SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: January 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: 0-25106
Lakeview Financial Corp.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-3334052
- ---------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1117 Main Street Paterson, New Jersey 07503
-------------------------------------------
(Address of principal executive offices, zip code)
(973) 742-3060
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: March 1, 1999
-------------
Class Outstanding
- --------- ----------------
$2.00 par value common stock 4,873,938 shares
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
CONTENTS
PART I - FINANCIAL INFORMATION Page
Item 1: Financial Statements
Unaudited Consolidated Balance Sheets as of
January 31, 1999 and July 31, 1998 3
Unaudited Consolidated Statements of (Loss) Income for the
Three Months Ended January 31, 1999 and 1998 4
Unaudited Consolidated Statements of (Loss) Income for the
Six Months Ended January 31, 1999 and 1998 5
Unaudited Consolidated Statements of Cash Flows for the Six
Months Ended January 31, 1999 and 1998 6
Notes to Unaudited Consolidated Financial Statements 8
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3: Quantitative and Qualitative Disclosure About Market Risk 17
PART II- OTHER INFORMATION
Item 1: Legal Proceedings 18
Item 2: Changes in Securities 18
Item 3: Defaults Upon Senior Securities 18
Item 4: Submission of Matters to a Vote of Security Holders 18
Item 5: Other Information 18
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 19
2
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 31, 1999 AND JULY 31, 1998
- ----------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
January 1999 July 1998
------------ -----------
Assets
- ------
Cash on hand and in banks $ 11,513 $ 8,773
Federal funds sold 0 39,900
--------- ---------
Total cash and cash equivalents 11,513 48,673
Investment securities held to maturity 125,732 83,831
Securities available for sale 16,281 37,867
Mortgage-backed securities held to maturity 89,368 101,771
Loans receivable, net 287,220 286,869
Real estate owned, net 342 505
Federal Home Loan Bank of New York stock, at cost 4,626 4,626
Accrued interest receivable 3,134 3,068
Office properties and equipment, net 4,724 4,623
Excess of cost over fair value of assets acquired, net 17,590 18,643
Net deferred tax asset 4,825 0
Other assets 7,823 3,380
--------- ---------
Total assets $ 573,178 $ 593,856
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $ 462,133 $ 456,880
Borrowings 48,206 64,928
Borrowings - Employee Stock Option Plan (ESOP) 8,300 8,783
Advance payments by borrowers for taxes and insurance 2,951 2,934
Other liabilities 2,016 3,724
--------- ---------
Total liabilities 523,606 537,249
Stockholders' Equity
- --------------------
Common stock: $2.00 par value; authorized 10,000,000 shares,
issued 6,441,504 shares and outstanding 4,873,938 shares at
January 31, 1999 and 4,880,268 shares at July 31, 1998 12,883 12,883
Additional paid-in capital 31,883 30,905
Retained income 26,911 30,500
Accumulated other comprehensive (loss) income (170) 5,306
Treasury stock at cost, 1,567,566 at January 31, 1999 and
1,561,236 at July 31, 1998 (13,230) (13,343)
Unallocated ESOP shares (8,705) (8,893)
Unallocated Management Stock Bonus Plan (MSBP) shares 0 (751)
--------- ---------
Total stockholders' equity 49,572 56,607
Total liabilities and stockholders' equity $ 573,178 $ 593,856
========= =========
Stated book value per share $ 10.17 $ 11.60
Tangible book value per share $ 6.56 $ 7.78
3
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE THREE MONTHS ENDED JANUARY 31, 1999 AND 1998
- ----------------------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
1999 1998
----------- ------------
Interest income:
Loans receivable $ 6,143 $ 5,150
Mortgage-backed securities held to maturity 1,497 1,556
Investment securities held to maturity and federal funds 2,185 947
Securities available for sale 230 1,030
----------- -----------
Total interest income 10,055 8,683
Interest expense:
Deposits 4,292 3,527
Borrowings 860 1,137
----------- -----------
Total interest expense 5,152 4,664
Net interest income 4,903 4,019
Provision for loan losses 225 300
