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 March 31, 1999
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)
(718-447-7900)
----------------------------------------------------
(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
41,801,705 shares of Common Stock outstanding as of May 6, 1999.
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
Table of Contents PAGE
Part I Financial Information
Item 1 Financial Statements
Statements of Condition
(As of March 31, 1999 and December 31, 1998) 1
Statements of Income (For three months ended
March 31, 1999 andthree months ended March 31, 1998) 2
Statements of Equity (For three months ended
March 31, 1999) 3
Statements of Cash Flows (For the three months
ended March 31, 1999 and 1998) 4
Notes to Consolidated Financial Statements 5-11
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 12-16
Item 3 Quantitative and Qualitative Disclosures About
Market Risk 16
Part II Other Information
Item 1 Legal Proceedings 9
-----------------
Item 2 Changes in Securities 19
---------------------
Item 3 Defaults Upon Senior Securities 19
-------------------------------
Item 4 Submission of Matters to a Vote of Security Holders 19
---------------------------------------------------
Item 5 Other Information 19
-----------------
Item 6 Exhibits and Reports on Form 8-K 19
--------------------------------
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
March 31, 1999 December 31, 1998
----------- -----------
(000's omitted)
ASSETS unaudited
ASSETS:
Cash and due from banks .............................................. $ 56,968 $ 88,059
Federal funds sold ................................................... 67,175 45,050
Securities available for sale ........................................ 2,051,995 2,029,041
Loans, net ........................................................... 1,599,165 1,457,058
Loans held for sale, net ............................................. 63,051 77,943
Accrued interest receivable .......................................... 19,791 19,389
Bank premises and equipment, net ..................................... 22,304 22,163
Intangible assets, net ............................................... 17,134 17,701
Other assets ......................................................... 14,774 20,543
----------- -----------
Total assets ......................................................... $ 3,912,357 $ 3,776,947
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due Depositors-
Savings .............................................................. $ 742,205 $ 730,614
Time ................................................................. 548,232 537,154
Money market ......................................................... 90,043 82,360
NOW accounts ......................................................... 76,532 73,541
Demand deposits ...................................................... 313,700 305,392
1,770,712 1,729,061
Borrowed funds ....................................................... 1,448,402 1,344,517
Advances from borrowers for taxes and insurance ...................... 9,806 7,091
Accrued interest and other liabilities ............................... 35,636 27,236
----------- -----------
Total liabilities .................................................... 3,264,556 3,107,905
=========== ===========
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, 100,000,000 shares authorized,
45,130,312 issued and 42,323,705 outstanding at March 31, 1999 and
45,130,312 issued a45143,704,812 outstanding at December 31, 1998 ... 451 451
Additional paid-in-capital ........................................... 534,832 534,464
Retained earnings-substantially restricted ........................... 223,837 215,414
Unallocated common stock held by ESOP ................................ (37,769) (38,456)
Unearned common stock held by RRP .................................... (30,873) (30,873)
Treasury stock 2,806,607 shares at March 31, 1999
and 1,425,500 at December 31, 1998 at cost ........................... (53,170) (27,480)
637,308 653,520
Accumulated other comprehensive income, net of taxes ................. 10,493 15,522
Total stockholders' equity ........................................... 647,801 669,042
----------- -----------
Total liabilities and stockholders' equity ........................... $ 3,912,357 $ 3,776,947
=========== ===========
1
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
March 31,
--------------------------
1999 1998
----------- -----------
(000's omitted)
unaudited
Interest Income:
Loans ................................................................ $ 30,665 $ 22,634
Securities, available for sale ....................................... 31,352 21,350
Federal funds sold ................................................... 727 482
----------- -----------
Total interest income ............................................. 62,744 44,466
----------- -----------
Interest Expense:
Savings and escrow ................................................... 4,562 4,847
Time ................................................................. 6,469 6,548
Money market and NOW ................................................. 982 862
Borrowed funds ....................................................... 17,714 3,833
----------- -----------
Total interest expense ............................................ 29,727 16,090
----------- -----------
Net interest income ............................................... 33,017 28,376
Provision for Loan Losses ............................................ 59 501
Net interest income after provision for possible loan losses .... 32,958 27,875
----------- -----------
Other Income:
