FINANCIAL HIGHLIGHTS
(In thousands of dollars, except per share data) 1998 1997
At Year End
Total Assets $2,395,523 1,974,890
Loans Receivable, Net 1,296,702 1,138,253
Securities Available for Sale 889,251 499,380
Loans Held For Sale 54,188 -
Debt Securities Held to Maturity - 66,404
Mortgage-Backed Securities Held to Maturity - 163,057
Real Estate Owned, Net 200 455
Deposits 1,722,710 1,365,012
Borrowed Funds 440,346 466,794
Stockholders' Equity 119,867 112,865
Non-Performing Assets 8,585 12,987
For the Year 1998 1997 1996
Net Interest Income $ 57,909 51,906 47,885
Provision for Loan Losses 2,665 2,750 3,125
Non-Interest Income 33,146 13,912 9,554
Real Estate Operations, Net 8 352 277
SAIF Assessment Charge -- -- 6,800
Other Non-Interest Expense 77,306 45,495 31,378
Income Tax Expense 2,926 6,138 6,434
Net Income(1) 8,150 11,083 9,425
Net Income per common share(1):
Basic 0.95 1.32 1.13
Diluted 0.89 1.24 1.08
Performance Ratios
Return on Average Assets 0.37% 0.62% 0.62%
Return on Average Assets excluding
SAIF Assessment Charge 0.37 0.62 0.89
Return on Average Equity 6.92 10.41 9.83
Return on Average Equity excluding
SAIF Assessment Charge 6.92 10.41 14.04
Net Interest Margin 2.78 3.06 3.29
Non-Performing Assets to Total Assets 0.36 0.66 0.94
Allowance for Loan Losses to
Non-Performing Loans 166.70 99.97 77.05
Net income for 1996 excluding the SAIF assessment charge would have
been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
Haven Bancorp, Inc. is the holding company for CFS Bank ("CFS" or
the "Bank"), its wholly owned subsidiary which converted from a
federally chartered mutual to a federally chartered stock savings
bank on September 23, 1993, whose principal business is the
operation of the Bank. The Bank, which was organized in 1889, is a
community oriented institution offering deposit products,
residential and commercial real estate loans and a full range of
financial services including discount brokerage, mutual funds,
annuities and insurance. Headquartered in Westbury, New York, the
Bank serves its customers through eight full-service banking and
fifty-nine supermarket banking facilities located in the New York
City Boroughs of Queens, Brooklyn, Manhattan and Staten Island and
in Nassau, Suffolk, Rockland and Westchester Counties, New York, New
Jersey and Connecticut. The Bank's deposits are insured up to the
maximum allowable amount by the Federal Deposit Insurance
Corporation ("FDIC"). The Bank provides residential mortgage
banking services through its CFS Intercounty Mortgage division
operating from six loan origination offices in New York, New Jersey
and Pennsylvania. The Company provides property and casualty
insurance through its subsidiary, CFS Insurance Agency, Inc.
Dear Fellow Stockholders,
I am pleased to report that during 1998 Haven Bancorp successfully
completed several initiatives that form a solid foundation for our
future. We opened twenty-five new supermarket branches in 1998 and
two earlier this year, bringing our total of in-store branches to
fifty-nine. In May, we acquired the production franchise of
Intercounty Mortgage, Inc., and in November, we purchased Century
Insurance Agency, Inc. (CIA). Although each of these actions
required an initial investment and had some negative impact on this
year's earnings, CFS Bank now possesses a high quality distribution
platform and a comprehensive package of financial products and
services, resulting in a much more valuable franchise. In addition
to our eight traditional branches, we now operate forty-four in-
store branches in New York State, eight in New Jersey and seven in
Connecticut. Additionally, we offer loan products from six
origination offices and insurance products from three free-standing
insurance agency offices.
Haven reported net income of $8.2 million for the year ended
December 31, 1998 compared to net income of $11.1 million for the
prior year. The fourth quarter of 1998 established a solid
foundation and we expect significant performance improvements in
1999. The growth in non-interest income in 1998 reflects the impact
of the continued maturation of our in-store branch network and
significant progress in the integration of our mortgage banking
business. The stabilization of non-interest expenses as supermarket
branches mature should allow us to profit from the increasing level
of gross income and provide the opportunity for us to enjoy
substantial asset and revenue growth on a relatively stable expense
platform.
The most significant factor in Haven's financial results continues
to be the opening and operating of supermarket branches. We have
plans to open one additional branch prior to the end of the first
quarter of 1999 which will bring our total number of in-store
branches to sixty. At that point, we'll pause in our expansion and
allow the economic value of the program to emerge. We're in New York
City, Nassau, Suffolk, Westchester and Rockland counties, New Jersey
and Connecticut giving us a true tri-state franchise. As of December
31, 1998, in-store branch deposits totaled $504.0 million. For
perspective, in-store deposits were only $157.2 million at year-end
1997. Core deposits equaled 54.0% of total in-store branch deposits
at December 31, 1998. Core deposits for the in-store branches
included $158.8 million of "Liquid Asset" account balances at
December 31, 1998. This account was introduced in the second quarter
of 1998 and currently pays an initial rate of 4.25% for balances
over $2,500. The in-store branches added approximately 79,000 new
accounts in 1998 bringing the total number of in-store accounts to
147,000 at year-end 1998. A key objective in the supermarket
program, along with generating fee income, is to expand our deposit
gathering capability and customer base to whom we can cross-sell our
entire array of products and services. This objective was bolstered
by the acquisitions of both Intercounty and CIA. For 1998, non-
interest income from in-store branches totaled $8.8 million and non-
interest expenses directly attributable to the branches were $21.8
million.
Although the supermarket branching program as a whole is not yet
profitable, largely because of the large number of immature
locations, some of our more mature branches are producing terrific
returns. We've said that as a rough rule of thumb a branch will
become profitable when it reaches $8 million in deposits. Because of
a relatively flat yield curve over the course of the last two years,
the branches are reaching profitability on a direct cost basis about
three to six months later than originally anticipated. At December
31, 1998 the twenty-one branches that had been open 18 months or
longer were, in aggregate, operating profitably on a direct cost
basis. The average deposit total for these branches is just under
$12 million. Our four in-store branches open more than 2 years are
earning, after direct costs, on average, 125 basis points on average
liabilities and 20.43% on average equity. The number of branches
reaching profitability continues to increase with the passage of
time.
Our two main engines of retail fee income are CFS Investment
Services and deposit products. CFSI had gross revenues of $5.8
million in 1998 compared to $3.8 million in 1997. Total sales were
$101.8 million in 1998 compared to $71.7 million in 1997. The
supermarket branches contributed $31.1 million, or approximately 31%
of CFSI's total sales in 1998. Deposit fees increased 79.3% to $9.8
million in 1998 from $5.5 million in 1997. Deposit fees at the in-
store branches have been considerably higher than we originally
anticipated. The supermarket branches accounted for approximately
58% of deposit fees in 1998. "Positively Free Checking" continues to
be CFS Bank's most popular deposit product and is our lead product
at the supermarket branches.
The Bank Insurance Market Research Group, a provider of market
research and investment sales data to the bank and insurance
industries, conducted a benchmarking study of CFS Bank's investment
and insurance programs. CFS Bank ranked very well in all products
and categories measured, even life insurance, a relatively new sales
area for the Bank. In three sales areas reviewed: annuities, mutual
funds, and "investment sales", (the sum of these two categories),
CFS Bank ranked in the top 6 percent among the 2,000 banks and
thrifts that sell these products. We performed particularly well in
annuities as a percentage of deposits, where we ranked in the top
3%. We were also exceptionally strong in investment income to
deposits, ranking in the top 3%. Adjusted for size, CFS Bank is
reaping more fee income from investment sales than all but 2% of
depository institutions nationally and 3% of institutions in the
Northeast.
On May 1st, we acquired the production franchise of Intercounty
Mortgage, Inc., which primarily produced agency-eligible residential
mortgages. Combined with CFS Bank's residential production, we
originated over a billion dollars in residential loans in 1998. The
strong deposit inflows we've experienced at the in-store branches
have made the reality of a bigger production pipeline even more
compelling. We believe that Intercounty with six offices located in
Westbury, Long Island; Albany, Rochester and Fishkill, New York;
Woodbridge, New Jersey; and Fort Washington, Pennsylvania is a
perfect geographic fit with our multi-state, in-store program. We've
supplemented their prior loan product mix with CFS Bank's broader
range of mortgage products, including adjustable rate mortgages and
jumbo mortgages. Expanding the product line results in increased
mortgage origination opportunities.
In November, we closed on Haven's acquisition of Century Insurance
Agency, which specializes in providing automobile, property and
casualty and various lines of commercial insurance. CIA operates as
a subsidiary of Haven Bancorp and represents more than twelve
insurance companies as an independent agency. CIA's insurance
business integrates well with the life, health and disability
business of CFSI. Our branch sales force is prepared and eager to
sell this expanded product line. We expect to add further to CIA's
current business through our existing customer base, including CFS
Intercounty and commercial real estate originations.
For 1998, our commercial real estate department originated $159.6
million in multi-family and commercial real estate loans.
Residential mortgage delinquencies are at an all-time low and no
commercial real estate loans originated since January 1995 are in
default. We've developed a solid reputation in the commercial real
estate market and that allows us to be selective in accepting
applications that meet our criteria.
At year-end 1998, our ratio of non-performing assets to total assets
was 0.36%, down from 0.66% in 1997. The allowance for loan losses
was equal to 166.7% of non-performing loans. We remain steadfastly
committed to maintaining a high level of asset quality.
In February 1997, we raised $25 million of capital to support our
supermarket banking expansion program. As our growth continues, we
will monitor our capital requirements and if appropriate, will
finance additional growth and profit opportunities prudently.
In January 1999, after 31 years of service Robert L. Koop announced
his retirement from the Board. A medical condition required that Mr.
Koop modify his schedule. In January 1999, after 20 years of
service, Joseph A. Ruggiere also announced his retirement from the
Board due to demands on his time by other business interests. Both
of these gentleman contributed significantly to Haven's success. I
thank them for the guidance they provided and wish them well.
We believe our growth and expansion strategies have and will
continue to enhance Haven's long-term shareholder value. We have
strong and still growing core earnings. Our supermarket program
continues to improve its returns. Our lending and insurance programs
are well positioned. The quality of our assets is excellent and we
see additional opportunities to further improve asset yields. Our
growing stream of non-interest income is an enriching factor in
earnings quality and we remain committed to reducing expenses to
achieve improved efficiencies and financial performance.
I offer my sincere gratitude to our loyal shareholders who continue
to demonstrate their confidence and support in Haven Bancorp, to our
customers, to whom we strive to provide the best financial products
and services available, and finally to our dedicated and tireless
staff, without whom we would not have succeeded thus far nor be so
well poised for the future.
Sincerely,
Philip S. Messina
Chairman and Chief Executive Officer
March 10, 1999
SELECTED CONSOLIDATED FINANCIAL DATA
December 31,
(In thousands) 1998 1997 1996 1995 1994
Total assets $2,395,523 1,974,890 1,583,545 1,472,816 1,268,774
Loans receivable, net 1,296,702 1,138,253 836,882 560,385 512,035
Securities available for sale 889,251 499,380 370,105 503,058 48,189
Debt securities held to maturity - 66,404 97,307 127,796 130,706
Mortgage-backed securities held to maturity - 163,057 197,940 190,714 495,111
Real estate owned, net 200 455 1,038 2,033 7,844
Deposits 1,722,710 1,365,012 1,137,788 1,083,446 1,013,162
FHLB advances 325,200 247,000 178,450 134,175 86,000
Other borrowed funds 115,146 219,794 147,983 136,408 39,081
Stockholders' equity 119,867 112,865 99,384 98,519 86,235
SELECTED FINANCIAL RATIOS AND OTHER DATA
At or For the Years Ended December 31,
(Dollars in thousands,
except share and per share data) 1998 1997 1996 1995 1994
Performance Ratios:
Return on average assets 0.37% 0.62 0.62 0.63 (0.35)
Return on average assets excluding SAIF
assessment charge(1) 0.37 0.62 0.89 0.63 (0.35)
Return on average equity 6.92 10.41 9.83 9.27 (4.90)
Return on average equity excluding SAIF
assessment charge(1) 6.92 10.41 14.04 9.27 (4.90)
Stockholders' equity to total assets 5.00 5.72 6.28 6.69 6.80
Net interest spread 2.67 2.89 3.12 2.99 3.34
Net interest margin(2) 2.78 3.06 3.29 3.17 3.48
Average interest-earning assets to
average interest-bearing liabilities 102.28 104.02 103.95 104.23 104.42
Operating expenses to average assets(3) 3.49 2.54 2.04 2.18 2.26
Stockholders' equity per share(4) $ 13.53 12.85 11.49 10.92 9.47
Asset Quality Ratios:
Non-performing loans to total loans(5) 0.64% 1.09 1.64 2.97 5.41
Non-performing assets to total assets 0.36 0.66 0.94 1.28 2.85
Allowance for loan losses to non-
performing loans(5) 166.70 99.97 77.05 50.80 38.33
Allowance for loan losses to total loans 1.07 1.09 1.26 1.51 2.07
Other Data:
Number of deposit accounts $323,794 234,183 171,382 155,424 140,701
Mortgage loans serviced for others $269,089 174,866 197,017 219,752 239,844
Loan originations and purchases $1,221,526 471,338 363,576 143,329 105,219
Facilities:
Full service offices 65 40 14 9 9
(1) Excludes the SAIF assessment charge in 1996 of $6.8 million.
(2) Calculation is based on net interest income before provision
for loan losses divided by average interest-earning assets.
(3) For purposes of calculating these ratios, operating expenses
equal non-interest expense less real estate operations, net, non-
performing loan (income) expense, amortization of goodwill, and non-
recurring expenses. Real estate operations, net was $8,000, $0.4
million, $0.3 million, $1.4 million and $12.3 million for the five
years ended December 31, 1998, respectively. For the five years
ended December 31, 1998, non-performing loan (income) expense was
$(1.0) million, $0.2 million, $0.4 million, $0.6 million and $0.9
million, respectively. Amortization of goodwill for the five years
ended December 31, 1998 was $0.8 million, $0.1 million, $0.1
million, $40,000, and $0, respectively. For the year ended December
31, 1996, the SAIF assessment charge of $6.8 million was also
excluded.
(4) Based on 8,859,692, 8,784,700, 8,650,814, 9,022,914 and
9,102,812 shares outstanding at December 31, 1998, 1997, 1996, 1995
and 1994, respectively.
(5) For purposes of calculating these ratios, non-performing loans
consist of all non-accrual loans and restructured loans.
SELECTED CONSOLIDATED OPERATING DATA
Years Ended December 31,
(Dollars in thousands,
except per share data) 1998 1997 1996 1995 1994
Interest income $ 151,685 126,306 109,253 96,434 81,491
Interest expense 93,776 74,400 61,368 55,115 40,289
Net interest income 57,909 51,906 47,885 41,319 41,202
Provision for loan losses 2,665 2,750 3,125 2,775 13,400
Net interest income after provision
for loan losses 55,244 49,156 44,760 38,544 27,802
Non-interest income:
Loan fees and servicing income 1,627 3,110 1,807 2,241 790
Servicing released premiums and fees
on loans sold 10,301 - - - -
Savings/checking fees 9,822 5,478 3,378 2,861 2,282
Net gain (loss) on sales of
interest-earning assets 2,926 (5) 140 126 372
Insurance, annuity and mutual fund fees 5,874 3,758 3,114 2,525 2,025
Other 2,596 1,571 1,115 1,269 1,060
Total non-interest income 33,146 13,912 9,554 9,022 6,529
Non-interest expense:
Compensation and benefits 41,204 24,251 15,737 14,889 13,605
Occupancy and equipment 11,005 6,334 3,478 3,334 3,238
Real estate operations, net 8 352 277 1,405 12,253
SAIF recapitalization charge - - 6,800 - -
Federal deposit insurance premiums 870 736 2,327 2,653 2,709
Other 24,227 14,174 9,836 9,511 9,336
Total non-interest expense 77,314 45,847 38,455 31,792 41,141
Income (loss) before income
tax expense (benefit) 11,076 17,221 15,859 15,774 (6,810)
Income tax expense (benefit) 2,926 6,138 6,434 7,230 (2,475)
Net income (loss) $ 8,150 11,083 9,425(1) 8,544 (4,335)
Net income (loss) per common share:
Basic $ 0.95 1.32 1.13(1) 0.99 (0.48)
Diluted $ 0.89 1.24 1.08(1) 0.96 (0.47)
(1) Net income for 1996 excluding the SAIF assessment charge would
have been $13.5 million, or $1.62 per basic common share ($1.55 per
share, diluted).
Management's Discussion and Analysis of Financial Condition and
Results of Operations
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") was formed on
March 25, 1993 as the Holding Company for CFS Bank ("CFS" or the
"Bank") in connection with the Bank's conversion from a federally
chartered mutual savings bank to a federally chartered stock savings
bank. The Company is headquartered in Westbury, New York and its
principal business currently consists of the operation of its wholly
owned subsidiary, CFS Bank.
The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one- to four-family, owner occupied residential
mortgage loans. In addition, the Bank will invest in debt, equity
and mortgage-backed securities to supplement its lending portfolio.
The Bank also invests, to a lesser extent, in multi-family
residential mortgage loans, commercial real estate loans and other
marketable securities.
The Bank's results of operations are dependent primarily on its net
interest income, which is the difference between the interest income
earned on its loan and securities portfolios and its cost of funds,
which consist of the interest paid on its deposits and borrowed
funds. The Bank's net income also is affected by its non-interest
income, including, beginning May 1, 1998, the results of the
acquisition of the loan production franchise of Intercounty
Mortgage, Inc., its provision for loan losses and its operating
expenses consisting primarily of compensation and benefits,
occupancy and equipment, real estate operations, net, federal
deposit insurance premiums and other general and administrative
expenses. The earnings of the Bank are significantly affected by
general economic and competitive conditions, particularly changes in
market interest rates, and to a lesser extent by government policies
and actions of regulatory authorities.
FINANCIAL CONDITION
The Company had total assets of $2.40 billion at December 31, 1998
compared to $1.97 billion at December 31, 1997, an increase of
$420.6 million, or 21.3%.
The Company's portfolio of debt and equity securities and mortgage-
backed securities ("MBSs") available for sale ("AFS") totaled $889.3
million, an increase of $389.9 million, or 78.1% at December 31,
1998 compared to $499.4 million at December 31, 1997. At December
31, 1998, $266.3 million of the AFS securities portfolio were
adjustable-rate securities and $623.0 million were fixed-rate
securities. At June 30, 1998, the Company transferred its remaining
debt and MBSs held to maturity portfolios totaling $183.6 million to
securities AFS. The transfer was done to enhance liquidity and take
advantage of market opportunities. In the third quarter of 1998,
the Bank completed the securitization of $105.7 million of
residential mortgages with the Fannie Mae ("FNMA") and the
underlying securities were transferred to securities available for
sale. This provided the Bank with additional collateral for
borrowings, and the ability to sell the securitized loans. The
remaining growth in the AFS portfolio in 1998 was primarily due to
securities purchased with the investment of deposit flows during the
year not utilized for portfolio loan originations. During 1998, the
Company purchased $749.0 million of debt and equity securities and
MBSs for its AFS portfolio, of which $106.3 million were adjustable-
rate and $642.7 million were fixed-rate. Principal repayments,
calls and proceeds from sales of AFS securities totaled $650.1
million.
Net loans increased by $158.4 million, or 13.9% during 1998 to $1.30
billion at December 31, 1998 from $1.14 billion at December 31,
1997. Loan originations and purchases during 1998 totaled $1.22
billion (comprised of $1.04 billion of residential one- to four-
family mortgage loans, $156.8 million of commercial and multi-family
real estate loans, $2.8 million of construction loans and $16.4
million of consumer loans). One-to four-family mortgage loan
originations included $570.0 million of loans originated and
purchased for sale in the secondary market during 1998. During
1998, the Bank sold $515.8 million of one- to four-family mortgage
loans in the secondary market on a servicing released basis. At
December 31, 1998, loans held for sale were $54.2 million.
Commercial and multi-family real estate loan originations increased
by $23.2 million to $156.8 million in 1998 from $133.6 million in
1997, or 17.4% comprised of $88.5 million of multi-family loans and
$68.3 million of commercial real estate loans. Total loans increased
substantially while the Company continued towards its objective to
invest in adjustable-rate loans. At December 31, 1998, total loans
were comprised of $708.7 million adjustable-rate loans and $602.0
million fixed-rate loans. During 1998, principal repayments and
satisfactions totaled $279.4 million and $0.6 million was
transferred to real estate owned ("REO"). In the third quarter of
1998, the Company securitized $105.7 million in one-to four-family
mortgage loans with the FNMA. The resulting securities were
retained and are included in the Company's securities AFS portfolio.
