<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 JUNE 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)
93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421
(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 8,849,268 shares of the Registrant's common stock
outstanding as of August 12, 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 June 30, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Three Months and Six Months ended
June 30, 1998 and 1997 4
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months
ended June 30, 1998 5
Consolidated Statements of Cash Flows for the
Six months ended June 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 11-31
Item 3. Quantitative and Qualitative Disclosure
about Market Risk 31
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 31
Item 2. Changes in Securities and Use of Proceeds 31
Item 3. Defaults Upon Senior Securities 31
Item 4. Submission of Matters to a Vote of Security
Holders 31
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 32
Signature Page
2
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 53,659 $ 35,745
Money market investments 2,217 4,561
Securities available for sale (note 2) 762,925 499,380
Loans held for sale 61,657 -
Debt securities held to maturity (estimated fair value of
$66,372 in 1997) (note 2) - 66,404
Federal Home Loan Bank of NY stock, at cost 18,140 12,885
Mortgage-backed securities held to maturity (estimated fair
value of $163,326 in 1997) (note 2) - 163,057
Loans:
First mortgage loans 1,255,712 1,098,894
Cooperative apartment loans 18,855 19,596
Other loans 33,189 32,291
--------- ---------
Total loans 1,307,756 1,150,781
Less allowance for loan losses (13,315) (12,528)
--------- ---------
Loans, net 1,294,441 1,138,253
Premises and equipment, net (note 3) 34,443 27,062
Accrued interest receivable 12,083 12,429
Other assets (note 3) 25,683 15,114
--------- ---------
Total assets $2,265,248 $1,974,890
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,562,915 $1,365,012
Borrowed funds 525,344 466,794
Mortgagors' escrow balances 10,220 3,234
Due to broker 30,000 10,000
Other liabilities 18,776 16,985
--------- ---------
Total liabilities 2,147,255 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; 8,849,268 and 8,784,700 shares
outstanding at June 30, 1998 and December 31, 1997, respectively 100 100
Additional paid-in capital 51,113 50,065
Retained earnings, substantially restricted 75,714 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net of tax effect 3,178 1,671
Treasury stock, at cost (1,069,482 and 1,134,050 shares at June
30, 1998 and December 31, 1997) (9,862) (10,246)
Unallocated common stock held by Bank's ESOP (1,373) (1,529)
Unearned common stock held by Bank's Recognition Plans and Trusts (314) (364)
Unearned compensation (563) (399)
--------- ---------
Total stockholders' equity 117,993 112,865
--------- ---------
Total liabilities and stockholders' equity $2,265,248 $1,974,890
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Income
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Mortgage loans $23,591 $18,486 $45,330 $35,067
Other loans 823 801 1,610 1,616
Mortgage-backed securities 9,573 8,191 18,504 15,232
Money market investments 42 94 146 190
Debt and equity securities 2,703 4,044 6,105 8,308
------ ------ ------ ------
Total interest income 36,732 31,616 71,695 60,413
------ ------ ------ ------
Interest expense:
Deposits:
Savings accounts 2,700 2,323 5,116 4,551
NOW accounts 341 277 602 495
Money market accounts 514 461 937 859
Certificate accounts 12,615 9,222 24,478 17,691
Borrowings 6,412 5,951 12,918 11,010
------ ------ ------ ------
Total interest expense 22,582 18,234 44,051 34,606
------ ------ ------ ------
Net interest income before provision for loan losses 14,150 13,382 27,644 25,807
Provision for loan losses 650 750 1,320 1,450
------ ------ ------ ------
Net interest income after provision for loan losses 13,500 12,632 26,324 24,357
------ ------ ------ ------
Non-interest income:
Loan fees and servicing income 1,233 254 1,751 504
Savings/checking fees 2,319 1,263 4,130 2,323
Net gain (loss) on sales of interest-earning assets 54 8 406 (16)
Insurance annuity and mutual fund fees 1,314 1,003 2,501 1,803
Other 663 299 1,254 540
------ ------ ------ ------
Total non-interest income 5,583 2,827 10,042 5,154
------ ------ ------ ------
Non-interest expense:
Compensation and benefits 10,387 5,878 17,964 10,892
Occupancy and equipment 2,381 1,646 4,600 2,638
Real estate owned operations, net (88) 76 (39) 184
Federal deposit insurance premiums 222 172 429 364
Other 4,479 3,766 8,494 6,529
------ ------ ------ ------
Total non-interest expense 17,381 11,538 31,448 20,607
------ ------ ------ ------
Income before income tax expense 1,702 3,921 4,918 8,904
Income tax expense 471 1,621 1,538 3,299
------ ------ ------ ------
Net income $1,231 $2,300 $3,380 $5,605
====== ====== ====== ======
Net income per common share: Basic (1) $ 0.14 $ 0.28 $ 0.40 $ 0.68
====== ====== ====== ======
Diluted (1) $ 0.13 $ 0.26 $ 0.37 $ 0.64
====== ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
(1) 1997 per share amounts reflect the 2-for-1 stock split
effective November 1997.
