<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to ________________
Commission File Number: 000-21628
HAVEN BANCORP INC.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
11-3153802
(I.R.S. Employer Identification No.)
93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421
(Address of principal executive offices) (Zip Code)
(718) 847-7041
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former 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. X Yes 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.
There were 4,322,904 shares of the Registrant's common stock
outstanding as of November 8, 1996.
<PAGE>
HAVEN BANCORP, INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION PAGE
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of September 30, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three Months and Nine Months ended
September 30, 1996 and 1995 4
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months
ended September 30, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Nine Months ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13-36
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 36-37
Item 2. Changes in Securities 37
Item 3. Defaults Upon Senior Securities 37
Item 4. Submission of Matters to a Vote of Security
Holders 37
Item 5. Other Information 37
Item 6. Exhibits and Reports on Form 8-K 37
Signature Page
2
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 30,573 $ 29,790
Money market investments 2,693 9,064
Securities available for sale (note 2) 445,604 503,058
Loans held for sale 10,594 11,412
Debt securities held to maturity (estimated fair value of $96,823
and $126,811 in 1996 and 1995, respectively) (note 2) 98,307 127,796
Federal Home Loan Bank of NY stock, at cost 9,140 8,138
Mortgage-backed securities held to maturity (estimated fair value of
$198,422 and $189,551 in 1996 and 1995, respectively) (note 2) 203,442 190,714
Loans:
First mortgage loans 693,933 519,804
Cooperative apartment loans 9,715 10,187
Other loans 34,592 38,967
--------- ---------
Total loans 738,240 568,958
Less allowance for loan losses (10,314) (8,573)
--------- ---------
Loans, net 727,926 560,385
Premises and equipment, net 8,183 7,590
Accrued interest receivable 10,608 10,736
Real estate owned, net 2,198 2,033
Other assets 15,429 12,100
--------- ---------
Total assets $1,564,697 $1,472,816
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 1,127,257 1,083,446
Borrowed funds 319,012 270,583
Mortgagors' escrow balances 7,686 3,227
Due to broker 0 5,000
Other liabilities 16,819 12,041
--------- ---------
Total liabilities 1,470,774 1,374,297
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 10,500,000 shares authorized,
4,959,375 issued; 4,322,904 and 4,511,457 shares
outstanding in 1996 and 1995, respectively 50 50
Additional paid-in capital 48,614 47,331
Retained earnings, substantially restricted 62,216 57,919
Unrealized (loss) gain on securities available for sale, net
of tax effect (2,984) 2,083
Treasury stock, at cost (636,471 and 447,918 shares in 1996
and 1995, respectively) (11,080) (6,023)
Unallocated common stock held by Bank's ESOP (1,938) (2,197)
Unearned common stock held by Bank's Recognition Plans and Trusts (294) (644)
Unearned Compensation (661) -
--------- ---------
Total stockholders' equity 93,923 98,519
--------- ---------
Total liabilities and stockholders' equity $1,564,697 $1,472,816
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $13,715 $10,788 $37,670 $30,853
Other loans 884 1,045 2,781 3,172
Mortgage-backed securities 9,575 10,242 29,617 27,186
Money market investments 40 70 139 259
Debt and equity securities 3,749 3,172 10,674 8,959
------ ------ ------ ------
Total interest income 27,963 25,317 80,881 70,429
------ ------ ------ ------
Interest expense:
Deposits:
Passbook accounts 2,342 2,479 7,027 7,717
NOW accounts 247 236 704 652
Money market accounts 482 483 1,417 964
Certificate accounts 8,274 7,686 23,987 21,573
Borrowings 4,627 3,993 12,404 9,090
------ ------ ------ ------
Total interest expense 15,972 14,877 45,539 39,996
------ ------ ------ ------
Net interest income before provision for loan losses 11,991 10,440 35,342 30,433
Provision for loan losses 700 700 2,475 2,000
------ ------ ------ ------
Net interest income after provision for loan losses 11,291 9,740 32,867 28,433
------ ------ ------ ------
Non-interest income:
Loan fees and servicing income 293 270 1,517 891
Savings/checking fees 867 722 2,440 2,083
Net (loss) gain on sales of interest-earning assets (11) 122 88 122
Insurance annuity and mutual fund fees 837 685 2,329 1,769
Other 265 277 814 976
------ ------ ------ ------
Total non-interest income 2,251 2,076 7,188 5,841
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 3,423 3,790 11,097 10,921
Occupancy and equipment 840 899 2,598 2,561
Real estate owned operations, net 8 402 312 1,236
SAIF Recapitalization (note 5) 6,800 - 6,800 -
Federal deposit insurance premiums 629 673 1,865 1,971
Other 2,324 2,139 6,812 6,633
------ ------ ------ ------
Total non-interest expense 14,024 7,903 29,484 23,322
------ ------ ------ ------
Income (loss) before income tax expense (benefit) (482) 3,913 10,571 10,952
Income tax expense (benefit) (559) 1,708 4,610 5,053
------ ------ ------ ------
Net income $ 77 $2,205 $5,961 $5,899
====== ====== ====== ======
Net income per common share: Primary $ 0.02 $ 0.49 $ 1.35 $ 1.31
====== ====== ====== ======
Fully diluted $ 0.02 $ 0.49 $ 1.35 $ 1.31
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Nine Months ended September 30, 1996 and 1995
(Unaudited)
<TABLE>
<CAPTION>
Unrealized
Gain (Loss) Unallocated Unearned
Additional on Securities Common Common
Common Paid-In Retained Available Treasury Stock Held Stock Held Unearned
Stock Capital Earnings for Sale Stock by ESOP by RRP Compensation Total
------ ---------- -------- ------------- -------- ----------- ---------- ------------ -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ 50 47,331 57,919 2,083 (6,023) (2,197) (644) - 98,519
Net income for the nine months ended
September 30, 1996 - - 5,961 - - - - - 5,961
Dividends declared (note 4) - - (1,646) - - - - - (1,646)
Purchase of treasury stock
(225,537 shares) - - - - (5,516) - - - (5,516)
Stock options exercised, net of
tax effect (7,019 shares) - 412 (18) - 88 - - - 482
Treasury stock issued for deferred
compensation plans (29,965 shares) - 411 - - 371 - - (782) -
Change in unrealized gain (loss) on
securities available for sale, net
of tax effect - - - (5,067) - - - - (5,067)
Allocation of ESOP stock and
amortization of award of RRP
stock, net of tax effect - 460 - - - 259 350 - 1,069
Amortization of deferred compensation
plan - - - - - - - 121 121
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at September 30, 1996 50 48,614 62,216 (2,984) (11,080) (1,938) (294) (661) 93,923
==== ====== ====== ====== ====== ====== ===== ===== ======
Balance at December 31, 1994 50 46,495 50,331 (1,880) (5,093) (2,725) (943) - 86,235
Net income for the nine months ended
September 30, 1995 - - 5,899 - - - - - 5,899
Dividends Declared - - (451) - - - - - (451)
Purchase of treasury stock
(75,570 shares) - - - - (1,360) - - - (1,360)
Reissued Treasury Stock contributed to
RRP (9,918 shares) - 49 - - 119 - (168) - -
Stock options exercised (22,316 shares) - 45 (46) - 269 - - - 268
Change in unrealized gain (loss) on
securities available for sale, net
of tax effect - - - 1,625 - - - - 1,625
Allocation of ESOP stock and
amortization of award of RRP stock - 370 - - - 439 349 - 1,158
---- ------ ------ ------ ------ ------ ----- ----- ------
Balance at September 30, 1995 50 46,959 55,733 (255) (6,065) (2,286) (762) - 93,374
==== ====== ====== ====== ====== ====== ===== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1996 1995
---- ----
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 5,961 $ 5,899
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 1,190 1,158
Amortization of net deferred loan origination fees 235 (312)
Premiums and discounts on loans, mortgage-backed and debt securities (963) 83
Provision for loan losses 2,475 2,000
Provision for losses on real estate owned 875 700
Deferred income taxes (5,519) 4,630
SAIF Recapitalization 6,800 -
Net gain on sales of interest-earning assets (88) (122)
Depreciation and amortization 661 702
Decrease (increase) in accrued interest receivable 128 (1,371)
Decrease in due to broker (5,000) (8,800)
(Decrease) increase in other liabilities (2,022) 806
Increase (decrease) in other assets 2,190 (2,780)
------ ------
Net cash provided by operating activities 6,923 2,593
------ ------
Cash flows from investing activities:
Net increase in loans (169,072) (45,098)
Proceeds from disposition of assets (including REO) 2,562 8,342
Purchases of securities available for sale (254,969) (18,894)
Principal repayments and maturities on securities available for sale 63,887 1,385
Proceeds from sales of securities available for sale 237,763 18,777
Purchases of debt securities held to maturity (7,741) (88,108)
Principal repayments, maturities and calls on debt securities
held to maturity 36,511 30,693
Purchases of mortgage-backed securities held to maturity (38,451) (146,692)
Principal repayments on mortgage-backed securities held to maturity 26,138 49,264
Net decrease in premises and equipment 1,254 231
------- -------
Net cash used in investing activities (102,118) (190,100)
------- -------
Cash flows from financing activities:
Net increase in deposits 43,811 63,163
Net increase in borrowed funds 48,429 125,837
Increase in mortgagors' escrow balances 4,459 3,382
Purchase of treasury stock (5,516) (1,360)
Payment of common stock dividends (1,646) -
Stock options exercised 70 223
------ -------
Net cash provided by financing activities 89,607 191,245
------ -------
Net (decrease) increase in cash and cash equivalents (5,588) 3,738
Cash and cash equivalents at beginning of period 38,854 30,472
------ -------
Cash and cash equivalents at end of period $33,266 $ 34,210
====== =======
Supplemental information:
Cash paid during the period for:
Interest $44,208 $38,361
Additions to real estate owned 3,237 2,929
Securities purchased, not yet received - 22,000
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996 and 1995
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION. The accompanying unaudited
consolidated financial statements include the accounts of Haven
Bancorp, Inc. ("Haven Bancorp" or the "Company") and its wholly-
owned subsidiary, Columbia Federal Savings Bank ("Columbia Federal"
or the "Bank") and subsidiaries, as of September 30, 1996 and
December 31, 1995 and for the three-month and nine-month periods
ended September 30, 1996 and 1995, respectively. Material
intercompany accounts and transactions have been eliminated in
consolidation.