Not withstanding the Company's objective of investing in adjustable-
rate loans, the Company, during the fourth quarter of 1998, sold
$83.3 million of adjustable-rate mortgage loans previously held in
portfolio in several bulk-sale transactions. These loans had become
less desireable in the current market due to their high level of
prepayments.
In 1998, the Company also sold $14.0 million of cooperative
apartment loans as part of its ongoing efforts to dispose of this
portion of its portfolio.
Deposits totaled $1.72 billion at December 31, 1998, an increase of
$357.7 million, or 26.2% from $1.37 billion at December 31, 1997.
Interest credited totaled $65.2 million in addition to deposit
growth of $292.5 million. As of December 31, 1998, the Bank had
fifty-seven supermarket branches with total deposits of $504.0
million compared to thirty-two locations with deposits totaling
$157.2 million at December 31, 1997. The supermarket branches are
located in the New York City boroughs of Queens, Brooklyn,
Manhattan, Staten Island, the New York counties of Nassau, Suffolk,
Rockland and Westchester and in Connecticut and New Jersey. Core
deposits equaled 54.0% of total in-store branch deposits, compared
to 45.5% in traditional branches. Overall, core deposits
represented 47.7% of total deposits at December 31, 1998 compared to
42.7% at December 31, 1997.
Borrowed funds decreased 5.7% to $440.3 million at December 31, 1998
from $466.8 million at December 31, 1997. The decrease in borrowings
resulted from the pay-down of short-term borrowings as a result of
deposit growth during 1998. In addition, at December 31, 1998 and
1997, the Company had $97.5 million and $10.0 million, respectively,
in securities purchased, net of securities sold, against commitments
to brokers. At December 31, 1998 and 1997, these respective amounts
were reflected as due to broker in the statements of financial
condition, with the related securities included in securities AFS.
These transactions settled in January 1999 and 1998, respectively,
and the Company utilized borrowed funds to repay the obligations to
brokers. Including the effect of these transactions, borrowed funds
and due to broker increased by $61.0 million, or 12.8%, from
December 31, 1997 to December 31, 1998.
Stockholders' equity totaled $119.9 million, or 5.0% of total assets
at December 31, 1998, an increase of $7.0 million, or 6.2% from
$112.9 million, or 5.7% of total assets at December 31, 1997. The
increase reflects net income of $8.2 million, an increase of $1.7
million related to the allocation of ESOP stock, amortization of
awards of shares of common stock by the Bank's Recognition and
Retention Plans and Trusts ("RRPs") and amortization of deferred
compensation plan and $0.5 million related to stock options
exercised, and related tax effect. These were partially offset by
dividends declared of $2.6 million and a decrease in unrealized
gains on securities AFS, net of tax effect, of $0.7 million.
ASSET/LIABILITY MANAGEMENT
As a financial institution, the Company's primary component of
market risk is interest rate volatility. Fluctuations in interest
rates will ultimately impact both the level of income and expense
recorded on a large portion of the Bank's assets and liabilities,
and the market value of all interest-earning assets, other than
those which possess a short term to maturity. Since virtually all of
the Company's interest-bearing liabilities and interest- earning
assets are at the Bank, virtually all of the Company's interest-rate
risk exposure lies at the Bank level. As a result, all significant
interest rate risk management procedures are performed at the Bank
level. Based upon the Bank's nature of operations, the Bank is not
subject to foreign currency exchange or commodity price risk. The
Bank's real estate loan portfolio, concentrated primarily within the
New York metropolitan area, is subject to risks associated with the
local economy. The Bank does not own any trading assets. The Bank's
interest rate management strategy is designed to stabilize net
interest income and preserve capital over a broad range of interest
rate movements.
The matching of assets and liabilities may be analyzed by examining
the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring an institution's interest rate
sensitivity "gap". An asset or liability is said to be interest rate
sensitive within a specific time period if it will mature or reprice
within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning
assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within
the same period. A gap is considered positive when the amount of
interest-earning assets maturing or repricing exceeds the amount of
interest-bearing liabilities maturing or repricing within the same
period. A gap is considered negative when the amount of interest-
bearing liabilities maturing or repricing exceeds the amount of
interest- earning assets maturing or repricing within the same
period.
Accordingly, in a rising interest rate environment, an institution
with a positive gap would be in a better position to invest in
higher yielding assets which would result in the yield on its assets
increasing at a pace closer to the cost of its interest-bearing
liabilities, than would be the case if it had a negative gap. During
a period of falling interest rates, an institution with a positive
gap would tend to have its assets repricing at a faster rate than
one with a negative gap, which would tend to restrain the growth of
its net interest income.
The Company closely monitors its interest rate risk as such risk
relates to its operational strategies. The Company's Board of
Directors has established an Asset/Liability Committee, responsible
for reviewing its asset/liability policies and interest rate risk
position, which generally meets weekly and reports to the Board on
interest rate risk and trends on a quarterly basis.
The following table ("gap table") sets forth the amounts of
interest-earning assets and interest-bearing liabilities outstanding
at December 31, 1998 which are anticipated by the Company, based
upon certain assumptions described below, to reprice or mature in
each of the future time periods shown. Adjustable-rate assets and
liabilities are included in the table in the period in which their
interest rates can next be adjusted. For purposes of this table,
prepayment assumptions for fixed interest-rate assets are based upon
industry standards as well as the Company's historical experience
and estimates. The Company has assumed an annual prepayment rate of
approximately 24% for its fixed-rate MBS portfolio. The computation
of the estimated one-year gap assumes that the interest rate on
savings account deposits is variable and, therefore, interest
sensitive. During the falling interest rate environment throughout
1998, these funds were maintained at an average rate of 2.81%. The
Company has assumed that its savings, NOW and money market accounts,
which totaled $736.5 million at December 31, 1998, are withdrawn at
the annual percentages of approximately 9%, 5% and 15%,
respectively.
More Than More Than More Than More Than
Three One Year Three Five Years Ten Years
Months Three to to Years to to to More Than
(Dollars in thousands) or Less Twelve Months Three Years Five Years Ten Years Twenty Years Twenty Years Total
Interest-earning assets:
Mortgage loans (1) $164,423 185,609 465,865 450,661 1,273 636 - 1,268,467
Other loans (1) 12,434 9,042 1,885 2,438 4,138 4,782 - 34,719
Loans held for sale 54,188 - - - - - - 54,188
Securities available for sale 889,251 - - - - - - 889,251
Money market investments 1,720 - - - - - - 1,720
Total interest-earning assets 1,122,016 194,651 467,750 453,099 5,411 5,418 - 2,248,345
Premiums, net of unearned
discount and deferred fees (2) 852 148 355 344 4 5 - 1,708
Net interest-earning assets 1,122,868 194,799 468,105 453,443 5,415 5,423 - 2,250,053
Interest-bearing liabilities:
Savings accounts 12,040 36,557 155,204 101,244 128,498 88,821 24,900 547,264
NOW accounts 1,511 4,521 66,786 17,862 23,817 13,315 2,476 130,288
Money market accounts 2,177 6,524 26,348 12,387 9,691 1,757 100 58,984
Certificate accounts 296,671 471,205 74,786 57,598 1,489 - - 901,749
Borrowed funds 151,567 25,233 82,620 56,942 99,000 - 24,984 440,346
Due to broker 97,458 - - - - - - 97,458
Total interest-bearing liabilities $ 561,424 544,040 405,744 246,033 262,495 103,893 52,460 2,176,089
Interest sensitivity gap $ 561,444 (349,241) 62,361 207,410 (257,080) (98,470) (52,460) 73,964
Cumulative interest sensitivity gap $ 561,444 212,203 274,564 481,974 224,894 126,424 73,964
Cumulative interest sensitivity gap
as a percentage of total assets 23.44% 8.86% 11.46% 20.12% 9.39% 5.28% 3.09%
Cumulative net interest-earning
assets as a percentage of
interest-sensitive liabilities 200.00% 119.20% 118.17% 127.43% 111.13% 105.95% 103.40%
(1) For purposes of the gap analysis, mortgage and other loans are
reduced for non-accural loans but are not reduced for the allowance
for loan losses.
For purposes of the gap analysis, premiums, unearned discount and
deferred fees are pro-rated.
At December 31, 1998, the Company's total interest-earning assets
maturing or repricing within one year exceeded its total interest-
bearing liabilities maturing or repricing within the same time
period by $212.2 million, representing a one year cumulative gap
ratio of 8.86%.
In order to reduce its sensitivity to interest rate risk, the
Company's current strategy includes emphasizing the origination or
purchase for portfolio of adjustable-rate loans, debt securities and
MBSs and maintaining an AFS securities portfolio. During 1998, the
Company purchased $106.3 million of adjustable-rate MBSs which are
expected to help protect net interest margins during periods of
rising interest rates. In 1998, the Company originated or purchased
$363.3 million of adjustable-rate mortgage loans for portfolio.
Historically, the Company has been able to maintain a substantial
level of core deposits which the Company believes helps to limit
interest rate risk by providing a relatively stable, low cost long-
term funding base. At December 31, 1998, core deposits represented
47.7% of deposits compared to 42.7% of deposits at December 31,
1997. Core deposits included $158.8 million of "liquid asset"
account balances at December 31, 1998. This account was introduced
in the second quarter of 1998 and currently pays an initial rate of
4.25% for balances over $2,500. The Company expects to attract a
higher percentage of core deposits from its supermarket branch
locations as these locations continue to grow and mature.
The Company's interest rate sensitivity is also monitored by
management through the use of a model which internally generates
estimates of the change in net portfolio value ("NPV") over a range
of interest rate change scenarios. NPV is the present value of
expected cash flows from assets, liabilities, and off- balance sheet
contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of
assets in the same scenario. The Office of Thrift Supervision
("OTS") also produces a similar analysis using its own model, based
upon data submitted on the Bank's quarterly Thrift Financial
Reports, the results of which may vary from the Company's internal
model primarily due to differences in assumptions utilized between
the Company's internal model and the OTS model, including estimated
loan prepayment rates, reinvestment rates and deposit decay rates.
For purposes of the NPV table, prepayment speeds similar to those
used in the Gap table were used. The following table sets forth the
Company's NPV as of December 31, 1998.
Changes Net Portfolio Value
in Rates Net Portfolio Value as a % of Assets
in Basis Dollar Percentage NPV Percentage
Points Amount Change Change Ratio Change(1)
(Dollars in thousands)
200 $ 96,950 $(71,307) (42.38)% 4.43% (38.64)%
100 143,950 (24,307) (14.45) 6.36 (11.91)
Base case 168,257 - - 7.22 -
(100) 209,554 41,297 24.54 8.76 21.33
(200) 242,294 74,037 44.00 9.91 37.26
Based on the portfolio value of the Company's assets in the base
case scenario.
As in the case with the Gap table, certain shortcomings are inherent
in the methodology used in the above interest rate risk
measurements. Modeling changes in NPV requires the making of
certain assumptions which may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates.
In this regard, the NPV model presented assumes that the composition
of the Company's interest-sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being
measured and also assumes that a particular change in interest rates
is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and
liabilities. Accordingly, although the NPV measurements provide an
indication of the Company's interest rate risk exposure at a
particular point in time, such measurements are not intended to and
do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net portfolio value and will differ
from actual results.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net interest
income, which represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net
interest income is dependent on the average balances and rates
received on interest-earning assets, and the average balances and
rates paid on interest-bearing liabilities. Net income is further
affected by non-interest income, non-interest expense, the provision
for loan losses, and income taxes.
The following table sets forth certain information relating to the
Company's average consolidated statements of financial condition and
consolidated statements of income for the three years ended December
31, 1998 and reflects the average yield on assets and average cost
of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of
assets or liabilities, respectively, for the periods shown. Average
balances are derived from average daily balances. The average
balance of loans includes loans on which the Company has
discontinued accruing interest. The yields and costs include fees
which are considered adjustments to yields.
1998 1997 1996
Average Average Average
Average Yield/ Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- ------- ------- -------- -------
Assets:
Interest-earning assets:
Mortgage loans $1,265,803 $96,146 7.60% $956,819 $75,266 7.87% $647,516 $53,110 8.20%
Other loans 33,444 3,303 9.88 32,639 3,220 9.87 35,952 3,638 10.12
MBSs(1) 628,556 42,040 6.69 482,523 32,755 6.79 543,810 37,517 6.90
Money market investments 3,499 186 5.32 5,743 343 5.97 2,175 176 8.09
Debt and equity securities (1) 151,217 10,010 6.62 215,926 14,722 6.82 227,521 14,812 6.51
Total interest-earning assets 2,082,519 151,685 7.28 1,693,650 126,306 7.46 1,456,974 109,253 7.50
Non-interest earning assets 133,494 88,231 61,120
Total assets 2,216,013 1,781,881 1,518,094
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 441,759 12,415 2.81 371,872 9,338 2.51 373,337 9,314 2.49
Certificate accounts 878,991 49,965 5.68 678,599 39,309 5.79 572,768 32,436 5.66
NOW accounts 187,297 1,364 0.73 134,546 1,130 0.84 111,425 999 0.90
Money market accounts 57,597 2,041 3.54 54,107 1,823 3.37 58,108 1,929 3.32
Borrowed funds 470,531 27,991 5.95 389,091 22,800 5.86 285,951 16,690 5.84
Total interest-bearing liabilities 2,036,175 93,776 4.61 1,628,215 74,400 4.57 1,401,589 61,368 4.38
Other liabilities 62,121 47,247 20,628
Total liabilities 2,098,296 1,675,462 1,422,217
Stockholders' equity 117,717 106,419 95,877
Total liabilities and stockholders'
equity $2,216,013 $1,781,881 $1,518,094
Net interest income/net interest rate
spread (2) $57,909 2.67% $51,906 2.89% $47,885 3.12%
Net interest-earning assets/net
interest margin (3) $46,344 2.78% $65,435 3.06% $55,385 3.29%
Ratio of interest-earning assets
to interest-bearing liabilities 102.28% 104.02% 103.95%
(1) Includes AFS securities and securities held to maturity.
(2) Net interest rate spread represents the difference between the
average yield on interest-earning assets and the average cost of
interest-bearing liabilities.
(3) Net interest margin represents net interest income before
provision for loan losses divided by average interest-earning
assets.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1998 AND 1997
GENERAL
The Company reported net income of $8.2 million, or $0.95 per basic
share for 1998 compared to net income of $11.1 million, or $1.32 per
basic share for 1997. The $2.9 million decrease in earnings was
primarily attributable to an increase of $31.5 million in non-
interest expense and an increase of $19.4 million in interest
expense. These factors were substantially offset by interest income
which increased by $25.4 million and non-interest income which
increased by $19.2 million, combined with decreases of $3.2 million
in income tax expense and $85,000 in the provision for loan losses.
INTEREST INCOME
Interest income increased by $25.4 million, or 20.1% to $151.7
million in 1998 from $126.3 million in 1997. The increase in
interest income was primarily attributable to a $388.9 million
increase in average interest-earning assets, partially offset by an
18 basis point decrease in the overall average yield on interest-
earning assets.
Interest income on mortgage loans increased by $20.9 million, or
27.7% to $96.1 million in 1998 from $75.3 million in 1997 primarily
as a result of an increase in the average mortgage loan balance of
$309.0 million, partially offset by a decrease in the average yield
on mortgage loans of 27 basis points. During 1998, the Bank
originated or purchased $635.1 million of mortgage loans for
portfolio. Mortgage loans were originated at an average rate of
7.08% for 1998 compared to 7.52% for 1997. The decline in the
average rate for originations was primarily due to decreases in the
rate indices used for residential and commercial real estate loans
and the increasing percentage of relatively lower yielding
residential mortgages. These indices, which are the 30 year
treasury bond and the 5 year treasury note, declined 83 and 116
basis points, respectively, during 1998 when compared to December
31, 1997. In addition, loan principal repayments and satisfactions
during 1998 totaled $265.7 million in 1998 compared to $151.2
million in 1997. Also during 1998, the Bank sold approximately
$104.7 million in loans previously held in protfolio, including
$83.3 million of adjustable-rate mortgage loans in several bulk sale
transactions, and $14.0 million of cooperative apartment loans, and
securitized $105.7 million of one- to four-family mortgage loans
with FNMA. Interest income on other loans increased by $83,000, or
2.6% to $3.3 million in 1998 from $3.2 million in 1997 due to an
increase of $0.8 million in average balance and an increase of 1
basis point in the average yield.
RATE/VOLUME ANALYSIS
The following table presents the extent to which changes in interest
rates and changes in the volume of interest-earning assets and
interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) changes
attributable to changes in volume (changes in volume multiplied by
prior rate), (ii) changes attributable to changes in rate (changes
in rate multiplied by prior volume), and (iii) the net change. The
changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the
changes due to rate.
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
Increase (Decrease) Increase (Decrease)
In Net Interest Income In Net Interest Income
Due to Due to
(In thousands) Volume Rate Net Volume Rate Net
Interest-earning assets:
Mortgage loans $23,545 (2,665) 20,880 24,376 (2,220) 22,156
Other loans 80 3 83 (329) (89) (418)
MBSs(1) 9,775 (490) 9,285 (4,172) (590) (4,762)
Money market investments (123) (34) (157) 223 (56) 176
Debt and equity securities(1) (4,292) (420) (4,712) (776) 686 (90)
Total 28,985 (3,606) 25,379 19,322 (2,269) 17,053
Interest-bearing liabilities:
Savings accounts 1,880 1,197 3,077 (41) 65 24
Certificate accounts 11,414 (758) 10,656 6,113 760 6,873
NOW accounts 397 (163) 234 200 (69) 131
Money market accounts 123 95 218 (135) 29 (106)
Borrowed funds 4,836 355 5,191 6,053 57 6,110
Total 18,650 726 19,376 12,190 842 13,032
Net change in net interest income $10,335 (4,332) 6,003 7,132 (3,111) 4,021
(1) Includes AFS securities and securities held to maturity.
Interest income on MBSs was $42.0 million for 1998, an increase of
$9.3 million, or 28.3% over the $32.8 million earned in 1997. This
reflects a $146.0 million increase in the average balance of MBSs
for 1998 to $628.6 million from $482.5 for 1997, partially offset by
a decrease in the average yield on the MBS portfolio of 10 basis
points to 6.69% for 1998 from 6.79% in 1997. During 1998, the
Company purchased $687.9 million of MBSs for its AFS portfolio which
were partially offset by sales totaling $357.3 million and principal
repayments of $199.6 million. Also during 1998, the Bank
securitized $105.7 million in residential real estate loans and
retained the underlying securities in its AFS portfolio.
Interest income on money market investments decreased by $157,000,
or 45.8% to $186,000 in 1998 from $343,000 in 1997, primarily as a
result of a decrease in average balances of $2.2 million from $5.7
million in 1997 to $3.5 million in 1998. Interest on debt and equity
securities decreased by $4.7 million, or 32.0% to $10.0 million in
1998 from $14.7 million in 1997, primarily as a result of a decrease
in the average balance of $64.7 million, coupled with a decrease in
the average yield of 20 basis points. The decrease in the average
balance of debt and equity securities during 1998 is due primarily
to sales of $97.7 million, partially offset by purchases fo $36.1
million.
INTEREST EXPENSE
Interest expense increased by $19.4 million, or 26.0% to $93.8
million in 1998 from $74.4 million in 1997. The increase was
primarily attributable to an increase in interest on deposits of
$14.2 million, or 27.5% to $65.8 million in 1998 from $51.6 million
in 1997. The increase in interest on deposits was due to an increase
of $326.5 million, or 26.3% in average deposits to $1.57 billion in
1998 from $1.24 billion in 1997, coupled with a 4 basis point
increase in the average cost of deposits. Interest expense on
borrowed funds increased by $5.2 million, or 22.8% during 1998, due
to an increase of $81.4 million in the average balance, coupled with
a 9 basis point increase in the average cost of borrowed funds.
