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 June 30, 1999 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 July 31, 1999: Common Stock, No Par Value:
4,054,757 shares issued and outstanding.
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Six Months
Ended June 30, Ended June 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
Interest income:
Interest and fees on loans $ 7,407 $ 6,617 $14,600 $13,082
Interest on mortgage-backed
securities 4,658 4,102 9,117 8,943
Interest and dividends on debt
and equity securities 959 863 2,009 1,337
Dividends on Federal Home Loan
Bank of New York ("FHLBNY")
stock 206 191 401 378
------- ------- ------- -------
Total interest and dividend
income 13,230 11,773 26,127 23,740
------- ------- ------- -------
Interest expense:
Deposits 3,275 3,840 6,590 7,705
Borrowed funds 3,168 2,026 6,230 4,066
------- ------- ------- -------
Total interest expense 6,443 5,866 12,820 11,771
------- ------- ------- -------
Net interest income 6,787 5,907 13,307 11,969
Provision for loan losses 249 150 498 300
------- ------- ------- -------
Net interest income after
provision for loan losses 6,538 5,757 12,809 11,669
------- ------- ------- -------
Non-interest income:
Mortgage warehousing fees 66 - 110 -
Service charges 367 331 732 567
Loans and other fees 286 238 514 449
Net gain on sale of securities 28 - 26 -
Net gain on sale of loans 66 - 66 -
Other income 122 378 205 465
------- ------- ------- -------
Total non-interest income 935 947 1,653 1,481
------- ------- ------- -------
Non-interest expense:
Salaries and employee benefits 2,812 2,647 5,571 5,138
Occupancy, net 677 588 1,312 1,162
Federal deposit insurance
premiums 65 68 132 137
Professional fees 651 236 801 413
Insurance premiums 50 56 87 53
Data processing fees 193 177 383 339
Foreclosed real estate
expense, net 7 6 9 26
Other 1,150 961 2,083 1,835
------- ------- ------- -------
Total non-interest expense 5,605 4,739 10,378 9,103
------- ------- ------- -------
Income before income taxes 1,868 1,965 4,084 4,047
Income taxes 704 751 1,558 1,529
------- ------- ------- -------
Net income $ 1,164 $ 1,214 $ 2,526 $ 2,518
======= ======= ======= =======
Earnings per common share:
Basic $ 0.32 $ 0.30 $ 0.69 $ 0.63
======= ======= ======= =======
Assuming dilution $ 0.30 $ 0.29 $ 0.66 $ 0.60
======= ====== ======= ======
Weighted average number of
common shares outstanding:
Basic 3,674,897 4,002,384 3,676,927 4,015,878
========= ========= ========= =========
Assuming dilution 3,864,279 4,203,942 3,836,169 4,216,774
========= ========= ========= =========
See accompanying notes to consolidated financial statements.
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(DOLLARS IN THOUSANDS)
June 30, December 31,
1999 1998
---- ----
(UNAUDITED) (NOTE)*
Assets:
Cash and amounts due from depository
institutions $ 390 $ 7,090
Mortgage-backed securities available
for sale 275,506 248,035
Debt and equity securities available
for sale 50,830 68,312
Loans receivable, net 386,289 366,458
Accrued interest receivable, net 4,527 4,759
Real estate owned, net 561 523
Premises and equipment, net 8,055 6,547
FHLBNY stock, at cost 12,590 10,315
Excess of cost over fair value of
net assets acquired 65 70
Other assets 8,884 5,408
-------- --------
Total assets $747,697 $717,517
======== ========
Liabilities and shareholders' equity:
Liabilities:
Deposits $446,108 $443,705
Borrowed funds:
Securities sold under agreements
to repurchase 209,000 181,381
FHLBNY advances 31,500 25,300
-------- --------
Total borrowed funds 240,500 206,681
Advance payments by borrowers for
taxes and insurance 1,902 1,611
Accounts payable and other
liabilities 3,938 5,021
-------- --------
Total liabilities 692,448 657,018
-------- --------
Shareholders' equity 55,249 60,499
-------- --------
Total liabilities and
shareholders' equity $747,697 $717,517
======== ========
See accompanying notes to consolidated financial statements
Note* The balance sheet at December 31, 1998 is taken from
Statewide's audited financial statements at that date but
does not include all information and footnotes required by
generally accepted accounting principles for complete
financial statements.
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months
Ended June 30,
--------------
1999 1998
---- ----
Cash flows from operating activities:
Net income $ 2,526 $ 2,518
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 498 300
Depreciation and amortization 626 558
Net amortization of deferred premiums and
unearned discounts 401 882
Net gain on sale of securities (26) -
Amortization of RRP awards and allocation
of ESOP shares 655 712
Net gain on sale of real estate owned (38) (23)
Gain on sale of loans (66) -
Gain on sale of premises and equipment (15) (10)
Net gain on sale of deposits - (306)
Changes in assets and liabilities:
Decrease in accrued interest and dividends
receivable 232 276
Increase in accrued interest payable 17 74
(Increase) decrease in other assets (458) 1,034
Decrease in accounts payable and other
liabilities (1,086) (281)
--------- --------
Net cash provided by operating activities 3,266 5,734
--------- --------
Cash flows from investing activities:
Net (disbursements) receipts from lending
activities (20,918) 254
Proceeds from sale of loans 802 95
Purchase of loans (480) (412)
Proceeds from mortgage-backed securities
principal repayments 47,802 61,225
Proceeds from the sale of mortgage-backed
securities 62,034 -
Purchase of mortgage-backed securities (144,327) -
Proceeds from debt securities principal
repayments 12,000 4,000
Proceeds from the sale of debt securities 3,815 -
Purchase of debt securities - (31,428)
Increase in short-term investments - (16,200)
Purchase of FHLBNY stock (2,275) -
Proceeds from collection and sale of real
estate owned 256 236
Proceeds from the sale of premises and
equipment 34 221
Purchases and improvements of premises and
equipment (2,148) (1,458)
--------- --------
Net cash (used in) provided by
investing activities (43,405) 16,533
-------- --------
Cash flows from financing activities:
Net increase in deposits 2,403 3,127
Payment for sale of deposits - (6,208)
Repayment of borrowings (219,421) (27,000)
Proceeds from borrowings 253,240 12,948
Increase in advance payments by borrowers
for taxes and insurance 291 83
Cash dividends paid (974) (906)
Proceeds from issuance of common stock 64 65
Purchase of common stock (2,164) (2,705)
-------- --------
Net cash provided by (used in) financing
activities 33,439 (20,596)
-------- --------
Net (decrease) increase in cash and cash
equivalents (6,700) 1,671
Cash and cash equivalents at beginning of
period 7,090 6,767
-------- --------
Cash and cash equivalents at end of period $ 390 $ 8,438
======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Income taxes $ 2,727 $ 1,569
======== ========
Interest $ 12,804 $ 11,702
======== ========
Transfer from loans receivable to real
estate owned, net $ 256 $ 379
======== ========
Change in unrealized gain, net of income tax,
on securities available for sale $ 5,371 $ (802)
======== =======
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 June 30, 1999. As
of June 30, 1999, the Bank operated fifteen banking offices in Hudson,
Union, Essex and Bergen 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 ("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 year ended December 31,
1998.
