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, 1999
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Commission File Number 0-22278
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QUEENS COUNTY BANCORP, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
38-25 Main Street, Flushing, New York 11354
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(Address of principal executive offices)
(Registrant's telephone number, including area code) 718: 359-6400
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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
21,571,185
-------------------------------
Number of shares outstanding at
May 10, 1999
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
Three Months Ended March 31, 1999
INDEX Page No.
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
March 31, 1999 (unaudited) and December 31, 1998 1
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 1999
and 1998 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 1999
(unaudited) 3
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1999 and 1998
(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
About Market Risk 19
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
Signatures 22
Exhibits 23
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
(unaudited)
----------- -----------
<S> <C> <C>
Assets
Cash and due from banks $ 23,279 $ 27,561
Money market investments 6,000 19,000
Securities held to maturity (estimated market value of
$145,987 and $152,055, respectively) 146,572 152,280
Mortgage-backed securities held to maturity (estimated market
value of $18,241 and $20,332, respectively) 17,744 19,680
Securities available for sale 4,144 4,656
Mortgage loans:
1-4 family 166,393 178,770
Multi-family 1,289,698 1,239,094
Commercial real estate 68,300 67,494
Construction 3,267 1,898
----------- -----------
Total mortgage loans 1,527,658 1,487,256
Other loans 9,193 9,750
Less: Unearned loan fees (1,260) (1,056)
Allowance for loan losses (7,431) (9,431)
----------- -----------
Loans, net 1,528,160 1,486,519
Premises and equipment, net 10,219 10,399
Deferred tax asset, net 5,116 5,917
Other assets 22,973 20,870
----------- -----------
Total assets $ 1,764,207 $ 1,746,882
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 71,136 $ 70,423
Savings accounts 274,751 273,357
Certificates of deposit 726,408 722,985
Non-interest-bearing accounts 35,185 35,520
----------- -----------
Total deposits 1,107,480 1,102,285
----------- -----------
Official checks outstanding 22,798 34,487
FHLB borrowings 453,659 439,055
Accounts payable and accrued expenses 1,846 1,552
Mortgagors' escrow 25,868 13,084
Other liabilities 8,438 7,013
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Total liabilities 1,620,089 1,597,476
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Stockholders' equity:
Preferred stock at par $0.01 (5,000,000 shares authorized; none issued) -- --
Common stock at par $0.01 (60,000,000 shares authorized;
30,970,693 shares issued; 21,583,361 and 21,250,897 shares
outstanding at March 31, 1999 and December 31, 1998, respectively) 310 310
Paid-in capital in excess of par 140,407 138,180
Retained earnings (substantially restricted) 148,207 165,383
Less: Treasury stock (9,387,332 and 9,719,796 shares, respectively) (128,064) (137,901)
Unallocated common stock held by ESOP (12,672) (12,767)
Common stock held by SERP (3,770) (3,770)
Unearned common stock held by RRPs (63) (63)
Accumulated other comprehensive income, net of tax effect (237) 34
----------- -----------
Total stockholders' equity 144,118 149,406
----------- -----------
Total liabilities and stockholders' equity $ 1,764,207 $ 1,746,882
=========== ===========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
For the
Three Months Ended
March 31,
--------------------
1999 1998
-------- --------
Interest Income:
Mortgage and other loans $ 30,475 $ 30,007
Securities held to maturity 2,297 1,605
Mortgage-backed securities held to maturity 331 753
Money market investments 267 116
-------- --------
Total interest income 33,370 32,481
-------- --------
Interest Expense:
NOW and money market accounts 451 519
Savings accounts 1,542 1,576
Certificates of deposit 9,104 9,112
FHLB borrowings 5,701 4,725
Mortgagors' escrow 8 18
-------- --------
Total interest expense 16,806 15,950
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Net interest income 16,564 16,531
Reversal of provision for loan losses (2,000) --
-------- --------
Net interest income after reversal of
provision for loan losses 18,564 16,531
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Other Operating Income:
Fee income 481 405
Other 149 152
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Total other operating income 630 557
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Operating Expense:
Compensation and benefits (1) 3,675 4,714
Occupancy and equipment 618 672
General and administrative 1,239 1,164
Other 54 122
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Total operating expense 5,586 6,672
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Income before income taxes 13,608 10,416
Income tax expense (2) 5,371 4,161
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Net income $ 8,237 $ 6,255
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Comprehensive income, net of tax:
Unrealized (loss) gain on securities (271) 69
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Comprehensive income $ 7,966 $ 6,324
======== ========
Earnings per share $0.44 $0.33(3)
Diluted earnings per share $0.43 $0.31(3)
(1) Includes non-cash items of $0.628 and $1.668 million for 1999 and 1998,
respectively.
(2) Includes non-cash items of $1.693 and $3.136 million for 1999 and 1998,
respectively.
(3) Reflects shares issued as a result of a 3-for-2 stock split on September
29, 1998.
See accompanying notes to financial statements.
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<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended
March 31, 1999
(in thousands) (unaudited)
- --------------------------------------------------------------------------------
Common Stock (Par Value: $0.01):
Balance at beginning of year $ 310
Shares issued --
---------
Balance at end of period 310
---------
Paid-in Capital in Excess of Par:
Balance at beginning of year 138,180
Tax benefit effect on stock plans 1,693
Allocation of ESOP stock 534
---------
Balance at end of period 140,407
---------
Retained Earnings:
Balance at beginning of year 165,383
Net income 8,237
Dividends paid on common stock (4,653)
Exercise of stock options (779,795 shares) (20,760)
---------
Balance at end of period 148,207
---------
Treasury Stock:
Balance at beginning of year (137,901)
Purchase of common stock (447,331 shares) (13,364)
Exercise of stock options (779,795 shares) 23,201
---------
Balance at end of period (128,064)
---------
Employee Stock Ownership Plan:
Balance at beginning of year (12,767)
Allocation of ESOP stock 95
---------
Balance at end of period (12,672)
---------
SERP Plan:
Balance at beginning of year (3,770)
Common stock acquired by SERP --
---------
Balance at end of period (3,770)
---------
Recognition and Retention Plans:
Balance at beginning of year (63)
Earned portion of RRPs --
---------
Balance at end of period (63)
---------
Accumulated Comprehensive Income, Net of Tax:
Balance at beginning of year 34
Net unrealized depreciation in securities, net of tax (271)
---------
Balance at end of year (237)
---------
Total stockholders' equity $ 144,118
=========
See accompanying notes to financial statements.
