UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 000-21628
HAVEN BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-3153802
(I.R.S. Employer Identification No.)
93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421
(Address of principal executive offices) (Zip Code)
(718) 847-7041
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. X Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
There were 4,332,668 shares of the Registrant's common stock
outstanding as of May 12, 1997.
HAVEN BANCORP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income for the
Three Months ended March 31, 1997 and 1996 4
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months
ended March 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-25
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25-26
Item 2. Changes in Securities 26
Item 3. Defaults Upon Senior Securities 26
Item 4. Submission of Matters to a Vote of Security
Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signature Page
2
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
March 31, December 31,
1997 1996
--------- ------------
ASSETS
Cash and due from banks $ 31,858 $ 28,848
Money market investments 7,014 6,869
Securities available for sale (note 2) 435,600 370,105
Debt securities held to maturity (estimated fair value of $93,773
and $96,324 in 1997 and 1996, respectively) (note 2) 95,286 97,307
Federal Home Loan Bank of NY stock, at cost 10,240 9,890
Mortgage-backed securities held to maturity (estimated fair value of
$184,694 and $195,682 in 1997 and 1996, respectively) (note 2) 189,438 197,940
Loans:
First mortgage loans 876,068 793,556
Cooperative apartment loans 20,632 19,936
Other loans 33,227 34,094
--------- ---------
Total loans 929,927 847,586
Less allowance for loan losses (11,450) (10,704)
--------- ---------
Loans, net 918,477 836,882
Premises and equipment, net 11,821 8,820
Accrued interest receivable 11,387 12,172
Other assets 16,677 14,712
--------- ---------
Total assets $1,727,798 $1,583,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,163,530 $1,137,788
Borrowed funds (note 3) 409,542 326,433
Mortgagors' escrow balances 9,276 4,621
Due to broker 29,908 1,000
Other liabilities 15,388 14,319
--------- ---------
Total liabilities 1,627,644 1,484,161
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 10,500,000 shares authorized,
4,959,375 issued; 4,329,624 and 4,325,407 shares outstanding
in 1997 and 1996, respectively 50 50
Additional paid-in capital 49,063 48,844
Retained earnings, substantially restricted 67,743 65,092
Unrealized loss on securities available for sale, net
of tax effect (3,127) (840)
Treasury stock, at cost (629,751 and 633,968 shares in
1997 and 1996, respectively) (10,999) (11,049)
Unallocated common stock held by Bank's ESOP (1,772) (1,854)
Unearned common stock held by Bank's Recognition Plans and Trusts (237) (267)
Unearned compensation (567) (592
--------- ---------
Total stockholders' equity 100,154 99,384
--------- ---------
Total liabilities and stockholders' equity $1,727,798 $1,583,545
========= =========
See accompanying notes to consolidated financial statements.
3
HAVEN BANCORP, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
Interest income:
Mortgage loans $16,581 $11,390
Other loans 815 975
Mortgage-backed securities 7,041 10,158
Money market investments 96 55
Debt and equity securities 4,264 3,327
------ ------
Total interest income 28,797 25,905
------ ------
Interest expense:
Deposits:
Passbook accounts 2,228 2,334
NOW accounts 218 209
Money market accounts 398 456
Certificate accounts 8,469 7,705
Borrowings 5,059 3,862
------ ------
Total interest expense 16,372 14,566
------ ------
Net interest income before provision for loan losses 12,425 11,339
Provision for loan losses 700 650
------ ------
Net interest income after provision for loan losses 11,725 10,689
------ ------
Non-interest income:
Loan fees and servicing income 250 324
Savings/checking fees 1,060 772
Net (loss) gain on sales of interest-earning assets (24) 144
Insurance annuity and mutual fund fees 800 692
Other 241 221
------ ------
Total non-interest income 2,327 2,153
------ ------
Non-interest expense:
Compensation and benefits 5,014 3,739
Occupancy and equipment 992 862
Real estate owned operations, net 108 70
Federal deposit insurance premiums 192 617
Other 2,763 2,157
------ ------
Total non-interest expense 9,069 7,445
------ ------
Income before income tax expense 4,983 5,397
Income tax expense 1,678 2,539
------ ------
Net income $3,305 $2,858
====== ======
Net income per common share: Primary $ 0.74 $ 0.64
====== ======
Fully diluted $ 0.74 $ 0.64
====== ======
See accompanying notes to consolidated financial statements.
4
HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 1997 and 1996
(Unaudited)
Unrealized
Loss on Unallocated Unearned
Additional Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
Stock Capital Earnings for Sale Stock by ESOP by RRP Compensation Total
------ ---------- -------- ---------- -------- ----------- ---------- ------------ -----
(In thousands)
Balance at December 31, 1996 $ 50 48,844 65,092 (840) (11,049) (1,854) (267) (592) 99,384
Net income for the three months ended
March 31, 1997 - - 3,305 - - - - - 3,305
Dividends declared (note 5) - - (649) - - - - - (649)
Treasury stock issued for deferred
compensation plan (1,680 shares) - 28 - - 20 - - (48) -
Stock options exercised, net of tax effect
(2,537 shares) (note 4) - - (5) - 30 - - - 25
Change in unrealized loss on securities
available for sale, net of tax effect - - - (2,287) - - - - (2,287)
Allocation of ESOP stock and amortization
of award of RRP stock and related
tax benefits - 191 - - - 82 30 - 303
Amortization of deferred compensation plan - - - - - - - 73 73
--- ------ ------ ------ ------ ------ ----- ----- ------
Balance at March 31, 1997 $ 50 49,063 67,743 (3,127) (10,999) (1,772) (237) (567) 100,154
=== ====== ====== ====== ====== ====== ===== ===== ======
Balance at December 31, 1995 $ 50 47,331 57,919 2,083 (6,023) (2,197) (644) - 98,519
Net income for the three months ended
March 31, 1996 - - 2,858 - - - - - 2,858
Dividends declared - - (368) - - - - - (368)
Purchase of treasury stock (225,537 shares) - - - - (5,516) - - - (5,516)
Stock options exercised, net of tax effect
(1,544 shares) - 82 (4) - 20 - - - 98
Change in unrealized gain loss on
securities available for sale, net of
tax effect - - - (2,401) - - - (2,401)
Allocation of ESOP stock and amortization
of award of RRP stock and related tax
benefits - 141 - - - 87 119 - 347
--- ------ ------ ------ ------ ------ ----- ----- ------
Balance at March 31, 1996 $ 50 47,554 60,405 (318) (11,519) (2,110) (525) - 93,537
=== ====== ====== ====== ====== ====== ===== ===== ======
See accompanying notes to consolidated financial statements.
