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 June 30, 2001
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 (I.R.S. Employer
incorporation 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
30,199,146 shares of Common Stock outstanding as of August 8, 2001.
Table of Contents PAGE
- ----------------- ----
Part 1 Financial Information
Item 1 Financial Statements
Unaudited Statements of Condition
(As of June 30, 2001 and December 31, 2000) 1
Unaudited Statements of Income
(For three and six months ended June 30, 2001 and
three and six months ended June 30, 2000) 2
Unaudited Statement of Changes in Stockholders' Equity
(For six months ended June 30, 2001) 3
Unaudited Statements of Cash Flows
(For the six months ended June 30, 2001 and 2000) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
Item 3 Quantitative and Qualitative Disclosures About Market Risk 21
Part II Other Information
Item 1 Legal Proceedings 22
-----------------
Item 2 Changes in Securities and Use of Proceeds 22
-----------------------------------------
Item 3 Defaults Upon Senior Securities 22
-------------------------------
Item 4 Submission of Matters to a Vote of Security Holders 22
---------------------------------------------------
Item 5 Other Information 22
-----------------
Item 6 Exhibits and Reports on Form 8-K 22
--------------------------------
Signatures 23
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
-----------------------------------
June 30, 2001 December 31, 2000
------------- ------------------
(000's omitted)
unaudited
ASSETS
ASSETS:
Cash and due from banks .............................. $ 107,094 $ 92,103
Federal funds sold ................................... 30,000 12,000
Securities available for sale ........................ 1,699,847 1,888,946
Loans, net ........................................... 2,750,031 2,847,660
Loans held for sale, net ............................. 748,762 116,163
Accrued interest receivable .......................... 32,235 30,905
Bank premises and equipment, net ..................... 31,804 31,883
Intangible assets, net ............................... 60,233 62,447
Other assets ......................................... 171,219 158,757
----------- -----------
Total assets ......................................... $ 5,631,225 $ 5,240,864
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due Depositors-
Savings .............................................. $ 796,154 $ 760,238
Certificates of deposits ............................. 1,005,186 947,584
Money market ......................................... 224,126 142,394
NOW accounts ......................................... 102,746 94,699
Demand deposits ...................................... 441,911 400,298
----------- -----------
Total deposits ....................................... 2,570,123 2,345,213
Borrowed funds ....................................... 2,417,289 2,241,011
Advances from borrowers for taxes and insurance ...... 16,803 11,534
Accrued interest and other liabilities ............... 57,170 57,574
----------- -----------
Total liabilities .................................... 5,061,385 4,655,332
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, 100,000,000
shares authorized, 45,130,312 issued and 33,211,537
outstanding at June 30, 4511 and 45,130,312 issued and
34,920,987 outstanding at December 31, 2000
Additional paid-in-capital ........................... 539,427 537,744
Retained earnings-substantially restricted ........... 310,392 291,345
Unallocated common stock held by ESOP ................ (31,589) (32,962)
Unearned common stock held by RRP .................... (19,583) (19,784)
Treasury stock (11,918,775 shares at June 30, 2001
and 10,209,325 at December 31, 2000), at cost ........ (229,931) (188,321)
----------- -----------
569,167 588,473
Accumulated other comprehensive income, net of taxes . 673 (2,941)
----------- -----------
Total stockholders' equity ........................... 569,840 585,532
----------- -----------
Total liabilities and stockholders' equity ........... $ 5,631,225 $ 5,240,864
=========== ===========
1
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended For the Six Months Ended
June 30, June 30,
---------------------------- --------------------------
2001 2000 2001 2000
---------------------------- --------------------------
(000's omitted, except per share data)
unaudited
Interest Income:
Loans .................................................. $ 64,382 $ 49,483 $ 123,831 $ 93,609
Securities, available for sale ......................... 28,068 34,507 58,918 71,327
Federal funds sold ..................................... 254 214 633 674
--------- --------- --------- ---------
Total interest income ............................... 92,704 84,204 183,382 165,610
--------- --------- --------- ---------
Interest Expense:
Savings and escrow ..................................... 4,516 5,064 8,877 9,997
Certificates of deposits ............................... 14,206 10,125 28,136 19,198
Money market and NOW ................................... 2,381 1,508 4,128 2,892
Borrowed funds ......................................... 33,021 32,376 67,822 62,690
--------- --------- --------- ---------
Total interest expense .............................. 54,124 49,073 108,963 94,777
--------- --------- --------- ---------
--------- --------- --------- ---------
Net interest income ................................. 38,580 35,131 74,419 70,833
Provision for Loan Losses .............................. 600 11 1,200 29
--------- --------- --------- ---------
Net interest income after provision for loan losses 37,980 35,120 73,219 70,804
Other Income (Loss):
Service and fee income ................................. 4,701 3,903 9,591 7,982
Loan fees and gains .................................... 20,953 5,580 32,595 9,889
Securities transactions ................................ 9 (934) 3 (1,158)
--------- --------- --------- ---------
25,663 8,549 42,189 16,713
Other Expenses:
Personnel .............................................. 15,716 10,946 28,463 22,179
Commissions ............................................ 9,835 2,467 14,733 4,308
Occupancy and equipment ................................ 3,068 2,315 6,256 4,692
Amortization of intangible assets ...................... 1,431 1,347 2,818 2,564
Data processing ........................................ 1,451 1,395 2,990 2,543
Marketing .............................................. 788 510 1,461 990
Professional fees ...................................... 838 502 1,446 1,070
Other .................................................. 5,618 3,799 10,138 7,293
--------- --------- --------- ---------
Total other expenses ................................ 38,745 23,281 68,305 45,639
--------- --------- --------- ---------
Income before provision for income taxes ............ 24,898 20,388 47,103 41,878
Provision for Income Taxes ............................. 9,735 7,892 17,944 16,219
--------- --------- --------- ---------
Net Income ............................................. $ 15,163 $ 12,496 $ 29,159 $ 25,659
========= ========= ========= =========
Earnings Per Share:
Basic .................................................. $ 0.50 $ 0.37 $ 0.95 $ 0.75
Fully Diluted .......................................... $ 0.49 $ 0.37 $ 0.94 $ 0.75
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, 2001........................... $ 451 $ 537,744 $ (32,962) $ (19,784) $ (188,321)
Change in unrealized
appreciation (depreciation)
on securities, net of tax.........................
