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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 September 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)
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Delaware 13-3387931
-------------------------------------------------------------- ----------------------
(State or other jurisdiction of incorporation or organization) (I.R.S.Employer
Identification Number)
195 Montague Street
Brooklyn, New York 11201
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(Address of principal executive office) (Zip Code)
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(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 November 3, 2000,
the registrant had 62,216,626 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 September 30, 2000 (unaudited)
and March 31, 2000
Consolidated Statements of Income for 4
the three and six months ended
September 30, 2000 and 1999 (unaudited)
Consolidated Statements of Changes in 5
Stockholders' Equity for the six
months ended September 30, 2000 and 1999
(unaudited)
Consolidated Statements of Cash Flows 6
for the six months ended
September 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 30
About Market Risk
Part II Other Information
Item 1 Legal Proceedings 31
Item 2 Changes in Securities and Use of Proceeds 31
Item 3 Defaults upon Senior Securities 31
Item 4 Submission of Matters to a Vote of 31
Security Holders
Item 5 Other Information 31
Item 6 Exhibits and Reports on Form 8-K 31
Signatures 32
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
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<CAPTION>
SEPTEMBER 30, MARCH 31,
2000 2000
---- ----
(Unaudited) (Audited)
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ASSETS:
Cash and due from banks $ 321,287 $ 134,170
Federal funds sold -- 17,997
---------- ----------
Total cash and cash equivalents 321,287 152,167
---------- ----------
Securities available-for-sale:
Investment securities 175,947 212,768
Mortgage-related securities 729,685 773,031
---------- ----------
Total securities available-for-sale 905,632 985,799
---------- ----------
Mortgage loans on real estate 4,589,182 4,455,845
Other loans 573,697 494,675
---------- ----------
Total loans 5,162,879 4,950,520
Less: allowance for possible loan losses (72,319) (70,286)
---------- ----------
Total loans, net 5,090,560 4,880,234
---------- ----------
Premises, furniture and equipment, net 87,338 88,704
Accrued interest receivable 36,499 33,509
Intangible assets, net 210,262 220,979
Other assets 219,411 242,758
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Total assets $6,870,989 $6,604,150
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $4,467,244 $4,412,032
Borrowings 1,412,129 1,162,738
Company-obligated mandatorily redeemable cumulative trust
preferred securities of a subsidiary trust holding solely junior
debentures of the Company 11,067 11,500
Escrow and other deposits 54,937 73,516
Accrued expenses and other liabilities 105,546 109,557
---------- ----------
Total liabilities 6,050,923 5,769,343
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Stockholders' equity:
Common stock, $.01 par value: 125,000,000 shares
authorized, 76,043,750 shares issued; 63,224,526 and
67,254,439 shares outstanding at September 30, 2000
and March 31, 2000, respectively 760 760
Additional paid-in-capital 717,935 718,953
Treasury stock at cost: 12,819,224 and 8,789,311 shares at
September 30, 2000 and March 31, 2000, respectively (169,261) (116,693)
Unallocated common stock held by ESOP (85,277) (87,749)
Non-vested awards under Recognition and Retention Plan (24,776) (27,907)
Retained earnings, substantially restricted 402,148 380,358
Accumulated other comprehensive loss:
Net unrealized loss on securities available-for-sale, net of tax (21,463) (32,915)
---------- ----------
Total stockholders' equity 820,066 834,807
---------- ----------
Total liabilities and stockholders' equity $6,870,989 $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)
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THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ----------------
SEPTEMBER 30, SEPTEMBER 30,
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2000 1999 2000 1999
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INTEREST INCOME:
Mortgage loans on real estate $ 84,846 $ 71,567 $ 168,789 $ 135,474
Other loans 12,807 4,776 23,900 7,235
Investment securities 3,073 4,466 6,457 8,111
Mortgage-related securities 12,417 13,681 25,309 31,175
Other 3,050 3,378 6,832 7,442
--------- --------- --------- ---------
Total interest income 116,193 97,868 231,287 189,437
--------- --------- --------- ---------
INTEREST EXPENSE:
Deposits 42,226 33,905 81,782 66,275
Borrowings 19,724 15,277 36,986 30,339
Trust preferred securities 263 182 525 182
--------- --------- --------- ---------
Total interest expense 62,213 49,364 119,293 96,796
--------- --------- --------- ---------
Net interest income 53,980 48,504 111,994 92,641
Provision for loan losses -- 2,930 792 5,559
--------- --------- --------- ---------
Net interest income after provision for
loan losses 53,980 45,574 111,202 87,082
NON-INTEREST INCOME:
Net gain (loss) on sales of loans and securities 2,000 393 1,999 (1,776)
Service fees 5,914 3,673 11,148 5,754
Other 835 1,020 1,696 2,997
--------- --------- --------- ---------
Total non-interest income 8,749 5,086 14,843 6,975
--------- --------- --------- ---------
NON-INTEREST EXPENSE:
Compensation and employee benefits 14,300 12,991 30,336 23,290
Occupancy costs 5,460 3,645 10,788 7,047
Data processing fees 1,997 2,298 4,347 4,393
Advertising 1,566 1,415 2,932 2,830
FDIC insurance premiums 239 293 428 575
Amortization of intangible assets 5,282 3,359 10,634 5,514
Other 6,733 5,400 14,275 10,157
--------- --------- --------- ---------
Total non-interest expense 35,577 29,401 73,740 53,806
--------- --------- --------- ---------
Income before provision for income taxes 27,152 21,259 52,305 40,251
Provision for income taxes 11,462 8,236 22,079 15,230
--------- --------- --------- ---------
Net income $ 15,690 $ 13,023 $ 30,226 $ 25,021
========= ========= ========= =========
Basic earnings per share $0.27 $0.22 $0.52 $0.43
===== ===== ===== =====
Diluted earnings per share $0.27 $0.22 $0.52 $0.43
===== ===== ===== =====
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See accompanying notes to consolidated financial statements.
4
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
SIX MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(In Thousands, Except Share Amounts)
(Unaudited)
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Unallocated
Additional Common
Common Paid in Treasury Stock Held
Stock Capital Stock by ESOP
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Balance - March 31, 2000 $ 760 $718,953 $(116,693) $(87,749)
Comprehensive income:
Net income for the three months ended September 30, 2000 -- -- -- --
Other comprehensive income, net of tax benefit of $16.4 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 -- -- -- --
Repurchase of common stock (4,054,472 shares) -- -- (52,686) --
Treasury stock issued for options exercised (24,559 shares) -- (226) 118 --
Dividends declared -- -- -- --
ESOP shares committed to be released -- (646) -- 2,472
Amortization of earned portion of Recognition Plan -- (146) -- --
-------------------------------------------
Balance - September 30, 2000 $ 760 $717,935 $(169,261) $(85,277)
===========================================
Balance - March 31, 1999 $ 760 $739,090 $(125,993) $(92,693)
Comprehensive income:
Net income for the three months ended September 30, 1999 -- -- -- --
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 -- -- -- --
Repurchase of common stock (5,467,508 shares) -- -- (72,370) --
Treasury stock issued for Broad National Bancorporation acquisition
(4,950,699 shares) -- (7,317) 73,376 --
Treasury Stock issued for options exercised (107, 419 shares) -- (1,577) 1,712 --
Dividends declared -- -- -- --
ESOP shares committed to be released -- (645) -- 2,472
Amortization of earned portion of Recognition Plan -- (179) -- --
-------------------------------------------
Balance - September 30, 1999 $ 760 $729,372 $(123,275) $(90,221)
===========================================
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Unearned
Common
Stock Accumulated
Held by Other
Recognition Retained Comprehensive
Plan Earnings Income/(Loss) Total
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Balance - March 31, 2000 (27,907) $380,358 $(32,915) $834,807
Comprehensive income:
Net income for the three months ended September 30, 2000 -- 30,226 -- 30,226
Other comprehensive income, net of tax benefit of $16.4 million
Change in net unrealized losses on securities available-for-sale,
net of tax -- -- 11,405 11,405
Less: reclassification adjustment of net losses realized in net
income, net of tax -- -- 47 47
------------------------------------------------------
Comprehensive income -- 30,226 11,452 41,678
Repurchase of common stock (4,054,472 shares) -- -- -- (52,686)
Treasury stock issued for options exercised (24,559 shares) -- -- -- (108)
Dividends declared -- (8,436) -- (8,436)
ESOP shares committed to be released -- -- -- 1,826
Amortization of earned portion of Recognition Plan 3,131 -- -- 2,985
------------------------------------------------------
Balance - September 30, 2000 $(24,776) $402,148 $(21,463) $820,066
======================================================
Balance - March 31, 1999 $(33,918) $340,019 $ (2,303) $824,962
Comprehensive income:
Net income for the three months ended September 30, 1999 -- 25,021 -- 25,021
Other comprehensive income, net of tax benefit of $15.1 million
Change in net unrealized losses on securities available-for-sale,
net of tax -- -- (17,898) (17,898)
Less: reclassification adjustment of net losses realized in net
Income, net of tax -- -- (3,943) (3,943)
------------------------------------------------------
Comprehensive income -- 25,021 (21,841) 3,180
Repurchase of common stock (5,467,508 shares) -- -- -- (72,370)
Treasury stock issued for Broad National Bancorporation acquisition
(4,950,699 shares) -- -- -- 66,059
Treasury Stock issued for options exercised (107, 419 shares) -- -- -- 135
Dividends declared -- (5,424) -- (5,424)
ESOP shares committed to be released -- -- -- 1,827
Amortization of earned portion of Recognition Plan 3,094 -- -- 2,915
------------------------------------------------------
Balance - September 30, 1999 $(30,824) $359,616 $(24,144) $821,284
======================================================
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See accompanying notes to consolidated financial statements.
5
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
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SIX MONTHS ENDED
SEPTEMBER 30,
------------------------------
2000 1999
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 30,226 $ 25,021
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 792 5,559
Net (gain) loss on sale of loans and securities (1,999) 1,776
Amortization of deferred income and premiums (2,605) (1,388)
Amortization of intangibles 10,634 5,514
Depreciation and amortization 5,950 4,418
Deferred income tax provision (benefit) 1,152 (6,565)
Amortization of unearned compensation of ESOP and RRP 4,732 4,742
(Increase) decrease in accrued interest receivable (2,990) 1,941
Decrease in accounts receivable-securities transactions 304 299
Decrease (increase) in other accounts receivable 19,113 (18,924)
(Decrease) increase in accrued expenses and other
liabilities (4,011) 19,704
Other, net (2,750) (9,076)
-------- --------
Net cash provided by operating activities 58,548 33,021
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases (516,181) (886,170)
Principal payments on loans 321,099 383,248
Proceeds from sale of loans 42,848 1,708
Advances on warehouse mortgage lines of credit (742,477) --
Repayments on warehouse mortgage lines of credit 682,462 --
Proceeds from sale of securities available-for-sale 49,639 431,973
Proceeds from maturities of securities available-for-sale 5,291 114,546
Principal collected on securities available-for-sale 60,555 158,099
Purchases of securities available-for-sale (13,100) (322,367)
Purchase of FHLB stock -- (2,088)
Cash consideration paid to acquire Broad -- (66,059)
Cash and cash equivalents acquired from Broad acquisition -- 196,653
Proceeds from sale of other real estate 451 171
Net additions to premises, furniture and equipment (4,584) (2,763)
-------- --------
Net cash (used in) provided by investing activities (113,997) 6,951
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand and savings deposits (41,679) 21,072
Net increase (decrease) in time deposits 96,891 (73,807)
Net increase in borrowings 249,391 45,328
Net decrease in escrow and other deposits (18,579) (10,157)
Decrease in cumulative trust preferred securities (433) --
Proceeds on exercise of stock options 100 --
Repurchase of common stock (52,686) (72,370)
Dividends paid (8,436) (5,424)
-------- --------
Net cash provided by (used in) financing activities 224,569 (95,358)
-------- --------
Net increase (decrease) in cash and cash equivalents 169,120 (55,386)
Cash and cash equivalents at beginning of period 152,167 279,885
-------- --------
Cash and cash equivalents at end of period $321,287 $224,499
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
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SIX MONTHS ENDED
SEPTEMBER 30,
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2000 1999
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SUPPLEMENTAL INFORMATION
Income taxes paid $ 25,249 $ 1,255
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Interest paid $ 55,341 $ 44,967
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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 concurrently with the
completion of the initial public offering 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 ninth consecutive
quarterly cash dividend on October 27, 2000. The dividend amounted to $0.08 per
share of common stock and is payable on November 22, 2000 to shareholders of
record on November 8, 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 September 30, 2000, a total
of 22,247,213 shares had been purchased at an aggregate cost of $305.1 million
pursuant to the Company's seven 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 the two acquisitions by the Company in Note 2 below. Treasury shares
also are
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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 $98.8 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 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
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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.
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 six months
ended September 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 66 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 closed a branch office in
Hudson County, New Jersey in September 2000. The Bank opened a branch office in
Staten Island in October 2000 and a branch office in Brooklyn in November 2000.
In addition, the Bank has filed for regulatory approval to establish a new
branch in Nassau County. In September 2000, the Company introduced a new and
easy to use internet and telephonic banking system as an overall service
delivery program. The system includes a new Interactive Voice Response system,
enhanced ATM capabilities and a new 24 hour customer Call Center. 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 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 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
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diluted weighted-average common shares outstanding were 57,082,772 and
57,273,984 shares, respectively, for the quarter ended September 30, 2000
compared to 59,006,768 shares for the quarter ended September 30, 1999. For the
six months ended September 30, 2000, basic and diluted weighted-average common
shares outstanding were 57,979,632 and 58,120,718 shares, respectively compared
to 58,509,369 shares for the six months ended September 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 become 100% vested in the ESOP after three years of
service. Compensation expense related to the 140,822 shares committed to be
released during the first six months of fiscal 2001 was $1.7 million, which was
equal to the shares committed to be released by the ESOP multiplied by the
average estimated fair value of the common stock during the period in which they
were released. At September 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 make
restricted stock grants in an aggregate amount of 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 solely
to time vesting requirements. 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. The Board of
Directors granted non-performance share awards covering 28,363 shares during
fiscal 2000 and 25,363 shares for the first six months of fiscal 2001. 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. 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 $3.0 million
related to the Recognition Plan for the six months ended September 30, 2000.
1998 Stock Option Plan
The Option Plan was implemented in September 1998. The Option Plan may
grant options covering shares aggregating an amount equal 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,
11
<PAGE> 12
the Board of Directors granted options covering 146,000 and 25,000 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 six months ended September 30, 2000 or its statement of condition at
September 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 602,139 and became 100% exercisable at the effective date
of the acquisitions. Subsequent to the acquisitions, 393,492 of such options to
purchase the Company's common stock have been exercised.
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 September 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 $148,506 $ 960 $(14,496) $134,970
Municipals 3,445 -- (81) 3,364
-------- ------ -------- --------
Total debt securities 151,951 960 (14,577) 138,334
-------- ------ -------- --------
Equity securities:
Preferred 36,365 -- (86) 36,279
Common 895 439 -- 1,334
-------- ------ -------- --------
Total equity securities 37,260 439 (86) 37,613
-------- ------ -------- --------
Total investment securities 189,211 1,399 (14,663) 175,947
-------- ------ -------- --------
Mortgage-related securities:
FNMA pass through certificates 6,840 56 (6) 6,890
GNMA pass through certificates 31,101 492 (91) 31,502
FHLMC pass through certificates 6,369 57 (62) 6,364
Collateralized mortgage obligation bonds 710,014 -- (25,085) 684,929
-------- ------ -------- --------
Total mortgage-related securities 754,324 605 (25,244) 729,685
-------- ------ -------- --------
Total securities available-for-sale $943,535 $2,004 $(39,907) $905,632
======== ====== ======== ========
</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>
SEPTEMBER 30, 2000 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 $ 635,546 12.3% $ 674,118 13.6%
Cooperative apartment 433,503 8.4 462,185 9.3
Multi-family residential 2,840,443 55.0 2,731,104 55.2
Commercial real estate 687,987 13.3 597,165 12.1
---------- ----- ---------- -----
Total principal balance - mortgage loans 4,597,479 89.0 4,464,572 90.2
Less net deferred fees 8,297 0.2 8,727 0.2
---------- ----- ---------- -----
Total mortgage loans on real estate 4,589,182 88.8 4,455,845 90.0
---------- ----- ---------- -----
Commercial Business Loans 271,836 5.3 253,606 5.1
---------- ----- ---------- -----
Other Loans:
Student loans 37,405 0.7 39,260 0.8
Home equity loans and lines 124,424 2.4 121,109 2.4
Warehouse mortgage lines of credit 108,190 2.1 48,175 1.0
Consumer and other loans 33,500 0.7 34,318 0.7
---------- ----- ---------- -----
Total principal balance - other loans 303,519 5.9 242,862 4.9
Less unearned discounts and deferred fees 1,658 0.0 1,793 0.0
---------- ----- ---------- -----
Total other loans 301,861 5.9 241,069 4.9
Total loans receivable 5,162,879 100.0% 4,950,520 100.0%
---------- ===== ---------- =====
Less allowance for loan losses 72,319 70,286
---------- ----------
Loans receivable, net $5,090,560 $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>
SEPTEMBER 30, MARCH 31,
------------- ---------
2000 2000
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans:
Mortgage loans:
Single-family residential $ 4,322 $ 3,712
Cooperative apartment 219 243
Multi-family residential 1,157 1,128
Commercial real estate 3,495 3,281
Commercial business loans 4,937 3,821
Other loans(1) 151 33
-------- --------
Total non-accrual loans 14,281 12,218
-------- --------
Loans past due 90 days or more as to:
Interest and accruing 3,371 2,616
Principal and accruing(2) 13,895 11,516
-------- --------
Total past due loans and accruing 17,266 14,132
-------- --------
Total non-performing loans 31,547 26,350
-------- --------
Other real estate owned, net(3) 235 68
-------- --------
Total non-performing assets $ 31,782 $ 26,418
======== ========
Allowance for loan losses as a percent of total loans 1.40% 1.42%
Allowance for loan losses as a percent of non-
performing loans 229.24% 266.74%
Non-performing loans as a percent of total loans 0.61% 0.53%
Non-performing assets as a percent of total assets 0.46% 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>
SIX MONTHS ENDED
----------------
SEPTEMBER 30,
-------------
2000 1999
---- ----
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of period $70,286 $46,823
------- -------
Allowance of acquired institution(1) -- 6,658
------- -------
Provision:
Mortgage loans 525 5,550
Consumer and commercial business loans(2) 267 9
------- -------
Total provisions 792 5,559
------- -------
Charge-offs:
Mortgage loans 105 42
Consumer and commercial business loans(2) 418 75
------- -------
Total charge-offs 523 117
------- -------
Recoveries:
Mortgage loans 728 126
Consumer and commercial business loans(2) 1,241 785
------- -------
Total recoveries 1,764 911
------- -------
Net recoveries 1,241 794
------- -------
Allowance at end of period $72,319 $59,834
======= =======
Allowance for possible loan losses as a
percent of total loans 1.40% 1.37%
Allowance for possible loan losses as a
percent of total non-performing loans(3) 229.24% 221.14%
</TABLE>
----------
(1) Reflects allowance for loan losses acquired in connection with the
acquisition of Broad during fiscal 2000.
(2) 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.
(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.
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 September 30, 2000 were $6.87 billion, an increase of
$266.8 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 September 30, 2000, by comparison to March 31, 2000,
the Company had increases of $112.4 million in the total loan portfolio and
$169.1 million in cash and cash equivalents, while the securities
available-for-sale portfolio decreased $80.2 million, other assets decreased
$23.3 million and intangible assets decreased $10.7 million during the same
period.
17
<PAGE> 18
CASH AND FEDERAL FUNDS SOLD (COLLECTIVELY "CASH AND CASH EQUIVALENTS")
Cash and cash equivalents increased from $152.2 million at March 31,
2000, to $321.3 million at September 30, 2000. The $169.1 million increase was
principally due to a temporary build up of liquidity, resulting primarily from
the sale of securities in anticipation of funding the $100 million Bank Owned
Life Insurance ("BOLI") program in the third quarter of fiscal 2001. The BOLI
will provide an attractive tax-exempt return to the Company, will be used to
fund various employee benefit plans and will be classified in other assets in
the Statement of Financial Condition. Additionally, a portion of the excess
liquidity resulted from additional FHLB borrowings, which will be used to fund
current commitments for mortgage and commercial business loans (see "Loans, net"
below).
SECURITIES AVAILABLE-FOR-SALE
The aggregate securities available-for-sale portfolio (which includes
investment securities and mortgage-related securities) decreased $80.2 million
or 8.1% from $985.8 million at March 31, 2000 to $905.6 million at September 30,
2000. Total securities decreased during the six months ended September 30, 2000,
primarily as a result of the sale of approximately $47.7 million of securities,
consisting primarily of equity securities, which were sold to increase the
Company's liquid assets and to take advantage of favorable market conditions in
anticipation of funding the $100 million BOLI program. The decrease was also the
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 September 30, 2000 and March 31, 2000, the Company's investment
securities totaled $175.9 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 September 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 $729.7 million at September 30, 2000.
At September 30, 2000, the Company had a $37.9 million net unrealized
loss on available-for-sale investment and mortgage-related securities.
LOANS, NET
Loans, net, increased by $210.3 million or 4.3% to $5.09 billion at
September 30, 2000 from $4.88 billion at March 31, 2000. During the first six
months of fiscal 2001, the Company originated approximately $368.0 million of
mortgage loans, compared to $802.7 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 $109.3 million, or 4.0%, in multi-family loans from $2.73 billion at March
31, 2000, to $2.84 billion at September 30, 2000. These loans currently comprise
55.0% of the total loan portfolio compared to 55.2% at March 31, 2000.
Commercial real estate loans increased $90.8 million to $688.0 million at
September 30, 2000 compared to $597.2 million at March 31, 2000 and warehouse
mortgage lines of credit increased $60.0 million from $48.2 million at March 31,
2000 to $108.2 million at September 30, 2000. Single-family residential loans
decreased $38.6 million from $674.1 million to $635.5 million at September 30,
2000. The decline is due to the Company reducing its emphasis on both
single-family residential and cooperative
18
<PAGE> 19
apartment loans in favor of higher yielding, commercial real estate and business
loans. Subsequent to September 30, 2000, the Company sold its $37.4 million
student loan portfolio, realizing a net gain of approximately $1.1 million. The
Company does not participate in syndicated loan structures.
NON-PERFORMING ASSETS
The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets of 46 basis points (0.46%)
at September 30, 2000 compared to 40 basis points (0.40%) at March 31, 2000. At
September 30, 2000, the Company's non-performing assets consisted of $14.3
million of non-accrual loans, $3.4 million of loans past due 90 days or more as
to interest and accruing, $13.9 million of loans past due 90 days or more as to
principal and accruing ($6.5 million of which were multi-family loans and $6.9
million of which were commercial real estate loans) and $235,000 of other real
estate acquired through foreclosure or deed-in-lieu thereof. Non-performing
assets increased by $5.4 million to $31.8 million at September 30, 2000 from
$26.4 million at March 31, 2000. This increase was primarily due to a $2.4
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. In addition, there was a $2.1 million increase in non-accrual loans,
primarily commercial business loans ($1.1 million) and single-family residential
loans ($0.6 million).
ALLOWANCE FOR LOAN LOSSES
The Company's allowance for loan losses amounted to $72.3 million at
September 30, 2000, as compared to $70.3 million at March 31, 2000. At September
30, 2000, the Company's allowance amounted to 1.40% of total loans and 229.2% 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 $2.0 million increase in the allowance for the six months ended
September 30, 2000 reflected net recoveries of $1.2 million and a provision of
$0.8 million. As a result of the continued high quality of the Company's loan
portfolio, recent net loan recoveries and fewer loan originations of
multi-family and commercial real estate loans during the past six months,
management determined not to record a provision for loan losses for the second
quarter of fiscal 2001. However, management reviews the adequacy of the
allowance for loan losses no less frequently than quarterly. Management believes
the allowance for loan losses at September 30, 2000 was adequate.
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 September 30, 2000, intangibles totaled $210.3 million and
consisted of $91.1 million related to the acquisition of Broad, $84.9 million
related to the acquisition of Statewide, $17.1 million related to the
acquisition of Bay Ridge and $17.2 million related to the Branch Acquisitions.
The Company's intangible assets decreased by $10.7
19
<PAGE> 20
million to $210.3 million at September 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 six months ended
September 30, 2000. Amortization of such intangibles will continue to reduce net
income until such intangible assets are fully amortized.
DEPOSITS
Deposits increased $55.2 million or 1.3% to $4.47 billion at September
30, 2000 compared to $4.41 billion at March 31, 2000. The increase was due to
interest credited of $81.8 million and deposit outflows totaling $26.6 million.
The deposit outflow was primarily due to disintermediation resulting from
customer transfers of funds to other financial institutions conducting deposit
gathering campaigns by paying above market rates of interest.
BORROWINGS
Borrowings increased $249.4 million or 21.4% to $1.41 billion at
September 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 September 30, 2000, total stockholders' equity totaled $820.1
million, compared to $834.8 million at March 31, 2000. The $14.7 million
decrease reflected primarily a $52.7 million reduction in capital due to the
purchase of shares in connection with the Company's open market stock repurchase
program combined with a $8.4 million decrease resulting from dividends declared.
Such reductions were partially offset by net income of $30.2 million, a $11.5
million net decrease in the unrealized loss on securities available-for-sale,
amortization of the earned portion of Recognition Plan grants of $3.0 million
and $1.8 million related to ESOP shares committed to be released for the first
six months of fiscal 2001. Tangible book value per share was $9.65 and the
tangible equity to tangible assets ratio was 9.16% at September 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
--------------------------
SEPTEMBER 30, 2000 SEPTEMBER 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 $4,550,052 $ 84,846 7.46% $3,915,122 $ 71,567 7.31%
Commercial business loans 268,764 6,240 9.21 105,878 2,333 8.74
Other loans(2) 289,328 6,567 9.08 126,918 2,443 7.70
---------- -------- ---------- --------
Total loans 5,108,144 97,653 7.65 4,147,918 76,343 7.36
Mortgage-related securities 772,305 12,417 6.43 877,630 13,681 6.24
Investment securities 198,108 3,073 6.21 328,382 4,466 5.44
Other interest-earning assets(3) 274,999 3,050 4.44 263,932 3,378 5.12
---------- -------- ---------- --------
Total interest-earning assets 6,353,556 116,193 7.32 5,617,862 97,868 6.97
-------- ---- -------- ----
Non-interest-earning assets 438,628 303,137
---------- ----------
Total assets $6,792,184 $5,920,999
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $1,122,272 $ 5,065 1.79 $ 894,256 $3,934 1.75
Savings deposits 1,191,537 6,449 2.15 1,049,375 5,642 2.13
Certificates of deposit 2,168,024 30,712 5.62 1,909,478 24,329 5.05
---------- -------- ---------- --------
Total deposits 4,481,833 42,226 3.74 3,853,109 33,905 3.49
---------- -------- ---------- --------
Cumulative trust preferred
securities (5) 11,067 263 9.50 7,667 182 9.50
Borrowings 1,347,779 19,724 5.81 1,122,178 15,277 5.40
---------- -------- ---------- --------
Total interest-bearing liabilities 5,840,679 62,213 4.23 4,982,954 49,364 3.93
-------- ---- -------- ----
Non-interest-bearing liabilities 128,361 131,531
---------- ----------
Total liabilities 5,969,040 5,114,485
Total equity 823,144 806,514
---------- ----------
Total liabilities and equity $6,792,184 $5,920,999
========== ==========
Net interest-earning assets $ 512,877 $ 634,908
========== ==========
Net interest income/interest rate
spread $ 53,980 3.09% $ 48,504 3.04%
======== ==== ======== ====
Net interest margin 3.43% 3.48%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.09x 1.13x
==== ====
<CAPTION>
FOR THE SIX MONTHS ENDED
------------------------
SEPTEMBER 30, 2000 SEPTEMBER 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 $4,543,802 $168,789 7.43% $3,698,565 $135,473 7.33%
Commercial business loans 262,074 11,860 9.03 73,887 3,229 8.72
Other loans(2) 273,255 12,040 8.67 103,650 4,006 7.73
---------- -------- ---------- --------
Total loans 5,079,131 192,689 7.59 3,876,102 142,708 7.36
Mortgage-related securities 787,379 25,309 6.43 998,083 31,176 6.25
Investment securities 207,963 6,457 6.21 302,847 8,111 5.36
Other interest-earning assets(3) 225,420 6,832 6.06 302,804 7,442 4.92
---------- -------- ---------- --------
Total interest-earning assets 6,299,893 231,287 7.34 5,479,836 189,437 6.91
-------- ---- -------- ----
Non-interest-earning assets 431,707 251,349
---------- ----------
Total assets $6,731,600 $5,731,185
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $1,130,252 $ 9,835 1.74 $ 814,214 $ 7,550 1.85
Savings deposits 1,200,171 12,958 2.15 1,012,076 11,380 2.24
Certificates of deposit 2,143,456 58,989 5.49 1,852,088 47,345 5.10
---------- -------- ---------- --------
Total deposits 4,473,879 81,782 3.65 3,678,378 66,275 3.59
---------- -------- ---------- --------
Cumulative trust preferred
securities (5) 11,211 525 9.36 3,833 182 9.50
Borrowings 1,284,679 36,986 5.74 1,119,951 30,339 5.40
---------- -------- ---------- --------
Total interest-bearing liabilities 5,769,769 119,293 4.12 4,802,162 96,796 4.02
-------- ---- -------- ----
Non-interest-bearing liabilities 136,658 123,374
---------- ----------
Total liabilities 5,906,427 4,925,536
Total equity 825,173 805,649
---------- ----------
Total liabilities and equity $6,731,600 $5,731,185
========== ==========
Net interest-earning assets $ 530,124 $ 677,674
========== ==========
Net interest income/interest rate
spread $111,994 3.22% $ 92,641 2.89%
======== ==== ======== ====
Net interest margin 3.57% 3.39%
==== ====
Ratio of average interest-earning
assets to average interest-
bearing liabilities 1.09x 1.14x
==== ====
</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 SEPTEMBER 30, 2000 SIX MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THREE MONTHS ENDED COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------------------------- -----------------------------------
Increase (decrease) Increase (decrease)
due to Total Net due to Total Net
----------------------- Increase ---------------------- Increase
Rate Volume (Decrease) Rate Volume (Decrease)
-------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $ 1,491 $ 11,788 $ 13,279 $ 1,878 $ 31,437 $ 33,315
Commercial business loans 132 3,775 3,907 119 8,511 8,630
Other loans(1) 506 3,618 4,124 556 7,479 8,035
------- -------- -------- -------- -------- --------
Total loans receivable 2,129 19,181 21,310 2,553 47,427 49,980
Mortgage-related securities 426 (1,690) (1,264) 87 (5,953) (5,866)
Investment securities 566 (1,959) (1,393) 299 (1,953) (1,654)
Other interest-earning assets (465) 137 (328) 617 (1,227) (610)
------- -------- -------- -------- -------- --------
Total net change in income on
interest-earning assets 2,656 15,669 18,325 3,554 38,296 41,850
Interest-bearing liabilities:
Deposits:
Demand deposits 114 1,018 1,132 31 2,254 2,285
Savings deposits 27 779 806 (4) 1,582 1,578
Certificates of deposit 2,900 3,483 6,383 4,122 7,522 11,644
------- -------- -------- -------- -------- --------
Total deposits 3,041 5,280 8,321 4,149 11,358 15,507
Trust preferred securities -- 81 81 2 341 343
Borrowings 1,219 3,228 4,447 1,582 5,065 6,647
------- -------- -------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities 4,260 8,589 12,849 5,733 16,764 22,497
------- -------- -------- -------- -------- --------
Net change in net interest
income $(1,604) $ 7,080 $ 5,476 $ (2,179) $ 21,532 $ 19,353
======= ======== ======== ======== ======== ========
</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 SEPTEMBER 30,
2000 AND 1999
GENERAL
The Company reported a 22.7% increase in diluted earnings per share to
$0.27 for the quarter ended September 30, 2000 compared to $0.22 for the quarter
ended September 30, 1999. Net income increased 20.5% to $15.7 million for the
quarter ended September 30, 2000 compared to $13.0 million for the quarter ended
September 30, 1999.
Cash earnings for the second quarter of fiscal year 2001 increased 25.0%
to $22.4 million and increased 30.0% per diluted share to $0.39 compared to the
same period in the prior fiscal year. Cash earnings consist of 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 $5.5 million or 11.3% to $54.0 million
for the three months ended September 30, 2000 as compared to $48.5 million for
the three months ended September 30, 1999. The increase was due to an $18.3
million increase in interest income offset in part by a $12.8 million increase
in interest expense. The growth in net interest income reflects primarily the
$735.7 million increase in average interest-earning assets during the three
months ended September 30, 2000, as compared to the same period in the prior
year. This increase was primarily attributable to the assets acquired in
connection with the acquisition of Statewide in January 2000, and, to a lesser
extent, the acquisition of Broad in the second quarter of fiscal 2000, combined
with the growth in commercial mortgage and business loans.
The Company experienced a 35 basis point increase in the weighted
average yield earned on its interest earning assets from 6.97% to 7.32% for the
three months ended September 30, 1999 and 2000. This increase was primarily due
to the addition of the Broad and Statewide loan portfolios, including warehouse
mortgage lines of credit, accompanied by higher yielding loan originations
during the past year. However, the Company's net interest margin was 3.43% and
3.48% for the three months ended September 30, 2000 and 1999, respectively, as
the ratio of interest-earning assets to interest-bearing liabilities declined
due primarily to the Company's stock repurchase programs. The five basis point
decline over the past year was primarily the result of increases in short-term
interest rates experienced in 2000. Partially offsetting such increase was the
addition of Broad's higher yielding commercial loan portfolio accompanied by the
associated lower cost commercial deposit base.
The Company anticipates continued compression of its net interest margin
during the remainder of fiscal year 2001. Contributing to this compression will
be the Company's use of its earning assets to fund its stock repurchase
programs, the investment in BOLI, as well as the Company's de novo branch
strategy. During the start-up phase, the Company expects to solicit higher cost
deposit products in an effort to build customer relationships. It should be
noted that changes in the cash surrender value of the BOLI will be recognized on
a quarterly basis in other non-interest income.
Interest income on loans increased $21.3 million due to a $960.2 million
increase in the average balance of loans combined with a 29 basis point increase
23
<PAGE> 24
in the yield earned on loans from 7.36% for the three-month fiscal 2000 period
to 7.65% for the three-month fiscal 2001 period. Income on investment securities
decreased $1.4 million due to a $130.3 million decrease in the average balance
of investment securities partially offset by a 77 basis point increase in the
yield earned for the quarter ended September 30, 2000 compared to the quarter
ended September 30, 1999. Interest income on mortgage-related securities
decreased $1.3 million during the second quarter of fiscal 2001 compared to the
same period in fiscal 2000 as a result of a $105.3 million decrease in the
average balance of these securities partially offset by a 19 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 $1.0 million in dividends on FHLB
stock partially offset by an increase of $0.5 million in interest on short-term
investments.
