<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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.)
93-22 JAMAICA AVENUE, WOODHAVEN, NEW YORK 11421
(Address of principal executive offices) (Zip Code)
(718) 850-2500
(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 8,836,988 shares of the Registrant's common stock
outstanding as of May 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 March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income for the
Three Months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months
ended March 31, 1998 5
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7-12
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-25
Item 3. Quantitative and Qualitative Disclosure
About Market Risk 25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security
Holders 25-26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signature Page
2
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Financial Condition
(Dollars in thousands, except for share data)
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 44,467 $ 35,745
Money market investments 7,717 4,561
Securities available for sale (note 2) 511,062 499,380
Debt securities held to maturity (estimated fair value of $50,301
and $66,372 in 1998 and 1997, respectively) (note 2) 50,417 66,404
Federal Home Loan Bank of NY stock, at cost 12,885 12,885
Mortgage-backed securities held to maturity (estimated fair value of
$153,165 and $163,326 in 1998 and 1997, respectively) (note 2) 152,460 163,057
Loans:
First mortgage loans 1,141,770 1,098,894
Cooperative apartment loans 19,209 19,596
Other loans 32,831 32,291
--------- ---------
Total loans 1,193,810 1,150,781
Less allowance for loan losses (12,916) (12,528)
--------- ---------
Loans, net 1,180,894 1,138,253
Premises and equipment, net 28,628 27,062
Accrued interest receivable 11,905 12,429
Other assets 17,349 15,114
--------- ---------
Total assets $2,017,784 $1,974,890
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,474,828 $1,365,012
Borrowed funds 399,917 466,794
Mortgagors' escrow balances 7,323 3,234
Due to broker - 10,000
Other liabilities 21,615 16,985
--------- ---------
Total liabilities 1,903,683 1,862,025
--------- ---------
Stockholders' Equity:
Preferred stock, $.01 par value, 2,000,000
shares authorized, none issued (note 6) - -
Common stock, $.01 par value, 10,500,000 shares authorized,
9,918,750 issued; 8,835,588 and 8,784,700 shares outstanding
in 1998 and 1997, respectively (note 6) 100 100
Additional paid-in capital 50,515 50,065
Retained earnings, substantially restricted 75,166 73,567
Accumulated other comprehensive income:
Unrealized gain on securities available for sale, net
of tax effect 400 1,671
Treasury stock, at cost (1,083,162 and 1,134,050 shares in
1998 and 1997, respectively) (9,943) (10,246)
Unallocated common stock held by Bank's ESOP (1,451) (1,529)
Unearned common stock held by Bank's Recognition Plans and Trusts (340) (364)
Unearned compensation (346) (399)
--------- ---------
Total stockholders' equity 114,101 112,865
--------- ---------
Total liabilities and stockholders' equity $2,017,784 $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
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Interest income:
Mortgage loans $21,739 $16,581
Other loans 787 815
Mortgage-backed securities 8,931 7,041
Money market investments 104 96
Debt and equity securities 3,402 4,264
------ ------
Total interest income 34,963 28,797
------ ------
Interest expense:
Deposits:
Savings accounts 2,416 2,228
NOW accounts 261 218
Money market accounts 423 398
Certificate accounts 11,863 8,469
Borrowings 6,506 5,059
------ ------
Total interest expense 21,469 16,372
------ ------
Net interest income before provision for loan losses 13,494 12,425
Provision for loan losses 670 700
------ ------
Net interest income after provision for loan losses 12,824 11,725
------ ------
Non-interest income:
Loan fees and servicing income 518 250
Savings/checking fees 1,811 1,060
Net gain (loss) on sales of interest-earning assets 352 (24)
Insurance annuity and mutual fund fees 1,187 800
Other 591 241
------ ------
Total non-interest income 4,459 2,327
------ ------
Non-interest expense:
Compensation and benefits 7,577 5,014
Occupancy and equipment 2,219 992
Real estate owned operations, net 49 108
Federal deposit insurance premiums 207 192
Other 4,015 2,763
------ ------
Total non-interest expense 14,067 9,069
------ ------
Income before income tax expense 3,216 4,983
Income tax expense 1,067 1,678
------ ------
Net income $ 2,149 $ 3,305
====== ======
Net income per common share: Basic (1) $ 0.25 $ 0.40
====== ======
Diluted (1) $ 0.24 $ 0.38
====== ======
</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
Three Months Ended March 31, 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 2,149 - - 2,149 - - - - -
Other comprehensive income, net of tax
Net unrealized depreciation on
certain securities, net of
reclassification adjustment (1,271) - - - (1,271) - - - -
-------
Comprehensive income 878 - - - - - - - -
Dividends declared (note 5) (550) - - (550) - - - - -
Treasury stock issued for deferred
compensation plan (2,104 shares) - - 35 - - 13 - - (48)
Stock options exercised, net of tax
effect (48,784 shares) (note 4) 418 - 128 - - 290 - - -
Allocation of ESOP stock and
amortization of award of RRP stock
and related tax benefits 389 - 287 - - - 78 24 -
Amortization of deferred compensation plan 101 - - - - - - - 101
------- --- ------ ------ ------ ------ ------ ----- -----
Balance at March 31, 1998 $114,101 100 50,515 75,166 400 (9,943) (1,451) (340) (346)
======= === ====== ====== ====== ====== ====== ===== =====
</TABLE>
<TABLE>
<CAPTION>
FAS 130 Disclosure of Reclassification Adjustment
March 31, 1998
Gross Tax Effect Net of Tax
----- ---------- ----------
<S> <C> <C> <C>
Comprehensive income items
Net unrealized loss arising during period (1,670) (630) (1,040)
Less: reclassification adjustment for net gains included in income (346) (115) (231)
----- ---- -----
Net unrealized loss on certain securities (2,016) (745) (1,271)
===== ==== =====
Balance sheet items
Accumulated unrealized gain on securities AFS as of March 31, 1998 597 197 400
Accumulated unrealized gain on securities AFS as of December 31, 1997 2,613 942 1,671
----- ---- -----
Change during the period (2,016) (745) (1,271)
===== ==== =====
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
HAVEN BANCORP, INC.