On April 12, 1999, the Company entered into a definitive agreement to
merge with Independence Community Bank Corp. ("Independence"). Under
the terms of the Independence merger agreement, which is subject to
approval by the Company's shareholders and by regulatory authorities,
Statewide Financial Corp. shareholders will receive a combination of
stock and cash subject to election, proration, and allocation
procedures. Based on Independence's closing price on April 12, 1999,
the transaction has an implied per share value of $25.31 per Statewide
Financial Corp. share. The transaction will be accounted for as a
purchase and is expected to close in the fourth quarter of calendar
1999 or by January 31, 2000.
2. Comprehensive ((Loss) Income
Comprehensive income during the periods is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Net income $ 1,164 $1,214 $2,526 $2,518
Other comprehensive income, net
of income tax:
Unrealized holding loss on
securities available for sale (4,623) (521) (5,371) (802)
------- ------ ------- ------
Comprehensive (loss) income $(3,459) $ 693 $(2,845) $1,716
======= ====== ======= ======
3. Shareholders' Equity
The components of shareholders' equity were as follows:
June 30, December 31,
1999 1998
---- ----
(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; 4,043,509 shares issued
and 4,038,887 shares outstanding at June
30, 1999, and 4,155,509 shares issued
and 4,151,963 shares outstanding at
December 31, 1998 - -
Additional paid in capital 30,984 32,904
Unallocated Employee Stock Ownership
Plan ("ESOP") shares (2,645) (2,856)
Unearned Recognition and Retention
Plan ("RRP") shares (992) (1,282)
Retained earnings - substantially restricted 32,743 31,190
Treasury stock, at cost, 4,622 and 3,546
shares at June 30, 1999 and December 31,
1998 (57) (44)
Accumulated other comprehensive (loss)
income:
Net unrealized (loss) gain on securities
available for sale, net of income tax (4,784) 587
------- -------
Total shareholders' equity $55,249 $60,499
======= =======
In accord with the definitive merger agreement signed with
Independence on April 12, 1999, the Company terminated its ESOP
effective June 30, 1999. At that date, the ESOP held approximately
416,000 shares of the Company's common stock of which 264,500 had been
pledged as collateral for its debt, and accordingly, had not been
allocated to ESOP participants. The Company anticipates that by
December 31, 1999, the ESOP will sell a sufficient amount of these
unallocated shares to pay off this debt. When the debt is paid off,
all remaining unallocated shares will be allocated to ESOP
participants and the Company will incur an expense equal to their fair
market value.
4. Net Income Per Share
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding during the
period. Earnings per share, assuming dilution, starts with the
calculation of basic earnings per share and adds to it the effect of
common stock equivalents. Such equivalents are the number of shares
which would be issued assuming exercise of in-the-money options, and
vesting of restricted awards, net of shares which could be purchased
in the open market with proceeds from the assumed exercise of such
options and from tax benefits and the future amortization associated
with vesting of restricted awards.
Three Months Six Months
Ended June 30, Ended June 30,
--------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
Numerator:
Net income available to
common shareholders $1,164,000 $1,214,000 $2,526,000 $2,518,000
========== ========== ========== ==========
Denominator:
Weighted average shares
outstanding - basic 3,674,897 4,002,384 3,676,927 4,015,878
Common stock equivalents 189,382 201,558 159,242 200,896
--------- --------- --------- ---------
Weighted average shares
outstanding - assuming
dilution 3,864,279 4,203,942 3,836,169 4,216,774
========= ========= ========= =========
Earnings per common share:
Basic $ 0.32 $ 0.30 $ 0.69 $ 0.63
====== ====== ====== ======
Assuming dilution $ 0.30 $ 0.29 $ 0.66 $ 0.60
====== ====== ====== ======
5. Non-Performing Loans and the Allowance for Loan Losses
Non-performing loans were as follows:
June 30, December 31,
1999 1998
-------- ------------
(Dollars in thousands)
Loans delinquent 90 days or more:
Non-accrual $1,351 $2,193
Accruing 287 297
------ ------
Total net loans delinquent 90 days or more $1,638 $2,490
====== ======
Loans delinquent 90 days or more as a
percentage of total net loans outstanding 0.42% 0.68%
==== ====
An analysis of the allowance for loan losses follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(Dollars in thousands)
Balance at beginning of period $3,223 $2,890 $3,056 $2,833
Provision charged to operations 249 150 498 300
Charge offs, net (71) (71) (153) (164)
------ ------ ------ ------
Balance at end of period $3,401 $2,969 $3,401 $2,969
====== ====== ====== ======
STATEWIDE FINANCIAL CORP. AND SUBSIDIARY
SELECTED FINANCIAL AND REGULATORY RATIOS AND OTHER DATA
At or For At or For
Three Months Six Months
Ended Ended
June 30, June 30,
--------- ---------
1999 1998 1999 1998
---- ---- ---- ----
Selected financial ratios (1):
Return on average assets 0.63% 0.74% 0.68% 0.76%
Return on average shareholders' equity 7.87% 7.46% 8.61% 7.77%
Capital to assets 7.39% 9.72% 7.39% 9.72%
Net interest rate spread (2) 3.54% 3.40% 3.46% 3.42%
Net interest margin (3) 3.75% 3.70% 3.68% 3.72%
Non-interest income to average assets 0.49% 0.58% 0.44% 0.45%
Non-interest expense to average assets 3.01% 2.88% 2.80% 2.75%
Efficiency ratio (4) 75.29% 72.37% 71.89% 69.57%
Ratio of interest-earning assets to
interest-bearing liabilities 105.91% 108.21%106.15% 108.26%
June 30, December 31,
1999 1998
---- ------
Regulatory capital ratios:
Tangible capital ratio 7.35% 7.95%
Core capital ratio 7.35% 7.95%
Risk-based capital ratio 10.84% 13.72%
Asset quality ratios:
Non-performing loans to total net
loans 0.42% 0.68%
Non-performing loans to total assets 0.22% 0.35%
Non-performing assets to total assets 0.29% 0.42%
Allowance for loan losses to non-
performing loans 207.63% 122.73%
Allowance for loan losses to total
net loans 0.88% 0.83%
Other data:
Number of deposit accounts 52,179 52,272
Number of offices (5)(6) 15 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 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 70 Sip Avenue and Martin Luther King Drive branches were
consolidated into the PATH branch during the second quarter of
1999, and on June 5, 1999 the Maplewood branch opened for
business.
(6) The Passaic branch was sold as of the close of business on April
10, 1998, and the North Arlington branch opened for business on
May 9, 1998.
