UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-27782
Dime Community Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-3297463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
209 Havemeyer Street, Brooklyn, New York 11211
(Address of principal executive offices) (Zip Code)
(718) 782-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
the 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.
(1) YES X NO ___
(2) YES X NO ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Classes of Common Stock Number of Shares Outstanding, October 31, 1996
$.01 Par Value 14,547,500
PART I - FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Consolidated Statements of Condition at
September 30, 1996 (Unaudited) and June 3
30, 1996
Consolidated Statements of Operations for
the Three Months Ended September 30, 1996 4
and 1995 (Unaudited)
Consolidated Statements of Changes in
Stockholders' Equity for the Three Months 5
Ended September 30, 1996 (Unaudited)
Consolidated Statements of Cash Flows for
the Three Months Ended September 30, 1996 6
and 1995 (Unaudited)
Notes to Consolidated Financial Statements 7-10
(Unaudited)
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 11-22
Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of 23
Security Holders
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Explanatory Note: This Form 10-Q contains certain forward
looking statements consisting of estimates with respect to the
financial condition, results of operations and business of the
Company that are subject to various factors which could cause
actual results to differ materially from these estimates. These
factors include: changes in general, economic and market
conditions, and legislative and regulatory conditions, or the
development of an adverse interest rate environment that
adversely affects the interest rate spread or other income
anticipated from the Company's operations and investments.
<TABLE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
(In Thousands Except Share Data)
September 30,
1996 June 30,
(Unaudited) 1996
------------ ------------
<S> <C> <C>
ASSETS:
Cash and due from banks $12,172 $17,055
Investment securities held to maturity (estimated market value of
$84,898 and $43,428 at September 30, 1996 and June 30,1996 respectively) 84,898 43,552
Investment securities available for sale:
Bonds and notes (amortized cost of $173,428 and $338,141 at
September 30, 1996 and June 30, 1996, respectively) 173,437 338,089
Marketable equity securities (historical cost of $2,977 and
$2,982 at September 30, 1996 and June 30, 1996, respectively) 3,370 3,205
Mortgage-backed securities held to maturity (estimated market value
of $58,676 and $52,596 at September 30, 1996 and June 30, 1996
respectively) 58,516 52,580
Mortgage-backed securities available for sale (amortized cost of
$187,102 and $156,962 at September 30, 1996 and June 30, 1996,
respectively) 188,307 157,361
Federal funds sold 33,289 115,130
Loans:
Real estate 605,906 577,663
Other loans 5,293 5,564
Less: allowance for loan losses (8,661) (7,812)
--------- ---------
Total loans, net 602,538 575,415
--------- ---------
Loans held for sale 1,101 459
Premises and fixed assets 14,171 14,399
Federal Home Loan Bank of New York capital stock 7,598 7,604
Other real estate owned, net 2,790 1,946
Goodwill 27,915 28,438
Accrued interest receivable and other assets 15,464 16,588
---------- ----------
TOTAL ASSETS $1,225,566 $1,371,821
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors $941,817 $950,114
Escrow and other deposits 12,442 141,732
Securities sold under agreements to repurchase 18,286 11,998
Federal Home Loan Bank of New York advances 15,710 15,710
Payable for securities purchased 15,000 33,994
Accrued postretirement benefit obligation 2,421 2,381
Other liabilities 4,755 2,821
---------- ----------
TOTAL LIABILITIES 1,010,431 1,158,750
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred Stock ($0.01 par, 9,000,000 shares authorized, none
outstanding at September 30, 1996 and June 30, 1996, respectively) - -
Common Stock ($0.01 par, 45,000,000 shares authorized, 14,547,500
shares outstanding at September 30, 1996 and June 30, 1996,
respectively) 145 145
Additional paid-in capital 141,161 141,240
Employee Stock Ownership Plan (11,177) (11,541)
Retained earnings 84,140 82,916
Unrealized gain on securities available for sale, net of deferred taxes 866 311
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 215,135 213,071
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,225,566 $1,371,821
========== ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
(In Thousands Except Per Share Data)
For the Three Months
Ended September 30,
---------------------
1996 1995
--------- ----------
<S> <C> <C>
Interest income:
Loans secured by real estate $12,647 $9,665
Other loans 132 83
Investment securities 3,918 1,311
Mortgage-backed securities 3,698 1,511
Federal funds sold 817 321
--------- ----------
Total interest income 21,212 12,891
--------- ----------
Interest expense:
Deposits and escrow 9,689 5,724
Borrowed funds 358 254
--------- ----------
Total interest expense 10,047 5,978
Net interest income 11,165 6,913
Provision for loan losses 1,050 600
--------- ----------
Net interest income after provision for loan losses 10,115 6,313
--------- ----------
Non-interest income:
Service charges and other fees 426 202
Net gain on sales and redemptions of securities and
other assets 36 83
Net gain (loss) on sales of loans 23 (6)
Other 272 135
--------- ----------
Total non-interest income 757 414
--------- ----------
Non-interest expense:
Salaries and employee benefits 2,346 1,716
ESOP benefit expense 463 -
Occupancy and equipment 728 403
SAIF special assessment 2,032 -
Federal deposit insurance premiums 251 (11)
Data processing costs 247 119
Provision for losses on other real estate owned 193 -
Goodwill amortization 594 -
Other 1,278 695
--------- ----------
Total non-interest expense 8,132 2,922
--------- ----------
Income before income taxes and cumulative effect of
changes in accounting principle 2,740 3,805
Income tax expense 1,516 1,741
--------- ----------
Income before cumulative effect of changes in
accounting principle 1,224 2,064
Cumulative effect on prior years of changing to
a different method of accounting for:
Post-retirement benefits other than pensions - (1,032)
--------- ----------
Net income $1,224 $1,032
========= ==========
Earnings per share:
Primary $0.09 N/A
========= ==========
Fully diluted $0.09 N/A
========= ==========
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(In Thousands Except Per Share Data)
For the Three
Months Ended
September 30, 1996
------------------
Common Stock (Par value $0.01):
Balance at beginning of period $145
Issuance of common stock -
---------
Balance at end of period 145
---------
Additional paid-in capital:
Balance at beginning of period 141,240
Cost of issuance of common stock (178)
Amortization of excess fair value over cost - ESOP
stock 99
---------
Balance at end of period 141,161
---------
Employee Stock Ownership Plan:
Balance at beginning of period (11,541)
Amortization of earned portion of ESOP stock 364
---------
Balance at end of period (11,177)
---------
Retained earnings:
Balance at beginning of period 82,916
Net income for the period 1,224
---------
Balance at end of period 84,140
Unrealized gain on securities available for sale, ---------
net:
Balance at beginning of period 311
Change in unrealized gain on securities available 555
for sale during
the period, net of deferred taxes
---------
Balance at end of period $866
---------
See notes to consolidated financial statements.
