1
PRESS RELEASE January 27, 2003
BostonFed Bancorp, Inc. announces Fourth Quarter and Year-End Results and the
Declaration of a Dividend of $.16 Per Share.
Monday, January 27, 4:05 pm ET
Burlington, Mass.- Jan. 27 /PRNewswire-FirstCall/--BostonFed Bancorp, Inc.
(AMEX- BFD) (the "Company"), the parent of Boston Federal Savings Bank ("BFS"),
a federally-chartered stock savings bank, and Broadway National Bank ("BNB"), a
national chartered commercial bank, announced fourth quarter net income of
$1,313,000, or $.30 basic and $.28 diluted earnings per share, compared to net
income of $2,509,000, or $.58 basic and $.54 diluted earnings per share for the
fourth quarter of 2001. The primary reason for the current quarter's lower
earnings level was due to the recording of a $2.4 million impairment charge, (in
excess of normal amortization) related to its originated mortgage servicing
rights ("OMSR") due primarily to continued record volume of mortgage loan
prepayments and the utilization of even more rapid prepayment speeds in valuing
the remaining OMSR's than those used at September 30, 2002. The Company has
reduced the value of OMSR's to approximately 64 basis points of total loans
serviced for others. For the year ended December 31, 2002, earnings were $2.4
million, or $.54 basic and $.51 diluted earnings per share, compared to $9.7
million, or $2.18 basic and $2.05 diluted earnings per share for the year ended
December 31, 2001. Year-to-date earnings were impacted by goodwill impairment of
$7.0 million related to the acquisition of Forward Financial Company and
settlement of two legal disputes during the year, which totaled $1.3 million.
Excluding the cost of the settlement of the two legal disputes and the goodwill
impairment, earnings were approximately $7.8 million, net of taxes, or $1.76
basic and $1.66 diluted earnings per share. For the years ended December 31,
2002 and 2001, the annualized return on average stockholders' equity was 2.44%
and 10.32%, respectively. Please see "Cash Earnings Summary" for a discussion of
cash earnings during the above referenced periods.
The Company also announced the declaration of a quarterly cash dividend of $.16
per share. The dividend is payable on or about February 20, 2003, to
shareholders of record at the close of business on February 6, 2003.
The Company completed its ninth stock repurchase program of 224,428 shares on
November 13, 2002 at an average price of $27.14. On the same day, the Company
commenced its tenth stock repurchase program. As of December 31, 2002, the
Company has acquired 35,587 shares of its outstanding common stock at an average
price of $27.81 per share. The Company has 187,384 shares remaining to be
repurchased under this program. Outstanding shares as of December 31, 2002 were
4,425,348.
Net interest income for the fourth quarter of 2002 was $9.1 million, compared to
$9.3 million for the fourth quarter of 2001. The lower net interest income is
due in part to the decline in the interest rate spread and margin resulting from
the market interest rate declines over the past two years, which impacted
interest sensitive assets to a greater degree than interest sensitive
liabilities. However, balance sheet growth offset the effects of lower margins
for the year, as net interest income was $37.5 million for the year ended
December 31, 2002 compared to $37.3 million for the year ended December 31,
2001. The net interest margin declined to 2.57% in the current quarter, compared
to 2.72% for the quarter ended December 31, 2001. The net interest margin for
the year ended December 31, 2002 was 2.71%, compared to 2.86% for the year ended
December 31, 2001. Due to market conditions, the already low rates being paid on
deposits and the Company's utilization of slower to reprice longer term FHLB
advances, the Company has not been able to lower interest rates on deposits and
borrowings to the same degree that prime-based and treasury-indexed asset yields
have fallen. While market interest rates appear to have stabilized, the Company
cannot predict when interest rates will rise to higher levels and whether such
increases will result in higher net interest margins.
2
The provision for loan losses was $500,000 for the quarter ended December 31,
2002, compared to $200,000 for the comparable period last year. On a year to
date basis, the provision for loan losses was $1.4 million, compared to $820,000
for the year ended December 31, 2001. The increase in the provision was
primarily due to the increased level of non-performing loans and the higher
balances invested in commercial real estate loans, business loans and other
higher yielding/higher risk loans. At December 31, 2002, the Company's
non-performing assets totaled $6.5 million, or .43% of total assets, compared to
the December 31, 2001 balance of $1.2 million, or .08% of total assets.