5
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Three Months Ended
March 31,
------------------
1997 1996
---- ----
Net cash flows from operating activities:
Net income $ 3,305 $ 2,858
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 376 347
Amortization of net deferred loan origination fees (247) (84)
Amortization of premiums and accretion of discounts on
loans, mortgage-backed and debt securities 56 643
Provision for loan losses 700 650
Provision for losses on real estate owned 50 100
Deferred income taxes (833) (2,490)
Net loss (gain) on sales of interest-earning assets 24 (144)
Depreciation and amortization 205 272
Decrease in accrued interest receivable 785 367
Increase in due to broker 28,908 27,512
Increase in other liabilities 1,069 2,617
Increase in other assets (1,132) (1,374)
------ ------
Net cash provided by operating activities 33,266 31,274
------ ------
Cash flows from investing activities:
Net increase in loans (81,580) (18,136)
Proceeds from disposition of assets (including REO) 575 1,336
Purchases of securities available for sale (153,380) (173,162)
Principal repayments and maturities on securities available for sale 6,905 25,911
Proceeds from sales of securities available for sale 77,610 129,375
Purchases of debt securities held to maturity - (5,990)
Principal repayments, maturities and calls on debt securities
held to maturity 2,020 30,043
Purchases of mortgage-backed securities held to maturity - (15,060)
Principal repayments on mortgage-backed securities held to maturity 8,413 6,512
Purchases of FHLB stock, net (350) -
Net (increase) decrease in premises and equipment (3,206) 276
------- ------
Net cash used in investing activities (142,993) (18,895)
------- ------
Cash flows from financing activities:
Net increase in deposits 25,742 12,954
Net increase (decrease) in borrowed funds 83,109 (29,719)
Increase in mortgagors' escrow balances 4,655 3,878
Purchase of treasury stock - (5,516)
Payment of common stock dividends (649) (442)
Stock options exercised 25 15
------- ------
Net cash provided by (used in) financing activities 112,882 (18,830)
------- ------
Net increase (decrease) in cash and cash equivalents 3,155 (6,451)
Cash and cash equivalents at beginning of period 35,717 38,854
------ ------
Cash and cash equivalents at end of period $38,872 $32,403
====== ======
Supplemental information:
Cash paid during the period for:
Interest $14,584 $13,556
Income taxes 900 -
Additions to real estate owned 647 1,050
Securities purchased, not yet received 29,908 32,512
====== ======
See accompanying notes to consolidated financial statements.
6
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997 and 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION. The accompanying unaudited
consolidated financial statements include the accounts of Haven
Bancorp, Inc. ("Haven Bancorp" or the "Company") and its wholly-
owned subsidiary, Columbia Federal Savings Bank ("Columbia Federal"
or the "Bank") and subsidiaries, as of March 31, 1997 and December
31, 1996 and for the three-month period ended March 31, 1997 and
1996, respectively. Material intercompany accounts and trans-
actions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management all
necessary adjustments, consisting only of normal recurring accruals
necessary for a fair presentation have been included. The results
of operations for the three-month period ended March 31, 1997 are
not necessarily indicative of the results that may be expected for
the entire fiscal year.
These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1996.
NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs").
Under Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities,"
debt securities and MBSs which the Company has the ability and the
intent to hold until maturity, are carried at cost adjusted for
amortization of premiums and accretion of discounts. Debt and
equity securities and MBSs to be held for indefinite periods of
time and not intended to be held to maturity or on a long-term
basis are classified as available for sale securities which are
recorded at fair value, with unrealized gains (losses) reported as
a separate component of stockholders' equity, net of taxes.
7
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at March 31, 1997 are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
Debt and equity securities available for sale:
U.S. Government and Agency obligations $133,948 - (5,050) 128,898
Preferred Stock 4,104 - (53) 4,051
------- ----- ------ -------
138,052 - (5,103) 132,949
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 949 26 - 975
FNMA Certificates 42,413 556 (263) 42,706
FHLMC Certificates 50,507 1,277 (31) 51,753
CMOs and REMICS 208,490 112 (1,385) 207,217
------- ----- ------ -------
302,359 1,971 (1,679) 302,651
------- ----- ------ -------
Total $440,411 1,971 (6,782) 435,600
======= ===== ====== =======
The net unrealized loss on securities available for sale at March
31, 1997, was reported as a separate component of stockholders'
equity, in the amount of $3.1 million which is net of a tax effect
of $1.7 million.
DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of debt securities held to maturity at March 31, 1997
are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
U.S. Government and Agency obligations $ 49,926 - (1,449) 48,477
Corporate debt securities 45,360 41 (105) 45,296
------- -- ------ -------
Total $ 95,286 41 (1,554) 93,773
======= == ====== =======
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
8
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of MBSs held to maturity at March 31, 1997 are
summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
FHLMC Certificates $ 35,379 163 (978) 34,564
FNMA Certificates 69,685 136 (2,911) 66,910
CMOs and REMICs 84,374 201 (1,355) 83,220
------- ----- ------ -------
Total $189,438 500 (5,244) 184,694
======= ===== ====== =======
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
NOTE 3 - HAVEN CAPITAL TRUST I. On February 12, 1997 Haven Capital
Trust I, a Delaware business trust (the "Trust"), completed the
offering of $25,000,000 of 10.46% Capital Securities (the "Capital
Securities"). The Capital Securities are included in borrowed
funds in the consolidated statement of financial condition. The
Capital Securities were sold in a private placement in reliance on
Rule 144A of the Securities Act of 1933, as amended. The Company
is the owner of all of the beneficial interests represented by the
common securities of the Trust (the "Common Securities" and
together with the Capital Securities, the "Trust Securities"). The
Trust exists for the sole purpose of issuing the Trust Securities
and investing the proceeds thereof in the 10.46% Junior
Subordinated Deferrable Interest Debentures (the "Junior
Subordinated Debentures"), issued by the Company pursuant to an
indenture, which Junior Subordinated Debentures are scheduled to
mature on February 1, 2027. The Capital Securities have a
mandatory redemption provision which is triggered by optional
prepayment of the Junior Subordinated Debentures. The Chase
Manhattan Bank is the Property Trustee of the Trust. The proceeds
from the Capital Securities will be used for general corporate
purposes. Additionally, Haven contributed $15 million in capital
during the quarter to the Bank to support the Bank's in-store
supermarket banking expansion.
NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
9
for the three months ended March 31, 1997 are as follows:
Weighted Average
Options Exercise Price
------- ----------------
Balance at December 31, 1996 656,394 $15.08
Granted 10,000 34.57
Forfeited (6,000) 24.28
Exercised (2,537) 10.00
------- -----
Balance at March 31, 1997 657,857 $15.31
======= =====
Shares exercisable at March 31, 1997 428,408 $10.71
======= =====
NOTE 5 - DIVIDENDS PAYABLE. On March 26, 1997, the Company's Board
of Directors approved a regular quarterly cash dividend of $0.15
per share, payable on April 24, 1997, to shareholders of record as
of April 4, 1997.
NOTE 6 - RECENT ACCOUNTING/REGULATORY 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.
In December, 1996, the FASB issued SFAS No. 127 "Deferral of the
10
Effective Date of Certain Provisions of FASB Statement No. 125".
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 Company's adoption
of SFAS No. 125, as amended by SFAS No. 127, on January 1, 1996 did
not have a material effect on the Company's financial statements.
In February, 1997, the FASB issued SFAS No. 128, "Accounting for
Earnings Per Share." SFAS No. 128 establishes standards for the
computation, presentation and disclosure requirements for earnings
per share ("EPS") and applies to entities with publicly held common
stock or potential common stock. SFAS No. 128 simplifies the
standards for computing earnings per share and makes them more
compatible with the EPS standards of other countries and with that
of the International Accounting Standards Committee ("IASC"). It
replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with
complex capital structures and requires a reconciliation of the
numerator and denominator of the diluted EPS computation.
Basic EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into
common stock or resulted in the issuance of common stock that then
shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15,
"Earnings per Share" ("Opinion No. 15").
SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods;
earlier application is not permitted. SFAS No. 128 requires
restatement of all prior-period EPS data presented. SFAS No. 128,
when adopted, is expected to result in basic EPS being somewhat
greater than current primary EPS and diluted EPS not being
materially different than current fully diluted EPS.
In February, 1997, the FASB issued SFAS No. 129, "Disclosure of
Information about Capital Structure." SFAS No. 129 establishes
standards for disclosing information about an entity's capital
structure. It applies to all entities. SFAS No. 129 continues the
previous requirements to disclose certain information about an
entity's capital structure found in APB Opinions No. 10, "Omnibus
Opinion - 1966", and No. 15, "Earnings per Share", and SFAS
Statement No. 47, "Disclosure of Long-Term Obligations", for
entities that were subject to the requirements of those standards.
SFAS No. 129 eliminates the exemption of non-public entities from
certain disclosure requirements of Opinion 15 as provided by SFAS
11
Statement No. 21, "Suspension of the Reporting of Earnings per
Share and Segment Information by Non-public Enterprises". It
supersedes specific disclosure requirements of Opinions 10 and 15
and SFAS No. 47 and consolidates them in SFAS No. 129 for ease of
retrieval and for greater visibility to nonpublic entities.
SFAS No. 129 is effective for financial statements for periods
ending after December 15, 1997. It contains no change in
disclosure requirements for entities that were previously subject
to the requirements of Opinions 10 and 15 and Statement 47.
Accordingly, when adopted, SFAS No. 129 is not expected to have a
material effect on the Company's financial statements.
NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. Primary and fully
diluted net income per share were determined by dividing net income
by the weighted average number of shares outstanding. There were
4,487,194 primary shares outstanding and 4,495,877 fully diluted
shares outstanding for the three months ended March 31, 1997. The
weighted average number of shares outstanding does not include
177,195 shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP") as of March 31, 1997 in accordance with
American Institute of CPAs ("AICPA") Statement of Position ("SOP")
93-6, "Employers' Accounting for ESOPs". Stock options are
regarded as common stock equivalents and are considered in both
primary earnings per share and fully diluted earnings per share
using the treasury stock method. For a discussion of new standards
for computing and presenting earnings per share, see Note 6 -
Recent Accounting/Regulatory Pronouncements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") is the
holding company for Columbia Federal Savings Bank ("Columbia" or
the "Bank"), a federally chartered stock savings bank. Columbia
converted from a mutual to a stock savings bank on September 23,
1993 in conjunction with the issuance of the Bank's capital stock
to Haven Bancorp.