<PAGE>
<TABLE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
(In Thousands)
For the Three Months
Ended September 30,
1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................................... $1,224 $1,032
Adjustments to reconcile net income to net cash provided by
operating activities:
Net (gain) loss on sale of loans held for sale................................. (23) 6
Net gain on sale of other assets............................................... (19) -
Net Depreciation and amortization (accretion).................................. (844) 227
ESOP plan compensation expense................................................. 463 -
Provision for loan losses...................................................... 1,050 600
Goodwill amortization.......................................................... 594 -
Increase in loans held for sale................................................ (619) (410)
(Increase) decrease in other assets and other real estate owned................ (193) 1,614
Increase in accrued postretirement benefit obligation.......................... 40 2,010
Decrease in payable for securities purchased................................... (18,994) -
Increase in other liabilities.................................................. 1,934 278
--------- --------
Net cash (used in) provided by operating activities.............................. $(15,387) 5,357
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in Federal funds sold.................................... 81,841 (3,240)
Proceeds from maturities of investment securities held to maturity............... 7,000 -
Proceeds from maturities of investment securities available for sale............. 227,460 20,600
Proceeds from calls of investment securities available for sale.................. 6,000 -
Purchases of investment securities held to maturity.............................. (48,537) -
Purchases of investment securities available for sale.......................... (67,415) (15,585)
Purchases of mortgage-backed securities held to maturity......................... (8,936) (5,695)
Purchases of mortgage-backed securities available for sale....................... (36,981) (1,788)
Principal collected on mortgage-backed securities held to maturity............... 2,948 2,411
Principal collected on mortgage-backed securities available for sale............. 6,879 2,845
Net increase in loans............................................................ (28,173) (6,117)
Cash disbursed in acquisition of Conestoga Bancorp, net of cash acquired (71) -
Purchases of fixed assets........................................................ (40) (36)
Sale of Federal Home Loan Bank capital stock..................................... 6 -
--------- --------
Net cash provided by (used in) investing activities.............................. 141,981 (6,605)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in due to depositors..................................... (8,297) 4,622
Net decrease in escrow and other deposits........................................ (129,290) (2,842)
Cash disbursed for expenses related to issuance of common stock.................. (178) -
Increase in repurchase agreements................................................ 6,288 2
--------- --------
Net cash (used in) provided by financing activities............................... (131,477) 1,782
--------- --------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.................................... (4,883) 534
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ..................................... 17,055 6,807
--------- --------
CASH AND DUE FROM BANKS, END OF PERIOD............................................ $12,172 $7,341
========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes....................................................... $352 $1,572
========= ========
Cash paid for interest........................................................... $21,227 $5,975
========= ========
Transfer of loans to other real estate owned...................................... $1,069 $182
========= ========
Change in unrealized gain on available for sale securities, net of deferred taxes.... $555 $85
========= ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands Except Per Share Amounts)
1. NATURE OF OPERATIONS
Dime Community Bancorp, Inc. (the "Company") is a Delaware
corporation organized in December, 1995 at the direction of the
Board of Directors of The Dime Savings Bank of Williamsburgh (the
"Bank") for the purpose of acquiring all of the capital stock of
the Bank issued in the Bank's conversion from mutual to stock form
(the "Conversion") on June 26, 1996, in exchange for $76.4 million
(54%) of the net proceeds of the offering of 14,547,500 shares of
the Company's common stock (the "Offering"). Presently, the only
significant assets of the Company are the capital stock of the
Bank, the Company's loan to the ESOP, and investments of the net
proceeds retained by the Company. The Company is subject to the
financial reporting requirements of the Securities Exchange Act of
1934, as amended.
The Bank was originally founded in 1864 as a New York State-
chartered mutual savings bank. On November 1, 1995, the Bank
converted to a federal mutual savings bank. The Bank has been, and
intends to continue to be, a community-oriented financial
institution providing financial services and loans for housing
within its market areas. The Bank and the Company maintain their
headquarters in the Williamsburgh section of the borough of
Brooklyn. Fourteen additional offices of the Bank are located in
the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau
County.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited
consolidated financial statements contain all adjustments necessary
for a fair presentation of the Company's financial condition as of
September 30, 1996 and the results of operations and cash flows for
the three months ended September 30, 1996 and 1995. In the opinion
of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information
contained herein have been made. The results of operations for the
three months ended September 30, 1996 are not necessarily
indicative of the results of operations to be expected for the
remainder of the year. Certain information and note disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting standards ("GAAP") have been
omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
These consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and
notes thereto of the Company, and the information contained in the
Company's report on Form 8-K dated July 11, 1996 and in Amendment
No. 1 thereof on Form 8K/A filed on September 9, 1996.
3. INCOME TAXES
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes," which requires that deferred taxes be provided for
temporary differences between the book and tax basis of assets
and liabilities.
On August 20, 1996, Federal legislation was signed into law which
repealed the percentage of taxable income method tax bad debt
deduction available for thrift institutions. This repeal is effective
for the Bank's taxable year beginning January 1, 1996. In addition, the
legislation requires the Bank to include in taxable income its bad
debt reserves in excess of its base year reserve over a 6 to 8 year
period depending
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands Except Per Share Amounts)
upon the maintenance of certain loan origination levels. Since the
percentage of taxable income method tax bad debt deduction and the
corresponding increase in the tax bad debt reserve in excess of the
base year have been treated as temporary differences pursuant to
SFAS 109, this change in tax law will have no effect on the
Company's future consolidated statement of operations.
On July 30, 1996, New York State (the "State") enacted legislation,
effective January 1, 1996, which generally retains the percentage
of taxable income method tax bad debt deduction and does not
require the Bank to recapture into income its State tax bad debt
reserves unless one of the following events occur: 1) the Bank's
retained earnings represented by the reserve is used for purposes
other than to absorb losses from bad debts, including dividends or
distributions in liquidation; 2) the Bank fails to qualify as a
thrift as provided by the State tax law, or 3) there is a change in
state tax law. At present, it is unclear what position New York
City will take with respect to this new legislation. At September
30, 1996, the Bank has a deferred tax liability of approximately
$3,100 recorded for the excess of State and City tax bad debt
reserves over its base year reserve at December 31, 1987. The Bank
is currently evaluating the State tax legislation and New York
City's position, as well as relevant accounting literature, in
order to determine whether it is possible to reduce or even
eliminate these reserves.
4. GOODWILL
The goodwill generated from the Bank's acquisition of Conestoga is
being amortized over a twelve year period for financial statement
purposes.
5. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
In accordance with Statement of Position 93-6 "Employers'
Accounting for Employee Stock Ownership Plans," the Company
recognizes compensation expense related to the ESOP during the
period in which the shares become committed to be released to
participants. The compensation expense is measured based upon the
fair market value of the stock during the period, and, to the
extent that the fair value of the shares committed to be released
differs from the original cost of such shares, the difference is
recorded as an adjustment to Additional paid-in capital.