Service and fee income ............................................... 5,494 2,149
Securities transactions .............................................. 124 583
----------- -----------
5,618 2,732
Other Expenses:
Personnel ............................................................ 10,406 6,244
Occupancy and equipment .............................................. 1,884 1,475
Amortization of intangible assets .................................... 553 519
FDIC Insurance ....................................................... 50 51
Data processing ...................................................... 927 1,196
Marketing ............................................................ 348 337
Professional fees .................................................... 558 412
Other ................................................................ 2,953 1,938
----------- -----------
Total other expenses .............................................. 17,679 12,172
----------- -----------
Income before provision for income taxes .......................... 20,897 18,435
=========== ===========
Provision for Income Taxes ........................................... 8,577 7,838
----------- -----------
Net Income ........................................................... $ 12,320 $ 10,597
=========== ===========
Earnings Per Share:
Basic ................................................................ $ 0.31 $ 0.25
Fully Diluted ........................................................ $ 0.31 $ 0.25
Weighted Average
Common Shares 45,130,312 45,130,312
Less: Unallocated ESOP/RRP Shares 3,432,046 3,437,809
Less: Treasury Shares 2,060,780 --
----------- -----------
39,637,486 41,692,503
=========== ===========
2
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(000's omitted)
unaudited
Unallocated Accumulated
Additional Common Unearned Other
Common Paid-In Stock RRP Treasury Comprehensive Retained Comprehensive
Stock Capital Held by ESOP Shares Stock Income Income Income Total
Balance January 1, 1999....... $ 451 $ 534,464 $ (38,456) $ (30,873) $ (27,480) $ 215,414 $ 15,522 $ 669,042
Change in unrealized
appreciation (depreciation)
on securities, net of tax..... (5,029) (5,029) (5,029)
Allocation of 57,226 ESOP
shares ....................... 368 687 1,055
Treasury stock (1,381,107)
at cost ...................... (25,690) (25,690)
Net Income.................... 12,320 12,320 12,320
7,291
Dividends paid................ (3,897) (3,897)
Balance March 31, 1999........ $ 451 $ 534,832 $ (37,769) $ (30,873) $ (53,170) $ 223,837 $ 10,493 $ 647,801
3
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998
1999 1998
------ ------
(000 omitted)
unaudited
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 12,320 $ 10,597
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 654 461
Accretion and Amortization of bond and mortgage premiums 636 (366)
Amortization of intangible assets 553 519
Loss (Gain) on sale of available for sale securities (124) (583)
Expense charge relating to allocation and earned
portions of employee benefit plan 2,193 1,118
Other noncash expense (income) (4,453) (3,166)
Provision for loan losses 59 501
Increase in deferred loan fees (486) (119)
Decrease (increase) in accrued interest receivable (402) 201
Decrease (increase) in other assets 9,499 5,083
(Decrease) increase in accrued interest other liabilities 7,394 (54,137)
(Increase) decrease in deferred income taxes 4,699 4,292
Recoveries of loans 334 366
----------------------
Net cash provided by operating activities $ 32,876 $ (35,233)
(continued)
1999 1998
------ ------
(000 omitted)
unaudited
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of available for sale securities 150,686 101,606
Sales of available for sale securities 12,010 2,668
Purchases of available for sale securities (195,192) (144,029)
Principal collected on loans 49,921 36,829
Loans made to cutomers (342,867) (90,292)
Purchases of Loans (4,052) 0
Sale of Loans 169,783 806
Capital expenditures (795) (903)
----------------------
Net cash used in investing activities (160,506) (93,315)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 44,366 10,323
Borrowings 103,885 50,000
Dividends paid (3,897)
Purchase of Treasury Stock (25,690)
----------------------
Net cash provided by financing activities 118,664 60,323
----------------------
Net (decrease) increase in cash and cash equivalents (8,966) (68,225)
CASH AND EQUIVALENTS, beginning of year 133,109 148,935
----------------------
CASH AND EQUIVALENTS, end of year $ 124,143 $ 80,710
======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 28,164 $ 15,967
Income taxes $ 2,337 $ 1,825
4
STATEN ISLAND BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Item 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 Staten Island
Savings Bank (the "Bank"). The Bank's wholly owned subsidiaries are SIB Mortgage
Corporation (the "Mortgage Company"), SIB Investment Corporation ("SIBIC"), and
Staten Island Funding Corporation ("SIFC"). 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 period ended March 31,
1999 are not necessarily indicative of the results to be expected for the year
ending December 31, 1999. 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
1998 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
The Company's principal business is conducted through the Bank which is
a traditional, full service, community oriented savings bank located in Staten
Island, New York. The Bank operates 16 full service and three limited service
branch offices on Staten Island and one in Bay Ridge, Brooklyn. The Bank also
has a lending center on Staten Island and a Trust department. A commercial
lending office is also located in the Bay Ridge, Brooklyn branch.
