UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-27782
DIME COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3297463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
209 HAVEMEYER STREET, BROOKLYN, NEW YORK 11211
(Address of principal executive offices) (Zip Code)
(718) 782-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
(1) YES X NO ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING, APRIL 30, 2000
$.01 Par Value 11,984,674
<PAGE>
-2-
PAGE
Item 1. Financial Statements
Consolidated Statements of Condition at March 31, 2000
(Unaudited) and June 30, 1999 3
Consolidated Statements of Operations for the Three Months
and Nine Months Ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity
for the Nine Months Ended March 31, 2000 (Unaudited) 5
Consolidated Statements of Cash Flows for the Nine Months
Ended March 31, 2000 and 1999 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-24
Item 3 Quantitative and Qualitative Disclosure About Market Risk 24
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds 25
Item 3. Defaults Upon Senior Securities 25
Item 4. Submission of Matters to a Vote of Security Holders 25
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibits
EXPLANATORY NOTE: This Form 10-Q contains certain "forward looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, and
may be identified by the use of such words as "believe," "expect," anticipate,"
"should," "planned," "estimated" and "potential". Examples of forward looking
statements include, but are not limited to, estimates with respect to the
financial condition, results of operations and business of the Company that are
subject to various factors which could cause actual results to differ
materially from these estimates. These factors include: changes in general,
economic and market conditions, and legislative and regulatory conditions, or
the development of an adverse interest rate environment that adversely affects
the interest rate spread or other income anticipated from the Company's
operations and investments.
As used in this Form 10-Q, "we" and "us" and "our" refer to Dime Community
Bancshares, Inc. and/or its consolidated subsidiaries, depending on the
context.
<PAGE>
-3-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
<S> <C> <C>
AT MARCH 31,
2000 AT JUNE 30,
(UNAUDITED) 1999
------------------- ---------------
ASSETS:
Cash and due from banks $14,786 $17,801
Investment securities held to maturity (estimated market value of $21,540
and $31,768 at March 31, 2000 and June 30, 1999, respectively) 21,692 31,698
Investment securities available for sale:
Bonds and notes (amortized cost of $112,114 and $133,523 at March 31,
2000 and June 30, 1999, respectively) 108,078 131,490
Marketable equity securities (historical cost of $14,922 and $14,162 at
March 31, 2000 and June 30, 1999, respectively) 15,224 15,142
Mortgage backed securities held to maturity (estimated market value of
$14,527 and $23,192 at March 31, 2000 and June 30, 1999, respectively) 14,591 22,820
Mortgage backed securities available for sale (amortized cost of $459,668
and $507,486 at March 31, 2000 and June 30, 1999, respectively) 449,051 502,847
Federal funds sold 39,226 11,011
Loans:
Real estate 1,640,047 1,375,510
Other loans 7,495 7,831
Less: Allowance for loan losses (14,725) (15,081)
------------------- ---------------
Total loans, net 1,632,817 1,368,260
------------------- ---------------
Premises and fixed assets, net of accumulated depreciation 14,778 14,975
Federal Home Loan Bank of New York Capital Stock 41,476 28,281
Other real estate owned, net 1,069 866
Goodwill 61,408 64,871
Other assets 44,229 37,553
------------------- ---------------
TOTAL ASSETS $2,458,425 $2,247,615
=================== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors $1,223,790 $1,247,061
Escrow and other deposits 31,503 36,577
Securities sold under agreements to repurchase 435,667 481,660
Federal Home Loan Bank of New York advances 525,000 250,000
Other liabilities 32,882 20,622
------------------- ---------------
TOTAL LIABILITIES 2,248,842 2,035,920
------------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par, 9,000,000 shares authorized,
none outstanding at March 31, 2000 and June 30, 1999) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,583,765 shares and
14,583,400 shares issued at March 31, 2000 and June 30, 1999, respectively,
and 12,172,953 shares and 12,775,588 shares outstanding at
March 31, 2000 and June 30, 1999, respectively) 145 145
ADDITIONAL PAID-IN CAPITAL 149,836 148,865
RETAINED EARNINGS (SUBSTANTIALLY RESTRICTED) 130,039 119,100
ACCUMULATED OTHER COMPREHENSIVE LOSS (7,741) (3,323)
UNALLOCATED COMMON STOCK OF EMPLOYEE STOCK OWNERSHIP PLAN (7,144) (8,016)
UNEARNED COMMON STOCK OF RECOGNITION AND RETENTION PLAN (4,806) (6,040)
COMMON STOCK HELD BY BENEFIT MAINTENANCE PLAN (1,790) (831)
TREASURY STOCK, AT COST (2,410,812 SHARES AND 1,807,812 SHARES AT MARCH 31,
2000 AND JUNE 30, 1999, RESPECTIVELY) (48,956) (38,205)
------------------- ---------------
TOTAL STOCKHOLDERS' EQUITY 209,583 211,695
------------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,458,425 $2,247,615
=================== ===============
</TABLE>
See notes to consolidated financial statements
<PAGE>
-4-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
2000 1999 2000 1999
-------- -------- -------- ----------
INTEREST INCOME:
Loans secured by real estate $30,489 $24,764 $86,585 $65,579
OTHER LOANS 158 156 468 409
INVESTMENT SECURITIES 2,231 2,870 7,375 7,727
MORTGAGE-BACKED SECURITIES 7,569 7,621 23,278 21,681
FEDERAL FUNDS SOLD 782 406 2,784 1,079
-------- -------- -------- --------
TOTAL INTEREST INCOME 41,229 35,817 120,490 96,475
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits and escrow 11,194 11,393 33,548 32,735
Borrowed funds 13,985 8,935 38,849 23,165
-------- -------- -------- --------
TOTAL INTEREST EXPENSE 25,179 20,328 72,397 55,900
NET INTEREST INCOME 16,050 15,489 48,093 40,575
PROVISION FOR LOAN LOSSES 60 60 180 180
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,990 15,429 47,913 40,395
-------- -------- -------- --------
NON-INTEREST INCOME:
Service charges and other fees 939 719 3,040 1,880
Net gain (loss) on sales and redemptions of
securities and other assets (40) 45 (54) 799
Net gain (loss) on sales of loans (2) 35 (10) 62
Other 1,241 1,107 4,008 2,826
-------- -------- -------- --------
TOTAL NON-INTEREST INCOME 2,138 1,906 6,984 5,567
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,601 3,281 10,557 9,079
ESOP and RRP compensation expense 936 1,108 3,125 3,398
Occupancy and equipment 941 847 2,823 2,069
Federal deposit insurance premiums 65 113 297 287
Data processing costs 424 334 1,264 955
Goodwill amortization 1,154 1,021 3,462 2,224
Core deposit intangible amortization 206 158 618 158
Other 1,484 1,310 4,560 3,768
-------- -------- -------- --------
TOTAL NON-INTEREST EXPENSE 8,811 8,172 26,706 21,938
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES 9,317 9,163 28,191 24,024
INCOME TAX EXPENSE 3,555 3,614 11,453 9,807
-------- -------- -------- --------
NET INCOME $5,762 $5,549 $16,738 $14,217
======== ======== ======== ========
EARNINGS PER SHARE:
BASIC $0.51 $0.49 $1.46 $1.33
======== ======== ======== ========
DILUTED $0.49 $0.45 $1.40 $1.23
======== ======== ======== ========
STATEMENTS OF COMPREHENSIVE INCOME:
Net Income $5,762 $5,549 $16,738 $14,217
Change in unrealized loss on securities available
for sale, net of deferred taxes (1,998) (242) (4,418) (1,492)
Reclassification adjustment for securities sold,
net 32 - (706) (278)
-------- -------- -------- --------
Total comprehensive income $3,796 $5,307 $11,614 $12,447
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
-5-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
<S> <C>
FOR THE NINE
MONTHS ENDED
MARCH 31, 2000
---------------------------
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning of period $145
---------------------------
Balance at end of period 145
---------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 148,865
Tax benefit of RRP shares 164
Amortization of excess fair value over cost - ESOP stock 807
---------------------------
Balance at end of period 149,836
---------------------------
RETAINED EARNINGS:
Balance at beginning of period 119,100
Net income for the period 16,738
Cash dividends declared and paid (5,799)
---------------------------
Balance at end of period 130,039
---------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET:
Balance at beginning of period (3,323)
Change in unrealized loss on securities available for sale
during the period, net of deferred taxes (4,418)
---------------------------
Balance at end of period (7,741)
---------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (8,016)
Amortization of earned portion of ESOP stock 872
---------------------------
Balance at end of period (7,144)
---------------------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (6,040)
Common stock acquired by RRP (212)
Amortization of earned portion of RRP stock 1,446
---------------------------
Balance at end of period (4,806)
---------------------------
BENEFIT MAINTENANCE PLAN:
Balance at beginning of period (831)
Common stock acquired by BMP (959)
---------------------------
Balance at end of period (1,790)
---------------------------
TREASURY STOCK:
Balance at beginning of period (38,205)
Purchase of 603,000 shares, at cost (10,751)
---------------------------
Balance at end of period (48,956)
---------------------------
</TABLE>
See notes to consolidated financial statements
<PAGE>
-6-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED MARCH 31,
