UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 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 4,383,382 shares of the Registrant's common stock
outstanding as of August 8, 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 June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the
Three Months and Six Months ended
June 30, 1997 and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months
ended June 30, 1997 and 1996 5
Consolidated Statements of Cash Flows for the
Six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-32
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 33
Item 2. Changes in Securities 33
Item 3. Defaults Upon Senior Securities 33
Item 4. Submission of Matters to a Vote of Security
Holders 33
Item 5. Other Information 33
Item 6. Exhibits and Reports on Form 8-K 33
PART III - QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK 33
Signature Page
2
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
June 30, December 31,
1997 1996
-------- ------------
ASSETS
Cash and due from banks $ 40,182 $ 28,848
Money market investments 6,412 6,869
Securities available for sale (note 2) 426,408 370,105
Debt securities held to maturity (estimated fair value of $93,986
and $96,324 in 1997 and 1996, respectively) (note 2) 95,285 97,307
Federal Home Loan Bank of NY stock, at cost 10,990 9,890
Mortgage-backed securities held to maturity (estimated fair value of
$180,389 and $195,682 in 1997 and 1996, respectively) (note 2) 182,702 197,940
Loans (note 3):
First mortgage loans 930,889 793,556
Cooperative apartment loans 20,238 19,936
Other loans 32,317 34,094
--------- ---------
Total loans 983,444 847,586
Less allowance for loan losses (11,315) (10,704)
--------- ---------
Loans, net 972,129 836,882
Premises and equipment, net 15,952 8,820
Accrued interest receivable 12,905 12,172
Other assets 18,580 14,712
--------- ---------
Total assets $1,781,545 $1,583,545
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,236,274 $1,137,788
Borrowed funds 412,593 326,433
Mortgagors' escrow balances 2,498 4,621
Due to broker 10,000 1,000
Other liabilities 14,247 14,319
--------- ---------
Total liabilities 1,675,612 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 shares issued; 4,377,382 and 4,325,407 shares
outstanding at June 30, 1997 and December 31, 1996 50 50
Additional paid-in capital 49,275 48,844
Retained earnings, substantially restricted 69,398 65,092
Unrealized gain (loss) on securities available for sale, net
of tax effect 31 (840)
Treasury stock, at cost (581,993 and 633,968 shares at June
30, 1997 and December 31, 1996) (10,426) (11,049)
Unallocated common stock held by Bank's ESOP (1,690) (1,854)
Unearned common stock held by Bank's Recognition Plans and Trusts (208) (267)
Unearned compensation (497) (592)
--------- ---------
Total stockholders' equity 105,933 99,384
--------- ---------
Total liabilities and stockholders' equity $1,781,545 $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 Six Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
Interest income:
Mortgage loans $18,486 $12,566 $35,067 $23,955
Other loans 801 921 1,616 1,897
Mortgage-backed securities 8,191 9,884 15,232 20,042
Money market investments 94 44 190 99
Debt and equity securities 4,044 3,598 8,308 6,925
------ ------ ------ ------
Total interest income 31,616 27,013 60,413 52,918
------ ------ ------ ------
Interest expense:
Deposits:
Passbook accounts 2,323 2,351 4,551 4,685
NOW accounts 277 248 495 457
Money market accounts 461 479 859 935
Certificate accounts 9,222 8,008 17,691 15,713
Borrowings 5,951 3,915 11,010 7,777
------ ------ ------ ------
Total interest expense 18,234 15,001 34,606 29,567
------ ------ ------ ------
Net interest income before provision for loan losses 13,382 12,012 25,807 23,351
Provision for loan losses 750 1,125 1,450 1,775
------ ------ ------ ------
Net interest income after provision for loan losses 12,632 10,887 24,357 21,576
------ ------ ------ ------
Non-interest income:
Loan fees and servicing income 254 900 504 1,224
Savings/checking fees 1,263 801 2,323 1,573
Net gain (loss) on sales of interest-earning assets 8 (45) (16) 99
Insurance annuity and mutual fund fees 1,003 800 1,803 1,492
Other 299 328 540 549
------ ------ ------ ------
Total non-interest income 2,827 2,784 5,154 4,937
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 5,878 3,935 10,892 7,674
Occupancy and equipment 1,646 896 2,638 1,758
Real estate owned operations, net 76 234 184 304
Federal deposit insurance premiums 172 619 364 1,236
Other 3,766 2,331 6,529 4,488
------ ------ ------ ------
Total non-interest expense 11,538 8,015 20,607 15,460
------ ------ ------ ------
Income before income tax expense 3,921 5,656 8,904 11,053
Income tax expense 1,621 2,630 3,299 5,169
------ ------ ------ ------
Net income $2,300 $3,026 $5,605 $5,884
====== ====== ====== ======
Net income per common share: Primary $ 0.51 $ 0.69 $ 1.24 $ 1.33
====== ====== ====== ======
Fully diluted $ 0.50 $ 0.69 $ 1.23 $ 1.32
====== ====== ====== ======
See accompanying notes to consolidated financial statements.
4
HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Six months ended June 30, 1997 and 1996
(Unaudited)
Unrealized
Gain (Loss) Unallocated Unearned
Additional on 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 six months ended
June 30, 1997 - - 5,605 - - - - - 5,605
Dividends declared (note 5) - - (1,298) - - - - - (1,298)
Treasury stock issued for deferred
compensation plan (1,824 shares) - 31 - - 22 - - (53) -
Stock options exercised, net of tax
effect (50,151 shares) (note 4) - - (1) - 601 - - - 600
Change in unrealized loss on
securities available for sale, net
of tax effect - - - 871 - - - - 871
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits - 400 - - - 164 59 - 623
Amortization of deferred compensation
plan - - - - - - - 148 148
--- ------ ------ ------ ------ ------ ----- ----- ------
Balance at June 30, 1997 $ 50 49,275 69,398 31 (10,426) (1,690) (208) (497) 105,933
=== ====== ====== ====== ====== ====== ===== ===== ======
Balance at December 31, 1995 $ 50 47,331 57,919 2,083 (6,023) (2,197) (644) - 98,519
Net income for the six months ended
June 30, 1996 - - 5,884 - - - - - 5,884
Dividends declared - - (998) - - - - - (998)
Purchase of treasury stock
(225,537 shares) - - - - (5,516) - - - (5,516)
Stock options exercised, net of
tax effect (4,175 shares) - 82 (12) - 54 - - - 124
Treasury stock issued for deferred
compensation plans
(29,965 shares) - 411 - - 371 - - (782) -
Change in unrealized gain (loss) on
securities available for sale, net
of tax effect - - - (4,656) - - - - (4,656)
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits - 284 - - - 173 238 - 695
Amortization of deferred compensation
plan - (20) - - - - - 36 16
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at June 30, 1996 $ 50 48,088 62,793 (2,573) (11,114) (2,024) (406) (746) 94,068
==== ====== ====== ====== ====== ====== ===== ===== ======
See accompanying notes to consolidated financial statements.
