FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1997
__________________________
Commission File Number 1-13936
__________________________
BOSTONFED BANCORP INC.
________________________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 52-1940834
________________________________________________________________________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17 New England Executive Park, Burlington, Massachusetts 01803
________________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(617) 273-0300
________________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
Number of shares of common stock, par value $.01 per share,
outstanding as of June 30, 1997: 5,947,302.
<PAGE>
BOSTONFED BANCORP INC.
FORM 10-Q
INDEX
PART I - FINANCIAL INFORMATION Page
______________________________ ____
Item 1. Financial Statements:
Consolidated Statements of Financial Condition as
of June 30, 1997 and December 31, 1996 2
Consolidated Statements of Income for the Three and six
Months ended June 30, 1997 and 1996 3
Consolidated Statement of Changes in Stockholders'
Equity for the Six Months ended June 30, 1997 4
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 1997 and 1996 5 - 6
Notes to Consolidated Financial Statements 7 - 8
Average Balances and Yield / Costs 9 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 16
PART II _ OTHER INFORMATION
___________________________
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signature Page 19
1
<PAGE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
---------------------------
(Dollars in Thousands, Except Per Share Data)
June 30, December 31,
1997 1996
----------- --------------
Assets (Unaudited)
- ------------
Cash and cash equivalents $ 30,359 $ 18,278
Investment securities available for sale
(amortized cost of $46,515 and $1,085 at
June 30, 1997 and December 31, 1996
respectively) 46,479 1,085
Investment securities held to maturity (fair
value of $23,717 and $19,045 at June 30, 1997
and December 31, 1996, respectively) 23,870 19,170
Mortgage-backed securities available for sale
(amortized cost of $21,282 and $23,915 at
June 30, 1997 and December 31, 1996,
respectively) 21,323 23,593
Mortgage-backed securities held to maturity (fair
value of $40,866 and $43,033 at June 30, 1997 and
December 31, 1996, respectively) 40,712 43,019
Mortgage loans held for sale 15,204 3,970
Loans, net of allowance for loan losses of $5,750
and $4,400 at June 30, 1997 and December 31, 1996,
respectively 758,476 676,670
Accrued interest receivable 5,678 4,067
Stock in FHLB of Boston and Federal Reserve Bank 16,364 16,295
Premises and equipment 6,934 4,979
Real estate held for sale or development 0 874
Real estate owned 909 2,668
Other assets 9,614 5,899
-------- --------
Total assets $975,922 $820,567
======== ========
Liabilities and Stockholders' Equity
- ---------------------------------------
Liabilities:
Deposit accounts $581,752 $428,818
Federal Home Loan Bank advances 292,750 296,500
Securities sold under agreements to repurchase 8,637 3,500
Advance payments by borrowers for taxes
and insurance 2,407 2,100
Other Liabilities 4,633 3,294
------- -------
Total liabilities 890,179 734,212
------- -------
Commitments and contingencies
Stockholders' equity;
Preferred stock, $.01 par value, 1,000,000 shares
authorized; none issued -- -- -- --
Common stock, $0.01 par value; 17,000,000 shares
authorized; 6,589,617 shares issued 66 66
Additional paid-in capital 64,968 64,461
Retained earnings 36,020 33,131
Unrealized gain (loss) on investment securities
available for sale, net 19 (322)
Less Treasury Stock, at cost (9,691) (4,739)
Less unallocated ESOP shares (3,929) (3,929)
Less unearned Stock-Based Incentive Plan (1,710) (2,313)
-------- --------
Total stockholders' equity 85,743 86,355
-------- --------
Total liabilities and stockholders' equity $975,922 $820,567
======== ========
2
<PAGE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In Thousands, except per share amount)
Three Months Ended Six Months Ended
------------------ ------------------
6/30/97 6/30/96 6/30/97 6/30/96
------------------ ------------------
(Unaudited)
Interest and dividend income:
Loans $ 14,686 $ 10,709 $ 28,472 $ 20,612
Mortgage-backed securities 1,073 1,425 2,204 2,458
Investment securities 1,311 493 2,391 942
------- ------- ------- -------
Total interest and
dividend income 17,070 12,627 33,067 24,012
------- ------- ------- -------
Interest expense:
Deposit accounts 4,762 3,955 8,934 7,958
Borrowed funds 4,420 2,799 9,105 4,663
------- ------- ------- -------
Total interest expense 9,182 6,754 18,039 12,621
------- ------- ------- -------
Net interest and divided income 7,888 5,873 15,028 11,391
Provision for loan losses 455 298 880 736
------- ------- ------- -------
Net interest and dividend
income after provision 7,433 5,575 14,148 10,655
Non-interest income:
Loan processing and servicing
fees 298 330 597 671
Gain on sale of loans 252 120 382 374
Other 631 406 1,197 780
------- ------- ------- -------
Total non-interest income 1,181 856 2,176 1,825
------- ------- ------- -------
Non-interest expense:
Compensation and benefits 3,368 2,441 6,608 4,636
Occupancy and equipment 846 635 1,542 1,255
Federal deposit insurance
premiums 71 239 142 478
Real estate operations (219) (30) (1,110) (6)
Other 1,430 1,248 2,779 2,486
------- ------- ------- -------
Total non-interest expense 5,496 4,533 9,961 8,849
------- ------- ------- -------
Income before income taxes 3,118 1,898 6,363 3,631
Income tax expense 1,413 774 2,744 1,484
------- ------- ------- -------
Net income $ 1,705 $ 1,124 3,619 2,147
======= ======= ======= =======
Primary earnings per share $0.30 $0.18 $0.63 $0.35
Fully diluted earnings per share $0.30 $0.18 $0.62 $0.35
Weighted average shares
outstanding 5,579,032 6,115,104 5,658,257 6,115,104
Common stock equivalents
due to dilutive effect
of stock options 176,867 0 176,867 0
Total weighted average
shares outstanding 5,755,899 6,115,104 5,835,124 6,115,104
3
<PAGE>
<TABLE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(In Thousands)
Six Months Ended June 30, 1997
(Unaudited)
<CAPTION>
Net
unrealized Unearned
(loss) on Stock-
Additional investments Unallocated Based Total
Common paid-in Retained Treasury available ESOP Incentive stockholders'
stock capital earnings Stock for sale shares Plan equity
------ -------- --------- -------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 66 64,461 33,131 (4,739) (322) (3,929) (2,313) 86,355
Net income - - - - 1,914 - - - - - - - - 1,914
