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, 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 MAY 1, 2000
Common Stock 35,937,250 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 March
31, 2000 and December 31, 1999 3
Consolidated Statements of Income for the three months ended
March 31, 2000 and 1999 4
Consolidated Statements of Stockholders' Equity for the
three months ended March 31, 2000 and 1999 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 2000 and 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosure About Market Risk 13
PART II. OTHER INFORMATION 14
SIGNATURES 15
2
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FIRST SENTINEL BANCORP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands, except share data) (Unaudited)
March 31, December 31,
2000 1999
---------- ----------
ASSETS
Cash and due from banks .......................... $ 21,551 $ 11,532
Federal funds sold ............................... -- 19,075
---------- ----------
Total cash and cash equivalents .................. 21,551 30,607
Federal Home Loan Bank of New York
(FHLB-NY) stock, at cost ....................... 19,232 18,100
Investment securities available for sale ......... 231,956 213,590
Mortgage-backed securities available for sale .... 578,010 575,159
Loans available for sale, net .................... 550 --
Loans receivable, net ............................ 1,058,875 1,016,116
Interest and dividends receivable ................ 12,485 12,278
Premises and equipment, net ...................... 16,233 16,503
Excess of cost over fair value of
net assets acquired ............................ 6,894 7,106
Other assets ..................................... 15,314 15,237
---------- ----------
Total assets ................................ $1,961,100 $1,904,696
========== ==========
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits ......................................... $1,226,099 $1,213,724
Borrowed funds ................................... 486,000 422,000
Advances by borrowers for taxes and insurance .... 9,111 8,385
Other liabilities ................................ 12,166 16,007
---------- ----------
Total liabilities ........................... 1,733,376 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 36,062,250
shares issued and outstanding at 3/31/00 and
43,106,742 and 38,443,350 shares issued and
outstanding at 12/31/99 ........................ 431 431
Paid-in capital .................................. 201,355 200,781
Retained earnings ................................ 121,247 117,922
Accumulated other comprehensive loss ............. (19,432) (17,302)
Treasury stock (7,021,916 and 4,628,604 shares
at March 31, 2000 and December 31, 1999,
respectively)
(60,315) (41,229)
Common stock acquired by the Employee Stock
Ownership Plan (ESOP) .......................... (11,927) (12,156)
Common stock acquired by the Recognition and
Retention Plan (RRP) ........................... (3,635) (3,867)
---------- ----------
Total stockholders' equity .................. 227,724 244,580
---------- ----------
Total liabilities and stockholders' equity .. $1,961,100 $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)
Three Months Ended March 31,
----------------------------
2000 1999
----------- -----------
INTEREST INCOME:
Loans .......................................... $ 19,184 $ 16,195
Investment and mortgage-backed securities
available for sale ........................... 13,663 13,749
----------- -----------
Total interest income ....................... 32,847 29,944
----------- -----------
INTEREST EXPENSE:
Deposits:
NOW and money market demand ................... 2,383 2,282
Savings ....................................... 941 1,007
Certificates of deposit ....................... 8,071 8,836
----------- -----------
Total interest expense - deposits ........... 11,395 12,125
Borrowed funds ................................. 6,834 3,787
----------- -----------
Total interest expense ...................... 18,229 15,912
----------- -----------
Net interest income ......................... 14,618 14,032
Provision for loan losses ........................ 393 450
----------- -----------
Net interest income after provision
for loan losses ........................... 14,225 13,582
----------- -----------
NON-INTEREST INCOME:
Fees and service charges ....................... 577 641
Net (loss) gain on sales of loans and
securities available for sale ................ (19) 259
Other income ................................... 180 147
----------- -----------
Total non-interest income ................... 738 1,047
----------- -----------
NON-INTEREST EXPENSE:
Compensation and benefits ...................... 3,656 3,345
Occupancy ...................................... 611 544
Equipment ...................................... 424 417
Advertising .................................... 330 250
Federal deposit insurance ...................... 66 197
Amortization of intangibles .................... 212 213
General and administrative ..................... 1,032 1,093
----------- -----------
Total non-interest expense .................. 6,331 6,059
----------- -----------
Income before income tax expense ............ 8,632 8,570
Income tax expense ............................... 2,896 2,959
----------- -----------
Net income .................................. $ 5,736 $ 5,611
=========== ===========
Basic earnings per share ......................... $ 0.16 $ 0.14
=========== ===========
Weighted average shares outstanding - Basic ...... 35,660,061 40,900,034
=========== ===========
Diluted earnings per share ....................... $ 0.16 $ 0.13
=========== ===========
Weighted average shares outstanding - Diluted .... 35,928,375 41,685,895
=========== ===========
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 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) $299,819
