FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Our consolidated financial and other data set forth below is derived in part
from, and should be read in conjunction with our Consolidated Financial
Statements and Notes thereto. Our earnings per share information for the
fiscal year ended June 30, 1996 is not meaningful since the sale of our common
stock and acquisition of Conestoga Bancorp, Inc. occurred on June 26, 1996. We
acquired Financial Bancorp, Inc. on January 21, 1999. Certain amounts as of
and for the years ended June 30, 1999, 1998, 1997 and 1996 have been
reclassified to conform to their June 30, 2000 presentation.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
At or for the fiscal years ended June 30, 2000 1999 1998 1997 1996
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SELECTED FINANCIAL CONDITION DATA <F16>:
Total assets $2,502,139 $2,247,615 $1,623,926 $1,315,026 $1,371,821
Loans, net <F1> 1,706,515 1,368,260 938,046 739,858 575,874
Mortgage-backed securities 442,690 525,667 410,589 308,525 209,941
Investment securities <F2> 181,033 206,611 174,551 168,596 392,450
Federal funds sold and other short-term 9,449 11,011 9,329 18,902 115,130
investments
Goodwill 60,254 64,871 24,028 26,433 28,438
Deposits 1,219,148 1,238,933 1,034,085 963,395 950,114
Borrowings 1,014,027 731,660 360,106 139,543 27,708
Stockholders' equity 207,169 211,695 186,349 190,889 213,071
Tangible Stockholders' equity 149,464 145,562 159,558 162,361 184,188
SELECTED OPERATING DATA:
Interest income $165,623 $135,390 $107,127 $89,533 $52,952
Interest expense on deposits and
borrowings 98,820 77,219 56,935 41,564 23,516
Net interest income 66,803 58,171 50,192 47,969 29,436
Provision for losses 240 240 1,635 4,200 2,979
Net interest income after provision for
loan losses 66,563 57,931 48,557 43,769 26,457
Non-interest income 5,043 6,438 6,344 3,630 1,042
Non-interest expense <F3> 34,015 30,493 29,937 27,492 14,021
Income before income tax expense and
cumulative effect of changes in
accounting principle 37,591 33,876 24,964 19,907 13,478
Income tax expense <F4> 15,217 14,015 11,866 7,591 6,181
Income before cumulative effect of
changes in accounting principle 22,374 19,861 13,098 12,316 7,297
Cumulative effect on prior years of
changing to a different method of
accounting for postretirement benefits
other than than pensions <F5>: - - - - (1,032)
Net income <F6> $22,374 $19,861 $13,098 $12,316 $6,265
SELECTED FINANCIAL RATIOS AND OTHER DATA <F7>:
FINANCIAL AND PERFORMANCE RATIOS:
Return on average assets <F6> <F8> 0.93% 1.02% 0.90% 1.00% 1.07%
Return on average stockholders' equity <F6><F8> 10.65 10.34 7.06 5.94 9.07
Stockholders' equity to total assets
at end of period 8.28 9.42 11.48 14.52 15.53
Tangible equity to tangible assets at end of
period 6.11 6.67 9.99 12.62 13.72
Loans to deposits at end of period 141.18 111.66 91.88 77.91 61.43
Loans to earning assets at the end of the period 73.10 65.05 61.51 60.21 46.21
Average interest rate spread <F9> 2.48 2.61 2.97 3.37 3.85
Net interest margin <F10> 2.91 3.11 3.58 4.09 4.43
Average interest earning assets to average
interest bearing liabilities 110.04 112.33 115.13 120.13 116.53
Non-interest expense to average assets <F6> 1.41 1.57 2.05 2.24 2.06
Core non-interest expense to average assets <F12> 1.24 1.37 1.73 1.87 2.06
Efficiency ratio <F6><F11> 46.33 47.84 56.09 54.32 45.98
Core efficiency ratio <F11> <F12> 40.77 41.96 47.39 45.55 45.98
Effective tax rate 40.48 41.37 47.53 38.13 45.86
Dividend payout ratio 34.74 30.36 21.10 0.05 N/A
PER SHARE DATA:
Diluted Earnings per share <F6> $1.90 $1.68 $1.09 $0.95 N/A
Cash dividends per share 0.66 0.51 0.23 0.045 $-
Book value per share 17.76 16.57 15.30 14.58 14.65
Tangible book value per share 12.81 11.39 13.10 12.40 12.66
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<CAPTION>
<S> <C> <C> <C> <C> <C>
DOLLARS IN THOUSANDS,EXCEPT PER SHARE DATA 2000 1999 1998 1997 1996
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CASH EARNINGS INFORMATION:
Cash earnings $31,911 $28,124 $20,944 $17,847 $6,472
Diluted cash earnings per share <F13> 2.71 2.37 1.75 1.37 N/A
Cash return on average assets <F8> <F13> 1.33% 1.45% 1.44% 1.45% 1.10%
Cash return on average
stockholders' equity <F8> <F13> 15.19 14.65 11.29 8.61 9.32
Cash non-interest expense to average assets <F13> 1.07 1.14 1.41 1.63 2.03
Cash efficiency ratio <F11> <F13> 35.19 34.88 38.46 39.51 45.30
ASSET QUALITY RATIOS AND OTHER DATA:
Net charge-offs $536 $201 $286 $1,286 $1,009
Total non-performing loans 4,421 3,001 884 3,190 6,551
Other real estate owned, net 381 866 825 1,697 1,946
Ratios:
Non-performing loans to total loans 0.26% 0.22% 0.09% 0.43% 1.12%
Non-performing loans and real estate
owned to total assets 0.19 0.17 0.11 0.37 0.62
ALLOWANCE FOR LOAN LOSSES TO:
Non-performing loans 334.43% 502.53% 1,365.95% 336.24% 119.25%
Total loans <F14> 0.86 1.09 1.27 1.43 1.34
REGULATORY CAPITAL RATIOS: (Bank only)
Tangible capital 5.76% 5.83% 8.32% 9.86% 9.49%
Core capital 5.76 5.83 8.32 9.87 9.50
Risk-based capital 11.62 11.45 16.58 19.99 21.24
Earnings to Fixed Charges Ratios <F15>:
Including interest on deposits 1.38X 1.44x 1.44x 1.48x 1.57x
Excluding interest on deposits 1.70 2.03 2.79 7.59 14.37
FULL SERVICE BRANCHES 18 19 14 15 15
<FN>
<F1> Loans, net, represents gross loans less net deferred loan fees and
allowance for loan losses.
<F2> Amount includes investment in Federal Home Loan Bank of New York capital
stock.
<F3> Excluding a non-recurring charge of $2.0 million related to the
recapitalization of the Savings Association Insurance Fund (referred to as
SAIF) of the Federal Deposit Insurance Corporation, non-interest expense was
$25.5 million during the year ended June 30, 1997.
<F4> Excluding non-recurring New York State and New York City income tax
recoveries of $1.9 million and $1.0 million, respectively, income tax
expense was $10.5 million during the fiscal year ended June 30, 1997.
<F5> We adopted Statement of Financial Accounting Standards No. 106,
''Employers' Accounting for Postretirement Benefits Other Than Pensions''
effective July 1, 1995. We elected to record the full accumulated post
retirement benefit obligation upon adoption. This resulted in a cumulative
effect adjustment of $1,032,000 (after reduction for income taxes of
$879,000) to apply retroactively to previous years the new method of
accounting, which is shown in the consolidated statement of income for the
year ended June 30, 1996.
<F6> Excluding a non-recurring charge of $2.0 million relating to the
recapitalization of the SAIF and the recovery of New York State and City
deferred income taxes previously provided, net income would have been $10.5
million, and the return on average assets, return on average stockholders'
equity, return on average tangible stockholders' equity, non-interest
expense to average assets, the efficiency ratio, and earnings per share
would have been 0.86%, 5.08%, 5.85%, 2.07%, 50.30% and $0.81, respectively,
for the year ended June 30, 1997.
<F7> With the exception of end of period ratios, all ratios are based on average
daily balances during the indicated periods. Asset Quality Ratios and
Regulatory Capital Ratios are end of period ratios.
<F8> Income before cumulative effect of changes in accounting principles is used
to calculate return on average assets and return on average equity ratios.
<F9> Average interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.
<F10> The net interest margin represents net interest income as a percentage of
average interest-earning assets.
<F11> The efficiency ratio represents non-interest expense as a percentage of
the sum of net interest income and non-interest income, excluding any gains
or losses on sales of assets.
<F12> In calculating these ratios, amortization expense related to goodwill and
the SAIF recapitalization charge are excluded from non-interest expense.
<F13> In calculating these ratios, non-interest expense excludes expenses such
as goodwill amortization and compensation expense related to our s stock
benefit plans which are accretive to book value. Excluding the effects of
the SAIF Special Assessment and the recovery of New York State and City
deferred income taxes previously provided, cash return on average assets,
cash return on average stockholders' equity, cash return on average
tangible stockholders' equity, and cash earnings per share would have been
1.31%, 7.75%, 8.92%, and $1.24 for the year ended June 30, 1997.
<F14> Total loans represents loans, net, plus the allowance for loan losses.
<F15> For purposes of computing the ratios of earnings to fixed charges,
earnings represent income before taxes, extraordinary item and cumulative
effect of accounting changes plus fixed charges. Fixed charges represent
total interest expense, including and excluding interest on deposits.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Dime Community Bancshares, Inc.'s (hereafter referred to as the "Company," "us"
and "we") primary business is the operation of its wholly owned subsidiary, The
Dime Savings Bank of Williamsburgh (hereafter referred to as the "Bank").
Our principal business has been, and continues to be, gathering deposits from
customers within our market area, and investing those deposits primarily in
multi-family and one-to-four family residential mortgage loans, mortgage-backed
securities, and obligations of the U.S. Government and Government Sponsored
Entities. Our revenues are derived principally from interest on loan and
securities portfolios. Our primary sources of funds are: deposits; loan
amortization, prepayments and maturities; amortization, prepayments and
maturities of mortgage-backed and investment securities; borrowed funds; and,
to a lesser extent, occasional sales of investments and mortgage-backed
securities.
Our consolidated results of operations are dependent primarily on net interest
income, which is the difference between the interest income earned on our
interest-earning assets, such as loans and securities, and the interest expense
paid on our interest-bearing liabilities, such as deposits. We also generate
non-interest income such as service charges and other fees. Our non-interest
expenses primarily consist of employee compensation and benefits, occupancy
expenses, federal deposit insurance premiums, net costs of other real estate
owned, data processing fees, amortization of goodwill associated with purchase
acquisition accounting and other operating expenses. Our results of operations
are also significantly affected by general economic and competitive conditions
(particularly changes in market interest rates), government policies, changes
in accounting standards and actions of regulatory agencies.
MANAGEMENT STRATEGY
Our primary strategy is to increase our household and deposit market shares in
the communities we serve, either through acquisitions or purchases of deposits,
or by direct marketing, and to increase our product and service utilization for
each individual depositor. In addition, our primary strategy includes the
origination of, and investment in, mortgage loans, with an emphasis on multi-
family loans. Multi-family lending is a significant business for us and
reflects the fact that much of the housing in our primary lending area is
multi-family housing. We also strive to provide a stable source of liquidity
and earnings through the purchase of investment grade securities; seek to
maintain our asset quality for loans and other investments; and use appropriate
portfolio and asset/liability management techniques in an effort to manage the
effects of interest rate volatility on our profitability and capital.
LOAN ORIGINATIONS WITH AN EMPHASIS ON MULTI-FAMILY LENDING. We believe that
multi-family loans provide advantages as portfolio investments. First, they
provide a higher yield than single-family loans or investment securities of
comparable maturities or terms to repricing. Second, our market area generally
has provided a stable flow of new and refinanced multi-family loan
originations. In addition to our emphasis on multi-family lending, we will
continue to market and originate residential first mortgage loans secured
primarily by owner-occupied, one-to-four family residences, including
condominiums and cooperative apartments. Third, origination and processing
costs for our multi-family loans are lower per thousand dollars of originations
than comparable single-family costs. In addition, to address the higher credit
risk associated with multi-family lending, we have developed what we believe
are reliable underwriting standards for loan applications in order to maintain
a consistent credit quality for new loans.
FRANCHISE EXPANSION. On January 21, 1999, we completed the acquisition of
Financial Bancorp, Inc. (hereafter referred to as "FIBC"), the holding company
for Financial Federal Savings Bank, F.S.B. (hereafter referred to as the "FIBC
Acquisition"). The total consideration paid to FIBC stockholders, in the form
of cash or our common stock, was $66.8 million and was comprised of $34.5
million in cash and 1,504,704 shares of our common stock. Our operating
results for the fiscal year ended June 30, 1999 reflect the addition of
earnings from the acquisition of FIBC for the period January 22, 1999 through
June 30, 1999. The FIBC Acquisition was accounted for as a purchase
transaction.
On June 26, 1996, we completed the acquisition of Conestoga Bancorp, Inc.
(hereafter referred to as "Conestoga") resulting in the merger of Conestoga's
wholly owned subsidiary, Pioneer Savings Bank, F.S.B. (hereafter referred to as
the "Conestoga Acquisition"). The Conestoga Acquisition was accounted for in
the financial statements using the purchase method of accounting. Shareholders
of Conestoga were paid approximately $101.3 million in cash. Since the
Conestoga Acquisition occurred on June 26, 1996, its impact upon our
consolidated results of operations for the fiscal year ended June 30, 1996 was
minimal.
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We continue to evaluate acquisition and other growth opportunities as they
become available. Additionally, we plan to supplement this strategy with direct
marketing efforts designed to increase customer household and/or deposit
balances and the number of our services used per household among our existing
customers.
CAPITAL LEVERAGE STRATEGY. As a result of the initial public offering in June
1996, our capital level significantly exceeded all regulatory requirements. A
portion of the "excess" capital generated by the initial public offering has
been deployed through the use of a capital leverage strategy whereby we invest
in high quality mortgage-backed securities ("leverage assets") funded by short-
term borrowings from various third party lenders. The capital leverage strategy
generates additional earnings for us 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 "Discussion of 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. The assets under the capital leverage program
approximate $445.8 million, $489.6 million and $282.9 million, respectively, at
June 30, 2000, 1999 and 1998. During the fiscal year ended June 30, 2000, we
reduced our level of new capital leverage strategy activity in response to
reduced pre-tax interest rate spreads on these transactions.
In addition to the capital leverage strategy, we undertook additional medium-
term borrowings of $305.0 million, $146.5 million and $40.3 million from the
Federal Home Loan Bank of New York (referred to as the FHLBNY) during the years
ended June 30, 2000, 1999 and 1998 in order to fund multi-family and underlying
cooperative loan originations and other operations. We earn a net interest rate
spread between the yield on the multi-family and underlying cooperative loans
and the cost of the borrowings. In addition, the medium-term
maturities on a portion of the underlying borrowings have helped us
reduce our exposure to interest rate risk.
LIQUIDITY AND CAPITAL RESOURCES
Our 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 occasional sale of investment and
mortgage-backed securities. While maturities and scheduled amortization of
loans and investments are a predictable source of funds, deposit flows,
mortgage prepayments and securities sales are influenced by interest rates,
economic conditions and competition.
Our primary investing activities are the origination of multi-family and
single-family mortgage loans, and the purchase of mortgage-backed and other
securities. During the year ended June 30, 2000, we originated $495.4 million
in total loans, compared to $478.1 million during the year ended June 30, 1999.
Purchases of mortgage-backed and other securities totaled $219.7 million for
the year ended June 30, 2000 compared to $410.4 million for the year ended June
30, 1999, as a reduction in the level of additional capital leverage
transactions during the fiscal year ended June 30, 2000, resulted in a
reduction in mortgage-backed securities purchases. 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 FHLBNY Advances. Principal repayments on real estate
loans and mortgage-backed securities totaled $235.7 million during the year
ended June 30, 2000, compared to $315.6 million for the year ended June 30,
1999. Maturities of investment securities totaled $136.1 million during the
fiscal year ended June 30, 2000, and $90.8 million during the fiscal year ended
June 30, 1999. Loan and security sales, which totaled $108.3 million and $16.9
million during the fiscal years ended June 30, 2000 and 1999, provided
additional cash flows. The increase in sales activity during the year ended
June 30, 2000, reflected a re-positioning of our investment and mortgage-backed
securities portfolios to create a closer interest rate repricing match between
these assets and their underlying liabilities. This increase also
reflected added sales activity during the quarter ended December 31, 1999,
intended to increase our overall liquidity at December 31, 1999 due to
potential customer liquidity concerns regarding the Year 2000 computer
concerns. See "Discussion of Market Risk."
Deposits decreased $19.8 million during the year ended June 30, 2000. This
decrease in deposits primarily reflects the sale of $18.0 million of deposits
formerly housed at our Gates Avenue, Brooklyn branch in November, 1999. The
deposit decline during the fiscal year ended June 30, 2000 also reflects runoff
of maturing higher cost certificates of deposits gathered during deposit rate
promotions which occurred and ended during the fiscal year ended June 30, 1998.
Deposits increased $204.8 million during the fiscal year ended June 30, 1999,
due primarily to the acquisition of $230.7 million in deposits from FIBC.
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 scheduled to mature in one year or less from June 30, 2000,
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totaled $414.9 million. Based upon our current pricing strategy and deposit
retention experience, we believe that we will retain a significant portion of
such deposits. Net borrowings increased $257.4 million during the fiscal year
ended June 30, 2000, with all of the growth occurring in medium-term FHLBNY
advances, which were utilized to fund loan originations during the period.
Borrowings increased $371.6 million during the fiscal year ended June 30,
1999, with the majority of this growth experienced in securities sold under
agreement to repurchase ("Repo Borrowings"), consistent with our capital
leverage strategy.
Stockholders' equity decreased $4.5 million during the fiscal year ended June
30, 2000. This decrease resulted primarily from repurchases of common stock
into treasury of $19.3 million, cash dividends paid of $7.7 million during the
period and an increase in the accumulated other comprehensive loss of $3.0
million related to the decline in market value of investment and mortgage
backed securities available for sale. Offsetting these decreases, was net
income of $22.4 million and stock benefit plan amortization of $4.1 million,
related to vesting of shares in our ESOP and RRP benefit plans.
During the year ended June 30, 2000, we paid four cash dividends totaling $7.7
million, or $0.66 per outstanding common share on the respective dates of
record, compared to $5.9 million, or $0.51 per outstanding common share on the
respective dates of record during the fiscal year ended June 30, 1999. On July
20, 2000, we declared a cash dividend of $0.19 per common share to all
shareholders of record on July 28, 2000. This dividend was paid on August 8,
2000.
In addition, in April, 2000, we issued $25.0 million in subordinated notes
payable, with a stated annual coupon rate of 9.25%. The proceeds of the
issuance are intended to fund general corporate activities including cash
dividend payments and stock repurchases. However, the provisions of the
issuance require that we first meet the interest obligation on these notes,
which approximates $2.3 million annually, prior to our authorization and
payment of common stock cash dividends.
As of June 30, 2000, we had 133,858 shares remaining to be repurchased under
our sixth stock repurchase program, which was initiated in April, 2000. On July
20, 2000, we authorized a Seventh Repurchase Program, which allows for the
repurchase of up to an additional 576,516 shares of our common stock. All
shares acquired for the Sixth and Seventh Repurchase Programs will be purchased
in open market or privately negotiated transactions at the discretion of
management and placed into treasury. No deadline has been established for the
completion of the Sixth or Seventh Repurchase Programs. Based upon the closing
market price of $16.25 per share for our common stock as of June 30, 2000, we
would utilize approximately $11.5 million in funds in order to repurchase all
of the remaining authorized shares under the Sixth and Seventh Repurchase
Program.
The Bank is required to maintain a minimum average daily balance of liquid
assets as a percentage of net withdrawable deposit accounts plus short-term
borrowings by Office of Thrift Supervision ("OTS") regulations. The minimum
required liquidity ratio is currently 4.0%. At June 30, 2000, the Bank's
liquidity ratio was 12.07%. The levels of the Bank's short-term liquid assets
are dependent on its 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. In the event that it should require funds beyond its ability to
generate them internally, additional sources of funds are available through the
use of the Bank's $724.8 million borrowing limit at the FHLBNY. At June 30,
2000, the Bank had $572.5 million in short- and medium-term advances
outstanding at the FHLBNY.
