ======
As part of the major bulk sales program in 1994, the Bank sold
$170.5 million of loans and established additional provisions of
$7.5 million in connection with the sales. In connection with the
sale of cooperative apartment loans, a letter of credit was
established. (See Note 12 to Notes to Consolidated Financial
Statements.)
Activity in the allowance for REO for the years ended December 31
is as follows:
(In thousands) 1996 1995 1994
------ ------ ------
Balance at beginning of year $ 178 717 2,188
Provision charged to operations 291 750 10,309
Charge-offs (450) (1,414) (11,780)
Recoveries 62 125 -
--- ----- ------
Balance at end of year $ 81 178 717
=== ===== ======
As part of the major bulk sales program during 1994, the Company
sold $12.0 million of cooperative apartments and established
additional provisions of $7.7 million in connection with the
sales which are included in REO operations, net in the
Consolidated Statements of Operations.
7. DEPOSITS
Deposits at December 31 are summarized as follows:
Weighted
(Dollars in thousands) Amount Percent average rates
------ ------- -------------
1996
Passbook accounts $ 361,707 31.8% 2.58%
Money market 55,010 4.8 3.51
NOW 111,516 9.8 0.90
Demand 8,456 0.8 -
--------- ----
536,689 47.2 2.28
Certificates of deposit 601,099 52.8 5.40
--------- -----
Total $1,137,788 100.0% 3.93%
========= =====
1995
Passbook accounts $ 375,957 34.7% 2.52%
Money market 63,047 5.8 3.63
NOW 95,617 8.8 1.74
Demand 15,815 1.5 -
--------- -----
550,436 50.8 2.44
Certificates of deposit 533,010 49.2 6.02
--------- -----
Total $1,083,446 100.0% 4.20%
========= =====
The aggregate amount of certificates of deposit in denominations
of $100,000 or more amounted to approximately
$41,691,000 and $34,323,000 at December 31, 1996 and 1995,
respectively.
Scheduled maturities of certificates of deposit at December 31
are summarized as follows:
1996 1995
(Dollars in thousands) Amount Percent Amount Percent
------ ------- ------ -------
Within six months $305,641 50.8% $233,972 43.9%
Six months to one year 140,529 23.4 147,201 27.6
One to two years 116,982 19.5 82,527 15.5
Over two years 37,947 6.3 69,310 13.0
------- ----- ------- -----
Total $601,099 100.0% $533,010 100.0%
======= ===== ======= =====
The deposits of the Bank are insured up to $100,000 per depositor
(as defined by law and regulation) by the Savings Association
Insurance Fund ("SAIF") which is administered by the FDIC.
Deposits of certain other financial institutions are insured by
the Bank Insurance Fund ("BIF"). On September 30, 1996, as part
of the omnibus appropriations bill, Congress passed and President
Clinton signed the Deposit Insurance Funds Act of 1996 ("Act").
The Act has significantly reduced and should eventually end the
premium disparity that has existed between banks insured by the
BIF and thrifts insured by the SAIF. The Act required SAIF-
insured institutions to pay a special one-time assessment to
recapitalize the SAIF. The Bank's special one-time insurance
assessment amounted to $6.8 million. Beginning January 1, 1997,
the schedule of SAIF assessment rates became the same as the
schedule of BIF assessment rates. The Act also required BIF-
insured institutions to pay a portion of the interest due on
Financial Corporation ("FICO") bonds beginning January 1, 1997.
Beginning January 1, 2000, or the date at which no thrift
institution continues to exist, BIF-insured institutions will
be required to pay their full pro rata share of FICO payments.
8. BORROWED FUNDS
Borrowed funds at December 31 are summarized as follows:
(Dollars in thousands) 1996 1995
------ ------
Other secured borrowings:
Collateralized mortgage obligation at 9.00%
maturing through 2016, net of unamortized
discount of $0 in 1996 and $231 in 1995
secured by mortgage-backed securities with
a carrying value of $12,214 in 1996 and
$16,529 in 1995 (notes 2 and 4) $ 2,985 7,974
------- -------
Fixed-rate advances from the FHLB of New York:
4.61% to 6.93% due in 1996 - 94,175
5.55% to 7.125% due in 1997 138,450 20,000
5.74% due in 1998 20,000 20,000
5.355% due in 1999 20,000 -
------- -------
178,450 134,175
------- -------
Securities sold under agreements to repurchase:
Fixed rate agreements:
5.70% to 5.96% due in 1996 - 104,590
5.50% to 6.250% due in 1997 108,106 21,442
5.51% to 5.72% due in 1998 34,800 -
------- -------
142,906 126,032
------- -------
Debt of Employee Stock Ownership Plan (note 11) 2,092 2,402
------- -------
$326,433 270,583
======= =======
At December 31, 1996 and 1995, pursuant to a physical pledge
collateral agreement, advances from the FHLB of New York were
collateralized by MBSs with an estimated fair value of
approximately $90,814,000 and $107,600,000, respectively. At
December 31, 1996 and 1995, advances from the FHLB of New York
were also collateralized by U.S. Government and Agency
obligations with an estimated fair value of approximately
$126,826,000 and $50,000,000, respectively. At December 31, 1996
the Bank has unused lines of credit totalling $11,550,000 with
the FHLB of New York.
At December 31, 1996, all securities sold under agreements to
repurchase were delivered to primary dealers who arranged the
transactions. The securities will remain registered in the name
of the Bank and will be returned at maturity. During the years
ended December 31, 1996 and 1995, securities sold under
agreements to repurchase averaged $128,677,000 and $94,374,000,
respectively. The maximum amounts outstanding at any month-end
were $142,906,000 and $150,249,000, respectively. The average
interest rate paid during the years ended December 31, 1996 and
1995 were 5.65% and 5.98%, respectively. MBSs with an estimated
fair value of approximately $151,700,000 and $133,700,000 were
pledged as collateral at December 31, 1996 and 1995,
respectively.