Allocation of 114,452 ESOP shares................. 1,506 1,373
Vesting of 11,000 RRP shares...................... 9 201
Exercise of 46,258 stock options.................. 168 891
Treasury stock (1,755,708 shares) at cost......... (42,501)
Net Income........................................
Cash dividends paid...............................
------------------------------------------------------------------
Balance June 30, 2001............................. $ 451 $ 539,427 $ (31,589) $ (19,583) $ (229,931)
==================================================================
Accumulated
Other
Comprehensive Retained Comprehensive
Income Income Income Total
-----------------------------------------------------------
(000's omitted)
Balance January 1, 2001........................... $ 291,345 $ (2,941) $ 585,532
Change in unrealized
appreciation (depreciation)
on securities, net of tax......................... 3,614 3,614 3,614
Allocation of 114,452 ESOP shares................. 2,879
Vesting of 11,000 RRP shares...................... 210
Exercise of 46,258 stock options.................. 69 1,128
Treasury stock (1,755,708 shares) at cost......... (42,501)
Net Income........................................ 29,159 29,159 29,159
-----------
32,773
Cash dividends paid............................... (10,181) (10,181)
-----------------------------------------------------------
Balance June 30, 2001............................. $ 310,392 $ 673 $ 569,840
===========================================================
3
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001
2001 2000
---- ----
(000's omitted)
unaudited
Cash Flows From Operating Activities:
Net Income .................................................. $ 29,159 $ 25,659
Adjustments to reconcile net income to net cash
provided by operating activities----
Depreciation and amortization ............................... 1,976 1549
Amortization of bond and mortgage premiums .................. 279 (1,021)
Amortization of intangible assets ........................... 2,818 2,564
Loss (Gain) on sale of available for sale securities ........ (3) 1,158
Other noncash income ........................................ (4,503) (5,067)
Expense charge relating to allocation and earned
portions of employee benefit plan ........................... 4,898 4,118
Provision for possible loan losses .......................... 1,200 29
Decrease in deferred loan fees .............................. (695) (2,045)
Decrease (increase) in accrued interest receivable .......... (1,330) 1,724
Decrease in other assets .................................... (17,006) (8,756)
Increase in accrued interest and other liabilities .......... 375 7,940
(Increase) decrease in deferred income taxes ................ 1,986 (102)
Recoveries of loans ......................................... 479 434
-----------------------------
Net cash provided by operating activities ................... 19,633 28,184
-----------------------------
Cash Flows From Investing Activities:
Maturities of available for sale securities ................. 211,448 100,380
Sales of available for sale securities ...................... 148,118 224,377
Purchases of available for sale securities .................. (163,287) (35,106)
Principal collected on loans ................................ 764,727 192,260
Loans made to customers ..................................... (1,884,841) (813,932)
Purchases of loans .......................................... (247,136) (21,240)
Sales of loans .............................................. 832,114 234,160
Capital expenditures ........................................ (1,560) (2,448)
Acquisition of FSB, net of cash acquired .................... -- (46,688)
-----------------------------
Net cash used in investing activities ....................... (340,417) (168,237)
-----------------------------
Cash Flows From Financing Activities:
Net increase in deposit accounts ............................ 230,179 107,904
Borrowings .................................................. 176,278 54,938
Dividends paid .............................................. (10,181) (9,068)
Purchase of Treasury Stock .................................. (42,501) (33,306)
Net cash provided by financing activities ................... 353,775 120,468
Net (decrease) increase in cash and cash equivalents ........ 32,991 (19,585)
Cash and equivalents, beginning of year ..................... 104,103 101,398
-----------------------------
Cash and equivalents, end of period ......................... $ 137,094 $ 81,813
=============================
Supplemental Disclosures Of Cash Flow Information:
Cash paid for-
Interest .................................................... $ 113,419 $ 89,942
Income taxes ................................................ $ 13,964 $ 16,886
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
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 (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") 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 six-month period ended June
30, 2001 are not necessarily indicative of the results to be expected for the
year ending December 31, 2001. 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
Annual Report on Form 10-K for the year ended December 31, 2000.
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 seventeen full service branches, one supermarket branch and three
limited service branches on Staten Island, two full service branches in
Brooklyn, five full service branches in Ocean County, New Jersey, two full
service branches in Monmouth County, New Jersey, three full service branches in
Union County, New Jersey and one full service branch 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 40 states and sells them to investors generating fee income for the Bank. The
Bank, in its efforts to manage interest rate risk and improve yields,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.
5
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 and 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
40 states and, as of June 30, 2001, had assets totaling $1.1 billion of which
$748.8 million were loans held for sale. As of June 30, 2001,the Mortgage
Company held $112.2 million of residential loans in its own portfolio for
investment and the Bank held $187.0 million in higher yielding residential ARMS
in its portfolio.
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 assets of SIFC totaled $666.6 million at June 30,
2001.
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 June 30, 2001 were $886.2 million.
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 $460,000 as of
June 30, 2001.