5
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
Six months ended
June 30,
------------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 5,605 $ 5,884
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 771 711
Amortization of net deferred loan origination fees (164) 66
Amortization of premiums and discounts on loans, mortgage-backed
and debt securities 255 32
Provision for loan losses 1,450 1,775
Provision for losses on real estate owned 50 125
Deferred income taxes (792) (5,319)
Net loss (gain) on sales of interest-earning assets 16 (99)
Depreciation and amortization 563 489
Increase in accrued interest receivable (733) (1,404)
Increase in due to broker 9,000 793
(Decrease) increase in other liabilities (72) 3,381
(Increase) decrease in other assets (3,076) 2,707
------ ------
Net cash provided by operating activities 12,873 9,141
------ ------
Cash flows from investing activities:
Net increase in loans (137,895) (98,913)
Proceeds from disposition of assets (including REO) 861 1,800
Purchases of securities available for sale (255,267) (218,819)
Principal repayments and maturities on securities available for sale 16,172 49,219
Proceeds from sales of securities available for sale 184,016 166,317
Purchases of debt securities held to maturity - (7,741)
Principal repayments, maturities and calls on debt securities
held to maturity 2,020 36,511
Purchases of mortgage-backed securities held to maturity - (31,124)
Principal repayments on mortgage-backed securities held to maturity 15,067 17,852
Purchases of FHLB stock, net (1,100) -
Net (increase) decrease in premises and equipment (7,695) 730
------- -------
Net cash used in investing activities (183,821) (84,168)
------- -------
Cash flows from financing activities:
Net increase in deposits 98,486 38,020
Net increase in borrowed funds 86,160 39,018
(Decrease) increase in mortgagors' escrow balances (2,123) 698
Purchase of treasury stock - (5,516)
Payment of common stock dividends (1,298) (998)
Stock options exercised 600 42
------- -------
Net cash provided by financing activities 181,825 71,264
------- -------
Net increase (decrease) in cash and cash equivalents 10,877 (3,763)
Cash and cash equivalents at beginning of period 35,717 38,854
------ -------
Cash and cash equivalents at end of period $46,594 $35,091
====== =======
Supplemental information:
Cash paid during the period for:
Interest $32,422 $28,511
Income taxes 3,946 5,324
Additions to real estate owned 1,326 2,275
Securities purchased, not yet received 10,000 5,793
====== ======
See accompanying notes to consolidated financial statements.
6
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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 June 30, 1997 and December
31, 1996 and for the three-month and six-month periods ended June
30, 1997 and 1996, respectively. Material intercompany accounts
and transactions have been eliminated in consolidation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
necessary adjustments, consisting only of normal recurring accruals
necessary for a fair presentation, have been included. The results
of operations for the three-month and six-month periods ended June
30, 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 and equity securities and MBSs which the Company has the
ability and the intent to hold until maturity are carried at cost
adjusted for amortization of premiums and accretion of discounts.
Debt and equity securities and MBSs to be held for indefinite
periods of time and not intended to be held to maturity or on a
long-term basis are classified as available for sale securities
which are recorded at fair value, with unrealized gains (losses)
reported as a separate component of stockholders' equity, net of
taxes.
7
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at June 30, 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 $108,285 35 (2,992) 105,328
Preferred Stock 4,103 - (44) 4,059
------- ----- ------ -------
112,388 35 (3,036) 109,387
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 948 40 - 988
FNMA Certificates 39,660 612 (141) 40,131
FHLMC Certificates 57,262 1,430 (9) 58,683
CMOs and REMICS 216,100 2,018 (899) 217,219
------- ----- ------ -------
313,970 4,100 (1,049) 317,021
------- ----- ------ -------
Total $426,358 4,135 (4,085) 426,408
======= ===== ====== =======
The net unrealized gain on securities available for sale at June
30, 1997, was reported as a separate component of stockholders'
equity in the amount of $31,000, which is net of a tax effect of
$19,000.
DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of debt securities held to maturity at June 30, 1997
are summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
U.S. Government and Agency obligations $ 49,915 - (1,136) 48,779
Corporate debt securities 45,370 42 (205) 45,207
------- -- ------ -------
Total $ 95,285 42 (1,341) 93,986
======= == ====== =======
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 June 30, 1997 are
summarized as follows:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
FHLMC Certificates $ 33,183 268 (510) 32,941
FNMA Certificates 67,094 207 (2,090) 65,211
CMOs and REMICs 82,425 583 (771) 82,237
------- ----- ------ -------
Total $182,702 1,058 (3,371) 180,389
======= ===== ====== =======
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 - COLUMBIA PREFERRED CAPITAL CORPORATION. On June 9, 1997,
the Bank established a real estate investment trust ("REIT")
subsidiary, Columbia Preferred Capital Corporation ("CPCC"). At
June 30, 1997, the REIT held $424.3 million of the Bank's
residential loan portfolio. The establishment of the REIT will
enable the Bank to achieve certain business goals including
providing the Bank with a contingency funding mechanism without
disrupting its investment policies; enhancing the Bank's ability to
track and manage the mortgage portfolio transferred to CPCC since
the transferred portion of its mortgage loan portfolio will be
segregated into a separate legal entity; and materially enhancing
the after tax yield on the portfolio of assets transferred because
as a corporate majority shareholder, the Bank is not subject to New
York State and City Income Tax on sixty percent of the dividends
received from CPCC. This savings will strengthen the Bank's
capital base.
9
NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the six months ended June 30, 1997 are as follows:
Weighted Average
Options Exercise Price
------- ----------------
Balance at December 31, 1996 662,279 $15.18
Granted 14,500 34.28
Forfeited (6,000) 24.28
Exercised (50,151) 11.71
------- -----
Balance at June 30, 1997 620,628 $15.82
======= =====
Shares exercisable at June 30, 1997 437,667 $12.54
======= =====
NOTE 5 - DIVIDENDS PAYABLE. On June 18, 1997, the Company's Board
of Directors approved a quarterly cash dividend of $0.15 per share,
payable on July 18, 1997, to shareholders of record as of June 30,
1997.
NOTE 6 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In February,
1997, the Financial Accounting Standard Board ("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 EPS 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 relevant period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15,
"Earnings per Share" ("Opinion No. 15").
10
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 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
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 SFAS No. 47.
Accordingly, when adopted, SFAS No. 129 is not expected to have a
material effect on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-
purpose financial statements. This statement does not require a
specific format for that financial statement but requires that an
enterprise display an amount representing total comprehensive
income for the period in that financial statement.