9. FEDERAL, STATE AND LOCAL TAXES
FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return on a calendar-year basis. Under Section 593 of
the Internal Revenue Code of 1986, as amended ("Code"), prior to
January 1, 1996 thrift institutions such as the Bank which met
certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish a tax
reserve for bad debts. Such thrift institutions were also
permitted to make annual additions to the reserve, to be deducted
in arriving at their taxable income within specified limitations.
The Bank's deduction was computed using an amount based on the
Bank's actual loss experience ("experience method"), or a
percentage equal to 8% of the Bank's taxable income ("PTI
method"). Similar deductions for additions to the Bank's bad debt
reserve were also permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, Section 593 of the Code was
amended. The Bank will be unable to make additions to the tax bad
debt reserves but will be permitted to deduct bad debts as they
occur. Additionally, the 1996 Act required institutions to
recapture (that is, include in taxable income) the excess of the
balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987 ("base year").
The Bank's federal tax bad debt reserves at December 31, 1995
exceeded its base year reserves by $2.7 million which will be
recaptured into taxable income ratably over a six year period.
This recapture will be frozen for 1997 since the Bank satisfies
specified mortgage origination tests. The base year reserves will
be subject to recapture, and the Bank could be required to
recognize a tax liability, if (i) the Bank fails to qualify as a
"bank" for Federal income tax purposes; (ii) certain
distributions are made with respect to the stock of the Bank;
(iii) the Bank uses the bad debt reserves for any purpose other
than to absorb bad debt losses; and (iv) there is a change in
Federal tax law. Management is not aware of the occurrence of any
such event.
In response to the Federal legislation, the New York State tax
law has been amended to prevent the recapture of existing tax bad
debt reserves and to allow for the continued use of the PTI
method to determine the bad debt deduction in computing New York
State tax liability. No such amendments have been made to date
with respect to the New York City tax law. This may result in
there being a recapture of the New York City bad debt reserves in
excess of the base year, December 31, 1987. However, the Company
cannot predict whether such changes will be made or as to the
form of the changes.
The components of the net deferred tax assets at December 31 are
as follows:
(In thousands) 1996 1995
------ ------
Deferred tax assets:
Difference between financial statement credit
loss provision and tax bad-debt deduction $ 4,874 4,087
Non-accrual interest and non-performing loan
expense 1,002 1,347
Securities marked to market for financial
statement purposes 582 -
Other 1,235 1,214
------ ------
Total deferred tax assets 7,693 6,648
------ ------
Valuation allowance - (800)
------ ------
Deferred tax liabilities:
Recapture of Tax Bad Debt Reserve (1,241) -
Securities marked to market for financial
statement purposes - (1,774)
Basis difference of fixed assets (143) (15)
Other (124) -
------ ------
Total deferred tax liabilities (1,508) (1,789)
------ ------
Net deferred tax assets $ 6,185 4,059
====== ======
The Company had an $800,000 valuation allowance for its deferred
tax asset as of December 31, 1995, related to potential New York
State and New York City deferred tax assets. Upon review of the
Company's deferred tax assets as of December 31, 1996, the
Company determined that the valuation allowance was no longer
required. The Company will continue to review the recognition
criteria as set forth in SFAS No. 109, "Accounting for Income
Taxes" on a quarterly basis and determine the need for a
valuation allowance accordingly.
Income tax expense (benefit) for the years ended December 31 are
summarized as follows:
(In thousands) 1996 1995 1994
------ ------ ------
Current:
Federal $ 3,391 1,273 (943)
State and local 2,813 725 250
------ ------ ------
6,204 1,998 (693)
------ ------ ------
Deferred:
Federal 906 3,302 (1,053)
State and local (676) 1,930 (729)
------ ------ ------
230 5,232 (1,782)
------ ------ ------
Total income tax expense (benefit) $ 6,434 7,230 (2,475)
====== ====== ======
The following is a reconciliation of statutory Federal income tax
expense (benefit) to the combined effective income tax expense
(benefit) for the years ended December 31:
(In thousands) 1996 1995 1994
------ ------ ------
Statutory Federal income tax expense (benefit) $ 5,392 5,363 (2,315)
State and local income taxes, net of Federal
income tax benefit 1,410 1,752 (311)
Change in deferred tax asset valuation allowance (800) (300) -
Tax bad debt reserve (780) - -
Other, net 1,212 415 151
------ ------ ------
Total income tax expense (benefit) $ 6,434 7,230 (2,475)
====== ====== ======
STATE AND LOCAL TAXES
The Company and subsidiaries file combined New York State
franchise tax and New York City financial corporation tax returns
on a calendar-year basis. The Company's annual tax liability for
each year is the greatest of a tax on (i) allocated entire net
income; (ii) allocated alternative entire net income; (iii)
allocated assets to New York State and/or New York City; or (iv)
a minimum tax. Operating losses cannot be carried back or carried
forward for New York State or New York City tax purposes.
The Company expects to determine its 1996 New York State and New
York City tax liability based on entire net income. The Company
has provided for New York State and New York City taxes based on
assets for the years ended December 31, 1995 and 1994.
10. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
RETIREMENT PLAN
The Company has a qualified, non-contributory defined benefit
pension plan covering substantially all of its eligible
employees. The Company's policy is to fund pension costs in
accordance with the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, and to provide the plan
with sufficient assets with which to pay pension benefits to plan
participants. Contributions are intended to provide not only for
benefits attributed to service to date but also for those
expected to be earned in the future. Based on an evaluation of
the Retirement Plan in 1996, the Bank concluded that future
benefit accruals under the Retirement Plan would cease or
"freeze" effective July 1, 1996. The Bank recognized a
curtailment gain of approximately $266,000 as of July 1, 1996.
The Bank made a cash contribution of $352,000 to the plan in
January 1997.