Haven Bancorp's business currently consists of the business of the
Bank. The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one-to four-family, owner occupied residential
mortgage loans. In addition, in times of low loan demand, the Bank
will invest in debt, equity and mortgage-backed securities ("MBSs")
to supplement its lending portfolio. The Bank also invests, to a
lesser extent, in multi-family residential mortgage loans,
12
commercial real estate loans, equity lines of credit and other
marketable securities. The Bank's results of operations are
dependent primarily on its net interest income, which is the
difference between the interest income earned on its loan and
securities portfolios and its cost of funds, which primarily
consist of the interest paid on its deposits and borrowed funds.
The Bank's net income also is affected by its provision for loan
losses as well as non-interest income and operating expenses
consisting primarily of compensation and benefits, occupancy and
equipment, real estate owned operations, net, federal deposit
insurance premiums and other general and administrative expenses.
The earnings of the Bank are significantly affected by general
economic and competitive conditions, particularly changes in market
interest rates, and to a lesser extent by government policies and
actions of regulatory authorities.
ANALYSIS OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1996 TO
MARCH 31, 1997
ASSETS
Total assets increased by $144.3 million, or 9.1% to $1.7 billion
at March 31, 1997. Cash and due from banks increased by $3.0
million to $31.9 million at March 31, 1997. Securities available
for sale ("AFS") increased by $65.5 million, or 17.7% to $435.6
million at March 31, 1997 from $370.1 million at December 31, 1996
resulting primarily from purchases during the quarter in the AFS
portfolio to initially invest a portion of the proceeds of the
$25.0 million Capital Securities issued by Haven Capital Trust I in
February 1997, as well as to minimize market risk and improve the
overall net interest margin in the portfolio. During the quarter
ended March 31, 1997, the Bank purchased $26.3 million of
government agency securities, $117.1 million of MBSs and $5.9
million in FNMA Preferred Stock for its AFS portfolio. Also,
during the quarter the Company purchased $4.0 million in preferred
stock for its AFS portfolio. These increases were offset by sales
and principal repayments of $77.6 million and $6.9 million,
respectively. Debt securities held to maturity declined by $2.0
million, or 2.1% to $95.3 million at March 31, 1997 from $97.3
million at December 31, 1996 mainly due to principal repayments,
maturities and calls totalling $2.0 million. MBSs held to maturity
declined by $8.5 million, or 4.3% to $189.4 million at March 31,
1997 from $197.9 million at December 31, 1996 also due to principal
repayments on the portfolio. There were no purchases of debt
securities or MBSs held to maturity during the quarter.
Net loans increased by $81.6 million, or 9.7% to $918.5 million at
March 31, 1997 from $836.9 million at December 31, 1996. Loan
originations during the quarter totaled $106.3 million (comprised
of $81.9 million of residential one-to four-family mortgage loans,
13
$2.5 million of equity loans and lines of credit, $1.0 million of
construction advances, and $20.9 million of commercial real estate
and multi-family loans. Originations for residential one-to four-
family mortgage loans included purchases of $58.2 million of
primarily adjustable rate residential loans in the secondary
market. During the first quarter of 1997, principal repayments
totalled $23.3 million, $647,000 was transferred to REO and
$160,000 of loans were sold in the secondary market.
REO, net was unchanged at $1.0 million (net of a $90,000 reserve at
March 31, 1997 and a $81,000 reserve at December 31, 1996). During
the first quarter, the Bank sold $371,000 of REO, acquired $647,000
of REO properties and recorded write-downs to fair value of
$266,000 on various properties. (See discussion of non-performing
assets on pages 16-17).
LIABILITIES
Deposits increased by $25.7 million, or 2.3% between December 31,
1996 and March 31, 1997 primarily due to deposit inflows in the
Bank's in store bank branches which had deposits totaling $24.2
million at March 31, 1997 compared to $12.1 million at December 31,
1996. The Bank had ten in-store bank branches open as of March 31,
1997 compared to four in-store branches at December 31, 1996. The
Bank expects to open three in-store bank branches per month during
the remainder of 1997 and the first quarter of 1998. Core deposits
(comprised of checking, savings and money market accounts) were
equal to 43.3% of total in-store branch deposits at March 31, 1997
compared to a ratio of 47.4% in the Bank's nine traditional
branches. Overall, core deposits represented 47.3% of total
deposits at March 31, 1997 compared to 47.2% at December 31, 1996.
Borrowed funds increased by $83.1 million, or 25.5% to $409.5 at
March 31, 1997 million from $326.4 million at December 31, 1996
primarily due to the addition of $25.0 million of Capital
Securities issued by Haven Capital Trust I in February 1997 which
are included in borrowed funds in the consolidated statements of
financial condition and the addition of an $85.0 million leverage
program which was implemented to offset the additional interest
expense resulting from the issuance of the Capital Securities.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $100.2 million at
March 31, 1997 from $99.4 million at December 31, 1996. Net income
of $3.3 million for the quarter and the allocation of ESOP stock
due to the reduction of the Bank's ESOP debt and the amortization
of awards of shares of stock by the Bank's RRPs and amortization of
deferred compensation plan which increased stockholders' equity by
$376,000 was partially offset by an increase of $2.3 million in the
unrealized loss on securities available for sale and dividends
declared of $649,000.
14
NON-PERFORMING ASSETS
The following table sets forth information regarding all non-
accrual loans (which consist of loans 90 days or more past due and
restructured loans that have not yet performed in accordance with
their modified terms for the required six-month seasoning period),
restructured loans and real estate owned.