Consolidated Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1998 1997
---- ----
<S> <C> <C>
Net cash flows from operating activities:
Net income $ 2,149 $ 3,305
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of cost of stock benefit plans 490 376
Amortization of net deferred loan origination fees (10) (247)
Amortization of premiums and accretion of discounts on
loans, mortgage-backed and debt securities (473) 56
Provision for loan losses 670 700
Provision for losses on real estate owned 5 50
Deferred income taxes (389) (833)
Net (gain) loss on sales of interest-earning assets (352) 24
Depreciation and amortization 625 205
Decrease in accrued interest receivable 524 785
(Decrease) increase in due to broker (10,000) 28,908
Increase in other liabilities 4,626 1,069
Increase in other assets (930) (1,132)
------ ------
Net cash (used in) provided by operating activities (3,065) 33,266
------ ------
Cash flows from investing activities:
Net increase in loans (45,347) (81,580)
Proceeds from disposition of assets (including REO) 1,876 575
Purchases of securities available for sale (186,510) (153,380)
Principal repayments and maturities on securities available for sale 50,366 6,905
Proceeds from sales of securities available for sale 123,249 77,610
Principal repayments, maturities and calls on debt securities
held to maturity 16,020 2,020
Principal repayments on mortgage-backed securities held to maturity 10,580 8,413
Purchases of FHLB stock, net - (350)
Net increase in premises and equipment (2,191) (3,206)
------- ------
Net cash used in investing activities (31,957) (142,993)
------- ------
Cash flows from financing activities:
Net increase in deposits 109,816 25,742
Net (decrease) increase in borrowed funds (66,877) 83,109
Increase in mortgagors' escrow balances 4,089 4,655
Payment of common stock dividends (546) (649)
Stock options exercised 418 25
------- -------
Net cash provided by financing activities 46,900 112,882
------- -------
Net increase in cash and cash equivalents 11,878 3,155
Cash and cash equivalents at beginning of period 40,306 35,717
------ ------
Cash and cash equivalents at end of period $52,184 $38,872
====== ======
Supplemental information:
Cash paid during the period for:
Interest $20,523 $14,584
Income taxes 1 900
Additions to real estate owned 310 647
Securities purchased, not yet received - 29,908
====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
HAVEN BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 1998 and
December 31, 1997 and for the three-month period ended March 31,
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 period ended March 31, 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 securities and MBSs which the Company has the ability and the
intent to hold until maturity, are carried at cost adjusted for
amortization of premiums and accretion of discounts. Debt and
equity securities and MBSs to be held for indefinite periods of
time and not intended to be held to maturity or on a long-term
basis are classified as available for sale securities which are
recorded at fair value, with unrealized gains (losses) reported as
a separate component of stockholders' equity, net of taxes.
7
<PAGE>
SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated fair values of securities
available for sale at March 31, 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 $119,864 51 (2,203) 117,712
Preferred Stock 4,095 216 - 4,311
------- ----- ------ -------
123,959 267 (2,203) 122,023
------- ----- ------ -------
MBSs available for sale:
GNMA Certificates 806 33 - 839
FNMA Certificates 42,665 436 (192) 42,909
FHLMC Certificates 56,972 770 (61) 57,681
CMOs and REMICS 286,063 2,060 (513) 287,610
------- ----- ------ -------
386,506 3,299 (766) 389,039
------- ----- ------ -------
Total $510,465 3,566 (2,969) 511,062
======= ===== ====== =======
</TABLE>
The net unrealized loss on securities available for sale at March
31, 1998, was reported as a separate component of stockholders'
equity, in the amount of $400,000 which is net of a tax effect of
$197,000.