The increase in the average balance of deposits is primarily
attributable to the Bank's continuing expansion of the in-store
banking program. As of December 31, 1998, the Bank had fifty- seven
in-store branches with deposits totaling $504.0 million, as compared
to thirty-two branches with deposits totaling $157.2 million as of
December 31, 1997. Interest expense on certificate accounts
increased by $10.7 million, or 27.1% from 1997 to 1998. The in-
store banking expansion contributed to the increase in the average
balance of certificate accounts of $200.4 million, or 29.5%,
partially offset by a 11 basis point decrease in the average cost of
certificate accounts. Interest expense on savings accounts
increased by $3.1 million, or 33.0%, from 1997 to 1998. The
increase was also due to the in-store banking expansion, as well as
the introduction of a "Liquid Asset" account in the in-store
branches during the second quarter of 1998. As of December 31,
1998, the balance of these accounts was $158.8 million. This
account currently pays 4.25% for the first year on account balances
of $2,500 or more. Overall, the average balance of savings accounts
experienced a net increase of $69.9 million, or 18.8%, coupled with
a 30 basis point increase in the average cost, which is attributable
to the aforementioned Liquid Asset account. Interest expense on NOW
accounts and money market accounts increased by $234,000 and
$218,000, respectively, in 1998 over 1997, primarily as a result of
the increase in the average balance of such accounts. The average
yield paid on money market accounts increased by 17 basis points to
3.54% for 1998, primarily as a result of a shift in the average
balance of such deposits from traditional branches to the in-store
locations, which paid comparatively higher money market rates.
Interest expense on borrowed funds increased by $5.2 million, or
22.8%, primarily as a result of the increase in the average balance
of borrowed funds of $81.4 million, or 20.9%, coupled with a 9 basis
point increase in the average cost of borrowed funds from 5.86% in
1997 to 5.95% in 1998. The increase in the average balance of
borrowed funds is due primarily to fund the increase in residential
loan originations and purchases by CFS Intercounty Mortgage, the
Bank's residential lending division, as well as to fund purchases of
securities for the Company's AFS portfolio.
NET INTEREST INCOME
Net interest income increased by $6.0 million, or 11.6% to $57.9
million in 1998 from $51.9 million in 1997. The average yield on
interest-earning assets decreased to 7.28% in 1998 from 7.46% in
1997, as a result of an overall decline in market indices which
serve as leading indicators for mortgage loan rates and rates on
securities. The average cost of liabilities increased by 4 basis
points to 4.61% in 1998 from 4.57% in 1997 primarily due to the
growth in certificate accounts and the introduction of the Liquid
Asset savings account in 1998. The net interest rate spread was
2.67% in 1998 compared to 2.89% in 1997.
PROVISION FOR LOAN LOSSES
The Bank provided $2.7 million for loan losses in 1998, which was
virtually flat as compared to 1997. The provision for loan losses
reflects management's periodic review and evaluation of the loan
portfolio. The slight decrease in the provision for loan losses was
mainly due to the continued decline in non-performing loans to $8.4
million at December 31, 1998 from $12.5 million at December 31,
1997. As of December 31, 1998, the allowance for loan losses was
$14.0 million compared to $12.5 million at December 31, 1997. As of
December 31, 1998, the allowance for loan losses was 1.07% of total
loans compared to 1.09% of total loans at December 31, 1997. The
slight decrease was attributable to the substantial growth in the
loan portfolio. The allowance for loan losses was 166.70% of non-
performing loans at December 31, 1998 compared to 99.97% at December
31, 1997. The increase is the result of the significant decline in
non-performing loans from December 31, 1997 to December 31, 1998.
NON-INTEREST INCOME
Non-interest income increased by $19.2 million, or 138.3%, from
$13.9 million in 1997 to $33.1 million in 1998. More than half of
the increase in non-interest income is attributable to the $10.3
million in servicing released premiums and fees on loans sold in the
secondary market. Savings and checking fees were $9.8 million in
1998, a $4.3 million, or 79.3% increase over 1997. Net gains on
sales of interest-earning assets were $2.9 million in 1998. In
1997, the Company reported a net loss on such sales of $5,000.
Insurance, annuity and mutual fund fees generated in 1998 were $5.9
million, a $2.1 million, or 56.3% increase over the $3.8 million
earned in 1997. Other non- interest income increased by $1.0
million, or 65.2%, to $2.6 million in 1998, from $1.6 million in
1997, primarily as a result of the Bank's in-store banking
expansion.
On May 1, 1998 the Bank completed the purchase of the loan
production franchise of Intercounty Mortgage, Inc. ("IMI"). The
Bank's prior residential lending operations and the newly acquired
production franchise of IMI operate under the name CFS Intercounty
Mortgage Company, originating and purchasing residential loans for
the Bank's portfolio and for sale in the secondary market. In 1998
the Bank originated $1.04 billion in residential mortgage loans,
$570.0 million of which were originated for sale in the secondary
market. During 1998, the Bank sold $515.8 million to investors in
the secondary market on a servicing released basis, and recognized
$10.3 million in related servicing released premiums and fees.
The increase in savings and checking fees and fees generated from
the sale of insurance, annuities, and mutual funds were primarily a
result of the Bank's in-store banking expansion. During 1998, the
Bank opened twenty-five in-store branches, contributing to the
increase in in-store deposits of $346.8 million, or 220.6% from
December 31, 1997 to December 31, 1998. During 1998, the Company
sold $453.7 million in securities available for sale, resulting in
net gains of $1.2 million. During the third quarter of 1998, the
Bank sold $14.0 million of cooperative apartment loans in a bulk
transaction as part of its ongoing effort to divest itself of this
portion of the portfolio, resulting in a $1.0 million gain. During
the fourth quarter of 1998, the Bank realized $0.7 million in gains
on bulk sales of adjustable-rate residential mortgage loans
previously held in portfolio. The loans were sold in response to the
high level of prepayments experienced with these loans. Other non-
interest income increased primarily as a result of ATM surcharge
fees which increased by $0.9 million, or 517.9% from $0.2 million in
1997, to $1.1 million in 1998. ATM surcharge fees, which are fees
charged to non-customers who use the Bank's ATM network, increased
primarily as a result of the Bank's in-store branch expansion, as
well as increases in the fees charged for such transactions.
NON-INTEREST EXPENSE
Non-interest expense increased by $31.5 million, or 68.6%, from
$45.8 million in 1997 to $77.3 million in 1998. Compensation and
benefits expense increased by $17.0 million, or 69.9%, from $24.3
million in 1997 to $41.2 million in 1998. Occupancy and equipment
expense increased by $4.7 million, or 73.7% from $6.3 million in
1997 to $11.0 million in 1998. The increases in compensation and
benefits, occupancy and equipment, and advertising and promotion
expenses were due primarily to the Bank's in-store banking
expansion, as well as the expansion of the Bank's residential
lending function with the acquisition of the loan production
franchise of IMI. During 1998, the Bank opened twenty-five new in-
store branches, while the acquisition of the loan production
franchise of IMI added 6 primary loan origination offices and
several smaller satellite offices to the Company's facilities.
Occupancy and equipment expense also increased as a result of the
purchase of the Company's new headquarters, which was completed in
the third quarter of 1998.
Federal deposit insurance premiums increased by $134,000, or 18.2%,
from $736,000 in 1997 to $870,000 in 1998, due to the increase in
insurable deposits as a result of the in-store banking expansion.
Other non-interest expenses increased by $10.0 million, or 70.9%,
from $14.2 million in 1997 to $24.2 million in 1998. $1.4 million
of the increase is due to the increase in data processing expenses
which increased as a result of the in-store banking expansion and
the increase in the number of transactions processed. Advertising
and promotion expense increased by $1.1 million, or 64.7% from $1.7
million in 1997 to $2.8 million in 1998. Other items that
contributed to the increase in other non-interest expense were
telephone expense, which increased by $925,000, stationary,
printing, and office supplies expense, which increased by $570,000,
and ATM transaction expenses, which increased by $540,000. These
increases were directly related to the in-store banking expansion
and the operations of CFS Intercounty Mortgage. Amortization of
goodwill increased by $710,000, primarily as a result of the
acquisition of IMI, while mortgage tax expense and appraisal
expenses related to loans sold in the secondary market increased by
$540,000 and $820,000, respectively. The balance of the increase in
other non-interest expenses were generally related to the Bank's in-
store branch expansion and the expansion of the residential lending
operations as a result of the acquisition of IMI. These increases
were partially offset by a $1.2 million reduction in non-performing
loan expense due to the recapture of reserves established for the
bulk sales on REO and non-performing loans in 1994. The increase in
non-interest expense was partially offset by a $344,000 decrease in
REO operations, net.
INCOME TAX EXPENSE
Income tax expense was $2.9 million in 1998, compared to $6.1
million in 1997. The effective tax rate for 1998 was 26.4% compared
to 35.6% in 1997. The decrease in the effective tax rate was
primarily due to the establishment of Columbia Preferred Capital
Corp. ("CPCC"), the Bank's real estate investment trust ("Reit")
subsidiary, during the second quarter of 1997. The tax provision
for 1998 includes the effect of CPCC's operations for the full year
of 1998 compared to one quarter in 1997. The lower tax rate was
also due to an adjustment of the Bank's tax accrual upon the filing
of the Company's Federal, New York State and City tax returns for
1997 during September 1998, as well as a state tax credit recognized
for mortgage recording taxes paid on loans originated in certain
counties of New York State.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31,
1997 AND 1996
GENERAL
The Company reported net income of $11.1 million for 1997 compared
to net income of $9.4 million for 1996. The $1.7 million increase in
earnings was primarily attributable to an increase of $17.1 million
in interest income, an increase of $4.4 million in non-interest
income, a decrease of $0.4 million in the provision for loan losses
and a decrease of $0.3 million in income tax expense. These factors
were mainly offset by interest expense which increased by $13.0
million and non-interest expense which increased by $7.4 million
primarily due to the Bank's in- store branch expansion.
INTEREST INCOME
Interest income increased by $17.1 million, or 15.6% to $126.3
million in 1997 from $109.3 million in 1996. The increase was
primarily the result of an increase in interest income on mortgage
loans which was partially offset by a decrease in interest income on
MBSs and other loans.
Interest income on mortgage loans increased by $22.2 million, or
41.7% to $75.3 million in 1997 from $53.1 million in 1996 primarily
as a result of an increase in the average mortgage loan balance of
$309.3 million partially offset by a decrease in average yield on
mortgage loans of 33 basis points. During 1997, the Bank originated
or purchased $459.8 million of mortgage loans. Mortgage loans were
originated at an average rate of 7.52% for 1997 compared to 7.56%
for 1996. The decline in the average rate for originations was
primarily due to decreases in the rate indices used for residential
and commercial real estate loans and the increasing percentage of
relatively lower yielding residential mortgages. These indices
which are the 30 year treasury bond and the 5 year treasury note
declined 71 and 50 basis points, respectively, during 1997 when
compared to December 31, 1996. In addition, loan satisfactions
during 1997 totaled $134.1 million, some of which were at higher
interest rates than current originations. Principal repayments
totaled $151.2 million in 1997 compared to $78.2 million in 1996.
Interest income on other loans decreased by $418,000, or 11.5% to
$3.2 million in 1997 from $3.6 million in 1996 due to a decrease of
$3.3 million in average balances and a decline of 25 basis points in
the average yield. The Bank's consumer loan products with the
exception of equity loan/lines were discontinued in November 1996.
However, during the fourth quarter of 1997, the Bank added unsecured
loans to its list of consumer loan products to expand the array of
products available to its customers.
Interest income on MBSs was $32.8 million for 1997 compared to $37.5
million in 1996. The average balance for 1997 decreased by $61.3
million, or 11.3% to $482.5 million from $543.8 for 1996. In
addition, the average yield on the MBS portfolio decreased by 11
basis points to 6.79% for 1997 from 6.90% in 1996. During 1997, the
Bank purchased $421.9 million of MBSs for its AFS portfolio which
were partially offset by sales totaling $226.3 million. The MBS
securities purchased for the AFS portfolio during 1997 represented
82.5% of total purchases for the AFS portfolio because these
securities allow the Bank to shorten its duration exposure for net
interest margin purposes and also provide a better cash flow for
reinvestment purposes. 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.
Interest income on money market investments increased by $167,000,
or 94.9% to $343,000 in 1997 from $176,000 in 1996 primarily as a
result of an increase in average balances of $3.6 million in 1997.
Interest on debt and equity securities decreased by $90,000, or 0.6%
to $14.7 million in 1997 from $14.8 million in 1996 primarily as a
result of a decrease in the average balance of $11.6 million
partially offset by an increase in average yield of 31 basis points.
During 1997, the Company purchased $89.2 million of debt and equity
securities for its AFS portfolio which were offset by sales totaling
$111.4 million. The increase in the overall yield to 6.82% from
6.51% was due to the purchase of callable agency securities and
sales of FNMA preferred stock.
INTEREST EXPENSE
Interest expense increased by $13.0 million, or 21.2% to $74.4
million in 1997 from $61.4 million in 1996. The increase was
partially attributable to an increase in interest on deposits of
$6.9 million, or 15.5% to $51.6 million in 1997 from $44.7 million
in 1996. The increase in interest on deposits was due to an increase
of $123.5 million, or 11.1% in average deposits to $1.24 billion in
1997 from $1.12 billion in 1996. The increase in average deposits
was due to inflows of $145.1 million in the supermarket branches and
$104.4 million in the traditional branches. The overall cost of
deposits was 4.16% in 1997 compared to 4.00% in 1996.
Interest expense on certificate accounts increased by $6.9 million,
or 21.2% to $39.3 million in 1997 from $32.4 million in 1996. The
average balance of certificate accounts increased by $105.8 million,
or 18.5% to $678.6 million in 1997 from $572.8 million in 1996. The
increase in average balances of certificate accounts was primarily
due to inflows of $98.4 million in the supermarket branches and
$82.1 million in the traditional branches. The average cost of
certificates increased to 5.79% in 1997 from 5.66% in 1996. In
1997, passbook accounts experienced an excess of deposits over
withdrawals of $14.0 million primarily due to inflows into the
supermarket branches of $28.7 million. Certificates of deposit
experienced an excess of deposits over withdrawals of $141.3
million. The Company's in-store branch program accounted for $98.4
million of the increase in deposit balances for certificates of
deposit. Money market accounts decreased by $3.9 million during
1997.
Interest on borrowed funds increased by $6.1 million, or 36.6% to
$22.8 million in 1997 compared to $16.7 million in 1996. Borrowed
funds on an average basis increased by $103.1 million in 1997 due to
the addition of $25.0 million of capital securities issued by Haven
Capital Trust I 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. The average cost of borrowings increased to
5.86% in 1997 from 5.84% in 1996.
NET INTEREST INCOME
Net interest income increased by $4.0 million, or 8.4% to $51.9
million in 1997 from $47.9 million in 1996. The average yield on
interest-earning assets decreased to 7.46% in 1997 from 7.50% in
1996, and the average cost of liabilities increased by 19 basis
points to 4.57% in 1997 from 4.38% in 1996 primarily due to the
growth in certificate of deposit accounts and the issuance of the
trust preferred securities. The net interest rate spread was 2.89%
in 1997 compared to 3.12% in 1996.
PROVISION FOR LOAN LOSSES
The Bank provided $2.7 million for loan losses in 1997 compared to
$3.1 million in 1996. The provision for loan losses reflects
management's periodic review and evaluation of the loan portfolio.
The decrease in the provision for loan losses was mainly due to the
continued decline in non-performing loans to $12.5 million at
December 31, 1997 from $13.9 million at December 31, 1996. As of
December 31, 1997, the allowance for loan losses was $12.5 million
compared to $10.7 million at December 31, 1996. As of December 31,
1997, the allowance for loan losses was 1.09% of total loans
compared to 1.26% of total loans at December 31, 1996. The decrease
was attributable to the growth in the loan portfolio and a decline
in non-performing loans. The allowance for loan losses was 99.97% of
non-performing loans at December 31, 1997 compared to 77.05% at
December 31, 1996.
NON-INTEREST INCOME
Non-interest income increased by $4.4 million, or 45.6% to $13.9
million in 1997 from $9.6 million in 1996. Fee income on savings and
checking accounts increased by $2.1 million, or 62.2% primarily due
to an increase of approximately 53,000 in the number of savings and
checking accounts. This growth was primarily due to the Company's
in-store branch program which added approximately 48,000 savings and
checking accounts during 1997. Insurance, annuity and mutual fund
fees increased by $644,000, or 20.7% due to an increase of $185,000
in annuity income and an increase of $471,000 in mutual fund income.
The increase in sales of annuity and mutual fund products by CFS
Investment Services, Inc. (formerly Columbia Investment Services,
Inc.) ("CFSI"), the Bank's wholly-owned subsidiary, is partially due
to the increased demand for alternative sources of investments by
the Bank's depositors and the addition of the supermarket branches.
Approximately 63% of CFSI sales were external. Loan fees and
servicing income increased by $1.3 million, or 72.1% to $3.1 million
in 1997 from $1.8 million in 1996. The increase was attributable to
a prepayment fee of $2.0 million on a commercial real estate loan
during the fourth quarter of 1997. During 1997, the Company
realized a net loss of $5,000 on the sales of interest-earning
assets. Miscellaneous income increased by $456,000, or 40.9% to
$1.6 million in 1997 from $1.1 million in 1996. The increase is
primarily due to an increase of $186,000 in fees on ATM surcharges
and $142,000 due to the close-out of CFSB Funding, Inc., the Bank's
finance subsidiary during 1997. Also, fee income on refinance
transactions increased by $67,000 from 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $7.4 million, or 19.2% to $45.8
million in 1997 from $38.5 million in 1996. Non-interest expense for
1996 included a one-time SAIF recapitalization charge of $6.8
million which was paid during the fourth quarter of 1996. Excluding
this special assessment, non-interest expense increased by $14.2
million, or 44.8% in 1997. The Company's in-store branch expansion
program accounted for $11.5 million of the increase in 1997.
Compensation and benefit costs increased by $8.5 million, or 54.1%
to $24.3 million in 1997 from $15.7 million in 1996. The in-store
branch expansion accounted for $5.3 million of the increase in
compensation costs since the Bank added 226 employees for its
supermarket branches in 1997. Salary costs for the Bank's
subsidiary, CFSI, also increased by $540,000 due to higher sales
volume. Federal social security taxes increased by $537,000 and the
cost incurred for hospitalization, group life insurance, federal and
NYS unemployment insurance increased by $431,000 from the prior year
due to the increase in staff. ESOP compensation increased by
$201,000 from 1996 due to the increase in the average price of Haven
Bancorp common stock for the year. Occupancy and equipment costs
increased by $2.9 million, or 82.1% to $6.3 million in 1997 from
$3.5 million in 1997 primarily due to the addition of 28 supermarket
branches during 1997 and a $150,000 charge for obsolete signage in
connection with the name change to CFS Bank. REO operations, net
increased by $75,000, or 27.1% to $352,000 for 1997 from $277,000
for 1996. The increase is due to a decline in profits realized on
the sale of REO properties since the REO portfolio, exclusive of
reserves, decreased to $542,000 at December 31, 1997 from $1.1
million at December 31, 1996. The significant decrease in the
federal deposit insurance premium costs of $1.6 million was due to
a decrease in the assessment rate from 23 basis points in 1996 to
6.48 basis points in 1997. Miscellaneous operating costs increased
by $4.3 million, or 44.1% to $14.2 million in 1997 from $9.8 million
in 1996. Operating expenses including stationery, telephone,
postage and insurance increased by $1.6 million and professional
consulting fees increased by $555,000 from 1996 primarily due to the
in-store branch program and services related to the formation of
CPCC. In addition, the Bank incurred staff placement costs of
$184,000 primarily for in-store branches in New Jersey and
Connecticut. Advertising costs increased by $430,000 due to the
growth in both the loan portfolio and deposit base. NYCE and PLUS
fees increased by $122,000 also due to the growth in the deposit
base. Appraisal and credit costs increased by $162,000 during 1997
due to the growth in the loan portfolio. Miscellaneous operating
losses increased by $416,000 because the results for 1996 included
the reversal of a reserve regarding claims subsequently paid by a
check collection service. Operating expenses for CFSI increased by
$209,000 due to higher sales volume.
INCOME TAX EXPENSE
Income tax expense was $6.1 million in 1997 compared to $6.4 million
in 1996. The effective tax rate for 1997 was 35.6% compared to
40.6% for 1996. The decrease in the effective tax rate is due to
several factors: first, during the first quarter of 1996, a deferred
tax liability of $330,000 was reversed related to the potential
recapture of the New York City tax bad debt reserve which was no
longer necessary due to New York City tax legislation enacted
earlier this year. The New York City tax law was amended in the
first quarter of 1996 to conform to the New York State tax treatment
for bad debt reserve. 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 computing the tax 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 New York City. The final factor contributing
to the decline in the effective tax rate for 1997 was the
establishment of CPCC during the second quarter of 1996 which
resulted in certain tax savings. (See Note 12 to Notes to
Consolidated Financial Statements.)
