1
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, 1998
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)
None
------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act
Common Stock $.01 par value
-------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act
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 receding 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
45,130,312 shares of Common Stock outstanding as of May 4, 1998.
2
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
Table of Contents PAGE
- ----------------- ----
Part I Financial Information
Item 1 Financial Statements
Statement of Condition
As of March 31, 1998 and December 31, 1997 1
Statement of Income (For three months ended March 31, 1998 and
1997) 2
Statement of Equity (For three months ended March 31, 1998 and
1997) 3
Statement of Cash Flows (For the three months ended March 31,
1998 and 1997) 4
Notes to Consolidated Financial Statements 5-10
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-16
Item 3 Quantitative and Qualitative Disclosures About Market Risk 14
Part II Other Information
Item 1 Legal Proceedings 17
Item 2 Changes in Securities 17
Item 3 Defaults Upon Senior Securities 17
Item 4 Submission of Matters to a Vote of Security Holders 17
Item 5 Other Information 17
Item 6 Exhibits and Reports on Form 8-K 17
3
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
--------------- -------------------
March 31, 1998 December 31, 1997
--------------- -------------------
(000's omitted)
ASSETS
ASSETS:
Cash and due from banks .............................. $ 46,860 $ 58,435
Federal funds sold ................................... 33,850 90,500
Securities available for sale ........................ 1,394,179 1,350,467
Loans, net ........................................... 1,134,879 1,082,918
Accrued interest receivable .......................... 15,506 15,707
Bank premises and equipment, net ..................... 20,182 19,737
Intangible assets, net ............................... 18,249 18,414
Other assets ......................................... 7,709 14,992
----------- -----------
Total assets ....................................... $ 2,671,414 $ 2,651,170
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits-
Savings ............................................. $ 809,927 $ 827,757
Time ................................................ 523,999 520,693
Money market ........................................ 77,441 76,088
NOW accounts ........................................ 20,295 15,249
Demand deposits ..................................... 200,448 183,865
----------- -----------
1,632,110 1,623,652
Borrowed funds ....................................... 300,042 250,042
Advances from borrowers for taxes and insurance ...... 6,488 4,623
Accrued interest and other liabilities ............... 32,830 86,967
----------- -----------
Total liabilities ................................. 1,971,470 1,965,284
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock par value $ 01 per share: 100,000,000
shares authorized; 45,130,312 issued and outstanding 451 451
Additional paid in capital ........................... 532,971 532,521
Retained earnings substantially restricted ........... 192,096 181,499
Unallocated ESOP shares .............................. (40,516) (41,262)
----------- -----------
685,002 673,209
Accumulated other comprehensive income, net of taxes .. 14,942 12,677
----------- -----------
Total stockholders' equity ........................ 699,944 685,886
----------- -----------
Total liabilities and stockholders' equity ........ $ 2,671,414 $ 2,651,170
=========== ===========
1
4
STATEN ISLAND BANCORP, INC AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months Ended
March 31,
--------------------------
1998 1997
--------------------------
(000's omitted)
Interest Income:
Loans ........................................................... $ 22,634 $ 20,022
Securities, available for sale .................................. 21,350 11,451
Federal funds sold .............................................. 482 403
------------ ------------
Total interest income ........................................ 44,466 31,876
------------ ------------
Interest Expense:
Savings ......................................................... 5,062 5,324
Time ............................................................ 6,548 6,387
Money market, NOW and escrow .................................... 647 694
Borrowed funds .................................................. 3,833 111
------------ ------------
Total interest expense ..................................... 16,090 12,516
------------ ------------
Net interest income .......................................... 28,376 19,360
Provision for Loan Losses ....................................... 501 2,500
------------ ------------
Net interest income after provision for possible loan losses 27,875 16,860
Other Income (Loss):
Service and fee income .......................................... 2,149 1,774
Securities transactions ......................................... 583 (564)
------------ ------------
2,732 1,210
Other Expenses:
Personnel ....................................................... 6,244 4,930
Occupancy and equipment ......................................... 1,475 1,371