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 realized net income of $1,164,000, or $0.30 per share,
assuming dilution, for the quarter ended June 30, 1999 as compared to
$1,214,000, or $0.29 per share, assuming dilution, for the same
quarter of the prior year. Net income for the three months ended June
30, 1999, included pretax acquisition costs of $484,000 in connection
with the Company's pending acquisition by Independence Community Bank
Corp. ("Independence"). Excluding acquisition costs, net income was
$1,473,000, or $0.38 per share, assuming dilution, for the quarter
ended June 30, 1999. Basic earnings per share were $0.32 for second
quarter 1999 compared to $0.30 per share for the same period of the
prior year. Basic earnings per share for the second quarter 1999,
excluding acquisition costs, were $0.40 per share.
Net income for the six months ended June 30, 1999 was $2,526,000, or
$0.66 per share, assuming dilution, compared to $2,518,000, or $0.60
per share, assuming dilution, for the six months ended June 30, 1998.
Excluding acquisition costs, net income was $2,835,000, or $0.74 per
share, assuming dilution, for six months ended June 30, 1999. Basic
earnings per share were $0.69 for the six months ended June 30, 1999
compared to $0.63 for the same period of the prior year. Basic
earnings per share for the six months ended June 30, 1999, excluding
acquisition costs, were $0.77 per share.
The increase in net income, excluding acquisition costs, for the three
and six months ended June 30, 1999 from their respective year ago
periods reflects an increase in net interest income after provision
for loan losses and an increase in recurring non-interest income,
partially offset by an increase in non-interest expense. The increase
in net interest income reflects growth in average loan and investment
security balances and the change in mix in deposits from higher rate
certificates of deposit into lower rate core deposits, partially
offset by increased borrowing costs to fund growth in assets and to
repurchase the Company's common stock. Increased non-interest income
reflects the result of fee enhancement initiatives implemented during
mid 1998 along with increased fees from growth in lending and retail
activities. Higher non-interest expense reflects current and prior
period growth and expansion throughout the Company, acquisition costs
related to the Company's pending acquisition by Independence and
normal increases in other operating costs.
FINANCIAL CONDITION
At June 30, 1999, the Company's total assets were $747.7 million
compared to $717.5 million at December 31, 1998. The increase of
$30.2 million in total assets between these periods principally
resulted from growth in the commercial and consumer loan portfolios
and the mortgage-backed securities portfolio, partially offset by
declines in debt securities and one-to-four family mortgage loans.
Loans at June 30, 1999 increased $19.8 million over December 31, 1998
as a result of a $13.0 million, or 16.2% increase in the construction,
multi-family, commercial mortgage and business loan portfolios, along
with a $10.1 million, or 21.2% increase in wholesale loans to mortgage
bankers through the Company's Statewide Funding Division. In
addition, consumer loans increased $2.4 million, or 5.8% during the
current year. This growth was partially offset by normal amortization
and accelerated prepayments in the one-to-four family mortgage loan
portfolio which declined $5.2 million, or 2.6%, despite originations
of $23.3 million during the period.
Total investment in securities increased $12.3 million to $338.9
million at June 30, 1999 from $326.7 million at December 31, 1998.
This increase is comprised of increases of $27.5 million in mortgage-
backed securities, and $2.3 million in FHLBNY stock partially offset
by a $17.5 million decrease in debt securities. During the first half
of 1999, the Company received $47.8 million in normal and accelerated
amortization payments and sold $62.0 million of its higher interest
rate mortgage-backed securities from which it had been receiving
faster rates of prepayments. It replaced these securities through
purchases of $144.3 million of then current coupon agency mortgage-
backed and private label collateralized mortgage obligation
securities. In addition, at June 30, 1999, the debt securities
portfolio was $17.5 million less than the investment at the beginning
of the year, reflecting calls, maturities and sales of U.S. Treasury,
Agency and corporate debt.
Borrowed funds totaled $240.5 million at June 30, 1999 as compared to
$206.7 million at December 31, 1998. The increase of $33.8 million in
borrowed funds during the current year was used primarily to support
growth in loans and investment securities; to repurchase the Company's
common stock under its stock repurchase program, which was
subsequently terminated; and to fund maturities of certificates of
deposit for holders who sought rates higher than the Company's
alternate borrowing rates. Borrowed funds consisted of $31.5 million
in overnight advances and $209.0 million in repurchase agreements,
$63.0 million which mature within 30 days and $146.0 million which
have final maturity dates ranging from July 2000 to September 2002,
but are callable earlier at the lender's option. Of this $146.0
million, $86.0 million have interest rates ranging from 5.43% to 5.54%
and are callable quarterly through maturity, and $60.0 million have an
interest rate of 5.52% and are first callable in November 1999 and
quarterly thereafter.
Deposits totaled $446.1 million at June 30, 1999, as compared to
$443.7 million at December 31, 1998. The increase in total deposits
for the current year resulted primarily from an increase in core
deposits of $6.0 million offset by a decrease of $3.6 million in
certificates of deposit as the Company continues with its strategy of
not matching competitors' most aggressive interest rates unless the
Company believes that a key relationship is in jeopardy. At June 30,
1999, core deposits were $278.6 million compared to $272.6 million at
December 31, 1998. Within core deposits, savings and demand accounts
increased $5.2 million and $4.7 million, respectively, reflecting the
Company's continued relationship building efforts in new and existing
market areas. Partially offsetting these increases were decreases in
NOW and money market accounts of $2.6 million and $1.3 million,
respectively.
Shareholders' equity decreased $5.3 million during the current year to
$55.2 million at June 30, 1999 from $60.5 million at December 31,
1998. The decrease during the six-month period resulted primarily
from the repurchase and retirement of 112,000 shares of the Company's
common stock for $2.2 million during the first quarter of 1999, the
declaration of two quarterly cash dividends, and a decrease of $5.4
million (net of tax) in the June 30, 1999 market value of the
Company's investment portfolio from the valuation at December 31,
1998. Partially offsetting these decreases were the current year's
net income of $2.5 million and the allocation of shares under the
Company's Employee Stock Ownership Plan (ESOP) and other benefit
plans.
RESULTS OF OPERATIONS
THREE-MONTH PERIODS ENDING JUNE 30, 1999 AND 1998
Net Income. For the three months ended June 30, 1999, net income
totaled $1,164,000, or $0.30 per share, assuming dilution, as compared
to $1,214,000, or $0.29 per share, assuming dilution, for the same
period last year. Net income during the current year quarter included
pretax acquisition costs of $484,0000 in connection with the Company's
pending acquisition by Independence. Excluding acquisition costs, net
income was $1,473,000, or $0.38 per share, assuming dilution, for the
quarter ended June 30, 1999 which reflects a net income and diluted
earnings per share increase of 20% and 31%, respectively, over the
same period last year. Basic earnings per share were $0.32 for second
quarter 1999 as compared to $0.30 for the second quarter of 1998.
