UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No.: 000-23809
FIRST SENTINEL BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-3566151
(State or other jurisdiction of (IRS Employer I.D. No.)
incorporation or organization)
1000 WOODBRIDGE CENTER DRIVE, WOODBRIDGE, NJ 07095
(Address of principal executive offices)
Registrant's telephone number, including area code: (732) 726-9700
NOT APPLICABLE
Former Name, Address, and Fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 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 .
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 9, 1999
- --------------------------- ---------------------------------------------
Common Stock 42,684,363 shares
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FIRST SENTINEL BANCORP, INC.
INDEX TO FORM 10-Q
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Page #
PART I. FINANCIAL INFORMATION ------
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Item 1. Financial Statements
Consolidated Statements of Financial Condition as of June 30, 1999 (unaudited)
and December 31, 1998 (audited) 3
Consolidated Statements of Income for the three and six months ended June 30,
1999 and 1998 (unaudited) 4
Consolidated Statements of Stockholders' Equity for the six months ended June 30,
1999 and 1998 (unaudited) 5
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and
1998 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION. 16
SIGNATURES 17
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- ----------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS, EXCEPT SHARE DATA)
June 30, December 31,
1999 1998
--------------- --------------
(unaudited) (audited)
ASSETS
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Cash and due from banks .......................................................... $ 17,050 $ 22,831
Federal funds sold ............................................................... -- 14,800
----------- -----------
Total cash and cash equivalents ............................................. 17,050 37,631
Federal Home Loan Bank of New York (FHLB-NY) stock, at cost ...................... 12,852 12,852
Investment securities available for sale ......................................... 203,584 242,197
Mortgage-backed securities available for sale .................................... 668,703 661,881
Loans receivable, net ............................................................ 902,094 854,697
Interest and dividends receivable ................................................ 12,156 13,556
Premises and equipment, net ...................................................... 16,720 16,481
Excess of cost over fair value of net assets acquired ............................ 7,531 7,956
Other assets ..................................................................... 12,346 7,807
----------- -----------
Total assets ................................................................ $ 1,853,036 $ 1,855,058
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ......................................................................... $ 1,253,931 $ 1,268,119
Borrowed funds ................................................................... 288,175 264,675
Advances by borrowers for taxes and insurance .................................... 8,224 6,969
Other liabilities ................................................................ 14,787 15,476
----------- -----------
Total liabilities ............................................................ 1,565,117 1,555,239
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock; authorized 10,000,000 shares; issued and outstanding - none ..... -- --
Common Stock, $.01 par value, 85,000,000 shares authorized
43,107,075 and 42,684,363 shares issued and outstanding at 6/30/99 and
43,105,497 and 42,675,397 shares issued and outstanding at 12/31/98 ......... 431 431
Paid-in capital .................................................................. 201,085 201,105
Retained earnings ................................................................ 116,501 112,601
Accumulated other comprehensive (loss) ........................................... (9,326) 2,498
income
Less: Treasury stock ............................................................. (3,591) (3,664)
Unearned Common Stock acquired by the Employee Stock
Ownership Plan (ESOP) ................................................. (12,615) (13,073)
Unearned Common Stock acquired by the Recognition and
Retention Plan (RRP) .................................................. (4,566) (79)
----------- -----------
Total stockholders' equity .................................................. 287,919 299,819
----------- ===========
Total liabilities and stockholders' equity .................................. $ 1,853,036 $ 1,855,058
=========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- -----------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
Quarter ended June 30, Six months ended June 30,
---------------------------- -------------------------
1999 1998 1999 1998
------------- ----------- ----------- -----------
(Unaudited) (Unaudited)
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INTEREST INCOME:
Loans .................................................................. $ 16,716 $ 15,004 $ 32,911 $ 29,376
Mortgage-backed securities held to maturity ............................ -- 3,542 -- 9,598
Investment securities held to maturity ................................. -- 2,786 -- 5,297
Investment and mortgage-backed securities
available for sale ................................................... 13,766 8,476 27,515 13,442
----------- ----------- ----------- -----------
Total interest income ............................................... 30,482 29,808 60,426 57,713
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits:
NOW and money market demand ........................................... 2,327 2,636 4,609 4,792
Savings ............................................................... 982 685 1,989 1,820
Certificates of deposit ............................................... 8,561 9,748 17,397 19,697
----------- ----------- ----------- -----------
Total interest expense - deposits ................................... 11,870 13,069 23,995 26,309
Borrowed funds ......................................................... 4,040 2,810 7,827 5,900
----------- ----------- ----------- -----------
Total interest expense .............................................. 15,910 15,879 31,822 32,209
----------- ----------- ----------- -----------
Net interest income ................................................. 14,572 13,929 28,604 25,504
Provision for loan losses ................................................ 450 365 900 740
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ................. 14,122 13,564 27,704 24,764
----------- ----------- ----------- -----------
OTHER OPERATING INCOME:
Fees and service charges ............................................... 592 556 1,233 1,110
Net gain on sales of loans and securities available for sale ........... 318 42 577 149
Net gain on sale of deposits ........................................... -- -- -- 1,084
Other, net ............................................................. 93 141 240 298
----------- ----------- ----------- -----------
Total other operating income ........................................ 1,003 739 2,050 2,641