Net income for the three months
ended March 31, 1999 ................ -- -- 5,611 -- -- -- -- 5,611
Cash dividends declared ($.05) ........ -- -- (2,122) -- -- -- -- (2,122)
Net change in unrealized gain/(loss)
on securities available for sale .... -- -- -- (1,667) -- -- -- (1,667)
Purchases of treasury stock ........... -- -- -- -- (8,991) -- -- (8,991)
Exercise of stock options ............. -- 6 (668) -- 1,194 -- -- 532
Transfer of treasury stock to RRP ..... -- -- (656) -- 5,704 -- (5,048) --
Amortization of RRP ................... -- -- -- -- -- -- 300 300
Amortization of ESOP .................. -- (21) -- -- -- 229 -- 208
---------------------------------------------------------------------------------------
Balance at March 31, 1999 ............. $ 431 $201,090 $114,766 $ 831 $(5,757) $(12,844) $(4,827) $293,690
=======================================================================================
Balance at December 31, 1999 .......... $ 431 $200,781 $117,922 $(17,302) $(41,229) $(12,156) $(3,867) $244,580
Net income for the three months
ended March 31, 2000 ................ -- -- 5,736 -- -- -- -- 5,736
Cash dividends declared ($.06) ........ -- -- (2,301) -- -- -- -- (2,301)
Net change in unrealized gain/(loss)
on securities available for sale .... -- -- -- (2,130) -- -- -- (2,130)
Purchases of treasury stock ........... -- -- -- -- (19,208) -- -- (19,208)
Exercise of stock options ............. -- -- (75) -- 122 -- -- 47
Tax benefit on stock options .......... -- 600 -- -- -- -- -- 600
Purchase and retirement of
common stock ........................ -- (14) -- -- -- -- -- (14)
Amortization of RRP ................... -- (12) -- -- -- -- 232 220
Amortization of ESOP .................. -- -- (35) -- -- 229 -- 194
---------------------------------------------------------------------------------------
Balance at March 31, 2000 ............. $ 431 $201,355 $121,247 $(19,432) $(60,315) $(11,927) $(3,635) $227,724
=======================================================================================
</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) Three Months Ended
March 31,
-------------------------
2000 1999
---------- ----------
Cash flows from operating activities:
Net income ..................................... $ 5,736 $ 5,611
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Depreciation of premises and equipment ......... 348 340
Amortization of excess of cost over
fair value of assets acquired ................ 212 213
Amortization of ESOP ........................... 194 208
Amortization of RRP ............................ 232 300
Net amortization of premiums and
accretion of discounts and deferred fees ..... 420 (701)
Provision for loan losses ...................... 393 450
Provision for losses on real estate owned ...... -- 21
Loans originated for sale ...................... (680) (3,379)
Proceeds from sales of mortgage loans
available for sale ........................... 120 3,372
Net loss (gain) on sales of loans and
securities available for sale ................ 19 (259)
Net (gain) loss on sales of real
estate owned ................................. (17) 4
(Increase) decrease in interest and
dividends receivable ......................... (207) 1,479
Decrease in other liabilities .................. (3,253) (2,614)
Increase in other assets ....................... 627 161
---------- ----------
Net cash provided by operating activities 4,144 5,206
---------- ----------
Cash flows from investing activities:
Proceeds from sales/calls of investment
securities available for sale ................ 16,835 64,463
Purchases of investment securities available
for sale ..................................... (35,313) (37,850)
Purchase of FHLB-NY stock ...................... (1,132) --
Proceeds from sales of mortgage-backed
securities available for sale ................ 21,901 41,206
Principal payments on mortgage-backed
securities ................................... 25,294 72,871
Purchases of mortgage-backed securities
available for sale ........................... (53,223) (147,410)
Principal repayments on loans .................. 51,034 67,804
Origination of loans ........................... (83,806) (97,021)
Purchases of mortgage loans .................... (10,476) (2,831)
Proceeds from sale of real estate owned ........ 139 987
Purchases of premises and equipment ............ (78) (133)
---------- ----------
Net cash used in investing activities .... (68,825) (37,914)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock ..................... (19,208) (8,991)
Stock options exercised ........................ 33 532
Cash dividends paid ............................ (2,301) (2,122)
Net increase (decrease) in deposits ............ 12,375 (11,932)
Net increase in borrowed funds ................. 64,000 50,000
Net increase in advances by borrowers for
taxes and insurance .......................... 726 739
---------- ----------
Net cash provided by financing activities 55,625 28,226
---------- ----------
Net decrease in cash and cash equivalents (9,056) (4,482)
Cash and cash equivalents at beginning of period . 30,607 37,631
---------- ----------
Cash and cash equivalents at end of period ....... $ 21,551 $ 33,149
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest .................................. $ 17,646 $ 15,772
Income taxes .............................. -- 3,500
Non cash investing and financing activities
for the period:
Transfer of loans to real estate owned ... $ -- $ 1,075
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
months ended March 31, 2000 and 1999. The results of operations for the three
months ended March 31, 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. Common stock
equivalents are not included in the calculation.