Amortization of intangible assets ............................... 519 519
FDIC Insurance .................................................. 51 121
Data processing ................................................. 1,196 1,031
Marketing ....................................................... 337 324
Professional fees ............................................... 412 414
Other ........................................................... 1,938 2,137
------------ ------------
Total other expenses ......................................... 12,172 10,847
------------ ------------
Income before provision for income taxes ..................... 18,435 7,223
Provision for Income Taxes ...................................... 7,838 1,296
------------ ------------
Net Income ...................................................... $ 10,597 $ 5,927
============ ============
Earnings (Loss) Per Share:
Basic ........................................................ $ 0 25 N/A
Fully Diluted ................................................ $ 0 25 N/A
Weighted Average
Common Shares ................................................ 45,130,312 N/A
Less: Unallocated ESOP Shares ................................ 3,437,809 N/A
41,692,503
2
5
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Unallocated
Additional Common
Common Paid-In Stock Comprehensive Retained
Stock Capital Held by ESOP Income Income
--------------------------------------------------------------------------------
Balance January 1, 1998 ............ $ 451,303 $ 532,520,769 $ (41,262,000) $ 181,498,758
Change in unrealized
appreciation (depreciation)
on securities, net of tax .......... 2,265,436
Allocation of 62,155 ESOP shares ... 450,276 745,980
Net Income ......................... 10,597,024 10,597,024
----------------
12,862,460
================================================================================
Balance March 31, 1998 ............. $ 451,303 $ 532,971,045 $ (40,516,020) $ 192,095,782
================================================================================
Accumulated
Other
Comprehensive
Income Total
---------------------------------
Balance January 1, 1998 ............ $ 12,676,770 $ 685,885,600
Change in unrealized
appreciation (depreciation)
on securities, net of tax .......... 2,265,436 2,265,436
Allocation of 62,155 ESOP share .... 1,196,256
Net Income ......................... 10,597,024
==================================
Balance March 31, 1998 ............. $ 14,942,206 $ 699,944,316
==================================
3
6
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
1998 1997
---- ----
(000 omitted)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,597 $ 5,927
Adjustments to reconcile net income to net cash provided by operating
activities
Depreciation and amortization 461 421
Amortization of bond and mortgage premiums (366) (28)
Amortization of intangible assets 519 519
Loss (Gain) on sale of available for sale securities (583) 564
Other noncash expense (income) (2,048) (561)
Provision for possible loan losses 501 2,500
Decrease in deferred loan fees (119) (59)
Decrease (increase) in accrued interest receivable 201 196
Decrease (increase) in other assets 5,083 196
(Decrease) increase in accrued interest other liabilities (54,137) 2,433
(Increase) decrease in deferred income taxes 4,292 (3,535)
Recoveries 366 366
----------------------
Net cash provided by operating activities $ (35,233) $ 8,939
----------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of available for sale securities 101,606 32,984
Sales of available for sale securities 2,668 56,910
Purchases of available for sale securities (144,029) (93,273)
Principal collected on loans 36,829 34,322
Purchases of Loans -- --
Sale of Loans 806 691
Loans made to cutomers (90,292) (64,852)
Capital expenditures (903) (727)
----------------------
Net cash used in investing activities (93,315) (33,945)
----------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 10,323 34,189
Borrowings 50,000 30,000
----------------------
Net cash provided by financing activities 60,323 64,189
----------------------
Net (decrease) increase in cash and cash equivalents (68,225) 39,183
CASH AND EQUIVALENTS, beginning of year 148,935 52,622
----------------------
CASH AND EQUIVALENTS, end of year $ 80,710 $ 91,805
======================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest $ 15,967 $ 12,406
Income taxes $ 1,825 $ 126
4
7
Staten Island Bancorp, Inc.
Notes to Consolidated Financial Statements
Item 1. Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Staten Island Bancorp, Inc. (the Company), its direct wholly-owned
subsidiary, Staten Island Savings Bank (the Bank), and the subsidiary of the
Bank, (Staten Island Funding Corp.)
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 months ended March 31, 1998
are not necessarily indicative of the results to be expected for the year ending
December 31, 1998. 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'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 federal regulator. The Bank is also regulated by the Federal Deposited
Insurance Corporation (FDIC), the administrator of the BIF. The Bank is also
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System (FRB) and is a member of the Federal Home Loan Bank
(FHLB) of New York, which is one of the 12 regional banks comprising the FHLB
system.
