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 December 31, 1998
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 BANCSHARES, 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 ___
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, JANUARY 31, 1999
$.01 Par Value 13,009,688
<PAGE>
-2-
PAGE
Item 1. Financial Statements
Consolidated Statements of Condition at December 31, 1998
(Unaudited) and June 30, 1998 3
Consolidated Statements of Operations for the Three Months
and Six Months Ended December 31, 1998 and 1997 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended December 31, 1998 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 1998 and 1997 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9-26
Item 3 Quantitative and Qualitative Disclosure About Market Risk 26
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities and Use of Proceeds 27
Item 3. Defaults Upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
Exhibits
EXPLANATORY NOTE: This Form 10-Q contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as "believe," "expect," anticipate,"
"should," "planned," "estimated" and "potential". Examples of forward looking
statements include, but are not limited to, 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.
<PAGE>
-3-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT DECEMBER 31,
1998 AT JUNE 30,
(UNAUDITED) 1998
---------------------------- ---------------
<S> <C> <C>
ASSETS:
Cash and due from banks $20,355 $16,266
Investment securities held to maturity (estimated market value of $42,257
and $78,593 at December 31, 1998 and June 30, 1998, respectively) 41,725 78,091
Investment securities available for sale:
Bonds and notes (amortized cost of $106,223 and $72,715 at December 31,
1998 and June 30, 1998, respectively) 106,551 73,031
Marketable equity securities (historical cost of $7,708 and $10,425 at
December 31, 1998 and June 30, 1998, respectively) 9,182 12,675
Mortgage backed securities held to maturity (estimated market value of
$33,897 and $47,443 at December 31, 1998 and June 30, 1998, respectively) 33,213 46,714
Mortgage backed securities available for sale (amortized cost of $429,137
and $361,372 at December 31, 1998 and June 30, 1998, respectively) 430,070 363,875
Federal funds sold 29,750 9,329
Loans:
Real estate 1,085,069 943,864
Other loans 6,398 5,716
Less: Allowance for loan losses (12,046) (12,075)
------------------- ---------------
Total loans, net 1,079,421 937,505
------------------- ---------------
Loans held for sale 269 541
Premises and fixed assets 10,704 10,742
Federal Home Loan Bank of New York Capital Stock 21,843 10,754
Other real estate owned, net 492 825
Goodwill 22,825 24,028
Receivable for securities sold - 18,008
Other assets 23,275 21,542
------------------- ---------------
TOTAL ASSETS $1,829,675 $1,623,926
=================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors $1,023,992 $1,038,342
Escrow and other deposits 30,893 15,395
Securities sold under agreements to repurchase 352,054 256,601
Federal Home Loan Bank of New York advances 227,500 103,505
Payable for securities purchased - 12,062
Accrued postretirement benefit obligation 2,725 2,721
Other liabilities 15,068 8,951
------------------- ---------------
TOTAL LIABILITIES 1,652,232 1,437,577
------------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par, 9,000,000 shares authorized,
none outstanding at December 31, 1998 and June 30, 1998) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,582,700 shares
and 14,551,100 shares issued at December 31, 1998 and June 30, 1998,
respectively, and 11,504,984 shares and 12,176,513 shares outstanding
at December 31, 1998 and June 30, 1998, respectively) 145 145
Additional paid-in capital 144,829 143,322
Retained earnings (substantially restricted) 111,408 105,158
Accumulated other comprehensive income:
Unrealized gain on securities availabke for sale, net of deferred taxes 1,513 2,763
LESS:
Unallocated common stock of Employee Stock Ownership Plan (8,593) (9,175)
Unearned common stock of Recognition and Retention Plan (6,664) (6,963)
Common stock held by Benefit Maintenance Plan (831) (431)
Treasury stock, at cost (3,077,716 shares and 2,374,587 shares at
December 31, 1998 and June 30, 1998, respectively) (64,364) (48,470)
------------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 177,443 186,349
------------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,829,675 $1,623,926
=================== ===============
</TABLE>
See notes to consolidated financial statements
<PAGE>
-4-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
<S> <C> <C> <C> <C>
1998 1997 1998 1997
-------- --------- -------- ----------
INTEREST INCOME:
Loans secured by real estate $20,886 $17,059 $40,815 $33,328
Other loans 126 122 253 251
INVESTMENT SECURITIES 2,458 2,866 4,857 5,550
MORTGAGE-BACKED SECURITIES 7,208 5,713 14,060 10,906
FEDERAL FUNDS SOLD 397 591 673 1,044
-------- -------- -------- --------
TOTAL INTEREST INCOME 31,075 26,351 60,658 51,079
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits and escrow 10,462 10,940 21,342 21,272
Borrowed funds 8,127 3,132 14,230 5,502
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 18,589 14,072 35,572 26,774
NET INTEREST INCOME 12,486 12,279 25,086 24,305
PROVISION FOR LOAN LOSSES 60 525 120 1,050
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 12,426 11,754 24,966 23,255
-------- -------- -------- --------
NON-INTEREST INCOME:
Service charges and other fees 618 596 1,161 1,230
Net gain on sales and redemptions of securities and
other assets 510 163 754 178
Net gain on sales of loans 9 6 27 24
Other 1,270 267 1,719 581
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME 2,407 1,032 3,661 2,013
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,002 2,658 5,798 5,245
ESOP and RRP compensation expense 1,159 1,327 2,290 2,533
Occupancy and equipment 662 753 1,222 1,495
Federal deposit insurance premiums 85 85 174 171
Data processing costs 310 279 621 559
Provision (credit) for losses on Other real estate
owned - 24 (2) 79
Goodwill amortization 602 601 1,203 1,202
Other 1,254 1,133 2,460 2,322
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 7,074 6,860 13,766 13,606
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 7,759 5,926 14,861 11,662
INCOME TAX EXPENSE 3,074 3,039 6,193 5,937
-------- -------- -------- --------
NET INCOME $4,685 $2,887 $8,668 $5,725
======== ======== ======== ========
EARNINGS PER SHARE:
BASIC $0.46 $0.25 $0.83 $0.49
======== ======== ======== ========
DILUTED $0.42 $0.24 $0.77 $0.47
======== ======== ======== ========
STATEMENT OF COMPREHENSIVE INCOME:
Net Income $4,685 $2,887 $8,668 $5,725
Change in unrealized gain on securities available
for sale, net of deferred taxes (2,367) 124 (1,250) 1,069
-------- -------- -------- --------
Total comprehensive income $2,318 $3,011 $7,418 $6,794
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
-5-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1998
---------------------------
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning of period $145
---------------------------
Balance at end of period 145
---------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 143,322
Amortization of excess fair value over cost - ESOP stock 736
Exercise of stock options and tax benefits of stock options and RRP
shares 771
---------------------------
Balance at end of period 144,829
---------------------------
RETAINED EARNINGS:
Balance at beginning of period 105,158
Net income for the period 8,668
Cash dividends declared and paid (2,418)
---------------------------
Balance at end of period 111,408
---------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME, NET:
Balance at beginning of period 2,763
Change in unrealized gain on securities available for sale
during the period, net of deferred taxes (1,250)
---------------------------
Balance at end of period $1,513
---------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (9,175)
Amortization of earned portion of ESOP stock 582
---------------------------
Balance at end of period (8,593)
---------------------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (6,963)
Common stock acquired by RRP (672)
Amortization of earned portion of RRP stock 971
---------------------------
Balance at end of period (6,664)
---------------------------
BENEFIT MAINTENANCE PLAN:
Balance at beginning of period (431)
Common stock acquired by Benefit Maintenance Plan (400)
---------------------------
Balance at end of period (831)
---------------------------
TREASURY STOCK:
Balance at beginning of period (48,470)
Purchase of treasury shares, at cost (15,894)
---------------------------
Balance at end of period (64,364)
---------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
-6-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED DECEMBER 31,
<S> <C> <C>
1998 1997
-------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In THOUSANDS)
Net Income $8,668 $5,725
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net gain on investment and mortgage backed securities sold (546) (117)
Net gain on investment and mortgage backed securities called (86) (9)
Net gain on sale of loans held for sale (27) (24)
Net depreciation and amortization 723 371
ESOP and RRP compensation expense 2,290 2,533
Provision for loan losses 120 1,050
Goodwill amortization 1,203 1,202
Decrease in loans held for sale 299 125
Increase in other assets and other real estate owned (316) (2,274)
Decrease in receivable for securities sold 18,008 -
Increase in payable for securities purchased (12,062) -
Increase in accrued postretirment benefit obligation and other liabilities 6,121 1,863
-------------------- ------------------
Net cash provided by operating activities 24,395 10,445
-------------------- ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in Federal funds sold (20,421) (18,641)
Proceeds from maturities of investment securities held to maturity 1,290 2,250
Proceeds from maturities of investment securities available for sale 5,479 20,500
Proceeds from calls of investment securities held to maturity 35,160 24,500
Proceeds from calls of investment securities available for sale 2,000 6,000
Proceeds from sales of investment securities available for sale 9,873 11,300
Proceeds from sales of mortgage backed securities available for sale - 49,882
Purchases of investment securities held to maturity - (29,082)
Purchases of investment securities available for sale (47,684) (46,924)
Purchases of mortgage backed securities held to maturity - -
Purchases of mortgage backed securities available for sale (127,931) (124,231)
Principal collected on mortgage backed securities held to maturity 13,451 9,209
Principal collected on mortgage backed securities available for sale 59,985 18,204
Net increase in loans (142,036) (99,567)
Purchases of fixed assets (365) (92)
Purchase of Federal Home Loan Bank stock (11,089) (1,153)
-------------------- ------------------
Net cash used in investing activities (222,288) (177,845)
-------------------- ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in due to depositors (14,350) 63,851
Net increase in escrow and other deposits 15,498 11,341
Proceeds from Federal Home Loan Bank of New York Advances 123,995 22,795
Increase in securities sold under agreements to repurchase 95,453 77,885
Cash dividends paid (2,418) (696)
Exercise of stock options and tax benefits of stock options and RRP 770 -
Purchase of common stock by Benefit Maintenance Plan and RRP (1,072) -
Purchase of treasury stock (15,894) (13,319)
------------------- ------------------
Net Cash provided by financing activities 201,982 161,857
------------------- ------------------
DECREASE IN CASH AND DUE FROM BANKS 4,089 (5,543)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 16,266 19,198
------------------- ------------------
CASH AND DUE FROM BANKS, END OF PERIOD $20,355 $13,655
=================== ==================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes 3,923 5,774
=================== ==================
Cash paid for interest 34,769 25,785
=================== ==================
Transfer of loans to Other real estate owned 48 582
=================== ==================
Change in unrealized gain on available for sale securities, net of deferred taxes (1,250) 1,069
=================== ==================
</TABLE>
See Notes to consolidated financial statements
<PAGE>
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
Dime Community Bancshares, 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"), a federally chartered savings
bank, for the purpose of acquiring all of the capital stock of the Bank issued
in the Bank's conversion from a federal mutual savings bank to a federal stock
savings bank 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"). As of December 31, 1998, the only
significant assets of the Company are the capital stock of the Bank, the
Company's loan to the ESOP, and short-term investment securities.
