UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
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) 556-6518
---------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. The Registrant had
36,220,287 shares of Common Stock outstanding as of August 4, 2000.
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARIES
Table of Contents PAGE
----------------- ----
Part 1 Financial Information
Item 1 Financial Statements
Unaudited Statements of Condition 1
(As of June 30, 2000 and December 31, 1999)
Unaudited Statements of Income 2
(For the three and six months ended June 30, 2000 and
the three and six months ended June 30, 1999)
Unaudited Statement of Changes in Stockholders' Equity 3
(For the six months ended June 30, 2000)
Unaudited Statements of Cash Flows 4
(For the six months ended June 30, 2000 and
the six months ended June 30, 1999)
Notes to Unaudited Consolidated Financial Statements 5
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3 Quantitative and Qualitative Disclosures About Market Risk 19
Part II Other Information
Item 1 Legal Proceedings 20
Item 2 Changes in Securities and Use of Proceeds 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signatures 21
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
---------------------------------------------
June 30, 2000 December 31, 1999
-------------------- ---------------------
(000's omitted)
ASSETS unaudited
<S> <C> <C>
ASSETS:
Cash and due from banks.................................... $ 78,413 $ 80,998
Federal funds sold......................................... 3,400 20,400
Securities available for sale.............................. 1,901,146 1,963,954
Loans, net................................................. 2,639,150 2,150,039
Loans held for sale, net................................... 61,475 46,588
Accrued interest receivable................................ 26,096 23,621
Bank premises and equipment, net........................... 29,820 24,731
Intangible assets, net..................................... 61,176 15,431
Other assets.............................. ................ 175,669 163,552
-------------------- ---------------------
Total assets........................................... $ 4,976,345 $ 4,489,314
==================== =====================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due Depositors-
Savings.................................................. $ 793,089 $ 737,794
Time..................................................... 837,051 573,043
Money market............................................. 134,613 89,004
NOW accounts............................................. 93,585 80,352
Demand deposits.......................................... 395,765 340,040
-------------------- ---------------------
2,254,103 1,820,233
Borrowed funds............................................. 2,104,349 2,049,411
Advances from borrowers for taxes and insurance............ 13,079 10,805
Accrued interest and other liabilities..................... 46,935 37,488
-------------------- ---------------------
Total liabilities...................................... 4,418,466 3,917,937
-------------------- ---------------------
STOCKHOLDERS' EQUITY:
Common stock, par value $.01 per share, 100,000,000
shares authorized, 45,130,312 issued and 36,731,723
outstanding at June 30, 2000 and 45,130,312 issued and
38,693,623 outstanding at December 31, 1999................ 451 451
Additional paid-in-capital................................. 537,117 536,539
Retained earnings-substantially restricted................. 267,906 251,315
Unallocated common stock held by ESOP...................... (34,336) (35,709)
Unearned common stock held by RRP.......................... (25,440) (25,439)
Treasury stock 8,398,589 shares at June 30, 2000
and 6,436,689 at December 31, 1999 at cost............... (154,455) (121,149)
-------------------- ---------------------
591,243 606,008
Accumulated other comprehensive income, net of taxes... (33,364) (34,631)
-------------------- ---------------------
Total stockholders' equity................................... 557,879 571,377
-------------------- ---------------------
Total liabilities and stockholders' equity................... $ 4,976,345 $ 4,489,314
==================== =====================
</TABLE>
1
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
-------------------------------- --------------------------------
(000's omitted)
Interest Income:
<S> <C> <C> <C> <C>
Loans....................................................... $ 49,483 $ 32,715 $ 93,609 $ 63,380
Securities, available for sale.............................. 34,507 33,420 71,327 64,772
Federal funds sold.......................................... 214 705 674 1,432
--------------- --------------- --------------- ---------------
Total interest income.................................... 84,204 66,840 165,610 129,584
--------------- --------------- --------------- ---------------
Interest Expense:
Savings and escrow.......................................... 5,064 4,691 9,997 9,253
Time........................................................ 10,125 6,481 19,198 12,950
Money market and NOW........................................ 1,508 1,045 2,892 2,027
Borrowed funds.............................................. 32,376 20,316 62,690 38,030
--------------- --------------- --------------- ---------------
Total interest expense................................... 49,073 32,533 94,777 62,260
--------------- --------------- --------------- ---------------
Net interest income...................................... 35,131 34,307 70,833 67,324
Provision for Loan Losses................................... 11 11 29 70
--------------- --------------- --------------- ---------------
Net interest income after provision for possible
loan losses.......................................... 35,120 34,296 70,804 67,254
Other Income (Loss):
Service and fee income...................................... 9,483 9,043 17,871 14,537
Securities transactions..................................... (934) 361 (1,158) 485
--------------- --------------- --------------- ---------------
8,549 9,404 16,713 15,022
Other Expenses:
Personnel................................................... 13,413 13,268 26,487 23,674
Occupancy and equipment..................................... 2,315 1,915 4,692 3,799
Amortization of intangible assets........................... 1,347 557 2,564 1,110
Data processing............................................. 1,395 1,214 2,543 2,141
Marketing................................................... 510 354 990 702
Professional fees........................................... 502 437 1,070 995
Other....................................................... 3,799 3,495 7,293 6,498
--------------- --------------- --------------- ---------------
Total other expenses..................................... 23,281 21,240 45,639 38,919
--------------- --------------- --------------- ---------------
Income before provision for income taxes................. 20,388 22,460 41,878 43,357
Provision for Income Taxes.................................. 7,892 9,129 16,219 17,706
--------------- --------------- --------------- ---------------
Net Income.................................................. $ 12,496 $ 13,331 $ 25,659 $ 25,651
=============== =============== =============== ===============
Earnings (Loss) Per Share:
Basic $ 0.37 $ $ 0.35 $ 0.75 $ 0.66
Fully Diluted 0.37 $ 0.35 0.75 0.66
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Weighted Average:
Common Shares 45,130,312 45,130,312 45,130,312 45,130,312
Less: Unallocated ESOP/RRP Shares 3,122,599 3,374,827 3,151,211 3,403,278
Less: Treasury Shares 8,227,160 3,440,288 7,601,861 2,754,345
--------------- --------------- --------------- ---------------
33,780,553 38,315,197 34,377,240 38,972,689
=============== =============== =============== ===============
</TABLE>
2
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unallocated
Additional Common Unearned
Common Paid-In Stock RRP Treasury
Stock Capital Held by ESOP Shares Stock
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 2000............... $ 451 $ 536,539 $ (35,709) $ (25,440) $ (121,149)
Change in unrealized
appreciation (depreciation)
on securities, net of tax.............
Allocation of 114,452 ESOP shares 578 1,373
Treasury stock (1,961,900) at cost.... (33,306)
Net Income............................
Dividends paid........................
------------------------------------------------------------------------------------
Balance June 30, 2000................. $ 451 $ 537,117 $ (34,336) $ (25,440) $ (154,455)
====================================================================================
<CAPTION>
Accumulated
Other
Comprehensive Retained Comprehensive
Income Income Income Total
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 2000.............. $ 251,315 $ (34,631) $ 571,376
Change in unrealized
appreciation (depreciation)
on securities, net of tax............ 1,267 1,267 1,267
Allocation of 114,452 ESOP shares 1,951
Treasury stock (1,961,900) at cost... (33,306)
Net Income........................... 25,659 25,659 25,659
----------------
26,926
Dividends paid....................... (9,068) (9,068)
----------------------------------------------------------------------
Balance June 30, 2000................ $ 267,906 $ (33,364) $ 557,879
======================================================================
</TABLE>
3
<PAGE>
STATEN ISLAND BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
2000 1999
---- ----
(000's omitted)
unaudited
Cash Flows From Operating Activities:
<S> <C> <C>
Net Income $ 25,659 $ 25,651
Adjustments to reconcile net income to net cash
provided by operating activities----
Depreciation and amortization 1,549 1,174
Accretion and amortization of bond and mortgage premiums (1,021) 1,323
Amortization of intangible assets 2,564 1,110
Loss (Gain) on sale of available for sale securities 1,158 (485)
Other noncash expense (income) (5,067) (5,359)
Expense charge relating to allocation and earned
portions of employee benefit plan 4,118 4,357
Provision for possible loan losses 29 70
Decrease in deferred loan fees (2,045) (793)
Decrease (increase) in accrued interest receivable 1,724 (3,101)
Decrease (increase) in other assets (8,756) 6,802
(Decrease) increase in accrued interest and other liabilities 7,940 15,558
(Increase) decrease in deferred income taxes (102) 1,507
Recoveries of loans 434 501
------------------------
Net cash provided by operating activities 28,184 48,315
------------------------
Cash Flows From Investing Activities:
Maturities of available for sale securities 100,380 260,740
Sales of available for sale securities 224,377 23,045
Purchases of available for sale securities (35,106) (422,821)
Principal collected on loans 192,260 100,054
Loans made to customers (813,932) (734,892)
Purchases of loans (21,240) (5,988)
Sales of loans 234,160 345,248
Capital expenditures (2,448) (657)
Acquisition of FSB, net of cash acquired (46,688) --
------------------------
Net cash (used in) investing activities (168,237) (435,271)
------------------------
Cash Flows From Financing Activities:
Net increase in deposit accounts 107,904 92,533
Borrowings 54,938 301,181
Dividends paid (9,068) (8,085)
Purchase of Treasury Stock (33,306) (48,879)
Net cash provided by financing activities 120,468 336,750
Net (decrease) increase in cash and cash equivalents (19,585) (50,206)
Cash And Equivalents, beginning of year 101,398 133,109
------------------------
Cash And Equivalents, end of period $ 81,813 $ 82,903
Supplemental Disclosures Of Cash Flow Information:
Cash paid for-
Interest $ 89,942 $ 59,300
Income taxes $ 16,886 $ 9,110
Acquisition of FSB
Fair value of assets acquired $ 370,579 --
Fair value of liabilities acquired 331,280 --
</TABLE>
4
<PAGE>
STATEN ISLAND BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Item 1. Financial Information
Note 1. Summary of Significant Accounting Policies
The accounting and reporting policies of Staten Island Bancorp, Inc.
(the "Company") and subsidiaries conform to generally accepted accounting
principles and to general practice within the banking industry.
Basis of Financial Statement Presentation
The accompanying unaudited consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary, Staten Island
Savings Bank (the "Bank"), and the Bank's subsidiaries. The Bank's wholly owned
subsidiaries are SIB Mortgage Corp. (the "Mortgage Company"), SIB Investment
Corporation ("SIBIC"), Staten Island Funding Corporation ("SIFC"), American
Construction Lending Service, Inc. ("ACLS") and SIB Financial Services
Corporation ("SIBFSC"). All significant intercompany transactions and balances
are eliminated in consolidation.
The unaudited consolidated financial statements included herein reflect
all normal recurring adjustments which are, in the opinion of management,
necessary for a fair presentation of the results for the interim periods
presented. The results of operations for the three-month and six-month period
ended June 30, 2000 are not necessarily indicative of the results to be expected
for the year ending December 31, 2000. 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
1999 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
Staten Island Bancorp, Inc. is the holding company for Staten Island
Savings Bank. The Bank, which is a traditional full service community oriented
bank, operates sixteen full service branches, one supermarket branch and three
limited service branches on Staten Island and one full service branch in
Brooklyn. In addition, as a result of the acquisition of First State Bancorp
(FSB) in January 2000, the holding company for First State Bank, the Bank
operates four full service branches in Ocean County, New Jersey and two full
service branches in Monmouth County, New Jersey. The Bank also has a lending
center and a Trust Department on Staten Island. Commercial lending offices are
also located in Bay Ridge, Brooklyn and the Howell, New Jersey branch.
The Mortgage Company does business as Ivy Mortgage and is headquartered
in Branchburg, New Jersey. The Mortgage Company originates loans in 22 states
and sells them to investors generating fee income for the Bank. The Bank retains
for its own portfolio certain adjustable rate mortgage loans ("ARMS") originated
by the mortgage company in order to supplement the ARMS originated directly by
the Bank in its efforts to manage interest rate risk.
ACLS originates short-term, generally six months to one year,
construction loans primarily to individuals for their own residences. ACLS
operates throughout the United States and
5
<PAGE>
the Bank will provide permanent loans for construction loans originated by ACLS
for certain properties located in the New York City metropolitan area.
The Bank's deposits are insured by the Bank Insurance Fund ("BIF") to
the maximum extent permitted by law. The Bank is subject to examination and
regulation by the Office of Thrift Supervision ("OTS") which is the Bank's
chartering authority and primary regulator. The Bank is also regulated by the
Federal Deposit Insurance Corporation ("FDIC"), the administrator of the BIF.
The Bank is also subject to certain reserve requirements established by the
Board of Governors of the Federal Reserve System ("FRB") and is a member of the
Federal Home Loan Bank ("FHLB") of New York, which is one of the 12 regional
banks comprising the FHLB system.
Organization Form of Ownership
The Bank was originally founded as a New York State chartered savings
bank in 1864. In August 1997, the Bank converted to a federally chartered mutual
savings bank and is now regulated by the OTS. On April 16, 1997, the Board of
Directors of the Bank adopted a Plan of Conversion to convert from a federally
chartered mutual savings bank to a federally chartered stock savings bank with
the concurrent formation of a holding company (the "Conversion"). The Company
completed its initial public offering and conversion on December 22, 1997 and
issued 45,130,312 shares of common stock, $.01 par value per share.
The Bank has the following wholly owned subsidiaries:
The Mortgage Company was incorporated in the State of New Jersey in
1998. The Mortgage Company was formed to purchase substantially all of the
assets of Ivy Mortgage Corp. The Mortgage Company currently originates loans in
22 states and had assets totaling $74.6 million at June 30, 2000 and originated
$303.7 million of loans during the six months ended June 30, 2000.
SIFC is a wholly-owned subsidiary of SIBIC incorporated in the State of
Maryland in 1998 for the purpose of establishing a real estate investment trust
("REIT"). The Bank transferred real estate mortgage loans totaling $648.0
million, net, which included certain other associated assets and liabilities. In
return the Bank received all the shares of common stock and the majority of the
preferred stock in SIFC. The assets of SIFC totaled $666.2 million at June 30,
2000.
SIBIC was incorporated in the State of New Jersey in 1998 for the
purpose of managing certain investments of the Bank. The Bank transferred the
common stock and a majority of the preferred stock of SIFC to SIBIC. The
consolidated assets of SIBIC at June 30, 2000 were $739.5 million.
ACLS was incorporated in the state of Delaware in May 1999 and is
headquartered in the state of Connecticut. ACLS's main business line is
originating residential construction loans throughout the country. The assets of
ACLS totaled $40.3 million as of June 30, 2000.
SIBFSC was incorporated in the State of New York in January 2000.
SIBFSC was formed as a licensed life insurance agency to sell the products of
the SBLI Mutual Insurance Co. of New York. The assets of SIBFSC were $189,000 as
of June 30, 2000.
6
<PAGE>
Securities - Available for Sale. The following table sets forth certain
information regarding amortized cost and estimated fair values of debt, equity,
mortgage-backed and mortgage related securities of the Company at June 30, 2000
and December 31,1999.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
---------------------------------- -----------------------------------
Bonds - Available For Sale Amortized Fair Amortized Fair
-------------------------- Cost Value Cost Value
---------------- ---------------- ----------------- ----------------
(000's omitted)
<S> <C> <C> <C> <C>
U.S. Treasuries....................................... $ 7,138 $ 7,163 $ 12,212 $ 12,275
Govt. Sponsored Agencies.............................. 197,053 189,863 152,024 143,482
Industrial and Finance ............................... 150,120 137,254 162,796 152,319
Foreign............................................... 250 250 560 498
---------------- ---------------- ----------------- ----------------
Total Debt Securities................................. 354,561 334,530 327,592 308,574
---------------- ---------------- ----------------- ----------------
G.N.M.A. - M.B.S...................................... 15,950 15,451 17,112 16,532
F.H.L.M.C. - M.B.S.................................... 317,809 309,569 329,198 318,832
F.N.M.A. - M.B.S...................................... 422,868 415,553 467,322 458,247
Agency C.M.O.'s....................................... 241,474 230,276 248,376 238,617
Privately Issued C.M.O.'s............................. 425,482 408,289 436,604 418,202
---------------- ---------------- ----------------- ----------------
Total Mortgage-Backed and Mortgage Related Securities. 1,423,583 1,379,138 1,498,612 1,450,430
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Total Bonds - Available For Sale 1,778,144 1,713,668 1,826,204 1,759,004
---------------- ---------------- ----------------- ----------------
Equity Securities Amortized Fair Amortized Fair
----------------- Cost Value Cost Value
---------------- ---------------- ----------------- ----------------
Preferred Stock....................................... 69,920 61,986 79,870 69,558
Common Stock.......................................... 90,453 92,291 97,787 101,046
IIMF Capital Appreciation Fund........................ 26,792 33,201 26,691 34,346
---------------- ---------------- ----------------- ----------------
Total Equity Securities............................... 187,165 187,478 204,348 204,950
---------------- ---------------- ----------------- ----------------
---------------- ---------------- ----------------- ----------------
Total Investments..................................... $ 1,965,309 $ 1,901,146 $ 2,030,552 $ 1,963,954
================ ================ ================= ================
</TABLE>
7
<PAGE>
Loan Portfolio Composition
The following table sets forth the composition of the Bank's loans at
the dates indicated.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------------------- -----------------------------
Percent of Percent of
Amount Total Amount Total
-------------- -------------- -------------- --------------
(Dollars in Thousands) (Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C>
Single-family residential................ $2,077,333 78.71% $1,737,913 80.83%
Multi-family residential................. 45,670 1.73% 42,501 1.98%
Commercial real estate................... 297,624 11.28% 223,809 10.41%
Construction and land.................... 109,165 4.14% 60,105 2.80%
Home equity.............................. 9,018 0.34% 5,390 0.25%
-------------- -------------- -------------- --------------
Total mortgage loans................... 2,538,810 96.20% 2,069,718 96.27%
Other loans:
Student loans............................ 454 0.02% 657 0.03%
Passbook loans........................... 11,418 0.43% 5,357 0.25%
Commercial business loans................ 34,656 1.31% 33,646 1.56%
Other consumer loans..................... 60,110 2.28% 49,395 2.30%
-------------- -------------- -------------- --------------
Total other loans...................... 106,638 4.04% 89,055 4.14%
-------------- -------------- -------------- --------------
Total loans receivable................. 2,645,448 100.24% 2,158,773 100.41%
Less:
Premium (discount) on loans purchased.... 5,454 0.21% 4,640 0.22%
Allowance for loan losses................ (14,694) (0.56)% (14,271) (0.66)%
Deferred loan costs (fees)............... 2,942 0.11% 897 0.03%
-------------- -------------- -------------- --------------
Loans receivable, net...................... $2,639,150 100.00% $2,150,039 100.00%
============== ============== ============== ==============
</TABLE>
8
<PAGE>
Delinquent Loans. The following table sets forth information concerning
delinquent loans at June 30, 2000 on which the company is accruing interest and
as a percentage of each category of the Bank's loan portfolio. The amount
presented represents the total outstanding principal balance of related loans,
rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
June 30, 2000
------------------------------- ------------------------------- -------------------------------
30-59 Days 60-89 Days 90 Days or More
------------------------------- ------------------------------- -------------------------------
Percent of Loan Percent of Loan Percent of Loan
Amount Category Amount Category Amount Category
------------- ---------------- -------------- ---------------- ------------- ----------------
(Dollars in Thousands)
Mortgage loans:
<S> <C> <C> <C> <C> <C> <C>
Single-family residential...... $ 24,188 1.16% $ 7,788 0.37% $ 6,913 0.33%
Multi-family residential....... 373 0.82% - 0.00% - 0.00%
Commercial real estate......... 9,689 3.26% 947 0.32% 1,280 0.43%
Construction and land.......... 17 0.02% 923 0.85% - 0.00%
Home equity.................... 242 2.68% 459 5.09% 36 0.40%
------------- ---------------- -------------- ---------------- ------------- ---------------
Total mortgage loans........ 34,509 1.36% 10,117 0.40% 8,229 0.32%
Other loans:
Commercial business loans...... 1,369 3.95% 1,034 2.98% 101 0.29%
Other loans......... .......... 2,599 3.61% 600 0.83% 520 0.72%
------------- ---------------- -------------- ---------------- ------------- ---------------
Total other loans........... 3,968 3.72% 1,634 1.53% 621 0.58%
------------- ---------------- -------------- ---------------- ------------- ---------------
Total loans................. 38,477 1.45% 11,751 0.44% 8,850 0.33%
============= ================ ============== ================ ============= ===============
</TABLE>
9
<PAGE>
Loans Past Due 90 Days or More and Still Accruing And Non-Accruing Assets. The
following table sets forth information with respect to, non-accruing loans,
other real estate owned, repossessed assets, and loans past due 90 days or more
and still accruing.
<TABLE>
<CAPTION>
June 30, 2000 December 31, 1999
----------------- -----------------
(000's omitted)
<S> <C> <C>
Non-Accruing Assets
Mortgage loans:
Single-family residential........................... $ 3,990 $ 2,899
Multi-family residential............................ 35 -
Commercial real estate.............................. 4,834 5,568
Construction and land............................... 1,457 1,793
Home equity......................................... 6 106
Other loans:
Commercial business loans........................... 1,835 1,783
Other consumer loans................................ 414 325
---------------- ----------------
Total non-accrual loans............................. 12,571 12,474
Other real estate owned and repossessed assets, net.... 1,379 887
---------------- ----------------
Total non-accruing assets......................... 13,950 13,361
Loans past due 90 days or more and still accruing...... 8,850 6,886
---------------- ----------------
Non-accruing assets and loans past due 90 days
or more and still accruing........................... $ 22,800 $ 20,247
================ ================
Non-accruing assets to total loans..................... 0.53% 0.62%
Non-accruing assets to total assets.................... 0.28% 0.30%
Non-accruing loans to total loans...................... 0.48% 0.58%
Non-accruing loans to total assets..................... 0.25% 0.28%
</TABLE>
10
<PAGE>
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>
Six Months Ended Year Ended
June 30, December 31,
---------------------------------------- -------------------
2000 1999 1999
------------------- ------------------- -------------------
(000's omitted)
<S> <C> <C> <C>
Allowance at beginning of period............ $ 14,271 $ 16,617 $ 16,617
Provisions (Benefit)........................ 29 70 (1,843)
Increase as a result of acquisition ........ 847 - -
Charge-offs:
Mortgage loans:
Construction, land and land development.. 6 - -
Single-family residential................ 74 70 148
Multi-family residential................. - - -
Commercial real estate................... 134 217 474
Other loans................................. 673 301 1,043
------------------- ------------------- -------------------
Total charge-offs........................ 887 588 1,665
Recoveries:
Mortgage loans:
Construction, land and land development.. - - -
Single-family residential................ 11 301 456
Multi-family residential................. - - -
Commercial real estate................... - 2 34
Other loans................................. 423 198 672
------------------- ------------------- -------------------
Total recoveries......................... 434 501 1,162
------------------- ------------------- -------------------
Allowance at end of period.................. $ 14,694 $ 16,600 $ 14,271
=================== =================== ===================
Allowance for possible loan losses
to total nonperforming loans at
end of period.............................. 116.89% 130.74% 114.40%
Allowance for possible loan losses
to total loans at end of period............ 0.56% 0.93% 0.66%
</TABLE>
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Form 10-Q contains certain forward-looking statements and
information relating to the Company that are based on the beliefs of management
as well as assumptions made by and information currently available to
management. In addition, in portions of this document and the Company's Annual
Report to Stockholders, the words "anticipate," "believe," "estimate," "expect,"
"intend," "should," and similar expressions, or the negative thereof, as they
relate to the Company or the Company's management, are intended to identify
forward-looking statements. Such statements reflect the current views of the
Company with respect to future looking events and are subject to certain risks,
uncertainties and assumptions. Should one or more of these risks or
uncertainties materialize or should underlying assumptions prove incorrect,
actual results may vary materially from those described herein as anticipated,
believed, estimated, expected or intended. The Company does not intend to update
these forward-looking statements.
Changes in Financial Condition
Total assets at June 30, 2000 were $5.0 billion representing an
increase of $487.0 million or 10.8% over total assets of $4.5 billion at
December 31,1999. The increase in overall assets was primarily due to the
completion of the acquisition of First State Bank ("FSB") during the first
quarter of 2000 resulting in a net increase of $336.4 million in total assets.
In addition to the asset growth resulting from such acquisition, the Company
experienced an increase in net loans of $395.5 million or 18.4%. Loan
originations remained strong totaling $813.9 million for the six-month period
ending June 30, 2000. The Mortgage Company had originations of $303.7 million
and sales of $200.0 million of one to four family residential loans. The Bank
retained for its own portfolio $88.0 million of ARM loans originated by the
Mortgage Company. The increase in net loans was partially offset by a decrease
in securities available for sale of $286.3 million, exclusive of the acquisition
of $223.5 million in securities from FSB. The decrease was primarily due to
sales of $224.4 million and prepayments and amortization from the
mortgage-backed securities portfolio.
In the current interest rate environment, it is management's strategy
to maintain the interest rate spread and margin partially funding higher
yielding loans with sales from the securities available for sale portfolio thus
reducing the Company's emphasis on the utilization of borrowed funds to fund
loan originations.
Total deposits at June 30, 2000 were $2.3 billion compared to $1.8
billion at December 31, 1999. The increase of $433.9 million or 23.8% was
primarily due to an increase of $327.4 million from the acquisition of FSB and
an increase of $106.5 million from deposit gathering activities including the
issuance of $50.0 million in brokered certificates of deposits with a weighted
average cost of 7.15%. The funds from the brokered deposits were used to fund
higher yielding loan originations. The weighted average cost of deposits was
3.18% as of June 30, 2000 primarily due to our core deposit base which
represented 62.9% of our deposits at such date.
Stockholders' equity as of June 30, 2000 was $557.9 million or 11.21% of total
assets compared to $571.4 million or 12.73% of total assets as of December 31,
1999. The decrease of $13.5 million was primarily due to the use of $33.3
million to repurchase 2.0 million shares of stock and aggregate cash dividend
payments of $9.1 million. These two decreases were partially offset by net
income of $25.7 million, an allocation of Employee Stock Ownership Plan ("ESOP")
shares resulting in an increase of $2.0 million and a decrease of $1.3 million
in the unrealized depreciation on securities available for sale, net of taxes.
Tangible book value per share as of June 30, 2000 was $13.52 compared to $14.37
as of December 31, 1999.
Borrowed funds as of June 30, 2000 totaled $2.1 billion or $55.0 million more
than such amount at December 31, 1999. The increase in borrowings for the year
was primarily used to fund the acquisition of (FSB), It is management's
intention to reduce it's utilization of borrowings to fund asset growth and to
emphasize more traditional funding sources such as deposit growth and loan
sales.
12
<PAGE>
Results of Operations
The Company reported net income of $12.5 million or $0.37 per basic and
fully diluted share for the three months ended June 30, 2000 compared to net
income of $13.3 million or $0.35 per basic and fully diluted share for the
three-month period ended June 30, 1999. Core earnings for the second quarter of
2000 were $13.1 million or $0.39 per share compared to $13.1 million or $0.34
per share for the second quarter of 1999. Core earnings represent the Company's
earnings adjusted for security transactions, net of taxes. Cash earnings were
$15.1 million or $0.45 per share for the second quarter of 2000 compared to
$15.2 million or $0.40 per share for the second quarter of 1999. Cash earnings
represent the Company's earnings adding back non-cash expenses net of applicable
taxes related to the Employee Stock Ownership Plan ("ESOP"), the Recognition and
Retention Plan ("RRP"), and the amortization of goodwill.
The decrease in net income for the quarter ended June 30, 2000 compared to the
same quarter one year ago was primarily due to an increase in total other
expenses of $2.0 million and a net decrease in security transactions of $1.3
million, partially offset by an increase of $824,000 in net interest income, an
increase of $440,000 is service and fee income and a decrease in the provision
for income taxes of $1.2 million.
For the six months ended June 30, 2000 net income amounted to $25.7
million or $0.75 per basic and fully diluted share compared to $25.7 million or
$0.66 per basic and fully diluted share for the six months ended June 30, 1999.
Core earnings for the first half of 2000 were $26.4 million or $0.77 per share
compared to core earnings of $25.4 million or $0.65 per share for the six months
ended June 30, 1999. Cash earnings per share for the six months ended June 30,
2000 was $0.89 compared to $0.75 per share for the six months ended June 30,
1999.
For the six months ended June 30, 2000 compared to the six months ended
June 30, 1999, net interest income increased $3.6 million, other income
increased $1.7 million, the provision for income taxes decreased $1.5 million
and total other expenses increased $6.7 million.
13
<PAGE>
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------------------------------------------------------
2000 1999
------------------------------------ -------------------------------------
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............................. $ 2,458,546 $ 46,890 7.65% $ 1,637,579 $ 31,046 7.60%
Other loans................................... 106,631 2,592 9.75% 73,918 1,670 9.06%
------------ ----------- ------------- -----------
Total loans................................. 2,565,177 49,482 7.74% 1,711,497 32,716 7.67%
Securities...................................... 2,074,150 34,508 6.67% 2,127,027 33,420 6.30%
Other interest-earning assets (2)............... 16,692 214 5.14% 61,473 705 4.60%
------------ ----------- --------- ------------- ----------- --------
Total interest-earning assets................... 4,656,019 84,204 7.25% 3,899,997 66,841 6.87%
----------- --------- ----------- --------
Noninterest-earning assets........................ 274,779 136,300
------------ -------------
Total assets.................................... $ 4,930,798 $ 4,036,297
============ =============
Interest-bearing liabilities:
Deposits:
NOW and money market deposits................ 223,317 1,508 2.71% 167,414 1,045 2.50%
Savings and escrow accounts.................. 809,666 5,064 2.51% 756,951 4,691 2.49%
Certificates of deposits..................... 781,204 10,125 5.20% 549,817 6,481 4.73%
------------ ----------- --------- ------------- ----------- --------
Total deposits............................ 1,814,187 16,697 3.69% 1,474,182 12,217 3.32%
Total Other Borrowings......................... 2,131,402 32,376 6.09% 1,570,711 20,316 5.19%
------------ ----------- --------- ------------- ----------- --------
Total interest-bearing liabilities............. 3,945,589 49,073 4.99% 3,044,893 32,533 4.29%
----------- --------- ----------- --------
Noninterest-bearing liabilities (3).............. 433,837 352,508
------------ -------------
Total liabilities.............................. 4,379,426 3,397,401
Stockholder's equity............................. 551,372 638,896
------------ -------------
Total liabilities and stockholders' equity..... $ 4,930,798 $ 4,036,297
============ =============
Net interest-earning assets...................... $ 710,430 $ 855,104
============ ----------- ============= -----------
Net interest income/interest rate spread......... $ 35,131 2.27% $ 34,308 2.59%
=========== ========= =========== ========
Net interest margin.............................. 3.03% 3.53%
========= ========
Ratio of average interest-earning assets
to average interest-bearing liabilities....... 118.01% 128.08%
========= ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------------------------------------------------------
2000 1999
------------------------------------- --------------------------------------
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............................. $ 2,344,995 $ 88,646 7.62% $ 1,577,804 $ 60,344 7.71%
Other loans................................... 103,388 4,963 9.68% 70,563 3,036 8.68%
-------------- ---------- ------------- -----------
Total loans................................. 2,448,383 93,609 7.71% 1,648,367 63,380 7.75%
Securities...................................... 2,127,854 71,327 6.76% 2,068,175 64,772 6.32%
Other interest-earning assets (2)............... 24,819 674 5.47% 62,527 1,432 4.62%
-------------- ---------- --------- ------------- ----------- --------
Total interest-earning assets................... 4,601,056 165,610 7.26% 3,779,069 129,584 6.91%
--------------- ---------- --------- ------------ ----------- --------
Noninterest-earning assets........................ 221,869 140,828
-------------- -------------
Total assets.................................... $ 4,822,925 $ 3,919,897
============== =============
Interest-bearing liabilities:
Deposits:
NOW and money market deposits................ 215,006 2,892 2.71% 162,887 2,027 2.51%
Savings and escrow accounts.................. 798,596 9,997 2.52% 748,763 9,253 2.49%
Certificates of deposits..................... 756,263 19,198 5.12% 545,616 12,950 4.79%
-------------- ---------- --------- ------------- ----------- ---------
Total deposits............................ 1,769,865 32,087 3.66% 1,457,266 24,230 3.35%
Total Other Borrowings......................... 2,115,362 62,690 5.98% 1,465,759 38,030 5.23%
-------------- ---------- --------- ------------- ----------- ---------
Total interest-bearing liabilities............. 3,885,227 94,777 4.92% 2,923,025 62,260 4.30%
---------- --------- ----------- ---------
Noninterest-bearing liabilities (3).............. 381,419 347,924
-------------- -------------
Total liabilities.............................. 4,266,646 3,270,949
Stockholder's equity............................. 556,279 648,948
-------------- -------------
Total liabilities and stockholders' equity..... $ 4,822,925 $ 3,919,897
============== =============
Net interest-earning assets...................... $ 715,829 $ 856,044
============== ---------- ============= -----------
Net interest income/interest rate spread......... $ 70,833 2.34% $ 67,324 2.62%
========== ========= =========== =========
Net interest margin.............................. 3.10% 3.59%
========= =========
Ratio of average interest-earning assets
to average interest-bearing liabilities.......
118.42% 129.29%
========= =========
</TABLE>
(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.
14
<PAGE>
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 attibutable (to 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 June 30,
----------------------------------------------------------------
2000 compared to 1999
----------------------------------------------------------------
Increase (decrease) due to
------------------------------------------------ Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
-------------- --------------- --------------- --------------
(000's omitted)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate loans................................... $ 187 $ 15,564 $ 94 $ 15,845
Other loans......................................... 127 739 57 923
-------------- --------------- --------------- --------------
Total loans receivable.............................. 314 16,303 151 16,768
Securities.......................................... 1,967 (831) (49) 1,087
Federal funds sold and interest-bearing deposits.... 82 (513) (60) (491)
-------------- --------------- --------------- --------------
Total net change in income on interest-
earning assets.................................... 2,363 14,959 42 17,364
-------------- --------------- --------------- --------------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits....................... 85 349 29 463
Savings and escrow accounts......................... 43 327 3 373
Certificates of deposit............................. 645 2,727 272 3,644
-------------- --------------- --------------- --------------
Total deposits...................................... 773 3,403 304 4,480
Other Borrowings.................................... 3,543 7,252 1,265 12,060
-------------- --------------- --------------- --------------
Total net change in expense on
interest-bearing liabilities...................... 4,316 10,655 1,569 16,540
-------------- --------------- --------------- --------------
Net change in net interest income................... $ (1,953) $ 4,304 $ (1,527) $ 824
============== =============== =============== ==============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------------------------------------------
2000 compared to 1999
----------------------------------------------------------------
Increase (decrease) due to
------------------------------------------------ Total
Rate/ Net Increase
Rate Volume Volume (Decrease)
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Real estate loans................................... $ (700) $ 29,342 $ (340) $ 28,302
Other loans......................................... 351 1,412 164 1,927
--------------- --------------- -------------- ---------------
Total loans receivable.............................. (349) 30,754 (176) 30,229
Securities.......................................... 4,555 1,869 131 6,555
Federal funds sold and interest-bearing deposits.... 265 (863) (160) (758)
--------------- --------------- -------------- ---------------
Total net change in income on interest-
earning assets.................................... 4,471 31,760 (205) 36,026
--------------- --------------- -------------- ---------------
Interest-bearing liabilities:
Deposits:
NOW and money market deposits....................... 164 649 52 865
Savings and escrow accounts......................... 120 616 8 744
Certificates of deposit............................. 900 5,000 348 6,248
--------------- --------------- -------------- ---------------
Total deposits...................................... 1,184 6,265 408 7,857
Other Borrowings.................................... 5,409 16,854 2,397 24,660
--------------- --------------- -------------- ---------------
Total net change in expense on
interest-bearing liabilities...................... 6,593 23,119 2,805 32,517
--------------- --------------- -------------- ---------------
Net change in net interest income................... $ (2,122) $ 8,641 $ (3,010) $ 3,509
=============== =============== ============== ===============
</TABLE>
15
<PAGE>
Interest Income
The Company's total interest income was $84.2 million for the three
months ended June 30, 2000 compared to $66.8 million for the comparable time
period last year. The $17.4 million or 26.0% increase was primarily due to a
$16.8 million increase in interest income from loans. The primary reason for the
increase in interest income from loans was an increase of $853.6 million in the
average balance of loans. The increase in the average balance of the loan
portfolio was due to increased loan originations as a result of, among other
factors, the Bank's continued business development efforts to increase loan
originations especially in commercial loans, the continued growth of the Bank's
mortgage broker program, the activities of the Bank's two lending subsidiaries
and, to a lesser extent, the acquisition of FSB. The increase in the average
balance of the loan portfolio reflects management's strategy to fund higher
yielding loans with funds generated from the sale and paydown of the securities
portfolio to maintain the Company's interest rate spread and margin. The Company
also increased sales of longer term lower yielding loans during the quarter to
fund higher yielding loan originations.
Interest income for the six-month period ending June 30, 2000 was
$165.6 million compared to $129.6 million for the same time period of last year.
The increase of $36.0 million or 27.8% was primarily due to an increase of $30.2
million in interest income from loans and a $6.6 million increase in interest
income from securities. The primary reason for the increase in interest income
from loans was an increase of $800.0 million in the average balance of the loan
portfolio. The increase in interest income from securities was primarily due to
a 44 basis point increase in the average yield and, to a lesser extent, a $59.7
million increase in the average balance of the securities portfolio. The reasons
for the increase in the average balance of the loan portfolio are the same as
stated above. The reason for the increase in the average yield of the investment
portfolio is the current higher rate environment resulting in adjustable rate
securities adjusting to higher rates and, to a lesser extent, the portfolio
acquired from FSB which was recorded at current market yields. The increase in
the average balance of securities was primarily due to the acquisition.
Interest Expense
The Company's total interest expense was $49.1 million for the second
quarter of 2000 compared with $32.5 million for the comparable time period last
year. The $16.5 million or 50.8% increase was primarily due to an increase of
$900.7 million in the average balance of interest bearing liabilities and a 70
basis point increase in the average cost from 4.29% for the second quarter of
1999 to 4.99% for the current second quarter. The increase in the average
balance of interest bearing liabilities was primarily due to a $560.7 million
increase in the average balance of borrowings and a $340.0 million increase in
the average balance of deposits. The increase in the average balance of
borrowings was due to the Company's strategy to fund loan and investment growth
with borrowed funds at spreads deemed acceptable by management. The increase in
the average balance of deposits was primarily due to the acquisition of FSB and,
to a lesser extent, deposit growth. The increase in the average cost of interest
bearing liabilities was primarily due to the increase in the average cost of
borrowings from 5.19% for the second quarter of 1999 to 6.09% for the current
second quarter primarily due to the current higher rate environment. To a lesser
extent, the increase was due to the increase in the average cost of deposits
from 3.32% for the second quarter of 1999 to 3.69% for the current second
quarter primarily due to the changing mix of deposits resulting from the FSB
acquisition and the higher rate environment.
For the six-month period ended June 30, 2000 interest expense was $94.8
million compared to $62.3 million for the six months ended June 30, 1999. The
increase of $32.5 million or 52.2% was primarily due to a $24.7 million increase
in interest expense on borrowed funds and a $7.9 million increase in interest
expense on deposits. The increase in interest expense on borrowed funds is
primarily due to a $649.6 million increase in the average balance of borrowings
and, to a lesser extent, a 75 basis point increase in the average cost of
borrowings from 5.23% for the first six months of 1999 to 5.98% for the first
six months of 2000. The reason for the growth in the average balance and average
cost in the six-month period are the same as those discussed above for the
second quarter of 2000. The increase in interest expense on deposits was due to
an increase of $312.6 million in the average balance of deposits and, to a
lesser extent, a 31 basis point increase in the average cost of deposits from
3.35% for the six-month period ending June 30, 1999 to 3.66% for the six-month
period ending June 30, 2000. The reason for the increase in the average balance
and average cost of deposits for the first six months of 2000 are the same as
those discussed above for the second quarter of 2000.
16
<PAGE>
Net Interest Income
Net interest income for the second quarter of 2000 was $35.1 million
compared to $34.3 million for the second quarter of 1999. The increase was due
to a $17.4 million or 26.0% increase in interest income partially offset by a
$16.5 million or 50.8% increase in interest expense. The increase in interest
income was due to a $756.0 million increase in the average balance of interest
earnings assets and a 38 basis point increase to 7.25% in the average yield of
interest earning assets. The increase in interest expense was due to a $900.7
million increase in the average balance of interest-bearing liabilities and a 70
basis point increase to 4.99% in the average cost of interest-bearing
liabilities.
The Company's interest rate spread and interest rate margin for the
three months ended June 30, 2000 was 2.27% and 3.03%, respectively, compared to
2.59% and 3.53%, respectively, for the three-month period ended June 30, 1999.
For the six-month period ended June 30, 2000, net interest income was
$70.8 million compared to $67.3 million for the six-month period ending June 30,
1999. The increase was the result of a $36.0 million or 27.8% increase in
interest income partially offset by a $32.5 million or 52.2% increase in
interest expense. The increase in interest income was due to a $822.0 million
increase in the average balance of interest earning assets and a 35 basis point
increase to 7.26% in the average yield of interest earning assets. The increase
in interest expense was due to a $962.2 million increase in the average balance
of interest-bearing liabilities and a 62 basis point increase to 4.92% in the
average cost of interest-bearing liabilities.
The Company's interest rate spread and interest rate margin for the
six-month period ended June 30, 2000 was 2.34% and 3.10%, respectively, compared
with 2.62% and 3.59%, respectively, for the six-month period ended June 30,
1999.
The current higher rate environment and, to a lesser extent, the
changing mix of the Company's interest-bearing liabilities has resulted in lower
interest rate margins and spreads. The Company will continue its strategy of
security and loan sales to fund higher yielding loans to increase the interest
earning asset yield and maintain its interest rate margins and spreads.
Provision for Loan Losses
The provision for loan losses for the second quarter of June 2000 was
$11,000, which is the amount provided in the second quarter of 1999. For the
six-month period ended June 30, 2000 the provision was $29,000 compared to
$70,000 for the six-month period ended June 30, 1999. The level of the loan loss
reserve is continuously reviewed by management to determine its adequacy. The
review includes such factors as the composition of the loan portfolio and its
inherent characteristics, the level of non-accruing loans and delinquencies,
local economic conditions and current trends in regulatory supervision.
Non-accruing assets totaled $13.9 million at June 30, 2000 compared to
$13.4 million as of December 31, 1999. Non-accruing assets as a percent of total
assets was .28% at June 30, 2000 compared to .30% at December 31, 1999. The
allowance for loan losses was $14.7 million at June 30, 2000 compared to $14.3
million as of December 31, 1999. The allowance for loan losses as a percent of
non-accruing loans was 116.9% as of June 30, 2000 compared to 114.4% as of
December 31, 1999. The quality of the loan portfolio has remained strong during
these
17
<PAGE>
periods of record growth, primarily due to the underwriting and administration
procedures in place.
Other Income
Other income was $8.5 million for the three months ended June 30, 2000
compared to $9.4 million for the three months ended June 30, 1999. The decrease
of $855,000 was due to a $1.3 million net decrease in securities transactions
and a decrease of $1.4 million in fees generated by the Mortgage Company. These
two decreases were partially offset by a $1.7 million increase in the cash
surrender value of the Bank Owned Life Insurance ("BOLI") which was purchased in
the third quarter of 1999 to fund employee benefits. The net change in
securities transactions was due to the sale of investments to fund higher
yielding loans. The decrease in fees generated by the Mortgage Company was
primarily due to the increase in loan purchases by the Bank from the Mortgage
Company which, due to the intercompany nature of such transactions, reduces the
Company's ability to recognize loan fees. The Bank purchases from the Mortgage
Company, to hold in its portfolio, a portion of the mortgage company higher
yielding ARM originations.
For the six-month period ended June 30, 2000 other income was $16.7
million compared to $15.0 million for the six months ended June 30, 1999. The
$1.7 million increase was due to the $3.3 million increase in the cash surrender
value of the BOLI, partially offset by a $1.6 million net decrease in securities
transactions due to increased securities sales to fund higher yield loans and a
$1.0 million decrease in fees recognized by the Mortgage Company due to the same
reasons as discussed above.
Total Other Expenses
Total other expenses for the second quarter of 2000 were $23.3 million
compared to $21.2 million for the second quarter of 1999. The increase of $2.0
million or 9.6% was primarily due to a $400,000 increase in occupancy and
equipment expenses, a $790,000 increase in amortization expense for intangible
assets and $304,000 increase in other expenses. The increase in occupancy and
equipment expense was primarily due to the additional branches of FSB and
additional space and equipment needs due to growth. The increase in the non-cash
expense resulting from the amortization of intangible assets was due to the
goodwill from the FSB acquisition. The excess of cost over the fair value of the
net assets acquired (goodwill) in the transaction was approximately $46.4
million and is being amortized on a straight line basis over a 15-year period.
The increase in other expenses is primarily due to loan related expenses as a
result of increased volumes.
For the six-month period ended June 30, 2000 total other expenses were
$45.6 million compared to $38.9 million for the same time period last year. The
increase of $6.7 million or 17.3% is primarily due to a $2.8 million increase in
personnel expense, a $1.4 million increase in amortization expense for
intangible assets, an $893,000 increase in occupancy and equipment expense and a
$795,000 increase in other expense. The increase in personnel expense was due to
a $590,000 increase in commission expense generated by the Mortgage Company
resulting from the source and type of loans originated, a $550,000 increase in
personnel expense of the Mortgage Company, a $697,000 increase in personnel
expense of the ACLS since it was not in full operation the second quarter of
1999, and increased personnel costs of the Bank due to additional staff in the
loan origination and administration areas due to increased lending volumes and
normal merit pay increases. The reasons for the increase in occupancy and
equipment expense, the amortization expense for intangible assets and other
expense are the same as stated above.
Provision for Income Taxes
The provision for income taxes for the three-month period ended June
30, 2000 was $7.9 million compared to $9.1 million for the three months ended
June 30, 1999. The primary reason for the decrease was the reduction in the
effective tax rate from 40.6% for the second quarter of 1999 to 38.7% for the
second quarter of 2000. The lower rate for the second quarter of 2000 was a
result of certain tax planning strategies put in place during the second half of
1999.
For the six-month period ended June 30, 2000, the provision for income
taxes was $16.2 million compared to $17.7 million for the comparable period last
year. The decrease was due to a reduction in the effective tax rate from 40.8%
for the first half of 1999 to 38.7% for the first half of 2000. The reason for
the reduction in the effective tax rate is the same as mentioned above.
18
<PAGE>
Liquidity and Commitments
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, amortization, prepayments and maturities
of outstanding loans and mortgage-backed securities, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled payments from the amortization of loans and mortgage-backed
securities and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are
greatly influenced by general interest rates, economic conditions and
competition. In addition, the Company invests excess funds in federal funds sold
and other short-term interest-earning assets which provide liquidity to meet
lending requirements.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds. The Company uses its sources of funds primarily to meet
its ongoing commitments, to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-backed
and mortgage-related securities and investment securities. At June 30, 2000, the
total approved loan origination commitments outstanding amounted to $389.3
million. At the same date, the unadvanced portion of construction loans totaled
$77.8 million. Certificates of deposit scheduled to mature in one year or less
at June 30, 2000 totaled $633.6 million. Investment securities scheduled to
mature in one year or less at June 30, 2000 totaled $4.1 million and
amortization from investments and loans is projected at $657.2 million over the
next 12 months. Based on historical experience, the current pricing strategy and
the strong core deposit base, management believes that a significant portion of
maturing deposits will remain with the Bank. The Bank anticipates that it will
continue to have sufficient funds, together with loan sales and security sales,
to meet its current commitments.
Capital
At June 30, 2000 the Bank had regulatory capital which was well in
excess of all regulatory requirements set by the OTS. The current requirements
and the Bank's actual levels are detailed below (dollars in thousands):
<TABLE>
<CAPTION>
Required Capital Actual Capital Excess Capital
----------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
----------- --------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Tangible capital $ 72,865 1.50% $ 396,293 8.16% $ 323,428 6.66%
Core capital $ 194,369 4.00% $ 397,821 8.19% $ 203,452 4.19%
Risk-based capital $ 194,828 8.00% $ 412,515 16.94% $ 217,687 8.94%
</TABLE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk continues to be market interest rate
volatility due to the potential impact on net interest income and the market
value of all interest-earning assets and interest-bearing liabilities resulting
from changes in interest rates. The operation of the Company does not subject it
to foreign exchange or commodity price risk and the Company does not own any
trading assets. The real estate loan portfolio of the Company is concentrated
primarily within the New York metropolitan area making it subject to the risks
associated with the local economy. Management believes that there have been no
material changes in the Company's market risk at June 30, 2000 as compared to
December 31, 1999. For a complete discussion of the Company's asset and
liability management market risk and interest rate sensitivity, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1999 Annual Report to Stockholders.
19
<PAGE>
Part II Other Information
Item 1 Legal Proceedings
-----------------
Not applicable
Item 2 Changes in Securities and Use of Proceeds
-----------------------------------------
Not applicable
Item 3 Defaults Upon Senior Securities
-------------------------------
Not applicable
Item 4 Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5 Other Information
-----------------
Not applicable
Item 6 Exhibits and Reports on Form 8-K
--------------------------------
a. 27.0 Financial Data Schedule
b. No Form 8-K reports were filed during the quarter.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
STATEN ISLAND BANCORP, INC.
Date: August 11, 2000 By: /s/ Harry P. Doherty
--------------- ---------------------------------------
Harry P. Doherty, Chairman of the Board
and Chief Executive Officer
Date: August 11, 2000 By: /s/ Edward Klingele
--------------- ---------------------------------------
Edward Klingele, Sr. Vice President
and Chief Financial Officer
22
