<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to ________
Commission File Number 0-23229
INDEPENDENCE COMMUNITY BANK CORP.
(Exact name of registrant as specified in its charter)
Delaware 13-3387931
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification
Number)
195 Montague Street
Brooklyn, New York 11201
(Address of principal executive office) (Zip Code)
(718) 722-5300
(Registrant's telephone number, including are code)
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. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date. At October 31, 1998, the
registrant had 76,043,750 shares of common stock ($.01 par value per share)
outstanding.
<PAGE> 2
INDEPENDENCE COMMUNITY BANK CORP.
Table of Contents PAGE
- - --------------------------------------------------------------------------------
Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Condition 3
as of September 30, 1998 (unaudited)
and March 31, 1998
Consolidated Statements of Income for 4
the three and six months ended
September 30, 1998 and 1997 (unaudited)
Consolidated Statements of Changes in 5
Stockholders' Equity for the six months
ended September 30, 1998(unaudited)
Consolidated Statements of Cash Flows 6
for the six months ended September 30,
1998 and 1997(unaudited)
Notes to Consolidated Financial 7
Statements (unaudited)
Item 2 Management's Discussion and Analysis 14
of Financial Condition and Results of
Operations
Item 3 Quantitative and Qualitative Disclosures 30
About Market Risk
Part II Other Information
Item 1 Legal Proceedings 31
Item 2 Changes in Securities 31
Item 3 Defaults upon Senior Securities 31
Item 4 Submission of Matters to a Vote of 31
Security Holders
Item 5 Other Information 32
Item 6 Exhibits and Reports on Form 8-K 32
Signatures 33
2
<PAGE> 3
INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1998 1998
----------- -----------
(Unaudited)
ASSETS:
<S> <C> <C>
Cash and due from banks $ 299,277 $ 747,868
Commercial paper 49,881 37,676
Federal funds sold 178,383 71,707
----------- -----------
Total cash and cash equivalents 527,541 857,251
----------- -----------
Securities available-for-sale:
Investment securities 836,453 1,282,072
Mortgage-backed and mortgage-related 393,519 84,610
----------- -----------
Total securities available for sale 1,229,972 1,366,682
----------- -----------
Mortgage loans on real estate 2,663,335 2,279,169
Other loans 533,621 502,718
----------- -----------
Total loans 3,196,956 2,781,887
Less: Allowance for possible loan losses 41,087 36,347
----------- -----------
Total loans, net 3,155,869 2,745,540
----------- -----------
Premises, furniture and equipment, net 64,342 61,443
Accrued interest receivable 27,430 24,395
Intangible assets, net 51,554 55,873
Other assets 100,250 111,812
----------- -----------
Total assets $ 5,156,958 $ 5,222,996
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $ 3,295,112 $ 3,393,839
Borrowings on securities loaned 266,710 701,160
Other borrowings 489,110 16,681
Escrow and other deposits 41,419 45,868
Accrued expenses and other liabilities 124,529 116,324
----------- -----------
Total liabilities 4,216,880 4,273,872
----------- -----------
Stockholders' equity
Common stock ($.01 par value, 125,000,000
shares authorized, 76,043,750 shares
outstanding) 760 760
Additional paid-in-capital 740,596 741,277
Unallocated common stock held by ESOP (95,164) (97,636)
Unearned common stock held by RRP (29,034) --
Retained earnings-substantially restricted 320,304 298,876
Accumulated other comprehensive income:
Net unrealized gain on securities available-
for-sale, net of tax 2,616 5,847
----------- -----------
Total stockholders' equity 940,078 949,124
----------- -----------
Total liabilities and stockholders' equity $ 5,156,958 $ 5,222,996
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -----------------------
1998 1997 1998 1997
-------- -------- -------- --------
INTEREST INCOME:
<S> <C> <C> <C> <C>
Mortgage loans on real estate $ 48,000 $ 44,781 $ 93,439 $ 86,689
Other loans 9,852 10,020 19,493 19,170
Investment securities 12,041 8,683 24,583 19,074
Mortgage-backed and mortgage-related
securities 5,364 3,009 7,517 6,232
Other 6,318 2,518 16,065 4,437
-------- -------- -------- --------
Total interest income 81,575 69,011 161,097 135,602
-------- -------- -------- --------
INTEREST EXPENSE:
Deposits 32,937 36,456 66,652 71,836
Borrowings 6,793 298 11,318 598
-------- -------- -------- --------
Total interest expense 39,730 36,754 77,970 72,434
-------- -------- -------- --------
Net interest income 41,845 32,257 83,127 63,168
Provision for loan losses 2,325 3,123 4,657 5,353
-------- -------- -------- --------
Net interest income after
provision for loan losses 39,520 29,134 78,470 57,815
-------- -------- -------- --------
NON-INTEREST INCOME:
Net (loss) gain on sales of loans
and securities (8) 20 10 32
Service fees 1,298 1,688 2,562 3,422
Other 1,326 535 2,814 972
-------- -------- -------- --------
Total non-interest income 2,616 2,243 5,386 4,426
-------- -------- -------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits 9,665 7,762 18,950 15,079
Occupancy costs 3,587 3,342 6,987 6,148
Data processing fees 3,211 3,032 6,174 5,840
Advertising 1,317 950 2,446 1,900
FDIC insurance premiums 309 307 608 621
Amortization of intangible assets 2,155 2,170 4,319 4,401
Other 5,059 3,977 9,200 8,389
-------- -------- -------- --------
Total non-interest expense 25,303 21,540 48,684 42,378
-------- -------- -------- --------
Income before provision for income taxes 16,833 9,837 35,172 19,863
Provision for income taxes 6,314 3,344 13,744 6,300
-------- -------- -------- --------
Net income $ 10,519 $ 6,493 $ 21,428 $ 13,563
======== ======== ======== ========
Basic earnings per share $ 0.15 N/A $ 0.30 N/A
======== ======== ======== ========
Diluted earnings per share $ 0.15 N/A $ 0.30 N/A
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
(In Thousands, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Unallocated Unearned Other
Paid in Common Stock Common Stock Retained Comprehensive
Common Stock Capital Held by ESOP Held by RRP Earnings Income Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-March 31, 1998 $ 760 $ 741,277 $ (97,636) $ -- $ 298,876 $ 5,847 $949,124
Comprehensive income:
Net income for the six months ended
September 30, 1998 -- -- -- -- 21,428 -- 21,428
Other comprehensive income, net of
tax of $2,238
Change in net unrealized gains on
securities available-for-sale, net of
reclassification adjustment of $0 -- -- -- -- -- (3,231) (3,231)
--------- --------- --------- --------- --------- --------- --------
Comprehensive income -- -- -- -- 320,304 2,616 18,197
ESOP shares committed to be released -- (236) 2,472 -- -- -- 2,236
Issuance of grants under Recognition and
Retention Plan -- -- -- (29,134) -- -- (29,134)
Purchase of shares granted under Recognition
and Retention Plan -- (73) -- -- -- (73)
Amortization of earned portion of Recognition
and Retention Plan -- -- -- 100 -- -- 100
Other conversion related costs -- (372) -- -- -- -- (372)
--------- --------- --------- --------- --------- --------- --------
Balance-September 30, 1998 $ 760 $ 740,596 $ (95,164) $ (29,034) $ 320,304 $ 2,616 $940,078
========= ========= ========= ========= ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
1998 1997
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 21,428 $ 13,563
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 4,657 5,353
Net gain on sale of loans and securities (10) (32)
Amortization of deferred income and premiums (2,493) (2,694)
Amortization of intangibles 4,319 4,401
Depreciation and amortization 3,712 3,347
Deferred income tax benefit (3,372) (4,223)
Amortization of unearned compensation of
ESOP and RRP 2,337 --
Increase in accrued interest receivable (3,035) (6,558)
Decrease in accounts receivable-securities
transactions 8,930 102,853
Decrease in accrued expenses and other
liabilities (21,002) (16,653)
Other, net 10,988 (5,068)
--------- ---------
Net cash provided by operating activities 26,459 94,289
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases (681,502) (352,328)
Principal payments on loans 233,659 168,085
Proceeds from sale of loans 31,714 7,610
Proceeds from sale of securities available-for-sale 173,400 178,610
Proceeds from maturities of securities
available-for-sale 555,158 116,281
Principal collected on securities
available-for-sale 47,656 28,225
Purchases of securities available-for-sale (644,446) (468,698)
Proceeds from sales of other real estate -- 197
Net additions to premises, furniture and equipment (6,611) (4,009)
--------- ---------
Net cash used in investing activities (290,972) (326,027)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Deposits purchased, net of premium -- 65,972
Net decrease in demand and savings deposits (111,128) (7,700)
Net increase in time deposits 12,401 8,645
Net increase (decrease) in other borrowings 37,979 (398)
Net decrease in escrow and other deposits (4,449) (4,710)
--------- ---------
Net cash (used in) provided by financing activities (65,197) 61,809
--------- ---------
Net decrease in cash and cash equivalents (329,710) (169,929)
Cash and cash equivalents at beginning of period 857,251 374,636
--------- ---------
Cash and cash equivalents at end of period $ 527,541 $ 204,707
========= =========
SUPPLEMENTAL INFORMATION
Income taxes paid $ 10,302 $ 6,000
========= =========
Interest paid $ 38,207 $ 35,680
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
INDEPENDENCE COMMUNITY BANK CORP.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION/FORM OF OWNERSHIP
Independence Community Bank ("Bank"), formerly known as Independence
Savings Bank, was originally founded as a New York chartered savings bank in
1850. In April 1992, the Bank organized into the mutual holding company form of
organization pursuant to which the Bank became a wholly-owned stock savings bank
subsidiary of a mutual holding company ("Mutual Holding Company").