Earnings Per Share
Earnings per share are computed by dividing net income by the
weighted average number of shares of common stock and dilutive common stock
equivalents outstanding, adjusted for the unallocated portion of shares held by
the Employee Stock Ownership Plan ("ESOP") and unearned Recognition and
Retention Plan ("RRP") in accordance with the Statement of Positions 93-6. The
following table is a reconciliation of the earnings per share calculation for
the three and six months ended June 30, 2001 and 2000.
6
Earnings Per Share Reconciliation
Weighted Per
Net Average Share
Income Shares Amount
Outstanding
-----------
(Dollars and shares in thousands,
except per share amounts)
3 Months ended June 30,2001
Basic EPS
Net income $ 15,163 $ 30,442 $ 0.50
Effect of Dilutive Securities
Incremental shares from assumed
exercise of outstanding options - 188 (0.01)
---------------------------------------------------------
Diluted EPS $ 15,163 $ 30,630 $ 0.49
=========================================================
3 Months ended June 30,2000
Basic EPS
Net income $ 12,496 $ 33,781 $ 0.37
Effect of Dilutive Securities - - -
Incremental shares from assumed - - -
exercise of outstanding options - - -
---------------------------------------------------------
Diluted EPS $ 12,496 $ 33,781 $ 0.37
=========================================================
6 Months ended June 30,2001
Basic EPS
Net income $ 29,159 $ 30,864 $ 0.94
Effect of Dilutive Securities - - -
Incremental shares from assumed - - -
exercise of outstanding options - 116 -
---------------------------------------------------------
Diluted EPS $ 29,159 $ 30,980 $ 0.94
=========================================================
6 Months ended June 30,2000
Basic EPS
Net income $ 25,659 $ 34,377 $ 0.75
Effect of Dilutive Securities - - -
Incremental shares from assumed - - -
exercise of outstanding options - - -
---------------------------------------------------------
Diluted EPS $ 25,659 $ 34,377 $ 0.75
=========================================================
7
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 June 30, 2001
and December 31,2000
June 30, 2001 December 31, 2000
Bonds - Available For Sale -------------------------- --------------------------
- -------------------------- Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- -----------
(000's omitted) (000's omitted)
U.S. Treasuries ..................................... $ 3,060 $ 3,119 $ 4,340 $ 4,393
Govt. Sponsored Agencies ............................ 95,334 95,379 174,011 173,693
Industrial and Finance .............................. 159,629 148,938 170,230 157,647
Foreign ............................................. 250 250 250 250
---------- ---------- ---------- ----------
Total Debt Securities ............................... 258,273 247,686 348,831 335,983
---------- ---------- ---------- ----------
Mortgage-Backed and Mortgage-Related Securities
G.N.M.A. - M.B.S .................................... 12,580 12,738 14,264 14,632
F.H.L.M.C. - M.B.S .................................. 329,488 329,660 317,450 319,482
F.N.M.A. - M.B.S .................................... 328,437 330,482 380,578 383,114
Agency C.M.O.'s ..................................... 201,443 201,800 223,224 221,267
Privately Issued C.M.O.'s ........................... 388,174 391,149 412,374 410,752
---------- ---------- ---------- ----------
Total Mortgage-Backed and Mortgage Related Securities 1,260,122 1,265,829 1,347,890 1,349,247
---------- ---------- ---------- ----------
Total Bonds and Mortgage-Backed and Mortgage
Related Securities -Available For Sale .......... 1,518,395 1,513,515 1,696,721 1,685,230
---------- ---------- ---------- ----------
Equity Securities Amortized Fair Amortized Fair
- ----------------- Cost Value Cost Value
---------- ---------- ---------- -----------
Preferred Stock ..................................... 39,173 36,086 69,913 62,888
Common Stock ........................................ 111,609 117,291 98,632 105,084
IIMF Capital Appreciation Fund ...................... 29,375 32,955 29,337 35,744
---------- ---------- ---------- ----------
Total Equity Securities ............................. 180,157 186,332 197,882 203,716
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Investments ................................... $1,698,552 $1,699,847 $1,894,603 $1,888,946
========== ========== ========== ==========
8
Loan Portfolio Composition. The following table sets forth the composition of
the Company's loans at the dates indicated.
June 30, 2001 December 31, 2000
-------------------------------------
(000's omitted)
Mortgage loans:
Single-family residential ........... $ 2,015,955 $ 2,206,972
Multi-family residential ............ 47,859 49,034
Commercial real estate .............. 311,065 307,407
Construction and land ............... 245,426 152,956
Home equity ......................... 12,554 10,699
----------- -----------
Total mortgage loans ............... 2,632,859 2,727,068
Other loans:
Student loans ....................... 244 333
Passbook loans ...................... 7,072 6,237
Commercial business loans ........... 53,163 52,980
Other consumer loans ................ 60,882 63,984
----------- -----------
Total other loans .................. 121,361 123,534
----------- -----------
Total loans receivable ............. 2,754,220 2,850,602
Premium on loans purchased .......... 5,318 5,713
Allowance for loan losses ........... (14,795) (14,638)
Deferred loan costs ................. 5,288 5,983
----------- -----------
Loans receivable, net ................ $ 2,750,031 $ 2,847,660
=========== ===========
9
Delinquent Loans: The following table sets forth information concerning loans at
June 30, 2001 on which the Company is accruing interest and as a percentage of
each category of the Company's loan portfolio. The amount presented represents
the total outstanding principal of related loans, rather than the actual payment
amounts which are past due.