March 31, December 31,
1997 1996
--------- ------------
Non-accrual loans
One-to four-family $ 3,698 4,083
Cooperative 455 431
Multi-family 3,328 1,463
Non-residential and other 2,926 4,756
------ ------
Total non-accrual loans 10,407 10,733
------ ------
Restructured loans
One-to four-family 959 887
Cooperative 429 486
Multi-family 285 1,427
Non-residential and other 360 360
------ ------
Total restructured loans 2,033 3,160
------ ------
Total non-performing loans 12,440 13,893
------ ------
REO, net
One-to four-family 486 266
Cooperative 274 292
Non-residential and other 368 561
------ ------
Total REO 1,128 1,119
Less allowance for REO 90 81
------ ------
REO, net 1,038 1,038
------ ------
Total non-performing assets $13,478 14,931
====== ======
Non-performing loans to total loans 1.34% 1.64
Non-performing assets to total assets 0.78 0.94
Non-performing loans to total assets 0.72 0.88
The decrease in non-performing assets was primarily due to the
reclassification of a performing restructured multi-family real
15
estate loan totalling $1.1 million to performing status at March
31, 1997. The ratio of non-performing loans to total loans
decreased primarily due to total loans which increased by $82.3
million during the quarter. The decrease in the ratio of non-
performing assets to total assets was primarily due to total assets
which increased $144.3 million during the quarter. The ratio of
non-performing loans to total assets decreased primarily due to the
increase of $144.3 million in total assets between year-end 1996
and March 31, 1997.
The Bank maintains an allowance for loan losses and an allowance
for REO, which it believes are adequate for potential losses at
each period end. Management's judgment as to potential losses is
based on its review of the loan and REO portfolios and its judgment
regarding prevailing and anticipated economic conditions and a
variety of other factors which have an impact on those portfolios.
Although management believes that the allowances are adequate as of
the period end, additional provisions may be required in the
future.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the three months ended March 31, 1997 and 1996:
1997 1996
------- -------
Balance at beginning of period $10,704 8,573
Charge-offs:
Residential (171) (407)
Cooperative (109) (242)
Non-residential and other (58) (127)
------ ------
Total charge-offs (338) (776)
------ ------
Recoveries 384 412
------ ------
Net recoveries (charge-offs) 46 (364)
Provision for loan losses 700 650
------ ------
Balance at end of period $11,450 8,859
====== ======
Ratio of net recoveries (charge-offs) during
the period to average loans outstanding
during the period (0.02%) 0.25
Ratio of allowance for loan losses to
total loans at the end of the period 1.23 1.51
Ratio of allowance for loan losses to non-
performing loans at the end of the period 92.04 56.32
16
The ratio of net charge-offs to average loans outstanding during
the first quarter of 1997 decreased compared to the same period in
1996 due to the decrease in non-performing loans between the
periods and an increase of $285.5 million in average loans
outstanding. The ratio of allowance for loan losses to total loans
also decreased due to the increase in average loans outstanding.
The ratio of allowance for loan losses to non-performing loans
increased between the periods due to an increase in the allowance
for loan losses as a result of the reduction in net charge-offs.
The Bank's allowance for loan losses was $11.5 million and $8.9
million at March 31, 1997 and 1996, respectively, while non-
performing loans totalled $12.4 million and $15.7 million,
respectively, at those dates.
ALLOWANCE FOR REAL ESTATE OWNED
Activity in the allowance for REO for the three months ended March
31, 1997 and 1996 are as follows:
1997 1996
------- -------
Balance at beginning of period $ 81 178
Provision charged to operations 50 100
Charge-offs (41) (96)
------ ------
Balance at end of period $ 90 182
====== ======
ASSET/LIABILITY MANAGEMENT
The Company has attempted to reduce its exposure to interest rate
risk through the origination and purchase of ARM loans and the
purchase of adjustable-rate securities which are expected to help
protect net interest margins during periods of rising interest
rates. During the first quarter of 1997, the Bank originated or
purchased $63.5 million of residential adjustable rate mortgages.
During the quarter, the Bank sold $77.6 million in securities from
its AFS portfolio, most of which were fixed rate securities, to
improve yield by purchasing fixed rate securities bearing higher
yields and shorter duration. The Bank purchased fixed rate debt
securities and MBSs to take advantage of higher yields compared to
rates offered on adjustable rate securities. At March 31, 1997,
$206.6 million, or 42.0% of the Company's MBS portfolio were
adjustable-rate MBSs. In addition, $50.3 million, or 22.0% of the
Company's debt and equity securities portfolio were floating rate
securities.
17
Historically, the Company has been able to maintain a substantial
level of core deposits (comprised of passbook, money market, NOW
and demand accounts) which the Company believes helps to limit
interest rate risk by providing a relatively stable, low cost,
long-term funding base. At March 31, 1997 core deposits
represented 47.3% of deposits compared to 47.2% of deposits at
December 31, 1996. During the first quarter of 1997, passbook
accounts increased by $4.4 million, net of interest and
certificates of deposit increased by $6.2 million, net of interest.
The number of checking accounts increased by 4,744, or 7.4% to
69,093 at March 31, 1997 from 64,349 at December 31, 1996. Most of
the increase, 3,265 accounts is attributable to the Bank's in-store
bank branches. The amount of certificate accounts outstanding at
March 31, 1997 was $615.3 million compared to $601.1 million at
December 31, 1996. The Company expects to attract a higher
percentage of core deposits from its in-store bank branch locations
as these locations continue to grow and mature.
LIQUIDITY AND CAPITAL
The Bank is required to maintain minimum levels of liquid assets as
defined by the 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 15.56% at March 31, 1997 compared to 14.99% at
December 31, 1996. The increase in the liquidity ratio during the
quarter is due to the purchase of government agency securities for
the AFS portfolio.
The Company's primary sources of funds are deposits, principal and
interest payments on loans and MBSs, retained earnings and advances
from FHLB-NY. Proceeds from the sale of AFS securities are also a
source of funding, as are, to a lesser extent, the sales of
annuities and securities brokerage activities conducted by the
Bank's subsidiary, Columbia Investment Services, Inc. ("CIS").