The Bank is also subject to minimum regulatory capital requirements imposed by
the OTS, which, as a general matter, are based on the amount and composition of
its assets. At June 30, 2000, the Bank was in compliance with all applicable
regulatory capital requirements. Tangible capital totaled $136.8 million, or
5.76% of total tangible assets, compared to a 1.50% regulatory requirement;
leverage capital, at 5.76% of adjusted assets, exceeded the required 4.0%
regulatory minimum, and total risk-based capital, at 11.62% of risk weighted
assets, exceeded the 8.0% regulatory minimum. In addition, at June 30, 2000,
the Bank was considered "well-capitalized" for all regulatory purposes.
DISCUSSION OF MARKET RISK
As a financial institution, our primary component of market risk is interest
rate volatility. Fluctuations in interest rates will ultimately impact both the
level of income and expense recorded on a large portion of our assets and
liabilities, and the market value of all interest-earning assets, other than
those which possess a short term to maturity. During the years ended June 30,
2000, 1999 and 1998, we operated under a challenging interest rate
environment, which features little difference between rates offered on short-
term and long-term investments. Under this "flat yield curve environment,"
financial institutions often experience both increased interest rate
competition related to loan originations, and above-average prepayment
activities related to mortgage-backed investments, both of which adversely
impact long-term
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profitability. The flat yield curve environment experienced during the 1998,
1999 and 2000 fiscal years was a primary factor in the continued reduction of
our interest rate spread.
Since a substantial majority of our interest-earning assets and interest-
bearing liabilities are located at the Bank, virtually all of our interest rate
risk exposure lies at the Bank level. As a result, all of our significant
interest rate risk procedures are performed at the Bank level. Based upon our
nature of operations, we are not subject to foreign currency exchange or
commodity price risk. Our real estate loan portfolio, concentrated primarily
within New York City, is subject to risks associated with the local economy.
See "Asset Quality." In addition, we do not own any trading assets, nor did we
engage in any hedging transactions utilizing derivative instruments (such as
interest rate swaps and caps) during the fiscal year ended June 30, 2000, and
did not have any such hedging transactions in place at June 30, 2000. In the
future, we may, with Board approval, engage in hedging transactions utilizing
derivative instruments.
Our interest rate risk management strategy is designed to stabilize net
interest income and preserve capital over a broad range of interest rate
movements and has three primary components:
ASSETS. Our largest single asset type is the adjustable-rate multi-family
real estate loan. Multi-family loans typically carry a shorter average
term to maturity than one-to-four family residential loans, thus
significantly reducing the overall level of interest rate risk.
Approximately 84.5% of multi-family loans originated during the year ended June
30, 2000, were adjustable rate, with repricing typically occurring after five
or seven years, compared to 75% during the previous year. In addition, we have
sought to include various types of adjustable-rate single-family (including
cooperative apartment) whole loans and adjustable and floating-rate investment
securities in our portfolio, which generally have repricing terms of three
years or less. At June 30, 2000, adjustable-rate whole loans totaled $1.21
billion, or 48.2% of total assets, and adjustable-rate investment securities
(CMO's, REMIC's, mortgage-backed securities issued by GSEs and other
securities) totaled $148.9 million, or 6.0% of total assets. At June 30, 1999,
adjustable-rate whole loans totaled $821.3 million, or 36.5% of total assets,
and adjustable-rate securities totaled $149.3 million, or 6.6% of total assets.
DEPOSIT LIABILITIES. As a traditional community-based savings bank we are
largely dependent upon our base of competitively priced core deposits
(consisting of all deposits except certificates of deposit) to provide
stability on the liability side of the balance sheet. We have retained many
loyal customers over the years through a combination of quality service,
convenience, and a stable and experienced staff. Core deposits, at June 30,
2000, were $601.0 million, or 49.3% of total deposits. The balance of
certificates of deposit as of June 30, 2000 was $618.2 million, or 50.7% of
total deposits, of which $414.9 million, or 67.1% mature within one year.
Depending on market conditions, we generally price our certificates of
deposit in an effort to encourage the extension of the average maturities
of deposit liabilities beyond one year. During the fiscal years ended
June 30, 2000 and 1999, we experienced significant runoff in higher-cost
certificate of deposit accounts which related to specific rate promotions
offered in previous periods. Excluding this decrease, we experienced a
strong retention rate on maturing certificates of deposit during both the
fiscal years ended June 30, 2000 and 1999.
WHOLESALE FUNDS. In June, 2000, we received approval from our Board to accept
brokered deposits as a source of funds, although we did not accept any such
deposits during the fiscal year ended June 30, 2000. The Bank is a member of
the FHLBNY which provides it with a borrowing line equal to $724.8 million.
The Bank borrows from the FHLBNY for various purposes. At June 30, 2000, the
Bank had outstanding advances of $572.5 million with the FHLBNY.
GAP ANALYSIS
We actively manage interest rate risk through the use of a simulation model
which measures the sensitivity of future net interest income and the net
portfolio value to changes in interest rates. In addition, we regularly monitor
interest rate sensitivity through GAP Analysis, which measures the terms to
maturity or next repricing date of interest-earning assets and interest-bearing
liabilities.
The following table sets forth the amounts of our consolidated interest-earning
assets and interest-bearing liabilities, outstanding at June 30, 2000, which
are anticipated, based upon certain assumptions, to reprice or mature in each
of the future time periods shown. Except as stated below, the amount of assets
and liabilities shown repricing or maturing during a particular period reflect
the earlier of term to repricing or term to repayment of the asset or
liability. The table is intended to provide an approximation of the projected
repricing of assets and liabilities at June 30, 2000 on the basis of
contractual maturities, anticipated prepayments, and scheduled rate adjustments
within a three-month period and subsequent selected time intervals. For
purposes of presentation in the following table, we utilized our historical
deposit decay rate experience, which for savings accounts was 13% in the one
year or less category. For NOW and Super NOW
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<PAGE>
accounts and money market accounts, we utilized the most recent decay rates
published by the OTS, which, in the one year or less category, were 37% and
79%, respectively. The loan amounts in the table reflect principal balances
expected to be redeployed and/or repriced as a result of contractual
amortization and anticipated early payoffs of adjustable- and fixed-rate
loans, and as a result of contractual rate adjustments on adjustable-rate
loans. The amounts attributable to mortgage-backed securities reflect
principal balances expected to be redeployed and/or repriced as a result
of anticipated principal repayments, and as a result of contractual rate
adjustments on adjustable-rate mortgage-backed securities.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
More than More than More than Non-
3 Months 3 Months 6 Months to 1 Year to 3 Years to More than interest
At June 30, 2000 or Less to 6 Months 1 Year 3 Years 5 Years to 5 Years bearing Total
----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING (DOLLARS IN THOUSANDS)
ASSETS <F1>
Mortgages and
other loans $53,590 $52,600 $105,200 $353,579 $416,497 $739,835 $- $1,721,300
Investment
securities 1,285 3,993 16,131 52,919 47,663 16,619 - 138,610
Mortgage-backed
securities <F2> 66,653 37,879 75,758 57,395 42,795 163,211 - 442,690
Federal funds sold 7,488 1,961 - - - - - 9,449
FHLB capital stock 42,423 - - - - - - 42,423
----------------------------------------------------------------------------------------------------------------------------------
Total interest
earning assets 170,439 96,433 197,088 463,893 506,955 919,665 - 2,354,472
LESS:
Allowance for loan
losses - - - - - - (14,785) (14,785)
----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning
assets 170,439 96,433 197,088 463,893 506,955 919,665 (14,785) 2,339,687
Non-interest-earning
assets - - - - - - 162,452 162,452
----------------------------------------------------------------------------------------------------------------------------------
Total assets $170,439 $96,433 $197,088 $463,893 $506,955 $919,665 $147,667 $2,502,139
----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES:
Savings Accounts $11,933 $12,719 $22,004 $74,992 $57,800 $194,324 $- $373,772
NOW and Super
NOW accounts 2,478 2,249 3,893 8,844 2,737 6,586 - 26,787
Money market
accounts 28,848 23,151 33,487 28,807 15,109 16,664 - 146,066
Certificates of
Deposit 131,865 99,033 184,040 181,179 21,879 169 - 618,165
Borrowed funds 383,319 80,842 30,132 265,029 109,664 120,041 - 989,027
Subordinated Notes - - - - - 25,000 - 25,000
Interest-bearing
escrow - - - - - 3,392 - 3,392
----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 558,443 217,994 273,556 558,851 207,189 366,176 - 2,182,209
Checking accounts - - - - - - 54,358 54,358
Other non-interest
bearing
liabilities - - - - - - 58,403 58,403
Stockholders' equity - - - - - - 207,169 207,169
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $558,443 $217,994 $273,556 $558,851 $207,189 $366,176 $319,930 $2,502,139
----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity
gap per period $(388,005) $(121,562) $(76,468) $(94,958) $299,766 $553,489 -
------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap $(388,005) $(509,566) $(586,034) $(680,992) $(381,226) $172,263 -
------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap as
a percent of
total assets (15.51)% (20.37)% (23.42)% (27.22)% (15.24)% 6.88% -
Cumulative total
interest-
earning assets as
a percent of
cumulative
total interest
bearing liabilities 30.52% 34.37% 44.19% 57.67% 79.01% 107.89% -
<FN>
<F1> Interest-earning assets are included in the period in which the
balances are expected to be redeployed and/or repriced as result of
anticipated pre-payments, scheduled rate adjustments, and contractual
maturities.
<F2> Based upon historical repayment experience.
</TABLE>
-7-
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may not react correspondingly
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate with changes in market interest rates,
while interest rates on other types of assets may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features, like annual and lifetime rate caps, which restrict changes in
interest rates both on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, prepayment and early
withdrawal levels would likely deviate from those assumed in the table.
Finally, the ability of certain borrowers to make scheduled payments on their
adjustable-rate loans may decrease in the event of an interest rate increase.
Our balance sheet is primarily comprised of assets which mature or reprice
within five years, with a significant portion maturing or repricing within one
year. In addition, our deposit base is comprised primarily of savings accounts,
and certificates of deposit with maturities of three years or less.
At June 30, 2000, our interest-bearing liabilities maturing or repricing within
one year totaled $1.05 billion, while interest-earning assets maturing or
repricing within one year totaled $464.0 million, resulting in a negative one-
year interest sensitivity gap of $586.0 million, or 23.4% of total assets. The
increase in the level of the negative one-year interest sensitivity gap
resulted from an increase in the proportion of borrowings maturing or callable
within one year or less. In comparison, at June 30, 1999, we had a negative
one-year interest sensitivity gap of $366.8 million, or 16.3% of total assets.
Under interest rate scenarios other than that which existed on June 30, 2000,
the gap ratio for our assets and liabilities could differ substantially based
upon different assumptions about how core deposit decay rates and loan
prepayments would change. For example, our interest rate risk management model
assumes that in a rising rate scenario, by paying competitive rates on non-core
deposits, a large share of core deposits will transfer to certificates of
deposit and be retained, although at higher cost to us. Also, loan and
mortgage-backed security prepayment rates would be expected to slow, as
borrowers postpone property sales or loan refinancings until rates again
decline.
INTEREST RATE RISK EXPOSURE COMPLIANCE
Increases in the level of interest rates also may adversely affect the fair
value of our securities and other interest earning assets. Generally, the fair
value of fixed-rate instruments fluctuates inversely with changes in interest
rates. As a result, increases in interest rates could result in decreases in
the fair value of our interest-earning assets, which could adversely affect our
results of operations if they were to be sold, or, in the case of interest-
earning assets classified as available for sale, reduce our stockholders'
equity, if retained. Under Generally Accepted Accounting Principles ("GAAP"),
changes in the unrealized gains and losses, net of taxes, on securities
classified as available for sale will be reflected in our stockholders' equity
through other comprehensive income. As of June 30, 2000, our securities
portfolio included $550.5 million in securities classified as available for
sale, which possess a gross unrealized loss of $11.7 million. Accordingly, due
to the magnitude of our holdings of securities available for sale, changes in
interest rates could produce significant changes in the value of such
securities and could produce significant fluctuations in our stockholders'
equity through other comprehensive income. We do not own any trading assets.
On a quarterly basis, an interest rate risk exposure compliance report is
prepared and presented to our Board of Directors. This report, prepared in
accordance with Thrift Bulletin #13a issued by the OTS, presents an analysis of
the net portfolio value resulting from an increase or decrease in the level of
interest rates. The calculated estimates of net portfolio value are compared to
current limits established by management and approved by the Board of
Directors. The following is a summary of the Bank's interest rate exposure
report as of June 30, 2000:
-8-
<PAGE>
Projected Net Portfolio Value
----------------------------------------
Calculated as of
Limit June 30, 2000
------------------------------------------------------------------------
Change in Interest Rate
- 300 Basis Points 7.00% 11.47%
- 200 Basis Points 6.50 11.11
- 100 Basis Points 6.00 10.57
Flat Rate 5.50 9.56
+ 100 Basis Points 5.00 8.26
+ 200 Basis Points 4.50 6.82
+ 300 Basis Points 4.00 5.30
The model utilized to create the report presented above makes various estimates
at each level of interest rate change regarding cash flows from principal
repayments on loans and mortgage-backed securities and/or call activity on
investment securities. Actual results could differ significantly from these
estimates which would result in significant differences in the calculated
projected change. In addition, the limits stated above do not necessarily
represent the level of change under which we would undertake specific measures
to realign our portfolio in order to reduce the projected level of change.
ASSET QUALITY
Our real estate loan servicing policies and procedures require that we initiate
contact with a delinquent borrower as soon as possible after a payment is ten
days late. Generally, the policy calls for a late notice to be sent ten days
after the due date of the payment. If payment has not been received within 30
days of the due date, a letter is sent to the borrower. Thereafter, periodic
letters and phone calls are placed to the borrower until payment is received.
In addition, our policy calls for the cessation of interest accruals on loans
delinquent 90 days or more. When contact is made with the borrower at any time
prior to foreclosure, we will attempt to obtain the full payment due, or work
out a repayment schedule with the borrower to avoid foreclosure. Generally, we
initiate foreclosure proceedings when a loan is 90 days past due. If a
foreclosure action is instituted and the loan is not brought current, paid in
full, or refinanced before the foreclosure sale, the real estate property
securing the loan is generally either sold at foreclosure or as soon thereafter
as practicable.
Management reviews delinquent loans on a periodic basis and reports monthly to
the Board of Directors regarding the status of all delinquent and non-accrual
loans in our portfolio. We retain outside counsel experienced in foreclosure
and bankruptcy procedures to institute foreclosure and other actions on our
delinquent loans. As soon as practicable after initiating foreclosure
proceedings on a loan, we prepare an estimate of the fair value of the
underlying collateral. It is also our general policy to dispose of properties
acquired through foreclosure or deeds in lieu thereof as quickly and as
prudently as possible in consideration of market conditions, the physical
condition of the property, and any other mitigating conditions.
Non-performing loans totaled $4.4 million at June 30, 2000, as compared to $3.0
million at June 30, 1999. The increase in non-performing loans related
primarily to the addition of one multi-family and underlying cooperative loan
with an aggregate principal amount of $1.6 million in June, 2000. We had 25
loans totaling $754,000 delinquent 60-89 days at June 30, 2000, as compared to
23 such delinquent loans totaling $819,000 at June 30, 1999. Under GAAP, we
are 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 we, for economic or
legal reasons related to the borrower's financial difficulties, grant a
concession to the borrower that we would not otherwise consider. We had one
loan classified as troubled-debt restructuring at June 30, 2000, totaling
$700,000, which is on accrual status as it has been performing in accordance
with the restructuring terms for over one year. The current regulations of the
Office of Thrift Supervision require that troubled-debt restructurings remain
classified as such until either the loan is repaid or returns to its original
terms. We did not have any new troubled-debt restructurings during the fiscal
year ended June 30, 2000. Troubled-debt restructurings totaled $1.3 million at
June 30, 1999, consisting of two loans. One troubled-debt restructuring
totaling $590,000 was paid-in-full during the fiscal year ended June 30, 2000.
-9-
<PAGE>
SFAS 114 provides guidelines for determining and measuring impairment in loans.
For each loan that we determine to be impaired, impairment is measured by the
amount the carrying balance of the loan, including all accrued interest,
exceeds the estimate of fair value. A specific reserve is established within
the allowance for loan losses. Generally, we consider non-performing loans to
be impaired loans. The recorded investment in loans deemed impaired was
approximately $2.6 million as of June 30, 2000, consisting of three loans,
compared to $1.6 million at June 30, 1999, consisting of six loans. The
average balance of impaired loans was $1.5 million for the year ended June 30,
2000 compared to $2.3 million for the year ended June 30, 1999. At June 30,
2000, reserves totaling $130,000 have been allocated within the allowance for
loan losses for impaired loans. At June 30, 2000, $1.8 million 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. See "Notes to Consolidated Financial
Statements" for a further discussion of impaired loans.
The balance of other real estate owned ("OREO")was $381,000, consisting of 7
properties, at June 30, 2000 compared to $866,000, consisting of 13 properties,
at June 30, 1999. During the year ended June 30, 2000, total additions to OREO
were $429,000. Offsetting these additions, were OREO sales and charge-offs of
$1.0 million during the year ended June 30, 2000. All charge-offs were
recorded against the allowance for losses on real estate owned, which was
$45,000 as of June 30, 2000.
The following table sets forth information regarding our non-performing loans,
non-performing assets, impaired loans and troubled-debt restructurings at the
dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
At Year Ended June 30, 2000 1999 1998 1997 1996
---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Non-performing loans:
One-to-four family $1,769 $1,577 $471 $1,123 $1,149
Multi-family and underlying cooperative 2,591 1,248 236 1,613 4,734
Cooperative apartment 54 133 133 415 668
Other 7 43 44 39 -
---------------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 4,421 3,001 884 3,190 6,551
Other Real Estate Owned 381 866 825 1,697 1,946
---------------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $4,802 $3,867 $1,709 $4,887 $8,497
=================================================================================================================================
Troubled-debt restructurings $700 $1,290 $3,971 $4,671 $4,671
Total non-performing assets and
troubled-debt restructurings $5,502 $5,157 $5,680 $9,558 $13,168
Impaired loans $2,591 $1,563 $3,136 $4,294 $7,419
RATIOS:
Total non-performing loans to total loans 0.26% 0.22% 0.09% 0.43% 1.12%
Total non-performing loans and troubled-debt
restructurings to total loans 0.30 0.31 0.51 1.05 1.92
Total non-performing assets to total assets 0.19 0.17 0.11 0.37 0.62
Total non-performing assets and troubled-
debt restructurings to total assets 0.22 0.23 0.35 0.73 0.96
</TABLE>
ANALYSIS OF NET INTEREST INCOME
Our profitability, like that of most financial institutions, is dependent to a
large extent upon our net interest income, which is the difference between our
interest income on interest-earning assets, such as loans and securities, and
our interest expense on interest-bearing liabilities, such as deposits and
borrowings. 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 our consolidated
statements of operations for the years ended June 30, 2000, 1999 and 1998, 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.