<S> <C> <C>
2000 1999
-------------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES: (In THOUSANDS)
Net Income $16,738 $14,217
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net loss (gain) on investment and mortgage backed securities sold and called 1,314 (658)
Net loss on sale of other assets (37) -
Net loss (gain) on sale of loans held for sale 10 (62)
Net depreciation and amortization 841 832
ESOP and RRP compensation expense 3,125 3,398
Provision for loan losses 180 180
Goodwill and core deposit intangible amortization 3,462 2,382
Increase in loans held for sale - (39)
Increase in other assets and other real estate owned (2,625) (4,851)
Decrease in receivable for securities sold - 18,008
Increase in payable for securities purchased - 8,984
Increase in accrued postretirment benefit obligation and other liabilities 12,260 3,352
-------------------- --------------------
Net cash provided by operating activities 35,268 45,743
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in Federal funds sold (28,215) 30,902
Proceeds from maturities of investment securities held to maturity 45 4,790
Proceeds from maturities of investment securities available for sale 130,422 24,479
Proceeds from calls of investment securities held to maturity 10,000 35,160
Proceeds from calls of investment securities available for sale 2,400 14,018
Proceeds from sales of investment securities available for sale 21,772 9,873
Proceeds from sales of mortgage backed securities held to maturity 1,955 -
Proceeds from sales of mortgage backed securities available for sale 35,816 -
Purchases of investment securities available for sale (133,811) (87,870)
Purchases of mortgage backed securities available for sale (44,455) (228,257)
Principal collected on mortgage backed securities held to maturity 6,271 19,687
Principal collected on mortgage backed securities available for sale 54,955 110,438
Net increase in loans (264,737) (187,596)
Cash disbursed in acquisition, net of cash acquired - (32,157)
Purchases of fixed assets (611) (803)
Purchase of Federal Home Loan Bank stock (13,195) (14,211)
-------------------- --------------------
Net cash used in investing activities (221,388) (301,547)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in due to depositors (23,271) (17,003)
Net (decrease) increase in escrow and other deposits (5,074) 8,501
Proceeds from Federal Home Loan Bank of New York Advances 275,000 156,495
Increase (decrease) in securities sold under agreements to repurchase (45,993) 128,575
Cash dividends paid (5,799) (4,110)
Exercise of stock options and tax benefits of stock options and RRP 164 906
Purchase of common stock by Benefit Maintenance Plan and RRP (1,171) (1,399)
Purchase of treasury stock (10,751) (16,850)
------------------- ----------------
Net cash provided by financing activities 183,105 255,115
------------------- ----------------
DECREASE IN CASH AND DUE FROM BANKS (3,015) (689)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 17,801 16,266
------------------- ----------------
CASH AND DUE FROM BANKS, END OF PERIOD $14,786 $15,577
=================== ================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $12,654 $10,469
=================== ================
Cash paid for interest 70,708 54,172
=================== ================
Transfer of loans to Other real estate owned 429 48
=================== ================
Change in unrealized loss on available for sale securities, net of deferred taxes (4,418) (1,492)
=================== ================
</TABLE>
See notes to consolidated financial statements
<PAGE>
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
Dime Community Bancshares, Inc. is a Delaware corporation organized in
December, 1995 at the direction of the Board of Directors of The Dime Savings
Bank of Williamsburgh (referred to as the Bank), a federally chartered savings
bank, for the purpose of acquiring all of the capital stock of the Bank issued
in the Bank's conversion from a federal mutual savings bank to a federal stock
savings bank on June 26, 1996.
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. We maintain our headquarters in the Williamsburgh section of
the borough of Brooklyn. As of March 31, 2000, the Bank has seventeen
additional offices located in the boroughs of Brooklyn, Queens, and the Bronx,
and in Nassau County.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In our opinion, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of our financial condition as of March 31,
2000, the results of operations for the three-month and nine-month periods
ended March 31, 2000 and 1999, cash flows for the nine months ended March 31,
2000 and 1999, and changes in stockholders' equity for the nine months ended
March 31, 2000. The results of operations for the three-month and nine-month
periods ended March 31, 2000, are not necessarily indicative of the results of
operations for the remainder of the year. Certain information and note
disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America
(referred to as U.S. GAAP) have been omitted pursuant to the rules and
regulations of the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Areas in the accompanying financial statements where
estimates are significant include the allowance for loans losses and the
carrying value of other real estate.
These consolidated financial statements should be read in conjunction with
our audited consolidated financial statements as of and for the year ended June
30, 1999 and notes thereto.
3. TREASURY STOCK
During the nine months ended March 31, 2000, we repurchased 603,000 shares
of our common stock into treasury. The average price of the treasury shares
acquired was $17.83 per share, and all shares have been recorded at the
acquisition cost.
4. RECENT EVENTS
On April 12, 2000 we completed an offering of subordinated notes in the
aggregate amount of $25.0 million. The notes have a fixed rate of interest of
9.25% per annum. We intend to use the net proceeds from the sale of the notes
for general corporate purposes, including the payment of dividends on our
common stock, payment of interest on the notes and repurchase of our common
stock. The notes issued in the offering were sold in a private transaction
pursuant to an applicable exemption from registration under
<PAGE>
-8-
the Securities Act
of 1933, as amended (referred to as the "Securities Act"), and have not been
registered under the Securities Act. The notes may not be offered or sold in
the United States absent registration or an applicable exemption from
registration requirements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Dime Community Bancshares, Inc. is a Delaware corporation and parent
corporation of The Dime Savings Bank of Williamsburgh (referred to as DSBW or
the Bank), a federally chartered stock savings bank. We were organized in
December, 1995 at the direction of the Board of Directors of the Bank for the
purpose of acquiring all of the capital stock of the Bank issued in the
conversion of the Bank from a federal mutual savings bank to a federal stock
savings bank.
SELECTED FINANCIAL HIGHLIGHTS AND OTHER DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------- --------- --------- ---------
PERFORMANCE AND OTHER SELECTED RATIOS:
Return on Average Assets 0.95% 1.05% 0.94% 1.03%
Return on Average Stockholders' Equity 10.98 11.03 10.57 10.24
Core Return on Average Stockholders' Equity <F1> 10.26 9.96 10.05 8.70
Stockholders Equity to Total Assets 8.53 9.61 8.53 9.61
Tangible Equity to Total Tangible Assets 6.33 6.63 6.33 6.63
Loans/Deposits 134.63 106.17 134.63 106.17
Loans/Earning Assets 70.50 62.54 70.50 62.54
Average Interest Rate Spread <F2> 2.42 2.67 2.52% 2.61
Net Interest Margin <F2> 2.81 3.11 2.87 3.07
Average Interest Earning Assets to average interest 108.22 109.19 108.28 111.17
bearing liabilities
Non-interest Expense to Average Assets <F3> 1.22 1.32 1.27 1.41
Efficiency Ratio <F3> 40.87 40.39 41.03 43.19
Effective Tax Rate <F4> 38.16 39.44 40.63 40.82
Average Tangible Equity $150,727 $144,352 $148,816 $148,866
PER SHARE DATA:
Reported EPS (Diluted) 0.49 0.45 1.40 1.23
Core EPS (Diluted) <F1> 0.46 0.41 1.33 1.14
Cash dividends per share 0.17 0.14 0.49 0.36
Stated Book Value 17.22 16.63 17.22 16.63
Tangible Book Value 12.48 11.10 12.48 11.10
CASH EARNINGS DATA:
Cash Earnings <F5> 8,058 7,836 23,944 19,997
Cash EPS (Diluted) <F5> 0.69 0.64 2.00 1.72
Core Cash EPS (Diluted) <F1> <F5> 0.66 0.60 1.93 1.64
Cash Return on Average Assets <F5> 1.32% 1.48% 1.34% 1.44%
Cash Return on Average Stockholders' Equity <F5> 15.36 15.58 15.11 14.40
Core Cash Return on Average Stockholders'
Equity <F1> <F5> 14.64 14.50 14.60 13.68
Cash Non-interest Expense to Average Assets <F6> 1.07 1.11 1.09 1.20
Cash Efficiency Ratio <F6> 35.73 33.99 35.37 35.68
ASSET QUALITY SUMMARY:
Net charge-offs $24 $17 $536 $166
Nonperforming Loans 2,569 4,738 2,569 4,738
(TABLE CONTINUED ON NEXT PAGE)
</TABLE>
<PAGE>
-9-
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
<S> <C> <C> <C> <C>
2000 1999 2000 1999
--------- --------- --------- ---------
Other real estate owned 1,069 708 1,069 708
Nonperforming Assets/Total Assets 0.15% 0.24% 0.15% 0.24%
Allowance for Loan Loss/Total Loans 0.89 1.13 0.89 1.13
Allowance for Loan Loss/Nonperforming Loans 573.18 317.79 573.18 317.79
REGULATORY CAPITAL RATIOS: (BANK ONLY)
Tangible capital 5.50% 5.73% 5.50% 5.73%
Core capital 5.50 5.73 5.50 5.73
Risk-based capital 10.71 10.31 10.71 10.31
<FN>
<F1> Amounts exclude gains and losses on sales of assets, and other significant non-
recurring income or expense items.