DEBT SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of debt securities held to maturity at March 31, 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>
U.S. Government and Agency obligations $ 10,017 2 (15) 10,004
Corporate debt securities 40,400 9 (112) 40,297
------- -- ------ -------
Total $ 50,417 11 (127) 50,301
======= == ====== =======
</TABLE>
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
8
<PAGE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost, gross unrealized gains and losses and estimated
fair values of MBSs held to maturity at March 31, 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>
FHLMC Certificates $ 25,519 432 (148) 25,803
FNMA Certificates 58,279 263 (390) 58,152
CMOs and REMICs 68,662 847 (299) 69,210
------- ----- ------ -------
Total $152,460 1,542 (837) 153,165
======= ===== ====== =======
</TABLE>
It is the Company's intent to hold these securities until maturity
and therefore the Company does not expect to realize the current
unrealized losses brought about by the current market environment.
NOTE 3 - 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 will be
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 will initially be run as a division of the Bank, operating
as "CFS Intercounty Mortgage Company." The Bank intends to
supplement IMI's present product mix, which is primarily thirty-
year, fixed-rate product with the Bank's wider range of mortgage
products, including adjustable rate and jumbo mortgages. The Bank
intends to retain a portion of IMI's ongoing loan production in its
portfolio.
9
<PAGE>
NOTE 4 - STOCK PLANS. Changes in outstanding options for the
benefit of directors, officers and other key employees of the Bank
for the three months ended March 31, 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 - -
Forfeited - -
Exercised (48,784) 8.57
--------- -----
Balance at March 31, 1998 1,182,892 7.87
========= =====
Shares exercisable at March 31, 1998 897,715 6.36
======== =====
</TABLE>
At the annual meeting of stockholders on April 22, 1998, the
stockholders of the Company approved an amendment to the Haven
Bancorp, Inc. 1996 Stock Incentive Plan to increase the number of
shares of common stock of the Company that are available for
issuance pursuant to the Plan by 400,000 shares. None of the
additional shares have been granted.
NOTE 5 - DIVIDENDS PAYABLE. On March 24, 1998, the Company's Board
of Directors approved a regular quarterly cash dividend of $0.075
per share, payable on April 23, 1998, to shareholders of record as
of April 3, 1998.
NOTE 6 - PREFERRED STOCK/COMMON STOCK. At the annual meeting of
stockholders on April 22, 1998, the stockholders of the Company
approved an amendment of the Certificate of Incorporation of Haven
Bancorp, Inc. to increase the number of shares of stock that the
Company has the authority to issue to an aggregate of 32,000,000
(thirty-two million) shares, of which 30,000,000 (thirty million)
shares would be common stock and 2,000,000 (two million) shares
would be preferred stock.
NOTE 7 - 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
10
<PAGE>
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 9).
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
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.
NOTE 8 - NET INCOME PER SHARE OF COMMON STOCK. There were
8,526,864 basic shares outstanding and 9,129,745 diluted shares
outstanding for the three months ended March 31, 1998. The
weighted average number of shares outstanding does not include
290,153 shares which are unallocated by the Employee Stock
Ownership Plan ("ESOP") as of March 31, 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
11
<PAGE>
stockholders by the weighted average number of common 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 9 - COMPREHENSIVE INCOME. Comprehensive income, as discussed
in Note 7, was $878,000 and $1.0 million for the three month
periods ended March 31, 1998 and 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
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.
12
<PAGE>
ANALYSIS OF FINANCIAL CONDITION CHANGES FROM
DECEMBER 31, 1997 TO MARCH 31, 1998
ASSETS
Total assets increased by $42.9 million, or 2.2% to $2.0 billion
at March 31, 1998. Cash and due from banks increased by $8.7
million to $44.5 million at March 31, 1998. Securities available
for sale ("AFS") increased by $11.7 million, or 2.3% to $511.1
million at March 31, 1998 from $499.4 million at December 31, 1997
resulting primarily due to purchases during the quarter in the AFS
portfolio. During the quarter ended March 31, 1998, the Bank
purchased $172.6 million of MBSs and $13.9 million of government
agency securities for its AFS portfolio. The emphasis on MBS
securities was due to the availability of more favorable rates and
shorter durations. These increases were partially offset by sales
and principal repayments of $123.2 million and $50.4 million,
respectively. Debt securities held to maturity declined by $16.0
million, or 24.1% to $50.4 million at March 31, 1998 from $66.4
million at December 31, 1997 due to principal repayments,
maturities and calls. MBSs held to maturity declined by $10.6
million, or 6.5% to $152.5 million at March 31, 1998 from $163.1
million at December 31, 1997 also due to principal repayments on
the portfolio. There were no purchases of debt securities or MBSs
held to maturity during the quarter.
