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PRESS RELEASE Tuesday, January 27, 2004
BOSTONFED BANCORP, INC. ANNOUNCES FOURTH QUARTER AND YEAR-END RESULTS, THE
DECLARATION OF A DIVIDEND OF $.16 PER SHARE AND THE ANNUAL MEETING DATE.
Burlington, Mass.- BostonFed Bancorp, Inc. (AMEX: BFD) (the "Company"), the
parent of Boston Federal Savings Bank (the "Bank"), a federally-chartered stock
savings bank, announced fourth quarter net income of $1.9 million or $0.43 basic
and $0.41 diluted earnings per share, compared to net income of $1.3 million or
$0.30 basic and $0.28 diluted earnings per share for the fourth quarter of 2002.
The improved net income was due primarily to a $1.4 million (approximately
$800,000 net of tax) recovery of a portion of the valuation allowance for
originated mortgage servicing rights ("OMSR").
For the year ended December 31, 2003, net income was $3.3 million or $0.75 basic
and $0.71 diluted earnings per share, compared to $2.4 million or $0.54 basic
and $0.51 diluted earnings per share for the year ended December 31, 2002. Net
income for 2003 was approximately $900,000 higher than 2002 despite being
negatively impacted by net interest income contraction (due to margin
compression), an incremental loan loss provision of $2.0 million, continued
write-downs of OMSRs due to rapid serviced loan prepayments, lower gain on sale
of loans and the settlement with the Massachusetts Department of Revenue ("Mass.
DOR") for $1.8 million for additional state taxes and interest applicable to the
real estate investment trust ("REIT"). The year ended December 31, 2002 was
negatively impacted by a goodwill impairment charge of $7.0 million, OMSR
write-downs and the settlement of two legal disputes for a combined total of
approximately $1.3 million.
The Company announced today that its ninth Annual Meeting of Stockholders will
be held on April 28, 2004 at 2:00 p.m., Eastern Daylight Time, at the Burlington
Marriott Hotel, 1 Mall Road, Burlington, Massachusetts. The Board of Directors
set the record date for shareholders entitled to vote at the Annual Meeting as
March 5, 2004. The Company intends to mail its proxy solicitation materials on
or about March 29, 2003.
The Company also announced the declaration of a quarterly cash dividend of $0.16
per share. The dividend is payable on or about February 19, 2004, to
shareholders of record at the close of business on February 5, 2004.
Net interest income increased to $9.7 million in the current quarter from $9.1
million for the fourth quarter of 2002 due to increased average interest-earning
assets. The net interest margin of 2.44% for the current quarter was 13 basis
points lower than the 2.57% net interest margin for the comparable quarter last
year. The lowest interest rates in decades have precipitated high levels of loan
prepayments, which combined with reinvestment in lower yielding loans and
investment securities, as well as diminishing opportunities to continue lowering
interest rates on core deposits, which are already earning historically low
interest rates, have caused significant pressure on the net interest margin. The
current quarter's net interest margin, however, increased by 5 basis points on a
linked-quarter basis (September 30, 2003). For the year ended December 31, 2003,
the net interest income was $35.9 million, compared to $37.5 million for the
prior year. The primary reason for the decline was a lower net interest margin
of 2.47%, which was 24 basis points lower than the prior year's 2.71% net
interest margin.
The provision for loan losses was $450,000 for the quarter ended December 31,
2003, compared to $500,000 for the comparable quarter last year. For the year
ended December 31, 2003, the provision for loan losses was $3.4 million,
compared to $1.4 million for the year ended December 31, 2002. The 2003
provision was higher primarily due to the replenishment to the allowance for
loan losses ("ALL") in the second quarter of 2003, necessitated by a $1.6
million charge-off during that quarter. At December 31, 2003, the Company's
non-performing assets totaled $6.5 million, or 0.38% of total assets, compared
to the December 31, 2002 balance of $6.5 million, or 0.43% of total assets. The
allowance for loan losses was $13.9 million at December 31, 2003, compared to
$12.7 million at December 31, 2002. These amounts represent 296% of
non-performing loans and 1.13% as a percent of loans at December 31, 2003,
compared to 230% and 1.13%, respectively, at December 31, 2002.
Total non-interest income increased to $4.5 million for the quarter ended
December 31, 2003, compared to $3.6 million for the quarter ended December 31,
2002, due primarily to improvement in the loan processing and servicing fees.