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Compensation and benefits .............................................. 3,456 3,248 6,801 6,405
Occupancy .............................................................. 545 511 1,089 1,047
Equipment .............................................................. 378 493 795 955
Advertising ............................................................ 353 304 603 521
Federal deposit insurance .............................................. 191 191 388 378
Amortization of intangibles ............................................ 212 212 425 425
General and administrative ............................................. 1,171 1,063 2,264 1,999
----------- ----------- ----------- -----------
Total operating expenses ............................................ 6,306 6,022 12,365 11,730
----------- ----------- ----------- -----------
Income before income tax expense .................................... 8,819 8,281 17,389 15,675
Income tax expense ....................................................... 2,939 3,039 5,898 5,732
----------- ----------- ----------- -----------
Net income .......................................................... $ 5,880 $ 5,242 $ 11,491 $ 9,943
=========== =========== =========== ===========
Basic earnings per share ................................................. $ 0.15 $ 0.13 $ 0.28 $ 0.24
=========== =========== =========== ===========
Weighted average shares outstanding - Basic .............................. 40,489,683 41,922,455 40,694,868 42,173,415
=========== =========== =========== ===========
Diluted earnings per share ............................................... $ 0.14 $ 0.12 $ 0.28 $ 0.23
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted ............................ 41,549,270 42,711,414 41,628,684 42,999,121
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS) (UNAUDITED)
Accumulated
Other Common Common Total
Compre- Stock Stock Stock-
Common Paid In Retained hensive Treasury Acquired Acquired holders'
Stock Capital Earnings Income(Loss) Stock by ESOP by RRP Equity
---------------------------------------------------------------------------------------
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Balance at December 31, 1997 $470 $59,348 $101,186 $1,295 ($16,677) ($546) ($183) $144,893
Net proceeds from stock offering ...... -- 162,232 -- -- -- -- -- 162,232
Adjustment for Mutual Holding Co. ..... -- 1,577 -- -- -- -- -- 1,577
Purchase of ESOP shares................ -- -- -- -- -- (13,240) -- (13,240)
Net income for the six months ended
June 30, 1998 ........................ -- -- 9,943 -- -- -- -- 9,943
Cash dividends ........................ -- -- (3,155) -- -- -- -- (3,155)
Net change in unrealized gain/(loss)
on securities available for sale ... -- -- -- 1,317 -- -- -- 1,317
Amortization of RRP ................... -- -- -- -- -- -- 52 52
Principal payments on ESOP loan........ -- 74 -- -- -- 274 -- 348
Exercise of stock options ............. 1 384 -- -- -- -- -- 385
---------------------------------------------------------------------------------------
Balance at June 30, 1998 $471 $223,615 $107,974 $2,612 ($16,677) ($13,512) ($131) $304,352
=======================================================================================
Balance at December 31, 1998 ........... $431 $201,105 $112,601 $2,498 ($3,664) ($13,073) ($79) $299,819
Net income for the six months
ended June 30, 1999 ................. -- -- 11,491 -- -- -- -- 11,491
Cash dividends ......................... -- -- (4,517) -- -- -- -- (4,517)
Net change in unrealized gain/(loss)
on securities available for sale .... -- -- -- (11,824) -- -- -- (11,824)
Purchases of treasury stock ............ -- -- -- -- (8,991) -- -- (8,991)
Exercise of stock options............... -- 6 -- -- -- -- -- 6
Exercise of stock options, issued
from existing treasury stock......... -- -- (2,418) -- 3,360 -- -- 942
Transfer of treasury stock to RRP ...... -- -- (656) -- 5,704 -- (5,048) --
Amortization of RRP .................... -- -- -- -- -- -- 561 561
Principal payments on ESOP loan ........ -- (26) -- -- -- 458 -- 432
---------------------------------------------------------------------------------------
Balance at June 30, 1999 ............... $431 $201,085 $116,501 ($9,326) ($3,591) ($12,615) ($4,566) $287,919
=======================================================================================
See accompanying notes to the unaudited consolidated financial statements.
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Six Months Ended
June 30,
---------------------------
1999 1998
---------- ---------
Cash flows from operating activities: (unaudited)
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Net income ........................................................... $ 11,491 $ 9,943
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of premises and equipment ............................... 682 650
Amortization of excess of cost over fair value of assets acquired .... 425 425
Amortization of ESOP ................................................. 432 348
Amortization of RRP .................................................. 561 52
Net accretion of premiums and amortization of discounts .............. (482) (744)
Provision for loan losses ............................................ 900 740
Provision for losses on real estate owned ............................ 21 10
Loans originated for sale ............................................ (7,023) (5,316)
Proceeds from sales of mortgage loans available for sale ............. 6,999 5,341
Net gain on sales of assets available for sale or trading ............ (578) (149)
Net gain on sales of real estate owned ............................... -- (47)
Decrease (increase) in interest and dividends receivable ............. 1,400 (1,148)
(Decrease) increase in other liabilities ............................. (689) 364
Increase (decrease) in other assets .................................. 1,797 (596)
--------- ---------
Net cash provided by operating activities ...................... 15,936 9,873
--------- ---------
Cash flows from investing activities:
Proceeds from sales/calls of investment securities available for sale. 101,753 9,281
Maturities of investment securities .................................. -- 52,010
Purchases of investment securities available for sale ................ (69,990) (123,376)
Purchases of investment securities ................................... -- (1,880)
Purchase of FHLB-NY stock ............................................ -- (369)
Proceeds from sales of mortgage-backed securities available for sale . 72,201 41,453
Principal payments on mortgage-backed securities ..................... 130,341 104,963
Purchases of mortgage-backed securities available for sale ........... (219,687) (179,182)
Purchases of mortgage-backed securities .............................. -- (5,541)
Principal repayments on loans ........................................ 137,202 107,046
Origination of loans ................................................. (174,258) (169,849)
Purchases of mortgage loans .......................................... (12,417) (9,786)
Proceeds from sale of real estate owned .............................. 1,252 946
Purchases of premises and equipment .................................. (921) (2,022)
Proceeds from sales of fixed assets .................................. -- 124
--------- ---------
Net cash used in investing activities ......................... (34,524) (176,182)