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management all
necessary adjustments, consisting only of normal recurring accruals
necessary for a fair presentation have been included. The results
of operations for the three-month and nine-month periods ended
September 30, 1996 are not necessarily indicative of the results
that may be expected for the entire fiscal year.
These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto included in the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1995.
NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs").
Under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities
("SFAS No. 115"), debt securities and MBSs which the Company has
the ability and the intent to hold until maturity, are carried at
cost adjusted for amortization of premiums and accretion of
discounts. Debt and equity securities and MBSs to be held for
indefinite periods of time and not intended to be held to maturity
or on a long-term basis are classified as available for sale
securities which are recorded at fair value, with unrealized gains
(losses) reported as a separate component of stockholders' equity,
net of taxes.
7
<PAGE>
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at September 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Debt and equity securities available for sale:
U.S. Government and Agency obligations $112,656 40 (3,815) 108,881
FNMA Preferred Stock 19,065 20 - 19,085
Corporate Bonds 6,000 - (30) 5,970
------- ----- ------ -------
137,721 60 (3,845) 133,936
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 15,774 28 (323) 15,479
FNMA Certificates 41,647 710 (269) 42,088
FHLMC Certificates 75,574 1,071 (400) 76,245
CMOs and REMICS 180,520 68 (2,732) 177,856
------- ----- ------ -------
313,515 1,877 (3,724) 311,668
------- ----- ------ -------
Total $451,236 1,937 (7,569) 445,604
======= ===== ====== =======
</TABLE>
The net unrealized loss on securities available for sale at
September 30, 1996, was reported as a separate component of
stockholders' equity, in the amount of $3.0 million which is net of
a tax effect of $2.6 million.
DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of debt securities held to maturity at September 30,
1996 are summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
U.S. Government and Agency obligations $ 52,967 19 (1,428) 51,558
Corporate debt securities 45,340 34 (109) 45,265
------- -- ------ -------
Total $ 98,307 53 (1,537) 96,823
======= == ====== =======
</TABLE>
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
8
<PAGE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of MBSs held to maturity at September 30, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
FHLMC Certificates $ 41,508 201 (899) 40,810
FNMA Certificates 73,503 19 (2,961) 70,561
CMOs and REMICs 88,431 287 (1,667) 87,051
------- ----- ------ -------
Total $203,442 507 (5,527) 198,422
======= ===== ====== =======
</TABLE>
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
NOTE 3 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the nine months ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Balance at December 31, 1995 480,463 $10.84
Granted (1) 158,735 25.65
Forfeited - -
Exercised (7,019) $10.00
------- -----
Balance at September 30, 1996 632,179 $14.57
======= =====
Shares exercisable at September 30, 1996 379,241 $10.24
======= =====
</TABLE>
(1) During the second quarter, 152,850 options were granted to
directors and officers under the Haven Bancorp, Inc. 1996 Stock
Incentive Plan. The remaining 5,885 options were granted from the
1993 Incentive Stock Option Plan. All options vest over a three
year period beginning one year from the date of grant.
9
<PAGE>
NOTE 4 - DIVIDENDS PAYABLE. On September 26, 1996, the Company's
Board of Directors approved a quarterly cash dividend of $0.15 per
share, payable on October 28, 1996, to shareholders of record as of
October 7, 1996.
NOTE 5 - RE-CAPITALIZATION OF SAIF FUND. On September 30, 1996,
the President signed into law the Deposit Insurance Funds Act of
1996. The Act empowered the Board of Directors of the Federal
Deposit Insurance Corporation ("FDIC") to impose a special
assessment on "SAIF assessable deposits" of depository
institutions. This special assessment, which is based on SAIF-
assessable deposits at March 31, 1995, is intended to recapitalize
the Savings Association Insurance Fund. The special assessment
rate is 65.7 basis points per $100 of insured deposits. The cost
of this assessment to Columbia Federal Savings Bank is $6.8 million
which was accrued as of September 30, 1996.
The legislation also calls for BIF-insured institutions to begin
paying part of the $780 million in annual interest costs on
Financial Corp. (FICO) bonds. To date, FICO interest has been paid
from SAIF premium revenues, which is a key reason why the SAIF was
under-capitalized. Until full pro-rata FICO sharing is in effect,
for both BIF and SAIF institutions, the FICO premium for SAIF
institutions will be 6.4 basis points beginning January 1, 1997.
The total premium will be the sum of the FICO premium and any
regular insurance assessment, currently nothing for the lower risk
category institutions.
NOTE 6 - NET INCOME PER SHARE OF COMMON STOCK. Primary and fully
diluted net income per share were determined by dividing net income
by the weighted average number of shares outstanding. There were
4,426,716 primary shares outstanding and 4,401,604 fully diluted
shares outstanding for the three months ended September 30, 1996.
There were 4,429,463 primary shares outstanding and 4,429,786 fully
diluted shares outstanding for the nine months ended September 30,
1996. The weighted average number of shares outstanding does not
include 193,782 shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP") as of September 30, 1996 in accordance with
American Institute of CPAs ("AICPA") Statement of Position ("SOP")
93-6, "Employers' Accounting for ESOPs". Stock options are
regarded as common stock equivalents and are considered in both
primary earnings per share and fully diluted earnings per share
using the treasury stock method.
NOTE 7 - SUPERMARKET BANKING AGREEMENT WITH PATHMARK STORES. On
September 25, 1996, Haven Bancorp announced that Columbia Federal
Savings Bank and Pathmark Stores, Inc. had entered into an
agreement to open approximately 44 full-service bank branches in
Pathmark supermarkets throughout New York City, Long Island,
Westchester and Rockland counties by early 1998. The Bank expects
to open four of the new in-store banking offices by the end of
1996.
10
<PAGE>
NOTE 8 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In October,
1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 applies to all transactions in which
an entity acquires goods or services by issuing equity instruments
or by incurring liabilities where the payment amounts are based on
the entity's common stock price, except for employee stock
ownership plans. SFAS No. 123 covers transactions with employees
and non-employees.
SFAS No. 123 established a new method of accounting for stock-based
compensation arrangements with employees. The new method is a fair
value based method rather than the intrinsic value based method
that is contained in APB Opinion 25 ("Opinion 25"). However, SFAS
No. 123 does not require an entity to adopt the new fair value
based method for purposes of preparing its basic financial
statements. Entities are allowed (1) to continue to use the
Opinion 25 method or (2) to adopt the SFAS No. 123 fair value based
method. SFAS No. 123 fair value based method is considered by the
FASB to be preferable to the Opinion 25 method, and thus, once the
fair value based method is adopted, an entity cannot change back to
the Opinion 25 method. Also, the selected method applies to all of
an entity's compensation plans and transactions. For entities not
adopting SFAS No. 123 fair value based method, SFAS No. 123
requires the entity to display in the footnotes to the financial
statements pro forma net income and earnings per share information
as if the fair value based method had been adopted. Under the fair
value based method, compensation cost is measured at the grant date
based on the value of the award and is recognized over the service
period, which is usually the vesting period.
The accounting requirements of SFAS No. 123 are effective for
transactions entered into in fiscal years that begin after December
15, 1995, though they may be adopted on issuance. The disclosure
requirements are effective for financial statements for fiscal
years beginning after December 15, 1995, or for an earlier fiscal
year for which SFAS No. 123 is initially adopted for recognizing
compensation cost. Pro forma disclosures required for entities
that elect to continue to measure compensation cost using the
Opinion 25 method must include the effects of all awards granted in
fiscal years that begin after December 15, 1994. Pro forma
disclosures for awards granted in the first fiscal year beginning
after December 15, 1994, need not be included in the financial
statements for that fiscal year, but should be presented
subsequently whenever financial statements for that fiscal year are
presented for comparative purposes with financial statements for a
later fiscal year. The Company will continue to apply the Opinion
No. 25 method in preparing its consolidated financial statements
and will provide the pro forma disclosures required by SFAS No.
123.
In June, 1996, the FASB issued SFAS No. 125, "Accounting for
11
<PAGE>
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities" which establishes accounting and reporting standards
for transfers and servicing of financial assets and extinguishments
of liabilities based on the consistent application of the
financial-components approach. This approach requires the
recognition of financial assets and servicing assets that are
controlled by the reporting entity, the derecognition of financial
assets when control is surrendered, and the derecognition of
liabilities when they are extinguished. Specific criteria are
established for determining when control has been surrendered in
the transfer of financial assets.
