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 1933
For the Quarter Ended March 31, 1998 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 April 30, 1998: Common Stock, No Par Value:
4,518,767 shares issued and 4,514,454 shares outstanding.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Interest income:
Interest and fees on loans $6,465 $6,448
Interest on mortgage-backed securities 4,841 5,270
Interest and dividends on debt and
equity securities 474 645
Dividends on Federal Home Loan Bank of
New York ("FHLBNY") stock 187 124
------ ------
Total interest and dividend income 11,967 12,487
------ ------
Interest expense:
Deposits 3,865 4,234
Borrowed funds 2,040 2,000
------ ------
Total interest expense 5,905 6,234
------ ------
Net interest income 6,062 6,253
Provision for loan losses 150 125
------ ------
Net interest income after provision
for loan losses 5,912 6,128
Non-interest income:
Service charges on deposits 236 218
Loan fees and other fees 211 130
Other income 87 25
------ ------
Total non-interest income 534 373
------ ------
Non-interest expense:
Salaries and employee benefits 2,491 2,388
Occupancy, net 574 577
Federal deposit insurance premiums 69 72
Professional fees 177 144
Insurance premiums (3) 95
Data processing fees 162 170
Foreclosed real estate expense, net 20 7
Other 874 837
------ ------
Total non-interest expense 4,364 4,290
------ ------
Income before income taxes 2,082 2,211
Income taxes 778 827
------ ------
Net Income $1,304 $1,384
====== ======
Earnings per common share:
Basic $ 0.32 $ 0.32
====== ======
Assuming dilution $ 0.31 $ 0.31
====== ======
Weighted average number of common
shares outstanding:
Basic 4,029,156 4,293,979
========= =========
Assuming dilution 4,229,390 4,404,263
========= =========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
March 31, December 31,
1998 1997
--------- ------------
(Unaudited)
Assets:
Cash and amounts due from depository
institutions $ 10,604 $ 6,767
Federal funds sold 13,700 -
Mortgage-backed securities available
for sale 263,305 290,044
Debt and equity securities available
for sale 27,652 19,093
Loans receivable, net 329,523 332,509
Accrued interest receivable, net 4,121 3,969
Real estate owned, net 496 440
Premises and equipment, net 6,475 6,064
FHLBNY stock, at cost 10,260 10,260
Excess of cost over fair value of net
assets acquired 99 106
Other assets 4,326 6,064
-------- --------
Total assets $670,561 $675,316
======== ========
Liabilities and shareholders' equity:
Liabilities:
Deposits $452,007 $443,878
Borrowed funds:
Securities sold under agreements
to repurchase 146,000 146,150
FHLBNY advances - 14,150
-------- --------
Total borrowed funds 146,000 160,300
Advance payments by borrowers for taxes
and insurance 1,764 1,749
Accounts payable and other liabilities 4,880 4,482
-------- --------
Total liabilities 604,651 610,409
-------- --------
Shareholders' equity 65,910 64,907
-------- --------
Total liabilities and shareholders'
equity $670,561 $675,316
======== ========
See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Cash flows from operating activities:
Net income $ 1,304 $ 1,384
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 150 125
Depreciation and amortization 274 234
Net amortization of deferred premiums and
unearned discounts 495 167
Amortization of RRP awards and allocation
of ESOP shares 120 284
Net gain on sale of real estate owned (15) (9)
Changes in assets and liabilities:
Increase in accrued interest and dividends
receivable (152) (209)
(Decrease) increase in accrued interest
payable (21) 219
Decrease in other assets 1,896 418
Increase in accounts payable and other
liabilities 440 384
------- -------
Net cash provided by operating activities 4,491 2,997
------- -------
Cash flows from investing activities:
Net receipts (disbursements) from lending
activities 2,740 (978)
Purchase of loans (168) (1,293)
Proceeds from mortgage-backed securities
principal repayments 25,838 10,494
Purchase of mortgage-backed securities - (51,915)
Proceeds from principal repayments of debt