SFAS No. 130 requires that all items that are required to be
recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements.
This Statement requires that an enterprise: (1) classify items of
other comprehensive income by their nature in a financial statement
and (2) display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial position.
11
SFAS No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company
is still assessing the impact of SFAS No. 130 and has not yet
concluded how the adoption of SFAS No. 130 will affect its
financial statements.
On June 30, 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". The standard
establishes guidance for the way that public companies report
information about operating segments in annual financial statements
and requires that those enterprises report selected information
about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers.
SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting for
Segments of a Business Enterprise", but retains the requirement to
report information about major customers. It amends SFAS No. 94,
"Consolidation of All Majority-Owned Subsidiaries", to remove the
special disclosure requirements for previously unconsolidated
subsidiaries. SFAS No. 131 does not apply to nonpublic companies
or to not-for-profit organizations.
The newly adopted standard requires that a public company report
financial and descriptive information about its reportable
operating segments. Operating segments are components of a
business about which separate financial information is available
that is evaluated regularly by the chief operating decision-maker
in deciding how to allocate resources and in assessing performance.
Generally, financial information is required to be reported on the
basis that it is used internally for evaluating segment performance
and deciding how to allocate resources to segments.
This Statement requires that a public business enterprise report a
measure of segment profit or loss, certain specific revenue and
expense items, and segment assets. It requires reconciliations of
total segment revenues, total segment profit or loss, total segment
assets, and other amounts disclosed for segments to corresponding
amounts in the enterprise's general-purpose financial statements.
It requires that all public business enterprises report information
about the revenues derived from the enterprise's products or
services (or groups of similar products and services), about the
countries in which the enterprise earns revenues and holds assets,
and about major customers regardless of whether that information is
used in making operating decisions. However, this Statement does
not require an enterprise to report information that is not
prepared for internal use if reporting it would be impracticable.
This Statement also requires that a public business enterprise
12
report descriptive information about the way that the operating
segments were determined, the products and services provided by the
operating segments, differences between the measurements used in
reporting segment information and those used in the enterprise's
general-purpose financial statements, and changes in the
measurement of segment amounts from period to period.
SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be
restated. The Company is still assessing the impact of SFAS No.
131 and has not yet concluded how the adoption of SFAS No. 131 will
affect its 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
4,524,926 primary shares outstanding and 4,556,524 fully diluted
shares outstanding for the three months ended June 30, 1997. There
were 4,510,797 primary shares outstanding and 4,552,847 fully
diluted shares outstanding for the six months ended June 30, 1997.
The weighted average number of shares outstanding does not include
169,002 shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP") as of June 30, 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.
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,
13
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 CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1996
TO JUNE 30, 1997
ASSETS
Total assets increased by $198.0 million, or 12.5% to $1.78 billion
at June 30, 1997. Securities available for sale ("AFS") increased
by $56.3 million, or 15.2% to $426.4 million at June 30, 1997 from
$370.1 million at December 31, 1996. During the six months ended
June 30, 1997, the Bank purchased $213.9 million of MBSs, $31.4
million of government agency securities and $5.9 million of FHLMC
Preferred Stock for its AFS portfolio and the Company purchased
$4.1 million of other preferred stock issues for its AFS portfolio.
These purchases were partially offset by sales and principal
repayments of $184.0 million and $16.2 million, respectively. The
purchases for the AFS portfolio during the six month period ended
June 30, 1997 included $41.5 million related to the $85.0 million
leverage program which was implemented in February 1997 to offset
the additional interest expense resulting from the $25.0 million
Capital Securities issued by Haven Capital Trust I in February
1997. Debt securities held to maturity declined by $2.0 million,
or 2.1% to $95.3 million at June 30, 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 $15.1 million, or 7.7% to $182.7 million at June 30, 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 six months ended
June 30, 1997.
Net loans increased by $135.2 million, or 16.2% to $972.1 million
at June 30, 1997 from $836.9 million at December 31, 1996. Loan
originations and purchases during the six month period ended June
30, 1997 totaled $200.1 million (comprised of $138.0 million of
residential one-to four-family mortgage loans, $54.6 million of
14
commercial real estate and multi-family loans, $5.3 million of
equity loans and lines of credit and $2.2 million of construction
advances). Originations of residential one-to four-family mortgage
loans included purchases of $91.0 million of residential loans in
the secondary market to enhance the Bank's internal loan
origination volume. During the first half of 1997, principal
payments totalled $63.9 million, $1.3 million was transferred to
REO and $314,000 of loans were sold in the secondary market.
LIABILITIES
Deposits increased by $98.5 million, or 8.7% to $1.24 billion at
June 30, 1997 from $1.14 billion at December 31, 1996 primarily due
to deposit inflows in the Bank's in-store bank branches which had
deposits totaling $66.9 million at June 30, 1997 compared to $12.1
million at December 31, 1996. The Bank had twenty-two in-store
bank branches as of June 30, 1997 compared to four in-store
branches at December 31, 1996. The Bank expects to open sixteen
additional in-store bank branches during the remainder of 1997 and
twelve in 1998. Core deposits (comprised of checking, savings and
money market accounts) were equal to 33.5% of total in-store branch
deposits at June 30, 1997 compared to 46.7% in the Bank's eight
traditional branches. Overall, core deposits represented 45.9% of
total deposits at June 30, 1997 compared to 47.2% at December 31,
1996. Borrowed funds increased by $86.2 million, or 26.4% to
$412.6 million at June 30, 1997 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 during the first quarter to offset
the additional interest expense resulting from the issuance of the
Capital Securities.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $105.9 million at
June 30, 1997 from $99.4 million at December 31, 1996. The
increase in stockholders' equity was due to net income of $5.6
million for the six months ended June 30, 1997, a reduction of
$871,000 in the unrealized loss on securities AFS and $600,000
related to the exercise of stock options. In addition, the
allocation of ESOP stock due to the reduction of the Bank's ESOP
debt and the amortization of awards of shares of stock by the
Bank's RRPs and amortization of deferred compensation plan
increased stockholders' equity by $771,000. These increases were
partially offset by dividends declared of $1.3 million.
15
NON-PERFORMING ASSETS
The following table sets forth information regarding all non-
accrual loans (which consist of loans 90 days or more past due and
restructured loans that have not yet performed in accordance with
their modified terms for the required six-month seasoning period),
restructured loans and real estate owned.