The following is a reconciliation of the funded status of the
Plan and the amount of accrued pension cost as determined by the
Plan's actuary in accordance with SFAS No. 87, based upon
actuarial information as of July 1, 1996 and January 1, 1995,
respectively:
(In thousands) 1996 1995
Actuarial present value of benefit obligations:
Vested $ 7,800 6,906
Non-vested 356 207
----- -----
8,156 7,113
Effect of projected future compensation - 1,726
----- -----
Projected benefit obligation for service rendered to date 8,156 8,839
Plan assets, at fair value 7,832 7,327
----- -----
Deficiency of plan assets under projected benefit obligation (324) (1,512)
Unrecognized net transition asset (from adoption
of SFAS No. 87) being amortized over 18 years - (125)
Prior service cost not yet recognized - (138)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions - 1,331
----- -----
Accrued pension cost $ (324) (444)
===== =====
The amount of accrued pension cost recognized in the Company's
consolidated statements of financial condition at December 31,
1996 was $101,000.
The components of net pension expense, exclusive of the
aforementioned 1996 curtailment gain, for the years ended
December 31 are as follows:
(In thousands) 1996 1995 1994
---- ---- ----
Service cost (benefits earned during the period) $ 211 338 409
Interest cost on projected benefit obligation 597 626 591
Actual return on plan assets (714) (652) (587)
Net amortization and deferral 2 (20) (19)
--- --- ---
Net pension expense $ 96 292 394
=== === ===
Assumptions used to develop the actuarial present value of
benefit obligations at December 31 were:
1996 1995 1994
------ ------ ------
Discount rate 7.00% 8.25% 7.25%
Expected long-term rate of return 9.00 9.00 8.00
Rate of increase in compensation levels 5.00 6.00 4.50
THRIFT INCENTIVE SAVINGS PLAN
The Bank maintains a 401(k) thrift incentive savings plan which
provides for employee contributions on a pre-tax basis up to a
maximum of 16% of total compensation, with matching contributions
to be made by the Bank equal to 50% of employee contributions,
not to exceed employee contributions greater than 6% of total
compensation. During the two years ended December 31, 1995, the
Bank elected not to match employee contributions. In connection
with the Retirement Plan freeze, the Bank resumed matching
employee contributions which totalled $120,000 for the period
July 1, 1996 through December 31, 1996.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1996, the Bank implemented a non-qualified defined benefit
supplemental executive retirement plan ("SERP") for the President
and Chief Executive Officer. The SERP is an unfunded plan. During
1996, the Bank accrued $132,000 for the SERP. At December 31,
1996, the accumulated benefit obligation was $890,000.
The Bank also maintains a non-qualified defined benefit SERP for
the Chairman of the Board. The SERP is an unfunded plan. The SERP
provides for an annual retirement benefit of $120,000 for 10
years after retirement which occurred in 1995. The SERP also
provides for a lump sum benefit of $1.2 million payable to the
estate of the Chairman of the Board in the event of his death
prior to retirement, or in the event of a hostile change in
control after retirement but prior to the payment of the entire
benefit; any unpaid benefit shall be paid in a lump sum. The
Company had accrued the entire $1.2 million liability under the
unfunded plan through December 31, 1995.
POST-RETIREMENT LIFE INSURANCE BENEFITS
The Company provides life insurance coverage to retirees under
two separate insurance plans. The first plan provides life
insurance coverage equal to one-half of annual pay at retirement,
subject to a maximum of $10,000 and a minimum of $2,000. The
second plan provides life insurance coverage equal to two times
annual pay reduced by 10% per year for each of the first five
years following retirement.
The following table sets forth the components of post-retirement
life insurance benefits expense for the years ended December 31:
1996 1995 1994
------ ------ ------
Service cost $ 29 18 21
Interest cost 59 46 44
Actual return on plan assets 9 - -
Amortization of transition obligation
(from adoption of SFAS No. 106)
being amortized over 20 years 25 25 25
--- --- ---
Net post-retirement benefits expense $122 89 90
=== === ===
Assumptions used to develop the accumulated
post-retirement benefit obligation were:
Discount rate 7.50% 8.25% 7.25%
Rate of increase in compensation levels 5.00 6.00 4.50
At December 31, 1996 and 1995, the accumulated post-retirement
benefit obligation totaled $824,000 and $559,000, respectively.
The accrued post-retirement benefit liability at those dates was
$360,000 and $238,000, respectively.
11. STOCK PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Bank established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the Conversion. The
ESOP borrowed $3.5 million from an unrelated third party lender
and purchased 347,156 common shares issued in the Conversion. The
Bank is expected to make scheduled cash contributions to the ESOP
sufficient to service the amount borrowed over a period not to
exceed 10 years. The unpaid balance of the ESOP loan is included
in borrowed funds and the unamortized balance of unearned
compensation is shown as unallocated common stock held by the
ESOP reflected as a reduction of stockholders' equity. As of
December 31, 1996, total contributions to the ESOP which were
used to fund principal and interest payments on the ESOP debt
totaled approximately $2,057,000. At December 31, 1996, the loan
had an outstanding balance of $2,092,000 and an interest rate of
7.91%. The loan, as amended on December 29, 1995, is payable in
thirty two equal quarterly installments beginning December 1995
and ending September 2003. The loan bears interest at a floating
rate based on the federal funds rate plus 250 basis points.
Dividends declared on common stock held by the ESOP which have
been allocated to the account of a participant are allocated to
the account of such participant. Dividends declared on common
stock held by the ESOP and not allocated to the account of a
participant are used to repay the ESOP loan. The Company recorded
$983,000, $1,246,000 and $785,000 of ESOP expense for the years
ended December 31, 1996, 1995 and 1994, respectively. For the
years ended December 31, 1996, 1995 and 1994, ESOP expense was
based on the fair market value of the shares allocated in
accordance with the AICPA SOP 93-6 which was adopted on January
1, 1994. At December 31, 1996, there were 219,725 shares
remaining for future allocation, of which 34,330 shares will be
allocated for the 1996 year in the first quarter of 1997.