On April 18, 1997, the Board of Directors of the Bank and the Board of
Trustees of the Mutual Holding Company adopted the Plan of Conversion pursuant
to which the Mutual Holding Company would convert to the stock form of
organization and simultaneously merge with and into the Bank with all of the
outstanding shares of Bank common stock held by the Mutual Holding Company being
cancelled in connection therewith.
As part of the conversion, Independence Community Bank Corp.
("Company") was incorporated under Delaware law in June 1997. The Company is
regulated by the Office of Thrift Supervision ("OTS"). The Company completed its
initial public offering on March 13, 1998 in connection with the reorganization
of the Mutual Holding Company and the Bank and issued 70,410,880 shares of stock
resulting in proceeds of $685.7 million, net of expenses which totaled $18.4
million. The Company used $343.0 million or approximately 50% of the net
proceeds to purchase all of the outstanding stock of the Bank. The Company also
loaned $98.9 million to the Employee Stock Ownership Plan ("ESOP") which
purchased 5,632,870 shares of the Company's common stock in the open market.
As part of the Plan of Conversion, the Company formed the Independence
Community Foundation ("Foundation") and donated 5,632,870 shares of common stock
of the Company. The establishment of the Foundation was in furtherance of the
Company's and the Bank's commitment to the communities that they serve.
Additionally, the Bank established, in accordance with the requirements
of the New York State Banking Department ("Department"), a liquidation account
for the benefit of depositors of the Bank as of March 31, 1996 and September 30,
1997 in the amount of $319.7 million which was equal to its capital as of the
date of the latest consolidated statement of financial condition (August 31,
1997) appearing in the final prospectus used in connection with the
reorganization and conversion of the Bank and the Mutual Holding Company.
The Company may not declare or pay cash dividends on or repurchase any
of its shares of common stock if such declaration and payment would violate
regulatory requirements or the provisions of Delaware law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying financial statements were prepared in accordance with
instructions to Form-10Q and therefore do not include all the information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the six months
ended September 30, 1998 are not necessarily indicative of the results to be
expected for the year ending March 31, 1999. These interim financial statements
should be read in conjunction with the Company's audited financial statements
and footnote
7
<PAGE> 8
disclosures contained in the Company's Annual Report on Form 10-K for the year
ended March 31, 1998.
Business
The Company's principal business is conducted through the Bank which is
a traditional, full service, community oriented savings bank headquartered in
Brooklyn, New York. The Bank operates 33 full service offices located within the
greater New York City metropolitan area of which 27 are located in the boroughs
of Brooklyn and Queens with the remaining offices located in Manhattan, the
Bronx, Staten Island and Nassau County, New York. The Bank's deposits are
insured by the Bank Insurance Fund ("BIF") and the Savings Association Insurance
Fund ("SAIF") to the maximum extent permitted by law. The Bank is subject to
examination and regulation by the Federal Deposit Insurance Corporation
("FDIC"), which is the Bank's primary federal regulator, and the Department,
which is the Bank's chartering authority and its primary state regulator. The
Bank is also subject to certain reserve requirements established by the Board of
Governors of the Federal Reserve System ("FRB") and is a member of the Federal
Home Loan Bank ("FHLB") of New York, which is one of the 12 regional banks
comprising the FHLB system.
3. EARNINGS PER SHARE.
Basic earnings per share is computed by dividing net income by the
weighted average number of common shares outstanding. Diluted EPS is computed
using the same method as basic EPS, but reflects the potential dilution of
common stock equivalents. ESOP shares that have not been allocated to
participants' accounts or are not committed to be released for allocation are
not considered outstanding for EPS calculation. Basic and diluted weighted
average common shares outstanding were 70,552,467 and 70,576,375 shares,
respectively, for the second quarter of fiscal 1999. For the six months ended
September 30, 1998 basic and diluted weighted average common shares outstanding
were 70,517,458 and 70,529,477 shares, respectively.
4. BENEFIT PLANS
Employee Stock Ownership Plan.
To fund the purchase in the open market of 5,632,870 shares of the
Company's common stock, the ESOP borrowed funds from the Company. The loan to
the ESOP is being repaid principally from the Bank's contributions to the ESOP
over a period of 20 years. The collateral for the loan is the common stock of
the Company purchased by the ESOP.
Shares held by the ESOP are held by an independent trustee for
allocation among participants as the loan is repaid. The number of shares
released annually is based upon the ratio that the current principal and
interest payments bears to the current and all remaining scheduled future
principal and interest payments. ESOP participants will become 100% vested in
the plan after three years of service. The compensation expense related to the
70,411 shares committed to be released during the second quarter was $1.0
million and was $2.2 million with respect to the 140,822 shares committed to be
released during the six months ended September 30, 1998.
8
<PAGE> 9
Recognition and Retention Plan
The 1998 Recognition and Retention Plan and Trust Agreement ("RRP") was
approved at the September 25, 1998 Annual Shareholders' Meeting. The RRP may
grant up to 4% of the Common Stock sold in the conversion, or 2,816,435 shares,
to Officers, key employees and non-employee directors of the Company. All of the
shares available to be granted will be acquired through open market purchases.
On September 25, 1998 (the "anniversary date"), the Board of Directors issued
grants of 2,188,517 shares of stock payable over a five year period at a rate of
20% per year, beginning one year from the anniversary date. As a result of the
issuance, unearned compensation was recorded as an adjustment to equity for
$29.1 million, which represents the 2,188,517 shares granted at the fair value
of $13.3125 per share on the date of grant. The purchase of shares in the open
market was completed subsequent to September 30, 1998.
Stock Option Plan
The 1998 Stock Option Plan ("Option Plan") was approved at the
September 25, 1998 Annual Shareholders' Meeting. The Option Plan may grant up to
10% of the Common Stock sold in the conversion, or 7,041,088 shares, to
Officers, key employees and non-employee directors of the Company. On September
25, 1998 (the "anniversary date"), the Board of Directors issued options of
6,108,608 shares of stock vesting over a five year period at a rate of 20% per
year, beginning one year from the anniversary date. The option price of $13.3125
per share is the fair value on the date of grant. Each stock option or portion
thereof shall be exercisable at any time on or after it vests and is exercisable
until the earlier of ten years after its date of grant or six months after the
date on which the optionee's employment terminates (three years after
termination of service in the case of non-employee directors), unless extended
by the Board of Directors to a period not to exceed five years from such
termination. The granting of these options did not affect the Company's results
of operations for the six months ended September 30, 1998 or its statement of
condition at September 30, 1998.
5. COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general purpose financial statements. SFAS No. 130 requires
that all items that are recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 requires that an
enterprise (a) classify items of other comprehensive income by their nature in a
financial statement and (b) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of a statement of financial condition. Under
existing accounting standards other comprehensive income is separately
classified into foreign currency items, minimum pension liability adjustments
and unrealized gains and losses on certain investments in debt and equity
securities. Only the last of these items, however is currently applicable to the
Company. The Company adopted SFAS No. 130 in the first quarter of fiscal 1999.
All comparative financial statements provided for earlier periods have been
restated to reflect application of the provisions. As the requirements of SFAS
No. 130 are solely disclosure related, its implementation had no affect on the
Company's financial condition or results of operations.
