UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition period from __________ to __________
Commission File Number 1-13503
Staten Island Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3958850
- --------------------------------------------- --------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
15 Beach Street
Staten Island, New York 10304
- --------------------------------------- --------------------------
(Address of principal executive office) (Zip Code)
(718) 556-6518
---------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. The Registrant had
35,269,887 shares of Common Stock outstanding as of November 7, 2000.
STATEN ISLAND BANCORP, INC. AND SUBSIDIARIES
Table of Contents PAGE
- ----------------- ----
Part 1 Financial Information
Item 1 Financial Statements
Unaudited Consolidated Statements of Condition 1
(As of September 30, 2000 and December 31, 1999)
Unaudited Consolidated Statements of Income 2
(For the three and nine months ended September 30, 2000 and
the three and nine months ended September 30, 1999)
Unaudited Consolidated Statement of Changes in Stockholders'
Equity (For the nine months ended September 30, 2000) 3
Unaudited Consolidated Statements of Cash Flows 4
(For the nine months ended September 30, 2000 and
the nine months ended September 30, 1999)
Notes to Unaudited Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 20
Part II Other Information
Item 1 Legal Proceedings 21
Item 2 Changes in Securities and Use of Proceeds 21
Item 3 Defaults Upon Senior Securities 21
Item 4 Submission of Matters to a Vote of Security Holders 21
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
Signatures 22
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
------------------ -----------------
September 30, 2000 December 31, 1999
------------------ -----------------
(000's omitted)
ASSETS unaudited
ASSETS:
Cash and due from banks .............................................. $ 86,641 $ 80,998
Federal funds sold ................................................... 8,500 20,400
Securities available for sale ........................................ 1,869,891 1,963,954
Loans, net ........................................................... 2,737,564 2,150,039
Loans held for sale, net ............................................. 80,148 46,588
Accrued interest receivable .......................................... 27,043 23,621
Bank premises and equipment, net ..................................... 31,064 24,731
Intangible assets, net ............................................... 60,275 15,431
Other assets ......................................................... 172,682 163,552
----------- -----------
Total assets ......................................................... $ 5,073,808 $ 4,489,314
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due Depositors:
Savings .............................................................. $ 780,903 $ 737,794
Time ................................................................. 922,384 573,043
Money market ......................................................... 129,062 89,004
NOW accounts ......................................................... 90,216 80,352
Demand deposits ...................................................... 390,122 340,040
----------- -----------
2,312,687 1,820,233
Borrowed funds ......................................................... 2,124,578 2,049,411
Advances from borrowers for taxes and insurance ........................ 13,596 10,805
Accrued interest and other liabilities ................................. 52,504 37,488
----------- -----------
Total liabilities .................................................... 4,503,365 3,917,937
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, 100,000,000 shares authorized,
45,130,312 issued and 35,686,387 outstanding at September 30, 2000
and 45,130,312 issued and 38,693,623 outstanding at December 31, 1999 451 451
Additional paid-in-capital ........................................... 537,301 536,539
Retained earnings-substantially restricted ........................... 281,713 251,315
Unallocated common stock held by ESOP ................................ (33,649) (35,709)
Unearned common stock held by RRP .................................... (20,042) (25,439)
Treasury stock 9,443,925 shares at September 30, 2000
and 6,436,689 at December 31, 1999 at cost ........................... (173,658) (121,149)
----------- -----------
592,116 606,008
Accumulated other comprehensive income, (loss)net of taxes ........... (21,673) (34,631)
----------- -----------
Total stockholders' equity ........................................... 570,443 571,377
----------- -----------
Total liabilities and stockholders' equity ........................... $ 5,073,808 $ 4,489,314
=========== ===========
1
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(000's omitted except per share data)
unaudited
Interest Income:
Loans .................................................. $ 53,965 $ 36,134 $ 147,574 $ 99,514
Securities, available for sale ......................... 32,283 34,347 103,610 99,119
Federal funds sold ..................................... 292 375 966 1,807
------------ ------------ ------------ ------------
Total interest income ............................... 86,540 70,856 252,150 200,440
------------ ------------ ------------ ------------
Interest Expense:
Savings and escrow ..................................... 5,062 4,761 15,059 14,014
Time ................................................. 11,959 6,685 31,157 19,635
Money market and NOW ................................. 1,513 1,060 4,405 3,087
Borrowed funds ......................................... 34,616 23,760 97,306 61,790
------------ ------------ ------------ ------------
Total interest expense .............................. 53,150 36,266 147,927 98,526
------------ ------------ ------------ ------------
Net interest income ................................. 33,390 34,590 104,223 101,914
Provision for Loan Losses .............................. 12 30 41 100
------------ ------------ ------------ ------------
Net interest income after provision for loan losses 33,378 34,560 104,182 101,814
Other Income (Loss):
Service and fee income ................................. 12,591 8,756. 30,462 23,293
Securities transactions ................................ 416 436 (742) 921
------------ ------------ ------------ ------------
13,007 9,192 29,720 24,214
Other Expenses:
Personnel .............................................. 14,597 12,930 41,084 36,604
Occupancy and equipment ................................ 2,504 1,976 7,196 5,776
Amortization of intangible assets ...................... 1,340 565 3,904 1,675
Data processing ........................................ 1,353 1,109 3,896 3,250
Marketing .............................................. 495 379 1,485 1,082
Professional fees ...................................... 572 580 1,642 1,574
Other .................................................. 3,925 3,901 11,218 10,398
------------ ------------ ------------ ------------
Total other expenses ................................ 24,786 21,440 70,425 60,359
------------ ------------ ------------ ------------
Income before provision for income taxes ............... 21,599 22,312 63,477 65,669
Provision for Income Taxes ............................. 7,938 8,740 24,157 26,445
------------ ------------ ------------ ------------
Net Income ............................................. $ 13,661 $ 13,572 $ 39,320 $ 39,224
============ ============ ============ ============
Earnings Per Share:
Basic ................................................ $ 0.41 $ 0.36 $ 1.16 $ 1.02