Approximately one-half of the balance of non-performing assets at December 31,
2002 was due to one borrower relationship becoming non-performing on a land
development and commercial real estate loan. The allowance for loan losses was
$12.7 million at December 31, 2002, compared to $12.3 million at December 31,
2001. These amounts represent 194.0% of non-performing loans and 1.13% as a
percent of loans at December 31, 2002, compared to 1,065% and 1.13%,
respectively, at December 31, 2001.
Total non-interest income declined to $3.6 million for the quarter ended
December 31, 2002, compared to $4.7 million for the quarter ended December 31,
2001 due primarily to lower loan processing and servicing fees resulting from
the OMSR impairment charge. Loan processing and servicing fees were a negative
$2.1 million for the quarter ended December 31, 2002 compared to a negative
$255,000 for the quarter ended December 31, 2001. For the year ended December
31, 2002, loan processing and servicing fees were a negative $4.0 million,
compared to a negative $275,000 for the year ended December 31, 2001. The
declines were due to adjustments for the impairment of OMSRs mentioned above,
which occurred due to increasing levels of loan prepayments in the declining
interest rate environment through most of 2002. Further declines in market
interest rates, which affect loan prepayments and prepayment speeds, could
result in future additional impairment charges. Gain on sale of loans amounted
to $4.1 million for the quarter ended December 31, 2002, compared to $3.1
million for the quarter ended December 31, 2001. For the year ended December 31,
2002, gain on sale of loans amounted to $12.7 million, compared to $10.6 million
for the prior year period. The increased gain on sale of loans resulted from a
continuation of high volumes of one- to four-family mortgage loan sales, made
possible by the volume of lending activity, especially fixed-rate one- to
four-family mortgages, in the current low interest rate environment. Included in
the above gain on sale of loans were gains on sale of manufactured housing
loans, which amounted to $4.0 million for the year ended December 31, 2002,
compared to $5.2 million for the year ended December 31, 2001, resulting from
reduced activity in the manufactured housing market. Deposit service fees
increased from $674,000 in the quarter ended December 31, 2001, to $844,000 in
the current quarter. For the year ended December 31, 2002, deposit service fees
amounted to $3.0 million, compared to $2.5 million for the year ended December
31, 2001. The increase was primarily due to increases in fees and higher levels
of deposit account services activity. Other non-interest income was lower in the
current year as the Company recognized $273,000 in gains on sale resulting from
its interest in the sale of the NYCE bank automated teller machine clearing
network and a gain of $157,000 on the sale of BFS's former Billerica Office
location during 2001.
In the non-interest expense category, compensation and benefits increased to
$6.1 million for the current quarter, compared to $5.7 million for the quarter
ended December 31, 2001. The primary reasons for the increase are normal
year-over-year employee expense increases, higher than usual expenses incurred
for loan originations support and the Company's accrual of approximately
$300,000 for its defined benefit pension plan (the "plan") during the quarter.
The Company had not been required to make contributions to this plan for over a
decade as the plan was in an over-funded status. Compensation and benefits
increased to $23.9 million for the year ended December 31, 2002 from $21.7
million for the prior year due primarily to the above-mentioned reasons,
including approximately $500,000 for the second half of the year pension plan
accrual. For the year ended December 31, 2002, goodwill impairment was $7.0
million ($4.6 million, net after tax) compared to goodwill amortization of $1.4
million for the year ended December 31, 2001. The goodwill impairment charge
resulted primarily from a valuation assessment of the Company's Forward
Financial operations. Such assessment considered the reduced volume of loan
sales, the prolonged recession in the manufactured housing industry and other
factors. Effective January 1, 2002, the Statement of Financial Accounting
Standards Number 142 requires that goodwill no longer be amortized, but instead
requires periodic impairment testing as conditions warrant, (but at least
annually) to determine if impairment has occurred. If the level of manufactured
housing loan sales remain at current levels and the manufactured housing
industry recession both continue for a longer period than expected, further
goodwill impairment charges may become necessary. During the current year the
Company settled two lawsuits at a total
3
cost of $1.3 million. Other non-interest expense declined in the current quarter
and year, compared to last year's fourth quarter and year ended December 31,
2001 as the prior year periods included higher outside professional fees and
other increased operating expenses.
