SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended September 30, 1997 Commission File #0-26546
STATEWIDE FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
New Jersey 22 3397900
(State of Incorporation) (I.R.S. Employer Identification
Number)
70 Sip Avenue, Jersey City, New Jersey 07306
(Address of registrant's principal executive offices,
including zip code)
(201) 795-4000
(Registrant's telephone number, including area code)
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:
Yes X No
The number of shares outstanding of each of the registrant's classes
of common stock, as of October 31, 1997: Common Stock, No Par Value:
4,518,767 shares issued and 4,509,164 shares outstanding.
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
INTEREST INCOME:
Interest and fees on loans $ 6,473 $ 5,844 $19,435 $14,939
Interest on mortgage-backed
securities 5,451 4,803 16,144 15,434
Interest and dividends on
debt and equity securities 494 1,067 1,764 3,424
Dividends on Federal Home Loan
Bank of New York ("FHLBNY")
stock 151 139 403 338
------- ------- ------- -------
Total interest and dividend
income 12,569 11,853 37,746 34,135
------- ------- ------- -------
INTEREST EXPENSE:
Deposits 4,086 4,160 12,539 12,566
Borrowed funds 2,361 2,205 6,577 5,467
------- ------- ------- -------
Total interest expense 6,447 6,365 19,116 18,033
------- ------- ------- -------
NET INTEREST INCOME 6,122 5,488 18,630 16,102
Provision for loan losses 125 125 375 375
------- ------- ------- -------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 5,997 5,363 18,255 15,727
------- ------- ------- -------
NON-INTEREST INCOME:
Service charges 368 319 1,059 869
Net loss on securities - (1,095) - (1,095)
Other income 33 113 105 743
------- ------- ------- -------
Total non-interest income
(loss) 401 (663) 1,164 517
------- ------- ------- -------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,306 2,043 7,079 6,210
Occupancy, net 577 505 1,717 1,543
Federal deposit insurance
premiums 71 253 217 811
SAIF Assessment - 2,651 - 2,651
Professional fees 135 190 464 506
Insurance premiums 76 79 247 276
Data processing fees 131 92 444 242
Foreclosed real estate expense,
net 11 17 25 74
Other 866 793 2,547 2,169
------- ------- ------- -------
Total non-interest expense 4,173 6,623 12,740 14,482
------- ------- ------- -------
Income (loss) before income
taxes 2,225 (1,923) 6,679 1,762
Income tax expense (benefit) 843 (1,431) 2,522 (105)
------- ------- ------- -------
Net income (loss) $ 1,382 $ (492) $ 4,157 $ 1,867
======= ======= ======= =======
Net income (loss) per share of
common stock $ 0.33 $(0.11) $ 0.98 $ 0.39
======= ======= ======= =======
Weighted average number of
common stock outstanding 4,170,202 4,648,450 4,251,976 4,788,980
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
September 30, December 31,
1997 1996
------------- -----------
(UNAUDITED)
ASSETS
Cash and amounts due from depository
institutions $ 6,077 $ 6,586
Mortgage-backed securities available
for sale 316,412 240,974
Debt and equity securities available
for sale 26,956 40,243
Loans receivable, net 329,059 325,470
Accrued interest receivable, net 4,559 4,296
Real estate owned, net 236 563
Premises and equipment, net 6,092 6,296
FHLBNY stock, at cost 9,901 7,768
Excess of cost over fair value of net
assets acquired 112 137
Other assets 3,708 3,709
-------- --------
Total assets $703,112 $636,042
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits $442,456 $457,056
Borrowed funds:
Securities sold under agreement to
repurchase 187,000 82,400
FHLBNY advances 1,050 24,800
-------- --------
Total borrowed funds 188,050 107,200
-------- --------
Advance payments by borrowers for
taxes and insurance 1,859 1,853
Accounts payable and other liabilities 4,935 2,998
-------- --------
Total liabilities 637,300 569,107
-------- --------
Shareholders' Equity 65,812 66,935
-------- --------
Total liabilities and shareholders'
equity $703,112 $636,042
======== ========
See accompanying notes to consolidated financial statements
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Nine Months Ended
September 30,
-----------------
1997 1996
---- ----
Cash flows from operating activities:
Net income $ 4,157 $ 1,867
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 375 375
Provision for losses on real estate owned - 19
Depreciation and amortization 743 440
Net amortization of deferred premiums and
unearned discounts 694 1,545
Securities losses - 1,095
Amortization of RRP awards and allocation
of ESOP shares 914 650
Net (gain) loss on sale of real estate owned (12) 9
Changes in assets and liabilities:
Increase in accrued interest
and dividends receivable (263) (28)
Increase in accrued interest payable 320 245
Increase in other assets (546) (2,391)
Increase in accounts payable and other
liabilities 1,708 2,258
-------- --------
Net cash provided by operating
activities 8,090 6,084
-------- --------
Cash flows from investing activities:
Net disbursement from lending activities (1,385) (14,156)
Purchase of loans (2,738) (106,333)
Principal repayments from mortgage backed
securities 36,671 45,745
Purchase of mortgage-backed securities (111,189) (97,900)
Purchase of debt and equity securities (5,611) 0
Proceeds from maturities of debt securities 19,000 14,000
Proceeds from the sale of mortgage-backed
securities - 54,150
Purchase of FHLBNY stock (2,133) (4,141)
Proceeds from sale of real estate owned 376 292
Purchases and improvements of premises and
equipment (539) (1,486)
-------- --------
Net cash used in investing
activities (67,548) (109,829)
-------- --------
Cash flows from financing activities:
Net (decrease) increase in deposits (14,600) 4,332
Repayment of FHLBNY borrowings (639,450) (541,694)
Borrowings from FHLBNY 720,300 643,789
Increase in advance payments by borrowers
for taxes and insurance 6 1,046
Cash dividends paid (1,349) (457)
Purchase of common stock (5,958) (5,755)
-------- --------
Net cash provided by financing
activities 58,949 101,261
-------- --------
Net decrease in cash and cash
equivalents (509) (2,484)
Cash and cash equivalents at beginning of
period 6,586 8,203
-------- --------
Cash and cash equivalents at end of period $ 6,077 $ 5,719
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 1,950 $ 1,766
======== ========
Interest $ 18,796 $ 17,788
======== ========
Transfer from loans receivable to real
estate owned, net $ 37 $ 422
======== ========
Change in unrealized loss, net of income
tax, on securities available for sale $ 1,021 $ (3,262)
======== ========
See accompanying notes to consolidated financial statements
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The consolidated financial statements include the accounts of
Statewide Financial Corp. (the "Company") and its wholly owned
subsidiary, Statewide Savings Bank, S.L.A. (the "Bank"), and the
Bank's wholly owned subsidiaries, Seventy Sip Corporation, Statewide
Atlantic Corporation and Statewide Financial Services Inc. All
significant intercompany balances and transactions have been
eliminated in consolidation. The Bank and Statewide Financial
Services Inc. are the only active subsidiaries at September 30, 1997.