6. EARNINGS PER SHARE
Primary and fully-diluted earnings per share for the three months
ended September 30, 1996 are computed by dividing net income by the
average number of common shares during the period, which includes
all allocated shares of the ESOP. The average number of common
shares utilized to calculate both primary and fully diluted
earnings per share during the three months ended September 30, 1996
were 13,393,398. Earnings per share are not presented for the
three months ended September 30, 1995 as the initial public
offering of the Company's stock did not occur until June, 1996.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
On July 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 106, ''Employers' Accounting for
Postretirement Benefits Other Than Pensions.'' This Statement
requires accrual of postretirement benefits (such as health care
benefits) during the years an employee provides services. The
cumulative effect of the adoption of this standard on prior years
was approximately $1,032 (after reduction
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands Except Per Share Amounts)
for income taxes of $879). As permitted by the Statement, the Bank
elected to record the full liability at the time of adoption.
In March 1995, the FASB issued SFAS No. 121, ''Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of'' which requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be
reviewed for impairment and reported at the lower of carrying
amount or fair value, less cost to sell, whenever events or changes
in circumstances indicate that the carrying amount of an asset may
not be recoverable. The Company adopted SFAS No. 121 on July 1,
1996. The adoption of SFAS No. 121 did not have a material impact
on the financial condition or results of operations of the Bank.
In May 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 122, ''Accounting
for Mortgage Servicing Rights.'' The Statement which amends
Statement of Financial Accounting Standards No. 65, ''Accounting
for Certain Mortgage Banking Activities,requires separate capital-
ization of the costs of rights to service mortgage loans for others
regardless of whether these rights are acquired through a purchase or
loan origination activity. The Bank adopted SFAS No. 122 effective
July 1, 1996. Adoption of SFAS No.122 did not have a material impact
on the financial condition or results of operations of the Bank.
In October 1995, the FASB issued Statement of Financial
Accounting Standards No. 123, ''Accounting for Stock-Based
Compensation'' (''SFAS No. 123''). SFAS No. 123 encourages a fair
value based method of accounting for an employee stock option or
similar equity instrument and encourages all entities to adopt
this method for all employee stock compensation plans. Under the
fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the
service period, which is usually the vesting period. As of
September 30, 1996, the Company has no equity instruments
subject to SFAS 123.
In June 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125, ''Accounting
for Transfers of Financial Assets and Extinguishments of Liabilities.
The statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that
are borrowings. This statement also requires that liabilities and
derivatives incurred or obtained as part of a transfer be measured
initially at fair value. This statement also provides guidance on
measurement of servicing rights on assets transferred and
derecognition of liabilities transferred. The statement is
effective for all transfers, servicing, or extinguishments
occurring after December 31, 1996. Adoption of this standard is not
expected to have a material effect upon the Company's financial
condition or results of operations.
8. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Areas in
the accompanying financial statements where estimates are
significant include the allowance for loans losses and the carrying
value of other real estate.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(In Thousands Except Per Share Amounts)
9. SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT
During the quarter ended September 30, 1996, the Bank was assessed
a one-time special assessment of $2,032 by the Federal Deposit
Insurance Corporation ("FDIC") in order to recapitalize the SAIF.
As a member of the Bank Insurance Fund ("BIF"), the Bank pays most
of its deposit insurance assessments to the BIF. The SAIF
primarily insures the deposits of savings and loan associations,
but also insures the deposits acquired by a BIF-insured institution
from a SAIF-insured institution. With the consummation of the
acquisition (the "Acquisition") of Conestoga Bancorp, Inc.
("Conestoga"), the Bank acquired the deposits of Conestoga's wholly-
owned subsidiary, Pioneer Savings Bank, FSB ("Pioneer"), a SAIF
insured thrift, which deposits totaled approximately $394.3 million
at June 30, 1996. The Bank pays SAIF assessments with respect to
the Pioneer deposits. In addition, the Bank pays SAIF assessments
on deposits the Bank acquired in a prior branch acquisition. All
SAIF-insured deposits acquired by the Bank qualified as "Oakar
deposits," and were the basis for the one-time assessment, which
was recorded in non-interest expense during the quarter ended
September 30, 1996.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
General
Dime Community Bancorp, Inc. (the "Company") is a Delaware
corporation organized in December, 1995 at the direction of the
Board of Directors of the Bank for the purpose of acquiring all
of the capital stock of the Bank issued in the conversion of the
Bank from a federal mutual savings bank to a federal stock
savings bank. In connection with the Conversion, the Company
issued 14,547,500 shares (par value $0.01) of common stock at a
price of $10.00 per share to the Bank's eligible depositors who
subscribed for shares and to an Employee Stock Ownership Plan
("ESOP") established by the Company. The Company realized net
proceeds of $141.4 million from the sale of its common stock and
utilized approximately $76.4 million of the proceeds to purchase
100% of the Bank's common stock and $11.6 million to fund a loan
to the ESOP for its purchase of 1,163,800 shares, or 8%, of the
Company's common stock.
The primary business of the Company is the operation of its
wholly-owned subsidiary, the Bank. In addition to directing,
planning and coordinating the business activities of the Bank,
the Company retained proceeds of $53.4 million in connection with
the Conversion, which are invested in federal funds, short-term,
investment grade marketable securities and mortgage-backed
securities. The Company also holds a note evidencing the loan
that it made to the ESOP to purchase 8% of its common stock
issued in the Conversion.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, proceeds
from principal and interest payments on loans, mortgage-backed
securities and investments, and, to a lesser extent, proceeds
from the sale of fixed-rate mortgage loans to the secondary
mortgage market. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit
flows, mortgage prepayments and mortgage loan sales are
influenced by interest rates, economic conditions and
competition.
The Bank is required to maintain an average daily balance of
liquid assets and short-term liquid assets as a percentage of net
withdrawable deposit accounts plus short-term borrowings as
defined by OTS regulations. The minimum required liquidity and
short-term liquidity ratios are currently 5.0% and 1.0%,
respectively. At September 30, 1996, the Bank's liquidity ratio
and short-term liquid asset ratios were 25.59% and 12.84%,
respectively. The levels of the Bank's short-term liquid assets
are dependent on the Bank's operating, financing and investing
activities during any given period.
The primary investing activities of the Bank are the origination
of multi-family and single-family mortgage loans, and the
purchase of mortgage-backed and other securities. During the
three months ended September 30, 1996, the Bank's loan
originations totaled $53.9 million compared to $22.6 million for
the three months ended September 30, 1995. Purchases of mortgage-
backed and other securities totaled $161.9 million for the three
months ended September 30, 1996 compared to $23.1 million for the
three months ended September 30, 1995. These activities were
funded primarily by principal repayments on loans and mortgage-
backed securities and maturities of investment securities. Loan
sales provided additional liquidity to the Bank, totaling
$890,000 for the three months ended September 30, 1996. Loan
commitments totaled $81.3 million at September 30, 1996,
comprised of $78.6 million in multi-family commitments and
residential mortgage loan commitments
<PAGE>
totaling $2.7 million. Management of the Company anticipates that
it will have sufficient funds available to meet its current loan
commitments.