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. As of December 31, 1998,
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 (consisting only of normal recurring
adjustments) necessary for a fair presentation of the Company's financial
condition as of December 31, 1998, the results of operations for the three-
month and six-month periods ended December 31, 1998 and 1997, cash flows for
the six months ended December 31, 1998 and 1997, and changes in stockholders'
equity for the six months ended December 31, 1998. The results of operations
for the three-month and six-month periods ended December 31, 1998, 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 principles ("GAAP") have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
The preparation of financial statements in conformity with GAAP 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.
These consolidated financial statements should be read in conjunction with the
audited consolidated financial statements as of and for the year ended June 30,
1998 and notes thereto of the Company.
3. TREASURY STOCK
During the six months ended December 31, 1998, the Company repurchased 703,129
shares of its common stock into treasury. The average price of the treasury
shares acquired was $22.60 per share, and all shares have been recorded at the
acquisition cost.
<PAGE>
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. EARNINGS PER SHARE
The Company recently adopted Statement of Financial Accounting Standards No.
128, "Earnings Per Share'' ("SFAS 128"). SFAS 128 establishes new standards for
computing and presenting earnings per share. SFAS 128 is applicable to all
U.S. entities with publicly held common stock or potential common
stock, and requires disclosure of basic earnings per share and diluted earnings
per share, for entities with complex capital structures, on the face of the
income statement, along with a reconciliation of the numerator and denominator
of basic and diluted earnings per share. SFAS 128 replaces APB Opinion No. 15
("APB 15"), issued by the American Institute of Certified Public Accountants in
1971, as the authoritative guidance for calculation and disclosure of earnings
per share, but does not amend the provisions of SOP 93-6 related to the
inclusion of allocated and unallocated Employee Stock Ownership Plan ("ESOP")
shares when calculating average shares outstanding. As a result, consistent
with the calculations of average shares outstanding performed under APB 15,
unallocated ESOP shares are not included in average shares outstanding under
SFAS 128. As required by SFAS 128, all prior periods were restated.
2. COMPREHENSIVE INCOME
The Company recently adopted Statement of Financial Accounting Standards No.
130 "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 requires all
items that are components of "comprehensive income" to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as "the change in
equity, or net assets, of a business enterprise during a period from which
transactions and other events and circumstances from non-owner sources." It
includes all changes in equity during a period except those resulting from
investments by owners and distribution to owners. The Company adopted the
provisions of SFAS 130 during the quarter ended September 30, 1998, and as such
was required to (a) classify items of other comprehensive income by their
nature in a financial statement; (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of financial condition, and (c)
reclassify prior periods presented. As the requirements of SFAS 130 are
disclosure only, its implementation had no impact upon the Company's financial
condition or results of operations.
<PAGE>
-9-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Dime Community Bancshares, Inc. ("DCB") or the "Company") is a Delaware
corporation and parent corporation of The Dime Savings Bank of Williamsburgh
("DSBW" or the "Bank"), a federally chartered stock savings bank.
The Company was 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 (the "Conversion"). 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. The Company had no operations
prior to June 26, 1996.
ACQUISITION OF FINANCIAL BANCORP, INC.
As of the close of business on January 21, 1999, (the "Effective Time"),
DCB, completed an acquisition of Financial Bancorp, Inc., a Delaware
corporation ("FIBC"), pursuant to the Agreement and Plan of Merger dated as of
July 18, 1998, by and between DCB and FIBC (the "Merger Agreement"). As part
of the acquisition, FIBC's wholly-owned subsidiary, Financial Federal Savings
Bank, merged with and into DSBW, with DSBW as the resulting financial
institution.
Pursuant to the Merger Agreement, FIBC stockholders were entitled to
receive an aggregate of $34.5 million in cash and 1,504,703 shares of DCB
common stock. Based upon the closing price of DCB common stock on January 21,
1999, the total consideration paid to FIBC stockholders, in the form of cash or
DCB stock, was $66.5 million.
The transaction was accounted for as a purchase transaction, and is
expected to result in the addition of approximately $43.0 million in goodwill
to DCB's balance sheet, to be amortized over approximately 20 years. FIBC's
total assets and deposits were approximately $319.0 million and $231.0 million,
respectively at December 31, 1998.
<PAGE>
-10-
SELECTED FINANCIAL HIGHLIGHTS AND OTHER DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
AT OR FOR THE THREE MONTHS AT OR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------------- -------------------------
<S> <C> <C> <C> <C>
1998<F1> 1997 1998<F1> 1997
------- ------ ------ -----
PERFORMANCE AND OTHER SELECTED RATIOS:
Reported Return on Average Assets 1.05% 0.81% 1.01% 0.83%
Core Return on Average Assets 0.97% 0.81% 0.98% 0.83%
Reported Return on Average Tangible Stockholders' Equity 12.34% 7.40% 11.29% 7.25%
Core Return on Average Tangible Stockholders' Equity 11.42% 7.40% 10.99% 7.25%
Average Interest Rate Spread <F2> 2.42% 3.01% 2.54% 3.11%
Net Interest Margin <F2> 2.92% 3.59% 3.04% 3.67%
Non-interest Expense to Average Assets <F3> 1.45% 1.75% 1.46% 1.79%
Efficiency Ratio <F3> 45.03% 47.63% 44.92% 47.50%
Effective Tax Rate <F4> 39.62% 51.28% 41.67% 50.91%
Tangible Equity to Total Tangible Assets 8.48% 10.81% 8.48% 10.81%
Loans/Earning Assets 61.89% 59.58% 61.89% 59.58%
Loans/Deposits 106.62% 82.72% 106.62% 82.72%
CASH EARNINGS DATA <F1>:
Cash Earnings $6,088 $4,410 $11,445 $8,651
Cash Return on Average Assets 1.37% 1.23% 1.33% 1.25%
Cash Return on Average Tangible Equity 16.04% 11.31% 14.90% 10.96%
Cash Non-interest Expense to Average Assets <F5> 1.19% 1.38% 1.20% 1.42%
Cash Efficiency Ratio <F5> 36.96% 37.53% 36.73% 37.80%
PER SHARE DATA:
Reported EPS (Diluted) $ 0.42 $ 0.24 $ 0.77 $ 0.47
Core EPS (Diluted) 0.39 $ 0.24 $ 0.75 0.47
Cash EPS (Diluted) 0.55 0.37 1.01 0.71
Stated Book Value 15.42 14.97 15.42 14.97
Tangible Book Value 13.31 12.69 13.31 12.69
BALANCE SHEET AVERAGES:
Average Loans $1,054,953 $ 819,873 $1,021,666 $ 799,103
Average Assets 1,780,701 1,429,984 1,718,490 1,387,710
Average Earning Assets 1,709,344 1,368,610 1,648,776 1,323,207
Average Deposits 1,023,689 1,010,630 1,027,024 994,500
Average Equity 177,184 184,248 179,728 186,252
Average Tangible Equity 151,842 155,977 153,584 157,914
ASSET QUALITY SUMMARY:
Net charge-offs $ 5 $ 160 $ 149 $ 261
Nonperforming Loans 1,327 2,268 1,327 2,268
Nonperforming Assets/Total Assets 0.10% 0.22% 0.10% 0.22%
Allowance for Loan Loss/Total Loans 1.10% 1.36% 1.10% 1.36%
Allowance for Loan Loss/Nonperforming Loans 907.76% 507.72% 907.76% 507.72%
<FN>
<F1>Core earnings for the three-month and six-month periods ended December 31,
1998 exclude non-recurring income tax recoveries of $350,000 and $225,000,
respectively. Cash earnings for all periods exclude non-cash expenses
related to goodwill amortization and the after-tax effect of compensation
related to stock benefit plans.