RECOGNITION AND RETENTION PLANS
The Bank has established several Recognition and Retention Plans
("RRPs") which purchased in the aggregate 148,781 shares of
common stock in the Conversion. The Bank contributed $1.5 million
to fund the purchase of the RRP shares. In 1995, the RRP was
amended to increase the number of shares of common stock which
may be granted by 9,918 shares and such shares were contrib-uted
to the RRP from treasury stock. During 1996, the remaining
previously unallocated shares totaling 8,601 were awarded to
directors and officers. The fair market value of these shares at
the date of the award will be amortized as compensation expense
as participants become vested. The unamortized cost, which is
comparable to deferred compensation, is reflected as a reduction
of stockholders' equity. For the years ended December 31, 1996,
1995 and 1994, respectively, $409,000, $490,000 and $430,000 of
expense has been recognized.
STOCK OPTION AND INCENTIVE PLANS
In 1993, the Holding Company adopted stock option plans for the
benefit of directors (the "1993 Directors Plan") and for officers
and other key employees (the "1993 Stock Plan") of the Bank. The
number of shares of common stock reserved for issuance under the
stock option plans was equal to 10% of the total number of shares
of common stock issued pursuant to the Bank's Conversion to the
stock form of ownership. In 1995, the 1993 Stock Plan was amended
to increase the number of shares for which stock options may be
granted by 34,715 shares. All options awarded to employees vest
over a three year period beginning one year from the date of
grant. The option exercise price cannot be less than the fair
value market of the underlying common stock as of the date of the
option grant, and the maximum option term cannot exceed ten
years. The stock options awarded to directors become exercisable
one year from the date of grant. In 1996, the remaining 5,885
options were granted from the 1993 Stock Plan and the remaining
18,602 options were granted from the 1993 Directors Plan.
At the annual meeting of stockholders on April 24, 1996, the
stockholders approved the Haven Bancorp, Inc. 1996 Stock
Incentive Plan which provided 210,000 shares for the grant of
options and restricted stock awards. On April 24, 1996, an
aggregate of 1,976 shares of restricted stock was granted to
directors which vested six months from the date of grant and an
aggregate of 27,989 shares was granted to officers and employees
on May 23, 1996, which vest over a three year period beginning
one year from the date of grant. In addition, an aggregate of 116
shares was granted to two new directors on October 1, 1996 which
vested on December 31, 1996. Such shares were recorded as
unearned compensation at their fair market value on the date of
the award (which is reflected as a reduction of stockholders'
equity), to be amortized to expense over the vesting period.
During 1996, an aggregate of 160,850 options were granted to
directors and officers under the 1996 Stock Incentive Plan, which
vest over a three year period beginning one year from the date of
grant.
The following table summarizes certain information regarding the
stock option plans:
Number of shares of
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
--------- --------- ---------- --------
Options reserved in conversion 158,112 189,044 148,781 $10.00
------- ------- ------- -----
Balance outstanding at December 31,1993 154,381 189,044 111,582 10.00
Granted - - 18,597 16.69
Forfeited (7,438) - - 10.00
Exercised - - - -
------- ------- ------- -----
Balance outstanding at December 31, 1994 146,943 189,044 130,179 10.27
Granted - 40,000 - 16.94
Forfeited - - - -
Exercised (20,825) (4,878) - 10.00
------- ------- ------- -----
Balance outstanding at December 31, 1995 126,118 224,166 130,179 10.84
Granted 91,285 19,450 74,602 25.82
Forfeited - - - -
Exercised (9,406) - - 10.00
------- ------- ------- -----
Balance outstanding at December 31, 1996 207,997 243,616 204,781 $15.08
======= ======= ======= =====
Shares exercisable at December 31, 1996 89,934 197,499 130,179 $10.51
======= ======= ======= =====
The fair value of each share grant is estimated on the date of
grant using the Black-Scholes option - pricing model with the
following weighted-average assumptions used for grants in 1996
and 1995, respectively: dividend yield of 1.93% in 1996 and 1995;
expected volatility of 16.85% in 1996 and 1995; risk-free
interest rates of 5.89% to 6.38% in 1996 and 6.29% in 1995; and
expected lives of 3 years for the 1993 Stock Plan, 8 years for
the 1993 Directors Plan and 3 years for grants to officers and
employees under the 1996 Stock Incentive Plan and 8 years for
grants to directors under that plan.
Had compensation cost for the Company's three stock-based
compensation plans been determined consistent with SFAS No. 123
for awards made after January 1,1995, the Company's net income
and net income per common share would have been reduced to the
pro forma amounts indicated below for the years ended December
31:
(Dollars in thousands, 1996 1995
except per share data) ------ ------
Net income As reported $ 9,425 8,544
Pro forma 9,135 8,364
Net income per common share:
Primary As reported $ 2.12 1.89
Pro forma 2.06 1.85
Fully diluted As reported $ 2.11 1.87
Pro forma 2.04 1.83
12. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
At December 31, 1996, the Company was obligated under several
noncancelable operating leases on property used for office space
and banking purposes. Several of the leases contain escalation
clauses which provide for increased rentals, primarily based upon
increases in real estate taxes. Rent expense under these leases
was approximately $404,000, $379,000 and $310,000 for the years
ended December 31, 1996, 1995 and 1994, respectively.
The projected minimum rental payments under the terms of the
noncancelable leases at December 31, 1996 are as follows:
Years ending December 31, (In thousands)
1997 $ 772
1998 661
1999 577
2000 415
2001 245
Thereafter 25
-----
$2,695
=====
Four supermarket branches have opened through December 31, 1996,
and the leases related thereto are reflected in the table above.
In September 1996, the Bank entered into an agreement to open
approximately 44 full-service bank branches in Pathmark
supermarkets throughout New York City, Long Island, Westchester
and Rockland counties by early 1998.
LOAN COMMITMENTS
The Company had outstanding commitments totaling $55.8 million to
originate loans at December 31, 1996 of which $15.2 million were
fixed rate loans and $40.6 million were variable rate loans. For
fixed rate loan commitments at December 31, 1996, the interest
rates on mortgage loans ranged from 6.375% to 10.0%. The standard
commitment term for these loans is 45 days. For other consumer
fixed-rate loan commitments, interest rates ranged from 9.75% to
10.5% with the standard term of the commitment of 30 days. Loan
commitments are made at current rates and no material difference
exists between book and market values of such commitments.
