UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2000
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
20,686,910
-------------------------------
Number of shares outstanding at
August 3, 2000
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
Three Months Ended June 30, 2000
INDEX Page No.
--------
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of June 30, 2000
(unaudited) and December 31, 1999 1
Consolidated Statements of Income and Comprehensive Income for
the Three and Six Months Ended June 30, 2000 and 1999 (unaudited) 2
Consolidated Statement of Changes in Stockholders' Equity
for the Six Months Ended June 30, 2000 (unaudited) 3
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 2000 and 1999 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 22
Part II OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
Signatures 25
Exhibits 26
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
(unaudited)
---------- -----------
<S> <C> <C>
Assets
Cash and due from banks $ 17,249 $ 31,224
Money market investments 6,000 6,000
Securities held to maturity (estimated market value of
$187,781 and $180,181, respectively) 193,379 184,637
Mortgage-backed securities held to maturity (estimated market
value of $2,071 and $2,135, respectively) 2,022 2,094
Securities available for sale 12,482 12,806
Mortgage loans:
1-4 family 141,779 152,644
Multi-family 1,491,872 1,348,352
Commercial real estate 102,480 96,008
Construction 6,395 4,793
---------- ----------
Total mortgage loans 1,742,526 1,601,797
Other loans 9,340 8,741
Less: Unearned loan fees (1,589) (2,428)
Allowance for loan losses (7,031) (7,031)
---------- ----------
Loans, net 1,743,246 1,601,079
Premises and equipment, net 9,625 10,060
Deferred tax asset, net 6,073 5,496
Other assets 57,557 53,439
---------- ----------
Total assets $2,047,633 $1,906,835
========== ==========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 105,265 $ 103,422
Savings accounts 281,221 274,501
Certificates of deposit 608,987 658,238
Non-interest-bearing accounts 44,284 39,857
---------- ----------
Total deposits 1,039,757 1,076,018
---------- ----------
Official checks outstanding 35,695 31,189
FHLB advances 801,315 636,378
Mortgagors' escrow 18,238 10,288
Other liabilities 17,896 15,821
---------- ----------
Total liabilities 1,912,901 1,769,694
---------- ----------
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; 20,769,910 and 21,010,127 shares
outstanding at June 30, 2000 and December 31, 1999, respectively) 310 310
Paid-in capital in excess of par 150,966 147,607
Retained earnings (substantially restricted) 149,403 150,545
Less: Treasury stock (10,200,783 and 9,960,566 shares, respectively) (149,865) (145,122)
Unallocated common stock held by ESOP (12,202) (12,388)
Common stock held by SERP (3,770) (3,770)
Unearned common stock held by RRPs (41) (41)
Accumulated other comprehensive loss, net of tax effect (69) --
---------- ----------
Total stockholders' equity 134,732 137,141
---------- ----------
Total liabilities and stockholders' equity $2,047,633 $1,906,835
========== ==========
</TABLE>
See accompanying notes to financial statements.
1
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest Income:
Mortgage and other loans $34,604 $32,014 $67,729 $62,488
Securities 3,327 2,302 6,350 4,599
Mortgage-backed securities 60 300 122 631
Money market investments 71 66 129 333
------- ------- ------- -------
Total interest income 38,062 34,682 74,330 68,051
------- ------- ------- -------
Interest Expense:
NOW and money market accounts 855 448 1,640 899
Savings accounts 1,594 1,588 3,195 3,129
Certificates of deposit 7,975 8,776 16,051 17,880
FHLB advances 11,312 6,373 20,669 12,074
Mortgagors' escrow 7 7 13 15
------- ------- ------- -------
Total interest expense 21,743 17,192 41,568 33,997
------- ------- ------- -------
Net interest income 16,319 17,490 32,762 34,054
Reversal of provision for loan losses -- -- -- (2,000)
------- ------- ------- -------
Net interest income after reversal of
provision for loan losses 16,319 17,490 32,762 36,054
------- ------- ------- -------
Other Operating Income:
Fee income 490 452 991 933
Other 759 61 1,369 210
------- ------- ------- -------
Total other operating income 1,249 513 2,360 1,143
------- ------- ------- -------
Operating Expense:
Compensation and benefits 3,430 3,915 6,919 7,590
Occupancy and equipment 681 553 1,424 1,171
General and administrative 1,222 1,215 2,463 2,454
Other 187 157 352 211
------- ------- ------- -------
Total operating expense 5,520 5,840 11,158 11,426
------- ------- ------- -------
Income before income taxes 12,048 12,163 23,964 25,771
Income tax expense 4,278 4,714 8,600 10,085
------- ------- ------- -------
Net income $ 7,770 $ 7,449 $15,364 $15,686
------- ------- ------- -------
Comprehensive income, net of tax:
Unrealized gain (loss) on securities 431 418 (69) 147
------- ------- ------- -------
Comprehensive income $ 8,201 $ 7,867 $15,295 $15,833
======= ======= ======= =======
Earnings per share $0.44 $0.40 $0.87 $0.84
Diluted earnings per share $0.44 $0.39 $0.86 $0.82
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Six Months Ended
June 30, 2000
(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 147,607
Tax benefit effect on stock plans 2,705
Allocation of ESOP stock 654
---------
Balance at end of period 150,966
---------
Retained Earnings:
Balance at beginning of year 150,545
Net income 15,364
Dividends paid on common stock (9,031)
Exercise of stock options (356,945 shares) (7,475)
---------
Balance at end of period 149,403
---------
Treasury Stock:
Balance at beginning of year (145,122)
Purchase of common stock (597,162 shares) (12,663)
Exercise of stock options (356,945 shares) 7,920
---------
Balance at end of period (149,865)
---------
Employee Stock Ownership Plan:
Balance at beginning of year (12,388)
Allocation of ESOP stock 186
---------
Balance at end of period (12,202)
---------
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 (41)
Earned portion of RRPs --
---------
Balance at end of period (41)
---------
Accumulated Comprehensive Loss, Net of Tax:
Balance at beginning of year --
Net unrealized depreciation in securities, net of tax (69)
---------
Balance at end of year (69)
---------
Total stockholders' equity $ 134,732
=========
See accompanying notes to financial statements.
