<PAGE> 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 September 30, 1997
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 333-32113
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 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 No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: As of September 30, 1997 and
as of the date hereof, Staten Island Savings Bank, the registrant's to-be wholly
owned subsidiary, had not yet completed it mutual-to-stock conversion and
reorganization into a holding company format. Accordingly, there are no issued
and outstanding shares of the Registrant's Common Stock, par value $.01 share.
The financial information presented herein is for Staten Island Savings Bank as
the registrant has not yet commenced operations.
<PAGE> 2
STATEN ISLAND BANCORP, INC.
<TABLE>
<CAPTION>
Table of Contents PAGE
- ----------------- ----
<S> <C> <C>
Part I Financial Information
Item 1 Financial Statements
Statement of Condition 2
As of September 30, 1997 and December 31, 1996 (unaudited)
Statement of Income (For three months and nine months ended 3
September 30, 1997 and 1996)(unaudited)
Statement of Equity (For nine months ended September 30, 1997 4
and 1996)(unaudited)
Statement of Cash Flows (For the nine months ended September 5
30, 1997 and 1996)(unaudited)
Notes to Financial Statements (unaudited) 6-10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-18
Part II Other Information 19
Item 1 Legal Proceedings
-----------------
Item 2 Changes in Securities
---------------------
Item 3 Defaults Upon Senior Securities
-------------------------------
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Item 5 Other Information
-----------------
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
</TABLE>
<PAGE> 3
STATEN ISLAND SAVINGS BANK
STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
--------------------------------------------
ASSETS SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------- -------------------
(Dollars In Thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 48,445 $ 43,522
Federal funds sold 36,300 9,100
Securities available for sale 960,375 703,134
Loans, net 1,037,862 968,015
Accrued interest receivable 12,968 11,739
Bank premises and equipment, net 19,945 18,675
Intangible assets, net 18,933 20,490
Other assets 9,672 7,648
------------------- -------------------
Total assets $ 2,144,500 $ 1,782,323
=================== ===================
LIABILITIES AND EQUITY
LIABILITIES:
Deposits-
Savings $ 815,817 $ 832,584
Time 547,230 500,570
Money market 83,381 79,704
NOW accounts 27,417 14,298
Demand deposits 192,647 150,592
------------------- -------------------
1,666,492 1,577,748
Borrowed funds 245,841 54
Advances from borrowers for taxes and insurance 5,798 4,563
Accrued interest and other liabilities 31,086 28,878
------------------- -------------------
Total liabilities 1,949,217 1,611,243
------------------- -------------------
EQUITY:
Retained Earnings 183,947 166,950
Unrealized appreciation on securities available for
sale, net of taxes 11,336 4,130
------------------- -------------------
Total equity 195,283 171,080
------------------- -------------------
Total liabilities and equity $ 2,144,500 $ 1,782,323
=================== ===================
</TABLE>
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<PAGE> 4
STATEN ISLAND SAVINGS BANK
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------------
1997 1996
-------------------------------------------
(Dollars In Thousands)
<S> <C> <C>
Interest income:
Loans, including fees $ 21,071 $ 18,965
Securities available for sale and held to maturity 13,619 11,889
Federal funds sold 541 268
-------------------- ------------------
Total interest income 35,231 31,122
-------------------- ------------------
Interest expense:
Savings accounts 5,479 5,308
Time deposits 6,967 6,470
Money market accounts 611 609
NOW accounts 115 282
Escrow accounts 22 19
Borrowed funds 1,888 1
-------------------- ------------------
Total interest expense 15,082 12,689
-------------------- ------------------
Net interest and dividend income 20,149 18,433
-------------------- ------------------
Provision for loan losses 501 500
Net interest income after provision
-------------------- ------------------
for possible loan losses 19,648 17,933
Other income (loss):
Service and fee income 1,925 1,615
Securities transactions 193 (402)
-------------------- ------------------
Total other income (loss) 2,118 1,213
Other expenses
Personnel 5,858 5,311
Occupancy and equipment 1,449 1,299
Amortization of intangible assets 519 519
FDIC insurance 75 1
Data processing 1,048 593
Marketing 324 325
Professional fees 253 365
Stationery and supplies 254 225
Other 1,688 1,523
-------------------- ------------------
Total other expenses 11,468 10,161
-------------------- ------------------
Income before provision for income taxes 10,298 8,985
-------------------- ------------------
Provision for income taxes 4,261 2,739
-------------------- ------------------
Net income $ 6,037 $ 6,246
==================== ==================
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------------------------
1997 1996
(Dollars In Thousands)
---------------------------------------------
<S> <C> <C>
Interest income:
Loans, including fees $ 61,591 $ 53,898
Securities available for sale and held to maturity 36,984 36,130
Federal funds sold 1,742 1,074
-------------------- ------------------
Total interest income 100,317 91,102
-------------------- ------------------
Interest expense:
Savings accounts 16,240 15,804
Time deposits 20,033 19,260
Money market accounts 1,821 1,825
NOW accounts 269 818
Escrow accounts 66 59
Borrowed funds 2,441 5
-------------------- ------------------
Total interest expense 40,870 37,771
-------------------- ------------------