--------- ---------
Cash flows from financing activities:
Net proceeds from stock offering and Mutual Holding Co. reorganization -- 163,809
Purchase of treasury stock ........................................... (8,991) --
Purchase of ESOP shares .............................................. -- (13,240)
Stock options exercised .............................................. 948 385
Cash dividends paid .................................................. (4,517) (3,155)
Net (decrease) increase in deposits .................................. (14,188) 8,420
Net increase in borrowed funds ....................................... 23,500 16,554
Net increase in advances by borrowers for taxes and insurance ........ 1,255 919
--------- ---------
Net cash (used in) provided by financing activities ......... (1,993) 173,692
--------- ---------
Net (decrease) increase in cash and cash equivalents ........ (20,581) 7,383
Cash and cash equivalents at beginning of period ........................ 37,631 29,903
========= =========
Cash and cash equivalents at end of period .............................. $ 17,050 $ 37,286
--------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ......................................................... $ 31,339 $ 31,927
Income taxes ..................................................... 4,619 5,924
Non cash investing and financing activities for the period:
Transfer of mortgage-backed securities from Held to Maturity
to Available for Sale .......................................... -- 181,811
Transfer of loans to real estate owned .......................... $ 1,242 $ 3,021
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
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FIRST SENTINEL BANCORP, INC. and SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") for interim
financial information and in conformity with the instructions to Form 10-Q and
Article 10 of Regulation S-X for First Sentinel Bancorp, Inc. ("First Sentinel"
or the "Company") and its wholly-owned subsidiaries, First Savings Bank, SLA,
("First Savings" or the "Bank") Pulse Investment, Inc., Pulse Insurance
Services, Inc. and Pulse Real Estate, Inc., and the Bank's wholly-owned
subsidiaries, FSB Financial Corp., and 1000 Woodbridge Center Drive, Inc.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial condition, results
of operations, and changes in cash flows have been made at and for the three and
six months ended June 30, 1999 and 1998. The results of operations for the three
and six months ended June 30, 1999, are not necessarily indicative of results
that may be expected for the entire fiscal year ending December 31, 1999. These
interim financial statements should be read in conjunction with the December 31,
1998 annual report.
(2) EARNINGS PER SHARE
Basic earnings per share is calculated by dividing net income by the daily
average number of common shares outstanding during the period. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similarly to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued utilizing the treasury stock method.
Calculation of Basic and Diluted Earnings Per Share
- --------------------------------------------------------
(dollars in thousands, except per share data)
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Three Months ended June 30, Six Months ended June 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
-------------- -------------- ------------- -------------
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Net income $ 5,880 $ 5,242 $ 11,491 $ 9,943
============== ============== ============= =============
Basic weighted-average common shares
Outstanding 40,489,683 41,922,455 40,694,868 42,173,415
Plus: Dilutive stock options and awards 1,059,587 788,959 933,816 825,706
-------------- -------------- ------------- -------------
Diluted weighted-average common
shares outstanding 41,549,270 42,711,414 41,628,684 42,999,121
============== ============== ============= =============
Net income per common share:
Basic $ 0.15 $ 0.13 $ 0.28 $ 0.24
============== ============== ============= =============
Diluted $ 0.14 $ 0.12 $ 0.28 $ 0.23
============== ============== ============= =============
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(3) DIVIDENDS
Based upon current operating results, the Company declared cash dividends of
$0.055 per share on April 28, 1999, payable May 28, 1999, to stockholders of
record on May 14, 1999.
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(4) COMMITMENTS AND CONTINGENCIES
At June 30, 1999, the Company had the following commitments: (i) to originate
loans of $78.9 million; (ii) to purchase mortgage loans of $8.1 million; (iii)
to sell mortgage loans of $400,000; (iv) to purchase investment securities of
$18.4 million, (v) unused equity lines of credit of $41.0 million; (vi) unused
commercial lines of credit of $14.4 million; (vii) unused construction lines of
credit of $38.1 million; and (viii) letters of credit outstanding totaling $2.9
million. Further, certificates of deposits, which are scheduled to mature and/or
rollover in one year or less, totaled $562.3 million at June 30, 1999.
(5) ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses.
For the six months ended June 30,
-----------------------------------
1999 1998
----------- -----------
(unaudited)(in thousands)
Balance at beginning of period $9,505 $8,454
Provision charged to operations 900 740
Charge offs, net of recoveries (79) (431)
---- -----
Balance at end of period $10,326 $8,763
======= ======
(6) COMPREHENSIVE (LOSS) INCOME
Total comprehensive (loss) income, consisting of net income and the net change
in unrealized gain/(loss) on securities available for sale, was ($333,000) and
$11.1 million for the six months ended June 30, 1999 and 1998, respectively.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
In October 1998, the FASB issued SFAS No. 134 "Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise." This statement amends FASB Statement 65
"Accounting for Certain Mortgage Banking Activities." It requires that after the
securitization of mortgage loans held for sale, an entity engaged in mortgage
banking activities classify the resulting mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. This Statement is effective for the first fiscal quarter beginning
after December 15, 1998. The adoption of this Statement did not have a material
impact on the financial position or results of operations of the Company.
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FIRST SENTINEL BANCORP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL.
Statements contained in this report that are not historical fact are
forward-looking statements, as that term is defined in the Private Securities
Reform Act of 1995. Such statements may be characterized as management's
intentions, hopes, beliefs, expectations or predictions of the future. It is
important to note that such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such forward-looking statements. Factors that could cause future
results to vary materially from current expectations include, but are not
limited to, changes in interest rates, competition by larger financial
institutions, deposit and loan growth, changes in the quality or composition of
the Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines, legislative and regulatory changes, changes in the
economy generally and changes in business conditions in the New Jersey market.
