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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 June 30, 2000
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 (I.R.S. Employer
of incorporation or organization) Identification Number)
195 Montague Street
Brooklyn, New York 11201
------------------------- ----------------
(Address of principal executive office) (Zip Code)
(718) 722-5300
--------------
(Registrant's telephone number, including area 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 registrant's
classes of common stock, as of the latest practicable date. At August 4,
2000, the registrant had 64,311,373 shares of common stock ($.01 par value
per share) outstanding.
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INDEPENDENCE COMMUNITY BANK CORP.
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Table of Contents PAGE
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Part I Financial Information
Item 1 Financial Statements
Consolidated Statements of Financial 3
Condition as of June 30, 2000 (unaudited)
and March 31, 2000
Consolidated Statements of Income for 4
the three months ended
June 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in 5
Stockholders' Equity for the three
months ended June 30, 2000 and 1999
(unaudited)
Consolidated Statements of Cash Flows 6
for the three months ended
June 30, 2000 and 1999(unaudited)
Notes to Consolidated Financial 8
Statements (unaudited)
Item 2 Management's Discussion and Analysis 17
of Financial Condition and Results of
Operations
Item 3 Quantitative and Qualitative Disclosures 28
About Market Risk
Part II Other Information
Item 1 Legal Proceedings 29
Item 2 Changes in Securities and Use of Proceeds 29
Item 3 Defaults upon Senior Securities 29
Item 4 Submission of Matters to a Vote of 29
Security Holders
Item 5 Other Information 30
Item 6 Exhibits and Reports on Form 8-K 30
Signatures 31
</TABLE>
2
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
2000 2000
---- ----
<S> <C> <C>
(unaudited)
ASSETS:
Cash and due from banks $ 250,787 $ 134,170
Federal funds sold -- 17,997
---------- ----------
Total cash and cash equivalents 250,787 152,167
---------- ----------
Securities available-for-sale:
Investment securities 199,967 212,768
Mortgage-related securities 747,905 773,031
--------- ----------
Total securities available-for-sale 947,872 985,799
--------- ----------
Mortgage loans on real estate 4,535,196 4,455,845
Other loans 556,865 494,675
-------- ----------
Total loans 5,092,061 4,950,520
Less: allowance for possible loan
losses (72,625) (70,286)
--------- ----------
Total loans, net 5,019,436 4,880,234
--------- ----------
Premises, furniture and equipment, net 87,253 88,704
Accrued interest receivable 35,858 33,509
Intangible assets, net 216,257 220,979
Other assets 219,473 242,758
-------- ----------
Total assets $6,776,936 $6,604,150
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $4,453,562 $4,412,032
Borrowings 1,333,709 1,162,738
Company-obligated mandatorily redeemable
cumulative trust preferred securities of a
subsidiary trust holding solely junior
subordinated debentures of the Company 11,067 11,500
Escrow and other deposits 56,567 73,516
Accrued expense and other liabilities 98,289 109,557
--------- ---------
Total liabilities 5,953,194 5,769,343
--------- ---------
Stockholders' equity:
Common stock ($.01 par value,
125,000,000 shares authorized,
76,043,750 shares issued;
65,184,845 and 67,254,439 shares
outstanding at June 30, 2000
and March 31, 2000, respectively) 760 760
Additional paid-in-capital 718,432 718,953
Treasury stock at cost; 10,585,905 and
8,789,311 shares at June 30, 2000 and
March 31, 2000, respectively (142,444) (116,693)
Unallocated common stock held by ESOP (86,513) (87,749)
Non-vested awards under Recognition and
Retention Plan (26,400) (27,907)
Retained earnings, substantially
restricted 390,600 380,358
Accumulated other comprehensive loss:
Net unrealized loss on securities
available-for-sale, net of tax (30,693) (32,915)
----------- ----------
Total stockholders' equity 823,742 834,807
---------- ----------
Total liabilities and stockholders'
equity $6,776,936 $6,604,150
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
3
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
JUNE 30,
--------
2000 1999
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INTEREST INCOME:
Mortgage loans on real estate $ 83,943 $ 63,907
Other loans 11,093 2,458
Investment securities 3,384 3,645
Mortgage-related securities 12,892 17,495
Other 3,782 4,064
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Total interest income 115,094 91,569
------- --------
INTEREST EXPENSE:
Deposits 39,556 32,370
Borrowings 17,262 15,062
Cumulative trust preferred securities 262 --
------- --------
Total interest expense 57,080 47,432
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Net interest income 58,014 44,137
Provision for loan losses 792 2,629
------- --------
Net interest income after provision
for loan losses 57,222 41,508
NON-INTEREST INCOME:
Net loss on sales of loans and securities (1) (2,169)
Service fees 5,234 2,081
Other 861 1,977
------- --------
Total non-interest income 6,094 1,889
------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits 16,022 10,274
Occupancy costs 5,328 3,402
Data processing fees 2,350 2,094
Advertising 1,366 1,415
FDIC insurance premiums 189 282
Amortization of intangible assets 5,352 2,155
Other 7,556 4,783
------- --------
Total non-interest expense 38,163 24,405
------- --------
Income before provision for income taxes 25,153 18,992
Provision for income taxes 10,617 6,994
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Net income $ 14,536 $ 11,998
======== ========
Basic earnings per share $ 0.25 $ 0.21
======== ========
Dilute earnings per share $ 0.25 $ 0.21
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(In Thousands, except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Unearned
Unallocated Common
Additional Common Stock Held by
Common Paid in Treasury Stock Held Recognition Retained
Stock Capital Stock by ESOP Plan Earnings
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<S> <C> <C> <C> <C> <C> <C>
Balance - March 31, 2000 $ 760 $718,953 $(116,693) $(87,749) $(27,907) $380,358
Comprehensive income:
Net income for the three months
ended June 30, 2000 -- -- -- -- -- 14,536
Other comprehensive income, net of
tax benefit of $23.3 million
Change in net unrealized losses
on securities available-
for-sale, net of tax -- -- -- -- -- --
Less: reclassification
adjustment of net losses
realized in net
income, net of tax -- -- -- -- -- --
----------------------------------------------------------------------------------
Comprehensive income -- -- -- -- -- 14,536
Repurchase of common stock (2,075,500
shares) -- -- (25,832) -- -- --
Treasury stock issued for options
exercised (5,906 shares) -- (59) 81 -- -- --
Dividends declared -- -- -- -- -- (4,294)
ESOP shares committed to be released -- (366) -- 1,236 -- --
Amortization of earned portion of
Recognition Plan -- (96) -- -- 1,507 --
----------------------------------------------------------------------------------
Balance - June 30, 2000 $ 760 $718,432 $(142,444) $(86,513) $ (26,400) $390,600
==================================================================================
Balance - March 31, 1999 $ 760 $739,090 $(125,993) $(92,693) $ (33,918) $340,019
Comprehensive income:
Net income for the three months
ended June 30, 1999 -- -- -- -- -- 11,998
Other comprehensive income, net of
tax benefit of $15.1 million
Change in net unrealized losses
on securities available-for-sale,
net of tax -- -- -- -- -- --
Less: reclassification
adjustment of net losses
realized in net
income, net of tax -- -- -- -- -- --
----------------------------------------------------------------------------------