Net interest and dividend income 59,447 53,331
Provision for loan losses 5,502 500
Net interest income after provision
-------------------- ------------------
for possible loan losses 53,945 52,831
Other income (loss):
Service and fee income 5,581 4,829
Securities transactions (412) (184)
-------------------- ------------------
Total other income (loss) 5,169 4,645
Other expenses
Personnel 15,954 15,055
Occupancy and equipment 4,233 4,125
Amortization of intangible assets 1,557 1,624
FDIC insurance 197 2
Data processing 3,186 2,103
Marketing 972 976
Professional fees 683 760
Stationery and supplies 942 643
Other 5,181 4,818
-------------------- ------------------
Total other expenses 32,905 30,106
-------------------- ------------------
Income before provision for income taxes 26,209 27,370
Provision for income taxes 9,212 10,782
-------------------- ------------------
Net income $ 16,997 $ 16,588
==================== ==================
</TABLE>
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<PAGE> 5
STATEN ISLAND SAVINGS BANK
STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON SECURITIES
RETAINED AVAILABLE FOR SALE, TOTAL
EARNINGS NET OF TAXES EQUITY
------------------- ------------------- -------------------
(Dollars In Thousands)
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $ 145,175 $ 4,907 $ 150,082
Net Income 16,558 16,558
Change in unrealized loss on securities
available for sale, net of taxes (4,036) (4,036)
------------------- ------------------- -------------------
BALANCE, SEPTEMBER 30, 1996 $ 161,733 $ 871 $ 162,604
=================== =================== ===================
BALANCE, DECEMBER 31, 1996 $ 166,950 $ 4,130 $ 171,080
Net Income 16,997 16,997
Change in unrealized gain on securities
available for sale, net of taxes 7,206 7,206
------------------- ------------------- -------------------
BALANCE, SEPTEMBER 30, 1997 $ 183,947 $ 11,336 $ 195,283
=================== =================== ===================
</TABLE>
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<PAGE> 6
STATEN ISLAND SAVINGS BANK
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30
------------- --------------
1997 1996
------------- --------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 16,997 $ 16,588
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization 1,267 1,165
Amortization (accretion) of bond and mortgage premiums (discounts) 187 493
Amortization of intangible assets 1,557 1,624
Loss (gain) on sale of available for sale securities 412 184
Other noncash expense (income) (2,919) (2,730)
Provision for loan losses 5,502 500
Increase in deferred loan fees 206 626
Decrease (increase) in accrued interest receivable (1,230) 1,365
Decrease (increase) in other assets (2,024) (4,376)
(Decrease) increase in accrued interest and other liabilities (143) (10,001)
(Increase) decrease in deferred income taxes (4,855) 2,247
Recoveries 717 840
------------- --------------
Net cash provided by operating activities 15,674 8,525
------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
REDEMPTION OF TRADING SECURITIES 20,564
Maturities of available for sale securities 117,133 193,856
Sales of available for sale securities 51,805 225,286
Purchases of available for sale securities (431,865) (351,143)
Principal collected on loans 157,778 122,457
Loans made to customers (235,144) (253,364)
Purchases of loans
Sales of loans 2,967 3,071
Capital expenditures (2,554) (2,605)
------------- --------------
Net cash used in investing activities (319,316) (62,442)
------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposit accounts 89,978 46,004
Borrowings 245,787 (1)
------------- --------------
Net cash provided by financing activities 335,765 46,003
------------- --------------
Net (decrease) increase in cash and cash equivalents 32,123 (7,914)
CASH AND CASH EQUIVALENTS, beginning of year 52,622 76,464
------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 84,745 $ 68,550
============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for - $ 39,652 37,777
Interest 13,945 $ 12,390
Income taxes ============= ==============
</TABLE>
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<PAGE> 7
STATEN ISLAND SAVINGS BANK
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
Basis of Financial Statement Presentation
Staten Island Bancorp, Inc. (the Company) is a Delaware corporation organized in
July 1997 by Staten Island Savings Bank (the Bank) in connection with the
conversion of the Bank from a federally chartered mutual savings bank to a
federally chartered stock savings bank. For purposes of this Form 10-Q the
financial statements of the Company have been omitted because as of September
30, 1997, the Company had not yet issued any stock, had no assets (other than
advance subscription proceeds) and no liabilities, and had not yet conducted any
business other than of an organizational nature. Alternatively, the unaudited
financial statements and the Management's Discussion and Analysis of Financial
Condition and Results of the Operations presented herein are for the Bank as a
predecessor entity to the Company. No proforma effect has been given to the sale
of the Company's common stock in the Conversion.
The accompanying financial statements were prepared in accordance with
instructions to Form-10Q and therefore, do not include information or footnotes
necessary for a complete presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial statements
have been included. The results of operations for the three and nine months
ended September 30, 1997 are not necessarily indicative of the results to be
expected for the year ending December 31, 1997. These interim financial
statements should be read in conjunction with the Bank's audited financial
statements and note disclosures contained in the Company's Prospectus dated
September 12, 1997.