The Mortgage Company does business as Ivy Mortgage Corp. and is located
in Branchburg, New Jersey. The Mortgage Company originates loans in 22 states
and sells them to investors generating fee income for the Bank.
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.
5
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, at $.01 par value per share Common
Stock.
The Bank has the following wholly owned subsidiaries:
The Mortgage Company was incorporated in the State of New Jersey in
1998. SIBMC was formed to purchase the assets of Ivy Mortgage Corp. SIBMC
currently originates loans in 22 states and had assets totaling $69.5 million at
March 31, 1999.
Staten Island Funding Corporation 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 preferred stock in SIFC. The assets of SIFC totaled $655.4 million at
March 31, 1999.
SIB Investment Corporation 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 March 31, 1999 were $697.8 million.
Employee Stock Ownership Plan
In connection with the Conversion, the Bank established an Employee
Stock Ownership Plan (the "ESOP"). The ESOP borrowed $41,262,000 from the
Company and used the funds to purchase 3,438,500 shares of the Company's common
stock issued in the Conversion. The loan has an interest rate of 8.25% and will
be repaid over a 15 year period on a quarterly basis. Shares purchased are held
in a suspense account for allocation among the participants as the loan is paid.
As of March 31, 1999, 291,069 shares had been released and allocated. Shares
allocated will first be used for the employer matching contributions for the
401(k) Plan with the remaining shares allocated to the participants based on
compensation as described in the ESOP, in the year of allocation.
1998 Stock Option Plan
The Company maintains the 1998 Stock Option Plan (the "Option Plan").
The Company has reserved, for future issuance pursuant to the Option Plan,
4,298,125 shares of Common Stock, which is equal to 10% of the Common Stock sold
in the Conversion.
Under the Option Plan, all options granted to participants become
vested and exercisable at the rate of 20% per year on each annual anniversary of
the date the options were granted, and the right to exercise shall be
cumulative. Each stock option expires ten years after the date of the grant. On
July 10, 1998, the Board of Directors of the Company granted 3,056,000 options
to the Directors and Officers of the Company and the Bank. Each option entitles
the holder to purchase one share of the Company's Common Stock at an exercise
price equal to $22.875 per share, which was the closing price of the Common
Stock on the date of the grant. As of March 31, 1999, 70,000 options were
exercisable.
6
Recognition and Retention Plan
The Company maintains the 1998 Recognition and Retention Plan ("RRP")
which was implemented in July 1998. The objective of the RRP is to enable the
Company to provide officers, key employees and directors of the Bank with a
proprietary interest in the Company as an incentive to contribute to its
success. During 1998, the RRP purchased on the open market 1,719,250 shares of
the Common Stock or 4% of the Common Stock sold in the Conversion on the open
market. On July 31, 1998, 1,501,725 shares were granted to the directors and
officers of the Bank. Awards vest at a rate of 20% per year, commencing one year
from the date of award. Awards become 100% vested upon termination of employment
due to death or disability.
Demand Deposits
Each of the Bank's commercial and personal demand (checking) accounts
and NOW accounts has a related interest bearing money market sweep account. The
sole purpose of the sweep accounts is to reduce the non-interest bearing reserve
balances that the Bank is required to maintain with the Federal Reserve Bank,
and thereby increase funds available for investment. Although the sweep accounts
are classified as money market accounts for regulatory purposes, they are
included in demand deposits and NOW accounts in the accompanying consolidated
balance sheets.
New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133 "Accounting for
Derivative Instruments and Hedging Activities". This statement is effective for
all fiscal quarters of all fiscal years beginning after June 15, 1999. The
statement established accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value.
In management's opinion, SFAS No. 133, when adopted will not have a
material effect on the Company's financial statements since the Company
currently owns no derivative instruments affected by this statement.
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 March 31, 1999
and December 31, 1998.