June 30, December 31,
1997 1996
(Dollars in Thousands) -------- ------------
Non-accrual loans
One-to four-family $ 3,180 4,083
Cooperative 449 431
Multi-family 3,238 1,463
Non-residential and other 2,927 4,756
------ ------
Total non-accrual loans 9,794 10,733
------ ------
Restructured loans
One-to four-family 894 887
Cooperative 427 486
Multi-family 282 1,427
Non-residential and other 330 360
------ ------
Total restructured loans 1,933 3,160
------ ------
Total non-performing loans 11,727 13,893
------ ------
REO, net
One-to four-family 675 266
Cooperative 336 292
Non-residential and other 451 561
------ ------
Total REO 1,462 1,119
Less allowance for REO 75 81
------ ------
REO, net 1,387 1,038
------ ------
Total non-performing assets $13,114 14,931
====== ======
Non-performing loans to total loans 1.19% 1.64%
Non-performing assets to total assets 0.74 0.94
Non-performing loans to total assets 0.66 0.88
16
The $1.8 million decrease in non-performing assets is due to a
decrease of $1.2 million in restructured loans and a decrease of
$939,000 in non-accrual loans partially offset by a $349,000 net
increase in REO. The decrease in non-performing assets was
primarily due to the reclassification of a performing restructured
multi-family real estate loan totalling $1.1 million to performing
status during the first quarter of 1997. The ratio of non-
performing loans to total loans decreased primarily due to total
loans which increased by $135.9 million during the six months. The
decreases in the ratios of non-performing assets to total assets
and non-performing loans to total assets were due to the
aforementioned reduction in restructured loans and an increase of
$198.0 million in total assets during the six-month period ended
June 30, 1997.
REO, net increased by $349,000, or 33.6% to $1.4 million (net of a
$75,000 reserve) at June 30, 1997 from $1.0 million (net of a
$81,000 reserve) at December 31, 1996. During the second quarter
of 1997, the Bank acquired $679,000 of REO properties, sold $86,000
of REO, and recorded write-downs to fair value of $260,000 on
various properties. During the first quarter of 1997, the Bank
acquired $647,000 of REO, sold $371,000 of REO and recorded write-
downs to fair value of $266,000 on various properties.
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.
17
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the six months ended June 30, 1997 and 1996:
1997 1996
(Dollars in Thousands) ------- -------
Balance at beginning of period $10,704 8,573
Charge-offs:
Residential (341) (497)
Cooperative (762) (315)
Multi-family - (30)
Non-residential and other (230) (288)
------ ------
Total charge-offs (1,333) (1,130)
------ ------
Recoveries 494 721
------ ------
Net charge-offs (839) (409)
Provision for loan losses 1,450 1,775
------ ------
Balance at end of period $11,315 9,939
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.18% 0.13%
Ratio of allowance for loan losses to
total loans at the end of the period 1.15 1.49
Ratio of allowance for loan losses to non-
performing loans at the end of the period 96.49 73.52
The ratio of net charge-offs during the first six months of 1997 to
average loans outstanding increased compared to the same period in
1996 due to charge-offs of $562,000 related to a bulk sale of $2.8
million of cooperative apartment loans during the second quarter.
The ratio of allowance for loan losses to total loans decreased
primarily due to the increase in average loans outstanding for
1997. The ratio of allowance for loan losses to non-performing
loans increased between the periods due to the decrease in non-
performing loans and an increase in the allowance for loan losses.
The Bank's allowance for loan losses was $11.3 million and $9.9
million at June 30, 1997 and 1996, respectively, while non-
performing loans totalled $11.7 million and $13.5 million,
respectively, at those dates.
18
ASSET/LIABILITY MANAGEMENT
The Company has attempted to reduce its exposure to interest rate
risk through the origination and purchase of ARM loans and the
purchase of adjustable-rate securities which are expected to help
protect net interest margins during periods of rising interest
rates. During the first half of 1997, the Bank originated or
purchased $58.5 million of residential adjustable-rate mortgages
and $51.6 million of adjustable-rate multi-family, commercial real
estate and construction loans. During the six month period, the
Bank purchased $183.1 million of fixed rate debt securities and
MBSs to take advantage of higher yields compared to rates offered
on adjustable-rate securities. At June 30, 1997, $221.0 million,
or 44.2% of the Company's MBS portfolio were adjustable-rate MBSs.
In addition, $50.3 million or 25.1% of the Company's debt
securities portfolio were floating rate securities. The
adjustable-rate portion of the MBS portfolio is allocated as
follows: $211.7 million is in the AFS portfolio and $9.3 million is
in the held to maturity portfolio. The Company's adjustable-rate
debt securities which total $50.3 million are all in the AFS
portfolio.
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 June 30, 1997 core deposits represented
45.9% of deposits compared to 47.2% of deposits at December 31,
1996. Core deposits for the Bank's eight traditional branches was
46.7% compared to 33.5% for the Bank's twenty-two in-store bank
branches. During the first six months of 1997, passbook accounts
increased by $10.8 million, net of interest and certificates of
deposit increased by $64.6 million, net of interest. The number of
checking accounts increased by 14,007, or 21.8% to 78,356 at June
30, 1997 from 64,349 at December 31, 1996. Most of the increase,
or 11,367 accounts is attributable to the Bank's in-store bank
branches. The balance of certificate accounts outstanding at June
30, 1997 was $671.6 million compared to $601.1 million at December
31, 1996. A major portion of the increase, $36.7 million, is
attributable to the Bank's in-store branches. The Company expects
to attract a higher percentage of core deposits from its in-store
bank branch locations as these locations continue to grow and
mature.
LIQUIDITY AND CAPITAL
The Bank is required to maintain minimum levels of liquid assets as
defined by regulations of the Office of Thrift Supervision ("OTS").
This requirement, which may be varied by the OTS depending upon
economic conditions and deposit flows, is based upon a percentage
of withdrawable deposits and short-term borrowings. The required
19
ratio is currently 5%. The Bank's ratio was 12.00% at June 30,
1997 compared to 14.99% at December 31, 1996. The decrease in the
liquidity ratio during the six-month period is due to a decline of
$24.0 million in U.S. government securities in the Bank's AFS
portfolio.
The Company's primary sources of funds are deposits, principal and
interest payments on loans and MBSs, retained earnings and advances
from FHLB-NY. Proceeds from the sale of AFS securities 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 MBSs are
somewhat predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates,
economic conditions, competition and regulatory changes.
The Company's most liquid assets are cash and short term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At June 30, 1997 and December 31, 1996,
cash and short and intermediate-term investments totaled $46.6
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
and MBSs AFS. Other sources of funds include FHLB advances, which
at June 30, 1997, totaled $212.0 million. At June 30, 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 an $85.0 million
leverage program.
As of June 30, 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)(3)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
Capital for regulatory purposes $118,356 6.71% $118,356 6.71% $128,560 14.69%
Minimum regulatory requirement 26,449 1.50 52,899 3.00(3) 70,001 8.00
------- ---- ------- ---- ------- ----
Excess $ 91,907 5.21% $ 65,457 3.71% $ 58,559 6.69%
======= ==== ====== ==== ======= ====
(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.