-10-
<PAGE>
<TABLE>
<CAPTION>
For the years ended June 30, 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE Average Average
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST COST Balance Interest Cost Balance Interest Cost
----------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
ASSETS:
Interest-earning
assets
Real estate loans $1,556,202 $118,436 7.61% $1,158,549 $91,569 7.90% $837,755 $69,824 8.33%
<F1>
Other loans 7,454 616 8.26 6,433 558 8.67 5,393 487 9.03
Investment
securities 155,262 9,715 6.26 176,205 10,654 6.05 164,265 10,798 6.57
<F2>
Mortgage-backed
securities 473,364 30,750 6.50 478,166 29,683 6.21 349,910 23,463 6.71
Federal funds sold 101,521 6,106 6.01 52,900 2,926 5.53 44,773 1,892 5.32
----------------------------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 2,293,803 165,623 7.22 1,872,253 $135,390 7.24% 1,402,096 $106,464 7.65%
----------------------------------------------------------------------------------------------------------------------------------
Non-interest earning
assets 112,700 73,625 56,775
----------------------------------------------------------------------------------------------------------------------------------
Total assets $2,406,503 $1,945,878 $1,458,871
==================================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
NOW, Super NOW
and Money market
accounts $124,188 $4,409 3.55 $62,463 $1,542 2.47% $48,556 $1,131 2.33%
Savings accounts 390,498 7,965 2.04 372,050 7,814 2.10 342,762 7,628 2.26
Certificates of
deposit 642,017 32,662 5.09 648,776 35,061 5.40 594,098 34,174 5.75
Borrowed funds 927,808 53,784 5.80 583,490 32,802 5.62 232,385 13,908 5.98
----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 2,084,511 98,820 4.74% 1,666,779 $77,219 4.63% 1,217,801 $56,935 4.68%
----------------------------------------------------------------------------------------------------------------------------------
Checking accounts 76,452 51,496 31,457
Other non-interest-
bearing liabilities 35,435 35,603 24,097
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 2,196,398 1,753,878 1,273,355
Stockholders' equity 210,105 192,000 185,516
----------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $2,406,503 1,945,878 $1,458,871
==================================================================================================================================
Net interest income/
interest rate
spread <F3> $66,803 2.48% $58,171 2.61% $50,192 2.97%
==================================================================================================================================
Net interest-earning
assets/net interest
margin <F4> $209,292 2.91% $205,474 3.11% $184,295 3.58%
==================================================================================================================================
Ratio of interest-
earning assets to
interest-bearing
liabilities 110.04% 112.33% 115.13%
==================================================================================================================================
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included. Interest income includes loan servicing fees as defined under
SFAS 91.
<F2> Includes interest bearing deposits in other banks and FHLB stock.
<F3> Net interest rate spread represents the difference between the average
yield 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.
</TABLE>
-11-
<PAGE>
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
changes in 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 our interest income and interest expense during the periods indicated.
Information is provided in each category with respect to (i) variances
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) variances attributable to rate (changes in rate multiplied by prior
volume), and (iii) the net change. Variances 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.
<TABLE>
<CAPTION>
YEAR ENDED Year Ended Year Ended
JUNE 30, 2000 June 30, 1999 June 30, 1998
COMPARED TO Compared to Compared to
YEAR ENDED Year Ended Year Ended
JUNE 30, 1999 June 30, 1998 June 30, 1997
INCREASE/(DECREASE) Increase/(Decrease) Increase/(Decrease)
DUE TO Due to Due to
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLUME RATE NET Volume Rate Net Volume Rate Net
---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
INTEREST-EARNING
ASSETS:
Real estate loans $30,829 $(3,962) $26,867 $26,042 $(4,297) $21,745 $16,466 $(1,607) $14,859
Other loans 87 (29) 58 92 (21) 71 (5) 32 27
Investment
securities (1,288) 349 (939) 748 (892) (144) (3,317) 462 (2,855)
Mortgage-backed
securities (309) 1,376 1,067 8,285 (2,065) 6,220 5,973 (215) 5,758
Other 2,808 373 3,181 458 (87) 371 (199) 4 (195)
---------------------------------------------------------------------------------------------------------------------------------
Total $32,127 $(1,893) $30,233 $35,625 $(7,362) $28,263 $18,918 $(1,324) $17,594
=================================================================================================================================
INTEREST-BEARING
LIABILITIES:
NOW, Super NOW
and Money
market $1,858 $1,009 $2,867 $333 $78 $411 $(164) $(109) $(273)
accounts
Savings accounts 381 (230) 151 633 (541) 92 (243) (306) (549)
Certificates of
Deposit (377) (2,022) (2,399) 3,056 (2,169) 887 4,465 840 5,305
Borrowed funds 19,644 1,338 20,982 20,372 (1,478) 18,894 10,558 330 10,888
---------------------------------------------------------------------------------------------------------------------------------
Total 21,506 95 21,601 24,394 (4,110) 20,284 14,616 755 15,371
=================================================================================================================================
Net change in
net interest
income $10,621 $(1,988) $8,632 $11,231 $(3,252) $7,979 $4,302 $(2,079) $2,223
=================================================================================================================================
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2000 AND JUNE 30, 1999
Assets. Our assets totaled $2.50 billion at June 30, 2000, an increase of
$254.5 million from total assets of $2.25 billion at June 30, 1999. The growth
in assets was experienced primarily in real estate loans which increased $338.0
million since June 30, 1999. The increase in real estate loans resulted
largely from real estate loan originations of $486.4 million during the fiscal
year ended June 30, 2000, of which $453.7 million were multi-family and
underlying cooperative and non-residential real estate loans.
Offsetting the increase in real estate loans was an aggregate decline of $99.0
million in investment and mortgage-backed securities available for sale, of
which $73.5 million was experienced in mortgage-backed securities available-
for-sale. The decline in available for sale securities reflects the sale of
$39.9 million of investment securities and $64.9 million of mortgage-backed
securities during the fiscal year ended June 30, 2000. These sales were
utilized both to generate additional liquidity at December 31, 1999, in
response to concerns regarding possible increased deposit outflows attributable
to customer concerns over the Year 2000, and a re-positioning of assets in
response to interest rate increases during the fiscal year ended June 30, 2000.
Additionally, the decline in mortgage-backed securities available for sale
reflects the reduced level of purchase
-12-
<PAGE>
activity for such securities during the fiscal year ended June 30, 2000, as we
reduced our capital leverage transaction level during this period.
See "Capital Leverage Strategy." Additionally, investment securities held to
maturity declined $14.2 million and mortgage-backed securities held to
maturity declined $9.5 million during the fiscal year ended June 30, 2000, due
to scheduled principal repayments on these securities. The proceeds from
payments on these securities were utilized primarily to fund either real
estate loan originations or purchases of investment and mortgage-backed
securities available for sale. Other assets increased by $34.1 million due
primarily to our purchase of $30.2 million in Bank Owned Life Insurance
premiums for eligible employees in May, 2000.
LIABILITIES. Total liabilities increased $259.1 million during the fiscal year
ended June 30, 2000, due primarily to an increase in FHLBNY advances of $305.0
million during the period. The increased FHLBNY advances were utilized to
replace deposit outflows and fund real estate loan originations. Offsetting
the increase in FHLBNY advances were declines in deposits and Repo borrowings.
The emphasis on FHLBNY advances versus Repo borrowings reflects our desire to
manage interest rate risk by more closely matching the maturities of underlying
borrowings to their funded assets, primarily real estate loans and mortgage-
backed securities. Deposits decreased $19.8 million to $1.22 billion at June
30, 2000 from $1.24 billion at June 30, 1999, due to both the sale of $18.0
million in deposits formerly housed at our Gates Avenue, Brooklyn branch in
November, 1999, and the cessation of a deposit rate promotion that we
maintained from July, 1997 to June, 1998. Repos declined $47.6 million during
the fiscal year ended June 30, 2000, due to our decreased capital leverage
activity during the period. See "Capital Leverage Strategy." In addition, in
April, 2000, we issued $25.0 million in subordinated notes payable, with a
stated annual interest rate of 9.25%. The proceeds of the issuance are being
utilized to fund general corporate activities including cash dividend payments
and stock repurchases.
STOCKHOLDERS' EQUITY. Stockholders' equity decreased $4.5 million during the
fiscal year ended June 30, 2000. This decrease resulted primarily from
repurchases of common stock into treasury of $19.3 million, cash dividends paid
of $7.7 million during the period, and an increase in the accumulated other
comprehensive loss of $3.0 million. The increase in the other comprehensive
loss related to the decline in market value of investment and mortgage backed
securities available for sale, due primarily to the general increase in market
interest rates during the past year. Offsetting these decreases was net income
of $22.4 million and stock benefit plan amortization of $4.1 million related to
vesting of ESOP and RRP benefits during the fiscal year ended June 30, 2000.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1999 AND JUNE 30, 1998
ASSETS. Our assets totaled $2.25 billion at June 30, 1999, an increase of
$623.7 million from total assets of $1.62 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 $431.6 million and $139.0
million, respectively.
The increase in real estate loans resulted primarily from originations of
$471.5 million during the fiscal year ended June 30, 1999, of which $452.6
million were multi-family and underlying cooperative and non-residential loans.
The increased loan originations resulted from both an active local real estate
market and a continuation of local competition for interest rates on new loan
originations throughout the year. The increase in real estate loans also
resulted from the acquisition of $192.3 million of such loans from FIBC. The
increase in mortgage-backed securities available for sale resulted from
purchases of $263.6 million during the year ended June 30, 1999, primarily
attributable to the capital leverage program, and $37.8 million of mortgage-
backed securities acquired from FIBC. See "Management Strategy." These
purchases were partially offset by principal repayments of $155.6 million on
these securities. Investment securities available for sale and goodwill
increased $58.5 million and $40.8 million due primarily to the acquisition of
$43.5 million in such securities and the addition of $44.2 million in goodwill
from the FIBC acquisition, which is being amortized over a 20-year period.
Offsetting these increases, investment securities and mortgage-backed
securities held-to-maturity declined $46.4 million and $23.9 million,
respectively, as proceeds from sales, calls, maturities and principal
repayments on these securities were utilized to fund loan originations and
purchases of mortgage-backed securities available for sale.
LIABILITIES. Liabilities increased $598.3 million during the fiscal year ended
June 30, 1999. The largest components of this increase were deposits, FHLBNY
advances and securities sold under agreement to repurchase, which increased
$204.8 million, $146.5 million, and $225.1 million, respectively. The
acquisition of FIBC resulted in the addition of $230.7 million in deposits and
$42.0 million in securities sold under agreements to repurchase. The growth
in FHLBNY advances of $146.5 million during the fiscal year ended June 30,
1999, was
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utilized to fund both loan originations and a significant portion of the cash
consideration related to the FIBC acquisition. The increase in securities sold
under agreement to repurchase of $183.0 million, exclusive of the FIBC
acquisition, was utilized primarily to fund purchases of mortgage-backed
securities available for sale. Deposits, excluding the effects of the FIBC
acquisition, decreased $25.9 million during the fiscal year ended June 30,
1999, due primarily to the cessation of a deposit rate promotion that we
maintained from July 1997 to June 1998.
STOCKHOLDERS' EQUITY. Stockholders' equity increased $25.3 million during the
fiscal year ended June 30, 1999. This increase resulted primarily from the
addition of $34.7 million in equity resulting from the FIBC acquisition and net
income of $19.9 million. Offsetting these increases, were repurchases of common
stock into treasury of $21.2 million and cash dividends paid of $5.9 million,
and a decline of $6.1 million in accumulated other comprehensive income related
to the net unrealized gain or loss on securities available-for-sale.
COMPARISON OF THE OPERATING RESULTS FOR THE FISCAL YEAR ENDED JUNE 30, 2000 AND
1999
GENERAL. Net income increased $2.5 million to $22.4 million during the fiscal
year ended June 30, 2000, compared to $19.9 million during the year ended June
30, 1999. The increase in net income resulted from increases of $8.6 million
in net interest income, which was partially offset by a decrease of $1.4
million in non-interest income and increases of $3.5 million in non-interest
expense and $1.2 million in income tax expense.
NET INTEREST INCOME. Net interest income for the year ended June 30, 2000
increased $8.6 million to $66.8 million from $58.2 million during the year
ended June 30, 1999. The increase was attributable primarily to an increase of
$421.6 million in average interest-earning assets. The interest rate spread
declined 13 basis points from 2.61% for the year ended June 30, 1999 to 2.48%
for the year ended June 30, 2000, and the net interest margin declined 20 basis
points from 3.11% to 2.91% during the same period.
The decline in interest rate spread and interest margin both reflect the $344.3
million increase in average borrowed funds, which possess a higher average cost
than deposits, and the ongoing effects of our continued capital leverage
strategy. The interest rate differential between assets and underlying
liabilities under the capital leverage strategy are significantly less than the
interest rate differential between our other interest-earning assets and
interest-bearing liabilities. While we recently reduced our new activity
related to the capital leverage strategy, the average balance of the capital
leverage assets increased $73.0 million during the fiscal year ended June 30,
2000, due to the retention of a significant portion of the leverage growth
accumulated during the fiscal years ended June 30, 1998 and 1999. The declines
in interest rate spread and net interest margin also reflect the decline of 29
basis points in the average yield on real estate loans. The effects of interest
rate increases by the Federal Reserve only minimally impacted the yield on our
real estate loans during the fiscal year ended June 30, 2000, since real estate
loans, on average, have a longer term to repricing than our other interest-
earning assets. Also contributing to the decline in net interest margin was a
reduction from 112.3% to 110.0% in the ratio of interest earning assets to
interest bearing liabilities, which resulted from a reduction in interest
earning assets funded by stockholders' equity (which bear no offsetting
interest expense), as the percentage of stockholders' equity to total assets
has declined due to ongoing capital leverage and stock repurchase activities.
INTEREST INCOME. Interest income for the fiscal year ended June 30, 2000, was
$165.6 million, an increase of $30.2 million from $135.4 million during the
fiscal year ended June 30, 1999. The increase in interest income was primarily
attributable to increased interest income on real estate loans of $26.9
million, on mortgage backed securities of $1.1 million, and other interest
income (comprised of commercial paper, federal funds sold and FHLBNY capital
stock income) of $3.2 million. The increase in interest income on real estate
loans was attributable primarily to an increase of $397.7 million in the
average balance of real estate loans, resulting from $486.4 million of real
estate loans originated during the fiscal year ended June 30, 2000. The
average balance of other interest earning assets increased $48.6 million due to
an increase in liquid securities maintained near December 31, 1999, due to
liquidity concerns related to the Year 2000, as well as an increase of $1.2
million in average balance of FHLBNY capital stock. The average yield on
mortgage backed securities and other interest earnings assets increased by 29
basis points and 48 basis points, respectively due to recent general increases
in interest rates. Overall, the yield on interest-earning assets declined 2
basis points from 7.24% during the fiscal year ended June 30, 1999 to 7.22%
during the fiscal year ended June 30, 2000. The decline was attributable
primarily to a decline in average yield on real estate loans of 29 basis
points, reflecting continued competition on lending in our local market.
Further, since real estate loans, on average, have a longer term to repricing
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than our other interest-earning assets, the effects of recent market interest
rate increases take longer to impact their overall yield. In addition, the
yield on real estate loans during the most recent fiscal year experienced the
delayed effect of high prepayment activity which occurred during the fiscal
year ended June 30, 1999, which lowered the overall portfolio yield. We expect
the effects of recent interest rate increases and slower prepayment levels to
be recognized more fully in the overall real estate loan portfolio yield during
the fiscal year ended June 30, 2001.
INTEREST EXPENSE. Interest expense increased $21.6 million, to $98.8 million
during the fiscal year ended June 30, 2000, from $77.2 million during the
fiscal year ended June 30, 1999. This increase resulted primarily from
increased interest expense of $21.0 million on borrowed funds, which resulted
from an increase in the average balance of $344.3 million during the fiscal
year ended June 30, 2000, compared to the fiscal year ended June 30, 1999. The
increase in the average balance of borrowed funds resulted primarily from
growth of $305.0 million in FHLBNY advances during the period July 1, 1999 to
June 30, 2000. The FHLBNY advances are generally medium-term interest-bearing
liabilities, which are utilized to fund loan originations and replace deposit
outflows. Additionally, the interest expense on NOW, Super Now and Money Market
accounts increased $2.9 million due to increased average balance and cost
related to our recent money market promotion. This increase was partially
offset by a decline in interest expense on certificates of deposits of $2.4
million, which resulted from a reduction of 31 basis points in average cost on
certificates of deposits, which resulted from the cessation of deposit rate
promotions that we maintained from July 1997 to June 1998. The average cost
of interest-bearing liabilities increased 11 basis points to 4.74% during the
year ended June 30, 2000, from 4.63% during the fiscal year ended June 30,
1999, due primarily to the increase in the average cost of borrowed funds of 18
basis points during the period.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $240,000 during
both the fiscal years ended June 30, 2000 and 1999. See "Asset Quality." The
increase in non-performing loans of $1.4 million during the fiscal year ended
June 30, 2000, resulted solely from the addition of one multi-family loan
totaling $1.8 million to non-performing loans in June, 2000. This loan entered
non-performing status as a result of the unanticipated deterioration of a
portion of the underlying collateral, and not as a result of real estate market
declines. Excluding this loan, non-performing loans experienced general
decline during the fiscal year ended June 30, 2000, reflecting continued
stability in the local real estate market. The allowance for loan losses
declined $296,000 during the fiscal year ended June 30, 2000, as net charge-
offs of $536,000 exceeded the provision of $240,000 during the period. Of the
total net charge-offs during the fiscal year ended June 30, 2000, $454,000
related to a loan pool participation investment acquired from FIBC. Upon
consummating the FIBC acquisition, we provided reserves within our overall loan
loss allowance in anticipation of this potential loss on the loan pool
investment. After attempting to recover this portion of the total investment,
we determined in November, 1999, that it would not be collectible and should be
charged-off. While we have continued our loan loss provisions in response to
our continued growth in real estate loans, we have allowed our allowance for
loan losses to decline as a percentage of loans due to the continuation of low
charge-off and non-performing loan to average loan percentages.
NON-INTEREST INCOME. Non-interest income declined $1.4 million to $5.0 million
during the fiscal year ended June 30, 2000, from $6.4 million during the fiscal
year ended June 30, 1999. The net gain or loss on sales of investment and
mortgage-backed securities and other assets, declined $2.4 million during this
period, as a net loss of $1.6 million was recorded during the fiscal year ended
June 30, 2000, compared to a net gain of $804,000 recorded during the fiscal
year ended June 30, 1999. The securities sales transactions during the fiscal
year ended June 30, 1999, which resulted in a net gain of $668,000, related
primarily to disposals of equity investments which we felt were at attractive
sales values. The securities sales transactions during the fiscal year ended
June 30, 2000, which resulted in a net loss of $2.6 million, were made
primarily to generate additional liquidity at December 31, 1999, related to
possible increased deposit outflows resulting from consumer concerns over the
Year 2000, as well as the re-positioning of assets in response to interest rate
increases during the most recent fiscal year. See "Liquidity and Capital
Resources." The loss on the sale of securities during the fiscal year ended
June 30, 2000, was partially offset by a gain of $1.2 million on the sale of
deposits formerly housed at our Gates Avenue, Brooklyn branch. In addition,
other income also decreased $189,000, due primarily to a reduction of $566,000
in prepayment penalty income, as increased interest rates during the most
recent fiscal year have substantially reduced the level of loan prepayment
activity.
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Offsetting these decreases was an increase in service charges and fees of $1.2
million due mainly to increased service fees and charges on deposits of
$984,000, resulting primarily from adjustments in our deposit fee and service
charges and the addition of the five branches acquired from FIBC.
NON-INTEREST EXPENSE. Non-interest expense increased $3.5 million, from $30.5
million during the fiscal year ended June 30, 1999, to $34.0 million during the
fiscal year ended June 30, 2000. The increase in non-interest expense reflects
increases of $270,000 related to salaries and benefits expense, $756,000
related to occupancy and equipment expense, $340,000 related to data processing
costs, $1.2 million related to goodwill amortization, and $1.4 million related
to other expenses. Excluding a non-recurring reduction in compensation expense
of $1.4 million, which related to a gain on the curtailment of our defined
benefit pension plan, salaries and benefits would have increased $1.6 million
and non-interest expense would have increased by $4.9 million during the fiscal
year ended June 30, 2000 compared to 1999.
A significant portion of the increase in salaries and benefits and occupancy
and equipment expenses resulted from the addition of new employees, property
and equipment in the FIBC acquisition. The remaining salary and benefit
expense increase reflects base salary and staff increases during the past
fiscal year. The remaining increase in occupancy and equipment expense
reflects non-recurring real estate tax refunds of $190,000 on branch
properties, which were recorded as a reduction of occupancy and equipment
expense during the fiscal year ended June 30, 1999.
Increased data processing costs of $340,000 resulted from additional systems
activity related to growth in both loan activity due to originations over the
past twelve months and deposit activity related to the acquisition of the five
branches from FIBC.
The increase in goodwill amortization expense of $1.2 million and core deposit
intangible expense of $460,000 (included in other expense), resulted from
goodwill of $44.2 million and core deposit intangible of $4.9 million added in
the FIBC acquisition, for which five months of amortization expense are
reflected during the fiscal year ended June 30, 1999, compared to a full year
of amortization expense reflected in the fiscal year ended June 30, 2000. The
increase in other expenses resulted primarily from increased supplies, postage
and telephone expenses associated with operations of the branches acquired from
FIBC, and increased advertising expenses associated with recent customer
promotions.
