<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, 1998 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.)
615 MERRICK AVENUE, WESTBURY, NEW YORK 11590
(Address of principal executive offices) (Zip Code)
(516) 683-4100
(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 8,852,254 shares of the Registrant's common stock
outstanding as of November 13, 1998.
<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, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Three Months and Nine Months ended
September 30, 1998 and 1997 4
Consolidated Statement of Changes in
Stockholders' Equity for the Nine Months
ended September 30, 1998 5
Consolidated Statements of Cash Flows for the
Nine months ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11-33
Item 3. Quantitative and Qualitative Disclosure About
Market Risk 33
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 33-34
Item 2. Changes in Securities and Use of Proceeds 34
Item 3. Defaults Upon Senior Securities 34
Item 4. Submission of Matters to a Vote of Security
Holders 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
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,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 35,049 $ 35,745
Money market investments 1,803 4,561
Securities available for sale 839,570 499,380
Loans held for sale 58,236 -
Debt securities held to maturity (estimated fair value of $66,372
in 1997) - 66,404
Federal Home Loan Bank of NY stock, at cost 19,670 12,885
Mortgage-backed securities held to maturity (estimated fair value of
$163,326 in 1997) - 163,057
Loans:
First mortgage loans 1,273,789 1,098,894
Cooperative apartment loans 4,957 19,596
Other loans 33,840 32,291
--------- ---------
Total loans 1,312,586 1,150,781
Less allowance for loan losses (13,791) (12,528)
--------- ---------
Loans, net 1,298,795 1,138,253
Premises and equipment, net 37,010 27,062
Accrued interest receivable 13,099 12,429
Other assets 19,234 15,114
--------- ---------
Total assets $2,322,466 $1,974,890
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,627,832 $1,365,012
Borrowed funds 487,211 466,794
Due to broker 40,000 10,000
Other liabilities 44,887 20,219
--------- ---------
Total liabilities 2,199,930 1,862,025
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued - -
Common stock, $.01 par value, 30,000,000 shares authorized,
9,918,750 shares issued; 8,850,768 and 8,784,700 shares
outstanding at September 30, 1998 and December 31, 1997 100 100
Additional paid-in capital 51,038 50,065
Retained earnings, substantially restricted 77,402 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net of tax effect 5,892 1,671
Treasury stock, at cost (1,067,982 and 1,134,050 shares at September
30, 1998 and December 31, 1997) (9,853) (10,246)
Unallocated common stock held by Bank's ESOP (1,297) (1,529)
Unearned common stock held by Bank's Recognition Plans and Trusts (284) (364)
Unearned compensation (462) (399)
--------- ---------
Total stockholders' equity 122,536 112,865
--------- ---------
Total liabilities and stockholders' equity $2,322,466 $1,974,890
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
Note - Share amounts have been restated to fully reflect the 2-for-
1 stock split effective November 1997.
3
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $25,299 $19,811 $70,629 $54,878
Other loans 821 808 2,431 2,424
Mortgage-backed securities 11,610 8,541 30,114 23,773
Money market investments 23 83 169 273
Debt and equity securities 2,226 3,332 8,331 11,640
------ ------ ------- ------
Total interest income 39,979 32,575 111,674 92,988
------ ------ ------- ------
Interest expense:
Deposits:
Savings accounts 3,366 2,387 8,482 6,938
NOW accounts 344 277 946 772
Money market accounts 525 470 1,462 1,329
Certificate accounts 12,791 10,394 37,269 28,085
Borrowed funds 8,015 5,817 20,933 16,827
------ ------ ------ ------
Total interest expense 25,041 19,345 69,092 53,951
------ ------ ------ ------
Net interest income 14,938 13,230 42,582 39,037
Provision for loan losses 670 700 1,990 2,150
------ ------ ------ ------
Net interest income after provision for loan losses 14,268 12,530 40,592 36,887
------ ------ ------ ------
Non-interest income:
Loan fees and servicing income 428 271 1,272 775
Mortgage banking income 4,646 - 5,553 -
Savings/checking fees 2,650 1,452 6,780 3,775
Net gain (loss) on sales of interest-earning assets 1,185 (7) 1,591 (23)
Insurance annuity and mutual fund fees 1,472 1,024 3,973 2,827
Other 634 471 1,888 1,011
------ ------ ------ ------
Total non-interest income 11,015 3,211 21,057 8,365
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 12,084 6,488 30,048 17,380
Occupancy and equipment 2,947 1,760 7,547 4,398
Real estate owned operations, net 67 99 28 283
Federal deposit insurance premiums 231 165 660 529
Other 7,312 3,502 15,806 10,031
------ ------ ------ ------
Total non-interest expense 22,641 12,014 54,089 32,621
------ ------ ------ ------
Income before income tax expense 2,642 3,727 7,560 12,631
Income tax expense 402 1,276 1,940 4,575
------ ------ ------ ------
Net income $2,240 $2,451 $5,620 $8,056
====== ====== ====== ======
Net income per common share: Basic $ 0.26 $ 0.29 $ 0.66 $ 0.96
====== ====== ====== ======
Diluted $ 0.24 $ 0.27 $ 0.61 $ 0.90
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
Note - Per share amounts have been restated to fully reflect the
2-for-1 stock split effective November 1997.
4
<PAGE> HAVEN BANCORP, INC.
Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended September 30, 1998 (Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Unallocated Unearned
Additional Comprehen- Common Common
Common Paid-In Retained sive Treasury Stock Held Stock Held Unearned
Total Stock Capital Earnings Income Stock by ESOP by RRP Compensation
(Dollars in thousands) ----- ------ ---------- -------- ---------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $112,865 100 50,065 73,567 1,671 (10,246) (1,529) (364) (399)
Comprehensive Income:
Net income 5,620 - - 5,620 - - - - -
Other comprehensive income, net of tax
Net unrealized appreciation on
certain securities, net of
reclassification adjustment 3,340 - - - 3,340 - - - -
Net unrealized appreciation on Debt and
MBS securities transferred from held to
maturity to the AFS portfolio(note 2) 881 - - - 881 - - - -
-------
Comprehensive income 9,841 - - - - - - - -
Dividends declared (note 5) (1,785) - - (1,785) - - - - -
Treasury stock issued for deferred
compensation plan (14,384 shares) - - 280 - - 86 - - (366)
Stock options exercised, net of tax
effect (51,684 shares) (note 4) 441 - 134 - - 307 - - -
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits 871 - 559 - - - 232 80 -
Amortization of deferred compensation plan 303 - - - - - - - 303
------- --- ------ ------ ------ ------ ------ ----- -----
Balance at September 30, 1998 $122,536 100 51,038 77,402 5,892 (9,853) (1,297) (284) (462)
======= === ====== ====== ====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FAS 130 Disclosure of Reclassification Adjustment
September 30, 1998
Gross Tax Effect Net of Tax
----- ---------- ----------
<S> <C> <C> <C>
Comprehensive income items
Net unrealized gain arising during period 5,708 1,157 4,551
Less: reclassification adjustment for net gains included in income 465 134 330
----- ----- -----
Net unrealized gain on certain securities 5,243 1,022 4,221
===== ===== =====
Balance sheet items
Accumulated unrealized gain on securities AFS as of September 30, 1998 7,856 1,964 5,892
Accumulated unrealized gain on securities AFS as of December 31, 1997 2,613 942 1,671
----- ----- -----
Change during the period 5,243 1,022 4,221
===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
Note - Share amounts have been restated to fully reflect the 2-
for-1 stock split effective November 1997.
5
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,620 $ 8,056
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 1,174 1,205
Amortization of net deferred loan origination fees (779) (401)
Amortization of premiums and discounts on loans, mortgage-backed
and debt securities (1,401) 273
Provision for loan losses 1,990 2,150
Provision for losses on real estate owned 35 100
Deferred income taxes 1,702 (1,252)
Net (gain) loss on sales of interest-earning assets (1,591) 23
Loans originated and purchased for sale, net of proceeds from sale (58,236) -
Depreciation and amortization 2,186 1,010
(Increase) decrease in accrued interest receivable (670) 411
Increase (decrease) in due to broker 30,000 (1,000)
Increase in other liabilities 24,663 3,263
Increase in other assets (7,002) (2,437)
------- ------
Net cash (used in) provided by operating activities (2,309) 11,401
------- ------
Cash flows from investing activities:
Net increase in loans (266,903) (217,407)
Proceeds from disposition of assets (including REO) 565 1,643
Purchases of securities available for sale (486,666) (352,407)
Principal repayments and maturities on securities available for sale 120,025 26,766
Proceeds from sales of securities available for sale 323,002 275,513
Principal repayments, maturities and calls on debt securities
held to maturity 21,020 8,954
Principal repayments on mortgage-backed securities held to maturity 24,834 24,996
Purchases of FHLB stock, net (6,785) (1,350)
Net increase in premises and equipment (12,134) (9,324)
------- -------
Net cash used in investing activities (283,042) (242,616)
------- -------
Cash flows from financing activities:
Net increase in deposits 262,820 172,683
Net increase in borrowed funds 20,417 64,232
Payment of common stock dividends (1,781) (1,956)
Stock options exercised 441 747
------- -------
Net cash provided by financing activities 281,897 235,706
------- -------
Net (decrease) increase in cash and cash equivalents (3,454) 4,491
Cash and cash equivalents at beginning of period 40,306 35,717
------ -------
Cash and cash equivalents at end of period $ 36,852 $ 40,208
======= =======
Supplemental information:
Cash paid during the period for:
Interest $67,749 $ 52,814
Income taxes 1,664 3,946
Additions to real estate owned 558 1,539
Securities purchased, not yet received 40,000 -
Loans securitized 105,691 -
MBS and debt securities held to maturity transferred to
securities available for sale 183,639 -
======= ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(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, CFS Bank, formerly known as Columbia Federal
Savings Bank, ("CFS" or the "Bank") and subsidiaries, as of
September 30, 1998 and December 31, 1997 and for the three-month
and nine-month periods ended September 30, 1998 and 1997,
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, 1998 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, 1997.
NOTE 2 - DEBT, EQUITY AND MORTGAGE-BACKED SECURITIES ("MBSs").
Under Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity
Securities", debt and equity 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. At June 30, 1998, the
Company transferred its remaining debt and MBSs held to maturity
portfolios totaling $183.6 million to securities available for
sale.