----------- -----------
Net interest income after provision for loan losses 4,678 3,719
Other (expense) income:
Loan fees and service charges 401 344
Net realized gains on sale of securities 91 2,425
Write down on securities available for sale (7,687) --
Gains on sale of loans originated for sale 196 449
Other operating income 131 153
----------- -----------
Total other (expense) income (6,868) 3,371
Other expense:
Compensation and employee benefits 1,887 1,542
Office occupancy and equipment expense 326 226
Net loss from real estate owned 28 112
Other operating expense 915 817
Amortization of the excess of cost over fair value of net assets acquired 527 330
----------- -----------
Total other expense 3,683 3,027
(Loss) income before income tax (benefit) expense (5,873) 4,063
Income tax (benefit) expense (1,922) 1,515
----------- -----------
Net (loss) income ($ 3,951) $ 2,548
=========== ==========
Net (loss) income per share:
Basic ($ 0.95) $ 0.75
Diluted ($ 0.89) $ 0.63
Weighted average number of shares outstanding:
Basic 4,174,014 3,413,557
Diluted 4,421,949 4,072,682
4
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
- --------------------------------------------------
(dollars in thousands except share data) (Unaudited) (Unaudited)
1999 1998
---------- ---------
Interest income:
Loans receivable $12,335 $10,333
Mortgage-backed securities held to maturity 3,140 3,192
Investment securities held to maturity and federal funds 3,993 1,885
Securities available for sale 600 2,244
-------- --------
Total interest income 20,068 17,654
Interest expense:
Deposits 8,572 7,095
Borrowings 1,920 2,205
-------- --------
Total interest expense 10,492 9,300
Net interest income 9,576 8,354
Provision for loan losses 450 601
-------- --------
Net interest income after provision for loan losses 9,126 7,753
Other (expense) income:
Loan fees and service charges 806 667
Net realized gains on sale of securities 3,392 2,412
Write down on securities available for sale (7,687) -
Gains on sale of loans originated for sale 431 741
Other operating income 278 297
-------- --------
Total other (expense) income (2,780) 4,117
Other expense:
Compensation and employee benefits 3,567 3,051
Office occupancy and equipment expense 650 456
Net loss from real estate owned 63 154
Other operating expense 1,781 1,530
Amortization of the excess of cost over fair value of net assets acquired 1,053 660
-------- --------
Total other expense 7,114 5,851
(Loss) income before income tax (benefit) expense (768) 6,019
Income tax (benefit) expense (12) 2,205
-------- --------
Net (loss) income ($756) $3,814
======== ========
Net (loss) income per share:
Basic ($0.18) $1.06
Diluted ($0.17) $0.90
Weighted average number of shares outstanding:
Basic 4,193,102 3,589,622
Diluted 4,468,891 4,234,288
5
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
- -----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
- --------------------------------------------------
(dollars in thousands) (Unaudited) (Unaudited)
1999 1998
---------- -----------
Cash flows from operating activities:
Net (loss) income ($756) $3,814
Adjustment to reconcile net income to net cash (used in)
provided by operating activities :
Amortization of excess of cost over fair value of assets acquired 1,053 660
Amortization of discounts and premiums, net (2,231) (655)
Provision for loan losses 450 601
Provision for losses on real estate owned 15 33
(Gain) loss on sale of real estate owned (19) 4
Net realized gain on sale of securities available for sale (3,284) (2,256)
Net realized gain on sale of trading securities (108) (156)
Gains on sale of loans originated for sale (431) (741)
Purchase of trading securities (7,963) (10,548)
Proceeds from sale of trading securities 8,071 10,704
Writedown on securities avalable for sale 7,687 -
Loans originated for sale (13,765) (12,286)
Proceeds from sales of loans originated for sale 14,196 13,027
(Increase) decrease in accrued interest receivable (66) 474
Decrease in deferred loan fees (17) (10)
(Increase) decrease in other assets (4,443) 32
Increase in net deferred asset (4,825) -
Amortization of ESOP shares 233 1,237
Amortization of MSBP shares 1,744 231
(Decrease) increase in other liabilities 1,285 (11)
Depreciation expense, net 234 156
-------- --------