<F2>Interest expense for the three months and six months ended December 31,
1998 include $618,000 of prepayment penalties on borrowings. Excluding
these penalties, the net interest rate spread and net interest margin would
have been 2.58% and 3.07%, respectively, for the three months ended
December 31, 1998 and 2.63% and 3.12%, respectively, for the six months
ended December 31, 1998.
<F3>In calculating these ratios, non-interest expense excludes goodwill
amortization. The actual efficiency ratio and ratio of non-interest
expense to average assets were 49.21% and 1.59%, respectively, for the
three months ended December 31, 1998, 52.20% and 1.92%, respectively, for
the three months ended December 31, 1997, 49.22% and 1.60%, respectively,
for the six months ended December 31, 1998, and 52.10% and 1.96%,
respectively, for the six months ended December 31, 1997.
<F4>Excluding the non-recurring New York State and New York City deferred
income tax recoveries, the effective tax rate was 42.8% and 42.5%,
respectively, during the three months and six months ended December 31,
1998.
<F5>In calculating these ratios, non-interest expense excludes non-cash
expenses related to goodwill amortization and amortization costs related to
stock benefit plans.
</TABLE>
<PAGE>
-11-
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, borrowings, 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 primary investing activities of the Company are the origination of
multi-family and one-to-four-family mortgage loans, and the purchase of
mortgage-backed and other securities. During the six months ended December 31,
1998, the Bank's loan originations totaled $258.9 million compared to $145.5
million for the six months ended December 31, 1997. Purchases of mortgage-
backed and other securities totaled $175.6 million for the six months ended
December 31, 1998 compared to $200.2 million for the six months ended December
31, 1997. These activities were funded primarily by principal repayments on
loans and mortgage-backed securities, maturities of investment securities, and
borrowings by means of repurchase agreements and Federal Home Loan Bank of New
York ("FHLBNY") advances. Principal repayments on loans and mortgage-backed
securities totaled $193.7 million during the six months ended December 31,
1998, compared to $72.1 million for the six months ended December 31, 1997.
This increase has resulted from both increased balances of loans and mortgage
backed securities and recent interest rate declines, which have increased the
rate of principal repayments on loans and mortgage backed securities.
Maturities and calls of investment securities totaled $43.9 million and $53.3
million, respectively, during the six months ended December 31, 1998 and 1997.
Net borrowings in the form of FHLBNY advances or repurchase agreements totaled
$219.4 million during the six months ended December 31, 1998, compared to
$100.7 million during the six months ended December 31, 1997. Loan and
security sales, which totaled $12.8 million and $62.6 million, respectively,
during the six months ended December 31, 1998 and 1997, also provided some
additional funding.
Deposits decreased $14.4 million during the six months ended December 31,
1998, compared to an increase of $63.9 million during the six months ended
December 31, 1997. The decrease in deposits was experienced primarily in
certificate of deposit accounts, which declined $18.2 million, due the
cessation of deposit rate promotions that the Company maintained from July,
1997 to June, 1998. 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 December 31, 1998 totaled $463.4 million. Based upon the Company's
current pricing strategy and deposit retention experience, management believes
that a significant portion of such deposits will remain with the Company. Net
borrowings increased $219.4 million during the six months ended December 31,
1998, with $124.0 million of this growth experienced in FHLBNY advances.
In the normal course of its business, the Company routinely enters into
various commitments, primarily relating to the origination and purchase of
loans and the leasing of certain office facilities. Although completed after
December 31, 1998, the cash component of the merger consideration paid to FIBC
stockholders was funded by operational cash flows and FHLBNY advances. The
Company anticipates that it will have sufficient funds available to meet its
current commitments.
Stockholders' equity declined $8.9 million during the six months ended
December 31, 1998. During the six months ended December 31, 1998, the Company
repurchased 703,129 shares of its common stock into treasury (the "Treasury
Repurchases"). The aggregate cost of the Treasury Repurchases was $15.9
million, at an average price of $22.60 per share. Offsetting the impact of the
Treasury Repurchases was net income of $8.7 million and amortization of the
Company's Employee Stock Ownership Plan ("ESOP") and Recognition and Retention
Plan ("RRP") of $2.3 million during the six months ended December 31, 1998.
<PAGE>
-12-
During the six months ended December 31, 1998, the Company declared and
paid cash dividends totaling $2.4 million, or $0.22 per outstanding common
share, on the respective dates of record. On January 14, 1999, the Company
declared a cash dividend of $0.14 per outstanding common share, payable on
February 10, 1999 to all shareholders of record on January 29, 1999.
The Bank is required to maintain a minimum average daily balance of liquid
assets as defined by Office of Thrift Supervision (the "OTS") regulations. The
minimum required liquidity ratio is currently 4.0%. At December 31, 1998, the
Bank's liquidity ratio was 11.2%. 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 Bank monitors its liquidity position on a daily basis. Excess short-
term liquidity is invested in overnight federal funds sales and various money
market investments. At December 31, 1998, the Bank had $436.9 million in short
and medium term borrowings outstanding at the FHLBNY, comprised of outstanding
advances of $227.5 million and securities sold under agreement to repurchase of
$209.4 million. In the event that the Bank should require funding beyond its
ability to generate it internally, additional sources are available through the
use of the Bank's current $436.9 million borrowing limit at the FHLBNY, which
may be increased through the Bank's purchase of additional FHLBNY capital
stock.
At December 31, 1998, the Bank was in compliance with all applicable
regulatory capital requirements. Tangible capital totaled $130.1 million, or
7.26% of total tangible assets, and exceeded the 1.50% regulatory requirement;
core capital, at 7.26% of adjusted assets, exceeded the required 3.0%
regulatory minimum; and total risk-based capital, at 14.28% of risk weighted
assets, exceeded the 8.0% regulatory minimum. In addition, at December 31,
1998, the Bank was considered "well-capitalized" for all regulatory purposes.
ASSET QUALITY
Non-performing loans (loans past due 90 days or more as to principal or
interest) totaled $1.3 million at December 31, 1998, as compared to $884,000 at
June 30, 1998. The increase resulted primarily from one multi-family and
underlying cooperative loan with an aggregate principal amount of $657,000
which became 90 days past due during the quarter ended September 30, 1998 and
for which the Company recorded a charge-off of $92,000 during the quarter ended
September 30, 1998. In addition, the Bank had 23 loans totaling $485,000
delinquent 60-89 days at December 31, 1998, as compared to 33 such delinquent
loans totaling $328,000 at June 30, 1998. Other than the one loan discussed
above, the majority of the non-performing loans and loans delinquent 60-89 days
are represented by FHA/VA mortgage and consumer loans which possess small
outstanding balances.
Under Generally Accepted Accounting Priciples ("GAAP"), the Company 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 Company, for
economic or legal reasons related to the borrower's financial difficulties,
grants a concession to the borrower that the Company 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 Company had two loans classified as troubled-debt restructurings at
December 31, 1998, totaling $1.3 million, and all are currently performing
according to their restructured terms. The current regulations of the OTS
require that troubled-debt restructurings remain classified as such until
either the loan is repaid or returns to its original terms. Both troubled-debt
restructurings as of December 31, 1998 are on accrual status as they have been
performing in accordance with the restructuring terms for over one year.