7
<PAGE>
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at September 30, 1998 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 $ 62,872 131 (339) 62,664
Corporate Bonds 19,848 - (176) 19,672
Preferred Stock 11,700 39 (190) 11,549
------- ----- ------ -------
94,420 170 (705) 93,885
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 529 5 - 534
FNMA Certificates 189,887 2,728 (41) 192,574
FHLMC Certificates 65,729 1,162 (6) 66,885
CMOs and REMICS 481,148 5,529 (985) 485,692
------- ----- ------ -------
737,293 9,424 (1,032) 745,685
------- ----- ------ -------
Total $831,713 9,594 (1,737) 839,570
======= ===== ====== =======
</TABLE>
The net unrealized gain on securities available for sale at
September 30, 1998, was reported as a separate component of
stockholders' equity in the amount of $5.9 million, which is net
of a tax effect of $2.0 million.
NOTE 3 - ACQUISITION OF CENTURY INSURANCE AGENCY. On September
29, 1998, Haven Bancorp announced that it had agreed to acquire
Century Insurance Agency ("CIA") for approximately $1.2 million.
CIA, which is headquartered in Centereach, New York, specializes
in providing automobile, homeowners and casualty insurance to
individuals and various lines of commercial insurance to
businesses. CIA, which will operate as a subsidiary of Haven
Bancorp represents more than twelve insurance companies as an
independent agency. This transaction required no regulatory or
shareholder approval and was completed on November 2, 1998.
8
<PAGE>
NOTE 4 - STOCK PLANS. Changes in outstanding options (restated
for the 2-for-1 stock split effective November 1997) for the
benefit of directors, officers and other key employees of the
Bank for the nine months ended September 30, 1998 are as follows:
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
------- ----------------
<S> <C> <C>
Balance at December 31, 1997 1,231,676 $ 7.90
Granted 98,200 25.81
Forfeited - -
Exercised (51,684) 8.53
--------- -----
Balance at September 30, 1998 1,278,192 $ 9.25
========= =====
Shares exercisable at September 30, 1998 1,024,037 $ 6.99
========= =====
</TABLE>
NOTE 5 - DIVIDENDS PAYABLE. On September 23, 1998, the Company's
Board of Directors approved a quarterly cash dividend of $0.075
per share, payable on October 23, 1998, to shareholders of record
as of October 2, 1998.
NOTE 6 - RECENT ACCOUNTING/REGULATORY PRONOUNCEMENTS. In June
1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income". The statement establishes
standards for reporting and display of comprehensive income and
its components (revenue, expenses, gains and losses) in a full
set of general-purpose financial statements. Comprehensive
income is defined as the change in equity of a business
enterprise during a period from transactions and other events and
circumstances from nonowner sources. It includes all changes in
equity during a period except those resulting from investments by
owners and distributions to owners. The Company adopted the
provisions of SFAS No. 130 during the first quarter of 1998 and
as such was required to: (a) classify items of other
comprehensive income by their nature in a financial statement;
(b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in capital
in the equity section in its statement of financial condition;
and (c) reclassify prior periods presented (see Note 8).
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131
requires that enterprises report certain financial and
descriptive information about operating segments in complete sets
9
<PAGE>
of financial statements of the Company and in condensed financial
statements of interim periods issued to stockholders. SFAS No.
131 also requires that enterprises report certain information
about their products and services, geographic areas in which they
operate, and their major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997 but does not
have to be applied to interim financial statements in the initial
year of application. As the requirements of SFAS No. 131 are
disclosure-related, its implementation will have no impact on the
Company's financial condition or results of operations.
In February 1998, the FASB issued SFAS No. 132, "Employers
Disclosures about Pensions and Other Post-Retirement Benefits".
SFAS No. 132 revises employers' disclosures about pension and
other postretirement benefit plans, but does not change the
measurement or recognition of those plans. SFAS No. 132 also
standardizes the disclosure requirements for pensions and other
postretirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and
fair values of plan assets that will facilitate financial
analysis, and eliminates certain disclosures that are no longer
as useful. SFAS No. 132 is effective for fiscal years beginning
after December 15, 1997 and requires restatement of prior periods
presented. As the requirements of SFAS No. 132 are disclosure
related, its implementation will have no impact on the Company's
financial condition or results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
establishes accounting and reporting standards for derivative
instruments and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities
in the statement of financial condition and measure those
instruments at fair value. The accounting for changes in the
fair value of a derivative (that is, gains and losses) depends on
the intended use of the derivative and the resulting designation.
SFAS No. 133 is effective for fiscal years beginning after June
15, 1999 and does not require restatement of prior periods.
Management of the Company currently believes the implementation
of SFAS No. 133 will not have a material impact on the Company's
financial condition or results of operations as the Company does
not currently use derivative instruments as defined in SFAS No.
133.
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise".
SFAS No. 134 changes the way mortgage banking firms account for
certain securities and other interests they retain after
securitizing mortgage loans that were held for sale. Under
current practice, a bank that securitizes credit card receivables
10
<PAGE>
has a choice in how it classifies any retained securities based
on its intent and ability to hold or sell those investments.
SFAS No. 134 gives the mortgage banking firms the opportunity to
apply the same intent-based accounting that is applied by other
companies. SFAS No. 134 is effective for the fiscal quarter
beginning after December 15, 1998. Management of the Company
anticipates that the implementation of SFAS No. 134 will not have
a material impact on the Company's financial condition or results
of operations.
NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. There were
8,590,777 basic shares outstanding and 9,207,719 diluted shares
outstanding for the three months ended September 30, 1998. There
were 8,577,095 basic shares outstanding and 9,209,293 diluted
shares outstanding for the nine months ended September 30, 1998.
The weighted average number of shares outstanding does not
include 259,339 shares which are unallocated by the Employee
Stock Ownership Plan ("ESOP") as of September 30, 1998 in
accordance with American Institute of CPAs ("AICPA") Statement of
Position ("SOP") 93-6, "Employers' Accounting for ESOPs". Basic
EPS excludes dilution and is computed by dividing income
available to common stockholders by the weighted average number
of shares outstanding for the relevant period. Diluted EPS
reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock
that then shared in the earnings of the entity.
NOTE 8 - COMPREHENSIVE INCOME - Comprehensive income, as
discussed in Note 6, was $4.9 million and $9.8 million for the
three month and nine month periods ended September 30, 1998,
respectively, and $4.1 million and $10.6 million for the three
month and nine month periods ended September 30, 1997,
respectively.
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 CFS Bank, formerly known as Columbia Federal
Savings Bank ("CFS" or the "Bank"), a federally chartered stock
savings bank. CFS 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
11
<PAGE>
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 mortgage-backed
securities ("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 CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1997
TO SEPTEMBER 30, 1998
ASSETS
Total assets increased by $347.6 million, or 17.6% to $2.3
billion at September 30, 1998. Securities available for sale
("AFS") increased by $340.2 million, or 68.1% to $839.6 million
at September 30, 1998 from $499.4 million at December 31, 1997:
$183.6 million of the increase was due to the transfer of the
Company's entire debt and MBS held-to-maturity portfolios to
securities AFS on June 30, 1998. The transfer was done to
enhance liquidity and take advantage of market opportunities.
During August, the Bank completed the securitization of $105.7
million of residential mortgages. The securitization provides
the Bank with additional collateral for borrowings in the future
and enables the Bank to sell the securitized loans. During the
nine months ended September 30, 1998, the Bank purchased $460.6
million of MBSs, $15.0 million of government agency securities
and $11.1 million of Preferred Stock ($10.0 million of FHLMC and
$1.1 million of private issue) for its AFS portfolio. These
purchases were partially offset by sales from and principal
repayments, maturities and calls to the AFS portfolio of $323.0
million and $120.0 million, respectively. Debt securities held
to maturity declined by $66.4 million, or 100% to a zero balance
at September 30, 1998 due to principal repayments, maturities and
calls totaling $21.0 million and the transfer of $45.4 million of
such debt securities to AFS on June 30, 1998. MBSs held to
maturity declined by $163.1 million, or 100% to a zero balance at
September 30, 1998 due to principal repayments, maturities and
12
<PAGE>
calls totaling $24.8 million and the transfer of $138.2 million
of such MBSs to AFS on June 30, 1998. There were no purchases of
debt securities or MBSs for the held to maturity portfolio during
the nine months ended September 30, 1998.
Net loans increased by $160.5 million, or 14.1% to $1.3 billion
at September 30, 1998 from $1.1 billion at December 31, 1997.
Loan originations and purchases during the nine month period
ended September 30, 1998 totaled $850.0 million (comprised of
$729.7 million of residential one-to four-family mortgage loans,
$106.5 million of commercial real estate and multi-family loans,
$12.0 million of equity loans and $1.8 million of construction
advances). During the first nine months of 1998, principal
payments totaled $201.7 million, $0.6 million was transferred to
real estate owned ("REO") and $313.4 million of loans were sold
in the secondary market. Included in the totals above are CFS
Intercounty's residential mortgage loan origination volume and
wholesale purchases since its acquisition on May 1, 1998 which
were $423.3 million, of which $58.2 million was transferred to
CFS Bank's portfolio and $306.9 million was sold on a servicing
released basis to third party investors. During August, the Bank
completed the securitization of $105.7 million of residential
mortgages which will provide the Bank additional collateral for
borrowings in the future and the opportunity to sell securitized
loans. Finally, the Bank sold $14.0 million of co-op loans
during the third quarter as part of its on-going efforts to
dispose of this portion of its portfolio.
LIABILITIES
Deposits increased by $262.8 million, or 19.3% to $1.6 billion at
September 30, 1998 from $1.4 billion at December 31, 1997
primarily due to deposit inflows in the Bank's in-store bank
branches which had deposits totaling $424.9 million at September
30, 1998 compared to $157.2 million at December 31, 1997. The
Bank had fifty-two in-store bank branches as of September 30,
1998 compared to thirty-two in-store branches at December 31,
1997. The Bank expects to open seven additional in-store bank
branches during the remainder of 1998. Core deposits (comprised
of checking, savings and money market accounts) were equal to
44.4% of total in-store branch deposits at September 30, 1998
compared to 43.1% in the Bank's eight traditional branches.
Overall, core deposits represented 46.5% of total deposits at
September 30, 1998 compared to 42.7% at December 31, 1997.