The Bank operates sixteen banking offices in Hudson, Union, Bergen and
Passaic counties; and through its wholly owned subsidiary, Statewide
Financial Services, Inc., the Bank also engages in the sale of annuity
products. Both the Company and the Bank are subject to supervision
and regulation by various agencies including the New Jersey Department
of Banking, the Office of Thrift Supervision ("OTS") and the Federal
Deposit Insurance Corporation.
The consolidated financial statements contained herein have been
prepared without audit in accordance with the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments
which, in the opinion of management, are necessary for a fair
statement of the results for interim periods. All adjustments made
were of a normal recurring nature. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto that are included in the
Company's Annual Report on Form 10-K for the fiscal period ended
December 31, 1996.
2. Shareholders' Equity
The components of shareholders' equity were as follows:
September 30, December 31,
1997 1996
------------- ----------
(Dollars in thousands)
Preferred stock, no par value, 2,000,000
shares authorized; no shares issued or
outstanding $ - $ -
Common Stock, no par value 12,000,000
shares authorized; 4,600,537 shares
issued and 4,590,934 shares outstanding
at September 30, 1997 and 4,946,264
shares issued and 4,911,533 shares
outstanding at December 31, 1996 - -
Additional paid in capital 41,230 46,807
Unallocated Employee Stock Ownership Plan
shares (3,386) (3,703)
Unearned Recognition and Retention Plan
shares (1,875) (1,872)
Retained earnings - substantially
restricted 28,605 25,797
Treasury stock, at cost, 9,603 and 34,731
shares at September 30, 1997 and
December 31, 1996 (119) (430)
Net unrealized gain on securities
available for sale, net of income tax 1,357 336
------- -------
Total shareholders' equity $65,812 $66,935
======= =======
3. Net Income (Loss) Per Share
Net income per share is computed by dividing net income by the
weighted average number of shares outstanding. Stock options which
were dilutive have been considered in computing the weighted average
number of common shares outstanding, utilizing the Treasury stock
method.
4. Recent Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS 128 supersedes Accounting Principles Board
("APB") Opinion No. 15, "Earnings Per Share", and specifies the
computation, presentation, and disclosure requirements for earnings
per share ("EPS") for entities with publicly held common stock or
potential common stock. SFAS 128 replaces Primary EPS and Fully
Diluted EPS with Basic EPS and Diluted EPS, respectively. SFAS 128
also requires dual presentation of Basic and Diluted EPS on the face
of the income statement for entities with complex capital structures
and a reconciliation of the information utilized to calculate Basic
EPS to that used to calculate Diluted EPS.
SFAS 128 is effective for financial statement periods ending after
December 15, 1997. Earlier application is not permitted. After
adoption, all prior period EPS is required to be restated to conform
with SFAS 128. The Company expects that the adoption of SFAS 128 will
result in Basic EPS being approximately the same as EPS currently
reported and Diluted EPS will be lower than currently reported EPS.
SFAS 129, "Disclosure of Information about Capital Structure", was
issued in February 1997. SFAS 129 is effective for periods ending
after December 15, 1997. SFAS 129 lists required disclosures about
capital structure that had been included in a number of separate
statements and opinions of authoritative accounting literature. As
such, the adoption of SFAS 129 is not expected to have a significant
impact on the disclosures in financial statements of the Company.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. SFAS 130 established standards for reporting and display of
comprehensive income and its components in a full set of general
purpose financial statements. Under SFAS 130, comprehensive income is
separated into net income and other comprehensive income. Other
comprehensive income includes items previously recorded directly in
equity, such as unrealized gains or losses on securities available for
sale. SFAS 130 is effective for interim and annual periods beginning
after December 15, 1997. Comparative financial statements provided
for earlier periods are required to be reclassified to reflect
application of the provisions of the Statement.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. SFAS 131 establishes
reporting standards for operating segments in annual financial
statements and requires those enterprises to report selected financial
information about operating segments in interim financial reports to
shareholders. SFAS 131 is effective for financial statements for
periods beginning after December 15, 1997.
5. Non-Performing Loans and the Allowance for Loan Losses
Non-performing loans were as follows:
September 30, December 31,
1997 1996
------------- -----------
(Dollars in thousands)
Loans delinquent 90 days or more:
Non-accrual $2,110 $2,334
Accruing 333 404
------ ------
Total net loans delinquent 90 days or more $2,443 $2,738
====== ======
Loans delinquent 90 days or more as a
percentage of total net loans outstanding .74% .84%
=== ===
An analysis of the allowance for loan losses for the periods ended
September 30, 1997 and 1996 follows:
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- -----
(Dollars in thousands)
Balance at beginning of period $2,747 $3,411 $2,613 $3,241
Provision charged to operations 125 125 375 375
Charge offs, net (85) (49) (201) (129)
------ ------ ------ ------
Balance at end of period $2,787 $3,487 $2,787 $3,487
====== ====== ====== ======
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
SELECTED FINANCIAL AND REGULATORY RATIOS AND OTHER DATA
At or for the At or for the
Three Months Nine Months
Ended Ended
September 30, September 30,
------------- -------------
1997 1996 1997 1996
---- ---- ---- ----
SELECTED FINANCIAL RATIOS (1):
Return on Average Assets .81% (.29)% .82% .38%
Return on Average Equity 8.62% (3.07)% 8.65% 3.66%
Capital to Assets 9.36% 9.87% 9.36% 9.87%
Net Interest Rate Spread (2) 3.27% 2.93% 3.31% 2.93%
Net Interest Margin (3) 3.73% 3.35% 3.76% 3.39%
Non-Interest Income to Average Assets .23% .26% .23% .33%
Non-Interest Expense to Average
Assets, Exclusive of SAIF Assessment 2.44% 2.36% 2.50% 2.42%
Efficiency Ratio, Exclusive of SAIF
Assessment (4) 65.22% 69.02% 65.61% 70.53%
Ratio of Interest-earning Assets to
Interest-bearing Liabilities 112.03% 110.98% 111.53% 112.09%
September 30, December 31,
1997 1996
------------ ------------
REGULATORY CAPITAL RATIOS:
Tangible Capital Ratio 8.37% 9.41%
Core Capital Ratio 8.37% 9.41%
Total Risk-based Capital Ratio 22.15% 26.21%
ASSET QUALITY RATIOS:
Non-performing Loans to Total Net
Loans .74% .84%
Non-performing Loans to Total Assets .35% .43%
Non-performing Assets to Total
Assets .38% .52%
Allowance for Loan Losses to Non-
performing Loans 114.08% 95.43%
Allowance for Loan Losses to Total
Net Loans .85% .80%
OTHER DATA:
Number of Deposit Accounts 54,667 53,695
Number of Offices 16 16
Notes to Selected Financial Ratios:
(1) Ratios are annualized where appropriate.