<F2> Interest expense for the nine months ended March 31, 1999 include $618,000
of prepayment penalties on borrowings. Excluding these penalties, the net
interest rate spread and net interest margin would have been 2.66% and
3.12%, respectively for the nine months ended March 31, 1999.
<F3> In calculating these ratios, amortization expense related to goodwill and
core deposit intangibles are excluded from non-interest expense. The actual
efficiency ratio and ratio of non-interest expense to average assets were
48.33% and 1.45%, respectively, for the three months ended Mach 31, 2000,
47.20% and 1.55%, respectively, for the three months ended March 31, 1999,
48.43% and 1.49%, respectively, for the nine months ended March 31, 2000,
and 48.45% and 1.58%, respectively, for the nine months ended March 31,
1999.
<F4> Excluding non-recurring income tax benefits of $277,000 and $320,000
during the three months ended March 31, 2000 and 1999, respectively, the
effective tax rate was 41.13% and 42.93%, respectively, during the three
months ended March 31, 2000 and 1999. Excluding non-recurring income tax
benefits of $277,000 and $670,000 during the nine months ended March 31,
2000 and 1999, respectively, the effective tax rate was 41.61% and 43.61%,
respectively during the nine months ended March 31, 2000 and 1999,
respectively.
<F5> Amounts exclude non-cash expenses related to goodwill and core deposit
intangible amortization and compensation expense related to stock benefit
plans.
<F6> Cash earnings represents earnings before expenses for goodwill and core
deposit intangibles amortization and compensation expense related to our
stock benefit plans.
</TABLE>
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 sale of fixed-rate
mortgage loans to the secondary mortgage market. While maturities and scheduled
amortization of loans and investments are a predictable source of funds,
deposit flows, mortgage prepayments and mortgage loan sales are influenced by
interest rates, economic conditions and competition.
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 nine months ended March 31, 2000, our loan originations
totaled $397.2 million compared to $358.7 million for the nine months ended
March 31, 1999. Purchases of mortgage-backed and other securities totaled
$178.3 million for the nine months ended March 31, 2000 compared to $316.1
million for the nine months ended March 31, 1999. The decline in security
purchases resulted from a reduction in securities acquired in conjunction with
the Bank's capital leverage strategy during the nine months ended March 31,
2000, which can be attributed to a reduction in the potential interest rate
spread to be earned on capital leverage transactions during this period
resulting from increased interest rates on borrowed funds. Securities that were
purchased during the nine months ended March 31, 2000 were primarily of shorter
duration in response to efforts to manage our overall interest rate risk.
Funding for loan originations and security purchases was obtained primarily
from principal repayments on loans and mortgage-backed securities, maturities
of investment securities, and borrowings by means of repurchase agreements and
Federal Home Loan Bank of New York (referred to as the FHLBNY) advances.
Principal repayments on real estate loans and mortgage-backed securities
totaled $193.5 million during the nine months ended March 31, 2000,
<PAGE>
-10-
considerably lower than the $298.6 million of principal repayments received
during the nine months ended March 31, 1999. This reduction resulted from
recent interest rate increases which have significantly slowed principal
repayments on both real estate loans and mortgage-backed securities.
Maturities and calls of investment securities totaled $142.9 million during the
nine months ended March 31, 2000 and $78.4 million during the nine months ended
March 31, 1999. The increased purchase of short-term investments during the
nine months ended March 31, 2000 resulted in an overall increase in securities
maturities compared to the prior year. Loan and security sales, which totaled
$61.0 million during the nine months ended March 31, 2000 and $15.9 million
during the nine months ended March 31, 1999, provided some additional cash
flows. During the nine months ended March 31, 2000, we received proceeds of
$21.7 million on the sales of investment securities and $37.8 million on the
sales of mortgage-backed securities. The majority of these sales occurred
during the quarter ended December 31, 1999, and were utilized primarily to
generate additional liquidity due to concerns surrounding the Year 2000.
Deposits decreased $23.3 million during the nine months ended March 31,
2000, compared to an increase of $214.8 million during the nine months ended
March 31, 1999. The decrease in deposits during the nine months ended March
31, 2000, 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 nine months ended March 31, 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.
The increase in deposits during the nine months ended March 31, 1999, reflected
the addition of $231.8 million in deposits from our acquisition of Financial
Bancorp, Inc., and its wholly-owned subsidiary, Financial Federal Savings Bank
(referred to as the FIBC acquisition). Deposit flows are affected by the level
of interest rates, the interest rates and products offered by local
competitors, and other factors. Certificates of deposit which are scheduled to
mature in one year or less from March 31, 2000 totaled $429.4 million. Net
borrowings increased $229.0 million during the nine months ended March 31,
2000, and was comprised of an increase of $275.0 million in FHLBNY advances,
which were partially offset by a decline of $46.0 million in securities sold
under agreement to repurchase (referred to as Repo) agreements.
Stockholders' equity decreased $2.1 million during the nine months ended
March 31, 2000. This decrease resulted primarily from repurchases of common
stock into treasury of $10.8 million, cash dividends paid of $5.9 million
during the period and an increase in the accumulated other comprehensive loss
of $4.4 million related to the decline in market value of investment and
mortgage backed securities available for sale. Offsetting these decreases, was
net income of $16.7 million and stock benefit plan amortization of $3.1 million
during the nine months ended March 31, 2000.
On October 14, 1999, we declared a cash dividend of $0.17 per common share
to all shareholders of record on October 29, 1999. This dividend was paid on
November 9, 1999. On January 20, 2000, we declared a cash dividend of $0.17 per
common share to all shareholders of record on January 25, 2000. This dividend
was paid on February 9, 2000. On April 18, 2000, we declared a cash dividend
of $0.17 per common share to all shareholders of record on April 28, 2000. This
dividend will be paid on May 9, 2000.
On April 12, 2000 we completed an offering of subordinated notes in the
aggregate amount of $25.0 million. The notes have a fixed rate of interest of
9.25% per annum. We intend to use the net proceeds from the sale of the notes
for general corporate purposes, including the payment of dividends on our
common stock, payment of interest on the notes and repurchase of our common
stock. The notes issued in the offering were sold in a private transaction
pursuant to an applicable exemption from registration under the Securities Act,
and have not been registered under the Securities Act. The notes may not be
offered or sold in the United States absent registration or an applicable
exemption from registration requirements.
<PAGE>
-11-
On March 16, 2000, we authorized a sixth stock repurchase program. The
sixth stock repurchase program, as amended on April 18, 2000, allows for the
repurchase of up to an additional 606,858 shares, which represents up to 5% of
our outstanding common stock, upon the planned completion of our fifth stock
repurchase program. All shares acquired for the sixth stock repurchase program
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 our sixth stock 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 the Office of Thrift Supervision (referred to as the OTS)
regulations. The minimum required liquidity ratio is currently 4.0%. At March
31, 2000, the Bank's liquidity ratio was 15.2%. The levels of the Bank's
short-term liquid assets are dependent on the Bank's operating, financing and
investing activities during any given period.