Net loans increased by $42.6 million, or 3.7% to $1.2 billion at
March 31, 1998 from $1.1 billion at December 31, 1997. Loan
originations during the quarter totaled $97.6 million (comprised of
$68.6 million of residential one-to four-family mortgage loans,
$3.1 million of equity loans and lines of credit, $21.2 million of
multi-family loans and $4.7 million of commercial real estate
loans). Originations of residential one-to four-family mortgage
loans included purchases of $16.1 million of primarily adjustable
rate residential loans in the secondary market. During the first
quarter of 1998, principal repayments totaled $52.4 million,
$323,000 was transferred to REO and $1.7 million of loans were sold
in the secondary market.
LIABILITIES
Deposits increased by $109.8 million, or 8.0% to $1.4 billion
between December 31, 1997 and March 31, 1998 primarily due to
deposit inflows in the Bank's in-store supermarket bank branches
which had deposits totaling $238.2 million at March 31, 1998
compared to $157.2 million at December 31, 1997. The Bank had
thirty-nine in-store bank branches open as of March 31, 1998
compared to thirty-two in-store branches at December 31, 1997. The
Bank expects to open twenty in-store branches during the remainder
of 1998. Core deposits (comprised of checking, savings and money
13
<PAGE>
market accounts) were 31.2% of total in-store branch deposits at
March 31, 1998 compared to a ratio of 46.1% in the Bank's nine
traditional branches. Overall, core deposits represented 43.8% of
total deposits at March 31, 1998 compared to 42.7% at December 31,
1997. Borrowed funds decreased by $66.9 million, or 14.3% to
$399.9 million at March 31, 1998 from $466.8 million at December
31, 1997 primarily due to the repayment of short-term borrowings
during the first quarter. To accommodate strong loan demand during
the period, the Company elected to maintain a high level of
liquidity.
STOCKHOLDERS' EQUITY
Haven Bancorp's stockholders' equity increased to $114.1 million at
March 31, 1998 from $112.9 million at December 31, 1997. The
increase in stockholders' equity was due to net income of $2.1
million for the quarter and 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 which increased stockholders' equity by $490,000.
In addition, stockholders equity increased $418,000 due to stock
options exercised during the quarter. This increase was partially
offset by a decrease of $1.3 million in the unrealized gain on
securities available for sale and dividends declared of $550,000.
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 real estate owned.
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Non-accrual loans
One-to four-family $ 3,742 3,534
Cooperative 389 698
Multi-family 911 2,531
Non-residential and other 3,682 3,633
------ ------
Total non-accrual loans 8,724 10,396
------ ------
Restructured loans
One-to four-family 675 679
Cooperative 289 290
Multi-family 1,161 1,167
------ ------
Total restructured loans 2,125 2,136
------ ------
Total non-performing loans 10,849 12,532
------ ------
REO, net
One-to four-family 238 126
Cooperative 234 295
Non-residential and other 221 121
------ ------
Total REO 693 542
Less allowance for REO (67) (87)
------ ------
REO, net 626 455
------ ------
Total non-performing assets $11,475 12,987
====== ======
Non-performing loans to total loans 0.91% 1.09%
Non-performing assets to total assets 0.57 0.66
Non-performing loans to total assets 0.54 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. The
ratio of non-performing loans to total loans decreased primarily
due to the increase of $43.0 million in total loans during the
15
<PAGE>
quarter. The decrease in the ratio of non-performing assets to
total assets was primarily due to the increase of $42.9 million in
total assets during the quarter. The ratio of non-performing loans
to total assets decreased primarily due to the increase of $42.9
million in total assets and a reduction of $1.7 million in non-
performing loans between year-end 1997 and March 31, 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.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth the changes in the allowance for
loan losses for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Balance at beginning of period $12,528 10,704
Charge-offs:
Residential (84) (171)
Cooperative (56) (109)
Multi-family (708) -
Non-residential and other (291) (58)
------ ------
Total charge-offs (1,139) (338)
------ ------
Recoveries 857 384
------ ------
Net (charge-offs) recoveries (282) 46
Provision for loan losses 670 700
------ ------
Balance at end of period $12,916 11,450
====== ======
Ratio of net charge-offs (recoveries) during
the period to average loans outstanding
during the period 0.10% (0.02%)
Ratio of allowance for loan losses to
total loans at the end of the period 1.08 1.23
Ratio of allowance for loan losses to non-
performing loans at the end of the period 119.05 92.04
</TABLE>
16
<PAGE>
The ratio of net charge-offs to average loans outstanding during
the first quarter of 1998 increased compared to the same period in
1997 due to the fact that the Bank experienced net charge-offs of
$282,000 for the first quarter of 1998 compared to net recoveries
of $46,000 for the first quarter of 1997. The ratio of allowance
for loan losses to total loans decreased for the quarter 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 $1.5 million in the
allowance for loan losses and a decrease of $1.7 million in non-
performing loans. The Bank's allowance for loan losses was $12.9
million and $12.5 million at March 31, 1998 and December 31, 1997,
respectively, while non-performing loans totaled $10.8 million and
$12.5 million, respectively, at those dates.