Net cash (used in) provided by operating activities: (2,940) 4,310
Cash flows from investing activities:
Loan origination net of principal payments (770) (15,056)
Purchase of Federal Home Loan Bank stock - (500)
Purchase of securities available for sale (45,671) (23,454)
Proceeds from sale of securities available for sale 50,426 17,411
Proceeds from maturity of securities available for sale 3,000 22,968
Principal payments on securities available for sale 904 1,098
Purchase of investment securities held to maturity (70,028) (5,830)
Proceeds from maturity of investment securities held to maturity 30,096 15,945
Purchase of mortgage-backed securities held to maturity (5,000) -
Principal payments on mortgage-backed securities held to maturity 17,519 8,891
Proceeds from sale of real estate owned 167 339
Increase in office properties and equipment (335) (94)
--------- ---------
Net cash (used in) provided by investing activities (19,692) 21,718
6
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JANUARY 31, 1999 AND 1998
(dollars in thousands) (Unaudited) (Unaudited)
1999 1998
--------- ----------
Cash flows from financing activities:
Increase (decrease) in deposits 5,381 (10,128)
Decrease in borrowings (17,205) (2,977)
Increase in advance payments by borrowers for taxes, net 17 332
Purchase of treasury stock (2,809) (10,214)
Exercise of stock options 677 144
Sale of common stock by ESOP 0 (2,793)
Purchase of common stock by ESOP 0 2,326
Cash dividends paid (589) (270)
------- -------
Net cash used in financing activities (14,528) (23,580)
Net change in cash and cash equivalents (37,160) 2,448
Cash and cash equivalents at beginning of period 48,673 5,400
------- -------
Cash and cash equivalents at end of period $11,513 $7,848
======= ========
Cash paid during period for:
Interest on deposits $8,782 $6,877
Income taxes $1,250 $1,623
Supplemental disclosures of non-cash investing activities:
Transfer of loans receivable to real estate owned $ 0 $ 220
7
LAKEVIEW FINANCIAL CORP. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) Basis of Presentation
The consolidated financial statements include the accounts of Lakeview Financial
Corp. (the "Company"), its wholly owned active subsidiaries, Lakeview Savings
Bank (the "Savings Bank"), Branchview, Inc., LVS, Inc., LISI, Inc., North
Properties, and its 90% owned subsidiary, Lakeview Mortgage Depot, Inc. All
significant intercompany balances and transactions have been eliminated in
consolidation.
These consolidated financial statements were prepared in accordance with
instructions for Form 10-Q and therefore, do not include all disclosures
necessary for a complete presentation of the consolidated balance sheets,
statements of (loss) income, and statements of cash flows in conformity with
generally accepted accounting principles. However, all adjustments which are, in
the opinion of management, necessary for the fair presentation of the interim
financial statements have been included and all such adjustments are of a normal
recurring nature. The results of operations for the three and six months ended
January 31, 1999 are not necessarily indicative of the results that may be
expected for the fiscal year July 31, 1999 or any other interim period.
These statements should be read in conjunction with the consolidated financial
statements and related notes which are incorporated by reference in the
Company's Annual Report on Form 10-K for the year ended July 31, 1998.
(2) Merger Agreement
On December 16, 1998, Dime Bancorp, Inc. (the "Dime"), New York, New York
announced it had entered into a definitive agreement to acquire the Company.
Under the terms of the agreement, holders of the Company's common stock may
elect to receive either 0.9 of a share of Dime common stock or $24.26 in cash
for each outstanding share of the Company's common stock, subject to a
requirement that, in the aggregate, 65% of the Company's outstanding shares will
be exchanged for Dime common stock and the remaining shares will be exchanged
for cash. The elections of the Company's shareholders will be subject to
allocation and pro-ration if either type of the merger consideration is
over-subscribed. The transaction is expected to close during the second quarter
of calendar 1999.