Diluted earnings per share is computed similarly to that of basic earnings per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if all potential
dilutive common shares were issued utilizing the treasury stock method.
Calculation of Basic and Diluted Earnings Per Share
- ---------------------------------------------------
(dollars in thousands, except per share data)
Three Months Ended
March 31,
--------------------------
2000 1999
----------- -----------
Net income $ 5,736 $ 5,611
=========== ===========
Basic weighted-average common shares
Outstanding 35,660,061 40,900,034
Plus: Dilutive stock options and awards 268,314 785,861
----------- -----------
Diluted weighted-average common
shares outstanding 35,928,375 41,685,895
=========== ===========
Net income per common share:
Basic $ 0.16 $ 0.14
=========== ===========
Diluted $ 0.16 $ 0.13
=========== ===========
(3) DIVIDENDS
Based upon current operating results, the Company declared cash dividends of
$0.06 per share on January 26, 2000, payable February 25, 2000, to stockholders
of record on February 11, 2000.
7
<PAGE>
(4) COMMITMENTS AND CONTINGENCIES
At March 31, 2000, the Company had the following commitments: (i) to originate
loans of $101.6 million; (ii) to purchase mortgage loans of $17.2 million; (iii)
unused equity lines of credit of $49.0 million; (iv) unused commercial lines of
credit of $7.7 million; (v) unused construction lines of credit of $47.9
million; and (vi) letters of credit outstanding totaling $2.6 million. Further,
certificates of deposits, which are scheduled to mature and/or rollover in one
year or less, totaled $476.3 million at March 31, 2000.
(5) ALLOWANCE FOR LOAN LOSSES
The following table presents the activity in the allowance for loan losses (in
thousands):
Three Months Ended
March 31,
---------- ----------
2000 1999
---------- ----------
Balance at beginning of period ................... $ 11,004 $ 9,505
Provision charged to operations .................. 393 450
Charge offs, net of recoveries ................... (7) (44)
---------- ----------
Balance at end of period ......................... $ 11,390 $ 9,911
========== ==========
(6) COMPREHENSIVE INCOME
Total comprehensive income, consisting of net income and the net change in
unrealized gain/(loss) on securities available for sale, was $3.6 million and
$3.9 million for the three months ended March 31, 2000 and 1999, respectively.
8
<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, competition by larger financial
institutions, deposit and loan growth, changes in the quality or composition of
the Company's loan and investment portfolios, changes in accounting principles,
policies or guidelines, legislative and regulatory changes, changes in the
economy generally and changes in business conditions in the New Jersey market.
ASSETS. Total assets increased to $2.0 billion at March 31, 2000, an increase of
$56.4 million, or 3.0% from December 31, 1999. The change in assets consisted
primarily of increases in loans receivable, investment securities available for
sale, and mortgage-backed securities ("MBS") available for sale.