Comprehensive income -- -- -- -- -- 11,998
Repurchase of common stock (3,318,968
shares) -- -- (44,745) -- -- --
Dividends declared -- -- -- -- -- (5,428)
ESOP shares committed to be released -- (308) -- 1,236 -- --
Amortization of earned portion of
Recognition Plan -- (158) -- -- 1,451 --
----------------------------------------------------------------------------------
Balance - June 30, 1999 $ 760 $738,624 $(170,738) $(91,457) $(32,467) $346,589
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income/(Loss) Total
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<S> <C> <C>
Balance - March 31, 2000 $(32,915) $834,807
Comprehensive income:
Net income for the three months
ended June 30, 2000 -- 14,536
Other comprehensive income, net of
tax benefit of $23.3 million
Change in net unrealized losses
on securities available-
for-sale, net of tax 2,222 2,222
Less: reclassification
adjustment of net losses
realized in net
income, net of tax -- --
-------------------------------
Comprehensive income 2,222 16,758
Repurchase of common stock (2,075,500
shares) -- (25,636)
Treasury stock issued for options
exercised (5,906 shares) -- 22
Dividends declared -- (4,294)
ESOP shares committed to be released -- 870
Amortization of earned portion of
Recognition Plan -- 1,411
-------------------------------
Balance - June 30, 2000 $(30,693) $823,742
===============================
Balance - March 31, 1999 $ (2,303) $824,962
Comprehensive income:
Net income for the three months
ended June 30, 1999 -- 11,998
Other comprehensive income, net of
tax benefit of $15.1 million
Change in net unrealized losses
on securities available-
for-sale, net of tax (14,485) (14,485)
Less: reclassification
adjustment of net losses
realized in net
income, net of tax (2,748) (2,748)
-------------------------------
Comprehensive income (17,233) (5,235)
Repurchase of common stock (3,318,968
shares) -- (44,745)
Dividends declared -- (5,428)
ESOP shares committed to be released -- 928
Amortization of earned portion of
Recognition Plan -- 1,293
-------------------------------
Balance - June 30, 1999 $(19,536) $771,775
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,536 $ 11,998
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 792 2,629
Net loss on sale of loans and securities 1 2,169
Amortization of deferred income and premiums (1,107) (543)
Amortization of intangibles 5,352 2,155
Depreciation and amortization 2,973 2,001
Deferred income tax benefit -- (1,851)
Amortization of unearned compensation of
ESOP and RRP 2,242 2,221
(Increase) decrease in accrued interest receivable (2,349) 4,409
Decrease (increase) in accounts receivable-securities
transactions 69 (3,460)
(Decrease) increase in accrued expenses and other
liabilities (11,268) 41,925
Other, net 22,789 (11,055)
-------- --------
Net cash provided by operating activities 34,030 52,598
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases (628,698) (462,662)
Principal payments on loans 448,746 195,135
Proceeds from sale of loans 38,800 1,274
Proceeds from sale of securities available-for-sale 19,999 376,967
Proceeds from maturities of securities
available-for-sale 2,519 65,000
Principal collected on securities
available-for-sale 29,426 74,288
Purchases of securities available-for-sale (10,000) (144,869)
Proceeds from sale of other real estate 110 --
Net additions to premises, furniture and equipment (1,522) (1,888)
-------- ----------
Net cash (used in) provided by investing activities (100,620) 103,245
-------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits (15,365) 28,319
Net increase (decrease) in time deposits 56,895 (38,521)
Net increase (decrease) in borrowings 170,971 (85)
Net decrease in escrow and other deposits (16,949) (14,950)
Decrease in cumulative trust preferred securities (433) --
Proceeds on exercise of stock options 22 --
Repurchase of common stock (25,636) (44,745)
Dividends paid (4,295) (5,428)
-------- ----------
Net cash provided by (used in) financing activities 165,210 (75,410)
-------- ----------
Net increase in cash and cash equivalents 98,620 80,433
Cash and cash equivalents at beginning of period 152,167 279,885
-------- ----------
Cash and cash equivalents at end of period $250,787 $360,318
======== =========
</TABLE>
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------------------------
2000 1999
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SUPPLEMENTAL INFORMATION
Income taxes paid $ 16,649 $ 1,255
========== ========
Interest paid $ 55,341 $ 44,967
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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INDEPENDENCE COMMUNITY BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION/FORM OF OWNERSHIP
Independence Community Bank (the "Bank"), formerly known as Independence
Savings Bank, was originally founded as a New York-chartered savings bank in
1850. In April 1992, the Bank reorganized 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 (the "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 a Plan of Conversion to convert
the Mutual Holding Company to the stock form of organization and simultaneously
merge with and into the Bank and all of the outstanding shares of Bank common
stock held by the Mutual Holding Company would be cancelled.
As part of the conversion, Independence Community Bank Corp. (the
"Company") was incorporated under Delaware law in June 1997. The Company is
regulated by the Office of Thrift Supervision ("OTS") as a registered savings
and loan holding company. The Company completed its initial public offering on
March 13, 1998 and issued 70,410,880 shares of common 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 Company's Employee Stock Ownership Plan (the "ESOP") which purchased
5,632,870 shares of the Company's common stock in the open market subsequent to
completion of the initial public offering.
As part of the Plan of Conversion, the Company formed the Independence
Community Foundation (the "Foundation") and donated 5,632,870 shares of common
stock of the Company valued at the time of its contribution at $56.3 million.
The Foundation was established in order to further the Company's and the Bank's
commitment to the communities 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 the Bank's total equity
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 Board of Directors declared the Company's eighth consecutive
quarterly cash dividend on July 28, 2000. The dividend amounted to $0.07 per
share of common stock and is payable on August 24, 2000 to shareholders of
record on August 10, 2000.
On July 28, 2000 the Company announced that its Board of Directors
authorized a seventh stock repurchase plan for up to five percent of common
shares then outstanding or 3,221,718 shares. As of June 30, 2000, 20,268,241
shares had been purchased at an aggregate cost of $278.0 million pursuant to the
Company's six repurchase programs. The Company completed the sixth stock
repurchase plan on August 1, 2000 pursuant to which 3,390,972 shares were
repurchased.
The repurchased shares are being held as treasury stock. A portion of
such shares was utilized to fund the stock portion of the merger consideration
paid in
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two recent acquisitions by the Company (see Note 2 - Acquisitions). Treasury
shares also are being used to fund the Company's stock benefit plans, in
particular, the 1998 Stock Option Plan ("Option Plan"), and for general
corporate purposes.
2. ACQUISITIONS
The Company completed its acquisition of Broad National Bancorporation
("Broad") and the merger of Broad's wholly owned subsidiary, Broad National Bank
("Broad National"), with and into the Bank, all effective as of the close of
business on July 31, 1999.