CONVERSION AND REORGANIZATION
On April 8, 1998, First Savings Bank and its mutual holding company, First
Savings Bancshares, MHC, completed a conversion and reorganization into the
stock holding company structure, forming First Sentinel as the new stock holding
company and issuing shares of First Sentinel Common Stock in the process (the
"Conversion and Reorganization"). As part of the Conversion and Reorganization,
the Company sold 16,550,374 shares of Common Stock in a Subscription and
Community Offering, raising gross proceeds of $165.6 million. Concurrently, the
Company issued 14,820,016 shares of Common Stock in exchange for shares of First
Savings Bank, SLA common stock on a 3.9133-for-1 basis (the "Conversion Exchange
Ratio") in an exchange offering. All per share and earnings per share data have
been restated to reflect the 3.9133 Conversion Exchange Ratio.
On December 18, 1998, the Company acquired Pulse Bancorp, Inc. ("Pulse"). Each
share of Pulse was converted into 3.764 shares of the Company's common stock. A
total of 12,066,298 shares were issued, including 800,000 treasury stock shares,
to complete the transaction. The acquisition has been accounted for under the
pooling-of-interests method of accounting and accordingly, the Company's
consolidated financial statements include the accounts and activity of Pulse for
all periods presented.
YEAR 2000 COMPLIANCE ISSUES.
The Company has adopted a Year 2000 Compliance Plan and established a Year 2000
Compliance Committee, which includes members of senior management from all
operating areas. The objectives of the plan and the committee are to ensure that
the Company will be prepared for the new millennium. As recommended by the
Federal Financial Institutions Examination Council, the Year 2000 Compliance
Plan encompasses the following phases: Awareness, Assessment, Renovation,
Validation and Implementation. These phases entail the identification of risks,
the development of an action plan, the performance of adequate testing and the
completion of certification that the Company's processing systems will be Year
2000 Compliant. As of June 30, 1999, all phases of the plan were substantially
completed, although certain procedures remain ongoing. Progress reports on the
implementation of the plan are reviewed by the Board of Directors on a monthly
basis.
An integral component of the plan has been to identify and assess the
capabilities of the Company's operating systems, as well as the operating
systems of third parties upon which the Company's operations are dependent. The
Company's primary operating software is obtained from, and maintained by, an
external provider of software. This software is the Company's primary source of
information technology ("IT"), and is considered "mission critical" to the
Company's Year 2000 compliance. In August 1998, the vendor provided the Company
with remediated software and written notification that the remediated
9
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software was Year 2000 compliant. The Company has installed this software and
performed detail tests on both the software and hardware on various dates
through April 30, 2001. No material problems have been encountered during such
testing. The tests and results used to certify the system as compliant have also
been reviewed by an independent Year 2000 consultant engaged by the Company for
that purpose.
The Company has also performed minor modifications to the software obtained from
the vendor. It is the Company's sole responsibility to ensure that any
modifications to the software are Year 2000 compliant. This operation is
currently in progress. The Company has retained an additional consultant to
assist in the documentation and detailed review of the modifications to the
software. The modifications to the software being performed by the Company are
not considered mission critical as the software can process all transactions
effectively without the modifications.
The Company has substantially completed testing of all other IT systems as well.
These systems are also provided to the Company by third party vendors, all of
whom have provided written assurances to the Company that the systems are, or
are expected to be, Year 2000 compliant before the year-end. The Company has
also contacted all other material vendors and suppliers of non-IT systems
regarding their Year 2000 state of compliance. The majority of these third party
vendors and suppliers have delivered written assurances to the Company that they
will have all mission critical systems compliant, and that there will be no
interruption in service. The Company has established internal guidelines, by
which time material vendors and suppliers must be compliant, or the Company will
seek alternate vendors and suppliers. Based upon its current assessment,
management believes that the Company's material third party vendors are taking
the necessary steps to ensure Year 2000 compliance. There can be no assurances,
however, that such third parties will be compliant by year-end.
In addition, the Company has contacted all material borrowers to assess their
Year 2000 readiness, and is in the process of finalizing the review and
assessment of their responses. The Company has also incorporated a Year 2000
readiness review in its loan application process, in order to reduce exposure to
a new borrower's failure to be Year 2000 ready. Based upon a review of its
material borrowers as of April 1999, the Company does not anticipate any
material losses resulting from a borrower's lack of preparedness. All new
borrowers since that time have been evaluated for Year 2000 preparation in the
loan review process, with the exception of those loans purchased by the Company
in connection with the acquisition of Pulse. A review of the former Pulse
borrowers for Year 2000 preparedness is in progress. Because the majority of
Pulse loans are secured by real estate, management does not anticipate any
material losses on such loans. Despite these measures, however, there can be no
assurances that the Company will not suffer any losses due to a borrower's
failure to be Year 2000 compliant or that the Company will not have to establish
any reserves for any such potential losses.
The Company expects that customers may desire to withdraw funds in the weeks
preceding the century date change. In order to address that potential
consequence, the Company expects to have additional liquid assets available
toward year-end. The Company is significantly in excess of the OTS liquidity
requirements, and anticipates remaining so throughout 1999. Management has
developed a detailed Liquidity Plan that includes procedures for addressing
liquidity needs in the final weeks of 1999. The Liquidity Plan is expected to
reduce interest-earning assets and net interest income for that period. Any such
reduction, however, is expected to be immaterial to the results of operations or
financial condition of the Company.
Management has also developed a Contingency Plan that incorporates both
remediation and business continuity plans. The remediation contingency plans
focus on implementing oversight mechanisms to ensure that the Company's
Compliance Plan achieves its intended results of renovating, testing and
implementing necessary changes to all mission critical systems prior to January
1, 2000. The business continuity plans set forth the necessary policies and
procedures to follow in the event that critical business functions are
interrupted or impaired due to internal system or third party failures. These
plans are an enhancement of the Company's existing Disaster Recovery Plan, and
combined, are intended to help ensure the continuity of operations in the event
of a loss of critical resources. Testing of the Contingency Plan is in progress,
and is expected to continue through September 30, 1999.