(3) Net (Loss) Income Per Share
In accordance with Statement of Financial Accounting Standards No. 128
(AStatement 128"), Earnings Per Share, the following table reconciles the
weighted average number of common shares outstanding used to calculate basic and
diluted net (loss) income per share.
8
For the three For the six
months ended months ended
January 31 January 31
-------------------- -----------------
1999 1998 1999 1998
Weighted Average Number
of Common Shares
Outstanding - Basic 4,174,014 3,413,557 4,193,102 3,589,622
Effective of Dilutive Securities
Qualified Stock Options 654 371,266 565 364,776
Non-Qualified Stock Options 200,167 249,351 204,554 242,093
MSBP Shares 47,114 38,508 70,670 37,797
--------- --------- --------- ---------
Weighted Average Number
of Common Shares
Outstanding - Diluted 4,421,949 4,072,682 4,468,891 4,234,288
========= ========= ========= =========
(4) Comprehensive Income
Effective August 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (ASFAS
130"). SFAS 130 establishes standards for reporting and display of comprehensive
income and its components in a full set of general purpose financial statements.
Under SFAS 130, comprehensive income is divided into net income and other
comprehensive income. Other comprehensive income includes items previously
recorded directly in equity, such as unrealized gains or losses on securities
available for sale. Comparative financial statements for earlier periods are
reclassified to reflect application of the provisions of SFAS 130.
SFAS 130 requires total comprehensive income and its components to be displayed
on the face of a financial statement for annual financial statements. For
interim financial statements, SFAS 130 requires only total comprehensive income
to be reported and allows such disclosure to be presented in the notes to the
interim financial statements. Total comprehensive income for the applicable
periods is shown below (in thousands).
For the three For the six
months ended months ended
January 31 January 31
---------------- -----------------
1999 1998 1999 1998
Total Comprehensive
Loss $ (798) $(6,852) $(6,232) $(5,753)
9
(5) Non Performing Loans and the Allowance for Loan Losses
Non performing assets at January 31, 1999, and July 31, 1998, are as follows, in
thousands:
January 31, 1999 July 31,1998
---------------- ------------
Non accrual loans $3,526 $2,794
Real estate owned, net 342 505
------ ------
Total non-performing assets $3,868 $3,299
====== ======
Non-accrual loans as a percentage
of total loans 1.23% .97%
Non-performing assets as a percentage
of total assets .67% .56%
An analysis of the allowance for loan losses for the six month period ended
January 31, 1999 and 1998 is as follows, in thousands:
For the six For the six
months ended months ended
January 31, 1999 January 31, 1998
---------------- ----------------
Balance at beginning of period $4,478 $3,411
Provision charged to operations 450 601
Charge-offs (160) (587)
Recoveries 60 18
------ ------
Balance at end of period $4,828 $3,443
====== ======
(6) Other Events
As previously disclosed, the Company, including its subsidiary Branchview, Inc.,
had an equity investment with a cost basis of $7.7 million in IMC Mortgage
Company ("IMC"). As of January 31, 1999, the market value of the IMC stock was
$679,000, resulting in an unrealized loss, net of tax, of $7.0 million. Because
of the following events, management determined that its investment in IMC was
permanently impaired and recognized a loss, net of tax, of $5.1 million, or
$1.15 per diluted share.
As previously disclosed, on October 16, 1998, IMC entered into a loan agreement
(the "Greenwich Loan Agreement") with Greenwich and certain of its affiliates
that provided IMC a $33 million standby revolving credit facility for a period
of up to 90 days. In consideration for providing the facility, Greenwich
received, among other things, exchangeable preferred stock representing the
equivalent of 40% of IMC's common stock.