Basic earnings per share for second quarter 1999, excluding
acquisition costs, were $0.40 per share. Contributing to the rise in
net income excluding acquisition costs, were increases in net interest
income and recurring non-interest income, partially offset by an
increase in non-interest expense.
Interest Income. Total interest and dividend income increased $1.4
million, or 12.4%, to $13.2 million for the current quarter from $11.8
million for the same prior year quarter. The rise in interest income
between the periods primarily resulted from an increase of $84.5
million in average interest-earning assets offset by a decline of 7
basis points in average yield. Interest income on loans and
securities increased $0.8 million and $0.7 million, respectively,
during the current quarter over the same quarter last year. The
increase in interest on loans primarily resulted from increased
lending to mortgage bankers by Statewide Funding and growth in the
commercial portfolio of $78.6 million, or 123.2%, to $142.3 million
for the current quarter from $63.8 million for the same period of the
prior year. As a result, interest income on the commercial and
Statewide Funding portfolios increased $1.5 million during the current
quarter over the same quarter last year. In addition, average
consumer loans increased $3.9 million, or 9.9%, for the current
quarter over the same quarter last year and resulted in a $76,000 rise
in interest income. Growth in these portfolios was partially offset
by normal amortization and prepayments in the one-to-four family loan
portfolio which reduced the average balance in this portfolio $38.1
million to $187.5 million for the three months ended June 30, 1999 as
compared to the same quarter last year. Interest income on investment
securities increased during the current quarter over the same quarter
of the prior year as a result of an increase of $40.2 million, or
13.0%, in the average balance of the securities portfolios partially
offset by a 3 basis point decrease in yield. Specifically, the
average collateralized mortgage obligation and debt security balances
increased $110.9 million and $23.6 million, respectively, while the
average balance of mortgage-backed securities decreased $77.0 million
for the current quarter over the same quarter last year. Also,
average short-term investments declined from $19.4 million during the
quarter June 30, 1998 to zero for the current quarter as growth in
other higher yielding securities replaced these short-term
investments. In addition, the average investment in FHLBNY stock
increased $2.1 million during the current quarter over the same
quarter last year.
Interest Expense. Interest expense increased $577,000, or 9.8%,
during the current quarter as compared to the same quarter of the
prior year. Interest expense on borrowed funds increased $1.1 million
while interest expense on deposits decreased $0.6 million. The
average cost of deposits and borrowed funds decreased 21 basis points
during the current quarter compared to the same quarter last year. As
general interest rates decreased during 1998 and remained at those
levels during the early part of 1999, the Company periodically
lowered its rates paid to depositors. In addition, new branch
openings and continued emphasis on gathering core deposits contributed
to growth in core deposits and is reflected in lower deposit costs
during the current year period. Average core deposits increased $13.6
million, or 5.2% to $273.9 million for the current quarter over the
$260.3 million in the prior year-period while average certificates of
deposit decreased $14.2 million, or 7.8% to $168.4 million for the
current quarter from $182.6 million in the prior-year period.
Consequently, the Company's cost of deposits decreased 51 basis points
from the June 30, 1998 quarter to 2.97% for the quarter ended June
30, 1999. Higher interest expense on borrowed funds for the quarter
ended June 30, 1999 resulted from an increase in average borrowings of
$93.1 million during the current year quarter partially offset by a 26
basis point decrease in average rate to 5.31% for the current year
quarter. These additional borrowings during the current year quarter
were used to fund asset growth and are short term in nature, and
similar to the duration or repricing characteristics inherent in the
asset growth.
Net Interest Income. For the quarter ended June 30, 1999, net
interest income increased $880,000, or 14.9%, from the comparable
prior-year period. The increase reflects the growth in average loans
and securities, a decline in the cost of deposits from the change in
the mix of deposits toward lower rate core deposits, partially offset
by an increase in short-term borrowed funds and a decline in the yield
on interest-earning assets. In addition during the current year the
cost of deposits and borrowed funds decreased at a greater pace than
yields on interest earning assets. As a result, the net interest
margin increased 5 basis points to 3.75% for the current quarter as
compared to 3.70% during the quarter ended June 30, 1998.
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 June 30, 1999 and 1998. Average
loans include non-accrual loans, and related yields include loan fees
which are considered adjustments to yields.
Table 1
<TABLE>
Three Months Ended June 30,
-----------------------------------------------
1999 1998
---------------------- ---------------------
<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 $257,017 $4,960 7.72% $269,507 $5,287 7.85%
Consumer and other loans 42,829 978 9.16 38,974 902 9.28
Statewide funding LOC 50,092 983 7.87 2,607 49 7.54
Commercial business 22,741 486 8.57 17,269 379 8.80
-------- ------ -------- ------
Total loans, net 372,679 7,407 7.96 328,357 6,617 8.07
-------- ------ -------- ------
Mortgage-backed securities 279,814 4,658 6.66 245,928 4,102 6.68
Debt securities 56,966 959 6.69 33,373 594 7.19
Money market investments - - - 19,361 269 5.63
FHLBNY Stock 12,326 206 6.69 10,260 191 7.45
-------- ------ -------- ------
Total interest-earning
assets 721,785 13,230 7.33% 637,279 11,773 7.40%
------ ------
Non-interest-earning assets 22,136 20,841
-------- --------
Total assets $743,921 $658,120
======== ========
Liabilities and share-
holders' equity:
Deposits and borrowed funds:
Savings accounts $158,182 950 2.41% $145,029 1,042 2.88%
Demand and NOW accounts 79,036 136 0.69 72,140 168 0.93
Money market accounts 36,671 247 2.70 43,089 325 3.03
Certificates of deposit 168,451 1,942 4.62 182,649 2,305 5.06
Borrowed funds 239,153 3,168 5.31 146,022 2,026 5.57
-------- ------ -------- ------
Total deposits and borrowed
funds 681,493 6,443 3.79% 588,929 5,866 4.00%
------ ------
Other liabilities 3,282 4,067
-------- --------
Total liabilities 684,775 592,996
Shareholders' equity 59,146 65,124
-------- --------
Total liabilities and
shareholders' equity $743,921 $658,120
======== ========
Net interest income $6,787 $5,907
====== ======
Net interest rate spread 3.54% 3.40%
==== ====
Net interest margin 3.75% 3.70%
==== ====
Ratio of interest-earning
assets to deposits and
borrowed funds 105.91% 108.21%
====== ======
</TABLE>
Provision for Loan Losses. The provision for loan losses for the
three months ended June 30, 1999 was $249,000, an increase of $99,000
over the prior-year period. The provision for the three months ended
June 30, 1999 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. The
increase in provision reflects both an increased average balance of
loans as well as a change in composition of the portfolio toward more
commercial loans. 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 conditions 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 June 30, 1999, non-performing
loans were $1.6 million and as a percentage of total net loans
outstanding equaled 0.42%, compared to $2.5 million and 0.68%,
respectively, at December 31, 1998. At June 30, 1999, the allowance
for loan losses was $3.4 million, or 207.63%, of total non-performing
loans compared to 122.73% at December 31, 1998.