3
<PAGE>
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
2000 1999
(in thousands) (unaudited)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 15,364 $ 15,686
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 512 441
Reversal of provision for loan losses -- (2,000)
(Accretion) amortization of premiums, net (2) 2
Amortization of net deferred loan origination fees 839 797
Net gain on redemption of securities and mortgage-backed securities -- (17)
Net gain on sale of foreclosed real estate (101) (116)
Tax benefit effect on stock plans 2,705 3,592
Earned portion of RRPs -- 22
Earned portion of ESOP 840 1,303
Changes in assets and liabilities:
(Increase) decrease in deferred income taxes (577) 639
Increase in other assets (4,118) (1,775)
Increase in official checks outstanding 4,506 1,961
Increase (decrease) in other liabilities 2,075 (823)
--------- ---------
Total adjustments 6,679 4,026
--------- ---------
Net cash provided by operating activities 22,043 19,712
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturity of securities and mortgage-backed securities 270 18,502
Purchase of securities held to maturity (8,739) (16,550)
Net increase in loans (143,317) (156,450)
Proceeds from sale of loans and foreclosed real estate 468 3,131
Purchase of premises and equipment, net (77) (55)
--------- ---------
Net cash used in investing activities (151,395) (151,422)
--------- ---------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 7,950 8,390
Net (decrease) increase in deposits (36,261) 3,416
Net increase in FHLB advances 164,937 119,976
Cash dividends paid and options exercised, net (16,506) (32,996)
Purchase of Treasury stock, net of stock options exercised (4,743) 7,442
--------- ---------
Net cash provided by financing activities 115,377 106,228
--------- ---------
Net decrease in cash and cash equivalents (13,975) (25,482)
Cash and cash equivalents at beginning of period 37,224 46,561
--------- ---------
Cash and cash equivalents at end of period $ 23,249 $ 21,079
========= =========
Supplemental information:
Cash paid for:
Interest $41,576 $33,979
Income taxes 9,009 8,866
Transfers to foreclosed real estate from loans -- 519
Transfers to real estate held for investment from foreclosed real estate -- 425
</TABLE>
See accompanying notes to financial statements.
4
<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, in the opinion of
management, are necessary to present a fair statement of the results for the
periods presented. The results of operations for the three and six months ended
June 30, 2000 are not necessarily indicative of the results of operations that
may be expected for all of 2000.
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 1999 Annual Report to Shareholders and incorporated by reference
into the Company's 1999 Annual Report on Form 10-K.
5
<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 Counties and
investing these funds in the origination of multi-family mortgage loans
throughout metropolitan New York.
On June 27, 2000, the Company announced that it had signed a definitive merger
agreement to acquire Haven Bancorp, Inc., the $2.9 billion holding company for
CFS Bank. The combined entity, to be named New York Community Bancorp, Inc. and
traded on Nasdaq under the symbol "NYCB," will have assets of approximately $5.0
billion and deposits of approximately $3.2 billion prior to a planned
restructuring. Upon completion of the merger, the pro forma company will have a
network of 19 traditional branch offices and three customer service centers
serving Queens and Nassau Counties, and 62 supermarket branches extending
throughout the metropolitan New York area.
Following the merger, it is management's intent to restructure the balance sheet
with the sale of approximately $1.0 billion in mortgage loans and securities;
the proceeds will be used to reduce the balance of Federal Home Loan Bank
("FHLB") advances. In addition, management anticipates selling 15 of the
supermarket branches that are located in New Jersey and Connecticut.
The transaction, valued at approximately $196.0 million, will be accounted for
using the purchase method of accounting, and is expected to close in the fourth
quarter of 2000, subject to shareholder and regulatory approval. A Special
Meeting of Shareholders has been tentatively scheduled for September 26, 2000.
Earlier in the second quarter of 2000, the Company negotiated a transaction
calling for the sale of its executive office building at 38-25 Main Street in
Flushing to the developer who previously contracted to acquire the adjacent
parking lot. The Company will realize a pre-tax gain of approximately $14.0
million from the combined sale of these properties in the fourth quarter of
2000. Upon completion of the merger with Haven Bancorp, New York Community
Bancorp, the successor organization, will be headquartered in Westbury, New
York, at Haven Bancorp's current executive offices.
The Company, meantime, generated second quarter 2000 earnings of $7.8 million,
representing a 12.8% year-over-year increase in diluted earnings per share to
$0.44. Despite the pressure of rising rates, the Company originated mortgage
loans of $115.4 million and entered the third quarter with a pipeline of $206.0
million.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The Company's second quarter 2000 performance and its pending acquisition of
Haven Bancorp are discussed throughout the following pages. Such discussion
occasionally includes forward-looking statements with regard to the Company's
prospective performance and strategies within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. The Company intends for such forward-looking statements
to be covered by the safe harbor provisions for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995, and is
including this statement for purposes of said safe harbor provisions.
6
<PAGE>
The forward-looking statements contained within this report are based on
information currently available to management and on management's current
expectations regarding a range of issues that could potentially impact the
Company's performance and strategies in future periods. The Company undertakes
no obligation to update these forward-looking statements.
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.
In addition, the following factors, among others, could cause the actual results
of the merger with Haven Bancorp to differ materially from the expectations
stated in this filing: the ability of the companies to obtain the required
shareholder or regulatory approvals of the merger; the ability of the companies
to consummate the merger; the ability to successfully integrate the companies
following the merger; a materially adverse change in the financial condition of
either company; the ability to fully realize the expected cost savings and
revenues; and the ability to realize the expected cost savings and revenues on a
timely basis.
These risks and uncertainties should be considered in evaluating any
forward-looking statements, and undue reliance should not be placed upon them.
Financial Condition
Balance Sheet Summary
At June 30, 2000, the Company recorded total assets of $2.0 billion, up $140.8
million, or 7.4%, from $1.9 billion at December 31, 1999. Mortgage loans rose
$140.7 million, or 8.8%, to $1.7 billion, representing 85.1% of total assets,
after year-to-date originations of $257.8 million. Multi-family mortgage loans
represented $1.5 billion oF mortgage loans outstanding, up $143.5 million, or
10.6%, from the year-end 1999 amount. Included in the $1.5 billion balance were
year-to-date originations of $238.9 million. Entering the third quarter of 2000,
the Company had a pipeline of $206.0 million, primarily consisting of
multi-family mortgage loans.
Loan growth was also fueled by a $6.5 million rise in the balance of commercial
real estate loans to $102.5 million and a $1.6 million rise in construction
loans to $6.4 million, offsetting a $10.9 million decline in one-to-four family
mortgage loans to $141.8 million.
The quality of the Company's loans continued to be exemplary. In addition to
extending its record to 23 consecutive quarters without any net charge-offs, the
Company recorded non-performing loans of $3.0 million, representing 0.17% of
loans, net, at June 30, 2000. As the Company had no foreclosed real estate at
quarter's end, total non-performing assets equaled $3.0 million, representing
0.15% of total assets at the corresponding date.
In the absence of any net charge-offs or provisions for loan losses, the
allowance for loan losses was maintained at $7.0 million, representing 235.46%
of non-performing loans and 0.40% of loans, net.
Asset growth was further driven by an $8.7 million rise in securities held to
maturity to $193.4 million, and by a $599,000 rise in other loans to $9.3
million. These increases served to offset a $324,000 decline in securities
available for sale to $12.5 million and a $72,000 drop in mortgage-backed
securities held to maturity to $2.0 million. Money market investments held
steady at $6.0 million.
7
<PAGE>
Deposits totaled $1.0 billion at June 30, 2000, down $36.3 million from the
level recorded at December 31, 1999. The decrease was the net effect of a $13.0
million rise in core deposits to $430.8 million and a $49.3 million reduction in
the balance of CDs to $609.0 million. Additional funding stemmed from the
Company's FHLB advances, which totaled $801.3 million at the end of the second
quarter, as compared to $636.4 million at year-end 1999.