Organization Form of Ownership
The Bank was originally founded as a New York State chartered savings bank
in 1864. In August 1997, the Bank converted to a federally chartered mutual
savings bank and is now regulated by the OTS. On April 16, 1997, the Board of
Directors of the Bank adopted a Plan of Conversion to convert from a federally
chartered mutual savings bank to a federally chartered stock savings bank with
the concurrent formation of a holding company (the Conversion). The Company
completed its initial public offering and conversion on December 22, 1997 and
issued 42,981,250 shares of common stock. As part of the conversion, the Bank
established, in accordance with the requirements of the OTS, a liquidation
account for $183,947,000 which was equal to its capital as of the date of the
latest consolidated statement of financial condition (September 30, 1997)
appearing in the IPO prospectus supplement.
During February 1998, the Bank formed a subsidiary, Staten Island Funding
Corporation, as a passive real estate investment trust (REIT). The Bank, on
April 24, 1998, transferred $650 million in mortgage loans to the REIT. For
regulatory and reporting purposes, the accounts of the REIT will be consolidated
with those of the Bank.
5
8
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 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. The first
payment for the loan was made on March 31, 1998 resulting in the release and
allocation of 62,155 shares. 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 plan, in
the year of allocation. The compensation expense related to the allocation of
62,155 shares in the first quarter was $1.2 million.
Comprehensive Income
In July 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". Statement 130 established standards for the reporting and
display of comprehensive income and its components in the full set of general
purpose financial statements. The Company adopted SFAS No. 130 in the first
quarter of 1998. All comparative financial statements provided for earlier
periods have been reclassified to reflect application of the provisions of this
statement.
Comprehensive income and accumulated other comprehensive income are
reported net of related income taxes. Accumulated other comprehensive income for
the Company consists solely of unrealized holding gains or loses on available
for sale securities.
6
9
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, 1998
and December 31, 1997.
March 31, 1998 December 31, 1997
------------------- --------------------
Bond Available For Sale Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
(000's omitted)
U S Treasuries ................. $ 48,607 $ 49,092 $ 55,206 $ 55,734
Govt Sponsored Agencies ........ 57,543 57,758 50,284 50,884
Foreign ........................ 274 302 269 268
---------- ---------- ---------- ----------
Total Debt Securities .......... 106,424 107,152 105,759 106,886
---------- ---------- ---------- ----------
G.N.M.A.- M.B.S................. 23,623 23,916 24,147 24,420
F.H.L.M.C.- M.B.S............... 320,065 326,083 340,000 346,315
F.N.M.A.- M.B.S................. 452,671 455,820 451,337 455,994
Agency C.M.O.'s ................ 182,397 183,375 166,587 167,719
Privately Issued C.M.O.'s ...... 190,088 190,668 171,035 171,223
Payments in Transit ............ 2,901 2,901 3,016 3,016
---------- ---------- ---------- ----------
Total Mortgage Backed and
Mortgage Related Securities .... 1,171,745 1,182,763 1,156,122 1,168,687
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Bonds - Available For Sale 1,278,169 1,289,915 1,261,881 1,275,573
---------- ---------- ---------- ----------
Equity Securities Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
Preferred Stock 31,042 32,457 15,965 16,549
Common Stock 31,593 37,410 23,643 27,226
IIMF Cap Apprec 24,640 34,397 24,599 31,119
---------- ---------- ---------- ----------
Total Equity Securities 87,275 104,264 64,207 74,894
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Investments .............. $1,365,444 $1,394,179 $1,326,088 $1,350,467
========== ========== ========== ==========
7
10
Loan Portfolio Composition. The following table sets forth the composition of
the Bank's loans at the dates indicated.