Non-Interest Income. Non-interest income was $935,000 for the current
quarter compared to $947,000 for the prior year quarter. Recurring
non-interest income, which excludes security gains and a $306,000 gain
recorded on the sale of the Passaic branch in the second quarter 1998,
grew $266,000, or 41.3% for the three months ended June 30, 1999 over
the same period of the prior year. This growth reflects increased
deposit account fees for return check assessment charges, recurring
maintenance fees on checking and savings products, safe deposit and
other branch service fees and higher annuity sales generated through
the Bank's branch network. In addition, wholesale mortgage funding
transaction fees and earnings from Small Business Administration
("SBA") lending activity during the three months ended June 30, 1999
totaled $66,000 and $64,000, respectively, with no like fees earned
during the preceding year.
Non-Interest Expense. Non-interest expense for the three months ended
June 30, 1999 totaled $5.6 million, an increase of $866,000, or 18.3%,
from $4.7 million incurred during the same period of the prior year.
Non-interest expense for the three months ended June 30, 1999 includes
$484,000 of acquisition costs incurred in connection with the
Company's pending acquisition by Independence. These costs consisted
of professional fees paid during the current quarter. Excluding
acquisition costs, non-interest expense increased $382,000, or 8.1%,
to $5.1 million for the current quarter from $4.7 million for the same
period of the prior year.
Salaries and employee benefits expense, the largest component within
non-interest expense, increased $165,000, or 6.2%, during the current
quarter over the same period last year. This increase fully reflects
staff additions during 1998 for the newly formed Statewide Funding
division, for the opening of the North Arlington, New Jersey branch
and for expansion within the commercial lending division, whereas
there is limited related expense for these staff additions in the
prior year period. In addition, normal merit increases, incentive
plan accruals, employee training and education and the opening of the
Maplewood, New Jersey branch late in the second quarter this year,
partially offset by lower recruitment costs contributed to the rise
during the current year period.
Occupancy costs increased $89,000, or 15.1%, for the current quarter
as compared to the same quarter of the previous year. Higher occupancy
costs occurred from increased capital improvements related to
furnishings and repairs and maintenance costs from past and ongoing
renovations throughout the Company, along with capital improvements
and rent expense related to the opening of the North Arlington branch,
operating system enhancements, and the refurbishment of the Jersey
City PATH branch in 1999.
Professional fees increased $415,000 for the current quarter as
compared to the same quarter last year. The increase for the current
period resulted from $484,000 of acquisition costs incurred in
connection with the Company's pending acquisition by Independence.
Excluding these acquisition costs, professional fees decreased $69,000
during the current quarter as compared to the same quarter last year.
Prior year expense included costs related to the Company's earnings
enhancement initiatives and higher costs incurred in conjunction with
the Company's ongoing FIRREA litigation efforts against the Federal
Government.
The remaining components of non-interest expense increased $197,000,
or 15.5% for the current quarter as compared to the same quarter a
year ago. This increase resulted from higher costs for advertising
and marketing for continued product development and for advertising
and promotions related to the newly refurbished Jersey City "Path"
branch and the grand opening of the Maplewood, New Jersey branch. In
addition, increased other branch operating charges, literature and
printing costs, temporary help and shareholder related costs increased
during this quarter as compared to the same quarter last year. These
increases were partially offset by lower communication charges, and
director costs from the reduction of certain benefit plans implemented
during the third quarter of 1998.
Income Tax Expense. The change in income tax expense for the current
year period is primarily the result of the tax effect of the change in
pretax income recorded during the period.
SIX-MONTH PERIODS ENDING JUNE 30, 1999 AND 1998
Net Income. Net income for the six months ended June 30, 1999 was
$2,256,000, or $0.66 per share, assuming dilution, compared to
$2,518,000, or $0.60 per share, assuming dilution, for the six months
ended June 30, 1998. The current period net income and earnings per
share include acquisition costs incurred in connection with the
Company's pending acquisition by Independence. Excluding acquisition
costs, net income was $2,835,000, or $0.74 per share, assuming
dilution, for the six months ended June 30, 1999. Basic earnings per
share were $0.69 for the six months ended June 30, 1999 compared to
$0.63 for the same period of the prior year. Basic earnings per share
for the six months ended June 30, 1999, excluding acquisition costs,
were $0.77 per share. The increase in net income excluding
acquisition costs for the six months ended June 30, 1999 from the
respective year ago period reflects an increase in net interest income
after provision for loan losses, and an increase in recurring
non-interest income partially offset by an increase in non-interest
expense.
Interest Income. Total interest and dividend income increased $2.4
million, or 10.0%, to $26.1 million for the six months ended June 30,
1999 from $23.7 million for the same prior year period. The rise in
interest income between the periods primarily resulted from an
increase of $76.7 million in average interest-earning assets offset by
a decline of 14 basis points in average yield. Interest income on
loans and securities increased $1.5 million and $0.9 million,
respectively, during the current year period over the same period last
year. The increase in interest on loans primarily resulted from a
$77.0 million, or 131.7% growth in the average balance of Statewide
Funding lines of credit to mortgage bankers and commercial portfolio
loans to $135.5 million for the six months ended June 30, 1999,
compared to growth of $58.5 million for the same period of the prior
year. As a result, interest income on the commercial and Statewide
Funding portfolios increased $3.0 million during the current-year
period over the same period last year. In addition, the average
consumer loan portfolio increased $3.4 million, or 8.7%, for the
current-year period over the same period last year and resulted in a
$107,000 rise in interest income. Growth in these portfolios was
partially offset by normal amortization and prepayments in the one-to-
four family loan portfolio which reduced the average balance in this
portfolio $40.4 million to $191.4 million for the six months ended
June 30, 1999 as compared to the same period last year. Interest
income on investment securities increased during the current-year
period over the same period of the prior year as a result of an
increase of $36.7 million, or 11.7%, in the average balance of the
securities portfolios partially offset by a 25 basis point decrease in
yield. Within these portfolios, average collateralized mortgage
obligations and debt security balances increased $97.0 million and
$32.3 million, respectively, while the average balance of mortgage-
backed securities decreased $83.4 million for the current-year period
over the same period last year. Also, average short-term investments
declined from $11.0 million during the six months ended June 30, 1998
to zero for the six months ended June 30, 1999 as growth in other
higher yielding securities replaced these short-term investments. In
addition, the average investment in FHLBNY stock increased $1.8
million during the current year period over the same period last year.