securities 1,000 3,000
Purchase of debt and equity securities (9,473) -
Increase in short-term investments (13,700) -
Purchase of FHLBNY stock - (167)
Proceeds from sale of real estate owned 104 183
Purchases and improvements of premises and
equipment (678) (304)
------- -------
Net cash provided by (used in) investing
activities 5,663 (40,980)
------- -------
Cash flows from financing activities:
Net increase in deposits 8,129 1,620
Repayment of borrowings (26,500)(135,400)
Proceeds from borrowings 12,200 178,400
Increase in advance payments by borrowers
for taxes and insurance 15 35
Cash dividends paid (459) (443)
Proceeds from the issuance of common stock 298 -
Purchase of common stock - (2,779)
------- -------
Net cash (used in) provided by financing
activities (6,317) 41,433
------- -------
Net increase in cash and cash equivalents 3,837 3,450
Cash and cash equivalents at beginning of
period 6,767 6,586
------- -------
Cash and cash equivalents at end of period $10,604 $10,036
======= =======
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 250 $ -
======= =======
Interest $ 5,926 $ 6,015
======= =======
Transfer from loans receivable to real
estate owned, net $ 145 $ -
======= =======
Change in unrealized loss, net of income
tax, on securities available for sale $ (281) $(2,362)
======= =======
See accompanying notes to consolidated financial statements
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 March 31, 1998.
As of March 31, 1998, the Bank operated sixteen banking offices in
Hudson, Union, Bergen and Passaic counties. 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 and Insurance, the Office of
Thrift Supervision 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 year ended December 31,
1997.
2. Adoption of Recently Issued Accounting Standards
On January 1, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income". SFAS No. 130 establishes standards for
reporting and display of comprehensive income and its components in a
full set of general purpose financial statements. Under SFAS No. 130,
comprehensive income is divided 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.
Comprehensive income during the periods is as follows:
Three Months
Ended March 31,
---------------
1998 1997
---- ----
(Dollars in thousands)
Net income $1,304 $1,384
Other comprehensive income, net of
income tax:
Unrealized loss on securities
available for sale (281) (2,362)
------ ------
Comprehensive income (loss) $1,023 $ (978)
====== ======
3. Shareholders' Equity
The components of shareholders' equity were as follows:
March 31, December 31,
1998 1997
-------- ------------
(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; 4,518,767 shares issued, and
4,514,454 shares outstanding at March 31,
1998, and 4,518,767 shares issued and
4,509,164 shares outstanding at December
31, 1997 - -
Additional paid in capital 39,680 39,533
Unallocated Employee Stock Ownership shares (3,174) (3,280)
Unearned Recognition and Retention Plan
shares (1,635) (1,755)
Retained earnings - substantially restricted 30,425 29,580
Treasury stock, at cost, 4,313 and 9,603
shares at March 31, 1998 and December 31,
1997 (53) (119)
Accumulated other comprehensive income:
Net unrealized gain of securities
available for sale, net of income tax 667 948
------- -------
Total shareholders' equity $65,910 $64,907
======= =======
4. Earnings Per Share
Basic earnings per share is computed by dividing net income by the
actual weighted average number of common shares outstanding during the
period. Earnings per share, assuming dilution, is computed by
dividing net income by the actual weighted average number of common
shares outstanding during the period plus the weighted average number
of net shares that would be issued upon exercise of dilutive options
and restricted awards issued, assuming the proceeds used to repurchase
shares pursuant to the treasury stock method. The computation of
earnings per share, assuming dilution, does not assume conversion of
options that would have an anti-dilutive effect on earnings per share.