March 31, 1999 December 31, 1998
----------------------- -----------------------
Bonds - Available For Sale Amortized Fair Amortized Fair
- -------------------------- Cost Value Cost Value
---------- ---------- ---------- ----------
(000's omitted)
U.S. Treasuries ......................................... $ 24,625 $ 25,003 $ 29,678 $ 30,249
Govt. Sponsored Agencies ................................ 99,912 99,554 45,632 46,093
Industrial and Finance .................................. 166,605 162,649 150,931 146,982
Foreign ................................................. 294 215 289 248
---------- ---------- ---------- ----------
Total Debt Securities ................................... 291,436 287,421 226,530 223,572
---------- ---------- ---------- ----------
G.N.M.A. - M.B.S ........................................ 19,802 20,143 20,555 21,035
F.H.L.M.C. - M.B.S ...................................... 325,169 328,911 319,905 325,608
F.N.M.A. - M.B.S ........................................ 541,815 544,310 558,595 563,898
Agency C.M.O.'s ......................................... 231,874 233,196 232,069 234,636
Privately Issued C.M.O.'s ............................... 441,788 443,387 473,424 476,329
Payments in Transit ..................................... 1,535 1,535 2,481 2,481
---------- ---------- ---------- ----------
Total Mortgage-Backed and Mortgage Related Securities ... 1,561,983 1,571,482 1,607,029 1,623,987
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Bonds - Available For Sale ....................... 1,853,419 1,858,903 1,833,559 1,847,559
---------- ---------- ---------- ----------
Equity Securities Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
Preferred Stock ........................................ 81,370 80,685 79,010 80,150
Common Stock ........................................... 69,356 72,489 58,995 61,284
IIMF Cap. Apprec ....................................... 27,672 39,918 27,626 40,048
---------- ---------- ---------- ----------
Total Equity Securities ................................ 178,398 193,092 165,631 181,482
---------- ---------- ---------- ----------
========== ========== ========== ==========
Total Investments ....................................... $2,031,817 $2,051,995 $1,999,190 $2,029,041
========== ========== ========== ==========
8
Loan Portfolio Composition. The following table sets forth the composition of
the Bank's loan portfolio at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
------------------------ ------------------------
Percent of Percent of
Amount Total Amount Total
----------- ----------- ----------- -----------
(Dollars in Thousands) (Dollars in Thousands)
Mortgage loans:
Single-family residential $ 1,295,270 81.00% $ 1,187,212 81.48%
Multi-family residential 33,958 2.12% 33,328 2.29%
Commercial real estate 153,422 9.59% 137,720 9.45%
Construction and land 46,804 2.93% 42,420 2.91%
Home equity 5,899 0.37% 6,121 0.38%
----------- ----------- ----------- -----------
Total mortgage loans 1,535,353 96.01% 1,406,801 96.51%
Other loans:
Student loans 1,353 0.08% 940 0.06%
Passbook loans 5,858 0.37% 5,989 0.41%
Commercial business loans 43,311 2.71% 36,592 2.51%
Other consumer loans 29,282 1.83% 24,070 1.65%
----------- ----------- ----------- -----------
Total other loans 79,804 4.99% 67,591 4.63%
----------- ----------- ----------- -----------
Total loans receivable 1,615,157 101.00% 1,474,392 101.14%
Premium (discount) on loans purchased 2,049 0.13% 1,194 0.08%
Allowance for loan losses (16,617) (1.04)% (16,617) (1.14)%
Deferred loan fees (1,424) (0.09)% (1,911) (0.08)%
----------- ----------- ----------- -----------
Loans receivable, net $ 1,599,165 100.00% $ 1,457,058 100.00%
=========== =========== =========== ===========
9
Delinquent Loans. The following table sets forth information concerning
delinquent loans at March 31, 1999, in dollar amounts and as a percentage of
each category of the Bank's loan portfolio. The amounts presented represent the
total outstanding principal balance of related loans, rather than the actual
payment amounts which are past due.
March 31, 1999
--------------------------------------------------------------------------
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 $ 619 0.05% $18,746 1.45% $5,395 0.42%
Multi-family residential 28 0.08% 145 0.43% -- 0.00%
Commercial real estate 1,095 0.71% 819 0.53% 708 0.46%
Construction and land 1,144 2.44% 422 0.90% 1,711 3.66%
Home equity 311 5.27% 30 0.51% 176 2.98%
------- ------- ------- ------- ------ -------
Total mortgage loans 3,197 0.21% 20,162 1.31% 7,990 0.52%
Other loans:
Commercial business loans 1,477 3.41% 565 1.30% 366 0.85%
Other loans 698 1.91% 338 0.93% 844 2.31%
------- ------- ------- ------- ------ -------
Total other loans 2,175 2.73% 903 1.13% 1,210 1.52%
------- ------- ------- ------- ------ -------
Total loans 5,372 0.33% 21,065 1.30% 9,200 0.57%
======= ======= ======= ======= ====== =======
10
Non-Performing Assets. The following table sets forth information with respect
to non-performing assets identified by the Bank including non-accrual loans and
other real estate owned at March 31, 1999 and December 31, 1998.