Diluted .............................................. $ 0.41 $ 0.36 $ 1.16 $ 1.02
Weighted Average:
Common Shares ........................................ 45,130,312 45,130,312 45,130,312 45,130,312
Less: Unallocated ESOP/RRP Shares .................... 3,065,379 3,314,155 3,122,392 3,373,244
Less: Treasury Shares ................................ 8,981,776 4,402,415 8,065,190 3,309,738
------------ ------------ ------------ ------------
33,083,157 37,413,742 33,942,730 38,447,330
============ ============ ============ ============
2
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Unallocated
Additional Common Unearned
Common Paid-In Stock RRP Treasury
Stock Capital Held by ESOP Shares Stock
----- ------- ------------ ------ -----
(000's omitted)
Balance January 1, 2000 $ 451 $ 536,539 $ (35,709) $ (25,440) $ (121,149)
Change in unrealized
appreciation (depreciation)
on securities, net of tax
Allocation of 171,678 ESOP shares 940 2,060
Vesting of 295,530 RRP shares (178) 5,398
Treasury stock (3,007,236) at cost (52,509)
Net Income
Valuation adjustment for deferred tax benefit
Dividends paid
----- --------- --------- --------- ----------
Balance September 30, 2000 $ 451 $ 537,301 $ (33,649) $ (20,042) $ (173,658)
===== ========= ========= ========= ==========
Accumulated
Other
Comprehensive Retained Comprehensive
Income Earnings Income (loss) Total
------ -------- ------------- -----
Balance January 1, 2000 $251,315 $ (34,631) $ 571,376
Change in unrealized
appreciation (depreciation)
on securities, net of tax 12,958 12,958 12,958
Allocation of 171,678 ESOP shares 3,000
Vesting of 295,530 RRP shares 5,220
Treasury stock (3,007,236) at cost (52,509)
Net Income 39,320 39,320 39,320
Valuation adjustment for deferred tax benefit 4,868 4,868
52,278
Dividends paid (13,790) (13,790)
------- -------- --------- ---------
Balance September 30, 2000 $281,713 $ (21,673) $ 570,443
======= ======== ========= =========
3
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
2000 1999
----------- -----------
(000's omitted)
unaudited
Cash Flows From Operating Activities:
Net Income .................................................. $ 39,320 $ 39,224
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization ............................... 2,401 1,750
Amortization of bond and mortgage premiums .................. (1,157) 32
Amortization of intangible assets ........................... 3,904 1,675
Loss (Gain) on sale of available for sale securities ........ 742 (921)
Other noncash expense (income) .............................. (5,820) (3,082)
Expense charge relating to allocation and earned ............
portions of employee benefit plan ........................... 6,420 6,597
Provision for possible loan losses .......................... 41 100
Decrease in deferred loan fees .............................. (3,768) (1,604)
Decrease (increase) in accrued interest receivable .......... 777 (3,092)
Decrease (increase) in other assets ......................... (9,267) (94,443)
(Decrease) increase in accrued interest and other liabilities 13,939 9,425
(Increase) decrease in deferred income taxes ................ 364 219
Recoveries of loans ......................................... 835 878
----------- -----------
Net cash provided by operating activities ................... 48,731 (43,242)
----------- -----------
Cash Flows From Investing Activities:
Maturities of available for sale securities ................. 161,468 351,339
Sales of available for sale securities ...................... 259,721 35,121
Purchases of available for sale securities .................. (77,663) (478,058)
Principal collected on loans ................................ 267,530 265,199
Loans made to customers ..................................... (1,267,321) (1,229,405)
Purchases of loans .......................................... (26,986) (9,437)
Sales of loans .............................................. 505,704 509,152
Capital expenditures ........................................ (4,633) --
Acquisition of FSB, net of cash acquired .................... (46,688) --
----------- -----------
Net cash (used in) investing activities ..................... (228,868) (556,089)
----------- -----------
Cash Flows From Financing Activities:
Net increase in deposit accounts ............................ 165,012 85,015
Borrowings .................................................. 75,167 536,260
Dividends paid .............................................. (13,790) (12,576)
Purchase of Treasury Stock .................................. (52,509) (63,621)
----------- -----------
Net cash provided by financing activities ................... 173,880 545,078
----------- -----------
Net (decrease) increase in cash and cash equivalents ........ (6,257) (54,253)
Cash and equivalents, beginning of year ..................... 101,398 133,109
----------- -----------
Cash and equivalents, end of period ......................... $ 95,141 $ 78,856
=========== ===========
Supplemental Disclosures Of Cash Flow Information:
Cash paid for-
Interest .................................................... $ 138,157 $ 93,692
Income taxes ................................................ $ 21,181 $ 21,488
Acquisition of FSB
Fair value of assets acquired ............................. $ 370,579 --
Fair value of liabilities acquired ........................ $ 331,280 --
4
STATEN ISLAND BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Financial Information
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Staten Island Bancorp, Inc.
(the "Company") and subsidiaries conform to generally accepted accounting
principles and to general practice within the banking industry.
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, SI Bank & Trust
(formerly Staten Island Savings Bank) (the "Bank"), and the Bank's subsidiaries.
The Bank's wholly owned subsidiaries are SIB Mortgage Corp. (the "Mortgage
Company"), SIB Investment Corporation ("SIBIC"), Staten Island Funding
Corporation ("SIFC"), American Construction Lending Service, Inc. ("ACLS") and
SIB Financial Services Corporation ("SIBFSC"). All significant intercompany
transactions and balances are eliminated in consolidation.
The unaudited consolidated financial statements included herein reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. The results of operations for the three-month and nine-month periods
ending September 30, 2000 are not necessarily indicative of the results to be
expected for the year ending December 31, 2000. Certain information and note
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 1999 Annual Report and Form 10-K.
In preparing the consolidated financial statements, management is
required to make estimates and assumptions that affect the reported assets,
liabilities, revenues and expenses as of the dates of the financial statements.
Actual results could differ significantly from those estimates.
Business
Staten Island Bancorp, Inc. is the holding company for SI Bank & Trust,
The Bank, which is a traditional full service community oriented bank, operates
sixteen full service branches, one supermarket branch and three limited service
branches on Staten Island, two full service branches in Brooklyn, four full
service branches in Ocean County, New Jersey and two full service branches in
Monmouth County, New Jersey. In addition, on October 10, 2000, the Company
announced that it had signed a Purchase and Assumption Agreement with Unity
Bancorp for the purchase of three branch locations in Union County, New Jersey
and one in Middlesex County, New Jersey. The Bank also has a lending center and
a Trust Department on Staten Island. Commercial lending offices are also located
in Bay Ridge, Brooklyn and the Howell, New Jersey branch.
