<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 MARCH 31, 1998
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
14,942,511
Number of shares outstanding at
May 11, 1998
<PAGE> 2
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
INDEX PAGE NO.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
Consolidated Statements of Condition as of
March 31, 1998 (unaudited) and December 31, 1997 1
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 1998
and 1997 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1998
(unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 1998 and 1997
(unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 7
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 18
ABOUT MARKET RISK
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 20
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 21
EXHIBITS 22
</TABLE>
<PAGE> 3
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
(unaudited)
---------- ----------
<S> <C> <C>
Assets
Cash and due from banks $ 20,309 $ 16,733
Money market investments 8,000 6,000
Securities held to maturity (estimated market value of
$102,106 and $95,067, respectively) 102,321 94,936
Mortgage-backed securities held to maturity (estimated market
value of $46,903 and $50,619, respectively) 46,088 49,781
Securities available for sale 3,717 2,617
Mortgage loans:
1-4 family 212,033 224,287
Multi-family 1,129,458 1,107,374
Commercial real estate 61,405 61,740
Construction 1,341 1,538
---------- ----------
Total mortgage loans 1,404,237 1,394,939
Other loans 10,558 10,795
Less: Unearned loan fees (981) (1,300)
Allowance for loan losses (9,431) (9,431)
---------- ----------
Loans, net 1,404,383 1,395,003
Premises and equipment, net 10,607 10,782
Deferred tax asset, net 5,011 5,514
Other assets 22,031 21,903
---------- ----------
Total assets $1,622,467 $1,603,269
========== ==========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 70,541 $ 67,894
Savings accounts 270,270 268,133
Certificates of deposit 676,902 703,948
Non-interest-bearing accounts 30,375 29,186
---------- ----------
Total deposits 1,048,088 1,069,161
---------- ----------
Official checks outstanding 19,077 29,440
FHLB borrowings 351,721 309,664
Accounts payable and accrued expenses 2,125 1,857
Mortgagors' escrow 23,064 10,690
Other liabilities 8,899 11,942
---------- ----------
Total liabilities 1,452,974 1,432,754
---------- ----------
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; 20,647,233 shares issued;
14,921,967 and 14,912,791 shares outstanding
at March 31, 1998 and December 31, 1997, respectively) 206 206
Paid-in capital in excess of par 129,429 125,000
Retained earnings (substantially restricted) 162,828 166,230
Less: Treasury stock (5,725,266 and 5,734,442 shares,
respectively) (106,266) (104,148)
Unallocated common stock held by ESOP (13,336) (13,526)
Common stock held by SERP (2,867) (2,492)
Unearned common stock held by RRPs (627) (812)
Net unrealized appreciation in securities, net of tax 126 57
---------- ----------
Total stockholders' equity 169,493 170,515
---------- ----------
Total liabilities and stockholders' equity $1,622,467 $1,603,269
========== ==========
</TABLE>
See accompanying notes to financial statements
1
<PAGE> 4
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
FOR THE
THREE MONTHS ENDED
MARCH 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
INTEREST INCOME:
Mortgage and other loans $30,007 $24,789
Securities held to maturity 1,605 1,164
Mortgage-backed securities held to maturity 753 1,092
Money market investments 116 60
------- -------
Total interest income 32,481 27,105
------- -------
INTEREST EXPENSE:
NOW and money market accounts 519 470
Savings accounts 1,576 1,633
Certificates of deposit 9,112 8,618
FHLB borrowings 4,725 1,187
Mortgagors' escrow 18 10
------- -------
Total interest expense 15,950 11,918
------- -------
Net interest income 16,531 15,187
Provision for loan losses -- --
------- -------
Net interest income after
provision for loan losses 16,531 15,187
------- -------
OTHER OPERATING INCOME:
Fee income 405 279
Other 152 25
------- -------
Total other operating income 557 304
------- -------
OPERATING EXPENSE:
Compensation and benefits(1) 4,714 4,548
Occupancy and equipment 672 669
General and administrative 1,164 1,139
Other 122 156
------- -------
Total operating expense 6,672 6,512
------- -------
Income before income taxes 10,416 8,979
Income tax expense (2) 4,161 1,847(3)
------- -------
NET INCOME 6,255 7,132
------- -------
Other comprehensive income, net of tax:
Unrealized gain on securities 69 --
------- -------
Comprehensive income $ 6,324 $ 7,132
======= =======
EARNINGS PER SHARE $0.49 $0.48(3,4)
DILUTED EARNINGS PER SHARE $0.46 $0.45(3,4)
</TABLE>
(1) Includes non-cash items of $1.668 million and $1.589 million, respectively.
(2) Includes non-cash items of $3.136 million and $416,000, respectively.
(3) Includes the recapture of a $1.3 million tax benefit.
(4) Reflects shares issued as a result of the 3-for-2 stock splits on April
10, 1997 and October 1, 1997.