The statement lays out in detail the criteria that must be met in
order for a transaction to be considered a sale or a secured
borrowing. The new rules employ the "financial components
approach", which treats separately the various parts of a range of
financial instruments. The new rules refine the treatment of
servicing rights, amending in part the directives set forth in SFAS
No. 122.
Liabilities and derivatives incurred or obtained by transferors in
conjunction with the transfer of financial assets are required to
be measured at fair value, if practicable. Servicing assets and
other retained interests in transferred assets are required to be
measured by allocating the previous carrying amount between the
assets sold, if any, and the interest that is retained, if any,
based on the relative fair values of the assets at the date of the
transfer. Servicing assets retained are subsequently subject to
amortization and assessment for impairment.
SFAS No. 125 provides implementation guidance for: assessing
isolation of transferred assets; accounting for transfers of
partial interests; servicing of financial assets; securitizations;
transfers of sales-type and direct financing lease receivables;
securities lending transactions; repurchase agreements (including
"dollar rolls" and "wash sales"); loan syndications and
participations; risk participations in banker's acceptances;
factoring arrangements; transfers of receivables with recourse;
extinguishment of liabilities.
SFAS No. 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December
31, 1996. It is to be applied prospectively; earlier or
retroactive application is not permitted. SFAS No. 125, when
adopted, is not expected to have a material effect on the Company's
financial statements.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Haven Bancorp, Inc. ("Haven Bancorp" or the "Company") is the
holding company for Columbia Federal Savings Bank ("Columbia" or
the "Bank"), a federally chartered stock savings bank. Columbia
converted from a mutual to a stock savings bank on September 23,
1993 in conjunction with the issuance of the Bank's capital stock
to Haven Bancorp.
Haven Bancorp's business currently consists of the business of the
Bank. The Bank's principal business has been and continues to be
attracting retail deposits from the general public and investing
those deposits, together with funds generated from operations
primarily in one-to four-family, owner occupied residential
mortgage loans. In addition, in times of low loan demand, the Bank
will invest in debt, equity and MBSs to supplement its lending
portfolio. The Bank also invests, to a lesser extent, in multi-
family residential mortgage loans, commercial real estate loans,
equity lines of credit and other marketable securities. The Bank's
results of operations are dependent primarily on its net interest
income, which is the difference between the interest income earned
on its loan and securities portfolios and its cost of funds, which
primarily consist of the interest paid on its deposits and borrowed
funds. The Bank's net income also is affected by its provision for
loan losses as well as non-interest income and operating expenses
consisting primarily of compensation and benefits, occupancy and
equipment, real estate owned operations, net, federal deposit
insurance premiums and other general and administrative expenses.
The earnings of the Bank are significantly affected by general
economic and competitive conditions, particularly changes in market
interest rates, and to a lesser extent by government policies and
actions of regulatory authorities.
ANALYSIS OF FINANCIAL CONDITION CHANGES FROM DECEMBER 31, 1995 TO
SEPTEMBER 30, 1996
ASSETS
Total assets increased by $91.9 million, or 6.2% to $1.6 billion at
September 30, 1996 from $1.5 billion at December 31, 1995.
Securities available for sale decreased by $57.5 million, or 11.4%
to $445.6 million at September 30, 1996 from $503.1 million at
December 31, 1995. During the nine month period ended September
30, 1996, the Bank purchased $255.0 million of securities available
for sale comprised of $122.2 million of MBSs, $107.7 million of
government agency securities, $19.1 million in FNMA Preferred Stock
13
<PAGE>
and $6.0 million of corporate bond securities. These purchases
were offset by sales and principal repayments of $237.8 million and
$63.9 million, respectively. The purchases and sales during the
first nine months of 1996 in the available for sale portfolio were
done primarily to improve the net interest margin by swapping lower
yielding securities and loans for higher yielding securities while
minimizing interest rate risk. During the third quarter of 1996,
$70.9 million of MBSs were sold in the available for sale portfolio
with an average yield of 7.03% and replaced with $36.2 million of
MBS and agency securities yielding approximately 7.75%. The
remainder of the proceeds were used to fund loan originations and
the purchase of residential mortgages in the secondary market.
Debt securities held to maturity declined by $29.5 million, or
23.1% to $98.3 million at September 30, 1996 from $127.8 million at
December 31, 1995 mainly due to principal repayments and calls
totalling $36.5 million which were partially offset by purchases
totalling $7.0 million. MBSs held to maturity increased by $12.7
million, or 6.7% to $203.4 million at September 30, 1996 from
$190.7 million at December 31, 1995. During the nine month period
ended September 30, 1996, the Bank purchased $38.5 million of MBSs
for the held to maturity portfolio which were partially offset by
principal repayments totaling $26.1 million.
Net loans increased by $167.5 million, or 29.8% to $727.9 million
at September 30, 1996 from $560.4 million at December 31, 1995.
Loan originations and purchases during the nine month period ended
September 30, 1996 totaled $243.0 million (comprised of $181.0
million of residential one-to four-family mortgage loans, $6.0
million of equity loans and lines of credit, $2.9 million of
construction advances, and $53.1 million of commercial real estate
and multi-family loans. Originations for residential one-to four-
family mortgage loans included purchases of $103.4 million of
residential loans in the secondary market. The purchase of loans
in the secondary market was done to enhance the Bank's internal
loan origination volume.
Multi-family, commercial real estate and construction and land
lending are generally believed to involve a higher degree of credit
risk than one-to four-family lending because such loans typically
involve higher principal amounts and the repayment of such loans
generally is dependent on income produced by the property
sufficient to cover operating expenses and debt service. Economic
events that are outside the control of the borrower or lender could
adversely impact the value of the security for the loan or the
future cash flows from the borrower's property. In recognition of
these risks, the Bank has instituted more stringent underwriting
criteria for all of its loans and originates multi-family,
commercial real estate and construction and land loans only on a
selective basis. During the nine months ended September 30, 1996,
principal repayments totalled $70.2 million, $3.2 million was
14
<PAGE>
transferred to REO and $1.2 million of loans were sold in the
secondary market.
REO, net increased by $165,000, or 8.1% to $2.2 million (net of a
$79,000 reserve) at September 30, 1996 from $2.0 million (net of a
$178,000 reserve) at December 31, 1995. During the third quarter,
the Bank acquired $962,000 of REO properties, sold $847,000 of REO,
and recorded write-downs to fair value of $306,000 on various
properties. During the first six months of 1996, the Bank acquired
$2.3 million of REO, sold $1.0 million of REO and recorded write-
downs to fair value of $1.0 million on various properties. (See
discussion of non-performing assets on pages 17-18).
Included in other assets at September 30, 1996 was $9.6 million of
net deferred tax assets compared to $4.1 million at December 31,
1995. The increase was primarily due to $4.5 million which
represents the tax effect of the increase of $9.6 million in the
unrealized loss on securities available for sale from December 31,
1995 to September 30, 1996. The remainder of the increase was
primarily due to a net increase of $2.0 million in the allowance
for loan losses. Management believes that the Company will
generate future taxable income sufficient to utilize the deferred
tax asset over time.
LIABILITIES
Deposits increased by $43.8 million between December 31, 1995 and
September 30, 1996 primarily due to an increase in certificates of
deposit outstanding of $57.4 million for the nine-month period.
The Bank's strategy has been to attract deposits from short to
medium term certificates of deposit (up to 24 months) as a lower
cost alternative to borrowed funds to fund loan originations. In
May, 1996, the Bank opened its first supermarket branch in an
Edwards Super Store located in Medford, Long Island. This branch
had $4.5 million in deposits at September 30, 1996. During July of
1996, the Bank opened its second supermarket branch in a Shoprite
Store located in Uniondale, Long Island. This branch had $1.6
million in deposits at September 30, 1996. During September,
Columbia Federal Savings Bank and Pathmark Stores, Inc. entered
into an agreement to open approximately 44 full-service bank
branches in Pathmark supermarkets throughout New York City, Long
Island, Westchester and Rockland counties by early 1998. (See Note
7 to Notes to Consolidated Financial Statements.) Borrowed funds
increased by $48.4 million, or 17.9% to $319.0 million from $270.6
million at December 31, 1995 primarily for the funding of
residential mortgage loan originations and the purchase of
residential loans in the secondary market. During the nine months
ended September 30, 1996, the Bank purchased $103.4 million of
residential mortgages in the secondary market.
15
<PAGE>
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity decreased to $93.9 million at
September 30, 1996 from $98.5 million at December 31, 1995. Net
income of $6.0 million for the nine-month period was primarily
offset by the purchase of 225,537 shares of treasury stock for $5.5
million. In addition, there was a decline of $5.1 million in the
unrealized gain on securities available for sale, net of tax
effect, and the Company declared dividends of $1.6 million for the
first nine months of 1996. The allocation of ESOP stock due to the
reduction of the Bank's ESOP debt and the amortization of awards of
shares of stock by the Bank's RRPs and deferred compensation plans
together with related tax benefits, increased stockholders' equity
by $1.1 million. Finally, during the nine month period ended
September 30, 1996, the exercise of 7,019 options by officers of
the Company increased stockholders equity by $482,000.
16
<PAGE>
NON-PERFORMING ASSETS
The following table sets forth information regarding all non-
accrual loans (which consist of loans 90 days or more past due and
restructured loans that have not yet performed in accordance with
their modified terms for the required nine-month seasoning period),
restructured loans and real estate owned.