NON-PERFORMING ASSETS
The following table sets forth information regarding non- performing
assets which include all non-accrual loans (which consist of loans
90 days or more past due and restructured loans that have not yet
performed in accordance with their modified terms for the required
six-month seasoning period), accruing restructured loans and real
estate owned.
December 31,
(In thousands) 1998 1997 1996
Non accrual loans:
One-to four-family $ 3,779 3,534 4,083
Cooperative 367 698 431
Multi-family 308 2,531 1,463
Non-residential and other 2,074 3,633 4,756
Total non-accrual loans 6,528 10,396 10,733
Restructured loans:
One-to four-family 544 679 887
Cooperative 183 290 486
Multi-family 1,130 1,167 1,427
Non-residential and other - - 360
Total restructured loans 1,857 2,136 3,160
Total non-performing loans 8,385 12,532 13,893
REO, net:
One-to four-family 66 126 266
Cooperative 38 295 292
Non-residential and other 121 121 561
Total REO 225 542 1,119
Less allowance for REO (25) (87) (81)
REO, net 200 455 1,038
Total non-performing assets $ 8,585 12,987 14,931
The Company's expanded loan workout/resolution efforts have
successfully contributed toward reducing non-performing assets to
manageable levels. Since year-end 1996, non-performing assets have
declined by $6.3 million, or 42.5%, from a level of $14.9 million to
$8.6 million at year-end 1998. The decrease in non-performing assets
is reflected in the following ratios: the ratio of non-performing
loans to total loans ratio was 0.64% for 1998 compared to 1.09% for
1997 and 1.64% for 1996; the ratio of non-performing assets to total
assets was 0.36% for 1998 compared to 0.66% for 1997 and 0.94% for
1996; and, the ratio of non-performing loans to total assets was
0.35% for 1998 compared to 0.63% for 1997 and 0.87% for 1996. There
can be no assurance that non-performing assets will continue to
decline.
The decrease in non-performing assets in 1998 was primarily due to
the continued decline in non-performing loans and sales of REO
properties. During 1998, the Company sold 21 REO properties with a
fair value of $0.7 million. Total restructured loans decreased by
$0.3 million during 1998 due to transfers to classified loan status
and the REO portfolio. Total non-accrual loans decreased by $3.9
million during 1998.
The decrease in non-performing assets in 1997 was primarily due
continued sales of REO properties and a the continued decline in
non-performing loans. During 1997, the Company sold 37 REO
properties with a fair value of $1.4 million. Total restructured
loans decreased by $1.0 million during 1997 due to transfers to
classified loan status and the REO portfolio. Total non-accrual
loans decreased by $337,000 during.1997.
LIQUIDITY
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 4%. The
Bank's ratio was 4.24% at December 31, 1998 compared to 8.94% at
December 31, 1997.
The Company's primary sources of funds are deposits, principal and
interest payments on loans, debt securities and MBSs, retained
earnings and advances from FHLB and other borrowings. Proceeds from
the sale of AFS securities and loans held for sale are also a source
of funding, as are, to a lesser extent, the sales of annuities,
insurance products and securities brokerage activities conducted by
the Bank's wholly owned subsidiary, CFSI and the Company's wholly
owned subsidiary, CIA. While maturities and scheduled amortization
of loans and securities are somewhat predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by
general interest rates, economic conditions, competition and
regulatory changes.
The Company's most liquid assets are cash and short term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At December 31, 1998 and December 31, 1997,
cash and short term investments totaled $44.8 million and $40.3
million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year and AFS securities.
Other sources of funds include FHLB advances, which at December 31,
1998, totaled $325.2 million. If needed, the Bank may borrow an
additional $106.8 million from the FHLB.
The Company's cash flows are comprised of three primary
classifications: cash flows from operating activities; investing
activities and financing activities. Net cash provided by operating
activities, consisting primarily of interest and dividends received
less interest paid on deposits were $16.2 million, $24.6 million and
$12.1 million for the years ended December 31, 1998, 1997 and 1996,
respectively. Net cash used in investing activities, consisting
primarily of disbursements of loan originations and securities
purchases, offset by principal collections on loans and proceeds
from maturities of securities held to maturity or sales of AFS
securities or disposition of assets including REO were $340.7
million, $385.8 million and $117.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively. Net cash provided by
financing activities, consisting primarily of net activity in
deposits and borrowings, purchases of treasury stock, payments of
common stock dividends and proceeds from stock options exercised was
$329.0 million, $365.7 milliion.
CAPITAL RESOURCES
See Note 17 to Notes to Consolidated Financial Statements.
INFLATION AND CHANGING PRICES
The consolidated financial statements and notes thereto presented
herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of
money over time and changes due to inflation. The impact of
inflation is reflected in the increased cost of the Bank's
operations. Unlike most industrial companies, nearly all the assets
and liabilities of the Bank are monetary. As a result, interest
rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or to the same extent as the
price of goods and services.
COMPUTER ISSUES FOR THE YEAR 2000
Many of the Company's existing computer systems use two digits to
identify the year in the date fields. As a result, these systems may
not be able to distinguish the year 2000 from the year 1900.
Software, hardware and equipment both within and outside the
Company's direct control and with which the Company electronically
or operationally interfaces (e.g. third party vendors providing data
processing, information system management, maintenance of computer
systems, and credit bureau information) are likely to be affected.
Further, if computer systems are not adequately changed to identify
the year 2000, many computer applications could fail or create
erroneous results. As a result, many calculations which rely on the
date field information, such as interest, payment or due dates and
other operating functions, could generate results which could be
significantly misstated, and the Company could experience a
temporary inability to process transactions, send invoices or engage
in similar normal business activities. If not corrected, these
computer systems could fail by or at the year 2000.
The Company primarily uses a third party vendor to process its
electronic data. This vendor has made modifications or replacements
of its computer applications and systems necessary to correct the
year 2000 date issue. Management has substantially completed the
testing of the modifications to these systems and applications. The
Company also utilizes a combination of purchased and contract-based
software as well as other third party vendors for a variety of data
processing needs. The Company's assessment of potential computer
issues for the year 2000 have been substantially completed. Where
potential computer issues have been identified, the vendors have
committed to definitive dates to resolve such issues. Under
regulatory guidelines issued by the federal banking regulators, the
Bank and the Company must substantially complete testing of both
internally and externally supplied systems and all renovations, by
June 30, 1999. In the event that the Company's significant vendors
do not achieve year 2000 compliance, the Company's operations could
be adversely affected.
The Company has established contingency plans for these systems for
which year 2000 issues will not be corrected. The OTS, the
Company's primary federal bank regulatory agency, along with the
other federal bank regulatory agencies has published guidance on the
year 2000 compliance and has identified the year 2000 issue as a
substantive area of examination for both regularly scheduled and
special bank examinations. These publications, in addition to
providing guidance as to examination criteria, have outlined
requirements for creation and implementation of a compliance plan
and target dates for testing and implementation of corrective
action, as discussed above. As a result of the oversight by and
authority vested in the federal bank regulatory agencies, a
financial institution that does not become year 2000 compliant could
become subject to administrative remedies similar to those imposed
on financial institutions otherwise found not to be operating in a
safe and sound manner, including remedies available under prompt
corrective action regulations.
There has been limited litigation filed against corporations
regarding the year 2000 problem and such corporations' compliance
efforts. To date, no such litigation has resulted in a decided case
imposing liability on the corporate entity. Nonetheless, the law in
this area will likely continue to develop well into the new
millennium. Should the Company experience a year 2000 failure,
exposure of the Company could be significant and material, unless
there is legislative action to limit such liability. Legislation
has been introduced in several jurisdictions regarding the year 2000
problem. However, no assurance can be given that legislation will
be enacted in jurisdictions where the Company does business that
will have the effect of limiting any potential liability. Through
December 31, 1998, the Company had incurred approximately $126,000
in costs associated with achieving year 2000 compliance. The
Company expects to incur approximately $450,000 in additional costs
to achieve year 2000 compliance during 1999.
IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 to Notes to Consolidated Financial Statements.
STOCK DATA
Haven common stock, listed under the symbol HAVN is publicly traded
on the Nasdaq Stock Market. As of March 3, 1999, the Company had
approximately 428 stockholders of record (not including the number
of persons or entities holding stock in nominee or street name
through various brokerage firms) and 8,861,184 outstanding shares of
common stock (excluding treasury shares). The common stock traded in
a high and low range of $29.75 and $9.125 during the year ended
December 31, 1998.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, December 31,
(Dollars in thousands, except for share data) 1998 1997
ASSETS
Cash and due from banks $ 43,088 35,745
Money market investments 1,720 4,561
Securities available for sale (notes 3 and 11) 889,251 499,380
Loans held for sale (note 6) 54,188 -
Debt securities held to maturity (estimated
fair value of $66,372 in 1997) (note 4) - 66,404
Federal Home Loan Bank of NY Stock, at cost 21,990 12,885
Mortgage-backed securities held to maturity
(estimated fair value of $163,326 in 1997)
(notes 5 and 11) - 163,057
Loans receivable (note 6):
First mortgage loans 1,271,784 1,098,894
Cooperative apartment loans 3,970 19,596
Other loans 34,926 32,291
Total loans receivable 1,310,680 1,150,781
Less allowance for loan losses (note 7) (13,978) (12,528)
Loans receivable, net 1,296,702 1,138,253
Premises and equipment, net (note 8) 39,209 27,062
Accrued interest receivable (notes 3, 4, 5 and 6) 12,108 12,429
Other assets (note 9) 37,267 15,114
Total assets $2,395,523 1,974,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 10) $1,722,710 1,365,012
Borrowed funds (note 11) 440,346 466,794
Due to broker 97,458 10,000
Other liabilities 15,142 20,219
Total liabilities 2,275,656 1,862,025
Commitments and contingencies (notes 7 and 16)
Stockholders' Equity (note 17):
Preferred stock, $.01 par value, 2,000,000 shares
authorized, none issued - -
Common stock, $.01 par value, 30,000,000 shares
authorized, 9,918,750 issued; 8,859,692 and
8,784,700 shares outstanding in 1998 and 1997,
respectively 100 100
Additional paid-in capital 51,383 50,065
Retained earnings, substantially restricted (note 17) 79,085 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available for
sale, net of tax effect (note 3) 945 1,671
Treasury stock, at cost (1,059,058 and 1,134,050
shares in 1998 and 1997, respectively) (9,800) (10,246)
Unallocated common stock held by ESOP (note 14) (1,222) (1,529)
Unearned common stock held by Bank's Recognition
Plans and Trusts (note 14) (263) (364)
Unearned compensation (note 14) (361) (399)
Total stockholders' equity 119,867 112,865
Total liabilities and stockholders' equity $2,395,523 1,974,890
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31,
(Dollars in thousands, except per share data) 1998 1997 1996
Interest income:
Mortgage loans $ 96,146 75,266 53,110
Other loans 3,303 3,220 3,638
Mortgage-backed securities 42,040 32,755 37,517
Money market investments 186 343 176
Debt and equity securities 10,010 14,722 14,812
Total interest income 151,685 126,306 109,253
Interest expense:
Deposits:
Savings accounts 12,415 9,338 9,314
NOW accounts 1,364 1,130 999
Money market accounts 2,041 1,823 1,929
Certificate accounts 49,965 39,309 32,436
Borrowed funds 27,991 22,800 16,690
Total interest expense 93,776 74,400 61,368
Net interest income before provision for loan losses 57,909 51,906 47,885
Provision for loan losses (note 7) 2,665 2,750 3,125
Net interest income after provision for loan losses 55,244 49,156 44,760
Non-interest income:
Loan fees and servicing income 1,627 3,110 1,807
Servicing released premiums and fees on loans sold 10,301 - -
Savings/checking fees 9,822 5,478 3,378
Net gain (loss) on sales of interest-earning assets 2,926 (5) 140
Insurance, annuity and mutual funds fees 5,874 3,758 3,114
Other 2,596 1,571 1,115
Total non-interest income 33,146 13,912 9,554
Non-interest expense:
Compensation and benefits (notes 13 and 14) 41,204 24,251 15,737
Occupancy and equipment (notes 8 and 16) 11,005 6,334 3,478
Real estate owned operations, net 8 352 277
SAIF recapitalization charge (note 10) - - 6,800
Federal deposit insurance premiums 870 736 2,327
Other 24,227 14,174 9,836
Total non-interest expense 77,314 45,847 38,455
Income before income tax expense 11,076 17,221 15,859
Income tax expense (note 12) 2,926 6,138 6,434
Net income $ 8,150 11,083 9,425
Net income per common sharE:
Basic $ 0.95 1.32 1.13
Diluted $ 0.89 1.24 1.08
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
The three years ended December 31, 1998
Unrealized
Gain (Loss) Unallocated Unearned
Additional on Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
Total Stock Capital Earnings for Sale Stock by ESOP by RRPs Compensation
(In thousands of dollars, except for share data)
Balance at December 31, 1995 $ 98,519 100 47,281 57,919 2,083 (6,023) (2,197) (644) -
Comprehensive income:
Net income 9,425 - - 9,425 - - - - -
Other comprehensive income, net
of tax
Net unrealized depreciation on
securities available for sale,
net of reclassification
adjustment (1) (2,923) - - - (2,923) - - - -
Comprehensive income 6,502
Dividends declared (2,229) - - (2,229) - - - - -
Purchase of treasury stock
(451,074 shares) (5,516) - - - - (5,516) - - -
Treasury stock issued for deferred
compensation plan (60,162 shares) - - 410 - - 372 - - (782)
Stock options exercised and
related tax effect (18,812 shares) 199 - 104 (23) - 118 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,719 - 999 - - - 343 377 -
Amortization of deferred
compensation plan 190 - - - - - - - 190
Balance at December 31, 1996 99,384 100 48,794 65,092 (840) (11,049) (1,854) (267) (592)
Comprehensive income:
Net income 11,083 - - 11,083 - - - - -
Other comprehensive income,
net of tax
Net unrealized appreciation on
securities available for
sale, net of reclassification
adjustment (1) 2,511 - - - 2,511 - - - -
Comprehensive income 13,594
Dividends declared (2,608) - - (2,608) - - - - -
Treasury stock issued for RRP and
deferred compensation plan
(18,904 shares) - - 236 - - 113 - (206) (143)
Stock options exercised and related
tax effect (114,982 shares) 806 - 116 - - 690 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,353 - 919 - - - 325 109 -
Amortization of deferred
compensation plan 336 - - - - - - - 336
Balance at December 31, 1997 112,865 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399)
Comprehensive income:
Net income 8,150 - - 8,150 - - - - -
Other comprehensive income,
net of tax
Net unrealized depreciation on
securities available for
sale, net of reclassification
adjustment (1) (1,607) - - - (1,607) - - - -
Net unrealized appreciation on
securities transferred from
held to maturity to available
for sale (note 3) 881 - - - 881 - - - -
Comprehensive income 7,424
Dividends declared (2,632) - - (2,632) - - - - -
Treasury stock issued for deferred
compensation plan (14,384 shares) - - 280 - - 86 - - (366)
Stock options exercised and related
tax effect (60,608 shares) 516 - 156 - - 360 - - -
Allocation of ESOP stock and
amortization of award of RRP
stock and related tax benefits 1,290 - 882 - - - 307 101 -
Amortization of deferred compensation
plan 404 - - - - - - - 404
Balance at December 31, 1998 $119,867 100 51,383 79,085 945 (9,800) (1,222) (263) (361)
(1) Disclosure of reclassification adjustment:
For the years ended
(In thousands) 1998 1997 1996
Net unrealized holding
(losses) gains arising during the year $ (10) 2,499 (2,707)
Reclassificaton adjustment for net gains
(losses) included in net income 716 (12) 216
Net unrealized (losses) gains on securities
available for sale (726) 2,511 (2,923)
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31,
(Dollars in thousands) 1998 1997 1996
Cash flows from operating activities:
Net income $ 8,150 11,083 9,425
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of cost of stock benefit plans 1,526 1,689 1,909
Amortization of net deferred loan origination fees (1,546) (231) (245)
Premiums and discounts on loans, mortgage-backed
and debt securities (1,503) 210 233
Provision for loan losses 2,665 2,750 3,125
Provision for losses on real estate owned 35 251 291
Deferred income taxes 1,139 (1,540) 230
Origination and purchases of loans held for sale,
net of proceeds from sales (54,188) - -
Net (gain) loss on sales of interest-earning assets (2,926) 5 (140)
Depreciation and amortization 3,087 1,592 878
Decrease (increase) in accrued interest receivable 321 (257) (1,436)
Increase (decrease) in due to broker 87,458 9,000 (4,000)
(Decrease) increase in other liabilities (5,077) 1,315 3,672
Increase in other assets (22,930) (1,265) (1,804)
Net cash provided by operating activities 16,211 24,602 12,138
Cash flows from investing activities:
Net increase in loans receivable (264,136)(306,328) (269,343)
Proceeds from disposition of assets (including REO) 721 2,785 4,313
Purchases of securities available for sale (749,013)(511,075) (321,162)
Principal repayments on securities available for sale 195,118 48,377 73,472
Proceeds from sales of securities available for sale 454,971 337,696 374,840
Purchases of debt securities held to maturity - - (6,989)
Principal repayments, maturities and calls on debt
securities held to maturity 21,020 30,954 37,511
Purchases of mortgage-backed securities held to maturity - - (38,357)
Principal repayment on mortgage-backed securities held
to maturity 24,834 34,660 32,004
Purchases of Federal Home Loan Bank Stock, net (9,105) (2,995) (1,752)
Net increase in premises and equipment (15,102) (19,834) (2,108)
Net cash used in investing activities (340,692)(385,760) (117,571)
Cash flows from financing activities:
Net increase in deposits 357,698 227,224 54,342
Net (decrease) increase in borrowed funds (26,448) 140,361 55,850
Purchase of treasury stock - - (5,516)
Payment of common stock dividends (2,627) (2,598) (2,475)
Stock options exercised 360 760 95
Net cash provided by financing activities 328,983 365,747 102,296
Net increase (decrease) in cash and cash equivalents 4,502 4,589 (3,137)
Cash and cash equivalents at beginning of year 40,306 35,717 38,854
Cash and cash equivalents at end of year $ 44,808 40,306 35,717
Supplemental information:
Cash paid during the year for:
Interest $ 93,751 73,757 60,187
Income taxes 1,699 5,893 7,824
Additions to real estate owned 623 1,695 3,470
Loans transferred from loans held for sale - - (10,594)
Securities purchased not yet received, net 97,458 10,000 1,000
Loans securitized 105,691 - -
Mortgage-backed securities and debt securities
held to maturity transferred to securities
available for sale 183,639 - -
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Haven Bancorp, Inc. (the "Holding Company") was formed on March 25,
1993, as the holding company for CFS Bank, (the "Bank"). On
September 23, 1993, the Holding Company completed its initial
public offering of 9,918,750 shares of common stock in connection
with the Bank's conversion from a federally chartered mutual
savings bank to a federally chartered stock savings bank (the
"Conversion"). Concurrent with the conversion process, the Holding
Company acquired all of the issued and outstanding stock of the
Bank with a portion of the net proceeds.
The accounting and reporting policies of the Holding Company and
the Bank and its subsidiaries (the "Company") conform to generally
accepted accounting principles and to general practices within the
banking industry. The following summarizes the significant policies
and practices:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of the Holding Company and its subsidiary, the Bank, and
its wholly owned subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation. In
preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of each
consolidated statement of financial condition and revenues and
expenses for the year then ended. Actual results could differ from
those estimates. Certain reclassification adjustments have been
made to prior year amounts to conform to the current year
presentation.
On October 23, 1997, the Company's Board of Directors approved a
two-for-one common stock split. The additional shares were issued
on November 28, 1997 to shareholders of record on October 31, 1997.
The par value of the Company's common stock remains unchanged at
$.01. Accordingly, all information with respect to shares of common
stock fully reflects the stock split.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
include cash and due from banks and money market investments.
Money market investments represent instruments with maturities of
ninety days or less. These investments are carried at cost,
adjusted for premiums and discounts which are recognized in
interest income over the period to maturity.
DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES
Debt and mortgage-backed securities ("MBSs") which the Company has
the positive intent and ability to hold until maturity are carried
at cost, adjusted for amortization of premiums and accretion of
discounts on a level yield method over the remaining period to
contractual maturity, adjusted, in the case of MBSs, for actual
prepayments. Debt and equity securities and MBSs to be held for
indefinite periods of time and not intended to be held to maturity
are classified as available for sale securities and are recorded at
fair value, with unrealized gains (losses), net of tax, reported as
accumulated other comprehensive income, a separate component of
stockholders' equity. Gains and losses on the sale of securities
are determined using the specific identification method and are
included in non-interest income.
LOANS RECEIVABLE AND LOANS HELD FOR SALE
Loans receivable are carried at their unpaid principal balances,
less unearned discounts, net deferred loan origination fees and the
allowance for loan losses. Loans held for sale are carried at the
aggregate lower of cost or market value. Loan origination fees,
less certain direct loan origination costs, are deferred and
amortized as an adjustment of the loan's yield over the life of the
loan by the interest method. When loans are sold, any remaining
unaccreted net deferred fees (costs) are recognized as income at
the time of sale. Purchased loans are recorded at cost. Related
premiums or discounts are amortized (accreted) to interest income
using the level-yield method over the estimated life of the loans.
Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" and the
amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" require
that impaired loans that are within their scope be measured based
on the present value of expected future cash flows discounted at
the loan's effective interest rate or as a practical expedient, at
the loan's current observable market price, or the fair value of
the collateral if the loan is collateral dependent. The amount by
which the recorded investment of an impaired loan exceeds the
measurement value is recognized by creating a valuation allowance
through a charge to the provision for loan losses. SFAS No. 114
does not apply to those large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment, which, for
the Company, include one-to four-family first mortgage loans and
cooperative apartment loans ("residential loans") and consumer
loans.
Loans individually reviewed for impairment by the Company within
the scope of SFAS No. 114 are limited to loans modified in a
troubled debt restructuring ("TDR") and commercial and multi-family
first mortgage loans. The measurement value of the Company's
impaired loans was based on the fair value of the underlying
collateral. The Company's impaired loan identification and
measurement process are conducted in conjunction with the Company's
review of the adequacy of its allowance for loan losses. Specific
factors utilized in the impaired loan identification process
include, but are not limited to, delinquency status, loan-to-value
ratio, the condition of the underlying collateral, credit history
and debt coverage. At a minimum, such loans are classified as
impaired by the Company when they become 90 days past due.
The Company places loans, including impaired loans, on non-accrual
status when they become 90 days past due. All interest previously
accrued and not collected is reversed against interest income and
income is subsequently recognized only to the extent cash is
received until, in management's judgement, a return to accrual
status is warranted.
Cash receipts on impaired loans are applied to principal and
interest in accordance with the contractual terms of the loan
unless full payment of principal is not expected, in which case,
both principal and interest payments received are applied as a
reduction of the carrying value of the loan. For non-performing
impaired loans, interest income is recognized to the extent
received in cash and not otherwise utilized to reduce the carrying
value of the loan. For impaired loans not classified as non-
performing by the Company, interest income is recognized on an
accrual basis as the Company anticipates the full payment of
principal and interest due. The Company's policy is to recognize
income on a cash basis for TDRs for a period of six months, after
which such loans are returned to an accrual status.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Impaired loans and
related reserves have been identified and calculated in accordance
with the provisions of SFAS No. 114. The total allowance for loan
losses has been determined in accordance with the provisions of
SFAS No. 5, "Accounting for Contingencies." The Company's allowance
for loan losses is intended to be maintained at a level sufficient
to absorb all estimable and probable losses inherent in the loan
portfolio. The Company reviews the adequacy of the allowance for
loan losses on a monthly basis taking into account past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, current and
prospective economic conditions and current regulatory guidance.
Management believes that the allowance for loan losses is adequate.
While Management uses available information to recognize losses on
loans, future additions to the allowance may be necessary based on
changes in economic conditions and the reviews of various
regulatory agencies.
The Company adopted SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities,"
effective January 1, 1997. Under this statement, after transfers
of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred,
if any, derecognizes financial assets when control has been
surrendered, and derecognizes liabilities when extinguished.
In accordance with SFAS No. 125, the Company recognizes servicing
assets on loans that have been originated or purchased, and where
the loans are subsequently sold or securitized with the servicing
rights retained. The total cost of the mortgage loans is allocated
between the loans and the servicing assets based on their
relative fair values. The statement also requires that servicing
assets be assessed for impairment based on the current fair values
of those assets with any impairment recognized through a valuation
allowance.
Fees earned for servicing loans for others are reported as income
when the related mortgage loan payments are collected. Servicing
assets are amortized as a reduction to loan servicing fee income
using the interest method over the estimated remaining life of the
underlying mortgage loans.
PREMISES AND EQUIPMENT
Land is carried at cost. Buildings, leasehold improvements,
furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Premises and equipment
are depreciated using the straight-line method over the estimated
useful lives of the respective assets except for leasehold
improvements which are amortized over the related lease term or
estimated useful life.
REAL ESTATE OWNED
Real estate properties acquired through loan foreclosure are
recorded at the lower of cost or estimated fair value less
estimated selling costs at the time of foreclosure. Subsequent
valuations are periodically performed by management and the
carrying value may be adjusted by a valuation allowance,
established through charges to income and included in real estate
operations, net to reflect subsequent declines in the estimated
fair value of the real estate. Real estate owned ("REO") is shown
net of the allowance. Operating results of REO, including rental
income, operating expenses, and gains and losses realized from the
sales of properties owned, are also recorded in real estate
operations, net.
REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing
transactions. Accordingly, the collateral securities continue to be
carried as assets and a borrowing liability is established for the
transaction proceeds.
INCOME TAXES
The Company utilizes the asset and liability method of accounting
for income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates
is recognized in income in the period that includes the enactment
date. Additionally, the recognition of net deferred tax assets is
based upon the likelihood of realization of tax benefits in the
future. A valuation allowance would be provided for deferred tax
assets which are determined more than likely not to be realized.
BENEFIT PLANS
The Company maintains various pension, savings, employee stock
ownership and other benefit plans and programs for its employees,
including the Bank's Retirement Plan covering substantially all
employees who have attained minimum service requirements. The
Bank's funding policy is to make contributions to the plan at least
equal to the amounts required by applicable Internal Revenue
Service regulations. The Bank periodically evaluates the overall
effectiveness and economic value of such programs, in the interest
of maintaining a comprehensive benefit package for employees. Based
on an evaluation of the Retirement Plan in 1996, the Bank concluded
that future benefit accruals under the Retirement Plan would cease,
or "freeze" on July 1, 1996. Although the benefit accruals are
frozen, the Bank will continue to maintain and provide benefits
under its Employee Stock Ownership Plan ("ESOP") and Employee
401(k) Thrift Incentive Savings Plan ("401(k) Plan"). In connection
with the Retirement Plan "freeze," the Bank resumed its matching of
contributions to the 401(k) Plan on July 1, 1996.
Post-retirement and post-employment benefits are recorded on an
accrual basis with an annual provision that recognizes the expense
over the service life of the employee, determined on an actuarial
basis.
Effective January 1998, the Company adopted SFAS No. 132,
"Employers Disclosures about Pensions and Other Post Retirement
Benefits". SFAS No. 132 revises employers' disclosures about
pension and other postretirement benefit plans, but does not change
the measurement or recognition of those plans. SFAS No. 132 also
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial analysis,
and eliminates certain disclosures that are no longer useful. As
the requirements of SFAS No. 132 are disclosure related, its
implementation did not have any impact on the Company's financial
condition or results of operations.
STOCK COMPENSATION PLANS
Effective January 1, 1996, the Company adopted SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 permits
either the recognition of compensation cost for the estimated fair
value of employee stock-based compensation arrangements on the date
of grant, or the continued application of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") in
accounting for its plans with disclosure in the notes to the
financial statements of the pro forma effects on net income and
earnings per share, determined as if the fair value-based method
had been applied in measuring compensation cost. The Company has
adopted the disclosure option. Accordingly, no compensation cost
has been recognized for the Company's stock option plans.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company has utilized interest rate caps to manage its interest
rate risk. Generally, the net settlements on such transactions used
as hedges of non-trading liabilities are accrued as an adjustment
to interest expense over the life of the agreements.
EARNINGS PER COMMON SHARE
The Company adopted SFAS No. 128, "Accounting for Earnings Per
Share" effective December 15, 1997 and restated all prior-period
earnings per share ("EPS") data. 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. The weighted average number of shares outstanding
does not include shares which are unallocated by the ESOP in
accordance with American Institute of CPAs ("AICPA") Statement of
Position ("SOP") 93-6, "Employers Accounting for ESOPs." 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 that then shares in the earnings of the
entity.
COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. The Statement 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. Comprehensive income is defined as
the change in equity of a business enterprise during a period from
transactions and other events and circumstances from nonowner
sources. Under SFAS No. 130 the Company is required to: (a)
classify items of other comprehensive income by their nature in a
financial statement and (b) 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; and (c) reclassify all prior periods presented.
SEGMENT REPORTING
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." The Statement establishes
standards for the way an enterprise reports information about
operating segments in annual financial statements and requires
that enterprises report selected information about operating
segments in interim financial reports issued to shareholders.
Operating segments are components of an enterprise that engage in
business activities from which it may earn revenues and incur
expenses, whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to
allocate resources and in assessing performance, and for which
discrete financial information is available. The Statement
requires a reconciliation of total segment revenue and expense
items and segment assets to the amounts in the enterprise's
financial statements. The Statement also requires a descriptive
report on how the operating segments were determined, the products
and services provided by the operating segments, and any
measurement differences used for segment reporting and financial
statement reporting. SFAS No. 131 is effective for fiscal years
beginning after December 15, 1997. In the initial year of
application, comparative information for earlier years is to be
restated. The Company currently does not manage its various
business activities as separate operating segments and does not
readily produce meaningful discrete financial information for any
such business activity. Therefore, under the Company's current
operating and reporting structure, SFAS No. 131 disclosures are not
applicable.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at
fair value. The accounting for changes in the fair value of a
derivative (that is, gains and losses) depends on the intended use
of the derivative and the resulting designation. SFAS No. 133 is
effective for fiscal years beginning after June 15, 1999 and does
not require restatement of prior periods. Management of the Company
currently believes the implementation of SFAS No. 133 will not have
a material impact on the Company's financial condition or results
of operations.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise".
SFAS No. 134 changes the way mortgage banking firms account for
certain securities and other interests they retain after
securitizing mortgage loans that were held for sale. Under current
practice, a bank that securitizes credit card receivables has a
choice in how it classifies any retained securities based on its
intent and ability to hold or sell those investments. SFAS No. 134
gives the mortgage banking firms the opportunity to apply the same
intent-based accounting that is applied by other companies. SFAS
No. 134 is effective for the fiscal quarter beginning after
December 15, 1998. Management of the Company anticipates that the
implementation of SFAS No. 134 will not have a material impact on
the Company's financial condition or results of operations.
2. BUSINESS COMBINATIONS
ACQUISITION OF INTERCOUNTY MORTGAGE, INC.
On May 1, 1998, the Bank completed the purchase of the production
franchise of Intercounty Mortgage, Inc. ("IMI") from Resource
Bancshares Mortgage Group, Inc. ("RBMG"). The Bank paid
approximately $5.6 million for IMI's production franchise and fixed
assets. The business operates as a division of the Bank under the
name CFS Intercounty Mortgage Company originating and purchasing
residential loans for the Bank's portfolio and for sale in the
secondary market, primarily through six loan origination offices
located in New York, New Jersey, and Pennsylvania. Loan sales in
the secondary market are primarily on a servicing-released basis,
for which the Company earns servicing released premiums.
The transaction was accounted for under the purchase method. The
excess of cost over the fair value of net assets acquired
(goodwill) of approximately $5.1 million is being amortized over 5
years. The Company will assess the recoverability of goodwill by
determining whether the amortization of the goodwill over its
remaining life can be recovered through future operating cash flow
of the production franchise. The unamortized balance of goodwill
relating to the acquisition of IMI was approximately $4.4 million
at December 31, 1998.
ACQUISITION OF CENTURY INSURANCE AGENCY
On November 2, 1998 the Company completed the purchase of 100% of
the outstanding common stock of Century Insurance Agency, Inc.
("CIA") for approximately $1.2 million. CIA, which is headquartered
in Centereach, New York, provides automobile, homeowners and
casualty insurance to individuals and various lines of commercial
insurance to businesses. CIA operates as a wholly owned subsidiary
of the Company. The transaction was accounted for under the
purchase method. Goodwill of approximately $1.6 million is being
amortized over 10 years. The Company will assess the recoverability
of goodwill by determining whether the amortization of the goodwill
over its remaining life can be recovered through future operating
cash flow of CIA. The unamortized balance of goodwill relating to
the acquisition of CIA was approximately $1.6 million at December
31, 1998.
3. SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at December 31, are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
1998
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 78,017 141 (453) 77,705
Preferred stock 11,700 30 (140) 11,590
Corporate debt securities 19,850 - (166) 19,684
109,567 171 (759) 108,979
MBSs available for sale:
GNMA Certificates 430 4 - 434
FNMA Certificates 177,495 1,530 (258) 178,767
FHLMC Certificates 51,590 689 (112) 52,167
CMOs and REMICs 548,644 2,218 (1,958) 548,904
778,159 4,441 (2,328) 780,272
Total $ 887,726 4,612 (3,087) 889,251
1997
Debt and equity securities available for sale:
U.S. Government and agency obligations $ 115,466 285 (1,093) 114,658
Preferred stock 4,095 38 (10) 4,123
119,561 323 (1,103) 118,781
MBSs available for sale:
GNMA Certificates 943 39 - 982
FNMA Certificates 45,860 556 (531) 45,885
FHLMC Certificates 62,649 1,074 (85) 63,638
CMOs and REMICs 267,754 3,228 (888) 270,094
377,206 4,897 (1,504) 380,599
Total $ 496,767 5,220 (2,607) 499,380
Gross gains of approximately $1,737,000, $1,044,000 and
$1,948,000 for the years ended December 31, 1998, 1997 and 1996,
respectively, were realized on sales of securities available for
sale. Gross losses amounted to approximately $505,000, $1,064,000
and $1,577,000 for the years ended December 31, 1998, 1997, and
1996 respectively.
The Company's portfolio of MBSs available for sale has an
estimated weighted average expected life of approximately 5.5
years at December 31, 1998. At December 31, 1998, $242.6 million
of MBSs available for sale were adjustable-rate securities.
The Company's privately-issued CMOs and REMICs have generally
been underwritten by large investment banking firms with the
timely payment of principal and interest on these securities
supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of
credit or subordination techniques. Substantially all such
securities are rated AAA by one or more of the nationally
recognized securities rating agencies. These securities are
subject to certain credit-related risks normally not associated
with U.S. Government and agency mortgage- backed securities.
Among such risks is the limited loss protection generally
provided by the various forms of credit enhancements as losses in
excess of certain levels are not protected. Furthermore, the
credit enhancement itself is subject to the credit worthiness of
the enhancer. Thus, in the event a credit enhancer does not
fulfill its obligations, the MBS holder could be subject to risk
of loss similar to the purchaser of a whole loan pool. Management
believes that the credit enhancements are adequate to protect the
Company from losses, and therefore the Company has not provided
an allowance for losses on its privately issued MBSs.
U.S. Government and agency obligations at December 31, 1998 had
contractual maturities between April 30, 1999 and June 25, 2024.
Accrued interest receivable on securities available for sale
amounted to approximately $4,901,000 and $4,286,000 at December
31, 1998 and 1997, respectively.
Corporate debt securities at December 31, 1998 had contractual
maturities between March 22, 1999 and July 26, 1999.
On June 30, 1998, the Company transferred the then remaining
$138.2 million of MBSs and $45.4 million of debt securities held
to maturity to securities available for sale.
In August 1998, the Company securitized $105.7 million of
residential mortgage loans with FNMA. The resulting MBSs were
retained and are included in securities available for sale as of
December 31, 1998.
4. DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of debt securities held to maturity at
December 31, 1997 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized fair
(In thousands) Cost gains losses value
U.S. Government and agency obligations $ 21,014 70 (27) 21,057
Corporate debt securities 45,390 31 (106) 45,315
Total $ 66,404 101 (133) 66,372
Accrued interest receivable on debt securities held to maturity
amounted to approximately $667,000 at December 31, 1997.
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and
estimated fair values of MBSs held to maturity at December 31,
1997 are summarized as follows:
Gross Gross Estimated
Amortized unrealized unrealized Fair
(In thousands) Cost gains losses value
FNMA Certificates $ 61,492 258 (657) 61,093
FHLMC Certificates 27,472 465 (168) 27,769
CMOs and REMICs 74,093 821 (450) 74,464
Total $ 163,057 1,544 (1,275) 163,326
At December 31, 1997, $8.8 million, of the MBSs held to maturity
portfolio consists of adjustable-rate securities. Such securities
had an estimated fair value of $8.8 million.
Accrued interest receivable on MBSs held to maturity amounted to
approximately $1,025,000 at December 31, 1997.
6. LOANS receivable and loans held for sale
Loans receivable, net at December 31, are summarized as follows:
(In thousands) 1998 1997
First mortgage loans:
Principal balances:
One- to four-family $ 886,405 802,766
Multi-family 215,542 143,559
Commercial 163,935 148,745
Construction 2,731 2,263
Partially guaranteed by VA or insured by FHA 2,205 2,924
1,270,818 1,100,257
Less net deferred loan origination fees,
unearned discounts and unamortized premiums 966 (1,363)
Total first mortgage loans 1,271,784 1,098,894
Cooperative apartment loans, net 3,970 19,596
Other loans:
Consumer loans 17,473 14,413
Home equity loans 15,173 15,449
Other 2,280 2,429
Total other loans 34,926 32,291
1,310,680 1,150,781
Less allowance for loan losses (13,978) (12,528)
Total $1,296,702 1,138,253
Included in total loans are loans on which interest is not being
accrued and loans which have been restructured and for which
interest has been reduced or foregone. The principal balances of
these loans at December 31 are summarized as follows:
(In thousands) 1998 1997
Non-accrual loans $ 6,528 10,396
Restructured loans 1,857 2,136
Total $ 8,385 12,532
If interest income on non-accrual loans had been current in
accordance with the original terms, approximately $425,000,
$736,000 and $688,000 of interest income would have been recorded
for the years ended December 31, 1998, 1997 and 1996,
respectively. Approximately $117,000, $146,000 and $220,000 of
interest income was recognized on non-accrual loans for the years
ended December 31, 1998, 1997 and 1996, respectively. The Bank
has no obligation to fund any additional monies on these loans.
The amount of interest income that would have been recorded if
restructured loans had been performing in accordance with their
original terms (prior to being restructured) was approximately
$396,000, $197,000 and $305,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
In 1998, the Company sold $83.3 million of adjustable-rate
mortgage (ARM) loans previously held in portfolio in two separate
bulk sale transactions, which settled on December 30, 1998. The
Company recognized a net gain of $670,000 as a result of these
transactions. The Company sold $68.6 million of the ARM loans
servicing released, while $14.7 million of the ARM loans were
sold servicing retained. In connection with the latter
transaction, the Company recognized a servicing asset of
$168,000, which is included in other assets at December 31, 1998.
The servicing asset will be amortized in proportion to and over
the period of estimated net servicing income. The servicing
asset will be periodically assessed for impairment based on its
fair value.
In 1998, the Company securitized $105.7 million of residential
mortgage loans with FNMA. The Company retained all of the
securities in its available for sale portfolio, and is servicing
the underlying loans for FNMA. In 1998, the Company also sold
$14.0 million of cooperative apartment loans as part of its
ongoing efforts to dispose of this portion of its portfolio. The
Company recognized a $968,000 gain as a result of this
transaction.
Loans held for sale, which consisted of, primarily fixed-rate,
one-to four-family loans, were $54.2 million at December 31,
1998. The Bank originates most fixed rate loans for immediate
sale, primarily to private investors on a servicing released
basis. Generally, the sale of such loans is arranged at the time
of application through best effort commitments. During 1998, the
Company sold $515.8 million in residential mortgage loans to
third party investors on a servicing released basis. The Company
recognized $10.3 million in servicing released premiums, fees,
and net gains, related to these sales.
The Bank services for investors first mortgage loans which are
not included in the accompanying consolidated statements of
financial condition. The unpaid principal balances of such loans
were approximately $269.1 million and $174.9 million at December
31, 1998 and 1997, respectively.
The geographical location of the Bank's loan portfolio is
primarily within the New York metropolitan area.
Accrued interest receivable on loans amounted to approximately
$7,207,000 and $6,443,000 at December 31, 1998 and 1997,
respectively.