20
(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
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.
21
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition
and reflects the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense annualized by the average
balance of assets or liabilities, respectively, for the periods
shown. Average balances were derived from average daily balances.
The average balance of loans includes loans on which the Company
has discontinued accruing interest. The yields and costs include
fees which are considered adjustments to yields.
Three months ended June 30,
1997 1996
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans $ 928,692 $18,486 7.96% $ 606,591 $12,566 8.29%
Other loans 32,912 801 9.74 36,185 921 10.18
Mortgage-backed securities 476,606 8,191 6.87 574,572 9,884 6.88
Money market investments 6,412 94 5.86 3,481 44 5.06
Debt and equity securities 223,057 4,044 7.25 225,284 3,598 6.39
--------- ------ --------- ------
Total interest-earning assets 1,667,679 31,616 7.58 1,446,113 27,013 7.47
Non-interest earning assets 73,563 ------ 63,705 ------
--------- ---------
Total assets 1,741,242 1,509,818
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 372,169 2,323 2.50 379,023 2,351 2.48
Certificate accounts 641,379 9,222 5.75 571,749 8,008 5.60
NOW accounts 127,746 277 0.87 111,835 248 0.89
Money market accounts 58,405 461 3.16 58,880 479 3.25
Borrowed funds 405,371 5,951 5.87 271,517 3,915 5.77
--------- ------ --------- ------
Total interest-bearing liabilities 1,605,070 18,234 4.54 1,393,004 15,001 4.31
Other liabilities 31,958 ------ 22,235 ------
--------- ---------
Total liabilities 1,637,028 1,415,239
Stockholders' equity 104,214 94,579
--------- ---------
Total liabilities and stockholders' equity $1,741,242 $1,509,818
========= =========
Net interest income/net interest rate spread $13,382 3.04% $12,012 3.16%
====== ==== ====== ====
Net interest earning assets/net interest margin $62,609 3.21% $53,109 3.32%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.90% 103.81%
====== ======
22
Six months ended June 30,
1997 1996
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans $ 882,851 $35,067 7.94% 573,947 $23,955 8.35%
Other loans 33,333 1,616 9.70 37,243 1,897 10.19
Mortgage-backed securities 446,587 15,232 6.82 585,936 20,042 6.84
Money market investments 6,440 190 5.90 3,699 99 5.35
Debt and equity securities 238,445 8,308 6.97 218,854 6,925 6.33
--------- ------ --------- ------
Total interest-earning assets 1,607,656 60,413 7.52 1,419,679 52,918 7.45
Non-interest earning assets 78,734 ------ 62,428 ------
--------- ---------
Total assets 1,686,390 1,482,107
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 367,371 4,551 2.48 377,779 4,685 2.48
Certificate accounts 624,021 17,691 5.67 556,304 15,713 5.65
NOW accounts 123,487 495 0.80 108,416 457 0.84
Money market accounts 58,360 859 2.94 60,284 935 3.10
Borrowed funds 379,364 11,010 5.80 264,853 7,777 5.87
--------- ------ --------- ------
Total interest-bearing liabilities 1,552,603 34,606 4.46 1,367,636 29,567 4.32
Other liabilities 31,255 ------ 19,854 ------
--------- ---------
Total liabilities 1,583,858 1,387,490
Stockholders' equity 102,532 94,617
--------- ---------
Total liabilities and stockholders' equity $1,686,390 $1,482,107
========= =========
Net interest income/net interest rate spread $25,807 3.06% $23,351 3.13%
====== ==== ====== ====
Net interest earning assets/net interest margin $55,053 3.21% $52,043 3.29%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.55% 103.81%
====== ======
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30,
1997 AND 1996
GENERAL. The Company reported net income of $2.3 million for the
three months ended June 30, 1997 compared to net income of $3.0
million for the three months ended June 30, 1996. The $700,000
decrease was primarily attributable to the $1.4 million increase in
net interest income, $375,000 decrease in the provision for loan
losses and $1.0 million decrease in the provision for income taxes
which were more than offset by the $3.5 million increase in non-
interest expenses.
INTEREST INCOME. Interest income increased by $4.6 million, or
17.0% to $31.6 million for the three months ended June 30, 1997
from $27.0 million for the three months ended June 30, 1996. The
increase was primarily the result of a $5.9 million increase in
interest income on mortgage loans, an increase of $446,000 in
23
interest income on debt and equity securities and an increase of
$50,000 in interest income on money market investments. These
increases were partially offset by decreases in interest income on
MBSs and other loans of $1.7 million and $120,000, respectively.
Interest income on mortgage loans increased by $5.9 million, or
47.1% to $18.5 million for the three months ended June 30, 1997,
from $12.6 million for the comparable three-month period in 1996,
primarily as a result of an increase in average balances of
mortgage loans of $322.1 million partially offset by a decrease in
the average yield on mortgage loans of 33 basis points. The
increase in average balance of mortgage loans between the periods
was primarily due to mortgage originations, including purchases,
for the second half of 1996 and the first half of 1997 which
totalled $211.1 million and $194.8 million, respectively. The
originations for both periods were partially offset by principal
repayments of $39.9 million and $56.7 million, respectively. The
decline in the average yield from the prior year was primarily due
to the increasing percentage of residential mortgages to total
mortgages which increased from 67.3% at June 30, 1996 to 71.6% at
June 30, 1997. Interest income on other loans decreased by
$120,000, or 13.0% primarily due to a decrease of $3.3 million in
average balances outstanding and a decrease of 44 basis points in
average yield.
Interest income on MBSs decreased by $1.7 million, or 17.1% to $8.2
million for the three months ended June 30, 1997 from $9.9 million
for the comparable three-month period in 1996, primarily due to a
decrease in average balances of MBSs of $98.0 million. During
1996, the Bank purchased $161.1 million of MBSs for its AFS
portfolio, whereas, sales during the same period totalled $304.2
million. The sales were used to fund mortgage loan originations,
purchases of loans in the secondary market and also to manage the
AFS portfolio to improve yield and shorten duration of various
securities. During 1997, the Bank purchased $213.9 million of MBSs
for its AFS portfolio which were partially offset by sales
totalling $106.9 million.
Interest income on debt and equity securities increased by
$446,000, or 12.4% to $4.0 million for the three months ended June
30, 1997 from $3.6 million for the comparable three-month period in
1996, primarily as a result of an increase in the average yield to
7.25% from 6.39% for the prior period.
INTEREST EXPENSE. Interest expense increased by $3.2 million, or
21.6% to $18.2 million for the three months ended June 30, 1997
from $15.0 million for the three months ended June 30, 1996. The
increase was primarily the result of a $1.2 million increase in
interest expense on deposits and an increase of $2.0 million in
interest expense on borrowings.