See accompanying notes to financial statements
2
<PAGE> 5
QUEENS COUNTY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998
(IN THOUSANDS) (UNAUDITED)
- ----------------------------------------------------------------------
<S> <C>
COMMON STOCK (PAR VALUE: $0.01):
Balance at beginning of year $ 206
Shares issued --
---------
Balance at end of period 206
---------
PAID-IN CAPITAL IN EXCESS OF PAR:
Balance at beginning of year 125,000
Tax benefit effect on stock plans 3,136
Common stock acquired by SERP 375
Allocation of ESOP stock 918
---------
Balance at end of period 129,429
---------
RETAINED EARNINGS:
Balance at beginning of year 166,230
Net income 6,255
Dividends paid on common stock (2,577)
Exercise of stock options (541,292 shares) (7,080)
---------
Balance at end of period 162,828
---------
TREASURY STOCK:
Balance at beginning of year (104,148)
Purchase of common stock (271,721 shares) (10,190)
Common stock acquired by SERP 375
Exercise of stock options (541,292 shares) 7,697
---------
Balance at end of period (106,266)
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of year (13,526)
Allocation of ESOP stock 190
---------
Balance at end of period (13,336)
---------
SERP PLAN:
Balance at beginning of year (2,492)
Common stock acquired by SERP (375)
---------
Balance at end of period (2,867)
---------
RECOGNITION AND RETENTION PLANS:
Balance at beginning of year (812)
Earned portion of RRPs 185
---------
Balance at end of period (627)
---------
NET UNREALIZED APPRECIATION IN SECURITIES,
NET OF TAX:
Balance at beginning of year 57
Net unrealized appreciation in securities,
net of tax 69
---------
Balance at end of year 126
---------
TOTAL STOCKHOLDERS' EQUITY $169,493
=========
</TABLE>
See accompanying notes to financial statements
<PAGE> 6
QUEENS COUNTY BANCORP, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands) 1998 1997
(unaudited)
_______________________________________________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,255 $ 7,132
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 240 231
Amortization of premiums, net 37 80
Amortization of net deferred loan origination fees 319 113
Net gain on redemption of securities and mortgage-backed securities (80) (1)
Net gain on sale of foreclosed real estate (36) (1)
Tax benefit effect on stock plans 3,136 416
Earned portion of RRPs 185 158
Earned portion of ESOP 1,108 1,133
Changes in assets and liabilities:
Decrease (increase) in deferred income taxes 503 (2,247)
Increase in other assets (128) (1,855)
Increase in accounts payable and accrued expenses 268 927
Decrease in official checks outstanding (10,363) (15,800)
(Decrease) increase in other liabilities (3,043) 1,052
-------- --------
Total adjustments (7,854) (15,794)
-------- --------
Net cash used in operating activities (1,599) (8,662)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from redemption of mortgage-backed securities held to maturity 16,947 15,505
Proceeds from maturity of securities held to maturity 14,000 16,000
Purchase of securities held to maturity (34,597) (17,258)
Purchase of securities available for sale (971) --
Net increase in loans (16,505) (26,771)
Proceeds from sale of loans and foreclosed real estate 7,161 391
Purchase of premises and equipment, net (65) (295)
-------- --------
Net cash used in investing activities (14,030) (12,428)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in mortgagors' escrow 12,374 10,867
Net decrease in deposits (21,073) (1,327)
Net increase in FHLB borrowings 42,057 24,631
Cash dividends paid and options exercised, net (10,035) (2,684)
Purchase of Treasury stock, net of stock options exercised
and shares acquired by SERP (2,118) (11,866)
-------- --------
Net cash provided by financing activities 21,205 19,621
-------- --------
Net decrease in cash and cash equivalents 5,576 (1,469)
Cash and cash equivalents at beginning of period 22,733 21,045
-------- --------
Cash and cash equivalents at end of period $ 28,309 $ 19,576
======== ========
Supplemental information:
Cash paid for:
Interest $ 15,883 $ 11,903
Income taxes 309 2,417
Transfers to foreclosed real estate from loans 772 --
Transfers to real estate held for investment from foreclosed real estate 408 --
</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 Savings 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 months ended
March 31, 1998 are not necessarily indicative of the results of operations that
may be expected for all of 1998.
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 1997 Annual Report to Shareholders and SEC Form 10-K.
NOTE 2. IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 established
standards for the way an enterprise reports information about operating segments
in annual financial statements and requires that enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 requires that a public business enterprise report
both financial and descriptive information about its reportable operating
segments.
Operating segments are components of an enterprise about which separate
financial information is available and that are evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 requires a reconciliation of total segment revenues,
total segment profit or loss, total segment assets, and other amounts disclosed
for segments to the amounts in the enterprise's financial statements. SFAS No.
131 also requires an enterprise to report descriptive information about the way
the operating segments are determined, the products and services provided by the
operating segments, and any differences between the measurements used for
segment reporting and financial statement reporting. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997, with comparative information
for earlier years to be restated in the initial year of application. Management
is currently assessing the financial implication of implementing SFAS No. 131
and believes that its adoption will not have a material adverse effect on the
Company.
5
<PAGE> 8
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POST-RETIREMENT BENEFITS
In February 1998, the FASB established SFAS No. 132, "Employers' Disclosures
about Pensions and Other Post-retirement Benefits." This statement revises
employers' disclosures about pension and other post-retirement benefit plans; it
does not change the measurement or recognition of those plans. The statement
standardizes the disclosure requirements for pensions and other post-retirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures that are no longer
useful.
SFAS No. 132 is effective for fiscal years beginning after December 15, 1997.
The Company is currently evaluating the effect of SFAS No. 132 upon its
financial statements.
6
<PAGE> 9
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
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.
On April 21, 1998, the Board of Directors declared a 25 cents per share
dividend, up 25% from the 20 cents per share paid in the first quarter of the
year. The dividend will be payable on May 15, 1998 to shareholders of record at
the close of business on May 1st.
BALANCE SHEET SUMMARY
At March 31, 1998, the Company recorded total assets of $1.6 billion, up $19.2
million from the December 31, 1997 amount. The increase stemmed from a $9.3
million rise in mortgage loans outstanding to $1.4 billion, together with a $7.4
million increase in securities held to maturity to $102.3 million, a $2.0
million increase in money market investments to $8.0 million, and a $1.1 million
increase in securities available for sale to $3.7 million. These increases
offset a $3.7 million reduction in mortgage-backed securities held to maturity
to $46.1 million and a $237,000 drop in other loans to $10.6 million.
The growth in mortgage loans stemmed from a $22.1 million rise in multi-family
mortgage loans outstanding to $1.1 billion, representing 80.4% of the total
mortgage loan portfolio at the current quarter's end. The increase in
multi-family mortgage loans was offset by declines in the portfolios of
one-to-four family, commercial real estate, and construction loans, consistent
with the Company's experience since 1995. First quarter mortgage originations
totaled $99.4 million, including $94.9 million in loans secured by multi-family
buildings; of these, $7.1 million were sold with servicing rights retained.
The quality of the Company's assets remained solid, with no net charge-offs
being recorded for the eleventh consecutive quarter, and the level of
non-performing loans declining to $7.1 million, or 0.50% of loans, net, at March
31, 1998, from $7.7 million, or 0.55% of loans, net, at December 31, 1997.
Non-performing assets totaled $8.9 million, or 0.55% of total assets, as
compared to $8.7 million, or 0.54%, at year-end 1997, the net effect of the
$629,000 decline in non-performing loans and a $772,000 increase in foreclosed
real estate to $1.8 million. The allowance for loan losses totaled $9.4 million,
consistent with the December 31, 1997 level, representing 133.53% of
non-performing loans and 0.67% of loans, net.