--------------------- -----------------------
March 31, 1998 December 31, 1997
--------------------- -----------------------
Percent of Percent of
Amount Total Amount Total
--------- ------- --------- ----------
(000's omitted)
Mortgage loans:
Single-family residential . $ 914,300 80.56% $ 863,694 79.76%
Multi-family residential .. 26,758 2.36% 28,218 2.61%
Commercial real estate .... 120,004 10.57% 120,084 11.09%
Construction and land ..... 43,878 3.87% 40,476 3.74%
Home equity ............... 6,497 0.57% 6,538 0.60%
----------- ------ ----------- ------
Total mortgage loans .... 1,111,437 97.93% 1,059,010 97.79%
Other loans:
Student loans ............. 4,055 0.36% 4,033 0.37%
Passbook loans ............ 6,549 0.58% 6,929 0.64%
Commercial business loans . 18,998 1.67% 19,559 1.81%
Other consumer loans ...... 14,361 1.27% 13,212 1.22%
----------- ------ ----------- ------
Total other loans ....... 43,963 3.87% 43,733 4.04%
----------- ------ ----------- ------
Total loans receivable .. 1,155,400 101.81% 1,102,743 101.83%
Less:
Discount on loans purchased (676) (0.06)% (729) (0.07)%
Allowance for loan losses . (16,577) (1.46)% (15,709) (1.45)%
Deferred loan fees ........ (3,268) (0.29)% (3,387) (0.31)%
----------- ------ ----------- ------
Loans receivable, net ... $ 1,134,879 100.00% $ 1,082,918 100.00%
=========== ====== =========== ======
8
11
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, and non-performing investments in real estate at the
dates indicated.
March 31, 1998 December 31, 1997
-------------- -----------------
(000's omitted)
Accruing loans 90 days or more past due:
Mortgage loans ................................. $ -- $ --
Other loans .................................... -- 85
------- -------
Total accruing loans ......................... -- 85
------- -------
Non accrual loans:
Mortgage loans:
Single family residential ..................... 9,583 9,395
Multi family residential ...................... 345 319
Commercial real estate ........................ 8,251 8,436
Construction and land ......................... 2,136 1,131
Home equity ................................... 402 545
Other loans:
Commercial business loans ..................... 305 836
Other loans ................................... 1,098 570
------- -------
Total non accruing loans ................... 22,120 21,232
------- -------
Total non performing loans ....................... 22,120 21,317
------- -------
Other real estate owned, net ..................... 630 618
------- -------
Total non performing assets ...................... $22,750 $21,935
======= =======
Non-performing assets to total loans ............. 1.97% 1.99%
Non-performing assets to total assets ............ 0.85% 0.83%
Non-performing loans to total loans .............. 1.91% 1.93%
Non-performing loans to total assets ............. 0.83% 0.80%
9
12
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, December 31,
----------------------------------------
1998 1997 1997
---------- ---------- ----------
(000's omitted)
Allowance at beginning of period $ 15,709 $ 9,977 $ 9,977
Provisions 501 2,500 6,003
Charge-offs:
Mortgage loans:
Construction, land and land development -- -- --
Single-family residential -- 170 501
Multi-family residential -- -- 100
Commercial real estate -- 116 210
Other loans -- 102 507
---------- ---------- ----------
Total charge-offs -- 388 1,318
Recoveries:
Mortgage loans:
Construction, land and land development -- -- 10
Single-family residential 108 159 533
Multi-family residential -- -- --
Commercial real estate 116 143 251
Other loans 143 65 253
---------- ---------- ----------
Total recoveries 367 367 1,047
---------- ---------- ----------
Allowance at end of period $ 16,577 $ 12,456 $ 15,709
========== ========== ==========
Allowance for possible loan losses
to total nonperforming loans at
end of period 74.94% 47.49% 73.69%
Allowance for possible loan losses
to total loans at end of period 1.43% 1.23% 1.42%
10
13
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Changes in Financial Condition
Total assets increased $20.2 million from $2.65 billion at December 31,
1997 to $2.67 billion at March 31, 1998. This increase in total assets was
primarily due to a $52.0 million increase in loans, net and a $43.7 million
increase in the securities portfolios. These increases were offset by a $56.7
million decrease in federal funds sold and a $11.6 million decrease in cash and
due from banks. The increase in loans, net reflects the Bank's continuing
efforts to increase lending volumes. The increase in the securities portfolio is
a result of the Bank's leveraging strategies to increase yield at acceptable
risk through the use of borrowed funds.
Total deposits increased by $8.5 million from $1.62 billion at December
31, 1997 to $1.63 billion at March 31, 1998. The overall increase in deposits
was primarily due to the Bank's continued efforts in business development.
Demand deposits increased $16.6 million, NOW accounts increased $5.0 million and
money market accounts increased $1.4 million. In addition, time deposits
increased $3.3 million. All of these increases were offset to some extent by a
$17.8 million decrease in savings deposits for the quarter ended March 31, 1998.