24
Interest on deposits increased by $1.2 million, or 10.8% to $12.3
million for the three months ended June 30, 1997 from $11.1 million
for the comparable three-month period in 1996. The increase in
interest on deposits was primarily due to the average balance which
increased $78.2 million, or 7.0% to $1.20 billion for the three
months ended June 30, 1997 from $1.12 billion for the comparable
three-month period in 1996. The increase in deposits is partly
attributable to the Bank's in-store banking expansion which was
implemented during the second quarter of 1996. At June 30, 1997,
the Bank had twenty-two in-store bank branches operating with
combined deposits totalling $66.9 million. Interest expense on
certificate accounts increased by $1.2 million, or 15.2% to $9.2
million for the three months ended June 30, 1997 from $8.0 million
in the same period in 1996. Certificate account average balances
increased by $69.6 million, or 12.2% to $641.4 million (which
included $34.0 million in in-store bank branches at June 30, 1997)
for the three months ended June 30, 1997 from $571.7 million for
the comparable three-month period in 1996. The Bank's strategy
during 1996 and the first half of 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 a less expensive alternative to borrowed
funds when appropriate. The average cost of certificate accounts
was 5.75% for the second quarter of 1997 compared to 5.60% for the
comparable 1996 period due to the increase in market interest rates
particularly for 12 to 18 month certificate accounts. Interest
expense on passbook accounts decreased by $28,000, or 1.2% to $2.3
million for the three months ended June 30, 1997 from $2.4 million
in the same period in 1996 primarily due to customers seeking
higher yielding investment opportunities including the Bank's
certificate of deposit accounts.
Interest on borrowed funds increased by $2.0 million, or 52.0% to
$5.9 million for the three months ended June 30, 1997 from $3.9
million for the comparable three-month period in 1996. Borrowed
funds on an average basis increased by $133.9 million between the
periods due to the addition of short-term FHLB advances and
securities sold under agreements to repurchase during 1997 as part
of a $85.0 million leverage program that was completed during the
first quarter of 1997 to offset the additional interest expense
resulting from the issuance of $25 million of 10.46% Capital
Securities issued by Haven Capital Trust I in February 1997. The
average rate paid on borrowings increased to 5.87% for the three
months ended June 30, 1997 from 5.77% for the comparable prior-year
period due to an increase in market rates and the addition of the
interest cost of the Capital Securities.
25
NET INTEREST INCOME. Net interest income increased by $1.4 million
to $13.4 million for the three months ended June 30, 1997 from
$12.0 million for the three months ended June 30, 1996. The
increase is primarily due to total interest-earning assets which
increased by $221.6 million, or 15.3% to $1.67 billion for the
three months ended June 30, 1997 from $1.40 billion in the same
period last year primarily due to growth in the Bank's mortgage
loan portfolio. In addition, the average yield on interest-earning
assets increased to 7.58% for the three months ended June 30, 1997
from 7.47% for the three months ended June 30, 1996. This increase
was offset by the average cost on interest-bearing liabilities
which increased to 4.54% from 4.31% for the three months ended June
30, 1997 and 1996, respectively. The average balance of interest-
bearing liabilities increased by $212.1 million to $1.60 billion
for the three months ended June 30, 1997 from $1.39 billion for the
three months ended June 30, 1996. The cost of deposit accounts was
4.10% for the second quarter of 1997 compared to 3.95% for the
second quarter of 1996. The increase in the cost of funds in 1997
was also due in part, to the leveraging of the balance sheet
related to the $25.0 million trust preferred securities issued in
February of 1997. The net interest spread was 3.04% for the three
months ended June 30, 1997 compared to 3.16% for the comparable
period in 1996.
PROVISION FOR LOAN LOSSES. The Bank provided $750,000 for loan
losses for the three months ended June 30, 1997 compared to $1.1
million for the comparable three-month period in 1996. The
decrease was due to the continuing decline in non-performing
assets.
NON-INTEREST INCOME. Non-interest income increased by $43,000, or
1.5% for the three months ended June 30, 1997 to $2.8 million. The
results for the second quarter of 1996 included $597,000 in loan
prepayment fees. Excluding this item, non-interest income in the
second quarter of 1997 represented a 29.2% increase over the
comparable period last year. Savings and checking fees increased
by $462,000, or 57.7% to $1.3 million for the second quarter of
1997 compared to $801,000 for the same period last year. The
significant increase in fees is due to the number of checking
accounts which increased by 19,609, or 33.4% to 78,356 at June 30,
1997 from 58,747 at June 30, 1996 due to the Bank's strategy to
continue to attract lower cost deposit balances. A significant
portion of the growth in checking accounts, approximately 14,800,
is attributable to the Bank's in-store bank branch program. The
in-store bank branches generated savings and checking fees of
$237,000 for the second quarter of 1997 compared to $99,000 for the
first quarter of this year. Insurance, annuity and mutual fund
fees increased by $203,000 due to an increase in sales volume,
including $102,000 in revenue from in-store bank branches. The
Bank realized a net gain of $8,000 on the sale of securities
from its AFS portfolio compared to a loss of $45,000 for the same
26
period last year. Finally, loan fees and servicing income declined
$646,000 from the second quarter in 1996 since the results for 1996
included $597,000 in loan repayment fees.
NON-INTEREST EXPENSE. Non-interest expense increased by $3.5
million, or 44.0% for the three months ended June 30, 1997 to $11.5
million from $8.0 million for the comparable three-month period in
1996. The significant increase in operating expenses is primarily
due to the Bank's in-store branch expansion program which accounted
for $2.5 million of expense in the quarter. Employee compensation
increased by $1.8 million from the second quarter of 1996 primarily
due to salary expense of $1.4 million incurred for the Bank's in-
store branch program. The Bank has hired approximately 250 new
employees for its in-store bank branches at June 30, 1997. Salary
costs for the Bank's subsidiary, CIS, Inc.,increased $182,000 due
to higher sales volume. The remainder of the increase in salary
costs was due to normal merit increases. In addition, federal
social security taxes increased $136,000 from the prior period due
to a higher salary base. ESOP compensation increased $53,000 from
the same period last year due to the increase in the average price
of Haven Bancorp common stock for the period. Hospitalization
costs increased $57,000 from the comparable period last year due to
the increase in staff. Finally, pension expense decreased $238,000
since the Bank's retirement plan was frozen as of July 1, 1996.