March 31, 1999 December 31, 1998
-------------- -----------------
(000's omitted)
Non-accrual loans:
Mortgage loans:
Single-family residential $ 5,460 $ 7,067
Multi-family residential -- 131
Commercial real estate 6,148 6,534
Construction and land 1,385 1,761
Home equity 211 212
Other loans:
Commercial business loans 1,212 346
Other loans 213 181
---------- ----------
Total non-accruing loans 14,629 16,232
---------- ----------
Total non-performing loans 14,629 16,232
---------- ----------
Other real estate owned, net 1,055 849
---------- ----------
Total non-performing assets $ 15,684 $ 17,081
========== ==========
Non-performing assets to total loans 0.97% 1.16%
Non-performing assets to total assets 0.40% 0.45%
Non-performing loans to total loans 0.91% 1.10%
Non-performing loans to total assets 0.37% 0.43%
11
Allowance for Loan Losses. The following table sets forth the activity in the
Bank's allowance for loan losses during the periods indicated.
Three Months Ended Year Ended
March 31, 1999 December 31, 1998
(000's omitted)
Allowance at beginning of period $ 16,617 $ 15,709
Provisions 59 1,594
Increase as a result of acquisition 96
Charge-offs:
Mortgage loans:
Single-family residential 39 358
Multi-family residential -- 31
Commercial real estate 216 344
Other loans 138 1,386
---------- ----------
Total charge-offs 393 2,119
Recoveries:
Mortgage loans:
Construction, land and land development -- 3
Single-family residential 236 267
Commercial real estate 1 210
Other loans 97 857
---------- ----------
Total recoveries 334 1,337
---------- ----------
Allowance at end of period $ 16,617 $ 16,617
========== ==========
Allowance for possible loan losses
to total non-performing loans at
end of period 113.59% 102.37%
Allowance for possible loan losses
to total loans at end of period 1.03% 1.13%
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Changes in Financial Condition
Total assets at March 31, 1999 were $3.9 billion, an increase of $135.4
million or 3.6% from December 31, 1998. The increase in total assets was the
result of an increase in loans, net of $142.1 million or 9.8%, an increase in
securities available for sale of $23.0 million or 1.1% and an increase in
federal funds sold of $22.1 million or 49.1%. These increases were partially
offset by a decrease in loans held for sale, net of $14.9 million or 19.1%. The
change in loans, net was primarily due to the Bank's continued efforts to
increase lending volumes through its broker program for residential loans and
its business development program for commercial loans. Loans held for sale,
decreased primarily due to the cyclical nature of the mortgage lending business
resulting in loan sales exceeding loan originations for SIBMC. The increase in
the securities available for sale portfolio was the result of the Bank
continuing its capital management strategy to fund asset growth through
borrowings at spreads acceptable to management.
Total deposits increased $41.7 million from $1.73 billion at December
31, 1998 to $1.77 billion at March 31, 1999. The Bank's continued efforts in
business development, especially for commercial accounts, is the primary reason
for this increase. Savings accounts increased $11.6 million, certificates of
deposit $11.1 million, non-interest bearing demand deposits $8.3 million, money
market accounts $7.7 and NOW accounts $3.0 million.
Borrowed funds increased $103.9 million or 7.7% to $1.4 billion as of
March 31, 1999. The increase is primarily due to the Bank's program to fund
asset growth through the use of borrowed funds when acceptable spreads can be
obtained. The borrowed funds consist of reverse repurchase agreements with large
Wall Street brokerage firms and the FHLB of New York and advances from the FHLB
of New York secured by the Bank's residential loan portfolio.