Deposits totaled $1.0 billion at March 31, 1998, down $21.1 million from the
year-end 1997 amount. The decrease reflects a $27.0 million decline in the
balance of certificates of deposit ("CDs") to $676.9 million, offset by higher
balances in the Company's lower-cost depository accounts. Specifically, savings
accounts grew $2.1 million to $270.3 million at the close of the current first
quarter, while NOW and money market accounts grew $2.6 million to $70.5 million
and non-interest-bearing accounts grew $1.2 million to $30.4 million. Additional
funding was derived from the Company's Federal Home Loan Bank of New York
("FHLB") line of credit; FHLB borrowings totaled $351.7 million at March 31,
1998, up from $309.7 million at December 31, 1997.
7
<PAGE> 10
Stockholders' equity totaled $169.5 million at the close of the current first
quarter, representing 10.10% of total assets and a book value of $13.11 per
share, based on 12,928,941 shares. At year-end 1997, stockholders' equity
totaled $170.5 million, representing 10.64% of total assets and a book value of
$13.23 per share, based on 12,891,389 shares. Reflected in the 1998 amount is
the allocation of $10.2 million toward the repurchase of 271,721 shares over the
course of the quarter, as well as cash earnings of $11.5 million less dividends
paid of $3.0 million.
At March 31, 1998, both the Company and the Bank continued to exceed the minimum
regulatory capital requirements set forth by the Federal government.
LOANS
At March 31, 1998, the Company recorded mortgage loans of $1.4 billion, up $9.3
million from the level at December 31, 1997. The increase stemmed from a $22.1
million rise in multi-family mortgage loans to $1.1 billion, offset by declines
of $12.3 million, $335,000, and $197,000, respectively, in the portfolios of
one-to-four family, commercial real estate, and construction loans to $212.0
million, $61.4 million, and $1.3 million.
Heightened competition and the flattened yield curve notwithstanding, first
quarter 1998 mortgage originations totaled $99.4 million, as compared to $59.3
million in the first quarter of 1997. Included in the 1998 amount were
multi-family mortgage loan originations of $94.9 million, representing 95.9% of
total mortgage originations year-to-date. In the first quarter of 1997, the
Company originated $53.5 million in multi-family mortgage loans.
Since 1996, the majority of the Company's multi-family mortgage loan
originations have featured a fixed rate of interest in the first five years of
the mortgage and an adjustable rate of interest in each of years six through
ten. Prior to 1996, the majority of the Company's multi-family mortgage
originations featured an annual rate increase of 50 basis points in the first
five years of the mortgage, regardless of the direction of market interest
rates. At March 31, 1998, $306.6 million, or 28.2%, of the multi-family
portfolio consisted of loans that feature this step-up rate of interest, with
$67.2 million, $47.4 million, $94.7 million, and $97.3 million due to reprice
upward, respectively, over the next four quarters.
While the current rate environment has intensified the competition for product,
the Company entered the second quarter of 1998 with $110 million in mortgage
loans in the pipeline. However, the Company's ability to close these loans, and
its desire to produce a volume of loans consistent with prior-year levels going
forward, may be adversely impacted by the rate environment and by increased
competition from other area banks.
In addition to mortgage loans, the Company originates a modest volume of
consumer loans, recorded as "other loans" on the balance sheet. At March 31,
1998, the portfolio of other loans totaled $10.6 million, down from $10.8
million at December 31, 1997.
ASSET QUALITY
The integrity of the Company's loan portfolio was maintained in the current
first quarter, with no net charge-offs being recorded for the eleventh
consecutive quarter, and the level of non-performing loans declining $629,000
from the level at year-end 1997. Specifically, non-performing loans decreased to
$7.1 million, or 0.50% of loans, net, at March 31, 1998, from $7.7 million, or
0.55% of loans, net, at December 31st. The decrease was the net effect of an
$816,000 reduction in mortgage loans in foreclosure to $5.3 million, consisting
of 37 properties, and a $187,000 rise in loans 90 days or more delinquent to
$1.8 million, consisting of 25 properties.
8
<PAGE> 11
Foreclosed real estate, comprised of one commercial real estate parcel and six
residential properties, totaled $1.8 million, up from $1.0 million at December
31, 1997. As a result, non-performing assets totaled $8.9 million at the close
of the current first quarter, representing 0.55% of total assets, as compared to
$8.7 million, or 0.54% of total assets, at year-end 1997. The Company's
multi-family mortgage loans continued to be fully performing at March 31, 1998.
The Company also has certain real estate investments which are included in
"other assets" on the balance sheet and which consisted of 16 properties
totaling $1.9 million at March 31, 1998. Each of the properties has been
profitably rented; the portfolio is currently providing a 7.8% rate of return.
In the absence of any net charge-offs and any provision for loan losses, the
allowance for loan losses totaled $9.4 million at March 31, 1998, consistent
with the level at December 31st. The $9.4 million was equivalent to 133.53% of
non-performing loans and 0.67% of loans, net, at the close of the current first
quarter, and 661.36% of accumulated net charge-offs for the eleven years ended
March 31, 1998.
For additional information, see the Asset Quality Analysis that follows and the
discussion of the loan loss provision on page 17 of this report.
<TABLE>
<CAPTION>
ASSET QUALITY ANALYSIS
At or for the At or for the
Three Months Ended Three Months Ended
March 31, December 31,
1998 1997
(dollars in thousands) (unaudited)
- --------------------------------------------------------------------------------
<S> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period $ 9,431 $ 9,359
Loan charge-offs - -
Loan recoveries - 72
------- -------
Net recoveries - 72
------- -------
Provision for loan losses $ 9,431 $ 9,431
======= =======
NON-PERFORMING ASSETS AT PERIOD-END:
Mortgage loans in foreclosure 5,305 6,121
Loans 90 days or more delinquent 1,758 1,571
------- -------
Total non-performing loans 7,063 7,692
Foreclosed real estate 1,802 1,030
------- -------
Total non-performing assets $ 8,865 $ 8,722
======= =======
RATIOS:
Non-performing loans to loans,net 0.50% 0.55%
Non-performing assets to total assets 0.55 0.54
Allowance for loan losses to
non-performing loans 133.53 122.61
Allowance for loan losses to loans, net 0.67 0.68
Allowance for loan losses to net accumulated
charge-offs for the past 11 years 661.36 661.36
</TABLE>
9
<PAGE> 12
SECURITIES HELD TO MATURITY, SECURITIES AVAILABLE FOR SALE, AND MONEY MARKET
INVESTMENTS
To supplement its investments in mortgage loan originations, the Company also
invests in short-term securities in the form of U.S Government agency
obligations and Treasuries, all of which are held to maturity. In addition, the
Company maintains a portfolio of money market investments, and has recently
started investing in equity securities, which are classified as "available for
sale."