(2) Interest rate spread represents the difference between the
weighted average yield on average interest-earning assets
and the weighted average cost of average interest-bearing
liabilities.
(3) Net interest margin represents net interest income as a
percent of average interest-earning assets.
(4) Efficiency ratio represents total non-interest expense divided by
the sum of net interest income after provision for loan losses,
and recurring non-interest income.<PAGE>
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion and analysis refers to Statewide Financial
Corp. (The "Company") and its wholly-owned subsidiary, Statewide
Savings Bank, S.L.A. (The "Bank"). The Company was organized on May
31, 1995 for the purpose of acquiring all of the capital stock of the
Bank.
The Company realized net income of $1,382,000, or $0.33 per share, for
the quarter ended September 30, 1997 as compared to $1,205,000, or
$0.26, per share for the same quarter of the prior year, as adjusted
for a one-time charge, and compared to $1,391,000, or $0.33 per share,
for the second quarter of 1997. Earnings for the third quarter of
1996 were affected by a one-time industry-wide assessment on thrift
institutions to recapitalize the Savings Association Insurance Fund
("SAIF"). The impact of this charge has been added back to the prior
year results in order to normalize these comparisons.
Earnings for the nine months ended September 30, 1997 was $4,157,000,
or $0.98 per share, compared to net income of $3,564,000, or $0.74 per
share, for the nine months ended September 30, 1996 excluding the SAIF
assessment. Inclusive of the one-time SAIF assessment, the Company
reported a net loss of $492,000, or $0.11 per share, and net income of
$1,867,000, or $0.39 per share, for the three and nine months ended
September 30, 1996, respectively.
The increase in net income for the current quarter and nine months
ended September 30, 1997 as compared to comparable periods in the
prior year, reflects increases in net interest income after provision
for loan losses of $0.6 million and $2.5 million, respectively. These
increases reflect growth in average loans and investment securities,
and higher yields on investment securities, partially offset by an
increase in borrowing costs due to a combination of increased
borrowing levels and slightly higher rates. Lower non-interest income
and increased non-interest expense, exclusive of the SAIF assessment,
partially offset the increases in net interest income during the
current year periods. In addition, the prior year's periods included a
net loss on sales of securities and an offsetting gain from the
reversal of an expired tax liability. Neither of these items recurred
during the 1997 periods.
FINANCIAL CONDITION
At September 30, 1997 total assets were $703.1 million, compared to
$636.0 million at December 31, 1996, and to $673.2 million at June 30,
1997. The period-end balances increased $29.9 million between June
30, 1997 and September 30, 1997, principally due to investment
security purchases late in the current quarter. The average balance
of interest-earning assets grew $3.5 million during this period,
including $3.0 million, or 12.8%, in the commercial mortgage and
business loan portfolios; $1.9 million, or 212.9%, in the construction
loan portfolio; $1.3 million, or 3.6%, in the consumer loan portfolio;
and $1.9 million, or 0.6%, in the mortgage-backed securities and debt
investment portfolios. Partially offsetting this increase was a
decrease of $5.0 million, or 1.9%, in the average balance of the
residential one-to-four family mortgage portfolio, due to principal
amortization and prepayments resulting from the continued low interest
rate environment.
Total assets increased $67.1 million, or 10.5%, between December 31,
1996 and September 30, 1997. This increase was primarily attributable
to growth in the investment portfolio, despite higher prepayments on
investment securities, as the Company invested in securities which
provided better returns and durations then those that would have been
provided by originating one-to-four family residential real estate
mortgages in this tightened interest rate environment. During the
nine-month period, and also to a greater extent during the third
quarter ending September 30, 1997, the lower interest rate environment
caused higher prepayments in the residential mortgage, and other loan
categories, which slowed growth in the loan portfolio.
Growth in assets for the three and nine-month periods ended September
30, 1997 were funded with increases of $34.2 million and $80.9
million, respectively, in borrowed funds, in line with the Company's
strategy to leverage its excess capital. In addition, during the
three and nine-month periods, lower cost borrowed funds were used to
fund the liquidation of higher rate certificates of deposit in
accordance with management's strategy of not matching the most
aggressive rates offered on deposit accounts unless a customer's other
relationships with the Company justify the higher rate.
Borrowed funds were $188.1 million at September 30, 1997. Of this
amount, $42.1 million mature within 30 days, and an additional $28.0
million, at an interest rate of 5.54%, is callable at the lender's
option within 90 days, and quarterly thereafter for three years.
During the third quarter, the Company borrowed $58.0 million for a
term of five years, callable at the lender's option after one year,
and quarterly thereafter, at an average interest rate of 5.43%.
Deposits totaled $442.5 million at September 30, 1997 as compared to
$448.5 million at June 30, 1997 and $457.1 million at December 31,
1996. These reductions of 1.3% and 3.2% from June 30, 1997 and
December 31, 1996, respectively, resulted from decreases in higher-
costing certificates of deposits, consistent with management's
strategy of not matching the most aggressive rates for these deposits.
Lower-costing core deposits increased $2.5 million, or 1.0%, from June
30, 1997, and $6.5 million, or 2.6%, from December 31, 1996. Core
deposits continue to grow as marketing efforts and new customer
relationships develop.
Shareholders' equity increased $0.3 million during the quarter to
$65.8 million at September 30, 1997, from $65.5 Million at June 30,
1997, but decreased $1.1 million from $66.9 million at December 31,
1996. The increase from the preceding quarter resulted primarily from
current quarter net income of $1.4 million and an increase of $1.1
million (net of tax) in the September 30, 1997 market value of the
Company's investment portfolio over the June 30, 1997 valuation,
partially offset by the repurchase and retirement of 111,000 shares of
the Company's common stock and the payment of a quarterly dividend.
The decrease from December 31, 1996 resulted primarily from the
repurchase and retirement of 345,727 shares of the Company's common
stock, and the payment of three quarterly dividends, partially offset
by net income of $4.2 million, an increase of $1.0 million (net of
tax) in the market value of the Company's investment portfolio over
the December 31, 1996 valuation and allocation of ESOP shares and
other employee benefit plans during the period.
RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income. For the three months ended September 30, 1997, net income
increased $177,000, or 14.7%, to $1,382,000 from $1,205,000 for the
same period of the prior year, excluding the SAIF assessment. This
increase was primarily caused by higher net interest income, partially
offset by a decrease in non-interest income and an increase of non
interest expense. In addition, the prior year's period includes a net
loss on sales of securities and an offsetting gain from the reversal
of an expired tax liability. Neither of these items recurred during
the 1997 period. Net income per share for the period increased $0.07
per share, or 27%, to $0.33 per share from $0.26 per share for the
same period of the prior year, excluding the SAIF assessment,
reflecting: (1)common stock repurchases during the period, which
reduced the weighted average number of outstanding shares used to
calculate earnings per share by 10.3%; and (2) the increase in net
income which includes the cost of capital to acquire such shares.
Interest Income. Total interest and dividend income increased $0.7
million, or 6.0%, to $12.6 million for the three months ended
September 30, 1997 from $11.9 million for the three months ended
September 30, 1996. During the last quarter of 1996, the Company
changed its mix of interest-earning assets by purchasing one-to-four
family residential mortgages and selling lower yielding mortgage-
backed securities. In addition, the Company has focused its lending
efforts, during this period, on originating commercial and consumer
loans. Consequently, both the average balance of, and the yield from,
interest-earning assets is higher during the 1997 period. The average
balance of interest-earning assets is $9.0 million, or 1.4%, higher
during the three months ended September 30, 1997 compared to the same
period a year ago; and the related yield has increased between the two
periods to 7.58% from 7.24%. Specifically, the average balance of
first mortgage loans increased as a result of purchases mentioned
above. However, yields on this portfolio have diminished 15 basis
points from 7.71% for the three months ended September 30, 1996 to
7.56% for the three months ended September 30, 1997, as a result of
prepayments of higher yielding loans in this current low interest rate
environment. Also during the current quarter, the yield on mortgage-
backed securities increased because the Company sold lower-yielding
securities in 1996, as noted above, and in 1997 purchased securities
with yields in excess of the average yields in place at September 30,
1996. These factors combined to increase yields on mortgage-backed
securities 59 basis points to 7.33% for the current quarter compared
to 6.74% for the same quarter last year.
Interest Expense. Interest expense increased $82,000, or 1.3%, during
the current quarter as compared to the same quarter of the prior year.
Interest expense on deposits decreased $74,000, or 1.8%, while
interest expense on borrowed funds increased $156,000, or 7.1%. The
cost of total interest-bearing deposits decreased 5 basis points
because of lower interest rates paid on core deposits. The average
balance of core deposits increased $8.9 million for the current
quarter over the prior year's quarter, while the average balance of
certificates of deposits decreased by $14.9 million over the same
periods. As discussed above, the Company attempts to set its rates
for certificate of deposit accounts on a competitive basis, but does
not seek to offer the most aggressive rates. This change in deposit
mix occurred through cross selling efforts by the Company, attracting
new customers through product development, and by not matching
aggressively priced certificates of deposit rates offered by
competitors.
The average balance of borrowed funds increased $8.5 million, or 5.4%,
for the quarter ended September 30, 1997 as compared to the same
quarter of the prior year. The increase in borrowed funds was
primarily used to fund growth in first mortgage and commercial
business loans. The cost of borrowed funds increased 5 basis points
to 5.62% from 5.57% for the quarter ended September 30, 1996
reflecting the Company's increased position in longer term borrowed
funds which lessens the impact of changes in short term borrowing
rates.
Net Interest Income. Net interest income increased 11.6% to $6.1
million for the quarter ended September 30, 1997, from $5.5 million
for the same quarter a year ago. The increase is primarily the result
of growth of interest income. During the current quarter, the net
interest margin grew 38 basis points to 3.73% from 3.35% during the
quarter ended September 30, 1996. The increase primarily resulted
from the increase in yield on interest-earning assets coupled with an
increase in interest-earning assets, partially offset by slight growth
in interest-bearing liabilities.
Table 1 following presents a summary of the Company's interest-earning
assets and their average yields, interest-bearing liabilities and
their average costs and shareholders' equity for the three months
ending September 30, 1997 and 1996. Average loans include non-accrual
loans, and related yields include loan fees which are considered
adjustments to yields.
Table 1
<TABLE>
Three Months Ended September 30,
-------------------------------------------------
1997 1996
---------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Average InterestAverage Average Interest Average
Balance Yield/ Balance Yield/
Cost Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
First mortgage loans $276,689 $ 5,231 7.56% $255,292 $ 4,920 7.71%
Consumer and other loans 36,807 893 9.63 36,016 825 9.16
Commercial business loans 15,253 349 9.08 4,310 99 9.19
Mortgage-backed securities 298,028 5,451 7.33 285,248 4,803 6.74
Debt securities 28,393 494 7.03 65,467 1,064 6.50
Money market investments - - - 203 3 5.91
FHLBNY stock 8,889 151 6.79 8,526 139 6.52
-------- ------- -------- -------
Total interest-earning
assets 664,059 12,569 7.58% 655,062 11,853 7.24%
------- ---- ------- ----
Non-interest-earning
assets 18,819 17,430
-------- --------
Total assets $682,878 $672,492
======== ========
Liabilities and
shareholders' equity:
Interest-bearing
liabilities:
Savings accounts $139,595 1,030 2.93% $135,306 924 2.73%
NOW accounts 49,302 308 2.48 45,573 330 2.90
Money market accounts 44,994 349 3.08 44,063 342 3.10
Certificates of deposit 192,153 2,399 4.95 207,067 2,564 4.95
Borrowed funds 166,731 2,361 5.62 158,259 2,205 5.57
-------- ------- -------- -------
Total interest-bearing
liabilities 592,775 6,447 4.31% 590,268 6,365 4.31%
-------- ------- ---- -------- ------- ----
Non-interest-bearing
deposits 19,713 13,715
Other non-interest-bearing
liabilities 6,231 4,366
-------- --------
Total non-interest-bearing
liabilities 25,944 18,081
-------- --------
Total liabilities 618,719 608,349
Shareholders' equity 64,143
64,159
-------- --------
Total liabilities and
shareholders' equity $682,878 $672,492
======== ========
Net interest income $ 6,122 $5,488
======= ======
Net interest rate spread 3.27% 2.93%
==== ====
Net interest margin 3.73% 3.35%
==== ====
Ratio of interest-earning
assets to interest-bearing
liabilities 112.03% 110.98%
====== ======
</TABLE>
Provision for Loan Losses. The provision for loan losses for the
three months ended September 30, 1997 and 1996 both equaled $125,000.
The provision for the three months ended September 30, 1997 was
determined by management after review of, among other things, the
Company's loan portfolio, the risk inherent in the Company's lending
activities and the economy in the Company's market areas. Further
provisions for loan losses will continue to be based upon management's
assessment of the loan portfolio and its underlying collateral, trends
in non-performing loans, the current economic condition and other
factors which warrant recognition in order to maintain the allowance
for loan losses at levels sufficient to provide for estimated losses.