Stockholders' equity as of March 31, 1999 was $647.8 million or 16.56%
of total assets compared to $669.0 million or 17.71% of total assets as of
December 31, 1998. The decrease of $21.2 million was primarily due to the stock
repurchase program which resulted in the purchase of 1.4 million shares of
treasury stock during the quarter at a cost of $25.7 million, aggregate cash
dividend payment of $3.9 million, and a decrease of $5.0 million in unrealized
appreciation on available for sale securities net of taxes. These decreases were
partially offset by net income of $12.3 million and an allocation of ESOP shares
resulting in an increase of $1.1 million. The tangible book value per share as
of March 31, 1999 was $14.90.
Results of Operations
The Company reported net income of $12.3 million or $0.31 per share for
the three months ended March 31, 1999 compared to net income of $10.6 million or
$0.25 per share for the three months ended March 31, 1998. The increase of $1.7
million or 16.3% for the quarter was primarily due to an increase of $4.6
million or 16.4% in net interest income, a $0.4 million decrease in the
provision for loan losses and a $2.9 million increase in other income. These
positive changes were partially offset by a $5.5 million increase in total other
expenses and a $0.7 million increase in the provision for income taxes
Interest Income
Interest income increased $18.3 million or 41.1% to $62.7 million for
the three months ended March 31, 1999 compared to $44.5 million for the first
quarter of 1998. The increase was primarily due to a $8.0 million increase in
interest income from loans and a $10.0 million increase in interest income from
securities. The increase in interest income from loans was primarily due to an
increase of $464.0 million in the average balance of loans. The increase in the
average balance of the loan portfolio was due to increased loan demand, the
additional loans held for sale by SIBMC, and the Bank's continued business
development efforts to attract new loan
13
relationships and processing broker partnerships outside of its primary market
area. The average yield on the portfolio decreased to 7.85% for the quarter
ended March 31, 1999 from 8.19% for the first quarter of 1998. The decrease in
the average yield is the result of the payoff of higher yielding loans and the
origination of loans at market interest rates which are currently lower than the
average yield of the Bank's loan portfolio. The increase in interest income on
securities was due to a $687.0 million increase in the average balance of the
securities portfolio partially offset by a decrease in the average yield from
6.55% for the first quarter of 1998 to 6.33% for the first quarter of 1999. The
decrease in the average yield was due to generally declining interest rates
between the comparable periods and the accelerated payoff of higher yielding
investments. The increase in the average balance of the securities portfolio was
the result of the Bank's continued use of borrowed funds to fund asset growth at
acceptable spreads.
Interest Expense
Interest expense for the three months ended March 31, 1999 was $29.7
million compared to $16.1 million the same time period last year. The increase
of $13.6 million or 84.8% was primarily due to a $13.9 million increase in
interest expense on borrowed funds. The increase in interest expense on borrowed
funds was due to an increase of $1.1 billion in the average balance of
borrowings partially offset by a decrease of 68 basis points in the average cost
from 5.96% for the first quarter of 1998 to 5.28% for the first quarter of 1999.
The increase in the average balance of borrowed funds was the result of the
Bank's ongoing program to fund asset growth with borrowings at acceptable
spreads.
Net Interest Income
Net interest income increased $4.6 million or 16.4% to $33.0 million
in the three months ended March 31, 1999 compared to $28.4 million for the first
quarter of 1998. The increase was due to an $18.3 million or 41.1% increase in
interest income partially offset by a $13.6 million or 84.8% increase in
interest expense. The increase in interest income was due to a $1.2 billion
increase in the average balance of interest earning assets. The average yield on
interest earning assets was 6.96% for the first quarter of 1999, down from
7.28% the first quarter of 1998. The increase in interest expense was due to an
increase of $1.2 billion for the average balance of interest bearing liabilities
and an increase in the average cost from 4.04% for the first quarter of 1998 to
4.31% for the first quarter of 1999. The increase in the average cost was due to
a change in the composition of the Company's interest bearing liabilities and
the respective costs of the funding sources found within the mix. The Company's
interest rate spread and net interest margin amounted to 2.65% and 3.66%,
respectively, for the three months ended March 31, 1999 compared to 3.24% and
4.64%, respectively, for the comparable period in 1998. Such decreases were
primarily due to the current rate environment which has resulted in lower
interest earning asset yields and the Bank's continued use of borrowed funds to
leverage the balance sheet.
Provision For Loan Losses
The provision for loan losses was $59,000 for the first quarter of 1999
compared to $501,000 for the same time period last year. Management's continuing
review of the risk elements in the Bank's loan portfolio and past chargeoff and
recovery history was the basis for the provision in 1999. The decrease in the
Bank's non-performing loan portfolio and the continued growth in the loan
portfolio was also considered in determining the level of the provision in the
first quarter of 1999.