9
<PAGE> 10
6. SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of securities available-for-sale at
September 30, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
Investment securities:
Debt securities:
<S> <C> <C> <C> <C>
U.S. government and agencies $ 746,301 $ 3,622 $ (104) $ 749,819
Municipals 699 -- -- 699
Corporate 154 -- (1) 153
---------- ---------- ---------- ----------
Total debt securities 747,154 3,622 (105) 750,671
---------- ---------- ---------- ----------
Equity securities:
Preferred 44,600 -- -- 44,600
Common 44,113 2,781 (5,712) 41,182
---------- ---------- ---------- ----------
Total equity securities 88,713 2,781 (5,712) 85,782
---------- ---------- ---------- ----------
Total investment securities 835,867 6,403 (5,817) 836,453
---------- ---------- ---------- ----------
Mortgage-backed and mortgage-related securities:
FNMA Pass Through Certificates 4,431 119 -- 4,550
GNMA Pass Through Certificates 56,556 2,456 (16) 58,996
FHLMC Pass Through
Certificates 8,694 169 (24) 8,839
Collateralized Mortgage
Obligation Bonds 319,480 1,656 (2) 321,134
---------- ---------- ---------- ----------
Total mortgage-backed and
mortgage-related securities 389,161 4,400 (42) 393,519
---------- ---------- ---------- ----------
Total securities available-
for-sale $1,225,028 $ 10,803 $ (5,859) $1,229,972
========== ========== ========== ==========
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale at
March 31, 1998 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
Investment securities:
Debt securities:
<S> <C> <C> <C> <C>
U.S. government and agencies $1,087,219 $ 2,906 $ (173) $1,089,952
Municipals 1,104 -- -- 1,104
Corporate 226 -- (2) 224
---------- ---------- ---------- ----------
Total debt securities 1,088,549 2,906 (175) 1,091,280
---------- ---------- ---------- ----------
Equity securities:
Preferred 168,100 -- -- 168,100
Common 17,533 5,265 (106) 22,692
---------- ---------- ---------- ----------
Total equity securities 185,633 5,265 (106) 190,792
---------- ---------- ---------- ----------
Total investment securities 1,274,182 8,171 (281) 1,282,072
---------- ---------- ---------- ----------
Mortgage-backed and mortgage-related securities:
FNMA Pass Through Certificates 5,294 124 (3) 5,415
GNMA Pass Through Certificates 63,566 2,939 (32) 66,473
FHLMC Pass Through
Certificates 11,500 179 (68) 11,611
Collateralized Mortgage
Obligation Bonds 1,090 21 -- 1,111
---------- ---------- ---------- ----------
Total mortgage-backed and
mortgage related securities 81,450 3,263 (103) 84,610
---------- ---------- ---------- ----------
Total securities available-
for-sale $1,355,632 $ 11,434 $ (384) $1,366,682
========== ========== ========== ==========
</TABLE>
10
<PAGE> 11
7. LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, MARCH 31,
1998 1998
------------------------------------------------------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
Mortgage loans:
<S> <C> <C> <C> <C>
Single-family residential $ 500,254 15.6% $ 505,051 18.2%
Multi-family residential 1,981,039 62.0 1,605,058 57.6
Commercial and other
real estate 192,120 6.0 178,463 6.4
------------ ------------ ------------ ------------
Total principal balance
mortgage loans 2,673,413 83.6 2,288,572 82.2
Less net deferred fees 10,078 0.3 9,403 0.3
------------ ------------ ------------ ------------
Total mortgage loans 2,663,335 83.3 2,279,169 81.9
------------ ------------
Other loans:
Cooperative apartment loans 416,495 13.0 380,866 13.7
Student loans (guaranteed) 42,413 1.3 43,946 1.6
Home equity loans and lines 13,846 0.4 15,625 0.6
Commercial business loans 30,337 1.0 31,550 1.1
Consumer and other loans 30,709 1.0 30,869 1.1
------------ ------------ ------------ ------------
Total principal balance
other loans 533,800 16.7 502,856 18.1
Less unearned discount and
deferred fees 179 0.0 138 0.0
------------ ------------ ------------ ------------
Total other loans 533,621 16.7 502,718 18.1
Total loans receivable 3,196,956 100.0% 2,781,887 100.0%
------------ ============ ------------ ============
Less: allowance for loan losses 41,087 36,347
------------ ------------
Loans receivable, net $ 3,155,869 $ 2,745,540
============ ============
</TABLE>
11
<PAGE> 12
8. NON-PERFORMING ASSETS. The following table sets forth information with
respect to non-performing assets identified by the Company, including
non-performing loans and other real estate owned at the dates indicated.
Non-performing assets consist of non-performing loans and other real estate
owned. Non-performing loans consist of non-accrual loans, loans 90 days or more
past due as to interest and principal and other loans which have been identified
by the Company as presenting uncertainty with respect to the collectiblity of
interest or principal
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998 AT MARCH 31, 1998
--------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans
Mortgage loans:
Single-family residential $ 3,353 $ 4,423
Multi-family residential 869 1,190
Commercial and other 2,594 4,782
Other loans:
Cooperative apartment loans 504 509
Consumer and commercial
business loans(1) 575 431
------- -------
Total non-accrual loans 7,895 11,335
------- -------
Loans past due 90 days or more as to:
Interest and accruing 1,271 1,607
Principal and accruing(2) 25,944 16,804
------- -------
Total past due loans and
accruing 27,215 18,411
------- -------
Total non-performing loans 35,110 29,746
------- -------
Other real estate owned, net(3) 273 192
------- -------
Total non-performing assets $35,383 $29,938
======= =======
Allowance for loan losses as a
percent of total loans 1.29% 1.31%
Allowance for loan losses as a
percent of non-performing loans 117.02 122.19
Non-performing loans as a percent of
total loans 1.10 1.07
Non-performing assets as a percent
of total assets 0.69 0.57
</TABLE>
- - ---------------
(1) Consists primarily of commercial business loans and home equity lines of
credit.
(2) Reflects loans that are 90 days or more past maturity which continue to
make payments on a basis consistent with the original repayment schedule.
(3) Net of related loss allowances.
12
<PAGE> 13
9. ALLOWANCE FOR LOAN LOSSES.
It is management's policy to maintain an allowance for loan losses based
on total loans outstanding, the volume of loan originations, the type, size and
geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans, and the number of loans
requiring heightened management oversight. Management believes that based on
information currently available, the Company's allowance for possible loan
losses is sufficient to cover losses inherent in its loan portfolio at this
time. However, no assurances can be given that the Company's level of allowance
for loan losses will be sufficient to absorb future possible loan losses
incurred by the Company or that future adjustments to the allowance for possible
loan losses will not be necessary if economic and other conditions differ
substantially from the economic and other conditions used by management to
determine the current level of the allowance for possible loan losses.
The following table sets forth the activity in the Company's allowance for
loan losses during the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30,
------------------------------
1998 1997
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of period $ 36,347 $ 27,024
-------- --------
Provision:
Mortgage loans(1) 3,800 4,294
Consumer and commercial business loans 858 1,058
-------- --------
Total provisions 4,658 5,352
-------- --------
Charge-offs:
Mortgage loans(1) 138 875
Consumer and commercial business loans(2) 122 129
-------- --------
Total charge-offs 260 1,004
-------- --------
Recoveries:
Mortgage loans(1) 237 299
Consumer and commercial business loans (2) 105 148
-------- --------
Total recoveries 342 447
-------- --------
Net recoveries (charge-offs) 82 (557)
-------- --------
Allowance at end of period $ 41,087 $ 31,819
======== ========
Allowance for possible loan
losses as a percent of total loans 1.29% 1.18%
Allowance for possible loan
losses as a percent of total
non-performing loans(3) 117.02% 129.17%
</TABLE>
- - ---------------
(1) Includes individual cooperative apartment loans.
(2) Includes student loans, home equity loans and lines of credit, automobile
loans, secured and unsecured personal loans, and commercial business loans.
(3) Non-performing loans consist of non-accrual loans and loans 90 days or more
past due as to interest or principal and other loans which have been
identified by the Company as presenting uncertainty with respect to the
collectibility of interest or principal.
10. RECENT DEVELOPMENTS.
On October 23, 1998, the Company announced that its Board of Directors
declared a quarterly cash dividend of three cents ($.03) per common share. The
dividend is payable on November 17, 1998 to shareholders of record as of
November 3, 1998.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets, which principally consist of loans, mortgage-backed and mortgage-related
securities and debt and equity securities, and interest expense on
interest-bearing liabilities, which consist of deposits and borrowings. The
Company's results of operations also are affected by the provision for loan
losses, resulting from management's assessment of the adequacy of the allowance
for loan losses, the level of its non-interest income, including service fees
and related income, gains and losses from the sales of loans and securities, and
the level of its non-interest expense, including compensation and employee
benefits, occupancy expense, data processing services and income tax expense.
The Bank is a community-oriented savings bank which emphasizes customer
service and convenience. As part of this strategy, the Company offers products
and services designed to meet the needs of its customers. The Company generally
has sought to achieve long-term financial strength by increasing the amount and
stability of its net interest income and non-interest income and by maintaining
a high level of asset quality. In pursuit of these goals, the Company has
adopted a business strategy emphasizing controlled asset growth, capital
management and effective cost control practices while maintaining superior
customer service.
Certain information in this Form 10-Q may constitute forward-looking
information that involves risks and uncertainties that could cause actual
results to differ materially from those estimated. Persons are cautioned that
such forward-looking statements are not guarantees of future performance and are
subject to various factors which could cause actual results to differ materially
from those estimated. These factors include, but are not limited to, changes in
general economic and market conditions and the development of an interest rate
environment that adversely affects the interest rate spread or other income from
the Company's and the Bank's investments and operations.
CHANGES IN FINANCIAL CONDITION
GENERAL.