This was partially offset by an increase of $40,000 for matching
contributions for the Bank's 401(k) plan for employees. Occupancy
and equipment costs increased $750,000 primarily due to the Bank's
in-store banking program which accounted for $701,000 of the
increase. REO operations, net decreased $158,000 from the
comparable period last year due to a decrease in operating expenses
for the REO portfolio. The significant decrease in the federal
deposit insurance premium costs of $447,000 was due to a decrease
in the assessment rate from 23 basis points in 1996 to 6.48 basis
points in 1997. Finally, miscellaneous operating costs increased
$1.4 million to $3.8 million for the second quarter of 1997
compared to $2.3 million for the second quarter of 1996. The
results for the second quarter of 1996 included the reversal of a
$389,000 reserve regarding claims which were subsequently paid by
Nationar, an entity that previously provided check collection
services for the Bank. Operating expenses including stationery,
telephone and miscellaneous increased $347,000 due to the Bank's
in-store expansion program. Consulting fees also increased
$145,000 from the same period last year primarily due to the in-
store expansion. Professional fees increased $110,000 from the
previous period due to services related to the formation of CPCC.
The cost of EDP services provided to the Bank increased $100,000
primarily due to growth in deposit accounts. Finally, costs for
advertising and NYCE fees each increased $100,000 due to the growth
in both the loan portfolio and deposit base.
27
INCOME TAX EXPENSE. Income tax expense was $1.6 million for an
effective tax rate of 41.3% for the three months ended June 30,
1997 compared to income tax expense of $2.6 million for an
effective tax rate of 46.5% for the comparable period in 1996. 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 decrease in the effective tax rate was due,
in part, to the switch to the PTI method for calculating the bad
debt deduction for NYC and to the establishment of a REIT
subsidiary, Columbia Preferred Capital Corp., effective June 9,
1997, which resulted in certain tax savings.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND 1996
GENERAL. The Company reported net income of $5.6 million for the
six months ended June 30, 1997 compared to net income of $5.9
million for the six months ended June 30, 1996. The $279,000
decrease was primarily attributable to the $2.5 million increase in
net interest income, a $325,000 decrease in provision for loan
losses, an increase of $217,000 in non-interest income and a $1.9
million decrease in the provision for income taxes which were more
than offset by the $5.1 million increase in non-interest expenses.
INTEREST INCOME. Interest income increased by $7.5 million, or
14.2% to $60.4 million for the six months ended June 30, 1997 from
$52.9 million for the six months ended June 30, 1996. The increase
was primarily the result of a $11.1 million increase in interest
income on mortgage loans, an increase of $1.4 million in interest
income on debt and equity securities, and an increase of $91,000
million in interest income on money market investments. These
increases were partially offset by a decrease in interest income on
MBSs and other loans of $4.8 million and $281,000, respectively.
Interest income on mortgage loans increased by $11.1 million, or
46.4% to $35.1 million for the six months ended June 30, 1997 from
$24.0 million for the comparable six-month period in 1996,
primarily as a result of an increase in average balances of
mortgage loans of $308.9 million, partially offset by a decrease in
the average yield on mortgage loans of 41 basis points. The
increase in the average balance of mortgage loans between the
periods was due to mortgage originations, including purchases, for
1996 and the first half of 1997 which totalled $354.9 million and
$194.8 million, respectively. The originations for both periods
were partially offset by principal payments of $78.2 million and
$56.7 million, respectively. The average yield on mortgage loans
decreased to 7.94% for the six months ended June 30, 1997 from
28
8.35% for the comparable six-month period in 1996. The decrease in
the average yield from the prior period was mainly due to the
increasing percentage of relatively lower yielding residential
mortgages.
Interest income on other loans decreased by $281,000, or 14.8% to
$1.6 million for the six months ended June 30, 1997 from $1.9
million for the comparable period in 1996 primarily due to a
decrease of $3.9 million in average balances outstanding and a
decrease of 49 basis points in average yield. During the fourth
quarter of 1995, the Bank discontinued its non-real estate related
consumer lending function.
Interest income on MBSs decreased by $4.8 million, or 24.0% to
$15.2 million for the six months ended June 30, 1997 from $20.0
million for the comparable six-month period in 1996 primarily due
to a decrease in average balances of MBSs of $139.3 million.
During 1996, sales of MBSs from the AFS portfolio totalled $304.2
million whereas purchases totalled $161.1 million. Sales exceeded
purchases due to funding needed for mortgage loan originations and
the purchase of loans in the secondary market. The activity in the
AFS portfolio also reflected the Bank's management of the AFS
portfolio to improve yield and shorten duration of various
securities. For the first six months of 1997, the Bank purchased
$212.9 million of MBSs for its AFS portfolio partly offset by sales
totalling $106.8 million. The greater emphasis on MBSs in 1997
reflects management's strategy to improve duration of the AFS
portfolio with MBSs rather than debt and equity securities.
Interest income on debt and equity securities increased by $1.4
million, or 20.0% to $8.3 million for the six months ended June 30,
1997 from $6.9 million for the comparable six-month period in 1996
primarily as a result of an increase in average balances of $19.6
million and an increase in average yield of 64 basis points. The
increase in the average yield was due to the purchase of preferred
stock for the AFS portfolio during the first quarter. During the
first half of 1997, the Bank purchased $42.3 million of debt and
equity securities which were designated as AFS.
INTEREST EXPENSE. Interest expense increased by $5.0 million, or
17.0% to $34.6 million for the six months ended June 30, 1997 from
$29.6 million for the six months ended June 30, 1996. The increase
was the result of a $1.8 million increase in interest expense on
deposits and an increase of $3.2 million in interest expense on
borrowings.
Interest on deposits increased by $1.8 million, or 8.3% to $23.6
million for the six months ended June 30, 1997 from $21.8 million
for the comparable six-month period in 1996. The increase in
interest on deposits was primarily due to the average balance which
increased $70.5 million, or 6.40% to $1.17 billion for the six
29
months ended June 30, 1997 from $1.10 billion for the comparable
six-month period in 1996. The deposit growth is primarily
attributable to the Bank's in-store banking program which was
implemented during the second quarter of 1996. The increase in
average balance was primarily due to certificate account balances
which increased $67.7 million, or 12.2% to $624.0 million for the
six months ended June 30, 1997 from $556.3 million for the
comparable six-month period in 1996. Interest expense on
certificate accounts increased by $2.0 million or 12.6% to $17.7
million for the six months ended June 30, 1997 from $15.7 million
in the same period in 1996 primarily due to the growth in average
balances. The Bank's strategy during 1996 and the first half of
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 and as an alternative to borrowed funds. The average
cost of certificate accounts was 5.67% for the first half of 1997
compared to 5.65% for the comparable period in 1996. Interest
expense on passbook accounts decreased by $134,000, or 2.9% to $4.6
million for the six months ended June 30, 1997 from $4.7 million in
the same period in 1996 primarily due to a decrease in average
balances due to customers seeking higher yielding investment
opportunities including the Bank's certificate of deposit accounts.
The average cost of all deposits was 4.02% for the period ended
June 30, 1997 compared to 3.95% for the period ended June 30, 1996.