Stockholders' equity totaled $134.7 million at the close of the second quarter,
representing 6.58% of total assets and a book value of $7.47 per share, based on
18,034,733 shares. The Company distributed dividends of $9.0 million in the
first six months of 2000 and allocated $12.7 million toward the repurchase of
597,162 Company shares. The Board of Directors authorized the repurchase of
500,000 shares on April 11, 2000; at June 30, 265,906 shares remained available.
In addition, the Company will repurchase up to 20% of the shares to be issued in
the transaction with Haven Bancorp.
The Company's capital ratios continued to exceed the minimum levels required by
the FDIC. In addition, the Bank recorded a leverage capital ratio of 7.09%, a
Tier 1 risk-based capital ratio of 10.65%, and a total risk-based capital ratio
of 11.18%, at June 30, 2000, reflecting the transfer of $57.8 million in capital
from the Bank to the Company in the first six months of the year.
Loans
The Company recorded total mortgage loans of $1.7 billion at June 30, 2000, up
$140.7 million from the balance recorded at December 31, 1999. The 8.8% increase
was largely driven by multi-family mortgage loan production: of the $257.8
million in loans produced in the first six months of 2000, $238.9 million, or
92.7%, were categorized as multi-family mortgage loans. The second quarter
accounted for $115.4 million of year-to-date mortgage loan production, including
$107.0 million in multi-family mortgage loans. Multi-family mortgage loans
represented $1.5 billion, or 85.6%, of mortgage loans outstanding at the close
of the second quarter, up $143.5 million, or 10.6%, from the year-end 1999
amount. The average multi-family loan had a principal balance of $1.4 million
and a loan-to-value ratio of 56.2%.
Loan growth was also fueled by a $6.5 million rise in the balance of commercial
real estate loans to $102.5 million, after originations of $11.0 million, and a
$1.6 million rise in construction loans to $6.4 million, after originations of
$3.8 million. Included in the year-to-date production were second quarter
commercial real estate loan originations of $3.7 million and second quarter
construction loan originations of $2.6 million. The balance of one-to-four
family mortgage loans, meanwhile, declined $10.9 million to $141.8 million,
after year-to-date originations of $4.2 million, including $2.1 million in the
second quarter of the year. The Company's commercial real estate loans had an
average principal balance of $709,300 at June 30, 2000, with an average
loan-to-value ratio of 47.4%. The average principal balance of one-to-four
family mortgage loans was $67,400, with an average loan-to-value ratio of 40.1%.
Other loans totaled $9.3 million at the close of the second quarter, up $599,000
from $8.7 million at year-end 1999.
Notwithstanding the challenge of a rising rate environment, the Company had a
pipeline of $206.0 million entering the third quarter of 2000.
Asset Quality
The Company's long-standing record of asset quality was reinforced by its
performance in the second quarter of 2000. At June 30, non-performing loans
declined $203,000 to $3.0 million (representing 0.17% of loans, net) from $3.2
million (representing 0.19%) at the end of the trailing quarter and declined
$122,000 from $3.2
8
<PAGE>
million (representing 0.19%) at December 31, 1999. Included in non-performing
loans at June 30, 2000 were 24 non-accrual loans totaling $2.7 million and 11
loans 90 days or more delinquent totaling $287,000, all of which were secured by
one-to-four family homes.
The Company had no foreclosed real estate at June 30 or March 31, 2000,
reflecting the sale of a foreclosed property in the first quarter. At December
31, 1999, foreclosed real estate totaled $66,000. As a result, non-performing
assets totaled $3.0 million, representing 0.15% of total assets, at June 30,
2000, down from $3.2 million (representing 0.16%) at the end of the trailing
quarter and down from $3.2 million (representing 0.17%) at year-end 1999.
In addition, the second quarter of 2000 was the Company's 23rd consecutive
quarter without any net charge-offs being recorded. Reflecting the quality of
the loan portfolio, the provision for loan losses was suspended for the 20th
consecutive quarter, thus maintaining the allowance for loan losses at $7.0
million. In addition to representing 235.46% of non-performing loans and 0.40%
of loans, net, at June 30, 2000, the $7.0 million represented 493.06% of
accumulated net charge-offs since 1987. In the year-earlier six-month period,
the Company reversed $2.0 million from the allowance for loan losses, resulting
in a $1.1 million, or $0.06 per share, net gain.
From time to time, properties that are classified as "foreclosed real estate"
are profitably rented by the Company. When this occurs, such properties are
reclassified as "real estate held for investment" and included in "other assets"
on the balance sheet. In the second quarter of 2000, the Company sold three
pieces of real estate held for investment, reducing the number of such
properties to 13 at June 30. The 13 properties totaled $1.3 million and yielded
an average rate of return of 8.86%.
Asset Quality Analysis
At or For the At or For the
Six Months Ended Year Ended
June 30, December 31,
2000 1999
(dollars in thousands) (unaudited)
--------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance at beginning of period $7,031 $9,431
Reversal of provision for loan losses -- (2,400)
------ ------
Balance at end of period $7,031 $7,031
====== ======
Non-performing Assets at Period-end:
Mortgage loans in foreclosure $2,699 $2,886
Loans 90 days or more delinquent 287 222
------ ------
Total non-performing loans $2,986 3,108
Foreclosed real estate -- 66
------ ------
Total non-performing assets $2,986 $3,174
====== ======
Ratios:
Non-performing loans to loans, net 0.17% 0.19%
Non-performing assets to total assets 0.15 0.17
Allowance for loan losses to non-performing loans 235.46 226.22
Allowance for loan losses to loans, net 0.40 0.44
Allowance for loan losses to accumulated net
charge-offs since 1987 493.06 493.06
9
<PAGE>
Securities and Money Market Investments
While mortgage loan production remains the Company's primary focus, its asset
mix is enriched by a portfolio of short-term securities held to maturity and
securities available for sale. At June 30, 2000, the balance of securities held
to maturity totaled $193.4 million, up $8.7 million from the $184.6 million
balance at December 31, 1999. The portfolio of securities available for sale
declined $324,000 to $12.5 million, while money market investments, consisting
entirely of Federal funds sold, held steady at $6.0 million.
The Company's securities held to maturity consist primarily of U.S. Government
and Agency obligations, and FHLB stock. At June 30, 2000, U.S. Government and
Agency obligations represented $140.3 million of the total, consistent with the
year-end 1999 total, with FHLB stock representing $40.8 million, equal to the
year-end 1999 amount. At June 30, 2000 and December 31, 1999, the market values
of securities held to maturity were, respectively, $187.8 million and $180.2
million, equivalent to 97.1% and 97.6% of carrying value at the respective
dates.
Mortgage-backed Securities Held to Maturity
Reflecting prepayments and the absence of any new investments in such assets,
the portfolio of mortgage-backed securities declined $72,000 to $2.0 million at
June 30, 2000 from $2.1 million at December 31, 1999. The market value of the
portfolio was $2.1 million, or 102.4% of carrying value, at the close of the
current quarter, as compared to $2.1 million, or 102.0% of carrying value, at
year-end. The Company classifies all mortgage-backed securities as held to
maturity; at June 30, 2000, the average maturity of the portfolio was 2.5 years.
Sources of Funds
Funding for the Company's mortgage loan production stems primarily from deposits
and from its line of credit with the FHLB-NY. Additional funding stems from
interest and principal payments on loans and the interest on, and maturity of,
securities.
The Company recorded deposits of $1.0 billion at June 30, 2000, down $36.3
million from the balance recorded at December 31, 1999. Core deposits
represented 41.4% of the June 30 total, having risen to $430.8 million from
$417.8 million, or 38.8% of total deposits, at year-end. The increase stemmed
from a $1.8 million rise in NOW and money market accounts to $105.3 million, a
$6.7 million rise in savings accounts to $281.2 million, and a $4.4 million rise
in the balance of non-interest-bearing accounts to $44.3 million. The combined
$13.0 million increase in core deposits served to temper a $49.3 million decline
in CDs to $609.0 million, representing 58.6% of total deposits, from $658.2
million, or 61.2% of the year-end 1999 amount.
To supplement the funding provided by deposits, the Company uses FHLB advances
to fund loan demand. At June 30, 2000, FHLB advances totaled $801.3 million, up
$164.9 million since December 31, 1999.
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,
liquidity,
10
<PAGE>
and capital, as well as to evaluate its strategies. As part of this process,
management measures the sensitivity of net interest income to changes in
interest rates. This process 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 market
interest rate fluctuations, management considers such factors as scheduled
maturities, repricing characteristics, deposit growth and retention, and
estimated cash flows.
The relative sensitivity of assets and liabilities is particularly important, as
the Bank'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 based on external indices. 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
emphasized the origination of adjustable rate mortgage loans on multi-family
buildings and commercial real estate properties, 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.
The sale of $211.6 million in multi-family mortgage loans to the FHLB-NY in the
fourth quarter of 1999 was partly designed to bolster net interest income in the
current rising rate environment, by facilitating the origination of mortgage
loans at higher yields. At June 30, 2000, the Company's exposure to interest
rate risk was comparable to that discussed in the 1999 Annual Report to
Shareholders, despite the 100-basis point rise in market interest rates in the
first six months of this year.
It is anticipated that the acquisition of Haven Bancorp, with a significant
concentration of core deposits, will enhance the Company's position with regard
to interest rate risk.
Liquidity and Capital Position
Liquidity
As previously indicated, the Company's primary funding sources are deposits and
FHLB advances. Additional funding stems from interest and principal payments on
loans, securities, and mortgage-backed securities, and the occasional sale of
loans and foreclosed real estate. While FHLB advances and scheduled amortization
of loans and securities are predictable funding sources, deposit flows and
mortgage prepayments are less so, being 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 six months
of 2000, the net cash used in investing activities totaled $151.4 million,
essentially reflecting a $143.3 million net increase in loans after six-month
originations of $257.8 million. The Company's investing activities were funded
by cash flows generated by its financing and operating activities. In the first
half of 2000, the net cash provided by financing activities totaled $115.4
million, primarily reflecting a $164.9 million net increase in FHLB advances.
Simultaneously, the net cash provided by operating activities totaled $22.0
million.
The Company monitors its liquidity 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. The Company's most
liquid assets are cash and due from banks and money market investments, which
collectively totaled $23.2 million at June 30, 2000 and $37.2 million at
December 31, 1999. The Company also had securities available for sale of $12.5
million and $12.8 million at the corresponding dates. Additional liquidity is
available through the Bank's FHLB line of credit and an additional $10.0 million
line of credit with a money center bank.
11
<PAGE>
The Company had loans totaling $206.0 million in the pipeline early in the third
quarter, which management anticipates having the ability to fund. In addition,
CDs due to mature in one year or less from June 30, 2000 totaled $507.6 million;
based on its historic and current retention rate, as well as current pricing,
management believes that a significant portion of such deposits will remain with
the Bank.
Capital Position
Supported by cash earnings of $20.3 million in the first six months of 2000, the
Company's stockholders' equity totaled $134.7 million at the close of the second
quarter, representing 6.58% of total assets and a book value of $7.47 per share,
based on 18,034,733 shares. By comparison, stockholders' equity totaled $137.1
million at December 31, 1999, representing 7.19% of total assets and a book
value of $7.52, based on 18,233,153 shares.
In addition to distributing cash dividends of $9.0 million in the current
six-month period, the Company allocated $12.7 million toward the repurchase of
597,162 Company shares, including 251,138 in the second quarter. At June 30,
2000, the number of shares available for repurchase under the Board of
Director's April 11, 2000 authorization was 265,906.
As previously indicated, the Company's acquisition of Haven Bancorp will be
accounted for using the purchase method of accounting. Accordingly, the Company
has indicated that it will repurchase up to 20% of the shares to be issued in
the transaction, above and beyond the shares already authorized for repurchase
by the Board.
The capital position of Queens County Savings Bank is similarly solid, as
reflected in the excess of its regulatory capital ratios over the minimum levels
required by the FDIC. At June 30, 2000, the Company's leverage capital totaled
$141.1 million, or 7.09% of adjusted average assets, while its Tier 1 and total
risk-based capital amounted to $141.1 million and $148.5 million, or 10.65% and
11.18% of risk-weighted assets, respectively. By comparison, the minimum Federal
requirements for leverage, Tier 1, and total risk-based capital are 3.00%,
4.00%, and 8.00%, respectively. The Bank's regulatory capital levels and ratios
reflect the transfer of $57.8 million in capital from the Bank to the Company
during the first six months of 2000.
Regulatory Capital Analysis (Bank Only)
<TABLE>
<CAPTION>
At June 30, 2000
----------------
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 $141,053 7.09% $141,053 10.65% $148,084 11.18%
Regulatory capital
requirement 59,717 3.00 52,992 4.00 105,983 8.00
-------- ---- -------- ---- -------- ----
Excess $ 81,336 4.09% $ 88,061 6.65% $ 42,101 3.18%
======== ==== ======== ==== ======== ====
</TABLE>
12
<PAGE>
Comparison of the Three Months Ended June 30, 2000 and 1999
Earnings Summary
The Company recorded earnings of $7.8 million for the three months ended June
30, 2000, up from $7.4 million for the three months ended June 30, 1999. On a
diluted per share basis, the Company's second quarter 2000 earnings rose 12.8%
to $0.44 in the current second quarter from $0.39 in the year-earlier three
months. The Company's second quarter 2000 earnings provided a 1.56% return on
average assets ("ROA") and a 24.07% return on average stockholders' equity
("ROE").
Cash earnings for the three months ended June 30, 2000 totaled $10.2 million, or
$0.57 per diluted share, providing a cash ROA and ROE of 2.04% and 31.47%,
respectively. The $10.2 million contributed 30.7% more to stockholders' equity
at June 30, 2000 than its GAAP earnings alone.
The Company's second quarter 2000 earnings were fueled by a substantial increase
in other operating income, and further supported by solid reductions in both
operating and income tax expense. Other operating income more than doubled to
$1.2 million from $513,000 in the year-earlier quarter, primarily reflecting
other income stemming from the Company's fourth quarter 1999 investment in
Bank-owned Life Insurance ("BOLI"). Operating expense fell $320,000 to $5.5
million, driven by a $485,000 reduction in compensation and benefits expense to
$3.4 million. Income tax expense declined $436,000 to $4.3 million, reflecting
the benefit of the BOLI investment, which contributed to a reduction in the
effective tax rate to 35.5%.
This combination of factors served to offset a decline in net interest income to
$16.3 million, the net effect of a $3.4 million increase in interest income and
a $4.6 million increase in interest expense. The rise in interest income stemmed
from a $161.6 million increase in the average balance of interest-earning assets
to $1.9 billion and a four-basis point increase in the average yield to 7.97%.
The rise in interest expense stemmed from a $201.8 million increase in the
average balance of interest-bearing liabilities to $1.8 billion and a 53-basis
point increase in the average cost of funds to 4.86%. While the year-over-year
decline in net interest income amounted to $1.2 million, the trailing-quarter
decrease was a more modest $124,000. Despite the pressure of rising market
interest rates and the Company's use of FHLB advances, the Company's interest
rate spread and net interest margin were 3.11% and 3.42%.
The provision for loan losses was suspended for the 20th consecutive quarter,
extending a practice initiated in the third quarter of 1995.
13
<PAGE>
Cash Earnings Analysis
(in thousands, except per share data)
For the
Three Months Ended
June 30,
--------------------
2000 1999
------- -------
Net income $ 7,770 $ 7,449
Additional contributions to stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 402 695
Associated tax benefits 1,293 1,899
Amortization of goodwill -- --
Other 694 715
------- -------
Cash earnings $10,159 $10,758
======= =======
Cash earnings per share $0.58 $0.58
Diluted cash earnings per share $0.57 $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.
The Company recorded interest income of $38.1 million in the second quarter of
2000, up $3.4 million from $34.7 million in the second quarter of 1999. The 9.8%
increase reflects a $161.6 million, or 9.2%, rise in the average balance of
interest-earning assets to $1.9 billion and a four-basis point rise in the
average yield to 7.97%.
Mortgage and other loans contributed $34.6 million to total interest income in
the current second quarter, up 8.1% from $32.0 million in the year-earlier three
months. The $2.6 million increase was the net effect of a $132.2 million rise in
the average balance of loans to $1.7 billion and a two-basis point decline in
the average yield to 8.12%. Loans represented 89.3% of average interest-earning
assets in the current second quarter, and generated 90.9% of total interest
income. In the second quarter of 1999, the respective percentages were 90.0% and
92.3%.
Securities contributed $3.3 million to total interest income in the current
second quarter, up from $2.3 million in the year-earlier three months. The 29.2%
increase stemmed from a $44.5 million rise in the average balance to $196.9
million and a 72-basis point rise in the average yield to 6.76%. Securities
represented 10.3% of average interest-earning assets in the second quarter of
2000, and generated 8.7% of total interest income. By comparison, securities
represented 8.7% of second quarter 1999 average interest-earning assets and
contributed 6.6% of total interest income in said period.
Money market investments generated interest income of $71,000 in the second
quarter of 2000, up $5,000 from the year-earlier amount. The increase was the
net effect of a $975,000 reduction in the average balance to $4.8 million and a
135-basis point rise in the average yield to 5.94%.
The growth in interest income derived from the aforementioned interest-earning
assets was only slightly tempered by a $240,000 decline in the interest income
stemming from mortgage-backed securities held to maturity. Mortgage-backed
securities held to maturity generated interest income of $60,000 in the current
second quarter,
14
<PAGE>
the net effect of a $14.1 million decline in the average balance to $3.3
million, and a 38-basis point increase in the average yield to 7.30%.
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.
The Company recorded interest expense of $21.7 million in the second quarter of
2000, up $4.5 million from $17.2 million in the second quarter of 1999. The
increase reflects a $201.8 million, or 12.7%, rise in the average balance of
interest-bearing liabilities to $1.8 billion and a 53-basis point rise in the
average cost of funds to 4.86%.
FHLB advances accounted for $11.3 million, or 52.0%, of total interest expense
in the current second quarter, up from $6.4 million, or 37.1%, the year-earlier
amount. The $4.9 million increase stemmed from a $267.7 million rise in the
average balance to $755.9 million and a 76-basis point rise in the average cost
to 6.0%. It is management's intent to reduce the balance of FHLB advances upon
completion of its acquisition of Haven Bancorp, which is expected to take place
in the fourth quarter of the year. The Company anticipates restructuring the
combined balance sheet with the sale of approximately $1.0 billion in mortgage
loans and securities; the proceeds of this sale will be utilized to reduce the
balance of these higher-cost funds.
CDs produced interest expense of $8.0 million, down $801,000 from $8.8 million
in the second quarter of 1999. The reduction was the net effect of a $109.0
million decline in the average balance to $616.2 million and a 34-basis point
rise in the average cost to 5.19%. CDs represented 34.4% of average
interest-bearing liabilities in the current second quarter, and generated 36.7%
of total interest expense. In contrast, CDs represented 45.6% of average
interest-bearing liabilities in the year-earlier quarter, and generated 51.0% of
total interest expense.
Core deposits (including NOW and money market accounts, savings accounts,
non-interest-bearing deposits, and mortgagors' escrow) generated interest
expense of $2.5 million in the second quarter of 2000, up $413,000 from $2.0
million in the second quarter of 1999. The increase reflects a $50.8 million
rise in the average balance to $466.2 million and a 14-basis point rise in the
average cost to 2.11%. Included in the higher average balance of core deposits
were $45.1 million in non-interest-bearing deposits, up $7.7 million from the
year-earlier amount.
The interest expense derived from savings accounts totaled $1.6 million, up
$6,000 from the second quarter 1999 amount. The slight increase was the net
effect of a $2.6 million rise in the average balance and a one-basis point drop
in the average cost to 2.29%.
NOW and money market accounts generated interest expense of $855,000, a
$407,000 increase, the result of a $40.9 million rise in the average balance to
$108.9 million and a 51-basis point rise in the average cost to 3.15%.
The interest expense stemming from mortgagors' escrow accounts held steady at
$7,000, reflecting a $395,000 decrease in the average balance to $33.1 million
and an average cost of 0.08%, consistent with the year-earlier cost.
15
<PAGE>
Net Interest Income Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
2000 1999
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earnings assets:
Mortgage and other loans, net $1,704,939 $34,604 8.12% $1,572,785 $32,014 8.14%
Securities 196,943 3,327 6.76 152,490 2,302 6.04
Mortgage-backed securities 3,288 60 7.30 17,353 300 6.92
Money market investments 4,782 71 5.94 5,757 66 4.59
---------- ------- ---- ---------- ------- ----
Total interest-earning assets $1,909,952 $38,062 7.97% $1,748,385 $34,682 7.93%
Non-interest-earning assets 81,545 45,661
---------- ----------
Total assets $1,991,497 $1,794,046
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
NOW and money market accounts $ 108,896 $ 855 3.15% $ 68,044 $ 448 2.64%
Savings accounts 279,100 1,594 2.29 276,470 1,588 2.30
Certificates of deposit 616,185 7,975 5.19 725,175 8,776 4.85
FHLB advances 755,930 11,312 6.00 488,257 6,373 5.24
Mortgagors' escrow 33,070 7 0.08 33,465 7 0.08
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities $1,793,181 $21,743 4.86% $1,591,411 $17,192 4.33%
Non-interest-bearing deposits 45,113 37,390
Other liabilities 24,062 28,702
---------- ----------
Total liabilities 1,862,356 1,657,503
Stockholders' equity 129,141 136,543
---------- ----------
Total liabilities and stockholders' equity $1,991,497 $1,794,046
========== ==========
Net interest income/interest rate spread $16,319 3.11% $17,490 3.60%
======= ==== ======= ====
Net interest-earning assets/net interest
margin $116,771 3.42% $156,974 4.00%
======== ==== ======== ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.10x
==== ====
</TABLE>
Net Interest Income
Net interest income is the Company's primary 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 are influenced by the pricing
and mix of the Company's interest-earning assets and interest-bearing
liabilities which, in turn, may be impacted by such external factors as economic
conditions, competition for loans and deposits, and the monetary policy of the
Federal Open Market Committee ("FOMC") of the Federal Reserve Board of
Governors.
The Company recorded net interest income of $16.3 million in the second quarter
of 2000, together with an interest rate spread of 3.11% and an interest rate
margin of 3.42%. While net interest income declined $1.2 million from the
year-earlier level, the decline was a more modest $124,000 when compared to the
level recorded in the trailing three-month period. Similarly while the Company's
interest rate spread and net interest
16
<PAGE>
margin declined 49 and 58 basis points, respectively, on a year-over-year basis,
the trailing-quarter decline was a more modest 14 and 16 basis points.
The decline in the Company's net interest income, spread and margin largely
reflect the increased use of FHLB advances, and the 150-basis point increase in
market interest rates over the past 12 months. In addition, had the income from
the Company's BOLI investment been recorded as net interest income (instead of
other operating income), the Company's second quarter 2000 spread and margin
would have been 3.18% and 3.55%, respectively.
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment of
the adequacy of the loan loss allowance. This, 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.
The provision for loan losses was suspended in the second quarter of 2000, in
keeping with a practice initiated in the third quarter of 1995. The reasons for
this action lie in the level of coverage provided by the current allowance for
loan losses, and in the historic and current quality of the Company's loan
portfolio. In addition to recording its 23rd consecutive quarter without any net
charge-offs, the Company recorded a $203,000 reduction in non-performing loans
since March 31, 2000, and a $188,000 reduction since December 31, 1999. As a
result, non-performing loans totaled $3.0 million at June 30, 2000, representing
0.17% of loans, net.
In the absence of any net charge-offs or provisions for loan losses, the
allowance for loan losses was maintained at $7.0 million at the current
quarter's end. The $7.0 million represented 235.46% of non-performing loans at
June 30, 2000 and 493.06% of accumulated net charge-offs for the thirteen years
ended at that date.
Absent a significant downturn in the economy or in the quality of the Company's
assets, 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. Upon completion of the Haven Bancorp acquisition, the
Company's policy with regard to the loan loss provision may be revisited.
Other Operating Income
The Company has traditionally derived other operating income from service fees
and fees charged on loans and depository accounts. In the fourth quarter of
1999, the Company invested $30.0 million in BOLI, which will provide other
operating income of approximately $1.9 million over the course of 2000.
For the three months ended June 30, 2000, the Company recorded other operating
income of $1.2 million, up $736,000 from $513,000 for the second quarter of
1999. The 143.5% increase reflects a $698,000 rise in other income to $759,000,
largely stemming from the BOLI investment, and a $38,000 rise in fee income to
$490,000.
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 expenses 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").
17
<PAGE>
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 second quarter of 2000, operating expense declined to $5.5 million, or
1.11% of average assets, from $5.8 million, or 1.30% of average assets, in the
second quarter of 1999. The $320,000, or 5.5%, decline was the net effect of a
$485,000, or 12.4%, reduction in compensation and benefits expense to $3.4
million and a combined increase of $165,000 in the remaining categories of
operating expense.
The decline in compensation and benefits expense primarily stemmed from a
$293,000 reduction in plan-related expenses to $402,000, reflecting a decline in
the market price of Company shares. Occupancy and equipment expense rose
$128,000 to $681,000, reflecting the addition of two banking offices in the
second half of 1999. G&A expense rose $7,000 to $1.2 million, while other
expense rose $30,000 to $187,000.
The combination of lower operating expense and higher other operating income in
the current second quarter generated a 102-basis point improvement in the
efficiency ratio to 31.42%. The cash efficiency ratio, meanwhile, equaled
29.13%.
The number of full-time equivalent employees at June 30, 2000 was 285.
Income Tax Expense
The Company recorded second quarter 2000 income tax expense of $4.3 million,
representing a 9.3% reduction from $4.7 million in the second quarter of 1999.
As a result, the effective tax rate dropped to 35.5% from 38.8%. In addition to
the aforementioned investment in BOLI, these reductions reflect a decline in the
market price of shares held in the Company's stock-related benefit plans.
Plan-related expenses fell to $1.3 million from $1.9 million in the year-earlier
three months.
Reflecting the ongoing benefit of the BOLI investment, it is currently expected
that the effective tax rate will stabilize at approximately 37.0% in 2000.
Comparison of the Six Months Ended June 30, 2000 and 1999
Earnings Summary
The Company recorded earnings of $15.4 million for the first six months of 2000,
up 5.5% from core earnings of $14.6 million for the six months ended June 30,
1999. Diluted earnings per share rose 13.2% to $0.86 in the current six-month
period from diluted core earnings per share of $0.76 in the year-earlier six
months. The 1999 amounts exclude a net gain of $1.1 million, or $0.06 per share,
stemming from the reversal of $2.0 million from the allowance for loan losses in
the first quarter, which boosted the Company's six-month 1999 earnings to $15.7
million, or $0.82 per diluted share.
In addition, the Company recorded cash earnings of $20.3 million, or $1.14 per
diluted share for the current six-month period, as compared to core cash
earnings of $21.0 million, or $1.10 per diluted share, in the first six months
of 1999. The Company's six-month 2000 cash earnings contributed 32.1% more to
capital than its GAAP earnings alone.
The Company's six-month 2000 earnings were driven by a significant rise in other
operating income, together with reductions in both operating and income tax
expense. Primarily reflecting the benefit of the fourth quarter 1999 investment
in BOLI, other operating income more than doubled to $2.4 million in the current
six-month
18
<PAGE>
period. At the same time, the Company recorded a $268,000 decline in operating
expense to $11.2 million, or 1.14% of average assets, driven by a $671,000
reduction in compensation and benefits expense to $6.9 million. Income tax
expense fell $1.5 million to $8.6 million, reducing the effective tax rate to
35.9%.
These improvements were partly offset by a $1.3 million, or 3.8%, decline in net
interest income to $32.8 million, the net effect of a $6.3 million rise in
interest income to $74.3 million and a $7.6 million rise in interest expense to
$41.6 million. The higher level of interest income was fueled by a $156.7
million rise in the average balance of interest-earning assets to $1.9 billion
and a one-basis point rise in the average yield to 7.93%. The higher level of
interest expense stemmed from a $193.2 million rise in the average balance of
interest-bearing liabilities to $1.8 billion and a 37-basis point rise in the
average cost to 4.76%.
Despite the impact of rising short-term rates and the increased use of FHLB
advances, the Company's interest rate spread and net interest margin were 3.17%
and 3.50%, respectively, in the current six-month period. Had the Company's BOLI
income been recorded as net interest income, rather than as other operating
income, the Company's spread and margin would have equaled 3.23% and 3.63%,
respectively.
The Company's six-month 2000 earnings also reflect the continued suspension of
the provision for loan losses. In the year-earlier period, the Company reversed
$2.0 million from the allowance for loan losses, which resulted in a $1.1
million, or $0.06 per share, net gain.
Cash Earnings Analysis
(in thousands, except per share data)
For the
Six Months Ended
June 30,
--------------------
2000 1999(1)
------- -------
Net income $15,364 $14,626
Additional contributions to stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 842 1,323
Associated tax benefits 2,706 3,592
Amortization of goodwill -- --
Other 1,388 1,430
------- -------
Cash earnings $20,300 $20,971
======= =======
Cash earnings per share $1.15 $1.12
Diluted cash earnings per share $1.14 $1.10
(1) 1999 data excludes a net gain of $1.1 million, or $0.06 per share,
stemming from the reversal of $2.0 million from the allowance for loan
losses in the first quarter.
Interest Income
The Company recorded interest income of $74.3 million in the first six months of
2000, up $6.2 million from $68.1 million in the first six months of 1999. The
9.2% increase was fueled by a $156.7 million rise in the average balance of
interest-earning assets to $1.9 billion, together with a one-basis point rise in
the average yield to 7.93%.
Mortgage and other loans accounted for $67.7 million, or 91.1%, of interest
income in the current six-month period, up $5.2 million from $62.5 million in
the year-earlier six months. The 8.4% increase was the net effect
19
<PAGE>
of a $137.9 million, or 9.0%, rise in the average balance to $1.7 billion and a
five-basis point reduction in the average yield to 8.11%. Mortgage and other
loans represented 89.1% of average interest-earning assets in the six months
ended June 30, 2000.
Securities generated interest income of $6.4 million in the first half of 2000,
up $1.8 million from $4.6 million in the first half of 1999. The 38.1% increase
stemmed from a $43.6 million, or 28.5%, rise in the average balance to $196.5
million, coupled with a 44-basis point rise in the average yield to 6.46%.
Securities represented 10.5% of average interest-earning assets in the current
six-month period and generated 8.5% of total interest income.
The higher levels of interest income generated by loans and securities in the
first six months of 2000 were partly offset by a reduction in the interest
income generated by mortgage-backed securities and money market investments
during the corresponding period. Mortgage-backed securities held to maturity
contributed interest income of $122,000, down from $631,000 in the first six
months of 1999. The $509,000 decline was the net effect of a $14.7 million
reduction in the average balance to $3.4 million and a 23-basis point increase
in the average yield to 7.21%.
Similarly, the interest income produced by money market investments declined to
$129,000 from $333,000, the net effect of a $10.1 million reduction in the
average balance to $4.5 million and a 114-basis point increase in the average
yield to 5.75%.
Interest Expense
Interest expense rose to $41.6 million in the six months ended June 30, 2000
from $34.0 million in the six months ended June 30, 1999. The $7.6 million, or
22.3%, increase stemmed from a $193.2 million rise in the average balance of
interest-bearing liabilities to $1.8 billion and a 37-basis point rise in the
average cost of funds to 4.76%.
In the first six months of 2000, the Company increased its use of FHLB advances
to fund the origination of multi-family mortgage loans. FHLB advances accounted
for $20.7 million of total interest expense in the first six months of 2000, as
compared to $12.1 million in the first six months of 1999. The $8.6 million
increase reflects a $251.4 million rise in the average balance to $715.2 million
and a 56-basis point rise in the average cost to 5.81%. FHLB advances
represented 40.7% of average interest-bearing liabilities and generated 49.7% of
total interest expense in the current six-month period, as compared to 29.7% and
35.5%, respectively, in the year-earlier six months.
The Company continued to experience a decline in the average balance of CDs over
the first six months of 2000. CDs generated interest expense of $16.1 million in
the current six-month period, down $1.8 million from $17.9 million in the first
six months of 1999. The reduction was the net effect of a $99.5 million decline
in the average balance to $628.6 million and an 18-basis point rise in the
average cost to 5.13%. Accordingly, CDs represented 35.8% and 46.6% of average
interest-bearing liabilities in the first six months of 2000 and 1999,
respectively, and produced 38.6% and 52.6%, respectively, of total interest
expense.
Core deposits contributed $4.8 million to total interest expense, up $805,000,
the result of a $48.5 million rise in the average balance to $454.8 million and
a 14-basis point rise in the average cost to 2.13%. The higher average balance
includes an increase of $7.2 million in the average balance of
non-interest-bearing deposits to $43.3 million.
NOW and money market accounts produced interest expense of $1.6 million in the
current six-month period, up $741,000 from the year-earlier amount. The increase
stemmed from a $38.8 million rise in the average balance to $107.3 million
coupled with a 42-basis point rise in the average cost to 3.07%.
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<PAGE>
Savings accounts produced six-month 2000 interest expense of $3.2 million, up
$66,000 from the level recorded in the first six months of 1999. The increase
stemmed from a $3.6 million rise in the average balance to $277.2 million,
coupled with a one-basis point rise in the average cost to 2.32%.
Mortgagors' escrow generated interest expense of $13,000, down $2,000, the
combined effect of a $1.1 million decline in the average balance to $27.0
million and a one-basis point drop in the average cost to 0.10%.