Three Months
Ended March 31,
---------------
1998 1997
---- ----
Numerator:
Net income available to common
shareholders $1,304,000 $1,384,000
========== ==========
Denominator:
Weighted average shares
outstanding - basic 4,029,156 4,293,979
Common stock equivalents 200,234 110,284
---------- ----------
Weighted average shares out-
standing - assuming dilution 4,229,390 4,404,263
========= =========
Earnings per common share:
Basic $ 0.32 $ 0.32
====== ======
Assuming dilution $ 0.31 $ 0.31
====== ======
5. Non-Performing Loans and the Allowance for Loan Losses
Non-performing loans were as follows:
March 31, December 31,
1998 1997
--------- ------------
(Dollars in thousands)
Loans delinquent 90 days or more:
Non-accrual $2,560 $2,248
Accruing 377 255
------ ------
Total loans delinquent 90 days or more $2,937 $2,503
====== ======
Loans delinquent 90 days or more as a
percentage of total loans outstanding,
net 0.89% 0.75%
==== ====
An analysis of the allowance for loan losses follows:
Three Months
Ended March 31,
---------------
1998 1997
---- ----
(Dollars in thousands)
Balance at beginning of period $2,833 $2,613
Provision charged to operations 150 125
Charge-offs, net (93) (73)
------ -----
Balance at end of period $2,890 $2,665
====== ======
SELECTED FINANCIAL AND REGULATORY RATIOS AND OTHER DATA
At or For the
Three Months Ended
March 31,
------------------
1998 1997
---- ----
Selected financial ratios (1):
Return on average assets 0.78% 0.82%
Return on average shareholders' equity 8.09% 8.57%
Capital to assets 9.83% 9.30%
Net interest rate spread (2) 3.42% 3.46%
Net interest margin (3) 3.72% 3.78%
Non-interest income to average assets 0.32% 0.22%
Non-interest expense to average assets 2.62% 2.55%
Efficiency ratio (4) 66.46% 65.99%
Ratio of interest-earning assets to
deposits and borrowed funds 108.30% 108.34%
March 31, December 31,
1998 1997
--------- -----------
Regulatory capital ratios:
Tangible capital ratio 9.24% 8.96%
Core capital ratio 9.24% 8.96%
Risk-based capital ratio 23.04% 22.93%
Asset quality ratios:
Non-performing loans to total net
loans 0.89% 0.75%
Non-performing loans to total assets 0.44% 0.37%
Non-performing assets to total assets 0.51% 0.44%
Allowance for loan losses to
non-performing loans 98.40% 113.18%
Allowance for loan losses to total
net loans 0.88% 0.85%
Other data:
Number of deposit accounts 55,282 54,677
Number of offices (5) 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 costs of deposits and borrowed funds.
(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.
(5) The Passaic branch was sold to Banco Popular FSB as of the close
of business on April 9, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
The following discussion and analysis refers to the Statewide
Financial Corp. (The "Company") and its wholly-owned subsidiary,
Statewide Savings Bank, S.L.A. (The "Bank").
The Company realized net income of $1,304,000, or $0.31 per share,
assuming dilution, for the quarter ended March 31, 1998 as compared to
$1,384,000, or $0.31 per share, assuming dilution, for the same
quarter of the prior year. Basic earnings per share were $0.32 for
first quarter 1998, equal to the first quarter of 1997.
The $80,000 decrease in net income for the quarter ended March 31,
1998 from the year ago period reflects a decrease in net interest
income after provision for loan losses, and a slight increase in non-
interest expense partially offset by an increase in non-interest
income. Net interest income reflects a decline in average interest-
earning assets from the same period last year, and a lower interest
rate environment. Non-interest expense reflects normal cost
increases, and non-interest income reflects higher fee income.
Financial Condition
At March 31, 1998, total assets were $670.6 million compared to $675.3
million at December 31, 1997. During the quarter ended March 31, 1998
loan originations totaled $14.8 million of which $9.6 million were in
the multi-family, construction, commercial mortgage, and business loan
portfolios, increasing these loan category balances $6.1 million, or
11.8%, as the Company continued to change the mix of the loan
portfolio toward more commercial loan products. In addition,
purchases of debt securities during the quarter increased the current
period-end debt and equity portfolio $8.6 million to $27.7 million at
March 31, 1998, and the Company's temporary investment position grew
from zero to $13.7 million during the quarter as it sold federal funds
in anticipation of loan demand during the remainder of 1998. This
growth was offset by decreases of $26.7 million, or 9.2%, in mortgage-
backed securities and $9.2 million, or 3.8%, in the one-to-four family
mortgage loan portfolio as higher levels of prepayments continued
throughout the quarter because of continued low interest rates.