10
The Greenwich Loan Agreement provides that under certain circumstances, upon IMC
entering into a definitive agreement which effectuates a change of control of
IMC, Greenwich may elect either to (a) receive repayment of the loan facility,
plus accrued interest at 10% per annum, and a take-out premium or (b) exchange
its loans for additional exchangeable preferred stock. The additional preferred
stock that would be issued to Greenwich would represent the equivalent of 50% of
the IMC common stock outstanding (in addition to the 40% issued to Greenwich on
execution of the Greenwich Loan Agreement). If Greenwich and IMC consummate the
transactions contemplated by the Merger Agreement, the Merger will supersede any
rights Greenwich has under the Greenwich Loan Agreement to exchange its loans
for equity in IMC or to receive the premium on repayment of the loan facility
contemplated by the Greenwich Loan Agreement.
Also as previously disclosed, on October 16, 1998, IMC had entered into an
intercreditor agreement with a lender under its revolving bank credit facility.
On February 18, 1999, Greenwich purchased at a discount from that lender its
interests in the revolving credit facility, which, on that date, had a principal
amount outstanding of $87.5 million.
Simultaneously with the execution of the Merger Agreement, IMC entered into
amended and restated intercreditor agreements with three of its major warehouse
lenders and with Greenwich relating to the revolving credit bank facility, the
Greenwich Loan Agreement and the Amendment. Under those agreements, the lenders
agreed to keep their respective facilities in place for a period of up to
seventeen months if the Merger is consummated within five months. If the Merger
is not consummated within a five-month period, after that period, those lenders
would no longer be subject to the requirements of the amended and restated
intercreditor agreements and would be free to take action, if desired, under
their respective loan agreements.
IMC entered into an Agreement and Plan of Merger (the "Merger Agreement") with
Greenwich Street Capital Partners II, L.P. ("Greenwich") and IMC 1999
Acquisition Co., Inc., a subsidiary owned by Greenwich and certain of its
affiliates ("Merger Sub"), on February 19, 1999. Under the Merger Agreement,
Merger Sub will merge with and into IMC (the "Merger"). As a result of the
Merger, Greenwich will receive newly issued IMC common stock equal to 93.5% of
the total common stock on a fully diluted basis, leaving the existing common
shareholders of IMC with 6.5% of the common stock outstanding after the Merger.
No payment will be made to IMC's common shareholders in this transaction. Upon
the consummation of the Merger, Greenwich will enter into an amendment and
restatement of its existing loan agreement with IMC, pursuant to which Greenwich
will make available to IMC an additional $40 million in working capital
facilities, which includes $5 million that was made available to IMC pursuant to
an amendment, dated as of February 11, 1999 (the "Amendment"), to the Greenwich
Loan Agreement ( as defined below). The Merger is subject to a number of
conditions including approval by IMC's shareholders. There is no assurance that
this transaction will be consummated.
11
The Company has an unsecured line of credit to IMC for $5.9 million as of
January 31, 1999. The Company can not presently predict what effect the actions
of IMC, as described above, will have on the collectibility of the outstanding
line of credit.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
- --------
Lakeview Financial Corp. (the "Company") is organized as a unitary savings and
loan holding company and owns all of the outstanding capital stock of Lakeview
Savings Bank (the "Savings Bank"). The business of the Savings Bank and
therefore, the Company, is the acceptance of deposits from the general public
and the origination and purchase of mortgage loans in Northern New Jersey. The
Savings Bank has eleven office locations located in Bergen and Passaic Counties,
New Jersey. The Company also has investments in three service corporations,
Branchview, Inc., LVS, Inc. and Lakeview Mortgage Depot, Inc.
On December 16, 1998, Dime Bancorp, Inc. (the "Dime"), New York, New York
announced it had entered into a definitive agreement to acquire the Company.
Under the terms of the agreement, holders of the Company's common stock may
elect to receive either 0.9 of a share of Dime common stock or $24.26 in cash
for each outstanding share of the Company's common stock, subject to a
requirement that, in the aggregate, 65% of the Company's outstanding shares will
be exchanged for Dime common stock and the remaining shares will be exchanged
for cash. The elections of the Company's shareholders will be subject to
allocation and pro-ration if either type of the merger consideration is
over-subscribed. The transaction is expected to close during the second calendar
quarter of 1999.
