<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 March 31, 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)
11-315380
(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 4,288,208 shares of the Registrant's common stock
outstanding as of May 10, 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 March 31, 1996 and December 31, 1995 3
Consolidated Statements of Operations for the
Three Months ended March 31, 1996 and 1995 4
Consolidated Statement of Changes in
Stockholders' Equity for the Three Months
ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements 7-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-28
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 28-30
Item 2. Changes in Securities 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security
Holders 31-32
Item 5. Other Information 32
Item 6. Exhibits and Reports on Form 8-K 32
Signature Page
2
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HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 25,431 $ 29,790
Money market investments 6,972 9,064
Securities available for sale (note 2) 518,009 503,058
Loans held for sale 11,263 11,412
Debt securities held to maturity (estimated fair value of $101,925
and $126,811 in 1996 and 1995, respectively) (note 2) 103,751 127,796
Federal Home Loan Bank of NY stock, at cost 8,138 8,138
Mortgage-backed securities held to maturity (estimated fair value of
$194,774 and $189,551 in 1996 and 1995, respectively) (note 2) 198,385 190,714
Loans:
First mortgage loans 539,113 519,804
Cooperative apartment loans 9,972 10,187
Other loans 37,278 38,967
--------- ---------
Total loans 586,363 568,958
Less allowance for loan losses (8,859) (8,573)
--------- ---------
Loans, net 577,504 560,385
Premises and equipment, net 7,594 7,590
Accrued interest receivable 10,369 10,736
Real estate owned, net 1,696 2,033
Other assets 15,964 12,100
--------- ---------
Total assets $1,485,076 $1,472,816
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits 1,096,400 1,083,446
Borrowed funds 240,864 270,583
Mortgagors' escrow balances 7,105 3,227
Due to broker 32,512 5,000
Other liabilities 14,658 12,041
--------- ---------
Total liabilities 1,391,539 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; 4,287,464 and 4,511,457 shares
outstanding at March 31, 1996 and December 31, 1995, respectively 50 50
Additional paid-in capital 47,554 47,331
Retained earnings, substantially restricted 60,405 57,919
Unrealized (loss) gain on securities available for sale, net
of tax effect (318) 2,083
Treasury stock, at cost (671,911 and 447,918 shares at March 31,
1996 and December 31, 1995, respectively) (note 3) (11,519) (6,023)
Unallocated common stock held by Bank's ESOP (2,110) (2,197)
Unearned common stock held by Bank's Recognition Plans and Trusts (525) (644)
--------- ---------
Total stockholders' equity 93,537 98,519
--------- ---------
Total liabilities and stockholders' equity $1,485,076 $1,472,816
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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HAVEN BANCORP, INC.
Consolidated Statements of Operations
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Interest income:
Mortgage loans $11,390 $ 9,813
Other loans 975 1,053
Mortgage-backed securities 10,158 8,190
Money market investments 55 93
Debt securities 3,327 2,695
------ ------
Total interest income 25,905 21,844
------ ------
Interest expense:
Deposits:
Passbook accounts 2,334 2,685
NOW accounts 209 188
Money market accounts 456 165
Certificate accounts 7,705 6,550
Borrowings 3,862 2,333
------ ------
Total interest expense 14,566 11,921
------ ------
Net interest income before provision for loan losses 11,339 9,923
Provision for loan losses 650 600
------ ------
Net interest income after provision for loan losses 10,689 9,323
------ ------
Non-interest income:
Loan fees and servicing income 324 337
Savings/checking fees 772 666
Net gain on sales of interest-earning assets 144 -
Insurance annuity and mutual fund fees 692 527
Other 221 336
------ ------
Total non-interest income 2,153 1,866
------ ------
Non-interest expense:
Compensation and benefits 3,739 3,499
Occupancy and equipment 862 839
Real estate owned operations, net 70 539
Federal deposit insurance premiums 617 651
Other 2,157 2,140
------ ------
Total non-interest expense 7,445 7,668
------ ------
Income before income tax expense 5,397 3,521
Income tax expense 2,539 1,675
------ ------
Net income $2,858 $1,846
====== ======
Net income per common share: Primary $ 0.64 $ 0.41
====== ======
Fully diluted $ 0.64 $ 0.41
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
4
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HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 2,858 $ 1,846
Adjustments to reconcile net income to net cash provided used in
operating activities:
Amortization of cost of stock benefit plans 347 353
Amortization of net deferred loan origination fees (84) (93)
Premiums and discounts on loans, mortgage-backed and debt securities 643 (528)
Provision for loan losses 650 600
Provision for losses on real estate owned 100 300
Deferred income taxes (2,490) 1,239
Net gain on sales of interest-earning assets (144) -
Depreciation and amortization 272 248
Decrease (increase) in accrued interest receivable 367 (580)
Increase (decrease) in due to broker 27,512 (29,310)
Increase (decrease) in other liabilities 2,617 (868)
Decrease (increase) in other assets (1,374) (2,472)
------ ------
Net cash provided by (used in) operating activities 31,274 (29,265)
------ ------
Cash flows from investing activities:
Net increase in loans (18,143) (8,036)
Proceeds from disposition of assets (including REO) 1,336 3,637
Purchases of securities available for sale (173,162) -
Principal repayments and maturities on securities available for sale 25,911 427
Proceeds from sales of securities available for sale 129,375 -
Purchases of debt securities held to maturity (5,990) (33,730)
Principal repayments, maturities and calls on debt securities
held to maturity 30,043 700
Purchases of mortgage-backed securities held to maturity (15,060) (15,833)
Principal repayments on mortgage-backed securities held to maturity 6,512 13,424
Net decrease in premises and equipment 276 15