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 quarter of 1998, the Bank originated or
purchased $14.6 million of residential adjustable-rate mortgages.
During the quarter, the Bank sold $123.2 million in securities from
its AFS portfolio, most of which were fixed-rate securities, to
improve yield by purchasing fixed-rate securities bearing higher
yields with shorter durations to improve its interest rate risk
profile. The Bank purchased fixed-rate debt securities and MBSs to
take advantage of higher yields compared to rates offered on
adjustable rate securities. At March 31, 1998, $219.8 million, or
40.6% of the Company's MBS portfolio were adjustable-rate MBSs. In
addition, $45.4 million, or 26.3% of the Company's debt and equity
securities portfolio were floating rate securities.
Historically, the Company has been able to maintain a substantial
level of core deposits (comprised of checking, savings and money
market accounts) which the Company believes helps to limit interest
rate risk by providing a relatively stable, low cost, long-term
funding base. At March 31, 1998, core deposits represented 43.8%
of deposits compared to 42.7% of deposits at December 31, 1997.
During the first quarter of 1998, savings accounts increased by
$14.3 million, net of interest and certificates of deposit
increased by $67.0 million, net of interest. The number of
checking accounts increased by 13,672, or 14.0% to 111,534 at March
31, 1998 from 97,862 at December 31, 1997. Most of the increase,
12,192 accounts, is attributable to the Bank's in-store bank
branches. The amount of certificate accounts outstanding at March
31, 1998 was $859.9 million compared to $781.6 million at December
31, 1997. The Company expects to attract a higher percentage of
core deposits from its in-store bank branch locations as the
supermarket branching program continues to grow and mature.
17
<PAGE>
LIQUIDITY AND CAPITAL
The Bank is required to maintain minimum levels of liquid assets as
defined by the OTS regulations. This requirement, which may be
varied by the OTS depending upon economic conditions and deposit
flows, is based upon a percentage of withdrawable deposits and
short-term borrowings. The required ratio is currently 4%. The
Bank's ratio was 8.77% at March 31, 1998 compared to 8.94% at
December 31, 1997.
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 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 March 31, 1998 and December 31, 1997,
cash and short and intermediate-term investments totaled $52.2
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 March 31, 1998, totaled $196.0 million. At March 31, 1998, the
Bank had unused lines of credit totaling $54.9 million with the
FHLB of New York.
As of March 31, 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 $128,735 6.41% $128,735 6.41% $140,365 14.01%
Minimum regulatory requirement 40,186 2.00 80,372 4.00(3) 80,155 8.00
------- ---- ------- ---- ------- ----
Excess $ 88,549 4.41% $ 48,363 2.41% $ 60,210 6.01%
======= ==== ======= ==== ======= ====
</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 March 31,
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 $1,136,919 $21,739 7.65% $ 835,905 $16,581 7.93%
Other loans 32,833 787 9.59 33,757 815 9.66
Mortgage-backed securities 537,116 8,931 6.65 417,169 7,041 6.75
Money market investments 8,175 104 5.09 7,069 96 5.43
Debt and equity securities 200,415 3,402 6.79 253,991 4,264 6.72
--------- ------ --------- ------
Total interest-earning assets 1,915,458 34,963 7.30 1,547,891 28,797 7.44
Non-interest earning assets 93,488 ------ 64,387 ------
--------- ---------
Total assets 2,008,946 1,612,278
========= =========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings accounts 384,701 2,416 2.51 362,537 2,228 2.46
Certificate accounts 824,774 11,863 5.75 606,470 8,469 5.59
NOW accounts 159,088 261 0.66 120,872 218 0.72
Money market accounts 55,260 423 3.06 54,314 398 2.93
Borrowed funds 432,750 6,506 6.01 355,395 5,059 5.69
--------- ------ --------- ------
Total interest-bearing liabilities 1,856,573 21,469 4.63 1,499,588 16,372 4.37
Other liabilities 38,074 ------ 18,994 ------
--------- ---------
Total liabilities 1,894,647 1,518,582
Stockholders' equity 114,299 93,696
--------- ---------
Total liabilities and stockholders' equity $2,008,946 1,612,278
========= =========
Net interest income/net interest rate spread $13,494 2.67% $12,425 3.07%
====== ==== ====== ====
Net interest earning assets/net interest margin $58,885 2.82% $48,303 3.21%
====== ==== ====== ====
Ratio of interest-earning assets to
interest-bearing liabilities 103.17% 103.22%
====== ======
</TABLE>
20
<PAGE>
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1997
GENERAL. The Company reported net income of $2.1 million for the
three months ended March 31, 1998 compared to net income of $3.3
million for the three months ended March 31, 1997. The decrease
was primarily attributable to an increase of $5.0 million in non-
interest expense and an increase of $5.1 million in interest
expense. These increases were partially offset by increases in
interest income and non-interest income of $6.2 million and $2.1
million, respectively, from the prior year period. Finally, the
provision for tax expense decreased $611,000 from the same period
last year due to a decrease of $1.8 million in pre-tax income.