<PAGE>
-13-
Under GAAP, the Company established guidelines for determining and
measuring impairment in loans. A loan is determined to be impaired when it is
not performing in accordance with its original terms. In the event the
carrying balance of an impaired loan, including all accrued interest, exceeds
the estimate of its fair value, a reserve is required to be established. The
recorded investment in loans deemed impaired was approximately $1.1 million as
of December 31, 1998, compared to $3.1 million at June 30, 1998, and the
average balance of impaired loans was $2.5 million for the six months ended
December 31, 1998 compared to $4.2 million for the six months ended December
31, 1997. The impaired portion of these loans is represented by specific
reserves totaling $79,000 allocated within the allowance for loan losses at
December 31, 1998. Generally, the Company considers non-performing loans to be
impaired loans. However, at December 31, 1998, approximately $216,000 of one-
to four-family, cooperative apartment and consumer loans on nonaccrual status
are not deemed impaired. All of these loans have outstanding balances less
than $227,000, and are considered a homogeneous loan pool which are not
required to be evaluated for impairment. As of December 31, 1998 all impaired
loans are on non-accrual status.
The balance of other real estate owned has declined from $825,000 at June
30, 1998 to $492,000 at December 31, 1998, due primarily to total sales of
other real estate owned properties of $393,000 during the six months ended
December 31, 1998, which was comprised primarily of one property totaling
$185,000 sold in September, 1998.
The following table sets forth information regarding the Company's non-
performing loans, non-performing assets, impaired loans and troubled-debt
restructurings at the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
AT DECEMBER 31, AT JUNE 30,
1998 1998
------------------- ----------------
(Dollars In Thousands)
NON-PERFORMING LOANS:
One- to four-family $101 $471
Multi-family and underlying cooperative 1,112 236
Non-residential - -
Cooperative apartment 100 133
Other loans 14 44
------------------- ----------------
TOTAL NON-PERFORMING LOANS 1,327 884
TOTAL OREO 492 825
------------------- ----------------
TOTAL NON-PERFORMING ASSETS $1,819 $1,709
=================== ================
TROUBLED-DEBT RESTRUCTURINGS $1,290 $3,971
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS 3,109 5,680
IMPAIRED LOANS 1,112 3,136
TOTAL NON-PERFORMING LOANS TO TOTAL LOANS 0.12% 0.09%
TOTAL IMPAIRED LOANS TO TOTAL LOANS 0.10 0.33
TOTAL NON-PERFORMING ASSETS TO TOTAL ASSETS 0.10 0.11
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS TO TOTAL ASSETS 0.17 0.35
</TABLE>
<PAGE>
-14-
Comparison of Financial Condition at December 31, 1998 and June 30, 1998
Assets. The Company's assets totaled $1.830 billion at December 31, 1998,
an increase of $205.7 million from total assets of $1.624 billion at June 30,
1998. The growth in assets was experienced primarily in real estate loans and
mortgage-backed securities available for sale, which increased $141.2 million
and $66.2 million, respectively. The increase in real estate loans resulted
primarily from originations of $258.9 million during the six months ended
December 31, 1998, of which $245.5 million were multi-family and underlying
cooperative and non-residential loans, offset by principal repayments of $117.7
million. The increase in mortgage backed securities available for sale
resulted from purchases of $127.9 million during the six months ended December
31, 1998, reflecting the continuation of the Company's capital leverage
strategy described in more detail below, offset by principal repayments of
$60.0 million. In addition, the Company experienced growth of $33.5 million
and $20.4 million, respectively, in investment securities available for sale
and federal funds sold, both of which were funded primarily through calls of
investment securities held to maturity and principal paydowns of mortgage
backed securities held to maturity of $35.2 million and $13.5 million,
respectively.
Offsetting the increase in real estate loans and mortgage-backed
securities available for sale was a decline of $18.0 million in receivable for
securities sold, reflecting the settlement in July, 1998, of unsettled
securities sales transactions as of June 30, 1998.
LIABILITIES. Funding for the growth in real estate loans was obtained
primarily from increased FHLBNY advances of $124.0 million during the six
months ended December 31, 1998. Funding for the increase in mortgage-backed
securities available for sale was obtained primarily from increased securities
sold under agreement to repurchase transactions of $95.5 million. Deposits
decreased $14.4 million to $1.024 billion at December 31, 1998 from $1.038
billion at June 30, 1998 due primarily to the cessation of a deposit rate
promotion that the Company maintained from July, 1997 to June, 1998.
STOCKHOLDERS' EQUITY. Stockholders' equity declined $8.9 million during
the six months ended December 31, 1998. The decline was primarily attributable
to Treasury Repurchases of $15.9 million during the six months ended December
31, 1998. The decline in stockholders' equity also resulted from the payment
of cash dividends of $2.4 million, purchases of the Company's common stock on
the open market by the Benefit Maintenance Plan and RRP of $1.1 million, and a
decline of $1.3 million of the unrealized gain on investment and mortgage-
backed securities available for sale. Offsetting these declines in
stockholders' equity was net income of $8.7 million and amortization of the
Company's stock plans of $2.3 million during the six months ended December 31,
1998.
Capital Leverage Strategy. The Company continues to deploy its excess
capital through the use of a capital leverage strategy whereby the Company
invests in high quality mortgage-backed securities ("leverage assets") funded
by short term borrowings from various third party lenders under securities sold
under agreement to repurchase transactions. The capital leverage strategy
generates additional earnings for the Company by virtue of a positive interest
rate spread between the yield on the leverage assets and the cost of the
borrowings. Since the average term to maturity of the leverage assets exceeds
that of the borrowings used to fund their purchase, the net interest income
earned on the leverage strategy would be expected to decline in a rising
interest rate environment. See "Market Risk." To date, the capital leverage
strategy has been undertaken in accordance with limits established by the Board
of Directors, aimed at enhancing profitability under moderate levels of
interest rate exposure.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31,
1998 AND 1997
GENERAL. Net income for the three months ended December 31, 1998, totaled
$4.7 million compared to $2.9 million during the three months ended December
31, 1997. The increase in net income resulted from an increase of $207,000 in
net interest income, a decline of $465,000 in the provision for loan losses, an
<PAGE>
-15-
increase of $1.4 million in non-interest income, and a decline in the Company's
effective tax rate from 51.3% for the three months ended December 31, 1997 to
39.6% for the three months ended December 31, 1998.
NET INTEREST INCOME. The discussion of net interest income for the three
months ended December 31, 1998 and 1997, presented below, should be read in
conjunction with the following table, which sets forth certain information
relating to the Company's consolidated statements of operations for the three
months ended December 31, 1998 and 1997, 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>
-16-
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED DECEMBER 31,
--------------------------------------------------------------------------------------
1998 1997
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Real Estate Loans <F1> $1,049,096 $20,886 7.96% $814,442 $17,059 8.38%
Other loans 5,857 126 8.61 5,431 122 8.99
MORTGAGE-BACKED SECURITIES <F2> 464,429 7,208 6.21 332,763 5,713 6.87
INVESTMENT SECURITIES <F2> 156,189 2,458 6.29 171,990 2,866 6.67
FEDERAL FUNDS SOLD 33,773 397 4.70 43,984 591 5.37
----------- --------- --------- --------
TOTAL INTEREST-EARNING ASSETS 1,709,344 $31,075 7.27% 1,368,610 $26,351 7.70%
----------- ========= --------- ========
NON-INTEREST EARNING ASSETS 71,357 61,374
----------- ---------
TOTAL ASSETS $1,780,701 $1,429,984
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW, SUPER NOW AND
MONEY MARKET ACCOUNTS $49,879 $297 2.36% $48,746 $287 2.34%
SAVINGS ACCOUNTS 335,914 1,786 2.11 336,129 1,913 2.26
CERTIFICATES OF DEPOSIT 596,877 8,353 5.55 597,359 8,706 5.78
MORTGAGORS' ESCROW 5,090 26 2.03 4,586 34 2.94
BORROWED FUNDS <F3> 533,426 8,127 5.70 203,967 3,132 6.09
----------- --------- --------- --------
TOTAL INTEREST-BEARING
LIABILITIES 1,521,186 $18,589 4.85% 1,190,787 $14,072 4.69%
----------- ========= --------- ========
CHECKING ACCOUNTS 41,019 28,396
OTHER NON-INTEREST-BEARING
LIABILITIES 41,312 26,553
----------- ---------
TOTAL LIABILITIES 1,603,517 1,245,736
STOCKHOLDERS' EQUITY 177,184 184,248
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,780,701 $1,429,984
=========== =========
NET INTEREST INCOME/ INTEREST RATE
SPREAD<F4> $12,486 2.42% $12,279 3.01%
======= ========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F5> $188,158 2.92% $177,823 3.59%
========= =========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 112.37% 114.93%
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included.
