<PAGE> 1
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, 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
incorporation or organization) Identification No.)
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
7,666,848
Number of shares outstanding at
November 5, 1996
<PAGE> 2
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1996
INDEX PAGE NO.
- ---- --------
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition as of
September 30, 1996 (unaudited) and December 31, 1995 1
Consolidated Statements of Income for the
Three and Nine Months Ended September 30, 1996
and 1995 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Nine Months Ended September 30, 1996
(unaudited) 3
Consolidated Statements of Cash Flows for the Nine
Months Ended September 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 19
Item 2. CHANGES IN SECURITIES 19
Item 3. DEFAULTS UPON SENIOR SECURITIES 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 19
Item 5. OTHER INFORMATION 19
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
EXHIBITS 22
<PAGE> 3
Queens County Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
(in thousands) (unaudited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 13,722 $ 25,340
Money market investments 6,000 13,650
Securities held to maturity (estimated market value -
$77,579 and $78,151, respectively) 77,505 78,016
Mortgage-backed securities held to maturity (estimated market
value - $80,144 and $93,474, respectively) 80,216 92,868
Mortgage loans:
1-4 family 263,667 288,470
Multi-family 785,559 641,564
Commercial real estate 62,209 62,003
Construction 1,267 1,205
---------- ----------
Total mortgage loans 1,112,702 993,242
Other loans 12,565 13,861
Less: Unearned loan fees (1,202) (941)
Allowance for loan losses (9,359) (11,359)
---------- ----------
Loans, net 1,114,706 994,803
Premises and equipment, net 11,079 10,526
Deferred income taxes, net 5,028 5,822
Other assets 17,616 19,857
---------- ----------
TOTAL ASSETS $1,325,872 $1,240,882
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
NOW and money market accounts $ 71,516 $ 75,997
Savings accounts 279,060 287,577
Certificates of deposit 630,733 545,771
Non-interest-bearing accounts 22,965 22,795
---------- ----------
Total deposits 1,004,274 932,140
---------- ----------
Official checks outstanding 9,800 27,846
FHLB borrowings 86,101 46,077
Accounts payable and accrued expenses 1,516 1,994
Mortgagors' escrow 11,736 7,804
Other liabilities 5,730 7,391
---------- ----------
Total liabilities 1,119,157 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;
9,176,707 shares issued; 7,669,999 and 8,392,400 shares
outstanding at September 30, 1996 and December 31, 1995,
respectively)(a) 92 69
Paid-in capital in excess of par 114,017 112,111
Retained earnings (substantially restricted) 152,166 140,969
Less: Treasury stock (1,506,708 and 784,455 shares, (41,558) (16,659)
respectively)(a)
Unallocated common stock held by ESOP (16,204) (16,249)
Unearned common stock held by RRPs (1,798) (2,611)
---------- ----------
Total stockholders' equity 206,715 217,630
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,325,872 $1,240,882
========== ==========
</TABLE>
(a) Reflects shares issued as a result of the four-for-three stock split on
August 22, 1996.
See accompanying notes to financial statements.
1
<PAGE> 4
Queens County Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT. 30, SEPT. 30,
(in thousands, except per share data) 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Mortgage and other loans $23,564 $20,100 $67,874 $59,427
Securities held to maturity 1,068 1,238 3,140 3,608
Mortgage-backed securities held to maturity 1,281 1,553 4,064 4,789
Money market investments 80 54 494 294
------- ------- ------- -------
Total interest income 25,993 22,945 75,572 68,118
------- ------- ------- -------
INTEREST EXPENSE:
NOW and money market accounts 497 625 1,551 1,778
Savings accounts 1,690 1,824 5,089 5,518
Certificates of deposit 8,403 7,668 23,643 19,814
FHLB borrowings 987 43 2,606 2,149
Mortgagors' escrow 10 42 25 92
------- ------- ------- -------
Total interest expense 11,587 10,202 32,914 29,351
------- ------- ------- -------
Net interest income 14,406 12,743 42,658 38,767
(Recovery of) provision for loan losses -- -- (2,000) 150
------- ------- ------- -------
Net interest income after (recovery of)
provision for loan losses 14,406 12,743 44,658 38,617
------- ------- ------- -------
OTHER OPERATING INCOME:
Fee income 500 324 1,273 998
Other income 128 88 310 1,554
------- ------- ------- -------
Total other operating income 628 412 1,583 2,552
------- ------- ------- -------
OPERATING EXPENSE:
Compensation and benefits 3,780 3,444 11,311 9,845
Occupancy and equipment 626 617 1,846 1,844
General and administrative 1,249 1,122 3,349 3,341
FDIC insurance premium 1 (51) 2 908
Other 77 55 215 1,600
------- ------- ------- -------
Total operating expense 5,733 5,187 16,723 17,538
------- ------- ------- -------
Income before income taxes 9,301 7,968 29,518 23,631
Income tax expense 3,699 2,753 12,391 8,743
------- ------- ------- -------
NET INCOME $ 5,602 $ 5,215 $17,127 $14,888
======= ======= ======= =======
NET INCOME PER COMMON SHARE(a) $0.78 $0.68 $2.28 $1.90
</TABLE>
(a) Reflects shares issued as a result of the four-for-three stock split on
August 22, 1996.
See accompanying notes to financial statements.