INTEREST INCOME. Interest income increased by $6.2 million, or
21.4% to $35.0 million for the three months ended March 31, 1998
from $28.8 million for the three months ended March 31, 1997. The
increase was primarily the result of a $5.2 million increase in
interest income on mortgage loans and an increase of $1.9 million
in interest income on MBS securities. These increases were
partially offset by decreases in interest income on debt and equity
securities and other loans of $862,000 and $28,000, respectively.
Interest income on mortgage loans increased by $5.2 million, or
31.1% to $21.7 million for the three months ended March 31, 1998,
from $16.6 million for the comparable three-month period in 1997.
The increase was primarily the result of an increase in the average
balance of mortgage loans of $301.0 million, partially offset by a
decline in the average yield of 28 basis points from the first
quarter of 1997. The increase in the average balance of mortgage
loans between the periods was primarily due to mortgage
originations, including purchases, for the entire year of 1997 and
the first quarter of 1998 which totaled $459.8 million and $94.5
million, respectively. These originations included one-to four-
family mortgage loans purchased in the secondary market totaling
$200.9 million and $16.1 million, respectively. The originations
for both periods were partially offset by principal payments of
$151.2 million and $49.8 million, respectively. The decline in the
average yield from the prior year was primarily due to the
increasing percentage of relatively lower yielding residential
mortgages to total mortgages, from 71.9% at March 31, 1997 to 73.4%
of total at March 31, 1998 and the general decline in market
interest rates.
Interest income on MBSs increased by $1.9 million, or 26.8% to $8.9
million for the three months ended March 31, 1998 from $7.0 million
for the comparable three-month period in 1997 primarily due to an
increase of $119.9 million in the average balance of MBSs which was
offset by a decrease in the average yield of 10 basis points.
During the first quarter of 1998, the Bank purchased $172.6 million
21
<PAGE>
of MBSs for its AFS portfolio which were partially offset by sales
totaling $118.2 million. During the quarter ended March 31, 1998,
$31.6 million of MBS securities were called primarily due to the
decline in market rates and subsequently replaced with securities
with an average yield that was approximately 17 basis points lower
than the securities previously called. During the quarter ended
March 31, 1998, the Bank purchased a total of $186.5 million of
securities for its AFS portfolio. 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
$862,000, or 20.2% to $3.4 million for the three months ended March
31, 1998 from $4.3 million for the comparable three-month period in
1997 primarily as a result of a decrease in average balances of
$53.6 million. During the first quarter of 1998, the Bank
purchased $13.9 million of debt and equity securities for the AFS
portfolio whereas sales, maturities and calls totaled $24.1
million. In addition, principal payments, maturities and calls on
debt securities held to maturity totaled $16.0 million for the
quarter.
INTEREST EXPENSE. Interest expense increased by $5.1 million, or
31.1% to $21.5 million for the three months ended March 31, 1998
from $16.4 million for the three months ended March 31, 1997. The
increase was primarily the result of a $3.7 million increase in
interest expense on deposits and an increase of $1.4 million in
interest expense on borrowings.
Interest on deposits increased by $3.7 million, or 32.3% to $15.0
million for the three months ended March 31, 1998 from $11.3
million for the comparable three-month period in 1997. The
increase in interest on deposits was primarily due to the increased
average balance of $279.6 million. The deposit growth is partly
attributable to the Bank's in-store banking program which was
implemented during the second quarter of 1996. At March 31, 1998,
the Bank had thirty-nine in-store bank branches operating with
combined deposits totaling $238.2 million. The increase in average
balance was primarily due to certificate account balances which
increased by $218.3 million, or 36.0% to $824.8 million for the
three months ended March 31, 1998 from $606.5 million for the
comparable three-month period in 1997. The average cost of
certificate accounts was 5.75% for the first quarter of 1998
compared to 5.59% for the first quarter of 1997. Interest expense
on certificate accounts increased by $3.4 million, or 40.1% to
$11.9 million for the three months ended March 31, 1998 from $8.5
million in the same period in 1997. Interest expense on savings
accounts increased by $188,000, or 8.4% to $2.4 million for the
three months ended March 31, 1998 from $2.2 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 $45.6 million in savings
22
<PAGE>
balances as of March 31, 1998 compared to $6.5 million as of March
31, 1997. The average balance of savings accounts increased by
$22.2 million, or 6.1% to $384.7 million for the three months ended
March 31, 1998 from $362.5 million for the first quarter of 1997.