Total assets at September 30, 1998 were $5.16 billion, a decrease of $66.0
million, or 1.3%, from $5.22 billion at March 31, 1998. During the first six
months of fiscal 1999, Management has realigned the balance sheet by
re-deploying shorter term investments (reflecting in large part the initial
investment of the conversion proceeds) into higher yielding assets and began in
the second quarter to strategically leverage the balance sheet to fund asset
growth. This realignment and leveraging is evidenced by decreases during the six
month period of $329.8 million in cash and cash equivalents and $136.7 million
in securities available for sale while total loans increased $415.1 million.
14
<PAGE> 15
CASH, CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER AND FEDERAL FUNDS SOLD
(COLLECTIVELY "CASH AND CASH EQUIVALENTS").
Cash and cash equivalents decreased from $857.3 million at March 31, 1998
to $527.5 million at September 30, 1998. The $329.8 million decrease was
principally due to a $434.5 million decrease in securities lending activities
from $701.2 million at March 31, 1998 to $266.7 million at September 30, 1998.
This decrease was partially offset by an increase of $106.7 million in Federal
funds sold from $71.7 million at March 31, 1998 to $178.4 million at September
30, 1998. At the completion of the conversion to a public company, the Bank
initially invested in U.S. Treasury Notes and Bills pending deployment of the
conversion proceeds into loans and other higher earning assets. The Bank has for
many years "lent" a portion of its U.S. Treasury securities to money center
banks receiving cash as collateral. Under new accounting rules effective January
1, 1998, the obligation to return the cash upon receipt of the lent securities
is deemed a borrowing while the cash, which is invested in cash equivalents, is
reflected as an asset. During the first six months of fiscal 1999, the Company
has systematically shifted a portion of its investments from U.S. Treasury
securities into higher yielding mortgage loans and mortgage-related securities,
and, as a result, reduced its securities lending activities. The increase in
Federal funds sold is due to increased FHLB advances which will be used to fund
mortgage loan and mortgage-related security commitments.
SECURITIES AVAILABLE-FOR-SALE.
The aggregate securities available for sale portfolio (which includes
investment securities and mortgage-backed and mortgage-related securities)
decreased $136.7 million from $1.37 billion at March 31, 1998 to $1.23 billion
at September 30, 1998. As of September 30, 1998 and March 31, 1998, the
Company's investment securities totaled $836.5 million and $1.28 billion,
respectively, all of which were classified as available for sale. Total
securities were reduced during the six months as a result of the Company's
determination to systematically shift a portion of its investments from U.S.
Treasury securities into higher yielding mortgage loans and mortgage-related
securities.
The Company's mortgage-backed and mortgage-related securities, a
substantial portion of which at September 30, 1998 consisted of collateralized
mortgage obligations secured by mortgage-backed securities issued by Fannie Mae
("FNMA") or Freddie Mac ("FHLMC"), increased from $84.6 million at March 31,
1998 to $393.5 million (all of which were classified as available for sale) at
September 30, 1998.
At September 30, 1998, the Company had a $4.9 million net unrealized gain
on available-for-sale investment and mortgage-backed and mortgage-related
securities.
LOANS, NET.
Loans, net increased by $410.3 million or 14.9% to $3.16 billion at
September 30, 1998 from $2.75 billion at March 31, 1998. During the first six
months of fiscal 1999 the Company originated approximately $611.8 million of
mortgage loans, compared to $307.2 million in the corresponding period of last
year. These mortgage loans, primarily multi-family residential loans, were
originated primarily for retention in its loan portfolio. This increased loan
production is partially attributable to the current refinance market. The
Company's continued emphasis on multi-family residential mortgage loans resulted
in a net increase of $376.0 million, or 23.4%, in multi-family loans from $1.61
15
<PAGE> 16
billion at March 31, 1998 to $1.98 billion at September 30, 1998. These loans
currently comprise 62.0% of the loan portfolio compared to 57.6% at March 31,
1998.
NON-PERFORMING ASSETS.
The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets amounting to 69 basis
points at September 30, 1998 compared to 57 basis points at March 31, 1998. At
September 30, 1998, the Company's non-performing assets consisted of $7.9
million of non-accrual loans, $1.3 million of loans past due 90 days or more as
to interest and accruing, $25.9 million of loans past due 90 days or more as to
principal and accruing ($20.5 million of which were multi-family loans and $4.1
million of which were commercial and other real estate loans) and $273,000 of
other real estate acquired through foreclosure or deed-in-lieu thereof.
Non-performing assets increased by $5.5 million to $35.4 million at September
30, 1998 from $29.9 million at March 31, 1998. This increase was primarily due
to an increase in loans which are 90 days or more past maturity which continue
to make payments on a basis consistent with the original repayment schedule.
ALLOWANCE FOR LOAN LOSSES.
The Company's allowance for loan losses amounted to $41.1 million at
September 30, 1998 as compared to $36.3 million at March 31, 1998. At September
30, 1998, the Company's allowance amounted to 1.29% of total loans and 117.0% of
total non-performing loans compared to 1.31% and 122.2%, at March 31, 1998,
respectively. It is management's policy to maintain an allowance for loan losses
based upon total loans outstanding, the volume of loan originations, the type,
size and geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans and the number of loans
requiring heightened management oversight.
The Company's allowance for loan losses increased $4.8 million from March
31, 1998 to September 30, 1998 due to provisions of $4.7 million, and net
recoveries of $0.1 million. The increase during the period was due to several
factors, including the Company's increased investment in multi-family
residential and commercial real estate loans, all of which were concentrated in
the New York City metropolitan area, an increase in the number of larger
multi-family residential and individual cooperative apartment loans as compared
to prior years.
INTANGIBLE ASSETS.
The Company's intangible assets consist of goodwill and other intangibles
resulting primarily from (i)the acquisition of Bay Ridge Bancorp, Inc. and its
wholly owned subsidiary Bay Ridge Federal Savings Bank (collectively, "Bay
Ridge") in January 1996 and (ii)the completion in fiscal 1996 of two branch
purchase transactions (the "Branch Acquisitions"). At September 30, 1998,
intangibles totaled $51.6 million and consisted primarily of $20.9 million
related to the acquisition of Bay Ridge and $30.7 million primarily related to
the Branch Acquisitions. The Company's intangible assets decreased by $4.3
million to $51.6 million at September 30, 1998 from $55.9 million at March 31,
1998 as a result of the amortization of the intangible assets during the six
months ended September 30, 1998. Amortization of such intangibles will continue
to reduce net income until such intangible assets are fully amortized.
16
<PAGE> 17
DEPOSITS.
Deposits decreased $98.7 million or 2.9% to $3.30 billion at September 30,
1998 from $3.39 billion at March 31, 1998. The decrease was due to a $165.4
million outflow of deposits partially offset by interest credited of $66.7
million. The deposit outflows in the first quarter of the fiscal year were
attributable to disintermediation primarily as a result of transfers to equities
markets and, to a lesser extent, to other financial institutions conducting
deposit gathering campaigns by paying above market rates. The rate of deposit
outflow in the second quarter lessened due to the instability that has arisen in
the equities market as well as special deposit programs instituted by the
Company.
BORROWINGS.
Borrowings increased $38.0 million or 5.3% to $755.8 million at September
30, 1998 compared to $717.8 million at March 31, 1998. The increase was
principally due to a $473.0 million increase in FHLB borrowings primarily to
fund the increases in the loan portfolio and mortgage-related securities
pursuant to the implementation of the Company's leverage strategy and, to a
lesser extent, the outflow of deposits. The increase was partially offset by a
$434.5 million decrease in securities lending activities from $701.2 million at
March 31, 1998 to $266.7 million at September 30, 1998. (See discussion in
"Cash, Certificates of Deposit, Commercial Paper and Federal Funds Sold"
regarding the decline in securities lending activity.)
EQUITY.
At September 30, 1998, total equity amounted to $940.1 million, compared
to $949.1 million at March 31, 1998. This $9.0 million decrease was primarily
due to a $29.1 million adjustment to capital as a result of the issuance of
grants under the recently adopted RRP and a $3.2 million decrease in the
unrealized gain on securities available for sale. Such reductions were partially
offset by net income of $21.4 million for the first six months of fiscal 1999.
Tangible book value per share was $11.68 and the tangible equity to assets ratio
was 17.23% at September 30, 1998.
17
<PAGE> 18
AVERAGE BALANCES, NET INTEREST INCOME, YIELDS EARNED AND RATES PAID.