INCOME TAX EXPENSE. Income tax expense increased $1.2 million, or 9%, during
the fiscal year ended June 30, 2000 compared to the fiscal year ended June 30,
1999, due primarily to the increase of $3.7 million, or 11%, in pre-tax income
during the same period. Our effective tax rate declined slightly during this
period, as additional tax benefits realized during the fiscal year ended June
30, 2000, associated with activities of subsidiary companies, were offset by a
decline in non-recurring income tax benefits from $398,000 during the fiscal
year ended June 30, 1999 to $256,000 during the fiscal year ended June 30,
2000. These income tax recoveries are related to adjustments associated with
reconciling the recorded income tax expense to the income tax expense reflected
in the subsequent tax return filing for the respective prior year.
COMPARISON OF THE OPERATING RESULTS FOR THE FISCAL YEAR ENDED JUNE 30, 1999 AND
1998
GENERAL. Net income for the fiscal year ended June 30, 1999, totaled $19.9
million compared to $13.1 million for the fiscal year ended June 30, 1998. The
increase in net income resulted primarily from an increase of $8.0 million in
net interest income, a decline of $1.4 million in the provision for
loan losses, and an increase of $94,000 in non-interest income.
NET INTEREST INCOME. Net interest income for the fiscal year ended June 30,
1999 increased $8.0 million to $58.2 million from $50.2 million during the
fiscal year ended June 30, 1998. The increase was attributable primarily to an
increase of $470.2 million in average interest-earning assets, offset by a
decline in the net interest rate spread of 37 basis points. The net interest
margin declined 47 basis points from 3.58% for the fiscal year ended June 30,
1998 to 3.11% for the fiscal year ended June 30, 1999.
The narrowing interest rate spread and margin reflect, in part, our exposure to
interest rate risk resulting from certain changes in the shape of the yield
curve (particularly a flattening or inverting of the yield curve) and to
differing indices upon which the yield on our interest-earning assets and the
cost of its interest-bearing liabilities are based. For example, over the
period July 1, 1997 to June 30, 1999, the market experienced a more significant
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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 our assets are longer term, we experienced
a continuous narrowing of spreads as well as a negative impact on net interest
income that was more than offset by our 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 our other interest-earning assets
and interest-bearing liabilities.
INTEREST INCOME. Interest income for the fiscal year ended June 30, 1999, was
$135.4 million, an increase of $28.3 million from $107.1 million during the
fiscal year ended June 30, 1998. The increase in interest income was
attributable to increased interest income on real estate loans and mortgage-
backed securities of $21.7 million and $6.2 million, respectively. The increase
in interest income on real estate loans was attributable primarily to an
increase of $320.8 million in the average balance of real estate loans,
resulting from both $471.5 million of real estate loans originated during the
fiscal year ended June 30, 1999, and $192.3 million of real estate loans
acquired from FIBC on January 21, 1999. The increase in interest income on
mortgage-backed securities was also attributable primarily to an increase in
the average balance of $313.9 million, resulting from mortgage-backed
securities purchased in accordance with our capital leverage program during the
fiscal year ended June 30, 1999, and $37.8 million added in the FIBC
Acquisition. Overall, the yield on interest-earning assets decreased 41 basis
points from 7.64% during the fiscal year ended June 30, 1998 to 7.23% during
the fiscal year ended June 30, 1999. The decline was attributable primarily to
a decrease of 43 basis points in the average yield on real estate loans
resulting primarily from continued competition in the real estate lending
market and the continued flat yield curve environment. The decline also
reflects declines in the average yield on mortgage-backed securities and
investment securities of 50 basis points and 52 basis points, respectively, due
to declines in overall interest rates during the fiscal year ended June 30,
1999.
INTEREST EXPENSE. Interest expense increased $20.3 million, to $77.2 million
during the fiscal year ended June 30, 1999, from $56.9 million during the
fiscal year ended June 30, 1998. This increase resulted primarily from
increased interest expense of $18.9 million on borrowed funds, which resulted
from an increase in the average balance of $351.1 million during the fiscal
year ended June 30, 1999 compared to the fiscal year ended June 30, 1998. The
increase in the average balance of borrowed funds resulted primarily from
$183.0 million of borrowed funds added during the fiscal year ended June 30,
1999 under the capital leverage program. The increase in the average balance of
borrowed funds also reflects our use of FHLBNY advances, which generally are
medium-term interest-bearing liabilities, to fund our loan originations. In
addition, the average cost of interest-bearing liabilities decreased five basis
points to 4.63% during the fiscal year ended June 30, 1999, from 4.68% during
the fiscal year ended June 30, 1998, reflecting the decline in the average cost
of certificates of deposit and borrowed funds of 35 basis points and 36 basis
points, respectively. The decline in the average cost of borrowed funds
resulted from reductions in overall interest rates, while the reduction in the
average cost of certificates of deposit resulted from both lower overall
interest rates and the cessation of deposit rate promotions that we maintained
from July 1997 to June 1998. While the decline in the average cost of
certificates of deposits and borrowed funds helped reduce the average cost of
interest-bearing liabilities during the fiscal year ended June 30, 1999, their
respective average balances increases of $54.7 million and $351.1 million
contributed to the increase in the average cost of interest-bearing
liabilities.
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $1.4 million
to $240,000 for the fiscal year ended June 30, 1999, from $1.6 million for the
fiscal year ended June 30, 1998. The allowance for loan losses has increased
$3.0 million from June 30, 1998 to June 30, 1999, due primarily to the addition
of $3.0 million in loan loss reserves from FIBC which we determined was
adequate to cover potential losses on the loans acquired from FIBC. The
reduction in our loan loss provision from the prior fiscal year resulted from
continued stability of non-performing loan and charge-offs which totaled
$201,000 during the fiscal year ended June 30, 1999, compared to $286,000
during the fiscal year ended June 30, 1998. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income increased $94,000 to $6.4 million
during the fiscal year ended June 30, 1999, from $6.3 million during the fiscal
year ended June 30, 1998. Service charges and fees increased $471,000 due
primarily to increased service fees and charges on deposits of $619,000,
resulting primarily from adjustments in our deposit fee and service charges.
Other income increased $1.7 million due primarily to
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increased loan prepayment penalties of $1.6 million, which resulted from
increased interest rate competition on new loans. Offsetting these increases
was a reduction in the gains on sales and redemptions of securities and other
assets of $2.1 million, due primarily to a non-recurring gain of $2.0 million
from the sale of a branch premise in Roslyn, New York during the fiscal year
ended June 30, 1998.
NON-INTEREST EXPENSE. Non-interest expense increased $556,000, from $29.9
million during the fiscal year ended June 30, 1998, to $30.5 million during the
fiscal year ended June 30, 1999. During the fiscal year ended June 30, 1998, we
recorded one-time charges of $1.6 million of benefit costs and $598,000 of RRP
costs associated with an early retirement option that we offered and was
accepted by eligible employees. Excluding this charge to expense, non-interest
expense increased $2.8 million during the fiscal year ended June 30, 1999.
Salaries and employee benefit expense increased $1.2 due to staffing and salary
increases during the past 12 months and additional salary expense resulting
from the FIBC acquisition. Compensation expense related to our ESOP and RRP
decreased by approximately $263,000 due to the reduction in our average stock
price.
Occupancy and equipment expense declined $28,000 due primarily to refunds of
$190,000 related to real estate taxes on branch properties, which were recorded
as a reduction of occupancy and equipment expense during the fiscal year ended
June 30, 1999, and cost savings associated with the sale of our Roslyn office
in May 1998. These cost savings were partially offset by increased expenses
associated with the five branch offices obtained in the FIBC acquisition. Data
processing costs increased $147,000 during the fiscal year ended June 30, 1999,
compared to the fiscal year ended June 30, 1998, due primarily to increased
loan activity resulting from the FIBC acquisition and Year 2000 compliance
costs.
The provision for losses on other real estate owned declined $98,000 due to the
low level of real estate owned during the fiscal year ended June 30, 1999.
Goodwill expense increased $977,000 due to the increased goodwill of $44.2
million associated with the FIBC acquisition.
Other expenses increased $748,000 due primarily to increased expenses
associated with former operations of FIBC and an increase of $301,000 in core
deposit premium amortization.
INCOME TAX EXPENSE. Income tax expense totaled $14.0 million for the fiscal
year ended June 30, 1999, compared to $11.9 million for the fiscal year ended
June 30, 1998, an increase of $2.1 million. During the fiscal year ended June
30, 1999, we recorded income tax expense benefits totaling $670,000 related to
recoveries of previously recorded deferred taxes and adjustments from the
filing of its June 1998 tax returns. Excluding these income tax benefits, our
income tax expense would have increased $2.8 million, reflecting an increase of
$8.9 million in pretax income, offset by a reduction in the effective tax rate
from 47.5% during the fiscal year ended June 30, 1998, to 43.3% during the
fiscal year ended June 30, 1999.
YEAR 2000 COMPUTER CONCERN
We did not experience any significant interruptions in any computer operations
related to the Year 2000 computer concern. Our loan and deposit functions were
not affected by the change into the Year 2000. Additionally, we did not
encounter any significant delays in loan payments from borrowers due to
difficulties they may have encountered as a result of the Year 2000 computer
concern.
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been prepared
in accordance with GAAP, which require the measurement of financial position
and operating results in terms of historical dollars without considering the
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased costs of our operations.
Unlike industrial companies, nearly all of our assets and liabilities are
monetary in nature. As a result, interest rates have a greater impact on our
performance than do the effects of general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
price of goods and services.
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IMPACT OF ENACTMENT OF THE GRAMM-LEACH-BLILEY ACT
On November 12, 1999, the Gramm-Leach-Bliley Act, or Gramm-Leach was enacted.
Gramm-Leach establishes, among other things, a comprehensive framework to
permit affiliations among commercial banks, insurance companies and other
financial service providers. Generally, the new law (i) repeals the historical
restrictions and eliminates many federal and state law barriers to affiliations
among banks and securities firms, insurance companies and other financial
service providers, (ii) provides a uniform framework for the activities of
banks, savings institutions and their holding companies, (iii) broadens the
activities that may be conducted by national banks and banking subsidiaries of
bank holding companies, (iv) provides an enhanced framework for protecting the
privacy of consumer's information, (v) adopts a number of provisions related to
the capitalization, membership, corporate governance and other measures
designed to modernize the FHLB system, (vi) requires public disclosure of
certain agreements relating to funds expended in connection with the Community
Reinvestment Act and (vii) addresses a variety of other legal and regulatory
issues affecting both day-to-day operations and long-term activities of
financial institutions, including the functional regulation of bank securities
activities.
Gramm-Leach also restricts the powers of new unitary savings and loan
association holding companies. Unitary savings and loan holding companies that
are "grandfathered," I.E., became a unitary savings and loan holding company
pursuant to an application filed with the OTS before May 4, 1999, such as us,
retain their authority under the prior law. All other savings and loan holding
companies would be limited to financially related activities permissible for
bank holding companies, as defined under Gramm-Leach. Gramm Leach also
prohibits non-financial companies from acquiring grandfathered savings and loan
association holding companies.
Gramm-Leach also requires financial institutions to disclose, on ATM machines,
any non-customer fees and to disclose to their customers upon the issuance of
an ATM card any fees that may be imposed by the institution on ATM users. For
older ATMs, financial institutions will have until December 31, 2004 to provide
such notices.
Bank holding companies are permitted to engage in a wider variety of financial
activities than permitted under the prior law, particularly with respect to
insurance and securities activities. In addition, in a change from the prior
law, bank holding companies will be in a position to be owned, controlled or
acquired by any company engaged in financially related activities.
We do not believe that the new law will have a material adverse affect upon our
operations in the near term. However, to the extent the new law permits banks,
securities firms and insurance companies to affiliate, the financial services
industry may experience further consolidation. This could result in a growing
number of larger financial institutions that offer a wider variety of financial
services than we currently offer and that can aggressively compete in the
markets we currently serve.
IMPACT OF RECENT ACCOUNTING STANDARDS
In June, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, ("SFAS 133") "Accounting for Derivative
Instruments and Hedging Activities" as amended in June, 1999 by SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133," and in June, 2000, by SFAS 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,"
(collectively SFAS 133). SFAS 133 requires that entities recognize all
derivatives as either assets or liabilities in the statement of financial
condition and measure those instruments at fair value. Under SFAS 133 an
entity may designate a derivative as a hedge of exposure to either changes in:
(a) fair value of a recognized asset or liability or firm commitment, (b) cash
flows of a recognized or forecasted transaction, or (c) foreign currencies of a
net investment in foreign operations, firm commitments, available-for-sale
securities or a forecasted transaction. Depending upon the effectiveness of
the hedge and/or the transaction being hedged, any changes in the fair value of
the derivative instrument is either recognized in earnings in the current year,
deferred to future periods, or recognized in other comprehensive income.
Changes in the fair value of all derivative instruments not recognized as hedge
accounting are recognized in current year earnings. SFAS 133 is required for
all fiscal quarters or fiscal years beginning after June 15, 2000. The Company
adopted SFAS 133 effective July 1, 2000. No adjustment was required as a
result of the change in accounting principle.
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In December, 1999, the Securities and Exchange Commission (referred to as the
SEC) issued Staff Accounting Bulletin No. 101 (referred to as SAB 101),
"Revenue Recognition in Financial Statements." SAB 101 summarizes certain of
the SEC's views on applying generally accepted accounting principles to revenue
recognition in financial statements. On June 26, 2000, the SEC issued SAB 101B
to defer the effective date of implementation of SAB 101 until no later than
the fourth fiscal quarter of fiscal years beginning after December 31, 1999.
The Company is required to adopt SAB 101 by June 30, 2001. The Company does
not expect the adoption of SAB 101 to have a material impact on the
consolidated financial statements.
MARKET FOR OUR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Our common stock is traded on the Nasdaq National Market and quoted under the
symbol "DCOM." Prior to June 15, 1998, our common stock was quoted under the
symbol "DIME."
The following table shows the high and low sales price for our common stock and
dividends declared during the period indicated. Our common stock began trading
on June 26, 1996, the date of the initial public offering.
<TABLE>
<CAPTION>
Fiscal Year End June 30, 2000 Fiscal Year End June 30, 1999
<S> <C> <C> <C> <C> <C> <C> <C>
Quarter Ended High Low High Low
Dividends Sales Sales Dividends Sales Sales
Declared Price Price Declared Price Price
--------------------------------------------------------------------------------------------------------------------------------
September 30{th} $0.15 $23{1/2} $20{1/8} $0.10 $28{1/2} $15{1/4}
December 31{st} 0.17 22{1/8} 17 0.12 27{7/16} 14{3/4}
March 31{st} 0.17 17{7/8} 13{1/4} 0.14 25{3/8} 19{3/4}
June 30{th} 0.17 18{1/2} 15{3/8} 0.15 23{7/8} 20
</TABLE>
On June 30, 2000, the last trading date in the fiscal year, our stock closed at
$16{1/4}. At September 22, 2000, we had approximately XXX shareholders of
record, not including the number of persons or entities holding stock in
nominee or street name through various brokers and banks. There were 11,664,174
shares of common stock outstanding at June 30, 2000.
As the principal asset of the Company, the Bank could be called upon to provide
the principal source of funds for payment of dividends by the Company. The
Bank will not be permitted to pay dividends on its capital stock if its
stockholders' equity would be reduced below applicable regulatory requirements
or the amount required for the liquidation account established during the
Bank's conversion. See Note 2 to the Consolidated Financial Statements of the
Company for a further discussion of the liquidation account. The OTS limits
all capital distributions by the Bank directly or indirectly to us, including
dividend payments. As the subsidiary of a savings and loan holding company,
the Bank must file a notice with the OTS for each capital distribution.
However, if the total amount of all capital distributions (including each
proposed capital distribution) for the applicable calendar year exceeds net
income for the calendar year to date plus the retained net income (i.e., net
income after deducting prior capital distributions) for the preceding two
years, then the Bank must file an application to receive the approval of thew
OTS for the proposed capital distribution. In addition, capital distributions
from the Bank to the Company, if in excess of established limits, could result
in recapture of the Bank's New York State and City bad debt reserves.
Unlike the Bank, we are not subject to OTS regulatory restrictions on the
payment of dividends to our shareholders, although the source of such dividends
will be dependent on the net proceeds retained by us and earnings thereon and
may be dependent, in part, upon dividends from the Bank. We are subject,
however, to the requirements of Delaware law, which generally limit dividends
to an amount equal to the excess of our net assets (the amount by which total
assets exceed total liabilities) over its statutory capital, or if there is no
such excess, to its net profits for the current and/or immediately preceding
fiscal year.
RESEARCH REPORTS
As of the date of this report, the following investment firms have issued
research reports on us:
Advest, Inc.; Friedman, Billings, Ramsey & Co., Inc.;
Keefe Bruyette & Woods, Inc.; Lehman Brothers, Inc.
McConnell Budd & Downes; Merrill Lynch & Co.;
Ryan, Beck & Co.; Sandler O'Neill & Partners, L.P.
-20-
<PAGE>
Copies of these research reports are available upon request to:
Dime Community Bancshares, Inc.
Investor Relations,
209 Havemeyer Street,
Brooklyn, NY 11211
-21-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Dime Community Bancshares, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of financial condition
of Dime Community Bancshares, Inc. and Subsidiaries (the ''Company'') as of
June 30, 2000 and 1999, and the related consolidated statements of operations,
changes in stockholders' equity and comprehensive income and cash flows for
each of the three years in the period ended June 30, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
June 30, 2000 and 1999, and the results of their operations and their cash
flows for each of the three years in the period ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States
of America.
/S/ DELOITTE & TOUCHE LLP
New York, New York
August 11, 2000
-22-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 1999
----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $15,371 $17,801
Investment securities held-to-maturity (estimated fair value of
$17,351 and $31,768 at June 30, 2000 and 1999, respectively) (Note 4) 17,489 31,698
Investment securities available for sale (at estimated fair value) (Note 4):
Bonds and notes (amortized cost of $109,057 and $133,523 at
June 30, 2000 and 1999, respectively) 105,631 131,490
Marketable equity securities (historical cost of $14,948 and
$14,162 at June 30, 2000 and 1999, respectively) 15,490 15,142
Mortgage-backed securities held-to-maturity (estimated fair
value of $13,263 and $23,192 at June 30, 2000 and 1999,
respectively) (Note 5) 13,329 22,820
Mortgage backed securities available for sale (at estimated fair value)
(amortized cost of $438,160 and $507,486 at June 30, 2000 and 1999,
respectively)(Note 5) 429,361 502,847
Federal funds sold and short-term investments 9,449 11,011
Loans (Note 6):
Real estate 1,713,552 1,375,510
Other loans 7,648 7,831
Less allowance for loan losses (Note 7) (14,785) (15,081)
----------------------------------------------------------------------------------------------------------------------------------
Total loans, net 1,706,415 1,368,260
----------------------------------------------------------------------------------------------------------------------------------
Loans held for sale 100 -
Premises and fixed assets, net (Note 9) 14,771 14,975
Federal Home Loan Bank of New York capital stock (Note 10) 42,423 28,281
Other real estate owned, net (Note 7) 381 866
Goodwill (Note 3) 60,254 64,871
Other assets (Notes 15 and 16) 71,675 37,553
----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,502,139 $2,247,615
==================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors (Note 11) $1,219,148 $1,238,933
Escrow and other deposits 35,161 44,705
Securities sold under agreements to repurchase (Note 12) 434,027 481,660
Federal Home Loan Bank of New York advances (Note 13) 555,000 250,000
Subordinated notes payable (Note 14) 25,000 -
Other liabilities (Note 16) 26,634 20,622
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,294,970 2,035,920
----------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 17)
Stockholders' Equity
Preferred stock ($0.01 Par, 9,000,000 shares authorized, none issued
outstanding at June 30, 2000 and 1999) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,583,765 shares and
14,583,400 shares issued at June 30, 2000 and 1999, respectively, and
11,664,174 and 12,775,588 shares outstanding at June 30, 2000 and 1999,
respectively) 145 145
Additional paid-in capital 150,034 148,865
Retained earnings (Note 2) 133,769 119,100
Accumulated other comprehensive loss, net of deferred taxes (6,309) (3,323)
Unallocated common stock of Employee Stock Ownership Plan (Note 16) (6,853) (8,016)
Unearned common stock of Recognition and Retention Plan (Note 16) (4,324) (6,040)
Common stock held by Benefit Maintenance Plan (Note 16) (1,790) (831)
Treasury stock, at cost (2,919,591 shares and 1,807,812 shares at
June 30, 2000 and 1999, respectively ) (Note 19) (57,503) (38,205)
----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 207,169 211,695
----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,502,139 $2,247,615
==================================================================================================================================
</TABLE>
See Notes to consolidated financial statements.