June 30, 2001
------------------------------- ----------------------------- ----------------------------
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 ......... $13,275 0.66% $ 5,315 0.26% $ 7,551 0.37%
Multi-family residential .......... 199 0.42% 165 0.34% -- 0.00%
Commercial real estate ............ 4,320 1.39% 3,152 1.01% -- 0.00%
Construction and land ............. 147 0.06% 1,381 0.56% -- 0.00%
Home equity ....................... 841 6.70% -- 0.00% 449 3.58%
------- ------- ------- ------- ------- -------
Total mortgage loans ............. 18,782 0.71% 10,013 0.38% 8,000 0.30%
Other loans:
Commercial business loans ......... 1,947 3.66% 298 0.56% 66 0.12%
Other loans ....................... 2,437 3.57% 912 1.34% 462 0.68%
------- ------- ------- ------- ------- -------
Total other loans ................ 4,384 3.61% 1,210 1.00% 528 0.44%
------- ------- ------- ------- ------- -------
Total loans ...................... 23,166 0.84% 11,223 0.41% 8,528 0.31%
======= ======= ======= ======= ======= =======
10
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, repossessed assets, and loans past due 90 days or more
and still accruing.
June 30, 2001 December 31, 2000
--------------- -------------------
(000's omitted)
Non-Accruing Assets
Mortgage loans:
Single-family residential ............................ $ 5,249 $ 3,335
Multi-family residential ............................. 16 340
Commercial real estate ............................... 3,268 2,979
Construction and land ................................ 980 524
Home equity .......................................... 43 5
Other loans:
Commercial business loans ............................ 1,090 1,482
Other consumer loans ................................. 342 1,111
------- -------
Total non-accrual loans .............................. 10,988 9,776
Other real estate owned and repossessed assets, net .... 835 893
------- -------
Total non-accruing assets .......................... 11,823 10,669
Loans past due 90 days or more and still accruing ...... 8,528 7,068
Non-accruing assets and loans past due 90 days
------- -------
or more and still accruing .......................... $20,351 $17,737
======= =======
Non-accruing assets to total loans ..................... 0.43% 0.37%
Non-accruing assets to total assets .................... 0.21% 0.20%
Non-accruing loans to total loans ...................... 0.40% 0.34%
Non-accruing loans to total assets ..................... 0.20% 0.19%
11
Six Months Ended Year Ended
June 30, December 31,
2001 2000 2000
------------------------------------------------
(000's omitted)
Allowance at beginning of period ............. $14,638 $14,271 $14,271
Provisions ................................... 1,200 29 652
Increase as a result of acquisition .......... -- 847 847
Charge-offs:
Mortgage loans:
Construction, land and land development ... -- 6 6
Single-family residential ................. 67 74 120
Multi-family residential .................. -- -- --
Commercial real estate .................... -- 134 134
Other loans .................................. 1,456 673 1,926
------- ------- -------
Total charge-offs ......................... 1,523 887 2,186
Recoveries:
Mortgage loans:
Construction, land and land development ... -- -- --
Single-family residential ................. 129 11 19
Multi-family residential .................. -- -- --
Commercial real estate .................... -- -- 27
Other loans .................................. 351 423 1,008
------- ------- -------
Total recoveries .......................... 480 434 1,054
------- ------- -------
Allowance at end of period ................... $14,795 $14,694 $14,638
======= ======= =======
Allowance for possible loan losses
to total non-accruing loans at
end of period ................................ 134.64% 116.89% 149.73%
Allowance for possible loan losses
to total loans at end of period .............. 0.54% 0.56% 0.51%
12
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
The Company recorded total assets of $5.6 billion at June 30,
2001 compared to total assets of $5.2 billion at December 31, 2000. The growth
of $390.4 million or 7.4% is primarily due to an increase of $632.6 million in
loans held for sale, net at the Mortgage Company partially offset by a $189.1
million decrease in the securities portfolio and a $97.6 million decrease in net
loans. The increase in loans held for sale, net was driven by record loan
originations of $1.9 billion, including $1.5 billion originated by the Mortgage
Company, during the first six months of this year. The record loan originations
are due to the current interest rate environment and the Mortgage Company's
expansion over the past 12 months. The Mortgage Company now operates in 40
states and anticipates this level of originations to continue in the second half
of 2001. During the first half of 2001, loan sales at the Mortgage Company were
$643.6 million and the Bank retained for its own portfolio $40.3 million of
relatively higher yielding adjustable rate loans originated by the Mortgage
Company. The funding for the increase in loans held for sale was provided by
sales, scheduled amortization payments and prepayments from the securities and
net loan portfolios. Sales from the securities and net loan portfolios were
$148.1 million and $178.5 million, respectively, for the first six months of
2001. The proceeds from these sales were primarily used to fund higher yielding
loan originations by the Mortgage Company.
Deposits increased $224.9 million or 9.6% to $2.6 billion during
the first six months of 2001. Money market accounts increased $81.7 million to
$224.1 million primarily due to the introduction of a new higher yielding money
market account in April of this year. Retail certificates of deposits ("CDs")
and brokered CD deposits totaled $955.0 million and $50.2 million, respectively,
as of June 30, 2001. Retail CD deposits increased $82.6 million and brokered CDs
decreased $25.0 million during the six months ended June 30, 2001. The Bank
occasionally will use brokered deposits to supplement retail deposits in raising
funds for financing and liquidity needs. Core deposits, which consist of
non-interest bearing DDA accounts, savings, NOW and money market accounts,
totaled $1.6 billion and represent 60.9% of total deposits as of June 30, 2001.
Non-interest bearing DDA accounts increased $41.6 million or 10.4% and savings
accounts increased $35.9 million or 4.7% during the first six months of 2001.
The increase in deposits was driven by the Company's current emphasis on deposit
generation through competitive rates, introduction of new products and continued
business development efforts expanding our presence in our existing markets in
New Jersey.