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Non-accrual loans
One-to four-family $ 3,813 3,800
Cooperative 480 871
Multi-family 1,512 967
Non-residential and other 4,120 4,167
------ ------
Total non-accrual loans 9,925 9,805
------ ------
Restructured loans
One-to four-family 890 853
Cooperative 488 494
Multi-family 2,368 3,602
Non-residential and other - 2,123
------ ------
Total restructured loans 3,746 7,072
------ ------
Total non-performing loans 13,671 16,877
------ ------
REO, net
One-to four-family 559 1,148
Cooperative 356 723
Multi-family - 156
Non-residential and other 1,362 184
------ ------
Total REO 2,277 2,211
Less allowance for REO (79) (178)
------ ------
REO, net 2,198 2,033
------ ------
Total non-performing assets $15,869 18,910
====== ======
Non-performing loans to total loans 1.85% 2.97%
Non-performing assets to total assets 1.01 1.28
Non-performing loans to total assets 0.87 1.15
</TABLE>
17
<PAGE>
The $3.0 million decrease in non-performing assets is primarily due
to a decrease of $3.3 million in restructured loans partially
offset by a $165,000 increase in REO, net. The decrease in
restructured loans was due to the satisfaction of one loan for $1.6
million and the transfer of several other loans to performing
status. The ratio of non-performing loans to total loans decreased
primarily due to the decrease of $3.2 million in non-performing
loans during the nine month period. In addition, total loans
increased $169.3 million during the nine-month period. The
decreases in the ratios of non-performing assets to total assets
and non-performing loans to total assets were due to the
aforementioned reduction in restructured loans and an increase of
$91.9 million in total assets during the nine-month period. The
increase in non-residential REO properties was primarily due to the
acquisition of a commercial property valued at $700,000 which was
subsequently sold in October.
The Bank maintains an allowance for loan losses and an allowance
for REO, which it believes are adequate for potential losses at
each period end. Management's judgment as to potential losses is
based on its review of the loan and REO portfolios and its judgment
regarding prevailing and anticipated economic conditions and a
variety of other factors which have an impact on those portfolios.
Although management believes that the allowances are adequate as of
the period end, additional provisions may be required in the
future.
18
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the nine months ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Balance at beginning of period $ 8,573 $10,847
Charge-offs:
Residential (703) (368)
Cooperative (448) (1,638)
Multi-family (30) (1,299)
Non-residential and other (360) (1,170)
------ ------
Total charge-offs (1,541) (4,475)
------ ------
Recoveries 807 329
------ ------
Net charge-offs (734) (4,146)
Provision for loan losses 2,475 2,000
------ ------
Balance at end of period $10,314 $ 8,701
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.15% 1.04%
Ratio of allowance for loan losses to
total loans at the end of the period 1.40 1.57
Ratio of allowance for loan losses to non-
performing loans at the end of the period 75.44 41.29
</TABLE>
The ratio of net charge-offs during the first nine months of 1996
to average loans outstanding decreased compared to the same period
in 1995 due to the decrease in charge-offs as a result of the
decrease in non-performing loans between the periods and an
increase of $113.3 million in average loans outstanding. The ratio
of allowance for loan losses to total loans also decreased due to
the increase in average loans outstanding as previously mentioned.
The ratio of allowance for loan losses to non-performing loans
increased between the periods due to the decrease in non-performing
loans. The Bank's allowance for loan losses was $10.3 million and
$8.7 million at September 30, 1996 and 1995, respectively, while
non-performing loans totalled $13.7 million and $21.1 million,
respectively, at those dates.
19
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Company closely monitors its interest rate risk as such risk
relates to its operational strategies. The Asset/Liability
Committee is responsible for reviewing the Company's
asset/liability policies and interest rate risk position, and
generally meets weekly and reports to the Board of Directors on
interest rate risk and trends on a quarterly basis.
In order to reduce its sensitivity to interest rate risk, the
Company's current strategy includes emphasizing the origination or
purchase for portfolio of adjustable-rate loans, debt securities
and MBSs and maintaining a securities available for sale portfolio.
The Company invests in MBSs and debt and equity securities and
utilizes such investments to complement its mortgage lending
activities and supplement such activities at times of low mortgage
loan demand. While MBSs carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a
fluctuating interest rate environment, along with other factors
such as geographic distribution of the underlying mortgage loans,
may alter the prepayment rate of such mortgage loans and so affect
both the prepayment speed, and value of such securities.
The Company has attempted to reduce its exposure to interest rate
risk through the origination of ARM loans and the purchase of
adjustable-rate securities which are expected to help protect net
interest margins during periods of rising interest rates. During
the first nine months of 1996, the Bank sold a large portion of its
available for sale portfolio, most of which were fixed rate
securities, to improve yield with purchases of fixed rate
securities bearing higher yields and shorter duration. The Bank
purchased fixed rate debt securities and MBSs during the period to
take advantage of higher yields compared to rates offered on
adjustable rate securities. At September 30, 1996, $197.5 million,
or 38.3% of the Company's MBSs portfolio were adjustable-rate MBSs,
of which $187.2 million are held in the available for sale
portfolio and $10.3 million are in the held to maturity portfolio.
The Company's adjustable debt securities are allocated as follows:
$50.3 million are in the held to maturity portfolio and $6.0
million are in the available for sale portfolio.
Historically, the Company has been able to maintain a substantial
level of core deposits (comprised of passbook, money market, NOW
and demand accounts) which the Company believes helps to limit
interest rate risk by providing a relatively stable, low cost,
long-term funding base. At September 30, 1996 core deposits
represented 47.8% of deposits compared to 50.8% of deposits at
December 31, 1995. During the first nine months of 1996, passbook
accounts decreased by $11.1 million, net of interest, whereas,
certificates of deposit increased by $57.4 million, net of
20
<PAGE>
interest. The Bank's strategy during 1996 has been to emphasize
certificates of deposit for terms up to 24 months in order to
retain a portion of customer withdrawals from passbook accounts as
customers sought higher yielding investment opportunities when
rates started to rise again during February and as a less expensive
alternative to borrowed funds. During the first nine months of
1996 the cost of certificate accounts was 5.66% compared to 5.86%
for borrowed funds. The amount of certificate accounts outstanding
at September 30, 1996 was $590.4 million compared to $533.0 million
at December 31, 1995.
LIQUIDITY AND CAPITAL
The Bank is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. This requirement, which may be
varied by the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of withdrawable deposits and
short-term borrowings. The required ratio is currently 5%. The
Bank's ratio was 13.43% at September 30, 1996 compared to 10.31% at
December 31, 1995. The increase in the liquidity ratio during the
nine-month period is due to the purchase of government agency
securities, which are considered liquid assets according to the OTS
guidelines, and an increase in federal funds sold.
The Company's primary sources of funds are deposits, principal and
interest payments on loans and MBSs, retained earnings and advances
from FHLB-NY. Proceeds from the sale of securities available for
sale and loans held for sale are also a source of funding, as are,
to a lesser extent, the sales of annuities and securities brokerage
activities conducted by the Bank's subsidiary, Columbia Investment
Services, Inc. While maturities and scheduled amortization of
loans and MBSs are somewhat predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, competition and regulatory
changes.
The Company's most liquid assets are cash and short term
investments. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities
during any given period. At September 30, 1996 and December 31,
1995, cash and short and intermediate-term investments totaled
$33.2 million and $38.9 million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year, mortgage loans
and MBSs available for sale. Other sources of funds include FHLB
advances, which at September 30, 1996, totaled $175.0 million.
21
<PAGE>
As of September 30, 1996, the Bank exceeded all regulatory capital
requirements as detailed in the following table:
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-Based Capital
-------------------- -------------------- -----------------------
Amount Percentage(1) Amount Percentage(1) Amount Percentage(1)(3)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital for regulatory purposes $93,173 5.95% $93,173 5.95% $101,911 13.47%
Minimum regulatory requirement 23,492 1.50 46,984 3.00(2) 60,520 8.00
------ ---- ------ ---- ------- ----
Excess $69,681 4.45% $46,189 2.95% $ 41,391 5.47%
====== ==== ====== ==== ======= ====
</TABLE>
(1) Tangible and core capital are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a
percentage of risk-weighted assets.
(2) Although the minimum capital ratio is 3.0%, the OTS
regulations provide that generally an institution with less than
4.0% core capital is undercapitalized. Failure to meet the capital
requirements or to be deemed undercapitalized exposes an
institution to regulatory sanctions, including limitations on asset
growth. The OTS noted in the preamble to the final rulemaking for
interest rate risk that its intention was to issue a proposal to
lower this ratio requirement from 4.0% to 3.0%.
(3) The OTS has incorporated an interest rate risk component into
its regulatory capital rule. Under the rule, saving associations
with "above normal" interest rate risk exposure would be subject to
a deduction from total capital for purposes of calculating their
risk-based capital requirements. The OTS has postponed the date
that the component will first be deducted from an institution's
total capital until an appeals process is developed for the
measurement of an institution's interest rate risk. The Bank does
not anticipate that the new rule, when implemented, will have a
material effect on the Bank's risk-based capital.