Deposits decreased $8.3 million during the three months ended
September 30, 1996. The Bank experienced a net increase in total
deposits of $395.3 million during the fiscal years ended June 30,
1996, attributable primarily to the acquisition of $394.3 million
in deposits from Conestoga. Deposit flows are affected by the
level of interest rates, the interest rates and products offered
by local competitors, and other factors. Certificates of deposit
which are scheduled to mature in one year or less from September
30, 1996 totaled $361.1 million. From October 1, 1994 to June 30,
1996, the Company experienced an 80.4% retention rate of funds
from maturing certificates of deposit. Based upon this experience
and the Company's current pricing strategy, management believes
that a significant portion of such deposits will remain with the
Company.
The Bank closely monitors its liquidity position on a daily
basis. Excess short-term liquidity is invested in overnight
federal funds sales and various money market investments. In the
event that the Bank should require funds beyond its ability to
generate them internally, additional sources of funds are
available through the use of the Bank's $152.0 million borrowing
limit at the FHLBNY. At September 30, 1996, the Bank had $27.0
million in short and medium term borrowings outstanding at the
FHLBNY and additional overall borrowing capacity from the FHLBNY
of $125.0 million.
At September 30, 1996, the Bank was in compliance with all
applicable regulatory capital requirements. Tangible capital
totaled $120.8 million, or 10.58% of total tangible assets,
compared to a 1.50% regulatory requirement; core capital, at
10.59%, exceeded the required 3.0% regulatory minimum, and total
risk-based capital, at 21.64% of risk weighted assets, exceeded
the 8.0% regulatory requirement.
Analysis of Net Interest Income
Net interest income represents the difference between income on
interest-earning assets and expense on interest-bearing
liabilities. Net interest income depends upon the relative
amounts of interest-earning assets and interest-bearing
liabilities and the interest rates earned or paid on them.
The following table sets forth certain information relating to
the Company's consolidated statements of operations for the three
months ended September 30, 1996 and 1995 and reflects the average
yield on assets and average cost of liabilities for the periods
indicated. Such yields and costs are derived by dividing income
or expense by the average balance of assets or liabilities,
respectively, for the periods shown. Average balances are derived
from average daily balances. The yields and costs include fees
which are considered adjustments to yields.
<PAGE>
<TABLE>
<CAPTION>
For the Three Months Ended September 30,
--------------------------------------------------------
1996 1995
--------------------------- --------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Real Estate Loans <F1> $591,422 $12,647 8.55% $429,019 $ 9,665 9.01%
Other loans 5,513 132 9.58 3,763 83 8.82
Mortgage-backed securities<F2> 209,508 3,698 7.06 90,557 1,511 6.67
Investment securities <F2> 266,060 3,918 5.89 99,246 1,311 5.28
Federal funds sold 57,859 817 5.65 22,487 321 5.71
-------- -------- -------- -------- ------
Total interest-earning
assets 1,130,362 $21,212 7.51% 645,072 $12,891 7.99%
Non-interest-earning assets 66,667 ======== ======== ========
=========
Total Assets $1,197,029
=========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
NOW, Super Now and Money
market accounts $59,991 $415 2.77% $30,778 $161 2.09%
Savings accounts 356,327 2,237 2.51 233,535 1,482 2.54
Certificates of deposit 497,430 7,018 5.64 281,397 4,064 5.78
Mortgagors' escrow 3,441 19 2.21 3,230 17 2.11
Borrowed funds 25,074 358 5.71 17,820 254 5.70
--------- -------- -------- --------
Total interest-bearing
liabilities 942,263 10,047 4.27% 566,760 5,978 4.22%
========= ======== ======== ========
Checking accounts 27,900 11,070
Other non-interest-bearing
liabilities 13,430 8,422
--------- --------
Total liabilities 983,593 586,252
Stockholders' equity 213,436 77,619
--------- --------
Total liabilities and
Stockholders' equity $1,197,029 $663,871
========= ========
Net interest income/interest rate
spread <F3> $11,165 3.24% $6,913 3.77%
======= ========
Net interest-earning assets/net
interest margin <F4> $188,099 3.95% $78,312 4.29%
========= ========
Ratio of interest-earning assets to
interest-bearing liabilities 119.96% 113.82%
<FN>
<F1> In computing the average balance of loans, non-accrual loans
have been included.
<F2> Includes securities classified "available for sale."
<F3> Net interest rate spread represents the difference between
the average rate on interest-earning assets and the average cost
of interest-bearing liabilities.
<F4> Net interest margin represents net interest income as a
percentage of average interest-earning assets.
</FN>
</TABLE>
Rate/Volume Analysis
Net interest income can also be analyzed in terms of the impact
of changing interest rates on interest-earning assets and
interest-bearing liabilities and changing the volume or amount of
these assets and liabilities. The following table represents the
extent to which changes in interest rates and changes in the
volume of interest-earning assets and interest-bearing
liabilities have affected the Bank's interest income and interest
expense during the periods indicated. Information is provided in
each category with respect to (i) changes attributable to changes
in volume (change in volume multiplied by prior rate),
(ii) changes attributable to rate (changes in rate multiplied by
prior volume), and (iii) the net change. Changes attributable to
the combined impact of volume and rate have been allocated
proportionately to the changes due to the volume and
the changes due to rate.
Three Months Ended
September 30, 1996
Compared to
Three Months Ended
September 30, 1995
Increase/(Decrease)Due to
----------------------------------
Rate Volume Net
-------- ------- -------
(In thousands)
Interest-earning assets:
Real estate loans $(583) $3,565 $2,982
Other loans 9 40 49
Mortgage-backed securities 145 2,042 2,187
Investment securities 277 2,330 2,607
Federal funds sold (6) 502 496
------- ------- -------
Total $(158) $8,479 $8,321
======= ======= =======
Interest-bearing liabilities:
NOW, Super NOW and Money market
accounts $76 178 $254
Savings accounts (20) 775 755
Certificate of deposit (129) 3,083 2,954
Mortgagors' escrow 1 1 2
Borrowed funds 1 103 104
------- ------- -------
Total (71) 4,140 4,069
------- ------- -------
Net change in net interest income $ (87) $4,339 $4,252
======= ======= =======
Impact of Recent Legislation
Deposit Insurance - SAIF Recapitalization. As a member of the
BIF, the Bank pays most of its deposit insurance assessments to
the BIF. The FDIC also maintains another insurance fund, the
SAIF, which primarily insures the deposits of savings and loan
associations, but also insures the deposits acquired by a BIF-
insured institution from a SAIF-insured institution. With the
consummation of the acquisition of Conestoga, the Bank acquired
the deposits of Pioneer (the "Pioneer Deposits"), a member of the
SAIF, which deposits totaled approximately $394.3 million at June
26, 1996. The Bank is now required to pay SAIF assessments with
respect to the Pioneer Deposits. In addition, the Bank is
required to pay SAIF assessments on all other Oakar Deposits.