As of September 30, 1997, non-performing loans decreased $3.2 million,
or 57.0%, to $2.4 million from $5.7 million for the same quarter of
the prior year. Non-performing loans represent 0.74% of total net
loans outstanding at September 30, 1997, compared to 1.80% at
September 30, 1996. At September 30, 1997, the allowance for loan
losses was $2.8 million, or 114.1%, of total non-performing loans
compared to 61.4% at September 30, 1996.
Non-Interest Income. Non-interest income decreased $31,000 to
$401,000 for the three months ended September 30, 1997 from $432,000
for the same period of the prior year. The prior year non-interest
income includes $40,000 from the collection of unaccrued interest
associated with loans whose principal had been repaid in prior
periods. Excluding this non-recurring item, non-interest income
increased $9,000, or 2%, for the current quarter as compared to the
same period of the prior year. This increase resulted primarily from
increased deposit account maintenance and service fees and earnings
related to annuity sales, partially offset by lower mortgage late
charges.
During the quarter ended September 30, 1996, the Company incurred a
loss of $21,000 on sales of mortgage-backed securities, and recognized
a charge of $1,074,000 for the reduction to current market value of
securities identified for sale during that period and sold during the
fourth quarter of 1996. A majority of the proceeds from the sales
were used to fund loan growth, with the remaining amounts used to
reduce borrowing levels. No like events occurred during the current
year.
Non-Interest Expense. Non-interest expense for the three months ended
September 30, 1997, totaled $4.2 million, an increase of $201,000, or
5.1%, from $4.0 million recorded during the same period of the prior
year, exclusive of the one-time SAIF assessment.
Salaries and employee benefits expense for the three months ended
September 30, 1997 increased $263,000, or 12.9%, compared to the same
period a year ago. Salary and related costs increased approximately
$78,000, primarily as a result of a new branch which opened during the
fourth quarter of 1996, increased administrative staffing subsequent
to September 30, 1996, and normal year over year wage increases.
Other benefit expenses increased approximately $185,000 primarily for
the Company's ESOP program, and retirement incentive plans, and the
Company's officer and employee RRP plan. Costs for these plans are
affected by the market price of the Company's stock, which on average
was 58% higher during the current three-month period than the three-
month period ended September 30, 1996.
Occupancy costs increased $72,000, or 14.3%, for the current quarter
as compared to the same period of the prior year. This increase
resulted from higher depreciation for branch facilities renovations as
well as for work stations and other data processing equipment procured
in conjunction with the upgrade of the Company's operating system in
October 1996.
Federal Deposit Insurance Premium expense decreased $182,000, or
71.9%, for the current quarter over the same period last year. This
decrease resulted from the enactment into law the Deposit Insurance
Funds Act of 1996 which lowered the Company's deposit premium rate.
Data processing expense increased $39,000 for the current quarter over
the same quarter of the previous year. The increase reflects
additional costs as the Company installed a new operating system and
all of its applications during the fourth quarter of 1996, to allow
for further Company expansion and provide more capability for services
to its customer base.
The remaining components of non-interest expense increased $9,000, or
0.8%, from $1,088,000 for the three months ended September 30, 1996 to
$1,079,000 for the current quarter. This increase resulted primarily
from increased advertising, marketing, deposit service and loan and
operations related activity, offset by lower professional and
consulting service costs.
Income Tax Expense. Income taxes for the three months ended September
30, 1997 reflect the tax on that period's income at the Company's
effective tax rate. The tax benefit of $1.4 million recorded for the
three months ended September 30,1996 reflects the tax effect of the
loss incurred during that quarter, and the result of the reversal of a
$702,000 tax liability, previously established, which expired during
that quarter.
NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
Net Income. For the nine months ended September 30, 1997, net income
increased $593,000, or 16.6%, to $4,157,000 from $3,564,000 for the
same period of the prior year, excluding the SAIF assessment. This
increase was primarily caused by higher net interest income, partially
offset by a decrease in non-interest income and an increase in non-
interest expense. In addition, the prior year's period includes a net
loss on sales of securities and an offsetting gain from the reversal
of an expired tax liability. Neither of these items recurred during
the 1997 periods. Net income per share for the period increased $0.24
per share, or 32%, to $0.98 per share from $0.74 per share for the
same period of the prior year, excluding the SAIF assessment
reflecting: (1) common stock repurchases during the period, which
reduced the weighted average number of outstanding shares used to
calculate earnings per share by 11.2%; and (2) the increase in net
income which includes the cost of capital to acquire such shares.
Interest Income. Total interest and dividend income increased $3.6
million, or 10.6%, to $37.7 million for the nine months ended
September 30, 1997, from $34.1 million for the nine months ended
September 30, 1996. During the last quarter of 1996, the Company
changed its mix of interest-earning assets by purchasing one-to-four
family residential mortgages, and selling lower yielding mortgage-
backed securities. In addition, during this period, the Company
focused its lending efforts on originating commercial and consumer
loans. Consequently, both the average balance of and the yield from
interest-earning assets is higher during the 1997 period. The average
balance of interest-earning assets is $25.4 million, or 4.0%, higher
during the nine months ended September 30, 1997 compared to the same
period a year ago; and the related yield has increased between the two
periods to 7.63% from 7.18%. Specifically, the average balance of
first mortgage loans increased as a result of purchases mentioned
above. However, yields on this portfolio have diminished 15 basis
points from 7.77% for the nine months ended September 30, 1996 to
7.62% for the nine months ended September 30, 1997, as a result of
prepayments of higher yielding loans in this current low interest rate
environment. Also during the nine months ended September 30, 1997,
the yield on mortgage-backed securities increased because the Company
sold lower-yielding securities in 1996, as noted above, and in 1997
purchased securities with yields in excess of the average yields in
place at September 30, 1996. These factors combined to increase
yields on mortgage-backed securities 74 basis points to 7.43% for the
current year period compared to 6.69% for the same period last year.
Interest Expense. Interest expense increased $1.1 million, or 6.0%,
for the nine months ended September 30, 1997 as compared to the same
period last year. The difference was caused by increased borrowings
as the average balance of borrowed funds outstanding increased $24.1
million, or 18.1%, during the current nine-month period as compared to
that of the prior year. However, interest expense on deposits was
essentially unchanged from last year's period, with less expense from
certificates of deposits offset by more expense from core deposits.
The cost of interest-bearing deposits decreased 1 basis point to 3.86%
for the nine months ended September 30, 1997, from 3.87% for the same
period last year because the mix between lower-costing core deposits
and higher-costing certificates of deposits moved toward core
deposits. The Company emphasizes its core deposit products in its
cross selling and product development efforts, resulting in an
increase in the average balance of $13.9 million over the average
balance for the nine months ended September 30, 1996. At the same
time, the Company does not seek to match the most aggressive of its
competitors' certificate of deposit rates. By not matching the most
aggressive pricing, the Company's average balance of certificates of
deposit decreased $12.4 million this nine-month period compared to the
same period last year.