2
<PAGE> 5
Queens County Bancorp, Inc. and Subsidiary
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1996
(in thousands) (unaudited)
- ----------------------------------------------------------------------
<S> <C>
COMMON STOCK (PAR VALUE: $.01):
Balance at beginning of year $ 69
Shares issued 23
--------
Balance at end of period 92
--------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 112,111
Shares issued (23)
Tax benefit effect on stock plans 662
Allocation of ESOP stock 1,267
--------
Balance at end of period 114,017
--------
RETAINED EARNINGS:
Balance at beginning of year 140,969
Net income 17,127
Dividends paid on common stock (4,703)
Exercise of stock options (60,729 shares) (1,227)
--------
Balance at end of period 152,166
--------
TREASURY STOCK:
Balance at beginning of year (16,659)
Purchase of 824,307 shares of Treasury stock (27,898)
Common stock acquired by SERP 1,023
Exercise of stock options (60,729 shares) 1,976
--------
Balance at end of period (41,558)
--------
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 1,068
--------
Balance at end of period (16,204)
--------
RECOGNITION AND RETENTION PLANS:
Balance at beginning of year (2,611)
Earned portion of RRPs 813
--------
Balance at end of period (1,798)
--------
TOTAL STOCKHOLDERS' EQUITY: $206,715
========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 6
Queens County Bancorp, Inc., and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1996 1995
(in thousands) (unaudited)
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 17,127 $ 14,888
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 552 562
(Recovery of) provision for loan losses (2,000) 150
Amortization of premiums (discounts), net 409 (426)
(Accretion) amortization of net deferred loan origination fees (261) 991
Net gain on redemption of securities and mortgage-backed
securities (2) (4)
Net loss (gain) on sale of other real estate owned 2 (20)
Write-off of investment in Nationar -- 349
Provision for Nationar investment losses -- 1,000
Earned portion of RRPs 813 832
Earned portion of ESOP 2,997 1,353
Changes in assets and liabilities:
Decrease (increase) in other assets 2,241 (5,880)
Decrease (increase) in deferred income taxes 794 (274)
Decrease in accounts payable and accrued expenses (478) (1,796)
Decrease in official checks outstanding (18,046) (5,728)
Decrease in other liabilities (1,661) (173)
--------- --------
Total adjustments (14,640) (9,064)
--------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,487 5,824
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of mortgage-backed
securities held to maturity 12,649 10,229
Proceeds from maturity of securities held to maturity 67,000 42,000
Purchase of securities held to maturity (66,893) (43,263)
Net increase in loans (118,425) (16,529)
Proceeds from sale of loans and other real estate owned 781 488
Purchase of premises and equipment, net (1,105) (396)
--------- --------
NET CASH USED IN INVESTING ACTIVITIES (105,993) (7,471)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in mortgagors' escrow 3,932 2,347
Net increase in deposits 72,134 89,787
Net increase (decrease) in FHLB borrowings 40,024 (76,754)
Cash dividends paid and options exercised, net (5,930) (1,131)
Purchase of Treasury stock, net of stock options exercised (25,922) (9,546)
--------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 84,238 4,703
--------- --------
Net (decrease) increase in cash and cash equivalents (19,268) 3,056
Cash and cash equivalents at beginning of period 38,990 11,990
--------- --------
Cash and cash equivalents at end of period $ 19,722 $ 15,046
========= ========
Supplemental information:
Cash paid for:
Interest $ 32,909 $ 29,328
Income taxes 12,481 9,632
Transfers to other real estate owned from loans 184 699
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 nine months
ended September 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 Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standard ("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 a pro forma
disclosure 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.
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
In June 1996, the FASB issued SFAS No.125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. These standards are based
on consistent application of a financial components approach that focuses on
control. Under this approach, after a transfer of financial assets, an entity
recognizes the financial assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996, and is to be applied prospectively. Earlier or
retroactive application is not permitted. There will be no impact from SFAS No.
125 on the Company's financial statements when it becomes effective.
5
<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 the metropolitan New York area.
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, and increased the quarterly cash dividend
to 33-1/3 cents per share on the number of shares held prior to the split.
Shareholders received one additional share for every three shares held at the
close of business on August 22nd, with a total of 2,294,066 shares being issued
pursuant to the split.
In keeping with the Company's goal of enhancing shareholder value, the Company
repurchased 415,723 shares during the third quarter under its Stock Repurchase
Program. These purchases brought the total number of shares repurchased in 1996
to 824,307 (split-adjusted) and the number of shares outstanding to 7,669,999 at
September 30th. In all, the Company has repurchased 1,506,708 shares, net of
exercised options, since adopting its first stock repurchase program. On
November 23, 1996, the Company will reach its third anniversary as a publicly
traded institution; any regulatory restrictions on its ability to buy back
shares will be lifted at that time.
In October 1996, the Bank filed an application to establish another in-market
branch; pending approval, the new branch is expected to open by the end of 1996.
Like the mini-branch that opened in May, this site is located within a popular
24-hour Genovese drug store, and will feature a complete range of banking
services and extended evening hours.
FINANCIAL CONDITION
At September 30, 1996, the Company recorded total assets of $1.3 billion, up
$85.0 million from the level recorded at December 31, 1995. The increase was
primarily fueled by a $119.5 million rise in mortgage loans outstanding to $1.1
billion, representing 83.9% of total assets at period-end.
Multi-family mortgage loans accounted for $785.6 million, or 70.60%, of mortgage
loans outstanding, having grown $144.0 million, or 22.44%, since year-end 1995.
Of the $229.4 million in mortgage loans originated in the first nine months of
the year, $210.7 million, or 91.85%, are secured by multi-family buildings,
including $69.8 million originated in the third quarter of 1996. The balance of
the mortgage loan portfolio consisted of loans secured by one-to-four family
homes (totaling $263.7 million); commercial real estate loans ($62.2 million);
and construction loans ($1.3 million).
Also reflected in total assets at September 30, 1996 were other loans totaling
$12.6 million (down $1.3 million from the year-end 1995 level); mortgage-backed
securities held to maturity ("MBS") totaling $80.2 million (down $12.7 million);
securities held to maturity ("securities") of $77.5 million (down $511,000); and
money market investments of $6.0 million (down $7.6 million).
The Company's third quarter loan production was largely funded by an increase in
deposits, and supplemented by a rise in borrowings from the Federal Home Loan
Bank ("FHLB"). At September 30, 1996, total deposits grew to $1.0 billion from
the year-end 1995 level of $932.1 million, while FHLB borrowings rose to $86.1
million from $46.1 million. The rise in deposits primarily reflects an $85.0
million increase in certificates of deposit ("CDs") to $630.7 million, fostered,
in part, by the expansion of the branch network in May 1996.
6
<PAGE> 9
Stockholders' equity totaled $206.7 million at September 30, 1996, as compared
to $217.6 million at year-end 1995, and represented a split-adjusted book value
of $26.95 per share.
LOANS
Throughout 1996, the Company has deployed the bulk of its funding into the
origination of residential mortgage loans. At September 30th, the mortgage loan
portfolio rose $119.5 million to $1.1 billion, representing a 12.03% increase
from the level recorded at December 31, 1995.
Originations totaled $73.8 million in the current year's third quarter, bringing
the total volume of originations to $229.4 million for the year to date. Of
these, $210.7 million, or 91.85%, were secured by multi-family buildings,
including $69.8 million originated in the third quarter of the year.
Multi-family mortgage loans thus represented $785.6 million, or 70.60%, of
mortgage loans outstanding at September 30th, having grown $144.0 million, or
22.44%, since December 31st. The substantial growth in multi-family mortgage
loans is indicative of management's intent to increase this higher-yield and
higher quality segment of the loan portfolio.