4
<PAGE> HAVEN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Six Months Ended June 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 3,380 - - 3,380 - - - - -
Other comprehensive income, net of tax
Net unrealized appreciation on
certain securities, net of
reclassification adjustment 626 - - - 626 - - - -
Net unrealized appreciation on Debt and
MBS securities transferred from held to
maturity to the AFS portfolio(note 2) 881 - - - 881 - - - -
-------
Comprehensive income 4,887 - - - - - - - -
Dividends declared (note 5) (1,233) - - (1,233) - - - - -
Treasury stock issued for deferred
compensation plan (14,384 shares) - - 280 - - 86 - - (366)
Stock options exercised, net of tax
effect (50,184 shares) (note 4) 425 - 127 - - 298 - - -
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits 847 - 641 - - - 156 50 -
Amortization of deferred compensation plan 202 - - - - - - - 202
------- --- ------ ------ ------ ------ ------ ----- -----
Balance at June 30, 1998 $117,993 100 51,113 75,714 3,178 (9,862) (1,373) (314) (563)
======= === ====== ====== ====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FAS 130 Disclosure of Reclassification Adjustment
June 30, 1998
Gross Tax Effect Net of Tax
----- ---------- ----------
<S> <C> <C> <C>
Comprehensive income items
Net unrealized gain arising during period 2,377 605 1,772
Less: reclassification adjustment for net gains included in income 384 119 265
----- ---- -----
Net unrealized gain on certain securities 1,993 486 1,507
===== ==== =====
Balance sheet items
Accumulated unrealized gain on securities AFS as of June 30, 1998 4,606 1,428 3,178
Accumulated unrealized gain on securities AFS as of December 31, 1997 2,613 942 1,671
----- ---- -----
Change during the period 1,993 486 1,507
===== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,380 $ 5,605
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 1,049 771
Amortization of net deferred loan origination fees (19) (164)
Amortization of premiums and accretion of discounts on loans,
mortgage-backed and debt securities (994) 255
Provision for loan losses 1,320 1,450
Provision for losses on real estate owned 30 50
Deferred income taxes (465) (792)
Net (gain) loss on sales of interest-earning assets (406) 16
Loans originated and purchased for sale, net of proceeds from sales (69,585) -
Depreciation and amortization 1,896 563
Decrease (increase) in accrued interest receivable 346 (733)
Increase in due to broker 20,000 9,000
Increase (decrease) in other liabilities 1,786 (72)
Increase in other assets (10,682) (3,076)
------ ------
Net cash (used in) provided by operating activities (52,344) 12,873
------ ------
Cash flows from investing activities:
Net increase in loans (149,918) (137,895)
Proceeds from disposition of assets (including REO) 440 861
Purchases of securities available for sale (337,436) (255,267)
Principal repayments and maturities on securities available for sale 78,607 16,172
Proceeds from sales of securities available for sale 182,263 184,016
Principal repayments, maturities and calls on debt securities
held to maturity 21,020 2,020
Principal repayments on mortgage-backed securities held to maturity 24,834 15,067
Purchases of FHLB stock, net (5,255) (1,100)
Net increase in premises and equipment (9,277) (7,695)
------- -------
Net cash used in investing activities (194,722) (183,821)
------- -------
Cash flows from financing activities:
Net increase in deposits 197,903 98,486
Net increase in borrowed funds 58,550 86,160
Increase (decrease) in mortgagors' escrow balances 6,986 (2,123)
Payment of common stock dividends (1,228) (1,298)
Stock options exercised 425 600
------- -------
Net cash provided by financing activities 262,636 181,825
------- -------
Net increase in cash and cash equivalents 15,570 10,877
Cash and cash equivalents at beginning of period 40,306 35,717
------ -------
Cash and cash equivalents at end of period $55,876 $46,594
====== =======
Supplemental information:
Cash paid during the period for:
Interest $43,175 $32,422
Income taxes 1,631 3,946
Additions to real estate owned 434 1,326
Securities purchased, not yet received 30,000 10,000
Mortgage-backed securities 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
June 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 Columbia Federal Savings Bank)
("CFS" or the "Bank") and subsidiaries, as of June 30, 1998 and
December 31, 1997 and for the three-month and six-month periods
ended June 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 six-month periods ended June
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 June 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 $ 85,689 233 (379) 85,543
Corporate Bonds 40,410 4 (61) 40,353
Preferred Stock 4,198 171 - 4,369
------- ----- ------ -------
130,297 408 (440) 130,265
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 703 16 - 719
FNMA Certificates 92,207 642 (465) 92,384
FHLMC Certificates 73,435 1,036 (124) 74,347
CMOs and REMICS 461,677 4,167 (634) 465,210
------- ----- ------ -------
628,022 5,861 (1,223) 632,660
------- ----- ------ -------
Total $758,319 6,269 (1,663) 762,925
======= ===== ====== =======
</TABLE>
The net unrealized gain on securities available for sale at June
30, 1998, was reported as a separate component of stockholders'
equity in the amount of $3.2 million, which is net of a tax effect
of $1.4 million.
NOTE 3 - INTERCOUNTY MORTGAGE, INC. On May 1, 1998 the Bank
completed the purchase of the production franchise of Intercounty
Mortgage, Inc. ("IMI") from Resource Bancshares Mortgage Group,
Inc. ("RBMG"). The Bank paid approximately $5.6 million for IMI's
production franchise and fixed assets. The transaction was
financed internally and accounted for under the purchase method.
IMI primarily originates agency-eligible residential mortgages and
in 1997 had loan production of approximately $740 million from six
retail offices in New York, New Jersey and Pennsylvania. The
business is currently operating as "CFS Intercounty Mortgage
Company" ("CFS Intercounty"), a division of the Bank. During the
period May 1, 1998 through June 30, 1998, CFS Intercounty
originated and purchased $155.4 million in loans. A portion of
this production, $3.1 million, was transferred to CFS Bank's
portfolio and $90.6 million was sold on a servicing released basis
to third-party investors substantially under the terms agreed to in
the RBMG purchase agreement. In connection with the acquisition,
the Bank recorded goodwill in the amount of $5.1 million. The
goodwill is being amortized over 5 years.
8
<PAGE>
NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the six months ended June 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 (50,184) 8.47
--------- -----
Balance at June 30, 1998 1,279,692 9.25
========= =====
Shares exercisable at June 30, 1998 998,759 7.05
========= =====
</TABLE>
NOTE 5 - DIVIDENDS PAYABLE. On June 24, 1998, the Company's Board
of Directors approved a quarterly cash dividend of $0.075 per
share, payable on July 24, 1998, to shareholders of record as of
July 3, 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 has 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 of financial
statements of the Company and in condensed financial statements of
9
<PAGE>
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.
NOTE 7 - NET INCOME PER SHARE OF COMMON STOCK. There were
8,567,111 basic shares outstanding and 9,247,139 diluted shares
outstanding for the three months ended June 30, 1998. There were
8,554,785 basic shares outstanding and 9,186,967 diluted shares
outstanding for the six months ended June 30, 1998. The weighted
average number of shares outstanding does not include 274,694
shares which are unallocated by the Employee Stock Ownership Plan
("ESOP") as of June 30, 1998 in accordance with American Institute
of CPAs ("AICPA") Statement of Position ("SOP") 93-6, "Employers'
10
<PAGE>
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 $4.0 million and $4.9 million for the three month
and six month periods ended June 30, 1998, respectively, and $5.5
million and $6.5 million for the three month and six month periods
ended June 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 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 operations and
from borrowings primarily in one-to four-family, owner occupied
residential mortgage loans held in the Bank's portfolio or to be
sold in the secondary market. 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.
