UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000 Commission File No. 0-23271
RICHMOND COUNTY FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 06-1498455
(State of Incorporation) (I.R.S. Employer Identification Number)
1214 Castleton Avenue
Staten Island, New York 10310
(Address of principal executive offices) (Zip Code)
718-448-2800
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate the nubmer of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of November 9, 2000, there were 26,772,201 shares of the common stock
outstanding.
<PAGE>2
FORM 10-Q
RICHMOND COUNTY FINANCIAL CORP.
INDEX
Page
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
at September 30, 2000 and June 30, 2000................................. 3
Consolidated Statements of Operations
for the three months ended September 30, 2000 and 1999.................. 4
Consolidated Statements of Changes in Stockholders' Equity
for the three months ended September 30, 2000 and 1999.................. 5
Consolidated Statements of Cash Flows
for the three months ended September 30, 2000 and 1999.................. 6
Notes to Unaudited Consolidated Financial Statements.................... 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations........................ 9
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk..... 17
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.............................................. 18
ITEM 2. Changes in Securities and Use of Proceeds....................... 18
ITEM 3. Defaults Upon Senior Securities................................. 18
ITEM 4. Submission of Matters to a Vote of Security Holders............. 18
ITEM 5. Other Information............................................... 18
ITEM 6. Exhibits and Reports on Form 8-K................................ 19
Exhibit Index........................................................... 20
Signature Page.......................................................... 21
================================================================================
Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risks and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the Securities and Exchange Commission from
time to time.
================================================================================
<PAGE>3
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
September 30, June 30,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Cash and due from banks $ 55,214 $ 47,684
Federal funds sold 150 -
Securities held to maturity:
Mortgage-backed and mortgage-related securities 56,490 57,161
(estimated market value of $54,437 and $54,068, respectively)
Securities available for sale:
Investment securities 272,519 257,485
Mortgage-backed and mortgage-related securities 805,475 707,446
Mortgage loans:
1-4 family 962,622 842,350
Multifamily 594,832 549,151
Commercial real estate 106,732 108,532
Construction 77,508 65,603
---------- ----------
Total mortgage loans 1,741,694 1,565,636
Other loans 20,804 21,478
Plus: Unearned loan fees, net 1,982 1,392
Less: Allowance for loan losses (18,484) (14,698)
---------- ----------
Loans, net 1,745,996 1,573,808
Federal Home Loan Bank stock 41,014 38,873
Banking premises and equipment, net 30,010 26,115
Accrued interest receivable 21,808 18,170
Other real estate owned 236 509
Goodwill 70,803 43,324
Other assets 109,141 110,646
---------- ----------
Total assets $3,208,856 $2,881,221
========== ==========
Liabilities and Stockholders' Equity
Demand deposits $ 223,677 $ 207,894
Savings, N.O.W. and Money market accounts 995,089 888,706
Certificates of deposit 840,972 693,276
---------- ----------
Total deposits 2,059,738 1,789,876
Borrowings 829,592 773,690
Accrued expenses and other liabilities 12,921 11,245
---------- ----------
Total liabilities 2,902,251 2,574,811
Stockholders' Equity
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - -
Common stock, $.01 par value, 75,000,000 shares authorized; 32,737,134
issued; 27,097,608 and 28,065,972 shares outstanding,
at September 30, 2000 and June 30, 2000, respectively. 327 327
Additional paid-in-capital 329,751 329,718
Retained earnings-substantially restricted 150,447 145,231
Unallocated common stock held by
Employee Stock Ownership Plan ("ESOP") (29,817) (30,249)
Unearned compensation MRP Stock (12,278) (13,147)
Treasury stock, at cost, 5,639,526 and 4,606,662 shares
at September 30, 2000 and June 30, 2000, respectively. (101,517) (82,541)
Accumulated other comprehensive income:
Net unrealized loss on securities available for sale, net of tax (30,308) (42,929)
---------- ----------
Total stockholders' equity 306,605 306,410
---------- ----------
Total liabilities and stockholders' equity $3,208,856 $2,881,221
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>4
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
For the
Three Months Ended
September 30,
-------------------
(Unaudited)
2000 1999
-------- --------
<S> <C> <C>
Interest income:
Loans $33,489 $26,063
Debt and equity securities 6,628 6,224
Mortgage-backed and mortgage-related securities 13,698 14,246
Federal funds sold and interest-earning bank balances 228 182
------- -------
Total interest income 54,043 46,715
------- -------
Interest expense:
Deposits 17,719 12,513
Borrowed funds 10,711 10,614