Cash dividends declared and
paid ($0.05 per share) - - - - (313) - - - - - - - - (313)
Common Stock repurchased
(297,815 shares at an average
price of $15.86 per share) - - - - - - (4,722) - - - - - - (4,722)
Allocation relating to earned
portion of Stock-Based
Incentive Plan - - - - - - - - - - - - 351 351
Change in net unrealized loss on
investments available for sale - - - - - - - - (37) - - - - (37)
Appreciation in fair value of
SIP shares charged to expense - - 110 - - - - - - - - - - 110
Appreciation in fair value of
committed to be released ESOP
shares charged to expense - - 97 - - - - - - - - - - 97
------- ------- -------- --------- --------- -------- --------- --------
Balance at March 31, 1997 $ 66 64,668 34,732 (9,461) (359) (3,929) (1,962) 83,755
------- ------- -------- --------- --------- -------- --------- --------
Net income - - - - 1,705 - - - - - - - - 1,705
Cash dividends declared and
paid ($0.07 per share) - - - - (417) - - - - - - - - (417)
Common Stock repurchased
(15,200 shares at an average
price of $15.18 per share) - - - - - - (230) - - - - - - (230)
Allocation relating to earned
portion of Stock-Based
Incentive Plan - - - - - - - - - - - - 252 252
Change in net unrealized loss on
investments available for sale - - - - - - - - 378 - - - - 378
Appreciation in fair value of
SIP shares charged to expense - - 107 - - - - - - - - - - 107
Appreciation in fair value of
committed to be released ESOP
shares charged to expense - - 193 - - - - - - - - - - 193
------- ------- -------- --------- --------- -------- --------- --------
Balance at June 30, 1997 $ 66 64,968 36,020 (9,691) 19 (3,929) (1,710) 85,743
------- ------- -------- --------- --------- -------- --------- --------
</TABLE>
4
<PAGE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
For the Six Months Ended
June 30,
1997 1996
------- -------
(Unaudited)
Net cash flows from operating activities:
Net income $ 3,619 $ 2,147
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation, amortization and
accretion, net 564 431
Earned SIP shares 603 250
Appreciation in fair value of ESOP shares 290 76
Appreciation in fair value of SIP shares 217 -
Provision for loan losses 880 736
Loans originated for sale (54,708) (78,419)
Proceeds from sale of loans 43,856 80,122
Provision for valuation allowance
for real estate owned 57 -
Gain on sale of real estate held
for development (898) -
Gain on sale of real estate
acquired through foreclosure (433) (36)
Gain on sale of loans (382) (374)
Increase in accrued interest receivable (755) (432)
Decrease (increase) in prepaid expenses
and other assets, net 2,389 (784)
Increase (decrease) in accrued expenses
and other liabilities, net (700) 1,207
-------- -------
Net cash provided by (used in)
operating activities (5,401) 4,924
------- -------
Cash flows from investing activities:
Net cash of acquired institution 11,908 -
Proceeds from sale of mortgage-backed
securities available for sale 1,084 -
Proceeds from maturities of investment
securities held to maturity 3,850 4,544
Proceeds from maturities of investment
securities available for sale 2,000 -
Purchase of investment securities
available for sale (12,019) (30)
Purchase of mortgage-backed
securities available for sale - (14,157)
Purchase of investment securities
held to maturity (3,900) (24,529)
Principal payments on mortgage-backed
securities available for sale 1,548 1,700
Principal payments on investment
securities held to maturity - 59
Principal payments on mortgage-
backed securities held to maturity 2,287 3,367
Increase in loans, net (16,816) (112,955)
Purchases of Premises and equipment (494) (326)
Proceeds from sale of real estate owned 2,360 237
Additional investment in real estate owned (2) (26)
Proceeds from sale of real estate held for
development 2,102 -
Purchase of FHLB stock - (4,032)
------- -------
Net cash used in
investing activities (6,092) (146,148)
------- ---------
-Continued on next page-
5
<PAGE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
For the Six Months Ended
June 30,
1997 1996
------- -------
(Unaudited)
Cash flows from financing activities:
Increase in deposit accounts 27,912 13,101
Repayments of securities sold under
agreements to repurchase (23,548) -
Proceeds from securities sold under
agreement to repurchase 28,685 3,016
Repayments of Federal Home Loan
Bank advances (144,250) (223,827)
Proceeds from Federal Home Loan
Bank advances 140,500 345,617
Cash dividends paid (731) (330)
Common stock repurchased (4,952) -
Increase in advance payments by
borrowers for taxes and insurance (42) (115)
Purchase of stock for Stock-Based
Incentive Plan - (3,230)
-------- -------
Net cash provided by
financing activities 23,574 134,232
------- -------
Net increase (decrease)
in cash and cash equivalents 12,081 (6,992)
Cash and cash equivalents at January 1 18,278 21,225
------- -------
Cash and cash equivalents at June 30 $ 30,359 $ 14,233
======= =======
Supplemental disclosure of cash flow
information:
Payments during
the quarter for:
Interest $ 17,798 $ 12,051
======= =======
Taxes $ 928 $ 1,085
======= =======
Supplemental schedule of non-cash
investing activities:
Transfers of mortgage
loans to real estate owned $ 223 $ 2,631
======= =======
6
<PAGE>
BOSTONFED BANCORP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of BostonFed Bancorp, Inc., ("BostonFed" or the "Company") and its
wholly-owned subsidiaries, Boston Federal Savings Bank ("BFS") and BF Funding
Corporation as of June 30, 1997 and December 31, 1996 and for the three- and
six-month periods ended June 30, 1997 and 1996, and the accounts of its
wholly-owned subsidiary, Broadway National Bank ("BNB") effective at close of
business February 7, 1997 through June 30, 1997. Broadway Capital Corporation,
the former holding company of Broadway National Bank, was merged into BostonFed
effective May 28, 1997.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management all necessary adjustments,
consisting only of normal recurring accruals necessary for a fair presentation,
have been included. The results of operations for the three- and six-month
periods ended June 30, 1997 and 1996 are not necessarily indicative of the
results that may be expected for the entire fiscal year.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishment of Liabilities" ("SFAS 125"). SFAS 125
establishes, among other things, new criteria for determining whether a transfer
of financial assets in exchange for cash or other consideration should be
accounted for as a sale or as a pledge of collateral in a secured borrowing.