The Company's 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 the majority of the Company's 1996 originations have featured a fixed rate
in the first five years of the loan, half of the multi-family mortgage loan
portfolio features rates that step up annually in each of years two through
five. At September 30, 1996, $90.7 million, $133.4 million, $87.6 million, and
$77.3 million, respectively, in multi-family mortgages were scheduled to reprice
upward over the next four quarters.
In addition to its growing portfolio of mortgage loans secured by multi-family
buildings, the Company maintains a portfolio of other mortgage loans. At
September 30, 1996, one-to-four family mortgage loans totaled $263.7 million,
down $24.8 million from the year-end 1995 level after originations of $7.8
million, including $3.0 million in the third quarter of the year. Commercial
real estate loans rose $206,000 to $62.2 million, reflecting originations of
$10.0 million, and construction loans rose $62,000 to $1.3 million, reflecting
originations of $881,000. Included in the year-to-date amounts for commercial
real estate and construction loan originations are third-quarter originations of
$643,000 and $351,000, respectively.
Looking at the mortgage loan portfolio as a whole, $1.0 billion, or 90.66%, were
adjustable rate credits at the close of September, including $167.6 million,
$174.0 million, $130.5 million, and $136.6 million, respectively, that are
scheduled to reprice over the next four quarters, for a total of $608.7 million.
Included in this amount are the $389.1 million in step-up loans that are due to
reprice upward regardless of the direction of interest rates.
The Company also maintains a small portfolio of other loans, primarily
consisting of loans on individual cooperative units and home equity lines of
credit. At September 30, 1996, other loans totaled $12.6 million (down $1.3
million from the year-end 1995 level), representing a modest 1.12% of loans
outstanding.
ASSET QUALITY
At September 30, 1996, the Company recorded non-performing assets of $9.4
million, representing 0.72% of total assets, as compared to $8.5 million
(representing 0.65%) and $8.6 million (representing 0.69%) at June 30, 1996 and
December 31, 1995, respectively. The current amount reflects non-performing
loans of $8.5 million (as compared to $7.8 million and $7.8 million,
respectively ) and other real estate owned ("ORE") of $972,000 (as compared to
$697,000 and $774,000, respectively, at the prior dates).
Non-performing loans represented 0.77% of loans, net, at the close of September,
and 0.72% and 0.78%, respectively, at June 30, 1996 and December 31, 1995.
Included in non-performing loans at the current quarter's end were 39
non-accrual mortgage loans totaling $6.0 million and 44 loans 90 days or more
delinquent totaling $2.5 million. Of the Company's non-performing loans, one was
secured by a commercial real estate property; the remainder were all secured by
one-to-four family homes in the Company's primary marketplace. ORE consisted of
six one-to-four family homes at the close of September, one of which has since
been sold.
7
<PAGE> 10
Notwithstanding the uptick in non-performing loans as compared to the prior
year-to-date level, the Company experienced its fifth consecutive quarter
without any charge-offs, and thus maintained the allowance for loan losses at
$9.4 million. This was consistent with the level recorded at the close of the
second quarter and down from $11.4 million at December 31, 1995. Despite the
second-quarter recovery and the continued suspension of the provision for loan
losses, the loan loss allowance represented 109.70% of non-performing loans and
0.84% of loans, net, at the current quarter's end. At this level, the allowance
amounted to 625.18% of net accumulated charge-offs during the past ten years.
For additional information, see the Asset Quality Analysis that follows and the
discussion of the loan loss provision on page 14 of this report.
ASSET QUALITY ANALYSIS
<TABLE>
<CAPTION>
At or For the At or For the
Nine Months Ended Year Ended
September 30, December 31,
(dollars in thousands) 1996 1995
- --------------------------------------------------------------------------------------------
<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 $6,056 $4,929
Loans 90 days or more delinquent and still
accruing interest 2,476 2,864
------- -------
Total non-performing loans 8,532 7,793
Other real estate owned 972 774
------- -------
Total non-performing assets $9,504 $8,567
======= =======
RATIOS:
Allowance for loan losses to non-performing loans 109.70% 145.76%
Allowance for loan losses to non-performing assets 98.48 132.59
Allowance for loan losses to loans, net 0.84 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 0.77 0.78
Non-performing assets to total assets 0.72 0.69
</TABLE>
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The steady rise in mortgage loans over the past three quarters has been
paralleled by consistent declines in the balance of MBS.
Reflecting prepayments and the absence of any new investments in such assets,
the balance of MBS dropped $12.7 million from the year-end 1995 level to $80.2
million at September 30, 1996. All of the Company's MBS are held to maturity,
which averaged 2.3 years at period-end.
At September 30, 1996 and December 31, 1995, the market value of the Company's
MBS represented 99.91% and 100.65% of carrying value, respectively.
8
<PAGE> 11
SECURITIES HELD TO MATURITY AND MONEY MARKET INVESTMENTS
At September 30, 1996, the Company recorded securities of $77.5 million, as
compared to $78.0 million at year-end 1995. In keeping with Company policy, all
securities are held to maturity, which averaged 5.9 months at the end of the
current period. It is the Company's current practice to limit securities
investments to short-term U.S. Treasuries and to roll over said securities
upon maturity.
The market value of the Company's securities represented 100.10% of carrying
value at the close of the current quarter, as compared to 100.17% at December
31st.
Money market investments likewise declined at the close of the quarter, to $6.0
million from $13.7 million at year-end 1995.
LIABILITIES
Deposits
The Company succeeded in building its deposit base in the current year's third
quarter, as new customers were attracted to the Bank's two new locations and by
the competitive rates being offered on selected CDs.
Deposits rose $72.1 million to $1.0 billion at the close of the third quarter,
from $932.1 million at December 31st. Included in the 7.74% increase was an
$85.0 million rise in CDs to $630.7 million, and a $170,000 increase in the
balance of non-interest-bearing accounts to $23.0 million. CDs represented
62.80% of total deposits at the close of the quarter, as compared to 58.55 % at
December 31, 1995. While the higher balance of CDs partly represents new
deposits, it also reflects funds transferred by long-term customers out of lower
yielding savings accounts. The constancy of the Bank's customer base is further
revealed in the retention rate for CDs maturing in the twelve months ending
September 30, 1996, which equalled 91.08%. The volume of CDs scheduled to mature
in one year or less from the close of the current quarter was $522.8 million; it
is management's expectation that the majority of funds from maturing CDs will
again roll over with the Bank.