At March 31, 1998, the portfolio of securities held to maturity rose to $102.3
million, from $94.9 million at December 31, 1997. Included in the 1998 amount
were U.S. government agency obligations of $77.3 million (as compared to $64.0
million, the year-end 1997 level) and U.S. Treasuries of $7.0 million (as
compared to $14.3 million at year-end); the balance primarily consisted of FHLB
stock. The average maturity of the portfolio at March 31, 1998 was 1.2 years,
comparable to the average at December 31st. The market values of securities held
to maturity were $102.1 million and $95.1 million, at March 31, 1998 and
December 31, 1997, representing 99.8% and 100.1% of carrying value at the
respective dates.
In the fourth quarter of 1997, the Company began to invest selectively in
certain equity securities, and continued to do so in the first quarter of 1998.
At March 31st, securities available for sale totaled $3.7 million, up $1.1
million from the level recorded at year-end 1997.
The Company's portfolio of money market investments also increased in the first
quarter, totaling $8.0 million at March 31, 1998, up from $6.0 million at
December 31, 1997.
MORTGAGE-BACKED SECURITIES HELD TO MATURITY
Reflecting prepayments and the absence of any new investments since 1994's first
quarter, the portfolio of mortgage-backed securities held to maturity declined
to $46.1 million at March 31, 1998 from $49.8 million at December 31, 1997. The
Company classifies all mortgage-backed securities as "held to maturity;" the
average maturity of the portfolio was 2.1 years at the current first quarter's
end.
At March 31, 1998 and December 31, 1997, the market values of the Company's
mortgage-backed securities were $46.9 million and $50.6 million, representing
101.8% and 101.7% of carrying value at the respective dates.
SOURCES OF FUNDS
The Company's funding is primarily derived from the deposits its gathers,
together with loan interest and principal payments, and the interest and
maturity of securities investments. In the past two years, the Company has
increasingly drawn on its FHLB line of credit to fund the growth in mortgage
loans outstanding. At March 31, 1998, the Company's FHLB line of credit totaled
$486.7 million; borrowings at that date amounted to $351.7 million, exceeding
the year-end 1997 level by $42.1 million.
Deposits totaled $1.0 billion at the close of the current first quarter, down
$21.1 million from the level recorded at December 31st. Included in the March
31st amount were CDs of $676.9 million, representing 64.6% of total deposits,
down from $703.9 million, which represented 65.8% of total deposits at year-end.
At March 31, 1998, the volume of CDs due to mature within one year of said date
was $528.4 million; the percentage of maturing CDs rolling over with the Bank in
the twelve months ended March 31, 1998 was 86.8%.
10
<PAGE> 13
The drop in CDs was paralleled by an increase in the balances of the Company's
shorter-term depository products, a reflection of both the current rate
environment and of management's pricing strategy. Savings accounts rose $2.1
million to $270.3 million, representing 25.8% of total deposits, as compared to
25.1% at December 31st. NOW and money market accounts rose $2.6 million to $70.5
million, representing 6.7% of total deposits, as compared to 6.4% at the
trailing quarter-end. In addition, the Company continued to experience an
increase in non-interest-bearing deposits, which rose $1.2 million to $30.4
million from the year-end 1997 amount.
To enhance its funding, two initiatives were commenced by the Company in the
first quarter of 1998. One was the development of a "Mobile Teller" program in
cooperation with Queens College in Fresh Meadows. Under this program, a branch
manager and customer service representative will visit the College on a regular
basis, opening new accounts and answering students' questions about their
financial needs. The Bank also plans to install an ATM at the College and
anticipates processing approximately 5,000 transactions per month, thus boosting
other operating income. In the second initiative, the Company was negotiating to
acquire $40 million in deposits from a local institution. As of this date, such
negotiations have been discontinued.
INTEREST RATE SENSITIVITY
Given the extent to which changes in market interest rates may influence net
interest income, one of management's primary objectives is matching the interest
rate sensitivity of the Company's assets and liabilities in order to manage its
interest rate risk.
In order to enhance this match, management has traditionally emphasized the
origination of adjustable rate mortgage loans on multi-family buildings and
one-to-four family houses, and has generally confined its other investments to
short-term securities. On the liability side of the balance sheet, management
closely monitors the pricing of its depository products and has limited its use
of FHLB borrowings except when market conditions have been especially conducive
to mortgage loan production.
While a significant portion of the loan portfolio still features annual rate
adjustments, the majority of multi-family mortgage originations since 1996, as
previously stated, have featured a fixed rate of interest for the first five
years of the loan. At the same time, the Company has increasingly utilized
higher cost CDs and FHLB borrowings as its primary sources of funding. As a
result, the Company's cumulative gap between the Company's interest rate
sensitive assets and interest rate sensitive liabilities repricing within a one-
year period was a negative 15.31% at March 31, 1998. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. Thus, more interest rate sensitive
liabilities than interest rate sensitive assets will be subject to repricing as
a result of changes in market interest rates.
LIQUIDITY AND CAPITAL POSITION
LIQUIDITY
To ensure that its liquid resources are sufficient to fund its operations and
obligations, the Company maintains a portfolio of liquid money market
investments and another of short-term securities held to maturity. These
portfolios were supplemented by the classification of another $3.7 million in
securities as available for sale at March 31, 1998.
11
<PAGE> 14
Money market investments, together with cash and due from banks, are the
Company's most liquid assets, with a collective total of $28.3 million and $22.7
million, respectively, at March 31, 1998 and December 31, 1997. Securities held
to maturity totaled $102.3 million at March 31st, up from the year-end $94.9
million, and included U.S. government agency obligations of $77.3 million and
U.S. Treasuries of $7.0 million.