Borrowed funds increased $50.0 million from $250.0 million at December 31,
1997 to $300.0 million at March 31, 1997. The overall increase is the bank's
current strategy to fund asset growth through the use of borrowed funds when
acceptable spreads can be obtained.
Results of Operations
The Company reported net income of $10.6 million for the three months
ended March 31, 1998 compared to $5.9 million for the three months ended March
31, 1997, an increase of $4.7 million or 78.8%. The increase in net income was
the result of an increase in net interest income of $9.0 million, an increase in
other income of $1.5 million and a decrease in the provision for loan losses of
$2.0 million offset by an increase of $1.3 million in total other expenses and
an increase in provision for income taxes of $6.5 million.
Interest Income
The Company's total interest income was $44.5 for the three months ended
March 31, 1998 compared to $31.9 million for the three months ended March 31,
1997. The $12.6 million or 39.5% increase was primarily due to a $2.6 million
increase in interest income from loans, and a $9.9 million increase in interest
income from securities. The primary reason for the increase in interest income
from loans was an increase of $124.0 million in the average balance of loans.
The average balance of the loan portfolio increased due to increased loan demand
and the Bank's continued business development efforts to attract new loan
relationships. The average yield on the loan portfolio increased to 8.19% from
8.15%. The increase in interest income on securities was due to a $634.5 million
increase in the average balance of the securities portfolio offset by a 21 basis
points decrease in the average yield on the securities portfolio from 6.76% to
6.55%. The increase in the average balance of the securities portfolio is a
result of both the use of the proceeds from the Conversion and the Bank's
decision to use borrowings to fund asset growth to leverage the balance sheet.
The decrease in the average yield is the result of declining interest rates
during 1997.
Interest Expense
The Company's total interest expense was $16.1 million for the three
months ended March 31, 1998 compared with $12.5 million for the three months
ended March 31, 1997. The increase of $3.6 million was primarily due to an
increase of $3.7 million in interest expense on borrowed funds and a $0.2
million increase in interest on time deposits offset by a decrease of $0.3
million in interest on savings deposits. The increase in interest expense on
borrowed funds was primarily due to a $253.3 increase in the average balance of
borrowed funds. The increase in interest expense on time deposits was a result
of a $6.8 million increase in the average balance of time deposits and a
decrease of 6 basis points in the average rate paid on time deposits. The
decrease in interest expense of savings deposits was due to a $20.0 million
decrease in the average balance of savings deposits resulting from deposit
outflows in this type of account.
11
14
Net Interest Income
Net interest income increased $9.0 million or 46.6% in the three months
ended March 31, 1998 to $28.4 million, compared to $19.4 million in the same
period in 1997. Such increase was due to a $12.6 million increase in interest
income which was partially offset by a $3.6 million increase in interest
expense. The increase in interest income was due to an increase of $764.0
million or 44.6% in the average balance of interest earning assets. The average
yield on interest earning assets was 7.28% for the three months ended March 31,
1998 compared with 7.54% for the three months ended March 31, 1997. The increase
in interest expense was due to an increase of $239.1 million or 16.6% in the
average balance of interest bearing liabilities. The average cost of interest
bearing liabilities for the first quarter of 1998 was 3.90% compared with 3.52%
for the same period last year. The Company's interest rate spread (the
difference between the weighted average yield on interest earning assets and
weighted average cost of interest bearing liabilities) and net interest margin
(net interest income as a percentage of average interest earning assets)
amounted to 3.38% and 4.64% respectively during the three months ended March 31,
1998 compared to 4.02% and 4.58%, respectively, for the comparable period in
1997.
Provision For Loan Losses
The provision for loan losses for the three months ended March 31, 1998
was $0.5 million compared to $2.5 million for the three months ended March 31,
1997. The provision in 1997 included a non-recurring amount of $2.0 million. The
provision in 1998 was based on management's continuing review of the risk
elements in the Bank's loan portfolio.
Non-performing assets were $22.7 million at March 31, 1998 or .85% of
total assets. At December 31, 1997 non-performing assets totaled $21.9 million
or .83% of total assets. The allowance for loan losses at March 31, 1998 was
$16.6 million or 74.7% of non-performing loans compared to 73.7% at December 31,
1997. While no assurance can be given that future charge-offs and/or additional
provisions will not be necessary, management of the Company believes that, as of
March 31, 1998 the allowance for loan losses was adequate.