We monitor our 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 we should require funds beyond our ability to
generate them internally, additional sources of funds are available through the
use of our $645.5 million borrowing limit at the FHLBNY. At March 31, 2000, we
had $542.5 million in short- and medium-term advances outstanding at the
FHLBNY, and a remaining borrowing limit of $103.0 million.
The Bank is subject to minimum capital regulatory requirements imposed by
the OTS, which requirements are, as a general matter, based on the amount and
composition of an institution's assets. Tangible capital must be at least 1.50%
of total tangible assets and total risk-based capital must be at least 8.0% of
risk-weighted assets. In addition, insured institutions in the strongest
financial management condition are required to maintain Tier 1 capital 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. At March 31, 2000, the Bank was in compliance with
all applicable regulatory capital requirements. Tangible capital totaled
$128.7 million, or 5.50% of total tangible assets, leverage capital was 5.50%
of adjusted assets, and total risk-based capital was 10.71% of risk weighted
assets. In addition, at March 31, 2000, the Bank was considered "well-
capitalized" for all regulatory purposes.
ASSET QUALITY
Non-performing loans (loans past due 90 days or more as to principal or
interest) totaled $2.6 million at March 31, 2000, compared to $3.0 million at
June 30, 1999. However, the Bank had 24 loans totaling $1.3 million delinquent
60-89 days at March 31, 2000, as compared to 23 such delinquent loans totaling
$819,000 at June 30, 1999. The majority of the non-performing loans and loans
delinquent 60-89 are represented by FHA/VA mortgage and consumer loans which
possess small outstanding balances.
Under Accounting Priciples Generally Accepted in the United States of
America (referred to as U.S. GAAP), we are required to account for certain loan
modifications or restructurings as ''troubled-debt restructurings.'' In
general, our modification or restructuring as a result of economic or legal
issues associated with the borrower's financial difficulties constitutes a
troubled-debt restructuring when we grant a concession to the borrower that we
would not otherwise consider. We had one loan classified as a troubled-debt
restructuring at March 31, 2000, totaling $700,000, compared to two such loans
totaling $1.3 million at June 30, 1999. The one troubled-debt restructuring as
of March 31, 2000, is performing in accordance with its restructured terms.
During the nine months ended March 31, 2000, one troubled-debt restructuring
with an outstanding principal balance of $590,000, was paid-in-full.
<PAGE>
-12-
Under GAAP, we established guidelines for determining and measuring
impairment in loans. For loans determined to be impaired, if the carrying
balance of the loan, including all accrued interest, exceeds the estimate of
fair value, a reserve is established. The recorded investment in loans deemed
impaired was approximately $952,000 as of March 31, 2000, compared to $1.6
million at June 30, 1999, and the average balance of impaired loans was $1.2
million for the nine months ended March 31, 2000 compared to $2.6 million for
the nine months ended March 31, 1999. The impaired portion of these loans is
represented by specific reserves totaling $25,000 allocated within the
allowance for loan losses at March 31, 2000. At March 31, 2000, reserves have
been provided on all impaired loans. Generally, we consider non-performing
loans to be impaired loans. At March 31, 2000, approximately $1.6 million of
one-to-four family, cooperative apartment and consumer loans on nonaccrual
status are not deemed impaired. Each of these loans has an outstanding balance
of less than $227,000, and are considered to be small balance homogeneous loan
pools which are not required to be evaluated for impairment. During the nine
months ended March 31, 2000, we did not incur any charge-offs related to loans
deemed impaired, as all of the charge-offs recorded during this period related
to one- to four-family, cooperative apartment or consumer loans which are
deemed homogeneous loan pools under GAAP. A significant portion of these
charge-offs relate to one- to four-family loans acquired in the FIBC
acquisition.
The balance of other real estate owned (referred to as OREO) was $1.1
million, consisting of 11 properties, at March 31, 2000 compared to $866,000,
consisting of 9 properties, at June 30, 1999. During the nine months ended
March 31, 2000, one multi-family loan approximating $315,000 and three
cooperative unit apartment loans totaling approximately $114,000 were
transferred to OREO. Offsetting these additions, were OREO disposals of
$227,000 in one-to four-family residential properties during the nine months
ended March 31, 2000. The allowance for losses on OREO was $149,000 at March
31, 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>
AT MARCH 31, 2000 AT JUNE 30, 1999
-------------------------- ----------------------
(Dollars In Thousands)
NON-PERFORMING LOANS:
One- to four-family $1,454 $1,577
Multi-family and underlying cooperative 952 1,248
Cooperative apartment 89 133
Other loans 74 43
----------------- --------------
TOTAL NON-PERFORMING LOANS 2,569 3,001
TOTAL OREO 1,069 866
----------------- --------------
Total non-performing assets $3,638 $3,867
================= ==============
TROUBLED-DEBT RESTRUCTURINGS $700 $1,290
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT RESTRUCTURINGS 4,338 5,157
IMPAIRED LOANS 952 1,563
TOTAL NON-PERFORMING LOANS TO TOTAL LOANS 0.16% 0.22%
TOTAL IMPAIRED LOANS TO TOTAL LOANS 0.06 0.11
TOTAL NON-PERFORMING ASSETS TO TOTAL ASSETS 0.15 0.17
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS TO TOTAL ASSETS 0.18 0.23
</TABLE>
<PAGE>
-13-
Comparison of Financial Condition at March 31, 2000 and June 30, 1999
ASSETS. Our assets totaled $2.46 billion at March 31, 2000, an increase of
$210.8 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 $264.5
million since June 30, 1999. The increase in real estate loans resulted
primarily from real estate loan originations of $390.8 million during the nine
months ended March 31, 2000, of which $370.4 million were multi-family and
underlying cooperative loans.
Offsetting the increase in real estate loans was an aggregate decline of
$77.1 million in investment and mortgage-backed securities available for sale,
of which $53.8 million was experienced in mortgage-backed securities available-
for-sale. The decline in available for sale securities reflects both the sale
of $22.2 million of investment securities and $36.7 million of mortgage-backed
securities available for sale during the nine months ended March 31, 2000.
These sales were utilized primarily to generate additional liquidity in
response to concerns regarding possible increased deposit outflows attributable
to concerns over the Year 2000. See "Liquidity and Capital Resources."
Additionally, the decline in mortgage-backed securities available for sale
reflects the reduced level of purchase activity for such securities during the
nine months ended March 31, 2000, as we reduced our capital leverage
transaction level during this period. See "Capital Leverage Strategy."
Additionally, investment securities held to maturity declined $10.0 million and
mortgage-backed securities held to maturity declined $8.2 million during the
nine months ended March 31, 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.
LIABILITIES. Total liabilities increased $212.9 million during the nine
months ended March 31, 2000, due primarily to an increase in FHLBNY advances of
$275.0 million during the period. The increased FHLBNY advances were utilized
primarily 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
management's desire to manage interest rate risk by more closely matching the
maturities of underlying borrowings to their funded assets, which are primarily
comprised of real estate loans. Deposits decreased $23.3 million to $1.22
billion at March 31, 2000 from $1.25 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 $46.0 million during
the nine months ended March 31, 2000, due to our decreased capital leverage
activity during the period. See "Capital Leverage Strategy."
STOCKHOLDERS' EQUITY. Stockholders' equity decreased $2.1 million during the
nine months ended March 31, 2000. This decrease resulted primarily from
repurchases of common stock into treasury of $10.8 million, cash dividends paid
of $5.9 million during the period and an increase in the accumulated other
comprehensive loss of $4.4 million 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. Offsetting these decreases was
net income of $16.7 million and stock benefit plan amortization of $3.1 million
during the nine months ended March 31, 2000.
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 (referred
to as leverage assets) funded by short term borrowings from various third party
lenders under securities sold under agreement to repurchase transactions. The
capital leverage strategy generates additional earnings for 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
<PAGE>
-14-
purchase, the net
interest income earned on the leverage strategy would be expected to decline in
a rising interest rate environment. See "Market Risk." To date, the capital
leverage strategy has been undertaken in accordance with limits established by
our Board of Directors, aimed at enhancing profitability under moderate levels
of interest rate exposure. During the nine months ended March 31, 2000, we
undertook little new activity related to the capital leverage strategy due to
both unfavorable interest rate spreads on new transactions available during
this period, and the reduced need to leverage the Bank's capital. As a result
of the reduced activity in the capital leverage strategy during the nine months
ended March 31, 2000, our balance of mortgage-backed securities available for
sale declined $53.8 million during this period as sales and paydowns on these
securities exceeded new purchases.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS ENDED MARCH 31, 2000
AND 1999
GENERAL. Net income increased $212,000, to $5.8 million for the three months
ended March 31, 2000, compared to $5.6 million for the three months ended March
31, 1999. The increase in net income resulted from increases of $561,000 in
net interest income and $232,000 in non-interest income, which were partially
offset by an increase of $639,000 in non-interest expense.