7. ALLOWANCE FOR LOAN LOSSES
Impaired loans and related reserves have been identified and
calculated in accordance with the provisions of SFAS No. 114. The
total allowance for loan losses has been determined in accordance
with the provisions of SFAS No. 5, "Accounting for
Contingencies." As such, the Company has provided amounts for
anticipated losses that exceed the immediately identified losses
associated with loans that have been deemed impaired. Provisions
have been made and reserves established accordingly, based upon
experience and expectations, for losses associated with the
general population of loans, specific industry and loan types,
including residential and consumer loans which are not subject to
the provisions of SFAS No. 114.
The following table summarizes information regarding the
Company's impaired loans at December 31:
1998 1997
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
Residential loans:
With a related allowance $ 982 51 931 - - -
Without a related allowance 3,164 - 3,164 4,232 - 4,232
Total residential loans 4,146 51 4,095 4,232 - 4,232
Multi-family and non-residential loans:
With a related allowance 1,128 247 881 970 207 763
Without a related allowance 1,254 - 1,254 5,194 - 5,194
Total multi-family and non-residential
loans 2,382 247 2,135 6,164 207 5,957
Total impaired loans $ 6,528 298 6,230 10,396 207 10,189
The Company's average recorded investment in impaired loans for
the years ended December 31, 1998 and 1997 was $7.9 million and
$10.3 million, respectively. Interest income recognized on
impaired loans, which was not materially different from cash-
basis interest income, amounted to approximately $117,000,
$146,000 and $220,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
Activity in the allowance for loan losses for the years ended
December 31, is as follows:
(In thousands) 1998 1997 1996
Balance at beginning of year $ 12,528 10,704 8,573
Charge-offs:
One- to four-family (435) (964) (771)
Cooperative (256) (370) (524)
Multi-family (708) - (30)
Non-residential and other (935) (352) (560)
Total charge-offs (2,334) (1,686) (1,885)
Recoveries 1,119 760 891
Net charge-offs (1,215) (926) (994)
Provision for loan losses 2,665 2,750 3,125
Balance at end of year $ 13,978 12,528 10,704
8. PREMISES AND EQUIPMENT
Premises and equipment at December 31, are summarized as follows:
(In thousands) 1998 1997
Land $ 1,720 720
Buildings and improvements 18,679 7,234
Leasehold improvements 17,136 19,921
Furniture, fixtures and equipment 13,128 7,554
Accumulated depreciation (11,454) (8,367)
Total $39,209 27,062
In December 1997, the Company purchased an office building and
land in Westbury, New York for its new administrative
headquarters. The purchase was consummated under the terms of a
lease agreement and Payment-in-lieu-of-Tax ("PILOT") agreement
with the Town of Hempstead Industrial Development Agency ("IDA")
(see note 16). The Company completed improvements to the building
and began using the building as its corporate headquarters in
July 1998. The cost of the land and building, including
improvements was $12.8 million. The building and improvements
are being depreciated on a straight-line basis over thirty-nine
years.
In December 1998 the Bank entered into a contract of sale for its
former administrative headquarters, located in Woodhaven, New
York. The sale is expected to close in the first quarter of
1999. Concurrent with the sale of the property, which consists of
land, buildings and building improvements, the Bank will lease
back a portion of the building to continue its current use as a
traditional retail banking branch office and certain
administrative functions. Upon consummation, the transaction will
be accounted for as a sale-leaseback, and the lease is expected
to be accounted for as an operating lease. At December 31, 1998,
the carrying amount of the land, buildings and building
improvements was approximately $1.7 million.
In January 1999 the Bank also entered into a contract of sale for
another administrative office, consisting of land, buildings, and
building improvements, located in Woodhaven, New York. The sale
is also expected to close in the first quarter of 1999. At
December 31, 1998, the carrying amount of the land, buildings and
building improvements was approximately $768,000.
Depreciation and amortization of premises and equipment, included
in occupancy and equipment expense, was approximately $3.1
million, $1.6 million, and $878,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
9. OTHER ASSETS
Other assets at December 31, are summarized as follows:
(In thousands) 1998 1997
Remittances due from custodians $10,037 2
Net deferred tax asset (note 12) 5,424 6,201
Excess of cost over the fair value of
net assets acquired 6,193 321
Other 15,613 8,590
Total $37,267 15,114
10. DEPOSITS
Deposits at December 31, are summarized as follows:
Weighted
average
(Dollars in thousands) Amount Percent rates
1998
Savings accounts $ 547,264 31.8% 3.30%
Money market 58,984 3.4 3.21
NOW 130,288 7.6 1.28
Demand 84,425 4.9 -
820,961 47.7 2.63
Certificates of deposit 901,749 52.3 5.60
Total $1,722,710 100.0% 4.18%
1997
Savings accounts $ 378,745 27.7% 2.58%
Money market 51,128 3.7 3.44
NOW 98,108 7.2 1.40
Demand 55,448 4.1 -
583,429 42.7 2.21
Certificates of deposit 781,583 57.3 6.05
Total $1,365,012 100.0% 4.41%
The aggregate amount of certificates of deposit in denominations
of $100,000 or more amounted to approximately $84,509,000 and
$64,544,000 at December 31, 1998 and 1997, respectively.
Scheduled maturities of certificates of deposit at December 31,
are summarized as follows:
1998 1997
(Dollars in thousands) Amount Percent Amount Percent
Within six months $553,835 61.4% $345,302 44.2%
Six months to one year 214,041 23.7 250,405 32.0
One to two years 62,756 7.0 105,903 13.6
Over two years 71,117 7.9 79,973 10.2
Total $901,749 100.0% $781,583 100.0%
The deposits of the Bank are insured up to $100,000 per depositor
(as defined by law and regulation) by the Savings Association
Insurance Fund ("SAIF") which is administered by the Federal
Deposit Insurance Corporation ("FDIC"). Deposits of certain other
financial institutions are insured by the Bank Insurance Fund
("BIF"). On September 30, 1996, Congress passed and the President
signed legislation that recapitalized the SAIF. The legislation
required SAIF-insured institutions to pay a special one-time
assessment to recapitalize the SAIF. The Bank's special one-time
insurance assessment amounted to $6.8 million. Beginning January
1, 1997, the schedule of SAIF assessment rates became the same as
the schedule of BIF assessment rates. The Act also required BIF-
insured institutions to pay a portion of the interest due on
Financial Corporation ("FICO") bonds beginning January 1, 1997.
Beginning January 1, 2000, or the date at which no thrift
institution continues to exist, BIF-insured institutions will be
required to pay their full pro rata share of FICO payments.
11. BORROWED FUNDS
Borrowed funds at December 31, are summarized as follows:
(Dollars in thousands) 1998 1997
Fixed-rate advances from the FHLB of New York:
5.74% to 6.19% due in 1998 $ - 227,000
4.25% to 5.36% due in 1999 104,200 20,000
5.17% to 5.74% due in 2000 62,000 -
5.29% due in 2001 20,000 -
5.66% due in 2002 20,000 -
5.62% due in 2003 20,000 -
5.00% to 5.38% due in 2008 99,000 -
325,200 247,000
Securities sold under agreements to repurchase:
Fixed rate agreements:
5.72% to 6.250% due in 1998 - 176,628
5.25% to 5.45% due in 1999 72,290 -
6.27% due in 2002 16,400 16,400
88,690 193,028
Holding Company Obligated Mandatorily
Redeemable Capital Securities of Haven
Capital Trust I at 10.46% due 02/01/27 24,984 24,984
Debt of Employee Stock Ownership
Plan (note 14) 1,472 1,782
Total $440,346 466,794
At December 31, 1998 and 1997, pursuant to a physical pledge
collateral agreement, advances from the FHLB of New York were
collateralized by MBSs with an estimated fair value of
approximately $467,626,000 and $231,131,000, respectively. At
December 31, 1998 and 1997, advances from the FHLB of New York
were also collateralized by U.S. Government and agency
obligations with an estimated fair value of approximately
$6,241,000 and $81,446,000, respectively. At December 31, 1998
the Bank has unused lines of credit totalling $106.8 million with
the FHLB of New York.
At December 31, 1998, all securities sold under agreements to
repurchase were delivered to primary dealers who arranged the
transactions. The securities will remain registered in the name
of the Bank and will be returned at maturity. During the years
ended December 31, 1998 and 1997, securities sold under
agreements to repurchase averaged $142,348,000 and $172,310,000,
respectively. The maximum amounts outstanding at any month-end
were $191,291,000 and $229,280,000, respectively. The average
interest rate paid during the years ended December 31, 1998 and
1997 were 5.71% and 5.68%, respectively. MBSs with an estimated
fair value of approximately $99,966,000 and $194,227,000 were
pledged as collateral at December 31, 1998 and 1997,
respectively.
On February 12, 1997, Haven Capital Trust I, a trust formed under
the laws of the State of Delaware (the "Trust"), issued $25
million of 10.46% capital securities. The Holding Company is the
owner of all the beneficial interests represented by common
securities of the Trust. The Trust exists for the sole purpose
of issuing the Trust securities (comprised of the capital
securities and the common securities) and investing the proceeds
thereof in the 10.46% junior subordinated deferrable interest
debentures issued by the Holding Company on February 12, 1997,
which are scheduled to mature on February 1, 2027. Interest on
the capital securities is payable in semiannual installments,
commencing on August 2, 1997. The Trust securities are subject to
mandatory redemption (i) in whole, but not in part upon repayment
in full, at the stated maturity of the junior subordinated
debentures at a redemption price equal to the principal amount
of, plus accrued interest on, the junior subordinated debentures,
(ii) in whole but not in part, at any time prior to February 1,
2007, contemporaneously with the occurrence and continuation of a
special event, defined as a tax event or regulatory capital
event, at a special event redemption price equal to the greater
of 100% of the principal amount of the junior subordinated
debentures or the sum of the present values of the principal
amount and premium payable with respect to an optional redemption
of the junior subordinated debentures on the initial optional
repayment date to and including the initial optional prepayment
date, discounted to the prepayment date plus accrued and unpaid
interest thereon, and (iii) in whole or in part, on or after
February 1, 2007, contemporaneously with the optional prepayment
by the Holding Company of the junior subordinated debentures at a
redemption price equal to the optional prepayment price. Subject
to prior required regulatory approval, the junior subordinated
debentures are redeemable during the 12-month periods beginning
on or after February 1, 2007, at 105.230% of the principal
amounts outstanding, declining ratably each year thereafter to
100%, plus accrued and unpaid interest thereon to the date of
redemption. Deferred issuance costs are being amortized over ten
years.
12. FEDERAL, STATE AND LOCAL TAXES FEDERAL INCOME TAXES
The Company and its subsidiaries file a consolidated Federal
income tax return on a calendar-year basis. Under Section 593 of
the Internal Revenue Code of 1986, as amended ("Code"), prior to
January 1, 1997 thrift institutions such as the Bank which met
certain definitional tests primarily relating to their assets and
the nature of their business, were permitted to establish a tax
reserve for bad debts. Such thrift institutions were also
permitted to make annual additions to the reserve, to be deducted
in arriving at their taxable income within specified limitations.
The Bank's deduction was computed using an amount based on the
Bank's actual loss experience ("experience method"), or a
percentage equal to 8% of the Bank's taxable income ("PTI
method"). Similar deductions for additions to the Bank's bad
debt reserve were also permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 ("1996 Act"),
signed into law in August 1996, Section 593 of the Code was
amended. The Bank will be unable to make additions to the tax
bad debt reserves but will be permitted to deduct bad debts as
they occur. Additionally, the 1996 Act required institutions to
recapture (that is, include in taxable income) the excess of the
balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987 ("base year").
The Bank's federal tax bad debt reserves at December 31, 1995
exceeded its base year reserves by $2.7 million which will be
recaptured into taxable income ratably over a six year period.
This recapture was frozen for 1996 and 1997, whereas, one-sixth
of the excess reserves was recaptured into taxable income for
1998. The base year reserves will be subject to recapture, and
the Bank could be required to recognize a tax liability, if (i)
the Bank fails to qualify as a "bank" for Federal income tax
purposes; (ii) certain distributions are made with respect to the
stock of the Bank; (iii) the Bank uses the bad debt reserves for
any purpose other than to absorb bad debt losses; and (iv) there
is a change in Federal tax law. Management is not aware of the
occurrence of any such event.
In response to the Federal legislation, the New York State and
New York City tax law has been amended to prevent the recapture
of existing tax bad debt reserves and to allow for the continued
use of the PTI method to determine the bad debt deduction in
computing New York State and City tax liability.
The components of the net deferred tax assets at December 31, are
as follows:
(In thousands) 1998 1997
Deferred tax assets:
Difference between financial statement
credit oss provision and tax
bad-debt deduction $ 5,952 5,872
Non-accrual interest and non-performing
loan expense 762 1,268
Other 2,128 1,211
Total deferred tax assets 8,842 8,351
Deferred tax liabilities:
Recapture of Tax Bad Debt Reserve (781) (937)
Securities marked to market for
financial statement purposes (580) (942)
Basis difference of fixed assets (131) (145)
Other (1,926) (126)
Total deferred tax liabilities (3,418) (2,150)
Net deferred tax assets $ 5,424 6,201
Income tax expense for the years ended December 31, are
summarized as follows:
(In thousands) 1998 1997 1996
Current:
Federal $ 1,486 6,433 3,391
State and local 301 1,245 2,813
1,787 7,678 6,204
Deferred:
Federal 741 (760) 906
State and local 398 (780) (676)
1,139 (1,540) 230
Total income tax expense $ 2,926 6,138 6,434
The following is a reconciliation of statutory Federal income tax
expense to the combined effective tax expense for the years ended
December 31:
(In thousands) 1998 1997 1996
Statutory Federal income tax expense $ 3,877 6,027 5,392
State and local income taxes, net of
Federal income tax benefit 455 301 1,410
Change in deferred tax asset
valuation allowance - - (800)
Reversal of prior years taxes (785) - -
Other, net (621) (190) 432
Total income tax expense $ 2,926 6,138 6,434
The Company had an $800,000 valuation allowance for its deferred
tax asset as of December 31, 1995, related to potential New York
State and New York City deferred tax assets. Upon review of the
Company's deferred tax assets as of December 31, 1996, the
Company determined that the valuation allowance was no longer
required. The Company will continue to review the recognition
criteria as set forth in SFAS No. 109, "Accounting for Income
Taxes" on a quarterly basis and determine the need for a
valuation allowance accordingly.
STATE AND LOCAL TAXES
The Company and subsidiaries file combined New York State
franchise tax and New York City financial corporation tax returns
on a calendar-year basis. The Company's annual tax liability for
each year is the greater of a tax on (i) allocated entire net
income; (ii) located alternative entire net income; (iii)
allocated assets to New York State and/or New York City; or (iv)
a minimum tax. Operating losses cannot be carried back or
carried forward for New York State or New York City tax purposes.
The Company expects to determine its 1998 New York State and New
York City tax liability based on alternative entire net income.
The Company has provided for New York State and New York City
taxes based on entire net income for the years ended December 31,
1997 and 1996. The Company will also file a New Jersey and
Connecticut tax return for 1998 due to the opening of in-store
supermarket branches.
13. EMPLOYEE BENEFIT PLANS AND POST-RETIREMENT BENEFITS
RETIREMENT PLAN
The Company has a qualified, non-contributory defined benefit
pension plan covering substantially all of its eligible
employees. The Company's policy is to fund pension costs in
accordance with the minimum funding requirements of the Employee
Retirement Income Security Act of 1974, and to provide the plan
with sufficient assets with which to pay pension benefits to plan
participants. Based on an evaluation of the Retirement Plan in
1996, the Bank concluded that future benefit accruals under the
Retirement Plan would cease or "freeze" effective July 1, 1996.
The Bank recognized a curtailment gain of approximately $266,000
as of July 1, 1996. The Bank made a cash contribution of $352,000
to the plan in 1997. There were no contributions to the Plan in
1998.
The following are disclosures related to the Plan as determined
by the Plan's actuary in accordance with SFAS No. 87 and SFAS No.
132.
The following is a reconciliation of the projected benefit
obligation for the years ended December 31, 1998 and 1997,
respectively:
(In thousands) 1998 1997
Projected benefit obligation,
beginning of year $ 8,519 7,649
Interest cost 569 557
Actuarial loss 202 761
Benefits paid (532) (448)
Projected benefit obligation,
end of year $ 8,758 8,519
The following is a reconciliation of the change in fair value of
plan assets for the years ended December 31, 1998 and 1997,
respectively:
(In thousands) 1998 1997
Fair value of plan assets,
beginning of year $ 8,819 8,169
Actual return on plan assets 1,228 747
Contributions - 351
Benefits paid (532) (448)
Fair value of plan assets, end
of year $ 9,515 8,819
The following is a reconciliation of the funded status of the
plan as of December 31, 1998 and 1997, respectively:
(In thousands) 1998 1997
Pension benefit obligation
Accumulated benefit obligation $ 8,758 8,519
Additional benefits based on
estimated future salary levels - -
Projected benefit obligation 8,758 8,519
Fair value of plan assets 9,515 8,819
Funded status 757 300
Unrecognized net gain (261) (4)
Prepaid pension cost $ 496 296
The following is a reconciliation of net periodic pension
(benefit) cost for the years ended December 31, 1998, 1997 and
1996:
(In thousands) 1998 1997 1996
Service cost $ - - 211
Interest cost 569 557 597
Expected return on plan assets (768) (746) (714)
Net amortization and deferral - - 2
Net periodic pension (benefit) cost $ (199) (189) 96
Actuarial assumptions used to account for the plan include the
following:
1998 1997 1996
Discount rate 6.75% 6.75% 7.00%
Expected long-term rate of return 9.00% 9.00% 9.00%
Rate of increase in compensation levels NA NA 5.00%
THRIFT INCENTIVE SAVINGS PLAN
The Bank maintains a 401(k) thrift incentive savings plan which
provides for employee contributions on a pre-tax basis up to a
maximum of 16% of total compensation, with matching contributions
to be made by the Bank equal to 25% of employee contributions,
not to exceed employee contributions greater than 6% of total
compensation. The Bank matched employee contributions which
totaled $234,000 and $199,000 for the years ended December 31,
1998 and 1997, and $120,000 for the period July 1, 1996
(resumption of employer match) to December 31,1996.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
In 1996, the Bank implemented a non-qualified supplemental
executive retirement plan ("SERP") for the President and Chief
Executive Officer. This plan provides supplemental benefits for
the President and Chief Executive Officer equal to the benefits
he would have received under the Bank's Retirement Plan, 401(k)
Plan and ESOP, had the federal income tax law limitations on the
accrual of benefits under these plans not been applicable. The
SERP is an unfunded plan. During 1998, 1997 and 1996, the Bank
accrued $180,000, $50,000 and $132,000, respectively, for the
SERP. At January 1, 1998 and 1997, the accumulated benefit
obligation was $332,000 and $245,000, respectively. At January 1,
1998 and 1997, the projected benefit obligation of the plan was
$1,320,000 and $1,233,000, respectively.
The Bank also maintains a non-qualified defined benefit SERP for
the former Chairman of the Board. The SERP is an unfunded plan.
The SERP provides for an annual retirement benefit of $120,000
for 10 years after retirement which occurred in 1995. The SERP
also provides for a lump sum benefit of $1.2 million payable to
the estate of the former Chairman of the Board in the event of
his death prior to retirement, or in the event of a hostile
change in control after retirement but prior to the payment of
the entire benefit; any unpaid benefit shall be paid in a lump
sum. The Company had accrued the entire $1.2 million liability
under the unfunded plan through December 31, 1995.
POST-RETIREMENT LIFE INSURANCE BENEFITS
The Company provides life insurance coverage to retirees under an
unfunded plan. Life insurance coverage in the first year of
retirement is equal to three times annual pay at retirement,
reduced by 10% (the "reduction amount"). For the next four
consecutive years, life insurance coverage will be reduced each
year by the reduction amount. The maximum benefit will be $50,000
on the earlier of: a) the fifth anniversary of retirement; or b)
attaining age 70.
The following are disclosures related to the Company's post-
retirement plan as provided by the Plan's actuary in accordance
with SFAS No.s 106 and 132.