------ ------
Net cash used in investing activities (18,902) (39,396)
------ ------
Cash flows from financing activities:
Net increase in deposits 12,954 24,889
Net (decrease) increase in borrowed funds (29,719) 41,585
Increase in mortgagors' escrow balances 3,878 3,207
(Purchase)/reissuance of treasury stock (5,516) 119
Payment of common stock dividends (442) -
Stock options exercised 22 -
------ ------
Net cash (used in) provided by financing activities (18,823) 69,800
------ ------
Net (decrease) increase in cash and cash equivalents (6,451) 1,139
Cash and cash equivalents at beginning of period 38,854 30,472
------ ------
Cash and cash equivalents at end of period $32,403 $31,611
====== ======
Supplemental information:
Cash paid during the period for:
Interest $13,556 $11,210
Additions to real estate owned 1,050 1,741
Loans transferred to loans held for sale - 12,038
Securities purchased, not yet received 32,512 1,490
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Three Months Ended March 31, 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
Stock Capital Earnings for Sale Stock by ESOP by RRP Total
------ ---------- -------- ------------- -------- ----------- ---------- -----
(In thousands)
<S> <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 three months ended
March 31, 1996 - - 2,858 - - - - 2,858
Dividends declared (note 3) - - (368) - - - - (368)
Purchase of treasury stock (225,537 shares)
(note 4) - - - - (5,516) - - (5,516)
Stock options exercised, net of tax effect
(1,544 shares) - 82 (4) - 20 - - 98
Change in unrealized gain (loss) on securities
available for sale, net of tax effect - - - (2,401) - - - (2,401)
Allocation of ESOP stock and amortization of
award of RRP stock, net of tax effect - 141 - - - 87 119 347
---- ------ ------ ------ ------ ------ ----- ------
Balance at March 31, 1996 50 47,554 60,405 (318) (11,519) (2,110) (525) 93,537
==== ====== ====== ====== ====== ====== ===== ======
Balance at December 31, 1994 50 46,495 50,331 (1,880) (5,093) (2,725) (943) 86,235
Net income for the three months ended
March 31, 1995 - - 1,846 - - - - 1,846
Reissued Treasury Stock contributed to
RRP (9,918 shares) - 49 - - 119 - (168) 0
Change in unrealized gain (loss) on securities
available for sale, net of tax effect - - - 925 - - - 925
Allocation of ESOP stock and amortization
of award of RRP stock - 93 - - - 147 113 353
---- ------ ------ ------ ------ ------ ----- ------
Balance at March 31, 1995 50 46,637 52,177 (955) (4,974) (2,578) (998) 89,359
==== ====== ====== ====== ====== ====== ===== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1996 and December
31, 1995 and for the three-month period ended March 31, 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 period ended March 31, 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.
In November, 1995, the Financial Accounting Standards Board
("FASB") issued an implementation guide for SFAS No. 115. The
implementation guide provided guidance in the form of a question
and answer format and allowed an opportunity from mid-November 1995
7
<PAGE>
to December 31, 1995 for companies to reclassify securities in the
held to maturity portfolio to securities in the available for sale
portfolio without tainting the remainder of the portfolio. In
connection with the implementation guide for SFAS No. 115, the
Company reclassified $41.9 million of debt securities and $405.3
million of MBSs previously classified as held to maturity to
securities available for sale.
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at March 31, 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 $100,172 - (2,786) 97,386
FNMA Preferred Stock 10,000 50 - 10,050
------- ----- ------ -------
110,172 50 (2,786) 107,436
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 15,683 218 - 15,901
FNMA Certificates 60,067 1,115 (213) 60,969
FHLMC Certificates 115,353 1,475 (347) 116,481
CMOs and REMICS 217,337 898 (1,013) 217,222
------- ----- ------ -------
408,440 3,706 (1,573) 410,573
------- ----- ------ -------
Total $518,612 3,756 (4,359) 518,009
======= ===== ====== =======
</TABLE>
The net unrealized loss on securities available for sale at March
31, 1996, was reported as a separate component of stockholders'
equity, in the amount of $318,000 which is net of a tax effect of
$285,000.
DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of debt securities held to maturity at March 31, 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 $ 58,426 54 (1,070) 57,410
Corporate debt securities 45,325 16 (826) 44,515
------- -- ------ -------
Total $103,751 70 (1,896) 101,925
======= == ====== =======
</TABLE>
8
<PAGE>
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.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of MBSs held to maturity at March 31, 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 $ 38,915 300 (639) 38,576
FNMA Certificates 76,521 164 (2,597) 74,088
CMOs and REMICs 82,949 240 (1,079) 82,110
------- ----- ------ -------
Total $198,385 704 (4,315) 194,774
======= ===== ====== =======
</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 REPURCHASE PLAN. On December 27, 1995, the Office
of Thrift Supervision ("OTS") approved a third five percent stock
repurchase program authorized by the Board of Directors of the
Company. The repurchase program was completed on March 11, 1996
with a total of 225,537 shares purchased at an average of $24.46
per share. The Company previously repurchased 235,570 shares of
its common stock in a program that was completed on June 28, 1995
and 247,969 shares in a program completed on May 13, 1994.
9
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NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the three months ended March 31, 1996 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Balance at December 31, 1995 480,463 $10.84
Granted - -
Forfeited - -
Exercised (1,544) $10.00
------- -----
Balance at March 31, 1996 478,919 $10.84
======= =====
Shares exercisable at March 31, 1996 384,716 $10.24
======= =====
</TABLE>
NOTE 5 - DIVIDENDS PAYABLE. On March 28, 1996, the Company's Board
of Directors approved a quarterly cash dividend of $0.10 per share,
payable on April 29, 1996, to shareholders of record as of April 8,
1996.
