<PAGE>
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 .............................. March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File No.: 000-23809
FIRST SENTINEL BANCORP, INC.
(exact name of registrant as specified in its charter)
DELAWARE 22-3566151
(State or other jurisdiction of incorporation or (IRS Employer I.D. No.)
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 MAY 10, 1999
--------------------------------------- -----------------------------------
Common Stock 42,511,917 shares
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FIRST SENTINEL BANCORP, INC.
INDEX TO FORM 10-Q
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Page #
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C> <C>
Consolidated Statements of Financial Condition as of March 31, 1999 (unaudited) 3
and December 31, 1998 (audited)
Consolidated Statements of Income for the three months ended March 31, 1999 and 4
1998 (unaudited)
Consolidated Statements of Stockholders' Equity for the three months ended March 5
31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the three months ended March 31, 1999 6
and 1998 (unaudited)
Notes to Unaudited Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 9
Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk 16
PART II. OTHER INFORMATION 17
SIGNATURES 19
</TABLE>
2
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<TABLE>
<CAPTION>
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
March 31 December 31,
1999 1998
------------- ---------------
(unaudited) (audited)
ASSETS
<S> <C> <C>
Cash and due from banks..................................................................... $ 26,474 $ 22,831
Federal funds sold.......................................................................... 6,675 14,800
-------------- ---------------
Total cash and cash equivalents....................................................... 33,149 37,631
Federal Home Loan Bank of New York (FHLB-NY) stock, at cost................................. 12,852 12,852
Investment securities available for sale.................................................... 213,821 242,197
Mortgage-backed securities available for sale............................................... 695,203 661,881
Loans receivable, net....................................................................... 885,356 854,697
Interest and dividends receivable........................................................... 12,077 13,556
Premises and equipment, net................................................................. 16,274 16,481
Excess of cost over fair value of net assets acquired....................................... 7,743 7,956
Other assets................................................................................ 8,647 7,807
-------------- ---------------
Total assets.......................................................................... $ 1,885,122 $ 1,855,058
============ ==============
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits.................................................................................... $ 1,256,187 $ 1,268,119
Borrowed funds.............................................................................. 314,675 264,675
Advances by borrowers for taxes and insurance............................................... 7,708 6,969
Other liabilities........................................................................... 12,862 15,476
-------------- ---------------
Total liabilities..................................................................... 1,591,432 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 42,436,436 shares issued and outstanding at 3/31/99 and
43,105,497 and 42,675,397 shares issued and outstanding at 12/31/98.................... 431 431
Paid-in capital............................................................................. 201,090 201,105
Retained earnings........................................................................... 114,766 112,601
Accumulated other comprehensive income...................................................... 831 2,498
Less: Treasury stock........................................................................ (5,757) (3,664)
Unearned Common Stock acquired by the Employee Stock Ownership Plan (ESOP)............ (12,844) (13,073)
Unearned Common Stock acquired by the Recognition and Retention Plan (RRP)............ (4,827) (79)
-------------- ---------------
Total stockholders' equity............................................................ 293,690 299,819
------------- ---------------
Total liabilities and stockholders' equity............................................ $ 1,885,122 $ 1,855,058
============= ==============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
3
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
Quarter Ended March 31,
------------------------------------------
1999 1998
----------------- -------------
(unaudited)
INTEREST INCOME:
<S> <C> <C>
Loans.............................................................. $ 16,195 $ 14,372
Mortgage-backed securities held to maturity ....................... - 6,056
Investment securities held to maturity ............................ - 2,511
Investment and mortgage-backed securities available for sale....... 13,749 4,966
----------------- -------------
Total interest income .......................................... 29,944 27,905
----------------- -------------
INTEREST EXPENSE:
Deposits:
NOW and money market demand ...................................... 2,282 2,156
Savings........................................................... 1,007 1,135
Certificates of deposit........................................... 8,836 9,949
----------------- -------------
Total interest expense - deposits .............................. 12,125 13,240
Borrowed funds..................................................... 3,787 3,090
----------------- -------------
Total interest expense.......................................... 15,912 16,330
----------------- -------------
Net interest income............................................. 14,032 11,575
---------------- -------------
Provision for loan losses............................................ 450 375
----------------- -------------
Net interest income after provision for loan losses............. 13,582 11,200
----------------- -------------
OTHER OPERATING INCOME:
Fees and service charges........................................... 641 554
Net gain on sales of loans and securities available for sale....... 259 107