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net
interest income, which represents the difference between interest
and fees earned on loans, MBSs and debt and equity securities, and
the cost of deposits and borrowings. Net interest income is
dependent on the difference between the average balances and rates
earned on interest-earning assets and the average balances and
rates paid on interest-bearing liabilities. Net income is further
affected by non-interest income, non-interest expense and income
taxes.
22
<PAGE>
The following tables set forth certain information relating to the
Company's average consolidated statements of financial condition
and reflect the average yield on assets and average cost of
liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense annualized by the average
balance of assets or liabilities, respectively, for the periods
shown. Average balances were derived from average daily balances.
The average balance of loans includes loans on which the Company
has discontinued accruing interest. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Three months ended September 30,
1996 1995
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $ 679,279 $13,715 8.08% $506,755 $10,788 8.52%
Other loans 35,023 884 10.10 38,627 1,045 10.82
Mortgage-backed securities 522,471 9,575 6.93 620,588 10,242 6.60
Money market investments 2,693 40 5.94 4,909 70 5.70
Debt and equity securities 224,835 3,749 6.67 189,923 3,172 6.68
--------- ------ --------- ------
Total interest-earning assets 1,494,301 27,963 7.49 1,360,802 25,317 7.44
Non-interest earning assets 63,885 ------ 57,354 ------
--------- ---------
Total assets 1,558,186 1,418,156
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 373,418 2,342 2.51 395,039 2,479 2.51
Certificate accounts 583,711 8,274 5.67 516,089 7,686 5.96
NOW accounts 111,174 247 0.89 98,474 236 0.96
Money market accounts 56,989 482 3.38 52,923 483 3.65
Borrowed funds 316,095 4,627 5.86 248,264 3,993 6.43
--------- ------ --------- ------
Total interest-bearing liabilities 1,441,387 15,972 4.43 1,310,789 14,877 4.54
Other liabilities 20,423 ------ 14,626 ------
--------- ---------
Total liabilities 1,461,810 1,325,415
Stockholders' equity 96,376 92,741
--------- ---------
Total liabilities and stockholders' equity 1,558,186 1,418,156
========= =========
Net interest income/net interest rate spread $11,991 3.06% $10,440 2.90%
====== ==== ====== ====
Net interest earning assets/net interest margin $52,914 3.21% $50,013 3.07%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.67% 103.82%
====== ======
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1996 1995
------------------------ ------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage loans $ 610,837 $37,670 8.22% $493,422 $30,853 8.34%
Other loans 36,498 2,781 10.16 40,649 3,172 10.40
Mortgage-backed securities 574,702 29,617 6.87 559,941 27,186 6.47
Money market investments 2,947 139 6.29 4,653 259 7.42
Debt and equity securities 220,136 10,674 6.47 177,617 8,959 6.73
--------- ------ --------- ------
Total interest-earning assets 1,445,120 80,881 7.46 1,276,282 70,429 7.36
Non-interest earning assets 63,520 ------ 59,367 ------
--------- ---------
Total assets 1,508,640 1,335,649
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 376,315 7,027 2.49 414,247 7,717 2.48
Certificate accounts 565,507 23,987 5.66 495,088 21,573 5.81
NOW accounts 109,980 704 0.85 94,193 652 0.92
Money market accounts 59,178 1,417 3.19 40,317 964 3.19
Borrowed funds 282,141 12,404 5.86 185,778 9,090 6.52
--------- ------ --------- ------
Total interest-bearing liabilities 1,393,121 45,539 4.36 1,229,623 39,996 4.34
Other liabilities 23,339 ------ 15,164 ------
--------- ---------
Total liabilities 1,416,460 1,244,787
Stockholders' equity 92,180 90,862
--------- ---------
Total liabilities and stockholders' equity 1,508,640 1,335,649
========= =========
Net interest income/net interest rate spread $35,342 3.10% $30,433 3.02%
====== ==== ====== ====
Net interest earning assets/net interest margin $51,999 3.26% $46,659 3.18%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.73% 103.79%
====== ======
</TABLE>
IMPACT OF NEW LEGISLATION
Deposit Insurance - SAIF Recapitalization. For the first three
quarters of 1996, SAIF-insured institutions paid deposit insurance
assessment rates of $0.23 to $0.31 per $100 of deposits. In
contrast, institutions insured by the FDIC's Bank Insurance Fund
(the "BIF") that were well capitalized and without any significant
supervisory concerns paid the minimum annual assessment of $2,000,
and all other BIF-insured institutions paid deposit insurance
assessment rates of $0.03 to $0.27 per $100 of deposits.
In response to the SAIF/BIF assessment disparity, the Deposit Funds
Insurance Act of 1996 (the "Funds Act") was enacted into law on
September 30, 1996. The Funds Act amended the Federal Deposit
Insurance Act (the "FDIA") in several ways to recapitalize the SAIF
and reduce the disparity in the assessment rates for the BIF and
the SAIF. The Funds Act authorized the FDIC to impose a special
assessment on all institutions with SAIF-assessable deposits in the
amount necessary to recapitalize the SAIF. As implemented by the
FDIC, institutions with SAIF-assessable deposits will pay a
24
<PAGE>
special assessment, subject to adjustment, of 65.7 basis points per
$100 of the institution's SAIF-assessable deposits, and the special
assessment will be paid on November 27, 1996. The special
assessment is based on the amount of SAIF-assessable deposits held
on March 31, 1995. The Funds Act provides that the amount of the
special assessment will be deductible for federal income tax
purposes for the taxable year in which the special assessment is
paid. Based on the foregoing, the special assessment for the Bank
is $6.8 million (before taxes) and has been charged against income
for the quarter ended September 30, 1996.
In view of the recapitalization of the SAIF, the FDIC proposed on
October 8, 1996, to reduce the assessment rate for SAIF-assessable
deposits for periods beginning on October 1, 1996. As would be
effective for the SAIF-assessable deposits of SAIF-insured savings
associations, such as the Bank, the proposed assessment rates would
range from 18 to 27 basis points for the last quarter of 1996 and
would range from 0 to 27 basis points for subsequent assessment
periods. However, the Funds Act also provides that the FDIC cannot
assess regular insurance assessments for an insurance fund unless
required to maintain or to achieve the designated reserve ratio of
1.25%, except on those of its member institutions that are not
classified as "well capitalized" or that have been found to have
"moderately severe" or "unsatisfactory" financial, operation or
compliance weaknesses. The Bank has not been so classified by the
FDIC or the OTS. Accordingly, assuming that the designated reserve
ratio is maintained by the SAIF after the collection of the special
SAIF assessment, the Bank, as long as it maintains its regulatory
status, will have to pay substantially lower regular SAIF
assessments compared to those paid by the Bank in recent years.
In addition, the Funds Act expanded the assessment base for the
payments on the bonds (the "FICO bonds") issued in the late 1980s
by the Financing Corporation to recapitalize the now defunct
Federal Savings and Loan Insurance Corporation to include the
deposits of both BIF- and SAIF-insured institutions beginning
January 1, 1997. Until December 31, 1999, or such earlier date on
which the last savings association ceases to exist, the rate of
assessment for BIF-assessable deposits will be one-fifth of the
rate imposed on SAIF-assessable deposits. It has been estimated
that the rates of assessment for the payment of interest on the
FICO bonds will be approximately 1.3 basis points for BIF-
assessable deposits and approximately 6.4 basis points for SAIF-
assessable deposits.
The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the prior
elimination of the thrift charter. The Secretary of the Treasury
is required to conduct a study of relevant factors with respect to
the development of a common charter for all insured depository
institutions and abolition of separate charters for banks and
25
<PAGE>
thrifts and to report the Secretary's conclusions and findings to
the Congress on or before March 31, 1997.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. The Company reported net income of $77,000 for the three
months ended September 30, 1996 compared to net income of $2.2
million for the three months ended September 30, 1995. The $2.1
million decrease was primarily attributable to an increase of $6.1
million in non-interest expenses due to a SAIF recapitalization
charge of $6.8 million which was accrued on September 30, 1996.
In addition, interest expense for the quarter increased $1.1
million when compared to the same period last year. These items
were partially offset by interest income which increased $2.6
million, non-interest income which increased $175,000 and income
tax expense which decreased $2.3 million.
INTEREST INCOME. Interest income increased by $2.6 million, or
10.5% to $28.0 million for the three months ended September 30,
1996 from $25.3 million for the three months ended September 30,
1995. The increase was primarily the result of a $2.9 million
increase in interest income on mortgage loans and an increase of
$577,000 in interest income on debt and equity securities. These
were partially offset by decreases in interest income on MBSs,
other loans and money market investments of $667,000, $161,000 and
$30,000, respectively.
Interest income on mortgage loans increased by $2.9 million, or
27.1% to $13.7 million for the three months ended September 30,
1996, from $10.8 million for the comparable three-month period in
1995 primarily as a result of an increase in average balances of
mortgage loans of $172.5 million partially offset by a decrease in
the average yield on mortgage loans of 44 basis points. The
average yield on mortgage loans decreased to 8.08% for the three
months ended September 30, 1996 from 8.52% for the comparable
three-month period in 1995. The decrease in yield on mortgage
loans was attributable to a decline in the rate indexes used for
residential and commercial real estate mortgage originations.