Net loans increased $43.3 million, or 4.3%, to $1.1 billion as of March 31,
2000, from $1.0 billion at December 31, 1999. Total loan originations for the
three months ended March 31, 2000, were $84.5 million, as compared to $100.4
million for the same period in 1999. Fixed-rate single-family first mortgage
loan originations totaled $5.8 million or 6.9% of production, while
adjustable-rate single-family first mortgage loans accounted for $37.2 million
or 44.1% of total originations for the first three months of 2000. Also during
the first quarter of 2000, commercial real estate, commercial and multi-family
loan originations totaled $10.5 million, or 12.4% of total originations, while
construction lending, primarily for single-family developments, totaled $17.7
million, or 20.9%. During the same period, consumer loan originations, including
home equity loans and credit lines, totaled $13.3 million or 15.7% of total
originations. In addition, the Company purchased $10.5 million of
adjustable-rate single-family first mortgage loans through correspondents during
the three months ended March 31, 2000. Purchased loans are re-underwritten by
the Bank and are extended under the same terms and conditions as the Bank's
direct loan originations. Repayment of principal on loans totaled $51.0 million
for the three months ended March 31, 2000, as compared to $67.8 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 $18.4 million, or 8.6%, to
$232.0 million as of March 31, 2000 from $213.6 million at December 31, 1999.
The increase was primarily due to purchases of $35.3 million exceeding sales and
calls of $16.8 million for the three months ended March 31, 2000. Purchases
during the quarter consisted primarily of debt securities issued by U.S.
corporations and government-sponsored agencies.
MBS available for sale increased $2.9 million, or 0.5%, to $578.0 million at
March 31, 2000, from $575.2 million at December 31, 1999. The increase was
primarily due to purchases of $53.2 million exceeding sales and principal
repayments of $21.9 million and $25.3 million, respectively, for the three month
period ended March 31, 2000. Purchases during the quarter consisted of MBS
issued by U.S. government-sponsored agencies. In addition, the market value of
the MBS portfolio decreased $2.8 million as interest rates rose during the
quarter. Management expects the market value to recover and has the ability to
carry these securities through various interest rate scenarios.
9
<PAGE>
Partially offsetting these increases, total cash and cash equivalents decreased
$9.1 million from December 31, 1999, as liquidity requirements related to the
century date change were satisfied.
LIABILITIES. Deposits increased $12.4 million, or 1.0%, to $1.2 billion at March
31, 2000. Core deposits, consisting of checking, savings and money market
accounts, grew by $12.9 million to $577.1 million and accounted for 47.1% of
total deposits at March 31, 2000, up from 46.5% at December 31, 1999.
Certificates of deposit declined by $555,000 compared with year-end 1999, as
management continued to focus on attracting and retaining core relationships.
Borrowed funds increased $64.0 million, or 15.2%, to $486.0 million at March 31,
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 $726,000, or 8.7%, to $9.1 million at March 31, 2000,
from $8.4 million at December 31, 1999, primarily due to the increase in the
residential loan portfolio. Other liabilities decreased $3.8 million, or 24.0%,
to $12.2 million at March 31, 2000, from $16.0 million at December 31, 1999,
primarily due to decreases in income taxes payable and various other accrual
accounts.
CAPITAL. The Company's stockholders' equity decreased $16.9 million, or 6.9%, to
$227.7 million at March 31, 2000, from $244.6 million at December 31, 1999. The
primary reasons for the decrease in equity were the purchase of $19.2 million of
treasury stock, cash dividends of $2.3 million, and the increase in the net
unrealized loss on securities available for sale of $2.1 million. These
decreases were partially offset by net income of $5.7 million for the three
months ended March 31, 2000.
The Federal Deposit Insurance Corporation requires that the Bank meet minimum
leverage, Tier 1 and total risk-based capital requirements. At March 31, 2000,
the Bank exceeded all regulatory capital requirements, as follows (dollars in
thousands):
Required Actual Excess of
---------------- ---------------- Actual Over
% of % of Regulatory
Amount Assets Amount Assets Requirements
------ ------ ------ ------ ------------
Leverage Capital $ 76,388 4.00% $175,490 9.19% $ 99,102
Risk-based Capital:
Tier 1 38,011 4.00% 175,490 18.47% 137,479
Total 76,023 8.00% 186,880 19.67% 110,857
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 interest rates,
competition, and economic conditions.
The most significant sources of funds for the first three months of 2000 were a
net increase in borrowed funds totaling $64.0 million and principal repayments
and prepayments of loans and mortgage-backed securities totaling $51.0 million
and $25.3 million, respectively. Other significant sources of funds for the
three months ended March 31, 2000 were sales of MBS available for sale totaling
$21.9 million, sales and calls of investment securities available for sale of
$16.8 million, and an increase in deposits totaling $12.4 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 March 31, 2000,
the Company had unpledged investment securities and MBS available for sale with
a market value of $401.7 million.