<F2> Includes securities classified "available for sale.
<F3> In calculating the average cost of borrowed funds for the three months
ended December 31, 1998, a prepayment penalty of $618,000, which was
included in interest expense borrowed funds during the period, was not
annualized.
<F4> Net interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
<F5> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
-17-
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1998
COMPARED TO
THREE MONTHS ENDED
DECEMBER 31, 1997
INCREASE/ (DECREASE)
DUE TO
VOLUME RATE TOTAL
<S> <C> <C> <C>
-------------- ------------ -------------
Interest-earning assets: (DOLLARS IN THOUSANDS)
Real Estate Loans $4,799 $(972) $3,827
Other loans 10 (6) 4
Mortgage-backed securities 2,152 (657) 1,495
Investment securities (254) (154) (408)
Federal funds sold (128) (66) (194)
-------------- ------------ -------------
Total $6,579 $(1,855) $4,724
============== ============ =============
Interest-bearing liabilities:
NOW, Super Now and money market accounts $7 $3 $10
Savings accounts - (127) (127)
Certificates of deposit (7) (346) (353)
Mortgagors' escrow 4 (12) (8)
Borrowed funds 5,128 (133) 4,995
-------------- ------------ ------------
Total 5,132 (615) 4,517
-------------- ------------ ------------
Net change in net interest income $1,447 $(1,240) $207
============== ============ ============
</TABLE>
Net interest income for the three months ended December 31, 1998
increased $207,000 to $12.5 million from $12.3 million during the three
months ended December 31, 1997. The increase was attributable
primarily to an increase of $340.7 million in average interest earning
assets, offset by a decline in the net interest rate spread of 59 basis
points. The net interest margin declined 67 basis points from 3.59%
for the three months ended December 31, 1997 to 2.92% for the three
months ended December 31, 1998.
The narrowing in spread and margin reflects in part the Company's
exposure to interest rate risk resulting from certain changes in the
shape of the yield curve (particularly a flattening or inversion of the
yield curve) and to differing indices upon which the yield on the
Company's interest-earnings assets and the cost of its interest-bearing
liabilities are based. For example, over the past two years the market
has experienced a more significant reduction in interest rates on long-
term instruments as compared to the reduction in interest rates on
short-term instruments resulting in rates on long-term instruments
approximating (and in some cases, going below) the rates on short-term
instruments. More importantly, the spreads earned on the rate
differential between assets and the liabilities funding such assets
have narrowed more with respect to long-term assets as compared to
short-term assets. Since a larger percentage of the Company's assets
are longer term, the Company has experienced a continuous narrowing of
spreads as well as a negative impact on net interest income that has
been more than offset by the Company's growth in interest-earning
assets. The narrowing of the spread and margin also reflects the
continued activities of the capital leverage program, as the interest
rate spread between assets and underlying liabilities under the capital
leverage program are significantly less than the interest rate spread
between the Company's other interest earning assets and interest
bearing liabilities.
<PAGE>
-18-
INTEREST INCOME. Interest income for the three months ended
December 31, 1998, was $31.1 million, an increase of $4.7 million from
$26.4 million during the three months ended December 31, 1997. The
increase in interest income was attributable to increased interest
income on real estate loans and mortgage-backed securities of $3.8
million and $1.5 million, respectively. The increase in interest
income on real estate loans was attributable primarily to an increase
of $234.7 million in the average balance of real estate loans,
resulting primarily from $439.7 million of real estate loans originated
during the period January 1, 1998 through December 31, 1998. The
increases in interest income on mortgage-backed securities were also
attributable primarily to an increase in average balances of $131.7
million, resulting from $294.3 million in mortgage-backed securities
purchased in accordance with the Company's capital leverage program
during the period January 1, 1998 to December 31, 1998. Offsetting
these increases to interest income were decreases in interest income on
investment securities and federal funds sold of $408,000 and $194,000,
respectively, resulting from a decline in the average balances of
investment securities and federal funds sold of $15.8 million and $10.2
million, respectively. The decline in these average balances resulted
from the Company utilizing funds from matured investment securities and
federal funds sold to fund loan originations. Overall, the yield on
interest earning assets decreased 43 basis points from 7.70% during the
three months ended December 31, 1997 to 7.27% during the three months
ended December 31, 1998. The decline was attributable primarily to the
decrease of 42 basis points in average yield on real estate loans,
resulting from increased competition in the real estate lending market.
The decline also reflects declines in the average yield on mortgage
backed securities and investment securities of 66 basis points and 38
basis points, respectively, due to recent declines in overall interest
rates.
INTEREST EXPENSE. Interest expense increased $4.5 million, to
$18.6 million during the three months ended December 31, 1998, from
$14.1 million during the three months ended December 31, 1997. This
increase resulted primarily from increased interest expense of $5.0
million on borrowed funds, which resulted from an increase in average
balance of $329.5 million during the three months ended December 31,
1998 compared to the three months ended December 31, 1997. The
increase in the average balance of borrowed funds resulted primarily
from $197.8 million of borrowed funds added during the period January
1, 1998 to December 31, 1998 under the capital leverage program. The
increase in the average balance of borrowed funds also reflects the
Company's shift to FHLBNY advances, which generally are medium term
interest-bearing liabilities, to fund the Company's loan originations.
In addition to the growth in average balances, the average cost of
interest bearing liabilities increased 16 basis points to 4.85% during
the quarter ended December 31, 1998, from 4.69% during the quarter
ended December 31, 1997. The increase in the average cost of interest
bearing liabilities resulted from the increase in the average balances
of borrowed funds, which generally have higher average costs than
deposits, the average balances of which remained relatively stable. In
addition, interest expense on borrowings include a prepayment penalty
of $618,000, as the Company, in response to recent reductions in
interest rates, replaced $10.0 million of existing long-term borrowings
with new borrowings at an extended maturity and substantially lower
average cost. Offsetting the increase in interest expense on
borrowings were declines of $353,000 and $127,000, respectively, in
interest expense on certificates of deposit and savings accounts.
These declines resulted primarily from reductions in the average cost
of certificates of deposit and savings accounts of 23 basis points and
15 basis points, respectively. The decline in average cost of savings
accounts resulted from recent rate reductions by the Company in
response to an overall decline in interest rates in the Company's local
market. The decline in the average cost of certificates of deposit
accounts resulted primarily from the cessation of deposit rate
promotions that the Company maintained from July, 1997 to June, 1998.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased
$465,000 to $60,000 for the three months ended December 31, 1998, from
$525,000 for the three months ended December 31, 1997. The decline in
the provision for loan losses reflects the decline in non-performing
loans from $2.3 million at December 31, 1997, to $1.3 million at
December 31, 1998, although non-performing loans increased to $1.3
million during the six months ended December 31, 1998, from $884,000
million at June 30, 1998 (primarily relating to one loan). The
allowance for loan losses decreased slightly to $12.0 million at
December 31, 1998, from $12.1 million at June 30, 1998, as net charge-
offs of $149,000 (primarily due to
<PAGE>
-19-
the same loan that comprised the increase in non-performing loans) during
the period exceeded the loan loss provision of $120,000. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income increased $1.4 million to
$2.4 million during the quarter ended December 31, 1998, from $1.0
million during the quarter ended December 31, 1997, primarily due to
increased prepayment penalties of $748,000, which resulted from
increased interest rate competition on new loans. In addition, income
on FHLBNY capital stock increased $197,000, due to an increase in the
balance of FHLBNY capital stock from $9.5 million at December 31, 1997
to $21.8 million at December 31, 1998. The increase in the average
balance of FHLBNY capital stock resulted from the Company's desire to
increase its overall borrowing level with the FHLBNY during this
period. See "Liquidity and Capital Resources." The increase in non-
interest income also reflects increased gains on sales and redemptions
of securities of $373,000, due primarily to the sale of $1.4 million in
equity securities, and increased service fees and customer charges
related to deposit accounts of $81,000.
NON-INTEREST EXPENSE. Non-interest expenses increased $214,000,
from $6.9 million during the quarter ended December 31, 1997, to $7.1
million during the quarter ended December 31, 1998. Salaries and
employee benefit expense increased $344,000 due to staffing and salary
increases during the past twelve months. This increase was partially
offset by a decline of $168,000 in compensation expense related to the
Company's ESOP and RRP, resulting from both a reduction in allocated
RRP shares resulting from retirees under the Company's recent early
retirement window, and the reduction in the overall ESOP compensation
expense resulting from the decline in the average market price of the
Company's common stock during the quarter ended December 31, 1998. In
May, 1998, the Company offered 26 employees who met specific age and
years of service criteria, the opportunity to retire early. Of the 26
persons offered, 15 accepted and eleven declined.