Borrowed funds as of June 30, 2001 were $2.4 billion compared to
$2.2 billion at December 31, 2000. The increase of $176.3 million was primarily
used to fund originations of the loans held for sale at the Mortgage Company.
Borrowings consist of advances from the Federal Home Loan Bank ("FHLB") of $1.5
billion and reverse repurchase agreements with the FHLB and nationally
recognized brokerage firms of $867.3 million and an overnight line of credit
with the FHLB of $25.0 million.
13
Stockholders' equity amounted to $569.8 million at June 30, 2001
and $585.5 million at December 31, 2000, or 10.1% and 11.2% of total assets at
such dates, respectively. The decrease of $15.7 million was due to the
repurchase of 1.8 million shares of the Company's common stock at an aggregate
cost of $42.5 million and an aggregate cash dividend payment of $10.2 million.
These two decreases were partially offset by net income of $29.2 million, an
allocation of Employee Stock Ownership Plan ("ESOP") and Recognition and
Retention ("RRP") shares resulting in an increase of $3.1 million, the exercise
of 46,258 stock options resulting in an increase of $1.1 million and a decrease
of $3.6 million in unrealized depreciation on securities available for sale, net
of taxes. The tangible book value per share was $15.34 at June 30, 2001 compared
to $14.98 at December 31, 2000.
Results of Operations
The Company reported net income of $15.2 million or $0.49 per
fully diluted share for the three months ended June 30, 2001 compared to net
income of $12.5 million or $0.37 per fully diluted share for the three months
ended June 30, 2000. Cash earnings for the second quarter of 2001 were $18.1
million or $0.59 per fully diluted share compared to cash earnings of $15.1
million or $0.45 per fully diluted share for the same time period last year. The
increase of $0.12 in fully diluted earnings per shares represent a 32.4%
increase and the $0.14 increase in cash earnings per share represents a 31.1%
increase. 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.
Net income for the six months ended June 30, 2001 was $29.2
million or $0.94 per fully diluted share, an increase of 25.3% on an EPS basis
compared to net income of $25.7 million or $0.75 per fully diluted share for the
comparable time period last year. Cash earnings were $35.0 million or $1.13 per
fully diluted share, an increase of 27.0% on an EPS basis over cash earnings of
$30.7 million or $0.89 per fully diluted share for the first six months of 2000.
Core earnings per fully diluted share were $0.94, an increase of 22.1% over
$0.77 per fully diluted share for the same time period last year. Core earnings
represent the Company's earnings excluding securities gains and losses, net of
taxes.
The increase in net income for the quarter ended June 30, 2001
compared to the same quarter one year ago was due to an increase in other income
of $17.1 million and an increase in net interest income of $3.4 million. These
increases were partially offset by an increase of $15.5 million in total other
expenses, an increase of $1.8 million in the provision for income taxes and an
increase of $589,000 in the provision for loan losses.
For the six months ended June 30, 2001, the increase in net
income compared to the first six months of 2000 was due to a $25.5 million
increase in other income and a $3.6 million increase in net interest income.
These increases were partially offset by a $22.7 million increase in total other
expenses, a $1.7 million increase in the provision for income taxes and a $1.2
million increase in the provision for loan losses.
14
Three Months Ended June 30,
--------------------------------------------------------------------------
2001 2000
---------------------------------- -------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ----------- ---- ---------- ---------- ----------
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1):
Real estate loans .................................... $3,262,392 $ 61,625 7.58% $2,458,546 $ 46,890 7.65%
Other loans .......................................... 118,119 2,757 9.36% 106,630 2,592 9.75%
---------- ---------- ---------- ----------
Total loans ......................................... 3,380,511 64,382 7.64% 2,565,176 49,482 7.74%
Securities ............................................ 1,759,556 28,068 6.40% 2,074,150 34,508 6.67%
Other interest-earning assets (2) ..................... 32,666 254 3.11% 16,692 214 5.14%
---------- ---------- ---------- ----------
Total interest-earning assets ......................... 5,172,733 92,704 7.19% 4,656,018 84,204 7.25%
---------- ----------
Noninterest-earning assets ............................. 402,759 274,780
---------- ----------
Total assets .......................................... $5,575,492 $4,930,798
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ........................ 291,161 2,381 3.28% 223,317 1,508 2.71%
Savings and escrow accounts .......................... 808,755 4,516 2.24% 809,667 5,064 2.51%
Certificates of deposits ............................. 1,020,103 14,206 5.59% 781,204 10,125 5.20%
---------- ---------- ---------- ----------
Total deposits ...................................... 2,120,019 21,103 3.99% 1,814,188 16,697 3.69%
Total Other Borrowings ............................... 2,392,163 33,021 5.54% 2,131,402 32,376 6.09%
---------- ---------- ---------- ----------
Total interest-bearing liabilities ................... 4,512,182 54,124 4.81% 3,945,590 49,073 4.99%
----------
Noninterest-bearing liabilities (3) .................... 496,514 433,838
----------
Total liabilities .................................... 5,008,696 4,379,428
Stockholder's equity ................................... 566,796 551,370
----------
Total liabilities and stockholders' equity ........... $5,575,492 $4,930,798
========== ==========
Net interest-earning assets ............................ $ 660,551 $ 710,428
========== ---------- ==========
Net interest income/interest rate spread ............... $ 38,580 2.38% $ 35,131 2.27%
========== ==== ========== ====
Net interest margin .................................... 2.99% 3.03%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities ............. 114.64% 118.01%
====== ======
Six Months Ended June 30,
---------------------------------------------------------------------
2001 2000
------------------------------------ ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