The average cost of savings accounts increased by 5 basis points to
2.51% for the period ended March 31, 1998 from 2.46% for the period
ended March 31, 1997. The average cost of all deposits was 4.20%
for the three months ended March 31, 1998 compared to 3.95% for the
first quarter of 1997.
Interest on borrowed funds increased by $1.4 million, or 28.6% to
$6.5 million for the three months ended March 31, 1998 from $5.1
million for the comparable three-month period in 1997. Borrowed
funds on an average basis increased by $77.4 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 compliment deposit growth as a funding mechanism for
mortgage loan originations. The average rate paid on borrowings
increased to 6.01% for the three months ended March 31, 1998 from
5.69% for the comparable prior-year period primarily due to the
effect in 1998 of a full quarter of $25.0 million of 10.46% Capital
Securities issued by Haven Capital Trust I in February 1997.
NET INTEREST INCOME. Net interest income increased by $1.1
million, or 8.6% to $13.5 million for the three months ended March
31, 1998 from $12.4 million for the three months ended March 31,
1997. The increase is primarily due to total interest-earning
assets which increased by $367.6 million, or 23.7% to $1.9 billion
for the three months ended March 31, 1998 from $1.5 billion for the
same period last year mainly due to growth in the Bank's
residential mortgage loan portfolio. This was partially offset by
the average yield on interest-earning assets which decreased to
7.30% from 7.44% for the three month periods. In addition, the
average cost of interest-bearing liabilities increased to 4.63%
from 4.37% for the three months ended March 31, 1998 and 1997,
respectively. Therefore, the net interest spread was 2.67% for the
three months ended March 31, 1998 compared to 3.07% for the
comparable period in 1997. 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. The
differential between the thirty year Treasury Bond and the two year
Treasury Note, which are key indices regarding yield curve
analyses, was 63 basis points on September 30, 1997, compared to 37
basis points on March 31, 1998.
PROVISION FOR LOAN LOSSES. The Bank provided $670,000 for loan
losses for the three months ended March 31, 1998 compared to
$700,000 for the comparable three-month period in 1997. The
provision for loan losses represents management's periodic review
and evaluation of the loan portfolio.
23
<PAGE>
NON-INTEREST INCOME. Non-interest income increased by $2.1
million, or 91.6% for the three months ended March 31, 1998 to $4.4
million from $2.3 million for the comparable three-month period in
1997. Insurance, annuity and mutual fund fees increased by
$387,000 due to an increase in sales volume, including $330,000 in
revenues from in-store bank branches. Savings and checking fees
increased by $751,000 due to the increase in the number of checking
accounts during the period. The in-store bank branches generated
savings/ checking fees of $1.0 million in the first quarter of
1998. During the quarter ended March 31, 1998, the Bank realized
a net gain of $352,000 on the sale of interest-earning assets,
whereas a net loss of $24,000 was incurred for the same period last
year. Loan fees and servicing income increased by $268,000, or
107.2% for the three months ended March 31, 1998 to $518,000 from
$250,000 for the same period in 1997 primarily due to a prepayment
fee of $280,000 on a commercial real estate loan.
NON-INTEREST EXPENSE. Non-interest expense increased by $5.0
million, or 55.1% for the three months ended March 31, 1998 to
$14.1 million from $9.1 million for the comparable three-month
period in 1997. The increase is primarily due to the Bank's in-
store branch program which increased operating costs by
approximately $3.2 million. Compensation and benefit costs
increased by $2.6 million, or 51.5% to $7.6 million for the three
months ended March 31, 1998 from $5.0 million for the same period
last year. The in-store branch expansion accounted for $1.5
million of the increase in compensation costs. 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.
Additionally, ESOP compensation increased due to the increase in
the average price of Haven Bancorp common stock during the quarter.
Occupancy and equipment costs increased by $1.2 million, or 123.7%
to $2.2 million for the first quarter of 1998 from $992,000 for the
same period last year due to the addition of twenty-two supermarket
branches during 1997 and seven branches during the first quarter of
1998. Other operating costs increased by $1.3 million, or 45.3% to
$4.0 million for the three months ended March 31, 1998 from $2.8
million for the same period last year. Miscellaneous operating
expenses, including stationery, telephone, postage and insurance,
increased by $392,000 and consulting fees increased $51,000 from
1997 primarily due to the in-store branch program. Advertising
costs and costs incurred for computer processing increased $169,000
and $170,000, respectively, due to the growth in the deposit base
over the last twelve months. Finally, costs incurred by the Bank's
subsidiary, CFSI, increased $117,000 due to higher sales volume.
INCOME TAX EXPENSE. Income tax expense was $1.1 million for an
effective tax rate of 33.2% for the three months ended March 31,
1998 compared to income tax expense of $1.7 million for an
effective tax rate of 33.7% for the comparable period in 1997.