While maturities and scheduled amortization of loans and mortgage-
backed 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 March 31, 1997 and December 31, 1996,
cash and short and intermediate-term investments totaled $38.9
million and $35.7 million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year, mortgage loans
18
and MBSs AFS. Other sources of funds include FHLB advances, which
at March 31, 1997, totaled $197.0 million. At March 31, 1997, the
Bank could not borrow any additional funds from the FHLB. An
additional source of funds are repurchase agreements which the Bank
utilized during the first quarter to complete the $85.0 million
leverage program.
As of March 31, 1997, the Bank exceeded all regulatory capital
requirements as detailed in the following table:
Tangible Capital Core Capital Risk-Based Capital
-------------------- -------------------- -----------------------
Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)(2)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
Capital for regulatory purposes $115,181 6.81% $115,181 6.81% $125,006 14.82%
Minimum regulatory requirement 25,357 1.50 50,713 3.00(3) 67,467 8.00
------- ---- ------- ---- ------- ----
Excess $ 89,824 5.31% $ 64,468 3.81% $ 57,539 6.82%
======= ==== ======= ==== ======= ====
(1) Tangible and core capital are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) The OTS has incorporated an interest rate risk component into
its regulatory capital rule. Under the rule, saving associations
with "above normal" interest rate risk exposure would be subject to
a deduction from total capital for purposes of calculating their
risk-based capital requirements. The OTS has postponed the date
that the component will first be deducted from an institution's
total capital until an appeals process is developed for the
measurement of an institution's interest rate risk. The Bank does
not anticipate that the new rule, when implemented, will have a
material effect on the Bank's risk-based capital.
(3) Although the minimum capital ratio is 3.0%, the OTS
regulations provide that generally an institution with less than
4.0% core capital is undercapitalized. Failure to meet the capital
requirements or to be deemed undercapitalized exposes an
institution to regulatory sanctions, including limitations on asset
growth. The OTS noted in the preamble to the final rulemaking for
interest rate risk that its intention was to issue a proposal to
lower this ratio requirement from 4.0% to 3.0%.
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net
interest income, which represents the difference between interest
and fees earned on loans, MBSs and debt and equity securities, and
19
the cost of deposits and borrowings. Net interest income is
dependent on the difference between the average balances and rates
earned on interest-earning assets and the average balances and
rates paid on interest-bearing liabilities. Net income is further
affected by non-interest income, non-interest expense and income
taxes.
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition
and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense annualized by the average
balance of assets or liabilities, respectively, for the periods
shown. Average balances were derived from average daily balances.
The average balance of loans includes loans on which the Company
has discontinued accruing interest. The yields and costs include
fees which are considered adjustments to yields.
Three Months Ended March 31,
1997 1996
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans $ 835,905 $16,581 7.93% $ 545,889 $11,390 8.35%
Other loans 33,757 815 9.66 38,302 975 10.18
Mortgage-backed securities 417,169 7,041 6.75 611,981 10,158 6.64
Money market investments 7,069 96 5.43 2,574 55 8.55
Debt and equity securities 253,991 4,264 6.72 198,872 3,327 6.69
--------- ------ --------- ------
Total interest-earning assets 1,547,891 28,797 7.44 1,397,618 25,905 7.41
Non-interest earning assets 64,387 ------ 59,957 ------
--------- ---------
Total assets 1,612,278 1,457,575
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 362,537 2,228 2.46 376,536 2,334 2.48
Certificate accounts 606,470 8,469 5.59 540,859 7,705 5.70
NOW accounts 120,872 218 0.72 105,042 209 0.80
Money market accounts 54,314 398 2.93 61,689 456 2.95
Borrowed funds 355,395 5,059 5.69 260,880 3,862 5.92
--------- ------ --------- ------
Total interest-bearing liabilities 1,499,588 16,372 4.37 1,345,006 14,566 4.33
Other liabilities 18,994 ------ 18,481 ------
--------- ---------
Total liabilities 1,518,582 1,363,487
Stockholders' equity 93,696 94,088
--------- ---------
Total liabilities and stockholders' equity $1,612,278 $1,457,575
========= =========
Net interest income/net interest rate spread $12,425 3.07% $11,339 3.08%
====== ==== ===== ====
Net interest earning assets/net interest margin $48,303 3.21% $52,612 3.25%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.22% 103.91%
====== ======
20
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1997 AND 1996
GENERAL. The Company reported net income of $3.3 million for the
three months ended March 31, 1997 compared to net income of $2.9
million for the three months ended March 31, 1996. The $447,000
increase was primarily attributable to an increase of $2.9 million
in interest income, an increase of $174,000 in non-interest income
and a decrease of $861,000 in income tax expense. These increases
were partially offset by a $1.8 million increase in interest
expense, a $50,000 increase in the provision for loan losses and a
$1.6 million increase in non-interest expenses.
INTEREST INCOME. Interest income increased by $2.9 million, or
11.2% to $28.8 million for the three months ended March 31, 1997
from $25.9 million for the three months ended March 31, 1996. The
increase was primarily the result of a $5.2 million increase in
interest income on mortgage loans and an increase of $937,000 in
interest income on debt and equity securities. These increases
were partially offset by a decrease in interest income on MBSs and
other loans of $3.1 million and $160,000, respectively. Finally,
interest income on money market investments was up $41,000 from the
prior year.
Interest income on mortgage loans increased by $5.2 million, or
45.6% to $16.6 million for the three months ended March 31, 1997,
from $11.4 million for the comparable three-month period in 1996.