Loan processing and servicing fees were $927,000 for the quarter ended December
31, 2003, compared to a negative $2.1 million
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for the comparable quarter in the prior year. Higher mortgage interest rates at
December 31, 2003, compared to September 30, 2003, caused estimated mortgage
pre-payment speeds to decline during the current quarter, thereby allowing the
Company to recover approximately $1.4 million of its $1.9 million valuation
allowance on its OMSRs. On a year to date basis, loan processing and servicing
fees were a negative $1.9 million, compared to a negative $4.0 million for the
last year to date. The primary reason for the improvement in the current year
was due to the $2.6 million recovery of the OMSR valuation allowance during the
last two quarters of 2003. The OMSR valuation allowance was approximately
$500,000 at December 31, 2003. With the most recent adjustment, the OMSR balance
of $7.1 million, net of valuation allowance, represents approximately 73 basis
points of the $976.6 million of loans serviced for others.
Gain on sale of loans amounted to $1.7 million for the quarter ended December
31, 2003, compared to $4.1 million for the quarter ended December 31, 2002.
Rising mortgage interest rates during the fourth quarter of 2003 precipitated a
marked decline in mortgage refinancings. The lower volumes of mortgage closings
reduced the number of loans available for sale, thereby causing a lower gain on
sale in the current quarter compared to the fourth quarter of 2002 when mortgage
refinancings were proceeding at historically high levels. For the year ended
December 31, 2003, gain on sale of loans was $10.5 million, compared to $12.7
million for the year ended December 31, 2002. Although total mortgage
originations of $1.3 billion during the year ended December 31, 2003 were higher
than the $1.2 billion for the prior year, a greater amount of the current year
production was placed in portfolio. Included in the above gain on sale of loans
were gains on sale of loans at the Bank's subsidiary, Forward Financial Company,
which amounted to $576,000 and $617,000 for the quarters ended December 31, 2003
and 2002, respectively. For the years ended December 31, 2003 and 2002, gain on
sale of loans at Forward Financial Company were $3.5 million and $4.0 million,
respectively. These volumes reflect the continuing recessionary levels of
activity in the manufactured housing market.
Deposit service fees increased to $898,000 in the current quarter, compared to
$844,000 in the quarter ended December 31, 2002. For the years ended December
31, 2003 and 2002, deposit service fees were $3.6 million and $3.0 million,
respectively. The increase was primarily due to increases in fees and higher
levels of deposit account services activity. Gain on sale of investments was
$268,000 in the current quarter, compared to $26,000 for the quarter ended
December 31, 2002, as the Company sold some of its investment securities and a
portion of a mutual fund for a net gain. For the years ended December 31, 2003
and 2002, gain on sale of investment securities were $275,000 and $387,000,
respectively. The prior year gains were primarily the result of the Company's
sale of investments in equity securities.
Total non-interest expense was $10.4 million for the quarter ended December 31,
2003, compared to $10.1 million for the prior year quarter. The current year
quarter includes $208,000 in amortization of core deposit intangibles ("CDI")
related to the acquisition and assumption of Encore Bank's seven Boston area
branches (the "branch acquisition"). Non-interest expense for the years ended
December 31, 2003 and 2002 were $40.2 million and $47.3 million, respectively.
Data processing expense increased by $241,000, primarily due to the branch
acquisition. Advertising expense increased to $386,000 in the current quarter
from $279,000 in the prior year comparable quarter due to a more focused
branding program for the Company's Bank. For the year ended December 31, 2003,
advertising expense totaled $1.5 million, compared to $1.1 million for the prior
year. The increase was also due to the recent expenditures for the branding
program. The current year non-interest expense also includes the CDI
amortization mentioned above. Non-interest expenses were higher in the prior
year primarily due to the $7.0 million goodwill impairment and $1.3 million for
legal settlements.
Compensation and benefits were $6.4 million in the current quarter, compared to
$6.1 million for the prior year fourth quarter. For the year ended December 31,
2003, compensation and benefits increased by 1.5% to $24.3 million. The increase
includes compensation and benefits for the staff hired with the branch
acquisition and increased defined benefit pension fund expenses. The pension
plan expense for the current year was $1.4 million, compared to $530,000 for the
year ended December 31, 2002. Prior to July 1, 2002, the pension plan's sponsor
had been in an over-funded status. These increases were partially offset by a
decline in the Employee Stock Ownership Plan expense, which was approximately
$1.0 million for the year ended December 31, 2003, compared to approximately
$1.5 million for the prior year.
Income tax expense for the quarter ended December 31, 2003, was $1.4 million,
for an effective tax rate of 42.0%, compared to $812,000, for an effective tax
expense of 38.2% for the quarter ending December 31, 2002. Income tax expense
for the year ended December 31, 2003 was $4.4 million, for an effective tax rate
of 57.2% due primarily to the REIT settlement for current and retroactive income
taxes with the Mass. Department of Revenue in June of this year. Excluding the
effects of the REIT settlement, the effective tax rate for the year ended
December 31, 2003, was 41.7%. Income tax expense was $1.4 million, for an
effective tax rate of 36.7% for the year ended December 31, 2002, a lower rate
due to the impact of the REITs that were then in effect.
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Total assets at December 31, 2003, were $1.7 billion, compared to $1.5 billion
at December 31, 2002, an increase of $168.9 million. Loans, net of allowance for
loan losses increased by $126.7 million to a new record level of $1.2 billion at
December 31, 2003 from $1.1 billion at December 31, 2002 as the Company retained
a larger portion of its loan production for portfolio purposes. Additionally,
the Company securitized and retained a portion of its loan production in the
form of mortgage-backed securities held to maturity, which increased by $120.2
million from $25.4 million at December 31, 2002 to a balance of $145.7 million
at December 31, 2003. Somewhat offsetting these increases were lower balances in
cash and cash equivalents, which declined by $40.6 million from a balance of
$74.7 million at December 31, 2002 to $34.0 million at December 31, 2003 due
primarily to a reduction in Federal Home Loan Bank ("FHLB") Overnight Deposits.
Additionally, mortgage-backed securities available for sale declined by $30.8
million to a balance of $83.8 million at December 31, 2003, due to rapid
prepayments of collateralized mortgage-backed securities ("CMOs") and the sale
of investment securities and a portion of a mutual fund. Loans held for sale
declined by $18.9 million to a balance of $12.8 million at December 31, 2003 as
a smaller portion of loan production was earmarked for sale during the recent
quarter.
Deposit accounts were $1.2 billion on December 31, 2003, an increase of $228.3
million from the $960.3 million balance at December 31, 2002, due primarily to
the assumption of deposits from the branch acquisition. Wholesale-brokered
certificates of deposit, included in deposit accounts, were $117.8 million at
December 31, 2003, reflecting a decline of $14.9 million from the $132.7 million
balance at December 31, 2002.
FHLB advances declined by $60.9 million to $365.7 million at December 31, 2003,
compared to $426.6 million at December 31, 2002. Maturing FHLB advances were
repaid from the funds acquired from the branch acquisition in October 2003.
Total stockholders' equity was $94.6 million at December 31, 2003, compared to
$93.0 million at December 31, 2002. On a per share basis, the book value was
$21.07 at December 31, 2003, compared to $21.17 at December 31, 2002. The
stockholders' equity to total assets ratio of the Company was 5.6% at December
31, 2003, and 6.1% at December 31, 2002.
The Company did not repurchase any stock under its 10th stock repurchase program
during the quarter as its capital needs increased as a result of the branch
acquisition. The Company will not resume its repurchase program until such time
as its capital levels return to more normalized levels. As of December 31, 2003,
the Company has acquired 79,067 shares of its outstanding common stock at an
average price of $25.85 per share under the existing program and has 143,904
shares remaining to be repurchased under this program. Outstanding shares as of
December 31, 2003, were 4,491,796.
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 statements 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
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BOSTONFED BANCORP, INC.
Consolidated Balance Sheets December 31, December 31,
- --------------------------------------
2003 2002
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(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
Assets
- --------------
Cash and cash equivalents $ 34,045 $ 74,672
Investment securities available for sale 102,647 112,888
Investment securities held to maturity 2,025 2,524
Mortgage-backed securities available for sale 83,752 114,515
Mortgage-backed securities held to maturity 145,674 25,429
Loans held for sale 12,751 31,614
Loans, net of allowance for loan losses 1,198,019 1,071,356
Accrued interest receivable 6,129 6,470
Stock in FHLB of Boston & Federal Reserve Bank 28,483 24,552
Bank-owned life insurance 25,549 24,316
Premises and equipment, net 19,539 10,133
Goodwill/core deposit intangible 17,536 10,776
Real estate owned 1,782 0
Other assets 17,581 17,357
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Total assets $ 1,695,512 $ 1,526,602
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Liabilities and Stockholders' Equity
- ---------------------------------------------------
Liabilities:
Deposit accounts $ 1,188,548 $ 960,278
Federal Home Loan Bank advances & other borrowings 398,653 459,550
Advance payments by borrowers for taxes and insurance 2,819 2,317
Other liabilities 10,843 11,484
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Total liabilities 1,600,863 1,433,629
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Stockholders' equity:
Common stock and additional paid- in- capital 70,207 69,333
Retained earnings 64,684 64,242
Accumulated other comprehensive income 395 1,096
Less Treasury Stock (40,637) (41,698)
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Total stockholders' equity 94,649 92,973
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Total liabilities and stockholders' equity $ 1,695,512 $ 1,526,602
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Selected Financial Highlights -- (At End of Period)
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Total stockholders' equity to total assets 5.6% 6.1%
Market value per share $ 34.90 $ 26.70
Book value per common share $ 21.07 $ 21.17
Number of shares outstanding 4,491,796 4,425,348
Non-performing loans $ 4,688 $ 5,497
Real estate owned and other repossessed assets $ 1,782 $ 1,026
Total non-performing assets $ 6,470 $ 6,523
Total non-performing assets as a percent of
total assets 0.38% 0.43%
Allowance for loan losses $ 13,874 $ 12,656
Allowance for loan losses as a percent of
non-performing loans 295.95% 230.23%
Allowance for loan losses as a percent of
non-performing assets 214.44% 194.02%
Allowance for loan losses as a percent of loans 1.13% 1.13%
Total loans serviced for others $ 976,603 $ 1,084,797
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BOSTONFED BANCORP, INC.
Consolidated Statements of Income
- ------------------------------------------------
Three Months Ended Twelve Months Ended
December 31, December 31,
----------------------------- ----------------------------
2003 2002 2003 2002
---- ---- ---- ----
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
Interest income:
Loans $ 16,359 $ 17,689 $ 64,788 $ 73,418
Mortgage-backed securities 2,009 1,603 6,505 7,904
Investment securities 1,122 1,260 4,357 4,281
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Total interest income 19,490 20,552 75,650 85,603
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Interest expense:
Deposit accounts 5,121 5,404 19,476 22,341
Borrowed funds 3,795 5,114 16,745 22,219
Corporation obligated mandatorily redeemable
capital securities distributions 880 887 3,522 3,529
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Total interest expense 9,796 11,405 39,743 48,089
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Net interest income 9,694 9,147 35,907 37,514
Provision for loan losses 450 500 3,350 1,350
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Net interest income after provision for loan
losses 9,244 8,647 32,557 36,164
Non-interest income:
Deposit service fees 898 844 3,626 3,038
Loan processing and servicing fees 927 (2,112) (1,942) (3,989)
Gain on sale of loans 1,691 4,064 10,470 12,657
Income from bank owned life insurance 301 322 1,232 1,238
Gain on sale of investments 268 26 275 387
Other 430 407 1,673 1,560
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Total non-interest income 4,515 3,551 15,334 14,891
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Non-interest expense:
Compensation and benefits 6,372 6,097 24,307 23,940
Occupancy and equipment 1,175 1,231 4,859 4,883
Data processing 496 436 2,016 1,775
Advertising expense 386 279 1,526 1,141
Deposit insurance premiums 45 34 173 159
Amortization of core deposit intangible/
impairment 208 0 208 7,000
Legal settlements 0 0 0 1,250
Other 1,757 1,996 7,088 7,132
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Total non-interest expense 10,439 10,073 40,177 47,280
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Income before income taxes 3,320 2,125 7,714 3,775
Income tax expense 1,395 812 4,415 1,387
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Net income $ 1,925 $ 1,313 $ 3,299 $ 2,388
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Selected Financial Highlights--
- --------------------------------------
(For the periods ending)
Basic earnings per share $ 0.43 $ 0.30 $ 0.75 $ 0.54
Diluted earnings per share $ 0.41 $ 0.28 $ 0.71 $ 0.51
Weighted average number of shares
outstanding:
Basic 4,473,277 4,412,965 4,425,331 4,413,319
Diluted 4,717,339 4,675,737 4,636,768 4,676,250
Return on average assets (annualized) 0.45% 0.34% 0.21% 0.16%
Return on average stockholders'
equity (annualized) 8.11% 5.50% 3.51% 2.44%
Net interest rate spread (annualized) 2.31% 2.33% 2.27% 2.44%
Net interest margin (annualized) 2.44% 2.57% 2.47% 2.71%
Mortgage loan originations
(Dollars in Thousands) $ 223,003 $ 382,778 $ 1,335,546 $ 1,205,758