For commitments to originate loans, the Company's maximum
exposure to credit risk is represented by the contractual amount
of those instruments. Those commitments represent ultimate
exposure to credit risk only to the extent that they are
subsequently drawn upon by customers. The Company uses the same
credit policies and underwriting standards in making loan
commitments as it does for on-balance-sheet instruments. For loan
commitments, the Company would generally be exposed to interest
rate risk from the time a commitment is issued with a defined
contractual interest rate.
In connection with the securitization and sale of $48.6 million
of cooperative apartment loans in 1994, a letter of credit
totalling $6.8 million was established with the FHLB. The letter
of credit provides a level of protection of approximately 14% to
the buyer against losses on the cooperative apartment loans sold
behind a pool insurance policy the Bank purchased which provides
a level of protection of approximately 20%. The letter of credit
totalled $6.8 million at December 31, 1996.
INTEREST RATE CAPS
During the year ended December 31, 1995, the Company, in order to
hedge a portion of the borrowings to fund a $75 million leverage
transaction, purchased an interest rate cap on a $25.0 million
notional principal amount on which it will receive a payment,
based on the notional principal amount, equal to the three month
LIBOR rate in excess of 8% on any reset date for a three year
period. The premium paid for the cap, $133,000, which is carried
in other assets is being amortized to interest expense over the
term of the contract. As of December 31, 1996 and 1995, three
month LIBOR was 5.56% and 5.63%, respectively. Interest expense
on borrowed funds was increased by approximately $44,000 and
$11,000 during the years ended December 31, 1996 and 1995,
respectively, as a result of this agreement.
LITIGATION AND LOSS CONTINGENCY
On February 6, 1995, Nationar, the entity that provided check
collection services for the Bank was seized by the Superintendent
of Banks of the State of New York ("Superintendent"). Checks in
process of collection for the Bank totalling $8.9 million were
held by Nationar at the time it was seized. In April 1995, $3.9
million of these funds were remitted to the Bank. On June 27,
1996, the Bank received a partial payment of its claims against
Nationar totalling $4,987,000, at which time $389,000 of a
$430,000 reserve previously established was taken into income. On
November 20, 1996, the Supreme Court of the State of New York
entered an order authorizing the Superintendent to pay a final
payment to creditors of Nationar whose claims or accounts payable
have been accepted by the Superintendent, reduced by any previous
partial payments on such claims or account payable. The Bank
received $33,000 which represents the final aggregate payment on
the remaining claims totaling $54,000.
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
1995, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 of unspecified damages. The Banks ultimate liability,
if any, which might arise from the disposition of these claims
cannot presently be determined. Management believes it has
meritorious defenses against these actions and has and will
continue to defend its position. Accordingly, no provision for
any liability that may result upon adjudication has been
recognized in the accompanying consolidated financial statements.
The Company is involved in various 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.
13. STOCKHOLDERS' EQUITY
At the time of its conversion to a stock savings bank, the Bank
established a liquidation account in an amount equal to its total
retained earnings as of June 30, 1993. The liquidation account
will be maintained for the benefit of eligible account holders
who continue to maintain their accounts at the Bank, after the
conversion. The liquidation account will be reduced annually to
the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder
will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The balance of the
liquidation account was approximately $20.8 million at December
31, 1996.
Subsequent to the conversion, the Bank may not declare or pay
cash dividends on or repurchase any of its shares of common
stock, if the effect would cause stockholders' equity to be
reduced below the amount required for the liquidation account,
applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory
requirements. Office of Thrift Supervision ("OTS") regulations
provide that an institution that exceeds all fully phased-in
capital requirements, before and after a proposed capital
distribution could, after prior notice but without prior approval
of the OTS, make capital distributions during the calendar year
up to 100% of net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital
requirements) at the beginning of the calendar year period. Any
additional capital distributions would require prior regulatory
approval. Unlike the Bank, the Company is not subject to these
regulatory restrictions on the payment of dividends to its
stockholders. However, the source of future dividends may depend
upon dividends from the Bank.
TREASURY STOCK TRANSACTIONS
During the year ended December 31, 1996, the Company repurchased
225,537 shares under its third repurchase program that was
completed March 11, 1996. During the year ended December 31,
1995, the Company repurchased 75,570 shares under its second
repurchase program that was completed June 28, 1995.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are
required to maintain regulatory capital in the form of a
"tangible capital requirement," a "core capital requirement," and
a "risk-based capital requirement."
The Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
As of December 31, 1996, the Bank has been categorized as "well
capitalized" by the OTS under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the
institution's category. The following table sets forth the
required ratios and amounts and the Bank's actual capital amounts
and ratios at December 31:
To Be Well
Capitalized
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
Amount Ratio(3) Amount Ratio Amount Ratio
(Dollars in thousands) ------ -------- ------ ----- ------ -----
1996
Tangible Capital $ 97,201 6.14% $23,743 1.50% N/A N/A
Core Capital (1) 97,201 6.14 47,487 3.00 79,144 5.00%
Risk-based Capital (2) 106,555 13.22 64,479 8.00 80,599 10.00
1995
Tangible Capital $ 87,723 6.01% $21,909 1.50% N/A N/A
Core Capital (1) 87,723 6.01 43,819 3.00 73,03 15.00%
Risk-based Capital (2) 94,968 14.625 1,955 8.00 64,944 10.00
(1) Under the OTS's prompt corrective action regulations, the
core capital requirement was effectively increased to 4.00% since
OTS regulations stipulate that as of that date an institution
with less than 4.00% core capital will be deemed to be
classified as "undercapitalized."
(2) The OTS adopted a final regulation which incorporates an
interest rate risk component into its existing risk-based
capital standard. The regulation requires certain institutions
with more than a "normal level" of interest rate risk to maintain
capital in addition to the 8.0% risk-based capital requirement.