Occupancy and equipment expense declined $91,000 due primarily to
cost savings associated with the sale of the Company's Roslyn office in
May, 1998.
Data processing costs increased $31,000 during the quarter ended
December 31, 1998, compared to the quarter ended December 31, 1997, due
primarily to increased loan activity and Year 2000 compliance costs.
See "The Year 2000 Problem." Offsetting the increase in data
processing costs was a decline of $24,000 in the provision for losses
on other real estate owned, which resulted primarily from a reduction
in other real estate owned balance from $965,000 at December 31, 1997,
to $492,000 at December 31, 1998. See "Asset Quality."
Other expenses increased $121,000 during the quarter ended
December 31, 1998 compared to the quarter ended December 31, 1997 due
primarily to payments totaling $78,000 received during the quarter
ended December 31, 1997 related to outstanding claims against Nationar,
a failed check processing agent, which were recorded as a reduction in
non-interest expense. The increase in other expenses also reflects
increased audit and accounting expenses.
INCOME TAX EXPENSE. Income tax expense totaled $3.1 million for
the three months ended December 31, 1998, compared to $3.0 million for
the three months ended December 31, 1997, an increase of $35,000.
During the three months ended December 31, 1998, the Company recorded a
recovery of deferred New York State and City deferred taxes of
$350,000. Excluding this recovery, the Company's income tax expense
would have increased $385,000, reflecting an increase of $1.8 million
in pre-tax income, offset by a reduction in the effective tax rate from
51.3% during the quarter ended December 31, 1997, to 42.8% during the
quarter ended December 31, 1998. The decline in the effective tax rate
was primarily attributable to certain tax benefits associated with the
formation and funding of subsidiaries of the Bank in April, 1998.
<PAGE>
-20-
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER
31, 1998 AND 1997
GENERAL. Net income for the six months ended December 31, 1998,
totaled $8.7 million compared to $5.7 million during the six months
ended December 31, 1997. The increase in net income resulted from an
increase of $781,000 in net interest income, a decline of $930,000 in
the provision for loan losses, an increase of $1.6 million in non-
interest income, and a decline in the Company's effective tax rate from
50.9% for the six months ended December 31, 1997 to 41.7% for the six
months ended December 31, 1998.
NET INTEREST INCOME. The discussion of net interest income for
the six months ended December 31, 1998 and 1997, presented below,
should be read in conjunction with the following table, which sets
forth certain information relating to the Company's consolidated
statements of operations for the six months ended December 31, 1998 and
1997, 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>
-21-
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1998 1997
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- --------- ---------- -------- ---------
Assets: (DOLLARS IN THOUSANDS)
Interest-earning assets:
Real Estate Loans <F1> $1,015,970 $40,815 8.03% $793,640 $33,328 8.40%
Other loans 5,696 253 8.88 5,463 251 9.19
MORTGAGE-BACKED SECURITIES <F2> 442,282 14,060 6.36 318,317 10,906 6.85
INVESTMENT SECURITIES <F2> 157,567 4,857 6.16 167,296 5,550 6.55
FEDERAL FUNDS SOLD 27,261 673 4.94 38,491 1,044 5.42
------------ ---------- ---------- --------
TOTAL INTEREST-EARNING ASSETS 1,648,776 $60,658 7.36% 1,323,207 $51,079 7.72%
------------ ========== ---------- ========
NON-INTEREST EARNING ASSETS 69,714 64,503
------------ ----------
TOTAL ASSETS $1,718,490 $1,387,710
============ ==========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW, SUPER NOW AND
MONEY MARKET ACCOUNTS $49,840 $589 2.34% $48,942 $579 2.35%
SAVINGS ACCOUNTS 337,003 3,708 2.18 338,367 3,849 2.26
CERTIFICATES OF DEPOSIT 600,753 16,995 5.61 579,225 16,792 5.75
MORTGAGORS' ESCROW 4,857 50 2.04 4,125 52 2.50
BORROWED FUNDS <F3> 472,598 14,230 5.84 180,268 5,502 6.05
------------ ---------- ---------- --------
TOTAL INTEREST-BEARING
LIABILITIES 1,465,051 $35,572 4.82% 1,150,927 $26,774 4.61%
------------ ========== ---------- ========
CHECKING ACCOUNTS 39,428 27,966
OTHER NON-INTEREST-BEARING
LIABILITIES 34,282 22,565
------------ ----------
TOTAL LIABILITIES 1,538,761 1,201,458
STOCKHOLDERS' EQUITY 179,728 186,252
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,718,489 $1,387,710
============ ==========
NET INTEREST INCOME/ INTEREST RATE
SPREAD <F4> $25,086 2.54% $24,305 3.11%
========== ========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F5> $183,725 3.04% $172,280 3.67%
============ ==========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 112.54% 114.97%
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included.
<F2> Includes securities classified "available for sale.
<F3> In calculating the average cost of borrowed funds for the three months
ended December 31, 1998, a prepayment penalty of $618,000, which was
included in interest expense on borrowed funds during the period, was not
annualized.
<F4> Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
<F5> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
-22-
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31, 1998
COMPARED TO
SIX MONTHS ENDED
DECEMBER 31, 1997
INCREASE/ (DECREASE)
DUE TO
<S> <C> <C> <C>
VOLUME RATE TOTAL
-------------- ------------ ------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Real Estate Loans $9,146 $(1,659) $7,487
Other loans 11 (9) 2
Mortgage-backed securities 4,091 (937) 3,154
Investment securities (311) (382) (693)
Federal funds sold (292) (79) (371)
-------------- ------------ ------------
Total $12,645 $(3,066) $9,579
============== ============ ============
Interest-bearing liabilities:
NOW, Super Now and money market accounts $12 $(2) $10
Savings accounts (10) (131) (141)
Certificates of deposit 618 (415) 203
Mortgagors' escrow 9 (11) (2)
Borrowed funds 8,921 (193) 8,728
-------------- ------------ ------------
Total 9,550 (752) 8,798
-------------- ------------ ------------
Net change in net interest income $3,095 $(2,314) $781
============== ============ ============
</TABLE>
Net interest income for the six months ended December 31,
1998 increased $781,000 to $25.1 million from $24.3 million
during the six months ended December 31, 1997. The increase was
attributable primarily to an increase of $325.6 million in
average interest earning assets, offset by a decline in the net
interest rate spread of 57 basis points. The net interest
margin declined 63 basis points from 3.67% for the six months
ended December 31, 1997 to 3.04% for the six months ended
December 31, 1998.
The narrowing in spread and margin reflects in part the
Company's exposure to interest rate risk resulting from certain
changes in the shape of the yield curve (particularly a
flattening or inversion of the yield curve) and to differing
indices upon which the yield on the Company's interest-earnings
assets and the cost of its interest-bearing liabilities are
based. For example, over the past two years the market has
experienced a more significant reduction in interest rates on
long-term instruments as compared to the reduction in interest
rates on short-term instruments resulting in rates on long-term
instruments approximating (and in some cases, going below) the
rates on short-term instruments. More importantly, the spreads
earned on the rate differential between assets and the
liabilities funding such assets have narrowed more with respect
to long-term assets as compared to short-term assets. Since a
larger percentage of the Company's assets are longer term, the
Company has experienced a continuous narrowing of spreads as
well as a negative impact on net interest income that has been
more than offset by the Company's growth in interest-earning
assets. The narrowing of the spread and margin also reflects
the continued activities of the capital leverage program, as the
interest rate spread between assets and underlying liabilities
under the capital leverage program are significantly less than
the interest rate spread between the Company's other interest
earning assets and interest bearing liabilities.
<PAGE>
-23-
INTEREST INCOME. Interest income for the six months ended
December 31, 1998, was $60.7 million, an increase of $9.6
million from $51.1 million during the six months ended December
31, 1997. The increase in interest income was attributable to
increased interest income on real estate loans and mortgage-
backed securities of $7.5 million and $3.2 million,
respectively. The increase in interest income on real estate
loans was attributable primarily to an increase of $222.3
million in the average balance of real estate loans, resulting
primarily from $439.7 million of real estate loans originated
during the period January 1, 1998 through December 31, 1998.