The increase was primarily the result of an increase in the average
balance of mortgage loans of $290.0 million, partially offset by
the average yield which declined 42 basis points from the first
quarter of 1996. The increase in the average balance of mortgage
loans between the periods was primarily due to mortgage
originations, including purchases, for the entire year of 1996 and
the first quarter of 1997 which totaled $354.9 million and $103.8
million, respectively. These originations included one-to four-
family mortgage loans purchased in the secondary market totalling
$172.3 million and $58.2 million, respectively. The originations
for both periods were partially offset by principal payments of
$78.2 million and $20.0 million, respectively. The decline in the
average yield from the prior year was primarily due to the
increasing percentage of relatively lower yielding residential
mortgages to total mortgages, from 60.3% at March 31, 1996 to 69.6%
of total at March 31, 1997. Interest income on other loans
decreased by $160,000, or 16.4% primarily due to a decrease of $4.5
million in average balances outstanding and a decrease of 52 basis
points in average yield. During the fourth quarter of 1995, the
Bank discontinued its non-real estate related lending function.
Interest income on MBSs decreased by $3.1 million, or 30.7% to $7.0
million for the three months ended March 31, 1997 from $10.2
million for the comparable three-month period in 1996 primarily due
21
to a decrease of $194.8 million in the average balance of MBSs
which was offset by an increase in the average yield of 11 basis
points. During 1996, the Bank purchased $161.1 million of MBSs for
its AFS portfolio which were offset by sales totalling $304.2
million. 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. During the first
quarter of 1997, the Bank purchased $117.1 million of MBSs for its
AFS portfolio which were partially offset by sales totalling $30.9
million. The purchases for the first quarter included $26.5
million of MBSs acquired as part of a leverage program initiated
during February to offset the additional interest expense resulting
from the issuance of $25.0 million of 10.46% Capital Securities by
Haven Capital Trust I.
Interest income on money market investments increased by $41,000,
or 74.5% to $96,000 for the three months ended March 31, 1997 from
$55,000 for the comparable three-month period in 1996 primarily as
a result of an increase in average balance of $4.5 million. The
increase in average balances were due to the investment by the
Holding Company of a portion of the proceeds raised by Haven
Capital Trust I initially in commercial paper.
Interest income on debt and equity securities increased by
$937,000, or 28.2% to $4.3 million for the three months ended March
31, 1997 from $3.3 million for the comparable three-month period in
1996 primarily as a result of an increase in average balances of
$55.1 million. During 1996, the Bank purchased $160.1 million of
debt and equity securities for its AFS portfolio which were offset
by sales totalling $63.5 million. During the first quarter of
1997, the Bank purchased government agency and preferred stock of
$26.3 million and $9.9 million, respectively, offset by sales of
$14.0 million and $32.8 million, respectively.
INTEREST EXPENSE. Interest expense increased by $1.8 million, or
12.4% to $16.4 million for the three months ended March 31, 1997
from $14.6 million for the three months ended March 31, 1996. The
increase was primarily the result of a $1.2 million increase in
interest expense on borrowings and an increase of $609,000 in
interest expense on deposits.
Interest on deposits increased by $609,000, or 5.7% to $11.3
million for the three months ended March 31, 1997 from $10.7
million for the comparable three-month period in 1996. The
increase in interest on deposits was primarily due to the increased
average balance of $60.1 million. The deposit growth is partly
attributable to the Bank's in-store banking program which was
implemented during the second quarter of 1996 when the first
location opened in an Edwards Super Food Store in Medford, Long
Island. At March 31, 1997, the Bank had ten in-store bank branches
22
operating with combined deposits totalling $24.2 million. Core
deposits for these locations which represent checking, savings and
money market accounts totalled $10.5 million, or 43.2% of total
deposits compared to 47.4% for the Bank's traditional branches.
The increase in average balance was primarily due to certificate
account balances which increased by $65.6 million, or 12.1% to
$606.5 million (which included $13.7 million in in-store bank
branches) for the three months ended March 31, 1997 from $540.9
million for the comparable three-month period in 1996. The Bank's
strategy during 1996 and 1997 has been to emphasize 12 and 18 month
certificates of deposit in order to retain a portion of customer
withdrawals from passbook accounts as customers sought higher
yielding investment opportunities in the rising interest rate
environment and as an alternative to borrowed funds when
appropriate. The average cost of certificate accounts was 5.59%
for the first quarter of 1997 compared to 5.70% for the 1996 first
quarter due to the Bank's emphasis on shorter-term certificates of
deposit. Interest expense on certificate accounts increased by
$764,000, or 9.9% to $8.5 million for the three months ended March
31, 1997 from $7.7 million in the same period in 1996. Interest
expense on passbook accounts decreased by $106,000, or 4.5% to $2.2
million for the three months ended March 31, 1997 from $2.3 million
in the same period in 1996 primarily due to a decrease in average
balance, due to customers seeking higher yielding investment
opportunities including the Bank's certificate of deposit accounts.
The average balance of passbook accounts decreased by $14.0
million, or 3.7% to $362.5 million for the three months ended
March 31, 1997 from $376.5 million for the first quarter of 1996.
The average cost of passbook accounts decreased by 2 basis points
to 2.46% from 2.48% for the period ended March 31, 1996. The
average cost of all deposits was 3.95% for both the three months
ended March 31, 1997 and March 31, 1996, respectively.
Interest on borrowed funds increased by $1.2 million, or 31.0% to
$5.1 million for the three months ended March 31, 1997 from $3.9
million for the comparable three-month period in 1996. Borrowed
funds on an average basis increased by $94.5 million between the
periods primarily due to the addition of short-term FHLB advances
and securities sold under agreements to repurchase during 1997 as
part of a $85 million leverage program that was completed during
the first quarter of 1997 to offset the additional interest expense
resulting from the $25 million of 10.46% Capital Securities issued
by Haven Capital Trust I in February 1997. The average rate paid
on borrowings decreased to 5.69% for the three months ended March
31, 1997 from 5.92% for the comparable prior-year period due to a
decrease in market interest rates between the periods.