Funding for the Company's investments stemmed primarily from FHLB advances; at
March 31, 1998, the available line of credit totaled $486.7 million; additional
funds were available from 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 three months ended March 31, 1998 and 1997, the net cash used
in operating activities respectively totaled $1.6 million and $8.7 million. The
$7.1 million difference stemmed from a combination of factors, including a
$503,000 decrease in deferred income taxes versus a $2.2 million increase in the
year-earlier quarter; a $128,000 increase in other assets versus a $1.9 million
increase; a $10.4 million decrease in official checks outstanding versus a $15.8
million decrease; and a $3.0 million decrease in other liabilities versus a $1.1
million increase. In addition, the tax benefit effect on stock-related benefit
plans grew to $3.1 million in 1998's first quarter from the year-earlier
$416,000, reflecting the exercise of 541,292 stock options during the current
three-month period.
The net cash used in investing activities rose to $14.0 million from $12.4
million, reflecting a $17.4 million increase in funds used to purchase
securities held to maturity to $34.6 million, offsetting a $10.3 million
reduction in the net increase in loans to $16.5 million. In addition, the $1.6
million rise in net cash used in investing activities reflects a $6.8 million
increase in proceeds from the sale of loans and foreclosed real estate to $7.2
million from the year-earlier $391,000; a $1.4 million increase in proceeds from
redemptions of mortgage-backed securities to $16.9 million from $15.5 million;
and a $2.0 million decline in proceeds from maturities of securities to $14.0
million from $16.0 million. Furthermore, the Company allocated $971,000 for the
purchase of securities available for sale in the current year's first quarter;
no such securities were purchased in the first quarter of 1997.
The net cash provided by financing activities rose to $21.2 million from the
year-earlier $19.6 million, as the increase in FHLB borrowings rose $17.4
million to $42.1 million, and the net decrease in deposits rose $19.7 million to
$21.1 million. In addition, cash dividends paid and options exercised rose $7.4
million to $10.0 million, while funds used to purchase Treasury stock, net of
options exercised and shares acquired by the Company's SERP, dropped $9.7
million to $2.1 million.
CAPITAL
Stockholders' equity totaled $169.5 million at March 31, 1998, representing
10.10% of total assets and a book value of $13.11 per share, based on 12,928,941
shares, the number of shares outstanding less unallocated ESOP shares. At
December 31, 1997, stockholders' equity totaled $170.5 million, representing
10.64% of total assets and a book value of $13.23 per share, based on 12,891,389
shares.
The $1.0 million difference reflects the allocation of $10.2 million toward the
repurchase of 271,721 shares in the current first quarter, leaving 473,690
shares available for repurchase at March 31, 1998. The exercise of 541,292
options resulted in the net issuance of 280,895 shares of common stock in the
first three months of 1998. Also reflected in stockholders' equity at March 31st
are cash earnings of $11.5 million ($6.3 million in net income plus $5.2 million
in non-cash items that were added back to capital), less dividends paid of $3.0
million.
12
<PAGE> 15
The Company's capital strength is further reflected in the excess of its
regulatory capital ratios, on a consolidated basis, over the minimum levels
required by the Federal Reserve Board. In addition, the Bank continued to exceed
the requirements for classification as a well capitalized institution which, as
defined by FDICIA, has a ratio of leverage capital to adjusted total assets of
5.00% or more; a ratio of Tier 1 risk-based capital to risk-weighted assets of
6.00% or more; and a ratio of total risk-based capital to risk-weighted assets
of 10.0% or more. The Bank's leverage capital amounted to $155.0 million, or
9.68% of adjusted average assets, at March 31, 1998, while its Tier 1 and total
risk-based capital amounted to $155.0 million and $164.4 million, representing
15.03% and 15.94% of risk-weighted assets, respectively. The minimum Federal
requirements for leverage, Tier 1 risk-based, and total risk-based capital are,
respectively, 3.00%, 4.00%, and 8.00%.
REGULATORY CAPITAL ANALYSIS (BANK ONLY)
<TABLE>
<CAPTION>
At March 31, 1998
-----------------
Risk-Based Capital
------------------
Leverage Capital Tier 1 Total
---------------- ------ -----
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total savings bank equity $154,977 9.68% $154,944 15.03% $164,408 15.94%
Regulatory capital requirement 48,038 3.00 41,246 4.00 82,492 8.00
-------- ---- -------- ----- -------- -----
Excess $106,939 6.68% $113,698 11.03% $ 81,916 7.94%
======== ==== ======== ===== ======== =====
</TABLE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
NET INCOME
The Company recorded first quarter 1998 earnings of $6.3 million, or $0.49 per
share, as compared to $5.8 million, or $0.39 per share, in the first quarter of
1997. Diluted earnings per share were $0.46 in the current year's first quarter,
up 24.3% from $0.37 in the year-earlier three months. The 1997 amounts have been
adjusted to exclude the recapture of $1.3 million that had been recorded in the
first quarter of 1997 as a tax-related benefit.
The Company's cash earnings rose $3.4 million, or 41.8%, to $11.5 million in
1998's first quarter, from $8.1 million in the year-earlier three months. On a
per share basis, the Company's first quarter 1998 cash earnings rose 64.8% to
$0.89 from $0.54 in the first quarter of 1997. Diluted, the Company's first
quarter 1998 cash earnings rose 64.7% to $0.84 per share from $0.51 per share.
In addition, the Company's first quarter 1998 cash earnings represented a return
on average assets of 2.86% and a cash return on average stockholders' equity of
28.33%.
The growth in first quarter 1998 earnings stemmed from higher levels of net
interest income and other operating income, offsetting a modest increase in
operating expense and a less modest increase in income tax expense.
13
<PAGE> 16
Net interest income rose $1.3 million to $16.5 million, the net result of a $5.4
million increase in interest income to $32.5 million, and a $4.1 million
increase in interest expense to $16.0 million. While higher funding costs
pressured the Company's interest rate spread and combined with the allocation of
$10.2 million toward share repurchases to compress its net interest margin, the
higher average balance of interest-earning assets was sufficient to generate the
8.8% increase in net interest income during the current three-month period. The
Company's interest rate spread was 3.65% and 3.87%, respectively, in the first
quarter of 1998 and 1997; its net interest margin was 4.24% and 4.64%.
In addition to the $1.3 million rise in net interest income, first quarter 1998
earnings were fueled by a $253,000 increase in other operating income to
$557,000, reflecting a $126,000 increase in fee income to $405,000 and a
$127,000 increase in other income to $152,000.
At the same time, operating expense rose a modest $160,000 to $6.7 million,
reflecting the Company's efforts to contain such expense. The increase primarily
stemmed from a $79,000 rise in non-cash items to $1.7 million, reflecting both
the appreciation of shares held in the Company's stock-related benefit plans and
the extension of the ESOP loan amortization period from 20 to 30 years. The
Company's efficiency ratio improved to 39.04% from 42.04% in the year-earlier
quarter, while its cash efficiency ratio improved to 29.28% from 30.19%.
Income tax expense totaled $4.2 million and $1.8 million, respectively, in the
first quarters of 1998 and 1997, and included $3.1 million and $416,000,
respectively, in non-cash items associated with the Company's stock-related
benefit plans. In addition, income tax expense for the first quarter of 1997 was
reduced by the recapture of a $1.3 million benefit pursuant to the enactment of
legislation that resulted in a change in the New York City tax code during said
period.
INTEREST INCOME
The Company derives interest income from its portfolio of interest-earning
assets, primarily comprised of mortgage and other loans. The balance of the
Company's interest-earning assets consists of securities held to maturity,
mortgage-backed securities, and money market investments.
The Company recorded interest income of $32.5 million in the first quarter of
1998, up $5.4 million from $27.1 million in the first quarter of the prior year.
The 19.8% increase largely reflects a $5.2 million, or 21.0%, increase in the
interest income derived from mortgage and other loans to $30.0 million,
supported by increases of $441,000 and $56,000, respectively, in the interest
income derived from securities held to maturity and money market investments to
$1.6 million and $116,000, respectively. These increases outweighed a decline of
$339,000 in the interest income derived from mortgage-backed securities to
$753,000.
The interest income provided by the Company's interest-earning assets is a
function of the average balance of said assets and the generated yields. In the
first quarter of 1998, the average balance of interest-earning assets grew
$250.7 million, or 19.1%, to $1.6 billion, and provided a yield of 8.33%, up
five basis points from the year-earlier 8.28%. The higher average balance
largely reflects a $246.9 million, or 21.4%, increase in the average balance of
mortgage and other loans to $1.4 billion, accompanied by a yield of 8.56%, down
from the year-earlier 8.58%.
In addition, the average balance of securities held to maturity rose $23.0
million, or 29.4%, to $101.1 million, with an average yield of 6.35%, up 39
basis points. Similarly, the average balance of money market accounts rose $4.0
million, or 83.7%, to $8.8 million, accompanied by an average yield of 5.27%, up
19 basis points. These increases more than offset a $23.2 million decline in the
average balance of mortgage-backed securities to $47.9 million, which was
tempered by a 14-basis point rise in the average yield to 6.28%.
14
<PAGE> 17
Mortgage and other loans thus represented 89.9% of average interest-earning
assets in the current year's first quarter, and provided 92.4% of interest
income year-to-date. Securities held to maturity represented 6.5% and 4.9%,
respectively, of average interest-earning assets and interest income, while
mortgage-backed securities accounted for 3.1% and 2.3%.
NET INTEREST INCOME ANALYSIS
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
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 $1,402,216 $30,007 8.56% $1,155,322 $24,789 8.58%
Securities held to maturity 101,117 1,605 6.35 78,156 1,164 5.96
Mortgage-backed securities held
to maturity 47,939 753 6.28 71,143 1,092 6.14
Money market investments 8,799 116 5.27 4,791 60 5.08
---------- ------- ------ ---------- ------- ------
Total interest-earning assets 1,560,071 32,481 8.33% 1,309,412 27,105 8.28%
Non-interest-earning assets 42,335 36,921
---------- ----------
Total assets $1,602,406 $1,346,333
========== ==========
Liabilities and stockholders' equity:
Interest-bearing liabilities:
NOW and money market accounts $ 67,125 $ 519 3.14% $ 69,230 $ 470 2.75%
Savings accounts 267,606 1,576 2.39 275,119 1,633 2.41
Certificates of deposit 688,938 9,112 5.36 649,125 8,618 5.38
FHLB borrowings 339,391 4,725 5.65 86,611 1,187 5.56
Mortgagors' escrow 20,057 18 0.36 14,843 10 0.27
---------- ------- ------ ---------- ------- ------
Total interest-bearing liabilities 1,383,117 15,950 4.68% 1,094,928 11,918 4.41%
Non-interest-bearing deposits 30,214 ------- 24,726 -------
Other liabilities 27,199 25,646
---------- ----------
Total liabilities 1,440,530 1,145,300
Stockholders' equity 161,876 201,033
---------- ----------
Total liabilities and stockholders'
equity $1,602,406 $1,346,333
========== ==========
Net interest income/interest rate
spread $16,531 3.65% $15,187 3.87%
======= ====== ======= ======
Net interest-earning assets/net
interest margin $ 176,954 4.24 $ 214,484 4.64
========== ====== ========== ======
Ratio of interest-earning assets to
interest-bearing liabilities 112.79 119.59
====== ======
</TABLE>
INTEREST EXPENSE
The Company's interest expense stems primarily from the interest paid on its
depository products and FHLB borrowings, and, to a lesser extent, from the
interest paid on its mortgagors' escrow accounts.
15
<PAGE> 18
In the first quarter of 1998, interest expense rose to $16.0 million, up from
$11.9 million in the year-earlier three months. The $4.1 million, or 33.8%,
increase primarily reflects a $3.5 million rise in the interest expense
generated by FHLB borrowings to $4.7 million, together with a $494,000 rise in
the interest expense generated by CDs to $9.1 million. In addition, NOW and
money accounts provided interest expense of $519,000, up $49,000 from the
year-earlier level, while mortgagor's escrow provided $18,000 in interest
expense, up $8,000. These increases were slightly tempered by a $57,000 drop in
the interest expense generated by savings accounts to $1.6 million.
The level of interest expense is a function of the average balance of the
Company's interest-bearing liabilities and by their respective costs of funds.
In the first quarter of 1998, the average balance of interest-bearing
liabilities rose $288.2 million, or 26.3%, to $1.4 billion, and generated an
average cost of 4.68%, up 27 basis points from the year-earlier 4.41%.
The increase in the average balance and cost of interest-bearing liabilities was
primarily due to a $252.8 million rise in the average balance of FHLB borrowings
to $339.4 million, coupled with a nine-basis point rise in the average cost of
said funds to 5.65%. In addition, the average balance of CDs rose $39.8 million
to $688.9 million, offsetting a two-basis point drop in the cost of said funds
to 5.36%. These higher balances were tempered by a $7.5 million decline in the
average balance of savings accounts to $267.6 million, and a $2.1 million
decline in the average balance of NOW and money market accounts to $67.1
million. While the cost of the Company's savings accounts dropped two basis
points to 2.39% in the current first quarter, the cost of NOW and money market
accounts rose 39 basis points to 3.14%. The average balance of mortgagors'
escrow accounts rose $5.2 million to $20.1 million, accompanied by a cost of
0.36%, up nine basis points.
Average FHLB borrowings thus represented 24.5% of average interest-bearing
liabilities in the current year's first quarter, and accounted for 29.6% of
interest expense. Average CDs represented 49.8% and 57.1%, respectively, of
average interest-bearing liabilities and interest expense in 1998's first
quarter, while average savings accounts represented 19.3% and 9.9%. Average NOW
and money market accounts represented 4.9% of average interest-bearing
liabilities and 3.3% of interest expense in the three months ended March 31,
1998.
The Company anticipates that it will continue to draw on its FHLB line of credit
to finance mortgage loan production, despite the higher costs involved. These
costs are more than offset by the higher levels of net interest income generated
as a result of the growth in the Company's mortgage loan portfolio.
NET INTEREST INCOME
Net interest income is the Company's principal source of income; its level is
influenced significantly 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.
Reflecting the rising cost of funds, the Company's interest rate spread narrowed
to 3.65% in the current year's first quarter from 3.87% in the year-earlier
three months. Similarly, the Company's net interest margin dropped 40 basis
points to 4.24% from the year-earlier level, reflecting both higher funding
costs and the allocation of funds for the repurchase of Company shares. Yet
despite the compression of its spread and margin, the Company recorded net
interest income of $16.5 million, representing a $1.3 million, or 8.9%, increase
from the year-earlier amount. The increase was supported by the significant
growth in the average balance of interest-earning assets to $1.6 billion from
$1.3 billion in the first quarter of 1997.
16
<PAGE> 19
While the Company's spreads and margins may continue to narrow in the second
quarter, it is management's expectation, based on the current level of mortgage
loan originations, that net interest income will continue to rise. This said, it
should be cautioned that net interest income could be adversely impacted by a
more significant increase in interest rates than is currently anticipated, and
by factors that could hamper the Company's ability to originate loans. Among
these would be a downturn in the real estate market and a substantial increase
in competition for both funding and loans.
PROVISION FOR LOAN LOSSES
The first quarter of 1998 was the eleventh consecutive quarter in which the
Company suspended the provision for loan losses. The continued suspension
reflects the consistent quality of the Company's loan portfolio, reflected in
the absence of any net charge-offs since 1995's second quarter and the fully
performing status of its multi-family mortgage loans. In addition,
non-performing loans represented 0.50% of loans, net, at the close of the
current first quarter, as the volume of non-performing loans declined by
$629,000 to $7.1 million at March 31st.
At $9.4 million, the allowance for loan losses was unchanged from the year-end
1997 level, and represented 133.53% of non-performing loans, and 0.67% of loans,
net. More tellingly, the allowance represented 661.36% of accumulated net
charge-offs for the eleven years ended March 31, 1998.
Based on currently available information, management believes that the Company's
allowance for loan losses is sufficient, and does not anticipate making
additional provisions to the loan loss allowance in the short-term. At the same
time, no assurance can be made that a significant change in the quality of the
Company's assets or a significant downturn in the real estate market would not
result in additional loan loss provisions being made.
For additional information regarding asset quality and the allowance for loan
losses, please see the discussion and analysis beginning on page 8 of this
report.
OTHER OPERATING INCOME
Other operating income rose to $557,000 in the first quarter of 1998 from
$304,000 in the first quarter of 1997. The $253,000 increase stemmed from a
$126,000 rise in fee income to $405,000 and a $127,000 increase in other income
to $152,000. The latter increase includes fees earned on the origination of
multi-family mortgage loans for others, continuing a program that was initiated
in the fourth quarter of 1997.
OPERATING EXPENSE
Operating expense consists primarily of compensation and benefits expense,
together with occupancy and equipment and general and administrative ("G&A")
expenses.
In the first quarter of 1998, the Company successfully contained its operating
expense, recording a modest increase to $6.7 million, or 1.67% of average
assets, from $6.5 million, or 1.93% of average assets, in the year-earlier three
months.
The $160,000 increase reflects a $79,000 rise in non-cash items to $1.7 million,
reflecting the appreciation of shares held in the Company's stock-related
benefit plans, and the extension of the ESOP loan amortization period from
twenty to thirty years. Excluding the $1.7 million -- all of which was directly
returned to capital at March 31, 1998 -- the Company's operating expense was up
$81,000 from the year-earlier level, reflecting occupancy and equipment expense
of $672,000, up a mere $3,000 from the first quarter of 1997; G&A expense of
$1.2 million, up $25,000; and other expense of $122,000, down $34,000. Absent
the non-cash items related to the amortization and appreciation of shares in the
Company's stock-related benefit plans, the Company's compensation and benefits
expense rose $87,000. The number of full-time equivalent employees at the close
of the quarter was 284.
17
<PAGE> 20
Reflecting the modest rise in operating expense as compared to the far greater
increases in net interest income and other operating income, the Company's
efficiency ratio improved to 39.04% from 42.04% in the year-earlier quarter,
while its cash efficiency ratio improved to 29.28% from 30.19%.
INCOME TAX EXPENSE
Income tax expense, including Federal, state, and local income taxes, totaled
$4.2 million and $1.8 million, respectively, in the first quarters of 1998 and
1997. The first quarter 1997 amount was reduced by the recapture of $1.3 million
pursuant to the enactment of legislation that resulted in a favorable change in
the New York City tax code during said quarter.
The 1998 amount includes $3.1 million in non-cash items associated with the
Company's stock-related benefit plans, as compared to $416,000 in the
year-earlier three months. The higher amount in 1998 reflects tax benefits
stemming from the exercise of 541,292 stock options and other plan-related
activity during the quarter. Although stock option exercises may occur at any
time, they are not expected to occur at this level in the remaining quarters of
the year.