These indexes which are the 30 year treasury bond for residential
originations and the 5 year treasury note for commercial real
estate originations were down 37 and 43 basis points, respectively,
when compared to the same period last year. The increase in
average balances of mortgage loans between the periods was
primarily due to mortgage originations during 1996 and the later
part of 1995. During the first six months of 1996 and the second
half of 1995, the Bank originated $143.7 million (which included
residential loans purchased of $55.5 million) and $92.7 million,
respectively, in mortgage loans partially offset by principal
payments of $38.3 and $42.3 million, respectively. During the
third quarter of 1996, the Bank originated $93.3 million of
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mortgage loans which included $47.9 million of residential loans
purchased in the secondary market. Interest income on other loans
decreased by $161,000, or 15.4% primarily due to a decrease of $3.6
million in average balances outstanding and a decrease of 72 basis
points in average yield. During the fourth quarter of 1995, the
Bank discontinued its non-real estate related consumer lending
function.
Interest income on MBSs decreased by $667,000, or 6.5% to $9.6
million for the three months ended September 30, 1996 from $10.2
million for the comparable three-month period in 1995 primarily due
to a decrease in average balances of MBSs of $98.1 million
partially offset by an increase in the average yield of 33 basis
points. The decrease in average balances of MBSs between the
periods was due to sales totalling $185.2 million from the
available for sale portfolio partially offset by the purchase of
$159.8 million of MBSs during 1996 of which $122.0 million were for
the available for sale portfolio. During 1996, $136.5 million or
85.4% of the MBSs purchased were fixed rate securities. During the
third quarter of 1996, the Company purchased $20.1 million of fixed
rate MBSs, of which $13.5 million were for the available for sale
portfolio. The emphasis on fixed rate securities was due to more
favorable yield opportunities in fixed rate securities during the
first nine months of 1996 compared to adjustable-rate securities.
The Company has been actively managing its available for sale
portfolio to increase yield while maintaining or reducing its
interest-rate risk exposure.
Interest income on debt and equity securities increased by
$577,000, or 18.1% to $3.7 million for the three months ended
September 30, 1996 from $3.1 million for the comparable three-month
period in 1995 primarily as a result of an increase in average
balances of $34.9 million. The increase in average balance was
primarily due to the purchase of $144.7 million of debt securities
during 1996 of which $137.8 million were purchased for the
available for sale portfolio partially offset by sales totalling
$46.9 million from the available for sale portfolio. During the
third quarter of 1996, the Bank purchased $22.5 million of debt
securities for its available for sale portfolio. Finally, interest
income on money market investments decreased by $30,000, or 42.8%
to $40,000 for the three months ended September 30, 1996 from
$70,000 for the comparable three month period in 1995. The
decrease was due to the average balance which declined $2.2 million
from the same period last year.
INTEREST EXPENSE. Interest expense increased by $1.1 million, or
7.3% to $16.0 million for the three months ended September 30, 1996
from $14.9 million for the three months ended September 30, 1995.
The increase was primarily the result of a $461,000 increase in
interest expense on deposits and an increase of $634,000 in
interest expense on borrowings.
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Interest on deposits increased by $461,000, or 4.2% to $11.3
million for the three months ended September 30, 1996 from $10.9
million for the comparable three-month period in 1995. The
increase in interest on deposits was primarily due to the average
balance which increased $62.8 million, or 5.8% to $1.13 billion for
the three months ended September 30, 1996 from $1.06 billion for
the comparable three-month period in 1995. The cost of deposits
decreased between the periods from 4.10% in the 1995 period to
4.03% in the 1996 period. The increase in average balance was
primarily due to certificate account balances which increased $67.6
million, or 13.1% to $583.7 million for the three months ended
September 30, 1996 from $516.1 million for the comparable three-
month period in 1995. The Bank's strategy during 1995 and 1996 has
been to emphasize certificates of deposit with terms up to 24
months in order to retain a portion of customer withdrawals from
passbook accounts as customers sought higher yielding investment
opportunities in the rising interest rate environment and as a less
expensive alternative to borrowed funds when appropriate. The
average cost of certificate accounts was 5.67% for the third
quarter of 1996 compared to 5.96% for the comparable 1995 period
due to the decrease in market interest rates particularly for 12 to
18 month certificate accounts. Interest expense on certificate
accounts increased by $588,000 or 7.7 to $8.3 million for the three
months ended September 30, 1996 from $7.7 million in the same
period in 1995. The average balance of passbook accounts decreased
by $21.6 million, or 5.5% to $373.4 million for the three months
ended September 30, 1996 from $395.0 million for the third quarter
of 1995. The average cost of passbook accounts remained the same
at 2.51% for both periods. Interest expense on passbook accounts
decreased by $137,000, or 5.5% to $2.3 million for the three months
ended September 30, 1996 from $2.5 million in the same period in
1995 primarily due to a decrease in average balances due to
customers seeking higher yielding investment opportunities
including the Bank's certificate of deposit accounts.
Interest on borrowed funds increased by $634,000, or 15.9% to $4.6
million for the three months ended September 30, 1996 from $4.0
million for the comparable three-month period in 1995. Borrowed
funds on an average basis increased by $67.8 million between the
periods due to the addition of short-term FHLB advances and
securities sold under agreements to repurchase during 1996 to
provide additional funding along with deposit growth for the
purchase of $103.4 million of residential mortgages in the
secondary market and the purchase of debt and MBS securities during
1996. The average rate paid on borrowings decreased to 5.85% for
the three months ended September 30, 1996 from 6.43% for the
comparable prior-year period due to a decrease in market interest
rates between the periods.
NET INTEREST INCOME. Net interest income increased by $1.6 million
to $12.0 million for the three months ended September 30, 1996 from
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$10.4 million for the three months ended September 30, 1995. The
increase reflects an increase in the average yield on interest-
earning assets to 7.49% from 7.44% for the three months ended
September 30, 1996 and 1995, respectively and a decrease in the
average cost on interest-bearing liabilities to 4.43% from 4.54%
for the three months ended September 30, 1996 and 1995,
respectively. The net interest spread was 3.06% for the three
months ended September 30, 1996 compared to 2.90% for the
comparable period in 1995.
PROVISION FOR LOAN LOSSES. The Bank provided $700,000 for loan
losses for both the three months ended September 30, 1996 and
September 30, 1995. This amount represents management's periodic
review and evaluation of the loan portfolio.
NON-INTEREST INCOME. Non-interest income increased by $175,000 or
8.4% for the three months ended September 30, 1996 to $2.3 million
from $2.1 million for the comparable three-month period in 1995.
Loan fees and servicing income increased by $23,000 due to normal
portfolio volume. Savings and checking fees increased by $145,000
due to the number of checking accounts which increased by 9,709, or
18.8% to 61,279 at September 30, 1996 from 51,570 at September 30,
1995 due to the Bank's strategy to continue to attract lower cost
checking deposit balances. The growth in deposit accounts includes
new accounts opened at the Bank's supermarket branches located in
Medford and Uniondale, Long Island. During the quarter ended
September 30, 1996, the Bank incurred a net loss of $11,000 on the
sale of interest-earning assets. The Bank realized a gain of
$220,000 on the sale of $70.9 million of securities which had been
available for sale. This was offset by a valuation adjustment of
$230,000 on cooperative mortgages held for sale. Insurance,
annuity and mutual fund fees increased by $152,000 due to an
increase in sales volume. These were slightly offset by other
income which declined $12,000 mainly due to a decrease in fees from
corresponding Banks.
NON-INTEREST EXPENSE. Non-interest expense increased by $6.1
million, or 77.5% for the three months ended September 30, 1996 to
$14.0 million from $7.9 million for the comparable three-month
period in 1995. The increase was due to the SAIF recapitalization
assessment of $6.8 million which was accrued as of September 30,
1996. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 which empowered the Board of
Directors of the FDIC to impose and collect the assessment. The
special assessment rate is 65.7 basis points per $100 of insured
deposits at March 31, 1995. The assessment will be collected on
November 27, 1996. Compensation and benefit costs declined
$367,000 for the three months ended September 30, 1996 to $3.4
million from $3.8 million in 1995. The decline was due to several
factors. First, during July a curtailment gain of $560,000 was
recorded upon the freeze of the Company's pension plan as of July
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1, 1996. This gain along with a year-to-date accrual adjustment of
$170,000 resulted in an overall reduction of $828,000 in pension
expense when compared to the same period in 1995. This offset
compensation and benefits expense increases totalling $375,000 due
to merit increases and staff expansion for the Bank's supermarket
banking program. In addition, ESOP compensation expense increased
$45,000 when compared to the same period last year due to the
average price of Haven stock which increased between the periods.
REO expense, net declined $394,000 for the third quarter of 1996
when compared to the same period last year. Expenses incurred on
properties in the portfolio and REO provisions declined $180,000
and $150,000, respectively, due to a reduction in REO residential
properties from $2.1 million at September 30, 1995 to $915,000 at
September 30, 1996. Finally, miscellaneous expenses increased
$185,000 from the same period last year due to advertising, NYCE
fees and parent company expenses which were up $64,000, $74,000 and
$50,000, respectively.