NOTE 6 - CONTINGENCIES. 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. On April 26, 1995, the Superintendent submitted an
Interim Status Report ("Interim Report") regarding the business and
affairs of Nationar to the Supreme Court of the State of New York
("Court"), in accordance with the relevant provisions of the
Banking Law of the State of New York. Attached to the Interim
Report was a preliminary Statement of the Net Assets and
Liabilities in Liquidation for Nationar as of February 6, 1995
("Preliminary Statement"), which showed a net deficit of
liabilities in excess of assets of approximately $29.4 million.
The Superintendent indicated in the Interim Report that the review
of potential claims against Nationar was not yet complete and that
any estimate of the net deficit of Nationar (and potential creditor
recoveries) may differ materially from the amounts shown in the
Preliminary Statement as a result of, among other things, the
ultimate realization on the assets of the estate, the total amount
of claims presented, the results of the claims reconciliation
process, the valuation of collateral and the review and
10
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classification of priority claims. Under the Banking Law, there
may be certain preferences that might affect the percentage
recovery of any particular institution. The Interim Report did not
indicate whether or the extent to which the Bank or a similarly
situated institution would recover amounts owed by Nationar. On
August 3, 1995, the Superintendent submitted a Second Interim
Status Report ("Second Interim Report") which generally discussed
(i) the disposition of substantially all of the business lines of
Nationar; (ii) the reduction in real property lease costs of
Nationar; (iii) the liquidation of securities deposited with
Nationar by subscribers to Nationar's capital debenture program;
and (iv) claims processing for creditors and stockholders of
Nationar. The Second Interim Report also showed a slight increase
in an estimate of the proceeds realized as of June 30, 1995 from
the liquidation of Nationar's assets from the February 6, 1995
estimate. On September 5, 1995, the Superintendent issued a Third
Interim Status Report. The Third Interim State Report reported
that at least $301 million (unaudited) of timely filed proofs of
claim were received and stated that the Banking Department is
reconciling these claims with Nationar's records and will in
accordance with the Banking Law either accept or reject these
claims.
Management is taking all steps necessary to recover the amounts
owed the Bank by Nationar. 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 February 5, 1996, the Bank was notified by the Superintendent
that all of its filed proofs of claim had been accepted and that he
will recommend to the Court that all but $54,000 of the Bank's
claims are entitled to priority of payment. No objections to the
Superintendent's recommendation that the Court grant priority to
all but $54,000 of the Bank's claims were filed. The Court entered
an order granting priority of payment for approximately $5,045,537
of the Bank's claims on April 10, 1996. The Superintendent also
issued a Fourth Interim Report on the administration and current
status of the Nationar estate. Among other things, the
Superintendent reported that he had accepted or recommended for
acceptance claims totalling approximately $207 million, of which
approximately $118.5 million were recommended for priority or other
special treatment, that claims totalling approximately $256 million
had been rejected or withdrawn, and that Nationar's assets included
almost $230 million in cash and cash equivalents. The
11
<PAGE>
Superintendent also reported that Nationar's assets and liabilities
were subject to the ongoing claims process, including the
resolution of objections to claims and of litigation over rejected
claims. Based on the foregoing, the Bank believes that the
reserves established in 1995 continue to be adequate.
NOTE 7 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In March,
1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
SFAS No. 121 requires that long-lived assets such as plant and
equipment and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. The statement requires that long-lived assets
and certain identifiable intangibles to be disposed of be reported
at the lower of carrying amount or fair value less cost to sell.
SFAS No. 121 was adopted by the Company on January 1, 1996 and did
not have a material effect on the Company's financial statements.
In May, 1995, the FASB issued SFAS No. 122, "Accounting for
Mortgage Servicing Rights". This Statement amends SFAS No. 65,
"Accounting for Certain Mortgage Banking Activities," to require
that a mortgage banking enterprise recognize as separate assets
rights to service mortgage loans for others, however acquired. A
mortgage banking enterprise that acquires mortgage servicing rights
through either the purchase or origination of mortgage loans and
sells or securitizes those loans with servicing rights retained
should allocate the total cost of the mortgage loans to the
mortgage servicing rights and the loans (without the mortgage
servicing rights) based on their relative fair values. This
statement requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on the
fair value of those rights. Impairment should be recognized
through a valuation allowance. SFAS No. 122 was adopted by the
Company on January 1, 1996 and did not have a material effect on
the Company's financial statements.
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
12
<PAGE>
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.
NOTE 8 - 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
4,460,244 primary shares outstanding and 4,460,997 fully diluted
shares outstanding for the three months ended March 31, 1996. The
weighted average number of shares outstanding does not include
210,955 shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP") as of March 31, 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.
13
<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 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
MARCH 31, 1996
ASSETS
Total assets increased by $12.3 million or 0.8% to $1.5 billion at
March 31, 1996. Securities available for sale increased by $14.9
million, or 3.0% to $518.0 million at March 31, 1996 from $503.1
million at December 31, 1995. During the quarter ended March 31,
1996, the Bank purchased $90.2 million of government agency
securities, $73.0 million of MBSs and $10.0 million in FNMA
Preferred Stock. These were offset by sales and principal
repayments of $129.4 million and $25.9 million, respectively. The
purchases and sales during the quarter in the available for sale
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<PAGE>
portfolio were done to minimize market risk and improve the overall
net interest margin. During the first quarter of 1996, $84.5
million of MBSs were sold in the available for sale portfolio with
an average yield of 6.0% and replaced with $90.0 million of Agency
Callable Notes yielding approximately 7.25%. Debt securities held
to maturity declined by $24.0 million, or 18.8% to $103.8 million
at March 31, 1996 from $127.8 million at December 31, 1995 mainly
due to principal repayments and calls totalling $30.0 million which
were partially offset by purchases totalling $6.0 million.
Finally, during the first quarter of 1996, the Bank purchased $15.1
million of MBS securities for the held to maturity portfolio which
were offset by principal repayments totaling $6.5 million.