For the three and six months ended January 31, 1999, the Company incurred a net
loss of approximately $3,951,000 and $756,000, respectively. Management
determined that its investment in IMC Mortgage Co. ("IMC") was permanently
impaired and recognized a loss (net of taxes) of $5.1 million, or $1.15 per
diluted share. See Note 6 to the Unaudited Consolidated Financial Statements.
Without the recognition of the permanent impairment of the IMC investment, the
Company would have recognized net income for the three and six months ended
January 31, 1999, of $1.1 million, or $.26 per diluted share and $4.3 million,
or $.97, per diluted share, respectively.
Comparison of Financial Condition at January 31, 1999 and July 31, 1998
- -----------------------------------------------------------------------
Total assets decreased $20.7 million, or 3.5%, to $573.2 million at January 31,
1999, from $593.9 million at July 31, 1998.
12
The investment securities held to maturity increased $41.9 million, or 50.0%, to
$125.7 million at January 31, 1999 from $83.8 million at July 31, 1998. The
increase was due to $70.0 million of purchases and accretion of discounts of
$2.0 million, offset by maturities of $30.1 million.
Securities available for sale decreased $21.6 million, or 57.0%, to $16.3
million at January 31, 1999 from $37.9 million at July 31, 1998. Of the $21.6
million decrease, $16.6 million was associated with the IMC investment, as
discussed herein. $50.4 million of sales, $3.0 million from maturity of
securities in the portfolio, and $904 thousand of principal repayments,
offsetting such decrease in the portfolio were $45.7 million in purchases.
Mortgage-backed securities decreased $12.4 million, or 12.2%, to $89.4 million
at January 31, 1999, from $101.8 million at July 31, 1998. This was attributed
to principal repayments of $17.5 million, offset by purchases of $5.0 million.
Cash and cash equivalents decreased $37.2 million, or 76.3%, to $11.5 million at
January 31, 1999, from $48.7 million at July 31, 1998. The decrease was used to
pay down borrowings.
Borrowings decreased $16.7 million or 25.8%, to $48.2 million at January 31,
1999, from $64.9 million at July 31, 1998. The decrease in borrowings was
related to the decreases in cash and cash equivalents and principal repayments
of mortgage-backed securities held to maturity.
Comparison of Operating Results For The Three Months Ended January 31, 1999 and
- --------------------------------------------------------------------------------
1998
- ----
Interest Income: Total interest income increased $1.4 million or 15.8% to $10.1
million for the three months ended January 31, 1999, compared to $8.7 million
for the comparable 1998 period. Average interest earning assets increased $58.1
million to $530.4 million for the three month period in 1999 from $472.3 million
for the comparable 1998 period. The increase reflects an increase in average
loans of $53.6 million, average investments and mortgage-backed securities held
to maturity of $75.4 million offset by a decrease in securities available for
sale of $70.9 million.
Interest Expense: Total interest expense increased $488,000 or 10.5% to $5.2
million for the three months ended January 31, 1999 compared to $4.7 million for
the comparable 1998 period. Average interest-bearing liabilities increased $70.6
million to $493.8 million for the three month period in 1999 from $423.2 million
for the comparable 1998 period. Of this increase, average deposits increased
$87.1 million and average borrowings decreased $16.5 million.
13
Net Interest Income: Net interest income increased $884,000 or 22.0% to $4.9
million for the three months ended January 31, 1999 compared to $4.0 million for
the comparable 1998 period. During the three months ended January 31, 1999, the
Company=s interest rate spread decreased to 3.11%, compared to 3.22% for the
same period in 1998. A 7 basis point decline in the cost of funds and a 4 basis
point increase in the yield on earning assets was the primary reason for the
increase.
Provision For Loan Losses: The provision for loan losses decreased $75,000, or
25.0%, to $225,000 for the three months ended January 31, 1999, compared to
$300,000 for the same period ended January 31, 1998. Management regularly
accesses the credit risk of the loan portfolio based on information available at
such times, including trends in the local real estate market and levels of
non-performing loans and assets. The assessment of the adequacy of the allowance
for loan losses involves subjective judgement regarding future events and thus
there can be no assurance that additional provisions for loan losses will not be
required in future periods.