The Bank does not anticipate that its risk-based capital
requirement will be materially affected as a result of the new
regulation.
(3) For tangible and core capital, the ratio is to adjusted total
assets. For risk-based capital, the ratio is to total risk-
weighted assets.
STOCKHOLDER RIGHTS PLAN
On January 26, 1996, the Board of Directors of the Holding
Company (the "Board") adopted a Stockholder Rights Plan (the
"Rights Plan"). Under the Rights Plan, which expires in February,
2006, the Board declared a dividend of one right on each
outstanding share of the Holding Company's common stock, which
was paid on February 5, 1996 to stockholders of record on that
date (the "Rights"). Until it is announced that a person or group
has acquired 10% or more of the outstanding common stock of the
Holding Company (an "Acquiring Person") or has commenced a tender
offer that could result in their owning 10% or more of such
common stock, the Rights are initially redeemable for $.01 each,
are evidenced solely by the Holding Company's common stock
certificates, automatically trade with the Holding Company's
common stock and are not exercisable. Following any such
announcement, separate Rights would be distributed, with each
Right entitling its owner to purchase participating preferred
stock of the Holding Company having economic and voting terms
similar to those of one share of the Holding Company's common
stock for an exercise price of $90.
Upon announcement that any person or group has become an
Acquiring Person and unless the Board acts to redeem the Rights,
then twenty business days thereafter (the "Flip-in Date"), each
Right (other than Rights beneficially owned by any Acquiring
Person or transferee thereof, which become void) will entitle the
holder to purchase, for the $90 exercise price, a number of
shares of the Holding Company's common stock having a market
value of $180. In addition, if after an Acquiring Person gains
control of the Board, the Holding Company is involved in a merger
or sells more than 50% of its assets or assets generating more
than 50% of its operating income or cash flow, or has entered
into an agreement to do any of the foregoing (or an Acquiring
Person is to receive different treatment than all other
stockholders), each Right will entitle its holder to purchase,
for the $90 exercise price, a number of shares of common stock of
the Acquiring Person having a market value of $180. If any person
or group acquires more than 50% of the outstanding common stock
of the Holding Company, the Board may, at its option, exchange
one share of such common stock for each Right. The Rights may
also be redeemed by the Board for $0.01 per Right prior to the
Flip-in Date.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments" requires the Company to disclose estimated fair
values for substantially all of its financial instruments. The
fair value of a financial instrument is the amount at which the
asset or obligation could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation
sale. Fair value estimates are made at a specific point in time
based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the entire holdings of a particular financial instrument. Because
no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet
financial instruments, without attempting to estimate the value
of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair
value estimates and have not been considered in many of the
estimates.
The following table summarizes the carrying values and estimated
fair values of the Company's on-balance-sheet financial
instruments at December 31:
1996 1995
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
-------- --------- -------- ---------
Financial Assets:
Cash and cash equivalents $ 35,717 35,717 38,854 38,854
Securities available for sale 370,105 370,105 503,058 503,058
Loans held for sale - - 11,412 11,412
Debt securities held to maturity 97,307 96,324 127,796 126,811
FHLB-NY stock 9,890 9,890 8,138 8,138
Mortgage-backed securities held to maturity 197,940 195,682 190,714 189,551
Loans, net 836,882 850,513 560,385 568,007
Accrued interest receivable 12,172 12,172 10,736 10,736
Financial Liabilities:
Deposits 1,137,788 1,138,385 1,083,446 1,086,814
Borrowed funds 326,433 326,341 270,583 271,334
Mortgagors' escrow balances 4,621 4,621 3,227 3,227
Due to broker 1,000 1,000 5,000 5,000
Accrued interest payable 1,002 1,002 660 660
The methods and significant assumptions used to estimate fair
values for different categories of financial instruments are as
follows:
Cash and cash equivalents - The estimated fair values of cash and
cash equivalents are assumed to equal the carrying values as
these financial instruments are either due on demand or mature
within 90 days.
Securities available for sale, Debt Securities and Mortgage-
Backed Securities Held to Maturity - Estimated fair value for
substantially all of the Company's bonds, notes and equity
securities, both available for sale and held to maturity are
based on market quotes as provided by an independent pricing
service. For MBSs, the Company obtains bids from broker dealers
to estimate fair value. For those occasional securities for which
a market price cannot be obtained, market prices of comparable
securities are used.
Loans held for sale - Fair value is estimated based on
preliminary pricing information obtained by the Company from a
major Wall Street investment banking firm, active in the purchase
and sale of such assets.
FHLB-NY stock - The estimated fair value of the Company's
investment in FHLB-NY stock is deemed to be equal to its carrying
value which represents the price at which it may be redeemed.
Residential loans - Residential loans include 1-4 family
mortgages and individual cooperative apartment loans. Estimated
fair value is based on discounted cash flow analysis. The
residential loan portfolio is segmented by loan type (fixed
conventional, adjustable products, etc.) with weighted average
coupon rate, remaining term, and other pertinent information for
each segment. A discount rate is determined based on the U.S.
Treasury yield curve plus a pricing spread. Expected principal
prepayments, consistent with empirical evidence and management's
future expectations, are used to modify the future cash flows.
For potential problem loans, the present value result is
separately adjusted downward consistent with management's
assumptions in evaluating the adequacy of the allowance for loan
losses.
Commercial real estate and other loans - Estimated fair value is
based on discounted cash flow analysis which take into account
the contractual coupon rate and maturity date of each loan. A
discount rate is determined based on the U.S. Treasury yield
curve plus a pricing spread. For potential problem loans, the
present value result is separately adjusted downward consistent
with management's assumptions regarding the value of any
collateral underlying the loans.
Deposits - Certificates of deposit are valued by performing a
discounted cash flow analysis of the remaining contractual
maturities of outstanding certificates. The discount rates used
are wholesale secondary market rates as of the valuation date.
For all other deposits, fair value is deemed to be equivalent to
the amount payable on demand as of the valuation date.