Interest Expense. Interest expense increased $1,049,000, or 8.9%,
during the six months ended June 30, 1999 as compared to the same
period of the prior year. Interest expense on borrowed funds
increased $2.2 million while interest expense on deposits decreased
$1.1 million. The average cost of deposits and borrowed funds
decreased 18 basis points during the current year period compared to
the same period last year. As general interest rates decreased during
1998 and remained at those levels during the early part of 1999, the
Company periodically lowered its rates paid to depositors. In
addition, new branch openings and continued emphasis on gathering core
deposits contributed to growth in core deposits and is reflected in
lower deposit costs during the current year period. Average core
deposits increased $11.4 million, or 4.3% to $272.5 million for the
current-year period over the $261.1 million in the prior-year period
while average certificates of deposit decreased $15.6 million, or 8.5%
to $168.9 million for the current-year period from $184.5 million in
the prior-year period. Consequently, the Company's costs of deposits
decreased 48 basis points from the six months ended June 30, 1998 to
3.01% for the six months ended June 30, 1999. Higher interest expense
on borrowed funds for the quarter ended June 30, 1999 resulted from an
increase in average borrowings of $88.3 million during the current-
year period partially offset by a 24 basis point decrease in average
rate to 5.33% for the current-year period. These additional
borrowings during the current-year period were used to fund asset
growth and are short term in nature, and similar to the duration or
repricing characteristics inherent in the asset growth.
Net Interest Income. For the six months ended June 30, 1999, net
interest income increased $1,338,000, or 11.2%, from the comparable
prior-year period. The increase reflects the growth in average loans
and securities, a decline in the cost of deposits from the change in
the mix of deposits toward lower rate core deposits, partially offset
by an increase in short-term borrowed funds and a decline in the yield
of interest-earning assets. In addition, during the second quarter of
1999 the cost of deposits and borrowed funds decreased at a greater
pace than yields on interest-earning assets. As a result, the decline
in the year-to-date net interest margin began to diminish and was 4
basis points lower at 3.68% for the six months ended June 30, 1999 as
compared to 3.72% during the prior-year period.
Table 2 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 six months ending June 30, 1999 and 1998. Average
loans include non-accrual loans, and related yields include loan fees
which are considered adjustments to yields.
Table 2
<TABLE>
Six Months Ended June 30,
--------------------------------------
1999 1998
---------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Average Interest Average Average InterestAverage
Balance Yield/ Balance Yield/
Cost Cost
------- ------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest-earning assets:
First mortgage loans $257,676 $9,909 7.69% $272,596 $10,517 7.72%
Consumer and other loans 42,217 1,911 9.13 38,844 1,804 9.37
Statewide Funding LOC 47,138 1,841 7.88 1,311 49 7.54
Commercial business 22,091 939 8.57 16,318 712 8.80
-------- ------- -------- -------
Total loans, net 369,122 14,600 7.93 329,069 13,082 7.96
-------- ------- -------- -------
Mortgage-backed securities 276,507 9,117 6.60 262,951 8,942 6.82
Debt securities 60,867 2,009 6.59 28,538 1,036 7.35
Money market investments - - - 11,038 302 5.52
FHLBNY stock 12,071 401 6.64 10,260 378 7.37
-------- ------- -------- -------
Total interest-earning
assets 718,567 26,127 7.28% 641,856 23,740 7.42%
------- -------
Non-interest-earning assets 21,894 20,917
-------- --------
Total assets $740,461 $662,773
======== ========
Liabilities and
shareholders' equity:
Deposits and borrowed funds:
Savings accounts $157,461 1,896 2.43% $144,352 2,072 2.89%
Demand and NOW accounts 77,903 272 0.70 73,313 352 0.97
Money market accounts 37,097 498 2.71 43,470 652 3.02
Certificates of deposits 168,865 3,924 4.69 184,504 4,629 5.06
Borrowed funds 235,598 6,230 5.33 147,269 4,066 5.57
-------- ------- -------- -------
Total deposits and borrowed
funds 676,924 12,820 3.82% 592,908 11,771 4.00%
------- -------
Other liabilities 4,895 5,053
-------- --------
Total liabilities 681,819 597,961
Shareholders' equity 58,642 64,812
-------- --------
Total liabilities and
shareholders' equity $740,461 $662,773
======== ========
Net interest income $13,307 $11,969
======= =======
Net interest rate spread 3.46% 3.42%
==== ====
Net interest margin 3.68% 3.72%
==== ====
Ratio of interest-earning
asset to interest-bearing
liabilities 106.15% 108.26%
====== ======
</TABLE>
Provision for Loan Losses. The provision for loan losses for the six
months ended June 30, 1999 was $498,000, an increase of $198,000 over
the prior-year period. The provision for the six months ended June
30, 1999 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.
At June 30, 1999, the allowance for loan losses was $3.4 million, or
207.63%, of total non-performing loans and 0.88% of total net loans
compared to 122.73% of non-performing loans and 0.83% of total net
loans at December 31, 1998.
Non-Interest Income. Non-interest income increased $172,000, or
11.6%, to $1,653,000 for the six months ended June 30, 1999 from
$1,481,000 for the same period of the prior year. Recurring
non-interest income, which excludes securities gains and a $306,000
gain recorded on the sale of the Passaic branch in the second quarter
1998, grew $452,000, or 38.5% for the six months ended June 30, 1999
over the same period of the prior year. This increase reflects the
Company's fee enhancement initiatives implemented during mid 1998
along with fees earned from Statewide Funding and SBA lending. These
initiatives along with growth in core deposits contributed to
increased deposit account fees for return check assessment charges,
recurring maintenance fees on checking and savings products, ATM
surcharges for non-customer usage, safe deposit, and other branch
service fees, earnings from SBA lending activity and higher annuity
sales generated through the bank's branch network. In addition, non-
interest income for the current year period includes $110,000 of fees
related to advances under Statewide Funding's lines of credit to
mortgage bankers, whereas the Company did not compete in this business
during the same period last year.
Non-Interest Expense. Non-interest expense for the six months ended
June 30, 1999 totaled $10.4 million, an increase of $1.3 million, or
14.0%, from the $9.1 million incurred during the same period of the
prior year. Non-interest expense for the six months ended June 30,
1999 includes $484,000 of acquisition costs as previously discussed in
the current quarter analysis. Excluding acquisition costs, non-
interest expense increased $791,000, or 8.7%, to $9.9 million for the
six months ended June 30, 1999 from $9.1 million for the same period
of the prior year.
Salaries and employee benefits expense, the largest component within
non-interest expense, increased $433,000, or 8.4%, during the six
months ended June 30, 1999 over the same period last year. This
increase fully reflects staff additions during 1998 for the newly
formed Statewide Funding division, for the opening of the North
Arlington, New Jersey branch and for expansion within the commercial
lending division, whereas there is limited related expense for these
staff additions in the prior year period. In addition, normal annual
merit increases, incentive plan accruals, employee training and
education, payroll tax, and the opening of the Maplewood, New Jersey
branch late in the second quarter of 1999 contributed to the rise
during the current-year period.
Occupancy costs increased $150,000, or 12.9%, for the six months ended
June 30, 1999 as compared to the same period of the previous year.