SFAS 125 also establishes new accounting requirements for pledged collateral.
SFAS 125 is effective for most transactions occurring after December 31, 1996
and must be applied prospectively. However, SFAS 127, "Deferral of the Effective
Date of Certain Provisions of SFAS 125", requires the deferral of implementation
as it relates to repurchase agreements, dollar-rolls, securities lending and
similar transactions until the years beginning after December 31, 1997. The
adoption of SFAS 125 has not had a material impact on its consolidated financial
statements.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS 128"). The Statement is effective
for periods ending after December 15, 1997, and will require restatement of all
prior-period earnings per share ("EPS") data presented. The Statement
establishes standards for computing and presenting EPS, and requires dual
presentation of basic and diluted EPS on the face of the income statement. Basic
EPS is computed by dividing income available to common stockholders by the
weighted-average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common stock.
Based on its review of the Statement, management believes the adoption of SFAS
128 will have no material effect on diluted earnings per share of the Company.
NOTE 2: COMMITMENTS, CONTINGENCIES AND CONTRACTS
At June 30, 1997, the Company had commitments of $42.1 million to originate
mortgage loans and $5.4 million to purchase loans from correspondent lenders. Of
these $47.5 million commitments, $38.4 million were adjustable rate mortgage
loans at rates ranging from 5.625% to 10.50% and $9.1 million were fixed rate
mortgage loans with interest rates ranging from 7.125% to 9.50%. The Company
also had commitments to sell $17.7 million of mortgage loans.
At June 30, 1997, the Company was servicing first mortgage loans of
approximately $548.5 million, which are either partially or wholly-owned by
others.
7
<PAGE>
NOTE 3: LEGISLATIVE MATTERS
The proposed legislation regarding elimination of the federal thrift
charter and related issues remains pending before Congress. The Company is
unable to predict whether such legislation would be enacted, the extent to which
the legislation would restrict or disrupt its operations or whether the BIF and
SAIF funds will eventually merge. See Form 10-K for the fiscal year ended
December 31, 1996 for a discussion of the proposed legislation.
NOTE 4: ACQUISITIONS (Unaudited)
On February 7, 1997 the Company acquired BNB, headquartered in Chelsea,
Massachusetts. The purchase price was $22 million and was accounted for using
the purchase method of accounting. The results of operations include the effect
of the purchase for the 143 day period beginning February 8, 1997. In connection
with the acquisition, the fair value of assets acquired and liabilities assumed
were as follows:
February 7, 1997
----------------
(in thousands)
Assets acquired:
Cash and cash equivalents $ 5,758
Fed Funds 28,150
Investments available for sale 35,352
Investment securities 4,646
Loans, net 66,093
Premises and equipment 1,972
Other assets 4,192
---------
Total assets acquired 146,163
Liabilities assumed:
Deposits 125,022
Borrowed funds -
Other liabilities 2,058
--------
Total liabilities assumed 127,080
--------
Assets in excess of liabilities 19,083
Cash paid to Broadway shareholders 22,000
--------
Goodwill $ 2,917
========
The following condensed consolidated pro-forma results of the Company were
prepared as if the acquisition had taken place on January 1 of the respective
year. The pro-forma results are not necessarily indicative of the actual results
of operations had the Company's acquisition of BNB actually occurred on January
1 of the respective year.
Three Months Ended Six Months Ended
------------------ ------------------
6/30/97 6/30/96 6/30/97 6/30/96
------------------ ------------------
(In thousands except per share amounts)
Total interest and dividend
income and total
non-interest income $ 18,251 $ 15,778 $ 36,184 $ 30,385
Net income $ 1,705 $ 1,608 $ 3,770 $ 3,024
Net income per share $ 0.30 $ 0.26 $ 0.65 $ 0.49
8
<PAGE>
<TABLE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Average Balances and Yields / Costs
(Unaudited)
<CAPTION>
For the quarter ended June 30: 1997 1996
------------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- --------- --------- ---------- ---------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities (1) $ 87,776 $ 1,311 5.97% $ 32,664 $ 493 6.04%
Loan, net and mortgage loans held for sale (2) 757,134 14,686 7.76% 573,697 10,709 7.47%
Mortgage-backed securities (3) 63,400 1,073 6.77% 82,969 1,425 6.87%
---------- --------- --------- --------- ---------- ---------
Total interest-earning assets 908,310 17,070 7.52% 689,330 12,627 7.33%
--------- --------- ---------- ---------
Non-interest-earning assets 41,125 28,326
---------- ---------
Total assets $ 949,435 $ 717,656
========== =========
Liabilities and Stockholders' Equity:
Interest-bearing Liabilities:
Money market deposit accounts $ 63,696 470 2.95% $ 47,116 354 3.01%
Savings accounts 121,141 752 2.48% 91,738 574 2.50%
NOW accounts 99,670 277 1.11% 66,313 217 1.31%
Certificate accounts 232,641 3,263 5.61% 201,525 2,810 5.58%
---------- --------- --------- --------- ---------- ---------
Total 517,148 4,762 3.68% 406,692 3,955 3.89%
Borrowed Funds (4) 297,514 4,420 5.94% 197,246 2,799 5.68%
---------- --------- --------- --------- ---------- ---------
Total interest-bearing liabilities 814,662 9,182 4.51% 603,938 6,754 4.47%
--------- --------- ---------- ---------
Non-interest-bearing liabilities 48,437 21,261
---------- ---------
Total liabilities 863,099 625,199
---------- ---------
Stockholders' equity 86,336 92,457
---------- ---------
Total liabilities and
stockholders' equity $ 949,435 $ 717,656
========== =========
Net interest rate spread (5) $ 7,888 3.01% $ 5,873 2.86%
========= ========= ========== =========
Net interest margin (6) 3.47% 3.41%
========= =========
Ratio of interest-earning assets to
interest-bearing liabilities 111.50% 114.14%
========= =========
<FN>
(1) Includes investment securities available for sale and held to maturity,
short-term investments, stock in FHLB-Boston and daily federal funds sold.