Borrowed funds increased by $20.4 million, or 4.4% to $487.2
million at September 30, 1998 from $466.8 million at December 31,
1997 primarily due to funding requirements for loan origination
volume and wholesale purchases of CFS Intercounty.
13
<PAGE>
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $122.5 million
at September 30, 1998 from $112.9 million at December 31, 1997.
The increase in stockholders' equity was due to net income of
$5.6 million for the nine months ended September 30, 1998, an
increase of $4.2 million in the unrealized gain on securities AFS
(including $881,000 due to the aforementioned transfer of
securities held-to-maturity to securities AFS) and $441,000
related to the exercise of stock options. In addition, 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 amortization of deferred compensation plan
increased stockholders' equity by $1.2 million. These increases
were partially offset by dividends declared of $1.8 million.
14
<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 six-month seasoning
period), restructured loans and REO.
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
(Dollars in Thousands) -------- ------------
<S> <C> <C>
Non-accrual loans
One-to four-family $ 3,064 3,534
Cooperative 462 698
Multi-family 899 2,531
Non-residential and other 2,677 3,633
------ ------
Total non-accrual loans 7,102 10,396
------ ------
Restructured loans
One-to four-family 546 679
Cooperative 286 290
Multi-family 1,148 1,167
------ ------
Total restructured loans 1,980 2,136
------ ------
Total non-performing loans 9,082 12,532
------ ------
REO, net
One-to four-family 155 126
Cooperative 61 295
Non-residential and other 121 121
------ ------
Total REO 337 542
Less allowance for REO (39) (87)
------ ------
REO, net 298 455
------ ------
Total non-performing assets $ 9,380 12,987
====== ======
Non-performing loans to total loans 0.69% 1.09%
Non-performing assets to total assets 0.40 0.66
Non-performing loans to total assets 0.39 0.63
</TABLE>
The decrease in non-performing assets was primarily due to a
reduction of $1.6 million in non-accrual multi-family loans. In
addition, non-accrual residential loans and co-op loans decreased
$470,000 and $236,000, respectively, from December 31, 1997. The
ratio of non-performing loans to total loans decreased primarily
15
<PAGE>
due to the increase of $161.8 million in total loans, as well as
the significant decline in non-performing loans during the nine
month period. The decrease in the ratio of non-performing assets
to total assets was primarily due to the increase of $347.6
million in total assets and a $3.6 million decrease in non-
performing assets during the nine month period. The ratio of
non-performing loans to total assets decreased primarily due to
the increase of $347.6 million in total assets and a reduction of
$3.4 million in non-performing loans between year-end 1997 and
September 30, 1998.
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.
16
<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, 1998 and
1997:
<TABLE>
<CAPTION>
1998 1997
(Dollars in Thousands) ------- -------
<S> <C> <C>
Balance at beginning of period $12,528 10,704
Charge-offs:
Residential (471) (369)
Cooperative (279) (840)
Multi-family (708) -
Non-residential and other (309) (257)
------ ------
Total charge-offs (1,767) (1,466)
Recoveries 1,040 566
------ ------
Net charge-offs (727) (900)
Provision for loan losses 1,990 2,150
------ ------
Balance at end of period $13,791 11,954
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.08% 0.13%
Ratio of allowance for loan losses to
total loans at the end of the period 1.05 1.12
Ratio of allowance for loan losses to non-
performing loans at the end of the period 151.85 95.03
</TABLE>
The ratio of net charge-offs during the first nine months of 1998
to average loans outstanding decreased primarily due to average
loans outstanding which increased $320.4 million, or 33.5% due to
originations during the period. The ratio of allowance for loan
losses to total loans decreased primarily due to the increase in
loans outstanding during 1998. The ratio of allowance for loan
losses to non-performing loans increased between the periods due
to the decrease in non-performing loans and an increase in the
allowance for loan losses. The Bank's allowance for loan losses
was $13.8 million and $12.0 million at September 30, 1998 and
1997, respectively, while non-performing loans totaled $9.1
million and $12.6 million, respectively, at those dates.
17
<PAGE>
ASSET/LIABILITY MANAGEMENT
The Company has attempted to reduce its exposure to interest rate
risk through the origination and purchase 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. The narrowing in spread and margin reflects in part the
Company's exposure to interest rate risk resulting from certain
changes in the shape of the yield curve (particularly a
flattening or inversion of the yield curve) and to differing
indices upon which the yield on the Company's interest-earning
assets and the cost of its interest-bearing liabilities are
based. For example, over the past two years the market has
experienced a more significant reduction in interest rates on
long-term instruments as compared to the reduction in interest
rates on short-term instruments resulting in rates on long-term
instruments approximating (and in some cases, going below) the
rates on short-terms instruments. More importantly, the spreads
earned on the rate differential between assets and the
liabilities funding such assets have narrowed more with respect
to long-term assets as compared to short-term assets. Since a
larger percentage of the Company's assets are longer term, the
Company has experienced a continuous narrowing of spreads as well
as a negative impact on net interest income that has been more
than offset by the Company's growth in interest-earning assets.
The narrowing of the spread and margin also reflects the increase
in borrowings under the capital leverage program. During the
first nine months of 1998, the Bank originated or purchased for
its portfolio $157.8 million of residential adjustable-rate
mortgages and $100.5 million of adjustable-rate multi-family,
commercial real estate and construction loans. During the same
period, the Bank purchased $375.3 million of fixed rate debt
securities and MBSs to take advantage of higher yields compared
to rates offered on adjustable-rate securities. At September 30,
1998, $308.7 million, or 36.8% of the Company's AFS portfolio
were adjustable-rate securities and $530.9 million, or 63.2% of
the portfolio were fixed rate securities.
Historically, the Company has been able to maintain a substantial
level of core deposits (comprised of savings, 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, 1998 core deposits
represented 46.5% of deposits compared to 42.7% of deposits at
December 31, 1997. Core deposits for the Bank's eight
traditional branches was 43.1% compared to 44.4% for the Bank's
fifty-two in-store bank branches. During the first nine months
of 1998, savings accounts increased by $93.7 million, net of
interest and certificates of deposit increased by $107.7 million,
net of interest. The number of checking accounts increased by
41,071, or 42.0% to 138,933 at September 30, 1998 from 97,862 at
18
<PAGE>
December 31, 1997. Most of the increase, or 36,815 accounts is
attributable to the Bank's in-store bank branches. The balance
of certificate accounts outstanding at September 30, 1998 was
$924.6 million compared to $781.6 million at December 31, 1997.
A major portion of the increase, $130.3 million, is attributable
to the Bank's in-store branches. The Company expects to attract
a higher percentage of core deposits from its in-store bank
branch locations as these locations continue to grow and mature.
In the second quarter of 1998, the Bank introduced the Liquid
Asset Savings Account, which pays depositors 4.50% in the first
year (latest rate available), as a way to attract core deposits
and decrease certificate accounts.
LIQUIDITY AND CAPITAL
The Bank is required to maintain minimum levels of liquid assets
as defined by regulations of the Office of Thrift Supervision
("OTS"). 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 borrow-
ings. The required ratio is currently 4%. The Bank's ratio was
4.31% at September 30, 1998 compared to 8.94% at December 31,
1997. The decrease in the liquidity ratio during the nine-month
period is primarily due to a decline of $65.4 million in debt and
equity securities and an increase of $158,000 in the liquidity
base. The Company has emphasized MBS securities over debt and
equity securities for management of its AFS portfolio due to the
availability of competitive rates and shorter durations.
The Company's primary sources of funds are deposits, principal
and interest payments on loans and MBSs, retained earnings and
advances from the Federal Home Loan Bank of NY ("FHLB-NY").
Proceeds from the sale of AFS securities 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, CFS Investment Services, Inc. ("CFSI"),
formerly known as 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, 1998 and December 31,
1997, cash and short and intermediate-term investments totaled
$36.9 million and $40.3 million, respectively.
The Company and the Bank have other sources of liquidity which
include debt securities maturing within one year, mortgage loans
19
<PAGE>
and MBSs AFS. Other sources of funds include FHLB advances,
which at September 30, 1998, totaled $342.2 million. If needed,
the Bank may borrow an additional $43.4 million from the FHLB.
An additional source of funds are repurchase agreements which
totaled $118.5 million at September 30, 1998.
As of September 30, 1998, 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)(2)
------ ---------- ------ ---------- ------ ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Capital for regulatory purposes $129,334 5.68% $129,334 5.68% $145,445 12.66%
Minimum regulatory requirement 45,534 2.00 91,068 4.00(3) 91,939 8.00
------- ---- ------- ---- ------- ----
Excess $ 83,800 3.68% $ 38,266 1.68% $ 53,506 4.66%
======= ==== ====== ==== ======= ====
</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) 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 indefinitely deferred the implementation of the interest rate
risk component in the computation of an institution's risk-based
capital requirement. The OTS continues to monitor the interest
rate risk of individual institutions and retains the right to
impose additional capital on individual institutions. The Bank
does not anticipate that the new rule, when implemented, will
have a material effect on the Bank's risk-based capital.
(3) Consistent with the minimum ratio to be deemed "adequately
capitalized", the required amount is based on 4.0%. Failure to
meet the capital requirements or to be deemed undercapitalized
exposes an institution to regulatory sanctions, including
limitations on asset growth.