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 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 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.
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<PAGE> 8
2. Loan Portfolio Composition. The following table sets forth the composition
of the Bank's loans at the dates indicated.
<TABLE>
<CAPTION>
------------------------------------- --------------------------------
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------------------------- --------------------------------
PERCENT OF PERCENT OF
AMOUNT TOTAL AMOUNT TOTAL
----------------- ----------------- ----------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $ 827,272 79.71% $ 720,873 74.47%
Multi-family residential 29,019 2.80% 26,444 2.73%
Commercial real estate 115,817 11.16% 115,593 11.94%
Construction and land 41,090 3.96% 28,779 2.97%
Home equity 5,984 0.58% 29,680 3.07%
----------------- ----------------- ----------------- -------------
Total mortgage loans 1,019,182 98.20% 921,369 95.18%
Other loans:
Student loans 3,729 0.36% 4,522 0.47%
Automobile leases - 0.00% 28,249 2.92%
Passbook loans 6,830 0.66% 5,933 0.61%
Commercial business loans 15,066 1.45% 14,995 1.55%
Other consumer loans 12,560 1.21% 9,712 1.00%
----------------- ----------------- ----------------- -------------
Total other loans 38,185 3.68% 63,411 6.55%
----------------- ----------------- ----------------- -------------
Total loans receivable 1,057,367 101.88% 984,780 101.73%
Less:
Discount on loans purchased (728) (0.07)% (3,475) (0.36)%
Allowance for loan losses (14,530) (1.40)% (9,977) (1.03)%
Deferred loan fees (4,247) (0.41)% (3,313) (0.34)%
----------------- ----------------- ----------------- -------------
Loans receivable, net $ 1,037,862 100.00% $ 968,015 100.00%
================= ================= ================= =============
</TABLE>
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<PAGE> 9
3. Non-Performing Assets. The following table sets forth information
with respect to non-performing assets identified by the Bank, including
non-accrual loans, other real estate owned, and non-performing investments in
real estate at the dates indicated.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
-------------------- --------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accruing loans 90 days or more
past due:
Mortgage loans: $ 66 $ -
Other loans: 342 1
-------------------- --------------------
Total accruing loans 408 1
-------------------- --------------------
Non-accrual loans:
Mortgage loans:
Single-family residential 10,338 10,417
Multi-family residential 934 322
Commercial real estate 9,668 11,102
Construction and land 1,469 -
Home equity 545 644
Other loans:
Automobile leases - 15
Commercial and discounted business loans 194 106
Other loans 392 144
-------------------- --------------------
Total non-accruing loans 23,540 22,750
-------------------- --------------------
Total non-performing loans 23,948 22,751
-------------------- --------------------
Other real estate owned, net 780 1,103
-------------------- --------------------
-------------------- --------------------
Total non-performing assets $ 24,728 $ 23,854
==================== ====================
Non-performing assets to total
loans 2.35% 2.42%
Non-performing assets to total
assets 1.15% 1.34%
Non-performing loans to total
loans 2.28% 2.31%
Non-performing loans to total
assets 1.12% 1.28%
</TABLE>
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<PAGE> 10
4. ALLOWANCE FOR LOAN LOSSES. The following table sets forth the activity
in the Bank's allowance for loan losses during the periods
indicated.
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, DECEMBER 31,
-------------------------------------------- -------------------
1997 1996 1996
----------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Allowance at beginning of period $ 9,977 $ 10,704 $ 10,704
Provisions 5,502 500 1,000
Charge-offs:
Mortgage loans:
Construction, land and land development 2 - -
Single-family residential 624 1,137 1,590
Multi-family residential 100 - -
Commercial real estate 444 239 376
Other loans 485 329 729
----------------- ------------------- -------------------
Total charge-offs 1,655 1,705 2,695
Recoveries:
Mortgage loans:
Construction, land and land development 10 - -
Single-family residential 295 345 408
Multi-family residential - - -
Commercial real estate 238 388 413
Other loans 163 107 147
----------------- ------------------- -------------------
Total recoveries 706 840 968
----------------- ------------------- -------------------
Allowance at end of period $ 14,530 $ 10,339 $ 9,977
================= =================== ===================
Allowance for loan losses
to total nonperforming loans at
end of period 61.72% 44.50% 43.85%
Allowance for loan losses
to total loans at end of period 1.38% 1.10% 1.02%
</TABLE>
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<PAGE> 11
(5) Subsequent Events
The Company's initial subscription offering closed at 12:00 noon, Eastern Time,
on October 16, 1997. Based on the Bank's results of operation for the quarter
and nine months ended September 30, 1997, increases on market prices for
publicly traded securities of comparable institutions and market demand for the
Company's common stock, as reflected by the level of subscriptions received, the
estimated pro forma value of the shares of the Company's common stock has been
increased and, as a result, the Company will conduct a resolicitation offering.