Income tax expense for the year ended December 31, 2002 was $1.4 million for an
effective tax rate of 36.7% compared to $5.2 million for an effective tax rate
of 35.0% for the year ended December 31, 2001. The effective tax rate was higher
this year primarily due to higher non-deductible Employee Stock Option Plan
expenses, resulting from the higher market value of the Company's stock.
Total assets at December 31, 2002 were $1.526 billion, compared to $1.471
billion at December 31, 2001, an increase of $55.5 million. Increased balances
in investment securities available for sale, mortgage-backed securities
available for sale and loans, net, more than offset decreases in cash and cash
equivalents and mortgage-backed securities held to maturity. Cash and cash
equivalents declined to $74.7 million at December 31, 2002, from a balance of
$96.0 million at December 31, 2001 as some of the liquidity was used to fund
purchases of investment securities available for sale, which increased by $49.6
million to a balance of $112.9 million at December 31, 2002. This increase was
primarily invested in an adjustable-rate mortgage mutual fund. Mortgage-backed
securities available for sale increased to a balance of $114.5 million at
December 31, 2002, from $94.9 million at December 31, 2001, as a result of
investments in collateralized mortgage-backed securities ("CMO's"). Loans, net,
increased by $15.6 million to a balance of $1.071 billion at December 31, 2002,
compared to a balance of $1.056 billion at December 31, 2001 as the Company was
able to increase its portfolio, despite a heavy volume of loans refinanced.
Deposit accounts increased by $75.8 million, from $884.5 million at December 31,
2001 to $960.3 million at December 31, 2002 as deposit flows have increased
slightly. Of the $75.8 million increase in deposits, $40.8 million was in
wholesale brokered-deposits, bringing the total of brokered deposits to $132.7
million. Federal Home Loan Bank ("FHLB") advances and other borrowings declined
by $22.4 million to a balance of $426.6 million at December 31, 2002 compared to
$449.0 million at December 31, 2001.
Total stockholders' equity was $93.0 million at December 31, 2002, compared to
$93.4 million at December 31, 2001. On a per share basis, the book value was
$21.17 at December 31, 2002, compared to $21.39 at December 31, 2001. The
stockholders' equity to total assets ratio of the Company was 6.1% at December
31, 2002 and 6.3% at December 31, 2001. Regulatory Tier 1 capital, which is not
impacted by the effects of goodwill increased to approximately $113.2 million at
December 31, 2002 from approximately $106.7 million at December 31, 2001.
As previously disclosed, the Commonwealth of Massachusetts' Department of
Revenue ("DOR") has issued various demands for payment of additional taxes and
interest for tax years beginning in 1999, due to its denial of the dividends
received deduction pertaining to the Banks' Real Estate Investment Trusts
("REITS"). The Banks are disputing the DOR's position. If the DOR prevails, the
Banks could potentially be assessed approximately $4.6 million in additional
taxes, interest and penalties through December 31, 2002.
BOSTONFED BANCORP, INC.
Cash Earnings Summary
4
Cash earnings represent the amount by which tangible stockholder's equity
changes each period due to operating results, which include reported earnings
plus the non-cash charges, net of taxes, for the amortization and appreciation
of allocated shares in the Company's Employee Stock Ownership Plan ("ESOP"),
stock-based incentive plans ("SIP"), goodwill impairment, and in 2001,
amortization of goodwill. Cash earnings is a non-GAAP (Generally Accepted
Accounting Principles) measure that the Company believes is useful in assisting
investors in gaining an understanding of the Company's results of operations.
Cash earnings should be viewed in conjunction with GAAP results and not in lieu
of it. A reconciliation of reported earnings and cash earnings for the three and
twelve months ended December 31, 2002 and 2001 is as follows:
Three Months Ended Year Ended
12-31-02 12-31-01 12-31-02 12-31-01
-------- -------- -------- ---------
(Dollars In Thousands Except Per Share Amounts)
Reported Income $1,313 $2,509 $2,388 $ 9,656
Add:
ESOP Expense 367 305 1,476 1,200
SIP Expense 11 19 70 93
Goodwill 0 354 7,000 1,418
Deduct:
Tax on ESOP (53) (53) (212) (211)
Tax on SIP (4) (7) (26) (36)
Tax on Goodwill 0 (120) (2,450) (480)
------- ------- ------- --------
Cash Earnings $1,634 $3,007 $8,246 $11,640
====== ====== ====== =======
Resultant Cash Earnings Data:
Basic Earnings Per Share $0.37 $0.68 $1.87 $2.62
Diluted Earnings Per Share $0.35 $0.65 $1.76 $2.48
Return on Assets (annualized) 0.43% 0.82 0.55% 0.83%
Return on Equity (annualized) 6.84% 12.53 8.44% 12.43%
Cash earnings indicate the addition to tangible capital, which measures the
Company's capacity for growth, ability to execute share repurchases or pay
dividends. As indicated above, cash earnings for the year ended December 31,
2002 amounted to $8.2 million, or $5.9 million more than reported earnings.
This press release may contain certain forward-looking statements with regard to
the Company's prospective performance and strategies within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities and Exchange Act of 1934, as amended. The Company intends such
forward looking statements to be covered by the safe harbor provision for
forward looking statement contained in the Private Securities Litigation Reform
Act of 1995 and is including this statement for such purpose.
Forward looking statements are based on certain assumptions and management's
current expectations regarding economic, legislative, and regulatory issues that
may impact the Company's earnings in future periods. Factors that could cause
future results to vary materially from current management expectations include,
but are not limited to, general economic conditions, acts of terrorism or war,
changes in interest rates, deposit flows, real estate values, and competition;
changes in accounting principles, policies, or guidelines; changes in
legislation or regulation; and other economic, competitive, governmental,
regulatory and technological factors affecting the Company's operations,
pricing, products and services. The Company does not undertake, and specifically
disclaims any obligation, to publicly release the result of any revisions that
may be made to any forward-looking statements to reflect events or circumstances
after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Contact: Amy L. Timmerman, AVP, Investor Relations - 781-221-6396
John A. Simas, EVP and CFO - 781-221-6307
FAX: (781) 221-7594
5
BOSTONFED BANCORP, INC.
Consolidated Balance Sheets December 31, December 31,
- -------------------------- 2002 2001
--------------- --------------
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
Assets
- --------------
Cash and cash equivalents $ 74,672 $ 95,957
Investment securities available for sale 112,888 63,258
Investment securities held to maturity 2,524 554
Mortgage-backed securities available for sale 114,515 94,922
Mortgage-backed securities held to maturity 25,429 40,822
Loans held for sale 31,614 24,612
Loans, net of allowance for loan losses 1,071,356 1,055,798
Accrued interest receivable 6,470 6,317
Stock in FHLB of Boston & Federal Reserve Bank 24,552 24,208
Premises and equipment, net 10,133 10,295
Goodwill 10,776 17,776
Other assets 41,439 36,347
-------------- -------------
Total assets $ 1,526,368 $ 1,470,866
============== =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Deposit accounts $ 960,278 $ 884,516
Federal Home Loan Bank advances & other borrowings 426,560 449,000
Corporation obligated mandatorily redeemable capital securities 32,000 32,000
Advance payments by borrowers for taxes and insurance 2,317 2,614
Other liabilities 12,240 9,348
-------------- -------------
Total liabilities 1,433,395 1,377,478
-------------- -------------
Stockholders' equity:
Common stock and additional paid-in capital 69,347 68,325
Retained earnings 64,242 64,702
Accumulated other comprehensive income 1,096 105
Less unallocated ESOP shares 0 (529)
Less unearned 1996 Stock-Based Incentive Plan (14) (57)
Less Treasury Stock (41,698) (39,158)
-------------- -------------
Total stockholders' equity 92,973 93,388
-------------- -------------
Total liabilities and stockholders' equity $ 1,526,368 $ 1,470,866
============== =============
Selected Financial Highlights -- (At End of Period)
- --------------------------------------------------------
Total stockholders' equity to total assets 6.1% 6.3%
Market value per share $ 26.70 $ 24.10
Book value per common share $ 21.17 $ 21.39
Number of shares outstanding 4,425,348 4,450,653
Non-performing loans $ 5,497 $ 1,158
Real estate owned and other repossessed assets $ 1,026 $ 31
Total non-performing assets $ 6,523 $ 1,189
Total non-performing assets as a percent of
total assets 0.43% 0.08%
Allowance for loan losses $ 12,656 $ 12,328
Allowance for loan losses as a percent of
non-performing loans 230.23% 1064.59%
Allowance for loan losses as a percent of
non-performing assets 194.02% 1036.84%
Allowance for loan losses as a percent of loans 1.13% 1.13%
Total loans serviced for others $1,084,797 $ 974,221
6
BOSTONFED BANCORP, INC.