------- -------
Total interest expense 28,430 23,127
------- -------
Net interest income 25,613 23,588
Provision for loan losses 300 300
------- -------
Net interest income after provision for loan losses 25,313 23,288
------- -------
Non-interest income:
Fee income
2,663 2,440
Net (loss)/gain on sale of securities and loans (76) 703
Other 825 774
------- -------
Total non-interest income 3,412 3,917
------- -------
Non-interest expense:
Salaries and employee benefits 7,439 6,815
Occupancy costs 1,652 1,487
Computer service fees 1,429 1,394
Advertising 500 491
FDIC insurance premiums 120 115
Other 1,845 1,735
------- -------
Total general and administrative 12,985 12,037
Amortization of goodwill and other intangibles 1,106 817
------- -------
Total non-interest expense
14,091 12,854
------- -------
Income before income taxes
14,634 14,351
Provision for income taxes 5,270 5,242
------- -------
Net income $ 9,364 $ 9,109
======= =======
Earnings per share:
Basic $ 0.38 $ 0.32
Diluted $ 0.38 $ 0.32
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>5
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
RETAINED ACCUMULATED UNALLOCATED UNEARNED
ADDITIONAL EARNINGS OTHER COMMON COMMON
COMMON PAID-IN SUBSTANTIALLY COMPREHENSIVE STOCK HELD STOCK HELD TREASURY
STOCK CAPITAL RESTRICTED (LOSS)/INCOME BY ESOP BY MRP STOCK TOTAL
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 2000 $ 327 $ 329,718 $ 145,231 $ (42,929) $ (30,249) $ (13,147) $(82,541) $306,410
Comprehensive income:
Net income - - 9,364 - - - - 9,364
Other comprehensive income,
net of tax:
Net unrealized loss on
certain securities, net of tax - - - 12,621 - - - 12,621
---------
Comprehensive income 21,985
---------
Cash dividends paid on common stock - - (4,148) - - - - (4,148)
Allocation of ESOP and MRP stock - 40 - - 432 869 - 1,341
Common stock repurchased
(908,300 shares) - - - - - - (19,065) (19,065)
Treasury stock issued for
options exercised (4,936 shares) - (7) - - - - 89 82
-----------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 $ 327 $ 329,751 $ 150,447 $ (30,308) $ (29,817) $ (12,278) $(101,517) $306,605
===============================================================================================
BALANCE AT JUNE 30, 1999 $ 327 $ 330,122 $ 122,784 $ (16,192) $ (31,978) $ (16,885) $ (17,967) $370,211
Comprehensive income:
Net income - - 9,109 - - - - 9,109
Other comprehensive loss,
net of tax:
Net unrealized loss on
certain securities, net of tax - - - (10,666) - - - (10,666)
---------
Comprehensive loss (1,557)
---------
Cash dividends paid on common stock - - (3,249) - - - - (3,249)
Adjustments - 624 - - - - - 624
Allocation of ESOP and MRP stock - 25 - - 432 867 - 1,324
Common stock repurchased
(760,149 shares) - - - - - - (14,678) (14,678)
Treasury stock issued for
options exercised (21,217 shares) - (272) - - - - 361 89
-----------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 2000 $ 327 $ 330,499 $ 128,644 $ (26,858) $ (31,546) $ (16,018) $ (32,284) $352,764
===============================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>6
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the
Three Months Ended
September 30,
----------------------
(Unaudited)
2000 1999
--------- ---------
<S> <C> <C>
Net cash provided by operating activities $ 9,002 $ 7,173
Cash flows from investing activities:
Increase in loans receivable, net (100,291) (100,663)
Loans sold 3,118 533
Investment securities available for sale:
Sales and redemptions 14,655 43,246
Purchases (15,149) (27,307)
Mortgage-backed and mortgage-related securities held to maturity:
Principal collected 672 -
Mortgage-backed and mortgage-related securities available for sale:
Sales and redemptions 22,860 952
Principal collected 24,862 39,766
Purchases - (39,585)
Purchases of Federal Home Loan Bank of New York stock, net (3) (3,797)
Net change in banking premises and equipment 377 (629)
Proceeds from sales of other real estate owned 242 377
Cash and cash equivalents acquired in South Jersey Financial
Corporation, Inc. acquisition, net 13,382 -
--------- ---------
Net cash used in investing activities (35,275) (87,107)
Cash flows from financing activities:
Net increase in deposits 27,084 21,551
Decrease in securities sold under repurchase agreements - (79,000)
Increase in borrowings from the Federal Home Loan Bank 30,000 126,900
Cash dividends paid on common stock (4,148) (3,249)
Net proceeds from issuance of common stock upon exercise
of stock options 82 89
Purchase of treasury shares (19,065) (14,678)
--------- ---------
Net cash provided by financing activities
33,953 51,613
--------- ---------
Net increase (decrease) in cash and cash equivalents 7,680 (28,321)
Cash and cash equivalents at beginning of period 47,684 73,548
--------- ---------
Cash and cash equivalents at end of period $ 55,364 $ 45,227
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowed funds $ 28,134 $ 22,692
Income taxes 3,830 4,970
Non-cash investing activities:
Securitization of mortgage loans $ 61,690 $ -
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>7
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Richmond County Financial Corp. (the "Company"), its direct
wholly-owned subsidiary, Richmond County Savings Bank (the "Bank"), and the
subsidiaries of the Bank.