-23-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans secured by real estate $118,436 $91,569 $69,824
Other loans 616 558 487
Investment securities 9,715 10,654 10,798
Mortgage-backed securities 30,750 29,683 23,463
Other 6,106 2,926 2,555
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 165,623 135,390 107,127
--------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits and escrow 45,036 44,417 43,027
Borrowed funds 53,784 32,802 13,908
--------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 98,820 77,219 56,935
--------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 66,803 58,171 50,192
--------------------------------------------------------------------------------------------------------------------------------
Provision for loan losses 240 240 1,635
--------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 66,563 57,931 48,557
--------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges and other fees 4,065 2,823 2,352
Net (loss) gain on sales of loans (11) 66 108
Net (loss) gain on sales and redemptions of securities, deposits
and other assets (1,567) 804 2,873
Other 2,556 2,745 1,011
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 5,043 6,438 6,344
--------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 12,635 12,365 12,748
ESOP and RRP compensation expense 4,095 4,517 5,378
Occupancy and equipment 3,739 2,983 3,011
Federal deposit insurance premiums 360 404 350
Data processing costs 1,656 1,316 1,169
Provision for losses on other real estate owned 25 16 114
Goodwill amortization 4,617 3,382 2,405
Other 6,888 5,510 4,762
--------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 34,015 30,493 29,937
--------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 37,591 33,876 24,964
Income tax expense 15,217 14,015 11,866
--------------------------------------------------------------------------------------------------------------------------------
NET INCOME $22,374 $19,861 $13,098
================================================================================================================================
EARNINGS PER SHARE:
BASIC $1.98 $1.81 $1.19
================================================================================================================================
DILUTED $1.90 $1.68 $1.09
================================================================================================================================
</TABLE>
See Notes to consolidated financial statements.
-24-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
(Dollars in thousands except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning and end of period $145 $145 $145
--------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 148,865 143,322 141,716
Issuance of common stock - 3,327 -
Stock options exercised 2 468 52
Tax benefit of RRP shares 164 312 33
Amortization of excess fair value over cost - ESOP stock 1,003 1,436 1,521
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 150,034 148,865 143,322
--------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of period 119,100 105,158 94,695
Net income for the period 22,374 19,861 13,098
Cash dividends declared and paid (7,705) (5,919) (2,635)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 133,769 119,100 105,158
--------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET:
Balance at beginning of period (3,323) 2,763 2,031
Change in other comprehensive income (loss) during the period,
net of deferred taxes (2,986) (6,086) 732
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (6,309) (3,323) 2,763
--------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (8,016) (9,175) (10,324)
Amortization of earned portion of ESOP stock 1,163 1,159 1,149
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (6,853) (8,016) (9,175)
--------------------------------------------------------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (6,040) (6,963) (9,671)
Common stock acquired by RRP (212) (999) -
Amortization of earned portion of RRP stock 1,928 1,922 2,708
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (4,324) (6,040) (6,963)
--------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of period (38,205) (48,470) (27,703)
Issuance of stock in acquisition - 31,463 -
Purchase of treasury shares, at cost (19,298) (21,198) (20,767)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (57,503) (38,205) (48,470)
--------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK HELD BY BENEFIT MAINTENANCE PLAN:
Balance at beginning of period (831) (431) -
Common stock acquired (959) (400) (431)
--------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (1,790) (831) (431)
--------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF COMPREHENSIVE INCOME
Net Income 22,374 19,861 13,098
Reclassification adjustment for securities sold, net of taxes of
$(1,194), $263 and $436 during the years ended June 30, 2000,
1999 and 1998 1,402 (309) (512)
Net unrealized securities gains (losses) arising during the period,
net of taxes of $(3,738), $(4,921) and $624 during the years
ended June 30, 2000, 1999 an 1998 (4,388) (5,777) 732
--------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income $19,388 $13,775 $13,318
================================================================================================================================
</TABLE>
See Notes to consolidated financial statements.
-25-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $22,374 $19,861 $13,098
Adjustments to reconcile net income to net cash provided by
operating activities:
Net gain on investment and mortgage backed securities called - (113) (9)
Net loss (gain) on investment and mortgage backed securities sold 2,599 (555) (1,123)
Net loss (gain) on sale of loans held for sale 11 (66) (108)
Net loss (gain) on sales and disposals of other assets 191 - (1,973)
Net depreciation and amortization 716 1,660 847
ESOP and RRP compensation expense 4,095 4,517 5,378
Provision for loan losses 240 240 1,635
Goodwill amortization 4,617 3,382 2,405
Originations of loans held for sale (1,258) (6,468) (5,009)
Proceeds from sales of loans held for sale 1,147 7,075 4,838
Increase in other assets and other real estate owned (30,612) (3,005) (3,476)
Decrease (increase) in receivable for securities sold - 18,008 (18,008)
(Decrease) increase in payable for securities purchased - (12,062) 12,062
Increase in other liabilities 6,012 6,617 5,447
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by Operating Activities 10,132 39,091 16,004
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in short-term investments 1,562 37,618 9,573
Proceeds from maturities of investment securities held to maturity 4,220 4,830 10,250
Proceeds from maturities of investment securities available for sale 131,922 85,979 63,145
Proceeds from calls of investment securities held to maturity 10,000 41,660 42,500
Proceeds from calls of investment securities available for sale 2,400 30,268 11,500
Proceeds from sales of investment securities available for sale 39,867 9,373 13,437
Proceeds from sales of mortgage backed securities held to maturity 1,955 - 5,317
Proceeds from sales and calls of mortgage backed securities available
for sale 64,937 - 92,776
Purchases of investment securities held to maturity - - (29,082)
Purchases of investment securities available for sale (150,751) (146,786) (112,930)
Purchases of mortgage backed securities available for sale (68,960) (263,644) (290,576)
Principal collected on mortgage backed securities held to maturity 7,532 23,822 26,216
Principal collected on mortgage backed securities available for sale 71,342 155,612 64,470
Net increase in loans (338,395) (241,114) (199,545)
Cash disbursed in acquisitions, net of cash acquired - (33,644) -
(Purchases) sales of fixed assets, net (1,080) (819) 4,262
Purchase of Federal Home Loan Bank stock (14,142) (15,417) (2,432)
---------------------------------------------------------------------------------------------------------------------------------
Net cash used in Investing Activities (237,591) (312,262) (291,119)
---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in due to depositors (27,913) (21,978) 74,947
Net (decrease) increase in escrow and other deposits (1,416) 19,893 421
(Decrease) Increase in securities sold under agreements to repurchase (47,633) 157,906 180,268
Proceeds from Federal Home Loan Bank of New York Advances 305,000 146,495 40,295
Proceeds from subordinated notes payable 25,000 - -
Common stock issued for exercise of Stock Options and tax benefits of
RRP 164 906 85
Purchase of common stock by the Recognition and Retention Plan (212) (999) -
Purchase of common stock by Benefit Maintenance Plan (959) (400) (431)
Cash dividends paid to stockholders (7,704) (5,919) (2,635)
Purchase of treasury stock (19,298) (21,198) (20,767)
---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by Financing Activities 225,029 274,706 272,183
---------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND DUE FROM BANKS (2,430) 1,535 (2,932)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 17,801 16,266 19,198
---------------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $15,371 $17,801 $16,266
=================================================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $12,800 $11,462 $10,984
=================================================================================================================================
Cash paid for interest $97,421 $74,939 $54,941
=================================================================================================================================
Transfer of loans to Other real estate owned $429 $342 $779
=================================================================================================================================
Change in unrealized gain (loss) on available for sale securities, net
of deferred taxes $(2,986) $(6,086) $732
=================================================================================================================================
</TABLE>
On January 21, 1999, the Bank acquired all of the outstanding common stock of
Financial Bancorp, Inc. in exchange for a combination of cash and common stock
of Dime Community Bancshares, Inc. In connection with this acquisition, the
following assets were acquired and liabilities assumed:
Fair Value of Investments, Loans and Other Assets Acquired, net $369,398
Dime Community Bancshares, Inc. Common Stock Issued (34,664)
Cash paid (33,251)
--------
Deposits and Other Liabilities Assumed $301,483
========
See Notes to consolidated financial statements.
-26-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS - Dime Community Bancshares, Inc. (the "Company" OR
"DCB"), is a Delaware corporation organized by The Dime Savings Bank of
Williamsburgh (the "Bank") for the purpose of acquiring all of the capital
stock of the Bank issued in the Conversion on June 26, 1996. Presently, the
significant assets of the Company are the capital stock of the Bank, the
Company's loan to the Bank's ESOP, investments retained by the Company, and an
investment real estate property owned through the Company's wholly-owned
subsidiary, 842 Manhattan Avenue Corporation. 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 1995, the Bank converted to a federal stock 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 maintains its headquarters in the Williamsburgh
section of the borough of Brooklyn. Seventeen additional offices are located
in the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The accounting and reporting
policies of the Company conform to generally accepted accounting principles.
The following is a description of the significant policies:
PRINCIPLES OF CONSOLIDATION - The accompanying 2000, 1999 and 1998 consolidated
financial statements include the accounts of the Company, and its wholly-owned
subsidiaries, the Bank and 842 Manhattan Avenue Corp. All financial statements
presented also include the accounts of the Bank's four wholly-owned
subsidiaries, Havemeyer Equities Corp. (''HEC''), Boulevard Funding Corp.
(''BFC''), Havemeyer Investments Inc. ("HII") and DSBW Residential Preferred
Funding Corp. ("DRPFC"). 842 Manhattan Avenue Corp. owns and manages a real
estate property which housed a former branch premise of Financial Bancorp, Inc.
("FIBC"), which the Company acquired on January 21, 1999 in connection with its
acquisition of FIBC. DRPFC, established in March, 1998, invests in real estate
loans and is intended to qualify as a real estate investment trust for federal
tax purposes. BFC was established in order to invest in real estate joint
ventures and other real estate assets. BFC has no investments in real estate
at June 30, 2000, and is currently inactive. HEC was also originally
established in order to invest in real estate joint ventures and other real
estate assets. In June, 1998, HEC assumed direct ownership of DSBW Preferred
Funding Corp. ("DPFC"). DPFC, established as a direct subsidiary of the Bank
in March, 1998, invests in real estate loans and is intended to qualify as real
estate investment trust for federal tax purposes. HEC has no other investments
as of June 30, 2000. All significant intercompany accounts and transactions
have been eliminated in consolidation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - Purchases and sales of
investments and mortgage-backed securities are recorded on trade date. Gains
and losses on sales of investment and mortgage-backed securities are recorded
on the specific identification basis.
SFAS No. 115, ''Accounting for Investments in Debt and Equity Securities''
(''SFAS 115'') requires that debt and equity securities that have readily
determinable fair values be carried at fair value unless they are held to
maturity. Debt securities are classified as held to maturity and carried at
amortized cost only if the reporting entity has a positive intent and ability
to hold these securities to maturity. If not classified as held to maturity,
such securities are classified as securities available for sale or as trading
securities. Unrealized holding gains or losses on securities available for sale
are excluded from net income and reported net of income taxes as other
comprehensive income. At June 30, 2000 and 1999, all equity securities are
classified as available for sale.
The Company does not acquire securities for the purpose of engaging in trading
activities.
LOANS HELD FOR SALE - Mortgage loans originated and intended for sale in the
secondary market are carried at the lower of aggregate cost or estimated fair
value. Gains and losses on sales of loans are also accounted for in accordance
with Statement of Financial Accounting Standards No. 134, "Accounting for
Mortgage Securities Retained after the Securitization of Mortgage Loans Held
for Sale by a Mortgage Banking Enterprise" ("SFAS 134").
-27-
<PAGE>
SFAS 134 requires that an entity engaged in mortgage banking activities
classify the retained mortgage-backed security or other interest, which
resulted from the securitization of a mortgage loan held for sale based
upon its ability and intent to sell or hold these investments.
ALLOWANCE FOR LOAN LOSSES - It is the policy of the Bank to provide a valuation
allowance for estimated losses on loans based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse situations which
may affect the borrower's ability to repay, estimated value of underlying
collateral and current economic conditions in the Bank's lending area. The
allowance is increased by provisions for loan losses charged to operations and
is reduced by charge-offs, net of recoveries. While management uses available
information to estimate losses on loans, future additions to or reductions in
the allowance may be necessary based on changes in economic conditions beyond
management's control. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize additions to or
reductions in the allowance based on judgments different from those of
management. Management believes, based upon all relevant and available
information, that the allowance for loan losses is adequate to absorb losses
inherent in the portfolio.
SFAS No. 114, ''Accounting by Creditors for Impairment of a Loan'' (''SFAS
114'') requires all creditors to account for impaired loans, except those loans
that are accounted for at fair value or at the lower of cost or fair value, at
the present value of expected future cash flows discounted at the loan's
effective interest rate. As an expedient, creditors may account for impaired
loans at the fair value of the collateral or at the observable market price of
the loan if one exists. If the estimated fair value of the impaired loan is
less than the recorded amount, a specific valuation allowance is established or
a write-down is charged against the allowance for loan losses if the impairment
is considered to be permanent.
LOANS - Loans are reported at the principal amount outstanding, net of unearned
income and the allowance for loan losses. Interest income on loans is recorded
using the level yield method. Under this method, discount accretion and
premium amortization are included in interest income.
Accrual of interest is discontinued when its receipt is in doubt, generally,
when a loan becomes 90 days past due as to principal or interest. When
interest accruals are discontinued, any interest credited to income in the
current year is reversed. Payments on nonaccrual loans are applied to
principal. Management may elect to continue the accrual of interest when a
loan is in the process of collection and the estimated fair value of collateral
is sufficient to cover the principal balance and accrued interest. Loans are
returned to accrual status once the doubt concerning collectibility has been
removed and the borrower has demonstrated performance in accordance with the
loan terms and conditions.
LOAN FEES - Loan origination fees and certain direct loan origination costs are
deferred and amortized as a yield adjustment over the contractual loan terms.
OTHER REAL ESTATE OWNED, NET - Properties acquired as a result of foreclosure
on a mortgage loan are classified as other real estate owned and are recorded
at the lower of the recorded investment in the related loan or the fair value
of the property at the date of acquisition, with any resulting write down
charged to the allowance for loan losses and any disposition expenses charged
to the valuation allowance for possible losses on other real estate owned.
Subsequent write downs are charged directly to operating expenses.
PREMISES AND FIXED ASSETS - Land is stated at original cost. Buildings and
furniture and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method over the estimated useful
lives of the properties as follows:
Buildings 2.22% to 2.50% per year
Furniture and equipment 10% per year
Computer equipment 33.33% per year
Leasehold improvements are amortized over the remaining non-cancelable terms of
the related leases.
EARNINGS PER SHARE ("EPS")- Earnings per share are calculated and reported in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share'' ("SFAS 128"). SFAS 128, requires disclosure of
-28-
<PAGE>
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.
The following is a reconciliation of the numerator and denominator of basic
earnings per share for the years ended June 30, 2000, 1999 and 1998 (in
thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Ended June 30, 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Net Income $22,374 $19,861 $13,098
DENOMINATOR:
Average shares outstanding utilized in the calculation of
basic earnings per share 11,276 10,951 11,001
Unvested shares of Recognition and Retention Plan 268 372 517
Common stock equivalents due to the dilutive effect of
stock options 252 528 523
----------------------------------------------------------------------------------------------------------------------
Average shares outstanding utilized in the calculation of
diluted earnings per share 11,796 11,851 12,041
======================================================================================================================
</TABLE>
Common stock equivalents due to the dilutive effect of stock options are
calculated based upon the average market value of the Company's common stock
during the fiscal years ended June 30, 2000, 1999 and 1998.
GOODWILL - Goodwill generated from the Company's acquisition of Conestoga
Bancorp, Inc. on June 26, 1996 is recorded on a straight line basis over a
twelve year period. Goodwill generated from the Company's acquisition of
Financial Bancorp, Inc. on January 21, 1999 is recorded on a straight line
basis over a twenty year period. 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. No such event or change in
circumstance has occurred which has caused the Company to review its recorded
level of goodwill associated with assets acquired from either Conestoga
Bancorp, Inc. or Financial Bancorp, Inc.
INCOME TAXES - Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
109") which requires that deferred taxes be provided for temporary differences
between the book and tax bases of assets and liabilities.
CASH FLOWS - For purposes of the Consolidated Statement of Cash Flows, the
Company considers cash and due from banks to be cash equivalents.
EMPLOYEE BENEFITS - The Company maintains a Retirement Plan and 401(k) Plan for
substantially all of its employees, both of which are tax qualified under the
Employee Retirement Income Security Act of 1974 ("ERISA").
The Company provides additional postretirement benefits to employees, which are
recorded in accordance with Statement of Financial Accounting Standards No.
106, ''Employers' Accounting for Postretirement Benefits Other Than Pensions''
("SFAS 106"). This Statement requires accrual of postretirement benefits (such
as health care benefits) during the years an employee provides services.
The Company maintains an Employee Stock Ownership Plan for employees ("ESOP").
Compensation expense related to the ESOP is recorded in accordance with SOP 93-
6, which requires the compensation expense to be recorded 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.
-29-
<PAGE>
In December, 1996, the Company adopted a Recognition and Retention Plan for
employees and outside directors ("RRP") and a Stock Option Plan for Employees
and Outside Directors (the "Stock Option Plan"), which are subject to the
accounting requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," ("SFAS 123"). SFAS 123 encourages,
but does not require, companies to record compensation cost for stock-based
employee compensation plans at fair value. The Company has chosen to continue
to account for stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related Interpretations ("APB 25"). Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of the grant over the
amount an employee must pay to acquire the stock. To date, no compensation
expense has been recorded for stock options, since, for all granted options,
the market price on the date of grant equals the amount employees must pay to
acquire the stock. In accordance with APB 25, compensation expense related to
the RRP is recorded for all shares earned by participants during the period at
$18.64 per share, the average historical acquisition cost of all allocated RRP
shares.
FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards No. 119
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments" ("SFAS 119") requires disclosures about financial instruments,
which are defined as futures, forwards, swap and option contracts and other
financial instruments with similar characteristics. On balance sheet
receivables and payables are excluded from this definition. The Company did
not hold any derivative financial instruments as defined by SFAS 119 at June
30, 2000, 1999 or 1998.
COMPREHENSIVE INCOME - Comprehensive income for the fiscal years ended June 30,
2000, 1999 and 1998 is determined in accordance with Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income.'' Comprehensive
income includes revenues, expenses, and gains and losses which, under current
GAAP, bypass net income and are typically reported as a component of
stockholders' equity.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - The
Company's financial statements reflect the adoption of Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information ("SFAS 131")".
SFAS 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in subsequent interim financial reports issued to shareholders. It
also establishes standards for related disclosure about products and services,
geographic areas, and major customers. The statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and assess performance. The statement also requires that
public enterprises report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. It also requires that
information be reported about revenues derived from the enterprises' products
or services, or about the countries in which the enterprises earn revenues and
holds assets, and about major customers, regardless of whether that information
is used in making operating decisions.
The Company has one reportable segment, "Community Banking." All of the
Company's activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the
others. For example, commercial lending is dependent upon the ability of the
Bank to fund itself with retail deposits and other borrowings and to manage
interest rate and credit risk. This situation is also similar for consumer and
residential mortgage lending. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.
General information required by SFAS 131 is disclosed in the Consolidated
Financial Statements and accompanying notes. Additionally, for the years
ended June 30, 2000, 1999, and 1998, there is no customer that accounted for
more than 10% of the Company's revenue.