The Mortgage Company does business as Ivy Mortgage and is headquartered
in Branchburg, New Jersey. The Mortgage Company originates loans in 25 states
and sells them to investors generating fee income for the Bank. The Bank retains
for its own portfolio certain adjustable rate mortgage loans ("ARMS") originated
by the Mortgage Company in order to supplement the ARMS originated directly by
the Bank in its efforts to manage interest rate risk.
5
ACLS originates short-term, generally six months to one year,
construction loans primarily to individuals for their own residences. ACLS
operates throughout the United States and the Bank will provide permanent loans
for construction loans originated by ACLS for certain properties located in the
New York City metropolitan area.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF") to
the maximum extent permitted by law. The Bank is subject to examination and
regulation by the Office of Thrift Supervision ("OTS") which is the Bank's
chartering authority and primary regulator. The Bank is also regulated by the
Federal Deposit Insurance Corporation ("FDIC"), the administrator of the BIF.
The Bank is also subject to certain reserve requirements established by the
Board of Governors of the Federal Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of New York, which is one of the 12 regional
banks comprising the FHLB system.
Organization Form of Ownership
The Bank was originally founded as a New York State chartered savings
bank in 1864. In August 1997, the Bank converted to a federally chartered mutual
savings bank and is now regulated by the OTS. On April 16, 1997, the Board of
Directors of the Bank adopted a Plan of Conversion to convert from a federally
chartered mutual savings bank to a federally chartered stock savings bank with
the concurrent formation of a holding company (the "Conversion"). The Company
completed its initial public offering and Conversion on December 22, 1997 and
issued 45,130,312 shares of common stock, $.01 par value per share.
The Bank has the following wholly owned subsidiaries:
The Mortgage Company was incorporated in the State of New Jersey in
1998. The Mortgage Company was formed to purchase substantially all of the
assets of Ivy Mortgage Corp. The Mortgage Company currently originates loans in
25 states and had assets totaling $130.7 million at September 30, 2000 and
originated $510.3 million of loans during the nine months ended September 30,
2000. The Mortgage Company currently holds $36.5 million of residential loans in
it's own portfolio for investment and the Bank has retained $123.8 million in
higher yielding residential ARMS. SIFC is a wholly owned subsidiary of SIBIC,
incorporated in the State of Maryland in 1998 for the purpose of establishing a
real estate investment trust ("REIT"). The Bank transferred real estate mortgage
loans totaling $648.0 million, net, which included certain other associated
assets and liabilities. In return the Bank received all the shares of common
stock and the majority of the preferred stock in SIFC. The assets of SIFC
totaled $667.4 million at September 30, 2000.
SIBIC was incorporated in the State of New Jersey in 1998 for the
purpose of managing certain investments of the Bank. The Bank transferred the
common stock and a majority of the preferred stock of SIFC to SIBIC. The
consolidated assets of SIBIC at September 30, 2000 were $749.7 million.
ACLS was incorporated in the state of Delaware in May 1999 and is
headquartered in the state of Connecticut. ACLS's main business line is
originating residential construction loans throughout the country. The assets of
ACLS totaled $59.7 million as of September 30, 2000.
SIBFSC was incorporated in the State of New York in January 2000.
SIBFSC was formed as a licensed life insurance agency to sell the products of
the SBLI USA Mutual Life Insurance Co. The assets of SIBFSC were $282,000 as of
September 30, 2000.
6
Securities - Available for Sale. The following table sets forth certain
information regarding amortized cost and estimated fair values of debt, equity,
mortgage-backed and mortgage related securities of the Company at September 30,
2000 and December 31,1999.
September 30, 2000 December 31, 1999
------------------------ ------------------------
Bonds - Available For Sale Amortized Fair Amortized Fair
- -------------------------- Cost Value Cost Value
---------- ---------- ---------- ----------
U.S. Treasuries ..................................... $ 5,111 $ 5,144 $ 12,212 $ 12,275
Govt. Sponsored Agencies ............................ 173,882 169,379 152,024 143,482
Industrial and Finance .............................. 162,392 150,165 162,796 152,319
Foreign ............................................. 250 250 560 498
---------- ---------- ---------- ----------
Total Debt Securities ............................... 341,635 324,938 327,592 308,574
---------- ---------- ---------- ----------
G.N.M.A. - M.B.S .................................... 15,244 15,031 17,112 16,532
F.H.L.M.C. - M.B.S .................................. 305,260 300,153 329,198 318,832
F.N.M.A. - M.B.S .................................... 404,371 401,221 467,322 458,247
Agency C.M.O.'s ..................................... 231,038 223,698 248,376 238,617
Privately Issued C.M.O.'s ........................... 418,429 406,956 436,604 418,202
---------- ---------- ---------- ----------
Total Mortgage-Backed and Mortgage Related Securities 1,374,342 1,347,059 1,498,612 1,450,430
---------- ---------- ---------- ----------
Total Bonds - Available For Sale ................... 1,715,977 1,671,997 1,826,204 1,759,004
---------- ---------- ---------- ----------
Equity Securities Amortized Fair Amortized Fair
- ----------------- Cost Value Cost Value
---------- ---------- ---------- ----------
Preferred Stock ..................................... 69,920 62,211 79,870 69,558
Common Stock ........................................ 98,851 103,644 97,787 101,046
IIMF Capital Appreciation Fund ...................... 26,821 32,039 26,691 34,346
---------- ---------- ---------- ----------
Total Equity Securities ............................. 195,592 197,894 204,348 204,950
---------- ---------- ---------- ----------
Total Investments ................................... $1,911,569 $1,869,891 $2,030,552 $1,963,954
========== ========== ========== ==========
7
Loan Portfolio Composition The following table sets forth the composition of the
Bank's loans at the dates indicated.