Other (Expense) Income: Other (expense) income decreased $10.2 million during
the second quarter of 1999 to an expense of $6.9 million, from income of $3.4
million. As discussed herein, the decline in other income was primarily the
result of the write-off of the IMC investment.
Other Expense: Other expense increased $656,000, or 21.7%, to $3.7 million for
the three months ended January 31, 1999, from $3.0 million for the three months
ended January 31, 1998. Compensation increased $345,000, to $1.9 million for the
three months ended January 31, 1999 as compared to $1.5 million for the three
months ended January 31, 1998. The increase was mainly attributable to the
increased staff of the Company with the merger of Westwood, the Bank=s new
branch office which opened in September 1998, in Fairview, New Jersey.
Compensation expense also increase due to the acceleration of the Management
Stock Bonus Plan ("MSBP") due to the pending merger with the Dime. Office
occupancy and equipment expense increased $100,000, or 44.2% to $326,000 from
$226,000 in 1998. The increase is mainly attributable to the branches associated
with the acquisition of Westwood and the opening of the new branch office.
Amortization of the excess of cost over fair value of net assets acquired
increased $197,000 or 59.7% to $527,000 from $330,000 in 1998. The increase was
mainly attributable to the goodwill associated with the acquisition of Westwood.
Comparison of Operating Results For The Six Months Ended January 31, 1999 and
- --------------------------------------------------------------------------------
1998
- ----
Interest Income: Total interest income increased $2.4 million or 13.7% to $20.1
million for the six months ended January 31, 1999, compared to $17.7 million for
the comparable 1998 period. Average interest earning assets increased $60.3
million to $536.2 million for the six month period in 1999 from $475.9 million
for the comparable 1998 period. The
14
increase reflects an increase in average loans of $57.4 million, average
investments and mortgage-backed securities held to maturity of $67.3 million
offset by a decrease in securities available for sale of $64.4 million.
Interest Expense: Total interest expense increased $1.2 million or 12.8% to
$10.5 million for the six months ended January 31, 1999 compared to $9.3 million
for the comparable 1998 period. Average interest-bearing liabilities increased
$75.2 million to $496.4 million for the six month period in 1999 from $421.2
million for the comparable 1998 period. Of this increase, average deposits
increased $83.1 million and average borrowings decreased $7.9 million.
Net Interest Income: Net interest income increased $1.2 million or 14.6% to $9.6
million for the six months ended January 31, 1999 compared to $8.4 million for
the comparable 1998 period. During the six months ended January 31, 1999, the
Company=s interest rate spread increased to 3.26%, compared to 3.22% for the
same period in 1998. A 8 basis point decline in the cost of funds offset by a 4
basis point decrease in the yield on earning assets was the primary reason for
the increase.
Provision For Loan Losses: The provision for loan losses decreased $151,000, or
25.1%, to $450,000 for the six months ended January 31, 1999, compared to
$601,000 for the same period ended January 31, 1998. Management regularly
accesses the credit risk of the loan portfolio based on information available at
such times, including trends in the local real estate market and levels of
non-performing loans and assets. The assessment of the adequacy of the allowance
for loan losses involves subjective judgement regarding future events and thus
there can be no assurance that additional provisions for loan losses will not be
required in future periods.
Other (Expense) Income: Other (expense) income decreased $6.9 million during the
six months ended January 31, 1999 to an expense of $2.8 million, from income of
$4.1 million for the same period in 1998. As discussed herein, the decline was
primarily from the write-off of the IMC investment.