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<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
(in thousands) (unaudited)
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 8,237 $ 6,255
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 220 240
Reversal of provision for loan losses (2,000) --
Amortization of premiums, net 3 37
(Accretion) amortization of net deferred loan origination fees (204) 319
Net gain on redemption of securities and mortgage-backed securities (11) (80)
Net gain on sale of foreclosed real estate (100) (36)
Tax benefit effect on stock plans 1,693 3,136
Earned portion of RRPs -- 185
Earned portion of ESOP 629 1,108
Changes in assets and liabilities:
Decrease in deferred income taxes 801 503
Increase in other assets (2,103) (128)
Increase in accounts payable and accrued expenses 294 268
Decrease in official checks outstanding (11,689) (10,363)
Increase (decrease) in other liabilities 1,425 (3,043)
-------- --------
Total adjustments (11,042) (7,854)
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Net cash used in operating activities (2,805) (1,599)
-------- --------
Cash Flows from Investing Activities:
Proceeds from maturity of securities and mortgage-backed
securities held to maturity 13,937 30,947
Purchase of securities held to maturity (6,285) (34,597)
Purchase of securities available for sale -- (971)
Net increase in loans (41,692) (16,505)
Proceeds from sale of loans and foreclosed real estate 2,596 7,161
Purchase of premises and equipment, net (40) (65)
-------- --------
Net cash used in investing activities (31,484) (14,030)
-------- --------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 12,784 12,374
Net increase (decrease) in deposits 5,195 (21,073)
Net increase in FHLB borrowings 14,604 42,057
Cash dividends paid and options exercised, net (25,413) (10,035)
Stock options exercised, net of purchase of Treasury stock
and shares acquired by SERP 9,837 (2,118)
-------- --------
Net cash provided by financing activities 17,007 21,205
-------- --------
Net (decrease) increase in cash and cash equivalents (17,282) 5,576
Cash and cash equivalents at beginning of period 46,561 22,733
-------- --------
Cash and cash equivalents at end of period $ 29,279 $ 28,309
======== ========
Supplemental information:
Cash paid for:
Interest $ 16,778 $ 15,883
Income taxes 2,351 309
Transfers to foreclosed real estate from loans 488 772
Transfers to real estate held for investment from foreclosed real estate 425 408
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
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, 1999 are not necessarily indicative of the results of operations that
may be expected for all of 1999.
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 1998 Annual Report to Shareholders and incorporated by reference
into the Company's 1998 Annual Report on Form 10-K.
Note 2. Impact of Accounting Pronouncements
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which established accounting and
reporting standards for derivative instruments and for hedging activities. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial condition and measure said instruments
at fair value. In addition, the statement establishes criteria required to
designate a derivative instrument as a hedge and the accounting for changes in
fair value of a derivative, depending on its intended use. Under SFAS No. 133,
an entity that elects to apply hedge accounting is required to establish at the
inception of the hedge the method it will use for assessing the effectiveness of
the hedging derivative and the measurement approach for determining the
ineffective aspect of the hedge. These methods must be consistent with the
entity's approach to managing risk.
SFAS No. 133 is effective for financial statements issued for periods beginning
after June 15, 1999 and is not expected to have an impact on the Company.
Accounting for Mortgage-backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
In October 1998, the FASB issued SFAS No. 134, "Accounting for Mortgage-backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage Banking Enterprise, an amendment of SFAS No. 65." SFAS No. 134 amends
the accounting treatment of mortgage-backed securities retained.
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<PAGE>
After the securitization of a mortgage loan held for sale, any retained
mortgage-backed securities shall be classified in accordance with the entity's
ability and intent to sell or hold those securities. However, a mortgage banking
enterprise must classify as "trading" securities any retained mortgage-backed
securities that it commits to sell before or during the securitization process.
SFAS No. 134 is effective for the first quarter beginning after December 15,
1998, and enterprises may reclassify mortgage-backed securities and other
beneficial interests retained after the securitization of mortgage loans held
for sale from the trading category, except for those with sales commitments in
place. The reclassification is to be implemented when SFAS No. 134 is initially
applied.
The Company does not expect the adoption of SFAS No. 134 to have an impact on
its financial condition or results of operations.
-6-
<PAGE>
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.
In the first quarter of 1999, the Company reaffirmed its position as one of the
industry's leading performers with cash earnings of $11.3 million, or $0.59 per
share (diluted). The Company's earnings were driven by solid fundamentals:
consistent asset quality, high-volume loan production, and continued expense
control. In addition, the Company recorded a net benefit of $1.1 million
resulting from the reversal of $2.0 million from the allowance for loan losses,
duplicating an action taken in the second quarter of 1996.
In April 1999, the Bank filed applications to open two new Queens-based
locations: a full-service branch office in Woodside and a customer service
center in Corona Heights. In anticipation of receiving the necessary regulatory
approvals, these locations are expected to be open by the second quarter's end.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The Company's first quarter 1999 performance is discussed in detail on the
following pages. Such discussion occasionally includes forward-looking
statements with regard to the Company's prospective performance and strategies.
These statements are based on management's current expectations regarding a
range of issues that could potentially impact the Company's performance in
future periods. Where such forward-looking statements appear in the text, they
are typically accompanied by cautionary language identifying the specific
factors that could adversely effect the Company's ability to fulfill its goals
or implement its strategies. These factors are also detailed in the Company's
1998 Annual Report to Shareholders and Annual Report on Form 10-K.
In general, factors that could cause future results to vary from current
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 various other economic, competitive,
governmental, regulatory, and technological issues that could affect the
Company's operations, pricing, products, and services.
Financial Condition
Balance Sheet Summary
The Company recorded total assets of $1.8 billion at March 31, 1999, up $17.3
million from the level recorded at December 31, 1998. Mortgage loans rose $40.4
million to $1.5 billion, representing 86.6% of total assets, driven by a $50.6
million increase in loans secured by multi-family buildings to $1.3 billion. The
higher balance of mortgage loans reflects first quarter 1999 originations of
$125.0 million, including $115.6 million in multi-family mortgage loans.
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<PAGE>
The quality of the Company's loan portfolio continued to be solid. At March 31,
1999, non-performing loans improved to $5.6 million, or 0.37% of loans, net,
from $6.2 million (or 0.42% of loans, net) and $7.1 million (or 0.50% of loans,
net) at December 31 and March 31, 1998, respectively. Non-performing assets
improved to $6.2 million, or 0.35% of total assets, from $6.9 million (or 0.38%
of total assets) and $8.9 million (or 0.55% of total assets) at the
corresponding dates.
Reflecting the reversal of $2.0 million in the current first quarter, the
allowance for loans losses declined to $7.4 million, representing 132.46% of
non-performing loans and 0.49% of loans, net, at March 31, 1999.
The growth of the mortgage loan portfolio over the course of the quarter was
partly offset by reductions in various other assets. At March 31, 1999,
securities held to maturity declined $5.7 million to $146.6 million, while
mortgage backed securities held to maturity decreased $2.0 million to $17.7
million. Securities available for sale fell $512,000 to $4.1 million, while
money market investments declined $13.0 million to $6.0 million. Other loans
totaled $9.2 million, down $557,000 from the level recorded at December 31,
1998. The reductions reflect management's continuing preference for investments
in the origination of multi-family mortgage loans.
Deposits rose $5.2 million to $1.1 billion, reflecting increases of $3.4
million, $1.4 million, and $713,000 in the respective balances of certificates
of deposit ("CDs"), savings, and NOW and money market accounts. Federal Home
Loan Bank ("FHLB") borrowings totaled $453.6 million, up $14.6 million from the
level at year-end 1998.
Reflecting first quarter 1999 cash earnings of $11.3 million, stockholders'
equity totaled $144.1 million, equivalent to 8.17% of total assets and a book
value of $7.69, based on 18,742,792 shares. In the first quarter of 1999, the
Company allocated $13.4 million toward the repurchase of 447,331 shares under
the stock repurchase authorization declared by the Board of Directors on
December 15, 1998.
At March 31, 1999, the Company continued to exceed the minimum capital levels
required by the FDIC. In addition, the Bank recorded a leverage capital ratio of
9.53%, a Tier 1 risk-based capital ratio of 15.14%, and a total risk-based
capital ratio of 15.82%.
Loans
Reflecting year-to-date originations of $125.0 million, the Company recorded
outstanding mortgage loans of $1.5 billion at March 31, 1999. Multi-family
mortgage loans represented 84.4% of the quarter-end balance, totaling $1.3
billion after originations of $115.6 million in the three-month period.
The majority of the Company's multi-family mortgage loans originated since 1996
have featured a fixed rate of interest for the first five years of the mortgage,
before adjusting to one percent over prime in each of years six through ten.
Prior to 1996, the majority of the Company's multi-family mortgage loans
featured a step-up rate of interest, which rose 50 basis points in each of years
two through five, regardless of the direction of market interest rates. At March
31, 1999, the portfolio included $65.7 million, $24.2 million, $40.9 million,
and $51.0 million in multi-family mortgage loans that were due to reprice upward
over the next four quarters, respectively.
In addition to the growth in multi-family loans, the Company recorded increases
in outstanding construction and commercial real estate loans at the current
quarter's end. Construction loans rose $1.4 million to $3.3 million, reflecting
originations of $1.4 million, while commercial real estate loans rose $806,000
to $68.3 million, reflecting originations of $3.5 million. These increases
helped to offset a $12.4 million decline in one-to-four family mortgage loans to
$166.4 million after originations of $4.5 million.
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<PAGE>
In addition to mortgage loans, the Company originates other loans to address the
needs of its customer base. The Company's portfolio of other loans totaled $9.2
million, down $557,000 from the level at December 31, 1998.
The Company's ability to originate loans is influenced by several factors, most
notably including competition for product and the level of market interest
rates. Two weeks into the second quarter of 1999, the Company had originations
of $137.0 million in the pipeline; the vast majority of these loans are secured
by multi-family properties.
Asset Quality
The Company's record of consistent asset quality continued in the first quarter
of 1999. In addition to achieving its eighteenth consecutive quarter without any
net charge-offs, the Company recorded a reduction in the level of non-performing
assets, reflecting declines in non-performing loans and foreclosed real estate.
At March 31, 1999, the Company had non-performing loans of $5.6 million, or
0.37% of loans, net, down $583,000 from the December 31, 1998 level and down
$1.4 million from the level recorded at March 31, 1998. Included in the March
31, 1999 amount were 41 mortgage loans in foreclosure totaling $4.9 million and
14 loans 90 days or more delinquent totaling $673,000. All of the Company's
non-performing loans were secured by one-to-four family residences; the
multi-family mortgage loan portfolio continued to be fully performing in the
three months ended March 31, 1999.
Foreclosed real estate declined to $620,000 from $663,000 at the end of the
trailing quarter and from $1.8 million at March 31, 1998. The March 31, 1999
amount consisted of three residential properties that are currently being
marketed for sale. Non-performing assets thus improved to $6.2 million, or 0.35%
of total assets, from $6.9 million, or 0.38% of total assets, and from $8.9
million, or 0.55% of total assets, at December 31 and March 31, 1998,
respectively.
Reflecting the quality of the Company's loans, both current and historic,
management reversed $2.0 million from the allowance for loan losses in the first
quarter of 1999. At $7.4 million, the loan loss allowance represented 132.46% of
non-performing loans at the close of the quarter and 521.11% of accumulated net
charge-offs since 1987.
From time to time, the Company rents properties that had been non-performing,
drawing income from them as a result. When this occurs, such properties are
reclassified as "investments in real estate" and included in "other assets" on
the balance sheet. At March 31, 1999, the Company had 19 such investments for a
total of $2.1 million, which were generating an 8.0% rate of return.
For additional information, see the Asset Quality Analysis that follows and the
discussion of the loan loss provision on page 17 of this report.
-9-
<PAGE>
Asset Quality Analysis
<TABLE>
<CAPTION>
At or For the At or For the
Three Months Ended Year Ended
March 31, December 31,
1999 1998
(dollars in thousands) (unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance for Loan Losses:
Balance at beginning of period $ 9,431 $9,431
Reversal of provision for loan losses (2,000) --
------- ------
Balance at end of period $ 7,431 $9,431
======= ======
Non-performing Assets at Period-end:
Mortgage loans in foreclosure $ 4,937 $5,530
Loans 90 days or more delinquent 673 663
------- ------
Total non-performing loans 5,610 6,193
Foreclosed real estate 620 419
------- ------
Total non-performing assets $ 6,230 $6,612
======= ======
Ratios:
Non-performing loans to loans, net 0.37% 0.42%
Non-performing assets to total assets 0.35 0.38
Allowance for loan losses to non-performing loans 132.46 152.28
Allowance for loan losses to loans, net 0.49 0.63
Allowance for loan losses to accumulated
net charge-offs since 1987 521.11 661.36
</TABLE>
Securities Held to Maturity, Securities Available for Sale, and Money Market
Investments
In addition to investing in mortgage loan originations, the Company selectively
invests in securities. The Company's portfolio of securities held to maturity
consists of short-term securities in the form of U.S. Government agency
obligations, while its smaller portfolio of securities available for sale
consists of equity securities. Additional funds are invested in money market
investments, typically in the form of Federal funds sold.
At March 31, 1999, the Company's portfolio of securities held to maturity
totaled $146.6 million, down from $152.3 million at December 31, 1998. The 1999
amount consisted of $124.0 million in U.S. Government agency obligations and
$22.6 million in FHLB stock. By comparison, the year-end 1998 amount included
$122.9 million in U.S. Government agency obligations, $7.0 million in U.S.
Treasuries, and $22.4 million in FHLB stock. At March 31, 1999 and December 31,
1998, the market values of securities held to maturity were $146.0 million and
$152.1 million, equivalent to 99.6% and 99.9% of carrying value at the
respective dates. The average maturity of securities held to maturity at March
31, 1999 was under two years.
Securities available for sale totaled $4.1 million at March 31, 1999, down
$512,000 from the level recorded at year-end 1998. Money market investments
totaled $6.0 million, down $13.0 million from the level at the corresponding
date.
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<PAGE>
Mortgage-backed Securities Held to Maturity
The Company recorded mortgage-backed securities of $17.7 million at March 31,
1999, down from $19.7 million at December 31, 1998. The $2.0 million decline
reflects prepayments and the absence of any new investments since the first
quarter of 1994.
The Company holds all of its mortgage-backed securities to maturity. The average
maturity of the portfolio was under two years at quarter's end. At March 31,
1999 and December 31, 1998, the market values of the portfolio were $18.2
million and $20.3 million, respectively, equivalent to 102.8% and 103.3% of the
carrying values at the respective dates.
Sources of Funds
The Company's funding stems primarily from the deposits it gathers, together
with the interest and principal payments on loans, and the interest on, and
maturity of, securities. Additional funding is derived from the Company's FHLB
line of credit, which was $705.7 million at March 31, 1999. Borrowings at that
date totaled $453.6 million, up $14.6 million from the level at December 31,
1998.
Deposits rose $5.2 million to $1.1 billion, reflecting respective increases of
$3.4 million, $1.4 million, and $713,000 in the balances of CDs, savings, and
NOW and money market accounts, respectively. CDs totaled $726.4 million,
representing 65.5% of total deposits at March 31st. Of these, $607.2 million
were due to reprice within one year. In the twelve months ended March 31, 1999,
the Company recorded a somewhat higher rate of retention, with 91.4% of CDs
being retained by the Bank. Savings accounts totaled $274.8 million,
representing 24.8% of total deposits, while NOW and money market accounts
totaled $71.1 million, representing 6.4%. These increases collectively served to
offset a $335,000 reduction in the quarter-end balance of non-interest-bearing
accounts to $35.2 million, or 3.2% of total deposits at March 31, 1999.
To attract additional deposits, the Bank has filed applications to expand its
franchise with the addition of two new Queens-based banking offices. Pending
regulatory approval, the Bank will open a full-service branch in Woodside and a
customer service center in Corona Heights later on this spring. In addition, the
Bank has been actively promoting its online banking service since its
introduction in December 1998.
Market Risk and 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
interest rate risk.
The process of assessing and managing interest rate risk is governed by policies
established by senior management that are reviewed and approved by the Board of
Directors. Senior management meets periodically to evaluate the impact of
changes in market interest rates on assets and liabilities, net interest margin,
and capital and liquidity, as well as to evaluate its strategic plans. As part
of this process, management measures the sensitivity of net interest income to
changes in interest rates, which involves making estimations based on certain
assumptions that management believes to be reasonable. In addition to
considering the relative sensitivity of assets and liabilities to changes in
market interest rates, other factors considered include scheduled maturities,
repricing characteristics, deposit growth and retention, and estimated cash
flows.
-11-
<PAGE>
The relative sensitivity of assets and liabilities is particularly important, as
the Company's core deposits are not subject to the same degree of interest rate
sensitivity as its assets. Core deposit costs are internally controlled and
generally exhibit less sensitivity to changes in interest rates than adjustable
rate assets, which feature yields that are based on external indices and tend to
change in concert with market interest rates.
It is management's objective to maintain a stable level of net interest income
under a range of probable rate scenarios. In order to accomplish this objective,
management has traditionally emphasized the origination of adjustable rate
mortgage loans on multi-family buildings and one-to-four family homes, and has
generally limited 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 profitably utilized its FHLB line of credit to
generate interest-earning asset growth.
At March 31, 1999, the Company's exposure to interest rate risk was comparable
to that discussed in the 1998 Annual Report to Shareholders.
Liquidity and Capital Position
Liquidity
As previously indicated, deposits and borrowings are the Company's primary
funding sources, with additional funding stemming from interest and principal
payments on loans, securities, and mortgage-backed securities. While borrowings
and scheduled amortization of loans and securities are more predictable funding
sources, deposit flows and mortgage prepayments are subject to such external
factors as economic conditions, competition, and market interest rates.
The Company primarily invests in mortgage loan originations and supplements such
investments with the purchase of short-term securities. In the first quarter of
1999, the Company invested $125.0 million in mortgage loan originations and
another $6.3 million in securities held to maturity. These activities were
funded by internal cash flows generated by the Bank's financing activities; the
net cash provided by financing activities in the current first quarter totaled
$17.0 million. In addition, the net cash used in operating activities totaled
$31.5 million in the three months ended March 31, 1999.
The Company monitors its liquidity position on a daily basis to ensure that
sufficient funds are available to meet its financial obligations, including
outstanding loan commitments and withdrawals from depository accounts. Together
with cash and due from banks, money market investments are the Company's most
liquid assets, with a collective total of $29.3 million at March 31, 1999, as
compared to $46.6 million at December 31, 1998. In addition, the Company had
securities available for sale of $4.1 million and $4.7 million at the
corresponding dates. Additional liquidity is available through the Bank's FHLB
line of credit and a $10.0 million line of credit with a money center bank.
Two weeks into the second quarter, the Bank had loans of $137.1 million in the
pipeline, which management anticipates having sufficient funds to fulfill. In
addition, CDs due to mature in one year or less from March 31, 1999 totaled
$607.2 million; based on its current and traditional rate of retention,
management believes that a significant portion of such deposits will remain with
the Bank.
-12-
<PAGE>
Capital Position
Supported by first quarter 1999 cash earnings of $11.3 million, stockholders'
equity totaled $144.1 million at March 31, 1999, equivalent to 8.17% of total
assets and a book value of $7.69 per share, based on 18,742,792 shares. At
December 31, 1998, stockholders' equity totaled $149.4 million, representing
8.55% of total assets and a book value of $8.13 per share, based on 18,389,114
shares.
In the first quarter of 1999, the Company paid $4.7 million in cash dividends,
and allocated $13.4 million of its capital toward the repurchase of 447,331
shares of Company stock. At quarter's end, 201,729 shares remained available for
repurchase under the current stock repurchase authorization.
Like the Company, the Bank has maintained a solid capital position, with
regulatory capital ratios that exceed the minimum levels required by the FDIC.
At March 31, 1999, the Bank's leverage capital totaled $165.0 million, or 9.53%
of adjusted average assets, while its Tier 1 and total risk-based capital
amounted to $165.0 million and $172.5 million, or 15.14% and 15.82% 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, 1999
-----------------
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 $165,029 9.53% $165,029 15.14% $172,460 15.82%
Regulatory capital
requirement 51,928 3.00 43,595 4.00 87,189 8.00
-------- ----- -------- ----- -------- -----
Excess $113,101 6.53% $121,434 11.14% $ 85,271 7.82%
======== ===== ======== ===== ======== =====
</TABLE>
Comparison of the Three Months Ended March 31, 1999 and March 31, 1998
Earnings Summary
The Company recorded earnings of $8.2 million, or $0.43 per share (diluted), in
the first quarter of 1999, as compared to $6.3 million, or $0.31 per share
(diluted), in the first quarter of 1998. The 1999 amount reflects the reversal
of $2.0 million from the allowance for loan losses, equivalent to $1.1 million
in net earnings, or $0.05 per share. Absent the net benefit of the reversal, the
Company's first quarter 1999 core earnings amounted to $7.2 million,
representing a 14.7% increase from the first quarter 1998 level and a 22.6%
increase in diluted earnings per share to $0.38. In addition, the $7.2 million
represented a 1.66% return on average assets ("ROA") and a 20.83% return on
average stockholders' equity ("ROE").
The Company's cash earnings totaled $11.3 million, or $0.59 per share (diluted),
in the current first quarter, as compared to $11.5 million, or $0.56 per share
(diluted), in the first quarter of 1998. Absent the $1.1 million net benefit,
the Company's core cash earnings totaled $10.2 million, or $0.54 per share
(diluted), representing a cash ROA of 2.36% and a cash ROE of 29.64%.
-13-
<PAGE>
In addition to the $1.1 million net benefit, the growth in first quarter 1999
earnings was driven by higher net interest income and other operating income,
and a $1.1 million reduction in operating expense.
Net interest income rose $33,000 to $16.6 million, while other operating income
rose $73,000 to $630,000. The higher level of net interest income was the net
result of an $889,000 increase in interest income to $33.4 million and an
$856,000 increase in interest expense to $16.8 million. The growth in interest
income stemmed from a $127.1 million, or 8.1%, rise in average interest-earning
assets to $1.7 billion, which offset a 42-basis point drop in the average yield
to 7.91%. The rise in interest expense was the net effect of a $149.5 million,
or 10.8%, rise in average interest-bearing liabilities to $1.5 billion and a
23-basis point drop in the average cost of funds to 4.45%.
The improvement in operating expense primarily stemmed from a $1.0 million
reduction in compensation and benefits expense to $3.7 million. This reduction
reflects, in turn, a $1.0 million decline in non-cash items stemming from
changes to the Company's stock-related benefit plans that took effect on January
1st. As a result of this decline, the Company's ratio of operating expense to
average assets improved to 1.29% from 1.67% in the year-earlier three months.
These favorable factors combined to produce pre-tax income of $13.6 million, up
from $10.4 million in the first quarter of 1998. As a result, first quarter 1999
income tax expense rose to $5.4 million from $4.2 million, reflecting an
effective tax rate of 39.5%.
Cash Earnings Analysis
(in thousands, except per share data) For the Three Months Ended
March 31,
1999 1998
------- -------
Net income $ 8,237 $ 6,255
Additional contributions to
stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 628 1,668
Associated tax benefits 1,693 3,136
Amortization of goodwill -- --
Other 715 404
------- -------
Cash earnings $11,273 $11,463
======= =======
Cash earnings per share $0.61 $0.59
Diluted cash earnings per share $0.59 $0.56
Interest Income
The level of interest income in any given period depends upon the average
balance and mix of the Company's interest-earning assets, the yield on said
assets, and the current level of market interest rates.
In the first quarter of 1999, the Company recorded an $889,000 increase in
interest income to $33.4 million, from $32.5 million in the year-earlier three
months. The increase was the net effect of a $127.1 million rise in the average
balance of interest-earning assets to $1.7 billion and a 42-basis point decline
in the average yield to 7.91%.
Mortgage and other loans were the primary source of interest income in the
quarter, generating 91.3% of the total, with securities held to maturity
representing 6.9%. The balance of interest income was produced by the Company's
portfolios of mortgage-backed securities held to maturity and money market
investments.
-14-
<PAGE>
Mortgage and other loans contributed $30.5 million in interest income, up
$468,000 from the level contributed in the first quarter of 1998. The increase
was the net effect of an $89.3 million, or 6.4%, rise in the average balance to
$1.5 billion and a 39-basis point drop in the average yield to 8.17%. Mortgage
and other loans represented 88.4% of average interest-earning assets in the
current first quarter, as compared to 89.9% in the year-earlier three months.
Securities held to maturity provided $2.3 million in interest income, up 43.1%
from the $1.6 million provided in the year-earlier three months. The $692,000
increase was the net result of a $52.2 million, or 51.6%, rise in the average
balance to $153.3 million and a 36-basis point drop in the average yield to
5.99%. Securities represented 9.1% of average interest-earning assets, up from
6.5% in the first quarter of 1998.
Mortgage-backed securities generated $331,000 in interest income, as compared to
$753,000 in the first quarter of 1998. The reduction stemmed from a $29.1
million decline in the average balance to $18.8 million, outweighing a 76-basis
point rise in the average yield to 7.04%.
Money market investments generated $267,000 in interest income, as compared to
$116,000 in the year-earlier three months. The increase was the net effect of a
$14.7 million rise in the average balance to $23.5 million and a 73-basis point
drop in the average yield to 4.54%.
Interest Expense
The level of interest expense is driven by the average balance and composition
of the Company's interest-bearing liabilities and by the respective costs of the
funding sources found within this mix. These factors are influenced, in turn, by
competition for deposits and by the level of market interest rates.
In the first quarter of 1999, the Company recorded interest expense of $16.8
million, up $856,000 from $16.0 million in the first quarter of 1998. The
increase was the net effect of a $149.5 million, or 10.8%, rise in the average
balance of interest-bearing liabilities to $1.5 billion and a 23-basis point
drop in the average cost of funds to 4.45%.
While CDs accounted for the majority of interest expense in the current first
quarter, FHLB borrowings accounted for the largest percentage growth. In the
first quarter of 1999, CDs contributed 54.2% of total interest expense, down
from 57.1% in the year-earlier quarter, while FHLB borrowings accounted for
33.9%, up from 29.6%. Savings accounts contributed 9.2% of the first quarter
1999 total, with NOW and money market accounts and mortgagors' escrow providing
the balance of interest expense.
Specifically, FHLB borrowings accounted for interest expense of $5.7 million, up
$976,000 from the first quarter 1998 amount. The increase was the net effect of
a $99.8 million rise in the average balance to $439.2 million and a 39-basis
point drop in the average cost to 5.26%. FHLB borrowings represented 28.7% of
average interest-bearing liabilities in 1999's first quarter, as compared to
24.5% in the first quarter of 1998.
CDs generated $9.1 million in interest expense, down $8,000 from the
year-earlier level, the net result of a $42.2 million increase in the average
balance to $731.1 million and a 31-basis point drop in the average cost to
5.05%. CDs represented 47.7% of average interest-bearing liabilities in the
current first quarter, as compared to 49.8% in the year-earlier three months.
Savings accounts provided interest expense of $1.5 million, down $34,000 from
the year-earlier amount. The decrease was the net result of a $3.1 million
increase in the average balance and an eight-basis point reduction in the
average cost to 2.31%. Savings accounts comprised 17.7% of average
interest-bearing liabilities in the quarter, down from 19.3% in the first
quarter of 1998.
-15-
<PAGE>
NOW and money market accounts accounted for interest expense of $451,000, down
$68,000 from the first quarter 1998 amount. The decline was the net result of a
$1.8 million increase in the average balance to $68.9 million, and a 49-basis
point reduction in the average cost to 2.65%. NOW and money market accounts
represented 4.5% of average interest-bearing liabilities in the current first
quarter and generated 2.7% of total interest expense.
Mortgagors' escrow contributed $8,000 in interest expense, down from $18,000,
the net effect of a $2.6 million increase in the average balance to $22.6
million and a 22-basis point drop in the average cost to 0.14%.
Net Interest Income Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
---- ----
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 $ 1,491,518 $ 30,475 8.17% $ 1,402,216 $ 30,007 8.56%
Securities held to maturity 153,309 2,297 5.99 101,117 1,605 6.35
Mortgage-backed securities held to maturity 18,809 331 7.04 47,939 753 6.28
Money market investments 23,502 267 4.54 8,799 116 5.27
----------- -------- -------- ----------- -------- -------
Total interest-earning assets 1,687,138 33,370 7.91% 1,560,071 32,481 8.33%
Non-interest-earning assets 44,830 42,335
----------- -----------
Total assets $ 1,731,968 $ 1,602,406
=========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
NOW and money market accounts $ 68,948 $ 451 2.65% $ 67,125 $ 519 3.14%
Savings accounts 270,721 1,542 2.31 267,606 1,576 2.39
Certificates of deposit 731,088 9,104 5.05 688,938 9,112 5.36
FHLB borrowings 439,232 5,701 5.26 339,391 4,725 5.65
Mortgagors' escrow 22,635 8 0.14 20,057 18 0.36
----------- -------- -------- ----------- -------- -------
Total interest-bearing liabilities 1,532,624 16,806 4.45% 1,383,117 15,950 4.68%
-------- --------
Non-interest-bearing deposits 34,772 30,214
Other liabilities 26,749 27,199
----------- -----------
Total liabilities 1,594,145 1,440,530
Stockholders' equity 137,823 161,876
----------- -----------
Total liabilities and stockholders' equity $ 1,731,968 $ 1,602,406
=========== ===========
Net interest income/interest rate spread $ 16,564 3.46% $ 16,531 3.65%
======== ======== ======== ========
Net interest-earning assets/net
interest margin $ 154,514 3.93 $ 176,954 4.24
=========== ======== =========== ========
Ratio of interest-earning assets
to interest-bearing liabilities 110.08 112.79
======== ========
</TABLE>
-16-
<PAGE>
Net Interest Income
Net interest income is the Company's principal source of income. Its level is a
function of the average balance of interest-earning assets, the average balance
of interest-bearing liabilities, and the spread between the yield on said assets
and the cost of said liabilities. These factors, in turn, are influenced by the
pricing and mix of the Company's interest-earning assets and funding sources,
and by such external factors as economic conditions, competition for loans and
deposits, and the monetary policy of the Federal Open Market Committee of the
Federal Reserve Board of Governors.
In the first quarter of 1999, net interest income was $16.6 million, down from
$17.2 million in the trailing quarter, and up $33,000 from $16.5 million in the
first quarter of 1998. The Company recorded an interest rate spread of 3.46% for
the current first quarter, as compared to 3.71% and 3.65% in the quarters ended
December 31 and March 31, 1998. Similarly, the Company's net interest margin
declined to 3.93% from 4.11% and 4.24% in the corresponding periods. While these
reductions stemmed, in part, from external market forces, the declines also
reflect the allocation of $13.4 million toward the repurchase of Company shares
in the first quarter of 1999.
Nonetheless, the Company's spread and margin continued to exceed the average
thrift industry measures, reflecting the higher yields provided by the Company's
growing portfolio of multi-family mortgages and the careful pricing of its
depository accounts.
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment of
the adequacy of the loan loss allowance which, in turn, is based on such
interrelated factors as the composition of the loan portfolio and its inherent
risk characteristics; the level of non-performing loans and charge-offs, both
current and historic; local economic conditions; the direction of real estate
values; and current trends in regulatory supervision.
In the first quarter of 1999, the Company strengthened its already solid record
of asset quality. As previously mentioned, the Company recorded reductions in
non-performing loans and non-performing assets and maintained the fully
performing status of the multi-family mortgage loan portfolio. Non-performing
loans improved to $5.6 million, or 0.37% of loans, net, at the close of the
current first quarter, while non-performing assets improved to $6.2 million, or
0.35% of total assets.
In addition, the first quarter of 1999 marked the Company's eighteenth
consecutive quarter without any net charge-offs being recorded. Since 1987, net
charge-offs have totaled $1.4 million, bringing the average to $107,000 per year
over the past 13 years.
In view of these factors, management reversed $2.0 million from the allowance
for loan losses, resulting in a net benefit of $1.1 million. At $7.4 million,
the loan loss allowance equaled 132.46% of non-performing loans and 0.49% of
loans, net, at March 31, 1999, and 521.11% of accumulated net charge-offs since
1987.
Absent a change in the quality of the Company's assets or a downturn in the New
York City real estate market, management anticipates that it will maintain the
allowance for loan losses at the current level by suspending the provision for
loan losses for the remainder of the year.
For additional information about asset quality and the allowance for loan
losses, see the discussion and analysis on page 9 of this report.
-17-
<PAGE>
Other Operating Income
The Company derives other operating income from service fees and fees charged on
loans and depository accounts.
In the first quarter of 1999, the Company recorded other operating income of
$630,000, as compared to $557,000 in the year-earlier three months. The $73,000,
or 13.1%, increase was the net effect of a $76,000 rise in fee income to
$481,000 and a $3,000 drop in other income to $149,000.
Operating Expense
Operating expense consists of compensation and benefits, occupancy and
equipment, general and administrative ("G&A"), and other expenses. The Company's
ability to contain such costs is one of its distinguishing characteristics, and
is reflected in its ratio of operating expense to average assets and to the sum
of net interest income and other operating income (the "efficiency ratio").
Included in compensation and benefits expense are expenses associated with the
amortization and appreciation of shares held in the Company's stock-related
benefit plans ("plan-related expenses"), which are added back to stockholders'
equity at the end of the period.
In the first quarter of 1999, operating expense improved to $5.6 million, or
1.29% of average assets, from $6.7 million, or 1.67% of average assets, in the
first quarter of 1998. The decline in operating expense primarily stemmed from a
$1.0 million decline in plan-related expenses due to certain changes in the
Company's stock-related benefit plans. Such plan-related expenses totaled
$628,000 in the current first quarter, down from $1.7 million in the
year-earlier three months. The decline in these expenses is expected to
continue, which should have a favorable effect on the level of compensation and
benefits and operating expense in the quarters ahead.
The improvement in operating expense was also fueled by a $54,000 decline in
occupancy and equipment expense to $618,000 and a $68,000 decline in other
expense to $54,000. These reductions combined to offset a $75,000 increase in
G&A expense to $1.2 million.
Reflecting the reduction in operating expense and the year-over-year growth in
net interest income and other operating income, the Company's efficiency ratio
improved to 32.49% from 39.04% on the basis of GAAP earnings and to 28.84% from
29.28% on the basis of cash earnings.
The Company had 275 full-time equivalent employees at March 31, 1999.
Income Tax Expense
Income tax expense, which includes Federal, state, and local taxes, rose to $5.4
million in the first quarter of 1999 from $4.2 million in the first quarter of
1998. The increase reflects a $3.2 million rise in pre-tax income to $13.6
million, and an effective tax rate of 39.5%.