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While the Company has not determined the final cost of compliance, it currently
anticipates such cost to be immaterial to the results of operations or financial
condition of the Company. The costs specifically attributable to Year 2000
compliance are the engagement of the two consultants discussed above and the
hiring of temporary help to address the additional workload created by the Year
2000 compliance process. In addition, the Company has initiated a Customer
Awareness Campaign to educate consumers on Year 2000 issues, which has incurred
certain expenses. To date, the Company has expensed $92,000 for each of 1998 and
the first six months of 1999. A total expense of $250,000 is budgeted for 1999.
Management believes that it is taking all reasonable and appropriate steps to
prepare for the Year 2000, and believes that its efforts are on schedule. Due to
the general uncertainty inherent with Year 2000 issues, and the inability to
control external parties or circumstances upon which the Company may be
dependent, however, there can be no assurances that the Company will not be
adversely affected by the century date change. Such adverse impact could result
from failures of the Company's internal systems, failures of material third
party vendors or failures of material borrowers. The Company could also be
subjected to litigation from customers, borrowers or vendors due to either
internal or external Year 2000 failures. All disclosure concerning the Year 2000
date change should be considered "Year 2000 Readiness Disclosure" pursuant to
the Year 2000 Information and Readiness Disclosure Act. The Year 2000
information provided herein should be read in conjunction with the Year 2000
Information and Readiness Disclosure Act which, among other things, mandates
that certain Year 2000 readiness disclosures may not be used in litigation.
ASSETS. Total assets remained relatively stable at $1.9 billion at June 30,
1999, reflecting a decrease of $2.0 million, or 0.1% from December 31, 1998. The
change in assets consisted primarily of increases in loans receivable and
mortgage-backed securities ("MBS") available for sale, offset by decreases in
investment securities available for sale and federal funds sold. Net loans
increased $47.4 million, or 5.6%, to $902.1 million as of June 30, 1999, from
$854.7 million at December 31, 1998. The increase was due primarily to loan
originations exceeding loan amortization, prepayments and sales. Mortgage loan
originations for the six months ended June 30, 1999 were $174.3 million, which
represented a 2.6% increase over originations of $169.8 million for the
comparable 1998 period. Single-family fixed-rate first mortgage loan
originations totaled 36% of production, while adjustable-rate single-family
first mortgage loans accounted for 22% of total originations for the first six
months of 1999. Also during the first six months of 1999, commercial real estate
and multi-family loan originations totaled $29.5 million, or 17% of total
originations, while construction lending totaled $16.3 million, or 10%. During
the same period, consumer loan originations, including home equity loans and
credit lines, totaled $23.0 million. Repayment of principal on loans totaled
$137.2 million for the six months ended June 30, 1999, as compared to $105.0
million for the same period in 1998. Management has emphasized the origination
of loans in an effort to increase loans as a percentage of assets. While
management intends to continue to actively seek to originate loans, the future
levels of loan originations and repayments will be significantly influenced by
external interest rates and other economic factors outside of the control of the
Company.
MBS available for sale increased $6.8 million, or 1.03%, to $668.7 million at
June 30, 1999, from $661.9 million at December 31, 1998. The increase was
primarily due to purchases of $219.7 million exceeding sales and principal
repayments of $72.2 million and $130.3 million, respectively. There was also a
market value adjustment of ($11.8 million) reflecting the change in the value of
the MBS portfolio as interest rates rose in anticipation of a change in Federal
Reserve monetary policy, which widened spread and affected MBS pricing.
Management expects the market value to recover and has the ability to carry
these securities through various interest rate scenarios.
Investment securities available for sale decreased $38.6 million, or 15.9%, to
$203.6 million as of June 30, 1999 from $242.2 million at December 31, 1998. For
the six months ended June 30, 1999, sales and calls of investment securities
available for sale totaled $101.8 million, while purchases totaled $70.0
million. Calls of investment securities available for sale were concentrated in
the portfolio obtained through the Pulse acquisition. Federal funds sold
decreased $14.8 million from December 31, 1998 as these funds were deployed in
other areas. Other assets increased $4.5 million, or 58.1%, to $12.3 million at
June 30,
11
<PAGE>
1999, compared with $7.8 million at December 31, 1998. The increase was
primarily due to the increased deferred tax benefit caused by the decrease in
the market value of the securities available for sale portfolios.
LIABILITIES. Deposits decreased $14.2 million, or 1.1%, to $1.3 billion at June
30, 1999. The Company continued to experience deposit outflows at the former
Pulse branches. The outflow was concentrated primarily in certificates of
deposit at the former Pulse branches, as opposed to the balance of the core
deposit base, as management lowered the rates on higher-costing certificates of
deposit. The Company continues to focus on a reduction in the dependence on
certificates of deposit as its primary funding source. Borrowed funds increased
$23.5 million, or 8.9%, to $288.2 million at June 30, 1999, from $264.7 million
at December 31, 1998. The increased borrowed funds were used primarily to fund
loan originations and to purchase MBS available for sale, and, to a lesser
degree, mitigate deposit outflows. Advances by borrowers for taxes and insurance
increased $1.3 million, or 18.0%, to $8.2 million at June 30, 1999, from $7.0
million at December 31, 1998, primarily due to the increase in the residential
loan portfolio. Other liabilities decreased $689,000, or 4.5%, to $14.8 million
at June 30, 1999, from $15.5 million at December 31, 1998, primarily due to
decreases in income taxes payable and various other accrual accounts.
CAPITAL. The Company's stockholders' equity decreased $11.9 million, or 4.0%, to
$287.9 million at June 30, 1999, from $299.8 million at December 31, 1998. The
primary reasons for the decrease were the net change in accumulated other
comprehensive income (loss) on the unrealized loss on securities available for
sale of $11.8 million, the purchase of $3.3 million of treasury stock during the
first six months of 1999 and the $5.7 million purchase of common stock to fund
unearned stock awards granted under the Company's 1998 Stock-Based Incentive
Plan. Cash dividends of $4.5 million further contributed to the decrease. These
decreases were partially offset by net income of $11.5 million for the six
months ended June 30, 1999.