Net loans increased by $17.1 million or 3.1% to $577.5 million at
March 31, 1996 from $560.4 million at December 31, 1995. Loan
originations during the quarter totaled $36.0 million (comprised of
$22.9 million of residential one-to four-family mortgage loans,
$1.7 million of equity loans and lines of credit, $274,000 of
construction advances, and $11.1 million of commercial real estate
and multi-family loans. Originations for residential one-to four-
family mortgage loans included purchases of $3.7 million of
residential loans in the secondary market.
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 first quarter of 1996, principal
repayments totalled $16.9 million, $1.0 million was transferred to
REO and $679,000 of loans were sold in the secondary market.
REO, net decreased by $337,000 or 16.6% to $1.7 million (net of a
$182,000 reserve) at March 31, 1996 from $2.0 million (net of a
$178,000 reserve) at December 31, 1995. During the first quarter,
the Bank sold $657,000 of REO, acquired $1.0 million of REO
properties and recorded write-downs to fair value of $726,000 on
various properties. (See discussion of non-performing assets on
pages 17-19).
Included in other assets at March 31, 1996 was $6.6 million of net
deferred tax assets compared to $4.1 million at December 31, 1995.
The increase was primarily due to $2.1 million which represents the
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<PAGE>
tax effect of the decrease in the unrealized gain on securities
available for sale from December 1995 to March 1996. Management
believes that the continuation of the improving trend in non-
performing assets along with the Company's outlook for future
earnings, will allow the Company to generate future taxable income
sufficient to utilize the deferred tax asset over time.
LIABILITIES
Deposits increased by $13.0 million between December 31, 1995 and
March 31, 1996 primarily due to an increase in certificates of
deposit outstanding of $18.5 million for the quarter. The Bank's
strategy has been to attract deposits from short to median term
certificates of deposit (up to 24 months) as a lower cost
alternative to borrowed funds to fund loan originations. Borrowed
funds decreased by $29.7 million or 11.0% to $240.9 million from
$270.6 million at December 31, 1995 primarily due to declines of
$13.6 million and $16.3 million, respectively, in FHLB advances and
repurchase agreements. During March, 1996, the Bank applied
proceeds totalling approximately $21.0 million from the sale of
securities available for sale to temporarily pay down borrowings.
Due to brokers totalling $32.5 million includes amounts due at
quarter end on securities purchased, not yet delivered.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity decreased to $93.5 million at
March 31, 1996 from $98.5 million at December 31, 1995. Net income
of $2.9 million for the quarter was offset by the purchase of
225,537 shares of treasury stock for $5.5 million. In addition,
there was a decline of $2.4 million in the unrealized gain on
securities available for sale and the Company declared dividends of
$368,000 during the quarter. 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 increased
stockholders' equity by $347,000.
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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 six-month seasoning period),
restructured loans and real estate owned.
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ------------
<S> <C> <C>
Non-accrual loans
One-to four-family $ 3,743 3,800
Cooperative 619 871
Multi-family 697 967
Non-residential and other 4,006 4,167
------ ------
Total non-accrual loans 9,065 9,805
------ ------
Restructured loans
One-to four-family 976 853
Cooperative 492 494
Multi-family 3,592 3,602
Non-residential and other 1,606 2,123
------ ------
Total restructured loans 6,666 7,072
------ ------
Total non-performing loans 15,731 16,877
------ ------
REO, net
One-to four-family 1,017 1,148
Cooperative 605 723
Multi-family - 156
Non-residential and other 256 184
------ ------
Total REO 1,878 2,211
Less allowance for REO (182) (178)
------ ------
REO, net 1,696 2,033
------ ------
Total non-performing assets $17,427 18,910
====== ======
Non-performing loans to total loans 2.68% 2.97%
Non-performing assets to total assets 1.17 1.28
Non-performing loans to total assets 1.06 1.15
</TABLE>
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<PAGE>
The decrease in non-performing assets is due to the sale in the
first quarter of $657,000 in REO properties and a reduction of
$740,000 in non-accrual loans. The ratio of non-performing loans
to total loans decreased primarily due to the decrease of $1.1
million in non-performing loans during the quarter which was
attributable to the transfer of $1.0 million in loans to the REO
portfolio. Total loans increased by $17.4 million during the
quarter primarily due to mortgage originations of $34.3 million
partially offset by principal repayments and sales of $13.5 million
and $679,000, respectively. The decrease in the ratio of non-
performing assets to total assets decreased due to the
aforementioned REO sales and the write-down to fair value of REO
during the quarter. The ratio of non-performing loans to total
assets decreased primarily due to the increase of $12.3 million in
total assets between year-end 1995 and March 31, 1996.
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.
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ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Balance at beginning of period $ 8,573 10,847
Charge-offs:
Residential (407) (141)
Cooperative (242) (1,176)
Multi-family - (72)
Non-residential and other (127) (131)
------ ------
Total charge-offs (776) (1,520)
------ ------
Recoveries 412 131
------ ------
Net charge-offs (364) (1,389)
Provision for loan losses 650 600
------ ------
Balance at end of period $ 8,859 10,058
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.25% 1.03%
Ratio of allowance for loan losses to
total loans at the end of the period 1.51 1.95
Ratio of allowance for loan losses to non-
performing loans at the end of the period 56.32 37.08
</TABLE>
The ratio of net charge-offs during the first quarter of 1996 to
average loans outstanding decreased compared to the same period in
1995 due to the decrease in charge-offs necessary as a result of
the decrease in non-performing loans between the periods and an
increase of $43.3 million in average loans outstanding due to
mortgage loan originations. 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 both the allowance for loan losses and non-
performing loans. The Bank's allowance for loan losses was $8.9
million and $10.1 million at March 31, 1996 and 1995, respectively,
while non-performing loans totalled $15.7 million and $27.1
million, respectively, at those dates.