----------- ---------- ---- --------- ---------- ----
(Dollars in Thousands)
Interest-earning assets:
Loans receivable (1):
Real estate loans................................. $ 3,123,188 $ 118,244 7.63% $ 2,344,995 $ 88,646 7.62%
Other loans....................................... 118,519 5,587 9.51% 103,388 4,963 9.68%
----------- --------- ----------- --------
Total loans.................................... 3,241,707 123,831 7.70% 2,448,383 93,609 7.71%
Securities........................................ 1,818,560 58,918 6.53% 2,127,854 71,327 6.76%
Other interest-earning assets (2)................. 33,324 633 3.83% 24,819 674 5.47%
----------- --------- ----------- --------
Total interest-earning assets..................... 5,093,591 183,382 7.26% 4,601,056 165,610 7.26%
--------- --------
Noninterest-earning assets........................ 368,392 221,869
----------- -----------
Total assets...................................... $ 5,461,983 $ 4,822,925
=========== ===========
Interest-bearing liabilities:
Deposits:
NOW and money market deposits.................. 266,727 4,128 3.12% 215,005 2,892 2.71%
Savings and escrow accounts...................... 796,880 8,877 2.25% 798,596 9,997 2.52%
Certificates of deposits.......................... 1,000,032 28,136 5.67% 756,263 19,198 5.12%
------------ ---------- ------------ --------
Total deposits................................. 2,063,639 41,141 4.02% 1,769,864 32,087 3.66%
Total Other Borrowings............................ 2,344,761 67,822 5.83% 2,115,362 62,690 5.98%
------------ ---------- ------------ --------
Total interest-bearing liabilities................ 4,408,400 108,963 4.98% 3,885,226 94,777 4.92%
---------- --------
Noninterest-bearing liabilities (3)............... 479,607 381,419
------------ ------------
Total liabilities................................. 4,888,007 4,266,645
Stockholder's equity.............................. 573,976 556,280
------------ ------------
Total liabilities and stockholders' equity........ $ 5,461,983 $ 4,822,925
============ ============
Net interest-earning assets....................... $ 685,191 $ 715,830
============ ---------- ============ --------
Net interest income/interest rate spread.......... $ 74,419 2.28% $ 70,833 2.34%
========== ==== ======== ====
Net interest margin............................... 2.95% 3.10%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities........ 115.54% 118.42%
====== ======
- ------------------
(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.
15
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes on net
interest income of the company. 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 rate (changes in rate multiplied by prior volume); and (iii) changes
in rate/volume (change in rate multiplied by change in volume).
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------------- -------------------------------------------
2001 compared to 2000 2001 compared to 2000
------------------------------------------- -------------------------------------------
Increase (decrease) due to Increase (decrease) due to
------------------------------ Total ----------------------------- Total
Rate/ Net Increase Rate/ Net Increase
Rate Volume Volume (Decrease) Rate Volume Volume (Decrease)
-------- -------- -------- -------- -------- -------- -------- --------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans ................... $ (449) $ 15,331 $ (147) $ 14,735 $ 136 $ 29,417 $ 45 $ 29,598
Other loans ......................... (104) 279 (11) 164 (89) 726 (13) 624
-------- -------- -------- -------- -------- -------- -------- --------
Total loans receivable .............. (553) 15,610 (158) 14,899 47 30,143 32 30,222
Securities ............................ (1,421) (5,234) 216 (6,439) (2,389) (10,367) 347 (12,409)
Other interest-earning assets ......... (84) 205 (81) 40 (203) 231 (69) (41)
Total net change in income on interest-
-------- -------- -------- -------- -------- -------- -------- --------
earning assets ..................... (2,058) 10,581 (23) 8,500 (2,545) 20,007 310 17,772
-------- -------- -------- -------- -------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ....... 318 458 97 873 435 696 105 1,236
Savings and escrow accounts ......... (542) (6) -- (548) (1,100) (22) 2 (1,120)
Certificates of deposit ............. 754 3,096 231 4,081 2,080 6,188 670 8,938
-------- -------- -------- -------- -------- -------- -------- --------
Total deposits ..................... 530 3,548 328 4,406 1,415 6,862 777 9,054
Other Borrowings ...................... (2,954) 3,961 (362) 645 (1,503) 6,798 (163) 5,132
Total net change in expense on
-------- -------- -------- -------- -------- -------- -------- --------
interest-bearing liabilities ........ (2,424) 7,509 (34) 5,051 (88) 13,660 614 14,186
-------- -------- -------- -------- -------- -------- -------- --------
Net change in net interest income ..... $ 366 $ 3,072 $ 11 $ 3,449 $ (2,457) $ 6,347 $ (304) $ 3,586
======== ======== ======== ======== ======== ======== ======== ========
16
Interest Income
The Company's total interest income was $92.7 million for the
three months ended June 30, 2001 compared to $84.2 million for the comparable
time period last year. The $8.5 million or 10.1% increase was due to a $14.9
million increase in interest income from loans partially offset by a $6.4
million decrease in interest income from securities. The increase in interest
income from loans was due to an $815.3 million increase in the average balance
of loans, primarily due to the growth of loans held for sale at the Mortgage
Company, the continued retention of higher yielding adjustable rate loans
originated by the Mortgage Company in the Bank's portfolio and increased loan
demand. The decrease in interest income from securities was primarily due to a
decrease of $314.6 million in the average balance of the securities portfolio
reflecting managements' intention to use cash flows and certain sales from the
securities portfolio to fund originations of relatively higher yielding loans.
Reflecting the current interest rate environment, there also was a 27 basis
point decline in the average yield of the securities portfolio to 6.40% for the
second quarter of 2001.
Interest income for the six month period ended June 30, 2001 was
$183.4 million compared to $165.6 million for the same time period last year.