The increases in interest income on mortgage-backed securities
were also attributable primarily to an increase in average
balances of $124.0 million, resulting from $294.3 million in
mortgage-backed securities purchased in accordance with the
Company's capital leverage program during the period January 1,
1998 to December 31, 1998. Offsetting these increases to
interest income was a decrease in interest income on investment
securities and federal funds sold of $693,000 and $371,000,
respectively, resulting, in part, from a decline in the average
balances of investment securities and federal funds sold of $9.7
million and $11.2 million, respectively. The decline in these
average balances resulted from the Company utilizing funds from
matured investment securities and federal funds sold to fund
loan originations. Overall, the yield on interest earning
assets decreased 36 basis points from 7.72% during the six
months ended December 31, 1997 to 7.36% during the six months
ended December 31, 1998. The decline was attributable primarily
to the decrease of 37 basis points in average yield on real
estate loans, resulting from increased competition in the real
estate lending market. The decline also reflects declines in
the average yield on mortgage backed securities and investment
securities of 49 basis points and 47 basis points, respectively,
due to recent declines in overall interest rates.
INTEREST EXPENSE. Interest expense increased $8.8 million,
to $35.6 million during the six months ended December 31, 1998,
from $26.8 million during the six months ended December 31,
1997. This increase resulted primarily from increased interest
expense of $8.7 million on borrowed funds, which resulted from
an increase in the average balance of $292.3 million during the
six months ended December 31, 1998 compared to the six months
ended December 31, 1997. The increase in the average balance
resulted primarily from $197.8 million of borrowed funds added
during the period January 1, 1998 to December 31, 1998 under the
capital leverage program. The increase in the average balance
also reflects the Company's shift to FHLBNY advances, which
generally are medium term interest-bearing liabilities, to fund
the Company's loan originations. In addition to the growth in
average balances, the average cost of interest bearing
liabilities increased 21 basis points to 4.82% during the six
months ended December 31, 1998, from 4.61% during the six months
ended December 31, 1997. The increase in the average cost of
interest bearing liabilities resulted from increased average
balances of certificate of deposit accounts and borrowed funds,
which generally have higher average costs than other deposits,
the average balances of which remained relatively stable.
Offsetting the increase in interest expense on borrowings was a
decline of $141,000 in interest expense on savings accounts.
This decline resulted primarily from reductions in the average
cost of savings accounts of 8 basis points, reflecting recent
rate reductions by the Company in response to an overall decline
in interest rates in the Company's local market.
PROVISION FOR LOAN LOSSES. The provision for loan losses
decreased $930,000 to $120,000 for the six months ended December
31, 1998, from $1.1 million for the six months ended December
31, 1997. The decline in the provision for loan losses reflects
the decline in non-performing loans from $2.3 million at
December 31, 1997, to $1.3 million at December 31, 1998,
although non-performing loans increased to $1.3 million during
the six months ended December 31, 1998, from $884,000 million at
June 30, 1998 (primarily relating to one loan). The allowance
for loan losses decreased slightly to $12.0 million at December
31, 1998, from $12.1 million at June 30, 1998, as net charge-
offs of $149,000 (primarily due to the same loan that comprised
the increase in non-performing loans) during the period exceeded
the loan loss provision of $120,000. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income increased $1.7
million to $3.7 million during the quarter ended December 31,
1998, from $2.0 million during the quarter ended December 31,
1997, primarily due to increased prepayment penalties of
$797,000, which resulted from increased interest rate
competition on new loans. In addition, income on FHLBNY capital
stock increased $288,000, due to an increase in the
<PAGE>
-24-
balance of FHLBNY capital stock from $9.5 million at December 31, 1997
to $21.8 million at December 31, 1998. The increase in the average
balance of FHLBNY capital stock resulted from the Company's
desire to increase its overall borrowing level with the FHLBNY
during this period. See "Liquidity and Capital Resources." The
increase in non-interest income also reflects increased gains on
sales and redemptions of securities of $506,000, due primarily
to the sale of $1.4 million in equity securities, and increased
service fees and customer charges related to deposit accounts of
$158,000.
NON-INTEREST EXPENSE. Non-interest expense increased
$160,000, from $13.6 million during the six months ended
December 31, 1997, to $13.8 million during the six months ended
December 31, 1998. Salaries and employee benefit expense
increased $553,000 due to staffing and salary increases during
the past twelve months. This increase was partially offset by a
decline of $243,000 in compensation expense related to the
Company's ESOP and RRP, resulting from both a reduction in
allocated RRP shares resulting from retirees under the Company's
recent early retirement window, and the reduction in the overall
ESOP compensation expense resulting from the decline in the
average market price of the Company's common stock during the
six months ended December 31, 1998. In May, 1998, the Company
offered 26 employees who met specific age and years of service
criteria, the opportunity to retire early. Of the 26 persons
offered, 15 accepted and eleven declined.
Occupancy and equipment expense declined $273,000 due
primarily to refunds of $144,000 related to real estate taxes on
branch properties, which were recorded as a reduction of
occupancy and equipment expense during the quarter ended
September 30, 1998, and cost savings associated with the sale of
the Company's Roslyn office in May, 1998.
Data processing costs increased $62,000 during the six
months ended December 31, 1998, compared to the six months ended
December 31, 1997, due primarily to increased loan activity and
Year 2000 compliance costs. See "The Year 2000 Problem."
Offsetting the increase in data processing costs was a decline
of $81,000 the in the provision for losses on other real estate
owned, which resulted primarily from a reduction in the other
real estate owned balance from $965,000 at December 31, 1997, to
$492,000 at December 31, 1998.
Other expenses increased $138,000 due primarily to payments
of $78,000 received during the six months ended December 31,
1997 related to outstanding claims against Nationar, a failed
check processing agent, which were recorded as a reduction in
non-interest expense. The increase in other expenses also
reflects increased audit and accounting expenses.
INCOME TAX EXPENSE. Income tax expense totaled $6.2
million for the six months ended December 31, 1998, compared to
$5.9 million for the six months ended December 31, 1997, an
increase of $256,000. During the six months ended December 31,
1998, the Company recorded a recovery of deferred New York State
and City deferred taxes of $350,000. Excluding this recovery,
the Company's income tax expense would have increased $606,000,
reflecting an increase of $3.2 million in pre-tax income, offset
by a reduction in the effective tax rate from 50.9% during the
six months ended December 31, 1997, to 42.5% during the six
months ended December 31, 1998. The decline in the effective
tax rate was primarily attributable to certain tax benefits
associated with the formation and funding of subsidiaries of the
Bank in April, 1998.
THE YEAR 2000 PROBLEM
The "Year 2000 Problem" centers upon the inability of
computer systems to recognize the year 2000. Many existing
computer programs and systems were originally programmed with
six digit dates that provided only two digits to identify the
calendar year in the date field, without considering the
upcoming change in the century. With the impending millennium,
these programs and computers will recognize "00" as the year
1900 rather than the year 2000. Like most financial providers,
the Company and its operations may be significantly affected by
the Year 2000 Problem due to the nature of financial
<PAGE>
-25-
information. Software, hardware and equipment both within and
outside the Company's direct control and with whom the Company
electronically or operationally interfaces (e.g., third party
vendors providing data processing, information system
management, maintenance of computer systems, and credit bureau
information) are likely to be affected. Furthermore, if
computer systems are not adequately changed to identify the Year
2000, many computer applications could fail or create erroneous
results. As a result, many calculations which rely upon the
date field information, such as interest, payment or due dates
and other operating functions, will generate results which could
be significantly misstated, and the Company could experience a
temporary inability to process transactions, send invoices or
engage in similar normal business activities. In addition,
under certain circumstances, failure to adequately address the
Year 2000 Problem could adversely affect the viability of the
Company's suppliers and creditors and the creditworthiness of
its borrowers. Thus, if not adequately addressed, the Year 2000
Problem could result in a significant adverse impact upon the
Company's products, services and competitive condition and
therefore, its results of operations and could be deemed to
imperil the safety and soundness of the Company.
There has been limited litigation filed against corporations
regarding the Year 2000 Problem and their compliance efforts.
The OTS, the Company's primary federal bank regulatory
agency, along with the other federal bank regulatory agencies
has published substantive guidance on the Year 2000 Problem and
has included Year 2000 compliance as a substantive area of
examination for both regularly scheduled and special bank
examinations. These publications, in addition to providing
guidance as to examination criteria, have outlined requirements
for creation and implementation of a compliance plan and target
dates for testing and implementation of corrective action, as
discussed below. As a result of the oversight by and authority
vested in the federal bank regulatory agencies, a financial
institution that does not become Year 2000 compliant could
become subject to administrative remedies similar to those
imposed on financial institutions otherwise found not to be
operating in a safe and sound manner, including remedies
available under prompt correction active regulations.
The Company has developed and is implementing a Year 2000
Project Plan (the "Plan") to address the Year 2000 Problem and
its effects on the Company. The Plan includes five components
which address issues involving awareness, assessment,
renovation, validation and implementation. The Company has
completed the awareness and assessment phases of the Plan.