(2) Amount is net of deferred loan origination costs, construction loans in
process, net unearned discount on loans purchased and allowance for loan
losses and includes non-performing loans.
(3) Includes mortgage-backed securities available for sale and held to maturity.
(4) Interest paid on borrowed funds for the periods presented includes
interest expense on FNMA deposits held in escrow accounts with the
Company related to the Company's FNMA servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds
of 5.93% and 5.63% for the three months ended June 30, 1997 and
June 30, 1996, respectively.
(5) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
Average Balances and Yields / Costs
(Unaudited)
<CAPTION>
For the six months ended June 30: 1997 1996
------------------------------------- ------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
---------- ---------- --------- --------- ---------- ---------
(Dollars in thousands)
Assets:
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Investment securities (1) $ 80,104 $ 2,391 5.97% $ 31,758 $ 942 5.93%
Loan, net and mortgage loans held for sale (2) 740,057 28,472 7.69% 548,508 20,612 7.52%
Mortgage-backed securities (3) 64,642 2,204 6.82% 72,089 2,458 6.82%
---------- --------- --------- --------- ---------- ---------
Total interest-earning assets 884,803 33,067 7.47% 652,355 24,012 7.36%
--------- --------- ---------- ---------
Non-interest-earning assets 39,674 26,924
---------- ---------
Total assets $ 924,477 $ 679,279
========== =========
Liabilities and Stockholders' Equity:
Interest-bearing Liabilities:
Money market deposit accounts $ 60,501 892 2.95% $ 47,430 712 3.00%
Savings accounts 114,234 1,414 2.48% 91,678 1,144 2.50%
NOW accounts 92,561 518 1.12% 64,871 458 1.41%
Certificate accounts 219,773 6,110 5.56% 200,851 5,644 5.62%
---------- --------- --------- --------- ---------- ---------
Total 487,069 8,934 3.67% 404,830 7,958 3.93%
Borrowed Funds (4) 308,263 9,105 5.91% 161,674 4,663 5.77%
---------- --------- --------- --------- ---------- ---------
Total interest-bearing liabilities 795,332 18,039 4.54% 566,504 12,621 4.46%
--------- --------- ---------- ---------
Non-interest-bearing liabilities 42,173 20,287
---------- ---------
Total liabilities 837,505 586,791
---------- ---------
Stockholders' equity 86,972 92,488
---------- ---------
Total liabilities and
stockholders' equity $ 924,477 $ 679,279
========== =========
Net interest rate spread (5) $15,028 2.93% $11,391 2.90%
========= ========= ========== =========
Net interest margin (6) 3.40% 3.49%
========= =========
Ratio of interest-earning assets to
interest-bearing liabilities 111.25% 115.15%
========= =========
<FN>
(1) Includes investment securities available for sale and held to maturity,
short-term investments, stock in FHLB-Boston and daily federal funds sold.
(2) Amount is net of deferred loan origination costs, construction loans in
process, net unearned discount on loans purchased and allowance for loan
losses and includes non-performing loans.
(3) Includes mortgage-backed securities available for sale and held to maturity.
(4) Interest paid on borrowed funds for the periods presented includes
interest expense on FNMA deposits held in escrow accounts with the
Company related to the Company's FNMA servicing, which, if such interest
expense was excluded, would result in an average cost of borrowed funds
of 5.90% and 5.70% for the three months ended June 30, 1997 and
June 30, 1996, respectively.
(5) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(6) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</FN>
</TABLE>
10
<PAGE>
BOSTONFED BANCORP, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS
A. GENERAL
The Company is the holding company for two banking subsidiaries, Boston
Federal Savings Bank, a federally chartered community savings bank and Broadway
National Bank, a nationally chartered commercial bank. On February 7, 1997, the
Company acquired BNB and as a result of the acquisition, the Company became a
bank holding company subject to regulation by the Federal Reserve Bank ("FRB").
Boston Federal Savings Bank is regulated by the Office of Thrift Supervision and
Broadway National Bank is regulated by the Office of the Comptroller of the
Currency. The Company's principal business has been and continues to be
attracting retail deposits from the general public in the areas surrounding its
branch offices and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans. To a lesser extent, the Company invests in multi-family mortgage,
commercial real estate, construction and land, consumer loans, business loans,
and investment securities. The Company originates loans for investment and loans
for sale in the secondary market, generally retaining the servicing rights for
loans sold. Loan sales are made from loans held in the Company's portfolio
designated as being held for sale or originated for sale during the period. The
Company's revenues are derived principally from interest on its mortgage loans,
and to a lesser extent, interest and dividends on its investment and
mortgage-backed securities, fees and loan servicing income. The Company's
primary sources of funds are deposits, principal and interest payments on loans
and mortgage-backed securities, FHLB advances, repurchase agreements and
proceeds from the sale of loans. Since the acquisition was consummated during
the first quarter, the financial statements of the Company and the following
discussion regarding the Company's financial condition at June 30, 1997 and the
results of operations for the three- and six-months ended June 30, 1997 includes
information and data of BNB from February 8, 1997 through June 30, 1997. The
financial statements of the Company at December 31, 1996 and the results of
operations for the three- and six-months ended June 30, 1996 do not include
information and data related to BNB.