The Office of Thrift Supervision ("OTS") requires that the Bank meet minimum
tangible, core and risk-based capital requirements. At June 30, 1999, the Bank
exceeded all regulatory capital requirements, as follows:
<TABLE>
<CAPTION>
Required Actual
---------------------- ---------------------- Excess of Actual
% of % of over Regulatory
Amount Assets Amount Assets Requirements
----------- ---------- ----------- ---------- -----------------------
(Dollars in thousands) (Unaudited)
<S> <C> <C> <C> <C> <C>
Tangible Capital $27,600 1.50% $228,624 12.43% $201,024
Core Capital 55,199 3.00% 228,624 12.43% 173,425
Risk-based Capital 58,537 8.00% 237,784 32.50% 179,247
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES. The Company's primary sources of funds are
deposits; proceeds from principal and interest payments on loans and
mortgage-backed securities; sales of loans, mortgage-backed securities and
investments available for sale; maturities or calls of investment securities and
short-term investments; and, to an increasing extent, advances from the FHLB-NY
and other borrowed funds. While maturities and scheduled amortization of loans
and mortgage-backed securities are a predictable source of funds, deposit cash
flows and mortgage prepayments are greatly influenced by general interest rates,
competition, and economic conditions.
The most significant source of funds for the first six months of 1999 were
principal repayment and prepayment of loans and mortgage-backed securities,
totaling $137.2 million and $130.3 million, respectively. Other significant
sources of funds for the six months ended June 30, 1999, were sales and calls of
investment securities available for sale of $101.8 million and sales of MBS
available for sale totaling $72.2 million, and borrowed funds totaling $23.5
million.
The primary investing activities of the Company for the first six months of 1999
were the purchases of mortgage-backed securities available for sale totaling
$219.7 million, origination of loans totaling $174.3 million, and the purchases
of investment securities available for sale totaling $70.0 million. Other
12
<PAGE>
significant uses of funds during the six months ended June 30, 1999, were $12.4
million in purchases of mortgage loans, $14.2 million in decreased deposits and
$9.0 million for the repurchase of common stock.
The Bank is required to maintain an average daily balance of liquid assets as
defined by OTS regulations. This ratio is based upon a percentage of deposits
and short-term borrowings. The required minimum ratio is currently 4.00%. The
Bank's liquidity ratio at June 30, 1999, was 48.4% and assets qualifying for
liquidity purposes totaled $614.5 million.
COMPARISON OF OPERATING RESULTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1999
AND 1998.
RESULTS OF OPERATIONS. Earnings for the three and six months ended June 30,
1999, totaled $5.9 million and $11.5 million, respectively, with basic/diluted
earnings per share of $0.15/$0.14 and $0.28/$0.28, respectively. This
represented an increase of $638,000 and $1.5 million, or 12.2% and 15.6%,
respectively, over the net income of $5.2 million and $9.9 million, or
$0.13/$0.12 and $0.24/$0.23 basic/diluted earnings per share, respectively, for
the comparable 1998 periods. Earnings for the six months ended June 30, 1998
were augmented by a $687,000 after tax, non-recurring gain on the sale of
deposits. The 1999 increase in net income, exclusive of the 1998 non-recurring
gain, was $2.2 million. The increase in net income in 1999 was partially due to
earnings on the net proceeds from the Company's Conversion and Reorganization in
1998. The proceeds raised in the Conversion and Reorganization allowed the
Company to increase interest-earning assets without a corresponding increase in
interest bearing liabilities.
INTEREST INCOME. Interest income for the three and six months ended June 30,
1999, increased by $674,000 and $2.7 million, or 2.3% and 4.7%, respectively,
from the same periods in 1998. Interest on loans increased $1.7 million and $3.5
million, or 11.4% and 12.0%, respectively, to total $16.7 million and $32.9
million for the three and six months ended June 30, 1999, as compared to $15.0
million and $29.4 million for the same period in 1998. The increase was
primarily due to loan originations exceeding principal repayments and sales. The
average balance of the loan portfolio for the six month period ended June 30,
1999 increased to $899.5 million from $750.2 million for 1998, while the average
yield on the portfolio decreased to 7.32% for the six months ended June 30,
1999, from 7.83% for the same period in 1998. The decrease in interest rates has
affected the yield on the portfolio as the rates on principal repayments have
exceeded the rates on new loans. In addition, the decrease in interest rates in
the early part of 1999 negatively affected the repricing of ARM loans as these
loans reprice based on external indices.
As of December 31, 1998, the Company had classified the entire balance of all
MBS and investment securities as available for sale. It is anticipated that all
MBS and investment security purchases will be classified as available for sale
for the foreseeable future. Such classification is also the reason for the
significant increase in the investments and MBS available for sale category. The
average balance of the available for sale portfolios totaled $918.7 million,
with an annualized yield of 5.99% for the six months ended June 30, 1999, while
the combined available for sale and held to maturity portfolios' average balance
was $859.7 million with an annualized yield of 6.59% for the six months ended
June 30, 1998. The decrease in interest rates significantly affected the yield
on the portfolio. Rates on investment securities available for sale were
negatively affected as higher yielding investments were called and rates on
replacement securities were lower than the rates on the securities that were
called, although more call protection was added to the portfolio. The yield on
the MBS available for sale portfolio was also negatively affected as higher
yielding instruments prepaid. Due to market interest rates, new purchases had a
lower yield than the components of the portfolio in 1998. Growth in
interest-earning assets is expected to continue. Yields on the portfolio will
continue to be affected by market interest rates.