Non-performing assets were $15.7 million at March 31, 1999 compared to
$17.1 million at December 31, 1998. As a percent of total assets, non-performing
assets were .40% at March 31, 1999 compared to .45% at December 31, 1998. During
the first quarter of 1999, non-performing assets decreased $1.4 million or 8.2%.
The allowance for loan losses was $16.6 million as of both March 31,
1999 and December 31, 1998. The decline in non-performing loans has resulted in
the allowance for loan
14
losses growing to 113.6% of non-performing loans as of March 31, 1999 compared
to 102.4% as of December 31, 1998. Management of the Company believes that, as
of March 31, 1999, the allowance for loan losses was adequate. However, no
assurance can be given that future chargeoffs and/or additional provisions will
not be needed.
Other Income
Other income was $5.6 million for the quarter ended March 31, 1999
compared with $2.7 million for the quarter ended March 31, 1998. Other income
consists of service and fee income, which increased $3.3 million, and net gains
and losses from security transactions, which decreased $0.5 million. The
increase in service and fee income was primarily due to the operations of SIBMC
which generates fees from the origination and sale of residential mortgage
loans.
Total Other Expenses
Total other expenses for the three months ended March 31, 1999 were
$17.7 million, an increase of $5.5 million or 45.2%, over the first quarter of
1998. The increase was primarily due to an increase of $4.2 million in personnel
expense and a $1.0 million increase in other expenses. The increase in personnel
expense was due to the commissions and other personnel expenses of SIBMC of $2.2
million, the non-cash expense generated by the RRP of $1.5 million, and other
routine merit pay increases. The increase in other expenses was due primarily to
the additional general and administrative expenses of SIBMC.
Provision For Income Taxes
The provision for income taxes for the three months ended March 31,
1999 was $8.6 million compared to a provision of $7.8 million for the three
months ended March 31, 1998. The effective tax rate for the first quarter of
1999 was 41.0% compared to 42.5% for the same time period last year. The
reduction in the effective tax rate resulted from various state and local tax
planning strategies implemented in 1998.
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, borrowings, 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
related securities and maturing investment securities and short-term investments
are relatively predicable sources of funds, deposit flows and loan prepayments
are greatly influenced by general interest rates. In addition, the Bank invests
excess funds in federal funds sold and other short-term interest earning assets
which provide liquidity to meet lending requirements.
As of March 31, 1999, the Company had borrowed funds totaling $1.4
billion as an alternative funding source for asset growth. The Company intends
to continue the use of borrowings to leverage its capital base and provide funds
for its lending and investment activities.
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 it 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 March 31, 1999,
total approved loan origination commitments outstanding amounted to $249.9
million. At the same date, the unadvanced portion of construction loans amounted
to $17.1 million. Certificates
15
of deposit scheduled to mature in one year or less at March 31, 1999 totaled
$426.1 million. Investment securities scheduled to mature in one year or less at
March 31, 1999 totaled $14.8 million and amortization from investments is
projected at $296.5 million over the next 12 months. Based on historical
experience, 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 borrowings, to meets its current commitments.
Capital
At March 31, 1999, the Bank had regulatory capital which was well in
excess of 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 $ 55,573 1.50% $ 395,939 10.69% $ 340,366 9.19%
Core capital $ 148,308 4.00% $ 398,758 10.76% $ 250,450 6.76%
Risk-based capital $ 137,371 8.00% $ 415,722 24.22% $ 278,351 16.22%
Year 2000
In the third quarter of 1998, the Company converted most of its mission
critical systems, such as deposits and loans, to a Year 2000 compliant platform
provided by a new data processing servicer. The cost of Year 2000 compliance is
born by the servicer under terms of Company's contract with them. A
comprehensive test of the Year 2000 functionality of the system was completed
during the first quarter of 1999. No significant problems were noted in the test
process. The Company's other information technology systems have been
substantially upgraded for Year 2000 compliance. In accordance with regulatory
guidelines, the Company is developing a Year 2000 business resumption
contingency plan which it expects to complete by the end of the second quarter
of 1999. The Company anticipates spending $150,000 to $200,000 on Year 2000
compliance in 1999. All such costs are charged to expense as incurred.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of the Company's asset and liability management
policies as well as the potential impact of interest rate changes upon the
earnings of the Company, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Company's 1998 Annual Report to
Stockholders. There has been no material change in the Company's asset and
liability position since December 31, 1998.