Under the terms of the Agreement and Plan of Merger between the Company
and Broad dated February 1, 1999 (the "Broad Agreement"), the merger
consideration consisted of approximately 50% Independence common stock and 50%
cash. As a result of the completed election procedures and in accordance with
the terms of a formula set forth in the Broad Agreement, each Broad stockholder
who submitted a valid election for stock consideration received 1.9859 shares of
Company common stock for each share of Broad common stock, plus cash in lieu of
any fractional shares, and each Broad stockholder who submitted a valid election
for cash consideration received $26.50 per share of Broad common stock, except
Broad stockholders who elected to receive cash as any portion of their
consideration for their Broad shares received a portion of such consideration in
the form of Company common stock (the "Consideration Adjustment") in accordance
with the terms of the Broad Agreement. To the extent that certain Broad
stockholders elected to receive some combination of stock and cash consideration
in exchange for their shares of Broad common stock, such individuals received
the entire portion of their stock election in the form of 1.9859 shares of
Company common stock for each share of Broad common stock, plus cash in lieu of
any fractional shares, and the cash portion of their election was subject to the
Consideration Adjustment described above. The remaining shares of Broad common
stock for which a valid election was not submitted received 1.9859 shares of
Company common stock for each share of Broad common stock, plus cash in lieu of
any fractional shares. The Broad transaction had an aggregate value of
approximately $132 million assuming an acquisition value of $26.50 per share of
Broad common stock.
The acquisition of Broad was accounted for as a purchase and the excess
of cost over the fair value of net assets acquired ("goodwill") in the
transaction was $99.6 million, which is being amortized on a straight-line basis
over 15 years.
The Company completed its acquisition of Statewide Financial Corp.
("Statewide") and the merger of Statewide's wholly owned subsidiary, Statewide
Savings Bank, S.L.A. ("Statewide Bank"), with and into the Bank, all effective
as of the close of business on January 7, 2000.
Under the terms of the Agreement and Plan of Merger between the Company
and Statewide dated April 12, 1999 (the "Statewide Agreement"), the merger
consideration consisted of approximately 4,172,606 shares of the Company's
common stock and approximately $51.2 million based upon 4,051,277 shares of
Statewide common stock deemed outstanding under the terms of the Statewide
Agreement as of the completion of the merger. As a result of the completed
election procedures and in accordance with the terms of the formula set forth in
the Agreement, each Statewide stockholder who submitted a valid election for
stock consideration received 2.0700 shares of the Company's common stock for
each share of Statewide common stock, plus cash in lieu of any fractional
shares, and each Statewide stockholder who submitted a valid election for cash
consideration received $25.14 per share of Statewide common stock. To the extent
that any Statewide stockholders
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elected to receive some combination of stock and cash consideration in exchange
for their shares of Statewide common stock, such individuals received the entire
portion of their stock election in the form of 2.0700 shares of the Company's
common stock for each share of Statewide common stock, plus cash in lieu of any
fractional shares, and the cash portion of their election at the rate of $25.14
per share of Statewide common stock. The remaining shares of Statewide common
stock for which valid elections were not submitted were converted into the right
to receive, on a pro rata basis, $25.14 in cash for approximately 53% of the
shares not tendered and 2.0700 shares of Company common stock for each remaining
share of Statewide common stock, plus cash in lieu of any fractional shares.
The Statewide acquisition was accounted for as a purchase, resulting in
goodwill of approximately $89.3 million, which is being amortized on a
straight-line basis over 15 years.
As a result of the acquisitions, the Company currently operates 65
banking offices located in the greater New York Metropolitan area, which
includes the five boroughs of New York City and Nassau County, New York, as well
as the Northern New Jersey counties of Essex, Union, Bergen, Hudson and
Middlesex, which were formerly served by Broad National and Statewide Bank.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying financial statements were prepared in accordance with
instructions to Form 10-Q 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 three months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the fiscal year ending March 31,
2001. These interim financial statements should be read in conjunction with
the Company's consolidated audited financial statements and the notes thereto
contained in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 2000.
Business
The Company's principal business is conducted through the Bank, which is
a full-service, community-oriented financial institution headquartered in
Brooklyn, New York. The Bank currently operates 65 banking offices located in
the greater New York Metropolitan area, which includes the five boroughs of New
York City, Nassau County, New York and the Northern New Jersey counties of
Essex, Union, Bergen, Hudson and Middlesex. The Bank has received regulatory
approval to close a branch office in Hudson County, New Jersey in September 2000
and to open a branch office in Brooklyn in October 2000. In addition, the Bank
has filed for regulatory approval to establish a new branch in Staten Island.
The Bank's deposits are insured by the Bank Insurance Fund and the Savings
Association Insurance Fund to the maximum extent permitted by law. The Bank is
subject to examination and regulation by the Federal Deposit Insurance
Corporation, which is the Bank's primary federal regulator, and the New York
State Banking Department, which is the Bank's chartering authority and its
primary state regulator. The Bank also is subject to certain reserve
requirements established by the Board of Governors of the Federal Reserve System
and is a member of the Federal Home Loan
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Bank ("FHLB") of New York, which is one of the 12 regional banks comprising the
FHLB system.
4. EARNINGS PER SHARE
Basic earnings per share ("EPS") 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. Shares of common stock held by the ESOP that have
not been allocated to participants' accounts or are not committed to be released
for allocation and non-vested 1998 Recognition and Retention Plan and Trust
Agreement (the "Recognition Plan")shares are not considered to be outstanding
for the calculation of basic EPS. However, a portion of such shares is
considered in the calculation of diluted EPS as common stock equivalents of
basic EPS. Basic and diluted weighted-average common shares outstanding were
58,886,347 shares for the quarter ended June 30, 2000 compared to 58,006,504
shares for the quarter ended June 30, 1999.
5. 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. Dividends paid by the Company on shares owned by the
ESOP also are utilized to repay the debt. The collateral for the loan is the
shares of 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 original principal and interest payments to be made. ESOP participants
will become 100% vested in the ESOP after three years of service. Compensation
expense related to the 70,411 shares committed to be released during the first
quarter of fiscal 2001 was $0.8 million. At June 30, 2000, 563,288 shares were
allocated to participant accounts.
1998 Recognition and Retention Plan
The Recognition Plan was implemented in September 1998 and may grant up
to 4% of the common stock sold in the Conversion, or 2,816,435 shares. The
Recognition Plan provides that awards may be designated as performance share
awards, subject to the achievement of performance goals, or non-performance
share awards which are subject to time vesting requirements. Certain key
executive officers were granted performance share awards. As long as these
remain performance based, the shares subject to the awards become payable only
upon the achievement of certain annually-defined corporate performance targets.
During fiscal 1999, the Recognition Plan purchased all 2,816,435 shares in the
open market. On September 25, 1998, (the "Anniversary Date"), the Board of
Directors issued grants covering 2,188,517 shares of stock of which 844,931 were
deemed performance based. During fiscal 2000, the Board of Directors granted
non-performance share awards covering 28,363 shares. The stock awards granted to
date are generally payable over a five-year period at a rate of 20% per year,
beginning one year from the Anniversary Date. Subject to certain exceptions,
awards become 100% vested upon termination of employment due to death,
disability or retirement. Compensation expense is recognized over the vesting
period at the fair market value of the common stock on the date of grant for
non-performance share awards.
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The expense related to performance share awards is recognized over the vesting
period at the fair market value on the measurement date. The Company recorded
compensation expense of $1.4 million related to the Recognition Plan for the
three months ended June 30, 2000.
1998 Stock Option Plan
The Option Plan was implemented in September 1998. The Option Plan may
grant options covering shares aggregating 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 "Option Anniversary Date"),
the Board of Directors issued options covering 6,101,608 shares of common stock
vesting over a five-year period at a rate of 20% per year, beginning one year
from the Option Anniversary Date. During fiscal 2000 and 2001, the Board of
Directors granted options covering 146,000 and 5,000 shares, respectively.
Subject to certain exceptions, options become 100% vested upon termination of
employment due to death, disability or retirement. The option exercise price per
share was the fair market value of the Company's common stock on the date of
grant. Each stock option or portion thereof is exercisable at any time on or
after such option vests and is generally exercisable until the earlier of ten
years after the 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 three
months ended June 30, 2000 or its statement of condition at June 30, 2000.
Broad and Statewide maintained several stock option plans for its
officers, directors and other key employees. Generally, these plans granted
options to individuals at a price equivalent to the fair market value of the
stock at the date of grant. Options awarded under the plans generally vested
over a five year period and expired ten years from the date of grant. In
connection with the Broad and Statewide acquisitions, options which were
converted by election of the option holders to options to purchase the Company's
common stock totaled 579,026 and became 100% exercisable at the effective date
of the acquisitions.
6. COMPREHENSIVE INCOME
Comprehensive income includes net income and all other changes in equity
during a period, except those resulting from investments by owners and
distribution to owners. Other comprehensive income includes revenues, expenses,
gains and losses that under generally accepted accounting principles are
included in comprehensive income, but excluded from net income. Comprehensive
income and accumulated other comprehensive income are reported net of related
income taxes. Accumulated other comprehensive income consists solely of
unrealized gains and losses on available-for-sale securities.
12
<PAGE> 13
7. SECURITIES AVAILABLE-FOR-SALE
The amortized cost and estimated fair value of securities
available-for-sale at June 30, 2000 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 151,344 $ 1,038 $(17,563) $ 134,819
Municipals 3,517 -- (182) 3,335
--------- ------- -------- ---------
Total debt securities 154,861 1,038 (17,745) 138,154
--------- ------- -------- ---------
Equity securities:
Preferred 36,365 -- (119) 36,246
Common 25,538 2,105 (2,076) 25,567
--------- ------- -------- ---------
Total equity securities 61,903 2,105 (2,195) 61,813
--------- ------- -------- ---------
Total investment securities 216,764 3,143 (19,940) 199,967
--------- ------- -------- ---------
Mortgage-related securities:
FNMA pass through certificates 7,543 42 (72) 7,513
GNMA pass through certificates 33,172 324 (111) 33,385
FHLMC pass through
certificates 6,952 55 (74) 6,933
Collateralized mortgage
obligation bonds 737,534 -- (37,460) 700,074
--------- ------- -------- ---------
Total mortgage-related securities 785,201 421 (37,717) 747,905
--------- ------- -------- ---------
Total securities available-
for-sale $1,001,965 $ 3,564 $(57,657) $ 947,872
========= ======= ======== =========
</TABLE>
The amortized cost and estimated fair value of securities
available-for-sale at March 31, 2000 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 153,930 $ 1,127 $(17,185) $137,872
Municipals 3,615 -- (126) 3,489
---------- -------- -------- --------
Total debt securities 157,545 1,127 (17,311) 141,361
---------- -------- -------- --------
Equity securities:
Preferred 46,365 -- (95) 46,270
Common 25,497 1,637 (1,997) 25,137
---------- -------- -------- --------
Total equity securities 71,862 1,637 (2,092) 71,407
---------- -------- -------- --------
Total investment securities 229,407 2,764 (19,403) 212,768
---------- -------- -------- --------
Mortgage-related securities:
FNMA pass through certificates 8,631 49 (114) 8,566
GNMA pass through certificates 35,385 354 (101) 35,638
FHLMC pass through
certificates 7,807 58 (81) 7,784
Collateralized mortgage
obligation bonds 762,635 -- (41,592) 721,043
---------- -------- -------- --------
Total mortgage-related
securities 814,458 461 (41,888) 773,031
---------- -------- -------- --------
Total securities available-
for-sale $1,043,865 $ 3,225 $(61,291) $985,799
========== ======== ======== ========
</TABLE>
13
<PAGE> 14
8. LOAN PORTFOLIO COMPOSITION
The following table sets forth the composition of the Company's loan
portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT JUNE 30, 2000 AT MARCH 31, 2000
----------------------------------------------
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
----------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage Loans on Real Estate:
Single-family residential $ 657,571 12.9% $ 674,118 13.6%
Cooperative apartment 446,872 8.8 462,185 9.3
Multi-family residential 2,804,098 55.1 2,731,104 55.2
Commercial real estate 634,548 12.5 597,165 12.1
---------- ----- ---------- ----
Total principal balance -
mortgage loans 4,543,089 89.3 4,464,572 90.2
Less net deferred fees 7,893 0.2 8,727 0.2
---------- ----- ---------- ----
Total mortgage loans on
real estate 4,535,196 89.1 4,455,845 90.0
---------- ----- ---------- ----
Commercial Business Loans 261,605 5.1 253,606 5.1
---------- ----- ---------- ----
Other Loans:
Student loans 37,972 0.7 39,260 0.8
Home equity loans and lines 122,488 2.4 121,109 2.4
Warehouse mortgage lines of credit 101,320 2.0 48,175 1.0
Consumer and other loans 35,422 0.7 34,318 0.7
---------- ----- ---------- ----
Total principal balance -
other loans 297,202 5.8 242,862 4.9
Less unearned discounts and
deferred fees 1,942 0.0 1,793 0.0
---------- ----- ---------- ----
Total other loans 295,260 5.8 241,069 4.9
Total loans receivable 5,092,061 100.0% 4,950,520 100.0%
---------- ===== ---------- =====
Less allowance for loan losses 72,625 70,286
---------- ----------
Loans receivable, net $5,019,436 $4,880,234
========== ==========
</TABLE>
14
<PAGE> 15
9. 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
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 JUNE 30, 2000 AT MARCH 31, 2000
---------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
Single-family residential $ 4,036 $ 3,712
Cooperative apartment 219 243
Multi-family residential 1,086 1,128
Commercial real estate 3,468 3,281
Commercial business loans 5,185 3,821
Other loans(1) 33 33
-------- --------
Total non-accrual loans 14,027 12,218
-------- --------
Loans past due 90 days or more as to:
Interest and accruing 2,795 2,616
Principal and accruing(2) 12,675 11,516
-------- --------
Total past due loans and
accruing 15,470 14,132
-------- --------
Total non-performing loans 29,497 26,350
-------- --------
Other real estate owned, net(3) 88 68
-------- --------
Total non-performing assets $ 29,585 $ 26,418
======== ========
Allowance for loan losses as a
percent of total loans 1.43% 1.42%
Allowance for loan losses as a
percent of non-performing loans 246.21% 266.74%
Non-performing loans as a percent of
total loans 0.58% 0.53%
Non-performing assets as a percent
of total assets 0.44% 0.40%
</TABLE>
-----------
(1) Consists primarily of home equity loans and 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.
15
<PAGE> 16
10. 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 absorb 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>
THREE MONTHS ENDED JUNE 30,
2000 1999
----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of period $70,286 $46,823
------- -------
Provision:
Mortgage loans 525 2,775
Consumer and commercial business loans 267 (146)
------- -------
Total provisions 792 2,629
------- -------
Charge-offs:
Mortgage loans 22 2
Consumer and commercial business loans(1) 274 48
------- -------
Total charge-offs 296 50
------- -------
Recoveries:
Mortgage loans 643 --
Consumer and commercial business loans(1) 1,200 21
------- -------
Total recoveries 1,843 21
------- -------
Net recoveries (charge-offs) 1,547 (29)
------- -------
Allowance at end of period $72,625 $49,423
======= =======
Allowance for possible loan
losses as a percent of total loans 1.43% 1.31%
Allowance for possible loan
losses as a percent of total
non-performing loans(2) 246.21% 138.62%
</TABLE>
-----------------
(1) Includes student loans, home equity loans and lines of credit,
automobile loans, secured and unsecured personal loans, credit card
loans, commercial business loans and warehouse lines of credit.
(2) 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.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITON 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-related securities and
investment securities, and interest expense on interest-bearing liabilities,
which consist of deposits and borrowings. Net interest income is determined by
an institution's interest rate spread (i.e., the difference between the yields
earned on its interest-earning assets and the rates paid on its interest-bearing
liabilities) and the relative amounts of interest-earning assets and
interest-bearing liabilities.
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, the level of its non-interest expense, including compensation and
employee benefits, occupancy expense, deposit insurance premiums, data
processing services, amortization of intangibles and income tax expense.
The Bank is a community-oriented bank, which emphasizes customer service
and convenience. As part of this strategy, the Bank offers products and services
designed to meet the needs of its customers. The Company generally has sought to
achieve long-term financial strength and stability 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 growth, multi-family
residential lending, commercial business lending, retail deposit products and
customer service, while maintaining asset quality and stable liquidity.
Certain information in this Form 10-Q may constitute forward-looking
information within the meaning of the Private Securities Litigation Reform Act
of 1995 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, changes in accounting
principles, policies or guidelines, changes in legislation or regulation, loan
demand, real estate values and deposit flows 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 June 30, 2000 were $6.78 billion, an increase of $172.8
million, from $6.60 billion at March 31, 2000. The increase resulted mainly from
the growth of the Company's loan portfolio funded primarily by increased
borrowings. At June 30, 2000, by comparison to March 31, 2000, the Company had
increases of $141.5 million in the total loan portfolio and $98.6 million in
cash and cash equivalents, while the securities available-for-sale portfolio
decreased
17
<PAGE> 18
$37.9 million, other assets decreased $23.3 million and intangible
assets decreased $4.7 million during the same period.
CASH, CERTIFICATES OF DEPOSIT AND FEDERAL FUNDS SOLD (COLLECTIVELY "CASH AND
CASH EQUIVALENTS")
Cash and cash equivalents increased by 64.8%, from $152.2 million at
March 31, 2000, to $250.8 million at June 30, 2000. The $98.6 million increase
was principally due to a temporary increase in Federal Home Loan Bank ("FHLB")
overnight deposits resulting from FHLB borrowings, which will be used to fund
mortgage and commercial business loan originations. (see "Loans, net" below).
SECURITIES AVAILABLE-FOR-SALE
The aggregate securities available-for-sale portfolio (which includes
investment securities and mortgage-related securities) decreased $37.9 million
or 3.8% from $985.8 million at March 31, 2000 to $947.9 million at June 30,
2000. Total securities decreased during the three months ended June 30, 2000,
primarily as a result of funds received from the amortization on
mortgage--related securities, which funds were utilized to fund higher yielding
mortgage and commercial business loan originations (see "Loans, net" below). As
of June 30, 2000 and March 31, 2000, the Company's investment securities totaled
$200.0 million and $212.8 million, respectively, all of which were classified as
available-for-sale.
The Company's mortgage-related securities, a portion of which at June 30,
2000 consisted of collateralized mortgage obligations secured by mortgage-backed
securities issued by Fannie Mae ("FNMA") or Freddie Mac ("FHLMC"), decreased
from $773.0 million at March 31, 2000 to $747.9 million at June 30, 2000.
At June 30, 2000, the Company had a $54.1 million net unrealized loss on
available-for-sale investment and mortgage-related securities.
LOANS, NET
Loans, net, increased by $139.2 million or 2.9% to $5.02 billion at June
30, 2000 from $4.88 billion at March 31, 2000. During the first three months of
fiscal 2001, the Company originated approximately $232.0 million of mortgage
loans, compared to $433.8 million in the corresponding period of last year. The
decline in mortgage originations is due to a combination of aggressive pricing
by competitors in the New York metropolitan area in order to attain market share
combined with a general reduction in demand for loan products due to increased
market rates of interest. These mortgage loans, consisting primarily of
multi-family residential loans, were originated primarily for retention in the
Company's loan portfolio. The Company's continued emphasis on multi-family
residential mortgage loan originations resulted in a net increase of $73.0
million, or 2.7%, in multi-family loans from $2.73 billion at March 31, 2000, to
$2.80 billion at June 30, 2000. These loans currently comprise 55.1% of the
total loan portfolio compared to 55.2% at March 31, 2000. Warehouse mortgage
lines of credit increased $53.1 million from $48.2 million at March 31, 2000 to
$101.3 million at June 30, 2000 and commercial real estate loans increased $37.4
million to $634.5 million at June 30, 2000 compared to $597.2 million at March
31, 2000.
18
<PAGE> 19
NON-PERFORMING ASSETS
The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets of 44 basis points (0.44%)
at June 30, 2000 compared to 40 basis points (0.40%) at March 31, 2000. At June
30, 2000, the Company's non-performing assets consisted of $14.0 million of
non-accrual loans, $2.8 million of loans past due 90 days or more as to interest
and accruing, $12.7 million of loans past due 90 days or more as to principal
and accruing ($7.4 million of which were multi-family loans and $4.7 million of
which were commercial and other real estate loans) and $88,000 of other real
estate acquired through foreclosure or deed-in-lieu thereof. Non-performing
assets increased by $3.2 million to $29.6 million at June 30, 2000 from $26.4
million at March 31, 2000. This increase was primarily due to a $1.8 million
increase in non-accrual loans, primarily commercial business loans and a $1.2
million increase on loans which were 90 days or more past maturity which
continued 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 $72.6 million at June
30, 2000, as compared to $70.3 million at March 31, 2000. At June 30, 2000, the
Company's allowance amounted to 1.43% of total loans and 246.2% of total
non-performing loans compared to 1.42% and 266.7% at March 31, 2000,
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 $2.3 million from March
31, 2000 to June 30, 2000 due to provisions of $0.8 million, and net recoveries
of $1.5 million. The increase during the period was due to several factors,
including growth in the size of the Company's loan portfolio, the Company's
continued increased investment in multi-family residential and commercial real
estate loans, all of which were concentrated in the New York City metropolitan
area (including northern New Jersey), the increased amount and number of
commercial business loans, which loans as a general matter are considered to
involve a greater risk of loss than single-family residential loans, and the
continued increase in the number of larger multi-family residential and
individual cooperative apartment loans as compared to prior years. As a result
of the reduction in non-performing assets during the past year and continued
strong asset quality ratios, management reduced the provision for loan losses
for the first quarter ended June 30, 2000 compared to the same period in the
prior year.