The following table sets forth, for the periods indicated, information
regarding (i) the total dollar amount of interest income of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) the interest rate spread; and (v)
the net interest margin. Information is based on average daily balances during
the indicated periods and is annualized where appropriate.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
--------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
-------------------------------------------- -------------------------------------------
(DOLLARS IN THOUSANDS
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ---- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1):
Mortgage loans $2,502,953 $ 48,000 7.67% $2,144,126 $ 44,781 8.35%
Other loans:
Cooperative apartment
loans 406,796 7,287 7.16 373,772 7,059 7.55
Consumer and commercial
business loans(2) 119,497 2,565 8.59 121,078 2,961 9.78
---------- ---------- ---------- ----------
Total loans 3,029,246 57,852 7.64 2,638,976 54,801 8.31
Mortgage-backed and mortgage-
related securities 320,990 5,364 6.68 174,480 3,009 6.90
Investment securities 832,251 12,041 5.79 640,950 8,683 5.42
Other interest-earning
assets(3) 459,473 6,318 5.50 183,621 2,518 5.49
---------- ---------- ---- ---------- ---------- ----
Total interest-earning
assets 4,641,960 81,575 7.03 3,638,027 69,011 7.59
---------- ----------
Non-interest-earning
assets 199,702 171,237
---------- ----------
Total assets $4,841,662 $3,809,264
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $ 634,227 $ 3,571 2.23 $ 495,671 $ 3,371 2.73
Savings deposits 973,265 6,242 2.54 1,032,129 7,252 2.82
Certificates of deposit 1,693,061 23,124 5.42 1,689,632 25,833 6.13
---------- ---------- ---------- ----------
Total deposits 3,300,553 32,937 3.96 3,217,432 36,456 4.54
---------- ---------- ---------- ----------
Total borrowings 469,168 6,793 5.74 16,599 298 7.20
---------- ---------- ---------- ----------
Total interest-bearing
liabilities 3,769,721 39,730 4.18 3,234,031 36,754 4.55
---------- ---- ---------- ----
Non-interest-bearing
liabilities 110,480 248,056
---------- ----------
Total liabilities 3,880,201 3,482,087
Total equity 961,461 327,177
---------- ----------
Total liabilities and
equity $4,841,662 $3,809,264
========== ==========
Net interest-earning
assets $ 872,239 $ 403,996
========== ==========
Net interest income/interest
rate spread $ 41,845 2.85% $ 32,257 3.04%
========== ==== ========== ====
Net interest margin 3.61% 3.55%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.23x 1.12x
==== ====
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------------------------------- -------------------------------------------
(DOLLARS IN THOUSANDS)
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ---- ---------- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1):
Mortgage loans $2,413,693 $ 93,439 7.74% $2,144,126 $ 86,689 8.09%
Other loans:
Cooperative apartment
loans 396,442 14,272 7.20 373,772 13,579 7.27
Consumer and commercial
business loans(2) 120,336 5,221 8.68 121,078 5,591 9.24
---------- ---------- ---------- ----------
Total loans 2,930,471 112,932 7.71 2,638,976 105,859 8.02
Mortgage-backed and mortgage-
related securities 220,173 7,517 6.83 174,480 6,232 7.14
Investment securities 888,994 24,583 5.53 640,950 19,074 5.95
Other interest-earning
assets(3) 564,768 16,065 5.88 183,621 4,437 4.83
---------- ---------- ---------- ----------
Total interest-earning
assets 4,604,406 161,097 7.00 3,638,027 135,602 7.46
---------- ---- ---------- ----
Non-interest-earning
assets 206,720 175,510
---------- ----------
Total assets $4,811,126 $3,813,537
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $ 658,805 $ 7,111 2.15 $ 495,671 $ 6,728 2.71
Savings deposits 981,191 12,886 2.62 1,032,129 14,616 2.82
Certificates of deposit 1,699,981 46,655 5.47 1,689,632 50,492 5.96
---------- ---------- ---------- ----------
Total deposits 3,339,977 66,652 3.98 3,217,432 71,836 4.45
---------- ---------- ---------- ----------
Total borrowings 396,862 11,318 5.69 16,599 598 7.19
---------- ---------- ---------- ----------
Total interest-bearing
liabilities 3,736,839 77,970 4.16 3,234,031 72,434 4.46
---------- ---- ---------- ----
Non-interest-bearing
liabilities 117,189 257,582
---------- -------------
Total liabilities 3,854,028 3,491,613
Total equity 957,098 321,924
---------- -------------
Total liabilities and
equity $4,811,126 $ 3,813,537
========== =============
Net interest-earning
assets $ 867,567 $ 403,996
========== =============
Net interest income/interest
rate spread $ 83,127 2.84% $ 63,168 3.00%
========== ==== ========== ====
Net interest margin 3.61% 3.47%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.23x 1.12x
==== ====
</TABLE>
- - ---------------
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes home equity lines of credit and improvement loans, student loans,
automobile loans, passbook loans, credit card loans, personal loans and
commercial business loans.
(3) Includes federal funds sold, interest-earning bank deposits, FHLB stock,
overnight commercial paper and certificates of deposit.
(4) Includes NOW, money market and checking accounts.
18
<PAGE> 19
RATE/VOLUME ANALYSIS.
The following table sets forth the effects of changing rates and volumes
on net interest income of the Company. Information is provided with respect to
(i) effects on interest income attributable to changes in volume (changes in
volume multiplied by prior rate) and (ii) effects on interest income
attributable to changes in rate (changes in rate multiplied by prior volume).
The combined effect of changes in both rate and volume has been allocated
proportionately to the change due to rate and the change due to volume.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30,1998 SIX MONTHS ENDED SEPTEMBER 30, 1998
COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30, 1997
------------------------------------------------- -----------------------------------------------
Increase Total Net Increase Total Net
(Decrease) due to Increase (Decrease) due to Increase
Rate Volume (Decrease) Rate Volume (Decrease)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $(18,621) $ 21,840 $ 3,219 $ (9,312) $ 16,062 $ 6,750
Co-op apartment loans (2,236) 2,463 227 (339) 1,032 693
Consumer and commercial
business loans(1) (357) (38) (395) (290) (80) (370)
-------- -------- -------- -------- -------- --------
Total loans receivable (21,214) 24,265 3,051 (9,941) 17,014 7,073
Mortgage-backed securities (633) 2,988 2,355 (755) 2,040 1,285
Investment securities 623 2,735 3,358
(3,713) 9,222 5,509
Other interest-earning assets (184) 3,984 3,800 925 10,703 11,628
-------- -------- -------- -------- -------- --------
Total net change in income on
interest-earning assets (21,408) 33,972 12,564 (13,484) 38,979 25,495
Interest-bearing liabilities:
Deposits:
Demand deposits (2,892) 3,092 200 (3,241) 3,624 383
Savings deposits (636) (374) (1,010) (1,026) (704) (1,730)
Certificates of deposit (3,075) 366 (2,709) (4,721) 884 (3,837)
-------- -------- -------- -------- -------- --------
Total deposits (6,603) 3,084 (3,519) (8,988) 3,804 (5,184)
Borrowings (2,910) 9,405 6,495 (285) 11,005 10,720
-------- -------- -------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities (9,513) 12,489 2,976 (9,273) 14,809 5,536
-------- -------- -------- -------- -------- --------
Net change in net interest
income $(11,895) $ 21,483 $ 9,588 $ (4,211) $ 24,170 $ 19,959
======== ======== ======== ======== ======== ========
</TABLE>
- - ------------------
(1) Includes home equity lines of credit and improvement loans, student loans,
automobile loans, passbook loans, personal loans, credit card loans, and
commercial business loans.
19
<PAGE> 20
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30,
1998 AND 1997
GENERAL.
The Company reported a 62.0% increase in net income of $10.5 million, or
$0.15 per diluted share, for the quarter ended September 30, 1998 compared to
$6.5 million for the same quarter in the prior year. Per share amounts are not
applicable for the quarter ended September 30, 1997 since the Company's
conversion to a public company was not completed until March 1998.
The $4.0 million increase in net income during the three months ended
September 30, 1998 compared to the same period in the prior year was primarily
due to a $9.5 million increase in net interest income combined with a $0.8
million decrease in provision for loan losses partially offset by a $3.8 million
increase in non-interest expense and a $3.0 million increase in the provision
for income taxes.
NET INTEREST INCOME.
Net interest income represents the difference between interest income on
interest-earning assets and interest expense on interest-bearing liabilities.
Net interest income depends upon the relative amount of interest-earning assets
and interest-bearing liabilities and the associated interest rate earned or paid
on them. The Company's net interest margin was 3.61% and 3.55% for the three
months ended September 30, 1998 and 1997, respectively. The 6 basis point
increase in net interest margin for the three months was due to the increase in
the ratio of average interest-earning assets to average interest-bearing
liabilities as a direct result of the investment of the net proceeds received
from the Company's subscription offering.
Net interest income increased by $9.5 million or 29.7% to $41.8 million
for the three months ended September 30, 1998 as compared to the period ended
September 30, 1997. The increase was due to a $12.5 million increase in interest
income offset in part by a $3.0 million increase in interest expense. The growth
in net interest income reflects primarily the $1.0 billion increase in average
interest-earning assets during the three months ended September 30, 1998
compared to the three months ended September 30, 1997. This was partially offset
by a lower interest rate environment resulting from the flattening of the yield
curve as well as compression associated with the leveraging of the balance
sheet.