The balance of savings accounts, meanwhile, declined $8.5 million from the
year-end 1995 level to $279.1 million at September 30, 1996. Savings accounts
represented 27.79% of total deposits at the close of the quarter, as compared to
30.85% at year-end 1995, when they totaled $287.6 million. Similarly, the
balance of NOW and money market accounts declined to $71.5 million from $76.0
million at December 31st. The 1996 amount represented 7.12% of total deposits,
as compared to 8.15% at year-end.
Based on the very favorable response to its first Genovese drug store location,
the Bank has filed application to open a second such in-store location before
the end of the year. The new office will feature the full range of services
available at the Bank's more traditional banking offices, as well as extended
evening hours and an ATM.
Borrowings
To supplement the funding provided by the increase in deposits, the Company
increased its utilization of FHLB borrowings. At September 30, 1996, FHLB
borrowings rose to $86.1 million from the $46.1 million recorded at December 31,
1995.
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 managing 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 of
9
<PAGE> 12
the balance sheet, management closely monitors the pricing of its deposits and
has confined its use of FHLB borrowings to times when market conditions are
especially conducive to a high level of loan origination activity.
Despite the rising balance of higher cost CDs and the increased use of FHLB
borrowings to finance loan production, the Company recorded a positive gap of
6.43% between its interest rate sensitive assets and interest rate sensitive
liabilities repricing within a one-year period. 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
At September 30, 1996, the Company recorded stockholders' equity of $206.7
million, as compared to $217.6 million at December 31, 1995. The 1996 amount
represented 15.59% of total assets and a split-adjusted book value of $26.95 per
share.
In the nine months ended September 30, 1996, the Company allocated $27.2 million
towards the open-market repurchase of 824,307 shares (as adjusted for the
4-for-3 stock split) under its Stock Repurchase Program. At quarter's end, an
additional 228,130 shares were still available for repurchase.
Also reflected in stockholders' equity at September 30, 1996 was an $11.2
million increase in retained earnings (net income of $17.1 million less
dividends paid and options exercised of $5.9 million) and $3.8 million relating
to the amortization and appreciation of shares in the Company's stock-related
benefit plans.
The Company's capital strength is further revealed in the Bank's regulatory
capital levels, which are presented in the analysis on page 11 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 totaled $19.7 million, collectively, at
September 30, 1996. Securities, as previously indicated, totaled $77.5 million,
and included $67.1 million in U.S. Treasuries with an average maturity of 5.9
months.
In the nine months ended September 30, 1996, funding for the Company's
investments stemmed primarily from deposits, together with FHLB borrowings.
Additional funding has stemmed from principal and interest payments on loans and
proceeds from maturing MBS and securities. The total amount of funds from these
sources equals approximately $146.0 million over the next twelve months. Besides
its $323.3 million line of credit with the FHLB, the Company maintains a $10.5
million line of credit with the Federal Reserve Bank of New York and a $10.0
million line of credit with a money center bank.
The Bank's cash flows are derived from operating, investing, and financing
activities. In the nine months ended September 30, 1996 and 1995, the net cash
provided by operating activities was $2.5 million and $5.8 million,
respectively. The $3.3 million difference primarily reflects an $18.0 million
decrease in official checks outstanding (versus $5.7 million in the year-earlier
nine-month period), offset by a $2.2 million decrease in other assets (versus a
$5.9 million increase) and by the $2.0 million recovery from the allowance for
loan losses (versus a $150,000 provision in the year-earlier nine months).
The net cash used in investing activities rose to $106.0 million in the current
nine-month period from $7.5 million in the nine months ended September 30, 1995.
The $98.5 million difference primarily stemmed from a $118.4 million increase in
loans outstanding (versus $16.5 million in the year-earlier period), reflecting
the significant level of loan production over the past nine months.
10
<PAGE> 13
The net cash provided by financing activities, meanwhile, rose to $84.2 million
from $4.7 million, primarily reflecting a $40.0 million net increase in FHLB
borrowings (versus a net decline of $76.8 million in the year-earlier period)
and $25.9 million relating to the purchase of Treasury stock (versus $9.5
million).
Capital
The Bank's regulatory capital ratios continued to substantially exceed the
minimum requirements of the Federal Deposit Insurance Corporation ("FDIC") at
September 30, 1996, as indicated in the following analysis:
REGULATORY CAPITAL ANALYSIS (Bank Only)
<TABLE>
<CAPTION>
At September 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 $158,681 12.20% $158,681 21.24% $168,022 22.49%
Regulatory Capital
Requirement 39,027 3.00 29,890 4.00 59,780 8.00
-------- ----- -------- ----- -------- -----
Excess $119,654 9.20% $128,791 17.24% $108,242 14.49%
-------- ----- -------- ----- -------- -----
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET INCOME
The Company recorded net income of $5.6 million, representing a return on
average of assets ("ROA") of 1.72%, in the current year's third quarter, up from
$5.2 million (representing an ROA of 1.78%) in the third quarter of 1995. On a
per-share basis, earnings rose to $0.78 from $0.68, the year-earlier level,
representing an increase of 14.71%.
The higher earnings in 1996 were primarily driven by a $1.7 million increase in
net interest income to $14.4 million, accompanied by a 9-basis point rise in
interest rate spread to 3.84% and a 3-basis point jump in net interest margin to
4.55%. The rise in net interest income reflects, in turn, a $139.9 million
increase in average interest-earning assets to $1.3 billion, accompanied by a
6-basis point rise in the average yield to 8.20%. These improvements exceeded a
$131.0 million increase in average interest-bearing liabilities to $1.1 billion,
which outweighed a 3-basis point drop in the average cost of funds to 4.36%.
The Company's third quarter 1996 earnings also reflect the continued suspension
of the provision for loan losses (initiated in the year-ago third quarter), and
a $216,000 increase in other operating income to $628,000.
These favorable factors combined to exceed a $546,000 increase in operating
expense to $5.7 million and a $900,000 rise in income tax expense to $3.7
million. The higher level of operating expense primarily reflects the
appreciation of shares held in the Company's stock-related benefit plans, which
contributed $479,000 to the $3.8 million in third quarter 1996 compensation and
benefits expense. The higher level of income tax expense reflects a $1.3 million
rise in pre-tax income to $9.3 million.
INTEREST INCOME
The Company recorded interest income of $26.0 million in the current year's
third quarter, up $3.1 million from $22.9 million in the third quarter of 1995.
The 13.28% increase stemmed from a $139.9 million rise in average
interest-earning assets to $1.3 billion, coupled with a 6-basis point rise in
the average yield on said assets to 8.20%.
Mortgage and other loans generated $23.6 million, or 90.66%, of total interest
income, as compared to $20.1 million, or 87.60%, in the year-earlier three
months. The 17.23% rise reflects a $157.3 million, or 16.62%, increase in the
average balance of mortgage and other loans to $1.1 billion, boosted by a
5-basis point increase in the average yield to 8.54%. Average mortgage and other
loans represented 87.12% of average interest-earning assets in the current third
quarter, as compared to 83.97% in the third quarter of 1995.
11
<PAGE> 14
The balance of the increase in third quarter 1996 interest income stemmed from a
$26,000 rise in the interest income derived from money market investments to
$80,000. The modest increase was triggered by a $2.3 million rise in the average
balance of said assets to $6.1 million, offsetting a 38-basis point drop in
their average yield to 5.25%.
MBS provided $1.3 million in interest income, representing 4.93% of total
interest income in the current quarter and a $272,000 decrease from $1.6 million
in the third quarter of 1995. The reduction in interest income derived from MBS
reflects a $16.7 million, or 16.80%, decline in the average balance of said
assets to $82.5 million and a 5-basis point reduction in their average yield to
6.21%. In the third quarter of 1996, MBS accounted for 6.51% of average
interest-earning assets, down from 8.80% in the year-earlier three months.
In the third quarter of 1996, securities were the source of $1.1 million in
interest income, down $170,000 from $1.2 million, the third quarter 1995 amount.
The 13.73% decline reflects a $3.1 million reduction in the average balance to
$74.7 million, together with a 65-basis point decrease in the average yield to
5.72%. Average securities represented 5.89% of average interest-earning assets
in the current quarter, generating 4.11% of interest income in the three-month
period. By comparison, average securities accounted for 6.89% of average
interest-earning assets in the year-ago third quarter, generating 5.40% of total
interest income.
INTEREST EXPENSE
The Company recorded interest expense of $11.6 million in the current year's
third quarter, up $1.4 million from the year-earlier level of $10.2 million. The
13.58% increase stemmed from a $131.0 million rise in average interest-bearing
liabilities to $1.1 billion, substantially offsetting the 3-basis point drop in
the average cost to 4.36%.
CDs accounted for $8.4 million of interest expense in the current third quarter,
rising $735,000 from $7.7 million in the year-earlier three months. The rise in
CD-related interest expense was the net effect of an $89.1 million increase in
their average balance and a 35-basis point reduction in their average cost to
5.36%. CDs represented 59.01% of average interest-bearing liabilities in the
current year's third quarter, up from 57.73% in the third quarter of 1995.
Despite the increasing proportion of average CDs in the current quarter, the
interest expense produced by CDs represented 72.52% of total interest expense,
down from 75.16%, reflecting lower roll-over rates.
The higher level of interest expense also reflects the rise in average FHLB
borrowings, which accounted for $987,000, or 8.52% of total interest expense, in
the current quarter, as compared to $43,000, representing .42% of total interest
expense, in the third quarter of 1995. Average FHLB borrowings rose $64.8
million to $67.5 million in the current third quarter, representing 6.41% of
average interest-bearing liabilities, up from .30%. The higher average balance
of FHLB borrowings was somewhat offset by a 44-basis point drop in the average
cost to 5.80%, reflecting the lower interest rates that prevailed during the
current period.
Savings accounts generated $1.7 million in interest expense in the current third
quarter, down $134,000 from $1.8 million in the third quarter of 1995. The 7.35%
decrease reflects a $10.8 million reduction in the average balance to $281.0
million and a 9-basis point drop in the average cost to 2.39%. Average savings
accounts represented 26.67% of average interest-bearing liabilities and 14.59%
of interest expense in the current third quarter, as compared to 31.62% and
17.88%, respectively, in the third quarter of 1995.
NOW and money market accounts contributed $497,000 to interest expense in the
current third quarter, down $128,000 from $625,000 in the year-earlier three
months. The 20.48% decrease in interest expense reflects an $8.6 million
reduction in the average balance to $72.6 million, coupled with a 34-basis point
drop in the average cost to 2.71%. Average NOW and money market accounts
represented 6.89% of average interest-bearing liabilities in the current
quarter, and accounted for 4.29% of interest expense. In the third quarter of
1995, NOW and money market accounts represented 8.81% of average
interest-bearing liabilities and 6.13% of interest expense.
Mortgagors' escrow generated interest expense of $10,000 in the current third
quarter, as compared to $42,000 in the year-earlier three months. The decrease
stemmed from a $3.5 million reduction in the average balance to $10.7 million
and an 80-basis point reduction in the average yield to .37%.
12
<PAGE> 15
NET INTEREST INCOME ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended September 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 $1,104,247 $ 23,564 8.54% $ 946,916 $20,100 8.49%
Securities held to maturity 74,664 1,068 5.72 77,721 1,238 6.37
Mortgage-backed securities held to maturity 82,527 1,281 6.21 99,194 1,553 6.26
Money market investments 6,092 80 5.25 3,834 54 5.63
---------- -------- ------- ---------- ------- ------
Total interest-earning assets 1,267,530 25,993 8.20% 1,127,665 22,945 8.14%
Non-interest-earning assets 36,963 41,015
---------- ----------
Total assets $1,304,493 $1,168,680
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW and money market accounts $ 72,642 $ 497 2.71% $ 81,259 $ 625 3.05%
Savings accounts 280,998 1,690 2.39 291,780 1,824 2.48
Certificates of deposit 621,767 8,403 5.36 532,673 7,668 5.71
FHLB borrowings 67,538 987 5.80 2,733 43 6.24
Escrow 10,687 10 0.37 14,205 42 1.17
---------- -------- ------- ---------- ------- ------
Total interest-bearing liabilities 1,053,632 11,587 4.36% 922,650 10,202 4.39%
-------- -------
Non-interest-bearing deposits 23,356 21,407
Other liabilities 24,945 17,335
---------- ----------
Total liabilities 1,101,933 961,392
Stockholders' equity 202,560 207,288
---------- ----------
Total liabilities and stockholders' equity $1,304,493 $1,168,680
========== ==========
Net interest income/interest rate spread $14,406 3.84% $12,743 3.75%
======= ====== ======= ======
Net interest-earning assets/net interest margin $213,898 4.55% $205,015 4.52%
========== ====== ========== ======
Ratio of interest-earning assets to interest-
bearing liabilities 120.30% 122.22%
====== ======
</TABLE>
NET INTEREST INCOME
Net interest income is the Company's principal source of earnings; its level is
significantly impacted 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 third quarter of 1996, the Company's net interest income reflected the
benefits of substantial loan production, rising $1.7 million, or 13.05%, to
$14.4 million from the third quarter of 1995. Notwithstanding the increased use
of FHLB borrowings to support originations, the Company's interest rate spread
rose 9 basis points to 3.84% from the year-earlier quarter and its net interest
margin rose 3 basis points to 4.55%.