INCOME TAX EXPENSE. The Company recorded a tax benefit of $559,000
for the three months ended September 30, 1996 compared to income
tax expense of $1.7 million for an effective tax rate of 43.6% for
the comparable period in 1995. The tax benefit for the third
quarter of 1996 included an adjustment related to the New York
State tax bad debt reserve treatment available to the Company. The
bad debt reserve treatment available to thrift institutions under
S593 of the Internal Revenue Code was repealed for tax years
beginning after 1995. The Bank is now required to use the specific
charge off method for computing its tax bad debt deduction rather
than the experience method for both Federal and New York City tax
purposes. This change did not have a significant effect on the
Company's effective tax rate. However, for New York State
purposes, legislation recently signed by Gov. Pataki "decouples"
the New York State thrift bad debt calculation from the Federal tax
law. Accordingly, the Bank is allowed to use the percentage of
taxable income deduction method when computing its bad debt
deduction for New York State taxes. The use of the PTI method for
New York State in 1996 reduced the tax provision for the third
quarter by $240,000. In prior years, the Bank utilized the
experience method for computing its New York State tax bad debt
reserve.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1996 AND 1995
GENERAL. The Company reported net income of $6.0 million for the
nine months ended September 30, 1996 compared to net income of $5.9
million for the nine months ended September 30, 1995. The $100,000
increase was primarily attributable to an increase of $10.5 million
in interest income and an increase of $1.3 million in non-interest
income. These were partially offset by interest expense which
increased $5.5 million, the provision for loan losses which
increased $475,000 and non-interest expense which increased $6.2
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million (including the $6.8 million charge for the SAIF
recapitalization). Finally, the provision for income tax expense
decreased $443,000 due to the decrease in pre-tax income and the
change in the New York State thrift bad debt deduction as
previously discussed.
INTEREST INCOME. Interest income increased by $10.5 million, or
14.8% to $80.9 million for the nine months ended September 30, 1996
from $70.4 million for the nine months ended September 30, 1995.
The increase was primarily the result of a $6.8 million increase in
interest income on mortgage loans, an increase of $2.4 million in
interest income on MBSs, and an increase of $1.7 million in
interest income on debt and equity securities. These were slightly
offset by a decrease in interest income on other loans and money
market investments of $391,000 and $120,000, respectively.
Interest income on mortgage loans increased by $6.8 million, or
22.1% to $37.7 million for the nine months ended September 30, 1996
from $30.9 million for the comparable nine-month period in 1995
primarily as a result of an increase in average balances of
mortgage loans of $117.4 million slightly offset by a decrease in
the average yield on mortgage loans of 12 basis points. The
average yield on mortgage loans decreased to 8.22% for the nine
months ended September 30, 1996 from 8.34% for the comparable nine-
month period in 1995. The drop in the overall yield on the
portfolio was mainly attributable to the two rate indexes used for
residential and commercial real estate loan originations. The
average rate for the 30 year treasury bond and the 5-year treasury
note declined 37 and 43 basis points, respectively, when compared
to the first nine months of 1995. Market interest rates declined
during the second half of 1995 and did not show any upward movement
until February of 1996. The increase in average balances between
the periods was due to mortgage originations of $237.0 million
during 1996 which included the purchase of $103.4 million of
residential mortgage loans in the secondary market. This was
partially offset by principal repayments which totalled $59.9
million.
Interest income on other loans decreased by $391,000, or 12.3%
primarily due to a decrease of $4.2 million in average balances
outstanding and a decrease of 24 basis points in average yield.
During the fourth quarter of 1995, the Bank discontinued its non-
real estate related consumer lending function.
Interest income on MBSs increased by $2.4 million, or 8.9% to $29.6
million for the nine months ended September 30, 1996 from $27.2
million for the comparable nine-month period in 1995 primarily due
to an increase in average balances of MBSs of $14.8 million and an
increase in the average yield of 40 basis points. During 1996, the
Bank purchased $159.8 million of MBSs, of which $122.0 million were
for the available for sale portfolio. The Bank has been actively
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managing its available for sale portfolio as part of its interest
rate risk strategy. The purchases for the held to maturity
portfolio which totalled $37.8 million were all fixed-rate
securities and 80.9% or $98.7 million of the amount purchased for
the available for sale portfolio were fixed rate. The emphasis on
fixed rate securities during the nine-month period was due to more
favorable yields available compared to adjustable-rate securities
during the same period.
Interest income on debt and equity securities increased by $1.7
million, or 19.1% to $10.7 million for the nine months ended
September 30, 1996 from $9.0 million for the comparable nine-month
period in 1995 primarily as a result of an increase in average
balances of $42.5 million partially offset by a decrease in average
yield of 26 basis points. The decline in average yield was due to
a decrease in rates during the second half of 1995. The debt and
equity security portfolio includes $51.3 million of corporate bonds
which adjust quarterly with rates tied to the two year treasury
index which declined 52 basis points from the same period last
year. The average rate for the index for the first nine months of
1996 was 5.84% compared to 6.36% for the same period last year.
During the third quarter of 1996, the Bank purchased $22.5 million
of debt and equity securities which were designated as available
for sale. During the first six months of 1996, the Bank purchased
$137.3 million of debt and equity securities of which $130.3
million were designated as available for sale. The Bank has been
actively managing its available for sale portfolio as part of its
interest rate risk strategy.
INTEREST EXPENSE. Interest expense increased by $5.5 million, or
13.9% to $45.5 million for the nine months ended September 30, 1996
from $40.0 million for the nine months ended September 30, 1995.
The increase was the result of a $2.2 million increase in interest
expense on deposits and an increase of $3.3 million in interest
expense on borrowings.
Interest on deposits increased by $2.2 million, or 7.2% to $33.1
million for the nine months ended September 30, 1996 from $30.9
million for the comparable nine-month period in 1995. The increase
in interest on deposits was primarily due to the average balance
which increased $67.1 million or 6.4% to $1.11 billion for the nine
months ended September 30, 1996 from $1.04 billion for the
comparable nine-month period in 1995 and an increase of 3 basis
points in the average cost of deposits between the periods. The
increase in average balance was primarily due to certificate
account balances which increased $70.4 million, or 14.2% to $565.5
million for the nine months ended September 30, 1996 from $495.1
million for the comparable nine-month period in 1995. The average
cost of certificate accounts was 5.66% for the first nine months of
1996 compared to 5.81% for the comparable 1995 period due to a
falling interest rate environment during the second half of 1995
32
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and the beginning of 1996. The average balance of passbook
accounts decreased by $37.9 million, or 9.2% to $376.3 million for
the nine months ended September 30, 1996 from $414.2 million for
the first nine months of 1995. The average cost of passbook
accounts was stable at approximately 2.49% for both periods. The
average cost of all deposits was 3.98% for the period ended
September 30, 1996 compared to 3.94% for the period ended September
30, 1995 primarily due to the shift from passbook accounts to
higher costing certificates of deposit accounts.
Interest on borrowed funds increased by $3.3 million, or 36.5% to
$12.4 million for the nine months ended September 30, 1996 from
$9.1 million for the comparable nine-month period in 1995.
Borrowed funds on an average basis increased by $96.4 million
between the periods due to the addition of short-term FHLB advances
and securities sold under agreements to repurchase during 1996 to
provide funding for loan originations and the purchase of $103.4
million of residential mortgages in the secondary market during the
first nine months of 1996. The average rate paid on borrowings
decreased to 5.86% for the nine months ended September 30, 1996
from 6.52% for the comparable prior-year period due to the decrease
in market interest rates between the periods. For example, the
weighted average rates outstanding on FHLB advances and repurchase
agreements at September 30, 1996 were 5.83% and 5.56%,
respectively, compared to 6.27% and 5.84% at September 30, 1995.
NET INTEREST INCOME. Net interest income increased by $4.9 million
to $35.3 million for the nine months ended September 30, 1996 from
$30.4 million for the nine months ended September 30, 1995. The
increase reflects an increase in the average yield on interest-
earning assets to 7.46% from 7.36% for the nine months ended
September 30, 1996 and 1995, respectively. This increase was
partially offset by the average cost on interest-bearing
liabilities which increased to 4.36% from 4.34% for the nine months
ended September 30, 1996 and 1995, respectively. The net interest
spread was 3.10% for the nine months ended September 30, 1996
compared to 3.02% for the comparable period in 1995.
PROVISION FOR LOAN LOSSES. The Bank provided $2.5 million for loan
losses for the nine months ended September 30, 1996 compared to
$2.0 million for the comparable nine-month period in 1995. The
increase was due to an additional provision of $400,000 that the
Bank established during June 1996 related to the growth in the
Bank's residential and commercial mortgage loan portfolios.
NON-INTEREST INCOME. Non-interest income increased by $1.3 million
or 23.1% for the nine months ended September 30, 1996 to $7.2
million from $5.9 million for the comparable nine-month period in
1995. Loan fees and servicing income increased by $626,000 due to
the recovery of interest totalling $597,000 during the second
quarter of 1996 on the satisfaction of a land loan that was
33
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previously classified as a restructured loan. Insurance, annuity
and mutual fund fees increased by $560,000 due to an increase in
sales volume of 23% for the first nine months of 1996 from the same
period in 1995. The net gain on sales of interest earning assets
was $88,000 due to the sale of $237.2 million in securities which
had been available for sale which generated a pre-tax gain of
$318,000 for 1996. This was partially offset by a valuation
adjustment of $230,000 on cooperative mortgages held for sale. The
Bank has been actively managing its available for sale portfolio to
improve yield by purchasing higher yielding securities and loans
and to reduce interest rate risk on the overall portfolio when
possible. Savings and checking fees increased by $357,000 due to
the number of checking accounts which increased by 9,709 or 18.8%
between September 30, 1995 and 1996 due to the Bank's strategy to
attract lower cost deposit balances. These were partially offset
by other non-interest income which declined $162,000 due to
decreases of $45,000 and $35,000, respectively, in miscellaneous
income and fees from corresponding Banks.