NET INTEREST INCOME. The discussion of net interest income for the three
months ended March 31, 2000 and 1999, presented below, should be read in
conjunction with the following table, which sets forth certain information
relating to our consolidated statements of operations for the three months
ended March 31, 2000 and 1999, and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. The yields and costs include fees which are
considered adjustments to yields.
<PAGE>
-15-
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Real Estate Loans <F1> $1,607,406 $30,489 7.59% $1,264,552 $24,764 7.83%
Other loans 7,499 158 8.43 6,948 156 8.98
MORTGAGE-BACKED SECURITIES <F2> 464,420 7,569 6.52 490,907 7,621 6.21
INVESTMENT SECURITIES <F2> 148,691 2,231 6.00 194,252 2,870 5.91
FEDERAL FUNDS SOLD 56,155 782 5.57 35,991 406 4.51
----------- --------- --------- --------
TOTAL INTEREST-EARNING ASSETS 2,284,171 $41,229 7.22% 1,992,650 $35,817 7.19%
----------- ========= --------- ========
NON-INTEREST EARNING ASSETS 148,721 121,049
----------- ---------
TOTAL ASSETS $2,432,892 $2,113,699
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW, SUPER NOW AND
MONEY MARKET ACCOUNTS $139,779 $1,308 3.76% $71,935 $425 2.40%
SAVINGS ACCOUNTS 380,271 1,927 2.04 394,417 1,955 2.01
CERTIFICATES OF DEPOSIT 627,488 7,959 5.10 688,252 9,013 5.31
BORROWED FUNDS 963,143 13,985 5.84 670,340 8,935 5.41
----------- --------- --------- --------
TOTAL INTEREST-BEARING
LIABILITIES 2,110,681 $25,179 4.80% 1,824,944 $20,328 4.52%
----------- ========= --------- ========
CHECKING ACCOUNTS 76,727 56,665
OTHER NON-INTEREST-BEARING
LIABILITIES 35,635 30,871
----------- ---------
TOTAL LIABILITIES 2,223,043 1,912,480
STOCKHOLDERS' EQUITY 209,849 201,219
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,432,892 $2,113,699
=========== =========
NET INTEREST INCOME/ INTEREST RATE
SPREAD <F3> $16,050 2.42% $15,489 2.67%
========= ========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F4> $173,490 2.81% $167,706 3.11%
=========== =========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 108.22% 109.19%
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included.
<F2> Includes securities classified "available for sale."
<F3> Net interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
<F4> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
-16-
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 2000
COMPARED TO
THREE MONTHS ENDED
MARCH 31, 1999
INCREASE/ (DECREASE)
DUE TO
<S> <C> <C> <C>
VOLUME RATE TOTAL
-------------- ------------ -------------
Interest-earning assets: (DOLLARS IN THOUSANDS)
Real Estate Loans $6,599 $(874) $5,725
Other loans 12 (10) 2
Mortgage-backed securities (422) 370 (52)
Investment securities (678) 39 (639)
Federal funds sold 254 122 376
-------------- ------------ ------------
Total 5,765 (353) 5,412
-------------- ------------ ------------
Interest-bearing liabilities:
NOW, Super Now and money market accounts 522 361 883
Savings accounts (65) 37 (28)
CERTIFICATES OF DEPOSIT (749) (305) (1,054)
BORROWED FUNDS 4,138 912 5,050
-------------- ------------ ------------
TOTAL 3,846 1,005 4,851
-------------- ------------ ------------
NET CHANGE IN NET INTEREST INCOME $1,919 $(1,358) $561
============== ============ ============
</TABLE>
Net interest income for the three months ended March 31, 2000 increased
$561,000 to $16.1 million from $15.5 million during the three months ended
March 31, 1999. This increase was attributable primarily to an increase of
$291.5 million in average interest-earning assets, coupled with an increase of
3 basis points in average yield on interest earning assets. The net interest
rate spread declined 25 basis points from 2.67% for the three months ended
March 31, 1999 to 2.42% for the three months ended March 31, 2000, and the net
interest margin declined 30 basis points from 3.11% to 2.81% during the same
period.
The decline in interest rate spread and interest rate margin both reflect a
28 basis point increase in the average cost of interest bearing liabilities,
resulting primarily from an increase in the average cost of borrowed funds of
43 basis points. The narrowing of the interest rate spread and margin also
reflects both the $292.8 million increase in average borrowed funds, which
possess the highest average cost of interest bearing liabilities, and the
ongoing effects of our capital leverage strategy activities. While we recently
have reduced our new activity related to the capital leverage strategy, the
cumulative growth in capital leverage program activity during the fiscal years
ended June 30, 1998 and 1999 still significantly impacts our net interest
income during the current fiscal year, and 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. Additionally, the
average yield on real estate loans declined 24 basis points during the period,
despite recent overall increases in interest rates. The effects of the recent
interest rate increases upon the yield on real estate loans was minimal during
the quarter ended March 31, 2000, since real estate loans, on average, have a
longer term to repricing than our other interest-earning assets. The decline
in net interest margin further
<PAGE>
-17-
resulted from the reduction from 109.2% to
108.2% in the ratio of interest earning assets to interest bearing liabilities,
resulting from a reduction in interest earning assets funded by stockholders'
equity (which bear no opposing 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 three months ended March 31, 2000,
was $41.2 million, an increase of $5.4 million from $35.8 million during the
three months ended March 31, 1999. The increase in interest income was
primarily attributable to increased interest income on real estate loans of
$5.7 million and on short-term investments (commercial paper and federal funds
sold) of $376,000. The increase in interest income on real estate loans was
attributable primarily to an increase of $342.9 million in the average balance
of real estate loans, resulting from both $508.2 million of real estate loans
originated during the twelve-month period ended March 31, 2000, and $64.1
million of real estate loans acquired in connection with the FIBC acquisition.
The FIBC acquisition was completed on January 21, 1999. The increase in
interest income on short-term securities (comprised of federal funds sold and
commercial paper investments) was also attributable primarily to an increase in
the average balance of $20.2 million, resulting from securities purchased
during the three months ended December 31, 1999, in order to maintain added
liquidity related to concerns with possible increased deposit outflows
resulting from consumer concerns over the Year 2000. Overall, the yield on
interest-earning assets increased 3 basis points from 7.19% during the three
months ended March 31, 1999 to 7.22% during the three months ended March 31,
2000. The increase was attributable primarily to increases of 31 basis points,
9 basis points and 106 basis points, respectively in the average yield on
mortgage backed securities, investment securities and short term investments,
resulting primarily from general interest rate increases during the past twelve
months. Despite the recent general increases in interest rates, the overall
yield on real estate loans declined 24 basis points during the period. Since
real estate loans, on average, have a longer term to repricing than our other
interest-earning assets, the effects of recent interest rate increases take
longer to impact their overall yield. In addition, the yield on real estate
loans during the quarter ended March 31, 2000, experienced a lag effect from
the high prepayment activity which occurred during recent quarters, which
lowered the overall portfolio yield. We expect the effects of recent interest
rate increases and slower prepayment levels will be recognized more fully in
the overall real estate loan portfolio in upcoming quarters.
INTEREST EXPENSE. Interest expense increased $4.9 million, to $25.2 million
during the three months ended March 31, 2000, from $20.3 million during the
three months ended March 31, 1999. This increase resulted primarily from
increased interest expense of $5.1 million on borrowed funds, which resulted
from an increase in the average balance of $292.8 million during the three
months ended March 31, 2000 compared to the three months ended March 31, 1999.