The increase in the average balance of borrowed funds reflects the
Company's continued strategy to leverage its excess capital, and this
growth funded the increase in assets for the period. The increase in
borrowed funds was used to fund growth in first mortgage and
commercial business loans, and mortgage backed securities. The cost
of borrowed funds increased 11 basis points to 5.59% from 5.48% for
the nine months ended September 30, 1996 reflecting the short-term
interest environment during the nine months ended September 30, 1996
and 1997, and the Company's increased position in longer term borrowed
funds which lessens the impact of changes in short-term borrowing
rates.
Net Interest Income. Net interest income increased $2,528,000, or
15.7%, for the nine months ended September 30, 1997 over the
comparable period last year. This increase was attributable to a
widening of 37 basis points in the net interest margin and the 4.0%
growth in interest-earning assets. During the nine-month period ended
September 30, 1997, the net interest margin was 3.76% as compared to
3.39% for the nine months ended September 30, 1996. The increase
primarily resulted from the increase in yield in interest-earning
assets coupled with an increase in interest-earning assets, partially
offset by increases in the cost and average balance of interest-
bearing liabilities.
Table 2 following presents a summary of the Company's interest-earning
assets and their average yields, interest-bearing liabilities and
their average costs and shareholders' equity for the nine months ended
September 30, 1997 and 1996. The average balance of loans includes
non-accrual loans, and associated yields include loan fees which are
considered adjustments to yield.
Table 2
<TABLE>
Nine Months Ended September 30,
------------------------------------------------
1997 1996
---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Average Interest Average Average Interest Average
Balance Yield/ Balance Yield/
Cost Cost
------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
First mortgage loans $278,745 $15,930 7.62% $213,219 $12,425 7.77%
Consumer and other loans 35,767 2,590 9.68 33,648 2,361 9.36
Commercial business loans 13,060 915 9.37 2,258 153 9.03
Mortgage-backed securities 289,062 16,144 7.43 307,508 15,434 6.69
Debt securities 34,442 1,764 6.86 69,611 3,394 6.50
Money market investments 6 - 5.35 722 30 5.54
FHLBNY stock 8,335 403 6.45 7,043 338 6.40
-------- ------- -------- -------
Total interest-earning
assets 659,417 37,746 7.63% 634,009 34,135 7.18%
------- ---- ------- ----
Non-interest-earning assets 19,400 16,591
-------- --------
Total assets $678,817 $650,600
======== ========
Liabilities and
shareholders' equity:
Interest-bearing
liabilities:
Savings accounts $139,830 3,033 2.90% $129,441 2,668 2.75%
NOW accounts 48,439 979 2.70 45,021 955 2.83
Money market accounts 44,565 1,050 3.15 44,447 1,010 3.03
Certificates of deposit 201,265 7,477 4.97 213,623 7,933 4.95
Borrowed funds 157,172 6,577 5.59 133,077 5,467 5.48
-------- ------- -------- -------
Total interest-bearing
liabilities 591,271 19,116 4.32% 565,609 18,033 4.25%
-------- ------- ---- -------- ------- ----
Non-interest-bearing
deposits 18,303 12,340
Other non-interest-bearing
liabilities 5,187 4,628
-------- --------
Total non-interest-bearing
liabilities 23,490 16,968
-------- --------
Total liabilities 614,761 582,577
Shareholders' equity 64,056 68,023
-------- --------
Total liabilities and
shareholders' equity $678,817 $650,600
======== ========
Net interest income $18,630 $16,102
======= =======
Net interest rate spread 3.31% 2.93%
==== ====
Net interest margin 3.76% 3.39%
==== ====
Ratio of interest-earning
assets to interest-bearing
liabilities 111.53% 112.09%
====== ======
</TABLE>
Provision for Loan Losses. No change occurred in the provision for
loan losses between the nine months ended September 30, 1997 and the
nine months ended September 30, 1996. The provision was $375,000
during both periods. The provision for loan losses for the nine-month
periods was determined by management after review of, among other
things, the Company's loan portfolio, the risk inherent in the
Company's lending activities and the economy in the Company's market
areas. Further provisions for loan losses will continue to be based
upon management's assessment of the loan portfolio and its underlying
collateral, trends in non-performing loans, the current economic
condition and other factors which warrant recognition in order to
maintain the allowance for loan losses at levels sufficient to provide
for estimated losses. At September 30, 1997, the allowance for loan
losses was $2.8 million, or 114.1%, of non-performing loans and 0.85%
of total net loans as compared to 61.4% of non-performing loans and
1.1% of total net loans at September 30, 1996.
Non-Interest Income. Non-interest income decreased $448,000 to
$1,164,000 for the nine months ended September 30, 1997 from
$1,612,000 for the same period of the prior year. The prior year non-
interest income includes $565,000 from the collection of unaccrued
interest associated with loans whose principal had been repaid in
prior periods. Excluding this non-recurring item, non-interest income
increased $117,000, or 11.2%, for the current nine-month period as
compared to the same period of the prior year. This increase resulted
primarily from increased ATM usage, deposit account maintenance
charges, and increased fees from the sale of annuities, partially
offset by lower mortgage late charges.
During the quarter ended September 30, 1996, the Company incurred a
loss of $21,000 on sales of mortgage-backed securities, and recognized
a charge of $1,074,000 for the reduction to current market value of
securities identified for sale during that period, and sold during the
fourth quarter of 1996. Proceeds from the sales were used to fund
loan growth with the remaining amounts used to reduce borrowing
levels. No like events occurred during the current year.
Non-Interest Expense. Total non-interest expense for the nine months
ended September 30, 1997, totaled $12.7 million, an increase of
$909,000, or 7.7%, from $11.8 million recorded during the same period
of the prior year, exclusive of the one-time SAIF assessment.
Salaries and employee benefits expense for the nine months ended
September 30, 1997 increased $869,000, or 14.0%, compared to the same
period a year ago. Salary and related costs increased approximately
$285,000 primarily as a result of two new branches opened during 1996
whose operations are fully reflected in the current year, whereas
there is limited or no expense for these new offices in the prior-year
period. In addition, the current-year period fully reflects staffing
costs for commercial and institutional loan officers and support hired
subsequent to September 30, 1996. Other benefit expenses increased
approximately $584,000. The current nine-month period fully includes
costs for the Recognition and Retention Plans for Executive Officers
and Employees, whereas it is only partially reflected in the previous
year's nine-month period. In addition, the current-year period
reflects normal year over year wage increases and higher costs related
to the Company's ESOP and retirement program. Costs for these plans
are affected by the market price of the Company's stock, which on
average, was 37% higher during the current nine-month period than the
nine-month period ended September 30, 1996.
Occupancy costs increased $174,000, or 11.3%, for the nine-month
period as compared to the same period of the prior year. This
increase resulted from higher depreciation for branch facilities
renovations as well as for work stations and other data processing
equipment procured in conjunction with the upgrade of the Company's
operating system in October 1996.
Federal Deposit Insurance Premium expense decreased $594,000, or
73.2%, for the nine-month period ended September 30, 1997 over the
same period last year. This decrease resulted from the enactment into
law the Deposit Insurance Funds Act of 1996 which lowered the
Company's deposit premium rate.
Data processing expense increased $202,000 for the nine months ended
September 30, 1997 over the nine months ended September 30, 1996. The
increase reflects additional costs incurred during the fourth quarter
of 1996, as the Company installed a new operating system and all of
its applications to allow for further expansion and to provide more
capability for services to the Company's customer base.
The remaining components of non-interest expense increased $258,000,
or 8.5%, from $3,025,000 for the nine months ended September 30, 1996
to $3,283,000 for nine months ended September 30, 1997. This increase
is primarily related to the adoption of the Company's Recognition and
Retention Plans for Directors which were adopted midway through 1996.
Other contributing factors were increased expense from higher usage of
ATM machines and from loan generation and operations activity during
the current nine-month period. Partially offsetting these expense
increases were lower advertising, professional and insurance costs,
and real estate owned expense.
Income Tax Expense. Income taxes for the nine months ended September
30, 1997 reflect the tax on that period's income at the Company's
effective tax rate. The tax benefit of $105,000 recorded for the nine
months ended September 30,1996 resulted from the reversal of a
$702,000 tax liability, previously established, that expired during
the period, partially offset by the tax effect of the pre-tax income
recognized for the nine months ended September 30, 1996.
THREE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND JUNE 30, 1997
Net Income. For the three months ended September 30, 1997, net income
decreased slightly to $1,382,000 from $1,391,000 for the quarter ended
June 30, 1997. Net income per share of $0.33, equaled that of the
preceding quarter.
Interest Income. Total interest and dividend income decreased
$121,000, or 1.0%, to $12.6 million for the three months ended
September 30, 1997 as compared to the preceding three months ended
June 30, 1997. The decrease in interest income resulted from the
decrease in average yield, partially offset by an increase in average
interest- earnings assets of $3.5 million for the current quarter.
There were higher principal prepayments for loans and mortgage-backed
securities as a result of the continued low interest rate environment,
causing both greater amortization on asset premiums and reinvestment
of prepayments at lower market rates during the current quarter.
Partially offsetting this decrease was the Company's continued growth
in average higher yielding non-residential and consumer loans,
including $3.0 million, or 12.8%, in the commercial mortgage and
business loan portfolios; $1.9 million, or 212.9%, in the construction
portfolio; and $1.3 million, or 3.6%, in the consumer portfolio.
Greater premium amortization due to accelerated prepayments in first
mortgage loans and mortgage backed securities, and new production
originated at slightly lower rates primarily caused the average yield
in interest-earning assets to decrease to 7.58% for the three months
ended September 30, 1997, from 7.67% for the preceding period.
Interest Expense. Interest expense for the three months ended
September 30, 1997 totaled $6.4 million, basically unchanged from the
$6.4 million recorded for the three months ended June 30, 1997.
Average interest-bearing deposits decreased $9.5 million, or 2.2%, for
the three months ended September 30, 1997 as compared to the preceding
three-month period. This change primarily resulted from a decrease in
higher yielding certificates of deposit which decreased $9.3 million
as the Company continues towards its goal of reducing higher costing
deposits and replacing them as a source of funding with lower cost
core deposits and borrowings. The low interest rate environment
continues to aid the Company by reducing its average cost of deposits
which decreased 8 basis point to 3.80% for the current quarter as
compared to 3.88% for the prior quarter.
The average balance in borrowed funds increased $7.8 million, or 4.9%,
from the three months ended June 30, 1997. The average rate paid on
borrowed funds increased 3 basis points to 5.62% for the current
quarter as compared to 5.59% for the preceding quarter, as the Company
increased its position in longer term borrowed funds to lessen the
impact of changes in short-term borrowing rates. The increase in
borrowed funds was used to liquidate certificates of deposit for
holders who sought rates higher than the Company's alternate borrowing
rate, to support increased asset growth, and to fund the Company's
stock repurchases.
Net Interest Income. For the three months ended September 30, 1997,
net interest income decreased $133,000 as compared to the preceding
period of this year. During this quarter, the interest rate
environment was lower than the preceding quarter which helped the
Company lower its cost of interest-bearing deposits. However, growth
in the average balance of interest-earning assets from loan production
and investments was partially offset by increased principal
prepayments caused by the lower interest rates; and yields were also
affected because loans and mortgage-backed securities prepaid were at
higher rates than rates available on new loans and other re-
investments. Consequently, net interest margin decreased 4 basis
points to 3.73% for the quarter ended September 30, 1997 from 3.77%
for the preceding 1997 quarter.
Table 3 following presents a summary of the Company's interest-earning
assets and their average yields, interest-bearing liabilities and
their average costs and shareholders' equity for the three months
ended September 30, 1997 and the three months ended June 30, 1997.
The average balance of loans includes non-accrual loans, and
associated yields include loan fees which are considered adjustments
to yield.