The increase of $17.8 million or 10.7% was primarily due to an increase of $30.2
million in interest income from loans partially offset by a $12.4 million
decrease in interest income from securities. The primary reason for the increase
in interest income from loans was a $793.3 million increase in the average
balance of loans due to substantially the same reasons as previously discussed
for the quarter. The decline in interest income from securities was due to a
$309.3 million decrease in the average balance of securities and a 23 basis
point decline in the average rate to 6.53% due to substantially the same reasons
as previously stated for the quarter.
Interest Expense
The Company's total interest expense was $54.1 million for the
second quarter of 2001 compared to $49.1 million for the same time period last
year. The $5.1 million or 10.3% increase was primarily due to a $4.1 million
increase in interest expense for certificates of deposit. The increase in
interest expense for certificates of deposits was due to a $238.9 million
increase in the average balance of certificates of deposit and a 39 basis point
increase in the average rate paid to 5.59%. The increase in the average balance
of certificates of deposit was due to management's efforts to increase retail
deposits as well as the changing mix of deposits. The increase in the average
cost was primarily due to paying higher interest rates in light of current
market conditions to attract and retain deposits.
Interest expense for the six month period ending June 30, 2001
was $109.0 million compared to $94.8 million for the six months ended June 30,
2000. The increase of $14.2 million or 15.0% was due to an $8.9 million increase
in interest expense for certificates of deposit and a $5.1 million increase in
interest expense for borrowed funds. The increase in interest expense for
certificates of deposit was due to a $243.8 million increase in the average
balance of certificates of deposit and a 55 basis point increase in the average
cost to 5.67%. The increase in interest expense on borrowed funds was due to a
$229.4 million increase in the average balance of borrowings partially offset by
a 15 basis point decline to 5.83% in the average cost of borrowings.
The reasons for the increase in the average balance and average
cost of certificates of deposits during the six-month period ended June 30, 2001
were substantially the same as those described above for the three-month period
ended June 30, 2001. During the next six months, $571.8 million in certificates
of deposit will mature with an average rate of 5.39% and management anticipates
that a substantial portion of such CDs will be reinvested in new bank CDs with
an average rate which will be 50 to 75 basis points lower. The increase in the
average balance of borrowings was driven primarily by the funding needs of the
Mortgage Company and management continues to de-emphasize its reliance on
wholesale borrowings as a leverage strategy. Management anticipates, given the
current lower interest rate environment and the scheduled repricing of $815.3
million in borrowings during the second half of the year, that the Company's
average cost of borrowings will continue to decline during the second half of
2001.
17
Net Interest Income
Net interest income for the second quarter of 2001 was $38.6
million, an increase of $3.4 million or 9.8% over the second quarter of 2000.
The increase was due to an $8.5 million increase in interest income offset by a
$5.1 million increase in interest expense. The increase in interest income was
due to a $516.7 million increase in the average balance of interest earning
assets partially offset by a six basis point decrease in the average yield from
7.25% to 7.19% for the second quarter of 2001. The increase in interest expense
was due to an increase of $566.6 million in the average balance of interest
bearing liabilities partially offset by an 18 basis point decrease in the
average cost to 4.81%.
The Company's net interest rate spread and net interest rate
margin for the three-month period ended June 30, 2001 was 2.38% and 2.99%,
respectively, compared to 2.27% and 3.03%, respectively, for the three-month
period ending June 30, 2000.
For the six-month period ending June 30, 2001 net interest income
was $74.4 million, an increase of $3.6 million or 5.1% over the first six months
of 2000. The increase was due to a $17.8 million increase in interest income
offset by a $14.2 million increase in interest expense. The increase in interest
income was due to a $492.5 million increase in the average balance of interest
earning assets. The increase in interest expense was due to an increase of
$523.2 million increase in the average balance of interest bearing liabilities
and a six basis point increase in the average cost.
The Company's interest rate spread and interest rate margin for
the six-month period ending June 30, 2001 was 2.28% and 2.95%, respectively,
compared to 2.34% and 3.10%, respectively, for the same time period last year.
The Company's interest rate spread and interest rate margin
continue to improve on a linked quarter basis primarily due to the improved
interest rate environment. The net interest rate spread and margin has improved
by 21 and nine basis, respectively, in the second quarter 2001 compared to the
first quarter 2001. The Company anticipates that in the current interest rate
environment, this trend will continue since the Company's liabilities reprice
faster than its assets and the Company continues to retain a portion of the
relatively higher yielding loans originated by the Mortgage Company to partially
offset the decline in average yield on the interest earning asset resulting from
the current interest rate environment.
Provision for Loan Losses
The provision for loan losses for the second quarter of 2001 was
$600,000 compared to a provision of $11,000 for the second quarter of 2000. For
the six-month period ended June 30, 2001, the provision was $1.2 million
compared to $29,000 for the comparable time period last year. As a result of the
changing composition of the portfolio, management deemed it prudent to add $1.2
million to the allowance for loan losses in the first half of 2001. Management,
in its review, monitors the mix 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
reserve.
Non-accruing assets totaled $11.8 million at June 30, 2001
compared to $10.7 million at December 31, 2000. Non-accruing assets as a percent
of total assets was .21% at June 30, 2001 compared to .20% at December 31, 2000.
During the first six months of 2001 the allowance for loan losses was affected
by chargeoffs of $1.5 million, recoveries of $480,000 and a provision of $1.2
million resulting in a balance of $14.8 million at June 30, 2001 compared to a
balance of $14.7 million at December 31, 2000. The allowance for loan losses as
a percentage of non-accruing loans was 134.6% at June 30, 2001. Management
believes that the credit quality of the loan portfolio remains strong primarily
18
due to our concentration of one-to-four family loans, sound credit underwriting
standards for new loan originations, proactive procedures in addressing problem
and non-accruing loans, as well as a continuing strong real estate market in the
Bank's market area.