The following is a reconciliation of the accumulated post-
retirement benefit obligation ("APBO") for the years ended
December 31, 1998 and 1997:
(In thousands) 1998 1997
APBO, beginning of year $ 1,268 852
Service cost 63 55
Interest cost 85 77
Actuarial loss 38 293
Benefits paid (9) (9)
APBO, end of year $ 1,445 1,268
The following is a reconciliation of the funded status of the
plan as of December 31, 1998 and 1997, respectively:
(In thousands) 1998 1997
APBO - Retirees and dependents $ 632 598
APBO - Actives fully eligible to retire 278 251
APBO - Actives not yet fully eligible
to retire 535 419
Projected benefit obligation 1,445 1,268
Fair value of plan assets - -
Funded status (1,445) (1,268)
Unrecognized transition liability 278 303
Unrecognized net loss 563 555
Unrecognized prior service cost (78) (88)
Accrued post-retirement benefit liability $ (682) (498)
The following is a reconciliation of net periodic post-retirement
benefit cost for the years ended December 31, 1998, 1997 and
1996:
(In thousands) 1998 1997 1996
Service cost $ 63 55 29
Interest cost 85 77 59
Amortization of transition obligation 25 25 25
Amortization of unrecognized gain or loss 31 28 9
Amortization of unrecognized prior service
liability (10) (4) -
Net periodic post-retirement cost $ 194 181 122
Actuarial assumptions used to account for the plan include the
following:
1998 1997 1996
Discount rate 6.50% 6.75% 7.50%
Rate of increase in compensation
levels 4.50% 4.50% 5.00%
14. STOCK PLANS
EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
The Bank established for eligible employees an Employee Stock
Ownership Plan ("ESOP") in connection with the Conversion. The
ESOP borrowed $3.5 million from an unrelated third party lender
and purchased 694,312 common shares issued in the Conversion. The
Bank is expected to make scheduled cash contributions to the ESOP
sufficient to service the amount borrowed over a period not to
exceed 10 years. The unpaid balance of the ESOP loan is included
in borrowed funds and the unamortized balance of unearned
compensation is shown as unallocated common stock held by the
ESOP reflected as a reduction of stockholders' equity. As of
December 31, 1998, total contributions to the ESOP which were
used to fund principal and interest payments on the ESOP debt
totaled approximately $2,967,000. At December 31, 1998, the loan
had an outstanding balance of $1,472,000 and an interest rate of
7.06%. The loan, as amended on December 29, 1995, is payable in
thirty-two equal quarterly installments beginning December 1995
and ending September 2003. The loan bears interest at a floating
rate based on the federal funds rate plus 250 basis points.
Dividends declared on common stock held by the ESOP which have
been allocated to the account of a participant are allocated to
the account of such participant. Dividends declared on common
stock held by the ESOP and not allocated to the account of a
participant are used to repay the ESOP loan. The Company recorded
$922,000, $1,184,000 and $983,000 of ESOP expense for the years
ended December 31, 1998, 1997 and 1996, respectively. For the
years ended December 31, 1998, 1997 and 1996, ESOP expense was
based on the fair market value of the shares allocated in
accordance with the AICPA SOP 93-6. At December 31, 1998, there
were 305,810 shares remaining for future allocation, of which
61,445 shares will be allocated for the 1998 year in the first
quarter of 1999.
RECOGNITION AND RETENTION PLANS
The Bank has established several Recognition and Retention Plans
("RRPs") which purchased in the aggregate 297,562 shares of
common stock in the Conversion. The Bank contributed $1.5 million
to fund the purchase of the RRP shares. In 1995, the RRP for
officers and other key employees was amended to increase the
number of shares of common stock which may be granted by 19,836
shares and such shares were contributed to the RRP from treasury
stock. During 1996, the remaining previously unallocated shares
totaling 17,202 were awarded to directors and officers. In 1997,
the RRP for directors was amended to increase the number of
shares of common stock which may be granted by 9,916 shares and
such shares were contributed to the RRP from treasury stock. The
fair market value of these shares at the dates of the awards will
be amortized as compensation expense as participants become
vested. Participants generally become vested over a three or
five year period beginning on the date of the award. The
unamortized cost, which is comparable to deferred compensation,
is reflected as a reduction of stockholders' equity. For the
years ended December 31, 1998, 1997 and 1996, respectively,
$200,000, $168,000 and $409,000 of expense has been recognized.
STOCK OPTION AND INCENTIVE PLANS
In 1993, the Holding Company adopted stock option plans for the
benefit of directors (the "1993 Directors Plan") and for officers
and other key employees (the "1993 Stock Plan") of the Bank. The
number of shares of common stock reserved for issuance under the
stock option plans was equal to 10% of the total number of shares
of common stock issued pursuant to the Bank's Conversion to the
stock form of ownership. In 1995, the 1993 Stock Plan was amended
to increase the number of shares for which stock options may be
granted by 69,430 shares. All options awarded to employees vest
over a three year period beginning one year from the date of
grant. The option exercise price cannot be less than the fair
market value of the underlying common stock as of the date of the
option grant, and the maximum option term cannot exceed ten
years. The stock options awarded to directors become exercisable
one year from the date of grant. In 1996, the remaining 11,770
options were granted from the 1993 Stock Plan and the remaining
37,204 options were granted from the 1993 Directors Plan. In
1997, the 1993 Directors Plan was amended to increase the number
of shares for which stock options may be granted by 29,754
shares. None of these shares have been granted as of December
31, 1998.
In 1996, the Holding Company adopted the 1996 Stock Incentive
Plan which provided 420,000 shares for the grant of options and
restricted stock awards. On April 24, 1996, an aggregate of 3,952
shares of restricted stock were granted to directors which vested
six months from the date of grant and an aggregate of 55,978
shares were granted to officers and employees on May 23, 1996,
which vest over a three year period beginning one year from the
date of grant. In addition, an aggregate of 232 shares were
granted to two new directors on October 1, 1996 which vested on
December 31, 1996. In 1997, an aggregate of 3,648 shares of
restricted stock were granted to directors which vested six
months from the date of grant and an aggregate of 5,340 shares
were granted to officers and employees which vest over a three
year period beginning one year from the date of grant. In 1998,
an aggregate of 14,384 shares were granted to officers and
employees which vest over a three-year period beginning one year
from the date of grant. Such shares were recorded as unearned
compensation at their fair market value on the date of the award
(which is reflected as a reduction of stockholders' equity), to
be amortized to expense over the vesting period. During 1998,
1997 and 1996, an aggregate of 134,200, 34,100 and 321,600
options, respectively, were granted to directors and officers
under the 1996 Stock Incentive Plan, which vest over a three year
period beginning one year from the date of grant. In 1997,
effective upon shareholder approval, the 1996 Stock Incentive
Plan was amended to increase the number of shares for which
options and restricted stock awards may be granted by 41,998
shares.
The following table summarizes certain information regarding the
stock option plans:
Number of shares of
Non- Non- Weighted
Incentive Statutory Qualified Average
Stock Stock Options to Exercise
Options Options Directors Price
Balance outstanding at December 31, 1995 252,236 448,332 260,358 5.42
Granted 182,470 38,900 149,204 12.92
Forfeited - - - -
Exercised (18,812) - - 5.00
Balance outstanding at December 31, 1996 415,894 487,232 409,562 7.54
Granted 14,100 - 20,000 17.09
Forfeited - - (12,000) 12.14
Exercised (16,594) - (98,388) 6.61
Balance outstanding at December 31, 1997 413,400 487,232 319,174 7.90
Granted 134,200 - - 22.91
Forfeited - - - -
Exercised (23,414) - (37,194) 8.01
Balance outstanding at December 31, 1998 524,186 487,232 281,980 9.44
Shares exercisable at December 31, 1998 327,672 487,232 217,943 7.12
The fair value of each share grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1998,
1997 and 1996, respectively: dividend yield of 2.14% in 1998,
1.45% in 1997 and 1.93% in 1996; expected volatility rates of
28.05% to 39.24% in 1998, 26.95% in 1997 and 16.85% in 1996;
risk-free interest rates of 4.59% in 1998, 5.68% to 5.81% in 1997
and 6.38% in 1996; and expected lives of 3 years for the 1993
Stock Plan, 8 years for the 1993 Directors Plan, 3 years for
grants to officers and employees under the 1996 Stock Incentive
Plan and 8 years for grants to directors under that plan.
Had compensation cost for the Company's three stock-based
compensation plans been determined consistent with SFAS No. 123,
the Company's net income and net income per common share would
have been reduced to the pro forma amounts indicated below for
the years ended December 31:
(In thousands, except per share data) 1998 1997 1996
Net income: As reported $ 8,150 11,083 9,425
Pro forma 7,560 10,557 9,135
Net income per common share:
Basic As reported $ 0.95 1.32 1.13
Pro forma 0.88 1.25 1.10
Diluted As reported $ 0.89 1.24 1.08
Pro forma 0.83 1.18 1.05
15. EARNINGS PER SHARE
The computation of basic and diluted EPS for the years ended
December 31, are presented in the following table.
<CAPTION
(Dollars in thousands, except
share data) 1998 1997 1996
Numerator for basic and diluted
earnings per share-net income $ 8,150 $ 11,083 $ 9,425
Denominator for basic earnings per
share-weighted average shares 8,596,884 8,420,321 8,310,178
Effect of dilutive options 561,919 493,437 378,502
Denominator for diluted earnings
per share " weighted-average
number of common shares and
dilutive potential common shares 9,158,803 8,913,758 8,688,680
Basic earnings per share $0.95 $1.32 $1.13
Diluted earnings per share $0.89 $1.24 $1.08
16. COMMITMENTS and CONTINGENCIES
LEASE COMMITMENTS
At December 31, 1998, the Company was obligated under several
noncancelable operating leases on property used for office space
and banking purposes. Several of the leases contain escalation
clauses which provide for increased rentals, primarily based upon
increases in real estate taxes. Rent expense under these leases
was approximately $4,168,000 , $1,742,000 and $404,000 for the
years ended December 31, 1998, 1997 and 1996, respectively. The
projected minimum rental payments under the terms of the
noncancelable leases at December 31, 1998 are as follows:
Years ending December 31,
(In thousands)
1999 $ 5,018
2000 4,982
2001 4,308
2002 4,163
2003 2,404
Thereafter 1,062
$21,937
In September 1996, the Bank entered into an agreement to open
approximately 44 full-service bank branches in Pathmark
supermarkets throughout New York City, Long Island, Westchester
and Rockland counties by mid-1998. In September 1997, the Bank
announced that it had entered into licensing agreements with
ShopRite Stores under which it will have the right to open in-
store branches in all new or renovated ShopRite supermarkets in
New Jersey and Connecticut. Fifty-seven supermarket branches have
opened through December 31, 1998, and the leases related thereto
are reflected in the table above.
Under the IDA and PILOT agreements discussed in note 8, the Bank
assigned the building and land at its Westbury headquarters to
the IDA, is subleasing it for $1 per year for a 10 year period
and will repurchase the building for $1 upon expiration of the
lease term in exchange for IDA financial assistance.
LOAN COMMITMENTS
The Company had outstanding commitments totaling $164.6 million
to originate loans at December 31, 1998, of which $61.3 million
were fixed-rate loans and $103.3 million were variable rate
loans. For fixed-rate loan commitments at December 31, 1998, the
interest rates on mortgage loans ranged from 6.13 % to 10.25 %.
The standard commitment term for these loans is 45 days. For
other consumer fixed-rate loan commitments, interest rates ranged
from 7.00% to 9.75% with the standard term of the commitment of
30 days. Loan commitments are made at current rates and no
material difference exists between book and market values of such
commitments.
For commitments to originate loans, the Company's maximum
exposure to credit risk is represented by the contractual amount
of those instruments. Those commitments represent ultimate
exposure to credit risk only to the extent that they are
subsequently drawn upon by customers. The Company uses the same
credit policies and underwriting standards in making loan
commitments as it does for on-balance-sheet instruments. For loan
commitments, the Company would generally be exposed to interest
rate risk from the time a commitment is issued with a defined
contractual interest rate.
The Company delivers, primarily fixed-rate, one- to four-family
mortgage loans to investors in the secondary market under "best
efforts" commitments. Loans to be sold are generally committed
at the time the borrower's mortgage interest rate is "locked-in".
At December 31, 1998, the Company had $45.3 million of "locked-
in" fixed rate one- to four-family mortgage loans. The best
efforts commitment term is generally 70 days from the "lock-in"
date.
In connection with the securitization and sale of $48.6 million
of cooperative apartment loans in 1994, a letter of credit
totaling $6.8 million was established with the FHLB. The letter
of credit provides a level of protection of approximately 14% to
the buyer against losses on the cooperative apartment loans sold
behind a pool insurance policy the Bank purchased which provides
a level of protection of approximately 20%. The letter of credit
totalled $6.8 million at December 31, 1998.
INTEREST RATE CAPS
During the year ended December 31, 1995, the Company, in order to
hedge a portion of the borrowings to fund a $75 million leverage
transaction, purchased an interest rate cap on a $25.0 million
notional principal amount on which it received a payment, based
on the notional principal amount, equal to the three month LIBOR
rate in excess of 8% on any reset date for a three year period,
which ended on September 30,1998. The premium paid for the cap,
$133,000, was carried in other assets and was fully amortized to
interest expense over the term of the contract. At December 31,
1997 and 1996, the three month LIBOR was 5.81% and 5.56%,
respectively. Interest expense on borrowed funds was increased
by approximately $34,000, $44,000 and $44,000 during the years
ended December 31, 1998, 1997 and 1996, respectively, as a result
of this agreement.
LITIGATION AND LOSS CONTINGENCY
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At December 31,
1998, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12,900,000 in actual damages and an additional
$12,900,000 of unspecified damages. The 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 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.
17. STOCKHOLDERS' EQUITY
At the time of its conversion to a stock savings bank, the Bank
established a liquidation account in an amount equal to its total
retained earnings as of June 30, 1993. The liquidation account
will be maintained for the benefit of eligible account holders
who continue to maintain their accounts at the Bank, after the
conversion. The liquidation account will be reduced annually to
the extent that eligible account holders have reduced their
qualifying deposits. Subsequent increases will not restore an
eligible account holder's interest in the liquidation account. In
the event of a complete liquidation, each eligible account holder
will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted
qualifying balances for accounts then held. The balance of the
liquidation account was approximately $15.0 million at December
31, 1998.
Subsequent to the conversion, the Bank may not declare or pay
cash dividends on or repurchase any of its shares of common
stock, if the effect would cause stockholders' equity to be
reduced below the amount required for the liquidation account,
applicable regulatory capital maintenance requirements or if such
declaration and payment would otherwise violate regulatory
requirements. Office of Thrift Supervision ("OTS") regulations
provide that an institution that exceeds all fully phased-in
capital requirements, before and after a proposed capital
distribution could, after prior notice but without prior approval
of the OTS, make capital distributions during the calendar year
up to 100% of net income to date during the calendar year plus
the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased- in capital
requirements) at the beginning of the calendar year period. Any
additional capital distributions would require prior regulatory
approval. Unlike the Bank, the Company is not subject to these
regulatory restrictions on the payment of dividends to its
stockholders. However, the source of future dividends may depend
upon dividends from the Bank.
STOCK SPLIT
The Company declared a 2-for-1 common stock split which was
distributed on November 28, 1997 in the form of a stock dividend
to holders of record as of October 23, 1997.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are
required to maintain regulatory capital in the form of a
"tangible capital requirement," a "core capital requirement,"
and a "risk- based capital requirement."
The Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
As of December 31, 1998, the Bank has been categorized as "well
capitalized" by the OTS under the regulatory framework for prompt
corrective action. There are no conditions or events since that
notification that management believes have changed the
institution's category. The following table sets forth the
required ratios and amounts, and the Bank's actual capital
amounts, and ratios at December 31:
To Be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
(Dollars in thousands) Amount Ratio(3) Amount Ratio Amount Ratio
1998
Tangible Capital $130,597 5.43% $ 48,087 2.00% N/A N/A
Core Capital (1) 130,597 5.43 96,173 4.00 $120,216 5.00%
Risk-based Capital (2) 144,104 11.96 96,404 8.00 120,505 10.00
1997
Tangible Capital $125,573 6.42% $ 29,333 1.50% N/A N/A
Core Capital (1) 125,573 6.42 58,667 3.00 $ 97,778 5.00%
Risk-based Capital (2) 136,860 14.04 77,964 8.00 97,455 10.00
(1) Under the OTS's prompt corrective action regulations, the
core capital requirement was effectively increased to 4.00% since
OTS regulations stipulate that as of that date an institution
with less than 4.00% core capital will be deemed to be classified
as "undercapitalized."
(2) The OTS adopted a final regulation which incorporates an
interest rate risk component into its existing risk-based
capital standard. The regulation requires certain institutions
with more than a "normal level" of interest rate risk to maintain
capital in addition to the 8.0% risk-based capital requirement.
The Bank does not anticipate that its risk-based capital
requirement will be materially affected as a result of the new
regulation.
(3) For tangible and core capital, the ratio is to adjusted
total assets. For risk-based capital, the ratio is to total risk-
weighted assets.
STOCKHOLDER RIGHTS PLAN
On January 26, 1996, the Board of Directors of the Holding
Company adopted a Stockholder Rights Plan (the "Rights Plan").
Under the Rights Plan, which expires in February, 2006, the Board
declared a dividend of one right on each outstanding share of the
Holding Company's common stock, which was paid on February 5,
1996 to stockholders of record on that date (the "Rights"). Until
it is announced that a person or group has acquired 10% or more
of the outstanding common stock of the Holding Company (an
"Acquiring Person") or has commenced a tender offer that could
result in their owning 10% or more of such common stock, the
Rights are initially redeemable for $.01 each, are evidenced
solely by the Holding Company's common stock certificates,
automatically trade with the Holding Company's common stock and
are not exercisable. Following any such announcement, separate
Rights would be distributed, with each Right entitling its owner
to purchase participating preferred stock of the Holding Company
having economic and voting terms similar to those of one share of
the Holding Company's common stock for an exercise price of $45.
Upon announcement that any person or group has become an
Acquiring Person and unless the Board acts to redeem the Rights,
then twenty business days thereafter (the "Flip-in Date"), each
Right (other than Rights beneficially owned by any Acquiring
Person or transferee thereof, which become void) will entitle the
holder to purchase, for the $45 exercise price, a number of
shares of the Holding Company's common stock having a market
value of $90. In addition, if after an Acquiring Person gains
control of the Board, the Holding Company is involved in a merger
or sells more than 50% of its assets or assets generating more
than 50% of its operating income or cash flow, or has entered
into an agreement to do any of the foregoing (or an Acquiring
Person is to receive different treatment than all other
stockholders), each Right will entitle its holder to purchase,
for the $45 exercise price, a number of shares of common stock of
the Acquiring Person having a market value of $90. If any person
or group acquires more than 50% of the outstanding common stock
of the Holding Company, the Board may, at its option, exchange
one share of such common stock for each Right. The Rights may
also be redeemed by the Board for $0.01 per Right prior to the
Flip-in Date.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial
Instruments" requires the Company to disclose estimated fair
values for substantially all of its financial instruments. The
fair value of a financial instrument is the amount at which the
asset or obligation could be exchanged in a current transaction
between willing parties, other than in a forced or liquidation
sale. Fair value estimates are made at a specific point in time
based on relevant market information and information about the
financial instrument. These estimates do not reflect any premium
or discount that could result from offering for sale at one time
the entire holdings of a particular financial instrument. Because
no market value exists for a significant portion of the financial
instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and,
therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet
financial instruments, without attempting to estimate the value
of anticipated future business and the value of assets and
liabilities that are not considered financial instruments.
Additionally, tax consequences related to the realization of the
unrealized gains and losses can have a potential effect on fair
value estimates and have not been considered in many of the
estimates.
The following table summarizes the carrying values and estimated
fair values of the Company's on-balance-sheet financial
instruments at December 31:
1998 1997
Estimated Estimated
Carrying Fair Carrying Fair
(In thousands) Value Value Value Value
Financial Assets:
Cash and cash equivalents $ 44,808 44,808 40,306 40,306
Securities available for sale 889,251 889,251 499,380 499,380
Loans held for sale 54,188 54,188 - -
Debt securities held to maturity - - 66,404 66,372
FHLB-NY stock 21,990 21,990 12,885 12,885
Mortgage-backed securities held to maturity - - 163,057 163,326
Loans receivable, net 1,296,702 1,313,057 1,138,253 1,152,100
Accrued interest receivable 12,108 12,108 12,429 12,429
Financial Liabilities:
Deposits 1,722,710 1,727,676 1,365,012 1,368,782
Borrowed funds 440,346 446,813 466,794 467,565
Due to broker 97,458 97,458 10,000 10,000
Accrued interest payable 1,670 1,670 1,645 1,645
The methods and significant assumptions used to estimate fair
values for different categories of financial instruments are as
follows:
Cash and cash equivalents - The estimated fair values of cash and
cash equivalents are assumed to equal the carrying values as
these financial instruments are either due on demand or mature
within 90 days.