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
results of operations for the three month period ended September 30, 2000 are
not necessarily indicative of the results of operations that may be expected for
the entire fiscal year. Certain information and note disclosures normally
included in the financial statements, prepared in accordance with generally
accepted accounting principles, have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC"). The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and notes thereto included in the
Company's 2000 Annual Report and Form 10-K.
2. Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income by the
weighted average number of common shares outstanding. Diluted EPS is calculated
using the same method as basic EPS, but reflects potential dilution of common
stock equivalents. Shares of common stock held by the ESOP that have not been
allocated to participants' accounts or are not committed to be released for
allocation and non-vested 1998 Management Recognition Plan (the "MRP") shares
are not considered to be outstanding for the calculation of basic EPS, however,
a portion of such shares are considered in the calculation of diluted EPS as
common stock equivalents of basic EPS. Basic and diluted weighted-average common
shares outstanding were 24,500,417 and 24,942,289 shares, for the first quarter
ended September 30, 2000, respectively.
3. Conversion to Stock Form of Ownership
On July 31, 1997, the Board of Trustees of the Bank unanimously adopted a Plan
of Conversion whereby the Bank would convert from a New York State chartered
mutual bank to a New York State chartered stock institution with the concurrent
formation of a holding company, Richmond County Financial Corp. (the
"Conversion").
The Conversion was completed on February 18, 1998, with the issuance by the
Company of 24,466,250 shares of common stock, at a price of $10.00 per share, in
an initial public offering. The Company received gross proceeds from the
Conversion of $244.7 million, before the reduction from gross proceeds of $9.8
million for estimated conversion related expenses. The Company used $117.4
million, or 50% of the net proceeds, to purchase all of the outstanding stock of
the Bank.
Concurrent with the completion of the Conversion, an additional 1,957,300 shares
of authorized
<PAGE>8
but unissued shares of common stock were contributed by the Company to the
Richmond County Savings Foundation (the "Foundation"), a private foundation
dedicated to charitable purposes within the Bank's communities that it serves.
The Company recorded a one-time charge of $19.6 million, the full amount of the
contribution made to the Foundation and a corresponding deferred tax benefit of
$8.4 million, in the third quarter ended March 31, 1998. The contribution to the
Foundation will be fully tax deductible, subject to an annual limitation based
upon the Company's annual taxable income.
4. Recent Developments
On July 25, 2000, the Company announced that the Board of Directors authorized
the Company's seventh stock repurchase plan. The plan authorizes the Company to
repurchase 1,373,541 shares, or 5% of the Company's outstanding common stock.
The Company has received approval from the State of New York State Banking
Department to implement this stock repurchase plan.
The repurchases will be made in unsolicited purchases pursuant to the federal
securities laws relating to activities by issuers having a distribution, subject
to the availability of stock, acceptable pricing of the stock and such timing
limitations as may be applicable.
On September 28, 2000, the Company announced that its Board of Directors
declared a quarterly cash dividend of seventeen cents ($0.17) per common share.
The dividend was paid on November 8, 2000 to shareholders of record as of
October 16, 2000.
<PAGE>9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Richmond County Financial Corp. is a savings and loan holding company regulated
by the Office of Thrift Supervision. The primary operating subsidiary of
Richmond County Financial Corp. is Richmond County Savings Bank (the "Bank"), a
New York State chartered stock savings bank. While the following discussion of
financial condition and results of operations includes the collective results of
Richmond County Financial Corp. and the Bank (collectively the "Company"), this
discussion reflects the Bank's activities as the Company currently does not
engage in any significant business activities other than the management of the
Bank and the investment of net proceeds from the Bank's mutual to stock
conversion, which occurred on February 18, 1998 (the "Conversion").
South Jersey Financial Corporation, Inc.
At the close of business on July 31, 2000, the Company completed its acquisition
of South Jersey Financial Corporation, Inc. ("South Jersey"), the holding
company of South Jersey Savings and Loan Association, a community savings
association which operates three full service banking offices in the New Jersey
counties of Gloucester and Camden in a transaction which was accounted for as a
purchase. The cost of the acquisition was approximately $68.0 million for which
South Jersey shareholders received $20 per share in cash for each outstanding
share of common stock of South Jersey. The excess of cost over the fair value of
net assets acquired ("goodwill") in the transaction was $28.0 million, which is
being amortized on a straight-line basis over 20 years.
Bayonne Bancshares, Inc.
At the close of business on March 22, 1999, the Company completed its
acquisition of Bayonne Bancshares, Inc. ("Bayonne"), the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey State chartered savings and
loan association with four full service banking offices located in Bayonne, New
Jersey in a transaction which was accounted for as a purchase. The cost of the
acquisition was approximately $118.5 million for which the Company issued 1.05
shares of its common stock for each outstanding share of Bayonne common stock
for a total of 8,668,615 common shares, of which 3,938,731 shares were issued
from its treasury shares. Options to purchase 683,577 shares of Bayonne common
stock were also converted into options to purchase 717,755 shares of the
Company's common stock. The goodwill attributable to the transaction was $28.8
million, which is being amortized on a straight-line basis over 15 years.
Ironbound Bankcorp, NJ.
At the close of business on March 5, 1999, the Company completed its acquisition
of Ironbound Bankcorp, NJ ("Ironbound"), the holding company of Ironbound Bank,
a New Jersey chartered commercial bank with three full service commercial
banking offices located in the New Jersey counties of Union and Essex, in a
transaction which was accounted for as a purchase. The cost of the acquisition
was approximately $27.7 million. The Company issued 1.463 shares of its
<PAGE>10
common stock for each outstanding share of Ironbound common stock for a total of
1,458,842 common shares. The goodwill attributable to the transaction was $15.3
million, which is being amortized on a straight-line basis over 15 years.
Financial Condition
Total assets increased by $327.6 million, or 11.4%, to $3.2 billion at September
30, 2000 from June 30, 2000. The increase in overall assets was primarily due to
the completion of the South Jersey acquisition with and into the Bank. As of the
acquisition date, South Jersey had total assets of approximately $314.7 million,
total deposits of $240.9 million and total equity of $47.7 million.
The Bank continues to experience increased loan growth. For the three month
period ended September 30, 2000, gross loans receivable increased by $175.4
million, or 11.1%, on a non-annualized basis, to $1.8 billion, compared to $1.6
billion at June 30, 2000. The increase in gross loans was due primarily to
originations of $144.0 million generated during the first quarter ended
September 30, 2000 and $143.8 million of loans acquired through the acquisition
of South Jersey, offset by the sale of $3.1 million of one- to four-family
mortgage loans, securitization of $61.7 million acquired South Jersey one- to
four-family mortgage loans and net amortization and prepayments of $47.6
million. During the first quarter of fiscal 2001 and in conjunction with the
South Jersey acquisition, the Bank securitized $61.7 million of one-to
four-family mortgage loans acquired from the South Jersey acquisition in
exchange for a like amount of FHLMC pass-through securities, recorded these
securities in the Bank's securities portfolio and retained the related servicing
rights. Loan originations for the first quarter of fiscal 2001 were primarily
comprised of multifamily and one- to four-family mortgage loans. Multifamily
mortgage loan originations during the first quarter of fiscal 2001 totaled $54.3
million, bringing the total multifamily loan portfolio to $594.8 million, or
33.8% of net loans at September 30, 2000. Total one- to four-family loan
production for the first quarter of fiscal 2001 was $70.8 million.
Mortgage-backed and mortgage-related securities increased by $97.4 million, or
12.7%, from $764.6 million at June 30, 2000 to $862.0 million at September 30,
2000. The increase in mortgage-backed and mortgage-related securities were
primarily the result of the aforementioned securitization of $61.7 million
acquired South Jersey one- to four-family mortgage loans into FHLMC pass-through
securities, as well as $70.0 million of mortgage-backed and mortgage-related
securities acquired from the South Jersey acquisition, offset in part by the
sale of $22.9 million of mortgage-backed and mortgage-related securities and net
amortization and prepayments of $24.9 million.
Investment securities at September 30, 2000 totaled $272.5 million, an increase
of $15.0 million, or 5.8%, compared to $257.5 million at June 30, 2000.
Total liabilities at September 30, 2000 were $2.9 billion, an increase of $327.4
million, or 12.7%, from $2.6 billion at June 30, 2000. Total deposits increased
by $269.9 million, or 15.1%, to $2.1 billion at September 30, 2000. The Bank's
core deposits increased by $122.2 million, or 11.1%, at September 30, 2000 to
$1.2 billion. The increase in the Bank's core deposits were attributable to a
$15.8 million increase in total demand deposits and a $106.4 million increase in
savings, N.O.W. and money market accounts. The Bank also experienced an increase
of $147.7 million, or 21.3%, in certificates of deposit from $693.3 million at
June 30, 2000 to $841.0 million at
<PAGE>11
September 30, 2000. The increase in overall deposits were primarily the result
of $240.9 million of deposits acquired through the South Jersey acquisition and
an increase in certificates of deposit which was primarily attributable to
increased marketing of such deposit products.
Additionally, the Bank continues to place a level of emphasis on the utilization
of borrowed funds to fund asset growth. In this regard, at September 30, 2000
and June 30, 2000, the Bank had total borrowings of $829.6 million and $773.7
million, respectively. In connection with the South Jersey acquisition, the
Company acquired $27.6 million of borrowed funds. The Bank may continue to
increase such emphasis, which may result in an increase in the Bank's overall
cost of funds. The Bank's current strategy is to invest such borrowed funds
primarily in mortgage loans and mortgage-backed and mortgage-related securities
with similar estimated maturities. This strategy is intended to incrementally
increase net interest income, although it may have the effect of incrementally
decreasing net interest rate spread.
Total stockholders' equity increased by $200,000 to $306.6 million at September
30, 2000 from $306.4 million at June 30, 2000. The overall increase was
primarily due to earnings reported for the three month period ended September
30, 2000 of $9.4 million, $12.6 million increase in the fair value on securities
available for sale, net of tax and the amortization of $1.3 million for the
unallocated and unearned shares of common stock held by the Company's
stock-related benefit plans. These increases were offset, in part by the
repurchase of 908,800 shares of the Company's common stock and year to date cash
dividends paid of $4.1 million.
Non-performing Assets
Non-performing loans totaled $6.8 million, or 0.4% of total loans at September
30, 2000, as compared to $4.7 million, or 0.3% of total loans, at June 30, 2000.
At September 30, 2000, the Bank's real estate owned consisted of foreclosed
assets totaling $236,000, which at such date was comprised of two one- to
four-family properties.
At September 30, 2000, the Bank had $3.3 million of assets designated as
"Substandard," consisting of 22 loans, no assets classified as "Doubtful," and
one consumer loan classified as "Loss," respectively.
Non-accrual loans totaled $6.8 million as of September 30, 2000, which included
62 one- to four-family loans, with an aggregate balance of $5.1 million, and
four non-residential loans totaling $453,000.
For the three month periods ended September 30, 2000 and 1999, the Company's
loan loss provision remained unchanged at $300,000. The Company's allowance for
loan losses totaled $18.5 million at September 30, 2000 and $14.7 million at
June 30, 2000, which represents a ratio of allowance for loan losses to
non-performing loans of 270.2% and 311.5%, respectively. The Company continues
to increase its overall loan loss reserves due to the increase in lending of all
loan products. Management believes the allowance for loan losses at September
30, 2000 is adequate and sufficient reserves are presently maintained to cover
potential losses. For the quarter ended September 30, 2000, the Company
experienced net charge-offs of $53,300.
<PAGE>12
Comparison of Operating Results for the Three Months Ended September 30, 2000
and 1999
General. The Company reported net income for the first quarter ended September
30, 2000 of $9.4 million, or diluted earnings per share of $0.38, an increase of
18.8% as compared with $0.32 diluted earnings per share, or net income of $9.1
million reported for the same period last year.
Interest Income. The Company reported total interest income of $54.0 million for
the first quarter ended September 30, 2000, representing an increase of $7.3
million, or 15.7%, as compared to the same period in 1999. The increase in
interest income was attributable primarily to the growth in average
interest-earning assets of $271.3 million and a 34 basis point increase in the
average yield on interest-earning assets. The overall increase in the level of
interest-earning assets was primarily the result of an increase in assets
acquired from South Jersey, as well as deposit inflows.
Interest income on loans increased $7.4 million, or 28.5%, to $33.5 million for
the first quarter ended September 30, 2000, as compared to the $26.1 million
reported for the comparable period in 1999. This increase was the result of
growth in the average balance of loans outstanding of $360.2 million, due
primarily to increased originations of multifamily and one- to four-family real
estate loans and loans acquired through the recently completed acquisition. The
average yield on the overall loan portfolio increased 13 basis points from 7.62%
for the three months ended September 30, 1999, to 7.75% for the same period in
2000.
Interest income on debt and equity securities increased $400,000, or 6.5%, from
$6.2 million for the first quarter ended September 30, 1999, to $6.6 million for
the same period in 2000. This increase is mainly attributable to the 102 basis
point increase in the average yield on the debt and equity portfolio, offset by
a $20.9 million decrease in the average balance of debt and equity securities.
Interest income on mortgage-backed and mortgage-related securities decreased
$548,000, or 3.8%, from $14.2 million reported for the first quarter ended
September 30, 1999, to $13.7 million for the same period in 2000. This decrease
was due primarily to a decrease in the average balance of mortgage-backed and
mortgage-related securities of $73.4 million as a result of the sale of
mortgage-backed and mortgage-related securities to fund loan growth. The
decrease was offset by an increase in the average yield of 31 basis points on
the mortgage-backed and mortgage-related securities portfolio to 6.76% for the
first quarter ended September 30, 2000, as compared to 6.45% for the same period
in 1999.
Interest Expense. Interest expense increased $5.3 million, or 22.9%, from $23.1
million for the first quarter ended September 30, 1999, to $28.4 million for the
first quarter ended September 30, 2000. The average cost of the Bank's
interest-bearing liabilities increased from 4.10% for the first quarter ended
September 30, 1999, to 4.46% for the first quarter ended September 30, 2000.
Interest expense on deposits increased $5.2 million, or 41.6%, from $12.5
million for the first quarter ended September 30, 1999, to $17.7 million for the
first quarter ended September 30, 2000. The increase reflects a $286.9 million
increase in the average balance of interest-bearing deposits, primarily
attributable to a $194.4 million increase in the average balance of certificates
of deposit and a $92.4 million increase in the average balance of money market,
savings and
<PAGE>13
N.O.W. accounts. This increase can be primarily attributable to deposits
acquired through the recently completed South Jersey acquisition. In addition,
the Bank's strategy over the past several years has been to attract more
certificates of deposit through the offering of additional certificate of
deposit products and related marketing of commercial deposit accounts.
Interest expense on borrowed funds for the quarter ended September 30, 2000 was
$10.7 million, an increase of $97,000 as compared to the $10.6 million reported
in the same period in 1999. The increase in interest expense on borrowed funds
was mainly attributable to a 4 basis point increase in the average cost on
borrowed funds. The Bank continues to place a greater level of emphasis on the
utilization of borrowed funds to fund asset growth and to leverage the Bank's
capital position to improve returns on equity. As of September 30, 2000, the
Bank had $829.6 million of borrowings outstanding, an increase of $55.9 million,
or 7.2%, as compared to the $773.7 million of borrowings outstanding as of June
30, 2000. The Bank may continue to increase such emphasis on borrowed funds,
which may result in an increase in the Bank's overall cost of funds. The Bank's
current strategy is to invest such borrowed funds primarily in mortgage loans
and mortgage-backed and mortgage-related securities with similar estimated
maturities. This strategy is intended to incrementally increase net interest
income, although it may have the effect of incrementally decreasing net interest
rate spread.
Provision for Loan Losses. The Bank's provision for loan losses for the
three month periods ended September 30, 2000 and 1999 were $300,000. The
provision for the first quarter ended September 30, 2000 was based on
management's evaluation of its loan portfolio and real estate market conditions.
In particular, management considered the continued growth in the portfolio, the
introduction of new lending products by the Bank and the seasoning of such new
products, as well as the level of its non-performing loans. Management believes,
based upon information currently available, that its allowance for loan losses
is adequate to cover future loan losses. To the extent the Bank increases its
investment in multifamily loans, commercial real estate, commercial and other
loans, which entail higher risk than one- to four-family loans, the Bank may
decide to increase its allowance for loan losses through additional loan loss
provisions, which may adversely affect net income. In addition, if general
economic conditions and real estate values within the Bank's primary lending
area decline, the level of non-performing loans may increase, resulting in
larger provisions for loan losses which, in turn, would also adversely affect
net income.
Non-Interest Income. Exclusive of net gains and losses from the sales of
securities and loans, total non-interest income for the first quarter ended
September 30, 2000 was $3.5 million, as compared to the $3.2 million reported
for the same period in 1999. The increased level of non-interest income is
primarily due to an overall increase in deposit fee income, fee income generated
from the South Jersey acquisition, and advisory fee income from our investment
in Peter B. Cannell & Co. Inc.
Non-Interest Expense. Non-interest expense totaled $14.1 million for the first
quarter ended September 30, 2000, an increase of $1.2 million, or 9.6%, as
compared to the $12.9 million reported for the same period of the prior year.
The increased level of non-interest expense was mainly attributable to increased
compensation and employee benefit expenses, goodwill amortization and other
expenses associated with the South Jersey acquisition.
Income Taxes. The Company's effective consolidated tax rate for the first
quarter ended
<PAGE>14
September 30, 2000, was 36.0% as compared to 36.5% reported for the comparable
period in 1999. The reduction of the Company's effective tax rate is primarily
due to the Bank's utilization of various tax-planning strategies.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits, proceeds from the principal
and interest payments on loans, mortgage-backed and mortgage-related and
investment securities, and to a significantly lesser extent, proceeds from the
sale of fixed-rate mortgage loans to the secondary market. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows, mortgage prepayments and mortgage loan sales are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of residential
one- to four-family, multifamily and, to a lesser extent, commercial real
estate, construction and development and other loans and the purchase of
mortgage-backed and mortgage-related and investment securities. During the
three month periods ended September 30, 2000 and 1999, the Bank's loan
originations totaled $144.0 million and $146.1 million, respectively. Purchases
of mortgage-backed, mortgage-related and investment securities totaled $15.1
million and $66.9 million for the three month periods ended September 30, 2000
and 1999, respectively. These activities were funded primarily by deposit growth
and principal repayments and prepayments on loans, mortgage-backed and
mortgage-related securities and investment securities and advances from the
FHLB. As of September 30, 2000, the Bank experienced a net increase in total
deposits of $269.9 million to $2.1 billion, or 15.1%, as compared to the $1.8
billion at June 30, 2000. Deposit flows are affected by the level of interest
rates, products offered by local competitors and other factors.
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
the Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through repurchase agreements and
advances from the FHLB. The Bank has recently begun to place a greater level of
emphasis on the utilization of borrowed funds to fund asset growth. In this
regard, at September 30, 2000, the Bank had total borrowings of $829.6 million.
The Bank may continue to increase such emphasis, which may result in an increase
in the Bank's average cost of funds.
Loan commitments totaled $148.4 million at September 30, 2000, were comprised of
$37.4 million in one- to four-family loan commitments, $3.0 million in
commercial real estate loan commitments, $56.4 million in construction loan
commitments, $20.1 million in commercial loan commitments, $22.1 million in home
equity loan commitments, $5.1 million in multifamily loan commitments and $4.3
million in other loan commitments. In addition, management estimates that an
increased level of loan commitments may arise as a result of the Multifamily
Lending Division. Management of the Bank anticipates that it will have
sufficient funds available to meet its current loan commitments. Certificates of
deposit, which are scheduled to mature in less than one year from September 30,
2000, totaled $647.8 million. Based upon past experience and the Bank's current
pricing strategy, management believes that a significant portion of such
deposits will remain with the Bank.
At September 30, 2000, the Bank exceeded all of its regulatory capital
requirements with a
<PAGE>15
leverage capital level of $192.9 million, or 6.4% of adjusted assets, which is
above the required level of $121.1 million, or 4.0% of adjusted assets, and
risk-based capital of $211.4 million, or 12.1% of adjusted assets, which exceeds
the required level of $139.3 million, or 8.0% of adjusted assets.
The Company's most liquid assets are cash, due from banks and federal funds
sold. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At
September 30, 2000, cash, due from banks and federal funds sold totaled $55.4
million, or 1.7% of total assets.
The Year 2000 Project
Over the past several quarters, the Company reported, on a regular basis,
potential concerns relating to the "Year 2000 Problem," which centered upon the
possible inability of computer systems to recognize the change into the year
2000. The Company did not experience any significant interruptions in any
computer operations related to the Year 2000 Problem. The Company's loan and
deposit data processing functions were not affected by the change into the year
2000. Additionally, the Company did not encounter any significant delays in loan
payments from our borrowers due to difficulties they may have encountered as a
result of the Year 2000 Problem. The Company estimates that the total costs
incurred related to the Year 2000 Problem, from inception to date, did not
exceed $300,000, and the Company does not anticipate any additional costs to be
incurred related to this matter.
Financial Services Legislation
Recent legislation designed to modernize the regulation of the financial
services industry expands the ability of bank holding companies to affiliate
with other types of financial services companies such as insurance companies and
investment banking companies. However, the legislation provides that companies
that acquire control of a single savings association after May 4, 1999 (or that
filed an application for that purpose after that date) are not entitled to the
unrestricted activities formerly allowed for a unitary savings and loan holding
company. Rather, these companies will have authority to engage in the activities
permitted "a financial holding company" under the new legislation, including
insurance and securities-related activities, and the activities currently
permitted for multiple savings and loan holding companies, but generally not in
commercial activities. The authority for unrestricted activities is
grandfathered for unitary savings and loan holding companies, such as the
Company, that existed prior to May 4, 1999. However, the authority for
unrestricted activities would not apply to any company that acquired the
Company.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this Form 10-Q includes certain
forward-looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
<PAGE>16
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices.
<PAGE>17
ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
Asset and Liability Management and the Management of Interest Rate Risk
Quantitative and qualitative disclosure about market risk is presented at June
30, 2000 in Item 7a. to the Company's Form 10-K, filed with the SEC on September
28, 2000. There have been no material changes in the Company's market risk at
September 30, 2000 as compared to June 30, 2000. The following is an update of
the discussion provided therein.
General. The Company's largest component of market risk continues to be interest
rate risk. Substantially 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 September 30, 2000, neither the Company nor the Bank owned any trading
assets, nor did they participate in hedging programs, interest rate swaps or
other activities involving the use of off-balance sheet derivative financial
instruments.
Gap Analysis. At September 30, 2000, the Company's estimated one-year "gap"
position, the difference between the amount of interest-earning assets maturing
or repricing within one year and interest-bearing liabilities maturing or
repricing within one year, was a negative $636.1 million, representing a
one year interest sensitivity gap as a percentage of total assets of (19.8%).
Accordingly, during a period of rising interest rates, the Company, having a
positive gap position, would be in a better position to invest in higher
yielding assets which, consequently, may result in the yield on its assets
increasing at a pace more closely matching the increase in the cost of its
interest-bearing liabilities than if it had a negative gap. During a period of
falling interest rates, an institution with a positive gap would tend to have
its assets repricing at a faster rate than one with a negative gap which,
consequently, may tend to restrain the growth of its net interest income or
result in a decrease in interest income.
Interest Rate Risk Compliance. The Company continues to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in the
same manner as June 30, 2000. There have been no changes in the Board of
Directors approved limits of acceptable variance in net interest income and net
portfolio value at September 30, 2000, compared to June 30, 2000, and the
projected changes continue to fall within the Board of Directors approved limits
at all levels of potential interest rate volatility.
<PAGE>18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
---------------------------
The Company is not involved in any pending legal proceedings other than the
routine legal proceedings occurring in the ordinary cause of business. Such
routine legal proceeding in the aggregate, are believed by management to be
immaterial to the Company's financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
---------------------------------------------------
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
-----------------------------------------
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------------------------------------------------------------
On November 3, 2000, the Company held its annual meeting of stockholders for the
purpose of the election of Directors to three year terms and for the
ratification of Ernst & Young LLP as the Company's independent auditors. The
number of votes cast at the meeting as to each matter acted upon was as follows:
Number of Number of
Votes Votes
For Withheld
------------- -------------
1. Election of Directors
Michael F. Manzulli 20,450,102 2,722,589
Godfrey H. Carstens, Jr. 22,615,173 557,518
Robert S. Farrell 22,588,889 583,802
The Directors whose terms continued and the years their terms expire are as
follows:
James L. Kelley (2001); T. Ronald Quinlan (2001); Anthony E. Burke (2001);
William C. Frederick, M.D. (2002); Maurice K. Shaw (2002) and Patrick F.X. Nilan
(2002).
Number of Number of Number of
Votes Votes Votes
For Against Abstaining
---------- ---------- ----------
2. Ratification of Ernst & Young LLP
as the Company's independent auditors
for the fiscal year ending June 30,
2001. 23,039,769 113,012 19,910
ITEM 5. OTHER INFORMATION
---------------------------
Not applicable.
<PAGE>19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
------------------------------------------
(a) Exhibits
3.1 Certificate of Incorporation of Richmond County Financial Corp.*
3.2 Bylaws of Richmond County Financial Corp.*
10.1 Form of Richmond County Savings Bank Employee Stock Ownership Plan
and Trust.*
10.2 Form of ESOP Loan Commitment Letter and ESOP Loan Documents.*
10.13 Form of Proposed Richmond County Savings Bank Employee Severance
Compensation Plan.*
10.14 Richmond County Financial Corp. Supplemental Executive Retirement
Plan (As Amended and Restated).***
10.15 Richmond County Financial Corp. 1998 Stock-Based Incentive Plan.**
11.0 Statement re: Computation of Per Share Earnings.
27.0 Financial Data Schedule (EDGAR version only).
* Incorporated by reference from the Form S-1 (Registration No.
333-37009), as amended, filed on October 2, 1997.
** Incorporated by reference from the DEF 14A (File No. 0-23271), filed
with the SEC on August 28, 1998.
*** Incorporated by reference from the Form 10-K (File No. 0-23271),
filed with the SEC on September 28, 1999.
(b) Reports on Form 8-K
-------------------------
On August 1, 2000, the Company filed a current report on Form 8-K to
report the consummation of its acquisition of South Jersey Financial
Corporation, Inc.
<PAGE>20
Exhibit Index
-------------
Exhibit No. Page
----------- ----
11.0 Statement re: Computation of Per Share Earnings................ 22
27.0.. Financial Data Schedule
<PAGE>21
SIGNATURE
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.
RICHMOND COUNTY FINANCIAL CORP.
(Registrant)
Date: November 14, 2000 By: /s/ Michael F. Manzulli
----------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
Date: November 14, 2000 By: /s/ Thomas R. Cangemi
----------------------------
Thomas R. Cangemi
Executive Vice President, Chief
Financial Officer and Treasurer