While the effective tax rate was 40.0% in 1998's first quarter, the Company
currently anticipates that the effective tax rate will approximate 41% for the
remainder of the year.
YEAR 2000 COMPLIANCE
The Company is actively engaged in preparing for the Year 2000. Testing of the
Company's mission-critical systems is currently scheduled for the fourth quarter
of 1998, and contingency plans for all systems utilized by the Bank are under
development. Expenses to date have been immaterial, and it is management's
expectation that this will continue to be the case. It should be cautioned,
however, that the Bank's ability to be Year 2000 compliant is tied to the
ability of its service providers to fulfill the necessary requirements on a
timely basis.
SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements which are based on
management's current expectations regarding economic, legislative, and
regulatory issues that may impact the Company's earnings in future periods.
Factors that could cause future results to vary from current management
expectations include, but are not limited to, general economic conditions;
changes in interest rates, deposit flows, loan demand, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation and regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting the Company's operations,
pricing, products, and services.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company's market risk were
presented in the Interest Rate Sensitivity Analysis on page 13 of the 1997
Annual Report to Shareholders, filed on March 20, 1998. At March 31, 1998, no
material change in market risk had occurred.
18
<PAGE> 21
QUEENS COUNTY BANCORP, INC.
PART 2 - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable.
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
(a) The Company held its Annual Meeting of Shareholders on April 22, 1998.
Proxies were solicited with respect to such meeting under Regulation 14A of
the Securities Exchange Act of 1934 pursuant to proxy materials dated March
20, 1998. Of the 14,883,983 shares eligible to vote at the meeting,
13,426,678 were represented in person or by proxy.
(b) There was no solicitation in opposition to the Board's nominees for
director, and all of such nominees were elected, as follows:
<TABLE>
<CAPTION>
No. of Votes No. of Votes Broker
For Withheld Non-Votes
--- -------- ---------
<S> <C> <C> <C>
Harold E. Johnson (1) 13,362,486 64,192 --
Luke D. Lynch 13,362,486 64,192 --
Henry E. Froebel 13,362,236 64,442 --
Howard C. Miller 13,360,638 66,040 --
</TABLE>
The following directors are serving terms of office that continue through 1999
and 2000, as noted:
<TABLE>
<CAPTION>
Director Year Term Expires
-------- -----------------
<S> <C>
Max. L. Kupferberg 1999
Dominick Ciampa 1999
Richard H. O'Neill 1999
Donald M. Blake 2000
Joseph G. Chisholm 2000
Joseph R. Ficalora 2000
</TABLE>
19
<PAGE> 22
(c) Two additional proposals were submitted for a vote, with the following
results:
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes Broker
For Against Abstaining Non-Votes
--- ------- ---------- ---------
<S> <C> <C> <C> <C>
1. Approval of an amendment to 12,910,716 393,590 122,372 --
the Company's Certificate of
Incorporation increasing the
number of authorized shares
of common stock
2. Ratification of the 13,357,081 17,548 52,049 --
appointment of
KPMG Peat Marwick,
LLP as independent
auditors for the
fiscal year ending
December 31, 1998
</TABLE>
(1) In accordance with the Bylaws of the Company and the Bank, which each
provide that a director cannot serve beyond December 31st of the year
in which he attains the age of 80, Mr. Johnson will retire as a
director of the Company and the Bank effective December 31, 1998.
ITEM 5. OTHER INFORMATION
On April 21, 1998, the Board of Directors increased the quarterly cash dividend
to 25 cents per share, up 25% from the payment made in the first quarter of the
year. The dividend is payable on May 15, 1998 to shareholders of record at the
close of business on May 1st.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
<S> <C>
(a) Exhibits
Exhibit No. 3 (i): Certificate of Incorporation*
Exhibit No. 3 (ii): Bylaws*
Exhibit No. 11: Statement re: Computation of Per Share Earnings - filed herewith
Exhibit No. 27: Financial Data Schedule - filed herewith
(b) Reports on Form 8-K
Not applicable.
</TABLE>
* Incorporated by reference to the Exhibits filed with the Registration
Statement on Form 5-1, as amended, Registration No. 33-65852.
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: May 12, 1998 BY: /s/ Joseph R. Ficalora
----------------------
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Duly Authorized Officer)
DATE: May 12, 1998 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)(2)
-----------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands, except per share data) 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 6,255 $ 7,132
Weighted average common shares outstanding 12,850 14,877
Earnings per common share $0.49 $0.48
Weighted average common shares outstanding 12,850 14,877
======= =======
Additional dilutive shares using average market value
for the period when utilizing the Treasury stock method
regarding stock options 841 835
------- -------
Total shares for diluted earnings per share 13,691 15,712
======= =======
Diluted earnings per common share and common share
equivalents $0.46 $0.45
======= =======
</TABLE>
(1) Reflects shares issued as a result of the 3-for-2 stock splits on April 10,
1997 and October 1, 1997.
(2) Reflects the adoption of Statements of Financial Accounting Standards
No. 128, "Earnings Per Share."
22
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 20,309
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,717
<INVESTMENTS-CARRYING> 148,409
<INVESTMENTS-MARKET> 149,009
<LOANS> 1,413,814
<ALLOWANCE> 9,431
<TOTAL-ASSETS> 1,622,467
<DEPOSITS> 1,048,088
<SHORT-TERM> 351,721
<LIABILITIES-OTHER> 53,165
<LONG-TERM> 0
206
0
<COMMON> 0
<OTHER-SE> 169,287
<TOTAL-LIABILITIES-AND-EQUITY> 1,622,467
<INTEREST-LOAN> 30,007
<INTEREST-INVEST> 2,358
<INTEREST-OTHER> 116
<INTEREST-TOTAL> 32,481
<INTEREST-DEPOSIT> 11,225
<INTEREST-EXPENSE> 15,950
<INTEREST-INCOME-NET> 16,531
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 70
<EXPENSE-OTHER> 6,185
<INCOME-PRETAX> 10,416
<INCOME-PRE-EXTRAORDINARY> 6,255
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,255
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.46
<YIELD-ACTUAL> 8.33
<LOANS-NON> 5,305
<LOANS-PAST> 1,758
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9,431
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 9,431
<ALLOWANCE-DOMESTIC> 9,431
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 9,431
</TABLE>