16
Three Months Ended March 31,
--------------------------------------------------------------------------
1999 1998
---------- ---------- ---------- ---------- ---------- ----------
Average Average
Dollars in thousands Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- ---------- ---------- ---------- ----------
Interest-earning assets:
Loans receivable (1):
Real estate loans $1,517,366 $ 29,299 7.83% $1,075,740 $21,408 8.07%
Other loans 67,171 1,366 8.25% 44,797 1,226 11.10%
---------- ---------- ---------- ---------- ---------- ----------
Total loans 1,584,537 30,665 7.85% 1,120,537 22,634 8.19%
Securities 2,008,668 31,352 6.33% 1,321,705 21,350 6.55%
Other interest-earning assets (2) 63,593 727 4.64% 36,157 482 5.40%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-earning assets 3,656,798 62,744 6.96% 2,478,399 44,466 7.28%
---------- ---------- ---------- ---------- ---------- ----------
Noninterest-earning assets 145,405 125,393
----------
Total assets $3,802,203 $2,603,792
========== ==========
Interest-bearing liabilities:
Deposits:
NOW and money market deposits 158,311 982 2.52% 139,196 862 2.51%
Savings and escrow accounts 740,484 4,562 2.50% 695,665 4,847 2.83%
Certificates of deposits 541,367 6,469 4.85% 519,409 6,548 5.11%
---------- ---------- ---------- ---------- ---------- ----------
Total deposits 1,440,162 12,013 3.38% 1,354,270 12,257 3.67%
Total Other Borrowings 1,359,641 17,714 5.28% 260,653 3,833 5.96%
---------- ---------- ---------- ---------- ---------- ----------
Total interest-bearing liabilities 2,799,803 29,727 4.31% 1,614,923 16,090 4.04%
---------- ---------- ---------- ---------- ---------- ----------
Noninterest-bearing liabilities (3) 343,288 297,300
---------- ----------
Total liabilities 3,143,091 1,912,223
Stockholder's equity 659,112 691,569
========== ----------
Total liabilities and stockholders' equity $3,802,203 $2,603,792
========== ==========
Net interest-earning assets $ 856,995 $ 863,476
========== ---------- ========== ----------
Net interest income/interest rate spread $ 33,017 2.65% $ 28,376 3.24%
========== ========== ========== ==========
Net interest margin 3.66% 4.64%
========== ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities 130.61% 153.47%
========== ==========
- ----------
(1) The average balance of loans receivable includes non-performing 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.
17
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 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 March 31,
1999 compared to 1998
Increase (decrease) due to Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
---- ------ ------ ----------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans........................................ $ (637) $ 8,789 $ (261) $ 7,891
Other loans.............................................. (315) 612 (157) 140
------ ------ ------ ------
Total loans receivable................................... (952) 9,401 (418) 8,031
Securities............................................... (720) 11,097 (375) 10,002
Federal funds sold and interest-bearing deposits......... (68) 365 (52) 245
Total net change in income on interest-
------ ------ ------ ------
earning assets........................................... (1,740) 20,863 (845) 18,278
====== ====== ====== ======
Interest-bearing liabilities:
Deposits:
NOW and money market deposits............................ 2 118 - 120
Savings and escrow accounts.............................. (562) 312 (36) (286)
Certificates of deposit.................................. (341) 277 (14) (78)
------ ------ ------ ------
Total deposits........................................... (901) 707 (50) (244)
Other Borrowings......................................... (437) 16,161 (1,843) 13,881
Total net change in expense on
interest-bearing liabilities............................. (1,338) 16,868 (1,893) 13,637
------ ------ ------ ------
Net change in net interest income........................ $ (402) $ 3,995 $ 1,048 $ 4,641
====== ====== ====== ======
18
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
-----------------
On February 18, 1999, the Company announced its plans to
repurchase 2.1 million shares of Common Stock or approximately 5% of
the Company's outstanding Common Stock.
Repurchases will be made by the Company in open market
transactions from time to time over the next twelve months. The
repurchased shares will be held as treasury stock and will be available
for exercises of options under the Company's Option Plan and for
general corporate purposes.
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
19
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: May 17, 1999 By: /s/ Harry P. Doherty
----------------------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer
Date: May 17, 1999 By: /s/ Edward Klingele
---------------------------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer