<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 JUNE 30, 1996
Commission File Number 0-22278
QUEENS COUNTY BANCORP, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
38-25 Main Street, Flushing, New York 11354
(Address of principal executive offices)
(Registrant's telephone number, including area code) (718) 359-6400
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
(Title of Class)
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. /X/ Yes / / No
5,737,499
Number of shares outstanding at
August 1, 1996
<PAGE> 2
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
INDEX PAGE NO.
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition as of
June 30, 1996 (unaudited) and December 31,
1995 1
Consolidated Statements of Income
for the Three and Six Months Ended June 30, 1996
and 1995 (unaudited) 2
Consolidated Statement of Changes in
Stockholders' Equity for the Six Months
Ended June 30, 1996 (unaudited) 3
Consolidated Statements of Cash Flows for
the Six Months Ended June 30, 1996 and
1995 (unaudited) 4
Notes to Unaudited Consolidated Financial
Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 22
Item 2. CHANGES IN SECURITIES 22
Item 3. DEFAULTS UPON SENIOR SECURITIES 22
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 22
Item 5. OTHER INFORMATION 23
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 23
SIGNATURES 24
EXHIBITS 25
</TABLE>
<PAGE> 3
QUEENS COUNTY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
JUNE 30, DEC. 31,
1996 1995
(in thousands) (unaudited)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 18,065 $ 25,340
Money market investments 6,000 13,650
Securities held to maturity (estimated market value -
$77,780 and $78,151, respectively) 77,751 78,016
Mortgage-backed securities held to maturity (estimated market
value - $84,550 and $93,474, respectively) 84,497 92,868
Mortgage loans:
1-4 family 272,478 288,470
Multi-family 742,888 641,564
Commercial real estate 64,144 62,003
Construction 940 1,205
----------- -----------
Total mortgage loans 1,080,450 993,242
Other loans 13,211 13,861
Less: Unearned loan fees (1,101) (941)
Allowance for loan losses (9,359) (11,359)
----------- -----------
Loans, net 1,083,201 994,803
Premises and equipment, net 10,489 10,526
Deferred income taxes, net 4,759 5,822
Other assets (a) 17,519 19,857
----------- -----------
Total assets $ 1,302,281 $ 1,240,882
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 72,549 $ 75,997
Savings accounts 284,206 287,577
Certificates of deposit 597,506 545,771
Non-interest-bearing accounts 22,781 22,795
----------- -----------
Total deposits 977,042 932,140
----------- -----------
Official checks outstanding 17,548 27,846
FHLB borrowings 72,696 46,077
Accounts payable and accrued expenses 1,212 1,994
Mortgagors' escrow 11,438 7,804
Other liabilities 6,374 7,391
----------- -----------
Total liabilities 1,086,310 1,023,252
----------- -----------
Stockholders' equity:
Preferred stock at par $0.01 (5,000,000 shares authorized;
none issued) -- --
Common stock at par $0.01 (30,000,000 shares authorized;
6,882,641 shares issued; 6,034,825 and 6,294,300 shares 69 69
outstanding at June 30, 1996 and December 31, 1995, respectively)
Paid-in capital in excess of par 113,323 112,111
Retained earnings (substantially restricted) 149,312 140,969
Less: Treasury stock (847,816 and 588,341 shares, respectively) (28,104) (16,659)
Unallocated common stock held by ESOP (16,560) (16,249)
Unearned common stock held by RRPs (2,069) (2,611)
----------- -----------
Total stockholders' equity 215,971 217,630
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,302,281 $ 1,240,882
=========== ===========
</TABLE>
(a) Includes a net balance of approximately $1.0 million and $5.2 million,
primarily in cash items, reclassified as a result of the seizure of
Nationar by the New York State Banking Department during the first quarter
of 1995.
See accompanying notes to financial statements
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<PAGE> 4
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
(in thousands, except per share data) 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage and other loans $ 22,608 $19,749 $ 44,310 $39,326
Securities held to maturity 1,019 1,215 2,072 2,369
Mortgage-backed securities held to maturity 1,353 1,617 2,783 3,236
Money market investments 85 68 414 241
-------- ------- -------- -------
Total interest income 25,065 22,649 49,579 45,172
-------- ------- -------- -------
INTEREST EXPENSE:
NOW and money market accounts 511 575 1,054 1,153
Savings accounts 1,694 1,826 3,399 3,694
Certificates of deposit 7,596 6,569 15,241 12,146
FHLB borrowings 809 812 1,620 2,106
Mortgagors' escrow 12 25 15 50
-------- ------- -------- -------
Total interest expense 10,622 9,807 21,329 19,149
-------- ------- -------- -------
Net interest income 14,443 12,842 28,250 26,023
(Recovery of) provision for loan losses (2,000) 75 (2,000) 150
-------- ------- -------- -------
Net interest income after (recovery of) provision
for loan losses 16,443 12,767 30,250 25,873
-------- ------- -------- -------
OTHER OPERATING INCOME:
Fee income 416 326 773 675
Other income 54 1,320 183 1,466
-------- ------- -------- -------
Total other operating income 470 1,646 956 2,141
-------- ------- -------- -------
OPERATING EXPENSE:
Compensation and benefits 3,775 3,200 7,532 6,402
Occupancy and equipment 600 582 1,220 1,227
General and administrative 1,120 1,175 2,099 2,219
FDIC insurance premium 1 479 1 959
Other 37 1,075(a) 138 1,545(a)
-------- ------- -------- -------
Total operating expense 5,533 6,511 10,990 12,352
-------- ------- -------- -------
Income before income taxes 11,380 7,902 20,216 15,662
Income tax expense 5,115 2,942 8,693 5,990
-------- ------- -------- -------
NET INCOME $ 6,265 $ 4,960 $ 11,523 $ 9,672
======== ======= ======== =======
NET INCOME PER COMMON SHARE $ 1.10 $ 0.85 $ 2.01 $ 1.64
</TABLE>
(a) Includes $1.0 million and $1.3 million, respectively, in the three- and
six-month periods of 1995 pertaining to the seizure of Nationar by the New
York State Banking Department.
See accompanying notes to financial statements
-2-
<PAGE> 5
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1996
(in thousands) (UNAUDITED)
- -------------------------------------------------------------------
<S> <C>
COMMON STOCK (PAR VALUE:$.01):
Balance at beginning of year $ 69
Shares issued --
---------
Balance at end of period 69
---------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 112,111
Tax benefit effect on stock plans 420
Allocation of ESOP Stock 792
---------
Balance at end of period 113,323
---------
RETAINED EARNINGS:
Balance at beginning of year 140,969
Net income 11,523
Dividends paid on common stock (2,786)
Exercise of stock options (15,970 Shares) (394)
---------
Balance at end of period 149,312
---------
TREASURY STOCK:
Balance at beginning of year (16,659)
Purchase of 300,445 shares of Treasury stock (13,121)
Common stock acquired by SERP 1,023
Exercise of stock options (15,970 Shares) 653
---------
Balance at end of period (28,104)
---------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of year (16,249)
Common stock acquired by SERP (1,023)
Earned portion of ESOP and SERP stock 712
---------
Balance at end of period (16,560)
---------
RECOGNITION AND RETENTION PLANS:
Balance at beginning of year (2,611)
Earned portion of RRPs 542
---------
Balance at end of period (2,069)
---------
TOTAL STOCKHOLDER'S EQUITY $ 215,971
=========
</TABLE>
See accompanying notes to financial statements
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<PAGE> 6
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
(in thousands) (unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 11,523 $ 9,672
Adjustments to reconcile net income to net
cash used in operating activities: 360 367
Depreciation and amortization (2,000) 150
(Recovery of) provision for loan losses 235 (280)
Amortization of premiums (discounts), net (160) 835
(Accretion) amortization of net deferred loan origination fees
Net gain on redemption of securities and
mortgage-backed securities (2) (3)
Net loss (gain) on sale of other real estate owned 2 (19)
Write-off of investment in Nationar -- 349
Provision for Nationar investment losses -- 1000
Earned portion of RRPs 542 555
Earned portion of ESOP 1,924 858
Changes in assets and liabilities:
Decrease (increase) in other assets 2,338 (7,553)
Decrease (increase) in deferred income taxes 1,063 (50)
Decrease in accounts payable and accrued expenses (782) (1,004)
Decrease in official checks outstanding (10,298) (4,544)
Decrease in other liabilities (1,017) (1,499)
-------- --------
Total adjustments (7,795) (10,838)
-------- --------
NET CASH USED IN OPERATING ACTIVITIES 3,728 (1,166)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of mortgage-
backed securities held to maturity 8,371 6,233
Proceeds from maturity of securities held to maturity 42,000 34,000
Purchase of securities held to maturity (41,968) (32,214)
Net increase in loans (86,718) (6,645)
Proceeds from sale of loans and other real estate owned 478 306
Purchase of premises and equipment, net (323) (105)
-------- --------
Net cash used in investing activities (78,160) 1,575
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in mortgagors' escrow 3,634 4,256
Net increase in deposits 44,902 75,795
Net increase (decrease) in FHLB borrowings 26,619 (71,704)
Cash dividends paid and options exercised, net (3,180) (740)
Purchase of Treasury stock, net of stock options exercised (12,468) (8,975)
-------- --------
Net cash provided by financing activities 59,507 (1,368)
-------- --------
Net (decrease) increase in cash and cash equivalents (14,925) (959)
Cash and cash equivalents at beginning of period 38,990 11,990
-------- --------
Cash and cash equivalents at end of period $ 24,065 $ 11,031
======== ========
Supplemental information:
Cash paid for:
Interest $ 21,328 $ 19,138
Income taxes 8,575 8,065
Transfers to other real estate owned from loans 184 635
Transfers to real estate held for investment
from other real estate owned 598 --
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE> 7
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Queens County Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Queens County Saving Bank (the "Bank").
The statements reflect all normal recurring adjustments which are, in the
opinion of management, necessary to present a fair statement of the results for
the periods presented. The results of operations for the three and six months
ended June 30, 1996 are not necessarily indicative of the results of operations
that may be expected for all of 1996.
Certain information and note disclosures normally included in 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.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 1995 Annual Report to Shareholders and SEC Form 10-K.
NOTE 2. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Accounting for Stock-Based Compensation
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 defines a fair value-based method of accounting for
an employee stock option or similar equity instrument and encourages all
entities to adopt that method of accounting for all of their employee stock
compensation plans. However, it also allows an entity to continue to measure
compensation cost for those plans using the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees." Entities electing to remain with the
accounting method prescribed in APB No. 25 must make pro forma disclosures of
net income and, if presented, earnings per share, as if the fair value-based
method of accounting defined in this statement had been applied.
SFAS No. 123 is effective for transactions entered into in fiscal years that
begin after December 15, 1995, though this statement may be adopted on issuance.
The disclosure requirements of this statement are effective for financial
statements for fiscal years beginning after December 15, 1995, or for an earlier
fiscal year for which this statement is initially adopted for recognizing
compensation cost. Pro forma disclosures required for entities that elect to
continue to measure compensation cost using APB Opinion No. 25 must include the
effects of all awards granted in fiscal years that begin after December 15,
1994.
Management will implement the pro forma disclosure required by SFAS No. 123 with
the preparation of the annual financial statement for 1996.
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<PAGE> 8
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Queens County Bancorp, Inc. (the "Company") is the holding company for Queens
County Savings Bank (the "Bank"), the first savings bank chartered by the State
of New York in the New York City Borough of Queens. The primary business of the
Bank is gathering deposits from its customers in Queens and Nassau County and
investing these funds in the origination of residential mortgage loans
throughout metropolitan New York.
In the second quarter of 1996, the Company enhanced its ability to gather
deposits with the addition of two new Queens-based locations: a full-service
branch in College Point, which opened on May 13th, and a customer service center
in Auburndale, which opened on May 20th. With these additions, the Bank now has
nine full-service branches and two customer service centers, both located in
Flushing, New York.
In addition to making these enhancements to the Bank's branch network, the
Company took several steps to enhance the value of its shares. In the three
months ended June 30, 1996, the Company repurchased an additional 85,665 shares
under its 10% Stock Repurchase Program, bringing the total number of shares
outstanding to 6,034,825 at quarter's end. At August 1, 1996, the number of
shares outstanding was further reduced to 5,737,499; the number of shares still
available for repurchase under the Program was 155,987 at that date. The
completion of this Program will depend upon market conditions and the
implementation of other corporate strategies.
On July 9, 1996, the Board of Directors declared a four-for-three stock split in
the form of a 33-1/3% stock dividend, payable on August 22, 1996 to shareholders
of record on August 1st. Based on the number of shares outstanding at August 1,
1996, the Company would have 7,649,999 shares outstanding following the
four-for-three split.
In addition, the Board increased the Company's quarterly cash dividend for the
fourth consecutive quarter. Shareholders of record on August 1st will receive a
33-1/3 cents per share dividend on the 15th of August, representing a 33-1/3%
increase from the 25 cents per share paid on May 15, 1996. The dividend will be
paid on the number of shares held before the four-for-three stock split.
FINANCIAL CONDITION
The Company recorded total assets of $1.3 billion at June 30, 1996, up $61.4
million from the level recorded at year-end 1995. Mortgage loans represented
82.97% of the 1996 total, having grown to $1.1 billion from $993.2 million at
December 31st. In the first six months of 1996, the Company originated mortgage
loans of $155.5 million, including $91.3 million in the second quarter of the
year. Of these originations, 88.39% and 90.55%, respectively, were secured by
multi-family buildings, boosting the total portfolio of multi-family mortgage
loans to $742.9 million at June 30, 1996.
The balance of the Company's assets at June 30, 1996 consisted of other loans of
$13.2 million (down $650,000 from the year-end 1995 level); money market
investments of $6.0 million (down $7.7 million); securities held to maturity
("securities") of $77.8 million (down $265,000); and mortgage-backed securities
held to maturity ("MBS") of $84.5 million (down $8.4 million). The Company also
recorded a $2.3 million decline in other assets to $17.5 million, partly
reflecting the distribution of $4.2 million in Company assets
- 6 -
<PAGE> 9
that had been frozen by the New York State Banking Department since the February
6, 1995 seizure of Nationar.
Funding for the Company's mortgage loan production stemmed primarily from a
$44.9 million increase in deposits and from a $26.6 million increase in Federal
Home Loan Bank ("FHLB") borrowings. At June 30, 1996, deposits grew to $977.0
million, fueled by a $51.7 million rise in CDs to $597.5 million, while
borrowings rose to $72.7 million.
Stockholders' equity, meanwhile, totaled $216.0 million, as compared to $217.6
million at December 31st. Notwithstanding the modest decline from the year-end
1995 level, stockholders' equity equalled 16.58% of total assets and a book
value of $35.79 per common share at June 30, 1996.
LOANS
The Company's continuing emphasis on mortgage loan origination is apparent in
the substantial growth of its mortgage loan portfolio. At June 30, 1996,
mortgage loans outstanding rose to $1.1 billion from $993.2 million, fueled by
$155.5 million in originations in the six-month period.
The rise in outstanding mortgage loans, as compared to the year-end 1995 level,
was driven by a $101.3 million increase in multi-family mortgage loans. At June
30, 1996, the portfolio of multi-family mortgage loans grew to $742.9 million,
representing 68.76% of mortgage loans outstanding and a 15.79% increase from
$641.6 million at year-end. Included in the 1996 amount were $140.8 million in
1996 multi-family loan originations; of these, $80.7 million were recorded in
the second quarter of the year.
Multi-family mortgage loans are originated for terms of ten years, at a rate
that adjusts to a point over prime in each of years six through ten. While most
of the Company's 1996 originations featured a fixed rate in the first five years
of the credit, the majority of the multi-family mortgage loan portfolio as a
whole features rates that step up annually in each of years two through five. At
June 30, 1996, $74.4 million, $114.2 million, $141.1 million, and $90.0 million,
respectively, in multi-family mortgage loans were scheduled to reprice upward
over the next four quarters, for a total of $419.7 million over the next twelve
months.
Although multi-family mortgage lending remains its primary focus, the Company
also maintains a portfolio of other mortgage loans. At June 30, 1996,
one-to-four family mortgage loans represented $272.5 million, or 25.22%, of
mortgage loans outstanding, down $16.0 million from the December 31st level
after originations of $4.8 million in the current six-month period. Commercial
real estate loans rose $2.1 million to $64.1 million, reflecting $9.4 million in
originations, while construction loans fell $265,000 to $940,000 after
originations of $530,000.
Like the majority of its multi-family mortgage loans, the Company's other
mortgage loans are primarily adjustable rate credits. Looking at the mortgage
loan portfolio as a whole, $971.9 million, or 89.95%, of mortgage loans
outstanding at June 30, 1996 were made at adjustable rates. Of these, $132.6
million, $183.2 million, $182.1 million, and $135.7 million, respectively, are
scheduled to reprice over the next four quarters, for a total of $633.6 million
over the next twelve months.
At June 30, 1996, other loans (consisting primarily of loans on individual
cooperative units and home equity lines of credit) totaled $13.2 million,
representing a modest 1.21% of loans outstanding, and a $650,000 decrease from
$13.9 million at year-end 1995.
At the close of the quarter, outstanding loan commitments totaled $57.4
million.
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<PAGE> 10
ASSET QUALITY
The Company extended its record of asset quality in the second quarter of 1996.
At June 30th, non-performing assets totaled $8.5 million, down from $9.4 million
at March 31, 1996 and from $8.6 million at December 31, 1995.
Included in the June 30, 1996 amount were non-performing loans of $7.8 million
and other real estate owned ("ORE") of $697,000 (consisting of five one-to-four
family properties which are being readied for sale or rental). By comparison,
non-performing loans totaled $8.6 million and $7.8 million at the end of March
and December, while ORE totaled $817,000 and $774,000, respectively.
Included in non-performing loans at the close of the current quarter were 39
non-accrual loans totaling $5.5 million, and 46 loans 90 days or more delinquent
totaling $2.4 million. Of the Company's non-performing loans, one is secured by
a commercial real estate property; the remainder are all secured by one-to-four
family homes in the Company's primary lending area.
In the second quarter of 1996, two properties were reclassified from ORE to
other assets, in view of the fact that they have been rented and are producing
income for the Company. Investments in real estate now consist of eleven
one-to-four family residences, totaling $1.3 million at June 30, 1996.
The quality of the Company's assets is further conveyed in the declining
percentage of non-performing assets to total assets and the declining ratio of
non-performing loans to loans, net. At June 30, 1996, non-performing assets
equalled 0.65% of total assets, and non-performing loans equalled 0.72% of
loans, net. By comparison, at March 31, 1996 and December 31, 1995,
non-performing assets represented 0.75% and 0.69% of total assets, while
non-performing loans accounted for 0.83% and 0.78% of loans, net. In addition,
no charge-offs were recorded in the current quarter, making this the fourth
consecutive quarter without a loss.
Accordingly, the Company recaptured $2.0 million from the allowance for loan
losses in the second quarter, thus reducing it to $9.4 million at June 30, 1996.
This decision was based on management's assessment of the level of the loan loss
allowance, given the consistent quality of the Company's assets and the nominal
level of charge-offs recorded in the preceding ten years. Only 0.0002 of the
Company's average loans outstanding were charged off annually over the past
decade; in addition, at $9.4 million, the ratio of the allowance for loan losses
to net accumulated charge-offs for the past ten years is a dramatic 625.18%.
Notwithstanding the $2.0 million reduction in the loan loss allowance, its ratio
to non-performing loans and loans, net equalled 119.64% and 0.86%, respectively,
at the current quarter's end.
For additional information, see the Asset Quality Analysis that follows and the
discussion of the provision for loans losses on page 16 of this report.
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<PAGE> 11
<TABLE>
<CAPTION>
ASSET QUALITY ANALYSIS At or For the At or For the
Six Months Ended Year Ended
June 30, December 31,
(dollars in thousands) 1996 1995
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<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period $ 11,359 $ 11,268
Loan charge-offs -- (59)
-------- --------
Net charge-offs -- (59)
(Recovery of) provision for loan losses (2,000) 150
-------- --------
Balance at end of period $ 9,359 $ 11,359
======== ========
NON-PERFORMING ASSETS AT PERIOD-END:
Non-accrual mortgage loans $ 5,447 $ 4,929
Loans 90 days or more delinquent
and still accruing interest 2,376 2,864
-------- --------
Total non-performing loans 7,823 7,793
Other real estate owned 697 774
-------- --------
Total non-performing assets $ 8,520 $ 8,567
======== ========
RATIOS:
Allowance for loan losses to non-
performing loans 119.64% 145.76%
Allowance for loan losses to non-
performing assets 109.85 132.59
Allowance for loan losses to loans, net 0.86 1.14
Allowance for loan losses to net accumulated
charge-offs for the past 10 years 625.18 758.78
Non-performing loans to loans, net 0.72 0.78
Non-performing assets to total assets 0.65 0.69
</TABLE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Management's emphasis on mortgage loan production is further reflected in the
declining balance of its mortgage-backed securities. At June 30, 1996, the
Company's portfolio of MBS fell to $84.5 million from the year-end 1995 level of
$92.9 million, reflecting prepayments and the absence of any new investments in
MBS during the current six-month period. All of the Company's MBS are held to
maturity, which averaged 2.3 years at the current quarter's end.
The market value of the Company's MBS represented 100.06% of carrying value at
the close of the second quarter and 100.65% at December 31, 1995.
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<PAGE> 12
SECURITIES HELD TO MATURITY AND MONEY MARKET INVESTMENTS
The Company also maintains a portfolio of securities (primarily consisting of
short-term U.S. Treasuries), all of which are held to maturity. At June 30,
1996, the balance of securities declined $265,000 to $77.8 million from $78.0
million at year-end 1995. The average maturity of the portfolio was 5.9 months.
At June 30, 1996, the market value of the Company's securities equalled 100.04%
of carrying value; by comparison, the market value of the Company's securities
was 100.17% of carrying value at December 31, 1995.
At June 30, 1996, the Company also recorded a $7.7 million decline in the
balance of money market investments, to $6.0 million from $13.7 million at
year-end.
LIABILITIES
Deposits
The Bank's ability to attract deposits was enhanced with the May 1996 openings
of its College Point branch office and its customer service center in the
Auburndale section of Queens. In addition, the popularity of CDs continued
unabated, as reflected in the higher balance of these deposits at June 30, 1996.
Specifically, deposits grew $44.9 million, or 4.82%, to $977.0 million at the
close of the quarter, fueled by a $51.7 million rise in CDs to $597.5 million.
CDs thus represented 61.15% of total deposits, up from 58.55% at December 31st.
The rise in the balance of CDs reflects the ongoing appeal of these long-term
savings products, as well as the Bank's success in retaining maturing CDs. The
retention rate for CDs maturing in the twelve months ending June 30, 1996 was
90.89%. Based on this statistic, and the Bank's historic rate of retention,
management expects that a significant portion of funds from maturing deposits
will again roll over with the Bank. The volume of CDs scheduled to mature in one
year or less from the close of the quarter was $451.6 million.
The growth in CDs was paralleled by declines in other savings products and in
the percentage of total deposits they represented at quarter's end. At June 30,
1996, savings accounts totaled $284.2 million, or 29.09% of total deposits, down
from $287.6 million, or 30.85%, at December 31, 1995. NOW and money market
accounts also declined, to $72.5 million, representing 7.43% of the total at
June 30, 1996. By comparison, NOW and money market accounts totaled $76.0
million, or 8.15% of deposits, at year-end. Core deposits thus amounted to
$356.8 million, or 36.51% of total deposits at June 30, 1996, as compared to
$363.6 million, or 39.00%, at December 31st.
Non-interest-bearing accounts, meanwhile, remained constant at $22.8 million,
representing 2.33% of total deposits at June 30, 1996.
Borrowings
To supplement the funding provided by its deposits, the Company maintains a
$323.3 million line of credit with the Federal Home Loan Bank. This line of
credit is accessed during times of substantial loan production, such as the Bank
experienced in the first two quarters of 1996. At June 30, 1996, the balance of
FHLB borrowings thus grew $26.6 million, or 57.77%, to $72.7 million, reflecting
the significant level of loan originations during the first six months of the
year.
- 10 -
<PAGE> 13
ASSET AND LIABILITY MANAGEMENT
Given the extent to which changes in market interest rates may influence net
interest income, one of management's primary objectives is to manage the
Company's interest rate risk. This is achieved by matching the maturities and
repricing dates of the Company's interest-earning assets with the maturities and
repricing dates of its interest-bearing liabilities.
In order to enhance this match, management has maintained a portfolio of
adjustable rate mortgage loans with scheduled rate increases, and has limited
its other investments to short-term U.S. Treasuries. On the liability side,
management has closely monitored the pricing of its depository products, and has
confined its use of borrowings except when market conditions are particularly
conducive to a high level of loan origination activity.
Despite the popularity of higher cost savings products and the growing use of
FHLB advances, the positive gap between the Bank's interest rate sensitive
assets and its interest rate sensitive liabilities repricing within a one-year
period was a positive 21.91% at June 30, 1996. The presence of a positive gap
indicates that more assets than liabilities will be subject to repricing as a
result of changes in interest rates.
STOCKHOLDERS' EQUITY
Stockholders' equity equalled $216.0 million at June 30, 1996, as compared to
$217.6 million at December 31, 1995. The 1996 amount reflects an $8.3 million
increase in retained earnings (net income of $11.5 million less dividends paid
and options exercised of $3.2 million) and $2.5 million relating to the
amortization and appreciation of shares in the Company's Employee Stock
Ownership Plan ("ESOP") and Recognition and Retention Plans ("RRPs"). These
factors were offset by the open-market purchase of 306,438 shares at a cost of
$12.4 million, under the Company's Stock Repurchase Program. Of the shares that
were repurchased, 25,000 were subsequently transferred from the Treasury
account to provide for the Company's stock-related benefit plans.
Despite the $1.7 million decline from the year-end 1995 level, the Company's
stockholders' equity was equivalent to 16.58% of total assets and a book value
of $35.79 per common share at June 30, 1996. The Company's capital strength is
further conveyed in the Banks' regulatory capital ratios, which are presented in
the analysis on page 12 of this report.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Managing liquidity is a fundamental component of the Company's business
strategy. While the majority of the Company's funds are deployed into mortgage
loan originations, other funds are invested into short-term securities, in the
form of U.S. Treasuries, and money market investments, in the form of Federal
Funds.
Money market investments, together with cash and due from banks, are the
Company's most liquid assets and collectively totaled $24.1 million at June 30,
1996. Securities, as previously indicated, totaled $77.8 million, including
$67.4 million in U.S. Treasuries with an average maturity of 5.9 months.
Funding for the Company's investments stems primarily from deposits, together
with principal and interest payments on loans and proceeds from mortgage-backed
securities and securities. In times of heavy loan demand, the Company also draws
on its FHLB line of credit, which presently totals $323.3 million. Additional
funding is available through the Company's $11.1 million line of credit with the
Federal Reserve Bank of New York and its $10.0 million line of credit with a
money center bank.
- 11 -
<PAGE> 14
The Bank's cash flows are derived from operating, investing, and financing
activities. In the first six months of 1996, the net cash provided by operating
activities totaled $3.7 million, whereas the net cash used in operating
activities totaled $1.2 million in the six months ended June 30, 1995. The $4.9
million difference primarily stemmed from a $2.3 million decrease in other
assets, reflecting the distribution of $4.2 million that had been frozen in
connection with the February 6, 1995 seizure of Nationar. In addition, the
Company recorded a $10.3 million decrease in official checks outstanding in the
current six-month period versus $4.5 million in the year-earlier six months.
In the first six months of 1996, the net cash used in investing activities
totaled $78.2 million; by contrast, the net cash provided by investing
activities totaled $1.6 million in the year-earlier six months. The $79.8
million difference was largely due to an $80.1 million net increase in loans in
the current period. In addition, the Company rolled over maturing securities in
the amount of $42.0 million in the first six months of 1996, as compared to the
prior six-month period when $34.0 million in securities matured and $32.2
million were purchased.
The contrast between the first six months of 1996 and 1995 continues further
with a comparison of the net cash provided by and used in financing activities.
In the six months ended June 30, 1996, the net cash provided by financing
activities totaled $59.5 million; in the year-earlier period, the net cash used
in financing activities totaled $1.4 million. The $60.9 million difference
largely reflects a $26.6 million net increase in FHLB borrowings, versus a $71.7
million net decrease in the year-earlier six months. This difference was only
partly offset by a $44.9 million net increase in deposits, as compared to a
$75.8 million net increase in the year-earlier period. In addition, the net cash
provided by financing activities in the current period reflects $12.5 million
relating to the purchase of Treasury stock, net of exercised stock options; in
the year-earlier period, $9.0 million, net was utilized for the purchase of
Treasury stock.
Capital
The Company's capital strength is reflected in the Bank's regulatory capital
levels, which continued to substantially exceed the minimum requirements of the
Federal Deposit Insurance Corporation ("FDIC") at June 30, 1996.
REGULATORY CAPITAL ANALYSIS (Bank only)
<TABLE>
<CAPTION>
At June 30, 1996
----------------
Risk-based Capital
--------------------
(dollars in thousands) Leverage Capital Tier 1 Total
----------------- --------------- ----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Savings Bank Equity $154,385 12.34% $154,385 21.56% $163,334 22.81%
Capital for
Regulatory Requirements 37,534 3.00 28,637 4.00 57,276 8.00
-------- ----- -------- ----- -------- -----
Excess $116,851 9.34% $125,748 18.00% $106,058 15.81%
-------- ----- -------- ----- -------- -----
</TABLE>
- 12 -
<PAGE> 15
COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 AND 1995
NET INCOME
The Company recorded net income of $6.3 million in the second quarter of 1996,
up 26.31% from $5.0 million in the second quarter of 1995. Earnings rose 29.41%
to $1.10 from the year-earlier $0.85 on a per-share basis, and represented a
return on average assets ("ROA") of 1.99%.
Of the $6.3 million earned in the current second quarter, $5.5 million, or $0.97
per share, stemmed from core earnings and $750,000, or $0.13 per share, net of
tax, stemmed from the Company's recapture of $2.0 million from the loan loss
allowance at June 30, 1996. The $2.0 million recovery is discussed in greater
detail under "Asset Quality" on page 8 and under "Provision for Loan Losses" on
page 16 of this report.
The rise in core earnings was essentially driven by a $1.6 million increase in
net interest income to $14.4 million from $12.8 million in the three months
ended June 30, 1995. The 12.47% increase primarily stemmed from a $2.4 million
surge in interest income to $25.1 million, which was, in turn, driven by a $90.7
million rise in average interest-earning assets and a 20-basis point increase in
their average yield to 8.23%. These improvements exceeded an $815,000 rise in
interest expense to $10.6 million, which reflected a $79.3 million increase in
average interest-bearing liabilities to $1.0 billion, while the cost of these
funds held steady at 4.26%.
Second quarter 1996 earnings were also fueled by a $1.0 million reduction in
operating expense to $5.5 million from the $6.5 million recorded in the
year-earlier three months. The higher amount in 1995 reflects the establishment
of a $1.0 million reserve in the second quarter for possible losses relating to
the seizure of Nationar.
These contributions to earnings were partly offset by a $1.2 million reduction
in other operating income to $470,000 and a $2.2 million increase in income tax
expense to $5.1 million. The decline in other operating income reflects the
recognition of $1.3 million in interest earned on Federal income tax recoveries
in the year-earlier quarter; the rise in income tax expense corresponds to a
$3.5 million increase in pre-tax income to $11.4 million.
INTEREST INCOME
Interest income is primarily generated by the Company's mortgage loan portfolio
and, to a lesser extent, by its portfolios of securities, MBS, and money market
investments.
In the second quarter of 1996, the Company recorded interest income of $25.1
million, representing a $2.4 million, or 10.67%, increase from the year-earlier
level of $22.6 million. This increase was primarily fueled by a $90.7 million,
or 8.04%, rise in the average balance of interest-earning assets to $1.2
billion, and by a 20-basis point rise in their average yield to 8.23%.
The higher level of average interest-earning assets was triggered by a $108.4
million, or 11.49%, increase in average mortgage and other loans to $1.1 billion
and an accompanying 23-basis point jump in the yield on these assets to 8.60%.
Average mortgage and other loans represented 86.30% of average interest-earning
assets in the current second quarter, up from 83.64% in the year-earlier three
months.
As a result of these increases, the interest income provided by mortgage and
other loans rose $2.9 million, or 14.48%, to $22.6 million, representing 90.20%
of interest income for the current three-month period.
- 13 -
<PAGE> 16
The emphasis placed by management on mortgage loan production is further
reflected in the declining average balance of securities and MBS. In the second
quarter of 1996, average securities dropped $3.9 million, or 5.04%, to $73.3
million, representing 6.02% of average interest-earning assets. The interest
income derived from average securities fell $196,000, or 16.13%, to $1.0
million, reflecting the lower average balance and a 74-basis point drop in the
average yield on these assets to 5.56%.
Similarly, the average balance of MBS fell $15.9 million, or 15.45%, to $87.0
million, representing 7.14% of average interest-earning assets for the quarter,
down from 9.12% in the year-earlier three months. This decline, together with a
7-basis point drop in the average yield, resulted in a $264,000, or 16.33%,
reduction in the interest income provided by MBS to $1.4 million, representing
5.40% of interest income in the current three-month period.
The declines in average securities and average MBS were partly offset by a $2.1
million, or 46.99%, increase in average money market investments to $6.6
million, as compared to $4.5 million in the three months ended June 30, 1995.
The higher average balance was partly offset by a 90-basis point decrease in the
average yield on these assets to 5.16%, resulting in a $17,000, or 25.00%,
increase in the interest income provided to $85,000.
INTEREST EXPENSE
The Company's interest expense stems primarily from the interest paid on its
depository products, as well as from the interest paid on its FHLB advances and
mortgagors' escrow accounts.
In the second quarter of 1996, interest expense rose $815,000, or 8.31%, to
$10.6 million, as average interest-bearing liabilities increased $79.3 million
to $1.0 billion and the cost of funds held steady at 4.26%.
As compared to the year-earlier quarter, the 8.58% increase in average
interest-bearing liabilities primarily stemmed from an $87.4 million, or 18.29%,
rise in average CDs to $565.3 million, representing 56.35% of average
interest-bearing liabilities, as compared to 51.73% in the second quarter of
1995. The interest expense associated with CDs rose $1.0 million, or 15.63%, to
$7.6 million, representing 71.51% of second quarter interest expense. The rise
in interest expense generated by CDs reflects the higher average balance, which
was partly offset by an 11-basis point drop in the cost of these funds to
5.40%.
While the average balance of CDs continued to move upward, the average balance
of other interest-bearing depository accounts remained relatively flat. In the
second quarters of 1996 and 1995, the balance of savings accounts averaged
$285.2 million and $295.8 million, respectively, representing 28.43% and 32.01%
of average interest-bearing liabilities. Similarly, the balance of NOW and money
market accounts respectively averaged $74.7 million and $75.6 million,
representing 7.45% and 8.18% of average interest-bearing liabilities in the
second quarters of 1996 and 1995.
The interest expense produced by average savings accounts fell $132,000 to $1.7
million, reflecting both the lower average balance and a 9-basis point drop in
the cost of these funds to 2.39%. The interest expense derived from NOW and
money market accounts also declined, to $511,000, reflecting the lower average
balance and a 30-basis point drop in the cost of these funds to 2.75%.
The rise in second quarter 1996 interest expense also stemmed from a $7.7
million increase in the average balance of FHLB borrowings, which was only
partly offset by an 84-basis point decline in the cost of these funds to 5.52%.
At $58.9 million, average FHLB borrowings represented 5.87% of average
interest-bearing liabilities, and contributed $809,000 to total interest expense
in the current three-month period. In the year-earlier quarter, FHLB borrowings
averaged $51.2 million, or 5.54% of average interest-bearing liabilities, and
contributed $812,000 to total interest expense.
- 14 -
<PAGE> 17
Mortgagors' escrow averaged $19.1 million in the current quarter, down $4.2
million from $23.4 million in the year- earlier three months. The lower average
balance combined with an 18-basis point drop in the average cost of these funds
to 0.25% to produce a $13,000 decline in interest expense to $12,000.
NET INTEREST INCOME ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1996 1995
--------------------------------- ----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage and other loans, net $1,051,651 $22,608 8.60% $ 943,288 $ 19,749 8.37%
Securities held to maturity 73,299 1,019 5.56 77,193 1,215 6.30
Mortgage-backed securities held
to maturity 86,995 1,353 6.22 102,889 1,617 6.29
Money market investments 6,594 85 5.16 4,486 68 6.06
---------- ------- ------- ---------- ---------- ------
Total interest-earning assets 1,218,539 25,065 8.23% 1,127,856 22,649 8.03%
Non-interest-earning assets 40,667 38,693
---------- ----------
Total assets $1,259,206 $1,166,549
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW and money market accounts $ 74,701 $ 511 2.75% $ 75,617 $ 575 3.05%
Savings accounts 285,179 1,694 2.39 295,801 1,826 2.48
Certificates of deposit 565,334 7,596 5.40 477,941 6,569 5.51
FHLB borrowings 58,903 809 5.52 51,226 812 6.36
Escrow 19,148 12 0.25 23,381 25 0.43
---------- ------- ------- ---------- ---------- ------
Total interest-bearing liabilities 1,003,265 10,622 4.26% 923,966 9,807 4.26%
------- ----------
Non-interest-bearing deposits 23,154 19,294
Other liabilities 21,716 16,405
---------- ----------
Total liabilities 1,048,135 959,665
Stockholders' equity 211,071 206,884
---------- ----------
Total liabilities and stockholders' equity $1,259,206 $1,166,549
========== ==========
Net interest income/interest rate spread $14,443 3.97% $ 12,842 3.77%
======= ======= ========== ======
Net interest-earning assets/net
interest margin $ 215,274 4.74% $ 203,890 4.55%
========== ======= ========== ======
Ratio of interest-earning assets
to interest-bearing liabilities 121.46% 122.07%
======= ======
</TABLE>
NET INTEREST INCOME
Net interest income is the Company's principal source of earnings; its level is
significantly affected by the volume of the Company's interest-earning assets
and interest-bearing liabilities, and by the spread between the yield on such
assets and the cost of such liabilities.
In the second quarter of 1996, net interest income rose $1.6 million to $14.4
million from the year-earlier level, and rose $635,000 from the level recorded
in the first quarter of 1996. The substantial volume of mortgage loans
originated during the second quarter resulted in higher spreads and margins,
despite the fact that the funding for these loans stemmed from higher cost CDs
and FHLB borrowings.
Specifically, the Company's interest rate spread grew to 3.97% in the current
second quarter, up from 3.77% and 3.82%, respectively, in the second quarter of
1995 and the first quarter of 1996. Similarly, net interest margin rose to 4.74%
for the current quarter, up from 4.55% and 4.61%, respectively, in the
corresponding periods.
- 15 -
<PAGE> 18
In the third quarter of 1996, the Company's spreads and margins are likely to be
stable, as loan production remains steady and the Company benefits from the
upward repricing of $419.7 million in multi-family mortgage loans. However, the
direction of spreads and margins and the level of net interest income may be
adversely impacted should a significant increase in market interest rates weaken
loan demand.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's periodic assessment of
the adequacy of the allowance for loan losses which, in turn, is based on such
interrelated factors as the types of loans in the portfolio and their inherent
risk characteristics; the present level of non-performing loans; current local
economic conditions; the direction of real estate values; and current trends in
regulatory supervision.
In the second quarter of 1996, as previously noted, the Company recovered $2.0
million from the allowance for loan losses, reducing it to $9.4 million from
$11.4 million at both March 31, 1996 and December 31, 1995. Notwithstanding the
reduction from the earlier levels, the allowance for loan losses equalled
119.64% of non-performing loans and 0.86% of loans, net at June 30, 1996.
Management's decision to recover $2.0 million at this time reflects in part, the
absence of charge-offs over the past four quarters, and the nominal level of
charge-offs recorded over the past ten years. From year-end 1985 through June
30, 1996, the Company had average annual charge-offs of $140,000, representing a
negligible 0.0002 of average loans outstanding per year during that period.
In the second quarter of 1996, the Company's long-standing record of asset
quality was again extended, as non-performing assets fell to $8.5 million, or
0.65% of total assets, from $9.4 million (or 0.75%) at March 31, 1996 and $8.6
million (or 0.69%) at December 31, 1995. Included in non-performing assets at
June 30, 1996 were non-performing loans of $7.8 million (as compared to $8.6
million and $7.8 million) of which $2.4 million were loans 90 days or more
delinquent, and ORE of $697,000 (as compared to $817,000 and $774,000,
respectively, at the corresponding dates).
OTHER OPERATING INCOME
In the second quarter of 1996, the Company recorded other operating income of
$470,000, as compared to $1.6 million in the second quarter of 1995. In the
year-earlier quarter, other operating income was boosted by the recognition of
$1.3 million in interest earned on Federal income tax recoveries; absent this
one-time event, other operating income would have been $346,000.
Fee income, which is typically the primary source of other operating income,
totaled $416,000 in the current second quarter, as compared to $326,000 in the
second quarter of 1995.
OPERATING EXPENSE
Operating expense consists primarily of compensation and benefits expense,
together with occupancy and equipment expense, general and administrative
("G&A") expense, and the FDIC insurance premium.
In the second quarter of 1996, operating expense totaled $5.5 million (or 1.76%
of average assets), as compared to $6.5 million (or 2.23% of average assets) in
the year-earlier three months. The positive direction of operating expense is
further conveyed by the Company's efficiency ratio, which improved to 37.10%
from 44.94%.
- 16 -
<PAGE> 19
In the second quarter of 1995, operating expense was boosted by the $1.0 million
reserve for possible losses established in connection with the State Banking
Department's seizure of Nationar. In addition, the comparison of second quarter
1996 and 1995 operating expense reflects a $478,000 decrease in the FDIC
insurance premium to $1,000 (reflecting its elimination in the current year's
first quarter), and a $55,000 decrease in G&A expense to $1.1 million.
These collective improvements exceeded an $18,000 rise in occupancy and
equipment expense to $600,000 and a $575,000 increase in compensation and
benefits expense to $3.8 million. The latter increase reflects normal salary
increases, and the appreciation of shares held in the Company's stock-related
benefit plans, which totaled $425,000. Also included in the $3.8 million is
normal amortization of $545,000 relating to the Company's ESOP and RRPs. The
number of full-time equivalent employees at June 30, 1996 was 278, reflecting
the addition of staff for the two new locations that opened in May.
INCOME TAX EXPENSE
In the second quarter of 1996, income tax expense rose $2.2 million to $5.1
million, primarily reflecting a $3.5 million increase in pre-tax income to $11.4
million in the current three-month period.
Management continues to monitor the status of proposed Federal tax code
legislation which, if enacted, could adversely impact the company's effective
tax rate and income tax expense. In the first quarter 1996 10-Q, management
reported that both houses of the U.S. Congress had passed versions of
legislation designed to modify the tax code for thrifts. The two pieces of
legislation had been sent to Committee for reconciliation; at this time, no
further developments have occurred.
While the Federal tax code for thrifts has not yet been changed, the State of
New York legislature passed a bill in June which, if enacted, will enable the
State tax code to stand on its own. However, until such time as the tax code-
related legislation is signed into law at both the State and Federal levels,
there is no way to determine the timing or impact of these changes on the
Company's effective tax rate or income tax expense.
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Net Income
In the six months ended June 30, 1996, the Company recorded net income of $11.5
million, up 19.14% from the $9.7 million recorded in the year-earlier six
months. Earnings rose 22.56% to $2.01 from $1.64 on a per share basis, and
represented an ROA of 1.84%.
The factors which contributed to the rise in second quarter earnings similarly
boosted earnings in the current six-month period. Net interest income rose $2.2
million, or 8.56%, to $28.3 million, as mortgage loan production sparked a rise
in average interest-earning assets, and the Company's interest rate spread and
margin each increased 7 basis points to 3.89% and 4.67%.
The Company's 1996 six-month earnings were further fueled by the recapture of
$2.0 million from the allowance for loan losses, which contributed $750,000,
after taxes, or $0.13 per share, to net income in the second quarter of the
year. By comparison, the Company had established a loan loss provision of
$150,000 in the first six months of 1995.
- 17 -
<PAGE> 20
Six-month earnings were also fueled by a $1.4 million, or 11.03%, decline in
operating expense to $11.0 million from $12.4 million. The higher amount in 1995
reflects the $1.0 million reserve for Nationar-related losses established in the
second quarter and a first quarter charge of $349,000, also relating to
Nationar.
These collective improvements offset a $1.2 million decline in other operating
income to $956,000 (reflecting the year-earlier recognition of $1.3 million in
Federal income tax recoveries) and a $2.7 million increase in income tax expense
to $8.7 million, reflecting a $4.6 million rise in pre-tax income to $20.2
million.
INTEREST INCOME
Interest income rose $4.4 million to $49.6 million in the first six months of
1996 from $45.2 million in the first six months of 1995. The 9.76% increase was
primarily driven by a $78.0 million rise in average interest-earning assets to
$1.2 billion and by a 21-basis point increase in their average yield to 8.20%.
The increase in average-interest earning assets was primarily spurred by an
$89.3 million, or 9.48%, rise in average mortgage and other loans to $1.0
billion, representing 85.28% of average interest-earning assets in the current
six-month period. Combined with a 25-basis point rise in the average yield to
8.60%, the higher average balance boosted the interest income provided by these
assets to $44.3 million, representing a $5.0 million, or 12.67%, increase from
the year-earlier amount. The interest income provided by average mortgage and
other loans represented 89.37% of total interest income in the current period,
up from 87.06% in the year-earlier six months.
While average mortgage and other loans surged in the current six months, average
securities and average MBS experienced modest declines. Average securities fell
$3.7 million to $72.9 million, representing 6.03% of average interest-earning
assets, while average MBS declined $15.4 million to $89.1 million, representing
7.37% of average interest-earning assets. The interest income generated by
average securities fell $297,000, or 12.54%, to $2.1 million, reflecting both
the lower average balance and a 50-basis point drop in their yield to 5.69%.
Similarly, the interest income generated by average MBS fell $453,000, or
14.00%, to $2.8 million, as the lower average balance offset a 6-basis point
rise in the average yield to 6.25%.
Average money market investments, meanwhile, rose $7.8 million to $15.9 million,
from $8.1 million in the year-earlier six months. The interest income provided
by these assets rose $173,000 to $414,000, as the higher average balance offset
a 75-basis point drop in their average yield to 5.20%.
INTEREST EXPENSE
Fueled by a $67.2 million increase in average interest-bearing liabilities to
$994.2 million, and by a 14-basis increase in the average cost of these funds to
4.31%, interest expense rose to $21.3 million in the current six-month period
from $19.1 million in the first six months of 1995.
The rise in average interest-bearing liabilities primarily stemmed from a $97.7
million, or 21.20%, surge in average CDs to $558.6 million, from $460.9 million
in the year-earlier six months. Coupled with an 18-basis point increase in the
average cost of these funds to 5.49%, the interest expense tied to average CDs
rose $3.1 million, or 25.48%, to $15.2 million. In the six months ended June 30,
1996 and 1995, average CDs represented 56.19% and 49.72% of average
interest-bearing liabilities, respectively, and accounted for 71.46% and 63.43%
of interest expense.
The substantial rise in average CDs was partly offset by declines in the average
balance of other interest-bearing depository products. Average savings accounts
fell $15.7 million to $285.3 million, representing 28.70% of average
interest-bearing liabilities, down from $301.1 million, or 32.48% of the overall
average, in the year-earlier six months. The interest expense associated with
average savings accounts fell $295,000, or 7.99%, to $3.4 million, reflecting
the lower average balance and a 7-basis point drop in their average cost to
2.40%.
- 18 -
<PAGE> 21
Average NOW and money market accounts decreased a more modest $2.0 million to
$75.3 million, representing 7.58% of average interest-bearing liabilities, as
compared to $77.3 million in the first six months of 1995. Similarly, the
interest expense generated by average NOW and money market accounts fell
$99,000, or 8.59%, to $1.1 million, reflecting the lower average balance and a
20-basis point reduction in the average cost of these funds to 2.81%.
Borrowings contributed $1.6 million to interest expense in the current six-month
period, as compared to $2.1 million in the year-earlier six months. The $486,000
reduction stemmed from a $9.6 million, or 14.10%, decline in the average balance
and a 67-basis point reduction in their average cost to 5.59%. In the six months
ended June 30, 1996 and 1995, average FHLB borrowings represented 5.86% and
7.32%, respectively, of average interest-bearing liabilities, and contributed
7.60% and 11.00%, respectively, to total interest expense.
Mortgagors' escrow generated a mere $15,000 in interest expense in the current
six-month period, as compared to $50,000 in the year-earlier six months.
Reflected in the $35,000 decline was a $3.3 million drop in the average balance
of mortgagors' escrow, coupled with a 33-basis point reduction in the average
cost of these funds to 0.18%.
NET INTEREST INCOME ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
---------------------------------- ---------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Mortgage and other loans, net $1,030,787 $ 44,310 8.60% $ 941,515 $39,326 8.35%
Securities held to maturity 72,864 2,072 5.69 76,587 2,369 6.19
Mortgage-backed securities held
to maturity 89,083 2,783 6.25 104,478 3,236 6.19
Money market investments 15,910 414 5.20 8,099 241 5.95
---------- -------- ------ ---------- ------- -----
Total interest-earning assets 1,208,644 49,579 8.20% 1,130,679 45,172 7.99%
Non-interest-earning assets 40,640 38,602
---------- ----------
Total assets $1,249,284 $1,169,281
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW and money market accounts $ 75,326 $ 1,054 2.81% $ 77,297 $ 1,153 3.01%
Savings accounts 285,349 3,399 2.40 301,063 3,694 2.47
Certificates of deposit 558,644 15,241 5.49 460,915 12,146 5.31
FHLB borrowings 58,260 1,620 5.59 67,826 2,106 6.26
Escrow 16,613 15 0.18 19,919 50 0.51
---------- -------- ------ ---------- ------- -----
Total interest-bearing liabilities 994,192 21,329 4.31% 927,020 19,149 4.17%
-------- -------
Non-interest-bearing deposits 22,855 18,817
Other liabilities 20,300 17,119
---------- ----------
Total liabilities 1,037,347 962,956
Stockholders' equity 211,937 206,325
---------- ----------
Total liabilities and stockholders' equity $1,249,284 $1,169,281
========== ==========
Net interest income/interest rate spread $ 28,250 3.89% $26,023 3.82%
======== ====== ======= ======
Net interest-earning assets/net
interest margin $ 214,452 4.67% $ 203,659 4.60%
========== ====== ========== ======
Ratio of interest-earning assets
to interest-bearing liabilities 121.57% 121.97%
====== =======
</TABLE>
- 19 -
<PAGE> 22
NET INTEREST INCOME
In the first six months of 1996, the Company recorded a $2.2 million, or 8.56%,
increase in net interest income to $28.3 million from $26.0 million in the first
six months of 1995.
Driven by the $89.3 million rise in average mortgage and other loans, average
interest-earning assets increased $78.0 million to $1.2 billion, while the
average yield on these assets rose 21 basis points to 8.20%. Average
interest-bearing liabilities, meanwhile, rose $67.2 million to $994.2 million,
accompanied by a 14-basis point rise in their cost to 4.31%.
The growth in net interest income also reflects a 7-basis point improvement in
both the interest rate spread and net interest margin. The interest rate spread
rose to 3.89% in the current six-month period, while the net interest margin
rose to 4.67%.
PROVISION FOR LOAN LOSSES
In contrast to the first six months of 1995, when the Company's provision for
loan losses totaled $150,000, the Company made no provision in the first quarter
and recaptured $2.0 million from its allowance for loan losses in the second
quarter of 1996.
For additional information regarding the $2.0 million recapture, see the
discussion of asset quality on page 8 and the discussion of the second quarter
provision for loan losses on page 16.
OTHER OPERATING INCOME
In the six months ended June 30, 1996, the Company's other operating income
declined to $956,000 from $2.1 million in the six months ended June 30, 1995.
The higher level in 1995 was due to the Company's recognition of $1.3 million in
interest earned on Federal income tax recoveries in the second quarter; absent
this one-time event, other operating income would have been $841,000 in the
first six months of 1995.
Included in other operating income in the current six months was $773,000 in fee
income, up $98,000, or 14.52%, from $675,000 in the year-earlier period.
OPERATING EXPENSE
In the first six months of 1996, operating expense totaled $11.0 million, or
1.76% of average assets, down from $12.4 million, or 2.11% of average assets, in
the first six months of 1995. These improvements were also conveyed by the
Company's efficiency ratio, which equalled 37.63% in the current six-month
period and 43.86% in the six months ended June 30, 1995.
The higher level of operating expense in 1995 primarily stemmed from a $349,000
charge against earnings and a $1.0 million reserve for possible losses relating
to the first quarter 1995 seizure of Nationar. These items aside, the comparison
of 1996 and 1995 operating expense reflects a $958,000 reduction in the FDIC
insurance premium to $1,000 (reflecting the FDIC's elimination of the premium in
the current year's first quarter); a $120,000 reduction in G&A expense to $2.1
million; and a modest $7,000 reduction in occupancy and equipment expense to
$1.2 million.
- 20 -
<PAGE> 23
These collective improvements offset a $1.1 million increase in compensation and
benefits expense to $7.5 million, including $792,000 relating to the
appreciation of shares held in the Company's stock-related benefit plans. The
$7.5 million also reflects $1.1 million in normal amortization relating to the
Company's ESOP and RRPs.
INCOME TAX EXPENSE
In the first six months of 1996, the Company recorded income tax expense of $8.7
million, up $2.7 million, or 45.13%, from $6.0 million in the first six months
of 1995. The higher level of income tax expense largely reflects a $4.6 million,
or 29.08%, rise in income before taxes to $20.2 million, from $15.7 million in
the six months ended June 30, 1995.
- 21 -
<PAGE> 24
QUEENS COUNTY BANCORP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Bank is involved in various legal actions arising in the ordinary course of
its business. All such actions, in addition to the two specified below, in the
aggregate, involved amounts which are believed by management to be immaterial to
the financial condition and results of operations of the Bank.
In early 1995, the Bank filed a claim with the Superintendent of the New York
State Banking Department pursuant to the Department's seizure of Nationar, the
Bank's check processing agent, on February 6th. At the time of the seizure,
approximately $9.0 million of the Bank's funds were frozen together with all of
Nationar's other assets; $2.2 million of these funds were subsequently returned
to the Bank.
In the second quarter of 1995, the Bank set aside a $1.0 million reserve for
possible losses relating to the Nationar seizure and, on August 9, 1995, filed a
claim with the Banking Department for all of the remaining balance. During the
quarter, an additional $4.2 million was distributed to the Bank, leaving a
balance of $1.0 million in frozen assets, net of the $1.0 million reserve for
possible losses.
It is management's belief that when the remaining frozen assets are distributed,
a portion of the $1.0 million reserve for possible losses will be recovered.
On November 16, 1994, the Company received notice that it had been named as a
defendant in a purported class action complaint filed in the Supreme Court of
the State of New York, County of Queens. The defendants named in the lawsuit
include the Company, the individual directors, and the executive officers of the
Bank, Adams Cohen Securities, Inc. and RP Financial, Inc. The complaint alleges
that the conversion prospectus contained materially false and misleading
statements concerning the value of the Company's stock and that the directors
breached fiduciary duties owed to the Bank's depositors by allowing the value of
the Company's common stock to be materially understated in the prospectus and by
implementing certain stock-based benefit plans as part of the conversion. The
complaint seeks certification as a class action and damages against all
defendants in an unspecified amount. On January 31, 1995, the defendants moved
to dismiss the complaint on the ground that it failed to state a valid cause of
action. On May 2, 1995, the Court issued a decision granting the motions filed
by the Company and the other defendants in the action to dismiss the complaint.
Subsequently, the Court issued an order of dismissal in accordance with the
decision. The plaintiffs subsequently filed a Notice of Appeal to the Appelate
Division, which the Company has rebutted. The Company is now awaiting the
decision of the Court.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
- 22 -
<PAGE> 25
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibit is filed as part of this report:
Regulation S-K Exhibit
Reference Number 11
Statement re: Computation of Per Share Earnings
(b) Reports on Form 8-K
On July 17, 1996, the Company filed a Form 8-K reporting the
Board of Director's declaration of a four-for-three stock
split in the form of a 33-1/3% stock dividend. The stock
dividend is payable on August 22, 1996 to shareholders of
record on August 1, 1996, together with cash in lieu of any
fractional shares, based on the average of the high and low
bid prices on August 1, 1996, as adjusted for the split.
In addition, the Company's Form 8-K filing reported the
Board's declaration of a 33-1/3 cents per share cash dividend,
which represented a 33-1/3% increase from the 25 cents per
share cash dividend paid in May 1996. The cash dividend will
be paid on August 15, 1996 on the number of shares held before
the split to shareholders of record on August 1st.
- 23 -
<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.
Queens County Bancorp, Inc.
(Registrant)
DATE: August 1, 1996 BY: /s/ Joseph R. Ficalora
-------------------------------
Joseph R. Ficalora
Chairman of the Board,
President, and Chief
Executive Officer
(Duly Authorized Officer)
DATE: August 1, 1996 BY: /s/ Robert Wann
-------------------------------
Robert Wann
Senior Vice President,
Comptroller, and Chief
Financial Officer
(Principal Financial Officer)
24
<PAGE> 27
Reference Number 11
QUEENS COUNTY BANCORP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $6,265 $4,960 $11,523 $9,672
------ ------ ------- ------
Weighted average common shares
oustanding 5,284 5,562 5,350 5,622
Common stock equivalents to
dilutive effect of stock options 394 300 379 278
====== ====== ======= ======
Total weighted average common shares
and common share equivalents outstanding 5,678 5,862 5,729 5,900
------ ------ ------- ------
Earnings per common share and common share
equivalents $ 1.10 $ 0.85 $ 2.01 $ 1.64
====== ====== ======= ======
Total weighted average common shares
and common share equivalents outstanding 5,678 5,862 5,729 5,900
Additional dilutive shares using ending
period market value versus average
market value for the period when utilizing
the treasury stock method regarding
stock options 15 7 30 29
====== ====== ======= ======
Total shares for fully diluted earnings
per share 5,693 5,869 5,759 5,929
------ ------ ------- ------
Fully diluted earnings per common share
and common share equivalents $ 1.10 $ 0.85 $ 2.00 $ 1.63
====== ====== ======= ======
</TABLE>
-25-
<PAGE> 28
EXHIBITS INDEX
EXHIBIT No. DESCRIPTION
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,065
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 162,248
<INVESTMENTS-MARKET> 162,330
<LOANS> 1,092,560
<ALLOWANCE> 9,359
<TOTAL-ASSETS> 1,302,281
<DEPOSITS> 977,042
<SHORT-TERM> 72,696
<LIABILITIES-OTHER> 36,572
<LONG-TERM> 0
0
0
<COMMON> 69
<OTHER-SE> 215,902
<TOTAL-LIABILITIES-AND-EQUITY> 1,302,281
<INTEREST-LOAN> 44,310
<INTEREST-INVEST> 4,855
<INTEREST-OTHER> 414
<INTEREST-TOTAL> 49,579
<INTEREST-DEPOSIT> 19,709
<INTEREST-EXPENSE> 21,329
<INTEREST-INCOME-NET> 28,250
<LOAN-LOSSES> (2,000)
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 10,990
<INCOME-PRETAX> 20,216
<INCOME-PRE-EXTRAORDINARY> 11,523
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,523
<EPS-PRIMARY> 2.01
<EPS-DILUTED> 2.00
<YIELD-ACTUAL> 8.20
<LOANS-NON> 5,447
<LOANS-PAST> 2,376
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,359
<CHARGE-OFFS> 0
<RECOVERIES> 2,000
<ALLOWANCE-CLOSE> 9,359
<ALLOWANCE-DOMESTIC> 9,359
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