Table 3
<TABLE>
Three Months Ended
-----------------------------------------------
September 30, 1997 June 30,1997
---------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
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:
First mortgage loans $276,689 $ 5,231 7.56% $279,209 $ 5,348 7.66%
Consumer and other loans 36,807 893 9.63 35,540 859 9.69
Commercial business loans 15,253 349 9.08 13,052 307 9.43
Mortgage-backed securities 298,028 5,451 7.33 288,294 5,423 7.47
Debt Securities 28,393 494 7.03 36,222 625 6.95
Money market investments - - - - - -
FHLBNY stock 8,889 151 6.79 8,193 128 6.25
-------- ------- -------- -------
Total interest-earning
assets 664,059 12,569 7.58% 660,510 12,690 7.67%
------- ---- ------- ----
Non-interest-earning assets 18,819 20,164
-------- --------
Total assets $682,878 $680,674
======== ========
Liabilities and
shareholders' equity:
Interest-bearing
liabilities:
Savings accounts $139,595 1,030 2.93% $141,147 1,018 2.89%
NOW accounts 49,302 308 2.48 48,547 342 2.83
Money market accounts 44,994 349 3.08 44,424 350 3.16
Certificates of deposit 192,153 2,399 4.95 201,467 2,509 5.00
Borrowed funds 166,731 2,361 5.62 158,931 2,216 5.59
-------- ------- -------- -------
Total interest-bearing
liabilities 592,775 6,447 4.31% 594,516 6,435 4.34%
-------- ------- ---- -------- ------- ----
Non-interest-bearing
deposits 19,713 18,361
Other non-interest-bearing
liabilities 6,231 4,416
-------- --------
Total non-interest-bearing
liabilities 25,944 22,777
-------- --------
Total liabilities 618,719 617,293
Shareholders' equity 64,159 63,381
-------- --------
Total liabilities and
shareholders' equity $682,878 $680,674
======== ========
Net interest income $6,122 $ 6,255
====== =======
Net interest rate spread 3.27% 3.33%
==== ====
Net interest margin 3.73% 3.77%
==== ====
Ratio of interest-earning
assets to interest-bearing
liabilities 112.03% 111.10%
====== ======
</TABLE>
Provision for Loan Losses. No change occurred in the provision for
loan losses between the three months ended September 30, 1997 and
three months ended June 30, 1997. During both quarters the provision
equaled $125,000. These provisions were determined by management
after review of, among other things, the Company's loan portfolio, the
risk inherent in the Company's lending activities and the economy in
the Company's Market areas. As of September 30, 1997, non-performing
loans decreased $157,000, or 6.0%, to $2.4 million from $2.6 million
at June 30, 1997. Non-performing loans represent 0.74% of total net
loans outstanding, at September 30, 1997, compared to 0.79% at June
30, 1997. The allowance for loan losses of $2.8 million was 114.1% of
total non-performing loans at September 30, 1997, compared to 105.7%
at June 30, 1997.
Non-Interest Income. Total non-interest income increased slightly to
$401,000 for the three months ended September 30, 1997 from $390,000
for the preceding quarter. The current and prior quarter's non-
interest income include no unusual items as were recorded in prior
year periods. The increase for the third quarter over the previous
quarter resulted primarily from higher deposit account maintenance and
service fees, partially offset by lower mortgage late charges and
annuity fees.
Non-Interest Expense. Non-interest expense decreased $104,000, or
2.4%, to $4.2 million for the three months ended September 30, 1997 as
compared to $4.3 million for the three months ended June 30, 1997.
Reductions in the current quarter as compared to the preceding
quarter, reflect lower salary and benefits expenses due to increased
deferred costs related to the origination of loans during the period,
lower benefit plan expenses, professional fees and data processing
expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity is a measure of its ability to fund loans and
withdrawals of deposits in a cost effective manner. The Company's
primary financing sources are deposits obtained in its own market
area, advances from the Federal Home Bank of New York and securities
sold under repurchase agreements. Other sources of funds include
scheduled amortization and prepayments of loan principal and mortgage-
backed-securities, maturities of debt securities and funds provided by
operations. At September 30, 1997, the Company had total liquid
assets (consisting of cash and due from banks, federal funds sold,
debt and mortgage-backed securities having final maturities within one
year, and accrued interest from debt and mortgage-backed securities),
which represent 0.8% of total assets and 1.3% of total deposits at
September 30, 1997. At September 30, 1997, the Company had available
to it $33.0 million under a line of credit with the FHLBNY, expiring
October 31, 1997, which was subsequently renewed and extended to
October 31, 1998, and approximately $41.8 million of excess collateral
pledged under the line of credit and under securities sold under
agreement to repurchase with the FHLBNY. In addition the Company has
approximately $81.1 million of unpledged debt and mortgage-backed
securities which are classified as available for sale, and could be
used to collateralize additional borrowing or sold to provide
liquidity.
At September 30, 1997, capital resources were sufficient to meet
outstanding loan commitments of $28.1 million, commitments on unused
lines of credit of $7.7 million and commercial letters of credit of
$1.9 million. Certificates of deposit which are scheduled to mature
in one year or less from September 30, 1997 totaled $153.3 million.
Management is unable to predict the amount of such deposits that will
renew with the Company. As a result of the Company's liquidity
position, management does not believe the Company's operation will be
materially affected by a failure to renew these deposits. However,
trends indicate that a significant portion of such deposits should
remain with the Company.
During the nine months ended September 30, 1997, investment and
lending activities represented the primary funding need. Purchase of
mortgage-backed and debt securities exceeded maturities and principal
repayments of these securities by $61.1 million. In addition funds
were used for loan disbursements net of repayments of $4.1 million,
increase of FHLBNY stock of $2.1 million, deposit declines of $14.6
million, and the repurchase of the Company's common stock of $6.0
million. The principal source of funding these activities were
increases in borrowing, net of repayments, from the FHLBNY of $80.9
million and cash provided by operating activities of $8.1 million.
During the nine months ended September 30, 1996, investments and
lending activities were the principal requirements for funding.
Principal repayments, maturities, calls and sales of mortgage-backed
securities and debt and equity securities exceeded purchases of
mortgage-backed securities by $17.1 million. Purchase and
originations of loans exceeded principal collections by $120.5
million. The principal sources of funding these investments were
increases in borrowing, net of repayments, from the FHLBNY of $102.1
million, sales of investment securities of $53.6 million, and increase
in deposits of $4.3 million.
At September 30, 1997, the Bank exceeded each of the regulatory
capital requirements applicable to it. The table below presents the
Bank's actual capital amounts and ratios at September 30, 1997 as
compared to the OTS minimum capital adequacy requirements and the OTS
requirements for classification as a well capitalized institution.
The Bank OTS Requirements
-------------- ----------------------------------
Minimum Capital For Classification
Adequacy As Well-Capitalized
--------------- -------------------
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tangible Capital $58,627 8.37% $10,510 1.50%
Tier 1 (core)Capital $58,627 8.37% $28,026 4.00% $35,032 5.00%
Risk Based Capital:
Tier 1 $58,627 21.21% $11,056 4.00% $16,583 6.00%
Total $61,226 22.15% $22,111 8.00% $27,639 10.00%
PART II OTHER INFORMATION
Item 1. Legal Proceedings
There are various claims and lawsuits in which the Bank is
periodically involved incidental to the Bank's business. In
the opinion of management, no material loss is expected from
any such pending claims or lawsuits.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Report of Form 8-K.
(a) Exhibits.
Number Description
------ -----------
27 Financial Data Schedule
(b) Reports on Form 8-K.
1.) The Registrant filed a Current Report on Form 8-K
dated July 22, 1997 announcing its earnings for
the second quarter ended June 30, 1997.
2.) The Registrant filed a Current Report on Form 8-K
dated August 19, 1997 announcing its third quarter
dividend of $0.11 per share.
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.
STATEWIDE FINANCIAL CORP.
Date: November 13, 1997 By: Bernard F. Lenihan
-----------------------
BERNARD F. LENIHAN
SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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