Payments for subscriptions made by cash, check or money order have been placed
in a segregated account at the Bank earning interest at the Bank's current
passbook rate of 2.85% from the date of receipt. Payments authorized by
withdrawal from deposit accounts at the Bank will continue to earn interest at
the contractual rate until the Conversion is completed and the funds are
withdrawn. The Company currently anticipates that the resolicitation offering
will be completed, and the Company's Common Stock will commence trading on the
New York Stock Exchange, during the fourth quarter of 1997.
On October 28, 1997, the Bank's members approved the conversion of the Bank to a
federally chartered stock savings bank. The members also approved the
establishment of a private charitable foundation (SISB Community Foundation) to
further the Bank's commitment to the communities it serves and enhance the bond
between the Bank and the community. The Company will fund the Foundation by
contributing to the Foundation, immediately following the Conversion, a number
of authorized but unissued shares of common stock equal to 5% of the common
stock sold in the Conversion.
(6) Earnings Per Share
Earnings per share for the three months ended September 30, 1997 is not
applicable, as the Bank's conversion from mutual to stock form and
reorganization into a holding company format has not been completed.
-10-
<PAGE> 12
Part 2 - Managements Discussion and Analysis of Financial Condition and Results
of Operation Changes in Financial Conditions
Total assets of the Bank increased $362.2 million or 20.3% from $1.79
billion December 31, 1996 to $2.14 billion September 30, 1997.
The increase in total assets for the first nine months of 1997 was
primarily due to a $257.2 million, or 36.6% increase in the Bank's
investment portfolio which is a result of the Bank's leveraging program
and the use of borrowed funds to purchase securities for the Bank's
investment portfolio at an acceptable spread.
Loans receivable net increased $69.8 million or 7.2% to $1.04 billion at
September 30, 1997 compared to $968.0 million at December 31, 1996. Such
increase was due to continued growth in the loan portfolio.
Deposits increased $88.7 million or 5.6% from $1.6 billion at December
31, 1996 to $1.7 billion at September 30, 1997. The largest increase was
in time deposits and demand deposits which increased $46.7 million and
$42.1 million, respectively. The growth in time deposits was primarily
due to an increase in deposits made in anticipation of payment for the
Company's stock offering. The growth in demand deposits was a result of
the Bank's continued emphasis on business development and in anticipation
of the Company's stock offering.
Borrowed funds totaled $245.8 million at September 30, 1997 compared to
$54,000 at December 31,1996. Management has deemed borrowings to be a
cost-effective alternative to deposits which facilitate the Bank's
ability to leverage its balance sheet. Borrowed funds consist primarily
of short-term repurchase agreements maturing prior to September 30, 1998.
Equity increased by $24.2 million or 14.1% from $171.1 million at
December 31, 1996 to $195.3 million at September 30, 1997. The increase
was a result of net income of $17.0 million and an unrealized gain on the
Bank's securities available for sale of $11.3 million at September 30,
1997 compared to $4.1 million at December 31, 1996. The recent volatility
in the financial markets has resulted in the appreciation in value of the
Bank's investment portfolio.
Results of Operations
The Bank reported net income of $6.0 million for the three months ended
September 30, 1997 compared to $6.2 million for the three months ended
September 30, 1996 a decrease of $209,000 or 3.3%. The decrease in net
income was primarily the result of an increase of $1.3 million in total
other expenses and an increase in the provision for income taxes of $1.5
million partially offset by increases in net interest income of $1.7
million and other income of $905,000.
Net income for the nine months ended September 30, 1997 amounted to $17.0
million compared to $16.6 million for the nine months ended September 30,
1996. The increase of $409,000 or 2.5% was primarily due to an increase
of $6.1 million in net interest income and a $1.6 million decrease in
the provision for income taxes, partially offset by a $5.0 million
increase in the provision for loan losses and a $2.8 million increase in
total other expenses.
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<PAGE> 13
Interest Income
The Bank's total interest income was $35.2 million for the three months ended
September 30 1997 compared to $31.1 million for the three months ended September
30, 1996. The $4.1 million or 13.2% increase was primarily due to a $2.1 million
increase in interest income from loans and a $1.7 million increase in interest
income from securities. The primary reason for the increase in interest income
from loans was an increase of $118.6 million in the average balance of loans
partially offset by a decrease in the average yield of 14 basis points from
8.27% to 8.13%. The average balance of the loan portfolio increased due to
increased loan demand, new loan products and continued emphasis on commercial
and other lending. The decrease in the average yield on the loan portfolio was
primarily due to the increased loan repayment activity in higher yielding loans
and the downward pricing of certain of the Bank's adjustable rate loans. The
increase in interest income on securities was due to a $81.5 million increase in
the average balance of the securities portfolio and a 20 basis point increase in
the average yield on the securities portfolio. The increase in the average
balance is a result of the Bank's leveraging strategy.