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ALLOWANCE FOR REAL ESTATE OWNED
Activity in the allowance for REO for the three months ended March
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Balance at beginning of period $ 178 717
Provision charged to operations 100 300
Charge-offs (96) (694)
------ ------
Balance at end of period $ 182 323
====== ======
</TABLE>
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.
The Company seeks to manage its interest rate risk primarily by:
maintaining a large base of core deposits; lengthening its
portfolio of certificates of deposit in the current rising interest
rate environment; maintaining adequate liquidity through investment
in shorter-term securities and adjustable-rate securities; offering
adjustable rate mortgage loans ("ARM loans") while holding 10-20
year fixed-rate loans for retention in the Bank's portfolio and
originating longer term fixed-rate loans for immediate sale to the
Federal Home Loan Mortgage Corporation ("FHLMC") or the Federal
National Mortgage Association ("FNMA").
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 as was the case during the first half of 1995. 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
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adjustable-rate securities which are expected to help protect net
interest margins during periods of rising interest rates. During
the first quarter of 1996, the Bank sold a large portion of its
available for sale portfolio, most of which were fixed rate
securities, to improve yield via purchases of fixed rate securities
bearing higher yields and shorter duration. The Bank purchased
fixed rate debt securities and MBSs to take advantage of higher
yields versus rates offered on adjustable rate securities. At
March 31, 1996, $262.0 million, or 43.0% of the Company's MBSs
portfolio were adjustable-rate MBSs. In addition, $50.3 million or
25.0% of the Company's debt securities portfolio were floating rate
securities.
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 March 31, 1996 core deposits
represented 49.7% of deposits compared to 50.8% of deposits at
December 31, 1995. During the first quarter of 1996, passbook
accounts increased by $901,000, net of interest and certificates of
deposit increased by $18.5 million, net of interest. The amount of
certificate accounts outstanding at March 31, 1996 was $551.6
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 14.38% at March 31, 1996 compared to 10.31% at
December 31, 1995. The increase in the liquidity ratio during the
quarter is due to the purchase of government agency securities and
an increase in federal funds sold.
The Company's primary sources of funds are deposits, principal and
interest payments on loans and mortgage-backed securities, 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 mortgage-backed
securities are somewhat predictable sources of funds, deposit flows
and mortgage prepayments are greatly influenced by general interest
rates, economic conditions, competition and regulatory changes.
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<PAGE>
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 March 31, 1996 and December 31, 1995,
cash and short and intermediate-term investments totaled $32.4
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 March 31, 1996, totaled $120.6 million. If
needed, the Bank may borrow an additional $34.1 million from the
FHLB.
As of March 31, 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 $89,078 6.13% $89,078 6.13% $96,676 14.41%
Minimum regulatory requirement 21,793 1.50 43,586 3.00(2) 53,663 8.00
------ ---- ------ ---- ------ ----
Excess $67,285 4.63% $45,492 3.13% $43,013 6.41%
====== ==== ====== ==== ====== ====
</TABLE>
Legislation currently before the United States Congress reportedly
provides for a one-time, special assessment on all deposits insured
by the Savings Association Insurance Fund ("SAIF") which has been
estimated to be approximately $.80 per $100 of deposits. This one-
time assessment, which is intended to recapitalize the SAIF to the
required level of 1.25% of insured deposits, may be a future
expense of the Bank, depending on the enactment, timing and final
wording of such legislation. If the assessment is made at the
proposed rate, the effect on the Bank would be a pre-tax charge of
approximately $8.3 million, based on insured deposits as of March
31, 1995. It is anticipated that if the SAIF reserves are
increased to the required ratio, the Bank may see a decrease in the
annual deposit premium in future periods.
(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
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<PAGE>
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.
The following table sets 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
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has discontinued accruing interest. The yields and costs include
fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
Three Months Ended March 31,
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 $ 545,889 $11,390 8.35% $500,467 $9,813 7.84%
Other loans 38,302 975 10.18 40,383 1,053 10.43
Mortgage-backed securities 611,981 10,158 6.64 508,734 8,190 6.44
Money market investments 2,574 55 8.55 9,909 93 3.75
Debt and equity securities 198,872 3,327 6.69 147,246 2,695 7.32
--------- ------ --------- ------
Total interest-earning assets 1,397,618 25,905 7.41 1,206,739 21,844 7.24
Non-interest earning assets 59,957 64,998
--------- ---------
Total assets 1,457,575 1,271,737
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Passbook accounts 376,536 2,334 2.48 436,887 2,685 2.46
Certificate accounts 540,859 7,705 5.70 468,012 6,550 5.60
NOW accounts 105,042 209 0.80 91,111 188 0.83
Money market accounts 61,689 456 2.95 27,308 165 2.42
Borrowed funds 260,880 3,862 5.92 146,062 2,333 6.39
--------- ------ --------- ------
Total interest-bearing liabilities 1,345,006 14,566 4.33 1,169,380 11,921 4.08
Other liabilities 18,481 12,140
--------- ---------
Total liabilities 1,363,487 1,181,520
Stockholders' equity 94,088 90,217
--------- ---------
Total liabilities and stockholders' equity 1,457,575 1,271,737
========= =========
Net interest income/net interest rate spread $11,339 3.08% $9,923 3.16%
====== ==== ===== ====
Net interest earning assets/net interest margin $52,612 3.25% $37,359 3.29%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.91% 103.19%
====== ======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1996 AND 1995
GENERAL. The Company reported net income of $2.9 million for the
three months ended March 31, 1996 compared to net income of $1.8
million for the three months ended March 31, 1995. The $1.1
million increase was primarily attributable to an increase of $4.1
million in interest income, an increase of $287,000 in non-interest
income and a decrease of $223,000 in non-interest expenses. These
were partially offset by interest expense which increased $2.6
million, the provision for loan losses which increased $50,000 and
the provision for income tax expense which was up $864,000 due to
the increase in pre-tax income.