Securities available for sale, Debt Securities and Mortgage-
Backed Securities Held to Maturity - Estimated fair value for
substantially all of the Company's bonds, notes and equity
securities, both available for sale and held to maturity are
based on market quotes as provided by an independent pricing
service. For MBSs, the Company obtains bids from broker dealers
to estimate fair value. For those occasional securities for which
a market price cannot be obtained, market prices of comparable
securities are used.
Loans held for sale - The estimated fair value is based on
current prices established in the secondary market.
FHLB-NY stock - The estimated fair value of the Company's
investment in FHLB-NY stock is deemed to be equal to its carrying
value which represents the price at which it may be redeemed.
Residential loans - Residential loans include one-to four-family
mortgages and individual cooperative apartment loans. Estimated
fair value is based on discounted cash flow analysis. The
residential loan portfolio is segmented by loan type (fixed
conventional, adjustable products, etc.) with weighted average
coupon rate, remaining term, and other pertinent information for
each segment. A discount rate is determined based on the U.S.
Treasury yield curve plus a pricing spread. The discount rate for
fixed rate products is based on the FNMA yield curve plus a
pricing spread. Expected principal prepayments, consistent with
empirical evidence and management's future expectations, are used
to modify the future cash flows. For potential problem loans, the
present value result is separately adjusted downward consistent
with management's assumptions in evaluating the adequacy of the
allowance for loan losses.
Commercial real estate and other loans - Estimated fair value is
based on discounted cash flow analysis which take into account
the contractual coupon rate and maturity date of each loan. A
discount rate is determined based on the U.S. Treasury yield
curve, the prime rate or LIBOR plus a pricing spread, depending
on the index to which the product is tied. For potential problem
loans, the present value result is separately adjusted downward
consistent with management's assumptions regarding the value of
any collateral underlying the loans.
Deposits - Certificates of deposit are valued by performing a
discounted cash flow analysis of the remaining contractual
maturities of outstanding certificates. The discount rates used
are wholesale secondary market rates as of the valuation date.
For all other deposits, fair value is deemed to be equivalent to
the amount payable on demand as of the valuation date.
Borrowed funds - Borrowings are fair valued based on rates
available to the Company in either public or private markets for
debt with similar terms and remaining maturities.
Accrued interest receivable, accrued interest payable, and due to
broker - The fair values are estimated to equal the carrying
values of short-term receivables and payables, including accrued
interest, mortgage escrow funds and due to broker.
Off-balance sheet financial Instruments - The fair value of the
interest rate cap was obtained from dealer quotes and represents
the cost of terminating the agreement. The estimated fair value
of open off-balance sheet financial instruments results in an
unrealized loss of $31,000 at December 31, 1997.
The estimated fair value of commitments to extend credit is
estimated using the fees charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair
value also considers the difference between current levels of
interest rates and the committed interest rates. The estimated
fair value of these off-balance sheet financial instruments
resulted in no unrealized gain or loss at December 31, 1998 and
1997.
19. PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
The condensed financial statements of the Holding Company (parent
company only) are as follows:
Parent Company Condensed Statements of Financial Condition
<CAPTION
December 31,
(In thousands) 1998 1997
Assets:
Cash $ 10 656
Money market investments 1,720 4,561
Securities available for sale 2,569 4,123
Accrued interest receivable 71 42
Accrued income taxes receivable 3,755 3,781
Investment in net assets of Bank 137,217 128,522
Investment in net assets of other subsidiaries 2,073 790
Total assets 147,415 142,475
Liabilities:
Junior subordinated debt issued to Haven
Capital Trust I 25,774 25,774
Other liabilities, net 1,774 3,836
Total liabilities 27,548 29,610
Stockholders' equity:
Common stock 100 100
Additional paid-in capital 51,383 50,065
Retained earnings, substantially restricted 79,085 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available
for sale, net of tax effect 945 1,671
Treasury stock, at cost (9,800) (10,246)
Unallocated common stock held by ESOP (1,222) (1,529)
Unearned common stock held by RRPs (263) (364)
Unearned compensation (361) (399)
Total stockholders' equity 119,867 112,865
Total liabilities and stockholders' equity $147,415 142,475
Parent Company Only Condensed Statements of Operations
Years Ended December 31,
(In thousands) 1998 1997 1996
Dividend from Bank $2,500 - 2,000
Dividend from Trust 81 72 -
Interest income 345 514 178
Interest expense (2,697) (2,389) -
Other operating expenses, net (1,148) (935) (961)
(Loss) income before income tax
benefit and equity in undistributed
net income of Bank (919) (2,738) 1,217
Income tax benefit (1,403) (1,277) (360)
Net income (loss) before equity in
undistributed net income of Bank 484 (1,461) 1,577
Equity in undistributed net income of Bank 7,666 12,544 7,848
Net income $8,150 11,083 9,425
Parent Company Only Condensed Statements of Cash Flows
Years Ended December 31,
(In thousands) 1998 1997 1996
Operating activities:
Net income $ 8,150 11,083 9,425
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in undistributed net income of the Bank (7,666) (12,544) (7,848)
Gain on sale of interest earning assets (109) - -
(Increase) decrease in accrued interest receivable (29) (40) 23
Decrease (increase) in accrued income tax receivable 26 (3,422) (175)
(Decrease) increase in other liabilities (1,878) 3,189 219
Net cash (used in) provided by operating activities (1,506) (1,734) 1,644
Investing activities:
Purchases of securities available for sale (2,135) (4,095) -
Proceeds from sales of securities available for sale 3,704 - -
Additional investment in the Bank - (14,007) -
Investment in net assets of other subsidiaries (1,283) - -
Net cash provided by (used) in investing activities 286 (18,102) -
Financing activities:
Proceeds from issuance of debt - 24,984 -
Purchase of treasury stock - - (5,516)
Payment of common stock dividends (2,627) (2,598) (2,475)
Exercise of stock options 360 760 95
Net cash (used in) provided by financing activities (2,267) 23,146 (7,896)
Net (decrease) increase in cash (3,487) 3,310 (6,252)
Cash at beginning of year 5,217 1,907 8,159
Cash at end of year $ 1,730 5,217 1,907
20. QUARTERLY FINANCIAL DATA (Unaudited)
The following table is a summary of financial data by quarter for
the years ended December 31, 1998 and 1997:
1998 1997
(Dollars in thousands, 1st 2nd 3rd 4th 1st 2nd 3rd 4th
except for share data) Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
Interest income $ 34,963 36,732 39,979 40,011 28,797 31,616 32,575 33,318
Interest expense 21,469 22,582 25,041 24,684 16,372 18,234 19,345 20,449
------- ------- ------- ------- ------- ------- ------- -------
Net interest income before
provision for loan losses 13,494 14,150 14,938 15,327 12,425 13,382 13,230 12,869
Provision for loan losses 670 650 670 675 700 750 700 600
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses 12,824 13,500 14,268 14,652 11,725 12,632 12,530 12,269
Non-interest income 4,459 5,583 11,015 12,089 2,327 2,827 3,211 5,547
Non-interest expense 14,067 17,381 22,641 23,225 9,069 11,538 12,014 13,226
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
tax expense (benefit) 3,216 1,702 2,642 3,516 4,983 3,921 3,727 4,590
Income tax expense (benefit) 1,067 471 402 986 1,678 1,621 1,276 1,563
------- ------- ------- ------- ------- ------- ------- -------
Net income $ 2,149 1,231 2,240 2,530 3,305 2,300 2,451 3,027
======= ======= ======= ======= ======= ======= ======= =======
Net income per common share:
Basic $ 0.25 0.14 0.26 0.29 0.40 0.28 0.29 0.36
Diluted $ 0.24 0.13 0.24 0.28 0.38 0.26 0.27 0.34
======= ======= ======= ======= ======= ======= ======= =======
Weighted average number of
shares outstanding: Basic 8,526,864 8,567,111 8,590,777 8,611,172 8,301,766 8,357,213 8,445,829 8,382,509
Diluted 9,129,745 9,247,139 9,207,719 9,014,489 8,770,901 8,816,488 8,960,366 8,973,295
Independent Auditors' report
The Board of Directors
Haven Bancorp, Inc.:
We have audited the accompanying consolidated statements of
financial condition of Haven Bancorp, Inc. (the "Company") as of
December 31, 1998 and 1997, and the related consolidated
statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended
December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of the Company at December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
January 28, 1999
Melville, New York
Directors and officers
Directors
Haven Bancorp, Inc. and CFS Bank
Philip S. Messina
Chairman of the Board, President and Chief Executive Officer
George S. Worgul
Former Chairman of the Board and Retired President of Haven
Bancorp, Inc. and CFS Bank
Robert M. Sprotte
President, Schmelz Bros., Inc.
President, RDR Realty Corp.
President, Three Rams Realty
Michael J. Fitzpatrick
C.P.A., Financial Consultant
Retired, former Vice President, National Thrift Director,
E.F. Hutton & Co.
William J. Jennings II
Consultant, Retired, former Managing Director, Salomon Smith
Barney, Inc.
Michael J. Levine
President, Norse Realty Group Inc. & Affiliates
Partner, Levine & Schmutter, CPAs
Msgr. Thomas J. Hartman
President and Chief Executive Officer of Radio and Television for
the Diocese of Rockville Centre for Telicare Television Studios
Executive Officers
Haven Bancorp, Inc. and CFS Bank
Philip S. Messina
Chairman of the Board, President and Chief Executive Officer
Gerard H. McGuirk
Executive Vice President, Chief Lending Officer
Thomas J. Seery
Executive Vice President, Operations
Catherine Califano
Senior Vice President, Chief Financial Officer
Mark A. Ricca
Senior Vice President, General Counsel and Secretary
Stockholder Information
Administrative Headquarters
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
(516) 683-4100
Annual Meeting
The annual meeting of stockholders will be held on Wednesday,
April 21, 1999 at 3:00 P.M., at the Corporate Headquarters of the
Company, 615 Merrick Avenue, Westbury, New York. A notice of the
meeting, a proxy statement and a proxy form are included with
this mailing to stockholders of record as of March 3, 1999.
Common Stock Information
Haven Bancorp common stock is traded on the Nasdaq National
Market under the symbol HAVN. The table below shows the reported
high and low sales prices of the common stock during the periods
indicated in 1998 and 1997. Such prices reflect the 2-for-1 stock
split effective November 1997.
1998 1997
High Low High Low
First Quarter 25 19 7/8 18 3/16 13 7/8
Second Quarter 28 3/4 24 3/4 19 1/8 15 1/4
Third Quarter 26 3/4 14 3/8 21 7/8 17 13/16
Fourth Quarter 17 5/8 10 3/8 23 19 1/8
As of March 3, 1999, the Company had approximately 428
stockholders of record, not including the number of persons or
entities holding stock in nominee or street name through various
brokers and banks. At December 31, 1998, there were 8,859,692
shares of common stock outstanding.
Transfer Agent and Registrar
Inquiries regarding stockholder administration and
services should be directed to:
ChaseMellon Shareholder Services, L.L.C.
Overpeck Center
85 Challenger Road
Ridgefield Park, NJ 07660
1-800-851-9677
**World Wide Web Site: http://www.chasemellon.com
Independent Auditors
KPMG LLP
1305 Walt Whitman Road, Suite 200
Melville, NY 11747
Legal Counsel
Thacher Proffitt & Wood
Two World Trade Center
New York, NY 10048
Investor Relations
Inquiries regarding Haven Bancorp, Inc.
should be directed to:
Catherine Califano
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
(516) 683-4100
Annual Report on Form 10-K
A copy of the annual report on Form 10-K for the year ended
December 31, 1998, as filed with the Securities and Exchange
Commission, is available to stockholders (excluding exhibits) at
no charge, upon written requests to:
Investor Relations
Haven Bancorp, Inc.
615 Merrick Avenue
Westbury, NY 11590
** World Wide Web Site: http://www.cfsb.com
LOCATIONS
Administrative Headquarters
Haven Bancorp, Inc.
615 Merrick Avenue, Westbury, NY 11590
CFS Bank Locations
Woodhaven
93-22 Jamaica Avenue, Woodhaven, NY 11421
Forest Parkway
80-35 Jamaica Avenue, Woodhaven, NY 11421
Forest Hills
106-19 Continental Avenue, Forest Hills, NY 11375
Ozone Park
98-16 101st Avenue, Ozone Park, NY 11416
Howard Beach
82-10 153rd Avenue, Howard Beach, NY 11414
Rockaway
104-08 Rockaway Beach Boulevard, Rockaway, NY 11694
Bellerose
244-19 Braddock Avenue, Bellerose, NY 11426
Snug Harbor
343 Merrick Road, Amityville, NY 11701
CFS Bank Supermarket Branches
NEW YORK
ATLANTIC TERMINAL in Pathmark Supermarket
625 Atlantic Avenue and Fort Green Pl., Brooklyn, NY 11217
BALDWIN in Pathmark Supermarket
1764 Grand Avenue, Baldwin, NY 11510
BAYSHORE in Edwards Super Food Stores
533 Montauk Highway, Bayshore, NY 11706
BAYSHORE in ShopRite Supermarket
1905 Sunrise Hwy., Bayshore, NY 11706
BORO PARK in Pathmark Supermarket
1245 61st Street, Boro Park, NY 11219
BRENTWOOD in Pathmark Supermarket
101 Wicks Road, Brentwood, NY 11717
CENTEREACH in Pathmark Supermarket
2150 Middle Country Road, Centereach, NY 11746
COMMACK in Pathmark Supermarket
6070 Jericho Turnpike, Commack, NY 11725
EAST ISLIP in Edwards Super Food Stores
2650 Sunrise Highway, East Islip, NY 11730
EAST MEADOW in Pathmark Supermarket
1897 Front Street, East Meadow, NY 11554
EAST ROCKAWAY in Pathmark Supermarket
492 East Atlantic Ave., East Rockaway, NY 11518
GOWANUS in Pathmark Supermarket
1-37 12th St., Brooklyn, NY 11205
GREENVALE in Pathmark Supermarket
130 Wheatley Plaza, Greenvale, NY 11548
HAUPPAUGE in ShopRite Supermarket
335 Nesconset Highway, Hauppauge, NY 11788
HOLBROOK in Pathmark Supermarket
5801 Sunrise Highway, Sayville, NY 11741
ISLIP in Pathmark Supermarket
155 Islip Avenue, Islip, NY 11751
JERICHO in Pathmark Supermarket
360 North Broadway, Jericho, NY 11753
LEVITTOWN in Pathmark Supermarket
3535 Hempstead Turnpike, Levittown, NY 11756
LONG ISLAND CITY in Pathmark Supermarket
42-02 Northern Blvd., Long Island City, NY 11100
MASSAPEQUA in Grand-Union Mini-branch
941 Carmans Road, Massapequa, NY 11758
MEDFORD in Edwards Super Food Stores
700-60 Patchogue-Yaphank Road, Medford, NY 11763
MONSEY in Pathmark Supermarket
45 Route 59, Monsey, NY 10952
MT. VERNON in Pathmark Supermarket
1 Pathmark Plaza, East 2nd & 3rd Ave., Mount Vernon, NY 10550
NANUET in Pathmark Supermarket
195 Rockland Center, Route 59 East, Nanuet, NY 10954
NEW HYDE PARK in Pathmark Supermarket
2335 New Hyde Park Road, New Hyde Park, NY 11040
NORTH BABYLON in Pathmark Supermarket
1251 Deer Park Avenue, North Babylon, NY 11703
NORTH YONKERS in Pathmark Supermarket
2540 Central Park Avenue, North Yonkers, NY 10710
OZONE PARK in Pathmark Supermarket
92-10 Atlantic Avenue, Ozone Park, NY 11416
PATCHOGUE in Pathmark Supermarket
395 Route 112, Patchogue, NY 11772
PIKE SLIP in Pathmark Supermarket
227 Cherry Street, New York, NY 10002
PORT CHESTER in Pathmark Supermarket
130 Midland Avenue, Port Chester, NY 10573
PORT JEFFERSON in Pathmark Supermarket
5145 Nesconset Hwy., Port Jefferson, NY 11776
SHIRLEY in Pathmark Supermarket
800 Montauk Highway, Shirley, NY 11967
STATEN ISLAND in Pathmark Supermarket
1351 Forest Avenue, Staten Island, NY 10302
STATEN ISLAND in Pathmark Supermarket
2875 Richmond Avenue, Staten Island, NY 10306
STATEN ISLAND in ShopRite Supermarket
2424 Hylan Blvd, Staten Island, NY 10306
STARRETT CITY in Pathmark Supermarket
111-10 Flatlands Avenue, Brooklyn, NY 11207
UNIONDALE in ShopRite Supermarket
1121 Jerusalem Avenue, Uniondale, NY 11553
WEST BABYLON in Pathmark Supermarket
531 Montauk Highway, West Babylon, NY 11704
WEST BABYLON in Edwards Super Food Store
575 Montauk Highway, West Babylon, NY 11704
WHITESTONE in Pathmark Supermarket
31-06 Farrington Street, Whitestone, NY 11357
WOODMERE in Pathmark Supermarket
253-01 Rockaway Tpke., Woodmere, NY 11422
WOODBURY in Pathmark Supermarket
81-01 Jericho Turnpike, Woodbury, NY 11797
YONKERS in Pathmark Supermarket
1757 Central Park Avenue, Yonkers, NY 10710
New JERSEY
BOUND BROOK in ShopRite Supermarket
Route 28 & Union Avenue, Bound Brook, NJ 08805
BRICKTOWN in ShopRite Supermarket
Rt. 70 & Chambers Bridge Road, Bricktown, NJ 08723
HACKENSACK in ShopRite Supermarket
S. River St. & E. Main Moonachie Rd.,Hackensack, NJ 07601
HILLSIDE in Shoprite Supermarket
367 Highway 22 West, Hillside, NJ 07205
PALISADES PARK in ShopRite Supermarket
201 Roosevelt Place, Palisades Park, NJ 07650
WAYNE in ShopRite Supermarket
625 Hamburg Turnpike, Wayne, NJ 07470
WEST LONG BRANCH in ShopRite Supermarket
145 Highway 36, West Long Branch, NJ 07764
WEST MILFORD in ShopRite Supermarket
23 Marshall Hill Road, West Milford, NJ 07480
CONNECTICUT
ANSONIA In Big Y Supermarket
404 Main Street, Ansonia, CT 06401
BRIDGEPORT in Shaws Supermarket
500 Sylvan Avenue, Bridgeport, CT 06610
MERIDAN in ShopRite Supermarket
533 South Broad Street, Meridan, CT 06450
MILFORD in ShopRite Supermarket
157 Cherry Street, Milford, CT 06460
NEWTOWN in Big Y Supermarket
6 Queen Street, Newtown, CT 06470
WATERBURY in ShopRite Supermarket
650 Wolcott Street, Waterbury, CT 06705
WEST HAVEN in ShopRite Supermarket
1131 Campbell Avenue, West Haven, CT 06516
CFS INTERCOUNTY Mortgage LOCATIONS
Administrative Office
100 Wood Avenue South, Iselin, NJ 08830
New YORK
Albany
100 Great Oaks Blvd., Suite 105, Albany, NY 12203
*Armonk
200 Business Park Drive, Armonk, NY 10504
*Batavia
113 Main Street, Batavia, NY 14020
Mid-Hudson-Fishkill
300 Westage Business Center 4th Fl., Fishkill, NY 12524
Rochester
650 Clinton Square 6th Fl., Rochester, NY 14604
*Rome
310 E. Chestnut St., Rome, NY 13440
*Staten Island
260 Christopher Lane, Staten Island, NY 10314
Westbury
900 Ellison Avenue Ste 104 & 105, Westbury, NY 11590
NEW JERSEY
*Pennington Pointe
23 Route 31, Suite A 28, Pennington, NJ 08534
Woodbridge
MetroCenter One, 100 Wood Ave. S. 2nd Fl.,Iselin, NJ 08830
CONNECTICUT
*Wilton, Ct
396 Danbury Road, Wilton, CT 06897
PENNSYLVANIA
VIRGINA BUILDING
1250 Virgina Drive, Suite 150, Fort Washington, PA 19034
CFS INSURANCE LOCATIONS
Centereach
2100 Middle Country Road, Centereach, NY 11720
Holbrook
941 Main Street, Holbrook, NY 11741
HuntingtoN
850 East Jericho Turnpike, Huntington, NY 11743