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
20
<PAGE>
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 reflects 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,
1998 1997
------------------------ ------------------------
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 $1,340,030 $25,299 7.55% $1,005,225 $19,811 7.88%
Other loans 33,654 821 9.76 32,027 808 10.09
Mortgage-backed securities 691,703 11,610 6.71 503,448 8,541 6.79
Money market investments 1,337 23 6.88 5,137 83 6.46
Debt and equity securities 134,477 2,226 6.62 183,095 3,332 7.28
--------- ------ --------- ------
Total interest-earning assets 2,201,201 39,979 7.26 1,728,932 32,575 7.54
Non-interest earning assets 119,468 ------ 88,256 ------
--------- ---------
Total assets 2,320,669 1,817,188
========= =========
Interest-bearing liabilities:
Savings accounts 456,977 3,366 2.95 376,276 2,387 2.54
Certificate accounts 896,836 12,791 5.70 705,785 10,394 5.89
NOW accounts 182,409 344 0.75 137,362 277 0.81
Money market accounts 58,371 525 3.60 55,136 470 3.41
Borrowed funds 535,299 8,015 5.99 406,126 5,817 5.73
--------- ------ --------- ------
Total interest-bearing liabilities 2,129,892 25,041 4.70 1,680,685 19,345 4.60
Other liabilities 70,695 ------ 27,636 ------
--------- ---------
Total liabilities 2,200,587 1,708,321
Stockholders' equity 120,082 108,867
--------- ---------
Total liabilities and stockholders' equity $2,320,669 $1,817,188
========= =========
Net interest income $14,938 $13,230
====== ======
Net interest spread 2.56% 2.94%
==== ====
New interest margin 2.71% 3.06%
==== ====
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
Nine months ended September 30,
1998 1997
------------------------ ------------------------
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 $1,242,373 $70,629 7.58% $ 922,207 $54,878 7.93%
Other loans 33,109 2,431 9.79 32,900 2,424 9.82
Mortgage-backed securities 597,988 30,114 6.71 467,804 23,773 6.78
Money market investments 4,065 169 5.54 6,140 273 5.93
Debt and equity securities 165,566 8,331 6.71 216,971 11,640 7.15
--------- ------ --------- ------
Total interest-earning assets 2,043,101 111,674 7.29 1,646,022 92,988 7.53
Non-interest earning assets 120,258 ------- 94,300 ------
--------- ---------
Total assets 2,163,359 1,740,322
========= =========
Interest-bearing liabilities:
Savings accounts 417,576 8,482 2.71 370,311 6,938 2.50
Certificate accounts 867,306 37,269 5.73 651,189 28,085 5.75
NOW accounts 175,199 946 0.72 129,358 772 0.80
Money market accounts 57,028 1,462 3.42 54,617 1,329 3.24
Borrowed funds 466,093 20,933 5.99 385,190 16,827 5.82
--------- ------ --------- ------
Total interest-bearing liabilities 1,983,202 69,092 4.65 1,590,665 53,951 4.52
Other liabilities 63,022 ------ 45,013 ------
--------- ---------
Total liabilities 2,046,224 1,635,678
Stockholders' equity 117,135 104,644
--------- ---------
Total liabilities and stockholders' equity $2,163,359 $1,740,322
========= =========
Net interest income $42,582 $39,037
====== ======
Net interest spread 2.64% 3.01%
==== ====
New interest margin 2.78% 3.16%
==== ====
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
GENERAL. The Company reported net income of $2.2 million for the
three months ended September 30, 1998 compared to net income of
$2.5 million for the three months ended September 30, 1997. Net
interest income increased $1.7 million to $14.9 million for the
three months ended September 30, 1998 primarily due to an
increase in interest income on mortgage loans of $5.5 million due
to the growth in the mortgage loan portfolio. Non-interest
income increased $7.8 million when compared to the same period
last year mainly due to the acquisition of CFS Intercounty on May
1, 1998 which contributed $4.6 million of mortgage banking income
during the quarter. Non-interest expenses increased $10.6
million compared to the same period last year primarily due to
costs associated with the Bank's in-store program, which included
fifty-two locations as of September 30, 1998, and the acquisition
of CFS Intercounty. Finally, the provision for tax expense
22
<PAGE>
decreased $874,000 for the third quarter of 1998 due to a
reduction in pre-tax income and certain adjustments made to the
tax provision as a result of filing the 1997 Federal, State and
City tax returns in September 1998.
INTEREST INCOME. Interest income increased by $7.4 million, or
22.7% to $40.0 million for the three months ended September 30,
1998 from $32.6 million for the three months ended September 30,
1997. The increase was primarily the result of a $5.5 million
increase in interest income on mortgage loans, and an increase of
$3.1 million in interest income on MBSs. These increases were
partially offset by decreases in interest income on debt and
equity securities and money market investments of $1.1 million
and $60,000, respectively.
Interest income on mortgage loans increased by $5.5 million, or
27.7% to $25.3 million for the three months ended September 30,
1998, from $19.8 million for the comparable three-month period in
1997, primarily as a result of an increase in average balances of
mortgage loans of $334.8 million partially offset by a decrease
in the average yield on mortgage loans of 33 basis points due to
the general decline in market interest rates (see page 28). The
increase in average balance of mortgage loans between the periods
was primarily due to strong mortgage origination volume,
including purchases for the entire year of 1997 and the first
nine months of 1998, which totaled $459.8 million and $838.0
million, respectively. These originations included one-to four-
family mortgage loans purchased in the secondary market totaling
$200.9 million for 1997 and $224.5 million for the first nine
months of 1998, respectively. Mortgage loan origination volume
and wholesale loan purchases for CFS Intercounty was $267.9
million in the third quarter of 1998, of which $55.1 million was
transferred to CFS Bank's portfolio. During the third quarter of
1998, $216.3 million of mortgages was sold on a servicing
released basis to third party investors. The Bank accrues
interest income on loans held for sale from the date of closing
until funds are released from the third party investor. The
originations for 1997 and the first nine months of 1998 were
partially offset by principal repayments of $151.2 million and
$201.7 million, respectively. The origination totals for both
periods included CFS Bank loans refinanced of $10.5 million for
1997 and $36.4 million for the first nine months of 1998. The
significant increase in refinanced loans was attributable to the
decline in market interest rates.
Interest income on MBSs increased by $3.1 million, or 35.9% to
$11.6 million for the three months ended September 30, 1998 from
$8.5 million for the comparable three-month period in 1997,
primarily due to an increase in average balances of MBSs of
$188.3 million which was partially offset by a decrease in
average yield of 8 basis points. During the quarter ended
23
<PAGE>
September 30, 1998, the Bank purchased $138.2 million of MBSs for
its AFS portfolio and such purchases were partially offset by
sales totaling $93.3 million. During August, the Bank completed
the securitization of $105.7 million of residential mortgages
(see page 12). The emphasis on MBS securities over debt and
equity securities was due to the availability of competitive
rates along with shorter durations. The average yield on debt
and equity securities decreased 66 basis points for the quarter
ended September 30, 1998, also contributing to the decrease in
interest income on debt and equity securities.
Interest income on debt and equity securities decreased by
$1.1 million, or 33.2% to $2.2 million for the three months ended
September 30, 1998 from $3.3 million for the comparable three-
month period in 1997, primarily as a result of a decrease in the
average balance of $48.6 million. The Company emphasized MBS
securities over debt and equity securities during the period due
to the availability of competitive rates for MBSs along with
shorter durations.
INTEREST EXPENSE. Interest expense increased by $5.7 million, or
29.4% to $25.0 million for the three months ended September 30,
1998 from $19.3 million for the three months ended September 30,
1997. The increase was the result of a $3.5 million increase in
interest expense on deposits and an increase of $2.2 million in
interest expense on borrowings.
Interest on deposits increased by $3.5 million, or 25.9% to $17.0
million for the three months ended September 30, 1998 from $13.5
million for the comparable three-month period in 1997. The
increase in interest on deposits was primarily due to the average
balance which increased by $320.0 million, or 25.1% to $1.59
billion for the three months ended September 30, 1998 from $1.27
billion for the comparable three-month period in 1997. The
increase in deposits is primarily attributable to the Bank's
continuing in-store banking expansion. At September 30, 1998,
the Bank had fifty-two in-store bank branches operating with
combined deposits totaling $424.9 million compared to twenty-four
in-store bank branches at September 30, 1997 with deposits
totaling $115.9 million. The increase in the average balance was
primarily due to certificate account balances which increased by
$191.1 million, or 27.1% to $896.8 million for the three months
ended September 30, 1998 from $705.8 million for the comparable
three-month period in 1997. Interest expense on certificate
accounts increased by $2.4 million, or 23.1% to $12.8 million for
the three months ended September 30, 1998 from $10.4 million in
the same period in 1997. The average cost of certificate
accounts was 5.70% for the third quarter of 1998 compared to
5.89% for the third quarter of 1997. Interest expense on savings
accounts increased by $1.0 million, or 41.0% to $3.4 million for
the three months ended September 30, 1998 from $2.4 million in
24
<PAGE>
the same period in 1997 primarily due to an increase in average
balance due to the Bank's in-store branches, which had $144.3
million in savings balances as of September 30, 1998 compared to
$21.2 million as of September 30, 1997. The average balance of
savings accounts increased by $80.7 million, or 21.4% to $457.0
million for the three months ended September 30, 1998 from $376.3
million for the third quarter of 1997. The average cost of
savings accounts increased by 41 basis points to 2.95% for the
period ended September 30, 1998 from 2.54% for the period ended
September 30, 1997. This was primarily due to the addition of
the Liquid Asset Savings Account which pays depositors 4.50%
(latest rate available) during the first year. The average cost
of all deposits was 4.27% for the three months ended September
30, 1998 compared to 4.24% for the prior-year period.
Interest on borrowed funds increased by $2.2 million, or 37.8% to
$8.0 million for the three months ended September 30, 1998 from
$5.8 million for the comparable three-month period in 1997.
Borrowed funds on an average basis increased by $129.2 million
between the periods primarily due to the addition of short-term
FHLB advances and securities sold under agreements to repurchase
during 1998 in order to fund loans originated and held for sale
by CFS Intercounty and to supplement deposit growth as a funding
mechanism for mortgage loan originations. The average rate paid
on borrowings increased to 5.99% for the three months ended
September 30, 1998 from 5.73% for the prior-year period.
NET INTEREST INCOME. Net interest income increased by $1.7
million to $14.9 million for the three months ended September 30,
1998 from $13.2 million for the three months ended September 30,
1997. The increase is primarily attributable to total interest-
earning assets which increased by $472.3 million, or 27.3% to
$2.2 billion for the three months ended September 30, 1998 from
$1.7 billion in the same period last year. This was partially
offset by the average yield on interest-earning assets which
decreased to 7.26% for the three months ended September 30, 1998
from 7.54% for the three month period in 1997 due to the general
decline in market interest rates. In addition, the average cost
of interest-bearing liabilities increased to 4.70% from 4.60% for
the three months ended September 30, 1998 and 1997, respectively.
Therefore, the net interest spread was 2.56% for the three months
ended September 30, 1998 compared to 2.94% for the comparable
period in 1997 due to the general decline in market interest
rates.
PROVISION FOR LOAN LOSSES. The Bank provided $670,000 for loan
losses for the three months ended September 30, 1998 compared to
$700,000 for the comparable three-month period in 1997. The
decrease was due to the continuing decline in non-performing
assets.