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<PAGE>
INTEREST INCOME. Interest income increased by $4.1 million, or
18.6% to $25.9 million for the three months ended March 31, 1996
from $21.8 million for the three months ended March 31, 1995. The
increase was primarily the result of a $2.0 million increase in
interest income on MBSs, an increase of $1.6 million in interest
income on mortgage loans, and an increase of $632,000 in interest
income on debt securities. These were partially offset by a
decrease in interest income on other loans and money market
investments of $78,000 and $38,000, respectively.
Interest income on mortgage loans increased by $1.6 million, or
16.1% to $11.4 million for the three months ended March 31, 1996,
from $9.8 million for the comparable three-month period in 1995
primarily as a result of an increase in average balances of
mortgage loans of $45.4 million and an increase in the average
yield of 51 basis points on mortgage loans. The average yield on
mortgage loans increased to 8.35% for the three months ended March
31, 1996 from 7.84% for the comparable three-month period in 1995.
The increase in the average yield is due to the increase in market
interest rates during the second half of 1995. The increase in
average balances of mortgage loans between the periods was
primarily due to mortgage originations for the first quarter of
1996 which totalled $34.3 million. During 1995, the Bank
originated $132.6 million of loans partially offset by principal
repayments of $67.0 million. Interest income on other loans
decreased by $78,000, or 7.4% primarily due to a decrease of $2.1
million in average balances outstanding and a decrease of 25 basis
points in average yield. During the fourth quarter of 1995, the
Bank discontinued its non-real estate related lending function.
Interest income on MBSs increased by $2.0 million, or 24.0% to
$10.2 million for the three months ended March 31, 1996 from $8.2
million for the comparable three-month period in 1995 primarily due
to an increase in average balances of MBSs of $103.2 million and an
increase in the average yield of 20 basis points. The increase in
average balances of MBSs between the periods was primarily due to
the purchase of $160.8 million of adjustable-rate MBSs during 1995.
During the first quarter of 1996, the Company purchased $88.1
million of fixed rate MBSs, of which $15.1 million were for the
held to maturity portfolio. The emphasis on fixed rate securities
was due to a more favorable yield versus adjustable-rate
securities.
Interest income on money market investments decreased by $38,000 to
$55,000 for the three months ended March 31, 1996 from $93,000 for
the comparable three-month period in 1995 primarily as a result of
a decrease in average balance of $7.3 million. The decrease in
average balance was due primarily to the Bank's decision to fully
invest excess funds into residential mortgage loans, MBSs and debt
and equity securities.
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<PAGE>
Interest income on debt securities increased by $632,000 or 23.5%
to $3.3 million for the three months ended March 31, 1996 from $2.7
million for the comparable three-month period in 1995 primarily as
a result of an increase in average balances of $51.6 million
partially offset by a decrease in average yield of 63 basis points.
The increase in average balance was primarily due to the purchase
of $112.1 million of debt securities during 1995 of which $21.8
million were adjustable-rate securities. The decrease in average
yield was mainly attributable to $45.0 million of corporate bonds
which adjust quarterly. These bonds are tied to the two year
treasury index which has declined 100 basis points from the first
quarter of 1995. During the first quarter of 1996, the Bank
purchased $121.2 million of debt securities of which $115.2 million
were designated as available for sale.
INTEREST EXPENSE. Interest expense increased by $2.6 million, or
22.2% to $14.5 million for the three months ended March 31, 1996
from $11.9 million for the three months ended March 31, 1995. The
increase was primarily the result of a $1.1 million increase in
interest expense on deposits and an increase of $1.5 million in
interest expense on borrowings.
Interest on deposits increased by $1.1 million, or 11.6% to $10.7
million for the three months ended March 31, 1996 from $9.6 million
for the comparable three-month period in 1995. The increase in
interest on deposits was primarily due to the average balance which
increased $60.8 million or 5.9% to $1.08 billion for the three
months ended March 31, 1996 from $1.02 billion for the comparable
three-month period in 1995 and an increase of 20 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 $72.8 million, or 15.6% to $540.9 million for the
three-months ended March 31, 1996 from $468.0 million for the
comparable three-month period in 1995. The Bank's strategy during
1995 and 1996 has been to emphasize 12 and 18 month certificates of
deposit 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 an
alternative to borrowed funds when appropriate. The average cost
of certificate accounts was 5.70% for the first quarter of 1996
compared to 5.60% for 1995 due to a rising interest rate
environment during most of 1995. As a result, interest expense on
certificate accounts increased by $1.2 million or 17.6% to $7.7
million for the three months ended March 31, 1996 from $6.6 million
in the same period in 1995. The average balance of passbook
accounts decreased by $60.4 million, or 13.8% to $376.5 million for
the three-months ended March 31, 1996 from $436.9 million for the
first quarter of 1995. The average cost of passbook accounts
increased two basis points to 2.48% from 2.46% for the period ended
March 31, 1995. Interest expense on passbook accounts decreased by
$351,000 or 13.1% to $2.3 million for the three months ended March
26
<PAGE>
31, 1996 from $2.7 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. The average cost of all deposits was 3.95%
for the period ended March 31, 1996 compared to 3.75% for the
period ended March 31, 1995 due to the increase in market interest
rates during 1995.