Net gain on sale of deposits....................................... - 1,084
Other, net......................................................... 147 157
----------------- -------------
Total other operating income.................................... 1,047 1,902
----------------- -------------
OPERATING EXPENSES:
Compensation and benefits ......................................... 3,345 3,157
Occupancy.......................................................... 544 536
Equipment.......................................................... 417 462
Advertising ....................................................... 250 217
Federal deposit insurance ......................................... 197 187
Amortization of intangibles ....................................... 213 213
General and administrative......................................... 1,093 936
----------------- -------------
Total operating expenses........................................ 6,059 5,708
----------------- -------------
Income before income tax expense ............................... 8,570 7,394
Income tax expense................................................. 2,959 2,693
----------------- -------------
Net income...................................................... $ 5,611 $ 4,701
================= =============
Basic earnings per share........................................... $ 0.14 $ 0.11
================= =============
Weighted average shares outstanding - Basic ....................... 40,900,034 42,766,285
================= =============
Diluted earnings per share......................................... $ 0.13 $ 0.11
================= =============
Weighted average shares outstanding - Diluted ..................... 41,685,895 43,718,155
================= =============
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands) (unaudited)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER COMMON
COMPRE- STOCK
COMMON PAID IN RETAINED HENSIVE TREASURY ACQUIRED
STOCK CAPITAL EARNINGS INCOME STOCK BY ESOP
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997.............. $470 $ 59,348 $101,186 $ 1,295 ($16,677) ($546)
Net income for the quarter ended
March 31, 1998......................... - - 4,701 - - -
Cash dividends............................ - - (1,580) - - -
Net change in unrealized gain/loss
on securities available for sale....... - - - 215 - -
Amortization of RRP....................... - - - - - -
Amortization of ESOP...................... - 74 - - - 25
Exercise of stock options................. 7 92 - - - -
---------------------------------------------------------------------------------
Balance at March 31, 1998................. $477 $ 59,514 $104,307 $ 1,510 ($16,677) ($521)
=================================================================================
Balance at December 31, 1998.............. $431 $201,105 $112,601 $ 2,498 ($3,664) ($13,073)
Net income for the quarter
ended March 31, 1999................... - - 5,611 - - -
Cash dividends............................ - - (2,122) - - -
Net change in unrealized gain/loss
on securities available for sale....... - - - (1,667) - -
Purchases of treasury stock............... - - - - (8,991) -
Exercise of stock options, including
shares issued from existing treasury
stock.................................. - 6 (668) - 1,194 -
Transfer of treasury stock to RRP......... - - (656) - 5,704 -
Amortization of RRP....................... - - - - - -
Principal payments on ESOP loan........... - (21) - - - 229
---------------------------------------------------------------------------------
Balance at March 31, 1999................. $431 $201,090 $114,766 $ 831 ($5,757) ($12,844)
=================================================================================
<CAPTION>
COMMON TOTAL
STOCK STOCK-
ACQUIRED HOLDERS'
BY RRP EQUITY
---------------------------
<S> <C> <C>
Balance at December 31, 1997.............. ($183) $144,893
Net income for the quarter ended
March 31, 1998......................... - 4,701
Cash dividends............................ - (1,580)
Net change in unrealized gain/loss
on securities available for sale....... - 215
Amortization of RRP....................... 26 26
Amortization of ESOP...................... - 99
Exercise of stock options................. - 99
---------------------------
Balance at March 31, 1998................. ($157) $148,453
===========================
Balance at December 31, 1998.............. ($79) $299,819
Net income for the quarter
ended March 31, 1999................... - 5,611
Cash dividends............................ - (2,122)
Net change in unrealized gain/loss
on securities available for sale....... - (1,667)
Purchases of treasury stock............... - (8,991)
Exercise of stock options, including
shares issued from existing treasury
stock.................................. - 532
Transfer of treasury stock to RRP......... (5,048) -
Amortization of RRP....................... 300 300
Principal payments on ESOP loan........... - 208
-------------------------
Balance at March 31, 1999................. ($4,827) $293,690
===========================
</TABLE>
See accompanying notes to the unaudited financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) Three Months Ended
March 31,
----------
1999 1998
----- ----
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income........................................................................ $ 5,611 $ 4,701
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment............................................ 340 326
Amortization of excess of cost over fair value of assets acquired................. 213 213
Amortization of ESOP ............................................................. 208 99
Amortization of RRP............................................................... 300 26
Provision for loan losses......................................................... 450 375
Provision for losses on real estate owned......................................... 21 10
Loans originated for sale......................................................... (3,379) (2,239)
Proceeds from sales of mortgage loans available for sale.......................... 3,372 2,245
Net gain on sales of assets available for sale or trading ........................ (259) (107)
Net gain on sales of real estate owned ........................................... 4 (1)
Net accretion of premiums and amortization of discounts .......................... (701) (226)
Decrease (increase) in interest and dividends receivable.......................... 1,479 (77)