11
<PAGE>
ANALYSIS OF CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1997
TO JUNE 30, 1998
ASSETS
Total assets increased by $290.4 million, or 14.7% to $2.3 billion
at June 30, 1998 from $2.0 billion at December 31, 1997.
Securities available for sale ("AFS") increased by $263.5 million,
or 52.8% to $762.9 million at June 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. The transfer was done to enhance
liquidity and take advantage of market opportunities. During the
six months ended June 30, 1998, the Bank purchased $322.4 million
of MBSs, $13.9 million of government agency securities and $1.1
million of Preferred Stock for its AFS portfolio. These purchases
were partially offset by sales and principal repayments of $181.9
million and $78.6 million, respectively. Debt securities held to
maturity decreased by $66.4 million, or 100% to a zero balance at
June 30, 1998 due to principal repayments, maturities and calls
totaling $21.0 million and the transfer of $45.4 million of
securities to AFS on June 30, 1998. MBSs held to maturity declined
by $163.1 million, or 100% to a zero balance at June 30, 1998 due
to principal repayments, maturities and calls totaling $24.9
million and the transfer of $138.2 million of securities to AFS on
June 30, 1998. There were no purchases of debt securities or MBSs
held to maturity during the six months ended June 30, 1998, and no
such further purchases are currently anticipated.
Net loans increased by $156.2 million, or 13.7% to $1.3 billion at
June 30, 1998 from $1.1 billion at December 31, 1997. Loan
originations and purchases during the six month period ended June
30, 1998 totaled $294.0 million (comprised of $223.7 million of
residential one-to four-family mortgage loans, $62.1 million of
commercial real estate and multi-family loans, $7.5 million of
equity loans and lines of credit and $0.7 million of construction
advances). Originations of residential one-to four-family mortgage
loans included purchases of $75.5 million of residential loans in
the secondary market to enhance the Bank's internal loan
origination volume. During the first half of 1998, principal
payments totaled $131.8 million, $0.4 million was transferred to
REO and $4.9 million of loans were sold in the secondary market.
CFS Intercounty's residential mortgage loan origination volume and
wholesale purchases since its acquisition on May 1, 1998 were
$155.4 million, of which $3.1 million was transferred to CFS Bank's
portfolio and $90.6 million was sold on a servicing released basis
to third party investors substantially under the terms agreed to in
the RBMG purchase agreement. Effective July 1, 1998, the Bank
entered into new correspondent agreements with various investors to
realize the full value of the servicing released premiums ("SRPs")
when the loans are sold in the secondary market. At June 30, 1998,
12
<PAGE>
substantially all of the loans in the pipeline that will be sold in
the secondary market, will realize the full benefit of such SRPs.
LIABILITIES
Deposits increased by $197.9 million, or 14.5% to $1.6 billion at
June 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 $322.7 million at June 30, 1998 compared to
$157.2 million at December 31, 1997. The Bank had forty-five in-
store bank branches as of June 30, 1998 compared to thirty-two in-
store branches at December 31, 1997. The Bank expects to open
fifteen additional in-store bank branches during the remainder of
1998. Core deposits (comprised of checking, savings and money
market accounts) were equal to 39.1% of total in-store branch
deposits at June 30, 1998 compared to 47.1% in the Bank's eight
traditional branches. Overall, core deposits represented 45.5% of
total deposits at June 30, 1998 compared to 42.7% at December 31,
1997. Borrowed funds increased by $58.6 million, or 12.5% to
$525.3 million at June 30, 1998 from $466.8 million at December 31,
1997 primarily to fund loan origination volume and wholesale
purchases of CFS Intercounty during the second quarter of 1998.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $118.0 million at
June 30, 1998 from $112.9 million at December 31, 1997. The
increase in stockholders' equity was due to net income of $3.4
million for the six months ended June 30, 1998, an increase of $1.5
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 $425,000 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 $1.0
million. These increases were partially offset by dividends
declared of $1.2 million.
13
<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 real estate owned.
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in Thousands) 1998 1997
-------- ------------
<S> <C> <C>
Non-accrual loans
One-to four-family $ 3,177 3,534
Cooperative 146 698
Multi-family 905 2,531
Non-residential and other 3,497 3,633
------ ------
Total non-accrual loans 7,725 10,396
------ ------
Restructured loans
One-to four-family 549 679
Cooperative 288 290
Multi-family 1,154 1,167
------ ------
Total restructured loans 1,991 2,136
------ ------
Total non-performing loans 9,716 12,532
------ ------
REO, net
One-to four-family 179 126
Cooperative 126 295
Non-residential and other 121 121
------ ------
Total REO 426 542
Less allowance for REO (61) (87)
------ ------
REO, net 365 455
------ ------
Total non-performing assets $10,081 12,987
====== ======
Non-performing loans to total loans 0.74% 1.09%
Non-performing assets to total assets 0.45 0.66
Non-performing loans to total assets 0.43 0.63
</TABLE>
14
<PAGE>
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
$357,000 and $552,000, respectively, from December 31, 1997. The
ratio of non-performing loans to total loans decreased primarily
due to the increase of $157.0 million in total loans, as well as
the significant decline in non-performing loans during the six
month period. The decrease in the ratio of non-performing assets
to total assets was primarily due to the increase of $290.4 million
in total assets and a $2.9 million decrease in non-performing
assets during the six month period. The ratio of non-performing
loans to total assets decreased primarily due to the increase of
$290.4 million in total assets and a reduction of $2.8 million in
non-performing loans between year-end 1997 and June 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.