The increase in interest income was primarily due to a $1.0 billion
increase in the average balance of the Company's interest-earning assets, offset
in part by a decline in the weighted average yield earned thereon from 7.59% to
7.03%. Interest income on loans increased $3.1 million due to a $390.3 million
increase in the average balance of loans partially offset by a 67 basis point
decline in the yield earned on loans from 8.31% for the fiscal 1998 period to
7.64% for the fiscal 1999 period. The decline in yield reflects the effects of
originations at lower current interest rates combined with the repricing
downward of some of the Company's adjustable-rate loans. Income on investment
securities increased $3.4 million due to a $191.3 million increase in the
average balance of investment securities along with an increase in the yield
earned from 5.42% for the quarter ended September 30, 1997 to 5.79% for the
quarter ended September 30, 1998. Interest income on mortgage-backed and
mortgage-related securities increased $2.4 million during the second quarter of
fiscal 1999 compared to the same period in fiscal 1998 as a result of a $146.5
million increase in the average balance of these securities which was partially
offset by a 22 basis point decline in the
20
<PAGE> 21
yield earned. Income on other interest-earning assets increased $3.8 million in
the current quarter compared to the prior year quarter due to $4.1 million of
interest income earned from securities lending activities, which in fiscal 1998
was recorded net of its associated interest expense as fee income in other
non-interest income, along with a $.2 million increase in interest on federal
funds. This increase was due to the investment in short-term securities,
resulting from increased FHLB advances, in order to fill mortgage loan and
mortgage-related security commitments.
Interest expense increased $3.0 million or 8.1% for the three months ended
September 30, 1998 as compared to the three months ended September 30, 1997,
with the increase due primarily to a $4.1 million increase in interest paid on
borrowing related to securities lending activities, which in the prior year was
reflected net of its associated interest income as fee income in other
non-interest income. Interest expense on borrowings also increased by $2.4
million as a result of an increase in FHLB borrowings associated with the
Company's plan to leverage the balance sheet. This increase was partially offset
by a decrease of $3.5 million in interest paid on deposits due to a 58 basis
point decline in the average rate paid on deposits to 3.96% for the quarter
ended September 30, 1998 compared to 4.54% for the quarter ended September 30,
1997 which was partially offset by an $83.1 million increase in the average
balance of deposits.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses decreased 25.5% from $3.1 million
for the three months ended September 30, 1997 to $2.3 million for the three
months ended September 30, 1998. The Company continues to provide for loan
losses due to its ongoing and increasing investment in multi-family residential
and commercial real estate loans, which while not delinquent may be subject to
greater risk of loss as well as the increased level of non-performing assets.
NON-INTEREST INCOME.
Non-interest income increased $0.4 million or 16.6% from $2.2 million for
the three months ended September 30, 1997 to $2.6 million for the three months
ended September 30, 1998. The increase was primarily due to a $.8 million
increase in other non-interest income partially offset by a $0.4 million decline
in service fee income. The rise in other non-interest income was principally due
to a $1.0 million increase in mortgage prepayment fees for the current quarter
compared to the prior year quarter resulting from the current refinance market.
The $0.4 million decline in service fee income is partially attributable to the
new accounting rules effective January 1, 1998 regarding the recording of
securities lending. For the quarter ended September 30, 1997 income from
securities lending was recorded as non-interest income while in the current
quarter ended September 30, 1998 it was included as part of net interest income.
For the quarter ended September 30, 1997 the Company recorded $142,000 as income
relating to securities lending. Service fee income is also lower due to a
$43,000 decline in fees associated with the sales of annuities and mutual funds
during the current quarter. The contract with a third party provider to sell
these products expired in January 1998 and the Company negotiated a contract
with a new provider and resumed the sale of these products late in the second
quarter of fiscal 1999. The remainder of the decline in service fee income is
due to lower deposit-based fees.
21
<PAGE> 22
NON-INTEREST EXPENSES.
Non-interest expense amounted to $25.3 million for the quarter ended
September 30, 1998 compared to $21.5 million for the quarter ended September 30,
1997. The $3.8 million growth in expenses was attributable primarily to
increases in personnel costs of $1.9 million, other non-interest expenses of
$1.1 million, occupancy costs of $0.2 million and data processing service
expenses of $0.2 million.
Compensation and employee benefits expense increased $1.9 million or 24.5%
to $9.7 million for the three months ended September 30, 1998 as compared to the
same period in the prior year. The increase was due to the combined effect of
$1.2 million of benefits related to the ESOP and the RRP as well as $0.7 million
of staff additions and normal merit increases.
Data processing service expenses increased by $0.2 million or 5.9% to $3.2
million during the three months ended September 30, 1998 as compared to the
three months ended September 30, 1997. The increase was primarily due to costs
associated with Year 2000 compliance issues.
The Company's advertising expenses amounted to $1.3 million and $1.0
million for the three months ended September 30, 1998 and 1997, respectively.
The increase reflects the Company's determination to increase its market
presence through, in part, increased advertising in print media and radio.
Other non-interest expenses increased $1.1 million for the three months
ended September 30, 1998 compared to the same period in the prior year. These
expenses included items such as equipment expenses, office supplies, postage,
telephone expenses, maintenance and security, as well as certain professional
fees and expenditures associated with being a public company.
INCOME TAXES.
Income tax expense amounted to $6.3 million and $3.3 million for the three
months ended September 30, 1998 and 1997, respectively. The increase experienced
in the fiscal 1999 period reflected in part the increase in the Company's income
before income taxes. In addition, the Company's effective tax rate for the three
months ended September 30, 1998 was 37.5% compared to 34.0% for the three months
ended September 30, 1997.
As of September 30, 1998, the Company had a net deferred tax asset of $43.0
million. No valuation allowance was deemed necessary with respect to such asset.
22
<PAGE> 23
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1998
AND 1997
GENERAL.
The Company's net income for the six months ended September 30, 1998
increased $7.9 million, or 58.0% to $21.4 million, or $0.30 per diluted share,
compared to the six months ended September 30, 1997. Per share amounts are not
applicable for the six months ended September 30, 1997 since the Company's
conversion to a public company was not completed until March 1998.
The $7.9 million increase in net income during the six months ended
September 30, 1998 compared to the same period in the prior year was primarily
due to increases of $20.0 million in net interest income and $1.0 million in
non-interest income along with a $0.7 million decrease in provision for loan
losses. These increases to income were partially offset by a $6.3 million
increase in non-interest expense and a $7.4 million increase in the provision
for income taxes.
NET INTEREST INCOME.
The Company's net interest margin was 3.61% and 3.47% for the six
months ended September 30, 1998 and 1997, respectively. The 14 basis point
increase in net interest margin for the six months was due to the increase in
the ratio of average interest-earning assets to average interest-bearing
liabilities as a direct result of the investment of the net proceeds received
from the Company's subscription offering.
Net interest income increased by $20.0 million or 31.6% to $83.1
million for the six months ended September 30, 1998 as compared to the same
period in 1997. The increase was due to a $25.5 million increase in interest
income offset in part by a $5.5 million increase in interest expense. The growth
in net interest income reflects primarily the $966.4 million increase in average
interest-earning assets during the six months ended September 30, 1998 compared
to the six months ended September 30, 1997, which was partially offset by a
general compression in interest rate spread due to general declines in market
rates of interest. The increase in average earning assets for the six months
period was primarily due to the investment of the net proceeds from the
Company's conversion to the stock holding company form of organization during
the fourth quarter of fiscal 1998 as well as the effect of implementation of a
new accounting treatment for securities lending activities, and to a lesser
extent, the use of FHLB advances to fund asset growth in mortgage loans and
investment securities as part of the Company's leverage strategy.
.
The increase in interest income was primarily due to a $966.4 million
increase in the average balance of the Company's interest-earning assets, offset
in part by a decline in the weighted average yield earned thereon from 7.46% to
7.00%. Interest income on loans increased $7.1 million due to a $291.5 million
increase in the average balance of loans partially offset by a 31 basis point
decline in the yield earned on loans from 8.02% for the fiscal 1998 period to
7.71% for the fiscal 1999 period. The decline in yield reflects the effects of
originations at lower current interest rates combined with a lower repricing
rate with respect to some of the Company's adjustable-rate loans. Income on
investment securities increased $5.5 million due to a $248.0 million increase in
the average balance of investment securities which was partially offset by a
decline in the yield earned from 5.95% for the six months ended September 30,
1997 to 5.53% for
23
<PAGE> 24
the six months ended September 30, 1998. Interest income on mortgage-backed and
mortgage-related securities increased $1.3 million during the first six months
of fiscal 1999 compared to the same period in fiscal 1998 as a result of a $45.7
million increase in the average balance of these securities which was partially
offset by a 31 basis point decline in the yield earned resulting from the
general decline in market rates of interest. Income on other interest-earning
assets increased $11.6 million in the current six months compared to the prior
year six months primarily due to $8.4 million of interest income earned from
securities lending activities, which in fiscal 1998 was recorded net of its
associated interest expense as fee income in other non-interest income, along
with a $2.5 million increase in interest on federal funds. This increase was due
to the build-up of short-term investments, as a result of increased FHLB
borrowings, which funds have yet to be re-deployed into higher yielding mortgage
loans and mortgage related securities.