Under law and regulation in effect at June 30, 1996, BIF-
assessable deposits were assessed at a rate of $2,000 per year
while SAIF-assessable deposits were assessed at rates ranging
from $0.23 to $0.31 per $100 of SAIF- assessable deposits. This
disparity resulted from the BIF's achievement of the required
1.25% reserve ratio while the SAIF had not reached the required
1.25% reserve, due primarily to the fact that a significant portion
of SAIF assessments have been and are currently being used to make
payments on bonds ("FICO bonds") issued in the late 1980s by the
Financing Corporation.
On September 30, 1996, the Deposit Insurance Funds Act of 1996
(the "Funds Act") was enacted into law, and it amended the
Federal Deposit Insurance Act, in several ways to recapitalize
the SAIF and reduce the disparity in the assessment rates for the
BIF and the SAIF. The Funds Act authorized the FDIC to impose a
special assessment on all institutions with SAIF-assessable
deposits in the amount necessary to recapitalize the SAIF. As
implemented by the FDIC, the special assessment has been fixed,
subject to adjustment, at $0.657 per $100 of an institution's
SAIF-assessable deposits as of March 31, 1995. As applied to the
Bank, the special assessment will be imposed with respect to the
Pioneer Deposits because Pioneer no longer exists as a corporate
entity, as well as the Oakar Deposits. However, under the Funds
Act, the Bank is entitled to reduce the amount of such deposits
by 20% in computing the special assessment. Accordingly, the
SAIF special assessment to be paid by the Bank will be
approximately $2.0 million (before taxes). The SAIF special
assessment is scheduled to be paid to the FDIC on November 27,
1996.
In view of the recapitalization of the SAIF and consistent with
certain requirements of the Funds Act, the FDIC has proposed a
reduction in the rates for the semiannual assessment on SAIF-
assessable deposits for periods beginning on October 1, 1996. As
would be effective for the SAIF-assessable deposits of BIF
members, such as the Bank, the proposed SAIF assessment rates
would range from 0 to 27 basis points, with a rate of 0 basis
points applied to well-capitalized institutions in the top
supervisory group, such as the Bank. Accordingly, as long as the
Bank maintains its current regulatory status, the Bank will have
to pay substantially lower regular SAIF assessments compared to
those paid by the Bank with respect to the three months ended
September 30, 1996, assuming that the designated reserve ratio of
1.25% is maintained by the SAIF after collection of the special
assessment.
In addition, the Funds Act expanded the assessment base for the
payments on the FICO bonds to include, beginning January 1, 1997,
the deposits of both BIF members and SAIF members. Until
December 31, 1999, or such earlier date on which the last savings
association ceases to exist, the rate of assessment for the FICO
bonds on BIF-assessable deposits shall be one-fifth of the rate
imposed on SAIF-assessable deposits. Although the actual rate of
assessments has not yet been determined, it has been estimated
that the rate of assessments for the FICO bonds beginning on
January 1, 1997, will be $0.013 per $100 of BIF-assessable
deposits and $0.064 per $100 of SAIF-assessable deposits. The
overall impact of such an action will be to increase the Bank's
non-interest expense in future periods.
The Funds Act also provides for the merger of the BIF and SAIF on
January 1, 1999, with such merger being conditioned upon the
prior elimination of the thrift charter. The Secretary of the
Treasury is required to conduct a study of relevant factors with
respect to the development of a common charter for all insured
depository institutions and abolition of separate charters for
banks and thrifts and to report the Secretary's conclusions and
findings to the Congress on or before March 31, 1997.
Recapture of Bad Debt Reserves. Prior to the enactment, on
August 20, 1996, of the Small Business Job Protection Act of 1996
(the "1996 Act"), for federal income tax purposes, thrift
institutions such as the Bank, which met certain definitional
tests primarily relating to their assets and the nature of their
business, were permitted to establish tax reserves for bad debts
and to make annual additions thereto, which additions could,
within specified limitations, be deducted in arriving at their
taxable income. The Bank's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in
real property, could be computed using an amount based on a six-
year moving average of the Bank's actual loss experience (the
"Experience Method"), or a percentage equal to 8.0% of the Bank's
taxable income (the "PTI Method"), computed without regard to
this deduction and with additional modifications and reduced
by the amount of any permitted addition to the non-qualifying
reserve. Similar deductions for additions to the Bank's bad
debt reserve were permitted under the New York State Bank
Franchise Tax and the New York City Banking Corporation Tax;
however, for purposes of these taxes, the effective allowable
percentage under the PTI method was 32% rather than 8%.
Under the 1996 Act, the PTI Method was repealed and the Bank, as
a "large bank" (one with assets having an adjusted basis of more
than $500 million), will be unable to make additions to its tax
bad debt reserve, will be permitted to deduct bad debts only as
they occur and will be required to recapture (i.e., take into
income) over a six-year period, beginning with the Bank's taxable
year beginning January 1, 1996, the excess of the balance of its
bad debt reserves (other than the supplemental reserve) as of
December 31, 1995 over the greater of the balance of such
reserves as of December 31, 1987 (or over a lesser amount if the
Bank's loan portfolio decreased since December 31, 1987).
However, under the 1996 Act, such recapture requirements will be
suspended for each of the two successive taxable years beginning
January 1, 1996 in which the Bank originates a minimum amount of
certain residential loans during such years that is not less than
the average of the principal amounts of such loans made by the
Bank during its six taxable years preceding January 1, 1996.
Since the Bank has already provided a deferred income tax
liability for this tax for financial reporting purposes, there
will be no adverse impact to the Bank's financial condition or
results of operations from the enactment of this legislation.
The New York State tax law has been amended to prevent a similar
recapture of the Bank's New York State tax liability. Industry
leaders continue to seek such amendments to the New York City tax
law; however, there can be no assurance that such changes to New
York City law will be adopted and, if so, in what form.
Comparison of Financial Condition at September 30, 1996 and June
30, 1996
Assets. The Company's assets totaled $1.23 billion at September
30, 1996, a decrease of $146.3 million from total assets of $1.37
billion at June 30, 1996. The decrease resulted primarily from
the refund of $131.1 million in excess proceeds related to the
oversubscription to the Company's initial public offering (the
"oversubscription refund") on July 1, 1996, which were included in
escrow and other deposits at June 30, 1996. The Bank utilized a
maturing available-for-sale investment security, as well as
federal funds sold, to fund the oversubscription refund on July 1,
1996. Excluding the oversubscription refund, the Company's
investment and mortgage-backed securities portfolios increased by
$38.8 million. In addition, real estate loans and loans held for
sale increased $28.9 million to $607.0 million at September 30,
1996 compared to $578.1 million at June 30, 1996. This increase
resulted primarily from originations of $53.9 million during the
quarter ended September 30, 1996, of which $52.1 million were
multi-family and underlying cooperative loans. The increases in
investment and mortgage backed securities (excluding the
oversubscription refund) and loans were offset by the net decrease
of $81.8 million and $4.9 million in federal funds sold and cash
and due from banks, respectively. Other real estate owned
increased $844,000 primarily as a result of a foreclosure
completed in July, 1996 on a loan with an outstanding principal
balance of $792,000. Other assets decreased $1.1 million as the
Company received a refund of $2.7 million in July, 1996 related to
the unpaid portion of the ESOP loan to former Conestoga employees,
which was recorded as a receivable in other assets at June 30,
1996, offset by $1.6 million of accrued expenses related to the
Acquisition and Conversion paid in July, 1996.