(Decrease) increase in other liabilities ......................................... (2,614) 2,802
Decrease (increase) in other assets............................................... 161 (309)
-------------- --------------
Net cash provided by operating activities................................ 5,206 7,838
-------------- --------------
Cash flows from investing activities:
Proceeds from sales/calls of investment securities available for sale............. 64,463 2,008
Proceeds from sales of mortgage-backed securities available for sale.............. 41,206 15,763
Proceeds from sale of real estate owned .......................................... 987 82
Investment securities purchased for sale ......................................... (37,850) (49,344)
Mortgage-backed securities purchased for sale .................................... (147,410) (51,719)
Purchases of investment securities ............................................... - (1,880)
Maturities of investment securities............................................... - 19,010
Origination of loans ............................................................. (97,021) (67,586)
Purchases of mortgage loans....................................................... (2,831) (6,946)
Purchases of mortgage-backed securities........................................... - (5,541)
Principal repayments on loans .................................................... 67,804 42,500
Principal payments on mortgage-backed securities.................................. 72,871 45,175
Purchase of FHLB-NY stock ........................................................ - (307)
Purchases of premises and equipment............................................... (133) (157)
-------------- --------------
Net cash used in investing activities.................................... (37,914) (58,942)
------------- --------------
Cash flows from financing activities:
Stock orders received ............................................................ - 106,508
Purchase of treasury stock ....................................................... (8,991) -
Cost of stock contributed to ESOP................................................. - (25)
Stock options exercised........................................................... 532 99
Cash dividends paid............................................................... (2,122) (1,580)
Net (decrease) increase in deposits............................................... (11,932) 8,705
Net increase in borrowed funds.................................................... 50,000 10,550
Net increase in advances by borrowers for taxes and insurance..................... 739 325
------------- --------------
Net cash provided by financing activities................................ 28,226 124,582
------------- --------------
Net (decrease) increase in cash and cash equivalents..................... (4,482) 73,478
Cash and cash equivalents at beginning of period .................................... 37,631 29,903
--------------- --------------
Cash and cash equivalents at end of period .......................................... $ 33,149 $ 103,381
============== ==============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ..................................................................... $ 15,772 $ 10,338
Income taxes ................................................................. 3,500 5,773
Non cash investing and financing activities for the period:
Transfer of loans to real estate owned ...................................... $ 1,075 $ 1,328
============== ==============
</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. and its wholly-
owned subsidiaries, First Savings Bank, SLA, 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
months ended March 31, 1999 and 1998. The results of operations for the three
months ended March 31, 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 similar 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.
<TABLE>
<CAPTION>
Calculation of Basic and Diluted Earnings Per Share
---------------------------------------------------
(dollars in thousands, except Three months ended March 31,
per share data) ----------------------------
1999 1998
----- ----
<S> <C> <C>
Net Income $5,611 $4,701
=====================================
Basic weighted-average common
shares outstanding 40,900,034 42,766,285
Plus: Dilutive stock options and awards 785,861 951,870
-------------------------------------
Diluted weighted-average common
shares outstanding 41,685,895 43,718,155
=====================================
Net income per common share:
Basic $0.14 $0.11
Diluted 0.13 0.11
=====================================
</TABLE>
(3) DIVIDENDS
Based upon current operating results, the Company declared cash dividends of
$0.05 per share on February 2, 1999, payable February 26, 1999, to stockholders
of record on February 12, 1999.
7
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(4) COMMITMENTS AND CONTINGENCIES
At March 31, 1999, the Company had the following commitments: (i) to originate
loans of $58.5 million; (ii) to purchase mortgage loans of $4.2 million; (iii)
to sell mortgage loans of $1.8 million; (iv) to purchase mortgage-backed
securities ("MBS") of $20.0 million; (v) to sell MBS of $8.6 million, (vi) to
purchase investment securities of $5.0 million, (vii) unused equity lines of
credit of $21.2 million; (viii) unused commercial lines of credit of $15.9
million; (ix) unused construction lines of credit of $42.5 million; and (x)
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 $567.6 million at March 31, 1999.
(5) ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses.
<TABLE>
<CAPTION>
For the three months ended March 31,
---------------------------------------------------------
1999 1998
---- ----
(unaudited) (in thousands)
<S> <C> <C>
Balance at beginning of period $ 9,505 $8,454
Provision charged to operations 450 375
Recoveries (44) (108)
--------------------------- -------------------------
Balance at end of period $ 9,911 $8,721
=========================== =========================
</TABLE>
(6) COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income and the net change in
unrealized gain/loss on securities available for sale, was $3.9 million and $4.9
million for the three months ended March 31, 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," to require 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.
8
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FIRST SENTINEL BANCORP, INC.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL.
Statements made in this filing about management's intentions, hopes, beliefs,
expectations or predictions of the future are forward-looking statements. It is
important to note that actual results could 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, legislation 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, SLA ("First Savings" or the "Bank") and
its mutual holding company, First Savings Bancshares, MHC, completed a
conversion and reorganization into the stock holding company structure, forming
First Sentinel Bancorp, Inc. ("First Sentinel" or the "Company") 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 for 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 for 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 12,066,631 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 will enable the Company to identify
risks, develop an action plan, perform adequate testing and complete
certification that its processing systems will be Year 2000 compliant.
Execution of the plan is on-going and different phases are often addressed
concurrently. The Company is currently focusing on Phase 4 - Validation, and
Phase 5 - Implementation. The prior phases are substantially complete. The
Validation Phase, which was 81% complete as of April 19, 1999, includes testing
of changes to hardware and software, accompanied by monitoring and testing with
vendors. The Implementation Phase, which was 34% complete as of April 19, 1999,
includes certifying that systems are Year 2000 compliant and providing
assurances that any new systems are compliant on a going-forward basis. Both
Phases 4 and 5 are targeted for completion by June 30, 1999. The Company is
also in the process of completing other related projects including customer
communications, contingency planning and business resumption strategies.
The primary operating software for the Company is obtained and maintained by an
external provider of software. This software is the Company's primary source of
information technology ("IT") and is
9
<PAGE>
considered "mission critical" to the Company's Year 2000 compliance. In August,
1998, the Company received written notification from this vendor that the
software was Year 2000 compliant and a software upgrade was sent to all users so
that the necessary corrections to the software could be made to the users'
systems. The Company has installed and tested this software upgrade. Detail
tests have been performed that test the software and the hardware on various
dates through April 30, 2001, and no material problems have been encountered.
The tests and results used to certify the system as compliant have been reviewed
by an independent Year 2000 consultant engaged by the Company. The Company has
also performed minor modifications to the software obtained from the external
vendor. It is the Company's sole responsibility to ensure that any modifications
to the software are Year 2000 compliant. This operation is in process. An
additional consultant has been engaged to assist in the documentation and
detailed review of the modifications to the software. The modifications to the
software are not considered mission critical because the software can process
all transactions effectively without the modifications.
The Company has substantially completed the testing of all other IT systems.
Completion of testing for these systems is targeted for June 30, 1999. Written
assurances have been received from the vendors of such systems stating that they
are, or expect to be, Year 2000 compliant before year-end. The Company has
contacted all other material vendors and suppliers (non IT systems) regarding
their Year 2000 state of compliance. The majority of these third parties 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.
If necessary, the Company will utilize an alternate provider of the goods or
services if a vendor or supplier is non-responsive regarding their Year 2000
readiness by an internally imposed deadline. Contingency plans have been
developed and are being finalized for all areas of operations, including vendors
and suppliers, in order to minimize third party risks. These plans detail
procedures to be performed in the event of a Year 2000 issue.
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 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 its
material borrowers as of April, 1999, the Company does not anticipate any
material losses resulting from a borrower's lack of preparedness. There can be
no assurances, however, that the Company will not suffer any losses due to
borrowers' failures to be Year 2000 ready.
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 will need to have sufficient liquid assets toward the
end of the year. The Company is currently significantly in excess of the OTS
liquidity requirements and anticipates remaining significantly in excess
throughout 1999. A detailed Liquidity Plan is being developed by the Company.
The plan will include procedures for maintaining higher than normal cash
balances at the branch offices in the weeks preceding the century date change.
This procedure will have the effect of reducing interest-earning assets and net
interest income for that period. Any such effects are considered immaterial.
The Company has received written assurance from the correspondent institution
that provides cash to the Company's branch network that they will be able to
satisfy all cash needs in that time period.
While the Company has not determined the final cost of compliance, it currently
anticipates such costs to be immaterial to the financial position or results of
operations of the Company. The costs identified directly with Year 2000
compliance are associated with the engagement of the two consultants previously
discussed, the hiring of temporary help to address the additional workload
created by the Year 2000 compliance process and costs associated with customer
notification. The total cost for these services expensed in 1998 and the first
quarter of 1999 was $92,000 and $18,000, respectfully. A total of $167,000 is
anticipated for the year ended December 31, 1999.
The Company is also in the process of developing 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,
10
<PAGE>
testing and implementing necessary changes to all mission critical systems prior
to January 1, 2000. The business continuity plans address the necessary
procedures 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.
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. There
can be no assurances, however, that the Company will not be adversely affected
by Year 2000 issues, which could result from failures of its internal systems,
failures of material third party vendors or failures of material borrowers.
ASSETS. Total assets increased by $30.1 million, or 1.6%, to $1.9 billion at
March 31, 1999. The changes to assets consisted primarily of increases in the
areas of MBS available for sale and loans receivable offset by decreases in
investment securities available for sale and federal funds sold. MBS available
for sale increased $33.3 million, or 5.0%, to $695.2 million at March 31, 1999,
from $661.9 million at December 31, 1998. The increase was primarily due to
purchases of $147.4 million exceeding sales and principal repayments of $114.1
million. Much of these purchases were funded with borrowed funds. Management
expects to continue to fund purchases of MBS available for sale in this manner,
where accretive to earnings. Net loans increased $30.7 million, or 3.6%, to
$885.4 million as of March 31, 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 three months ended
March 31, 1999 were $100.4 million, which represented a 43.8% increase over
originations of $69.8 million for the comparable 1998 period. Single-family 15-
year fixed rate loans totaled $24.8 million for the 1999 quarter. Other
residential loan types with strong first quarter originations were 5-year
adjustable rate mortgages ("ARMs") and 30-year fixed rate loans. Also during
the first quarter of 1999, commercial real estate and multi-family loan
originations totaled $15.9 million while construction lending increased $10.2
million. During the same period, consumer loan volume, including home equity
loans, totaled $15.2 million. Repayment of principal on loans totaled $67.8
million for the three months ended March 31, 1999 as compared to $42.3 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 the control of the Company.
Investment securities available for sale decreased $28.4 million, or 11.7%, to
$213.8 million as of March 31, 1999 from $242.2 million at December 31, 1998.
Over the period, sales and calls of investment securities available for sale
totaled $64.5 million while purchases totaled $37.9 million. Calls of
investment securities available for sale were concentrated in the portfolio
obtained through the Pulse acquisition. Federal funds sold decreased $8.1
million to $6.7 million at March 31, 1999 as these funds were deployed in other
areas.
LIABILITIES. Deposits decreased $11.9 million, or 0.9%, to $1.3 billion at
March 31, 1999. The Company experienced some deposit outflows at the former
Pulse branches subsequent to the closing of the acquisition. The certificate of
deposit rates at the Pulse branches were generally decreased to conform with the
rates offered by First Savings. Borrowed funds increased $50.0 million, or
18.9%, to $314.7 million at March 31, 1999, from $264.7 million at December 31,
1998. The increased borrowed funds were used primarily to fund the purchase of
MBS available for sale and also to replace withdrawn deposits. Advances by
borrowers for taxes and insurance increased $739,000, or 10.6%, to $7.7 million
at March 31, 1999, from $7.0 million at December 31, 1998, primarily due to the
increase in the residential loan portfolio. Other liabilities decreased $2.6
million, or 16.9%, to $12.9 million at March 31, 1999, from $15.5 million at
December 31, 1998, primarily due to decreases in income taxes payable and
various accrual accounts.
CAPITAL. The Company's stockholders' equity decreased $6.1 million, or 2.0%, to
$293.7 million at March 31, 1999, from $299.8 million at December 31, 1998. The
primary reason for the decrease was the purchase of $9.0 million of treasury
stock over the quarter ($5.7 million of these purchases were subsequently
transferred to unearned stock awards granted under the Company's 1998 Stock-
Based Incentive Plan). Cash dividends of $2.1 million further contributed to
the decrease. These decreases were
11
<PAGE>
partially offset by net income of $5.6 million recognized over the quarter.
Accumulated other comprehensive income decreased $1.7 million to $831,000 at
March 31, 1999. The decrease was due to the decrease in the market value of MBS
and investment securities available for sale. Book value and tangible book value
per share were $6.92 and $6.74 at March 31, 1999, as compared to $3.45 and $3.25
at March 31, 1998, respectively.
The Office of Thrift Supervision ("OTS") requires that the Bank meet minimum
tangible, core and risk-based capital requirements. At March 31, 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)
<S> <C> <C> <C> <C> <C>
Tangible Capital $ 27,819 1.50% $ 226,996 12.24% $ 199,177
Core Capital 55,638 3.00% 226,996 12.24% 171,358
Risk-based Capital 57,185 8.00% 235,942 33.01% 178,757
</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 three months of 1999 were
principal repayment and prepayment of mortgage-backed securities, totaling $72.9
million, and loans, totaling $67.8 million. Other significant sources of funds
for the three months ended March 31, 1999, were sales of MBS available for sale
totaling $64.5 million, borrowed funds totaling $50.0 million and sales and
calls of investment securities available for sale totaling $41.2 million.
The primary investing activities of the Company for the first three months of
1999 were the purchases of mortgage-backed securities available for sale
totaling $147.4 million, origination of loans totaling $100.4 million, and the
purchases of investment securities available for sale totaling $37.9 million.
Other significant uses of funds during the quarter ended March 31, 1999, were
$11.9 million for 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 March 31, 1999, was 48.7%. The definition of assets
considered liquid has been redefined by the OTS. As of March 31, 1999, assets
qualifying for liquidity purposes totaled $637.4 million.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND
1998.
RESULTS OF OPERATIONS. Earnings for the three months ended March 31, 1999,
totaled $5.6 million, with basic and diluted earnings per share of $0.14 and
$0.13, respectively. This represents an increase of $910,000, or 19.4%, over
the net income of $4.7 million, or $0.11 basic and diluted earnings per share,
reported for the comparable 1998 period. Earnings in the 1998 period 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
$1.6 million, or 39.8%. The increase in net income in 1999 was partially due to
12
<PAGE>
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 increased by $2.0 million, or 7.3%, to $29.9
million for the three months ended March 31, 1999. The changes by category are
primarily due to changes in the average balance and yield within each category.
This information is presented in tabular form below.
<TABLE>
<CAPTION>
(dollars in thousands) FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
AVERAGE INTEREST AVERAGE
BALANCE INCOME YIELD
---------------- ---------------- ----------------
<S> <C> <C> <C>
Loans - 1999 $887,162 $16,195 7.30 %
Loans - 1998 727,056 14,372 7.91
------------------------------------------------------
CHANGE 160,106 1,823 (0.61)
------------------------------------------------------
Mortgage-backed securities - 1999 - - -
Mortgage-backed securities - 1998 362,389 6,056 6.68
------------------------------------------------------
CHANGE (362,389) (6,056) (6.68)
-----------------------------------------------------
Investment securities - 1999 - - -
Investment securities - 1998 139,762 2,511 7.19
-----------------------------------------------------
CHANGE (139,762) (2,511) (7.19)
-----------------------------------------------------
Investments and MBS available for sale - 1999 921,475 13,749 5.97
Investments and MBS available for sale - 1998 317,733 4,966 6.25
-----------------------------------------------------
CHANGE 603,742 8,783 (0.28)
-----------------------------------------------------
Total interest income - 1999 1,808,637 29,944 6.62
Total interest income - 1998 1,546,940 27,905 7.22
-----------------------------------------------------
CHANGE $261,697 $2,039 (0.60) %
=====================================================
</TABLE>
The following discussion concerns the comparison of the average balance and
yield for the three months ended March 31, 1999, to the three months ended March
31, 1998. The average loan balance increased due to loan originations exceeding
principal repayments and sales. The decrease in interest rates has affected the
yield on the portfolio as the rates on principal repayments has exceeded the
rates on new loans. For the three months ended March 31, 1999, the weighted
average rate on mortgage loan originations was 6.70% while the weighted average
rate on mortgage prepayments was 7.71%. In addition, the decrease in interest
rates 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.
This is the reason the average balance of MBS and investment securities are zero
for the 1999 period. 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 caption. Interest rates also
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 and total interest income
is expected to continue. Yields on the portfolio will continue to be affected
by market interest rates.
INTEREST EXPENSE. Interest expense decreased $418,000, or 2.6%, to $15.9
million for the three months ended March 31, 1999, compared to $16.3 million for
the same period in 1998. The changes by category
13
<PAGE>
are primarily due to changes in the average balance and yield within each
category. This information is presented in tabular form below.
<TABLE>
<CAPTION>
(dollars in thousands) FOR THE THREE MONTHS ENDED MARCH 31,
----------------------------------------------------
AVERAGE INTEREST AVERAGE
BALANCE EXPENSE COST
---------------- ---------------- ----------------
<S> <C> <C> <C>
NOW and money market accounts - 1999 $ 341,923 $ 2,282 2.67 %
NOW and money market accounts - 1998 293,313 2,156 2.94
----------------------------------------------------
CHANGE 48,610 126 (0.27)
----------------------------------------------------
Savings accounts - 1999 178,627 1,007 2.25
Savings accounts - 1998 185,223 1,135 2.45
----------------------------------------------------
CHANGE (6,596) (128) (0.20)
----------------------------------------------------
Certificates of deposit - 1999 697,451 8,836 5.07
Certificates of deposit - 1998 717,192 9,949 5.55
----------------------------------------------------
CHANGE (19,741) (1,113) (0.48)
----------------------------------------------------
Non-interest bearing deposits - 1999 39,652
Non-interest bearing deposits - 1998 32,246
--------------
CHANGE 7,406
--------------
Total deposits - 1999 1,257,653 12,125 3.86
Total deposits - 1998 1,227,974 13,240 4.31
----------------------------------------------------
CHANGE 29,679 (1,115) (0.45)
----------------------------------------------------
Borrowed funds - 1999 282,158 3,787 5.37
Borrowed funds - 1998 208,443 3,090 5.93
----------------------------------------------------
CHANGE 73,715 697 (0.56)
----------------------------------------------------
Total interest expense - 1999 1,539,811 15,912 4.13
Total interest expense - 1998 1,436,417 16,330 4.55
----------------------------------------------------
CHANGE $ 103,394 $ (418) (0.42)%
====================================================
</TABLE>
The following discussion concerns the comparison of the average balance and cost
of deposits and borrowings for the three months ended March 31, 1999, to the
three months ended March 31, 1998. Management has concentrated 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 decreased costs for both
NOW and money market and savings accounts are due to decreased base rates
offered on the products. The decrease in the average balance and cost of
certificates of deposits was due to the Company's election to offer certificate
rates that were competitive but lower than certain area competition. This
decision, which particularly affected the former Pulse deposits, caused an
anticipated outflow of funds. The Company's ability to decrease interest rates
on deposit programs without significantly affecting deposit balances was
primarily due to decreased external interest rates. The decreased interest
rates, combined with an increase in the average balance of non-interest bearing
deposits and a shift to less costly deposits, reduced the overall cost of
deposits by 45 basis points. Management will continue to focus on attracting low
cost deposits. Management believes that growth at the Company's newer offices in
Woodbridge, Highland Park and East Brunswick, along with growth at an office to
be opened in Spotswood, should assist in increasing deposit balances in the
future. The increase in the average balance of borrowed funds 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
14
<PAGE>
to earnings. This strategy is expected to continue and borrowings can be
expected to continue to increase as a percentage of total liabilities. The
decrease in cost of borrowings was due to decreased interest rates.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income
before provision for loan losses increased $2.5 million, or 21.2%, to $14.0
million for the three months ended March 31, 1999, compared to $11.6 million for
the same period in 1998. The increase was due to the changes in interest income
and interest expense described above. The net interest margin increased to
3.10% for the three months ended March 31, 1999, from 2.99% for the same period
in 1998. This increase was primarily attributable to the net proceeds received
from the Conversion and Reorganization stock offering enabling the Company to
increase interest earning assets without a corresponding increase in interest
bearing liabilities. The interest rate spread decreased to 2.38% for the three
months ended March 31, 1999, from 2.57% for the same period in 1998. This
decrease was primarily attributable to decreased external rates, a flattening
yield curve and a high volume of prepayments.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased $75,000, or
20.0%, to $450,000 for the three months ended March 31, 1999, compared to
$375,000 for the same period in 1998. The increase in the provision was due to
the increase in the balance of the loan portfolio and its composition. Net
loans increased $139.3 million between March 31, 1999 and March 31, 1998, and
the balances of construction and commercial real estate loans also increased.
In management's opinion, the allowance for loan losses, totaling $9.9 million at
March 31, 1999, is adequate to cover losses inherent in the portfolio. The
amount of the provision is based on management's evaluation of the 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 in 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, increased $63,000 during the three
month period ended March 31, 1999. At March 31, 1999, REO consisted of 13
properties. The largest individual property, carried at $654,000, was under
contract for sale at March 31, 1999. Management continues to pursue the sale of
REO properties in an expedient manner.
<TABLE>
<CAPTION>
(dollars in thousands) Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
1999 1998 1998 1998 1998
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual mortgage loans ...................... $3,108 $2,648 $2,429 $2,327 $4,627
Non-accrual other loans ......................... 94 92 93 118 38
----------------------------------------------------------------
Total non-accrual loans ........................ 3,202 2,740 2,522 2,445 4,665
Loans 90 days or more delinquent and still
accruing ........................................ 127 1,525 1,292 1,246 1,134
Restructured loans .............................. - - 2,081 2,089 2,096
----------------------------------------------------------------
Total non-performing loans ...................... 3,333 4,265 5,895 5,780 7,895
Total foreclosed real estate, net of related
allowance ....................................... 1,516 1,453 2,356 3,624 2,753
----------------------------------------------------------------
Total non-performing assets ..................... $4,849 $5,718 $8,251 $9,404 $10,648
================================================================
Non-performing loans to loans receivable, net ... 0.38% 0.50% 0.71% 0.74% 1.06%
Non-performing assets to total assets ........... 0.26% 0.31% 0.46% 0.53% 0.63%
</TABLE>
15
<PAGE>
OTHER OPERATING INCOME. The changes to other operating income are detailed
below.
<TABLE>
<CAPTION>
(dollars in thousands) Quarter Ended March 31,
---------------------------- Increase
1999 1998 (Decrease) Change
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Other operating income:
Fees and service charges $ 641 $ 554 $ 87 15.7%
Net gain on sales of loans and securities 259 107 152 142.1
Net gain on sale of deposits - 1,084 (1,084) n/a
Other, net 147 157 (10) (6.4)
--------- --------- --------- ---------
Total other operating income $ 1,047 $ 1,902 $ (855) (45.0)%
========= ========= ========= =========
</TABLE>
The increase in fees and service charges was attributable to the increased loan
volume and also due to fees from an increased number of checking accounts.
Management has targeted growth in non-interest income accounts as a priority and
the growth in fees and service charges is expected to continue. Such growth may
be temporarily impeded in the second and third quarter of 1999, however, as fees
are expected to be waived for former Pulse customers for a limited period after
system conversion. The increase in net gain on sales of loans and securities was
primarily due to sales of MBS. During the quarter, management disposed of
numerous MBS whose principal balance had been reduced significantly due to
paydowns. The net gain on sale of deposits was the gain resulting from the sale
of the Eatontown branch office to another financial institution in February,
1998, a non-recurring transaction.
OPERATING EXPENSES. The changes to other operating expenses are detailed below.
<TABLE>
<CAPTION>
(dollars in thousands) Quarter Ended March 31,
----------------------------
1999 1998 (Decrease) Change
------------ ------------ ------------- -----------
<S> <C> <C> <C> <C>
Operating expenses:
Compensation and benefits $ 3,345 $ 3,157 $188 6.0%
Occupancy 544 536 8 1.5
Equipment 417 462 (45) (9.7)
Advertising 250 217 33 15.2
Federal deposit insurance 197 187 10 5.3
Amortization of intangibles 213 213 - -
General and administrative 1,093 936 157 16.8
-------------- -------------- -------------- ------------
Total operating expenses $ 6,059 $ 5,708 $ 351 6.1%
============== ============== ============== ============
</TABLE>
The increase in compensation and benefits was primarily due to the increased
expenses associated with the cost of the Bank's Employee Stock Ownership Plan
and the Company's 1998 Stock-Based Incentive Plan, the compensation cost
associated with a new branch office and a cost of living salary increase. These
increases were partially mitigated by two circumstances. First Savings offered
an early retirement incentive that began to reduce payroll in the first quarter
of 1999. In addition, certain employees of Pulse were terminated subsequent to
the acquisition which also had the effect of reducing payroll in the first
quarter of 1999. The increase in general and administrative expense was
primarily related to expenses incurred in conjunction with operating as a full
stock company, particularly franchise taxes.
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 (March 31, 1999).
16
<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 Annual Meeting of Stockholders was held on April 29, 1999. The
following proposals were voted on by the stockholders:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Votes
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
1. Approval of directors
Donald T. Akey, M.D. 33,111,662 - 1,025,103 -
Joseph Chadwick 33,113,165 - 1,023,600 -
Walter K. Timpson 33,085,005 - 1,051,760 -
2. The ratification of the
Amended and Restated First
Sentinel Bancorp, Inc. 1998
Stock-Based Incentive Plan. 27,906,908 5,605,761 176,531 447,565
3. The ratification of KPMG
LLP as the independent
auditors of the Company for
the year ended December 31,
1999. 33,706,560 367,209 62,996 -
</TABLE>
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>
* - 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.
17
<PAGE>
b.) Reports on Form 8 - K
---------------------
A report on Form 8-K was filed with the SEC on January 4, 1999, in
which the Company reported under Item 2 of the report that it had
completed the acquisition of Pulse Bancorp, Inc. An amendment to this
report, including the financial statements of the Company on a
consolidated basis, was filed on March 5, 1999 .
The Company filed another report on Form 8-K with the SEC on January
6, 1999, in which it reported that it had changed its name from First
Source Bancorp, Inc. to First Sentinel Bancorp, Inc.
18
<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: May 12, 1999 By: /s/ John P. Mulkerin
-------------------
John P. Mulkerin
President and Chief Executive
Officer
Date: May 12, 1999 By: /s/ Christopher Martin
---------------------
Christopher Martin
Executive Vice President and
Chief Operating and Financial
Officer and Corporate Secretary
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,474
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,675
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 909,024
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 885,356
<ALLOWANCE> 9,911
<TOTAL-ASSETS> 1,885,122
<DEPOSITS> 1,256,187
<SHORT-TERM> 119,000
<LIABILITIES-OTHER> 20,570
<LONG-TERM> 195,675
0
0
<COMMON> 431
<OTHER-SE> 293,259
<TOTAL-LIABILITIES-AND-EQUITY> 1,885,122
<INTEREST-LOAN> 16,195
<INTEREST-INVEST> 13,749
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 29,944
<INTEREST-DEPOSIT> 12,125
<INTEREST-EXPENSE> 15,912
<INTEREST-INCOME-NET> 14,032
<LOAN-LOSSES> 450
<SECURITIES-GAINS> 259
<EXPENSE-OTHER> 6,059
<INCOME-PRETAX> 8,570
<INCOME-PRE-EXTRAORDINARY> 8,570
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,611
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.13
<YIELD-ACTUAL> 2.38
<LOANS-NON> 3,206
<LOANS-PAST> 127
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,505
<CHARGE-OFFS> 44
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 9,911
<ALLOWANCE-DOMESTIC> 100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