The primary investing activities of the Company for the first three months of
2000 were the origination of loans totaling $84.5 million, purchases of
mortgage-backed securities available for sale totaling $53.2
10
<PAGE>
million, and purchases of investment securities available for sale totaling
$35.3 million. Other significant uses of funds during the three months ended
March 31, 2000, were the repurchase of $19.2 million of common stock and
purchases of $10.5 million of mortgage loans.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999.
RESULTS OF OPERATIONS. Net income for the three months ended March 31, 2000,
totaled $5.7 million, with basic and diluted earnings per share of $0.16. This
represented an increase of $125,000, or 2.2%, over the net income of $5.6
million, or $0.14/$0.13 basic/diluted earnings per share, respectively, for the
comparable 1999 period.
INTEREST INCOME. Interest income for the three months ended March 31, 2000,
increased by $2.9 million, or 9.7%, to $32.8 million , compared to the same
period in 1999.
Interest on loans increased $3.0 million, or 18.5%, to $19.2 million for the
three months ended March 31, 2000, as compared to $16.2 million for the same
period in 1999. The average balance of the loan portfolio for the three month
period ended March 31, 2000 increased to $1.0 billion from $887.2 million for
1999, while the average yield on the portfolio increased to 7.35% for the three
months ended March 31, 2000, from 7.30% for the same period in 1999.
Interest on securities declined $86,000 for the quarter ended March 31, 2000
compared with the same period in 1999. The average balance of the investment and
MBS available for sale portfolios totaled $868.6 million, with an annualized
yield of 6.29% for the three months ended March 31, 2000, compared with an
average balance of $919.6 million with an annualized yield of 5.98% for the
three months ended March 31, 1999.
INTEREST EXPENSE. Interest expense increased $2.3 million to $18.2 million for
the three months ended March 31, 2000, compared to $15.9 million for the same
period in 1999.
Interest expense on deposits decreased $730,000, or 6.0%, to $11.4 million for
the three months ended March 31, 2000, as compared to $12.1 million for the same
period in 1999. Management continued to concentrate its efforts on increasing
the level of core accounts as a percentage of overall deposits and decreasing
reliance on higher-costing certificate accounts as a funding source. The
increase in the average balance of NOW and money market demand and savings
accounts, along with the increase in the average balance of non-interest bearing
deposits, reflects this strategy. The average balance of these core accounts
totaled $571.5 million for the three months ended March 31, 2000, compared to
$560.2 million for the same period in 1999. The average interest cost on all
deposits for the three months ended March 31, 2000 declined 11 basis points to
3.75%, compared to 3.86% for the same period in 1999. Non-interest bearing
accounts averaged $46.7 million for the three months ended March 31, 2000, up
from $39.7 million for the comparable 1999 period. The average balance of
certificates of deposit decreased to $642.6 million for the three months ended
March 31, 2000, from $697.5 million for the same period in 1999. The average
cost of certificates over the three-month period ended March 31, 2000, was
5.02%, compared to 5.07% for the same period in 1999.
Interest on borrowed funds for the three months ended March 31, 2000, increased
$3.0 million, or 80.5%, to $6.8 million, compared to $3.8 million for the same
period in 1999. The increase in the average balance of borrowed funds for the
three months ended March 31, 2000, to $465.6 million, from $282.2 million for
1999 was attributable to management's continuing strategy to leverage capital
and fund earning asset growth through the use of borrowed funds, where accretive
to earnings. This strategy is expected to continue and borrowings can be
expected to continue to increase as a percentage of total liabilities. The
average interest rate paid on borrowed funds was 5.87% for the three months
ended March 31, 2000, compared with 5.37% for the same period in 1999.
11
<PAGE>
NET INTEREST INCOME BEFORE PROVISION FOR LOAN LOSSES. Net interest income before
provision for loan losses increased $586,000, or 4.2%, to $14.6 million for the
three months ended March 31, 2000, compared to $14.0 million for the same period
in 1999. The increase was due to the changes in interest income and interest
expense described above.
The interest rate spread increased to 2.41% for the three months ended March 31,
2000, from 2.39% for the same period in 1999. The increase was due to an
increase in the average yield on interest-earning assets to 6.87% for the
quarter ended March 31, 2000, from 6.63% for the same period in 1999, partially
offset by an increase in the average cost of interest-bearing liabilities to
4.46% from 4.24% for the same respective periods.