Interest on borrowed funds increased by $1.5 million, or 65.5% to
$3.8 million for the three months ended March 31, 1996 from $2.3
million for the comparable three-month period in 1995. Borrowed
funds on an average basis increased by $114.8 million between the
periods due to the addition of short-term FHLB advances and
securities sold under agreements to repurchase during 1995 to
provide funding for investment purchases including a $75 million
leverage program that was completed during the second quarter of
1995. The average rate paid on borrowings decreased to 5.92% for
the three months ended March 31, 1996 from 6.39% for the comparable
prior-year period due to a drop in market rates between the periods
and the extension of current borrowings to take advantage of lower
market rates.
NET INTEREST INCOME. Net interest income increased by $1.4 million
to $11.3 million for the three months ended March 31, 1996 from
$9.9 million for the three months ended March 31, 1995. The
increase reflects an increase in the average yield on interest-
earning assets to 7.41% from 7.24% for the three months ended March
31, 1996 and 1995, respectively. This increase was partially
offset by the average cost on interest-bearing liabilities which
increased to 4.33% from 4.08% for the three-months ended March 31,
1996 and 1995, respectively. The net interest spread was 3.08% for
the three months ended March 31, 1996 compared to 3.16% for the
comparable period in 1995. It is unclear how the recent increases
in market interest rates will impact net interest income for the
remainder of 1996.
PROVISION FOR LOAN LOSSES. The Bank provided $650,000 for loan
losses for the three months ended March 31, 1996 compared to
$600,000 for the comparable three-month period in 1995. This
amount represents management's periodic review and evaluation of
the loan portfolio.
NON-INTEREST INCOME. Non-interest income increased by $287,000 or
15.4% for the three months ended March 31, 1996 to $2.2 million
from $1.9 million for the comparable three-month period in 1995.
Insurance, annuity and mutual fund fees increased by $165,000 due
to an increase in sales volume. The net gain on the sale of
interest earning assets increased $144,000 due to the sale of
$114.2 million in securities which had been available for sale.
Savings and checking fees increased by $106,000 due to the number
of checking accounts which increased by 7,960 or 16.6% to 55,839 at
27
<PAGE>
March 31, 1996 from 47,879 at March 31, 1995 due to the Bank's
strategy to attract lower cost deposit balances. These were
partially offset by other income which declined $115,000 due to
decreases of $90,000 and $25,000, respectively, in miscellaneous
income and fees from corresponding Banks.
NON-INTEREST EXPENSE. Non-interest expense decreased by $223,000,
or 2.9% for the three months ended March 31, 1996 to $7.4 million
from $7.7 million for the comparable three-month period in 1995.
The decrease is primarily due to a decrease of $469,000 in real
estate owned operations, net which was partially offset by an
increase of $240,000 in compensation and benefits. The decrease in
real estate owned operations, net was primarily due to the sale of
$8.5 million of cooperative apartment REO during 1995 and the sale
of $657,000 in REO during the first quarter of 1996 which resulted
in a pre-tax gain on sale of $102,000. Miscellaneous expenses
decreased $18,000 for the first quarter of 1996 versus the first
quarter of 1995 due to a decline of $34,000 in federal deposit
insurance premiums due to a decrease in the Bank's assessment rate
to 0.23% in 1996 from 0.26% in 1995. The increase in compensation
and benefits expense is due to normal merit increases.
INCOME TAX EXPENSE. Income tax expense was $2.5 million for an
effective tax rate of 47.0% for the three months ended March 31,
1996 compared to income tax expense of $1.7 million for an
effective tax rate of 47.6% for the comparable period in 1995.
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. On April 26, 1995, the
Superintendent submitted an Interim Status Report ("Interim
Report") regarding the business and affairs of Nationar to the
Supreme Court of the State of New York ("Court"), in accordance
with the relevant provisions of the Banking Law of the State of New
York. Attached to the Interim Report was a preliminary Statement
of the Net Assets and Liabilities in Liquidation for Nationar as of
February 6, 1995 ("Preliminary Statement"), which showed a net
deficit of liabilities in excess of assets of approximately $29.4
million. The Superintendent indicated in the Interim Report that
the review of potential claims against Nationar was not yet
complete and that any estimate of the net deficit of Nationar (and
potential creditor recoveries) may differ materially from the
amounts shown in the Preliminary Statement as a result of, among
other things, the ultimate realization on the assets of the estate,
28
<PAGE>
the total amount of claims presented, the results of the claims
reconciliation process, the valuation of collateral and the review
and classification of priority claims. Under the Banking Law,
there may be certain preferences that might affect the percentage
recovery of any particular institution. The Interim Report did not
indicate whether or the extent to which the Bank or a similarly
situated institution would recover amounts owed by Nationar. On
August 3, 1995, the Superintendent submitted a Second Interim
Status Report ("Second Interim Report") which generally discussed
(i) the disposition of substantially all of the business lines of
Nationar; (ii) the reduction in real property lease costs of
Nationar; (iii) the liquidation of securities deposited with
Nationar by subscribers to Nationar's capital debenture program;
and (iv) claims processing for creditors and stockholders of
Nationar. The Second Interim Report also showed a slight increase
in an estimate of the proceeds realized as of June 30, 1995 from
the liquidation of Nationar's assets from the February 6, 1995
estimate. On September 5, 1995, the Superintendent issued a Third
Interim Status Report. The Third Interim Status Report reported
that at least $301 million (unaudited) of timely filed proofs of
claim were received and stated that the Banking Department is
reconciling these claims with Nationar's records and will in
accordance with the Banking Law either accept or reject these
claims.
Management is taking all steps necessary to recover the amounts
owed the Bank by Nationar. During the third quarter of 1995, the
Bank filed Proofs of Claim totalling $5.0 million in the aggregate.
As of December 31, 1995, it was uncertain as to when and in what
amount the remaining funds would be remitted to the Bank. 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, which is included in non-interest expense. The
foregoing events will not have any material effect on the Company's
or the Bank's ability to meet their liquidity needs.