NET INTEREST INCOME. Net interest income increased by $1.1
million, or 9.6% to $12.4 million for the three months ended March
31, 1997 from $11.3 million for the three months ended March 31,
1996. The increase is primarily due to total interest earning
23
assets which increased by $150.3 million, or 10.8% to $1.5 billion
for the three months ended March 31, 1997 from the same period last
year mainly due to growth in the Bank's residential mortgage loan
portfolio. In addition, the average yield on interest-earning
assets increased to 7.44% from 7.41% for the three months ended
March 31, 1997. This increase was offset in part by the average
cost on interest-bearing liabilities which increased to 4.37% from
4.33% for the three months ended March 31, 1997 and 1996,
respectively. The net interest spread was 3.07% for the three
months ended March 31, 1997 compared to 3.08% for the comparable
period in 1996. It is unclear how the recent increases in market
interest rates will impact net interest income for the remainder of
1997.
PROVISION FOR LOAN LOSSES. The Bank provided $700,000 for loan
losses for the three months ended March 31, 1997 compared to
$650,000 for the comparable three-month period in 1996. This
amount represents management's periodic review and evaluation of
the loan portfolio.
NON-INTEREST INCOME. Non-interest income increased by $174,000, or
8.1% for the three months ended March 31, 1997 to $2.3 million from
$2.2 million for the comparable three-month period in 1996.
Insurance, annuity and mutual fund fees increased by $108,000 due
to an increase in sales volume, including $44,000 in revenues from
in-store bank branches. Savings and checking fees increased by
$288,000 due to the number of checking accounts which increased by
13,254, or 23.7% to 69,093 at March 31, 1997 from 55,839 at March
31, 1996 due to the Bank's strategy to attract lower cost deposit
balances in the traditional branches and the implementation of the
in-store banking program during the second quarter of 1996.
Checking accounts at the in-store bank branches totaled 6,901
accounts at March 31, 1997. The in-store bank branches generated
savings/checking fees of $99,000 in the first quarter of 1997.
These increases were partially offset by loan fees and servicing
income which declined $74,000 due to a decline in fees earned on
loans serviced for others and a net loss of $24,000 on the sale of
interest-earning assets as compared to a gain of $144,000 for the
March 31, 1996 quarter.
NON-INTEREST EXPENSE. Non-interest expense increased by $1.6
million, or 21.8% for the three months ended March 31, 1997 to
$9.1 million from $7.4 million for the comparable three-month
period in 1996. The increase is primarily due to an increase of
$1.3 million in compensation and benefit costs. Employee
compensation and benefits increased by $1.3 million from the first
quarter of 1996 primarily due to salary expense of $718,000
incurred for the Bank's in-store bank branch program. The Bank has
hired approximately 200 new employees for its in-store bank
branches. Salary costs for the Bank's subsidiary, CIS, Inc. was up
$88,000 due to higher sales volume. The remainder of the increase
24
in salary costs was due to normal merit increases. In addition,
federal social security taxes increased $119,000 from the prior
year due to a higher salary base. Finally, ESOP compensation
increased $53,000 from the prior period due to the increase in the
average price of Haven stock for the period. Occupancy and
equipment costs increased $130,000 due to the in-store banking
program. Real estate owned operations, net increased $38,000 from
the prior period due to a decline in profits realized on the sale
of REO. Federal Deposit Insurance premiums decreased by $425,000
due to a decline in the assessment rate from 23 basis points to
6.48 basis points. Other expenses increased $606,000 from the
prior period primarily due to the in-store banking program.
INCOME TAX EXPENSE. Income tax expense was $1.7 million for an
effective tax rate of 33.7% for the three months ended March 31,
1997 compared to income tax expense of $2.5 million for an
effective tax rate of 47.0% for the comparable period in 1996.
Part of the decrease in income tax expense was attributed to the
reversal of a deferred tax liability of $330,000 related to the
potential recapture of the NYC tax bad debt reserve which is no
longer necessary due to NYC tax legislation recently enacted. The
NYC tax law was amended in the first quarter of 1997 to conform to
the NYS tax treatment for bad debt reserves. The legislation
"decouples" New York State's and New York City's thrift bad debt
provisions from the federal tax law and allows for the use of the
percentage of taxable income method ("PTI") for tax computing the
bad debt reserves. The remainder of the tax savings was due to the
switch to the PTI method for calculating the bad debt deduction for
NYC.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of the Bank. At March 31, 1997, the
Bank has a class action lawsuit related thereto pending, whereby
the plaintiffs are seeking recovery of approximately $12.9 million
in actual damages and an additional $12.9 million of unspecified
damages. The 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.
25
The Company is involved in various other legal actions arising in
the ordinary course of business, which in the aggregate, are
believed by management to be immaterial to the financial position
of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
April 23, 1997.
(b) Not applicable.
(c) At such meeting, the shareholders approved the following
matters:
1. The election of the following individuals as Directors for a
term of 3 years each:
Votes Broker
Votes For Withheld Abstentions Non-Votes
Philip S. Messina 3,782,913 46,145 -0- -0-
Joseph A. Ruggiere 3,781,787 47,271 -0- -0-
Msgr. Thomas J. Hartman 3,779,768 49,290 -0- -0-
2. The ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1997, as reflected by 3,807,527 votes for, 10,603 votes against,
10,928 abstentions and no broker non-votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 27.1 Financial Data Schedule.
b) The Company filed a Form 8-K on February 24, 1997
regarding the offering of $25,000,000 of 10.46% Capital Securities
by Haven Capital Trust I.
26
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HAVEN BANCORP INC.
(Registrant)
Date: May 14, 1997 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: May 14, 1997 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
27