-30-
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
REVENUE RECOGNITION IN FINANCIAL STATEMENTS - In December, 1999, the Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 ("SAB
101"), "Revenue Recognition in Financial Statements." SAB 101 summarizes
certain of the SEC's views on applying generally accepted accounting principles
to revenue recognition in financial statements. On June 26, 2000, the SEC
issued SAB 101B to defer the effective date of implementation of SAB 101 until
no later than the fourth fiscal quarter of fiscal years beginning after
December 31, 1999. The Company is required to adopt SAB 101 by June 30, 2001.
The Company does not expect the adoption of SAB 101 to have a material impact
on the consolidated financial statements.
DERIVATIVE INSTRUMENTS - In June, 1998, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 133, ("SFAS 133")
"Accounting for Derivative Instruments and Hedging Activities" as amended in
June, 1999 by SFAS 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133," and in
June, 2000, by SFAS 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities," (collectively SFAS 133). SFAS 133 requires that
entities recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
Under SFAS 133 an entity may designate a derivative as a hedge of exposure to
either changes in: (a) fair value of a recognized asset or liability or firm
commitment, (b) cash flows of a recognized or forecasted transaction, or (c)
foreign currencies of a net investment in foreign operations, firm commitments,
available-for-sale securities or a forecasted transaction. Depending upon the
effectiveness of the hedge and/or the transaction being hedged, any changes in
the fair value of the derivative instrument is either recognized in earnings in
the current year, deferred to future periods, or recognized in other
comprehensive income. Changes in the fair value of all derivative instruments
not recognized as hedge accounting are recognized in current year earnings.
SFAS 133 is required for all fiscal quarters or fiscal years beginning after
June 15, 2000. The Company adopted SFAS 133 on July 1, 2000. No adjustment
was required as a result of the change in accounting principle.
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, the carrying value of other real estate, purchase accounting
adjustments related to the acquisitions of Conestoga and FIBC and the fair
value of financial instruments.
RECLASSIFICATION - Certain June 30, 1999, and 1998 amounts have been
reclassified to conform to the June 30, 2000 presentation.
2. CONVERSION TO STOCK FORM OF OWNERSHIP
On November 2, 1995, the Board of Directors of the Bank adopted a Plan of
Conversion to convert from mutual to stock form. As part of the conversion, the
Company was incorporated under Delaware law for the purpose of acquiring and
holding all of the outstanding stock of the Bank. On June 26, 1996, the Company
completed its initial public offering and issued 14,547,500 shares of common
stock (par value $.01 per share) at a price of $10.00 per share, resulting in
net proceeds of approximately $141,368 prior to the acquisition of stock by the
Employee Stock Ownership Plan. Costs related to the conversion were charged
against the Company's proceeds from the sale of the stock.
At the time of conversion, the Bank established a liquidation account in an
amount equal to the retained earnings of the Bank as of the date of the most
recent financial statements contained in the final conversion prospectus. The
liquidation account is reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary date.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
account holder will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held.
-31-
<PAGE>
The Company acquired Conestoga Bancorp, Inc. on June 26, 1996. The liquidation
account previously established by Conestoga's subsidiary, Pioneer Savings Bank,
F.S.A. during its initial public offering in March, 1993, was assumed by the
Company in the acquisition.
The Company acquired FIBC on January 21, 1999. The liquidation account
previously established by FIBC's subsidiary, Financial Federal Savings Bank
during its initial public offering was assumed by the Company in the
acquisition.
The Company may not declare or pay cash dividends on or repurchase any of its
shares of common stock if the effect thereof would cause stockholders' equity
to be reduced below applicable regulatory capital maintenance requirements, the
amount required for the liquidation account, or if such declaration and payment
would otherwise violate regulatory requirements.
3. ACQUISITION OF FINANCIAL BANCORP, INC.
On January 21, 1999, the Company completed the acquisition of FIBC, the holding
company for Financial Federal Savings Bank, F.S.B. Pursuant to the Merger
Agreement, each FIBC stockholder who submitted a valid election for cash
received $39.14 in cash and each FIBC stockholder who submitted a valid
election for DCB common stock received 1.8282 shares of DCB common stock, plus
cash in lieu of any fractional shares, in exchange for each of their shares of
FIBC common stock. The remaining shares of FIBC common stock for which a valid
election was not submitted were converted into, pursuant to the Merger
Agreement, a combination of DCB stock and cash such that each such shareholder
received $31.257 in cash and 0.3682 shares of DCB common stock for each share
of FIBC common stock, except that all stockholders of FIBC who owned less than
50 shares of FIBC common stock received cash. Upon consummation of the
acquisition, shares of FIBC common stock that were owned by FIBC as treasury,
that were unallocated shares held in FIBC's Recognition and Retention Plan or
that were held directly by DCB other than in a fiduciary capacity or in
satisfaction of a debt previously contracted were canceled and retired. No
payment was be made with respect to such shares of FIBC common stock.
Holders of stock options which had been granted by FIBC to purchase 60,133
shares of FIBC common stock were paid an amount in cash computed by multiplying
(i) any positive difference obtained by subtracting the per share exercise
price applicable to such option from $39.14, by (ii) the number of shares of
FIBC common stock subject to such option. These payments totaled approximately
$1,545. In addition, holders of stock options which had been granted by FIBC
to purchase 96,975 shares of FIBC common stock were converted into options to
purchase 177,286 shares DCB common stock (the "Converted Options"). The
expiration dates on all Converted Options remained unchanged from initial grant
by FIBC. 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 $66,750.
The Bank received approximately $189,000, $43,800, and $37,800 of net loans,
investment securities, and mortgage-backed securities, respectively, at fair
value and assumed approximately $230,700 of customer deposit liabilities. A
core deposit premium of $4,950 was recorded related to the deposits assumed and
is being amortized on a straight line basis over six years.
The acquisition was recorded using the purchase method of accounting;
accordingly, the purchase price was allocated to the respective assets
acquired and liabilities assumed based on their estimated fair values. Goodwill
generated in the transaction of $44,200 is being amortized on a straight line
basis over 20 years for financial reporting purposes.
The information below presents, on an unaudited pro forma basis, the
consolidated statement of operations for the Company for the years ended June
30, 1999 and 1998. All information below is adjusted for the acquisition of
FIBC, as if the transaction had been consummated on July 1, 1997.
-32-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Actual
Consolidated Pro-Forma Pro Forma Pro Forma
for the Six for the Six for the for the
Months Ended Months Ended Year Ended Year Ended
June 30, 1999(A) December 31, 1998 June 30, 1999 June 30, 1998
----------------------------------------------------------------------------------------------------------------------------------
Net interest income $31,607 $29,805 $61,412 $58,682
Provision for possible loan losses 120 292 412 2,068
Non-interest income 4,255 4,137 8,392 8,033
Non-interest expense:
Goodwill and core deposit amortization 2,543 1,804 4,347 3,636
Other non-interest expense 14,184 15,404 29,588 33,219
Total non-interest expense 16,727 17,208 33,935 36,855
Income before income taxes $19,015 $16,442 $35,457 $27,792
</TABLE>
(A) Amounts exclude the operations of FIBC during the period January 1, 1999
through January 21, 1999, which are not material to the total combined
operations for the year ended June 30, 1999.
4. INVESTMENT SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses and estimated fair value
of investment securities held to maturity at June 30, 2000 were as follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $12,440 $- $(144) $12,296
Obligations of state and political
subdivisions 554 15 - 569
Corporate securities 4,495 - (9) 4,486
------------------------------------------------------------------------------------------------------------------------------
$17,489 $15 $(153) $17,351
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of investment securities held to
maturity at June 30, 2000, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Amortized Estimated
Cost Fair Value
-----------------------------------------------------------------------------
Due in one year or less $3,172 $3,171
Due after one year through five years 13,188 13,043
Due after five years through ten years 1,129 1,137
-----------------------------------------------------------------------------
$17,489 $17,351
-----------------------------------------------------------------------------
During the year ended June 30, 2000, proceeds from the calls of investment
securities held to maturity totaled $10,000. No gain or loss resulted on these
calls. There were no sales of investment securities held to maturity during
the year ended June 30, 2000.
The amortized/historical cost, gross unrealized gains and losses and estimated
fair value of investment securities available for sale at June 30, 2000 were as
follows:
-33-
<PAGE>
<TABLE>
<CAPTION>
Investment Securities Available for Sale
<S> <C> <C> <C> <C>
Amortized/ Gross Gross
Historical Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $55,246 $215 $(1,969) $53,492
Corporate securities 52,167 41 (1,654) 50,554
Public utilities 1,644 - (59) 1,585
109,057 256 (3,682) 105,631
------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES 14,948 1,633 (1,091) 15,490
------------------------------------------------------------------------------------------------------------------------------
$124,005 $1,889 $(4,773) $121,121
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated fair value of investment securities available
for sale at June 30, 2000, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because issuers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
Amortized Estimated
Cost Fair Value
-----------------------------------------------------------------------------
Due in one year or less $13,173 $13,149
Due after one year through five years 95,884 92,482
Due in five years to ten years - -
-----------------------------------------------------------------------------
$109,057 $105,631
-----------------------------------------------------------------------------
During the year ended June 30, 2000, proceeds from the sales and calls of
investment securities available for sale totaled $39,867 and $2,400,
respectively. Net losses of $777 resulted from the sales. No gain or loss
resulted from the calls.
The amortized cost, gross unrealized gains and losses and estimated fair value
of investment securities held to maturity at June 30, 1999 were as follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
<S> <C> <C> <C> <C>
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $22,401 $34 $(35) $22,400
Obligations of state and political
subdivisions 1,819 30 - 1,849
Corporate securities 7,478 41 - 7,519
------------------------------------------------------------------------------------------------------------------------------
$31,698 $105 $(35) $31,768
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 1999, proceeds from the calls of investment
securities held to maturity totaled $41,660. A gain of $86 resulted on these
calls. There were no sales of investment securities held to maturity during
the year ended June 30, 1999.
The amortized/historical cost, gross unrealized gains and losses and estimated
fair value of investment securities available for sale at June 30, 1999 were as
follows:
-34-
<PAGE>
<TABLE>
<CAPTION>
Investment Securities Available for Sale
<S> <C> <C> <C> <C>
Amortized/ Gross Gross
Historical Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $65,074 $439 $(1,360) $64,153
Corporate securities 63,402 141 (1,167) 62,376
Public utilities 5,047 - (86) 4,961
133,523 580 (2,613) 131,490
------------------------------------------------------------------------------------------------------------------------------
EQUITY SECURITIES: 14,162 1,614 (634) 15,142
------------------------------------------------------------------------------------------------------------------------------
$147,685 $2,194 $(3,247) $146,632
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 1999, proceeds from the sales and calls of
investment securities available for sale totaled $9,373 and $30,268,
respectively. Net gains of $555 and $27, respectively, resulted from the sales
and calls.
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses and the estimated fair
value of mortgage-backed securities held to maturity at June 30, 2000 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Held to Maturity
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
GNMA pass-through certificates $2,749 $- $(6) $2,743
FHLMC pass-through certificates 5,552 - (39) 5,513
FNMA pass-through certificates 5,028 4 (25) 5,007
------------------------------------------------------------------------------------------------------------------------------
$13,329 $4 $(70) $13,263
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 2000, proceeds from the sales of mortgage-backed
securities held to maturity totaled $1,955. Net losses of $4 resulted from
these sales. The unpaid principal of the securities at the dates of sale were
less than 15% of their acquired par value, and thus were permissible sales
under SFAS 115.
The amortized cost, gross unrealized gains and losses and the estimated fair
value of mortgage-backed securities available for sale at June 30, 2000 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $287,780 $176 $(8,089) $279,867
GNMA pass-through certificates 130,473 182 (921) 129,734
FHLMC pass-through certificates 9,377 70 (107) 9,340
FNMA pass-through certificates 10,530 59 (169) 10,420
------------------------------------------------------------------------------------------------------------------------------
$438,160 $487 $(9,286) $429,361
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 2000, proceeds from the sales of mortgage-backed
securities available for sale totaled $64,937. Net losses of $1,818 resulted
from these sales.
The amortized cost, gross unrealized gains and losses and the estimated fair
value of mortgage-backed securities held to maturity at June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Held to Maturity
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
GNMA pass-through certificates $5,772 $259 $- $6,031
FHLMC pass-through certificates 9,140 68 - 9,208
FNMA pass-through certificates 7,908 57 (12) 7,953
------------------------------------------------------------------------------------------------------------------------------
$22,820 $384 $(12) $23,192
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-35-
<PAGE>
The amortized cost, gross unrealized gains and losses and the estimated fair
value of mortgage-backed securities available for sale at June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
<S> <C> <C> <C> <C>
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $348,938 $220 $(4,904) $344,254
GNMA pass-through certificates 127,285 730 (709) 127,306
FHLMC pass-through certificates 13,854 105 (74) 13,885
FNMA pass-through certificates 17,409 127 (134) 17,402
------------------------------------------------------------------------------------------------------------------------------
$507,486 $1,182 $(5,821) $502,847
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales or calls of mortgage-backed securities held to maturity or
available for sale during the year ended June 30, 1999.
6. LOANS
The Company's real estate loans are comprised of the following:
At June 30, 2000 1999
------------------------------------------------------------------------------
One-to-four family $212,138 $246,075
Multi-family and underlying
cooperative 1,349,854 1,000,859
Nonresidential 118,576 88,837
F.H.A. and V. A. insured mortgage loans 7,536 9,699
Co-op loans 27,465 32,893
------------------------------------------------------------------------------
1,715,569 1,378,363
Net unearned fees (2,017) (2,853)
------------------------------------------------------------------------------
$1,713,552 $1,375,510
==============================================================================
The Bank originates both adjustable and fixed interest rate real estate loans.
At June 30, 2000, the approximate composition of these loans was as follows:
Fixed Rate Variable Rate
----------------------------------- -------------------------------------
Period to Maturity
Period to Maturity Book Value or Next Repricing Book Value
----------------------------------- -------------------------------------
1 month-1 year $2,005 1 month-1 year $82,669
1 year-3 years 2,702 1 year-3 years 216,256
3 years-5 years 12,581 3 years-5 years 297,508
5 years-10 years 299,961 5 years-10 years 602,416
Over 10 years 199,471 Over 10 years -
----------------------------------- -------------------------------------
$516,720 $1,198,849
----------------------------------- -------------------------------------
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the Federal Home Loan Bank of New York ("FHLBNY") five-
year borrowing funds rate, the one-year constant maturity Treasury index, or
the Federal Home Loan Bank national mortgage contract rate.
A concentration of credit risk exists within the Bank's loan portfolio, as the
majority of real estate loans are collateralized by multi-family and underlying
cooperative properties located in the New York City metropolitan area.
The Company's other loans are comprised of the following:
At June 30, 2000 1999
------------------------------------------------------------------------------
Student loans $990 $794
Passbook loans (secured by savings
and time deposits) 1,900 2,271
Home improvement loans 3,410 3,666
Consumer installment and other loans 1,348 1,100
------------------------------------------------------------------------------
$7,648 $7,831
------------------------------------------------------------------------------
-36-
<PAGE>
Loans on which the accrual of interest has been discontinued were $4,421 and
$3,001 at June 30, 2000 and 1999, respectively. Interest income foregone on
nonaccrual loans was not material during the fiscal years ended June 30, 2000
and 1999.
The Bank had outstanding loans considered troubled-debt restructurings of $700
and $1,290 at June 30, 2000 and 1999, respectively. Income recognized on these
loans was approximately $56 and $125 for the years ended June 30, 2000 and
1999, respectively, compared to interest income of $70 and $183 calculated
under the original terms of the loans, for the years ended June 30, 2000 and
1999, respectively.
The recorded investment in loans for which impairment has been recognized under
the guidance of SFAS 114 was approximately $2,591 and $1,563 at June 30, 2000
and 1999, respectively. The average balance of impaired loans was approximately
$1,482 and $2,329 for the years ended June 30, 2000 and 1999, respectively.
Write-downs on impaired loans were not material during the years ended June 30,
2000 and 1999. At June 30, 2000 and 1999, specific reserves totaling $130 and
$62 were allocated within the allowance for loan losses for impaired loans.
Net principal received and interest income recognized on impaired loans during
the years ended June 30, 2000 and 1999 were not material.
The following assumptions were utilized in evaluating the loan portfolio
pursuant to the provisions of SFAS 114:
HOMOGENOUS LOANS - One-to-four family residential mortgage loans and loans on
cooperative apartments having a balance of less than $227 and consumer loans
are considered to be small balance homogenous loan pools and, accordingly, are
not covered by SFAS 114.
LOANS EVALUATED FOR IMPAIRMENT - All non-homogeneous loans greater than $1,000
are individually evaluated for potential impairment. Additionally, residential
mortgage loans exceeding $227 and delinquent in excess of 60 days are evaluated
for impairment. A loan is considered impaired when it is probable that all
contractual amounts due will not be collected in accordance with the terms of
the loan. A loan is not deemed to be impaired if a delay in receipt of payment
is expected to be less than 30 days or if, during a longer period of delay, the
Bank expects to collect all amounts due, including interest accrued at the
contractual rate during the period of the delay. Factors considered by
management include the property location, economic conditions, and any unique
circumstances affecting the loan. At June 30, 2000 and 1999, all impaired
loans were on nonaccrual status. In addition, at June 30, 2000 and 1999,
respectively, approximately $1,830 and $1,437 of one-to-four family residential
mortgage loans, loans on cooperative apartments and consumer loans with a
balance of less than $227 were on nonaccrual status. These loans are considered
as a homogeneous loan pool not covered by SFAS 114.
RESERVES AND CHARGE-OFFS - The Bank allocates a portion of its total allowance
for loan losses to loans deemed impaired under SFAS 114. All charge-offs on
impaired loans are recorded as a reduction in both loan principal and the
allowance for loan losses. Management evaluates the adequacy of its allowance
for loan losses on a regular basis. At June 30, 2000, management believes that
its allowance is adequate to provide for losses inherent in the total loan
portfolio, including impaired loans.
MEASUREMENT OF IMPAIRMENT - Since all impaired loans are collateralized by real
estate properties, the fair value of the collateral is utilized to measure
impairment.
INCOME RECOGNITION - Accrual of interest is discontinued on loans identified as
impaired and past due ninety days. Subsequent cash receipts are applied
initially to the outstanding loan principal balance. Additional receipts beyond
the recorded outstanding balance at the time interest is discontinued are
recorded as recoveries in the Bank's allowance for loan losses.
-37-
<PAGE>
7. ALLOWANCE FOR LOAN LOSSES AND LOSSES ON OTHER REAL ESTATE OWNED
Changes in the allowance for loan losses were as follows:
For the year ended June 30, 2000 1999 1998
------------------------------------------------------------------------------
Balance at beginning of period $15,081 $12,075 $10,726
Provision charged to operations 240 240 1,635
Loans charged off (545) (208) (328)
Recoveries 9 7 42
Reserve acquired in purchase of FIBC - 2,967 -
------------------------------------------------------------------------------
Balance at end of period $14,785 $15,081 $12,075
------------------------------------------------------------------------------
Changes in the allowance for losses on real estate owned were as follows:
For the year ended June 30, 2000 1999 1998
------------------------------------------------------------------------------
Balance at beginning of period $149 $164 $187
Provision charged to operations 25 16 114
Charge-offs, net of recoveries (129) (31) (137)
Balance at end of period $45 $149 $164
8. MORTGAGE SERVICING ACTIVITIES
At June 30, 2000 and 1999, the Bank was servicing loans for others having
principal amounts outstanding of approximately $48,190 and $53,857
respectively. Servicing loans for others generally consists of collecting
mortgage payments, maintaining escrow accounts, disbursing payments to
investors and foreclosure processing. In connection with these loans serviced
for others, the Bank held borrowers' escrow balances of approximately $677 and
$654 at June 30, 2000 and 1999, respectively.
9. PREMISES AND FIXED ASSETS
The following is a summary of premises and fixed assets:
At June 30, 2000 1999
-----------------------------------------------------------------------------
Land $2,457 $2,462
Buildings 10,297 10,689
Leasehold improvements 9,215 8,357
Furniture and equipment 7,814 7,712
-----------------------------------------------------------------------------
29,783 29,220
-----------------------------------------------------------------------------
Less: accumulated depreciation
and amortization (15,012) (14,245)
-----------------------------------------------------------------------------
$14,771 $14,975
=============================================================================
Depreciation and amortization expense amounted to approximately $1,080, $954,
and $964 for the years ended June 30, 2000, 1999 and 1998, respectively.