Other Income
Other income increased $1.5 million or 125.8% to $2.7 million for the
three months ended March 31, 1998 from $1.2 million for the three months ended
March 31, 1997. Such increase was due to a $0.6 million gain on securities
transactions during the 1998 period compared to a $0.6 million loss during the
first quarter of 1997. The loss in the first quarter of 1997 was due to the
restructuring of the Company's securities portfolio in an effort to improve both
yield and asset quality. Service and fee income increased from $1.8 million for
the three months ended March 31, 1997 to $2.1 million for the three months ended
March 31, 1998. The increase in service and fee income was due to an increase in
the volume of transactions as well as an increase in demand deposit accounts.
Total Other Expenses
Total other expenses increased $1.3 million or 12.2% to $12.2 million for
the three months ended March 31, 1998 from $10.8 million for the same period in
1997. Such increase was primarily due to a $1.3 million or 26.7% increase in
personnel expenses resulting from the costs of the ESOP plan ($1.2 million),
staff additions to the Bank's lending operations to enhance credit
administration and normal merit increases.
Provision For Income Taxes
The provision for income taxes increased $6.5 million to $7.8 million for
the three months ended March 31, 1998 from $1.3 million for the three months
ended March 31, 1997. The effective tax rate for the first quarter of 1998 was
42.5% compared with 17.96% for the first quarter of 1997. The provision in 1997
included a reduction of $2.6 million for the recapture of deferred city taxes
related to the New York City tax bad debt reserves. The remaining increase in
the provision is due to the increase in income before taxes.
12
15
Liquidity and Commitments
The Bank's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing, and financing activities. The Bank'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 predictable 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, 1998, the Bank had entered into repurchase agreements
totaling $300.0 million as an alternative funding source for asset growth. The
Bank intends to continue the use of repurchase agreements 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 Bank 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 March 31, 1998 the
total approved loan origination commitments outstanding amounted to $120.9
million. At the same date, the unadvanced portion of construction loans amounted
to $9.4 million. Certificates of deposit scheduled to mature in one year or less
at March 31, 1998 totalled $420.1 million. Investment securities scheduled to
mature in one year or less at March 31, 1998 totalled $23.9 million. 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 meet its current
commitments.
Capital
At March 31, 1998, the Bank had regulatory capital which was well in
excess of regulatory limits set by the Office of Thrift Supervision. 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 $ 38,397 1.50% $ 400,655 15.65% $ 362,258 14.15%
Core capital $ 102,699 4.00% $ 404,641 15.78% $ 301,942 11.78%
Risk-based capital $ 87,012 8.00% $ 418,273 38.46% $ 331,261 30.46%
13
16
Year 2000
The Company has completed its assessment of the Company's vulnerability to
Year 2000 issues and has prepared initial estimates of the costs of resolution.
The Company has signed a contract to have its most critical systems such as
loans and deposits be processed by a new data processor with the conversion on
to the new system projected for the third quarter of 1998. This processor has
made a representation and warranty to be Year 2000 compliant by December 31,
1998. The costs of compliance will be borne by the vendor under their contract.
Company personnel will participate in tests of this system as soon as practical
to insure full compliance. Failure to prepare this system for the Year 2000
would materially affect the Company's ability to operate and serve its
customers. The Company's other information technology-controlled systems have
also been identified and are in various states of readiness and testing.
Progress is underway to address these other issues, with an estimated cost of
$50,000 to $100,000; the actual amount will depend on choices to be made by
management in the coming months. This amount could increase materially if
problems are noted in the testing process that have not yet been identified. The
majority of these costs are expected to be incurred during calendar year 1998
and 1999; all such costs will be charged to expense as incurred.
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 market value
of the Bank's portfolio equity, see "Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Company's 1997 Annual
Report to stockholders. There has been no material change in the Company's asset
and liability position or the market value of the Bank's portfolio equity since
December 31, 1997.