On February 5, 1996, the Bank was notified by the Superintendent
that all of its filed proofs of claim had been accepted and that he
will recommend to the Court that all but $54,000 of the Bank's
claims are entitled to priority of payment. No objections to the
Superintendent's recommendation that the Court grant priority to
all but $54,000 of the Bank's claims were filed. The Court entered
an order granting priority of payment for approximately $5,045,537
of the Bank's claims on April 10, 1996. The Superintendent also
issued a Fourth Interim Report on the administration and current
status of the Nationar estate. Among other things, the
Superintendent reported that he had accepted or recommended for
29
<PAGE>
acceptance claims totalling approximately $207 million, of which
approximately $118.5 million were recommended for priority or other
special treatment, that claims totalling approximately $256 million
had been rejected or withdrawn, and that Nationar's assets included
almost $230 million in cash equivalents. The Superintendent also
reported that Nationar's assets and liabilities were subject to the
ongoing claims process, including the resolution of objections to
claims and of litigation over rejected claims. Based on the
foregoing, the Bank believes that the reserves established in 1995
continue to be adequate.
In February, 1983, a burglary of the contents of safe deposit boxes
occurred at a branch office of the Bank. At December 31, 1995, 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 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.
In addition, the Bank and certain of its officers are defendants in
four lawsuits alleging discriminatory employment practices by the
defendants. The first two lawsuits were filed on June 1, 1994 and
July 28, 1994, respectively, in the United States District Court,
Eastern District of New York and allege violations under Title VII
of the Civil Rights Act of 1964 and the New York Human Rights Law.
In addition, the lawsuit filed in July also alleges violations
under the Disability Act and a violation under ERISA. The Bank is
also a defendant in a third lawsuit filed September 15, 1994 in the
United State District Court, Eastern District of New York which
also alleges violations under Title VII of the Civil Rights Act of
1964, the New York Human Rights Law and the Civil Rights Act of
1866. Finally, the Bank is a defendant in a fourth lawsuit filed
December 14, 1994 in the United States District Court, Eastern
District of New York which alleges violations under Title VII of
the Civil Rights Act of 1964 and the New York Human Rights Law.
The four lawsuits seek monetary damages. The Bank does not believe
it engaged in any discriminatory employment practices and intends
to vigorously defend these lawsuits. The Bank has settled two of
the lawsuits: the first for approximately $5,000 in December 1995
and the second for $45,000 during March of 1996.
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.
30
<PAGE>
ITEM 2. CHANGES IN SECURITIES
On January 25, 1996, the Board of Directors of the Company
declared a dividend payable on February 5, 1996 to stockholders of
record on that date of one preferred share purchase right ("Right")
for each outstanding share of common stock, par value $.01 per
share ("Common Shares"), of the Company which entitles the
registered holder to purchase from the Company one one-hundredth
interest in a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the
Company, at a price of $90.00 per one one-hundredth interest in a
Preferred Share, subject to adjustment. The Rights Agreement,
dated as of January 25, 1996, between the Company and Chemical
Bank, as rights agent, which sets forth the description and terms
of the Rights, was filed as an exhibit to the Current Report on
Form 8-K dated January 25, 1996 and is incorporated herein by
reference.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Stockholders was held on
April 24, 1996.
(b) Not applicable.
(c) At such meeting, the shareholders approved the following
matters:
1. The election of the following individuals as Directors for a
term of 3 years each:
<TABLE>
<CAPTION>
Votes Broker
Votes For Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
George S. Worgul 3,461,147 205,961 -0- -0-
Robert L. Koop 3,461,147 205,961 -0- -0-
William J. Claffey 3,461,147 205,961 -0- -0-
</TABLE>
2. The ratification of the Haven Bancorp, Inc. 1996 Stock
Incentive Plan as reflected by 2,674,886 votes for, 935,607 votes
against, 56,615 abstentions and no broker non-votes.
31
<PAGE>
3. The ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1996, as reflected by 3,642,924 votes for, 13,450 votes against,
10,734 abstentions and no broker non-votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 27.1 Financial Data Schedule.
(b) None.
32
<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: May 14, 1996 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: May 14, 1996 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
</TABLE>
33
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at March 31, 1996 and the
Consolidated Statement of Operations for the three months Ended March 31,
1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 25,431
<INT-BEARING-DEPOSITS> 1,057,467
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 518,009
<INVESTMENTS-CARRYING> 302,136
<INVESTMENTS-MARKET> 296,699
<LOANS> 586,363
<ALLOWANCE> 8,859
<TOTAL-ASSETS> 1,485,076
<DEPOSITS> 1,096,400
<SHORT-TERM> 145,246
<LIABILITIES-OTHER> 54,275
<LONG-TERM> 95,618
0
0
<COMMON> 50
<OTHER-SE> 93,487
<TOTAL-LIABILITIES-AND-EQUITY> 1,485,076
<INTEREST-LOAN> 12,365
<INTEREST-INVEST> 13,540
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 25,905
<INTEREST-DEPOSIT> 10,704
<INTEREST-EXPENSE> 14,566
<INTEREST-INCOME-NET> 11,339
<LOAN-LOSSES> 650
<SECURITIES-GAINS> 144
<EXPENSE-OTHER> 7,445
<INCOME-PRETAX> 5,397
<INCOME-PRE-EXTRAORDINARY> 5,397
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,858
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.64
<YIELD-ACTUAL> 7.41
<LOANS-NON> 9,065
<LOANS-PAST> 0
<LOANS-TROUBLED> 6,666
<LOANS-PROBLEM> 21,162
<ALLOWANCE-OPEN> 8,573
<CHARGE-OFFS> 776
<RECOVERIES> 412
<ALLOWANCE-CLOSE> 8,859
<ALLOWANCE-DOMESTIC> 8,859
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