Borrowed funds at March 31, 1998 totaled $146.0 million, a decrease of
$14.3 million from December 31, 1997. During the first quarter of
1998, the Company repaid short-term borrowings rather than investing
these funds in loans and securities with significant duration risks in
a falling interest rate environment. Borrowed funds at March 31, 1998
are all securities sold with the FHLBNY under agreements to
repurchase, and have terms maturing from July 2000 to September 2002.
All are callable earlier at the lender's option. Borrowings of $86.0
million, with interest rates ranging from 5.43% to 5.54%, are first
callable in 1998 and borrowings of $60.0 million, with an interest
rate of 5.52%, are first callable in November 1999.
Deposits totaled $452.0 million at March 31, 1998 as compared to
$443.9 million at December 31, 1997. Total deposits increased $8.1
million, or 1.8%, during the quarter. The increase in total deposits
from the prior quarter resulted from growth of $6.1 million, or 2.3%,
in core deposits, of which non-interest-bearing deposits increased
$4.2 million, or 17.4%, and an increase of $2.1 million, or 1.1%, in
certificates of deposit. Core deposits grew as the Company continued
its relationship selling efforts.
Shareholders' equity increased $1.0 million during the quarter to
$65.9 million at March 31, 1998 from $64.9 million at December 31,
1997. The increase resulted from the current quarter net income of
$1.3 million, allocations of shares under the Company's Employee Stock
Ownership Plan (ESOP) and other employee benefit plans and options
exercised during the period. Partially offsetting these increases
were the declaration of the quarterly dividend of $0.5 million and a
decrease of $0.3 million (net of tax) in the March 31, 1998 market
value of the Company's securities portfolios from the valuation at
December 31, 1997.
Results of Operations
Three-Month Periods Ending March 31, 1998 and 1997
Net Income. For the three months ended March 31, 1998, net income
decreased slightly to $1.3 million from $1.4 million compared to the
same period for the prior year. Net income per share, assuming
dilution, for the period was unchanged at $0.31 per share compared to
the same period of the prior year due to the effect of stock
repurchases during 1997. Basic earning per share was unchanged at
$0.32 per share compared to the same period of the prior year. The
decrease in net income resulted primarily from a decrease in net
interest income and a slight increase in non-interest expense
partially offset by an increase in non-interest income.
Interest Income. Total interest and dividend income totaled $12.0
million for the three months ended March 31, 1998 as compared to $12.5
million for the three months ended March 31, 1997. The decline in
interest income between the periods primarily resulted from a decline
of $7.1 million in average interest-earning assets and a decrease of
22 basis points in the average yield. Lower long-term interest rates
and record level refinancings have accelerated prepayments in the one-
to-four family residential mortgage loan and securities portfolios.
Average balances of one-to-four family mortgages decreased $24.3
million and maturities and calls on debt securities reduced the
average balance in that portfolio $15.2 million. Accelerated
prepayments of mortgage-backed securities offset the purchase of $96.2
million of these securities since the prior-year period. Amortization
of premiums associated with the purchase of mortgages and securities
accelerated during this quarter compared to the year ago quarter,
contributing to lower effective yields during this quarter. Partially
offsetting these declines were significant growth in the average non-
residential, multi-family and construction and business loans which
increased $24.2 million, or 83.7%, over the prior-year period.
Interest Expense. Interest expense decreased $329,000, or 5.28%,
during the current quarter as compared to the same quarter of the
prior year due to a $9.2 million decrease in average deposits coupled
with a 25 basis point decline in the cost of interest-bearing
deposits. Average core deposits increased $14.8 million, or 5.97%, to
$262.0 million for the current quarter over the $247.2 million in the
prior-year period while average balances on certificates of deposit
decreased $24.0 million, or 11.41%, to $186.4 million for the current
quarter from $210.4 million in the prior-year period. The cost of
borrowed funds remained unchanged from the prior-year period. These
results reflect the Company's marketing efforts to build and sustain
core deposit relationships while offering certificates of deposit
rates which are in line with the cost of alternate sources of funds.