B. FINANCIAL POSITION
Total assets at June 30, 1997 were $975.9 million, compared to $820.6
million at December 31, 1996, an increase of $155.3 million or 18.9%. Asset
growth was primarily attributable to the acquisition of BNB which was recorded
using the purchase method of accounting. The major components of asset growth
included investment securities available for sale which increased to $46.5
million at June 30, 1997 from $1.1 million at December 31, 1996 due primarily to
the addition of BNB's investment portfolio. Loans, net of allowance for loan
losses increased by $81.8 million, or 12.1%, from a balance of $676.7 million at
December 31, 1996 to $758.5 million at June 30, 1997, also primarily due to the
acquisition of BNB's portfolio. Excluding BNB's portfolio, loans, net of
allowance for loan losses increased by $15.7, due mostly to increased
originations of adjustable-rate mortgages. Mortgage loans held for sale
increased from $4.0 million at year-end 1996 to $15.2 million at June 30, 1997
due to increased accumulation of mortgage loans held for sale during the current
quarter. Deposit accounts increased by $152.9 million from a balance of $428.8
million at December 31, 1996 to a balance of $581.8 million at June 30, 1997. Of
the increase, $104.5 million is attributable to the acquisition of BNB while the
balance represents growth in BFS' deposit balances, $35.0 million of which was
obtained from wholesale CD markets. Federal Home Loan Bank advances were reduced
by $3.7 million, to a balance of $292.8 million at June 30, 1997 from a balance
of $296.5 million at December 31, 1996. This reduction was more than offset by
an increase in other borrowed money (repurchase agreements) which amounted to
$8.6 million at June 30, 1997, compared to $3.5 million at December 31, 1996.
C. ASSET/LIABILITY MANAGEMENT
The principal objective of the Company's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Company's business
strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board of Directors'
11
<PAGE>
approved guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company
monitors its interest rate risk as such risk relates to its operating
strategies. The Company's Board of Directors has established an Asset/Liability
Committee of Management which is responsible for reviewing the Company's asset/
liability policies and interest rate risk position. The Committee reports trends
and interest rate risk position to the Board of Directors on a quarterly basis.
The Board has established certain risk tolerance levels within which the Company
can operate. The extent and direction of the movement of interest rates is an
uncertainty that could have a negative impact on the earnings of the Company.
In recent years, the Company has utilized the following strategies to
manage interest rate risk: (1) emphasizing the origination and retention of
adjustable-rate, one- to four-family mortgage loans; (2) selling in the
secondary market substantially all fixed-rate mortgage loans originated with
terms greater than 10 years while generally retaining the servicing rights
thereof; (3) primarily investing in investment securities or mortgage- backed
securities with adjustable interest rates; and (4) attempting to reduce the
overall interest rate sensitivity of liabilities by emphasizing longer-term
deposits and utilizing FHLB advances to replace rate sensitive deposits.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and by
monitoring the Company's interest rate sensitivity "gap." An asset or liability
is said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap is
defined as the difference between the amount of interest-earning assets maturing
or repricing within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate sensitive assets exceeds the amount of
interest rate sensitive liabilities. A gap is considered negative when the
amount of interest rate sensitive liabilities exceeds the amount of interest
rate sensitive assets. Accordingly, during a period of rising interest rates, an
institution with a positive gap position would be in a better position to invest
in higher yielding assets which, consequently, may result in the yield on its
assets increasing at a pace more closely matching the increase in the cost of
its interest-bearing liabilities than if it had a negative gap. During a period
of falling interest rates, an institution with a positive gap would tend to have
its assets repricing at a faster rate than one with a negative gap which,
consequently, may tend to restrain the growth of its net interest income.
Certain shortcomings are inherent in gap analysis. For example, although
certain assets and liabilities may have similar maturities or periods to
repricing, they may react in different degrees to changes in market interest
rates. Also, the interest rates on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while interest rates
on other types may lag behind changes in market rates. Additionally, certain
assets, such as adjustable-rate loans, have features which restrict changes in
interest rates both on a short- term basis and over the life of the asset.
Further, in the event of change in interest rates, prepayment and early
withdrawal levels would likely deviate significantly from those assumed in
calculating the table. Finally, the ability of many borrowers to service their
adjustable-rate loans may decrease in the event of an interest rate increase.
At June 30, 1997, the Company's one year gap was a positive 9.0% of total
assets, compared to a positive 5.3% of total assets at December 31, 1996. The
change in the gap was caused by the addition of BNB which, like most commercial
banks, has a larger portion of its assets, compared to liabilities, repricing in
the one year horizon.
The Company's interest rate sensitivity is also monitored by management
through the use of a model which internally generates estimates of the change in
net portfolio value (NPV") over a range of interest rate change scenarios. NPV
is the present value of expected cash flows from assets, liabilities, and
off-balance sheet contracts. The NPV ratio, under any interest rate scenario, is
defined as the NPV in that scenario divided by the market value of assets in the
same scenario.
12
<PAGE>
As in the case with the gap analysis, certain shortcomings are inherent in
the methodology used in the above interest rate risk measurements. Modeling
changes in NPV require the making of certain assumptions which may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV model used assumes that the composition
of the Company's interest sensitive assets and liabilities existing at the
beginning of a period remains constant over the period being measured and also
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration to maturity or repricing of specific
assets and liabilities. Accordingly, although the NPV measurements and net
interest income models provide an indication of the Company's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Company's net interest income and will differ from actual
results.
D. LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds are deposits, principal and interest
payments on loans, mortgage-backed and related securities and loan sales, FHLB
advances and repurchase agreements. While maturities and scheduled amortization
of loans are predictable sources of funds, deposit flows and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition. However, BFS has maintained in excess of the
required minimum levels of liquid assets as defined by the OTS regulations. This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of the BFS's
deposits and short-term borrowings. BFS's current required liquidity ratio is
5%. At June 30, 1997 and December 31, 1996 BFS's liquidity ratio was 6.0% and
8.0% respectively. Management has maintained liquidity as close as possible to
the minimum requirement so that it may invest any excess liquidity in higher
yielding interest-earning assets or use such funds to repay higher cost FHLB
advances.
The Company's most liquid assets are cash, daily federal funds sold,
Federal Home Loan Bank overnight deposits, short-term investments and loans and
investments available for sale. The levels of these assets are dependent on the
Company's operating, financing, lending and investing activities during any
given period. At June 30, 1997, BFS' cash, short-term investments and loans and
investment securities available for sale totaled $36.5 million or 4.4% of BFS's
total assets. Additional investments were available which qualified for BFS's
regulatory liquidity requirements. Under OCC regulations, BNB does not have
specific liquidity requirements, but must maintain a reasonable and prudent
level in order to operate in a safe and sound manner.