24
<PAGE>
COMPUTER ISSUES FOR THE YEAR 2000. As a financial services
company, the Bank is aware of the potential issues the year 2000
could have on its computer systems and programs. During fiscal
year 1997, the Bank initiated a review of its computer systems and
programs to determine which, if any, systems and programs are not
capable of recognizing the year 2000. Communications were
initiated with all of the Bank's vendors that supply the Bank with
these systems and programs. The Bank's efforts to determine what,
if any, issues exist have been substantially completed. Where the
potential computer issues for the year 2000 have been identified,
vendors have committed to resolving such issues by no later than
December 31, 1998. Management has not yet determined the total
financial impact of resolving year 2000 computer issues.
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 March 31, 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 Banks ultimate liability, if any, which might arise
from the disposition of these claims cannot presently be
determined. Management believes it has meritorious defenses
against these actions and has and will continue to defend its
position. Accordingly, no provision for any liability that may
result upon adjudication has been recognized in the accompanying
consolidated financial statements.
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
(a) The Company's Annual Meeting of Stockholders was held on
April 22, 1998.
(b) Not applicable.
25
<PAGE>
(c) At such meeting, the shareholders approved the following
matters:
1. The election of the following individuals as Directors for a
term of 3 years each:
<TABLE>
<CAPTION>
Votes Broker
Votes For Withheld Abstentions Non-Votes
<S> <C> <C> <C> <C>
Robert M. Sprotte 7,340,066 774,140 -0- -0-
Michael J. Fitzpatrick 7,342,516 771,690 -0- -0-
William J. Jennings II 7,342,516 771,690 -0- -0-
</TABLE>
2. The ratification of the amendment to the Haven Bancorp, Inc.
1996 Stock Incentive Plan to increase the number of shares
available for issuance by 6,312,139 votes for, 1,777,241 votes
against, 24,826 abstentions and no broker non-votes.
3. The ratification of the amendment to the Certificate of
Incorporation of Haven Bancorp, Inc. to increase the number of
shares of common stock the Company is authorized to issue by
6,436,467 votes for, 1,654,424 votes against, 23,315 abstentions
and no broker non-votes.
4. The ratification of KPMG Peat Marwick LLP as independent
auditors of the Company for the fiscal year ending December 31,
1998, as reflected by 7,744,591 votes for, 362,821 votes against,
6,794 abstentions and no broker non-votes.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) 27.1 Financial Data Schedule.
b) The Company filed a Form 8-K on March 23, 1998
regarding the purchase of Intercounty Mortgage, Inc.
26
<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)
Date: May 14, 1998 By: /s/ Philip S. Messina
---------------------------
Philip S. Messina
President and Chief Executive
Officer
Date: May 14, 1998 By: /s/ Catherine Califano
---------------------------
Catherine Califano
Senior Vice President
and Chief Financial Officer
27
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extraced from the
Consolidated Statement of Financial Condition at March 31, 1998 and the
Consolidated Statement of Operations for the three months Ended March 31,
1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 44,467
<INT-BEARING-DEPOSITS> 1,356,384
<FED-FUNDS-SOLD> 4,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 511,062
<INVESTMENTS-CARRYING> 202,877
<INVESTMENTS-MARKET> 203,466
<LOANS> 1,193,810
<ALLOWANCE> 12,916
<TOTAL-ASSETS> 2,017,784
<DEPOSITS> 1,474,828
<SHORT-TERM> 272,228
<LIABILITIES-OTHER> 28,938
<LONG-TERM> 127,689
0
0
<COMMON> 100
<OTHER-SE> 114,001
<TOTAL-LIABILITIES-AND-EQUITY> 2,017,784
<INTEREST-LOAN> 22,526
<INTEREST-INVEST> 12,437
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 34,963
<INTEREST-DEPOSIT> 14,963
<INTEREST-EXPENSE> 21,469
<INTEREST-INCOME-NET> 13,494
<LOAN-LOSSES> 670
<SECURITIES-GAINS> 352
<EXPENSE-OTHER> 14,067
<INCOME-PRETAX> 3,216
<INCOME-PRE-EXTRAORDINARY> 3,216
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,149
<EPS-PRIMARY> 0.25<F1>
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 2.67
<LOANS-NON> 8,724
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,125
<LOANS-PROBLEM> 14,042
<ALLOWANCE-OPEN> 12,528
<CHARGE-OFFS> 1,139
<RECOVERIES> 857
<ALLOWANCE-CLOSE> 12,916
<ALLOWANCE-DOMESTIC> 12,916
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Per share amendments reflect the 2-for-1 stock split effective November
1997.
1997 1996
EPS:
Basic 0.40 0.34
Diluted 0.38 0.33
</FN>
</TABLE>