INTANGIBLE ASSETS
The Company's intangible assets consist of goodwill and other intangibles
resulting primarily from (i)the acquisition of Broad and its wholly owned
subsidiary, Broad National, effective the close of business on July 31, 1999,
(ii)the acquisition of Statewide and its wholly owned subsidiary, Statewide
Bank, effective the close of business on January 7, 2000, (iii)the acquisition
of Bay Ridge Bancorp, Inc. and its wholly owned subsidiary Bay Ridge Federal
Savings Bank (collectively, "Bay Ridge") in January 1996 and (iv)the completion
in fiscal 1996 of two branch purchase transactions (the "Branch Acquisitions").
At June 30, 2000, intangibles totaled $216.3 million and consisted of $93.5
million related to the acquisition of Broad, $86.3 million related to the
acquisition of Statewide, $17.6 million related to the acquisition of Bay Ridge
and $18.9 million related to the Branch Acquisitions. The Company's intangible
assets decreased by $4.7
19
<PAGE> 20
million to $216.3 million at June 30, 2000 from $221.0 million at March 31,
2000 as a result of the amortization of the intangible assets, partially offset
by adjustments to the Broad and Statewide goodwill during the three months
ended June 30, 2000. Amortization of such intangibles will continue to reduce
net income until such intangible assets are fully amortized.
DEPOSITS
Deposits increased $41.5 million or 0.9% to $4.45 billion at June 30,
2000 compared to $4.41 billion at March 31, 2000. The increase was due to
interest credited of $40.9 million and deposit inflows totaling $0.6 million.
BORROWINGS
Borrowings increased $171.0 million or 14.7% to $1.33 billion at June 30,
2000 compared to $1.16 billion at March 31, 2000. This increase was primarily to
fund the growth in the loan portfolio.
EQUITY
At June 30, 2000, total stockholders' equity totaled $823.7 million,
compared to $834.8 million at March 31, 2000. This $11.1 million decrease was
primarily due to a $25.6 million reduction in capital due to the purchase of
shares in connection with the Company's open market stock repurchase program
combined with a $4.3 million decrease resulting from dividends paid. Such
reductions were partially offset by net income of $14.5 million, a net $2.2
million decrease in the unrealized loss on securities available-for-sale,
amortization of the earned portion of Recognition Plan grants of $1.3 million
and $0.9 million related to ESOP shares committed to be released for the first
three months of fiscal 2001. Tangible book value per share was $9.32 and the
tangible equity to tangible assets ratio was 9.26% at June 30, 2000.
20
<PAGE> 21
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 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
----------------------------
JUNE 30, 2000 JUNE 30, 1999
----------------------------------- ----------------------------
(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 $4,537,484 $ 83,942 7.40% $3,479,628 $ 63,907 7.35%
Commercial business loans 323,450 7,083 8.78 41,543 896 8.63
Other loans(2) 193,381 4,010 8.29 80,127 1,562 7.80
---------- -------- ------ ---------- ------- ------
Total loans 5,054,315 95,035 7.52 3,601,298 66,365 7.37
Mortgage-related securities 802,579 12,892 6.43 1,117,652 17,495 6.26
Investment securities 217,924 3,384 6.21 277,060 3,645 5.26
Other interest-earning
assets(3) 175,298 3,783 8.63 340,986 4,064 4.77
---------- -------- ------ ---------- ------- ------
Total interest-earning
assets 6,250,116 115,094 7.37 5,336,996 91,569 6.86
------- ------ -------
Non-interest-earning
assets 425,753 201,989
---------- ----------
Total assets $6,675,869 $5,538,985
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $1,138,320 $ 4,770 1.68 $ 733,292 $ 3,616 1.98
Savings deposits 1,208,900 6,510 2.16 974,367 5,738 2.36
Certificates of deposit 2,130,943 28,276 5.32 1,794,067 23,016 5.15
---------- -------- ---------- -------
Total deposits 4,478,163 39,556 3.54 3,501,726 32,370 3.71
---------- -------- ---------- -------
Trust preferred
securities(5) 11,357 262 9.22 -- -- --
Borrowings 1,220,886 17,262 5.67 1,117,699 15,062 5.41
---------- -------- ---------- -------
Total interest-bearing
liabilities 5,710,406 57,080 4.01 4,619,425 47,432 4.12
-------- ------ ------- -----
Non-interest-bearing
liabilities 137,020 113,743
---------- ----------
Total liabilities 5,847,426 4,733,168
Total equity 828,443 805,817
---------- ----------
Total liabilities and
equity $6,675,869 $5,538,985
========== ==========
Net interest-earning
assets $ 539,710 $ 717,571
========== ==========
Net interest income/interest
rate spread $ 58,014 3.36 $44,137 2.74%
======== ====== ======= =====
Net interest margin 3.70% 3.30%
====== =====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.09x 1.16x
====== =====
</TABLE>
--------------
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes warehouse lines of credit, home equity lines of credit and
improvement loans, student loans, automobile loans, passbook loans,
credit card loans and personal 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.
(5) Acquired in connection with the acquisition of Broad effective the close
of business on July 31, 1999.
21
<PAGE> 22
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 JUNE 30, 2000
COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------
Increase
(Decrease) due to Total Net
-------------------- Increase
Rate Volume (Decrease)
------ ------ ----------
(In Thousands)
<S> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $ 439 $ 19,597 $ 20,036
Commercial business loans 17 6,170 6,187
Other loans(1) 106 2,342 2,448
-------- -------- -------
Total loans receivable 562 28,109 28,671
Mortgage-related securities 437 (5,040) (4,603)
Investment securities 594 (855) (261)
Other interest-earning assets (11) (271) (282)
-------- -------- ------
Total net change in income on
interest-earning assets 1,582 21,943 23,525
Interest-bearing liabilities:
Deposits:
Demand deposits (615) 1,769 1,154
Savings deposits (520) 1,292 772
Certificates of deposit 826 4,434 5,260
-------- -------- ------
Total deposits (309) 7,495 7,186
Trust preferred securities -- 262 262
Borrowings 773 1,427 2,200
-------- -------- ------
Total net change in expense on
interest-bearing liabilities 464 9,184 9,648
-------- -------- ------
Net change in net interest
income $ 1,118 $ 12,759 $ 13,877
======== ======== ========
</TABLE>
--------
(1)Includes warehouse lines of credit, home equity lines of credit and
improvement loans, student loans, automobile loans, passbook loans, credit
card loans and personal loans.
22
<PAGE> 23
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2000
AND 1999
GENERAL
The Company reported a 19.0% increase in diluted earnings per share to
$0.25 for the quarter ended June 30, 2000 compared to $0.21 for the quarter
ended June 30, 1999. Net income increased 21.2% to $14.5 million for the quarter
ended June 30, 2000 compared to $12.0 million for the quarter ended June 30,
1999.