25
<PAGE>
NON-INTEREST INCOME. Non-interest income increased by $7.8
million for the three months ended September 30, 1998 to $11.0
million from $3.2 million for the comparable three month period
in 1997. The 1998 third quarter included $4.6 million in
mortgage banking income generated by CFS Intercounty related to
loans sold in the quarter. The Bank generally recognizes fee
income, including servicing released premiums, from its mortgage
banking activities as loan sales are settled. Loans held for
sale at September 30, 1998, totaled $58.2 million. Savings and
checking fees increased by $1.2 million, or 82.5% to $2.7 million
for the third quarter of 1998 compared to $1.5 million for the
same period last year. The significant increase in savings and
checking fees is primarily due to the number of checking accounts
which increased by 50,935, or 57.9% to 138,933 accounts at
September 30, 1998 from 87,998 accounts at September 30, 1997. A
significant portion of this growth is attributable to the Bank's
in-store bank branch program. The in-store bank branches
generated savings and checking fees of $1.8 million for the third
quarter of 1998 compared to $507,000 for the third quarter of
last year. Insurance, annuity and mutual fund fees increased by
$448,000 due to an increase in sales volume, including $664,000
in revenue from in-store bank branches. The Bank realized a net
gain of $1.2 million on the sale of interest earning assets in
the 1998 period. The gain included approximately $967,000 in
gain on sales of approximately $14.0 million of co-operative
apartment loans as part of the Bank's efforts to dispose of this
portion of its loan portfolio. Finally, miscellaneous income
increased by $163,000, or 34.6% to $634,000 for the third quarter
of 1998 from $471,000 for the third quarter of 1997. The
increase is primarily due to service charge fees on ATM
transactions.
NON-INTEREST EXPENSE. Non-interest expense increased by $10.6
million, or 88.5% for the three months ended September 30, 1998
to $22.6 million from $12.0 million for the comparable three-
month period in 1997. The increase is primarily due to the
Bank's in-store branch program which increased non-interest
expense by approximately $2.4 million and the acquisition of CFS
Intercounty which increased non-interest expense by approximately
$6.1 million. Compensation and benefit costs increased by $5.6
million, or 86.3% to $12.1 million for the three months ended
September 30, 1998 from $6.5 million for the same period last
year. The in-store branch expansion accounted for $1.2 million
of the increase in compensation costs and the acquisition of CFS
Intercounty increased salary costs by an additional $3.2 million.
In addition, federal social security taxes increased $131,000
from the prior period due to a higher salary base. The remainder
of the increase in compensation and benefit costs was due to an
increase in salary costs for CFSI due to sales volume, normal
merit increases and general staff increases due to the Company's
growth. These increases were partially offset by ESOP
26
<PAGE>
compensation charges which decreased $348,000 due to the decrease
in the average price of Haven Bancorp common stock during the
quarter. Occupancy and equipment costs increased by $1.2
million, or 67.4% to $2.9 million for the third quarter of 1998
from $1.8 million for the same period last year primarily due to
the addition of eight supermarket branches during the fourth
quarter of 1997 and twenty such branches during the first nine
months of 1998. In July 1998, the Company moved its operations
to a new headquarters. The occupancy and equipment costs for the
Company's headquarters is expected to be approximately $350,000
per quarter. REO operations, net decreased by $32,000 from the
same period last year due to the decline in the REO portfolio.
Other operating costs increased by $3.8 million to $7.3 million
for the three months ended September 30, 1998 from $3.5 million
for the same period last year. The acquisition of CFS
Intercounty during the second quarter of 1998 increased other
operating costs by $2.3 million for the third quarter of 1998.
Miscellaneous expenses, including stationery, telephone, postage
and insurance, increased by $391,000 and staff placement costs
increased by $84,000 primarily due to the in-store branch
program. Advertising costs increased $277,000 due to the growth
in the deposit base over the last twelve months. Finally, costs
incurred by the Bank's subsidiary, CFSI, increased $54,000 due to
higher sales volume.
INCOME TAX EXPENSE. Income tax expense was $402,000 for an
effective tax rate of 15.2% for the three months ended September
30, 1998 compared to income tax expense of $1.3 million for an
effective tax rate of 34.2% for the comparable period in 1997.
The decline in the effective tax rate was due primarily due to an
adjustment of the Bank's tax accrual upon the filing of the
Company's Federal, State and City tax returns for 1997 during
September 1998.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED September 30, 1998 AND 1997
GENERAL. The Company reported net income of $5.6 million for the
nine months ended September 30, 1998 compared to net income of
$8.1 million for the nine months ended September 30, 1997. The
$2.4 million decrease was primarily attributable to an increase
of $21.5 million in non-interest expenses due to the ongoing
supermarket banking expansions and the addition of CFS
Intercounty. These factors were partially offset by an increase
of $12.7 million in non-interest income and an increase of $3.5
million in net interest income. In addition, the provision for
loan losses decreased $160,000 from $2.2 million for the nine
months ended September 30, 1997 to $2.0 million for the nine
months ended September 30, 1998. The provision for income tax
expense decreased by $2.6 million primarily due to lower pre-tax
income for the period.
27
<PAGE>
INTEREST INCOME. Interest income increased by $18.7 million, or
20.1% to $111.7 million for the nine months ended September 30,
1998 from $93.0 million for the nine months ended September 30,
1997. The increase was primarily the result of a $15.8 million
increase in interest income on mortgage loans and an increase of
$6.3 million in interest income on MBS securities. These
increases were partially offset by a decrease in interest income
on debt and equity securities and money market investments of
$3.3 million and $104,000, respectively.
Interest income on mortgage loans increased by $15.8 million, or
28.7% to $70.6 million for the nine months ended September 30,
1998 from $54.9 million for the comparable nine-month period in
1997, primarily as a result of an increase in average balances of
mortgage loans of $320.2 million, partially offset by a decrease
in the average yield on mortgage loans of 35 basis points. The
average yield on mortgage loans decreased to 7.58% for the nine
months ended September 30, 1998 from 7.93% for the comparable
nine-month period in 1997. During the first nine months of 1998,
the Bank refinanced $36.5 million of mortgage loans compared to
$6.2 million for the same period last year. The decrease in the
average yield from the prior period was mainly due to the
increasing percentage of relatively lower yielding residential
mortgages and the overall decline in market interest rates.
Interest income on MBSs increased by $6.3 million, or 26.7% to
$30.1 million for the nine months ended September 30, 1998 from
$23.8 million for the comparable nine-month period in 1997
primarily due to an increase in average balances of MBSs of
$130.2 million which was partially offset by a decrease in the
average yield of 7 basis points. During the first nine months of
1998, the Bank purchased $460.6 million of MBSs for its AFS
portfolio and such purchases were partially offset by sales
totaling $229.7 million. During August, the Bank completed the
securitization of $105.7 million of residential mortgages (see
page 12). The emphasis on MBS securities over debt and equity
securities was primarily due to shorter durations.
Interest income on debt and equity securities decreased by $3.3
million, or 28.4% to $8.3 million for the nine months ended
September 30, 1998 from $11.6 million for the comparable nine-
month period in 1997 primarily as a result of a decrease in
average outstanding balances of $51.4 million and a decrease in
average yield of 44 basis points due to the general decline in
market interest rates. The decrease in the average outstanding
balances was primarily due to an emphasis on MBS securities for
purchases for the Bank's AFS portfolio due to a better rate
structure and shorter duration.
INTEREST EXPENSE. Interest expense increased by $15.1 million,
or 28.1% to $69.1 million for the nine months ended September 30,
28
<PAGE>
1998 from $54.0 million for the nine months ended September 30,
1997. The increase was the result of a $11.0 million increase in
interest expense on deposits and an increase of $4.1 million in
interest expense on borrowings.
Interest on deposits increased by $11.0 million, or 29.7% to
$48.2 million for the nine months ended September 30, 1998 from
$37.1 million for the comparable nine-month period in 1997. The
increase in interest on deposits was primarily due to the average
balance which increased by $311.6 million, or 25.9% to $1.5
billion for the nine months ended September 30, 1998 from $1.2
billion for the comparable nine-month period in 1997. The
deposit growth is primarily attributable to the Bank's in-store
banking program. The increase in average balance was primarily
due to certificate account balances which increased by $216.1
million, or 33.2% to $867.3 million for the nine months ended
September 30, 1998 from $651.2 million for the comparable nine-
month period in 1997. Interest expense on certificate accounts
increased by $9.2 million or 32.7% to $37.3 million for the nine
months ended September 30, 1998 from $28.1 million in the same
period in 1997 primarily due to the growth in average balances.
The average cost of certificate accounts was 5.73% for the first
nine months of 1998 compared to 5.75% for the comparable period
in 1997. Interest expense on savings accounts increased by $1.5
million, or 22.3% to $8.5 million for the nine months ended
September 30, 1998 from $6.9 million in the same period in 1997
primarily due to an increase in average balances of $47.3
million. The average cost of all deposits was 4.23% for the nine
months ended September 30, 1998 compared to 4.11% for the period
ended September 30, 1997.
Interest on borrowed funds increased by $4.1 million, or 24.4% to
$20.9 million for the nine months ended September 30, 1998 from
$16.8 million for the comparable nine-month period in 1997.
Borrowed funds on an average basis increased by $80.9 million
between the periods due to the addition of short-term FHLB
advances and securities sold under agreements to repurchase
during 1998 primarily to fund mortgage loan originations for the
CFS Bank portfolio and the mortgage loan pipeline of CFS
Intercounty which originates mortgage loans primarily for
subsequent sale to third party investors. The average rate paid
on borrowings increased to 5.99% for the nine months ended
September 30, 1998 from 5.82% for the comparable prior year
period primarily due to the effect of a full nine months of $25.0
million of 10.46% capital securities issued by Haven Capital
Trust in February 1997.
NET INTEREST INCOME. Net interest income increased by $3.5
million to $42.6 million for the nine months ended September 30,
1998 from $39.0 million for the nine months ended September 30,
1997. The increase is primarily due to total interest-earning
29
<PAGE>
assets which increased $397.1 million, or 24.1% to $2.0 billion
for the nine months ended September 30, 1998 from the same period
last year. This was partially offset by the average yield on
interest-earning assets which decreased to 7.29% from 7.53% for
the nine months ended September 30, 1998 and 1997, respectively.