The increase in the average balance of borrowed funds resulted primarily from
growth of $265.0 million in FHLBNY advances during the period April 1, 1999 to
March 31, 2000. The FHLBNY advances are generally medium-term interest-bearing
liabilities, which are utilized to fund loan originations and replace deposit
outflows. In addition, the average cost of borrowings increased 43 basis
points during this period, reflecting recent increases in general interest
rates, and a shift in borrowings towards FHLBNY advances, which possess longer
periods to maturity than Repo borrowings. Offsetting the increase in interest
expense on borrowed funds, was a decline in interest expense on certificates of
deposits of $1.1 million, which resulted from both a reduction of $60.8 million
in average balance and a reduction of 21 basis points in average cost of
certificates of deposits, both of which resulted from the cessation of deposit
rate promotions that we maintained from July 1997 to June 1998. Partially
offsetting the decline in interest expense from certificates of deposit, was an
increase of $883,000 in interest expense on money market, NOW and Super Now
accounts, which resulted from our recent money market promotion. The average
cost of interest-bearing liabilities increased 28 basis points to 4.80% during
the three months ended March 31, 2000, from 4.52% during the three months ended
March 31, 1999, due primarily to the increase in both the average balance and
average cost of borrowed funds.
<PAGE>
-18-
PROVISION FOR LOAN LOSSES. The provision for loan losses was $60,000
during both the three months ended March 31, 2000 and 1999, reflecting the
continued stability of non-performing loans and charge-offs. See "Asset
Quality." The allowance for loan losses increased $36,000 during the three
months ended March 31, 2000, as the loan loss provision of $60,000 exceeded net
charge-offs of $24,000 during the period. We have continued our loan loss
provisions and resultant increase in the allowance for loan losses in response
to our continued growth in real estate loans.
NON-INTEREST INCOME. Non-interest income increased $232,000 to $2.1 million
during the three months ended March 31, 2000, from $1.9 million during the
three months ended March 31, 1999. The increase resulted primarily from growth
in service charges and fees of $220,000 due primarily to increased service fees
and charges on deposits of $189,000, resulting primarily from adjustments in
our deposit fee and service charges and the addition of the five branches
acquired from FIBC. Other income increased $134,00, due primarily to increased
income from FHLBNY capital stock of $272,000, resulting from an increase in the
balance of FHLBNY capital stock from $28.3 million at March 31, 1999 to $41.5
million at March 31, 2000. The increase in the average balance of FHLBNY
capital stock resulted from our increased borrowings with the FHLBNY during
this period. This increase to other income was partially offset by a decline
of $105,000 in prepayment penalty income resulting from recent interest rate
increases.
Gains and losses on sales and redemptions of securities and other assets
declined $85,000 from the comparable quarter of last year. During the quarter
ended March 31, 1999, the Company recorded a net gain of $80,000 on the sales
and calls of securities and other assets, comprised of gains of $27,000 from
the calls of investment securities and gains of $18,000 on the sale of real
estate owned. During the quarter ended March 31, 2000, the Company recorded a
net loss of $40,000 on the sale of securities and other assets, comprised of a
net loss of $63,000 on the sale and subsequent replacement of small balance
mortgage-backed securities with consolidated mortgage backed investments and a
gain of $23,000 on the sale of real estate owned. The mortgage-backed
securities purchased to replace the securities sold offer a comparable yield
and anticipated term to maturity, while providing greater administrative ease
due to their larger average balance.
NON-INTEREST EXPENSE. Non-interest expense increased $639,000, from $8.2
million during the three months ended March 31, 1999, to $8.8 million during
the three months ended March 31, 2000. The increase in non-interest expense
reflects increases of $320,000 related to salaries and benefits expense,
$94,000 related to occupancy and equipment expense, $90,000 related to data
processing costs, $133,000 related to goodwill amortization, and $222,000
related to other expenses.
The increase in salary and benefit expense resulted primarily from base
salary and staff increases over the past twelve months, including the addition
of staff from the FIBC acquisition.
A significant portion of the increase in occupancy and equipment expenses
resulted from the addition of property and equipment in the FIBC acquisition.
Increased data processing costs of $90,000 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 and core deposit intangible expenses of $133,000
and $48,000, respectively, resulted from goodwill of $44.2 million and core
deposit intangible of $4.9 million added in the FIBC acquisition, for which
seven months of amortization expense are reflected during the nine months ended
March 31, 1999, compared to nine months of amortization expense reflected in
the nine months ended March 31, 2000. The increase in other expenses resulted
primarily from increased
<PAGE>
-19-
supplies, postage and telephone expenses associated
with operations of the branches acquired from FIBC, and increased advertising
expenses associated with recent customer promotions.
Our Board of Directors recently approved an amendment to our employee
retirement plan which stopped the accrual of retirement benefits as of March
31, 2000. All participant benefits earned under the retirement plan through
March 31, 2000 will remain frozen in the plan. The amendment is expected to
result in a one time curtailment gain which is still being quantified, but is
expected to be approximately $900,000, as well as ongoing cost savings, which
are still being quantified, but are expected to be approximately $400,000 per
year. The curtailment gain is expected to be recorded during the quarter ended
June 30, 2000.
INCOME TAX EXPENSE. Income tax expense decreased $59,000, or 2%, during the
quarter ended March 31, 2000 compared to the quarter ended March 31, 1999. Our
effective tax rate declined from 39.4% to 38.2% during this period, due to
additional tax benefits associated with activities of subsidiary companies. We
recorded non-recurring income tax benefits of $277,000 and $320,000,
respectively, during the quarters ended March 31, 2000 and 1999 related to
adjustments associated with the respective filings of the previous fiscal year
tax returns.
COMPARISON OF THE OPERATING RESULTS FOR THE NINE MONTHS ENDED MARCH 31, 2000
AND 1999
GENERAL. Net income increased $2.5 million, to $16.7 million for the nine
months ended March 31, 2000, compared to $14.2 million for the nine months
ended March 31, 1999. The increase in net income resulted from increases of
$7.5 million in net interest income and $1.4 million in non-interest income,
which were partially offset by increases of $4.8 million in non-interest
expense and $1.6 million in income tax expense.
NET INTEREST INCOME. The discussion of net interest income for the nine
months ended March 31, 2000 and 1999, presented below, should be read in
conjunction with the following table, which sets forth certain information
relating to our consolidated statements of operations for the nine months ended
March 31, 2000 and 1999, and reflects the average yield on assets and average
cost of liabilities for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. The yields and costs include fees which are
considered adjustments to yields.
<PAGE>
-20-
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
----------- --------- --------- --------- -------- --------
(DOLLARS IN THOUSANDS)
Assets:
Interest-earning assets:
Real Estate Loans <F1> $1,518,935 $86,585 7.60% $1,098,246 $65,579 7.96%
Other loans 7,525 468 8.29 6,107 409 8.93
MORTGAGE-BACKED SECURITIES <F2> 484,213 23,278 6.41 456,061 21,681 6.34
INVESTMENT SECURITIES <F2> 157,108 7,375 6.26 169,617 7,727 6.07
FEDERAL FUNDS SOLD 68,511 2,784 5.42 30,110 1,079 4.78
----------- --------- --------- --------
TOTAL INTEREST-EARNING ASSETS 2,236,292 $120,490 7.18% 1,760,141 $96,475 7.31%
----------- ========= --------- ========
NON-INTEREST EARNING ASSETS 146,499 86,544
----------- ---------
TOTAL ASSETS $2,382,791 $1,846,685
=========== =========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW, SUPER NOW AND
MONEY MARKET ACCOUNTS $111,177 $2,865 3.43% $57,097 $1,014 2.37%
SAVINGS ACCOUNTS 393,966 6,048 2.04 359,192 5,713 2.12
CERTIFICATES OF DEPOSIT 649,202 24,635 5.05 629,493 26,008 5.50
BORROWED FUNDS <F3> 910,993 38,849 5.68 537,550 23,165 5.70
----------- --------- --------- --------
TOTAL INTEREST-BEARING
LIABILITIES 2,065,338 $72,397 4.66% 1,583,332 $55,900 4.70%
----------- ========= --------- ========
CHECKING ACCOUNTS 73,003 45,092
OTHER NON-INTEREST-BEARING
LIABILITIES 33,221 33,160
----------- ---------
TOTAL LIABILITIES 2,171,562 1,661,584
STOCKHOLDERS' EQUITY 211,229 185,101
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,382,791 $1,846,685
=========== =========
NET INTEREST INCOME/ INTEREST RATE
SPREAD <F4> $48,093 2.52% $40,575 2.61%
========= ========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F5> $170,954 2.87% $176,809 3.07%
=========== =========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 108.28% 111.17%
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included.
<F2> Includes securities classified "available for sale."
<F3> In calculating the average cost of borrowed funds for the nine months ended
March 31, 1999, a prepayment penalty of $618,000, which was included in
interest expense on borrowed funds during the period, was not annualized.