Cash earnings for the first quarter of fiscal year 2001 increased 36.2%
to $21.2 million and increased 33.3% per diluted share to $0.36 compared to the
same period in the prior fiscal year. Cash earnings include net income adjusted
for the amortization of intangibles and certain charges related to the Company's
stock benefit plans, net of tax. The Company believes the reporting of cash
earnings along with earnings calculated in accordance with generally accepted
accounting principles (GAAP) provides further insight into the Company's
operating performance.
NET INTEREST INCOME
Net interest income increased by $13.9 million or 31.5% to $58.0 million
for the three months ended June 30, 2000 as compared to $44.1 million for the
three months ended June 30, 1999. The increase was due to a $23.5 million
increase in interest income offset in part by a $9.6 million increase in
interest expense. The growth in net interest income reflects primarily the
$913.1 million increase in average interest-earning assets during the three
months ended June 30, 2000 as compared to the same period in the prior year.
This increase was primarily attributable to the combination of the assets
acquired in connection with the acquisition of Broad in the second quarter of
fiscal 2000, the acquisition of Statewide Financial in January 2000, and, to a
lesser extent, the growth in commercial mortgage and business loans, which were
primarily funded with FHLB borrowings.
The Company's net interest margin was 3.70% and 3.30% for the three
months ended June 30, 2000 and 1999, respectively. The 40 basis point increase
in net interest margin for the 2000 period is primarily the result of the effect
of the acquisition of Broad's higher yielding commercial loan portfolio and the
associated lower cost commercial deposit base. Since the completion of the Broad
acquisition, the Company has continued to concentrate on expanding its higher
yielding commercial mortgage and business loan portfolios rather than investing
in securities.
The increase in interest income was primarily due to a $913.1 million
increase in the average balance of the Company's interest-earning assets
combined with a 51 basis point increase in the weighted average yield earned
thereon from 6.86% to 7.37% for the three months ended June 30, 1999 and 2000,
respectively. The increase in the average balance was primarily attributable to
the combination of the assets acquired in connection with the acquisition of
Broad in the second quarter of fiscal 2000, the acquisition of Statewide
Financial in January 2000 and, to a lesser extent, the growth in commercial
mortgage and business loans, which were primarily funded with FHLB borrowings.
Interest income on loans increased $28.7 million due to a $1.45 billion increase
in the average balance of loans combined with a 15 basis point increase in the
yield earned on loans from 7.37% for the three-month fiscal 2000 period to 7.52%
for the three-month fiscal 2001 period. Income on investment securities
decreased $0.3 million due to a
23
<PAGE> 24
$59.1 million decrease in the average balance of investment securities partially
offset by a 95 basis point increase in the yield earned for the quarter ended
June 30, 2000 compared to the quarter ended June 30, 1999. Interest income on
mortgage-related securities decreased $4.6 million during the first quarter of
fiscal 2001 compared to the same period in fiscal 2000 as a result of a $315.1
million decrease in the average balance of these securities partially offset by
a 17 basis point increase in the yield earned. Income on other interest-earning
assets (consisting primarily of interest on federal funds and dividends on FHLB
stock in the current period) decreased $0.3 million in the current quarter
compared to the prior year quarter due to a decrease of $2.1 million in interest
on federal funds and overnight deposits which was partially offset by an
increase of $1.8 million in dividends on FHLB stock.
Interest expense increased $9.6 million to $57.1 million or 20.3% for the
three months ended June 30, 2000 as compared to the three months ended June 30,
1999. The increased FHLB borrowings associated with the continuation of the
Company's leveraging strategy resulted in additional interest expense of $2.2
million. The $976.4 million increase in the average balance of deposits
increased interest paid on deposits by $7.2 million, which was partially offset
by a 17 basis point decline in the average rate paid on deposits to 3.54% for
the quarter ended June 30, 2000, compared to 3.71% for the quarter ended June
30, 1999, reflecting the acquisition of Broad's lower cost commercial deposit
base.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses decreased by 69.9%, from $2.6
million for the three months ended June 30, 1999 to $0.8 million for the three
months ended June 30, 2000. The Company continues to provide for loan losses due
to its ongoing and increasing investment in multi-family residential and
commercial real estate and business loans. Such loans may be subject to greater
risk of loss. The decrease in the provision for the quarter is based on the
continued strength of the Company's asset quality with non-performing assets as
a percentage of total assets declining to 44 basis points at June 30, 2000
compared to 65 basis points at June 30, 1999.
NON-INTEREST INCOME
Non-interest income, excluding gains and losses on sales of securities,
increased $2.0 million to $6.1 million for the three months ended June 30, 2000
compared to $4.1 million for the three months ended June 30, 1999. Service fee
income increased $3.2 million primarily as a result of fee income generated by
the Broad and Statewide branch networks, increased fees on sales of annuities
and mutual funds and an increase in banking service and ATM fees. Other
non-interest income decreased $1.1 million as a result of lower mortgage
prepayment fees of $1.4 million. During the first quarter of fiscal 2000, the
Company incurred a net loss of $2.2 million on the sale of approximately $379.0
million of securities, consisting primarily of collateralized mortgage
obligation bonds, which were sold primarily to fund mortgage originations.
24
<PAGE> 25
NON-INTEREST EXPENSES
Non-interest expense amounted to $38.2 million for the quarter ended
June 30, 2000 compared to $24.4 million for the quarter ended June 30, 1999.
The $13.8 million growth in expenses was primarily attributable to increases
in personnel costs of $5.7 million, occupancy costs of $1.9 million, data
processing fees of $0.3 million, amortization of intangibles of $3.2 million
and other non-interest expenses of $2.8 million.
Compensation and employee benefits expense increased $5.7 million or
55.9% to $16.0 million for the three months ended June 30, 2000 as compared
to the same period in the prior year. The increase is primarily the result
of staff additions related to the Broad and Statewide acquisitions and normal
merit salary increases.
Occupancy costs increased $1.9 million to $5.3 million during the three
months ended June 30, 2000 as compared to the three months ended June 30,
1999. The increase is primarily the result of the expansion of operations
resulting from the acquisition of Broad in the second quarter of fiscal 2000
and Statewide in January 2000.
Data processing service expenses increased by $0.3 million or 12.2% to
$2.4 million during the three months ended June 30, 2000 as compared to the
three months ended June 30, 1999 due to the expansion of operations resulting
from the acquisitions of Broad and Statewide.
Amortization of intangibles increased $3.2 million to $5.4 million for
the quarter ended June 30, 2000 as compared to $2.2 million for the quarter
ended June 30, 1999. The increase is primarily due to approximately $99.6
million of goodwill associated with the Broad acquisition and approximately
$89.3 million of goodwill associated with the Statewide acquisition, both of
which are being amortized over 15 years.
Other non-interest expenses increased $2.8 million, or 58.0%, to $7.6
million for the three months ended June 30, 2000 compared to the same period
in the prior year primarily due to additional expenses associated with the
expansion of operations resulting from the acquisitions of Broad and
Statewide. These expenses also include items such as equipment expenses,
office supplies, postage, telephone expenses and maintenance and security.