Borrowed funds - Borrowings are fair valued based on rates
available to the Company in either public or private markets for
debt with similar terms and remaining maturities.
Accrued interest receivable, accrued interest payable,
mortgagors' escrow balances and due to broker - The fair values
are estimated to equal the carrying values of short-term
receivables and payables, including accrued interest, mortgage
escrow funds and due to broker.
Off-balance sheet financial instruments - The fair value of the
interest rate cap was obtained from dealer quotes and represents
the cost of terminating the agreement. The estimated fair value
of open off-balance sheet financial instruments results in an
unrealized loss of $62,000 and $70,000 at December 31, 1996 and
1995, respectively.
The estimated fair value of commitments to extend credit is
estimated using the fees charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair
value also considers the difference between current levels of
interest rates and the committed interest rates. The fair value
of commitments to purchase debt securities and MBSs is based on
the estimated cost to terminate them or otherwise settle the
obligations with the counterparties. The estimated fair value of
these off-balance sheet financial instruments resulted in no
unrealized gain or loss at December 31, 1996 and 1995.
15. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of the Holding Company (parent
company only) are as follows:
Parent Company Condensed Statements of Financial Condition
December 31,
(In thousands) 1996 1995
------ ------
Assets:
Cash $ 38 119
Money market investments 1,869 4,064
Securities available for sale - 3,976
Accrued interest receivable 2 25
Accrued income taxes receivable 359 184
Investment in net assets of Bank 97,789 90,891
------- -------
Total assets 100,057 99,259
======= =======
Liabilities:
Other liabilities 673 740
------- -------
Total liabilities 673 740
------- -------
Stockholders' equity:
Common stock 50 50
Additional paid-in capital48,84447,331
Retained earnings, substantially restricted 65,092 57,919
Unrealized (loss) gain on securities available
for sale, net of tax effect (840) 2,083
Treasury stock, at cost (11,049) (6,023)
Unallocated common stock held by ESOP (1,854) (2,197)
Unearned common stock held by RRPs (267) (644)
Unearned compensation (592) -
------- -------
Total stockholders' equity 99,384 98,519
------- -------
Total liabilities and stockholders' equity $100,057 99,259
======= =======
Parent Company Only Condensed Statements of Operations
Years Ended December 31,
(In thousands) 1996 1995 1994
------ ------ ------
Dividend from Bank $2,000 - -
Interest income 178 571 541
Other operating expenses (961) (788) (788)
----- ---- ----
Income (loss) before income tax expense (benefit) and equity in
undistributed net income (loss) of Bank 1,217 (217) (247)
Income tax (benefit) expense (360) (100) 181
----- ---- ----
Net income (loss) before equity in undistributed net income (loss)
of Bank 1,577 (117) (428)
Equity in undistributed net income (loss) of Bank 7,848 8,661 (3,907)
----- ---- ----
Net income (loss) $9,425 8,544 (4,335)
===== ===== =====
Parent Company Only Condensed Statements of Cash Flows
Years Ended December 31,
Years Ended December 31,
(In thousands) 1996 1995 1994
------ ------ ------
Operating activities:
Net income (loss) $ 9,425 8,544 (4,335)
Less equity in undistributed net income (loss) of the Bank (7,848) (8,661) 3,907
Decrease in accrued interest receivable 23 8 1
(Increase) decrease in accrued income tax receivable (175) 774 320
Increase (decrease) in other liabilities 219 (841) (146)
----- ---- ----
Net cash provided by (used in) operating activities 1,644 (176) (253)
----- ---- ----
Financing activities:
Purchase of treasury stock (5,516) (1,360) (4,575)
Payment of common stock dividends (2,475) (454) -
Exercise of stock options 95 257 -
----- ----- -----
Net cash used in financing activities (7,896) (1,557) (4,575)
----- ----- -----
Net decrease in cash (6,252) (1,733) (4,828)
Cash at beginning of year 8,159 9,892 14,720
----- ----- -----
Cash at end of year $1,907 8,159 9,892
===== ===== =====
16. QUARTERLY FINANCIAL DATA (Unaudited)
The following table is a summary of financial data by quarter
for the years ended December 31, 1996 and 1995:
1996 1995
(Dollars in thousands, 1st 2nd 3rd 4th 1st 2nd 3rd 4th
except for share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
Interest income $25,905 27,013 27,963 28,372 21,844 23,268 25,317 26,005
Interest expense 14,566 15,001 15,972 15,829 11,921 13,198 14,877 15,119
------ ------ ------ ------ ------ ------ ------ ------
Net interest income before
provision for loan losses 11,339 12,012 11,991 12,543 9,923 10,070 10,440 10,886
Provision for loan losses 650 1,125 700 650 600 700 700 775
------ ------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses 10,689 10,887 11,291 11,893 9,323 9,370 9,740 10,111
Non-interest income 2,153 2,784 2,251 2,366 1,866 1,899 2,076 3,181
Non-interest expense 7,445 8,015 14,024 8,971 7,668 7,751 7,903 8,470
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income
tax expense (benefit) 5,397 5,656 (482) 5,288 3,521 3,518 3,913 4,822
Income tax expense (benefit) 2,539 2,630 (559) 1,824 1,675 1,670 1,708 2,177
------ ------ ------ ------ ------ ------ ------ ------
Net income 2,858 3,026 77 3,464 1,846 1,848 2,205 2,645
====== ====== ====== ====== ====== ====== ====== ======
Net income per common share:
Primary $ 0.64 0.69 0.02 0.78 0.41 0.41 0.49 0.58
Fully diluted $ 0.64 0.69 0.02 0.78 0.41 0.41 0.49 0.58
====== ====== ====== ====== ====== ====== ====== ======
Weighted average number of shares
outstanding and common stock
equivalents: Primary 4,459,742 4,379,980 4,425,562 4,436,178 4,454,320 4,509,829 4,508,766 4,540,392
Fully diluted 4,460,495 4,407,301 4,400,450 4,448,266 4,482,491 4,522,057 4,529,509 4,549,727
17. SUBSEQUENT EVENT (UNAUDITED)
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware (the "Trust") issued $25
million of 10.46% capital securities. The Holding Company is the
owner of all the beneficial interests represented by common
securities of the Trust. The Trust exists for the sole purpose
of issuing the Trust securities (comprised of the capital
securities and the common securities) and investing the proceeds
thereof in the 10.46% Junior Subordinated Deferrable Interest
Debentures issued by the Holding Company on February 12, 1997
which are scheduled to mature on February 1, 2027. The Holding
Company intends to use the net proceeds from the sale of the
Junior Subordinated Debentures for general corporate purposes,
which may include capital contributions to the Bank, the
financing of future acquisitions and the funding of repurchases
of the Company's common stock.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Haven Bancorp, Inc.:
We have audited the accompanying consolidated statements of
financial condition of Haven Bancorp, Inc. (the "Company") as of
December 31, 1996 and 1995, and the related consolidated
statements of operations, changes in stockholders' equity and
cash flows for each of the years in the three-year period ended
December 31, 1996. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company at December 31, 1996 and 1995, and the
results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1996 in
conformity with generally accepted accounting principles.