Other Expense: Other expense increased $1.3 million, or 21.6%, to $7.1 million
for the six months ended January 31, 1999, from $5.3 million for the six months
ended January 31, 1998. Compensation increased $516,000, to $3.6 million for the
six months ended January 31, 1999 as compared to $3.1 million for the six months
ended January 31, 1998. The increase was mainly attributable to the increased
staff of the Company with the merger of Westwood, the Bank=s new branch office
which opened in September 1998, in Fairview, New Jersey. Compensation expense
also increased due to the acceleration of the MSBP=s due to the pending merger
with the Dime. Office occupancy and equipment expense increased $194,000, or
42.5% to $650,000 from $456,000 in 1998. The increase is mainly attributable to
the branches associated with the acquisition of Westwood and the opening of the
new branch office. Amortization of the excess of cost over fair value of net
assets
15
acquired increased $393,000 or 59.5% to $1.1 million from $660,000 in 1998. The
increase was mainly attributable to the goodwill associated with the acquisition
of Westwood.
Year 2000 Compliance Issues
- ---------------------------
During fiscal 1998, the Company adopted a Year 2000 Compliance Plan (the "Plan")
and established a Year 2000 Compliance Committee (the "Committee"). The
objectives of the Plan and the Committee are to prepare the Company for the new
millennium. As recommended by the Federal Financial Institutions Examination
Council, the Plan encompasses the following phases: Awareness, Assessment,
Renovation, Validation and Implementation. These phases will enable the Company
to identify risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 ready. Execution of
the Plan is currently on target. The Company is currently in the process of
developing a Contingency Plan (the "Plan") specific to the Year 2000. The Plan
will address the actions that would be undertaken if critical business functions
cannot be carried out in the normal manner upon entering the next century due to
the computer system or supplier failure.
Costs will be incurred due to the replacement of non-compliant teller hardware
and software. The Company does not anticipate that the related overall costs
will be material in any single year. As of January 31, 1999, total costs
incurred to date for the Year 2000 were $28,000. No assurance can be given that
the Year 2000 Compliance Plan will be completed successfully by the Year 2000,
in which event the Company could incur significant costs.
Successful and timely completion of the Year 2000 project is based on
management=s best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
Company=s third-party service provider, testing plans, and all vendors,
suppliers and customer readiness.
Liquidity and Capital Resources
- -------------------------------
The Savings Bank's primary sources of funds includes savings deposits, loan
repayments and prepayments, cash flow from operations and borrowings from the
Federal Home Loan Bank of New York ("FHLB"). The Savings Bank uses its capital
resources principally to fund loan origination and purchases, repay maturing
borrowings, purchase of securities, and for short and long-term liquidity needs.
The Savings Bank expects to be able to fund or refinance, on a timely basis, its
commitments and long-term liabilities.
The Savings Bank's liquid assets consist of cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Savings Bank's operating, financing and investment
activities during any
16
given period. At January 31, 1999, cash and cash equivalents totaled $11.5
million.
The Savings Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of January 31, 1999, the Savings Bank had
commitments to fund loans of $8.5 million.
The Savings Bank had leverage, Tier 1, and risk-based capital ratios of 5.5%,
9.5%, and 10.8% at January 31, 1999, which exceeded the FDIC's respective
minimum requirements of 4.00%, 4.00% and 8.00%.
Quantitative and Qualitative Disclosure About Market Risk
- ---------------------------------------------------------
There were no significant changes for the six months ended January 31, 1999 from
the information presented in the annual report on Form 10-K for the year ended
July 31, 1998, concerning quantitative and qualitative disclosures about market
risk.
17
LAKEVIEW FINANCIAL CORP. AND SUBSIDIARIES
PART II
ITEM 1. LEGAL PROCEEDINGS
From time to time, the Savings Bank is a party to legal
proceedings in the ordinary course of business wherein it
enforces its security interest in loans. Neither the
Registrant nor the Savings Bank was engaged in any legal
proceeding of a material nature as of January 31, 1999.
ITEM 2. CHANGES IN SECURITIES
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 MATERIALLY IMPORTANT EVENTS
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 27. Financial Data Schedule (included in electronic
filing only).
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.
Lakeview Financial Corp.
Date: March 15, 1999
/s/ Kevin J. Coogan
--------------------------------------
Kevin J. Coogan
President and CEO
(Principal Executive Officer)
Date: March 15, 1999 /s/ Anthony G. Gallo
--------------------------------------
Anthony G. Gallo
Vice President and CFO
(Principal Financial Officer)
19