September 30, 2000 December 31, 1999
---------------------------- -------------------------------
Percent of Percent of
Amount Total Amount Total
----------- ----- ----------- -----
(Dollars in Thousands) (Dollars in Thousands)
Mortgage loans:
Single-family residential ......... $ 2,135,812 78.02% $ 1,737,913 80.83%
Multi-family residential .......... 47,441 1.73% 42,501 1.98%
Commercial real estate ............ 303,597 11.09% 223,809 10.41%
Construction and land ............. 132,797 4.85% 60,105 2.80%
Home equity ....................... 9,864 0.36% 5,390 0.25%
----------- ----- ----------- -----
Total mortgage loans .............. 2,629,511 96.05% 2,069,718 96.27%
Other loans:
Student loans ..................... 257 0.01% 657 0.03%
Passbook loans .................... 6,322 0.23% 5,357 0.25%
Commercial business loans ......... 43,649 1.59% 33,646 1.56%
Other consumer loans .............. 62,032 2.27% 49,395 2.30%
----------- ----- ----------- -----
Total other loans ................. 112,260 4.10% 89,055 4.14%
----------- ----- ----------- -----
Total loans receivable ............ 2,741,771 100.15% 2,158,773 100.41%
Less:
Premium (discount) on loans purchased 5,673 0.21% 4,640 0.22%
Allowance for loan losses ......... (14,545) (0.53)% (14,271) (0.66)%
Deferred loan costs (fees) ........ 4,665 0.17% 897 0.03%
----------- ----- ----------- -----
Loans receivable, net ............... $ 2,737,564 100.00% $ 2,150,039 100.00%
=========== ====== =========== ======
8
Delinquent Loans: The following table sets forth information concerning loans at
September 30, 2000 on which the company is accruing interest and as a percentage
of each category of the Bank's loan portfolio. The amount presented represents
the total outstanding principal balance of related loans, rather than the actual
payment amounts which are past due.
September 30, 2000
------------------------------------------------------------------------------------------
30-59 Days 60-89 Days 90 Days or More
-------------------------- -------------------------- --------------------------
Percent of Loan Percent of Loan Percent of Loan
Amount Category Amount Category Amount Category
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
Mortgage loans:
Single-family residential ...... $ 1,689 0.08% $11,856 0.56% $ 4,441 0.21%
Multi-family residential ....... -- 0.00% 117 0.25% -- 0.00%
Commercial real estate ......... 1,135 0.37% 1,829 0.60% 961 0.32%
Construction and land .......... 78 0.06% 4,141 3.12% -- 0.00%
Home equity .................... 292 2.96% 27 0.27% 129 1.31%
------- ------- -------
Total mortgage loans ...... 3,194 0.12% 17,970 0.68% 5,531 0.21%
Other loans:
Commercial business loans ...... 536 1.23% 2,947 6.75% 127 0.29%
Other loans..................... 2,072 3.02% 1,352 1.97% 543 0.79%
------- ------- -------
Total other loans ......... 2,608 2.32% 4,299 3.83% 670 0.60%
Total loans................. $ 5,802 0.21% $22,269 0.81% $ 6,201 0.23%
======= ======= =======
9
Loans Past Due 90 Days or More and Still Accruing And Non-Accruing Assets. The
following table sets forth information with respect to, non-accruing loans,
other real estate owned and repossessed assets, and loans past due 90 days or
more and still accruing.
September 30, 2000 December 31, 1999
------------------ -----------------
(000's omitted)
Non-Accruing Assets
Mortgage loans:
Single-family residential .................... $ 4,643 $ 2,899
Multi-family residential ..................... 271 --
Commercial real estate ....................... 3,423 5,568
Construction and land ........................ 1,063 1,793
Home equity .................................. 6 106
Other loans:
Commercial business loans .................... 1,403 1,783
Other consumer loans ......................... 422 325
------- -------
Total non-accrual loans ...................... 11,231 12,474
Other real estate owned and repossessed assets, net 1,384 887
------- -------
Total non-accruing assets .................... 12,615 13,361
Loans past due 90 days or more and still accruing . 6,201 6,886
------- -------
Non-accruing assets and loans past due 90 days
or more and still accruing ...................... $18,816 $20,247
======= =======
Non-accruing assets to total loans ................ 0.46% 0.62%
Non-accruing assets to total assets ............... 0.25% 0.30%
Non-accruing loans to total loans ................. 0.41% 0.58%
Non-accruing loans to total assets ................ 0.22% 0.28%
10
Allowance for Loan Losses. The following table sets forth the activity in the
Bank's allowance for loan losses during the periods indicated.
Nine Months Ended Year Ended
September 30, December 31,
------------------------ ------------
2000 1999 1999
-------- -------- --------
(000's omitted)
Allowance at beginning of period ................. $ 14,271 $ 16,617 $ 16,617
Provisions(Benefits) ............................. 41 100 (1,843)
Increase as a result of acquisition .............. 847 -- --
Charge-offs:
Mortgage loans:
Construction, land and land development ....... 6 -- --
Single-family residential ..................... 88 107 148
Multi-family residential ...................... -- -- --
Commercial real estate ........................ 134 367 474
Other loans ...................................... 1,221 872 1,043
-------- -------- --------
Total charge-offs.............................. 1,449 1,346 1,665
Recoveries:
Mortgage loans:
Construction, land and land development ....... -- -- --
Single-family residential ..................... 17 395 456
Multi-family residential ...................... -- -- --
Commercial real estate ........................ 27 3 34
Other loans ...................................... 791 480 672
-------- -------- --------
Total recoveries .............................. 835 878 1,162
-------- -------- --------
Allowance at end of period ....................... $ 14,545 $ 16,249 $ 14,271
======== ======== ========
Allowance for loan losses
to total non-accruing loans at
end of period .................................. 129.51% 127.50% 114.40%
Allowance for loan losses
to total loans at end of period ................ 0.53% 0.83% 0.66%
11
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. In addition, in portions of this document and the Company's Annual
Report to Stockholders, the words "anticipate," "believe," "estimate," "expect,"
"intend," "should," and similar expressions, or the negative thereof, as they
relate to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future looking events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
Changes in Financial Condition
Total assets at September 30, 2000 were $5.1 billion representing an
increase of $584.5 million or 13.0% over total assets of $4.5 billion at
December 31, 1999. The increase in overall assets was primarily due to the
completion of the acquisition of First State Bank ("FSB") during the first
quarter of 2000 resulting in a net increase of $336.4 million in total assets.
Exclusive of the FSB acquisition, the Company experienced an increase in net
loans of $494.4 million or 23.0% during the first nine months of 2000. Loan
originations were $1.3 billion for the nine-month period ending September 30,
2000. The Mortgage Company had originations of $510.3 million and sales of
$360.7 million on one to four family residential loans. The Company retained for
its own portfolio $160.0 million of ARM loans originated by the Mortgage
Company. The Bank in this time period had loan sales of $145.0 million,
primarily in fixed-rate loans to fund adjustable rate loans for its own
portfolio and construction loans originated by the construction lending company.