<F4> Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
<F5> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
<PAGE>
-21-
RATE/VOLUME ANALYSIS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, 2000
COMPARED TO
NINE MONTHS ENDED
MARCH 31, 1999
INCREASE/ (DECREASE)
DUE TO
<S> <C> <C> <C>
VOLUME RATE TOTAL
-------------- ------------ -------------
Interest-earning assets: (DOLLARS IN THOUSANDS)
Real Estate Loans $24,546 $(3,540) $21,006
Other loans 92 (33) 59
Mortgage-backed securities 1,348 249 1,597
Investment securities (583) 232 (351)
Federal funds sold 1,468 237 1,705
-------------- ------------ ------------
Total 26,871 (2,855) 24,016
-------------- ------------ ------------
Interest-bearing liabilities:
NOW, Super Now and money market accounts 1,179 672 1,851
Savings accounts 553 (218) 335
Certificates of deposit 789 (2,161) (1,372)
Borrowed funds 16,041 (356) 15,685
-------------- ------------ ------------
Total 18,562 (2,063) 16,499
-------------- ------------ ------------
Net change in net interest income $8,309 $(792) $7,517
============== ============ ============
</TABLE>
Net interest income for the nine months ended March 31, 2000
increased $7.5 million to $48.1 million from $40.6 million
during the nine months ended March 31, 1999. The increase was
attributable primarily to an increase of $476.2 million in
average interest-earning assets. The net interest rate spread
declined 9 basis points from 2.61% for the nine months ended
March 31, 1999 to 2.52% for the nine months ended March 31,
2000, and the net interest margin declined 20 basis points from
3.07% to 2.87% during the same period.
The decline in interest rate spread and interest rate margin
both reflect the $373.4 million increase in average borrowed
funds, which possess the highest average cost of interest
bearing liabilities, and the ongoing effects of our continued
capital leverage strategy. While we recently have reduced our
new activity related to the capital leverage strategy, the
cumulative growth in capital leverage program activity during
the fiscal years ended June 30, 1998 and 1999, still
significantly impacts our net interest income during the current
fiscal year, and 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. The declines in net interest rate spread and
margin also reflect the decline of 36 basis points in the
average yield on real estate loans. The effects of the recent
interest rate increases upon the yield on real estate loans was
minimal during the nine months ended March 31, 2000, since real
estate loans, on average, have a longer term to repricing than
our other interest-earning assets. The decline in net interest
margin further resulted from the reduction from 111.2% to 108.3%
in the ratio of interest earning assets to interest bearing
liabilities, resulting from a reduction in interest earning
assets funded by stockholders' equity (which bear no
<PAGE>
-22-
opposing 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 nine months ended
March 31, 2000, was $120.5 million, an increase of $24.0 million
from $96.5 million during the nine months ended March 31, 1999.
The increase in interest income was primarily attributable to
increased interest income on real estate loans of $21.0 million,
on mortgage backed securities of $1.6 million, and on short-term
investments (commercial paper and federal funds sold) of $1.7
million. The increase in interest income on real estate loans
was attributable primarily to an increase of $420.7 million in
the average balance of real estate loans, resulting from both
$508.2 million of real estate loans originated during the
twelve-month period ended March 31, 2000, and $149.6 million of
real estate loans acquired in connection with the FIBC
acquisition. The increases in interest income on mortgage
backed securities and short-term securities (comprised of
federal funds sold and commercial paper investments) were also
attributable primarily to increases in the average balances of
these assets, resulting from mortgage backed securities and
short term investments purchased during the period April 1, 1999
to March 31, 2000. Much of the increased purchases of short
term investments occurred during the quarter ended December 31,
1999, in order to maintain added liquidity related to concerns
with possible increased deposit outflows resulting from consumer
concerns over Year 2000. The average yield on mortgage backed
securities and short-term investments increased by 7 basis
points and 64 basis points, respectively due to recent general
increases in interest rates. Overall, the yield on interest-
earning assets declined 13 basis points from 7.31% during the
nine months ended March 31, 1999 to 7.18% during the nine months
ended March 31, 2000. The decline was attributable primarily to
a decline in average yield on real estate loans of 36 basis
points, reflecting continued competition on lending in our local
market. Despite the recent general increases in interest rates,
the overall yield on real estate loans declined 36 basis points
during the period. Since real estate loans, on average, have a
longer term to repricing than our other interest-earning assets,
the effects of recent interest rate increases take longer to
impact their overall yield. In addition, the yield on real
estate loans during the quarter ended March 31, 2000,
experienced a lag effect from the high prepayment activity which
occurred during recent quarters, 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 in upcoming
quarters.
INTEREST EXPENSE. Interest expense increased $16.5 million,
to $72.4 million during the nine months ended March 31, 2000,
from $55.9 million during the nine months ended March 31, 1999.
This increase resulted primarily from increased interest expense
of $15.7 million on borrowed funds, which resulted from an
increase in the average balance of $373.4 million during the
nine months ended March 31, 2000 compared to the nine months
ended March 31, 1999. The increase in the average balance of
borrowed funds resulted primarily from growth of $265.0 million
in FHLBNY advances during the period April 1, 1999 to March 31,
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 increased
$1.9 million due to our recent money market promotion, and was
partially offset by a decline in interest expense on
certificates of deposits of $1.4 million, which resulted from a
reduction of 45 basis points in average cost on certificates of
deposits, both of 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 decreased 4
basis points to 4.67% during the nine months ended March 31,
2000, from 4.70% during the nine months ended March 31, 1999,
due primarily to the aforementioned decline in the average cost
of certificate of deposits of 45 basis points, and the decline
in the average cost of borrowed funds of 2 basis points, which
reflects a non-recurring expense of $618,000 recorded in
borrowings expense during the nine months ended March 31, 1999,
related to the prepayment penalties on retired borrowings.
PROVISION FOR LOAN LOSSES. The provision for loan losses
was $180,000 during both the nine months ended March 31, 2000
and 1999, reflecting the continued stability of non-performing loans and
<PAGE>
-23-
charge-offs. See "Asset Quality." The allowance for
loan losses declined $356,000 during the nine months ended March
31, 2000, as net charge-offs of $536,000 exceeded the provision
of $180,000 during the period. Of the total net charge-offs
during the nine months ended March 31, 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 to cover 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. No additional significant delinquencies related to the
loan pool investment were noted prior to the consummation of the
FIBC acquisition, nor have any additional potential losses been
noted on this investment since we assumed its ownership. We have
continued our loan loss provisions and resultant increase in the
allowance for loan losses in response to our continued growth in
real estate loans.
NON-INTEREST INCOME. Non-interest income increased $1.4
million to $7.0 million during the nine months ended March 31,
2000, from $5.6 million during the nine months ended March 31,
1999. The increase resulted primarily from growth in service
charges and fees of $1.2 million due mainly to increased service
fees and charges on deposits of $865,000, resulting primarily
from adjustments in our deposit fee and service charges and the
addition of the five branches acquired from FIBC. Other income
increased $1.2 million, due primarily to increased income from
FHLBNY capital stock of $938,000, resulting from an increase in
the balance of FHLBNY capital stock from $28.3 million at March
31, 1999 to $41.5 million at March 31, 2000. The increase in the
average balance of FHLBNY capital stock resulted from our
increased borrowings with the FHLBNY during this period.
Offsetting these increases was a decline in the net gain or
loss on sales of investment and mortgage-backed securities and
other assets, which resulted in a net loss of $54,000 during the
nine months ended March 31, 2000, compared to a net gain of
$799,000 during the nine months ended March 31, 1999. The sales
transactions related to securities during the nine months ended
March 31, 1999, which resulted in a gain, related to disposals
of equity investments which we felt were at attractive sales
values. The sales transactions involving securities during the
nine months ended March 31, 2000, which resulted in a loss, were
made primarily in order to generate additional liquidity related
to possible increased deposit outflows resulting from consumer
concerns over the Year 2000. See "Liquidity and Capital
Resources." The significant loss on the sale of securities
during the nine months ended March 31, 2000, was offset by a
gain on the sale of deposits formerly housed at our Gates
Avenue, Brooklyn branch.
NON-INTEREST EXPENSE. Non-interest expense increased $4.8
million, from $21.9 million during the nine months ended March
31, 1999, to $26.7 million during the nine months ended March
31, 2000. The increase in non-interest expense reflects
increases of $1.5 million related to salaries and benefits
expense, $754,000 related to occupancy and equipment expense,
$309,000 related to data processing costs, $1.2 million related
to goodwill amortization, and $1.3 million related to other
expenses.