Higher occupancy costs occurred from increased capital improvements
related to furnishings and repairs and maintenance costs from past and
ongoing renovations throughout the Company, along with capital
improvements and rent expense related to the opening of the North
Arlington branch, operating system enhancements, utility usage costs
and the refurbishment of the Jersey City PATH branch in 1999.
Professional fees increased $388,000, for the six months ended June
30, 1999 as compared to the preceding year period. The increase for
the six months ended June 30, 1999 includes $484,000 of acquisition
costs as previously discussed in the current quarter analysis.
Excluding acquisition costs, professional fees decreased $96,000, or
23.2% for the six months ended June 30, 1999 as compared to the
preceding-year period. Higher costs during the prior year related to
the Company's earnings enhancement initiatives, ESOP structure and
allocation review, higher costs incurred in conjunction with the
Company's ongoing FIRREA litigation efforts against the Federal
Government, and other benefit review costs.
The remaining components of non-interest expense increased $304,000,
or 12.5% for the six months ended June 30, 1999 as compared to the
same period of the preceding year. This increase resulted from higher
costs for advertising and marketing for continued product development
and for advertising and promotions related to the newly refurbished
Jersey City PATH branch and the grand opening of the Maplewood, New
Jersey branch. In addition, increased branch other operating charges,
ATM and MAC service costs, postage, literature and printing costs,
temporary help and shareholder related costs increased during the
current year period as compared to the same period last year. These
increases were partially offset by lower communication charges, and
director costs from the reduction of certain benefit plans implemented
during the third quarter of 1998.
Income Tax Expense. The change in income tax expense for the six
months ended June 30, 1999 is primarily the result of the tax effect
of the change in pretax 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 and calls of debt securities and funds provided by
operations. At June 30, 1999, the Company had total liquid assets
(consisting of cash and due from banks, debt and mortgage-backed
securities having final maturities within one year, and accrued
interest from debt and mortgage-backed securities) equal to 1.15% of
its total assets and 1.92% of its total deposits. At June 30, 1999,
the Company had available to it $21.3 million under a line of credit
with the FHLBNY, expiring November 2, 1999, and approximately $38.3
million of excess collateral pledged with the FHLBNY. In addition,
the Company has approximately $78.9 million of unpledged debt, equity
and mortgage-backed securities which are classified as available for
sale, and approximately $111.3 million of loans which could be used to
collateralize additional borrowings or sold to provide liquidity.
At June 30, 1999, capital resources were sufficient to meet
outstanding loan commitments of $71.4 million, commitments on unused
lines of credit of $88.1 million and commercial letters of credit of
$6.6 million. An important source of the Company's funds is the
Bank's core deposits. Management believes that a substantial portion
of the Bank's core deposits of $278.6 million are a dependable source
of funds due to long-term customer relationships. Certificates of
deposit, which are scheduled to mature in one year or less from June
30, 1999, totaled $142.8 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 six months ended June 30, 1999, investment activities
represented the primary funding need. Purchases of collateralized
mortgage obligations and mortgage-backed securities exceeded
maturities, sales and principal repayments of mortgage-backed and debt
securities by $18.7 million. In addition, funds were used for loan
disbursements, net of repayments of $20.6 million, to purchase $2.3
million of additional FHLBNY stock, and to repurchase $2.2 million of
the Company's common stock. Other uses of funds during the current
year included disbursements of $2.1 million for purchases and
improvements of premises and equipment related to renovation and
expansion in the Bank. The principal sources of funding for these
activities were net increases in borrowed funds of $33.8 million, an
increase in deposits of $2.4 million and cash provided by operating
activities of $3.3 million.
During the six months ended June 30, 1998, proceeds from pay downs,
calls and maturities of investment securities and cash provided from
operating activities represented the primary source of funds.
Maturities and principal repayments on mortgage-backed and debt
securities out paced purchases of debt securities by $33.8 million.
In addition, funds of $5.7 million were provided by operating
activities during this period. The funds were primarily used to
decrease short-term borrowings by $14.1 million, increase short-term
investments by $16.2 million, fund the reduction in deposits of $3.1
million (which primarily resulted from the sale of the Passaic branch)
and repurchase the Company's common stock of $2.7 million.
At June 30, 1999, 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 June 30, 1999 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 $55,484 7.35% $11,325 1.50%
Tier 1 (core)Capital 55,484 7.35 30,199 4.00 $37,749 5.00%
Risk Based Capital:
Tier 1 55,484 10.24 21,664 4.00 32,496 6.00
Total 58,699 10.84 43,328 8.00 54,160 10.00
QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's operations may be subject to a variety of market risks,
the most material of which is the risk of changing interest rates.
Most generally, interest rate risk ("IRR") is the volatility in
financial performance, attributable to changes in market interest
rates, which may result in either fluctuation of net interest income
or changes to the economic value of the equity of the Company.
The principal objective of the Company's IRR management activities is
to provide maximum levels of net interest income while maintaining
acceptable levels of interest rate and liquidity risk and facilitating
the funding needs of the Company.
Consistent with its definition of IRR, the Company measures earnings
at risk and value at risk. To measure earnings at risk, the Company
utilizes an income simulation model which starts with a detailed
inventory of balance sheet items and factors in the probability of the
maturity and repricing characteristics of assets and liabilities,
including assumed prepayment risks. Simulation of net interest income
takes into account the relative sensitivities of these balance sheet
items to dynamic rates and projects their behavior over an extended
period of time. Simulation analysis of net interest income reflects
both the possibility and probability of the behavior of balance sheet
items.
In addition to simulating net interest income to measure earnings at
risk, the Company also measures IRR from the perspective of value at
risk. Such analysis is the measurement and management of IRR from the
longer term perspective of the economic value of the equity of the
Company. This is performed through Net Portfolio Value (NPV) analysis
which is intended to address the changes in equity value arising from
movements in interest rates. The NPV analysis first reprices all of
the assets and liabilities under the current interest rate
environment, then compares this result to repricing under a changed
interest rate environment, thus evaluating the impact of immediate and
sustained interest rate shifts across the current interest rate yield
curve on the market value of the current balance sheet. A significant
limitation inherent in NPV analysis is that it is static.
Consequently, there is no recognition of the potential for strategy
adjustments in a volatile rate environment which would protect or
conserve equity values.
Changes in the estimates and assumptions made for IRR analysis could
have a significant impact on projected results and conclusions. These
analyses involve a variety of significant estimates and assumptions,
including, among others: (1) estimates concerning assets and
liabilities without definite maturities or repricing characteristics;
(2) how and when yields on interest-earning assets and costs of
interest-bearing liabilities will change in response to movement of
market interest rates; (3) prepayment speeds; (4) future cash flows;
and (5) discount rates. Therefore, these techniques may not
accurately reflect the impact of general market interest rate
movements on the Company's net interest income or the value of its
economic equity.
The Company's most recent available information indicates if interest
rates increase or decrease 200 basis points from current rates in an
immediate and sustained shock over a twelve-month period, the Company
would expect net interest income to decrease 0.97% and to increase
2.87%, respectively. In addition, based on the same 200 basis point
increase and decrease, the Company would expect its estimated Net
Portfolio Value to decrease $23.6 million and to increase $21.7
million, respectively.