The increase in net loans was partially offset by a decrease in securities
available for sale of $317.6 million exclusive of the acquisition of $223.5
million in securities from FSB. The decrease in securities during the first nine
months of 2000 was primarily due to sales of $259.7 million and prepayments and
amortization from the mortgage backed securities portfolio.
In the current interest rate environment management continues its
strategy to maintain the interest rate spread and margin by partially funding
new originations of adjustable-rate loans and construction loans with the
proceeds from sales from the securities available for sale portfolio thus
reducing the Company's emphasis on the utilization of borrowed funds to fund
loan originations.
Total deposits at September 30, 2000 were $2.3 billion compared to $1.8
billion at December 31, 1999. The increase of $492.5 million or 27.1% was
primarily due to an increase of $327.4 million from the acquisition of FSB and a
increase of $165.1 million from deposit gathering activities including the
issuance of $100 million of brokered certificates of deposit with a weighted
average cost of 7.01%. The funds from these brokered deposits were used to fund
originations of higher yielding loans. The weighted average cost of total
deposits was 3.38% for the nine months ended September 30, 2000 primarily due to
our relatively lower costing core deposit base which represented 60.1% of total
deposits at such date. Within our core deposit base 16.9% of total deposits are
non-interest bearing DDA accounts.
Borrowed funds as of September 30, 2000 totaled $2.1 billion or $75.2
million more than December 31, 1999. The increase in borrowings for the year was
primarily used to fund the acquisition of FSB. It continues to be management's
intention to reduce its utilization of borrowings to fund asset growth and to
emphasize more traditional funding sources such as deposit growth and loan
sales. To enhance its deposit gathering activities, the Bank opened its second
branch in Brooklyn, New York during the quarter, and will open an additional
branch in Ocean County, New Jersey during the fourth quarter of this year. On
12
October 10, the Company announced the acquisition of four branches in New Jersey
from Unity Bancorp. Subject to regulatory approval, it is anticipated that this
acquisition will be completed during the fourth quarter of 2000.
Stockholders' equity as of September 30, 2000 was $570.4 million or
11.24% of total assets compared to $571.4 million or 12.73% of total assets as
of December 31, 1999. The decrease of $1.0 million was primarily due to the use
of $52.3 million to repurchase 3.0 million shares of stock and aggregate cash
dividend payments of $13.8 million. These two decreases were partially offset by
net income of $39.3 million, an allocation of Employee Stock Ownership Plan
("ESOP") and Recognition and Retention Plan ("RRP") shares resulting in an
increase of $8.2 million, a decrease of $13.0 million in the unrealized
depreciation on securities available for sale, net of taxes, and a valuation
adjustment of the deferred tax asset resulting from the Company's previous
contribution of 2.1 million shares of its stock to the SISB Community Foundation
resulting in an increase of $4.9 million in stockholders' equity.
Results of Operations
The Company reported net income of $13.7 million or $0.41 per basic and
fully diluted share for the three months ended September 30, 2000 compared to
net income of $13.6 million or $0.36 per basic and fully diluted share for the
three-month period ended September 30, 1999. Cash earnings were $16.5 million or
$0.50 per share for the third quarter of 2000 compared to cash earnings of $15.5
million or $0.41 per share for the same period last year. Cash earnings
represent the Company's net income increased by adding back non-cash expenses
net of applicable taxes related to the ESOP and RRP and the amortization of
goodwill.
The increase in net income for the quarter ended September 30, 2000
compared to the same quarter one year ago was primarily due to an increase of
$3.8 million in other income and a decrease in the provision for income taxes of
$802,000, partially offset by a $1.2 million decrease in net interest income and
a $3.3 million increase in total other expenses.
For the nine months ended September 30, 2000, net income amounted to
$39.3 million or $1.16 per basic and fully diluted share compared to $39.2
million or $1.02 per basic and fully diluted share for the nine-month period
ending September 30, 1999. Cash earnings for the first nine months of 2000 were
$47.2 million or $1.39 per share compared to $44.8 million or $1.17 per share
for the first nine months of 1999.
The increase in net income for the nine months ended September 30, 2000
compared to the nine months ended September 30, 1999 was primarily due to an
increase of $2.3 million in net interest income, an increase of $5.5 million in
other income and a decrease of $2.3 million in the provision for income taxes
partially offset by an increase of $10.1 million in total other expenses.
13
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
Three Months Ended September 30,
-----------------------------------------------------------------------------
2000 1999
----------------------------------- --------------------------------------
000's omitted
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Interest-earning assets:
Loans receivable (1):
Real estate loans ........................ $2,670,250 $ 51,294 7.62% $1,813,208 $ 34,044 7.45%
Other loans .............................. 108,277 2,671 9.79% 80,376 2,090 10.31%
---------- ---------- ---------- ----------
Total loans ............................ 2,778,527 53,965 7.71% 1,893,584 36,134 7.57%
Securities ................................ 1,951,441 32,283 6.56% 2,132,376 34,347 6.39%
Other interest-earning assets (2) ......... 20,707 292 5.60% 33,997 375 4.38%
---------- ---------- ---------- ----------
Total interest-earning assets ............. 4,750,675 86,540 7.23% 4,059,957 70,856 6.92%
Noninterest-earning assets .................. 250,194 204,482
---------- ----------
Total assets .............................. $5,000,869 $4,264,439
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ............ $ 222,021 $ 1,513 2.70% $ 166,929 1,060 2.52%
Savings and escrow accounts .............. 799,758 5,062 2.51% 759,141 4,761 2.49%
Certificates of deposits ................. 856,055 11,959 5.54% 562,354 6,685 4.72%
---------- ---------- ---------- ----------
Total deposits ......................... 1,877,834 18,534 3.92% 1,488,424 12,506 3.33%
Total Other Borrowings .................... 2,161,026 34,616 6.35% 1,786,182 23,760 5.28%
---------- ---------- ---------- ----------
Total interest-bearing liabilities ........ 4,038,860 53,150 5.22% 3,274,606 36,266 4.39%
Noninterest-bearing liabilities (3) ......... 401,870 367,173
---------- ----------
Total liabilities ......................... 4,440,730 3,641,779
Stockholder's equity ........................ 560,139 622,660
---------- ----------
Total liabilities and stockholders' equity 5,000,869 $4,264,439
========== ==========
Net interest-earning assets ................. $ 711,815 $ 785,351
========== ==========
Net interest income/interest rate spread .... $ 33,390 2.01% $ 34,590 2.53%
========== ==== ========== ====
Net interest margin ......................... 2.79% 3.38%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities .. 117.62% 123.98%
====== ======
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
Nine Months Ended September 30,
-----------------------------------------------------------------------------
2000 1999
----------------------------------- -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Interest-earning assets:
Loans receivable (1):
Real estate loans ........................ $2,454,204 $ 139,940 7.62% $1,657,134 $ 94,388 7.62%
Other loans .............................. 105,030 7,634 9.72% 73,870 5,126 9.28%
---------- ---------- ---------- ----------
Total loans ............................ 2,559,234 147,574 7.71% 1,731,004 99,514 7.69%
Securities ................................ 2,068,620 103,610 6.70% 2,089,810 99,119 6.34%
Other interest-earning assets (2) ......... 23,439 966 5.51% 52,913 1,807 4.57%
---------- ---------- ---------- ----------
Total interest-earning assets ............. 4,651,293 252,150 7.25% 3,873,727 200,440 6.92%
231,380 162,279
Noninterest-earning assets .................. ---------- ----------
$4,882,673 $4,036,006
Total assets .............................. ========== ==========
Interest-bearing liabilities:
Deposits: $ 217,361 $ 4,405 2.71% $ 164,249 $ 3,087 2.51%
NOW and money market deposits ............ 798,986 15,059 2.52% 752,260 14,014 2.49%
Savings and escrow accounts .............. 789,770 31,157 5.27% 551,257 19,635 4.76%
Certificates of deposits ................. ---------- ---------- ---------- ----------
1,806,117 50,621 3.75% 1,467,766 36,736 3.35%
Total deposits ......................... 2,130,695 97,306 6.11% 1,573,740 61,790 5.25%
Total Other Borrowings .................... ---------- ---------- ---------- ----------
3,936,812 147,927 5.02% 3,041,506 98,526 4.33%
Total interest-bearing liabilities ........ 388,286 354,411
Noninterest-bearing liabilities (3) ......... ---------- ----------
4,325,098 3,395,917
Total liabilities ......................... 557,575 640,089
Stockholder's equity ........................ ---------- ----------
$4,882,673 $4,036,006
Total liabilities and stockholders' equity ========== ==========
Net interest-earning assets ................. $ 714,481 $ 832,221
========== ==========
Net interest income/interest rate spread .... $ 104,223 2.22% $ 101,914 2.59%
========== ==== ========== ====
Net interest margin ......................... 3.00% 3.52%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities .. 118.15% 127.36%
====== ======
- ------------------
(1) The average balance of loans receivable includes nonperforming loans,
interest on which is recognized on a cash basis.
(2) Includes money market accounts and Federal Funds sold.
(3) Consists primarily of demand deposit accounts.
14
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rates (changes in rate multiplied by prior volulme); and (iii)
(changes in rate/volume (change in rate multiplied by change in volume).
Three Months Ended September 30,
2000 compared to 1999
--------------------------------------------------
Increase (decrease) due to Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
-------- -------- -------- --------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans ........................... $ 787 $ 16,091 $ 372 $ 17,250
Other loans ................................. (107) 725 (37) 581
-------- -------- -------- --------
Total loans receivable ......................... 680 16,816 335 17,831
Securities ..................................... 929 (2,914) (79) (2,064)
Federal funds sold and interest-bearing deposits 105 (147) (41) (83)
-------- -------- -------- --------
Total net change in income on interest-
earning assets ............................... 1,714 13,755 215 15,684
-------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ............... 77 350 26 453
Savings and escrow accounts ................. 44 255 2 301
Certificates of deposit ..................... 1,171 3,492 611 5,274
-------- -------- -------- --------
Total deposits ............................ 1,292 4,097 639 6,028
Other Borrowings ............................... 4,852 4,986 1,018 10,856
-------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities ................. 6,144 9,083 1,657 16,884
-------- -------- -------- --------
Net change in net interest income .............. $ (4,430) $ 4,672 $ (1,442) $ (1,200)
======== ======== ======== ========
Nine Months Ended September 30,
2000 compared to 1999
--------------------------------------------------
Increase (decrease) due to Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
-------- -------- -------- --------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans ............................ $ 103 $ 45,400 $ 49 $ 45,552
Other loans .................................. 243 2,162 103 2,508
-------- -------- -------- --------
Total loans receivable ....................... 346 47,562 152 48,060
Securities ..................................... 5,552 (1,005) (56) 4,491
Federal funds sold and interest-bearing deposits 373 (1,006) (208) (841)
-------- -------- -------- --------
Total net change in income on interest-
earning assets ............................... 6,271 45,551 (112) 51,710
-------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ................ 242 998 78 1,318
Savings and escrow accounts .................. 164 871 10 1,045
Certificates of deposit ...................... 2,112 8,496 914 11,522
-------- -------- -------- --------
Total deposits ............................. 2,518 10,365 1,002 13,885
Other Borrowings ................................ 10,081 21,868 3,567 35,516
-------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities ................. 12,599 32,233 4,569 49,401
-------- -------- -------- --------
Net change in net interest income ............... $ (6,328) $ 13,318 $ (4,681) $ 2,309
======== ======== ======== ========
15
Interest Income
The Company's total interest income for the three months ended
September 30, 2000 was $86.5 million, an increase of $15.7 million or 22.1%
compared to $70.9 million for the three months ended September 30, 1999. This
increase was primarily due to an increase of $17.8 million in interest income
from loans partially offset by a $2.1 million decrease in interest income from
securities. The primary reason for the increase in interest income from loans
was an $884.9 million increase in the average balance of loans and, to a lesser
extent, a 14 basis points increase in the average yield of the loan portfolio to
7.71% for the third quarter of 2000 compared to 7.57% for the third quarter of
1999. The increase in the average balance of the loan portfolio was due
primarily to the Bank's continued business development efforts and the retention
of select ARM loans originated by the Mortgage Company along with increased loan
demand. The decrease in interest income from securities in the third quarter of
2000 compared to the third quarter of 1999 was due to a $180.9 million decrease
in the average balance of the securities portfolio partially offset by a 17
basis point increase in the average yield to 6.56%. The decline in the average
balance of the securities portfolio reflects management's plan to use cash flows
from the securities portfolio to fund additional originations of relatively
higher yielding loan originations.
Interest income for the nine-month period ending September 30, 2000 was
$252.2 million compared to $200.4 million for the comparable time period last
year. The increase of $51.7 million or 25.8% was primarily due to an increase of
$48.1 million in interest income from loans and a $4.5 million increase in
interest income on securities. The increase in interest income on loans was due
to a $828.2 million increase in the average balance of loans in the first nine
months of 2000 compared to the first nine months of 1999. The increase in
interest income on securities was primarily due to a 36 basis point increase in
the average yield to 6.70% compared to 6.34% for the same time period last year.
The reasons for the increase in the average balance of the loan portfolio are
the same as stated above. The reason for the increase in the average yield of
the securities portfolio is the current higher rate environment resulting in
adjustable rate securities repricing to higher rates and, to a lesser extent,
the securities portfolio acquired from FSB which was recorded at current market
yields in anticipations of the sale of substantially all of such securities.
Interest Expense
The Company's total interest expense for the third quarter of 2000 was
$53.2 million compared to $36.3 million for the comparable time period last
year. The $16.9 million or 46.6% increase was primarily due to a $10.9 million
increase in interest expense on borrowed funds and a $5.3 million increase in
interest expense on time deposits. The increase in interest expense on borrowed
funds was due to a $374.8 million increase in the average balance of borrowed
funds and a 107 basis point increase in the average cost of borrowed funds to
6.35% for the three months ended September 30, 2000 compared to the three months
ended September 30, 1999. While management generally has de-emphasized reliance
on wholesale borrowings in the current year, borrowings increased due, in part,
to funding this acquisition of FSB in January 2000. The increase in the average
cost of borrowings is due to the higher rate environment result in the repricing
of the Company's borrowings at a higher rate for the first nine months of this
year. The increase in interest expense on time deposits is primarily due to a
$293.7 million increase in the average balance of time deposits and an 82 basis
point increase in the average cost of time deposits. The increase in the average
balance of time deposits is primarily due to the acquisition of FSB and the
Company's initiation of a program in June 2000 to use brokers to acquire
additional amounts of time deposits which requires the Company to pay relatively
higher interest rates on such brokered deposits. The increase in the average
cost of time deposits is primarily due to the higher rate environment, the time
deposits acquired from FSB and the brokered CD program.
For the nine-month period ending September 30, 2000, interest expense
was $147.9 million compared to $98.5 million for the nine-month period ending
September 30, 1999. The increase of $49.4 million or 50.1% was primarily due to
16
an increase in interest expense on borrowed funds of $35.5 million and an
increase in interest expense on time deposits of $11.5 million. The increase in
interest expense on borrowed funds was due to a $557.0 million increase in the
average balance of borrowed funds and an 86 basis point increase in the average
cost to 6.11% for the nine months ended September 30, 2000. The increase in
interest expense on time deposits is due to a $238.5 million increase in the
average balance of certificates of deposit and a 51 basis point increase in the
average cost to 5.27%. The reason for the increase in the average balance and
cost of borrowed funds are the same as those previously stated. The reasons for
the increase in the average balance of certificates of deposits are the FSB
acquisition, the previously mentioned brokered CD program and management's
increased emphasis on deposit gathering activities.
Net Interest Income
Net interest income for the third quarter of 2000 was $33.4 million
compared to $34.6 for the third quarter of 1999. The decrease was due to a $16.9
million increase in interest expense partially offset by a $15.7 million
increase in interest income. The increase in interest expense was due to a
$764.3 million increase in the average balance of interest-bearing liabilities
and an 83 basis point increase to 5.22% in the average cost of interest-bearing
liabilities. The increase in interest income was due to a $690.7 million
increase in the average balance of interest-earning assets and a 31 basis point
increase to 7.23% in the average yield of interest-earning assets for the three
months ended September 30, 2000.
The Company's interest rate spread and interest rate margin for the
three months ended September 30, 2000 were 2.01% and 2.79%, respectively,
compared to 2.53% and 3.38%, respectively, for the three months ended September
30, 1999.
Net interest income for the nine-month period ending September 30, 2000
was $104.2 million compared to a $101.9 million for the same time period last
year. The increase was due to a $51.7 million increase in interest income
partially offset by a $49.4 million increase in interest expense. The increase
in interest income was due to a $777.6 million increase in the average balance
of interest-earning assets and a 33 basis point increase in the average yield to
7.25%. The increase in interest expense was due to a $895.3 million increase in
the average balance of interest bearing liabilities and a 69 basis point
increase in the average cost to 5.02% for the nine-month period ending September
30, 2000.
The Company's interest rate spread and interest rate margin for the
nine-month period ending September 30, 2000 was 2.22% and 3.00%, respectively,
compared with 2.59% and 3.52%, respectively, for the same time period last year.
The current higher rate environment and, to a lesser extent, the
changing mix of the Company's interest-bearing liabilities continues to reduce
interest rate spreads and interest rate margins. The Company will continue its
strategy of securities and loan sales to fund higher yielding loans to increase
the interest earning asset yield and maintain its interest rate spreads and
margins.
Provision for Loan Losses
The provision for loan losses for the third quarter was $12,000
compared to $30,000 for the third quarter of 1999. For the nine-month period
ending September 30, 2000, the provision was $41,000 compared to $100,000 for
the comparable time period last year. Management continuously reviews the
composition of the portfolio and its inherent risks, the level of non-accruing
loans and delinquencies, local economic conditions, and current trends in
regulatory supervision when determining the adequacy of the loan loss reserve.
Non-accruing assets totaled $12.6 million at September 30, 2000
compared to $13.4 million as of December 31, 1999. Non-accruing assets as a
percent of total assets was 0.25% at September 30, 2000 compared to 0.30% at
17
December 31, 1999. The allowance for loan losses was $14.5 million at September
30, 2000 compared to $14.3 million at December 31, 1999. The allowance for loan
losses as a percent of non-accruing loans was 129.51% as of September 30, 2000.
The credit quality of the loan portfolio continues to remain relatively strong
primarily due to the Company's underwriting and loan administration procedures
as well as a strong economy in the Company's market area.
Other Income
Other income was $13.0 million for the three months ended September 30,
2000 compared to $9.2 million for the three months ended September 30, 1999. The
increase was primarily due to a $3.8 million increase in service and fee income.