The Company has other sources of liquidity if a need for additional funds
arises, including FHLB advances. At June 30, 1997, BFS had $292.8 million in
advances outstanding from the FHLB. The Company also borrowed $8.6 million
through repurchase agreements. The Company generally does not pay the highest
deposit rates in its market and accordingly utilizes alternative sources of
funds such as FHLB advances and repurchase agreements to supplement cash flow
needs.
At June 30, 1997, the Company had commitments to originate loans and unused
outstanding lines of credit totalling $96.8 million. The Company anticipates
that it will have sufficient funds available to meet its current loan
origination commitments. Certificate accounts which are scheduled to mature in
less than one year from June 30, 1997, totalled $139.0 million.
At June 30, 1997, the consolidated stockholders' equity to total assets
ratio was 8.8%. As of June 30, 1997, the Company, BFS and BNB exceeded all of
their regulatory capital requirements. BFS's tangible, core and risk-based
capital ratios were 5.7%, 5.7% and 11.6%, respectively. BNB's tier 1 leverage
and risk-based capital ratios were 14.4% and 31.79% respectively, total
risk-based capital was 32.9%. Additionally, BFS' retained earnings at June 30,
1997 includes approximately $13.2 million of tax bad debt reserves for which no
federal income tax liability has been recognized. Under the Small Business Job
Protection Act of 1996 (the "1996 Act") if BFS makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from BFS's unrecaptured tax bad debt reserves. Non-dividend
distributions include distributions in excess of BFS' current and accumulated
earnings and profits, as calculated for federal income tax purposes,
distributions in redemption of stock, and distributions in partial or complete
liquidation. Dividends paid out of BFS's current or accumulated earnings and
profits are not included in BFS's income.
13
<PAGE>
E. COMPARISON OF THREE- AND SIX-MONTHS ENDED JUNE 30, 1997 AND 1996
General
Earnings for the quarter ended June 30, 1997 were $1.7 million, or $.30 per
share, compared to $1.1 million, or $.18 per share for the comparable quarter of
1996. Earnings for the six-months ended June 30, 1997 were $3.6 million compared
to $2.1 million for the six-months ended June 30, 1996. A significant
contribution to the increased earnings for the six-months ended June 30, 1997
was due to the real estate operations income of $1.1 million (before income
taxes), compared to income of $6,000 (before income taxes) during the comparable
period last year. The real estate operations income resulted primarily from the
sale of a land sub-division owned by a subsidiary of BFS. The improved earnings
increased the return on average assets to .78% during the six-months ended June
30, 1997 compared to a return on average assets of .63% for the comparable
period last year. The return on average stockholders' equity increased to 8.32%
during the six-months ended June 30, 1997, compared to 4.64% for the six-months
ended June 30, 1996. Comments regarding the components of net income are
detailed in the following paragraphs.
Interest Income
Total interest income on interest-earning assets for the quarter ended June
30, 1997 increased by $4.4 million, or 34.9%, to $17.1 million, compared to the
quarter ended June 30, 1996. The increase in interest income was primarily
attributable to a $219.0 million increase in average interest-earning assets and
a 19 basis point increase in the average yield. The average yield on
interest-earning assets increased to 7.52% for the three months ended June 30,
1997 from 7.33% for the three months ended June 30, 1996. For the first half of
1997, total interest income was $33.1 million, compared to $24.0 million for
the same period in 1996. The major reason for the increase was also the
increased average balances which were $884.8 million during the six months ended
June 30, 1997, compared to $652.4 million during the comparable period in 1996.
Average yields also increased by 11 basis points during the first half of 1997,
compared to the first half of 1996.
Interest income on loans, net, for the quarter ended June 30, 1997
increased by $4.0 million, or 37.4%, to $14.7 million compared to $10.7 million
for the same quarter in 1996. On a year to date basis, interest income on loans,
net, increased $7.9 million to $28.5 million from the $20.6 million earned
during the first half of 1996. The increase in interest income from loans, net,
for the quarter and six months ended June 30, 1997, compared to the same periods
last year, was primarily attributable to increases in average balances of $183.4
million and $191.5 million, respectively. Additionally, the average yield on
loans, net increased by 29 basis points to 7.76% during the quarter ended June
30, 1997, compared to 7.47% during the quarter ended June 30, 1996. On a year to
date basis, the yield on loans, net, increased from 7.52% for the six months
ended June 30, 1996, compared to 7.69% during the current year period. Interest
on mortgage-backed securities for the quarter ended June 30, 1997 decreased by
$352,000 to $1.1 million, compared to $1.4 million for the same quarter in 1996.
This decrease in income was due primarily to the $19.6 million lower average
balance during the quarter ended June 30, 1997, compared to the quarter ended
June 30, 1996. Additionally, the average yield declined by ten basis points to
an average of 6.77% during the quarter ended June 30, 1997, compared to the same
quarter last year. On a year to date basis, interest on mortgage-backed
securities was $2.2 million, compared to last year's comparable period total of
$2.5 million. Average yields did not change. Interest income from investment
securities was $1.3 million during the second quarter of 1997, compared to
$493,000 for the comparable quarter in 1996. The average yield on investment
securities declined by seven basis points due to BNB's portfolio which is
comprised mostly of lower yielding U.S. Treasury securities. The average balance
increased by $55.1 million to an average of $87.8 million during the
three-months ending June 30, 1997. On a year to date basis, interest income from
investment securities was $2.4 million, compared to $942,000 for the six months
ended June 30, 1996. The average balance of investment securities was $80.1
million for the six months ended June 30, 1997, compared to $31.8 million for
the comparable period last year. A majority of the balance increases in
interest-earning assets was the result of the Company's acquisition of BNB,
effective the close of business on February 7, 1997.