Liabilities. The decline in total liabilities of $148.3 million
during the three months ended June 30, 1996 resulted primarily
from the oversubscription refund, which reduced escrow and other
deposits by $131.1 million, and a decline in deposits of $8.3
million, resulting from cyclical outflows. In addition, the
payable for securities purchased, in the amount of $34.0 million
at June 30, 1996, was reduced to $15.0 million at September 30,
1996, as the Company funded underlying net purchases of $19.0
million through a combination of cash and maturing securities.
Offsetting these declines, the Company increased its borrowings,
undertaking, on a net basis, $6.3 million in additional securities
sold under agreement to repurchase during the quarter ended
September 30, 1996. Other liabilities increased by $2.0 million
from June 30, 1996, due primarily to the $2.1 million payable for
the SAIF Special Assessment. See "-Impact of Recent Legislation"
In addition, the Company recorded a payable on securities
purchased of $15.0 million at September 30, 1996, related to a
purchase of a mortgage-backed security available for sale entered
into on September 27, 1996 which is due to settle in October,
1996.
Stockholders' Equity. The Company's stockholders' equity totaled
$215.1 million, or 17.55% of total assets, as compared to $213.1
million, or 15.53% at June 30, 1996. The increase in equity
resulted from net income of $1.2 million, an increase in the ESOP
and additional paid-in-capital balances totaling $463,000 related
to the ESOP compensation expense recorded during the quarter ended
September 30, 1996, and an increase in the net unrealized gain on
available for sale securities of $555,000 during the quarter ended
September 30, 1996. At September 30, 1996 the Company's book value
was $14.79 per share, up from $14.65 per share at June 30, 1996.
Tangible stockholders' equity equaled $186.2 million, representing
15.56% of tangible assets and a $12.80 per share tangible book
value, up from 13.72% of tangible assets, and $12.66,
respectively, at June 30, 1996.
At September 30, 1996, the Bank's Tangible, Core and Risk-based
capital ratios were 10.58%, 10.59% and 21.64%, respectively,
compared to 9.49%, 9.50% and 21.24%, respectively, at
June 30, 1996. At June 30, 1996, the Bank's Tangible, Core and
Risk-based capital ratios were 10.60%, 10.61% and 23.86%,
respectively, exclusive of the effects on the balance sheet of
excess proceeds related to the oversubscription to the Company's
initial public offering.
Comparison of the Operating Results for the Three Months ended
September 30, 1996 and 1995
General. Net income for the first quarter ended September 30,
1996 was $1,224,000, or $0.09 per share, after the one-time
$2,032,000 (before tax) special assessment for the
recapitalization of the Savings Association Insurance Fund
("SAIF"), compared with $1,032,000 for the quarter ended
September 30, 1995, an increase of $192,000, or 18.6%. Net
income for the quarter, excluding the one-time SAIF assessment,
was $2,321,000, or $0.17 per share. See "Impact of Recent
Legislation."
Also affecting the quarter-over-quarter comparison was the Bank's
adoption, on July 1, 1995 of Statement of Financial Accounting
Standards No. 106, "Accounting for Post-Retirement Benefits Other
than Pensions," whereby the Bank elected to record the full
accumulated post-retirement medical benefit obligation upon
adoption. Adoption of this standard resulted in a cumulative
effect reduction of net income of approximately $1.0 million for
the quarter ended September 30, 1995. Income before cumulative
effect of change in accounting principles for the quarter ended
September 30, 1995 was $2,064,000.
Interest Income. Interest income for the quarter ended September
30, 1996 was $21.2 million, an increase of $8.3 million, or 64.5%,
from $12.9 million during the quarter ended September 30, 1995.
The largest components contributing to this increase in interest
income were interest income on real estate loans, investment
securities, and mortgage-backed securities, which increased by
$3.0 million, $2.6 million, and $2.2 million, respectively. The
increase in interest income on real-estate loans was attributable
to an increase in average balance of $162.4 million, resulting
from the acquisition of $113.1 million of loans from Conestoga on
June 26, 1996, and $53.9 million in loan originations during the
quarter ended September 30, 1996. Offsetting the effects of this
increase was a decline of 46 basis points in the average yield on
real-estate loans during the quarter ended September 30, 1996
compared to the comparable quarter in 1995, resulting from the
yield on real estate loans acquired from Conestoga, which average
yield upon acquisition was approximately 120 basis points below
the average yield on the Bank's pre-existing portfolio, and, to a
lesser degree, from lower yields on newly originated multi-family
and non-residential loans compared to the yield on loans satisfied
during the quarter ended September 30, 1996. These lower yields
resulted from minor rate reductions on originated loans during the
quarter ended September 30, 1996. The minor rate reductions were
utilized to enhance loan growth, as the Bank sought to deploy
maturing short-term assets acquired from Conestoga into new loans.
The increases in interest income on Investment securities and
Mortgage-backed securities were attributable primarily to
increases in average balances of $166.8 million (168.1%,) and
$119.0 million (131.4%) respectively, during the quarter ended
September 30, 1996 compared to the quarter ended September 30,
1995. These increases were attributable to the acquisition of
$170.8 million and $124.4 million of investment securities and
mortgage-backed securities, respectively, from Conestoga. In
addition, the average yield on investment and mortgage-backed
securities increased by 61 basis points and 39 basis points,
respectively, during the quarter ended September 30, 1996 compared
to the quarter ended September 30, 1995. The increases in yields
resulted primarily from the acquisition of investment and mortgage-
backed securities from Conestoga, which earned higher average
yields, and are of longer average duration, than the Bank's
historic portfolios, and from higher yields on securities acquired
or repricing during the quarter ended September 30, 1996 resulting
from interest rate increases during the quarter ended September
30, 1996.
Interest Expense. Interest expense increased $4.0 million, or
68.1%, to $10.0 million during the quarter ended September 30,
1996 from $6.0 million during the quarter ended September 30,
1995. This increase resulted primarily from increases of $3.0
million, $755,000 and $254,000 in interest expense on Certificate
of Deposit accounts, savings accounts and NOW, SuperNOW and money
market accounts, respectively. The increases in interest expense
on certificate of deposit accounts and savings accounts resulted
from increased average balances of $216.0 million and $122.8
million respectively during the quarter ended September 30, 1996
compared to the quarter ended September 30, 1995. The acquisition
of $216.3 million and $129.2 million of certificate of deposit
accounts and savings accounts from Conestoga was the primary
factor behind these average balance increases. Offsetting the
increase in interest expense created from the growth in average
balances, was the decrease in the average cost on certificate of
deposit accounts of 14 basis points resulting primarily from lower
rates offered during the quarter ended September 30, 1996, as
part of the Bank's deposit pricing strategy. The increase in
interest expense on NOW, Super NOW and money market accounts
resulted from increases of $29.2 million and 68 basis points in
average balances and average cost, respectively, during the
quarter ended September 30, 1996 compared to the quarter ended
September 30, 1995. The increase in average balances and average
cost resulted primarily from increased rates offered on money
market accounts of approximately 60 basis points, utilized to
offset reductions in time deposit rates, during the quarter ended
September 30, 1996 compared to the quarter ended September 30,
1995.