10. FEDERAL HOME LOAN BANK OF NEW YORK CAPITAL STOCK
The Bank is a Savings Bank Member of the FHLBNY. Membership requires the
purchase of shares of FHLBNY capital stock at $100 per share. The Bank owned
424,227 and 282,813 shares at June 30, 2000 and 1999, respectively. The FHLBNY
paid dividends on the capital stock of 6.8%, 6.9%, and 7.2% during the years
ended June 30, 2000, 1999 and 1998, respectively.
11. DUE TO DEPOSITORS
The deposit accounts of each depositor are insured up to $100 by either the
Bank Insurance Fund or the Savings Association Insurance Fund of the Federal
Deposit Insurance Corporation ("FDIC").
-38-
<PAGE>
Deposits are summarized as follows:
<TABLE>
<CAPTION>
At June 30, 2000 1999
----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EFFECTIVE Effective
COST LIABILITY Cost Liability
----------------------------------------------------------------------------------------------------------------
Savings accounts 2.08% $373,772 2.09% $406,602
Certificates of deposit 5.51 618,165 5.31 703,251
Money market accounts 4.37 146,066 3.55 52,979
NOW and Super NOW accounts 1.24 26,787 1.22 25,687
Non-interest bearing checking accounts - 54,358 - 50,414
----------------------------------------------------------------------------------------------------------------
3.98% $1,219,148 3.85% $1,238,933
----------------------------------------------------------------------------------------------------------------
</TABLE>
The distribution of certificates of deposits by remaining maturity was as
follows:
At June 30, 2000 1999
-----------------------------------------------------------------------
Maturity in three months or less $131,865 $221,368
Over 3 through 6 months 99,033 137,654
Over 6 through 12 months 184,040 192,749
Over 12 months 203,227 151,480
-----------------------------------------------------------------------
Total certificates of deposit $618,165 $703,251
-----------------------------------------------------------------------
The aggregate amount of certificates of deposits with a minimum denomination of
$100 was approximately $75,625 and $78,707 at June 30, 2000 and 1999,
respectively.
12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Presented below is information concerning securities sold with agreement to
repurchase:
<TABLE>
<CAPTION>
<S> <C> <C>
At or for the year ended June 30, 2000 1999
-----------------------------------------------------------------------------------------------------------------
Balance outstanding at end of period $434,027 $481,660
Average interest cost at end of period 6.37% 5.28%
Average balance outstanding during the year $456,155 $381,996
Average interest cost during the year 5.66% 5.45%
Carrying value of underlying collateral at end of period $456,844 $496,500
Estimated fair value of underlying collateral $447,715 $491,750
Maximum balance outstanding at month end during period $486,936 $481,660
</TABLE>
13. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES
The Bank had borrowings (''Advances'') from the FHLBNY totaling $555,000 and
$250,000 at June 30, 2000 and 1999, respectively. The average cost of FHLB
advances was 5.89% and 5.96%, respectively, during the years ended June 30,
2000 and 1999, and the average interest rate on outstanding FHLB advances was
6.07% and 5.52%, respectively, at June 30, 2000 and 1999. At June 30, 2000, in
accordance with the Advances, Collateral Pledge and Security Agreement with the
FHLBNY, the Bank maintained in excess of $610,500 of qualifying collateral with
the FHLBNY (principally real estate loans), as defined by the FHLBNY, to secure
such advances.
14. SUBORDINATED NOTES PAYABLE
On April 12, 2000, the Company issued subordinated notes in the aggregate
amount of $25.0 million. The notes have a fixed rate of interest of 9.25% and
mature on May 1, 2010. Interest expense recorded on the notes, inclusive of
amortization of related issuance costs, was $521 during the year ended June 30,
2000.
-39-
<PAGE>
15. INCOME TAXES
The Company's Federal, State and City income tax provisions were comprised of
the following:
<TABLE>
<CAPTION>
Year Ended June 30, 2000 1999 1998
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATE State State
FEDERAL AND CITY TOTAL Federal and City Total Federal and City Total
----------------------------------------------------------------------------------------------------------------------------
Current $11,569 $677 $12,246 $11,045 $1,685 $12,730 $8,687 $2,698 $11,385
Deferred 2,787 184 2,971 1,915 (630) 1,285 776 (295) 481
----------------------------------------------------------------------------------------------------------------------------
$14,356 $861 $15,217 $12,960 $1,055 $14,015 $9,463 $2,403 $11,866
============================================================================================================================
</TABLE>
In accordance with SFAS 109, deferred tax assets and liabilities are recorded
for temporary differences between the book and tax bases of assets and
liabilities.
The components of Federal and net State and City deferred income tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
At June 30, 2000 1999
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATE State
FEDERAL AND CITY Federal and City
----------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Excess book bad debt over tax
Bad debt reserve $4,027 $2,629 $3,809 $2,691
Employee benefit plans 2,784 1,635 3,921 2,344
Tax effect of other comprehensive
loss on securities available 3,271 2,103 1,752 618
for sale
Other - - 165 102
----------------------------------------------------------------------------------------------------------
Total deferred tax assets 10,082 6,367 9,647 5,755
----------------------------------------------------------------------------------------------------------
Less: Valuation allowance on
deferred tax assets - - - -
----------------------------------------------------------------------------------------------------------
Deferred tax assets after
valuation allowance $10,082 $6,367 $9,647 $5,755
----------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Undistributed earnings of
subsidiary $7,172 $16 $4,865 $21
Difference in book and tax
carrying value of fixed assets 324 52 192 2
Tax effect of purchase
accounting fair value
adjustments 861 515 921 549
Other 101 61 - -
----------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $8,458 $644 $5,978 $572
----------------------------------------------------------------------------------------------------------
Net deferred tax asset $1,624 $5,723 $3,669 $5,183
==========================================================================================================
</TABLE>
During the year ended June 30, 2000, deferred tax assets include an increase of
$3,004 resulting from adjustments pursuant to SFAS 115.
The provision for income taxes differed from that computed at the Federal
statutory rate as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year ended June 30, 2000 1999 1998
--------------------------------------------------------------------------------------------------
Tax at Federal statutory rate $13,157 $11,856 $8,737
State and local taxes, net of
Federal income tax benefit 560 685 1,562
Goodwill amortization 1,616 1,185 843
Benefit plan differences 42 406 532
Adjustments for prior period tax
returns (153) - -
Other, net (5) (117) 193
--------------------------------------------------------------------------------------------------
$15,217 $14,015 $11,867
==================================================================================================
Effective tax rate 40.48% 41.37% 47.53%
==================================================================================================
</TABLE>
Savings banks that meet certain definitions, tests, and other conditions
prescribed by the Internal Revenue Code are allowed to deduct, with
limitations, a bad debt deduction. Prior to August, 1996, this deduction could
be computed as a percentage of taxable income before such deduction ("PTI
Method") or based upon actual loss experience for Federal, New York State and
New York City income taxes.
-40-
<PAGE>
Pursuant to SFAS 109, the Bank is not required to provide deferred taxes on its
tax loan loss reserve as of December 31, 1987 ("base year reserve"). The
amount of this reserve on which no deferred taxes have been provided is
approximately $15,280. This reserve could be recognized as taxable income and
create a current tax liability using the income tax rates then in effect if one
of the following 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 Bank as provided by the Internal Revenue Code, or 3) there is a
change in federal tax law.
On August 20, 1996, Federal legislation was signed into law which repealed the
reserve method of accounting for bad debts, including the percentage of taxable
income method used by the Bank. 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 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 had no effect on the Company's
consolidated statement of operations.
16. EMPLOYEE BENEFIT PLANS
EMPLOYEE RETIREMENT PLAN - The Bank is a participant in a tax-qualified
noncontributory defined benefit retirement plan with the RSI Retirement Trust.
Substantially all full-time employees are eligible for participation after one
year of service. In addition, a participant must be at least 21 years of age at
the date of enrollment. During the year ended June 30, 1998, the Bank offered
an early retirement program to all Plan participants who met certain
eligibility criterion. As a result of the early retirement program, a non-
recurring charge of $1,611 was recorded.
Prior to January 21, 1999, FIBC maintained an employee retirement plan covering
all eligible employees (the "FIBC Retirement Plan"). Effective, January 21,
1999, the Bank assumed sponsorship of the FIBC Retirement Plan, for which the
projected benefit obligation and plan assets totaled $2,281 and $2,675,
respectively. Participants in the FIBC Retirement Plan, by amendment dated
August 17, 1999, were provided with full vesting on their benefits through
January 21, 1999. The projected benefit obligation and plan assets of the FIBC
Retirement Plan are reflected in the projected benefit obligation and plan
assets of the Bank's pension plan as of June 30, 1999.
Effective April 1, 2000, the Company froze all participant benefits under the
employee retirement plan. A gain of $1,360 was recorded in June, 2000 related
to this benefit curtailment.
The retirement cost for the pension plan includes the following components
(including a non-recurring charge of $1,611 related to an early retirement
program in 1998, costs associated with the acquired FIBC Retirement Plan
obligation during the period January 21, 1999 to June 30, 1999, and a
curtailment credit of $1,360 during the fiscal year ended June 30, 2000):
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended June 30, 2000 1999 1998
-----------------------------------------------------------------------------------------------------------
Service cost $528 $444 $332
Interest cost 1,129 915 781
Actual return on plan assets (1,433) (1,272) (2,931)
Net amortization and deferral (32) (32) 1,843
Expense associated with early retirement program - - 1,611
Curtailment credit (1,360) - -
-----------------------------------------------------------------------------------------------------------
Net periodic (credit) cost $(1,168) $55 $1,636
===========================================================================================================
</TABLE>
-41-
<PAGE>
The funded status of the plan was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 1999
-----------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $16,604 $14,286
Service cost 527 444
Interest cost 1,129 915
Actuarial (gain) loss (1,298) (393)
Benefit payments (987) (795)
Settlements (424) (2)
Early retirement obligation - (132)
Obligation of acquired plan (1,217) 2,281
-----------------------------------------------------------------------------------------------------------------
Balance at end of period 14,334 16,604
-----------------------------------------------------------------------------------------------------------------
Plan assets at fair value (investments in trust funds
managed by RSI)
Balance at beginning of period 16,263 13,599
Return on plan assets 2,639 786
Contributions 274 -
Benefit payments (987) (795)
Settlements (424) (2)
Assets of acquired plan - 2,675
-----------------------------------------------------------------------------------------------------------------
Balance at end of period 17,765 16,263
-----------------------------------------------------------------------------------------------------------------
FUNDED STATUS:
Excess (Deficiency) of plan assets over projected benefit obligation 3,431 (341)
Unrecognized gain (loss) from experience different from that assumed (1,878) 626
Unrecognized net past service liability - (175)
-----------------------------------------------------------------------------------------------------------------
Prepaid retirement expense included in other assets $1,553 $110
=================================================================================================================
</TABLE>
Major assumptions utilized were as follows:
At June 30, 2000 1999
-----------------------------------------------------------------------------
Discount rate 7.75% 7.00%
Rate of increase in compensation levels 5.50 5.00
Expected long-term return on plan assets 9.00 9.00
BENEFIT MAINTENANCE PLAN AND DIRECTORS' RETIREMENT PLAN - During the fiscal
year ended June 30, 1994, the Bank established a Supplemental Executive
Retirement Plan (''SERP'') for its executive officers. The SERP was established
to compensate the executive officers for any curtailments in benefits due to
the statutory limitations on benefit plans. The SERP exists as a nonqualified
plan which supplements the existing qualified plans. Defined benefit and
defined contribution costs are incurred annually related to the SERP. During
the year ended June 30, 1997, the SERP was renamed the Benefit Maintenance Plan
("BMP"), and sponsorship was transferred to the Company. As of June 30, 2000
and 1999, the Benefit Maintenance Plan has an investment in the Company's
common stock of $1,790 and $831, respectively. Accrued benefits under the
defined benefit portion of the BMP was suspended when benefit accruals under
the tax qualified plan were suspended.
Effective July 1, 1996, the Company established a non-qualified Retirement Plan
for all of its outside directors, which will provide benefits to each eligible
outside director commencing upon their termination of Board service or at age
65. Each outside director who serves or has agreed to serve as an outside
director will automatically become a participant in the Plan.
The retirement cost for the defined benefit portion of the BMP and Directors'
Retirement plan include the following components:
For the year ended June 30, 2000 1999 1998
-----------------------------------------------------------------------------
Service cost $151 $141 $104
Interest cost 282 236 248
Net amortization and deferral 173 175 170
Curtailment credit (131) - -
-----------------------------------------------------------------------------
$475 $552 $522
=============================================================================
The defined contribution costs incurred by the Bank related to the BMP/SERP for
the years ended June 30, 2000, 1999 and 1998 were $924, $990 and $522,
respectively.
-42-
<PAGE>
The funded status of the defined benefit portion of the plans was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 1999
--------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $3,964 $3,562
Service cost 151 141
Interest cost 282 236
Benefit payments - -
Actuarial (gain) loss (55) 25
Balance at end of period 4,342 3,964
PLAN ASSETS AT FAIR VALUE:
Balance at beginning of period - -
Contributions - -
Benefit payments - -
--------------------------------------------------------------------------------------------------------------------
Balance at end of period - -
--------------------------------------------------------------------------------------------------------------------
FUNDED STATUS:
Deficiency of plan assets over projected benefit obligation (4,342) (3,964)
Benefit curtailment 760 -
Unrecognized gain from experience different from that assumed 744 1,088
Unrecognized net past service liability 228 739
--------------------------------------------------------------------------------------------------------------------
Accrued expense included in other liabilities $(2,610) $(2,137)
====================================================================================================================
Amount recognized in statement of financial condition consists of:
Accrued liability $(3,271) $(2,887)
Intangible asset 661 750
--------------------------------------------------------------------------------------------------------------------
Net amount recognized $(2,610) $(2,137)
====================================================================================================================
</TABLE>
Major assumptions utilized were as follows:
<TABLE>
<CAPTION>
At June 30, 2000 1999
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DIRECTORS' Directors'
RETIREMENT Retirement
BMP PLAN BMP Plan
----------------------------------------------------------------------------------------------------------------------------
Discount rate 7.75% 7.50% 7.00% 7.25%
Rate of increase in compensation levels 5.50 4.00 5.00 4.00
</TABLE>
401(K) PLAN - The Bank also has a 401(k) plan which covers substantially all
employees. Prior to May 31, 1996, under such plan the Bank matched 50% of each
participant's contribution up to 6% of the participant's annual compensation
for the first four years of participation and thereafter 100% of the
participant's contribution up to a maximum of 6%. Effective May 31, 1996, the
plan was amended whereby the Bank ceased all contributions to the plan, and
effective January 1, 1997, the Bank ceased all participant pre-tax
contributions to the Plan. As a result, no expense was recorded related to the
401(k) plan during the fiscal years ended June 30, 2000, 1999 and 1998.
Effective July 1, 2000, participant contributions of up to 12% of "covered
compensation," as defined by the Plan, and employer profit-sharing type
contributions of 3% of "covered compensation" were reinstated for all
participants of the 401(k) plan.
The 401(k) plan owns participant investments in the Company's common stock for
the accounts of participants which totaled $3,532, $5,001 and $6,630 at June
30, 2000, 1999 and 1998, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Bank offers additional
postretirement benefits to its retired employees who have provided at least
five (5) consecutive years of credited service and were active employees prior
to April 1, 1991, as follows:
(1) Employees who retired prior to April 1, 1991 receive full medical
coverage in effect until their death at no cost to such retirees;
(2) Eligible employees retiring after April 1, 1991 will be eligible for
continuation of their medical coverage in effect at the time of such
employees' retirement until their death. Throughout an employee's
retirement, the Bank will continue to pay the premiums for this coverage
up to the premium amount paid for the first year of retirement coverage.
Should the premiums increase, the employee will have to pay the
differential to maintain full medical coverage.
-43-
<PAGE>
Postretirement medical benefits are only available to those full-time employees
who, upon termination of service, start collecting retirement benefits
immediately from the Bank. The Bank reserves the right at any time, and to the
extent permitted by law, to change, terminate or discontinue any of the group
benefits, and can exercise the maximum discretion permitted by law, in
administering, interpreting, modifying or taking any other action with respect
to the plan or benefits.
The postretirement cost includes the following components:
For the year ended June 30, 2000 1999 1998
----------------------------------------------------------------
Service cost $50 $48 $37
Interest cost 197 179 178
Unrecognized past service liability (17) (20) (29)
----------------------------------------------------------------
$230 $207 $186
================================================================
The funded status of the postretirement benefit plan was as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
JUNE 30, 2000 1999
--------------------------------------------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $2,888 $2,714
Service cost 50 48
Interest cost 197 179
Actuarial (gain) loss (678) 80
Benefit payments (150) (133)
--------------------------------------------------------------------------------------------------------------------
Balance at end of period 2,307 2,888
--------------------------------------------------------------------------------------------------------------------
PLAN ASSETS AT FAIR VALUE:
Balance at beginning of period - -
Contributions 150 133
Benefit payments (150) (133)
--------------------------------------------------------------------------------------------------------------------
Balance at end of period - -
--------------------------------------------------------------------------------------------------------------------
FUNDED STATUS:
Deficiency of plan assets over projected benefit obligation (2,307) (2,888)
Unrecognized gain (loss) from experience different from that assumed (238) 451
Unrecognized net past service liability (240) (268)
--------------------------------------------------------------------------------------------------------------------
Accrued expense included in other liabilities $(2,785) $(2,705)
====================================================================================================================
</TABLE>
The assumed medical cost trend rates used in computing the accumulated
postretirement benefit obligation was 6.50% in 1999 and was assumed to decrease
gradually to 5.0% in 2005 and to remain at that level thereafter. Increasing
the assumed medical care cost trend rates by 1% in each year would increase the
accumulated postretirement benefit obligation by approximately $102. The
assumed discount rate and rate of compensation increase used to measure the
accumulated postretirement benefit obligation at June 30, 2000 were 7.75% and
5.50%, respectively. The assumed discount rate and rate of compensation
increase used to measure the accumulated postretirement benefit obligation at
June 30, 1999 were 7.00% and 5.00%, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN - In connection with the Conversion, the Board of
Directors of the Company adopted the Dime Community Bancshares Employee Stock
Ownership Plan (the "ESOP"). The ESOP borrowed $11,638 from the Company and
used the funds to purchase 1,163,800 shares of the Company's common stock. The
loan was originally to be repaid principally from the Bank's discretionary
contributions to the ESOP over a period of time not to exceed 10 years from the
date of the Conversion. Effective July 1, 2000, the loan agreement was amended
to extend the repayment period to thirty years from the date of the Conversion,
with the right of optional prepayment. The loan had an outstanding balance of
$6,853 and $8,016, respectively at June 30, 2000 and 1999, and a fixed rate of
8.0%.
Shares purchased with the loan proceeds are held in a suspense account for
allocation among participants as the loan is repaid. Contributions to the ESOP
and shares released from the suspense account are allocated among participants
on the basis of compensation, as described in the plan, in the year of
allocation. The ESOP vests at a rate of 25% per year of service beginning
after two years with full vesting after five years, or upon attainment of age
65, death, disability, retirement or in the event of a "change of control" of
the Company as defined in the ESOP. Shares of common stock allocated to
participating employees totaled 116,380, 115,832 and 116,380 during the years
ended June 30, 2000, 1999 and 1998. The ESOP benefit expense recorded in
-44-
<PAGE>
accordance with SOP 93-6 for allocated shares totaled $2,167, $2,595 and
$2,670, respectively, for the years ended June 30, 2000, 1999 and 1998.
STOCK BENEFIT PLANS
RECOGNITION AND RETENTION PLAN ("RRP") - In December, 1996, the Company's
shareholders approved the RRP, which is designed to encourage key officers and
directors of the Company and Bank to remain with the Company, as well as to
provide these persons with a proprietary interest in the Company. All
allocated RRP shares vest on February 1{st }of each year over a total period of
five years, and become 100% vested in the event of death, disability or
retirement of the participant, or in the event of a "change of control" of the
Company as defined by the RRP. The Company continues to account for
compensation expense under the RRP under APB 25, measuring compensation cost
based upon the average acquisition value of the RRP shares.