Consolidated Statements of Income
- ---------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
------------------------------- -------------------------------
2002 2001 2002 2001
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
Interest income:
Loans $ 17,689 $ 19,816 $ 73,418 $ 81,914
Mortgage-backed securities 1,603 2,174 7,904 7,365
Investment securities 1,260 969 4,281 5,617
------------ ------------- ------------- -------------
Total interest income 20,552 22,959 85,603 94,896
------------ ------------- ------------- -------------
Interest expense:
Deposit accounts 5,404 6,543 22,341 30,103
Borrowed funds 5,114 6,263 22,219 23,937
Corporation obligated mandatorily redeemable
capital securities distributions 887 881 3,529 3,522
------------ ------------- ------------- -------------
Total interest expense 11,405 13,687 48,089 57,562
------------ ------------- ------------- -------------
Net interest income 9,147 9,272 37,514 37,334
Provision for loan losses 500 200 1,350 820
------------ ------------- ------------- -------------
Net interest income after provision for loan losses 8,647 9,072 36,164 36,514
Non-interest income:
Deposit service fees 844 674 3,038 2,476
Loan processing and servicing fees (2,112) (255) (3,989) (275)
Gain on sale of loans 4,064 3,087 12,657 10,625
Income from bank owned life insurance 322 320 1,238 1,255
Gain on sale of investments 26 519 387 749
Other 407 394 1,560 1,828
------------ ------------- ------------- -------------
Total non-interest income 3,551 4,739 14,891 16,658
------------ ------------- ------------- -------------
Non-interest expense:
Compensation and benefits 6,097 5,706 23,940 21,674
Occupancy and equipment 1,231 1,218 4,883 4,737
Data processing 436 455 1,775 1,685
Advertising expense 279 281 1,141 1,032
Federal deposit insurance premiums 34 34 159 167
Real estate operations 200 0 200 7
Impairment/Amortization of goodwill 0 354 7,000 1,418
Legal settlements 0 0 1,250 0
Other 1,796 1,999 6,932 7,587
------------ ------------- ------------- -------------
Total non-interest expense 10,073 10,047 47,280 38,307
------------ ------------- ------------- -------------
Income before income taxes 2,125 3,764 3,775 14,865
Income tax expense 812 1,255 1,387 5,209
------------ ------------- ------------- -------------
Net income $ 1,313 $ 2,509 $ 2,388 $ 9,656
============ ============= ============= =============
Selected Financial Highlights--
- -------------------------------
(For the periods ending)
Basic earnings per share $ 0.30 $ 0.58 $ 0.54 $ 2.18
Diluted earnings per share $ 0.28 $ 0.54 $ 0.51 $ 2.05
Weighted average number of shares outstanding:
Basic 4,412,965 4,371,087 4,413,319 4,436,065
Diluted 4,675,737 4,647,215 4,676,250 4,701,723
Return on average assets (annualized) 0.34% 0.68% 0.16% 0.69%
Return on average stockholders'
equity (annualized) 5.50% 10.46% 2.44% 10.32%
Net interest rate spread (annualized) 2.33% 2.41% 2.44% 2.56%
Net interest margin (annualized) 2.57% 2.72% 2.71% 2.86%
Mortgage loan originations
(Dollars in Thousands) $ 382,778 $ 307,245 $1,205,758 $ 964,321