Interest on borrowed funds increased by $3.2 million, or 41.6% to
$11.0 million for the six months ended June 30, 1997 from $7.8
million for the comparable six-month period in 1996. Borrowed
funds on an average basis increased by $114.5 million between the
periods due to the addition of short-term FHLB advances and
securities sold under agreements to repurchase during 1997 as part
of a $85.0 million leverage program that was completed during the
first quarter of 1997 to offset the additional interest expense
resulting from the $25.0 million of 10.46% Capital Securities
issued by Haven Capital Trust I in February 1997.
NET INTEREST INCOME. Net interest income increased by $2.5 million
to $25.8 million for the six months ended June 30, 1997 from $23.4
million for the six months ended June 30, 1996. The increase is
primarily due to total interest-earning assets which increased
$188.0 million, or 13.2% to $1.61 billion for the six months ended
June 30, 1997 from the same period last year primarily due to the
growth in the Bank's mortgage loan portfolio. In addition, the
average yield on interest-earning assets increased to 7.52% from
7.45% for the six months ended June 30, 1997 and 1996,
respectively. This increase was more than offset by the average
cost on interest-bearing liabilities which increased to 4.46% from
4.32% for the six months ended June 30, 1997 and 1996,
respectively. The increase in cost of funds was primarily due to
the increase in the cost of deposits to 4.02% for the six months
30
ended June 30, 1997 from 3.95% for the six months ended June 30,
1996. The net interest spread was 3.06% for the six months ended
June 30, 1997 compared to 3.13% for the comparable period in 1996.
PROVISION FOR LOAN LOSSES. The Bank provided $1.5 million for loan
losses for the six months ended June 30, 1997 compared to $1.8
million for the comparable six-month period in 1996.
NON-INTEREST INCOME. Non-interest income increased by $217,000, or
4.4% for the six months ended June 30, 1997 to $5.2 million from
$4.9 million for the comparable six-month period in 1996. The
results for 1996 included $597,000 in loan prepayment fees.
Excluding this item, non-interest income for the six months ended
June 30, 1997 represented an 18.8% increase over the same period
last year. Savings and checking fees increased by $750,000, or
47.7% to $2.3 million for the first six months of 1997 compared to
$1.6 million for the same period last year. The in-store bank
branches generated savings and checking fees of $336,000 for the
six months ended June 30, 1997. Insurance, annuity and mutual fund
fees increased by $311,000 due to an increase in sales volume which
included $146,000 in revenue from sales originating from in-store
bank branches. The Bank realized a net loss of $16,000 on the sale
of securities from its AFS portfolio compared to a gain of $99,000
for the same period last year. Finally, loan fees and servicing
income decreased $720,000 from the same period last year since the
results for 1996 included $597,000 in loan prepayment fees.
NON-INTEREST EXPENSE. Non-interest expense increased by $5.1
million, or 33.3% for the six months ended June 30, 1997 to $20.6
million from $15.5 million for the comparable six-month period in
1996. The significant increase in operating expenses is primarily
due to the Bank's in-store branch expansion program which accounted
for $3.6 million of operating expenses in the first half of 1997.
Most of the increase in operating expenses is due to an increase of
$3.2 million in compensation and benefit costs. Employee
compensation increased by $2.9 million from the same period last
year primarily due to salary expense of $2.1 million incurred for
the Bank's in-store branch program. Salary costs for the Bank's
subsidiary, CIS, Inc., increased $265,000 due to higher sales
volume. The remainder of the increase in salary costs was due to
normal merit increases. In addition, federal social security taxes
increased $256,000 due to a higher salary base. ESOP compensation
increased $106,000 from the same period last year due to the
increase in the average price of Haven Bancorp common stock for the
period. Hospitalization and unemployment insurance increased
$161,000 from 1996 due to the increase in staff. Finally, pension
expense decreased $411,000 since the Bank's retirement plan was
frozen at July 1, 1996. This was partly offset by an increase of
$80,000 for matching contributions for the Bank's 401(k) plan for
employees. Occupancy and equipment costs increased $880,000 from
the comparable period in 1996 primarily due to the Bank's in-store
31
banking program which increased costs by $932,000. REO operations,
net decreased $120,000 from 1996 due to a decline in REO expenses.
The significant decrease in the federal deposit insurance premium
costs of $872,000 was due to a decrease in the assessment rate from
23 basis points in 1996 to 6.48 basis points in 1997. Finally,
miscellaneous operating costs increased $2.0 million, or 45.5% to
$6.5 million for the six months ended June 30, 1997 compared to
$4.5 million for the same period last year. The 1996 results
included the reversal of a $389,000 reserve regarding claims which
were subsequently paid by Nationar, an entity that previously
provided check collection services for the Bank. In addition,
other operating losses increased $69,000 from the comparable period
last year. Operating expenses including stationery and telephone
increased approximately $395,000 due to the Bank's in-store branch
program. Consulting fees increased $219,000 from 1996 primarily
due to the implementation of the in-store branch program.
Professional fees increased $124,000 from 1996 due to professional
services related to the formation of CPCC. The cost of EDP
services provided to the Bank increased $142,000 due to the growth
in deposit accounts. Finally, the costs for advertising and NYCE
fees increased $155,000 and $111,000, respectively, due to the
growth in both the loan portfolio and deposit base.
INCOME TAX EXPENSE. Income tax expense was $3.3 million for an
effective tax rate of 37.1% for the six months ended June 30, 1997
compared to income tax expense of $5.2 million for an effective tax
rate of 46.8% for the comparable period in 1996. The decrease in
the effective tax rate is due to several factors: First, during the
first quarter of 1997, a deferred tax liability of $330,000 was
reversed related to the potential recapture of the NYC tax bad debt
reserve which was no longer necessary due to NYC tax legislation
enacted earlier this year. 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 second factor
which contributed to the tax savings when compared to the prior
period was the switch to the PTI method for calculating the bad
debt deduction for NYC. The final factor contributing to the
decline in the effective tax rate for 1997 was the establishment of
the REIT subsidiary.
32
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of the Bank. At June 30, 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 Bank's ultimate liability, if any, which might arise
from the disposition of these claims cannot presently be
determined. Management believes it has meritorious defenses
against these actions and has and will continue to defend its
position. Accordingly, no provision for any liability that may
result upon adjudication has been recognized in the accompanying
consolidated financial statements.
The Company is involved in various other legal actions arising in
the ordinary course of business, which in the aggregate, are
believed by management to be immaterial to the financial position
of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule.
(b) None.
PART III. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Not applicable.
33
SIGNATURES
Pursuant to the requirements of The Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
HAVEN BANCORP INC.
(Registrant)
Date: August 13, 1997 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: August 13, 1997 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
34