The reduction in the overall yield on interest earning assets is
primarily due to a decline in market interest rates and a flat
yield curve environment (see page 18). The average cost on
interest-bearing liabilities increased to 4.65% from 4.52% for
the nine months ended September 30, 1998 and 1997, respectively.
The increase in cost of funds was primarily due to the increase
in the cost of deposits to 4.23% for the nine months ended
September 30, 1998 from 4.11% for the nine months ended September
30, 1997. The net interest spread was 2.64% for the nine months
ended September 30, 1998 compared to 3.01% for the comparable
period in 1997.
PROVISION FOR LOAN LOSSES. The Bank provided $2.0 million for
loan losses for the nine months ended September 30, 1998 compared
to $2.2 million for the comparable nine-month period in 1997 due
to a decrease in non-performing loans.
NON-INTEREST INCOME. Non-interest income increased by $12.7
million for the nine months ended September 30, 1998 to $21.1
million from $8.4 million for the comparable nine-month period in
1997. Loan fees and servicing income increased by $497,000 to
$1.3 million for the first nine months of 1998 compared to
$775,000 for the same period in 1997. Loan fees and servicing
income for the nine months ended September 30, 1998 included a
prepayment fee of $280,000 on a commercial real estate loan. The
nine months ended September 30, 1998 included $5.6 million in
mortgage banking income generated by CFS Intercounty related to
loans sold since May 1, 1998. Savings and checking fees
increased by $3.0 million, or 79.6% to $6.8 million for the first
nine months of 1998 compared to $3.8 million for the same period
last year. The number of checking accounts increased by 50,935
accounts to 138,933 accounts at September 30, 1998 from 87,998
accounts at September 30, 1997. A major portion of this growth,
46,442 accounts, is attributable to the in-store bank branches.
The in-store bank branches generated savings and checking fees of
$4.4 million for the nine months ended September 30, 1998
compared to $843,000 for the same period last year. Insurance,
annuity and mutual fund fees increased by $1.1 million due to an
increase in sales volume which included $1.4 million in revenue
from sales originating from in-store bank branches. The Bank
realized a net gain of $1.6 million on the sale of interest
earning assets during the 1998 period. The net gain for the
period included approximately $967,000 in gain on the sale of
approximately $14 million of co-operative apartment loans as part
of the Bank's efforts to reduce this component of the loan
portfolio. Finally, miscellaneous income increased by $877,000,
30
<PAGE>
or 86.7% to $1.9 million for the nine months ended September 30,
1998 from $1.0 million for the same period last year. The
increase is primarily due to service charge fees on ATM
transactions.
NON-INTEREST EXPENSE. Non-interest expense increased by $21.5
million for the nine months ended September 30, 1998 to $54.1
million from $32.6 million for the comparable nine-month period
in 1997. The significant increase in non-interest expense is
primarily due to the Bank's in-store branch expansion program
which accounted for $8.6 million of the increase in operating
expenses in the first nine months of 1998 and $8.2 million
related to CFS Intercounty since its acquisition on May 1, 1998.
Most of the increase in operating expenses is due to an increase
of $12.7 million in compensation and benefit costs. The in-store
branch expansion accounted for $4.8 million of the increase in
compensation costs for the nine month period. Also, the
acquisition of CFS Intercounty on May 1, 1998 increased salary
costs by $4.8 million since that date. Salary costs for the
Bank's subsidiary, CFSI, Inc., increased $423,000 due to higher
sales volume. In addition, federal social security taxes
increased by $444,000 due to a higher salary base. These factors
were partially offset by ESOP compensation charges which
decreased by $115,000 from the same period last year due to the
decrease in the average price of Haven Bancorp common stock for
the period. Occupancy and equipment costs increased by $3.1
million from the comparable period in 1997 primarily due to the
Bank's in-store banking program which increased costs by $2.1
million. Also, the acquisition of CFS Intercounty during the
second quarter increased occupancy costs by $565,000. REO
operations, net decreased by $255,000 from 1997 due to the
decline in the REO portfolio. Other operating expenses increased
by $5.8 million, or 57.6% to $15.8 million for the nine months
ended September 30, 1998 from $10.0 million for the same period
last year. The acquisition of CFS Intercounty on May 1, 1998
increased other operating expenses by $2.5 million since that
date. Miscellaneous operating expenses such as stationery,
telephone and postage increased by $1.1 million from the same
period in 1997 primarily due to the in-store branch program.
Staff placement costs increased by $161,000 for the nine months
ended September 30, 1998 also due to the in-store branch program.
Advertising costs and costs incurred for computer processing
increased by $739,000 and $167,000, respectively due to the
growth in the deposit base over the last twelve months. Finally,
NYCE fees and check clearing costs increased by $410,000 and
$284,000, respectively, from the same period last year due to
higher volume as a result of the growth in deposit accounts.
INCOME TAX EXPENSE. Income tax expense was $1.9 million for an
effective tax rate of 25.7% for the nine months ended September
30, 1998 compared to income tax expense of $4.6 million for an
31
<PAGE>
effective tax rate of 36.2% for the comparable period in 1997.
The decrease in the effective tax rate was primarily due to the
establishment of Columbia Preferred Capital Corp. ("CPCC") during
the second quarter of 1997. The tax provision for the first nine
months of 1998 includes the effect of CPCC's operations for the
nine full months of 1998 compared to one quarter in 1997. The
lower tax rate was also due to an adjustment of the Bank's tax
accrual upon the filing of the Company's Federal, State and City
tax returns for 1997 during September 1998.
COMPUTER ISSUES FOR THE YEAR 2000. Many of the Company's
existing computer systems use two digits to identify the year in
the date field. As a result, these systems may not be able to
distinguish the year 2000 from the year 1900. Software, hardware
and equipment both within and outside the Company's direct
control and with which the Company electronically or
operationally interfaces (e.g. third party vendors providing data
processing, information system management, maintenance of
computer systems, and credit bureau information) are likely to be
affected. Further, if computer systems are not adequately
changed to identify the year 2000, many computer applications
could fail or create erroneous results. As a result, many
calculations which rely on the date field information, such as
interest, payment or due dates and other operating functions,
will generate result which could be significantly misstated, and
the Company could experience a temporary inability to process
transactions, send invoices or engage in similar normal business
activities. If not corrected, these computer systems could fail
by or at the year 2000.
The Company primarily uses a third party vendor to process its
electronic data. This vendor is currently modifying or replacing
its computer applications and systems necessary to correct the
year 2000 date issue. The Company also utilizes a combination of
purchased and contract-based software as well as other third
party vendors for a variety of data processing needs. The
Company's assessment of potential computer issues for the year
2000 have been substantially completed. Where potential computer
issues have been identified, the vendors have committed to
definitive dates (in most cases no later than December 31, 1998)
to resolve such issues. Under regulatory guidelines issued by
the federal banking regulators, the Bank and the Company must
substantially complete testing of core mission critical internal
systems by December 31, 1998 with testing of both internally and
externally supplied systems complete and all renovations
substantially complete, by June 30, 1999. In accordance with
those guidelines, the Company will complete testing of its
mission critical systems prior to October 31, 1998 and its
customer systems prior to August 31, 1998. In the event that the
Company's significant vendors do not achieve year 2000
compliance, the Company's operations could be adversely affected.
32
<PAGE>
The Company has established contingency plans for these systems
for which year 2000 issues will not be corrected. The OTS, the
Company's primary federal bank regulatory agency, along with the
other federal bank regulatory agencies has published substantive
guidance on the Year 2000 compliance as a substantive area of
examination for both regularly scheduled and special bank
examinations. These publications, in addition to providing
guidance as to examination criteria, have outlined requirements
for creation and implementation of a compliance plan and target
dates for testing and implementation of corrective action, as
discussed below. As a result of the oversight by and authority
vested in the federal bank regulatory agencies, a financial
institution that does not become Year 2000 compliant could become
subject to administrative remedies similar to those imposed on
financial institutions otherwise found not to be operating in a
safe and sound manner, including remedies available under prompt
correction active regulations.
There has been limited litigation filed against corporations
regarding the Year 2000 problem and such corporations' compliance
efforts. To date, no such litigation has resulted in a decided
case imposing liability on the corporate entity. Nonetheless,
the law in this area will likely continue to develop well into
the new millennium. Should the Company experience a Year 2000
failure, exposure of the Company could be significant and
material, unless there is legislative action to limit such
liability. Legislation has been introduced in several
jurisdictions regarding the Year 2000 problem. However, no
assurance can be given that legislation will be enacted in
jurisdictions where the Company does business that will have the
effect of limiting any potential liability. The Company has
incurred approximately $65,000 in costs associated with achieving
year 2000 compliance. The Company expects to incur approximately
$200,000 in additional costs to achieve year 2000 compliance
during the remainder of 1998 and in 1999.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
In management's opinion, there has not been a material change in
market risk from December 31, 1997 as reported in item 7A of the
Company's Form 10-K.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In February, 1983, a burglary of the contents of safe deposit
boxes occurred at a branch office of the Bank. At September 30,
1998, the Bank has a class action lawsuit related thereto
pending, whereby the plaintiffs are seeking recovery of
approximately $12.9 million in actual damages and an additional
33
<PAGE>
$12.9 million of unspecified damages. The Bank's 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.
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 AND USE OF PROCEEDS
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
(a) 3 Certificate of Incorporation of Haven
Bancorp, Inc., as amended.
27.1 Financial Data Schedule.
(b) The Company filed Form 8-K on July 2, 1998,
regarding its second quarter earnings. The Company filed Form 8-
K on September 28, 1998 regarding the proposed acquisition of
Century Insurance Agency.
34
<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, 1998 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: November 13, 1998 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
</TABLE>
35
<PAGE>
EXHIBIT 3
AS OF SEPTEMBER 30, 1998:
CERTIFICATE OF INCORPORATION
OF
HAVEN BANCORP, INC.
FIRST: The name of the Corporation is Haven Bancorp, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange
Street, in the City of Wilmington, County of New Castle. The name
of the registered agent at that address if The Corporation Trust
Company.
THIRD: The purpose of the Corporation is to engage in any lawful
act or activity for which a corporation may be organized under the
General Corporation Law of the State of Delaware.
FOURTH: A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is thirty-two million
(32,000,000) consisting of:
1. Two million (2,000,000), shares of Preferred Stock,
par value one cent ($.01) per share (the "Preferred
Stock"); and
2. Thirty million (30,000,000) shares of Common Stock,
par value one cent ($.01) per share (the "Common
Stock").
B. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware (such
certificate being hereinafter referred to as a "Preferred Stock
Designation"), to establish from time to time the number of shares
to be included in each such series, and to fix the designation,
powers, preferences, and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority
of the Common Stock, without a vote of the holders of the Preferred
Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock
Designation.
<PAGE>
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or
indirectly, by a person who, as of any record date for the
determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares
of Common Stock (the "Limit"), be entitled, or permitted to any
vote in respect of the shares held in excess of the Limit. The
number of votes which may be cast by any record owner by virtue of
the provisions hereof in respect of Common Stock beneficially owned
by such person beneficially owning shares in excess of the Limit
shall be a number equal to the total number of votes which a single
record owner of all Common Stock owned by such person would be
entitled to cast, subject to the provisions of this Article FOURTH,
multiplied by a fraction, the numerator of which is the number of
shares of such class or series which are both beneficially owned by
such person and owned of record by such record owner and the
denominator of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of the
Limit.
2. The following definitions shall apply to this Section C of this
Article FOURTH:
(a) "Affiliate" shall have the meaning ascribed to it in Rule 12b-2
of the General Rules and Regulations under the Securities Act of
1934, as in effect on the date of filing of this Certificate of
Incorporation.
(b) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities
Exchange Act of 1934 (or any successor rule or statutory
provision), or, if said Rule 13d-3 shall be rescinded and there
shall be no successor rule or provision thereto, pursuant to said
Rule 13d-3 as in effect on the date of filing of this Certificate
of Incorporation; provided, however, that a person shall, in any
event, also be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates beneficially owns,
directly or indirectly; or
(2) which such person or any of its affiliates has (i) the right to
acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement
or understanding (but shall not be deemed to be the beneficial
owner of any voting shares solely by reason of an agreement,
contract, or other arrangement with this Corporation to effect any
transaction which is described in any one or more of clauses 1
through 5 of Section A of Article EIGHTH), or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power with
respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be deemed
<PAGE>
to be the beneficial owner of any voting shares solely by reason of
a revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting, with
respect to shares of which neither such person nor any such
Affiliate is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or indirectly, by any
other person with which such first mentioned person or any of its
Affiliates acts as a partnership, limited partnership, syndicate or
other group pursuant to any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any
shares of capital stock of this Corporation; and provided further,
however, that (1) no Director or Officer of this Corporation (or
any Affiliate of any such Director or Officer) shall, solely by
reason of any or all of such Directors or Officers acting in their
capacities as such, be deemed, for any purposes hereof, to
beneficially own any Common Stock beneficially owned by any other
such Director or Officer (or any Affiliate thereof), and (2)
neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee
with respect thereto or any Affiliate of such trustee (solely by
reason of such capacity of such trustee), shall be deemed, for any
purposes hereof, to beneficially own any Common Stock held under
any such plan. For purposes of computing the percentage beneficial
ownership of Common Stock of a person, the outstanding Common Stock
shall include shares deemed owned by such person through
application of this subsection but shall not include any other
Common Stock which may be issuable by this Corporation pursuant to
any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all determinations
necessary or desirable to implement such provisions, including but
not limited to matters with respect to (i) the number of shares of
Common Stock beneficially owned by any person, (ii) whether a
person is an affiliate of another, (iii) whether a person has an
agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv)
the application of any other definition or operative provision of
the section to the given facts, or (v) any other matter relating to
the applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock
in excess of the Limit (or holds of record Common Stock
<PAGE>
beneficially owned by any person in excess of the Limit) supply the
Corporation with complete information as to (i) the record owner(s)
of all shares beneficially owned by such person who is reasonably
believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this
section as may reasonably be requested of such person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the holders
of record of shares of capital stock of the Corporation entitling
the holders thereof to cast a majority of the votes (after giving
effect, if required., to the provisions of this Section C) entitled
to be cast by the holders of shares of capital stock of the
Corporation entitled to vote shall constitute a quorum at all
meetings of the stockholders, and every reference in this
Certificate of Incorporation to a majority or other proportion of
capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent
or approval shall be deemed to refer to such majority or other
proportion of the votes (or the holders thereof) then entitled to
be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and on
the basis of such information and assistance as was then reasonably
available for such purpose shall be conclusive and binding upon the
Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section
C shall be found to be invalid, prohibited or unenforceable for any
reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be
construed as if such invalid, prohibited or unenforceable provision
had been stricken herefrom or otherwise rendered inapplicable, it
being the intent of this Corporation and its stockholders that each
such remaining provision (or portion thereof) of this Section C
remain, to the fullest extent permitted by law, applicable and
enforceable as to all stockholders, including stockholders owning
an amount of stock over the Limit, notwithstanding any such
finding.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and
for further definition, limitation and regulation of the powers of
the Corporation and of its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by
or under the direction of the Board of Directors. In addition to
the powers and authority expressly conferred upon them by statute
or by this Certificate of Incorporation or the Bylaws of the
Corporation, the Directors are hereby empowered to exercise all
such powers and do all such acts and things as may be exercised or
done by the Corporation.
<PAGE>
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders
of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be
effected by any consent in writing by such stockholders.
D. Special meeting of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by
a majority of the Whole Board or as otherwise provided in the
Bylaws. The term "Whole Board" shall mean the total number of
authorized directorships (whether or not there exist any vacancies
in previously authorized directorships at the time any such
resolution is presented to the Board for adoption).
SIXTH: A. The number of Directors shall be fixed from time to
time exclusively by the Board of Directors pursuant to a resolution
adopted by a majority of the Whole Board. The Directors shall be
divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at
the first annual meeting of stockholders, the term of office of the
second class to expire at the annual meeting of stockholders one
year thereafter and the term of office of the third class to expire
at the annual meeting of stockholders two years thereafter with
each Director to hold office until his or her successor shall have
been duly elected and qualified. At each annual meeting of
stockholders following such initial classification and election,
Directors elected to succeed those Directors whose terms expire
shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election with
each Director to hold office until his or her successor shall have
been duly elected and qualified.
B. Newly created directorships resulting from any increase in the
authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though
less than a quorum, and Directors so chosen shall hold office for
a term expiring at the annual meeting of stockholders at which the
term of office of the class to which they have been chosen expires.
No decrease in the number of Directors constituting the Board of
Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in
the manner provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred
Stock then outstanding, any Directors, or the entire Board of
Directors, may be removed from office at any time, but only for
<PAGE>
cause and only by the affirmative vote of the holders of at least
80 percent of the voting power of all of the then-outstanding
shares of capital stock of the Corporation entitled to vote
generally in the election of Directors (after giving effect to the
provisions of Article FOURTH of this Certificate of Incorporation
("Article FOURTH")), voting together as a single class.
SEVENTH: The Board of Directors is expressly empowered to adopt,
amend or repeal Bylaws of the Corporation. Any adoption, amendment
or repeal of the Bylaws of the corporation by the Board of
Directors shall require the approval of a majority of the Whole
Board. The stockholders shall also have power to adopt, amend or
repeal the Bylaws of the Corporation; provided, however, that, in
addition to any vote of the holders of any class or series of stock
of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally
in the election of Directors (after giving effect to the provisions
of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of
the Corporation.
EIGHTH: A. In addition to any affirmative vote required by law or
this Certificate of Incorporation, and except as otherwise
expressly provided in this Section A:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or
after such merger or consolidation would be, an Affiliate (as
hereinafter defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary
having an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% or more of the combined assets of the
Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities
of the Corporation or any Subsidiary to any Interested Stockholder
or any Affiliate of any Interested Stockholder in exchange for
cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value of the
outstanding common stock of the Corporation and its Subsidiaries,
except for any issuance or transfer pursuant to an employee benefit
plan of the Corporation or any Subsidiary thereof; or
<PAGE>
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or
any other transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the effect, directly
or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or
indirectly owned by any Interested Stockholder or any Affiliate of
any Interested Stockholder; shall require the affirmative vote of
the holders of at least 80% of the voting power of the
then-outstanding shares of stock of the Corporation entitled to
vote in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), voting together
as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a
lesser percentage may be specified, by law or by any other
provisions of this Certificate of Incorporation or any Preferred
Stock Designation in any agreement with any national securities
exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more
of paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such
Business Combination shall require only the affirmative vote of the
majority of the outstanding shares of capital stock entitled to
vote after giving effect to the provisions of Article FOURTH, or
such vote (if any), as is required by law or by this Certificate of
Incorporation, if, in the case of any Business Combination that
does not involve any cash or other consideration being received by
the stockholders of the Corporation solely in their capacity as
stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the
following paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by the
holders of Common Stock in such Business Combination shall at least
<PAGE>
be equal to the higher of the following
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder or any
of its Affiliates for any shares of Common Stock acquired by it (i)
within the two-year period immediately prior to the first public
announcement of the proposal of the Business Combination (the
"Announcement Date"), or (ii) in the transaction in which it became
an Interested Stockholder, whichever is higher.
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter date is
referred to in this Article EIGHTH as the "Determination Date"),
whichever is higher.
(b) The aggregate amount of the cash and the Fair Market Value as
of the date of the consummation of the Business Combination of
consideration other than cash to be received per share by holders
of shares of any class of outstanding Voting Stock other than
Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to every
such class of outstanding Voting Stock, whether or not the
Interested Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as hereinafter
defined), including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder for
any shares of such class of Voting Stock acquired by it (i) within
the two-year period immediately prior to the Announcement Date, or
(ii) in the transaction in which it became an Interested
Stockholder, whichever is higher;
(2) (if applicable) the highest preferential amount per share to
which the holders of shares of such class of Voting Stock are
entitled in the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; and
(3) the Fair Market Value per share of such class of Voting Stock
on the Announcement Date or on the Determination Date, whichever is
higher.
(c) The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock) shall be
in cash or in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock. If the
Interested Stockholder has paid for shares of any class of Voting
Stock with varying forms of consideration, the form of
consideration to be received per share by holders of shares of such
class of Voting Stock shall be either cash or the form used to
<PAGE>
acquire the largest number of shares of such class of Voting Stock
previously acquired by the Interested Stockholder. The price
determined in accordance with subparagraph B.2 of this Article
EIGHTH shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or similar
event.
(d) After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there shall have
been no failure to declare and pay at the regular date therefor any
full quarterly dividends (whether or not cumulative) on any
outstanding stock having preference over the Common Stock as to
dividends or liquidation; (2) there shall have been (i) no
reduction in the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the Common
Stock), except as approved by a majority of the Disinterested
Directors, and (ii) an increase in such annual rate of dividends as
necessary to reflect any reclassification (including any reverse
stock split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure to so
increase such annual rate is approved by a majority of the
Disinterested Directors, and (3) neither such Interested
Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock except as
part of the transaction which results in such Interested
Stockholder becoming an Interested Stockholder.
(e) After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have received
the benefit, directly or indirectly (except proportionately as a
stockholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages
provided, directly or indirectly, by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, and
the rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior to the
consummation of such Business Combination (whether or not such
proxy or information statement is required to be mailed pursuant to
such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
<PAGE>
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of
securities or any other entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who or
which:
(a) is the beneficial owner, directly or indirectly, of more than
10% of the outstanding Voting Stock; or
(1)
(b) is an Affiliate of the Corporation and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the
voting power of the then outstanding voting Stock; or
(c) is an assignee of or has otherwise succeeded to any shares of
Voting Stock which were at any time within the two-year period
immediately prior to the date in question beneficially owned by any
Interested Stockholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions
not involving a public offering within the meaning of the
Securities Act of 1933.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of Article
FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect
on the date of filing of this Certificate of Incorporation.
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in Paragraph 2 of
this Section C, the term "Subsidiary" shall mean only a corporation
of which a majority of each class of equity security is owned,
directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and
was a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
Director who is thereafter chosen to fill any vacancy of the Board
of Directors or who is elected and who, in either event, is
unaffiliated with the Interested Stockholder and in connection with
his or her initial assumption of office is recommended for
appointment or election by a majority of Disinterested Directors
then on the Board of Directors.
<PAGE>
7. "Fair Market Value" means:
(a) in the case of stock, the highest closing sales price of the
stock during the 30-day period immediately preceding the date in
question of a share of such stock on the National Association of
Securities Dealers Automated Quotation System/National Market
System or any system then in use, or, if such stock is admitted to
trading on a principal United States securities exchange registered
under the Securities Exchange Act of 1934, Fair Market Value shall
be the highest sale price reported during the 30-day period
preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a share
of such stock as determined by the Board of Directors in good
faith, in each case with respect to any class of stock,
appropriately adjusted for any dividend or distribution in shares
of such stock or any stock split or reclassification of outstanding
shares of such stock into a greater number of shares of such stock
or any combination or reclassification of outstanding shares of
such stock into a smaller number of shares of such stock, and
(b) in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as determined
by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into
a greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to
be received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting
Stock retained by the holders of such shares.
D. A majority of the Directors of the Corporation shall have the
power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable
inquiry: (a) whether a person is an Interested Stockholder; (b) the
number of shares of Voting Stock beneficially owned by any person;
(c) whether a person is an Affiliate or Associate of another; and
(d) whether the assets which are the subject of any Business
Combination have, or the consideration to be received for the
issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value
of the common stock of the Corporation and its Subsidiaries. A
majority of the Directors shall have the further power to interpret
all of the terms and provisions of this Article EIGHTH.
<PAGE>
E. Nothing contained in the Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit
a lesser vote or no vote, but in addition to any affirmative vote
of the holders of any particular class or series of the Voting
Stock required by law, this Certificate of Incorporation or any
Preferred Stock Designation, the affirmative vote of the holders of
at least 80 percent of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this
Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating
any offer of another Person (as defined in Article EIGHTH hereof)
to (A) make a tender or exchange offer for any equity security of
the Corporation, (B) merge or consolidate the Corporation with
another corporation or entity or (C) purchase or otherwise acquire
all or substantially all of the properties and assets of the
Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and
its stockholders, give due consideration to all relevant factors,
including, without limitation, those factors that Directors of any
subsidiary of the Corporation may consider in evaluating any action
that may result in a change or potential change in the control of
the subsidiary, and the social and economic effect of acceptance of
such offer: on the Corporation's present and future customers and
employees and those of its Subsidiaries (as defined in Article
EIGHTH hereof); on the communities in which the Corporation and its
Subsidiaries operate or are located; on the ability of the
Corporation to fulfill its corporate objective as a savings and
loan holding company under applicable laws and regulations; and on
the ability of its subsidiary savings bank to fulfill the
objectives of a stock form savings bank under applicable statutes
and regulations.
TENTH: A. Each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit
or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact
that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation
as a Director, Officer, employee or agent of another corporation or
of a partnership, joint venture, trust or other enterprise,
including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director,
Officer, employee or agent or in any other capacity while serving
as a Director, Officer, employee or agent, shall be indemnified and
held harmless by the Corporation to the fullest extent authorized
by the Delaware General Corporation Law, as the same exists or may
<PAGE>
hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in
connection therewith; provided, however, that, except as provided
in Section C hereof with respect to proceedings to enforce rights
to indemnification, the Corporation shall indemnify any such
indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part
thereof) was authorized by the Board of Directors of the
Corporation.
B. The right to indemnification conferred in Section A of this
Article TENTH shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance
of its final disposition (hereinafter an "advancement of
expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an
indemnitee in his or her capacity as a Director or Officer (and not
in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, services to an employee
benefit plan) shall be made only upon delivery to the Corporation
of an undertaking (hereinafter an "undertaking"), by or on behalf
of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which
there is no further right to appeal (hereinafter a "final
adjudication") that such indemnitee is not entitled to be
indemnified for such expenses under this Section or otherwise. The
rights to indemnification and to the advancement of expenses
conferred in Sections A and B of this Article TENTH shall be
contract rights and such rights shall continue as to an indemnitee
who has ceased to be a Director, Officer, employee or agent and
shall inure to the benefit of the indemnitee's heirs, executors and
administrators.
C. If a claim under Section A or B of this Article TENTH is not
paid in full by the Corporation within sixty days after a written
claim has been received by the Corporation, except in the case of
a claim for an advancement of expenses, in which case the
applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim. If successful in whole or in part in
any such suit, or in a suit brought by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking,
the indemnitee shall be entitled to be paid also the expenses of
prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not
in a suit brought by the indemnitee to enforce a right to an
advancement of expenses) it shall be a defense that, and (ii) in
any suit by the Corporation to recover an advancement of expenses
<PAGE>
pursuant to the terms of an undertaking the Corporation shall be
entitled to recover such expenses upon a final adjudication that,
the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct
set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a
presumption that the indemnitee has not met the applicable standard
of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover
an advancement of expenses pursuant to the terms of an undertaking,
the burden of proving that the indemnitee is not entitled to be
indemnified, or to such advancement of expenses, under this Article
TENTH or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article TENTH shall not be exclusive of any other
right which any person may have or hereafter acquire under any
statute, the Corporation's Certificate of Incorporation, Bylaws,
agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to
protect itself and any Director, Officer, employee or agent of the
Corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss,
whether or not the Corporation would have the power to indemnify
such person against such expense, liability or loss under the
Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time
by the Board of Directors, grant rights to indemnification and to
the advancement of expenses to any employee or agent of the
Corporation to the fullest extent of the provisions of this Article
TENTH with respect to the indemnification and advancement of
expenses of Directors and Officers of the Corporation.
ELEVENTH: A Director of this Corporation shall not be personally
liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a Director, except for liability
(i) for any breach of the Director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the
<PAGE>
Director derived an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action
further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation
shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any
right or protection of a Director of the Corporation existing at
the time of such repeal or modification.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the
manner prescribed by the laws of the State of Delaware and all
rights conferred upon stockholders are granted subject to this
reservation; provided, however,. that, notwithstanding any other
provision of this Certificate of Incorporation or any provision of
law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the
stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of at least 80
percent of the voting power of all of the then-outstanding shares
of the capital stock of the Corporation entitled to vote generally
in the election of Directors (after giving effect to the provisions
of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of
Article FOURTH, Sections C or D of Article FIFTH, Article SIXTH,
Article SEVENTH, Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator
are as follows:
Name Mailing Address
Siobain Perkins Morris, Nichols, Arsht & Tunnel
1201 North Market Street
P.O. Box 1347
Wilmington, Delaware 19899-1347
I, THE UNDERSIGNED, being the incorporator, for the purpose of
forming a corporation under the laws of the State of Delaware, do
make, file and record this Certificate of Incorporation, do certify
that the facts herein stated are true, and accordingly, have hereto
set my hand this 24th day of March, 1993.
/s/ Siobain M . Perkins
----------------------------
Siobain M. Perkins
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1998 and
the Consolidated Statement of Operations for the nine months Ended
September 30, 1998 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-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 35,049
<INT-BEARING-DEPOSITS> 1,464,609
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 839,570
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,312,586
<ALLOWANCE> 13,791
<TOTAL-ASSETS> 2,322,466
<DEPOSITS> 1,627,832
<SHORT-TERM> 179,678
<LIABILITIES-OTHER> 84,887
<LONG-TERM> 307,533
0
0
<COMMON> 100
<OTHER-SE> 122,436
<TOTAL-LIABILITIES-AND-EQUITY> 2,322,466
<INTEREST-LOAN> 73,060
<INTEREST-INVEST> 38,614
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 111,674
<INTEREST-DEPOSIT> 48,159
<INTEREST-EXPENSE> 69,092
<INTEREST-INCOME-NET> 42,582
<LOAN-LOSSES> 1,990
<SECURITIES-GAINS> 1,591
<EXPENSE-OTHER> 54,089
<INCOME-PRETAX> 7,560
<INCOME-PRE-EXTRAORDINARY> 7,560
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,620
<EPS-PRIMARY> 0.66<F1>
<EPS-DILUTED> 0.61
<YIELD-ACTUAL> 7.29
<LOANS-NON> 7,102
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,980
<LOANS-PROBLEM> 18,276
<ALLOWANCE-OPEN> 12,528
<CHARGE-OFFS> 1,767
<RECOVERIES> 1,040
<ALLOWANCE-CLOSE> 13,791
<ALLOWANCE-DOMESTIC> 13,791
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>EPS 1997 1996
Basic: 0.96 0.71
Diluted 0.90 0.68
Per share amendments reflect the 2 - for - 1 stock split effective
November 1997.
</FN>
</TABLE>