14
17
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
Three Months Ended March 31,
-------------------------------------------------------------------------------------------
1998 1997
--------------------------------------------- ---------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------------- ----------- --------- -------------- -------------- ---------
Interest-earning assets:
Loans receivable (1):
Real estate loans .................... $1,075,739,794 $21,407,925 8.07% $ 931,395,222 $ 18,660,520 8.13%
Other loans .......................... 44,797,204 1,225,961 11.10% 65,163,016 1,361,848 8.48%
-------------- ----------- -------------- --------------
Total loans ....................... 1,120,536,998 22,633,886 8.19% 996,558,238 20,022,368 8.15%
Securities ........................... 1,321,705,224 21,349,928 6.55% 687,208,301 11,450,459 6.76%
Other earning assets (2) ............. 36,157,233 481,711 5.40% 30,590,000 402,971 5.34%
-------------- ----------- --------- -------------- -------------- ---------
Total interest-earning assets ........ 2,478,399,455 44,465,525 7.28% 1,714,356,539 31,875,798 7.54%
----------- --------- -------------- ---------
Noninterest-earning assets ........... 125,392,855 91,633,164
-------------- --------------
Total assets ......................... $2,603,792,310 $1,805,989,703
============== ==============
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ........ 91,711,173 625,157 2.76% 99,986,588 672,942 2.73%
Savings deposits ..................... 802,530,798 5,083,980 2.57% 822,563,249 5,344,767 2.64%
Certificates of deposits ............. 519,409,054 6,547,582 5.11% 512,641,860 6,387,066 5.05%
-------------- ----------- --------- -------------- -------------- ---------
Total deposits .................... 1,413,651,025 12,256,719 3.52% 1,435,191,697 12,404,775 3.51%
Total Other Borrowings ............... 260,652,914 3,833,171 5.96% 7,377,017 110,978 6.10%
-------------- ----------- --------- -------------- -------------- ---------
Total interest-bearing liabilities ... 1,674,303,939 16,089,890 3.90% 1,442,568,714 12,515,753 3.52%
----------- --------- -------------- ---------
Noninterest-bearing liabilities (3) .. 237,919,295 190,895,712
-------------- --------------
Total liabilities .................... 1,912,223,234 1,633,464,426
Stockholders' equity ................. 691,569,076 172,525,277
-------------- --------------
Total liabilities and stockholders'
equity ............................. $2,603,792,310 $1,805,989,703
============== ==============
Net interest-earning assets .......... $ 804,095,516 $ 271,787,825
============== ==============
Net interest income/interest rate ----------- --------------
spread 28,375,635 3.38% 19,360,045 4.02%
=========== ======= ============== =======
Net interest margin .................. 4.64% 4.58%
======= =======
Ratio of average interest-earning assets
to average interest-bearing liabilities 148.03% 118.84%
======= =======
(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
18
Rate/Volume Analysis
The following table sets forth the effects of changing rates and volumes
on net interest income of the Bank. Information is provided with respect to (I)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in 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,
-----------------------------------------------
1998 compared to 1997
-----------------------------------------------
Increase (decrease) due to
-------------------------------- Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
-------- -------- -------- ------------
(000's omitted)
Interest-earning assets:
Loans receivable:
Real estate loans ................... $ (125) $ 2,892 $ (19) $ 2,748
Other loans ......................... 421 (425) (132) (136)
-------- -------- -------- --------
Total loans receivable .............. 296 2,467 (151) 2,612
Securities ............................ (350) 10,572 (323) 9,899
Federal funds sold .................... 5 73 1 79
Total net change in income on interest --------- -------- -------- --------
earning assets ...................... (49) 13,112 (473) 12,590
--------- -------- -------- --------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits ....... 9 (56) (1) (48)
Savings accounts .................... (134) (130) 3 (261)
Certificates of deposit ............. 75 85 1 161
-------- -------- -------- --------
Total deposits .................... (50) (101) 3 (148)
Other Borrowings ...................... (2) 3,810 (86) 3,722
Total net change in expense on -------- -------- -------- --------
interest-bearing liabilities ........ (52) 3,709 (83) 3,574
-------- -------- -------- --------
Net change in net interest income ....... 3 9,403 (390) 9,016
======== ======== ======== ========
16
19
Part II Other Information
Item 1 Legal Proceedings
Not applicable
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 Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
a) Not applicable
b) No Form 8-K reports were filed during the quarter
17
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STATEN ISLAND BANCORP, INC.
Date: May 12, 1998 By: /s/ Harry P. Doherty
---------------------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer
Date: May 12, 1998 By: /s/ Edward Klingele, Sr.
--------------------------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer