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.............................. SEPTEMBER 30, 2000
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File 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 NOVEMBER 1, 2000
------------------------------- -------------------------------
Common Stock 33,755,873 shares
<PAGE>
FIRST SENTINEL BANCORP, INC.
INDEX TO FORM 10-Q
PAGE #
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition as of
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the Three and Nine Months
Ended September 30, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
Nine Months Ended September 30, 2000 and 1999 5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosure About Market Risk 15
PART II. OTHER INFORMATION 16
SIGNATURES 17
2
<PAGE>
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data) (Unaudited)
September 30, December 31,
2000 1999
----------- -----------
ASSETS
Cash and due from banks .......................... $ 14,319 $ 11,532
Federal funds sold ............................... -- 19,075
----------- -----------
Total cash and cash equivalents ............. 14,319 30,607
Federal Home Loan Bank of New York
(FHLB-NY) stock, at cost ....................... 19,643 18,100
Investment securities available for sale ......... 233,367 213,590
Mortgage-backed securities available for sale .... 476,653 575,159
Loans receivable, net ............................ 1,162,747 1,016,116
Interest and dividends receivable ................ 13,095 12,278
Premises and equipment, net ...................... 15,854 16,503
Excess of cost over fair value of net
assets acquired ................................ 6,471 7,106
Other assets ..................................... 13,600 15,237
----------- -----------
Total assets ................................ $ 1,955,749 $ 1,904,696
=========== ===========
--------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ......................................... $ 1,214,078 $ 1,213,724
Borrowed funds ................................... 504,039 422,000
Advances by borrowers for taxes and insurance .... 9,817 8,385
Other liabilities ................................ 8,265 16,007
----------- -----------
Total liabilities .............................. 1,736,199 1,660,116
----------- -----------
STOCKHOLDERS' EQUITY
Preferred Stock; authorized 10,000,000 shares;
none issued and outstanding .................... -- --
Common Stock, $.01 par value,
85,000,000 shares authorized;
43,106,742 and 33,760,873 shares
issued and outstanding at 9/30/00
and 43,106,742 and 38,443,350 shares
issued and outstanding at 12/31/99 ............. 431 431
Paid-in capital .................................. 201,366 200,781
Retained earnings ................................ 128,865 117,922
Accumulated other comprehensive loss ............. (16,669) (17,302)
Less: Treasury stock (9,309,088 and 4,628,604
shares at September 30, 2000 and
December 31, 1999, respectively) ............. (79,968) (41,229)
Common stock acquired by the
Employee Stock Ownership Plan (ESOP) ........... (11,468) (12,156)
Common stock acquired by the Recognition
and Retention Plan (RRP) ..................... (3,007) (3,867)
----------- -----------
Total stockholders' equity ..................... 219,550 244,580
----------- -----------
Total liabilities and stockholders' equity ..... $ 1,955,749 $ 1,904,696
=========== ===========
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) (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans ............................................................. $ 22,033 $ 17,359 $ 61,709 $ 50,270
Investment and mortgage-backed
securities available for sale ................................... 13,112 13,728 40,456 41,243
----------- ----------- ----------- -----------
Total interest income ......................................... 35,145 31,087 102,165 91,513
----------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposits:
NOW and money market demand ..................................... 2,374 2,404 7,106 7,013
Savings ......................................................... 937 981 2,820 2,970
Certificates of deposit ......................................... 8,926 8,384 25,584 25,781
----------- ----------- ----------- -----------
Total interest expense - deposits ............................. 12,237 11,769 35,510 35,764
Borrowed funds .................................................... 8,611 4,363 22,910 12,190
----------- ----------- ----------- -----------
Total interest expense ........................................ 20,848 16,132 58,420 47,954
----------- ----------- ----------- -----------
Net interest income ........................................... 14,297 14,955 43,745 43,559
Provision for loan losses ........................................... 393 300 1,179 1,200
----------- ----------- ----------- -----------
Net interest income after provision for loan losses ........... 13,904 14,655 42,566 42,359
----------- ----------- ----------- -----------
NON-INTEREST INCOME:
Fees and service charges .......................................... 623 626 1,753 1,859
Net (loss) gain on sales of loans and securities
available for sale .............................................. (669) 273 (766) 850
Other income ...................................................... 116 (53) 522 187
----------- ----------- ----------- -----------
Total non-interest income ....................................... 70 846 1,509 2,896
----------- ----------- ----------- -----------
NON-INTEREST EXPENSE:
Compensation and benefits ......................................... 3,489 3,362 10,770 10,163
Occupancy ......................................................... 571 582 1,742 1,671
Equipment ......................................................... 392 444 1,254 1,239
Advertising ....................................................... 188 350 923 953
Federal deposit insurance ......................................... 64 186 195 574
Amortization of intangibles ....................................... 211 213 635 638
General and administrative ........................................ 880 1,048 2,860 3,312
----------- ----------- ----------- -----------
Total non-interest expense ..................................... 5,795 6,185 18,379 18,550
----------- ----------- ----------- -----------
Income before income tax expense ............................... 8,179 9,316 25,696 26,705
Income tax expense .................................................. 2,538 3,164 8,523 9,062
----------- ----------- ----------- -----------
Net income ..................................................... $ 5,641 $ 6,152 $ 17,173 $ 17,643
=========== =========== =========== ===========
Basic earnings per share ............................................ $ 0.17 $ 0.15 $ 0.50 $ 0.44
=========== =========== =========== ===========
Weighted average shares outstanding - Basic ......................... 32,531,953 39,709,257 34,020,609 40,364,014
=========== =========== =========== ===========
Diluted earnings per share .......................................... $ 0.17 $ 0.15 $ 0.50 $ 0.43
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted ....................... 32,845,734 40,028,012 34,317,027 40,784,389
=========== =========== =========== ===========
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
4
<PAGE>
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands) (Unaudited)
<TABLE>
<CAPTION>
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
------ -------- -------- ------------ -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 ............ $431 $201,105 $112,601 $ 2,498 $ (3,664) $(13,073) $ (79) $ 299,819
Net income for the nine months ended
September 30, 1999 .................... -- -- 17,643 -- -- -- -- 17,643
Cash dividends declared ($.16) .......... -- -- (6,857) -- -- -- -- (6,857)
Net change in unrealized gain/(loss)
on securities available for sale ...... -- -- -- (14,884) -- -- -- (14,884)
Purchases of treasury stock ............. -- -- -- -- (36,511) -- -- (36,511)
Exercise of stock options ............... -- 6 (3,283) -- 4,766 -- -- 1,489
Transfer of treasury stock to RRP ....... -- -- (656) -- 5,704 -- (5,048) --
Amortization of RRP ..................... -- -- -- -- -- -- 821 821
Amortization of ESOP .................... -- (58) -- -- -- 688 -- 630
---------------------------------------------------------------------------------------
Balance at September 30, 1999 ........... $431 $201,053 $119,448 $(12,386) $(29,705) $(12,385) $(4,306) $ 262,150
=======================================================================================
Balance at December 31, 1999 ............ $431 $200,781 $117,922 $(17,302) $(41,229) $(12,156) $(3,867) $ 244,580
Net income for the nine months
ended September 30, 2000 .............. -- -- 17,173 -- -- -- -- 17,173
Cash dividends declared ($.18) .......... -- -- (6,072) -- -- -- -- (6,072)
Net change in unrealized gain/(loss)
on securities available for sale ...... -- -- -- 633 -- -- -- 633
Purchases of treasury stock ............. -- -- -- -- (38,931) -- -- (38,931)
Exercise of stock options ............... -- -- (112) -- 192 -- -- 80
Tax benefit on stock options ............ -- 605 -- -- -- -- -- 605
Purchase and retirement of
common stock .......................... -- (14) -- -- -- -- -- (14)
Amortization of RRP ..................... -- (6) -- -- -- -- 860 854
Amortization of ESOP .................... -- -- (46) -- -- 688 -- 642
---------------------------------------------------------------------------------------
Balance at September 30, 2000 ............ $431 $201,366 $128,865 $(16,669) $(79,968) $(11,468) $(3,007) $219,550
=======================================================================================
</TABLE>
See accompanying notes to the unaudited consolidated financial statements.
5
<PAGE>
FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (Unaudited)
Nine Months Ended
September 30,
---------------------
2000 1999
-------- --------
Cash flows from operating activities:
Net income ......................................... $ 17,173 $ 17,643
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation of premises and equipment ............. 1,043 1,040
Amortization of excess of cost over fair value
of assets acquired ............................... 635 638
Amortization of ESOP ............................... 642 630
Amortization of RRP ................................ 860 821
Net amortization of premiums and accretion
of discounts and deferred fees ................... 273 (198)
Provision for loan losses .......................... 1,179 1,200
Provision for losses on real estate owned .......... -- 31
Loans originated for sale .......................... (2,255) (7,099)
Proceeds from sales of mortgage loans available
for sale ......................................... 2,248 7,075
Net loss (gain) on sales of loans and securities
available for sale ............................... 766 (850)
Net loss on sales of real estate owned ............. 49 23
(Increase) decrease in interest and
dividends receivable ............................. (817) 1,511
Tax benefit on stock options ....................... (605) --
Decrease in other liabilities ...................... (761) (2,692)
Decrease in other assets ........................... 723 2,411
-------- --------
Net cash provided by operating activities ........ 21,153 22,184
-------- --------
Cash flows from investing activities:
Proceeds from sales/calls/maturities of
investment securities available for sale ......... 39,490 118,126
Purchases of investment securities available
for sale ......................................... (56,730) (119,133)
Purchase of FHLB-NY stock .......................... (1,543) (2,880)
Proceeds from sales of mortgage-backed
securities available for sale .................... 154,407 159,984
Principal payments on mortgage-backed securities ... 71,239 174,394
Purchases of mortgage-backed securities
available for sale ............................... (130,078) (313,952)
Principal repayments on loans ...................... 176,084 192,053
Origination of loans ............................... (254,002) (264,832)
Purchases of mortgage loans ........................ (69,331) (32,678)
Proceeds from sale of real estate owned ............ 306 1,604
Purchases of premises and equipment ................ (394) (1,244)
-------- --------
Net cash used in investing activities ............ (70,552) (88,558)
-------- --------
Cash flows from financing activities:
Purchase of treasury stock ......................... (38,931) (36,511)
Purchase and retirement of common stock ............ (14) --
Stock options exercised ............................ 80 1,489
Cash dividends paid ................................ (11,849) (6,857)
Net increase (decrease) in deposits ................ 354 (30,491)
Net increase in borrowed funds ..................... 82,039 118,650
Net increase in advances by borrowers
for taxes and insurance .......................... 1,432 1,483
-------- --------
Net cash provided by financing activities ........ 33,111 47,763
-------- --------
Net decrease in cash and cash equivalents ........ (16,288) (18,611)
Cash and cash equivalents at beginning of period ..... 30,607 37,631
-------- --------
Cash and cash equivalents at end of period ........... $ 14,319 $ 19,020
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest ......................................... $ 58,879 $ 47,270
Income taxes ..................................... 9,350 9,043
Non cash investing and financing activities
for the period:
Transfer of loans to real estate owned ........... $ 104 $ 1,399
See accompanying notes to the unaudited consolidated financial statements.
6
<PAGE>
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, ("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
nine months ended September 30, 2000 and 1999. The results of operations for the
three and nine months ended September 30, 2000, are not necessarily indicative
of results that may be expected for the entire fiscal year ending December 31,
2000. These interim financial statements should be read in conjunction with the
December 31, 1999 Annual Report to Stockholders.
(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. Potential
dilutive common shares are not included in the calculation.
Diluted earnings per share is computed similarly to 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)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ ------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income .................. $ 5,641 $ 6,152 $ 17,173 $ 17,643
=========== =========== =========== ===========
Basic weighted-average
common shares
outstanding ............... 32,531,953 39,709,257 34,020,609 40,364,014
Plus: Dilutive stock
options and awards ........ 313,781 318,755 296,418 420,375
----------- ----------- ----------- -----------
Diluted weighted-average
common shares
outstanding ............... 32,845,734 40,028,012 34,317,027 40,784,389
=========== =========== =========== ===========
Net income per common share:
Basic ..................... $ 0.17 $ 0.15 $ 0.50 $ 0.44
=========== =========== =========== ===========
Diluted ................... $ 0.17 $ 0.15 $ 0.50 $ 0.43
=========== =========== =========== ===========
(3) DIVIDENDS
Based upon current operating results, the Company declared cash dividends of
$0.06 per common share on July 26, 2000, payable August 25, 2000, to
stockholders of record on August 11, 2000.
7
<PAGE>
(4) COMMITMENTS AND CONTINGENCIES
At September 30, 2000, the Company had the following commitments: (i) to
originate loans of $66.9 million; (ii) to purchase mortgage loans of $7.2
million; (iii) to purchase mortgage-backed securities of $16.6 million; (iv) to
purchase investment securities of $341,000; (v) to sell investment securities of
$462,000; (vi) unused equity lines of credit of $49.2 million; (vii) unused
commercial lines of credit of $7.6 million; (viii) unused construction lines of
credit of $60.7 million; and (ix) letters of credit outstanding totaling $2.5
million. Further, certificates of deposits, which are scheduled to mature and/or
rollover in one year or less, totaled $504.6 million at September 30, 2000.
(5) ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses (in
thousands):
Nine Months Ended
September 30,
---------------------
2000 1999
-------- --------
Balance at beginning of period ....................... $ 11,004 $ 9,505
Provision charged to operations ...................... 1,179 1,200
Charge offs, net of recoveries ....................... (102) (88)
-------- --------
Balance at end of period ............................. $ 12,081 $ 10,617
======== ========
(6) COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income and the net change in
unrealized gain/(loss) on securities available for sale, was $10.8 million and
$3.1 million for the quarter ended September 30, 2000 and 1999, respectively.
For the nine months ended September 30, 2000 and 1999, comprehensive income
totaled $17.8 million and $2.8 million, respectively.
(7) RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board (FASB) issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25." The interpretation
clarifies certain issues with respect to the application of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
Opinion No. 25). The interpretation results in a number of changes in the
application of APB Opinion No. 25, including the accounting for modifications to
equity awards, as well as extending APB Opinion No. 25 accounting treatment to
options granted to outside directors for their services as directors. The
provisions of the interpretation were effective July 1, 2000 and apply
prospectively, except for certain modifications to equity awards made after
December 15, 1998. The initial adoption did not have a significant impact on the
Company's financial statements.
In June 2000, the FASB issued Statement of Financial Accounting Standards (SFAS)
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities, an Amendment to FASB Statement No. 133." SFAS No. 138 amends certain
aspects of SFAS No. 133 to simplify the accounting for derivatives and hedges
under SFAS No. 133. SFAS No. 138 is effective upon the company's adoption of
SFAS No. 133 (January 1, 2001). The initial adoption of SFAS No. 133 and SFAS
No. 138 is not expected to have a material impact on the Company's financial
statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of FASB Statement 125)." SFAS No. 140 supersedes and replaces the guidance in
SFAS No. 125 and, accordingly, provides guidance on the following topics:
securitization transactions involving financial assets; sales of financial
assets such as receivables, loans, and securities; factoring transactions; wash
sales; servicing assets and liabilities; collateralized borrowing arrangements;
securities lending transactions; repurchase agreements; loan participations; and
extinguishment of liabilities. While most of the provisions of SFAS No. 140 are
8
<PAGE>
effective for transactions entered into after March 31, 2001, companies with
fiscal year ends that hold beneficial interests from previous securitizations
will be required to make additional disclosures in their December 31, 2000
financial statements. The initial adoption of SFAS No. 140 is not expected to
have a material impact on the Company's financial statements.
9
<PAGE>
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
Litigation 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, economic conditions, deposit and
loan growth, real estate values, loan loss provisions, competition, customer
retention, changes in accounting principles, policies or guidelines and
legislative and regulatory changes.
ASSETS. Total assets grew to $2.0 billion at September 30, 2000, reflecting an
increase of $51.1 million, or 2.7% from December 31, 1999. The change in assets
consisted primarily of increases in loans receivable and investment securities
available for sale, partially offset by decreases in mortgage-backed securities
("MBS") available for sale and cash and cash equivalents.
Net loans increased $146.6 million, or 14.4%, to $1.2 billion as of September
30, 2000, from $1.0 billion at December 31, 1999. Total loan originations for
the nine months ended September 30, 2000, were $256.3 million, as compared to
$271.9 million for the same period in 1999. Adjustable-rate, single-family first
mortgage loans totaled $108.8 million, or 42.5% of production, while fixed-rate,
single-family first mortgage loan originations accounted for $18.0 million, or
7.0% of total originations for the first nine months of 2000. Also during the
first nine months of 2000, construction lending totaled $47.3 million, or 18.5%
of total originations, while commercial real estate, commercial and multi-family
loan originations totaled $26.3 million, or 10.2%. During the same period,
consumer loan originations, including home equity loans and credit lines,
totaled $55.9 million, or 21.8% of total originations. In addition, the Company
purchased $58.5 million of adjustable-rate, single-family first mortgage loans,
$3.2 million of fixed-rate, single-family first mortgage loans and $7.6 million
of commercial real estate and multi-family mortgage loans through correspondents
during the nine months ended September 30, 2000. Purchased loans are
re-underwritten by the Bank and are extended under slightly higher rates than
the Bank's direct loan originations. Repayment of principal on loans totaled
$176.1 million for the nine months ended September 30, 2000, as compared to
$192.1 million for the same period in 1999. 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.
Investment securities available for sale increased $19.8 million, or 9.3%, to
$233.4 million as of September 30, 2000, from $213.6 million at December 31,
1999. For the nine months ended September 30, 2000, purchases of investment
securities available for sale totaled $56.7 million, while sales, calls and
maturities totaled $39.5 million. Purchases during the period consisted
primarily of debt securities issued by U.S. corporations and
government-sponsored agencies.
MBS available for sale decreased $98.5 million, or 17.1%, to $476.7 million at
September 30, 2000, from $575.2 million at December 31, 1999. The decrease was
primarily due to sales and principal repayments of $154.4 million and $71.2
million, respectively, exceeding purchases of $130.1 million for the nine month
period ended September 30, 2000. Net proceeds were used primarily to fund loan
growth, repurchase the Company's common stock, and repay borrowings.
Cash and cash equivalents decreased $16.3 million from December 31, 1999 to
$14.3 million at September 30, 2000, as liquidity requirements related to the
century date change were satisfied.
10
<PAGE>
LIABILITIES. Borrowed funds increased $82.0 million, or 19.4%, to $504.0 million
at September 30, 2000, from $422.0 million at December 31, 1999. The increased
borrowed funds were used primarily to fund loan originations. Advances by
borrowers for taxes and insurance increased $1.4 million, or 17.1%, to $9.8
million at September 30, 2000, from $8.4 million at December 31, 1999, primarily
due to the increase in the residential loan portfolio. Other liabilities
decreased $7.7 million, or 48.4%, to $8.3 million at September 30, 2000, from
$16.0 million at December 31, 1999, primarily due to the payment of a $5.8
million special cash dividend in January 2000 which was accrued at December 31,
1999.
CAPITAL. The Company's stockholders' equity decreased $25.0 million, or 10.2%,
to $219.6 million at September 30, 2000, from $244.6 million at December 31,
1999. The primary reasons for the decrease in equity were the repurchase of
$38.9 million of the Company's common stock and cash dividends declared of $6.1
million. These decreases were partially offset by net income of $17.2 million
for the nine months ended September 30, 2000.
The Federal Deposit Insurance Corporation requires that the Bank meet minimum
leverage, Tier 1 and total risk-based capital requirements. At September 30,
2000, the Bank exceeded all regulatory capital requirements, as follows (dollars
in thousands):
Require Actual Excess of
----------------- ------------------ Actual over
% of % of Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ --------------
Leverage Capital $ 78,686 4.00% $181,689 9.24% $103,003
Risk-based Capital:
Tier 1 39,899 4.00% 181,689 18.21% 141,790
Total 79,798 8.00% 193,770 19.43% 113,972
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 sources of funds for the first nine months of 2000 were
principal repayments and prepayments of loans and mortgage-backed securities,
totaling $176.1 million and $71.2 million, respectively, and sales of MBS
available for sale totaling $154.4 million. Other significant sources of funds
for the nine months ended September 30, 2000, were a net increase in borrowed
funds totaling $82.0 million, and sales, calls and maturities of investment
securities available for sale of $39.5 million. If necessary, the Company has
additional borrowing capacity with FHLB-NY, including an available overnight
line of credit of up to $50.0 million. At September 30, 2000, the Company had
unpledged investment securities and MBS available for sale with a market value
of $277.0 million.
The primary investing activities of the Company for the first nine months of
2000 were the origination of loans totaling $256.3 million, purchases of
mortgage-backed securities available for sale totaling $130.1 million, purchases
of mortgage loans totaling $69.3 million and the purchases of investment
securities available for sale totaling $56.7 million. Other significant uses of
funds during the nine months ended September 30, 2000, were $38.9 million in
repurchases of common stock and $11.8 million in cash dividends paid.
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COMPARISON OF OPERATING RESULTS FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 2000 AND 1999.
RESULTS OF OPERATIONS. Net income for the three and nine months ended September
30, 2000, totaled $5.6 million and $17.2 million, respectively. This represented
decreases of $511,000 and $470,000, or 8.3% and 2.7%, respectively, over net
income of $6.2 million and $17.6 million for the comparable 1999 periods. For
the quarter ended September 30, 2000, basic and diluted earnings per share were
$0.17, representing an 11.9% and 11.7% increase over third quarter 1999 basic
and diluted earnings per share of $0.15. For the nine months ended September 30,
2000, basic and diluted earnings per share were $0.50, representing a 15.5% and
15.7% increase over basic and diluted earnings per share of $0.44 and $0.43,
respectively, for the first nine months of 1999. Earnings per share increased
despite decreases in net income, as the Company repurchased its common stock.
The Company repurchased 4.7 million shares at an average price of $8.28 per
share through the nine months ended September 30, 2000.
Annualized return on average equity improved to 10.23% and 10.10% for the three
and nine months ended September 30, 2000, respectively, from 8.85% and 8.14% for
the comparable 1999 periods. Annualized return on average assets was 1.14% and
1.17% for the three and nine months ended September 30, 2000, respectively,
compared with 1.30% and 1.25% for the three and nine months ended September 30,
1999, respectively.
Excluding net gains and losses on sales of loans and securities available for
sale and related tax effect from all periods presented, net income for the three
and nine months ended September 30, 2000, totaled $6.1 million and $17.7
million, respectively. This represented increases of $100,000 and $580,000, or
1.7% and 3.4%, respectively, over net income of $6.0 million and $17.1 million
for the comparable 1999 periods. Excluding net gains and losses on sales of
loans and securities available for sale and related tax effect from all periods
presented, for the quarter ended September 30, 2000, basic and diluted earnings
per share were $0.19 and $0.18, respectively, representing a 24.1% and 23.9%
increase over third quarter 1999 basic and diluted earnings per share of $0.15.
Excluding net gains and losses on sales of loans and securities available for
sale and related tax effect from all periods presented, for the nine months
ended September 30, 2000, basic and diluted earnings per share were $0.52 and
$0.51, respectively, representing a 22.7% and 22.9% increase over basic and
diluted earnings per share of $0.42 for the first nine months of 1999.
INTEREST INCOME. Interest income for the three and nine months ended September
30, 2000, increased by $4.1 million and $10.7 million, or 13.1% and 11.6%,
respectively, from the same periods in 1999.
Interest on loans increased $4.7 million and $11.4 million, or 26.9% and 22.8%,
respectively, to $22.0 million and $61.7 million for the three and nine months
ended September 30, 2000, as compared to $17.4 million and $50.3 million for the
same periods in 1999. The average balance of the loan portfolio for the nine
month period ended September 30, 2000, increased to $1.1 billion from $914.8
million for 1999, while the average yield on the portfolio increased to 7.48%
for the nine months ended September 30, 2000, from 7.33% for the same period in
1999.
Interest on securities declined $616,000 and $787,000, or 4.5% and 1.9%,
respectively, to $13.1 million and $40.5 million for the three and nine months
ended September 30, 2000, as compared to $13.7 million and $41.2 million for the
same periods in 1999. The average balance of the investment, FHLB stock and MBS
available for sale portfolios totaled $843.5 million, with an annualized yield
of 6.39% for the nine months ended September 30, 2000, compared with an average
balance of $914.8 million with an annualized yield of 6.01% for the nine months
ended September 30, 1999.
INTEREST EXPENSE. Interest expense increased $4.7 million to $20.8 million for
the three months ended September 30, 2000, compared to $16.1 million for the
same period in 1999. For the nine months ended September 30, 2000, interest
expense increased $10.5 million to $58.4 million, compared to $48.0 million for
the comparable 1999 period.
Interest expense on deposits increased $468,000 and decreased $254,000, or 4.0%
and (0.7%), respectively, to $12.2 million and $35.5 million for the three and
nine months ended September 30, 2000, as compared to $11.8 million and $35.8
million for the same periods in 1999. The average balance of core
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deposit accounts, consisting of NOW, money market, savings accounts and
non-interest bearing deposits, totaled $570.7 million for the nine months ended
September 30, 2000, as compared to $561.2 million for the same period in 1999.
Within these core accounts, non-interest bearing deposits averaged $48.2 million
for the nine months ended September 30, 2000, up from $44.2 million for the
comparable 1999 period. The average balance of certificates of deposit decreased
to $646.6 million for the nine months ended September 30, 2000, from $696.1
million for the same period in 1999. The average interest cost on all deposits
for the nine months ended September 30, 2000, increased to 3.89% from 3.79% for
the comparable 1999 period. The average interest cost on certificates over the
nine month period ended September 30, 2000, was 5.28%, as compared to 4.94% over
the same period in 1999.
Interest on borrowed funds for the three and nine months ended September 30,
2000, increased $4.2 million and $10.7 million, or 97.4% and 87.9%,
respectively, to $8.6 million and $22.9 million, compared to $4.4 million and
$12.2 million for the same respective periods in 1999. The increase in the
average balance of borrowed funds for the nine months ended September 30, 2000,
to $502.6 million, from $302.4 million for the same period in 1999, was
attributable to management's continuing strategy to fund earning asset growth
through the use of borrowed funds, where accretive to earnings. The average
interest rate paid on borrowed funds was 6.08% for the nine months ended
September 30, 2000, compared with 5.37% for the same period in 1999.
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before
provision for loan losses decreased $658,000 and increased $186,000, or (4.4%)
and 0.4%, respectively, to $14.3 million and $43.7 million for the three and
nine months ended September 30, 2000, compared to $15.0 million and $43.6
million for the same periods in 1999. The change in net interest income was due
to the changes in interest income and interest expense described above. The
interest rate spread was 2.24% for the three months ended September 30, 2000,
compared with 2.50% for the same period in 1999. For the nine months ended
September 30, 2000, the interest rate spread declined 10 basis points to 2.35%
compared with the same period in 1999. The net interest margin was 2.90% and
3.00% for the three and nine months ended September 30, 2000, respectively,
compared with 3.23% and 3.17% for the same periods in 1999. The declines in
interest rate spread and net interest margin are attributable to rising interest
rates and competitive pricing pressures. In addition, the use of funds for the
repurchase of the Company's common stock has further impacted the net interest
margin.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three and nine
months ended September 30, 2000, increased $93,000 and decreased $21,000, to
$393,000 and $1.2 million, compared to $300,000 and $1.2 million for the same
periods in 1999. Provisions for loan losses are made based on management's
evaluation of risks inherent in the loan portfolio, giving consideration to
on-going credit evaluations and changes in the balance and composition of the
loan portfolio. In management's opinion, the allowance for loan losses, totaling
$12.1 million or 1.03% of total loans at September 30, 2000, adequately
addresses the risks inherent in the 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.
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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
when 90 days or more delinquent and when loan-to-value ratios exceed 55%, at
which time all accrued but uncollected interest is reversed. Total foreclosed
real estate ("REO"), net, totaled $215,000 at September 30, 2000, and consisted
of three residential properties, two of which are under contract for sale.
Sept. 30, June 30, Mar. 31, Dec. 30, Sept. 30,
(dollars in thousands) 2000 2000 1999 1999 2000
-------- ------- -------- ------- --------
Non-accrual mortgage loans .... $2,620 $2,478 $2,407 $2,311 $2,251
Non-accrual other loans ....... -- 45 42 45 82
------ ------ ------ ------ ------
Total non-accrual loans ..... 2,620 2,523 2,449 2,356 2,333
Loans 90 days or more
delinquent and
still accruing .............. 166 263 410 326 320
------ ------ ------ ------ ------
Total non-performing loans .... 2,786 2,786 2,859 2,682 2,653
Total foreclosed real estate,
net of related Allowance .... 215 215 344 466 1,193
------ ------ ------ ------ ------
Total non-performing assets ... $3,001 $3,001 $3,203 $3,148 $3,846
====== ====== ====== ====== ======
Non-performing loans to loans
receivable, net ............. 0.24% 0.24% 0.27% 0.26% 0.27%
Non-performing assets to
total assets ................ 0.15% 0.15% 0.16% 0.17% 0.20%
NON-INTEREST INCOME. Non-interest income decreased $776,000, or 91.7%, to
$70,000 for the three months ended September 30, 2000, compared to $846,000 for
the same period in 1999. For the nine months ended September 30, 2000,
non-interest income totaled $1.5 million, a decrease of $1.4 million, or 47.9%
from the same period in 1999. The decrease was primarily attributable to net
losses on sales of loans and securities totaling $669,000 and $766,000 for the
three and nine months ended September 30, 2000, respectively, compared with net
gains of $273,000 and $850,000 for the comparable 1999 periods. The Company sold
$102.0 million of investment securities and MBS available for sale in the third
quarter. These sales were undertaken in response to the increase in short-term
interest rates over the past year, resulting in market value declines of certain
fixed-rate investments, while funding costs continued to increase. The Company
will use the proceeds from the sale of lower-yielding investments to repay
higher-costing borrowings and to fund loan growth and the Company's share
repurchase program. Future sales of loans and securities and related gains or
losses are dependent on market conditions, as well as the Company's liquidity
and risk management requirements.
NON-INTEREST EXPENSE. Non-interest expense for the three and nine months ended
September 30, 2000, decreased $390,000 and $171,000, or 6.3% and 0.9%,
respectively, to $5.8 million and $18.4 million, compared to $6.2 million and
$19.0 million for the same periods in 1999.
Within this category, compensation and benefits increased $127,000 and $607,000,
or 3.8% and 6.0%, respectively, to $3.5 million and $10.8 million for the three
and nine months ended September 30, 2000. Included in compensation and benefits
expense for the current nine month period was a non-recurring charge of $177,000
incurred following the death of one of the Company's directors during the second
quarter of 2000.
Advertising expense decreased $162,000 and $30,000, or 46.3% and 3.1%,
respectively, to $188,000 and $923,000 for the three and nine months ended
September 30, 2000, compared to $350,000 and $953,000 for the same periods in
1999, primarily due to decreased marketing activity.
Federal deposit insurance premiums decreased $122,000 and $379,000, or 65.6% and
66.0%, respectively, to $64,000 and $195,000 for the three and nine months ended
September 30, 2000, as a result of a reduction in the assessment rate.
General and administrative expenses decreased $168,000 and $452,000 or 16.0% and
13.6%, respectively, to $880,000 and $2.9 million for the three and nine months
ended September 30, 2000, primarily due to a
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reduction in supervisory charges realized as a result of the Bank's conversion
to a state-chartered savings bank in January 2000 and data processing expenses
recognized in 1999 in connection with the December 1998 acquisition of Pulse
Bancorp.
As a measure of the Company's non-interest expense control, the Company's
annualized non-interest expense, excluding amortization of intangibles, divided
by average assets improved to 1.13% and 1.21% for the three and nine months
ended September 30, 2000, compared to 1.26% and 1.27% for the three and nine
months ended September 30, 1999. The Company's efficiency ratio, calculated as
non-interest expense divided by the sum of net interest income plus non-interest
income, excluding gains and losses on the sale of loans and securities, improved
to 38.54% and 39.94% for the three and nine months ended September 30, 2000,
respectively, compared with 39.83% and 40.68% for the comparable 1999 periods.
Non-interest expenses are expected to increase as the Company introduces
transactional internet banking in 2001 and progresses with a project to
facilitate teller/platform automation, including document preparation and online
signature verification. These upgrades are intended to enhance customer service,
streamline the account opening process, reduce printing costs and provide
improved security and research capabilities. The Company anticipates the cost of
such upgrades will approximate $1.5 million, to be amortized over their
estimated useful lives.
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 (September 30, 2000).
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.
None.
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
a.) EXHIBITS
======================================================================
Exhibit
Number Description Reference
----------------------------------------------------------------------
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
======================================================================
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
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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: November 13, 2000 By: /s/ JOHN P. MULKERIN
-----------------------
John P. Mulkerin
President and Chief Executive Officer
Date: November 13, 2000 By: /s/ CHRISTOPHER MARTIN
----------------------
Christopher Martin
Executive Vice President and
Chief Operating and
Financial Officer
17