Other Income
Other income which consists of service and fee income, loan fees
and gains and net securities transactions was $25.7 million for the three months
ended June 30, 2001 compared to $8.5 million for the three months ended June 30,
2000. The increase of $17.1 million was due to a $798,000 increase in service
and fee income, a $15.4 million increase in loan fees and gains and a $943,000
increase in net securities gains. The increase in service and fee income is
primarily due to the increase in deposit related fees resulting from increases
in certain fee amounts, growth in deposits and increase in the volume of
transactions. The increase in loan fees and gains is due primarily to the record
volumes at the Mortgage Company resulting in an increase of $12.8 million in
loan gains and $2.6 million in loan fees. The increase in net security gains
reflects sales in the security portfolio under the favorable interest rate
environment. Proceeds from these sales were used to fund loan originations at
the Mortgage Company.
For the six months ended June 30, 2001 other income was $42.2
million compared to $16.7 million for the six months ended June 2000. The
increase of $25.5 million was due to a $1.6 million increase in service and fee
income, a $22.7 million increase in loan fees and gains and a $1.2 million
increase in net securities gains. The increase in service and fee income was due
to the increase in deposit related fees primarily on uncollected and
insufficient funds for checks due to the increase in that fee in the fourth
quarter of last year. The increase in loan fees and gains was primarily due to
gains of $19.3 million on loan sales by the Mortgage Company and an increase of
$3.4 million in loan fees generated by the Mortgage Company. The increase in net
securities gains was due to the current interest rate environment and the volume
of sales to fund the activities of the Mortgage Company.
Total Other Expenses
Total other expenses for the second quarter of 2001 were $38.7
million compared to $23.3 million the second quarter of 2000. The increase of
$15.5 million was due to an increase of $4.8 million in personnel expense, $7.4
million in commission expense, $753,000 in occupancy and equipment expense and
$1.8 million in other expenses. The increase in personnel expense was primarily
due to a $3.8 million increase in personnel expense at the Mortgage Company due
to a higher volume of loan closing due in part to additional offices which were
established by the Mortgage Company volumes and expansion, a $476,000 increase
in the ESOP expense for the Bank due to the current market value of the
Company's stock and a $372,000 increase in salary expense at the Bank due
primarily to normal merit pay increases. The increase in commission expense is
primarily due to the record volumes at the Mortgage Company. The increase in
occupancy and equipment expense was primarily due to the expansion at both the
Bank and Mortgage Company. The increase at the Bank is $393,000 and the Mortgage
Company $360,000. The increase at the Bank was driven by the six additional
branch offices added in the second half of 2000 and the increase at the Mortgage
Company is due to expanding the operations into an additional 13 states during
the past twelve months. The increase in other expenses is due to the growth and
record volumes of the Mortgage Company.
Total other expenses for the first half of 2001 were $68.3
million compared to $45.6 million for the comparable time period last year. The
increase of $22.7 million was due to a $6.3 million increase in personnel
expense, a $10.4 million increase in commissions, a $1.6 million increase in
occupancy and equipment expense and a $2.8 million increase in other expenses.
The increase in personnel expense was primarily due to the growth of the
Mortgage Company resulting in an increase of $5.2 million and a $738,000
increase in the ESOP expense due to the increase in the market value of the
Company's stock. The increase in commission expense was due to the expansion and
19
record volumes at the Mortgage Company. The increase in occupancy and equipment
expense was due to expansion at the Bank and Mortgage Company resulting in
increases of $977,000 and $587,000, respectively. The increase in other expenses
was due to the expansion and growth of the Mortgage Company.
Provision for Income Taxes
The provision for income taxes for the second quarter of 2001 was
$9.7 million compared to $7.9 million for the second quarter of 2000. The
provision for the second quarter of 2001 included an additional provision by the
Mortgage Company for various state taxes. For the six-month period ending June
30, 2001, the provision for income taxes was $17.9 million compared to $16.2
million for the comparable time period last year. The effective tax rate for the
second quarter and year to date 2001 excluding the additional provision was
38.0% and 37.5%, respectively, compared to an effective tax rate of 38.7% for
both comparable time periods last year.
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
June 30, 2001, the total approved loan origination commitments outstanding
amounted to $600.6 million and the Mortgage Company had commitments of $509.6
million to sell loans to third party investors. At the same date the unadvanced
portion of construction loans totaled $27.6 million. Certificates of deposit
scheduled to mature in one year or less at June 30, 2001 totaled $803.7 million.
Investment securities scheduled to mature in one year or less at June 30, 2001
totaled $2.0 million and amortization from investments and loans is projected at
$957.3 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. In the event the
funds required exceed the funds generated by the Bank additional sources of
funds such as reverse repurchase agreements, FHLB advances and overnight lines
of credit are available to the Bank.
20
Capital
At June 30, 2001, 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 $ 82,558 1.50% $406,782 7.39% $324,224 5.89%
Core capital $220,269 4.00% $409,640 7.44% $189,371 3.44%
Risk-based capital $233,222 8.00% $423,594 14.53% $190,372 6.53%
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 June 30, 2001 as
compared to December 31, 2000. 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 2000 Annual Report to Stockholders.
21
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
---------------------------------------------------
Not applicable
Item 5 Other Information
-----------------
Not applicable
Item 6 Exhibits and Reports on Form 8K
-------------------------------
None
22
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: August 14, 2001 By: /s/ Harry P. Doherty
--------------- -----------------------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer
Date: August 14, 2001 By: /s/ Edward Klingele
--------------- -----------------------------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer
23