15
<PAGE>
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1998 1997
------- -------
<S> <C> <C>
Balance at beginning of period $12,528 10,704
Charge-offs:
Residential (218) (341)
Cooperative (256) (762)
Multi-family (708) -
Non-residential and other (285) (230)
------ ------
Total charge-offs (1,467) (1,333)
------ ------
Recoveries 934 494
------ ------
Net charge-offs (533) (839)
Provision for loan losses 1,320 1,450
------ ------
Balance at end of period $13,315 11,315
====== ======
Ratio of net charge-offs during the period to
average loans outstanding during the period 0.09% 0.18%
Ratio of allowance for loan losses to
total loans at the end of the period 1.02 1.15
Ratio of allowance for loan losses to non-
performing loans at the end of the period 137.04 96.49
</TABLE>
The ratio of net charge-offs to average loans outstanding during
the first half of 1998 decreased compared to the same period in
1997 due to the fact that the Bank experienced net charge-offs of
$533,000 for the first half of 1998 compared to net charge-offs of
$839,000 for the first half of 1997. In addition to the reduction
in net charge-offs, average loans outstanding increased $310.2
million, or 33.9% to $1.2 billion for the first half of 1998 from
$916.2 million for the same period in 1997. The ratio of allowance
for loan losses to total loans decreased for the period due to the
increase in average loans outstanding for the quarter. The ratio
of allowance for loan losses to non-performing loans increased
between the periods due to an increase of $2.0 million in the
allowance for loan losses and a decrease of $2.0 million in non-
performing loans. The Bank's allowance for loan losses was $13.3
million and $11.3 million at June 30, 1998 and June 30, 1997,
respectively, while non-performing loans totaled $9.7 million and
$11.7 million, respectively, on those dates.
16
<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. During the first half of 1998, the Bank originated or
purchased for its portfolio $84.2 million of residential
adjustable-rate mortgages and $56.1 million of adjustable-rate
multi-family, commercial real estate and construction loans. The
Company expects to increase its adjustable-rate mortgage
originations through its CFS Intercounty mortgage division. During
the six month period, the Bank purchased $266.9 million of fixed
rate debt securities and MBSs to take advantage of higher yields
and shorter durations when compared to rates offered on adjustable-
rate securities. At June 30, 1998, $319.2 million, or 41.8% of the
Company's AFS portfolio were adjustable-rate securities and $443.7
million or 58.2% 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 June 30, 1998, core deposits represented 45.5% of
deposits compared to 42.7% of deposits at December 31, 1997. Core
deposits for the Bank's eight traditional branches was 47.1% of
deposits compared to 39.1% of deposits for the Bank's forty-five
in-store bank branches. During the first six months of 1998,
savings accounts increased by $50.2 million, net of interest and
certificates of deposit increased by $83.6 million, net of
interest. The number of checking accounts increased by 27,442, or
28.0% to 125,304 accounts at June 30, 1998 from 97,862 accounts at
December 31, 1997. Most of the increase, or 24,354 accounts is
attributable to the Bank's in-store bank branches. The balance of
certificate accounts outstanding at June 30, 1998, was $888.4
million compared to $781.6 million at December 31, 1997. A major
portion of this increase, $90.5 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 5.10% in the first year 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 borrowings. The required
17
<PAGE>
ratio is currently 4%. The Bank's ratio was 6.56% at June 30, 1998
compared to 8.94% at December 31, 1997. The decrease in the
liquidity ratio during the six-month period is due to a decline of
$43.2 million in U.S. government securities in the Bank's AFS
portfolio.
The Company's primary sources of funds are deposits, principal and
interest payments on loans and MBSs, retained earnings and advances
from FHLB-NY. Proceeds from the sale of AFS securities and loans
originated 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 Investments,
Inc. ("CFSI"). 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 June 30, 1998 and December 31, 1997,
cash and short-term investments totaled $55.9 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
and MBSs AFS. Other sources of funds include FHLB advances, which
at June 30, 1998 totaled $355.0 million. An additional source of
funds are repurchase agreements, which totaled $143.7 million at
June 30, 1998.
As of June 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 $126,056 5.66% $126,056 5.66% $138,389 12.24%
Minimum regulatory requirement 44,534 2.00 89,068 4.00(3) 90,435 8.00
------- ---- ------- ---- ------- ----
Excess $ 81,522 3.66% $ 36,988 1.66% $ 47,954 4.24%
======= ==== ====== ==== ======= ====
</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.
18
<PAGE>
(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 postponed the date
that the component will first be deducted from an institution's
total capital until an appeals process is developed for the
measurement of an institution's interest rate risk. The Bank does
not anticipate that the new rule, when implemented, will have a
material effect on the Bank's risk-based capital.
(3) Consistent with the minimum ratio to be deemed "adequately
capitalized", the required amount is based on 4%. 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 further
affected by non-interest income, non-interest expense and income
taxes.
19
<PAGE>
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 June 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 $1,250,170 $23,591 7.55% $928,692 $18,486 7.96%
Other loans 32,841 823 10.02 32,912 801 9.74
Mortgage-backed securities 565,144 9,573 6.78 476,606 8,191 6.87
Money market investments 2,683 42 6.26 6,412 94 5.86
Debt and equity securities 161,806 2,703 6.68 223,057 4,044 7.25
--------- ------ --------- ------
Total interest-earning assets 2,012,644 36,732 7.30 1,667,679 31,616 7.58
Non-interest earning assets 147,818 ------ 73,563 ------
--------- ---------
Total assets 2,160,462 1,741,242
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 411,048 2,700 2.63 372,169 2,323 2.50
Certificate accounts 880,308 12,615 5.73 641,379 9,222 5.75
NOW accounts 184,101 341 0.74 127,746 277 0.87
Money market accounts 57,454 514 3.58 58,405 461 3.16
Borrowed funds 430,229 6,412 5.96 405,371 5,951 5.87
--------- ------ --------- ------
Total interest-bearing liabilities 1,963,140 22,582 4.60 1,605,070 18,234 4.54
Other liabilities 80,298 ------ 31,958 ------
--------- ---------
Total liabilities 2,043,438 1,637,028
Stockholders' equity 117,024 104,214
--------- ---------
Total liabilities and stockholders' equity $2,160,462 $1,741,242
========= =========
Net interest income/net interest rate spread $14,150 2.70% $13,382 3.04%
====== ==== ====== ====
Net interest earning assets/net interest margin $49,504 2.81% $62,609 3.21%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 102.52% 103.90%
====== ======
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Six months ended June 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 $1,193,544 $45,330 7.60% $ 882,851 $35,067 7.94%
Other loans 32,837 1,610 9.81 33,333 1,616 9.70
Mortgage-backed securities 551,130 18,504 6.71 446,587 15,232 6.82
Money market investments 5,429 146 5.38 6,440 190 5.90
Debt and equity securities 181,110 6,105 6.74 238,445 8,308 6.97
--------- ------ --------- ------
Total interest-earning assets 1,964,050 71,695 7.30 1,607,656 60,413 7.52
Non-interest earning assets 120,654 ------ 78,734 ------
--------- ---------
Total assets 2,084,704 1,686,390
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 397,875 5,116 2.57 367,371 4,551 2.48
Certificate accounts 852,541 24,478 5.74 624,021 17,691 5.67
NOW accounts 171,595 602 0.70 123,487 495 0.80
Money market accounts 56,357 937 3.33 58,360 859 2.94
Borrowed funds 431,489 12,918 5.99 379,364 11,010 5.80
--------- ------ --------- ------
Total interest-bearing liabilities 1,909,857 44,051 4.61 1,552,603 34,606 4.46
Other liabilities 59,185 ------ 31,255 ------
--------- ---------
Total liabilities 1,969,042 1,583,858
Stockholders' equity 115,662 102,532
--------- ---------
Total liabilities and stockholders' equity $2,084,704 $1,686,390
========= =========
Net interest income/net interest rate spread $27,644 2.69% $25,807 3.06%
====== ==== ====== ====
Net interest earning assets/net interest margin $54,193 2.82% $55,053 3.21%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 102.84% 103.55%
====== ======
</TABLE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED JUNE 30, 1998 AND 1997
GENERAL. The Company reported net income of $1.2 million for the
three months ended June 30, 1998 compared to net income of $2.3
million for the three months ended June 30, 1997. The $1.1 million
decrease was primarily attributable to an increase of $5.8 million
in non-interest expenses, which was largely due to the purchase of
CFS Intercounty and the ongoing supermarket banking expansion.