During the awareness and assessment phases of the Plan, the
Company inventoried all material information systems and
reviewed them for Year 2000 compliance. Among the systems
reviewed were computer hardware and systems software,
applications software and communications hardware and software
as well as embedded or automated devices. As noted below, this
review included both internal systems and those of third party
vendors which provide systems such as retail deposit processing,
loan origination processing, loan servicing and general ledger
and accounting systems and software. The Company is now
actively involved in the renovation, validation and
implementation phase, which is 40% complete. Under regulatory
guidelines issued by the federal banking regulators, the Bank
and the Company must substantially complete testing of core
mission critical internal systems by December 31, 1998 with
testing of both internally and externally supplied systems
complete and all renovation substantially complete by June 30,
1999. In accordance with those guidelines, the Company
completed testing of its mission critical systems prior to
September 1, 1998, and its customer systems prior to December
31, 1998. The Company has agreed to use its facilities as a
test site for its major retail deposit processor allowing the
Company additional opportunity to test and stress such system.
The Company expects to meet the deadlines noted above.
As part of the Plan, the Company has had formal
communications with all of its significant suppliers to
determine the extent to which the Company is vulnerable to those
third parties' failure to remediate their own Year 2000 Problem
and has been following the progress of those vendors with their
Year 2000 compliance status. The Company presently believes
that, with modifications to existing software and conversions to
new software and hardware where necessary, the Year 2000 Problem will be
<PAGE>
-26-
mitigated without causing a material adverse impact on
the operations of the Company. At this time, the Company
anticipates most of its hardware and software systems to become
Year 2000 compliant, tested and operational within the OTS'
suggested time frame. However, if such modifications and
conversions are not made or are not complete on a timely basis,
the Year 2000 Problem could have an adverse impact on the
operations of the Company.
Despite its best efforts to ensure Year 2000 compliance, it
is possible that one or more of the Company's internal or
external systems may fail to operate. At this time, while the
Company expects to become Year 2000 compliant, the probability
of such likelihood cannot be determined. In the event that
system failures occur related to the Year 2000 Problem, the
Company has developed contingency plans, which involve, among
other actions, utilization of an alternate service provider or
alternate products available through the current vendor. The
Company is currently revising its contingency plan to
specifically address other potential business continuance issues
related to the Year 2000 Problem such as general utility
failures. The revised contingency plan is expected to be
approved by the Company's of Directors prior to June 30, 1999.
The Company has reviewed its customer base to determine
whether they pose significant Year 2000 risks. The Company's
customer base consists primarily of individuals who utilize the
Company's services for personal, household or consumer uses.
Individually, such customers are not likely to pose significant
Year 2000 risks directly. The Company has had formal
communications with its significant borrowers in order to
determine the extent to which the Company is vulnerable to
failure, by these significant borrowers, to remediate their own
Year 2000 Problem. The Company has been monitoring the
progress of those borrowers with their Year 2000 compliance
status. It is not possible at this time to gauge the indirect
risks which could be faced if employers, or other business
entities from which these significant borrowers derive a
substantial portion of their cash flows, encounter unresolved
Year 2000 issues.
Monitoring and managing the Year 2000 project will result in
additional direct and indirect costs to the Company. Direct
costs include potential charges by third party software vendors
for product enhancements, costs involved in testing software
products for Year 2000 compliance, and any resulting costs for
developing and implementing contingency plans for critical
software products which are not enhanced. Indirect costs will
principally consist of the time devoted by existing employees in
monitoring software vendor progress, testing enhanced software
products and implementing any necessary contingency plans. The
Company estimates that total costs related to the Year 2000
Problem will not exceed $100,000. Both direct and indirect
costs of addressing the Year 2000 Problem will be charged to
earnings as incurred. To date, two-thirds of the total
estimated costs associated with the Year 2000 Problem have
already been expensed.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is
presented at June 30, 1998 in Exhibit 13.1 to the Company's
Annual Report on Form 10-K, filed with the Securities and
Exchange Commission on September 28, 1998. There have been no
material changes in the Company's market risk at December 31,
1998 compared to June 30, 1998. The following is an update of
the discussion provided therein:
GENERAL. The Company's largest component of market risk
continues to be interest rate risk. Virtually all of this risk
continues to reside at the Bank level. The Bank is not subject
to foreign currency exchange or commodity price risk. At
December 31, 1998, neither the Company nor the Bank owned any
trading assets, nor did they utilize hedging transactions such
as interest rate swaps and caps.
ASSETS, DEPOSIT LIABILITIES AND WHOLESALE FUNDS. There has
been no material change in the composition of assets, deposit
liabilities or wholesale funds from June 30, 1998 to December
31, 1998.
<PAGE>
-27-
GAP ANALYSIS. The one-year and five-year cumulative interest
sensitivity gap as a percentage of total assets still fall
within 2% of their levels at June 30, 1998 utilizing the same
assumptions as at June 30, 1998.
INTEREST RATE RISK COMPLIANCE. The Bank continues to monitor
the impact of interest rate volatility upon net interest income
and net portfolio value in the same manner as at June 30, 1998.
There have been no changes in the board approved limits of
acceptable variance in net interest income and net portfolio
value at December 31, 1998 compared to June 30, 1998, and the
projected changes continue to fall within the board approved
limits at all levels of potential interest rate volatility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and its subsidiaries are 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 Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(n) The Company's Annual Meeting of Shareholders was held
on November 12, 1998.
(o) Not applicable.
(c) The following is a summary of the matters voted upon at
the meeting and the votes obtained:
<PAGE>
-28-
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
VOTES VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS WITHHELD NON-VOTES
1) Election of the following
individuals as Director for a
term of six years:
Patrick E. Curtin 10,002,949 -0- -0- 110,377 -0-
Fred P. Fehrenbach 10,040,599 -0- -0- 72,727 -0-
Malcolm T. Kitson 10,039,900 -0- -0- 73,426 -0-
Stanley Meisels 10,041,499 -0- -0- 71,827 -0-
2) Ratification of the
appointment of Deloitte &
Touche LLP to act as
independent auditors for the
Company for the fiscal year
ended June 30, 1999 10,040,310 33,853 39,163 -0- -0-
</TABLE>
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(p) EXHIBITS
Exhibit 11. Statement Re: Computation of Per Share Earnings
Exhibit 27. Financial Data Schedule (included only
with EDGAR filing).
(B) REPORTS ON FORM 8-K
On October 20, 1998, the Company filed a Current
Report on Form 8-K, relating to the release of its earnings for
the quarterly period ended September 30, 1998.
<PAGE>
-29-
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.
Dime Community Bancshares, Inc.
Dated: February 16, 1999 By: /s/ VINCENT F. PALAGIANO
-------------------------------
Vincent F. Palagiano
Chairman of the Board and
Chief Executive Officer
Dated: February 16, 1999 By: /s/ KENNETH J. MAHON
-------------------------------
Kenneth J. Mahon
Executive Vice President and
Chief Financial Officer
EXHIBITS
========
EXHIBIT NUMBER 11
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended December 31, Ended December 31,
--------------------- --------------------
Amounts in thousands
<S> <C> <C> <C> <C>
1998 1997 1998 1997
------- ------- ------- -------
Net income $4,685 $2,887 $8,668 $5,725
Weighted average common shares
outstanding 10,219 11,509 11,671 11,671
Basic earnings per common shares $0.46 $0.25 $0.83 $0.49
======= ======= ======= =======
Total weighted average common shares
outstanding 10,219 11,509 11,671 11,671
Unvested shares of Recognition and
Retention Plan and common stock
equivalents due to dilutive
effect of stock options 922 510 927 437
------- ------- ------- -------
Total weighted average common shares and
common share equivalents utilized for
diluted earnings per share 11,141 12,019 11,298 12,108
======= ======= ======= =======
Diluted earnings per common share and
common share equivalents $0.42 $0.24 $0.77 $0.47
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 20355
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 29750
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 545803
<INVESTMENTS-CARRYING> 74938
<INVESTMENTS-MARKET> 76154
<LOANS> 1091736
<ALLOWANCE> 12046
<TOTAL-ASSETS> 1829675
<DEPOSITS> 1023992
<SHORT-TERM> 188525
<LIABILITIES-OTHER> 48686
<LONG-TERM> 391029
0
0
<COMMON> 145
<OTHER-SE> 179298
<TOTAL-LIABILITIES-AND-EQUITY> 1829675
<INTEREST-LOAN> 41068
<INTEREST-INVEST> 18917
<INTEREST-OTHER> 673
<INTEREST-TOTAL> 60658
<INTEREST-DEPOSIT> 21342
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</TABLE>