INTEREST EXPENSE. Interest expense increased $31,000 to $15.9 million for the
three months ended June 30, 1999, compared to $15.9 million for the same period
in 1998. For the six months ended June 30, 1999, interest expense decreased
$387,000 to $31.8 million, compared to $32.2 million for the comparable 1998
period. Interest expense on deposits decreased $1.2 million and $2.3 million, or
9.2% and 8.8%, respectively, to $11.8 million and $24.0 million for the three
and six months ended June 30, 1999, as compared to $13.1 million and $26.3
million for the same periods in 1998. Management continued to
13
<PAGE>
concentrate its efforts on increasing the level of core accounts and decreasing
certificate accounts as a percentage of overall deposits. The increase in the
average balance of NOW and money market demand accounts, along with the increase
in the average balance of non-interest bearing deposits, reflects this strategy.
The average balance of these core accounts totaled $512.5 million for the six
months ended June 30, 1999, as compared to $468.8 million for the same period in
1998. The average interest cost on deposits for the six months ended June 30,
1999 was 3.94% as compared to 4.41% for the same period in 1998. The decreased
cost was partially attributable to the sale of higher rate deposits in a branch
that was sold in the first quarter of 1998. The decrease in the average balance
of certificates of deposit to $702.6 million for the six months ended June 30,
1999, from $725.2 million for the same period in 1998 was due primarily to the
sale of the branch discussed above and by management's reduction in the interest
rates offered to certificate customers. The average cost of certificates over
the six-month period ended June 30, 1999, was 4.95%, as compared to 5.43% over
the same period in 1998. Management will continue to offer certificate rates
that are competitive, but lower than certain area competition. This strategy may
continue to cause a limited outflow of funds. Interest on borrowed funds for the
three and six months ended June 30, 1999, increased $1.2 million and $1.9
million, or 43.8% and 32.7%, respectively, to $4.0 million and $7.8 million,
compared to $2.8 million and $5.9 million for the same respective periods in
1998. The increase in the average balance of borrowed funds for the six months
ended June 30, 1999, to $292.2 million, from $194.5 million was attributable to
management's continuing strategy to fund the purchase of investment and
mortgage-backed securities through the use of borrowed funds, where accretive to
earnings, and to mitigate the deposit outflow of certificates of deposit
accounts. This strategy is expected to continue and borrowings can be expected
to continue to increase as a percentage of total liabilities. Offsetting the
increase in the average balance of borrowed funds was the reduced interest cost
to 5.36% for the six months ended June 30, 1999, from 6.06% for the same period
in 1998.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before
provision for loan losses increased $643,000 and $3.1 million, or 4.6% and
12.2%, respectively, to $14.6 million and $28.6 million for the three and six
months ended June 30, 1999, compared to $13.9 million and $25.5 million for the
same periods in 1998. The increase was due to the changes in interest income and
interest expense described above. The net interest margin decreased to 3.29% and
3.15% for the three and six months ended June 30, 1999, from 3.39% and 3.17% for
the same periods in 1998, as market rates increased significantly in the second
quarter of 1999. The interest rate spread decreased slightly to 2.67% and 2.42%
for the three and six months ended June 30, 1999, from 2.70% and 2.53% for the
same periods in 1998. The decrease was primarily attributable to increasing
market interest rates, a flattening yield curve and an increase in the volume of
prepayments.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three and six
months ended June 30, 1999, increased $85,000 and $160,000, or 23.3% and 21.6%,
respectively, to $450,000 and $900,000, compared to $365,000 and $740,000 for
the same periods in 1998. The increase in the provision was due to the increase
in the balance of the loan portfolio and a shift in its composition. Net loans
increased $47.4 million for the six months ended June 30, 1999, and the balances
of construction and commercial real estate loans also increased. In management's
opinion, the allowance for loan losses, totaling $10.3 million at June 30, 1999,
is adequate to cover losses inherent in the portfolio. The amount of the
provision is based on management's evaluation of any risk inherent in the loan
portfolio. Management will continue to review the need for additions to its
allowance for loan losses based upon its quarterly review of the loan portfolio,
the level of delinquencies, and general market and economic conditions.
The following table sets forth ratios regarding nonaccrual loans, and loans
which are 90 days or more delinquent, but on which the Company is accruing
interest at the dates indicated. The Company discontinues accruing interest on
delinquent loans when collection of interest is considered doubtful, generally
90 days or more delinquent, and when, or combined with, loan-to-value ratios
exceed 55%, at which time all accrued but uncollected interest is reversed.
Total foreclosed real estate ("REO"), net, totaled $1.4 million at June 30, 1999
and consisted of 11 properties. The largest individual property, carried at
$654,000, was under contract for sale at June 30, 1999. Management continues to
pursue the sale of REO properties in an expedient manner.
14
<PAGE>
<TABLE>
<CAPTION>
(dollars in thousands) June 30, Mar. 31, Dec. 31, Sept. 30, June 30,
1999 1999 1998 1998 1998
-------- --------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans ......................... $2,537 $3,112 $2,648 $2,429 $2,327
Non-accrual other loans ............................ 82 94 92 93 118
-------- ------- -------- -------- --------
Total non-accrual loans ........................... 2,619 3,206 2,740 2,522 2,445
Loans 90 days or more delinquent and
still accruing .................................... 224 127 1,525 1,292 1,246
Restructured loans.................................. - - - 2,081 2,089
-------- ------- -------- -------- --------
Total non-performing loans ......................... 2,843 3,333 4,265 5,895 5,780
Total foreclosed real estate, net of related
allowance.......................................... 1,422 1,516 1,453 2,356 3,624
======== ======= ======== ======== ========
Total non-performing assets ........................ $4,265 $4,849 $5,718 $8,251 $9,404
======== ======= ======== ======== ========
Non-performing loans to loans receivable, net ...... 0.32% 0.38% 0.50% 0.71% 0.74%
Non-performing assets to total assets .............. 0.23% 0.26% 0.31% 0.46% 0.53%
</TABLE>
OTHER OPERATING INCOME. Other operating income increased $264,000, or 35.7%, to
$1.0 million for the three months ended June 30, 1999, compared to $739,000 for
the same period in 1998. The increase is primarily due to increased gains on
sales of loans and securities during the quarter. For the six months ended June
30, 1999, other operating income totaled $2.1 million, a decrease of $591,000,
or 22.4% from the same period in 1998. Fees and service charges increased
$123,000, or 11.1%, to $1.2 million for the six months ended June 30, 1999,
compared to $1.1 million for the same period in 1998 as management continued to
target, as a priority, growth in non-interest income accounts and the growth in
fees and service charges. Also, as a part of the conversion of the former Pulse
accounts, service charges were waived for a three-month period ending in
September of 1999. The increase in net gain on sales of loans and securities was
primarily due to sales of MBS. During the six months ended June 30, 1999,
management disposed of numerous MBS whose principal balance had been reduced
significantly due to paydowns, accompanied by adjustable-rate MBS whose price
performance target had been attained. The net gain on sale of deposits
represented the gain resulting from the sale of the Eatontown branch office to
another financial institution in February, 1998.