Net Interest Income Analysis
(dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
2000 1999
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earnings assets:
Mortgage and other loans, net $1,670,241 $67,729 8.11% $1,532,376 $62,488 8.16%
Securities 196,474 6,350 6.46 152,897 4,599 6.02
Mortgage-backed securities 3,383 122 7.21 18,077 631 6.98
Money market investments 4,528 129 5.75 14,580 333 4.61
---------- ------- ---- ---------- ------- ----
Total interest-earning assets $1,874,626 $74,330 7.93% $1,717,930 $68,051 7.92%
Non-interest-earning assets 80,172 45,249
---------- ----------
Total assets $1,954,798 $1,763,179
========== ==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
NOW and money market accounts $ 107,326 $ 1,640 3.07% $ 68,493 $ 899 2.65%
Savings accounts 277,225 3,195 2.32 273,611 3,129 2.31
Certificates of deposit 628,613 16,051 5.13 728,115 17,880 4.95
FHLB advances 715,236 20,669 5.81 463,880 12,074 5.25
Mortgagors' escrow 26,988 13 0.10 28,080 15 0.11
---------- ------- ---- ---------- ------- ----
Total interest-bearing liabilities $1,755,388 $41,568 4.76% $1,562,179 $33,997 4.39%
Non-interest-bearing deposits 43,272 36,088
Other liabilities 26,853 27,733
---------- ----------
Total liabilities 1,825,513 1,626,000
Stockholders' equity 129,285 137,179
---------- ----------
Total liabilities and stockholders' equity $1,954,798 $1,763,179
---------- ----------
Net interest income/interest rate spread $32,762 3.17% $34,054 3.53%
======= ==== ======= ====
Net interest-earning assets/net interest
margin $119,238 3.50% $155,751 3.96%
========== ==== ========= ====
Ratio of interest-earning assets
to interest-bearing liabilities 1.07x 1.10x
==== ====
</TABLE>
Net Interest Income
The Company recorded net interest income of $32.8 million in the first six
months of 2000, as compared to $34.1 million in the first six months of 1999, a
3.8% decline. Despite the impact of rising short-term interest rates and the
increased use of FHLB advances, the Company's interest rate spread and net
interest margin were 3.17% and 3.50% in the current six-month period. Had the
income from the Company's BOLI investment been recorded as net interest income
instead of other operating income, the Company's six-month 2000 spread and
21
<PAGE>
margin would have been six and 13 basis points higher, equaling 3.23% and 3.63%,
respectively. By comparison, the Company's spread and margin were 3.53% and
3.96%, respectively, in the first six months of 1999.
Provision for Loan Losses
While the provision for loan losses was suspended in the first six months of
2000, as it was in the year-earlier six-month period, the Company also recovered
$2.0 million from the allowance for loan losses in the six months ended June 30,
1999. The impact of this action was a net gain of $1.1 million, or $0.06 per
share.
Other Operating Income
Other operating income more than doubled to $2.4 million in the current
six-month period from $1.1 million in the first six months of 1999. The increase
stemmed from a $58,000 rise in fee income to $991,000 and a $1.2 million rise in
other income to $1.4 million that largely reflected the Company's BOLI
investment.
Operating Expense
The rise in six-month 2000 earnings also stemmed from a $268,000 decline in
operating expense to $11.2 million, or 1.14% of average assets, from $11.4
million, or 1.30% of average assets, in the first six months of 1999. The
reduction reflects a $671,000, or 8.8%, decline in compensation and benefits
expense to $6.9 million, which was driven by a $481,000 decline in plan-related
expenses to $842,000. The reduction in compensation and benefits expense served
to offset a $253,000 rise in occupancy and equipment expense to $1.4 million, a
$9,000 rise in G&A expense to $2.5 million, and a $141,000 rise in other
operating expense to $352,000. The higher level of occupancy and equipment
expense primarily reflects the operation of two banking offices that opened in
the second half of 1999.
The decline in operating expense combined with the aforementioned rise in other
operating income to generate a 69-basis point improvement in the six-month 2000
efficiency ratio to 31.77%. The cash efficiency ratio was 29.37% in the
corresponding period.
Income Tax Expense
The Company recorded income tax expense of $8.6 million in the first six months
of 2000, down from $10.1 million in the first six months of 1999. Reflecting the
benefit of the $30.0 million investment in BOLI, and a decline in the value of
shares held in the Company's stock-related benefit plans, the effective tax rate
was reduced to 35.9% from 39.1%.
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 1999 Annual Report to
Shareholders, filed on March 29, 2000. As of June 30, 2000, there was no
material change in the Company's market risk profile since the 1999 Annual
Report was filed.
22
<PAGE>
QUEENS COUNTY BANCORP, INC.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company's financial condition, results of operations, or cash flows.
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 19,
2000. 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 17, 2000. Of the 20,813,126
shares eligible to vote at the annual meeting, 18,826,318 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
------------ ------------ ---------
Donald M. Blake 18,478,962 347,356 -0-
Joseph R. Ficalora 16,434,168 2,392,150(1) -0-
(1) Consistent with prior practice, Mr. Ficalora serves as a member of
the Company's Nominating Committee. Since Mr. Ficalora's last
re-election to the Board of Directors, in 1997, Institutional
Shareholder Services Inc. adopted a policy requiring it to recommend
that votes be withheld when an insider who serves on the Nominating
Committee is nominated for election to the Board. As a result, votes
of certain institutional investors may have been automatically
withheld.
The following directors are serving terms of office that continue through
2001 and 2002, as noted:
Director Year Term Expires
Harold E. Johnson 2001
Henry E. Froebel 2001
Howard C. Miller 2001
Max L. Kupferberg 2002
Dominick Ciampa 2002
Richard H. O'Neill 2002
23
<PAGE>
(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. Amendment of the Queens 17,599,978 1,179,908 46,361 -0-
County Bancorp, Inc. 1997
Stock Option Plan
2. Ratification of the 18,768,889 28,507 28,992 -0-
appointment of
KPMG LLP as independent
auditors for the fiscal year
ending December 31, 2000
</TABLE>
Item 5. Other Information
On July 18, 2000, the Board of Directors declared a quarterly cash dividend of
$0.25 per share, payable on August 15, 2000 to shareholders of record at the
close of business on August 1, 2000.
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
* 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 SEC Form 10K for the fiscal year ended December 31, 1999,
File No. 0-22278.
(b) Reports on Form 8-K
On June 30, 2000, the Company filed a Form 8-K in connection with
its announcement on June 27, 2000 that it had entered into an
Agreement and Plan of Merger with Haven Bancorp, Inc. pursuant to
which Haven Bancorp will merge into Queens County Bancorp, Inc. The
combined company will then be known as "New York Community Bancorp,
Inc." and will trade on the Nasdaq National Market under the symbol
"NYCB".
Under the terms of the Merger Agreement, each share of common stock
of Haven will be converted into 1.04 shares of common stock of
Queens County Bancorp. The merger is subject to various conditions,
including adoption of the Merger Agreement by the shareholders of
each company and the receipt of required regulatory approvals. The
Merger is intended to qualify as a tax-free reorganization under the
Internal Revenue Code of 1986, as amended, and is expected to be
completed in the fourth quarter of 2000.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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.
DATE: August 3, 2000 BY: /s/ Joseph R. Ficalora
-------------------------
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Duly Authorized Officer)
BY: /s/ Robert Wann
-------------------------
Robert Wann
Senior Vice President,
Comptroller, and
Chief Financial Officer
(Principal Financial Officer)
25