For the nine months ended September 30, 1997 interest income totaled $100.3
million compared with $91.1 million for the nine months ended September 30,
1996. The $9.2 million or 10.1% increase between the periods was primarily the
result of higher interest income for loans and securities. Interest on loans
increased $7.7 million or 14.3% as a result of a $146.3 million increase in the
average balance of the loan portfolio. This was offset to some extent by a
decrease in the average yield on loans from 8.28% for the nine months ended
September 30, 1996 to 8.10% for the nine months ended September 30, 1997. These
changes for the nine month period were due primarily to the same factors
described above with respect to the changes during the third quarter of 1997
compared to the third quarter of 1996. Interest income on securities increased
$854,000 or 2.4% primarily as a result of an increase in the average yield to
6.66% for the nine months ended September 30, 1997 compared to 6.37% for the
nine months ended September 30, 1996. This increase in yield was partially
offset by a $15.5 million decrease in the average balance of securities during
the same time period.
The increase in the average yield reflects the sale of lower rate securities to
purchase higher yielding securities in connection with the Bank's restructuring
of its investment securities portfolio in the past twelve months, while the
decrease in the average balance is a result of the paydowns and maturities
earlier in the year exceeding the investment due to the funding of lending
activities.
Interest Expense
The Bank's total interest expense was $15.1 million for the three months ended
September 30, 1997 compared with $12.7 million for the three months ended
September 30, 1996. The increase of $2.4 million or 18.9% was primarily due to
an increase of $497,000 in interest for time deposits and $1.9 million increase
in interest expense on borrowed funds. The increase in interest expense for time
deposits was primarily due to an increase of $41.6 million in the average
balance of time deposits primarily due to deposits in anticipation of payment
for the Company's stock offering. The increase in interest expense for borrowed
funds was due to an increase in the
-12-
<PAGE> 14
average balance of $125.2 million due to the Bank's leveraging strategy which
was not in place during the third quarter of 1996.
Interest expense was $40.9 million for the nine months ended September 30, 1997
compared to $37.8 million for nine months ended September 30, 1996, an increase
of $3.1 million or 8.20%. Interest on borrowed funds increased $2.4 million due
to a $55.4 million increase in the average balance of borrowings between the
periods. Average borrowings for the nine months ended September 30, 1996 was
$47,000. The significant increase in the average balance reflects the leveraging
strategy instituted by the Bank during the current fiscal year. The average
balance of interest bearing deposits increased by $82.6 million from September
30, 1996 to September 30, 1997, while the average cost of these deposits
decreased from 3.66% for the nine months ended September 30, 1996 to 3.52% for
the nine months ended September 30, 1997. This was a result of the Bank's
continued business development efforts for demand deposits along with deposits
made in anticipation of payment for the Company's stock offering.
Net Interest Income
Net interest income increased $1.7 million or 9.3% in the three months ended
September 30, 1997 to $20.1 million, compared to $18.4 million in the same
period in 1996. Such increase was due to a $4.1 million increase in interest
income which was partially offset by a $2.4 million increase in interest
expense. The increase in interest income was due to an increase of $218.9
million or 13% in the average balance of interest earning assets. The average
yield on interest earning assets was 7.30% for the three months ended September
30, 1997 compared with 7.42% for the three months ended September 30, 1996. The
increase in interest expense was due to an increase of $211.8 million or 15.3%
in the average balance of interest bearing liabilities. The average cost of
interest bearing liabilities for the third quarter of 1997 was 3.78% compared
with 3.66% for the same period last year. The Bank'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 3.65% and 4.25%, respectively during the three months ended
September 30, 1997 compared to 3.75% and 4.39, respectively, for the comparable
period in 1996.
Net interest income was $59.4 million for the nine months ended September 30,
1997 compared to $53.3 million for the nine months ended September 30, 1996.
This represents an increase of $6.1 million or 11.5%. The increase was a result
of a $9.2 million increase in interest income which was partially offset by a
$3.1 million increase in interest expense. The increase in interest income was
a result of an increase of $146.8 million in the average balance of interest
earning assets along with an increase of 8 basis points from 7.36% for the nine
months ended September 30, 1996 to 7.44% for the nine months ended September
30, 1997 in the average yield on interest earning assets. Interest expense
increased due to a $38.0 million increase in the average balance of interest
bearing liabilities which was partially offset by a decrease of 6 basis points
in the average rate paid from 3.66% for the nine months ended September 30,
1996 to 3.60% for the nine months ended September 30, 1997. The net interest
spread and margin increased to 3.84% and 4.41%, respectively, for the nine
months ended September 30, 1997 compared to 3.70% and 4.31%, respectively, for
the nine months ended September 30, 1996.
-13-
<PAGE> 15
Provision for Loan Losses
The provision for loan losses for the three months ended September 30, 1997 was
$501,000 compared to $500,000 for the three months ended September 30, 1996. The
provision for loan losses in the third quarter of 1997 was based on management's
continuing review of the risk elements in the Bank's loan portfolio and the
growth of the portfolio.
For the nine months ended September 30, 1997, the provision for loan losses was
$5.5 million compared to $500,000 for the first nine months of 1996. In addition
to general provisions of approximately $1.5 million during the nine months ended
September 30, 1997, management determined that additional provisions of
approximately $4.0 million were necessary in light of estimated losses with
respect to the loans acquired from Gateway Bancorp, Inc. in connection with the
Bank's acquisition of Gateway Bancorp, Inc. in 1995; and with respect to the
Bank's portfolio of non-performing loans. Management views approximately $4.0
million of the provisions during the nine months ended September 30, 1997 as
generally non-recurring in nature and anticipates that the amount of provisions
for loan losses in the future will be more consistent with the $1.5 million of
provisions which it otherwise would have made. While no assurance can be given
that future chargeoffs and/or additional provisions will be necessary,
management of the Bank believes that, as of September 30, 1997, the allowance
for loan losses was adequate.
Other Income
Other income increased $905,000 or 74.6% to $2.1 million for the three months
ended September 30, 1997 from $1.2 million for the three months ended September
30, 1996. Such increase was due to a $193,000 gain on securities transactions
during the 1997 period compared to a $402,000 loss during the third quarter of
1996. The loss on securities transactions during the third quarter of 1996 was
due to the restructuring of the Bank's securities portfolio in an effort to
improve both yield and asset quality. Service and fee income increased from $1.6
million for the three months ended September 1996 to $1.9 million for the three
months ended September 1997. 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.
For the nine months ended September 30, 1997, other income increased $524,000 or
11.3% primarily as a result of higher service and fee income.
Total Other Expenses
Total other expenses increased $1.3 million or 12.9% to $11.5 million for the
three months ended September 30, 1997 from $10.2 million for the same period in
1996. Such increase was primarily due to a $455,000 or 76.7% increase in data
processing fees and a $547,000 or 10.3% increase in personnel expenses. The
increase in data processing expenses was primarily due to increased fees charged
by the Bank's service bureau as a result of the service bureau's shrinking
customer base due to consolidation within the banking industry. The increase in
personnel expenses was due to normal increases in compensation and employee
benefit costs along with bonuses paid in the third quarter of 1997 for achieving
certain performance goals.
-14-
<PAGE> 16
For the nine months ended September 30, 1997 total other expenses have increased
$2.8 million or 9.3% to $32.9 million from $30.1 million for the nine months
ended September 30, 1996. Such increase was primarily due to an increase of $1.1
million or 51.5% in data processing fees, an increase of $899,000 or 6.0% in
personnel expenses and a $363,000 or 7.5% increase in other expenses. The
increase in data processing expenses was primarily due to the write-off of the
Bank's investment in its service bureau. Given among other things, consolidation
in the banking industry, the number of bank customers of such service bureau has
decreased significantly in recent years. Based on its assessment of the
continuing viability of such service bureau, the Bank wrote-off $969,000 with
respect to this investment. The Bank is reevaluating its data processing needs
in general and, in particular, whether it will continue its relationship with is
current service bureau. Although it has made no decision with respect to how
best to meet its future data processing needs, any determination by the Bank to
enhance its data processing capabilities and/or convert its systems to a new
service bureau may result in increases in other expenses. In this reevaluation
process, the Bank is only considering vendors that can guarantee their systems
will be ready for the year 2000. The Bank's current service bureau is in the
process of implementing program changes needed for the year 2000. The increase
in personnel expenses was due to normal increases in compensation and benefits
as well as bonuses paid to officers and staff in the current quarter. The
increase in other expenses was due to a variety of increases, including expenses
related to loan collateral and real estate owned.
Provision for Income Taxes
The provision for income taxes increased $1.5 million to $4.3 million for the
three months ended September 30, 1997 from $2.8 million or the three months
ended September 30, 1996. The increase was primarily due to a $2.1 million
reversal of previously deferred income taxes related to bad debt reserves
accumulated for New York State purposes in the third quarter of 1996. The New
York State tax law was amended during the third quarter of 1996 to prevent
future recapture of the Bank's bad debt reserves and permit continued future use
of the bad debt reserve method for purposes of determining the Bank's New York
State tax liability. The provision for income taxes for the three months ended
September 30, 1997 reflects a refund of city taxes from 1996 and accruing at a
lower rate for city taxes due to a similar change in the New York City tax law
which took place in April 1997.
For the nine months ended September 30, 1997 the provision for income taxes
decreased $1.6 million to $9.2 million compared with $10.8 million for nine
months ended September 30, 1997. In addition to the reasons stated above, in
April of 1997 there was a $2.6 million reversal of previously deferred income
taxes related to bad debt reserves accumulated for New York city purposes. The
change in the New York City tax law also permits continued future use of the bad
debt reserve method for purposes of determining the Bank's New York City tax
liability.
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, 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
-15-
<PAGE> 17
term investments are relatively predictable sources of funds, deposit flows and
loan prepayments are greatly influenced by general interest rates, economic
conditions and competition. In addition, the Bank invests excess funds in
federal funds sold and other short term interest earning assets which provide
liquidity to meet lending requirements. Historically, the Bank has been able to
generate sufficient cash through its deposits and has only utilized borrowings
to a very limited degree. As of September 30, 1997 the Bank had entered into
repurchase agreements totaling $245.8 million as an alternative funding source
to leverage its capital base. All of these repurchase agreements are short term
and mature before September 30, 1998.
The Bank intends to continue the use of repurchase agreements and in the future
FHLB advances, 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 September 30, 1997
the total approved loan origination commitments outstanding amounted to $48.0
million. At the same date, the unadvanced portion of construction loans
approximate $7.2 million. Certificates of deposit scheduled to mature in one
year or less at September 30, 1997 total $420.2 million. Investment securities
scheduled to mature in one year or less at September 30, 1997 total $48.1
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 it current commitments.
Capital
At September 30, 1997, 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):
<TABLE>
<CAPTION>
Required Capital Actual Capital Excess Capital
----------------------------- -------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 31,694 1.50% $ 164,631 7.79% $ 132,937 6.29%
Core capital $ 63,524 3.00% $ 169,200 8.01% $ 105,676 5.01%
Risk-based capital $ 76,820 8.00% $ 181,234 18.87% $ 104,414 10.87%
</TABLE>
-16-
<PAGE> 18
Average balances, Net Interest Income, Yields Earned and Rates Paid
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------------------------------
1997 1996
----------------------------------- ---------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ----------- ---------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable (1):
Real estate loans $ 998,929 $ 20,082 8.04% $ 860,796 $ 17,685 8.22%
Other loans 37,277 989 10.61% 56,790 1,280 9.02%
------------ ----------- ------------ ----------
Total loans 1,036,206 21,071 8.13% 917,586 18,965 8.27%
Securities 822,569 13,619 6.62% 741,064 11,889 6.42%
Federal funds sold 38,791 541 5.58% 20,054 268 5.35%
------------ ----------- ---------- ------------ ---------- ---------
Total interest-earning assets 1,897,566 35,231 7.43% 1,678,704 31,122 7.42%
----------- ---------- ---------- ---------
Noninterest-earning assets 109,103 88,587
------------ ------------
Total assets $2,006,669 $1,767,291
============ ============
Interest-bearing liabilities:
Deposits:
NOW and money market deposits 105,622 726 2.75% 138,095 891 2.58%
Savings deposits 824,052 5,501 2.67% 746,623 5,327 2.85%
Certificates of deposits 542,039 6,967 5.14% 500,466 6,470 5.17%
------------ ----------- ---------- ------------ ---------- ---------
Total deposits 1,471,713 13,194 3.59% 1,385,184 12,688 3.66%
Total Other Borrowings 125,292 1,888 6.03% 51 1 11.09%
------------ ----------- ---------- ------------ ---------- ---------
Total interest-bearing liabilities 1,597,005 15,082 3.78% 1,385,235 12,689 3.66%
----------- ---------- ---------- ---------
Noninterest-bearing liabilities 221,157 227,096
------------ ------------
Total liabilities 1,818,162 1,612,331
Stockholder's equity 188,507 154,960
------------ ------------
Total liabilities and equity $2,006,669 $1,767,291
============ ============
Net interest-earning assets $ 300,561 $ 293,469
============ ----------- ============ ----------
Net interest income/interest rate spread 20,149 3.65% 18,433 3.75%
=========== ========== ========== =========
Net interest margin 4.25% 4.39%
========== =========
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.82% 121.19%
========== =========
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------------------
1997 1996
--------------------------------- --------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets
Loans receivable (1):
Real estate loans $ 964,870 $ 58,221 8.05% $ 811,143 $50,144 8.24%
Other loans 49,034 3,370 9.16% 56,448 3,754 8.87%
------------ ---------- -------- ---------
Total loans 1,013,904 61,591 8.10% 867,591 53,898 8.28%
Securities 740,502 36,984 6.66% 755,960 36,130 6.37%
Federal funds sold 42,651 1,741 5.44% 26,661 1,074 5.37%
------------ ---------- --------- ----------- --------- ----------
Total interest-earning assets 1,797,057 100,316 7.44% 1,650,212 91,102 7.36%
---------- --------- --------- ----------
Noninterest-earning assets 98,551 92,700
------------ -----------
Total assets $1,895,608 $1,742,912
============ ===========
Interest-bearing liabilities:
Deposits:
NOW and money market deposits 101,644 2,099 2.75% 136,844 2,643 2.58%
Savings deposits 827,077 16,296 2.63% 747,324 15,863 2.83%
Certificates of deposits 528,210 20,033 5.06% 490,149 19,260 5.24%
------------ ---------- --------- ----------- --------- ----------
Total deposits 1,456,931 38,428 3.52% 1,374,317 37,766 3.66%
Total Other Borrowings 55,439 2,441 5.87% 47 5 14.06%
------------ ---------- --------- ----------- --------- ----------
Total interest-bearing liabilities 1,512,370 40,869 3.60% 1,374,364 37,771 3.66%
---------- --------- --------- ----------
Noninterest-bearing liabilities 203,672 216,419
------------ -----------
Total liabilities 1,716,042 1,590,783
Stockholder's equity 179,566 152,129
------------ -----------
Total liabilities and equity $1,895,608 $1,742,912
============ ===========
Net interest-earning assets $ 284,687 $ 275,848
============ ---------- =========== ---------
Net interest income/interest rate spread 59,447 3.84% 53,331 3.70%
========== ========= ========= ==========
Net interest margin 4.41% 4.31%
========= ==========
Ratio of average interest-earning assets
to average interest-bearing liabilities 118.82% 120.07%
========= ==========
</TABLE>
-17-
<PAGE> 19
Rate/Volume Analysis
The following table sets forth effects of changing rates and volumes
on net interest income of the Bank. Information is provided with
respect to (1) 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).