INCOME TAXES
Income tax expense amounted to $10.6 million and $7.0 million for the
three months ended June 30, 2000 and 1999, respectively. The increase
experienced in the fiscal 2001 period reflected in part the increase in the
Company's income before income taxes, as well as an increase in the Company's
effective tax rate for the three months ended June 30, 2000 to 42.2% compared
to 36.8% for the three months ended June 30, 1999. The increase in effective
tax rate is due to the non-deductible amortization of intangibles arising
from the Broad and Statewide acquisitions in fiscal 2000.
As of June 30, 2000, the Company had a net deferred tax asset of $86.2
million. No valuation allowance was deemed necessary with respect to such
asset.
25
<PAGE> 26
REGULATORY CAPITAL REQUIREMENTS
The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at June 30, 2000.
<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)(2) 4.0% $256,634 8.0% $515,524 4.0% $258,890
Risk-based capital
ratios:(2)
Tier I 4.0 176,806 11.7 515,524 7.7 338,718
Total 8.0 353,611 12.9 570,990 4.9 217,379
</TABLE>
--------------
(1) Reflects the 4.0% requirement to be met in order for an institution to
be "adequately capitalized" under applicable laws and regulations.
(2) The Bank is categorized as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized "well
capitalized" the Bank must maintain Tier 1 leverage capital of 5%, Tier
1 risk-based capital of 6% and total risk-based capital of 10%.
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-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-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 that 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 prior to fiscal 1999. However, due to the Company's
increased focus and market demand for mortgage loans during fiscal 1999 and
2000, and in connection with the implementation of the Company's leverage
strategy, the Company has increased its FHLB borrowings, which totaled $1.33
billion at June 30, 2000.
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, U.S. Treasury securities or Dutch Auction Rate
Preferred Stock securities. On a longer term basis, the Company maintains a
strategy of investing in its 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-related securities and investment securities.
At June 30, 2000, there were outstanding commitments and unused lines of credit
by the Company to originate or acquire mortgage loans aggregating $43.8
consisting primarily of fixed and adjustable-rate multi-family residential loans
and fixed-rate commercial
26
<PAGE> 27
real estate loans, which are expected to close during the twelve months ended
June 30, 2001. At June 30, 2000 outstanding commitments for other loans totaled
$50.8 million, primarily comprised of home equity loans and lines of credit. In
addition, at June 30, 2000, unused commercial business lines of credit and
warehouse mortgage lines of credit outstanding were $171.9 million and $109.7
million, respectively. Certificates of deposit scheduled to mature in one year
or less at June 30, 2000 totaled $1.85 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.
27
<PAGE> 28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For a discussion of the Company's asset and liability management
policies, 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, 2000, which was filed with the Securities and Exchange
Commission on June 23, 2000.
One of the methods the Company utilizes to predict the effect of changing
interest rates on assets and liabilities is to estimate the change in the
Company's net portfolio value ("NPV") over a range of interest rate scenarios.
NPV is defined as the net present value of the expected future cash flows of an
entity's assets and liabilities and, therefore, theoretically represents the
market value of the Company's net worth. Increases in the value of assets will
increase the NPV whereas decreases in value of assets will decrease the NPV.
Conversely, increases in the value of liabilities will decrease NPV whereas
decreases in the value of liabilities will increase the NPV. The changes in
value of assets and liabilities due to changes in interest rates reflect the
interest rate sensitivity of those assets and liabilities as their values are
derived from the characteristics of the asset or liability (i.e. fixed rate,
adjustable rate, caps, floors) relative to the interest rate environment. For
example, in a rising interest rate environment, the fair value of a fixed-rate
asset will decline, whereas the fair value of an adjustable-rate asset,
depending on its repricing characteristics, may not decline.
The NPV ratio, under any interest rate scenario, is defined as the NPV in
that scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates and reinvestment rates similar to
the Company's historical experience. The following sets forth the Company's NPV
as of June 30, 2000.
<TABLE>
<CAPTION>
NPV AS % OF
CHANGE (IN BASIS POINTS) PORTFOLIO
IN INTEREST RATES NET PORTFOLIO VALUE VALUE OF ASSETS
------------------- -------------------- ------------------
NPV CHANGE IN
AMOUNT $ CHANGE % CHANGE RATIO NPV RATIO
-------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
+300 362,133 (289,619) (44.47)% 6.12% (3.87)%
+200 454,007 (197,745) (30.34) 7.43 (2.56)
+100 549,917 (101,835) (15.62) 8.71 (1.28)
0 651,752 -- -- 9.99 --
-100 770,313 118,561 18.19 11.41 1.42
-200 897,444 245,692 37.70 12.90 2.91
-300 1,053,053 401,301 61.57 14.69 4.70
</TABLE>
--------------
As of June 30, 2000, the Company's NPV was $651.8 million, or 9.99% of
the market value of assets. Following a 200 basis point increase in interest
rates, the Company's "post shock" NPV was $454.0 million, or 7.43% of the market
value of assets. The change in the NPV ratio or the Company's Sensitivity
Measure was negative 2.56%.
As of March 31, 2000, the Company's NPV was $774.3 million, or 12.00% of
the market value of assets. Following a 200 basis point increase in interest
rates, the Company's "post shock" NPV was $530.9 million, or 8.86% of the market
value of assets. The change in the NPV ratio or the Company's Sensitivity
Measure was negative 3.14%.
28
<PAGE> 29
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
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
July 28, 2000. Proxies were solicited with respect to such
meeting under Regulation 14A of the Securities Exchange Act
of 1934 pursuant to proxy materials dated June 23, 2000.
Of the 65,719,845 shares eligible to vote at the meeting,
56,396,820 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 2003, as follows:
No. of Votes No. of Votes
For Withheld
---------- ----------
Chaim Y. Edelstein 55,605,126 791,694
Donald E. Kolowsky 55,613,422 783,398
Joseph S. Morgano 54,514,682 1,882,138
Wesley D. Ratcliff 55,615,246 781,574
Victor M. Richel 55,447,760 949,060
The following directors are serving terms of office that
continue through 2001 and 2002, as noted:
Director Year Term Expires
-------- -----------------
Robert B. Catell 2001
Rohit M. Desai 2001
Robert W. Gelfman 2001
Charles J. Hamm 2001
Scott M. Hand 2001
Maria Fiorini Ramirez 2001
Willard N. Archie 2002
Donald H. Elliott 2002
Donald M. Karp 2002
Janine Luke 2002
Malcolm MacKay 2002
29
<PAGE> 30
(c) One additional proposal was submitted for a vote, with
the following results:
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes
For Against Abstaining
------------ ------------- -------------
<S> <C> <C> <C>
(1)Ratification of
the appointment of
Ernst & Young LLP
as independent
auditors for the
fiscal year ending
March 31, 2001 55,806,898 326,023 263,899
</TABLE>
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
27.0 Financial Data Schedule
b) Reports on Form 8-K
Not applicable
30
<PAGE> 31
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: August 11, 2000 By:/s/ Charles J. Hamm
---------------- ----------------------------------
Charles J. Hamm
Chairman, President and
Chief Executive Officer
Date: August 11, 2000 By:/s/ John B. Zurell
---------------- ----------------------------------
John B. Zurell
Executive Vice President and
Chief Financial Officer
31