The increase in service and fee income was primarily due to an increase of
$774,000 in net gains on Bank loan sales, a $738,000 increase in the cash
surrender value of Bank Owned Life Insurance ("BOLI"), a $1.7 million increase
in fee income generated by the Mortgage Company and ACLS, and a $338,000
increase in various deposit account fees.
For the nine-month period ending September 30, 2000, other income was
$29.7 million compared to $24.2 million for the nine months ended September 30,
1999. The increase of $5.5 million was primarily due to a $4.1 million increase
in the cash surrender value of BOLI, a $1.0 million increase in various deposit
account fees, a $579,000 increase in net gains on Bank loan sales, and a
$808,000 increase in fees generated by the Mortgage Company and ACLS. These
increases were partially offset by a decrease of $1.7 million in securities
transactions resulting from the sale of securities to fund originations of
relatively higher yielding loans.
Total Other Expenses
Total other expenses for the third quarter of 2000 were $24.8
million compared to $21.4 million for the third quarter of 1999. The increase of
$3.3 million or 15.6% was primarily due to a $1.7 million increase in personnel
expense, a $528,000 increase in occupancy and equipment expense and $775,000
increase in amortization expense for intangible assets. The increase in
personnel expense was primarily due to a $1.0 million increase in commission
expense at the Mortgage Company due to increased volumes and the type of loans
originated, a $373,000 increase due to the additional staff resulting from the
FSB acquisition and a $284,000 increase due to the operation of ACLS. The
increase in occupancy and equipment expense was primarily due to the additional
locations of First State Bank, additional locations of the Mortgage Company and
additional space and equipment needs due to growth. The increase in the non-cash
expense resulting from the amortization of intangible assets was due to the
goodwill from the FSB acquisition.
For the nine-month period ended September 30, 2000, total other
expenses were $70.4 million compared to $60.4 million for the same time period
last year. The increase of $10.1 million or 16.7% is due to a $4.5 million
increase in personnel expense, a $1.4 million increase in occupancy and
equipment expense and a $2.2 million increase in the amortization expense for
intangible assets. The increase in personnel expense is due to a $2.2 million
increase in commission expense at the Mortgage Company, a $1.2 million increase
due to the acquisition of FSB, a $1.0 million increase due to the added
operation of the ACLS, increased personnel costs due to additional staff in the
loan origination and administration area, and normal merit pay increases. The
increase in commissions, occupancy and equipment expense and amortization
expense are the same as those previously discussed.
Provision for Income Taxes
The provision for income taxes for the three months ended September 30,
2000 was $7.9 million compared to $8.7 million for the quarter ended September
30, 1999. The provision for the third quarter of this year includes
miscellaneous tax adjustments as the result of the Company's finalization of its
Federal income tax return for 1999. The effective tax rate for the quarter was
18
36.8%, where the tax rate would have been 38.6% excluding the miscellaneous tax
adjustments, compared to 39.2% for the comparable time period last year. In
addition to the miscellaneous tax adjustments, the reduction of the effective
tax rate was due to various tax planning strategies, primarily as a result of
the purchase of BOLI which was purchased in the third quarter of 1999.
For the nine months ended September 30, 2000, the provision for income
taxes was $24.2 million compared to $26.4 million for the same time period one
year ago. This resulted in an effective tax rate before the previously mentioned
adjustment of 38.7% for the nine months ended September 30, 2000 compared to
40.3% for the nine months ended September 30, 1999. The reduction in the
effective tax rate was due to various tax planning strategies, primarily the
BOLI which was purchased in the third quarter of 1999.
Liquidity and Commitments
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, amortization, prepayments and maturities
of outstanding loans and mortgage-backed securities, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-backed
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in federal funds sold
and other short-term interest-earning assets which provide liquidity to meet
lending requirements.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds. The Company uses its sources of funds primarily to meet
its ongoing commitments, to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed
and mortgage-related securities and investment securities. At September 30,
2000, the total approved loan origination commitments outstanding amounted to
$348.6 million. At the same date, the unadvanced portion of construction loans
totaled $78.3 million. Certificates of deposit scheduled to mature in one year
or less at September 30, 2000 totaled $725.7 million. Investment securities
scheduled to mature in one year or less at September 30, 2000 totaled $3.1
million and amortization from investments and loans is projected at $705.5
million over the next 12 months. Based on historical experience, the current
pricing strategy and the strong core deposit base, management believes that a
significant portion of maturing deposits will remain with the Bank. The Bank
anticipates that it will continue to have sufficient funds, together with loan
sales and security sales, to meet its current commitments.
Capital
At September 30, 2000 the Bank had regulatory capital which was well in
excess of all regulatory requirements set by the OTS. The current requirements
and the Bank's actual levels are detailed below (dollars in thousands):
Required Capital Actual Capital Excess Capital
------------------------- ---------------------- --------------------
Amount Percent Amount Percent Amount Percent
--------- --------- -------- -------- --------- --------
Tangible capital $ 73,973 1.50% $ 387,456 7.86% $ 313,483 6.36%
Core capital $ 197,310 4.00% $ 388,694 7.88% $ 191,384 3.88%
Risk-based capital $ 201,813 8.00% $ 403,239 15.98% $ 201,426 7.98%
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk continues to be market interest rate
volatility due to the potential impact on net interest income and the market
value of all interest-earning assets and interest-bearing liabilities resulting
from changes in interest rates. The operation of the Company does not subject it
to foreign exchange or commodity price risk and the Company does not own any
trading assets. The real estate loan portfolio of the Company is concentrated
primarily within the New York metropolitan area making it subject to the risks
associated with the local economy. Management believes that there have been no
material changes in the Company's market risk at September 30, 2000 as compared
to December 31, 1999. For a complete discussion of the Company's asset and
liability management market risk and interest rate sensitivity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1999 Annual Report to Stockholders.
19
Part II Other Information
Item 1 Legal Proceedings
-----------------
Not Applicable
Item 2 Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3 Defaults Upon Senior Securities]
--------------------------------
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
Not applicable
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
a. 27.0 Financial Data Schedule
b. No Form 8-K reports were filed during the quarter
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STATEN ISLAND BANCORP, INC.
Date: November 14, 2000 By: /s/ Harry P. Doherty
----------------- -------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer
Date: November 14, 2000 By: /s/ Edward Klingele
----------------- ----------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer
21