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1996
-----------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO
---------------------------------------------------
RATE/ TOTAL NET INCREASE
RATE VOLUME VOLUME (DECREASE)
------------- --------------- ------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Loans receivable (2):
Real estate loans $ (380) $ 2,838 $ (61) $ 2,397
Other loans 227 (440) (78) (291)
------------- --------------- ------------- ----------------
Total loans receivable (153) 2,398 (139) 2,106
Securities 380 1,308 42 1,730
Federal funds sold 12 250 11 273
Total net change in income on interest-
------------- --------------- ------------- ----------------
earning assets 239 3,956 (86) 4,109
------------- --------------- ------------- ----------------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits 58 (209) (14) (165)
Savings accounts (343) 552 (35) 174
Certificates of deposit (37) 537 (3) 497
------------- --------------- ------------- ----------------
Total deposits (322) 880 (52) 506
Other Borrowings (1) 3,471 (1,583) 1,887
Total net change in expense on
------------- --------------- ------------- ----------------
interest-bearing liabilities (323) 4,351 (1,635) 2,393
------------- --------------- ------------- ----------------
Net change in net interest income 562 (395) 1,549 1,716
============= =============== ============= ================
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997
COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1996
-------------------------------------------------------------------------------
INCREASE (DECREASE) DUE TO
------------------------------------------------------
RATE/ TOTAL NET INCREASE
RATE VOLUME VOLUME (DECREASE)
----------------- --------------- -------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets (1):
Loans receivable (2):
Real estate loans $ (1,199) $ 9,503 $ (227) $ 8,077
Other loans 125 (493) (16) (384)
---------------- --------------- --------------- ------------------
Total loans receivable (1,074) 9,010 (243) 7,693
Securities 1,626 (739) (33) 854
Federal funds sold 14 644 9 667
Total net change in income on interest-
---------------- --------------- --------------- ------------------
earning assets 566 8,915 (267) 9,214
---------------- --------------- --------------- ------------------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits 183 (680) (47) (544)
Savings accounts (1,138) 1,693 (122) 433
Certificates of deposit (671) 1,496 (52) 773
---------------- --------------- --------------- ------------------
Total deposits (1,626) 2,509 (221) 662
Other Borrowings (3) 5,841 (3,402) 2,436
Total net change in expense on
---------------- --------------- --------------- ------------------
interest-bearing liabilities (1,629) 8,350 (3,623) 3,098
---------------- --------------- --------------- ------------------
Net change in net interest income 2,195 565 3,356 6,116
================ =============== =============== ==================
</TABLE>
-18-
<PAGE> 20
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
-19-
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATEN ISLAND BANCORP, INC.
Date: November 11, 1997 By: /s/ Harry P. Doherty
----------------------------
Harry P. Doherty
Chief Executive Officer
Date: November 11, 1997 By: /s/ Edward J. Klingele
----------------------------
Edward J. Klingele
Senior Vice President and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 47,341
<INT-BEARING-DEPOSITS> 1,104
<FED-FUNDS-SOLD> 36,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 960,375
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,052,392
<ALLOWANCE> 14,530
<TOTAL-ASSETS> 2,144,500
<DEPOSITS> 1,666,492
<SHORT-TERM> 245,798
<LIABILITIES-OTHER> 36,884
<LONG-TERM> 43
0
0
<COMMON> 0
<OTHER-SE> 195,283
<TOTAL-LIABILITIES-AND-EQUITY> 2,144,500
<INTEREST-LOAN> 61,591
<INTEREST-INVEST> 36,984
<INTEREST-OTHER> 1,742
<INTEREST-TOTAL> 100,317
<INTEREST-DEPOSIT> 38,363
<INTEREST-EXPENSE> 40,870
<INTEREST-INCOME-NET> 59,447
<LOAN-LOSSES> 5,502
<SECURITIES-GAINS> (412)
<EXPENSE-OTHER> 32,905
<INCOME-PRETAX> 26,209
<INCOME-PRE-EXTRAORDINARY> 26,209
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,997
<EPS-PRIMARY> [BLANK]
<EPS-DILUTED> [BLANK]
<YIELD-ACTUAL> 7.44
<LOANS-NON> 23,540
<LOANS-PAST> 408
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,391
<ALLOWANCE-OPEN> 9,977
<CHARGE-OFFS> 1,655
<RECOVERIES> 706
<ALLOWANCE-CLOSE> 14,530
<ALLOWANCE-DOMESTIC> 14,530
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 14,530
</TABLE>