Interest expense increased $5.5 million or 7.6% for the six months
ended September 30, 1998 as compared to the six months ended September 30, 1997,
with the increase due primarily to a $8.3 million increase in interest paid on
borrowings related to the Company's securities lending activities, which in the
prior year was reflected, net of its associated interest income, as fee income
in other non-interest income. Interest expense on borrowings also increased by
$2.4 million as a result of the increased FHLB borrowings. This increase was
partially offset by a decrease of $5.2 million in interest paid on deposits due
to a 47 basis point decline in the average rate paid on deposits to 3.98% for
the six months ended September 30, 1998 compared to 4.45% for the six months
ended September 30, 1997 which was partially offset by an $122.5 million
increase in the average balance of deposits.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses decreased by $0.7 million or
13.0% to $4.7 million as compared to $5.4 million for the same period in the
prior year. The Company continues to provide for loan losses due to its ongoing
and increasing investment in multi-family residential and commercial real estate
loans, which while not delinquent may be subject to greater risk of loss than
single-family owner occupied residential loans.
NON-INTEREST INCOME.
For the six months ended September 30, 1998 non-interest income
increased $1.0 million or 21.7% from $4.4 million for the six months ended
September 30, 1997 to $5.4 million for the six months ended September 30, 1998.
The increase was primarily due to a $1.8 million increase in other non-interest
income partially offset by a $0.9 million decline in service fee income. The
rise in other non-interest income was principally due to a $1.7 million increase
in mortgage prepayment fees for the current year compared to the prior year
resulting from an acceleration in refinancings. The $0.9 million decline in
service fee income is partially attributable to the new accounting rules
effective January 1, 1998 regarding the recording of securities lending. For the
six months ended September 30, 1997 income from securities lending was recorded
as non-interest income while in the six months ended September 30, 1998 it was
included as part of net interest income. For the six months ended September 30,
1997 the Company recorded $319,000 as income relating to securities lending.
Service fee income is also lower due to a $219,000 decline in fees associated
with the sales of annuities and mutual funds during the current six months. The
contract with a
24
<PAGE> 25
third party provider to sell these products expired in January 1998 and the
Company negotiated a contract with a new provider and resumed the sale of these
products late in the second quarter of fiscal 1999. The remainder of the decline
in service fee income is due to lower deposit-based fees.
NON-INTEREST EXPENSES.
Non-interest expense increased by $6.3 million, or 14.9%, to $48.7
million for the six months ended September 30, 1998. The increase in expenses
was attributable to increases in personnel costs of $3.9 million, occupancy
costs of $0.8 million, other non-interest expenses of $0.8 million, and data
processing service expenses of $0.3 million.
Compensation and employee benefits expense increased $3.9 million, or
25.7%, to $19.0 million for the six months ended September 30, 1998 as compared
to the same period in the prior year. The increase was due to the combined
effect of $2.3 million of benefits related to the ESOP and RRP as well as $1.6
million related to staff additions and normal merit increases.
Occupancy costs increased $0.8 million to $7.0 for the six months ended
September 30, 1998 compared to the same period in the prior year. These costs
increased due to costs related to branch renovations and improvements
Data processing service expenses increased $0.3 million, or 5.7%, to
$6.2 million during the six months ended September 30, 1998, respectively as
compared to the six months ended September 30, 1997. The increase was primarily
due to costs associated with Year 2000 compliance issues. See "The Year 2000
Issue".
For the six months ended September 30, 1998 advertising expense
amounted to $2.4 million as compared to $1.9 million for the six months ended
September 30, 1997. The increase reflects the Company's determination to
increase its market presence through, in part, increased advertising in print
media and radio.
Other non-interest expenses increased $0.8 million for the six months
ended September 30, 1998 as compared to the six months ended September 30, 1997.
These expenses included items such as equipment expenses, office supplies,
postage, telephone expenses, maintenance and security, as well as certain
professional fees and expenditures associated with being a public company.
INCOME TAXES.
Income tax expense amounted to $13.7 million and $6.3 million during
the six months ended September 30, 1998 and 1997, respectively. The increase
experienced in the fiscal 1999 period reflected in part the increase in the
Company's income before income taxes. In addition, the Company's effective tax
rate for the six months ended September 30, 1998 was 39.1% compared to 31.7% for
the six months ended September 30, 1997.
25
<PAGE> 26
REGULATORY CAPITAL REQUIREMENTS
The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at September 30, 1998.
<TABLE>
<CAPTION>
REQUIRED ACTUAL EXCESS
PERCENT AMOUNT PERCENT AMOUNT PERCENT AMOUNT
------- ------ ------- ------ ------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Tier I leverage capital
ratio(1) 4.0% $193,666 13.3% $646,099 9.3% $452,433
Risk-based capital
ratios:
Tier I 4.0 125,691 20.6 646,099 16.6 520,408
Total 8.0 251,382 21.8 685,400 13.8 434,018
</TABLE>
- - ----------
(1) Reflects the 4.0% requirement to be met in order for an institution to be
"adequately capitalized" under applicable laws and regulations.
LIQUIDITY AND COMMITMENTS
The Company's liquidity, represented by cash and cash equivalents, is a
product of its operating, investing and financing activities. The Company's
primary sources of funds are deposits, the amortization, prepayment and maturity
of outstanding loans, mortgage-backed and mortgage-related securities, the
maturity of debt securities and other short-term investments and funds provided
from operations. While scheduled payments from the amortization of loans,
mortgage-backed and mortgage-related securities and maturing debt securities and
short-term investments are relatively predictable sources of funds, deposit
flows and loan prepayments are greatly influenced by general interest rates,
economic conditions and competition. In addition, the Company invests excess
funds in federal funds sold and other short-term interest-earning assets which
provide liquidity to meet lending requirements. Historically the Company has
been able to generate sufficient cash through its deposits and has only utilized
borrowings, consisting primarily of advances from the FHLB of New York, to a
limited degree as a source of funds during the past five years. However, due to
the increased demand for mortgage loans during the first six months of fiscal
1999 and as part of the Company's recently initiated leverage strategy, the
Company has increased its FHLB advances to $477.4 million at September 30, 1998.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold or U.S. Treasury securities. On a longer term basis,
the Company maintains a strategy of investing in various lending products. The
Company uses its sources of funds primarily to meet its ongoing commitments, to
pay maturing certificates of deposit and savings withdrawals, fund loan
commitments and maintain a portfolio of mortgage-backed and mortgage-related
securities and debt and equity securities. At September 30, 1998, there were
outstanding commitments and unused lines of credit by the Company to originate
or acquire mortgage loans and other loans aggregating $143.4 million and $18.4
million, respectively, consisting primarily of fixed and adjustable-rate
residential loans and fixed-rate commercial real estate loans that are expected
to close during the twelve months ended September 30, 1999. Certificates of
deposit scheduled to mature in one year or less at September 30, 1998, totaled
$1.3
26
<PAGE> 27
billion. Based on historical experience, management believes that a significant
portion of maturing deposits will remain with the Company. The Company
anticipates that it will continue to have sufficient funds, together with
borrowings, to meet its current commitments.
THE YEAR 2000 ISSUE
The Year 2000 Issue ("Y2K Issue") is the result of computer
programs which were written using two digits rather than four to define the
applicable year. As a result, such programs may recognize a date using "00" as
the year 1900 instead of the year 2000 which could result in system failures or
miscalculations.
In order to be ready for the year 2000 the Company has developed a Year
2000 Testing Assurance Plan(TM) (the "Assurance Plan") which was presented to
the Information Technology Committee of the Board of Directors in March 1998.
The Assurance Plan was developed using the guidelines outlined in the Federal
Financial Institutions Examination Council's "The Effect of 2000 on Computer
Systems". The Company assigned responsibility for the implementation of the
Assurance Plan to the Year 2000 Steering Committee which reports to the
Information Technology Committee of the Board of Directors on a quarterly basis.
The Steering Committee includes the Company's Chief Executive Officer and other
members of executive management. This Committee has engaged an independent
consultant to act as project manager of the Y2K project. The Company has
established an advisory council as well as both research and implementation
support teams, consisting of Company personnel who have relevant expertise in
the various application systems, to perform planning and testing for Y2K
compliance.
The Assurance Plan recognizes that the Company's operating, processing
and accounting systems are computer reliant and could be affected by the Y2K
Issue. The Company is primarily reliant on third party vendors for its computer
output and processing, as well as other significant functions and services
(i.e., securities safekeeping services, securities pricing information, etc.).