The net interest margin declined to 3.06% for the three months ended March 31,
2000, from 3.10% for the same period in 1999. Average interest-earning assets
grew to $1.9 billion for the three months ended March 31, 2000, compared with
$1.8 billion for the comparable 1999 period.
PROVISION FOR LOAN LOSSES. The provision for loan losses for the three months
ended March 31, 2000, decreased $57,000, or 12.7%, to $393,000, compared to
$450,000 for the same period 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. Total loans, net of unearned and deferred
income, increased $43.7 million for the three months ended March 31, 2000. In
management's opinion, the allowance for loan losses, totaling $11.4 million, or
1.06% of total loans at March 31, 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.
The following table sets forth ratios regarding non-accrual 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. Foreclosed real
estate ("REO"), net, was $344,000 at March 31, 2000 and consisted of four
residential properties, two of which were under contract for sale.
(dollars in thousands)
Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31,
2000 1999 1999 1999 1999
------------------------------------------------
Non-accrual mortgage loans $2,407 $2,311 $2,251 $2,537 $3,112
Non-accrual other loans 42 45 82 82 94
------------------------------------------------
Total non-accrual loans 2,449 2,356 2,333 2,619 3,206
Loans 90 days or more delinquent
and still accruing 410 326 320 224 127
Restructured loans -- -- -- -- --
------------------------------------------------
Total non-performing loans 2,859 2,682 2,653 2,843 3,333
Total foreclosed real estate,
net of related allowance 344 466 1,193 1,422 1,516
------------------------------------------------
Total non-performing assets $3,203 $3,148 $3,846 $4,265 $4,849
==============================================
Non-performing loans to
loans receivable 0.27% 0.26% 0.27% 0.32% 0.37%
Non-performing assets to
total assets 0.16% 0.17% 0.20% 0.23% 0.26%
NON-INTEREST INCOME. Non-interest income decreased $309,000, or 29.5%, to
$738,000 for the three months ended March 31, 2000, compared to $1.0 million for
the same period in 1999. The decrease was primarily attributable to losses on
sales of loans and securities totaling $19,000 for the first quarter of 2000,
compared with gains of $259,000 for the comparable 1999 period. The sale 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.
12
<PAGE>
NON-INTEREST EXPENSE. Non-interest expense for the three months ended March 31,
2000, increased $272,000, or 4.5%, to $6.3 million, compared to $6.1 million for
the same period in 1999. Within this category, compensation and benefits
increased $311,000, or 9.3%, to $3.7 million for the three months ended March
31, 2000 as a result of staff additions and cost-of-living salary adjustments.
Advertising expense increased $80,000, or 32.0%, to $330,000 for the three
months ended March 31, 2000 as the Company continued to aggressively pursue
market share growth. Partially offsetting these increases, Federal deposit
insurance premiums decreased $131,000 as a result of a reduction in the
assessment rate, and general and administrative expenses decreased $61,000, or
5.6%, to $1.0 million for the three months ended March 31, 2000. As a measure of
the Company's non-interest expense control, the Company's annualized
non-interest expense, excluding goodwill amortization, divided by average assets
was 1.27% for the three months ended March 31, 2000 and the efficiency ratio was
41.2% for the same period. Non-interest expense is expected to increase,
however, during the remainder of 2000 as the Company undertakes a planned
upgrade of branch operations. The Company is currently interviewing vendors and
evaluating hardware and software solutions 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 (March 31, 2000).
13
<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 19, 2000. The
following proposals were voted on by the stockholders:
Withhold/ Broker
For Against Abstain Non-Votes
--- ------- --------- ---------
1. Election of directors
Christopher Martin 30,787,285 -- 2,390,201 --
Keith H. McLaughlin 32,664,341 -- 513,145 --
Philip T. Ruegger, Jr. 32,665,873 -- 511,613 --
2. The ratification of KPMG LLP
as the independent auditors
of the Company for the year
ended December 31, 2000. 32,680,514 227,549 269,423 --
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 per Share Earnings 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.
14
<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 4, 2000 By: /s/ JOHN P. MULKERIN
------------------------------------
John P. Mulkerin
President and Chief Executive Officer
Date: May 4, 2000 By: /s/ CHRISTOPHER MARTIN
------------------------------------
Christopher Martin
Executive Vice President and
Chief Operating and Financial Officer
and Corporate Secretary
15
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
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0
0
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<EXPENSE-OTHER> 6,331
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