Provision for Loan Losses. The provision for loan losses increased
$450,000, or 75%, to $1.1 million for the quarter ended September
30, 1996 from $600,000 for the quarter ended September 30, 1995.
The allowance for loan losses increased by $849,000 during the
quarter ended September 30, 1996 as the loan loss provision of
$1.1 million was offset, in part, by net charge-offs of $201,000.
In management's judgment, it was prudent to continue to increase
the quarterly provision, and thus the loan loss allowance, based
upon the growing volume of multi-family loan originations, which
generally have greater risk than loans secured by one-to-four
family residences, even though non-performing loans declined from
$6.6 million at June 30, 1996 to $5.2 million at September 30,
1996. The allowance for loan losses as a percentage of non-
performing loans and total loans was 166.7% and 1.41%,
respectively, at September 30, 1996, up from 119.25% and 1.34%,
respectively, at June 30, 1996. See "Asset Quality."
Non-interest Income. Non-interest income increased $343,000, or
82.9%, to $757,000 during the quarter ended September 30, 1996
compared to $414,000 during the quarter ended September 30, 1995.
This increase was attributable primarily to increases of $224,000
and $137,000 in service charges and other fees, and in other
income, respectively. Contributing to the increase in service
charge and other fee income were increases of $69,000 related to
safe deposit boxes, $72,000 related to various loan servicing
activities, and $10,000 in miscellaneous fee income. The increase
in other income was attributable to increases of $37,000, $22,000
and $79,000 in Federal Home Loan Bank of New York ("FHLBNY")
capital stock dividend income, late charges on mortgage loans, and
loan prepayment penalty income, respectively.
Non-Interest Expense. Non-interest expense increased $5.2 million
to $8.1 million during the quarter ended September 30, 1996 from
$2.9 million during the quarter ended September 30, 1995. The
largest component of this increase was the SAIF Special Assessment
of $2.0 million. See "- Impact of Recent Legislation." The Company
also incurred increased salary and employee benefit, occupancy and
equipment, data processing, and other operating expenses of
$630,000, $325,000, $128,000, and $583,000, respectively,
resulting from both the recent acquisition of Conestoga and
operations as a public company. While these four expense items
increased in the aggregate, they declined in the aggregate as a
percentage of average assets by 14.0% during the three months
ended September 30, 1996 compared to the quarter ended September
30, 1995. Also, the Company recorded a provision for losses on
other real estate owned of $193,000 during the quarter ended
September 30, 1996, while no such provision was recorded during
the comparable 1995 quarter. The provision for the three months
ended September 30, 1996 was attributable to growth in other real
estate owned from June 30, 1996 to September 30, 1996. From June
30, 1995 to September 30, 1995, other real estate owned
experienced a significant decline, thus no provision was deemed
necessary during the period.
In addition, during the quarter ended September 30, 1996, the
Bank incurred expenses of $463,000, related to ESOP compensation
and $594,000 related to goodwill amortization resulting from its
acquisition of Conestoga. These expenses, which will be incurred
on an ongoing basis, were not recorded during the quarter ended
September 30, 1995, since, as of September 30, 1995, the Bank had
not completed its initial public offering (whereby the ESOP began
operations) nor its acquisition of Conestoga (whereby goodwill
was generated).
Overall, non-interest expense as a percentage of average assets,
exclusive of the SAIF Special Assessment, increased to 2.04% for
the quarter ended September 30, 1996 from 1.76% for the quarter
ended September 30, 1995.
Income Tax Expense. Income tax expense totaled $1.5 million
during the quarter ended September 30, 1996 compared to $1.7
million during the quarter ended September 30, 1995, a decline of
$225,000. The decline was attributable primarily to a decrease of
$1.1 million in pre-tax income, offset by an increase in the
effective tax rate from 45.8% for the quarter ended September 30,
1995 to 55.3% for the quarter ended September 30, 1996. The
increased effective tax rate during the quarter ended September
30, 1996 resulted from the acquisition of Conestoga being
accounted for as a tax-free transaction, resulting in the Company
receiving no tax benefit for goodwill expense. Excluding the
effects of goodwill expense, the effective tax rate for the
quarter ended September 30, 1996 was 45.5%.
Asset Quality
Non-performing loans, 23 loans in all, totaled $5.2 million at
September 30, 1996 versus $6.6 million at June 30, 1996. The
largest loan in this group is a $2.1 million foreclosure on an
underlying cooperative apartment building located in Brooklyn,
New York. The Bank has received a preliminary offer to purchase
the mortgage for $1.5 million. No assurance can be given that the
mortgage will be sold, or as to the ultimate terms of any such
sale. The Bank believes that its allowance for loan losses as of
September 30, 1996 is adequate after taking into consideration
the proposed sale of the loan and expected charge to the
allowance for loan losses. The Bank had 35 loans totaling
$1.2 million delinquent 60-89 days at September 30, 1996, as
compared to twelve such delinquent loans totaling $1.7 million at
June 30, 1996.
It is the policy of the Bank to initiate foreclosure proceedings
after a loan becomes 90 days past due. As soon as practicable
after initiating foreclosure proceedings on a loan, the Bank
prepares an estimate of the fair value of the underlying
collateral. In the event the carrying balance of the loan,
including all accrued interest, exceeds the estimate of fair
value, the loan is considered to be impaired and a reserve is
established pursuant to SFAS No. 114, "Accounting by a Creditor
for Impairment of a Loan." At September 30, 1996, $6.4 million
of loans were deemed impaired under SFAS No. 114.
Under Generally Accepted Accounting Principles ("GAAP"), the Bank
is required to account for certain loan modifications or
restructurings as ''troubled-debt restructurings.'' In general,
the modification or restructuring of a debt constitutes a
troubled-debt restructuring if the Bank, for economic or legal
reasons related to the borrower's financial difficulties, grants
a concession to the borrower that the Bank would not otherwise
consider. Debt restructurings or loan modifications for a
borrower do not necessarily always constitute troubled-debt
restructurings, however, and troubled-debt restructurings do not
necessarily result in non-accrual loans. The Bank had four loans
classified as troubled-debt restructurings at September 30, 1996,
totaling $4.7 million, and all are currently performing according
to their restructured terms. The largest restructured debt, a
$2.7 million loan secured by a mortgage on an underlying
cooperative apartment building located in Forest Hills, New York,
was originated in 1987. The loan was first restructured in 1988,
and again in 1994.
<PAGE>
The following table sets forth information regarding the Bank's
non-performing assets and troubled-debt restructurings at the
dates indicated.