This was partially offset by an increase of $2.8 million in non-
interest income and an increase of $768,000 in net interest income.
In addition, the provision for loan losses decreased $100,000 from
the same period last year. The provision for income tax expense
decreased by $1.2 million due to lower pre-tax income for the
period. The CFS Intercounty division operated at a pre-tax loss of
approximately $1.1 million due to the Bank's inability under the
terms of the purchase agreement to recognize certain servicing
released premiums ("SRPs") for Intercounty's loan production
21
<PAGE>
pipeline. Effective July 1, 1998, the Bank has entered into
correspondent agreements with various investors to sell loans on a
servicing released basis, allowing the Bank to realize the full
value of the SRPs.
INTEREST INCOME. Interest income increased by $5.1 million, or
16.2% to $36.7 million for the three months ended June 30, 1998
from $31.6 million for the three months ended June 30, 1997. The
increase was primarily the result of a $5.1 million increase in
interest income on mortgage loans, an increase of $1.4 million in
interest income on MBSs and an increase of $22,000 in interest
income on other loans. These increases were partially offset by
decreases in interest income on debt and equity securities and
money market investments of $1.3 million and $52,000, respectively.
Interest income on mortgage loans increased by $5.1 million, or
27.6% to $23.6 million for the three months ended June 30, 1998,
from $18.5 million for the comparable three-month period in 1997,
primarily as a result of an increase in average balances of
mortgage loans of $321.5 million partially offset by a decrease in
the average yield on mortgage loans of 41 basis points. 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 half of 1998,
which totaled $459.8 million and $286.5 million, respectively.
These originations included one-to four-family mortgage loans
purchased in the secondary market totaling $200.9 million for 1997
and $75.5 million for the first half of 1998, respectively.
Mortgage loan origination volume and wholesale loan purchases for
CFS Intercounty represented an additional $155.4 million in the
second quarter of 1998, of which $3.1 million was transferred to
CFS Bank's portfolio and $90.6 million was sold on a servicing
released basis to third party investors. The originations for 1997
and the first half of 1998 were partially offset by principal
repayments of $151.2 million and $125.2 million, respectively. The
origination totals for both periods included loans refinanced of
$10.5 million for 1997 and $23.6 million for the first half of
1998. The significant increase in refinanced loans was
attributable to the decline in market interest rates. The decline
in the average yield from the prior year was primarily due to the
increasing percentage of residential mortgages to total mortgages
which increased from 71.6% at June 30, 1997 to 74.6% at June 30,
1998 and the general decline in market interest rates.
Interest income on MBSs increased by $1.4 million, or 16.9% to $9.6
million for the three months ended June 30, 1998 from $8.2 million
for the comparable three-month period in 1997, primarily due to an
increase in average balances of MBSs of $88.5 million which was
partially offset by a decrease in the average yield of 9 basis
points. During the quarter ended June 30, 1998, the Bank purchased
$149.8 million of MBSs for its AFS portfolio and such purchases
22
<PAGE>
were partially offset by sales totaling $18.5 million. The
emphasis on MBS securities over debt and equity securities was due
to the availability of competitive rates along with shorter
durations.
Interest income on debt and equity securities decreased by $1.3
million, or 33.2% to $2.7 million for the three months ended June
30, 1998 from $4.0 million for the comparable three-month period in
1997, primarily as a result of a decrease in the average balance
outstanding of $61.3 million and a decline in yield of 57 basis
points.
INTEREST EXPENSE. Interest expense increased by $4.4 million, or
23.8% to $22.6 million for the three months ended June 30, 1998
from $18.2 million for the three months ended June 30, 1997. The
increase was primarily the result of a $3.9 million increase in
interest expense on deposits and an increase of $461,000 in
interest expense on borrowings.
Interest on deposits increased by $3.9 million, or 31.6% to $16.2
million for the three months ended June 30, 1998 from $12.3 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 $333.2 million, or 27.8% to $1.53 billion for the
three months ended June 30, 1998 from $1.20 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 June 30, 1998, the Bank had forty-five in-store bank
branches operating with combined deposits totaling $322.7 million
compared to twenty-two in-store bank branches at June 30, 1997 with
deposits totaling $66.9 million. The increase in the average
balance was primarily due to certificate account balances which
increased by $238.9 million, or 37.3% to $880.3 million for the
three months ended June 30, 1998 from $641.4 million for the
comparable three-month period in 1997. Interest expense on
certificate accounts increased by $3.4 million, or 36.8% to $12.6
million for the three months ended June 30, 1998 from $9.2 million
in the same period in 1997. The average cost of certificate
accounts was 5.73% for the second quarter of 1998 compared to 5.75%
for the second quarter of 1997. Interest expense on savings
accounts increased by $377,000, or 16.2% to $2.7 million for the
three months ended June 30, 1998 from $2.3 million in the same
period in 1997 primarily due to an increase in average balance due
to the Bank's in-store branches, which had $87.6 million in savings
balances as of June 30, 1998 compared to $13.7 million as of June
30, 1997. The average balance of savings accounts increased by
$38.9 million, or 10.4% to $411.0 million for the three months
ended June 30, 1998 from $372.2 million for the second quarter of
1997. The average cost of savings accounts increased by 13 basis
points to 2.63% for the period ended June 30, 1998 from 2.50% for
the period ended June 30, 1997. During the second quarter of 1998,
23
<PAGE>
the Bank introduced the Liquid Asset Savings Account which pays
depositors 5.10% during the first year. The average cost of all
deposits was 4.22% for the three months ended June 30, 1998
compared to 4.10% for the prior-year period.
Interest on borrowed funds increased by $461,000, or 7.7% to $6.4
million for the three months ended June 30, 1998 from $6.0 million
for the comparable three-month period in 1997. Borrowed funds on
an average basis increased by $24.9 million between the periods
primarily 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 compliment deposit growth as a funding mechanism for mortgage
loan originations. The average rate paid on borrowings increased
to 5.96% for the three months ended June 30, 1998 from 5.87% for
the prior-year period.
NET INTEREST INCOME. Net interest income increased by $768,000 to
$14.2 million for the three months ended June 30, 1998 from $13.4
million for the three months ended June 30, 1997. The increase is
primarily attributable to total interest-earning assets which
increased by $345.0 million, or 20.7% to $2.0 billion for the three
months ended June 30, 1998 from $1.7 billion in the same period
last year. The increase in total interest-earning assets was
primarily due to growth in the Bank's mortgage loan portfolio from
$928.7 million for the three months ended June 30, 1997 to $1.3
billion for the comparable period in 1998. This was partially
offset by the average yield on interest-earning assets which
decreased to 7.30% for the three months ended June 30, 1998 from
7.58% for the three month period in 1997. In addition, the average
cost of interest-bearing liabilities increased to 4.60% from 4.54%
for the three months ended June 30, 1998 and 1997, respectively.
Therefore, the net interest spread was 2.70% for the three months
ended June 30, 1998 compared to 3.04% for the comparable period in
1997. The differential between the thirty year Treasury Bond and
the two year Treasury Note, which are key indices regarding yield
curve analyses, was 72 basis points on June 30, 1997, compared to
15 basis points on June 30, 1998. It is unclear how the recent
trends in market interest rates, particularly the flat yield curve,
will impact net interest income for the remainder of 1998.
PROVISION FOR LOAN LOSSES. The Bank provided $650,000 for loan
losses for the three months ended June 30, 1998 compared to
$750,000 for the comparable three-month period in 1997. The
decrease was due to the continuing decline in non-performing
assets.
NON-INTEREST INCOME. Non-interest income increased by $2.8
million, or 97.5% for the three months ended June 30, 1998 to $5.6
million from $2.8 million for the comparable three month period in
1997. Loan fees and servicing income increased by $979,000 to $1.2
24
<PAGE>
million for the second quarter of 1998 compared to $254,000 for the
same period in 1997. This increase included $907,000 in loan
origination fees generated by CFS Intercounty. Effective July 1,
1998, the Bank entered into correspondent agreements with various
investors to sell loans on a servicing released basis. As a
result, the Bank will realize the full value of the SRPs on such
loan sales, which the Bank expects will have a significant impact
on its non-interest income in future periods. Savings and checking
fees increased by $1.1 million, or 83.6% to $2.3 million for the
second quarter of 1998 compared to $1.3 million for the same period
last year. The significant increase in savings and checking fees
is due to the number of checking accounts which increased by
46,948, or 59.9% to 125,304 accounts at June 30, 1998 from 78,356
accounts at June 30, 1997 due to the Bank's strategy to continue to
attract lower cost deposit balances. 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
$1.5 million for the second quarter of 1998 compared to $237,000
for the second quarter of last year. Insurance, annuity and mutual
fund fees increased by $311,000 due to an increase in sales volume,
including $390,000 in revenue from in-store bank branches. The
Bank realized a net gain of $54,000 on the sale of interest-earning
assets from its AFS portfolio compared to a gain of $8,000 for the
same period last year. Finally, miscellaneous income increased by
$364,000, or 121.7% to $663,000 for the second quarter of 1998 from
$299,000 for the second quarter of 1997. The increase is primarily
due to service charge fees on ATM transactions.
NON-INTEREST EXPENSE. Non-interest expense increased by $5.8
million, or 50.6% for the three months ended June 30, 1998 to $17.4
million from $11.5 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 $2.8
million and the acquisition of CFS Intercounty which increased non-
interest expense by approximately $2.1 million. Compensation and
benefit costs increased by $4.5 million, or 76.7% to $10.4 million
for the three months ended June 30, 1998 from $5.9 million for the
same period last year. The in-store branch expansion accounted for
$1.4 million of the increase in compensation costs. The
acquisition of CFS Intercounty during the second quarter of 1998
increased salary costs by an additional $1.7 million. In addition,
federal social security taxes increased $177,000 from the prior
period due to a higher salary base. Additionally, ESOP
compensation increased $137,000 due to the increase in the average
price of Haven Bancorp common stock during the quarter. 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. Occupancy and equipment costs increased by $735,000, or
44.7% to $2.4 million for the second quarter of 1998 from $1.6
25
<PAGE>
million for the same period last year due to the addition of ten
supermarket branches during the second half of 1997 and thirteen
branches during the first half 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 $164,000 from the same period last year due to higher gains
realized on the sale of REO properties. Other operating costs
increased by $713,000, or 18.9% to $4.5 million for the three
months ended June 30, 1998 from $3.8 million for the same period
last year. Miscellaneous operating expenses, including stationery,
telephone, postage and insurance, increased by $246,000 and staff
placement costs increased by $293,000 from 1997 primarily due to
the in-store branch program. Advertising costs increased $89,000
due to the growth in the deposit base over the last twelve months.
Also, miscellaneous expenses attributable to CFS Intercounty
totaled $231,000 for the quarter. Finally, costs incurred by the
Bank's subsidiary, CFSI, increased $183,000 due to higher sales
volume.