Included in first quarter 1999 and 1998 income tax expense were $1.7 million and
$3.1 million, respectively, in non-cash expenses stemming from the Company's
stock-related benefit plans. The reduction reflects the changes made to said
plans during the current first quarter. It is anticipated that these changes
will continue to favorably impact income tax expense in the future.
-18-
<PAGE>
The Year 2000 Issue
The approach of the millenium has triggered an intense review, analysis, and,
where needed, modification of the internal and external computer programs and
systems utilized in the day-to-day operation of companies across all industries.
These actions have been necessitated by the fact that the majority of computer
programs and systems were originally programmed using two digits, rather than
four, to indicate the calendar year. Thus, in the absence of modification,
computers would fail to recognize the year 2000, taking the digits "00" to mean
the year 1900 instead.
Like most financial institutions, Queens County Savings Bank may be
significantly impacted by the Year 2000, due to the nature of the information it
generates and employs. Likely to be impacted are the software and hardware
utilized in its business, including those programs and systems that are
maintained for the Bank by third party vendors who provide such services as data
processing, information systems management, maintenance, and credit bureau
reports. If not addressed, the Year 2000 issue could adversely impact the Bank's
ability to provide financial products and services competitively.
To ensure that the Bank is fully operational at the onset of the Year 2000, the
Bank has been actively engaged in preparations for this event. These
preparations are detailed in the Company's 1998 Annual Report to Shareholders,
and include the following:
o In 1997, all internal systems were modified or replaced with Year
2000-compliant systems;
o In 1998, the Bank completed its assessment of its external systems
and the development of contingency plans for each system used;
o Testing of the Bank's mission-critical loan and deposit systems was
initiated in the fourth quarter of 1998 and is expected to be
completed by June 30, 1999;
o The Bank has received written assurances that these systems, and the
software its vendor is licensed to use, will be Year 2000-compliant
by the third quarter of 1999. In the event that they are not, the
Company's primary service provider--a nationally recognized provider
of data processing services--has arranged for another third-party
vendor to provide the Bank with data processing services; such
vendor has already successfully completed its Year 2000 testing.
The costs involved in preparing for the Year 2000 have consistently been charged
against earnings as they have been incurred. The Company estimates that total
costs related to this project will not exceed $100,000. To date, over half of
the estimated costs have already been expensed.
As a result of its efforts, and on the basis of current information, management
believes that all critical systems modifications and conversions will be
completed in a timely manner, thus reducing the Bank's exposure to risk
associated with the approaching millenium. However, if such modifications and
conversions are not made, or are not completed on a timely basis, the Year 2000
issue could have a material adverse impact upon the Bank.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company's market risk were
presented in the discussion and analysis of Market Risk and Interest Rate
Sensitivity that appear on pages 16 - 18 of the Company's 1998 Annual Report to
Shareholders, filed on March 19, 1999. As of March 31, 1999, there was no
material change in the Company's market risk profile since the 1998 Annual
Report was filed.
-19-
<PAGE>
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 21, 1999.
Proxies were solicited with respect to such meeting under Regulation 14A
of the Securities Exchange Act of 1934, as amended, pursuant to proxy
materials dated March 19, 1999. Of the 21,573,713 shares eligible to vote
at the annual meeting, 18,708,506 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:
No. of Votes No. of Votes Broker
For Withheld Non-Votes
--- -------- ---------
Max L. Kupferberg 18,187,964 520,542 -0-
Dominick Ciampa 18,191,136 517,370 -0-
Richard H. O'Neill 18,190,541 517,965 -0-
The following directors are serving terms of office that continue through 1999
and 2000, as noted:
Director Year Term Expires
-------- -----------------
Donald M. Blake 2000
Joseph G. Chisholm 2000
Joseph R. Ficalora 2000
Harold E. Johnson 2001
Luke D. Lynch 2001
Henry E. Froebel 2001
Howard C. Miller 2001
-20-
<PAGE>
(c) One additional proposal was submitted for a vote, with the following
results:
No. of Votes No. of Votes No. of Votes Broker
For Against Abstaining Non-Votes
--- ------- ---------- ---------
1. Ratification of the 18,246,174 18,777 410,887 32,668
appointment of KPMG
LLP as independent
auditors for the
fiscal year ending
December 31, 1999
Item 5. Other Information
On April 20, 1999, the Board of Directors declared a quarterly cash dividend of
25 cents per share. The dividend is payable on May 17, 1999 to shareholders of
record at the close of business on May 3, 1999.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1: Certificate of Incorporation*
Exhibit 3.2: Bylaws**
Exhibit 11: Statement re: Computation of Per Share Earnings - filed
herewith
Exhibit 27: Financial Data Schedule - filed herewith
(b) Reports on Form 8-K
Not applicable.
* Incorporated by reference to the Exhibits filed with the Registration
Statement on Form S-1, as amended, Registration No. 33-65852.
** Incorporated by reference to the Exhibits filed with the Annual Report on
Form 10K for the fiscal year ended December 31, 1998, File No. 0-22278.
-21-
<PAGE>
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 10, 1999 BY: /s/ Joseph R. Ficalora
--------------------------------
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Duly Authorized Officer)
DATE: May 10, 1999 BY: /s/ Robert Wann
--------------------------------
Robert Wann
Senior Vice President,
Comptroller, and Chief Financial
Officer
(Principal Financial Officer)
-22-
Exhibit 11
QUEENS COUNTY BANCORP, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended
March 31,
(in thousands, except per share data) 1999 1998(1)
- --------------------------------------------------------------------------------
Net income $ 8,237 $ 6,255
Weighted average common shares outstanding 18,535 19,274
Earnings per common share $0.44 $0.33
Weighted average common shares outstanding 18,535 19,274
======= =======
Additional dilutive shares using average market
value for the period when utilizing the
Treasury stock method regarding stock options 573 1,262
------- -------
Total shares for diluted earnings per share 19,108 20,536
======= =======
Diluted earnings per common share
and common share equivalents $0.43 $0.31
======= =======
(1) Reflects shares issued as a result of a 3-for-2 stock split on September
29, 1998.
23
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<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
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<INT-BEARING-DEPOSITS> 0
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0
0
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