<TABLE>
<CAPTION>
At September 30, At June 30,
1996 1996
---------------- ------------
(Dollars in thousands)
<S> <C> <C>
Non-accrual mortgage loans:
One- to four-family...................... $1,308 $1,149
Multi-family and underlying
cooperative............................ 3,485 4,734
Non-residential.......................... - -
Cooperative apartment.................... 404 668
Non-accrual other loans.................. - -
--------------- ------------
Total non-performing loans.................. 5, 197 6,551
--------------- ------------
Total OREO.................................. 2,790 1,946
Total non-performing assets................. $7,987 $8,497
=============== ============
Troubled-debt restructurings................ $4,671 $4,671
Total non-performing assets and troubled-
debt restructurings...................... $12,658 $13,168
Total non-performing loans to total loans... 0.85% 1.12%
Total non-performing assets to total
assets <F1>.............................. 0.65 0.62
Total non-performing assets and troubled-
debt restructurings to total assets <F1>. 1.03 0.96
<FN>
<F1> Total non-performing assets to total assets and total non-
performing assets and troubled-debt restructurings to total
assets were 0.68% and 1.06% at June 30, 1996 exclusive of the
effects on the balance sheet at June 30, 1996 of the excess
proceeds related to the oversubscription to the Company's initial
public offering .
</FN>
</TABLE>
<PAGE>
<TABLE>
Selected Financial Ratios and Other Data
<CAPTION>
At or For the Three Months
Ended September 30,
--------------------------
1996 1995
-------- --------
(Dollars In thousands except per share amounts)
<S> <C> <C>
Performance Ratios:
Return on Average Assets <F1><F2> 0.41% 1.24%
Return on average stockholders' equity <F1><F2> 2.29% 10.64%
Average stockholders' equity to average assets 17.83% 11.69%
Stockholders' equity to total assets at end of period 17.55% 11.71%
Tangible equity to tangible assets at end of period 15.56% 11.61%
Average interest rate spread 3.24% 3.77%
Net interest margin 3.95% 4.29%
Average interest-earning assets to average
interest-bearing liabilities 119.96% 113.82%
Non-interest expense to average assets <F1> 2.72% 1.76%
Efficiency ratio <F1> 68.55% 40.31%
Per Share Data:
Earnings per share <F1> $0.09 N/A
Book value per share 14.79 N/A
Tangible book value per share 12.80 N/A
Asset Quality Ratios and Other Data:
Total non-performing loans 5,197 5,429
Other real estate owned, net 2,790 2,122
Ratios:
Non-performing loans to total loans 0.85% 1.24%
Non-performing loans and other real estate
owned to total assets 0.65% 1.13%
Allowance for loan losses to:
Non-performing loans 166.65% 102.16%
Total loans 1.41% 1.27%
Full service branches 15 7
Regulatory Capital Ratios (Bank only)
Tangible capital 10.58% 11.61%
Core capital 10.59% 11.61%
Risk-based capital 21.64% 20.78%
<FN>
<F1> Excluding the effect of the SAIF Special Assessment, return
on average assets and equity and earnings per share would have
been 0.78%, 4.35%, and $0.17, respectively, non-interest expense
to average assets would have been 2.04% for the three months
ended September 30, 1996 and the efficiency ratio would have
been 51.42% for the three months ended September 30, 1996.
<F2> Income before cumulative effect of change in accounting
principle is used to calculate return on average assets and
return on average equity ratios.
</FN>
</TABLE>
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of its business which, in the aggregate, involve
amounts which are believed to be immaterial to the financial
condition and results of operations of the Bank.
On December 4, 1995, a purported class action complaint was filed
in the Delaware Chancery Court, New Castle County, on behalf of
the stockholders of Conestoga by Jeffrey Simon (''Plaintiff'')
against Conestoga, each of the members of the Conestoga Board,
and the Bank. The Plaintiff alleges that each of the members of
Conestoga's Board breached his fiduciary duties to Conestoga
stockholders by, among other things, agreeing to accept the
Acquisition consideration, which Plaintiff alleges is inadequate.
The Bank is alleged to have aided and abetted this breach.
Plaintiff seeks various remedies, including compensatory damages
in an unspecified amount.
On February 9, 1996, Conestoga and the director defendants filed
an answer in which they denied the allegations of liability
raised in the complaint and raised affirmative defenses. In
addition, they moved to dismiss the complaint. On February 12,
1996, the Bank filed its own motion to dismiss the complaint. On
or about March 12, 1996, Plaintiff served a motion for leave to
file an amended complaint. In his proposed amended complaint,
Plaintiff asserts, among other things, that the proxy statement
distributed to Conestoga's stockholders did not provide
sufficient disclosure, that the Acquisition was unfair to
Conestoga's stockholders and disproportionately benefits
Conestoga's Board and the Bank.
The Court has not yet ruled on the motions to dismiss the
complaint or the Plaintiff's motion to amend the complaint. The
Bank intends to vigorously defend against the claims made against
it.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K
On July 11, 1996, the Company filed with the Securities and Exchange
Commission a Current Report on Form 8-K dated July 10, 1996, and on
September 9, 1996 a Form 8-K/A dated September 9, 1996 describing the
completion of the Bank's Acquisition of Conestoga Bancorp, Inc.
and the Company's initial public offering.
<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 thereunder duly authorized.
Dime Community Bancorp, Inc.
Dated: November 13, 1996 By:/s/ Vincent F. Palagiano
Vincent F. Palagiano
Chairman of the Board, President and
Chief Executive Officer
Dated: November 13, 1996 By:/s/ Kenneth J. Mahon
Kenneth J. Mahon
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 12,172
<INT-BEARING-DEPOSITS> 915,677
<FED-FUNDS-SOLD> 33,289
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 365,114
<INVESTMENTS-CARRYING> 143,414
<INVESTMENTS-MARKET> 143,574
<LOANS> 611,199
<ALLOWANCE> 8,661
<TOTAL-ASSETS> 1,225,566
<DEPOSITS> 941,817
<SHORT-TERM> 23,490
<LIABILITIES-OTHER> 34,618
<LONG-TERM> 10,506
0
0
<COMMON> 145
<OTHER-SE> 214,990
<TOTAL-LIABILITIES-AND-EQUITY> 1,225,566
<INTEREST-LOAN> 12,779
<INTEREST-INVEST> 7,616
<INTEREST-OTHER> 817
<INTEREST-TOTAL> 21,212
<INTEREST-DEPOSIT> 9,689
<INTEREST-EXPENSE> 10,047
<INTEREST-INCOME-NET> 11,165
<LOAN-LOSSES> 1,050
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 8,132
<INCOME-PRETAX> 2,740
<INCOME-PRE-EXTRAORDINARY> 1,224
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,224
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
<YIELD-ACTUAL> 7.51
<LOANS-NON> 5,197
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,671
<LOANS-PROBLEM> 4,810
<ALLOWANCE-OPEN> 7,812
<CHARGE-OFFS> 203
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 8,661
<ALLOWANCE-DOMESTIC> 8,661
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