NON-INTEREST EXPENSE. Non-interest expense increased by $6.2
million, or 26.4% for the nine months ended September 30, 1996 to
$29.5 million from $23.3 million for the comparable nine-month
period in 1995. The increase was primarily due to the SAIF
recapitalization assessment of $6.8 million which was accrued on
September 30, 1996. Compensation and benefit costs increased
$176,000, or 1.6% to $11.1 million for the nine months ended
September 30, 1996 from the same period last year. Salary costs
increased $934,000 due to two factors: First, normal merit
increases and staff hired for the supermarket banking program
increased salary compensation by $700,000. Second, salary and
commission costs for CIS, Inc. increased $230,000 due to an
increase in sales volume of 23.5% from the same period last year.
These factors were offset by a curtailment gain of $560,000 booked
upon the freeze of the Company's pension plan as of July 1, 1996.
This gain along with a year-to-date accrual adjustment of $170,000
resulted in an overall reduction of $840,000 in pension expense
when compared to the same period in 1995. During 1996, the Company
accrued a matching contribution for employee 401K contributions
which amounted to $94,000 for the first nine months of 1996. Real
estate owned expense, net declined $924,000 for the first nine
months of 1996 when compared to the same period last year.
Expenses incurred on properties in the portfolio and REO provisions
declined $370,000 and $525,000, respectively, due to a reduction in
REO residential properties from $2.1 million at September 30, 1995
to $915,000 at September 30, 1996. Miscellaneous operating
expenses in total increased $179,000 from the same period last
year. During June, 1996, the Bank took into income $389,000 of the
reserve previously established against its claim against Nationar.
This reduction in miscellaneous costs was offset by the following:
Other miscellaneous expenses were up $240,000 due to agency fees of
$90,000 paid for additions to staff and the settlement of two legal
34
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actions for $150,000. In addition, NYCE fees increased $200,000
during the period.
INCOME TAX EXPENSE. Income tax expense was $4.6 million for an
effective tax rate of 43.6% for the nine months ended September 30,
1996 compared to income tax expense of $5.1 million for an
effective tax rate of 46.1% for the comparable period in 1995.
Prior to the enactment, on August 20, 1996, of the Small Business
Job Protection Act of 1996 (the "1996 Act"), for federal income tax
purposes, thrift institutions such as the Bank, which met certain
definitional tests primarily relating to their assets and the
nature of their business, were permitted to establish tax reserves
for bad debts and to make annual additions thereto, which additions
could, within specified limitations, be deducted in arriving at
their taxable income. The Bank's deduction with respect to
"qualifying loans," which are generally loans secured by certain
interest in real property, could be computed using an amount based
on a six-year moving average of the Bank's actual loss experience
(the "Experience Method"), or a percentage equal to 8.0% of the
Bank's taxable income (the "PTI Method"), computed without regard
to this deduction and with additional modifications and reduced by
the amount of any permitted addition to the non-qualifying reserve.
Similar deductions for additions to the Bank's bad debt reserve are
permitted under the New York State Bank Franchise Tax and the New
York City Banking Corporation Tax; however, for purposes of these
taxes, the effective allowable percentage under the PTI method is
32% rather than 8%. The Bank has utilized the experience method
for establishing its Federal, New York State and New York City tax
bad debt reserves in recent years.
Under the 1996 Act, the PTI Method was repealed and thrift
institutions such as the Bank, as a "large bank" (one with assets
having an adjusted basis of more than $500 million), will be unable
to make additions to its tax bad debt reserve, will be permitted to
deduct bad debts only as they occur and will be required to
recapture (that is, take into taxable income) over a six-year
period, beginning with the taxable year beginning January 1, 1996,
the excess of the balance of its bad debt reserves (other than the
supplemental reserve) as of December 31, 1995 over the greater of
the balance of such reserves as of December 31, 1987 (or over a
lesser amount if the Bank's loan portfolio decreased since December
31, 1987). However, under the 1996 Act, such recapture
requirements will be suspended for each of the two successive
taxable years beginning January 1, 1996 in which the Bank
originates a minimum amount of certain residential loans during
such years that is not less than the average of the principal
amounts of such loans made by the Bank during its six taxable years
preceding January 1, 1996. Since the Bank has utilized the
experience method for computing its Federal tax bad debt reserve,
it was not subject to the recapture provisions under the 1996 Act,
and accordingly, there was no adverse impact to the Bank's
financial condition or results of operations from the enactment of
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this legislation.
The New York State tax law has been amended to prevent a similar
recapture of the Bank's bad debt reserve, and to permit continued
future use of the bad debt reserve method for purposes of
determining the Bank's New York State tax liability. The Bank is
utilizing the PTI method for computing its New York State tax bad
debt reserve in 1996 and utilized the experience method in prior
years. The Company's officers and industry leaders continue to
seek such amendments to the New York City tax law; however, the
Company's cannot predict whether such changes to New York City law
will be adopted and, if so, in what form.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 6, 1995, Nationar, the entity that provided check
collection services for the Bank was seized by the Superintendent
of Banks of the State of New York ("Superintendent"). Checks in
process of collection for the Bank totalling $8.9 million were held
by Nationar at the time it was seized. In April 1995, $3.9 million
of these funds were remitted to the Bank.
During the third quarter of 1995, the Bank filed Proofs of Claim
totalling $5.0 million in the aggregate. However, there was a
reasonable likelihood that the Bank would not recover all of the
amounts owed by Nationar. Accordingly, management established a
reserve for potential losses associated with Nationar deposits, in
connection with its normal procedure for monitoring asset quality.
During the year ended December 31, 1995, the Bank recorded $430,000
related to the ultimate recovery of amounts owed by Nationar. On
June 27, 1996, the Bank received a partial payment of it's claims
against Nationar totalling $4,987,000, at which time $389,000 of
the reserve previously established was taken into income. On
October 23, 1996, the Superintendent announced that he has filed an
application with the New York State Supreme Court seeking authority
to pay in full the balance of all accepted unsecured claims net of
any amounts owed to Nationar (other than claims net of any amounts
owed to Nationar for subordinated debt and stock interests). The
Bank could receive further payment on the outstanding balance of
its unsecured claims totalling $54,000, but the exact timing of
such further payments, if any, are unknown at this time.
In February, 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of the Bank. At September 31, 1996,
the Bank has a class action lawsuit related thereto pending,
whereby the plaintiffs are seeking recovery of approximately
$13,300,000 in actual damages and an additional $13,000,000 of
unspecified damages. The Banks ultimate liability, if any, which
might arise from the disposition of these claims cannot presently
36
<PAGE>
be determined. Management believes it has meritorious defenses
against these actions and has and will continue to defend its
position. Accordingly, no provision for any liability that may
result upon adjudication has been recognized in the accompanying
consolidated financial statements.
The Bank and certain of its officers are defendants in a lawsuit
alleging discriminatory employment practices by the defendant. The
suit was filed on June 1, 1994 in the United States District Court,
Eastern District of New York and alleges violations under Title
VII of the Civil Rights Act of 1964 and the New York Human Rights
Law. The lawsuit seeks monetary damages. The Bank does not
believe it engaged in any discriminatory employment practices and
intends to vigorously defend this lawsuit.
The Company is involved in various other legal actions arising in
the ordinary course of business, which in the aggregate, are
believed by management to be immaterial to the financial position
of the Company.
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
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed Form 8-K on September 25, 1996 regarding the
Master Licensing Agreement that its wholly-owned subsidiary,
Columbia Federal Savings Bank had entered into with Pathmark
Stores, Inc.
37
<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.
HAVEN BANCORP INC.
(Registrant)
<TABLE>
<S> <C>
Date: November 13, 1996 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: November 13, 1996 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
</TABLE>
38
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1996 and
the Consolidated Statement of Operations for the nine months Ended
September 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 30,573
<INT-BEARING-DEPOSITS> 1,085,533
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 445,604
<INVESTMENTS-CARRYING> 301,749
<INVESTMENTS-MARKET> 295,245
<LOANS> 738,240
<ALLOWANCE> 10,314
<TOTAL-ASSETS> 1,564,697
<DEPOSITS> 1,127,257
<SHORT-TERM> 136,230
<LIABILITIES-OTHER> 201,070
<LONG-TERM> 62,170
0
0
<COMMON> 50
<OTHER-SE> 93,873
<TOTAL-LIABILITIES-AND-EQUITY> 1,564,697
<INTEREST-LOAN> 40,451
<INTEREST-INVEST> 40,430
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 80,881
<INTEREST-DEPOSIT> 33,135
<INTEREST-EXPENSE> 45,539
<INTEREST-INCOME-NET> 35,342
<LOAN-LOSSES> 2,475
<SECURITIES-GAINS> 88
<EXPENSE-OTHER> 29,484
<INCOME-PRETAX> 10,571
<INCOME-PRE-EXTRAORDINARY> 10,571
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,961
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 7.46
<LOANS-NON> 9,925
<LOANS-PAST> 0
<LOANS-TROUBLED> 3,746
<LOANS-PROBLEM> 20,791
<ALLOWANCE-OPEN> 8,573
<CHARGE-OFFS> 1,541
<RECOVERIES> 807
<ALLOWANCE-CLOSE> 10,314
<ALLOWANCE-DOMESTIC> 10,314
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