YEAR 2000 READINESS
The Year 2000 technology issues pose potential problems to financial
institutions and other businesses who rely on computers to assist in
normal daily operations of their business. Many computer programs and
applications which use date fields may cease to function normally as a
result of the way date fields have been programmed historically. Date
sensitive software may recognize a date using 00 as the year 1900
rather than the year 2000. This could result in a system failure,
miscalculations or lost systems files, causing disruptions of
operations and could result in a temporary inability to process
transactions or conduct normal business activity.
The Company has implemented a Year 2000 compliance plan and the
execution of this plan is currently on target. As recommended by the
Federal Financial Institutions Examination Council ("FFIEC") guide,
the Year 2000 compliance plan includes the following phases:
awareness, assessment, renovation, validation (testing), and
implementation. The objective of this plan is to ensure that the
Company will be Year 2000 ready prior to the turn of the century.
As of June 30, 1999, the Company has substantially completed the
awareness, assessment, renovation and testing phases of the Year 2000
compliance plan. The Company's primary third party data processing
vendor has developed a Year 2000 action plan, confirmed that the
application modules used by the Company are Year 2000 ready, and that
it is currently testing its remaining systems and remedying as
necessary. In addition, the Company and the vendor jointly completed
testing and implemented changes necessary to the Company's
applications which are processed or affected by the vendor. The
Company's contingency plan in the event of a Year 2000 disruption of
power or communications calls for the use of an alternate processing
site.
The Company is nearing completion of the implementation phase for its
hardware and other software modifications and expects to complete this
work by the end of the third quarter this year. The Company's wide
area network and hardware, along with its facilities, ATM, HVAC, alarm
systems and elevators are all Year 2000 ready.
The Company continues its ongoing formal communication with all of its
vendors to determine the extent to which the Company is vulnerable to
third parties' failure to become Year 2000 ready. Replies received
indicate that vital vendors, including power and telephone companies,
are in various "in process" stages of the Year 2000 compliance issue.
Continued contact and follow up will be maintained.
The Company has analyzed and segregated its loan portfolio into two
categories for Year 2000 ready issues: loans collateralized by real
estate and loans not collateralized by real estate, in order to
determine and minimize the potential impact of its borrower's failure
to become Year 2000 ready. The underlying value of the real estate on
the loans secured by real estate minimizes the risk related to Year
2000 readiness. Of the remaining loans, which are not secured by real
estate, the Company has identified and initiated formal communication
with borrowers to determine which borrowers may experience a
disruption in their business, because of a failure to become Year 2000
ready. Replies received indicate that the majority of these borrowers
are in various "in process" stages of the Year 2000 compliance issue
and are expected to be Year 2000 ready. A minimal number of borrowers
have been identified as having additional credit risk as a direct
result of the Year 2000 issue. Those risks have been estimated and
incorporated in the analysis of the adequacy of the loan loss
allowance. Assessment of Year 2000 readiness is part of the
underwriting process for new commercial loan customers and renewals of
existing loans. Continued contact and follow up is being performed.
However, there can be no guarantee that the systems of external third
party vendors, on whom the Company relies, will become Year 2000
ready, or that the failure of the Bank's loan customers to become Year
2000 ready would not have a material adverse effect on the Company.
Currently, management believes that the cost incurred to become Year
2000 ready, both with regard to the Company's internal and outsourced
data processing operations, will not be material. The costs
identified directly with the Year 2000 contingency plan are not
expected to exceed $75,000. These costs are being funded through
operating cash flows and expensed as incurred. To date, $52,000 has
been incurred. A significant amount of the Company's hardware has
been purchased since July 1996, and is Year 2000 ready. However,
costs will also be incurred for replacement of various personal
computers, software upgrades, and upgraded server software. The
Company planned to upgrade and replace these items and accordingly did
not accelerate replacement due to Year 2000 compliance. These
estimated costs are management's best estimates based upon currently
known information. There can be no guarantee that actual costs
incurred to become Year 2000 ready will not increase due to additional
issues which may arise internally in the future, and by the failure of
third parties to fail to become Year 2000 ready.
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.
The Company held its Annual Meeting of Shareholders during
the quarter ended June 30, 1999. The following is the
information required by this item:
(a) The Annual Meeting of Shareholders was held on Tuesday,
May 11, 1999.
(b) Directors Victor M. Richel and Walter G. Scott were
elected to new terms on the Board of Directors expiring
in 2002. The term of office of each of the following
directors continues beyond the annual meeting: Maria
F. Ramirez, Thomas J. Sharkey, Sr., Stephen R. Tilton
and Thomas V. Whelan.
(c) The following matters were voted upon at the annual
meeting:
Proposal I - The election of Victor M. Richel and
Walter G. Scott each to three year terms on the Board
of Directors.
Name Votes Votes
In Favor Withheld
---- -------- --------
Victor M. Richel 3,671,199 20,110
Walter G. Scott 3,671,801 19,508
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 April 20, 1999 announcing the Registrant's
earnings for the first quarter ended March 31,
1999.
2.) The Registrant filed a Current Report on Form 8-K
dated April 23, 1999 announcing the Registrant's
definitive merger agreement with Independence
Community Bank Corp.
3.) The Registrant filed a Current Report on Form 8-K
dated May 12, 1999 announcing the Registrant's
quarterly dividend of $0.13 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: August 13, 1999 By: Bernard F. Lenihan
------------------
BERNARD F. LENIHAN
Senior Vice President, Chief
Financial Officer and Secretary
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 390
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 326,336
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 389,690
<ALLOWANCE> 3,401
<TOTAL-ASSETS> 747,697
<DEPOSITS> 446,108
<SHORT-TERM> 240,500
<LIABILITIES-OTHER> 5,840
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 55,249
<TOTAL-LIABILITIES-AND-EQUITY> 747,697
<INTEREST-LOAN> 14,600
<INTEREST-INVEST> 11,126
<INTEREST-OTHER> 401
<INTEREST-TOTAL> 26,127
<INTEREST-DEPOSIT> 6,590
<INTEREST-EXPENSE> 12,820
<INTEREST-INCOME-NET> 13,307
<LOAN-LOSSES> 498
<SECURITIES-GAINS> 26
<EXPENSE-OTHER> 10,378
<INCOME-PRETAX> 4,084
<INCOME-PRE-EXTRAORDINARY> 2,526
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,526
<EPS-BASIC> 0.69
<EPS-DILUTED> 0.66
<YIELD-ACTUAL> 3.68
<LOANS-NON> 1,351
<LOANS-PAST> 287
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,841
<ALLOWANCE-OPEN> 3,056
<CHARGE-OFFS> 198
<RECOVERIES> 45
<ALLOWANCE-CLOSE> 3,401
<ALLOWANCE-DOMESTIC> 3,401
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