OPERATING EXPENSES. Operating expenses for the three and six months ended June
30, 1999, increased $284,000 and $635,000, or 4.7% and 5.4%, respectively, to
$6.3 million and $12.4 million, compared to $6.0 million and $11.7 million for
the same periods in 1998. The increase in compensation and benefits was
primarily due to: the expenses associated with the Bank's Employee Stock
Ownership Plan and the Company's 1998 Stock-Based Incentive Plan; the
compensation cost associated with the opening of two branch offices; and a cost
of living salary increase in the first quarter of 1999. These increases were
partially mitigated by First Savings offering a voluntary retirement incentive
that reduced payroll beginning in the first quarter of 1999. Equipment expense
for the three and six months ended June 30, 1999, totaled $378,000 and $795,000,
a decrease of $115,000 and $160,000, or 23.3% and 16.8%, respectively, due to
expenses incurred in 1998 for the opening of a new office and new computer
equipment purchased by the former Pulse Bank. Advertising expense increased
$49,000 and $82,000, or 16.1% and 15.7%, respectively, to $353,000 and $603,000
for the three and six months ended June 30, 1999, compared to $304,000 and
$521,000 for the same period in 1998, as the Company continued to solicit
additional loan volumes and direct mail promotions for the new branch openings.
General and administrative expenses increased $108,000 and $265,000, or 10.2%
and 13.3%, respectively, to $1.2 million and $2.3 million for the three and six
months ended June 30, 1999, and was primarily related to expenses incurred in
conjunction with operating as a full stock company, including franchise taxes,
and also expenses related to the conversion of the data systems from the former
Pulse data center to the Company's in-house systems.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
There have been no material changes to information required regarding
quantitative and qualitative disclosures about market risk from the end of the
preceding fiscal year to the date of the most recent interim financial
statements (June 30, 1999).
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS.
There are various claims and lawsuits in which the Registrant is
periodically involved incidental to the Registrant's business. In the
opinion of management, no material loss is expected from any of such
pending claims and lawsuits.
Item 2. CHANGES IN SECURITIES.
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The results of the Annual Meeting of Stockholders, held on April 29,
1999, were previously reported in the Form 10-Q for the quarter ended
March 31, 1999, filed with the Securities and Exchange Commission on
May 12, 1999.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) Exhibits
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Exhibit
Number Description Reference
---------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Certificate of Incorporation of First Sentinel Bancorp, *
Inc.
3.2 Bylaws of First Sentinel Bancorp, Inc. *
4 Stock certificate of First Sentinel Bancorp, Inc. *
11 Statement re: Computation of Ratios page 7
27 Financial Data Schedule attached
---------------------------------------------------------------------------------------------
</TABLE>
b.) Reports on Form 8 - K
None
* - Incorporated herein by reference into this document from the Registration
Statement on Form S-1 and exhibits thereto of First Sentinel Bancorp, Inc.
(formerly First Source Bancorp, Inc.), and any amendments or supplements thereto
filed with the SEC on December 19, 1997 and amended on February 9, 1998, SEC
File No. 333-42757.
16
<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.
FIRST SENTINEL BANCORP, INC.
Date: August 13, 1999 By: \s\ John P. Mulkerin
--------------------
John P. Mulkerin
President and Chief Executive
Officer
Date: August 13, 1999 By: \s\ Christopher Martin
----------------------
Christopher Martin
Executive Vice President and Chief
Operating and Financial Officer and
Corporate Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,050
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 872,287
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 902,094
<ALLOWANCE> 10,326
<TOTAL-ASSETS> 1,853,036
<DEPOSITS> 1,253,931
<SHORT-TERM> 107,500
<LIABILITIES-OTHER> 23,011
<LONG-TERM> 180,675
0
0
<COMMON> 431
<OTHER-SE> 287,488
<TOTAL-LIABILITIES-AND-EQUITY> 1,853,036
<INTEREST-LOAN> 32,911
<INTEREST-INVEST> 27,515
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 60,426
<INTEREST-DEPOSIT> 23,995
<INTEREST-EXPENSE> 31,822
<INTEREST-INCOME-NET> 28,604
<LOAN-LOSSES> 900
<SECURITIES-GAINS> 577
<EXPENSE-OTHER> 12,365
<INCOME-PRETAX> 17,389
<INCOME-PRE-EXTRAORDINARY> 17,389
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,491
<EPS-BASIC> 0.28
<EPS-DILUTED> 0.28
<YIELD-ACTUAL> 2.42
<LOANS-NON> 2,619
<LOANS-PAST> 224
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,505
<CHARGE-OFFS> 79
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 10,326
<ALLOWANCE-DOMESTIC> 10,326
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