Net Interest Income. For the quarter ended March 31, 1998, net
interest income decreased $191,000, or 3.05%, from the comparable
prior-year period. The decrease reflects the decline in average
interest-earning assets and a repurchase of the Company's common stock
partially offset by increased core deposits and lower interest rates
paid to depositors. During the current quarter, the net interest
margin declined 6 basis points to 3.72% from 3.78% during the quarter
ended March 31, 1997.
Table 1 following presents a summary of the Company's average
interest-earning assets and their average yields, average deposits and
borrowed funds and their average costs and average shareholders'
equity for the three months ending March 31, 1998 and 1997. Average
loans include non-accrual loans, and related yields include loan fees
which are considered adjustments to yields.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------
1998 1997
--------------------------- ---------------------------
Average Period Average Average Period Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------------- ---------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
First mortgage loans $275,718 $ 5,231 7.59% $280,378 $ 5,351 7.63%
Consumer and other loans 38,712 902 9.45 34,930 838 9.73
Commercial business 15,357 332 8.77 10,825 259 9.70
Mortgage-backed securities 280,163 4,841 6.94 280,674 5,270 7.51
Debt securities 23,650 441 7.56 38,825 645 6.65
Money market investments 2,622 33 5.03 18 - 5.35
FHLBNY stock 10,260 187 7.29 7,911 124 6.27
-------- ------- -------- -------
Total interest-earning assets 646,482 $11,967 7.43 653,561 $12,487 7.65
Non-interest-earning assets 20,995 ======= 19,228 =======
-------- --------
Total assets $667,477 $672,789
======== ========
Liabilities and shareholders'
equity:
Interest-bearing liabilities:
Savings accounts $143,668 $ 1,030 2.91 $138,737 $ 986 2.88
Demand and NOW accounts 74,499 184 1.00 64,252 328 2.07
Money market accounts 43,855 326 3.01 44,269 351 3.22
Certificates of deposit 186,379 2,325 5.06 210,375 2,569 4.95
Borrowed funds 148,530 2,040 5.57 145,623 2,000 5.57
-------- ------- -------- -------
Total deposits and borrowed funds 596,931 $ 5,905 4.01 603,256 $ 6,234 4.19
-------- ======= -------- =======
Other liabilities
6,049 4,900
-------- --------
Total liabilities 602,980 608,156
Shareholders' equity 64,497 64,633
-------- --------
Total liabilities and share-
holders' equity $667,477 $672,789
======== ========
Net interest income $ 6,062 $ 6,253
======= =======
Net interest rate spread 3.42% 3.46%
==== ====
Net interest margin 3.72% 3.78%
==== ====
Ratio of interest-earning assets
to deposits and borrowed funds 108.30% 108.34%
====== ======
</TABLE>
Provision for Loan Losses. The provision for loan losses for the
three months ended March 31, 1998 was $150,000, an increase of $25,000
over the prior-year period. The provision for the three months ended
March 31, 1998 was determined by management after review of, among
other things, the Company's loan portfolio, the risk inherent in the
Company's lending activities, composition and volume of the Company s
loan portfolio 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 March 31, 1998, non-performing loans were $2.9 million and as a
percentage of total net loans outstanding equaled 0.89%, both
unchanged from the same period of the prior year. At March 31, 1998,
the allowance for loan losses was $2.9 million, or 98.40%, of total
non-performing loans compared to 113.18% at December 31, 1997.
Non-Interest Income. Total non-interest income increased $161,000, or
43.16%, to $534,000 for the current quarter from $373,000 for the same
period of the prior year. This increase reflects increased ATM
surcharges to non-customers, higher annuity sales generated through
the bank's branch network, income realized on an asset written off in
a prior period, and increased letter of credit and deposit account
fees.
Non-Interest Expense. Total non-interest expense increased modestly
by $74,000, or 1.72%, to $4.4 million for the current quarter from
$4.3 million for the same period of the prior year. This increase
primarily reflects increases in salaries and benefits, professional
fees, and branch and bank operations cost offset by lower insurance
expense.