The Assurance Plan is divided into three phases. Phase 1: Risk
Assessment and Planning, Phase 2: Development and Testing Preparation and Phase
3: Testing and Validation.
Phase 1: Risk Assessment and Planning - This phase identified each
application and interface, facilities and hardware utilized by the Company and
prioritized them by the level of risk (business critical, medium and low) they
impose on the operations of the Company. The Company identified 42 business
critical systems (operations will be significantly impacted if the system is not
Year 2000 compliant), 23 medium risk systems (operations will be impacted mainly
from a productivity perspective, but the risk to the Company can be identified
and managed) and 15 low risk systems (normal business operations of the Company
will be minimally impacted, if at all, if the system is not Year 2000
compliant). Substantially all of the Company's vendors of its business critical
and medium risk applications have provided written assurances that their
products and services will be Year 2000 compliant. Of the 75 combined business
critical and medium risk systems, approximately 34% are provided by the
Company's data service processor which has informed the Company that they have
completed testing of their systems and are Year 2000 compliant. Based upon
initial assessment, management presently believes that with planned
modifications to existing software and hardware and planned conversions to new
software and hardware, the Company's third party vendors are taking the
appropriate steps to ensure business critical systems
27
<PAGE> 28
will function properly. This phase is approximately 100% complete at September
30, 1998.
Phase 2: Development and Testing Preparation - This phase of the
Assurance Plan is the comprehensive preparation for the actual testing and
validation of assertions made by third party providers that they are Year 2000
compliant. During this phase, the vendors will prepare their test system
environment and the Company will define and document all test scenarios and test
cases. This phase is approximately 100% complete at September 30, 1998.
Phase 3 - Testing and Validation - The third and final phase of the
Assurance Plan involves a comprehensive testing process by the Company that
employs both unit testing and full integration/confirmation testing. The Company
began testing business critical and medium risk applications in September 1998
and expects completion by March 1999.
The Company has received assurances that third party products and
services will be Year 2000 compliant. However, these assurances are not
guarantees and may not be enforceable. The contracts with such vendors do not
include Year 2000 certification or warranties. Thus, in the event such vendors'
products and/or services are not Year 2000 compliant, the Company's recourse in
the event of such failure may be limited. If the required modifications and
conversions are not made, or are not completed on a timely basis, the Y2K Issue
could have a material impact on the operations of the Company.
The Y2K Issue also affects certain of the Company's customers,
particularly in the areas of access to funds and additional expenditures to
achieve compliance. As of April 1998, the Company had contacted all of its large
borrowers regarding the customers' awareness of the Y2K Issue. While no
assurance can be given that its customers will be Year 2000 compliant,
management believes, based on representations of such customers and reviews of
their operations, that the customers are either addressing the appropriate
issues to insure compliance or that they are not faced with material Year 2000
issues. In addition, in substantially all cases the credit extended to such
borrowers is collateralized by real estate which inherently minimizes the
Company's exposure in the event that such borrowers do experience problems or
delays becoming Year 2000 compliant.
The Company has completed a Year 2000 contingency plan for 100% of its
identified business critical and medium risk applications including contingency
plans which address operational policies and procedures in the event of data
processing, electrical power supply and/or telephone service failures associated
with the Year 2000. Such contingency plans provide documented actions to allow
the Company to maintain and/or resume normal operations in the event of the
failure of business critical or medium risk applications. Such plans identify
participants, processes and equipment that will be necessary to permit the
Company to continue operations. Such plans include providing off-line system
processing, back-up electrical and telephone systems and other methods to ensure
the Company's ability to continue to operate. Also, the Company has entered into
a contingency contract with an independent data service provider in the event
that the current data service provider (representing approximately 34% of the
business critical and medium risk applications) fails to become Year 2000
compliant by January 1999.
The costs of modifications to the existing software are being primarily
absorbed by the third party vendors. However, the Company recognizes that the
need to purchase new hardware and software. Based upon current estimates, the
Company has identified approximately $3.0 million in total costs, including
hardware, software, and other costs, for completing the Year 2000 project. Of
28
<PAGE> 29
that amount, approximately $0.3 million and $0.7 million was expensed during the
fiscal year ended March 31, 1998 and the six months ended September 30, 1998,
respectively. The Company has budgeted $0.7 million for the remaining six months
of fiscal 1999.
The FDIC and other federal banking regulators have issued safety and
soundness guidelines to be followed by insured depository institutions, such as
the Bank, to assure resolution of any Year 2000 problems. Any institution's
failure to address appropriately the Year 2000 problem could result in
supervisory action. The Bank has been examined for Year 2000 compliance by the
FDIC and New York State Banking Department and is schedule to be examined again
in the first quarter of calendar 1999.
29
<PAGE> 30
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management
policies as well as the potential impact of interest rate changes upon the
market value of the Bank's portfolio equity, see "Management's Discussion and
Analysis of Financial Condition and Results of Operation" in the Company's
Annual Report on Form 10-K for the year ended March 31, 1998, which was filed
with the Securities and Exchange Commission on June 26, 1998. There has been no
material change in the Company's asset and liability position or the market
value of the Bank's portfolio equity since March 31, 1998.
30
<PAGE> 31
PART II 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 Stockholders on
September 25,1998. Proxies were solicited with respect to such
meeting under Regulation 14A of the Securities Exchange Act of
1934 pursuant to proxy materials dated August 14, 1998. Of the
76,043,750 shares eligible to vote at the meeting, 65,079,818
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
for a three year term expiring in 2001, as follows:
<TABLE>
<CAPTION>
No. of Votes No. of Votes
For Withheld
------------ ------------
<S> <C> <C>
Robert B. Catell 63,460,802 1,619,016
Rohit M. Desai 63,436,991 1,642,827
Robert W. Gelfman 63,445,905 1,633,913
Charles J. Hamm 63,345,163 1,734,655
Scott M. Hand 63,463,027 1,616,791
</TABLE>
The following directors are serving terms of office that continue
through 1999 and 2000, as noted:
<TABLE>
<CAPTION>
Director Year Term Expires
-------- -----------------
<S> <C>
Willard N. Archie 1999
Donald H. Elliott 1999
Janine Luke 1999
Malcolm MacKay 1999
Chaim Edelstein 2000
Donald Kolowsky 2000
Joseph S. Morgano 2000
Wesley D. Ratcliff 2000
</TABLE>
31
<PAGE> 32
(c) Three additional proposals were submitted for a vote, with the
following results:
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes No. of Broker
For Against Abstaining Non-Votes
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
(1) Approval of the
1998 Stock Option
Plan 38,241,609 6,031,965 1,082,897 19,723,347
(2) Approval of the
1998 Recognition
and Retention
Plan and Trust
Agreement 38,151,272 6,674,303 1,247,528 19,006,715
(3) Ratification of
the appointment of
Ernst & Young LLP
as independent
auditors for the
fiscal year ending
March 31, 1999 63,401,849 966,042 711,927 N/A
</TABLE>
Item 5 Other Information
Not applicable
Item 6 Exhibits and Reports on Form 8-K
a) Not applicable
b) No Form 8-K reports were filed during the quarter.
32
<PAGE> 33
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.
INDEPENDENCE COMMUNITY BANK CORP.
Date: November 6, 1998 By:/s/ Charles J. Hamm
---------------- --------------------------------
Charles J. Hamm
Chairman, President and
Chief Executive Officer
Date: November 6, 1998 By:/s/ John B. Zurell
---------------- --------------------------------
John B. Zurell
Executive Vice President and
CHIEF FINANCIAL OFFICER
33
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 299,277
<INT-BEARING-DEPOSITS> 49,881
<FED-FUNDS-SOLD> 178,383
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,229,972
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 3,196,956
<ALLOWANCE> 41,087
<TOTAL-ASSETS> 5,156,958
<DEPOSITS> 3,295,112
<SHORT-TERM> 277,242
<LIABILITIES-OTHER> 165,948
<LONG-TERM> 478,578
0
0
<COMMON> 760
<OTHER-SE> 939,318
<TOTAL-LIABILITIES-AND-EQUITY> 5,156,958
<INTEREST-LOAN> 112,932
<INTEREST-INVEST> 32,100
<INTEREST-OTHER> 16,065
<INTEREST-TOTAL> 161,097
<INTEREST-DEPOSIT> 66,652
<INTEREST-EXPENSE> 77,970
<INTEREST-INCOME-NET> 83,127
<LOAN-LOSSES> 4,657
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 48,684
<INCOME-PRETAX> 35,172
<INCOME-PRE-EXTRAORDINARY> 35,172
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,428
<EPS-PRIMARY> .30
<EPS-DILUTED> .30
<YIELD-ACTUAL> 7.03
<LOANS-NON> 7,895
<LOANS-PAST> 27,215
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 36,347
<CHARGE-OFFS> 260
<RECOVERIES> 342
<ALLOWANCE-CLOSE> 41,087
<ALLOWANCE-DOMESTIC> 41,087
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