As compared to the trailing quarter, the Company's net interest income remained
relatively constant, despite the anticipated reductions in its spread and margin
resulting from the increased volume of FHLB borrowings and CDs.
13
<PAGE> 16
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 level of non-performing loans and resultant
charge-offs, both historic and current; local economic conditions; the direction
of real estate values; and current trends in regulatory supervision.
In the third quarter of 1996, the Company continued its suspension of the
provision for loan losses, which was initially discontinued in the third quarter
of 1995. Reflecting five consecutive quarters without any charge-offs, and the
recovery of $2.0 million from the allowance for loan losses in the trailing
quarter, the loan loss allowance totaled $9.4 million at the close of September,
representing 109.70% of non-performing loans and 0.84% of loans, net. At this
level, the allowance for loan losses amounted to 625.18% of the Company's net
accumulated charge-offs over the past decade; annual charge-offs during this
decade averaged $150,000, representing a nominal 0.0002 of average loans
outstanding per year.
For additional information on asset quality and the allowance for loan losses,
see the discussion which begins on page 7 of this report.
OTHER OPERATING INCOME
The rise in third quarter 1996 earnings was also fueled by a $216,000 increase
in other operating income to $628,000, from $412,000 in the year-earlier three
months. The 52.43% increase included a $176,000 rise in fee income to $500,000,
together with a $40,000 increase in other income to $128,000.
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 third quarter of 1996, the Company recorded total operating expense of
$5.7 million, as compared to $5.2 million in the third quarter of 1995. The
$546,000 increase primarily stemmed from a $336,000 rise in compensation and
benefits expense to $3.8 million, including $479,000 related to the appreciation
of shares held in the Company's stock-related benefit plans.
The balance of the increase in total operating expense was distributed among the
remaining components. G&A expense rose $127,000 to $1.2 million, partly
reflecting the network-wide upgrade of the Bank's computer equipment and the
cost of promoting the Bank's new branches in College Point and Auburndale. In
addition, the FDIC insurance premium totaled $1,000 in the current year's third
quarter; in the year-earlier quarter, the FDIC reimbursed the Bank for
overpayment of the insurance premium pursuant to a significant reduction in the
premium rate. Third quarter 1996 operating expense also reflects a modest $9,000
increase in occupancy and equipment expense to $626,000 and a $22,000 increase
in other operating expenses to $77,000.
Despite the increase in operating expense in the current third quarter, the
ratio of operating expense to average assets improved to 1.76% from 1.78%, the
year-earlier level, and the efficiency ratio improved to 38.13% from 39.43%.
The number of full-time equivalent employees was 288 at September 30, 1996.
INCOME TAX EXPENSE
Income tax expense rose to $3.7 million in the current year's third quarter from
$2.8 million in the third quarter of 1995. The increase reflects a $1.3 million
rise in pre-tax income to $9.3 million from $8.0 million.
14
<PAGE> 17
In August 1996, changes to the Federal income tax code for thrifts which had
long been anticipated were finalized by the U.S. Congress and signed into law.
The law eliminated the use of the percentage of income bad debt reserve method
for computing Federal tax bad debt deductions and provided for the recapture of
post-1987 additions to the tax bad debt reserve. The potentially adverse impact
of the Federal law was essentially mitigated with the passage (also in August)
of State legislation which served to de-couple the Federal and New York State
tax codes. The de-coupling enabled the Bank to continue to utilize the existing
method, and obviated the need to recapture post-1987 reserves. While it is
currently unknown whether the New York City tax code will likewise be decoupled,
it is currently anticipated that the Company's effective tax rate will stabilize
at approximately 42% in the fourth quarter of 1996.
COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET INCOME
Earnings rose to $17.1 million (representing a 1.80% ROA) in the current
nine-month period from $14.9 million (representing a 1.70% ROA) in the nine
months ended September 30, 1995. On a per-share basis, earnings rose to $2.28
from $1.90, representing an increase of 20.00%.
The increase in earnings was primarily driven by a 10.04% rise in net interest
income to $42.7 million, from $38.8 million in the year-earlier nine months.
This increase was supported by a 7-basis point improvement in the interest rate
spread to 3.87% and by a 5-basis point improvement in the net interest margin to
4.63%. After the provision for loan losses, net interest income rose $6.0
million, or 15.64%, to $44.7 million. The increase reflects the recovery of $2.0
million from the allowance for loan losses in the current nine-month period, in
contrast to a provision of $150,000 in the first nine months of 1995.
Earnings were further boosted by an $815,000 decrease in operating expense to
$16.7 million, as reductions in the FDIC insurance premium and other operating
expenses combined to offset a $1.5 million increase in compensation and benefits
expense.
These contributing factors more than offset a $969,000 reduction in other
operating income to $1.6 million and a $3.6 million increase in income tax
expense to $12.4 million. The higher level of other operating income in 1995
reflects the Company's recognition of $1.3 million in interest earned on Federal
income tax recoveries, while the higher income tax expense in 1996 reflects a
$5.9 million increase in pre-tax income to $29.5 million.
INTEREST INCOME
In the nine months ended September 30, 1996, the Company recorded interest
income of $75.6 million, up $7.5 million from $68.1 million in the nine months
ended September 30, 1995. The 10.94% increase was due to a $98.9 million rise in
average interest-earning assets to $1.2 billion and to a 16-basis point rise in
the average yield to 8.20%.
Mortgage and other loans accounted for $67.9 million, or 89.81%, of total
interest income, up from $59.4 million, representing 87.24%, in the year-earlier
nine months. The 14.21% increase in interest income stemmed from a $112.3
million, or 11.90%, rise in the average balance of said assets and a 17-basis
point rise in their average yield to 8.57%. Average mortgage and other loans
represented 85.92% of average interest-earning assets in the current nine-month
period, up from 83.51% in the year-earlier nine months.
Money market accounts contributed $494,000 to 1996 interest income, up from
$294,000 in the nine months ended September 30, 1995. The $200,000 increase was
the net result of a $5.9 million rise in the average balance of said assets to
$12.6 million and a 66-basis point reduction in the average yield to 5.23%.
MBS provided $4.1 million in year-to-date interest income, down $725,000 from
$4.8 million in the first nine months of 1995. The reduction reflects a $15.8
million decrease in the average balance to $86.9 million, only modestly offset
by a 2-basis point increase in the average yield to 6.24%. Average MBS
represented 7.07% of average interest-earning assets in the current nine-month
period (as compared to 9.09%, the year-earlier percentage) and provided 5.38% of
interest income (as compared to 7.03% in the year-earlier nine months.)
15
<PAGE> 18
Securities generated $3.1 million, or 4.16% of total interest income, down from
$3.6 million (representing 5.30% of the total) in the year-earlier nine months.
The $468,000 reduction stemmed from a $3.5 million decrease in the average
balance of these assets to $73.5 million, coupled with a 55-basis point decline
in their average yield to 5.70%. Average securities represented 5.98% of average
interest-earning assets in the current period, versus 6.81% in the nine months
ended September 30, 1995.
INTEREST EXPENSE
In the nine months ended September 30, 1996, the Company recorded interest
expense of $32.9 million, up $3.6 million from $29.4 million in the year-earlier
nine months. The 12.14% increase stemmed from an $89.7 million rise in average
interest-bearing liabilities to $1.0 billion, which was accompanied by a 9-basis
point rise in the cost of these funds to 4.33%.
CDs generated $23.6 million in interest expense in the current period, up from
$19.8 million in the nine months ended September 30, 1995. The $3.8 million, or
19.32%, rise reflects a $94.9 million increase in the average balance to $579.9
million, which outweighed a one-basis point drop in the average cost to 5.45%.
Average CDs represented 57.12% of average interest-bearing liabilities in the
current period and generated 71.83% of year-to-date interest expense. In the
nine months ended September 30, 1995, average CDs represented 52.41% of average
interest-bearing liabilities, generating 67.51% of interest expense.
The higher level of interest expense in the current period also reflects a
$457,000 increase in interest expense produced by FHLB borrowings. Specifically,
FHLB borrowings generated $2.6 million, or 7.92% of total interest expense, in
the current nine-month period, up from $2.1 million, representing 7.32%, in the
first nine months of 1995. The 21.27% increase was the net result of a $16.5
million rise in the average balance of FHLB borrowings to $62.4 million, and a
68-basis point decline in the average cost to 5.58%. Average FHLB borrowings
represented 6.15% of average interest-bearing liabilities in the current
nine-month period and 4.96% in the year-earlier nine months.
Savings accounts generated $5.1 million in interest expense, or 15.46% of the
current nine-month total, as compared to $5.5 million, or 18.80% of the total,
in the first nine months of 1995. The $429,000 decline stemmed from a $14.1
million decrease in the average balance to $283.9 million and a 9-basis point
drop in the average cost to 2.39%. Average savings accounts represented 27.96%
of average interest-bearing liabilities in the current period, as compared to
32.19% in the year-earlier nine months.
NOW and money market accounts were the source of $1.6 million in interest
expense, or 4.71% of the year-to-date total, down from $1.8 million, or 6.06% of
the total, in the first nine months of 1995. The $227,000 decline was due to a
$4.2 million reduction in the average balance to $74.4 million, coupled with a
24-basis point drop in the average cost to 2.78%. Average NOW and money market
accounts represented 7.33% and 8.50%, respectively, of average interest-bearing
liabilities in the nine months ended September 30, 1996 and 1995.
The interest expense provided by mortgagors' escrow totaled $25,000 in the
current period, as compared to $92,000 in the first nine months of 1995. The
decrease was due to a $3.4 million decline in the average balance to $14.6
million and a 45-basis point drop in the average cost to .23%.
16
<PAGE> 19
NET INTEREST INCOME ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 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 $1,055,606 $67,874 8.57% $ 943,320 $59,427 8.40%
Securities held to maturity 73,493 3,140 5.70 76,969 3,608 6.25
Mortgage-backed securities held to maturity 86,870 4,064 6.24 102,702 4,789 6.22
Money market investments 12,583 494 5.23 6,657 294 5.89
---------- ------- ------ ---------- ------- ------
Total interest-earning assets 1,228,552 75,572 8.20% 1,129,648 68,118 8.04%
Non-interest-earning assets 39,433 39,419
---------- ----------
Total assets $1,267,985 $1,169,067
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW and money market accounts $ 74,416 $ 1,551 2.78% $ 78,637 $ 1,778 3.02%
Savings accounts 283,892 5,089 2.39 297,943 5,518 2.48
Certificates of deposit 579,928 23,643 5.45 485,075 19,814 5.46
FHLB borrowings 62,431 2,606 5.58 45,898 2,149 6.26
Escrow 14,592 25 0.23 17,990 92 0.68
---------- ------- ------ ---------- ------- ------
Total interest-bearing liabilities 1,015,259 32,914 4.33% 925,543 29,351 4.24%
------- -------
Non-interest-bearing deposits 23,022 19,690
Other liabilities 20,905 17,189
---------- ----------
Total liabilities 1,059,186 962,422
Stockholders' equity 208,799 206,645
---------- ----------
Total liabilities and stockholders' equity $1,267,985 $1,169,067
========== ==========
Net interest income/interest rate spread $42,658 3.87% $38,767 3.80%
======= ====== ======= ======
Net interest-earning assets/net interest margin $213,293 4.63% $204,105 4.58%
========== ====== ========== ======
Ratio of interest-earning assets to interest-
bearing liabilities 121.01% 122.05%
====== ======
</TABLE>
NET INTEREST INCOME
Net interest income rose $3.9 million, or 10.04%, to $42.7 million in the nine
months ended September 30, 1996. The increase reflects the $7.5 million rise in
interest income to $75.6 million, which far exceeded the $3.6 million increase
in interest expense to $32.9 million. In addition, the Company's interest rate
spread improved to 3.87% from 3.80% in the year-earlier nine-month period;
similarly, its net interest margin rose to 4.63% from 4.58%.
PROVISION FOR LOAN LOSSES
The Company's earnings for the nine months ended September 30, 1996 reflects the
second-quarter recovery of $2.0 million from the allowance for loan losses and
the suspension of the provision in the first and third quarters of the year. By
comparison, the Company set aside a modest $150,000 provision for loan losses in
the year-earlier nine-month period, having provided $75,000 for loan losses in
each of the first two quarters of 1995.