The following is a summary of activity related to the RRP for the years
ended June 30, 2000, 1999 and 1998:
At or for the year ended June 30, 2000 1999 1998
----------------------------------------------------------------------------
Shares acquired (a) 13,586 46,770 -
Shares vested 103,456 103,456 164,876
Shares forfeited - 3,200 -
Unallocated shares - end of period 60,356 46,770 -
Unvested allocated shares -end of period 206,912 310,368 417,024
Compensation recorded to expense $1,928 $1,922 $2,708
EFFECTS OF ACCOUNTING FOR COMPENSATION UNDER
SFAS 123 INSTEAD OF APB 25:
Decrease in compensation expense $428 $422 $601
Increase in Basic EPS $0.02 $0.02 $0.03
Increase in Diluted EPS $0.02 $0.02 $0.02
(a) Represents awarded shares retained for tax withholding.
The effects of applying SFAS 123 for disclosing compensation cost may not be
representative of the effect on reported net income for future years.
STOCK OPTION PLAN - In November, 1996, the Company adopted the Dime
Community Bancshares, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees (the "1996 Stock Option Plan"), which permits the
Company to grant up to 1,454,750 incentive or non-qualified stock options to
outside directors, officers and other employees of the Company or the Bank.
The Compensation Committee of the Board of Directors administers the Stock
Option Plan and authorizes all option grants.
On December 26, 1996, 1,393,425 stock options were granted to outside
directors, officers and certain employees. All stock options granted under the
1996 Stock Option Plan expire on December 26, 2006. One-fifth of the shares
granted to participants under the 1996 Stock Option Plan become exercisable by
participants on December 26, 1997, 1998, 1999, 2000 and 2001, respectively.
On January 21, 1999, holders of stock options which had been granted by FIBC to
purchase 96,975 shares of FIBC common stock were converted into options to
purchase 177,286 shares DCB common stock (the "Converted Options"). The
expiration dates on all Converted Options remained unchanged from initial grant
by FIBC.
On January 20, 2000, 66,500 stock options remaining under the 1996 Stock Option
Plan were granted to officers and certain employees. All of these stock
options expire on January 20, 2010. One-fifth of the shares granted to
participants under this grant become exercisable by participants on January 20,
2001, 2002, 2003, 2004 and 2005, respectively.
-45-
<PAGE>
Activity related to the Stock Option Plan for the fiscal years ended June 30,
2000, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended June 30, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------------
Options outstanding - beginning of year 1,525,211 1,388,225 1,393,425
Options granted 66,500 - -
FIBC stock options converted into Company stock options - 177,286 -
Options exercised 365 32,300 3,600
Options forfeited - 8,000 1,600
Options outstanding - end of year 1,591,346 1,525,211 1,388,225
Remaining options available for grant under the plan 4,425 70,925 62,925
Exercisable options at end of year 1,024,946 771,361 305,225
Weighted average exercise price on exercisable options -
end of year $13.45 $13.10 $14.50
</TABLE>
The weighted average fair value per option at the date of grant/conversion for
stock options granted/converted was estimated as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
GRANTED FIBC CONVERTED
OPTIONS<Fa> OPTIONS
-----------------------------------------------------------------------------------------------------------------------
Estimated fair value on date of grant/conversion $5.69 $13.81
Pricing methodology utilized Binomial Option Binomial Option
Expected life (in years) 10 10
Interest rate 5.78% 5.25%
Volatility 23.42 22.78
Dividend yield 1.54 2.00
</TABLE>
[FN]
<Fa> Represents weighted average of stock options granted on December 26, 1996
and January 20, 2000.
The Company continues to account for Stock Options under APB 25, accordingly no
compensation cost has been recognized. Had the Company recorded compensation
expense under the fair value methodology encouraged under SFAS 123,
compensation expense would have increased by $1,108, $1,063 and $1,063,
respectively, for the years ended June 30, 2000, 1999 and 1998, net income
would have decreased by $598, $574 and $574 respectively for the years ended
June 30, 2000, 1999 and 1998, both basic and diluted earnings per share would
have decreased by $0.05 for the years ended June 30, 2000, 1999 and 1998. The
effects of applying SFAS 123 for disclosing compensation cost may not be
representative of the effect on reported net income for future years.
17. COMMITMENTS AND CONTINGENCIES
MORTGAGE LOAN COMMITMENTS AND LINES OF CREDIT - At June 30, 2000 and 1999, the
Bank had outstanding commitments to make mortgage loans aggregating
approximately $55,113 and $111,008, respectively.
At June 30, 2000, commitments to originate fixed rate and adjustable rate
mortgage loans were $345 and $54,768 respectively. Interest rates on fixed
rate commitments ranged between 7.0% to 8.5%. Substantially all of the Bank's
commitments will expire within two months. A concentration risk exists with
these commitments as virtually all of the outstanding mortgage loan commitments
involve multi-family and underlying cooperative properties located within the
New York City metropolitan area.
The Bank had available at June 30, 2000 unused lines of credit with the Federal
Home Loan Bank of New York totaling $100,000, expiring on September 13, 2000.
LEASE COMMITMENTS - At June 30, 2000, aggregate net minimum annual rental
commitments on leases are as follows:
Year Ended June 30, Amount
-------------------------------
2001 $731
2002 588
2003 578
2004 564
2005 458
Thereafter 1,301
-46-
<PAGE>
Net rental expense for the years ended June 30, 2000, 1999 and 1998
approximated $84, $150, and $183, respectively.
LITIGATION - The Company and its subsidiary are subject to certain pending and
threatened legal actions which arise out of the normal course of business.
Management believes that the resolution of any pending or threatened litigation
will not have a material adverse effect on the financial condition or results
of operations.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of Statement of Financial Standards
No. 107, ''Disclosures About Fair Value of Financial Instruments.'' The
estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
CASH AND DUE FROM BANKS - The fair value is assumed to be equal to their
carrying value as these amounts are due upon demand.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - The fair value of these
securities is based on quoted market prices obtained from an independent
pricing service.
FEDERAL FUNDS SOLD AND SHORT TERM INVESTMENTS - The fair value of these assets,
principally overnight deposits, is assumed to be equal to their carrying value
due to their short maturity.
FEDERAL HOME LOAN BANK OF NEW YORK (FHLBNY) STOCK - The fair value of FHLBNY
stock is assumed to be equal to the carrying value as the stock is carried at
par value and redeemable at par value by the FHLBNY.
LOANS, LOANS HELD FOR SALE AND ACCRUED INTEREST RECEIVABLE - The fair value of
loans receivable is determined by utilizing either secondary market prices, or,
to a greater extent, by discounting the future cash flows, net of prepayments
of the loans using a rate for which similar loans would be originated to new
borrowers with similar terms. This methodology is applied to all loans,
inclusive of impaired and non-accrual loans. Accrued interest is stated at
carrying amount.
DEPOSITS AND ACCRUED INTEREST PAYABLE - The fair value of savings, money
market, NOW, Super NOW and checking accounts is assumed to be their carrying
amount. The fair value of certificates of deposit is based upon the discounted
value of contractual cash flows using current rates for instruments of the same
remaining maturity. Accrued interest payable is stated at its carrying amount.
ESCROW AND OTHER DEPOSITS - The estimated fair value of escrow, other deposits
and borrowed funds is assumed to be the amount payable at the reporting date.
BORROWED FUNDS - The carrying amount is a reasonable estimate of the fair value
for borrowings which are either short term or for which applicable interest
rates reprice based upon changes in market rates. For medium and long-term
borrowings, fair value is based upon discounted cash flows through contractual
maturity, or earlier call date, if expected to be called at rates currently
offered at the balance sheet date for similar terms. Accrued interest payable
is stated at its carrying amount.
OTHER LIABILITIES - The estimated fair value of other liabilities, which
primarily include trade accounts payable, is assumed to be their carrying
amount.
COMMITMENTS TO EXTEND CREDIT - The fair value of commitments is estimated using
the fees currently charged to enter into similar agreements, taking into
account the remaining terms of the agreements and the present
-47-
<PAGE>
creditworthiness of the counterparties. For fixed-rate loan commitments,
fair value also considers the difference between current levels of
interest rates and the committed rates.
The estimated fair values of the Company's financial instruments at June 30,
2000 and 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
CARRYING FAIR
JUNE 30, 2000 AMOUNT VALUE
-------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $15,371 $15,371
Investment securities held to maturity 17,489 31,768
Investment securities available for sale 121,121 121,121
Mortgage-backed securities held to maturity 13,329 13,263
Mortgage-backed securities available for sale 429,361 429,361
Loans and loans held for sale 1,706,515 1,726,469
FEDERAL FUNDS SOLD AND SHORT-TERM INVESTMENTS 9,449 9,449
FHLB stock 42,423 42,423
-------------------------------------------------------------------------------------------------------
LIABILITIES:
Savings, money market, NOW Super NOW and checking accounts 600,983 600,983
Certificates of Deposit 618,165 616,159
Escrow and other deposits 35,161 35,161
Borrowed funds 1,014,027 1,009,778
-------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET
Commitments to extend credit - (499)
-------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
CARRYING FAIR
JUNE 30, 2000 AMOUNT VALUE
-------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $17,801 $17,801
Investment securities held to maturity 31,698 31,768
Investment securities available for sale 146,632 146,632
Mortgage-backed securities held to maturity 22,820 23,192
Mortgage-backed securities available for sale 502,847 502,847
Loans and loans held for sale 1,368,260 1,375,248
Federal funds sold 11,011 11,011
FHLB stock 28,281 28,281
-------------------------------------------------------------------------------------------------------
LIABILITIES:
Savings, money market, NOW Super NOW and checking accounts 543,810 543,810
Certificates of Deposit 703,251 701,695
Escrow and other deposits 36,577 36,577
Borrowed funds 731,660 682,376
-------------------------------------------------------------------------------------------------------
OFF BALANCE SHEET
Commitments to extend credit - (1,316)
-------------------------------------------------------------------------------------------------------
</TABLE>
19. TREASURY STOCK
The Company repurchased 1,111,779 shares, 937,929 shares and 919,837 shares of
its common stock into treasury during the fiscal years ended June 30, 2000,
1999 and 1998, respectively. All shares were repurchased in accordance with
applicable regulations of the Office of Thrift Supervision and Securities and
Exchange Commission. On January 21, 1999, the Company reissued 1,504,704
shares of treasury stock in conjunction with its acquisition of FIBC.
20. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory-and possibly additional discretionary-actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
-48-
<PAGE>
Quantitative measures that have been established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital amounts and
ratios (set forth in the table below). The Bank's primary regulatory agency,
the OTS, requires that the Bank maintain minimum ratios of tangible capital (as
defined in the regulations) of 1.5%, leverage capital of 4%, and total risk-
based capital (as defined) of 8%. In addition, insured institutions in the
strongest financial and managerial condition, with a rating of one (the highest
examination of the Office of Thrift Supervision under the Uniform Financial
Institutions Rating System) are required to maintain a leverage capital ratio
of not less than 3.0% of total assets (the "leverage capital ratio"). For all
other banks, the minimum leverage capital requirement is 4.0%, unless a higher
leverage capital ratio is warranted by the particular circumstances or risk
profile of the institution. The Bank is also subject to prompt corrective
action requirement regulations set forth by the FDIC. These regulations
require the Bank to maintain minimum of Total and Tier I capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier I capital
(as defined) to average assets (as defined). Management believes, as of June
30, 2000, that the Bank meets all capital adequacy requirements to which it is
subject.
As of June 30, 2000, the most recent notification from the OTS categorized the
Bank as "well capitalized" under the regulatory framework for prompt corrective
action. To be categorized as "well capitalized" the Bank must maintain minimum
total risk-based, Tier I risk-based, Tier I leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the institution's category.
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS "WELL CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 2000 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------------------------------------------------------------
Tangible capital $136,772 5.76% $35,600 1.5% N/A N/A
Leverage capital 136,772 5.76 94,934 4.0% N/A N/A
Total risk-based capital (to risk weighted
assets) 151,556 11.62 104,386 8.0% $130,483 10.00%
Tier I risk-based capital (to risk weighted
assets) 136,772 10.48 N/A N/A 78,290 6.00
Tier I leverage capital (to average assets) 136,772 5.82 N/A N/A 117,417 5.00
</TABLE>
<TABLE>
<CAPTION>
TO BE CATEGORIZED
AS "WELL CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
----------------------------------------------------------------------------------------------------------------------------------
Tangible capital $123,817 5.83% $31,846 1.5% N/A N/A
Leverage capital 123,817 5.83 63,693 3.0% N/A N/A
Total risk-based capital (to risk weighted
assets) 138,123 11.45 96,515 8.0% $120,644 10.00%
Tier I risk-based capital (to risk weighted
assets) 123,817 10.28 N/A N/A 72,387 6.00
Tier I leverage capital (to average assets) 123,817 6.52 N/A N/A 94,904 5.00
</TABLE>
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital for the Bank:
-49-
<PAGE>
<TABLE>
<CAPTION>
At June 30, 2000 1999
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
TANGIBLE LEVERAGE RISK-BASED Tangible Leverage Risk-Based
CAPITAL CAPITAL CAPITAL Capital Capital Capital
--------------------------------------------------------------------------------------------------------------------------------
GAAP capital $194,236 $194,236 $194,236 $189,405 $189,405 $189,405
Non-allowable assets:
Core deposit intangible (3,760) (3,760) (3,760) (4,585) (4,585) (4,585)
Unrealized loss on
available for sale
securities 6,550 6,550 6,550 3,868 3,868 3,868
Goodwill (60,254) (60,254) (60,254) (64,871) (64,871) (64,871)
General valuation
allowance - - 14,784 - - 14,306
--------------------------------------------------------------------------------------------------------------------------------
Regulatory capital 136,772 136,772 151,556 123,817 123,817 138,123
Minimum capital
requirement 35,600 94,934 104,386 31,846 63,693 96,515
--------------------------------------------------------------------------------------------------------------------------------
Regulatory capital
excess $101,172 $41,838 $47,170 $91,971 $60,124 $41,608
================================================================================================================================
</TABLE>
21. QUARTERLY FINANCIAL INFORMATION
The following represents the unaudited results of operations for each of the
quarters during the fiscal years ended June 30, 2000 and 1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three September 30, December 31, March 31, June 30,
Months ended 1999 1999 2000 2000
-------------------------------------------------------------------------------------------------------------
Net interest income $16,560 $16,729 $16,746 $16,768
Provision for loan losses 60 60 60 60
Net interest income after
Provision for loan losses 16,500 16,669 16,686 16,708
Non-interest income 2,103 1,497 1,442 1
Non-interest expense 8,886 9,009 8,811 7,309
-------------------------------------------------------------------------------------------------------------
Income before income taxes 9,717 9,157 9,317 9,400
Income tax expense 4,157 3,741 3,555 3,764
-------------------------------------------------------------------------------------------------------------
Net income $5,560 $5,416 $5,762 $5,636
=============================================================================================================
EARNINGS PER SHARE (2):
Basic $0.48 $0.47 $0.51 $0.52
=============================================================================================================
Diluted $0.45 $0.45 $0.49 $0.50
=============================================================================================================
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the three September 30, December 31, March 31, June 30,
Months ended 1998 1998 1999 1999
-------------------------------------------------------------------------------------------------------------
Net interest income $12,833 $12,833 $15,913 $16,592
Provision for loan losses 60 60 60 60
Net interest income after
provision for loan losses 12,773 12,773 15,853 16,532
Non-interest income 1,021 2,060 1,482 1,875
Non-interest expense: 6,692 7,074 8,172 8,555
-------------------------------------------------------------------------------------------------------------
Income before income taxes 7,102 7,759 9,163 9,852
Income tax expense 3,119 3,074 3,614 4,208
-------------------------------------------------------------------------------------------------------------
Net income $3,983 $4,685 $5,549 $5,644
=============================================================================================================
EARNINGS PER SHARE (2):
Basic $0.38 $0.46 $0.49 $0.49
=============================================================================================================
Diluted $0.35 $0.42 $0.45 $0.45
=============================================================================================================
</TABLE>
(1) On January 21, 1999, the Company completed the FIBC acquisition.
(2) The quarterly earnings per share amounts, when added, may not agree to
earnings per share reported on the Consolidated Statement of Operations
due to differences in the computed weighted average shares outstanding
as well as rounding differences.
22. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS
The following statements of condition as of June 30, 2000 and 1999, and the
related statements of operations and cash flows for the years ended June 30,
2000, 1999 and 1998 reflect the Company's investment in its wholly-owned
subsidiaries, the Bank and 842 Manhattan Avenue Corp., using the equity method
of accounting:
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<PAGE>
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C>
At June 30, 2000 1999
------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $37 $61
Investment securities available for sale 18,881 9,529
Mortgage-backed securities available for sale 42,015 45,248
Federal funds sold and short term investments 8,830 3,517
ESOP loan to subsidiary 6,853 8,016
Investment in subsidiary 194,422 189,575
Receivable for securities sold - -
Other assets 1,256 264
------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $272,294 $256,210
==============================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Securities sold under agreement to repurchase $39,126 $43,766
Subordinated notes payable 25,000 -
Other liabilities 1,125 875
Stockholders' equity 207,043 211,569
------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $272,294 $256,210
==============================================================================================================================
</TABLE>
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended June 30, 2000 1999 1998
-------------------------------------------------------------------------------------------------------------------------------
Net interest income $1,214 $1,503 $2,041
Dividends received from Bank 18,013 54,000 13,000
Gain on sales of securities 117 555 521
Non-interest expense (447) (431) (481)
-------------------------------------------------------------------------------------------------------------------------------
Income before income taxes and equity of undistributed
(overdistributed) earnings of subsidiaries <F1> 18,897 55,627 15,081
Income tax expense 435 752 935
-------------------------------------------------------------------------------------------------------------------------------
Income before equity of undistributed (overdistributed) earnings
of Subsidiaries 18,462 54,875 14,146
Equity in (overdistributed) undistributed earnings of Subsidiaries <F1> 3,912 (35,014) (1,048)
-------------------------------------------------------------------------------------------------------------------------------
NET INCOME $22,374 $19,861 $13,098
===============================================================================================================================
<FN>
<F1> The equity in overdistributed earnings of subsidiaries for the years
ended June 30, 2000, 1999 and 1998, represents dividends paid to the
Company by its subsidiaries in excess of the current year's earnings of
Subsidiaries.
</TABLE>
<PAGE>
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended June 30, 2000 1999 1998
---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $22,374 $19,861 $13,098
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in (undistributed) overdistributed earnings of (3,912) 35,014 1,048
Subsdiaries
Gain on sale of investment securities available for sale (117) (555) (520)
Net accretion of discount on securities available for sale 279 (283) (291)
Decrease (Increase) in other assets (992) (80) 160
Decrease (Increase) in receivable for securities purchased - 1,264 (1,264)
Decrease in other liabilities (9) (747) (71)
---------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,623 54,474 12,160
CASH FLOWS FROM INVESTING ACTIVITIES:
(Increase) Decrease in federal funds sold and short-term (5,313) (2,226) 4,749
investments
Proceeds from sale of investment securities available for sale 341 9,373 13,439
Proceeds from calls and maturities of investment securities
available for sale - 5,000 13,500
Purchases of investment securities available for sale (10,069) (5,425) (20,940)
Purchases of mortgage-backed securities available for sale (9,906) (54,015) -
Principal repayments on mortgage-backed securities available for 12,779 8,485 -
sale
Principal repayments on ESOP loan 1,164 691 911
Cash disbursed in acquisition of Financial Bancorp, net of cash
acquired - (33,068) -
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by investing activities (11,004) (71,185) 11,659
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in securities sold under agreement to (4,640) 43,766 -
repurchase
Proceeds from issuance of subordinated notes payable 25,000 - -
COMMON STOCK ISSUED FOR EXERCISE OF STOCK OPTIONS - 468 52
CASH DIVIDENDS PAID TO STOCKHOLDERS (7,704) (5,919) (2,635)
PURCHASE OF TREASURY STOCK (19,299) (21,198) (20,767)
PURCHASE OF COMMON STOCK BY BENEFIT MAINTENANCE PLAN - (400) (431)
---------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (6,643) 16,717 (23,781)
---------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (24) 6 38
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 61 55 17
---------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $37 $61 $55
===========================================================================================================================
</TABLE>
* * * * *
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