14
<PAGE>
Interest Expense
Total interest expense on interest-bearing liabilities for the quarter
ended June 30, 1997 increased by $2.4 million or 35.3%, to $9.2 million compared
to the quarter ended June 30, 1996. The increase in interest expense for the
quarter ended June 30, 1997 was due primarily to an increase of $210.7 million
in the average balance of interest-bearing liabilities which averaged $814.7
million during the quarter, compared to an average balance of $603.9 million
during the quarter ended June 30, 1996. A 4 basis point increase in the average
cost of interest-bearing liabilities also contributed to the increase in
interest expense during the second quarter of 1997, compared to the quarter
ended June 30, 1996. The average cost of interest-bearing liabilities increased
to 4.51% during the quarter ended June 30, 1997, compared to 4.47% for last
year's comparable quarter. On a year to date basis, interest expense on
interest-bearing liabilities totaled $18.0 million, compared to last year's to
date total of $12.6 million, a 42.9% increase. The increase was caused by the
combined effects of an eight basis point increase in the average cost of funds
as a result of borrowing funds for longer average terms and higher costs and an
increase of $228.8 million in average balances during the six months ended June
30, 1997, compared to the prior year period.
Interest expense on deposit accounts was $4.8 million for the quarter ended
June 30, 1997, an increase of $.8 million from the $4.0 million for the quarter
ended June 30, 1996. The increase in the expense was due to higher average
deposit account balances of $110.5 million, offset by a decrease of 21 basis
points in the average cost of funds during the quarter ended June 30, 1997,
compared to the quarter ended June 30, 1996. The average balance of deposit
accounts increased from $406.7 million for the quarter ending June 30, 1996 to
an average balance of $517.1 million for the quarter ending June 30, 1997,
mostly due to the acquisition of BNB and the acquisition of $35 million of
wholesale brokered certificates of deposit for terms of three years. Interest
expense on borrowed funds increased from $2.8 million for the quarter ended June
30, 1996 to $4.4 million for the current quarter. The average cost of borrowed
funds increased from 5.68% during the quarter ended June 30, 1996 to an average
of 5.94% during the current quarter. The average balances increased from $197.2
million during the second quarter of 1996 to an average balance of $297.5
million during the second quarter of 1997.
Net Interest Income
Net interest income increased by $2.0 million during the second quarter of
1997, compared to the same quarter last year, due primarily to asset growth by
BFS and the acquisition of BNB. The net interest rate spread of 3.01% for the
quarter ended June 30, 1997 was 15 basis points higher than the 2.86% for the
comparable period last year. The primary reasons for the improvement in the net
interest rate spread are the addition of BNB, as most commercial banks typically
earn a wider spread and an improvement in BFS' net interest rate spread. The net
interest margin was similarly impacted and improved from 3.41% for the quarter
ended June 30, 1996 to 3.47% for the second quarter of 1997. On a year to date
basis the net interest rate spread improved by three basis points. However, the
net interest margin declined from 3.49% for the six months ended June 30, 1996
to 3.40% for the six months ended June 30, 1997 due primarily to the utilization
of capital to repurchase the Company's stock.
Provision for Loan Losses
The Company's provision for loan losses amounted to $455,000 for the
quarter ended June 30, 1997, compared to the $298,000 loan loss provision for
the comparable quarter last year. On a year to date basis through June 30, 1997,
the provision for loan losses amounted to $880,000, compared to $736,000 for the
comparable period last year. The allowance for loan losses increased from $4.4
million at December 31, 1996 to $5.8 million at June 30, 1997, after
consolidation of BNB's allowance for loan losses of $605,000 at the time of
acquisition and the year to date provision, net of charge-offs and recoveries.
The Company establishes provisions for loan losses, which are charged to
operations, in order to maintain the allowance for loan losses at a level which
is deemed to be appropriate based upon management's assessment of the risk
inherent in its loan portfolio in light of current economic conditions, actual
loss experience, industry trends and other factors which may affect the real
estate values in the Company's market area. While management believes the
current allowance for loan losses is adequate, actual losses are dependent upon
future events, and as such, future provisions for loan losses may be necessary.
As part of the Company's determination of the adequacy of the allowance for loan
losses, the Company monitors its loan portfolio through its Asset Classification
Committee. The Committee classifies loans depending on risk of loss
characteristics. The most severe classification before a charge-off is required
is "sub-standard." At June 30, 1997, the Company classified $4.9 million of
loans ($4.1 million of BFS and $.8 million of BNB) as sub-standard compared to
$3.8 million (BFS only) at December 31, 1996. The Asset Classification
Committee, which meets quarterly, determines the adequacy of the allowance for
loan losses through ongoing analysis of historical loss experience, the
composition of the loan portfolios, delinquency levels, underlying collateral
values and cash flow values. Utilizing these procedures, management believes
that the allowance for loan losses at June 30, 1997 was sufficient to provide
for anticipated losses inherent in the loan portfolio.
The Company's allowance for loan losses at June 30, 1997 was $5.8 million,
which represented 385.9% of non-performing loans or .74% of total loans,
compared to $4.4 million at December 31, 1996, or 293.0% of non-performing loans
and .64% of total loans.
15
<PAGE>
Non-performing loans at June 30, 1997 amounted to $1.5 million or .19% of
total loans, compared to $1.5 million, or .22% of total loans, at December 31,
1996.
The amount of interest income on non-performing loans that would have been
recorded had these loans been current in accordance with their original terms,
was $91,000 and $118,000 for the six-month periods ended June 30, 1997 and 1996,
respectively. The amount of interest income that was recorded on these loans was
$17,000 and $18,000 for the six-month periods ended June 30, 1997 and 1996,
respectively.
At June 30, 1997, loans characterized as impaired, (which include all
non-performing loans and some sub-standard assets), pursuant to SFAS No. 114,
"Accounting by Creditors for Impairment of a Loan", ("SFAS 114") and SFAS No.
118, "Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosure", ("SFAS 118") totaled $4.5 million. All of the impaired loans have
been measured using the fair value of the collateral method. During the
six-months ended June 30, 1997, the average recorded value of impaired loans was
$4.5 million, $150,000 interest income was recognized and $241,000 of interest
income would have been recognized under the loans' original terms.
At June 30, 1997, the Company had $909,000 in real estate owned compared to
$2.7 million at December 31, 1996. Further, at June 30, 1997 the Company also
had restructured real estate loans amounting to $2.6 million for which interest
is being recorded in accordance with the loans' restructured terms. The amount
of the interest income lost on these restructured loans is not material to the
Company's financial statements.