Salaries and employee benefits expense was the largest component
increase within non-interest expenses. This category increased
$103,000, or 4.31%, during this quarter in 1998 over the same period
last year, reflecting higher expense associated with the Company's
ESOP program and normal wage increases partially offset by lower
management incentive plan expense. The cost of the Company's ESOP is
recorded as compensation expense based upon the average market value
of the Company's common stock, which was higher during the quarter
ended March 31, 1998 compared to the same quarter last year.
The remaining components of non-interest expense decreased $29,000, or
1.5%, for the current quarter as compared to the same quarter a year
ago. This decrease resulted primarily from insurance premium
reductions during the current quarter over the same quarter of the
prior year because of an increase in the cash surrender value of
Company owned life insurance policies on certain officers of the
Company and the Bank. Partially offsetting this reduction were
increases in professional fees of $33,000 related to fee enhancement
and cost reduction studies and slightly higher real estate owned
expense and general bank operating costs.
Income Tax Expense. The decrease in income tax expense for the period
is solely the result of the tax effect of the decrease in pre-tax
income recorded during the period.
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 FHLBNY 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
March 31, 1998, 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
1.0% of total assets and 1.4% of total deposits at March 31, 1998. At
March 31, 1998, the Company had available to it $33.7 million under a
line of credit with the FHLBNY, expiring October 31, 1998, and
approximately $53.1 million of excess collateral pledged with the
FHLBNY. In addition, the Company has approximately $57.7 million of
unpledged debt, equity and mortgage-backed securities which are
classified as available for sale, and approximately $235 million of
loans which could be used to collateralize additional borrowings or
sold to provide liquidity.
At March 31, 1998, capital resources were sufficient to meet
outstanding loan commitments of $27.9 million, commitments on unused
lines of credit of $10.2 million and commercial letters of credit of
$1.8 million. Certificates of deposit, which are scheduled to mature
in one year or less from March 31, 1998, totaled $161.9 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 and the Company's prior experience indicate that a significant
portion of such deposits should remain with the Company.
During the three months ended March 31, 1998, proceeds from
investments and deposit activities represented the primary source of
funds. Maturities and principal repayments on mortgage-backed and
debt securities outpaced purchases of debt securities by $17.4
million. In addition, funds were provided from growth in deposits of
$8.1 million, by operating activities of $4.5 million and loan
receipts of $2.6 million, net of disbursements and purchases. The
excess source of funds were primarily used to decrease short-term
borrowings by $14.3 million and increase short-term investments by
$13.7 million.
During the three months ended March 31, 1997, investment activities
represented the primary funding need. Purchase of mortgage-backed
securities exceeded maturities and principal repayments of mortgage-
backed and debt securities by $38.4 million. In addition, funds were
used for loan disbursements, net of repayments of $2.3 million, and
the repurchase of the Company's common stock of $2.8 million. The
principal source of funding for these investments were increases in
borrowings, net of repayments, from the FHLBNY of $43.0 million, cash
provided by operating activities of $3.0 million and a net increase in
deposits of $1.6 million.
At March 31, 1998, 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 March 31, 1998 as compared to the
OTS minimum capital adequacy requirements and the OTS requirements for
classification as a well-capitalized institution.
The Bank OTS Requirements
--------------- -----------------------------
For Classi-
fication
Minimum Capital As Well-
Adequacy Capitalized
------------- -------------
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Tangible Capital $61,869 9.24% $10,003 1.50%
Tier 1 (core) Capital 61,869 9.24 26,674 4.00 $33,343 5.00%
Risk Based Capital:
Tier 1 61,869 22.16 11,169 4.00 16,753 6.00
Total $64,327 23.04% $22,338 8.00% $27,922 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.
None.
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 January 12, 1998 announcing the
Registrant's implementation of a proposed stock
repurchase program.
2. The Registrant filed a current report on Form
8-K on January 27, 1998 announcing the
Registrant's fourth quarter and full year
earnings for the period ending December 31,
1997.
3. The Registrant filed a current report on Form
8-K on February 24, 1998 announcing
Registrant's quarterly 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: May 14, 1998 By: Bernard F. Lenihan
Senior Vice President and Chief
Financial Officer
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