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 over the past twelve
months. The remaining increase in occupancy and equipment
expense reflects non-recurring real estate tax refunds of
$144,000 on branch properties which were recorded as a reduction
of occupancy and equipment expense during the quarter ended
September 30, 1998.
Increased data processing costs of $309,000 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 expense of $1.2 million and core
deposit intangible expense of $460,000, resulted from goodwill
of $44.2 million and core deposit intangible of $4.9 million
added in the FIBC acquisition, for which seven months of
amortization expense are reflected during the nine months ended
<PAGE>
-24-
March 31, 1999, compared to nine months of amortization expense
reflected in the nine months ended March 31, 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 $1.6 million, or
17%, during the nine months ended March 31, 2000 compared to the nine
months ended March 31, 1999, due primarily to the increase of $4.2
million, or 17%, in pre-tax income during the same period. Our
effective tax rate remained relatively constant during this period, as
additional tax benefits realized during the nine months ended March
31, 2000, associated with activities of subsidiary companies, were
offset by a decline in non-recurring income tax benefits from $670,000
during the nine months ended March 31, 1999 to $277,000 during the
nine months ended March 31, 2000. All of these income tax recoveries
related to adjustments associated with the respective filings of the
previous fiscal year tax returns.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
Quantitative and qualitative disclosure about market risk is
presented at June 30, 1999 in Exhibit 13.1 to our Annual Report
on Form 10-K, filed with the Securities and Exchange Commission
on September 28, 1999. There have been no material changes in
our market risk at March 31, 2000 compared to June 30, 1999.
The following is an update of the discussion provided therein:
GENERAL. Our largest component of market risk continues to be
interest rate risk. Virtually all of this risk continues to
reside at the Bank level. The Bank still is not subject to
foreign currency exchange or commodity price risk. At March 31,
2000, we owned no trading assets, nor did we utilize hedging
transactions such as interest rate swaps and caps.
ASSETS, DEPOSIT LIABILITIES AND WHOLESALE FUNDS. There has
been no material change in the composition of assets, deposit
liabilities or wholesale funds from June 30, 1999 to March 31,
2000.
GAP ANALYSIS. Dime of Williamsburgh's primary source of
income is its net interest income, which is the difference
between the interest income earned on its interest earning
assets and the interest expense incurred on its interest
bearing liabilities. At March 31, 2000, our one year interest
rate sensitivity gap (the difference between our interest rate
sensitive assets maturing or repricing within one year and our
interest rate sensitive liabilities maturing or repricing
within one year, expressed as a percentage of total assets) was
negative 25%, compared to negative 16% at June 30, 1999. In a
rising interest rate environment, an institution with a negative
gap would generally be expected, absent the effects of other
factors, to experience a greater increase in its cost of
liabilities relative to its yield on assets, and thus decrease
an institution's net interest income. Due to competitive
conditions in the market for multi-family lending, we have
increased our origination of fixed interest rate multi-family
loans with maturities up to 15 years compared to our historical
practice of originating multi-family loans with fixed interest
rates for the first five years of the loan and that adjust at
the conclusion of the initial five year term to a market index
for the remainder of the term of the loan, typically another
five years. At March 31, 2000, we had approximately $79.7
million of multi-family loans, or 5% of our total loan
portfolio, with maturities of 15 years. We have also
experienced an increase in the proportion of certificates of
deposit and borrowings maturing within one year or less. If
these trends continue, our one year interest rate sensitivity
gap may continue to widen.
INTEREST RATE RISK COMPLIANCE. We continue to monitor the
impact of interest rate volatility upon net interest income and
net portfolio value in the same manner as at June 30, 1999.
There have been no changes in our board approved limits of
acceptable variance in net interest income and net portfolio
value at March 31, 2000 compared to June 30, 1999, and the
projected changes continue to fall within the board approved
limits at all levels of potential interest rate volatility.
<PAGE>
-25-
As a federal savings bank, Dime of Williamsburgh is required
to monitor changes in the net present value of the expected
future cash flows of its assets and liabilities, which is
referred to as net portfolio value or NPV. In addition, we
monitor our NPV ratio, which is our NPV divided by the estimated
market value of total assets. The NPV ratio can be viewed as a
corollary to our capital ratios. To monitor our overall
sensitivity to changes in interest rates, we simulate the effect
of instantaneous changes in interest rates of up to 200 basis
points on our assets and liabilities. As of December 31, 2000,
an increase in interest rates of 200 basis points would have
reduced our NPV by approximately 32.2%, resulting in an NPV
ratio of 5.82%. As of June 30, 1999, an increase in interest
rates of 200 basis points would have reduced our NPV by
approximately 23.8%, resulting in an NPV ratio of 6.90%. There
can be no assurance that future changes in our mix of assets and
liabilities will not result in more extensive declines in our
NPV and NPV ratio. Our focus on multi-family lending may subject
us to greater risk of an adverse impact on our operations from a
downturn in the economy. While we are currently reviewing the
NPV calculation as of March 31, 2000, we anticipate that the NPV
ratio, under an increase in interest rates of 200 basis points,
will remain above 5.00%
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal actions arising in the ordinary
course of its business which, in the aggregate, involve amounts
which are believed to be immaterial to our financial condition
and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(l) EXHIBITS
Exhibit 11. Statement Re: Computation of Per Share
Earnings
Exhibit 27. Financial Data Schedule (included only
with EDGAR filing).
(B) REPORTS ON FORM 8-K
None.
<PAGE>
-26-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Dime Community Bancshares, Inc.
Dated: April 12, 2000 By: /S/ VINCENT F. PALAGIANO
-----------------------------
Vincent F. Palagiano
Chairman of the Board and
Chief Executive Officer
Dated: April 12, 2000 By: /S/ KENNETH J. MAHON
-----------------------------
Kenneth J. Mahon
Executive Vice President
and Chief Financial Officer
EXHIBITS
========
EXHIBIT NUMBER 11
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended March 31, Ended March 31,
--------------------- --------------------
Amounts in thousands
<S> <C> <C> <C> <C>
2000 1999 2000 1999
------- ------- ------- -------
Net income $5,762 $5,549 $16,738 $14,217
Weighted average common shares
outstanding 11,252 11,343 11,429 10,700
Basic earnings per common shares $0.51 $0.49 $1.46 $1.33
======= ======= ======= =======
Total weighted average common shares
outstanding 11,252 11,343 11,429 10,700
Unvested shares of Recognition and
Retention Plan and common stock
equivalents due to dilutive
effect of stock options 415 878 568 901
------- ------- ------- -------
Total weighted average common shares and
common share equivalents utilized for
diluted earnings per share 11,667 12,221 11,997 11,601
======= ======= ======= =======
Diluted earnings per common share and
common share equivalents $0.49 $0.45 $1.40 $1.23
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-31-2000
<CASH> $14,786
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 39,226
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 572,353
<INVESTMENTS-CARRYING> 36,283
<INVESTMENTS-MARKET> 36,067
<LOANS> 1,647,542
<ALLOWANCE> 14,725
<TOTAL-ASSETS> 2,458,425
<DEPOSITS> 1,223,790
<SHORT-TERM> 311,181
<LIABILITIES-OTHER> 64,385
<LONG-TERM> 649,486
0
0
<COMMON> 145
<OTHER-SE> 209,438
<TOTAL-LIABILITIES-AND-EQUITY> 2,458,425
<INTEREST-LOAN> 87,053
<INTEREST-INVEST> 30,653
<INTEREST-OTHER> 2,784
<INTEREST-TOTAL> 120,490
<INTEREST-DEPOSIT> 33,548
<INTEREST-EXPENSE> 72,397
<INTEREST-INCOME-NET> 48,093
<LOAN-LOSSES> 60
<SECURITIES-GAINS> (1,308)
<EXPENSE-OTHER> 26,706
<INCOME-PRETAX> 28,191
<INCOME-PRE-EXTRAORDINARY> 16,738
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,738
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.40
<YIELD-ACTUAL> 7.18
<LOANS-NON> 2,569
<LOANS-PAST> 0
<LOANS-TROUBLED> 700
<LOANS-PROBLEM> 2,943
<ALLOWANCE-OPEN> 15,081
<CHARGE-OFFS> 539
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 14,725
<ALLOWANCE-DOMESTIC> 14,725
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