INCOME TAX EXPENSE. Income tax expense was $471,000 for an
effective tax rate of 27.8% for the three months ended June 30,
1998 compared to income tax expense of $1.6 million for an
effective tax rate of 41.3% for the comparable period in 1997. The
decline in the effective tax rate was due to a full quarter's
effect of the Bank's REIT subsidiary, Columbia Preferred Capital
Corp. ("CPCC"), established during June of 1997, which resulted in
certain tax savings.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 1998 AND 1997
GENERAL. The Company reported net income of $3.4 million for the
six months ended June 30, 1998 compared to net income of $5.6
million for the six months ended June 30, 1997. The $2.2 million
decrease was primarily attributable to an increase of $10.8 million
in non-interest expenses due to the ongoing supermarket banking
expansions and the purchase of CFS Intercounty. This was partially
offset by an increase of $4.9 million in non-interest income and an
increase of $1.8 million in net interest income. In addition, the
provision for loan losses decreased $130,000 from $1.4 million for
the six months ended June 30, 9197 to $1.3 million for the six
months ended June 30, 1998. The provision for income tax expense
decreased by $1.8 million due to lower pre-tax income for the
period.
INTEREST INCOME. Interest income increased by $11.3 million, or
18.7% to $71.7 million for the six months ended June 30, 1998 from
$60.4 million for the six months ended June 30, 1997. The increase
was primarily the result of a $10.3 million increase in interest
income on mortgage loans and an increase of $3.3 million in
26
<PAGE>
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 $2.2 million and
$44,000, respectively.
Interest income on mortgage loans increased by $10.3 million, or
29.3% to $45.3 million for the six months ended June 30, 1998 from
$35.1 million for the comparable six-month period in 1997,
primarily as a result of an increase in average balances of
mortgage loans of $310.7 million, partially offset by a decrease in
the average yield on mortgage loans of 34 basis points. The
increase in the average balance of mortgage loans between the
periods was due to mortgage originations, including purchases, for
1997 and the first half of 1998 which totaled $459.8 million and
$286.5 million, respectively. The originations for both periods
were partially offset by principal payments of $151.2 million and
$125.2 million, respectively. The average yield on mortgage loans
decreased to 7.60% for the six months ended June 30, 1998 from
7.94% for the comparable six-month period in 1997. 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 $3.3 million, or 21.5% to
$18.5 million for the six months ended June 30, 1998 from $15.2
million for the comparable six-month period in 1997 primarily due
to an increase in average balances of MBSs of $104.5 million which
was partially offset by a decrease in the average yield of 11 basis
points. During the first half of 1998, the Bank purchased $322.4
million of MBSs for its AFS portfolio and such purchases were
partially offset by sales totaling $136.5 million. During the six
months ended June 30, 1998, the Bank purchased a total of $337.4
million of securities for its AFS portfolio. 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 $2.2
million, or 26.5% to $6.1 million for the six months ended June 30,
1998 from $8.3 million for the comparable six-month period in 1997
primarily as a result of a decrease in average outstanding balances
of $57.3 million and a decrease in average yield of 23 basis
points. 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 $9.4 million, or
27.3% to $44.1 million for the six months ended June 30, 1998 from
$34.6 million for the six months ended June 30, 1997. The increase
was the result of a $7.5 million increase in interest expense on
deposits and an increase of $1.9 million in interest expense on
borrowings.
27
<PAGE>
Interest on deposits increased by $7.5 million, or 31.9% to $31.1
million for the six months ended June 30, 1998 from $23.6 million
for the comparable six-month period in 1997. The increase in
interest on deposits was primarily due to the average balance which
increased by $305.1 million, or 26.0% to $1.5 billion for the six
months ended June 30, 1998 from $1.2 billion for the comparable
six-month period in 1997. The deposit growth is primarily
attributable to the Bank's in-store banking program. At June 30,
1998, the Bank had forty-five in-store bank branches operating with
combined deposits totaling $322.7 million compared to twenty-two
in-store bank branches at June 30, 1997 with deposits totaling
$66.9 million. The increase in average balance was primarily due
to certificate account balances which increased by $228.5 million,
or 36.6% to $852.5 million for the six months ended June 30, 1998
from $624.0 million for the comparable six-month period in 1997.
Interest expense on certificate accounts increased by $6.8 million
or 38.4% to $24.5 million for the six months ended June 30, 1998
from $17.7 million in the same period in 1997 primarily due to the
growth in average balances. The average cost of certificate
accounts was 5.74% for the first half of 1998 compared to 5.67% for
the comparable period in 1997. Interest expense on savings
accounts increased by $565,000, or 12.4% to $5.1 million for the
six months ended June 30, 1998 from $4.6 million in the same period
in 1997 primarily due to an increase in average balances of $30.5
million. The average cost of all deposits was 4.21% for the period
ended June 30, 1998 compared to 4.02% for the period ended June 30,
1997.
Interest on borrowed funds increased by $1.9 million, or 17.3% to
$12.9 million for the six months ended June 30, 1998 from $11.0
million for the comparable six-month period in 1997. Borrowed
funds on an average basis increased by $52.1 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 and the mortgage loan
pipeline of CFS Intercounty which originates mortgage loans
primarily for subsequent sale to investors. The average rate paid
on borrowings increased to 5.99% for the six months ended June 30,
1998 from 5.80% for the comparable prior year period due to the
effect of a full six 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 $1.8 million
to $27.6 million for the six months ended June 30, 1998 from $25.8
million for the six months ended June 30, 1997. The increase is
primarily due to total interest-earning assets which increased
$356.4 million, or 22.2% to $2.0 billion for the six months ended
June 30, 1998 from the same period last year. This was partially
offset by the average yield on interest-earning assets which
decreased to 7.30% from 7.52% for the six months ended June 30,
1998 and 1997, respectively. The reduction in the overall yield on
28
<PAGE>
interest earning assets is primarily due to a decline in market
interest rates and a flat yield curve environment. The average
cost on interest-bearing liabilities increased to 4.61% from 4.46%
for the six months ended June 30, 1998 and 1997, respectively. The
increase in cost of funds was primarily due to the increase in the
cost of deposits to 4.21% for the six months ended June 30, 1998
from 4.02% for the six months ended June 30, 1997. The net
interest spread was 2.69% for the six months ended June 30, 1998
compared to 3.06% for the comparable period in 1997.
PROVISION FOR LOAN LOSSES. The Bank provided $1.3 million for loan
losses for the six months ended June 30, 1998 compared to $1.5
million for the comparable six-month period in 1997 due to a
decrease in non-performing loans.
NON-INTEREST INCOME. Non-interest income increased by $4.9
million, or 94.8% for the six months ended June 30, 1998 to $10.0
million from $5.2 million for the comparable six-month period in
1997. Loan fees and servicing income increased by $1.2 million to
$1.8 million for the first six months of 1998 compared to $504,000
for the same period in 1997. The increase was primarily due to
$907,000 in loan origination fees generated by CFS Intercounty in
May and June. Loan fees and servicing income for the six months
ended June 30, 1998 also included a prepayment fee of $280,000 on
a commercial real estate loan. Savings and checking fees increased
by $1.8 million, or 77.8% to $4.1 million for the first six months
of 1998 compared to $2.3 million for the same period last year.
The number of checking accounts increased by 46,948 accounts to
125,304 accounts at June 30, 1998 from 78,356 accounts at June 30,
1997. A major portion of this growth, 42,546 accounts, is
attributable to the in-store bank branches. The in-store bank
branches generated savings and checking fees of $2.6 million for
the six months ended June 30, 1998 compared to $336,000 for the
first half of 1997. Insurance, annuity and mutual fund fees
increased by $698,000 due to an increase in sales volume which
included $720,000 in revenue from sales originating from in-store
bank branches. The Bank realized a net gain of $406,000 on the
sale of interest earning assets from its AFS portfolio compared to
a loss of $16,000 for the same period last year. Finally,
miscellaneous income increased by $714,000, or 132.2% to $1.3
million for the six months ended June 30, 1998 from $540,000 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 $10.8
million, or 52.6% for the six months ended June 30, 1998 to $31.4
million from $20.6 million for the comparable six-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 $9.7 million of operating expenses in the first half
of 1998 and $2.1 million related to CFS Intercounty since its
29
<PAGE>
acquisition on May 1, 1998. Most of the increase in operating
expenses is due to an increase of $7.1 million in compensation and
benefit costs. The in-store branch expansion accounted for $5.0
million of the increase in compensation costs for the six month
period. Also, the acquisition of CFS Intercounty during the second
quarter increased salary costs by $1.7 million. Salary costs for
the Bank's subsidiary, CFSI, Inc., increased $291,000 due to higher
sales volume. In addition, federal social security taxes increased
by $312,000 due to a higher salary base. ESOP compensation
increased by $233,000 from the same period last year due to the
increase in the average price of Haven Bancorp common stock for the
period. Occupancy and equipment costs increased by $2.0 million
from the comparable period in 1997 primarily due to the Bank's in-
store banking program which increased costs by $1.5 million. REO
operations, net decreased by $223,000 from 1997 due to an increase
in gains realized on the sale of REO properties. Other operating
expenses increased by $2.0 million, or 30.1% to $8.5 million for
the six months ended June 30, 1998 from $6.5 million for the same
period last year. Miscellaneous operating expenses such as
stationery, telephone and postage increased by $627,000 from the
same period in 1997 primarily due to the in-store branch program.
Staff placement costs increased by $77,000 for the six months ended
June 30, 1998 also due to the in-store branch program. Advertising
costs and costs incurred for computer processing increased by
$462,000 and $208,000, respectively due to the growth in the
deposit base over the last twelve months. Finally, NYCE fees and
check clearing costs increased by $212,000 and $199,000,
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 $1.5 million for an
effective tax rate of 31.3% for the six months ended June 30, 1998
compared to income tax expense of $3.3 million for an effective tax
rate of 37.1% for the comparable period in 1997. The decrease in
the effective tax rate was primarily due to the establishment of
Columbia Preferred Capital Corp. during the second quarter of 1997,
which resulted in certain tax savings. Therefore, the tax
provision for the first half of 1998 includes the effect of the
REIT's operations for six full months.
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. 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
30
<PAGE>
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. In the event
that the Company's significant vendors do not achieve year 2000
compliance, the Company's operations could be adversely affected.
The Company has established contingency plans for these systems for
which year 2000 issues will not be corrected. 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 June 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 $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.
31
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)10 - Purchase and Assumption Agreement, dated as of
March 11, 1998, by and among Intercounty Mortgage, Inc., CFS Bank
and Resource Bancshares Mortgage Group, Inc.*
(b) 27.1 Financial Data Schedule.
(c) None.
- ---------------------
* Incorporated herein by reference into this document from the
Exhibits to Form 8-K, filed on July 2, 1998.
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)
Date: August 13, 1998 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: August 13, 1998 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
32
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at June 30, 1998 and the
Consolidated Statement of Operations for the six months Ended June 30,
1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 53,659
<INT-BEARING-DEPOSITS> 1,414,711
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 762,925
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,307,756
<ALLOWANCE> 13,315
<TOTAL-ASSETS> 2,265,248
<DEPOSITS> 1,562,915
<SHORT-TERM> 347,733
<LIABILITIES-OTHER> 58,996
<LONG-TERM> 177,611
0
0
<COMMON> 100
<OTHER-SE> 117,893
<TOTAL-LIABILITIES-AND-EQUITY> 2,265,248
<INTEREST-LOAN> 46,940
<INTEREST-INVEST> 6,251
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 71,695
<INTEREST-DEPOSIT> 31,133
<INTEREST-EXPENSE> 44,051
<INTEREST-INCOME-NET> 27,644
<LOAN-LOSSES> 1,320
<SECURITIES-GAINS> 406
<EXPENSE-OTHER> 31,448
<INCOME-PRETAX> 4,918
<INCOME-PRE-EXTRAORDINARY> 4,918
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,380
<EPS-PRIMARY> 0.40<F1>
<EPS-DILUTED> 0.37
<YIELD-ACTUAL> 2.69
<LOANS-NON> 7,725
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,991
<LOANS-PROBLEM> 15,431
<ALLOWANCE-OPEN> 12,528
<CHARGE-OFFS> 1,467
<RECOVERIES> 934
<ALLOWANCE-CLOSE> 13,315
<ALLOWANCE-DOMESTIC> 13,315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Per share amendments reflect the 2-for-1 stock split effective November
1997.
1997 1996
BASIC 0.68 0.71
DILUTED 0.64 0.68
</FN>
</TABLE>