For additional information on the provision for loans losses, see the Asset
Quality discussion beginning on page 7 of this report.
17
<PAGE> 20
OTHER OPERATING INCOME
The Company recorded other operating income of $1.6 million in the current
nine-month period, as compared to $2.6 million in the year-earlier nine months.
The higher level in 1995 reflects the Company's recognition of $1.3 million in
interest earned on Federal income tax recoveries in the second quarter. Absent
this non-recurring item, other operating income in the nine months ended
September 30, 1995 would have amounted to $1.3 million.
Fee income, which is typically the primary component of other operating income,
rose to $1.3 million in the current nine-month period from $998,000 in the
year-earlier nine months.
OPERATING EXPENSE
The Company recorded an $815,000 improvement in operating expense in the current
nine-month period, to $16.7 million from $17.5 million in the year-earlier nine
months. The decline was primarily triggered by a $1.4 million reduction in other
operating expenses to $215,000 from $1.6 million, and by a reduction in the FDIC
insurance premium to $2,000 from $908,000.
In 1995, other operating expenses were inflated by a $1.0 million provision for
possible losses relating to the first-quarter seizure of Nationar by the New
York State Banking Department and by a one-time $349,000 charge against earnings
relating to the Bank's original investment in Nationar. It is management's
belief that a portion of the $1.0 million provision for possible losses may yet
be recovered, although the timing of such recovery is currently unknown. The
higher FDIC insurance premium in 1995 reflects the higher rate charged per $100
of deposits; on January 1, 1996, the insurance premium was eliminated entirely
and a nominal assessment applied in its place.
These improvements combined to offset a $1.5 million increase in compensation
and benefits expense to $11.3 million from $9.8 million and more modest
increases in occupancy and equipment expense (up $2,000 to $1.8 million) and G&A
expense (up $8,000 to $3.3 million). The $1.5 million rise in compensation and
benefits expense includes $1.8 million in normal amortization relating to the
Company's ESOP and RRPs, as well as $1.3 million relating to the appreciation of
shares held in these stock-related benefit plans. The combined sum of $3.1
million, when added to $662,000 in related tax benefits, is an enhancement to
capital which, on an annualized basis, equals an additional $0.68 in cash
earnings per share.
As a percentage of average assets, the Company's operating expense improved to
1.76% from 2.00%, the year-earlier level; the Company's efficiency ratio also
improved, to 37.80% from 42.45%.
INCOME TAX EXPENSE
In the nine months ended September 30, 1996, the Company recorded income tax
expense of $12.4 million, up $3.7 million from $8.7 million in the nine months
ended September 30, 1995. The increase reflects a $5.9 million rise in pre-tax
income to $29.5 million from $23.6 million.
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In accordance with the Private Securities Litigation Reform Act of 1995, this
report contains certain forward-looking statements regarding the Company's
financial performance, as well as accompanying cautionary statements identifying
factors which could cause actual results to differ materially from those
anticipated. To facilitate the reader's understanding of the Company's financial
performance, and the factors by which it is influenced, such forward-looking and
accompanying cautionary statements appear within sections of the Management's
Discussion and Analysis to which they specifically pertain.
18
<PAGE> 21
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. On June 27,
1996, 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
included the Company, the individual directors, and the executive officers of
the Bank, Adams Cohen Securities, Inc. and RP Financial, Inc. The complaint
alleged 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 sought 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 Appellate Division, which the Company rebutted. On September 5,
1996, the Appellate Division of the Court upheld the earlier decision to
dismiss the case.
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.
ITEM 5. OTHER INFORMATION
Not applicable.
19
<PAGE> 22
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 was paid 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.
20
<PAGE> 23
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: November 6, 1996 BY: /s/ Joseph R. Ficalora
----------------------
Joseph R. Ficalora
Chairman of the Board,
President, and Chief
Executive Officer
(Duly Authorized Officer)
DATE: November 6, 1996 BY: /s/ Robert Wann
---------------
Robert Wann
Senior Vice President,
Comptroller, and Chief
Financial Officer
(Principal Financial Officer)
21
<PAGE> 1
Reference Number 11
QUEENS COUNTY BANCORP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS(1)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
(in thousands, except per share data) SEPTEMBER 30, SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $5,602 $5,215 $17,127 $14,888
------ ------ ------- -------
Weighted average common shares outstanding 6,713 7,247 7,007 7,427
Common stock equivalents due to dilutive effect
of stock options 514 455 493 407
------ ------ ------- -------
Total weighted average common shares and
common share equivalents outstanding 7,227 7,702 7,500 7,834
====== ====== ======= =======
Earnings per common share and common share
equivalents $0.78 $0.68 $2.28 $1.90
====== ====== ======= =======
Total weighted average common shares and
common share equivalents outstanding 7,227 7,702 7,500 7,834
Additional dilutive shares using ending period
market value versus average market value for
the period when utilizing the treasury stock
method regarding stock options 10 43 31 8
------ ------ ------- -------
Total shares for fully diluted earnings per share 7,237 7,745 7,531 7,834
====== ====== ======= =======
Fully diluted earnings per common share
and common share equivalents $0.77 $0.68 $2.27 $1.90
====== ====== ======= =======
</TABLE>
(1) Reflects shares issued as a result of the four-for-three stock split on
August 22, 1996.
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,722
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 157,721
<INVESTMENTS-MARKET> 157,723
<LOANS> 1,124,065
<ALLOWANCE> 9,359
<TOTAL-ASSETS> 1,325,872
<DEPOSITS> 1,004,274
<SHORT-TERM> 86,101
<LIABILITIES-OTHER> 5,730
<LONG-TERM> 0
0
0
<COMMON> 92
<OTHER-SE> 206,623
<TOTAL-LIABILITIES-AND-EQUITY> 1,325,872
<INTEREST-LOAN> 67,874
<INTEREST-INVEST> 7,204
<INTEREST-OTHER> 494
<INTEREST-TOTAL> 75,572
<INTEREST-DEPOSIT> 30,308
<INTEREST-EXPENSE> 32,914
<INTEREST-INCOME-NET> 42,658
<LOAN-LOSSES> (2,000)
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 15,140
<INCOME-PRETAX> 29,518
<INCOME-PRE-EXTRAORDINARY> 29,518
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,127
<EPS-PRIMARY> 2.28
<EPS-DILUTED> 2.27
<YIELD-ACTUAL> 8.20
<LOANS-NON> 6,056
<LOANS-PAST> 2,476
<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>