January 23, 1997
Jericho, New York
DIRECTORS AND OFFICERS AND DIRECTORY
DIRECTORS
Haven Bancorp, Inc.
and Columbia Federal Savings Bank
George S. Worgul
Chairman of the Board
Philip S. Messina
Chief Executive Officer and President
Robert L. Koop
President, Haven Chevrolet
Robert M. Sprotte
President, Schmelz Bros., Inc.
President, RDR Realty Corp.
Joseph A. Ruggiere
President, Ohlert-Ruggiere, Inc.
Michael J. Fitzpatrick
C.P.A., Financial Consultant
Retired, Vice President, National Thrift Director,
E.F. Hutton & Co.
William J. Jennings II
Managing Director, Salomon Brothers Inc.
Michael J. Levine
President, Norse Realty Group Inc. & Affiliates
Partner, Levine & Schmutter, CPAs
Msgr. Thomas J. Hartman
Director of Radio and Television
for the Diocese of Rockville Centre
(Appointed on February 26, 1997)
EXECUTIVE OFFICERS
Haven Bancorp, Inc.
and Columbia Federal Savings Bank
Philip S. Messina
Chief Executive Officer, President
Gerard H. McGuirk
Executive Vice President, Chief Lending Officer
Thomas J. Seery
Executive Vice President, Operations
Catherine Califano
Senior Vice President, Chief Financial Officer
Joseph W. Rennhack
Senior Vice President, Secretary
DIRECTORY
Administrative Headquarters
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
(718) 847-7041
Columbia Federal Savings Bank Locations
Main Office
93-22 Jamaica Avenue
Woodhaven, NY 11421
Forest Parkway
80-35 Jamaica Avenue
Woodhaven, NY 11421
Forest Hills
106-19 Continental Avenue
Forest Hills, NY 11375
Ozone Park
98-16 101st Avenue
Ozone Park, NY 11416
Clock Tower
91-20 Atlantic Avenue
Ozone Park, NY 11416
Howard Beach
82-10 153rd Avenue
Howard Beach, NY 11414
Rockaway
104-08 Rockaway Beach Boulevard
Rockaway, NY 11694
Bellerose
244-19 Braddock Avenue
Bellerose, NY 11426
Snug Harbor
343 Merrick Road
Amityville, NY 11701
Medford (Edwards Super Food Stores)
700-60 Patchogue-Yaphank Road
Medford, NY 11763
Uniondale (ShopRite Supermarket)
1121 Jerusalem Avenue
Uniondale, NY 11553
Bay Shore (Edwards Super Food Stores)
533 Montauk Highway
Bayshore, NY 11706
Atlantic Terminal (Pathmark Supermarket)
625 Atlantic Avenue and Fort Green Place
Brooklyn, NY 11217
North Babylon (Pathmark Supermarket)
1251 Deer Park Avenue
North Babylon, NY 11703
Stockholder Information
Corporate Offices
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
Annual Meeting
The annual meeting of stockholders will be held on Wednesday,
April 23, 1997 at 9:00 A.M., at the Holiday Inn Crowne Plaza,
104-04 Ditmars Blvd., East Elmhurst, New York. A notice of the
meeting, a proxy statement and a proxy form are included with
this mailing to stockholders of record as of March 5, 1997.
Common Stock Information
Haven Bancorp common stock is traded on the Nasdaq National
Market under the symbol HAVN. The table below shows the reported
high and low sales prices of the common stock during the periods
indicated in 1996 and 1995.
1996 1995
High Low High Low
First Quarter 25 5/16 22 1/4 17 7/8 12 7/8
Second Quarter 28 3/4 22 3/8 18.88 12.88
Third Quarter 29 3/8 25 1/4 23 5/8 18
Fourth Quarter 29 1/2 25 1/2 25 20.88
As of March 5, 1997, the Company had approximately 450
stockholders of record, not including the number of persons or
entities holding stock in nominee or street name through various
brokers and banks. At December 31, 1996, there were 4,325,407
shares of common stock outstanding.
Transfer Agent and Registrar
Inquiries regarding stockholder administration and
services should be directed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
Independent Auditors
KPMG Peat Marwick LLP
1 Jericho Plaza
Jericho, NY 11753
Legal Counsel
Thacher Proffitt & Wood
Two World Trade Center
New York, NY 10048
Investor Relations
Inquiries regarding Haven Bancorp, Inc.
should be directed to:
Catherine Califano
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
(718) 847-7041
Annual Report on Form 10-K
A copy of the annual report on Form 10-K for the year ended
December 31, 1996, which has been filed with the Securities and
Exchange Commission, is available to stockholders (excluding
exhibits) at no charge, upon written requests to:
Investor Relations
Haven Bancorp, Inc.
93-22 Jamaica Avenue
Woodhaven, NY 11421
** World Wide Web Site: http://www.cfsb.com