Non-Interest Income
Total non-interest income in the second quarter of 1997 increased by
$325,000, or 38.0%, to $1.2 million from $856,000 for the three months ended
June 30, 1996 due to a $225,000 increase in other non-interest income (primarily
transaction account fees) and a $132,000 increase in gains on the sale of loans
resulting from favorable market conditions, partially offset by a decline of
$32,000 in loan processing fees.
Non-Interest Expense
Total non-interest expense was $5.5 million for the quarter ended June 30,
1997 compared to $4.5 million for the comparable quarter in 1996. Compensation
and benefits increased by $927,000 from $2.4 million for the quarter ended June
30, 1996 to $3.4 million for the quarter ended June 30, 1997. The major reasons
for this increase were due to the addition of BNB's compensation and benefits
expense amounting to $518,000, increased expenses for the Company's ESOP,
Stock-Based Incentive Plan ("SIP"), and Short Term Incentive Plan ("STIP"),
which increased by $161,000, $109,000 and 113,000, respectively. The increased
expenses for the ESOP and SIP were due to increases in the market value of the
Company's stock. Such increases are credited to Additional Paid in Capital in
accordance with generally accepted accounting principles. On a year to date
basis, total non-interest expense was $10.0 million, compared to last year to
date total of $8.8 million. Compensation and benefits increased to $6.6 million
for the six months ended June 30, 1997, compared to $4.6 million for the
comparable period last year. As with the current quarter, the year to date was
similarly impacted by the inclusion of $861,000 of compensation and benefits of
BNB since February 8, 1997 and increased expenses for the ESOP, SIP and STIP.
Federal deposit insurance premiums declined by $336,000 during the six months
ended June 30, 1997, compared to the six months ended June 30, 1996 due to lower
insurance premiums as a result of the Savings Association Insurance Fund
recapitalization in the third quarter of 1996. Real estate operations provided
$1.1 million of income during the current year to date period, compared to
income of $6,000 during the comparable period last year. The current year to
date real estate operations income resulted primarily from the sale of a land
sub-division owned by a subsidiary of BFS as well as recoveries on the sale of
real estate owned. Occupancy and equipment and other expenses were higher during
the current year to date, compared to the prior year to date due primarily to
the inclusion of such expenses from BNB from February 8, 1997 through June 30,
1997.
Income Tax Expense
Income tax expense nearly doubled in the quarter ended June 30, 1997 to
$1.4 million compared to the income tax expense of $774,000 for the quarter
ended June 30, 1996. The increase was due almost entirely to increased income
before tax. The effective income tax rate was 45% for the current quarter,
compared to 41% for last year's second quarter. The increase in the effective
rate is primarily due to the non-deductibility of the appreciated value of the
allocated ESOP shares. On a year to date basis, income tax expense was $2.7
million, for an effective rate of 43%, compared to $1.5 million for an effective
rate of 41% for six months ended June 30, 1996. As with the current quarter, the
reasons for the increased tax expense and effective tax rate during the six
months ending June 30, 1997 were primarily higher income before income tax and
the effect of the allocated ESOP share primarily.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending material legal proceedings other
than routine legal proceedings occurring in the ordinary course of business.
Such routine legal proceedings, in the aggregate, are believed by management to
be immaterial to the Company's financial condition or results of operations.
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
(A) The Annual Meeting of Stockholders of the Corporation was held on
April 28, 1997.
(B) Directors elected at Annual Meeting:
(1) Election of Directors
Nominee Total Votes For Total Votes Withheld
Edward P. Callahan 4,856,469 51,288
Richard J. Dennis, Sr. 4,858,735 49,022
Charles R. Kent 4,858,884 48,873
(2) Continuing Directors Year Term Expires
David P. Conley 1999
David F. Holland 1998
W. Robert Mill 1999
Irwin W. Sizer 1998
(C) Other Matters submitted to a vote of the Stockholders of the Corporation:
(1) Proposal to approve the establishment of the 1997 Stock Option Plan
Votes For Votes Against Abstentions
4,680,341 206,881 21,522
(2) Selection of Independent Auditors
Votes For Votes Against Abstentions
4,875,375 17,401 14,981
17
<PAGE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 Certificate of Incorporation*
3.2 Bylaws*
27 Financial Data Schedule
(b) On April 18, 1997, a Form 8-K/A dated February 7, 1997 was filed which
included financial statements of business acquired and pro forma
financial information.
* Incorporated herein to the Company's Registration Statement on form S-1
originally filed on July 21, 1995
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BOSTONFED BANCORP, INC.
(Registrant)
Date: August 13, 1997 By: /s/ David F. Holland
__________________________________
David F. Holland
President and
Chief Executive Officer
Date: August 13, 1997 By: /s/ John A. Simas
__________________________________
John A. Simas
Senior Vice President,
Chief Financial Officer,
Treasurer and
Corporate Secretary
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 19,359
<INT-BEARING-DEPOSITS> 100
<FED-FUNDS-SOLD> 10,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 67,802
<INVESTMENTS-CARRYING> 64,582
<INVESTMENTS-MARKET> 64,583
<LOANS> 773,680
<ALLOWANCE> 5,750
<TOTAL-ASSETS> 975,922
<DEPOSITS> 581,752
<SHORT-TERM> 143,887
<LIABILITIES-OTHER> 4,132
<LONG-TERM> 157,500
0
0
<COMMON> 66
<OTHER-SE> 85,677
<TOTAL-LIABILITIES-AND-EQUITY> 975,922
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<INTEREST-INVEST> 4,595
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 33,067
<INTEREST-DEPOSIT> 8,934
<INTEREST-EXPENSE> 18,039
<INTEREST-INCOME-NET> 15,028
<LOAN-LOSSES> 880
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 9,961
<INCOME-PRETAX> 6,363
<INCOME-PRE-EXTRAORDINARY> 6,363
<EXTRAORDINARY> 0
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<NET-INCOME> 3,619
<EPS-PRIMARY> .63
<EPS-DILUTED> .62
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<LOANS-NON> 1,300
<LOANS-PAST> 0
<LOANS-TROUBLED> 2,632
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,020
<CHARGE-OFFS> 327
<RECOVERIES> 177
<ALLOWANCE-CLOSE> 5,750
<ALLOWANCE-DOMESTIC> 5,750
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