Interest expense increased $12.8 million to $62.2 million or 26.0% for
the three months ended September 30, 2000 as compared to the three months ended
September 30, 1999. The increased FHLB borrowings, which have been used to fund
mortgage and commercial business loan originations, resulted in additional
interest expense of $4.4 million. The $628.7 million increase in the average
balance of deposits increased interest paid on deposits by $8.3 million,
combined with a 25 basis point increase in the average rate paid on deposits to
3.74% for the quarter ended September 30, 2000, compared to 3.49% for the
quarter ended September 30, 1999.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses decreased by $2.9 million for
the quarter ended September 30, 2000, compared to the same period in the prior
fiscal year. As a result of the continued high quality of the Company's loan
portfolio, recent net loan recoveries and fewer loan originations of
multi-family and commercial real estate loans during the past six months,
management determined not to record a provision for loan losses for the second
quarter of fiscal 2001. Although management believes the allowance for loan
losses at September 30, 2000 was adequate, it will continue to evaluate the
adequacy of the allowance for loan losses. Non-performing assets as a percentage
of total assets totaled .46% at September 30, 2000 compared to .44% at September
30, 1999. The Company's allowance amounted to 1.40% and 1.37% of total loans at
September 30, 2000 and 1999, respectively.
NON-INTEREST INCOME
Non-interest income, excluding gains and losses on sales of securities,
increased $2.1 million to $6.7 million for the three months ended September 30,
2000 compared to $4.7 million for the three months ended September 30, 1999. The
$2.2 million increase in service fee income was directly related to the expanded
branch network resulting from the acquisition of both Broad and Statewide,
increased fees on sales of annuities and mutual funds and increased banking and
service fees. Other non-interest income decreased $0.2 million as a result of
lower mortgage prepayment fees of $0.5 million. During the quarter ended
September 30, 2000, the Company recognized a net gain of $2.0 million on the
sale of approximately $47.7 million of securities, consisting primarily of
equity securities, which were sold to build up liquidity and take advantage of
favorable market conditions in anticipation of funding the $100 million BOLI
program. In addition, the Company realized a net gain of $0.4 million for the
quarter ended September 30, 1999 on the sale of approximately $56 million of
securities which were sold to fund mortgage originations.
24
<PAGE> 25
NON-INTEREST EXPENSES
Non-interest expense amounted to $35.6 million for the quarter ended
September 30, 2000 compared to $29.4 million for the quarter ended September 30,
1999. The $6.2 million growth in expenses was primarily attributable to
increases in personnel costs of $1.3 million, occupancy costs of $1.8 million,
amortization of intangibles of $1.9 million and other non-interest expenses of
$1.3 million. During the quarter ended September 30, 2000, the Company commenced
consolidation of its back-office operations through the newly created Operations
Division in order to improve efficiency, enhance customer service and reduce
operating costs.
Compensation and benefits increased $1.3 million for the three months
ended September 30, 2000, compared to the three months ended September 30, 1999.
The increase was due to increased compensation of $2.5 million and increased
medical insurance costs of $0.5 million for the quarter ended September 30, 2000
resulting from staff additions due to the Statewide and Broad acquisitions. This
was partially offset by a $1.8 million reduction in pension expense, resulting
from the pension plan amendments adopted in the quarter ended September 30,
2000. The amendments will result in a projected annual savings of approximately
$3.0 million.
Occupancy costs increased $1.8 million to $5.5 million during the three
months ended September 30, 2000, as compared $3.7 million for the three months
ended September 30, 1999. The increase is primarily the result of the expansion
of operations resulting from the acquisition of Broad in July 1999 and Statewide
in January 2000. As a result of the current de novo branch activities, the
Company anticipates higher operating costs associated with the opening of new
branch facilities. Two de novo branches opened during the third quarter of the
fiscal year with a third planned in the fourth quarter of fiscal 2001.
Amortization of intangibles increased $1.9 million to $5.3 million for
the quarter ended September 30, 2000 as compared to $3.4 million for the quarter
ended September 30, 1999. The increase is primarily due to approximately $98.8
million of goodwill associated with the Broad acquisition and approximately
$89.3 million of goodwill associated with the Statewide acquisition, in both
cases which is being amortized over 15 years.
Other non-interest expenses increased $1.3 million, or 24.7%, to $6.7
million for the three months ended September 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.
Data processing service expenses decreased by $0.3 million or 13.1% to
$2.0 million during the three months ended September 30, 2000 as compared to the
three months ended September 30, 1999. The decrease was a result of a $0.4
million reduction in Year 2000 expenses in the fiscal 2000 period, partially
offset by additional costs associated with the expansion of operations resulting
from the acquisitions of Broad and Statewide.
INCOME TAXES
Income tax expense amounted to $11.5 million and $8.2 million for the
three months ended September 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 September 30, 2000 to 42.2%
compared to 38.7% for the three months ended September 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 September 30, 2000, the Company had a net deferred tax asset of
$78.2 million. No valuation allowance was deemed necessary with respect to such
asset.
25
<PAGE> 26
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 2000
AND 1999
GENERAL
The Company reported a 20.9% increase in diluted earnings per share to
$0.52 per share for the six months ended September 30, 2000 compared to $0.43
per diluted share for the six months ended September 30, 1999. Net income for
the six months ended September 30, 2000 increased $5.2 million, or 20.8% to
$30.2 million, compared to the six months ended September 30, 1999.
Cash earnings for the six months ended September 30, 2000 increased
30.2% to $43.6 million compared to $33.5 million for the same period of the
prior year. Cash earnings per diluted share increased 31.5% to $0.75 as compared
to $0.57 for the six months ended September 30, 1999.
The $5.2 million increase in net income during the six months ended
September 30, 2000 compared to the same period in the prior year was primarily
due to increases of $19.4 million in net interest income, $7.9 million in
non-interest income and a $4.8 million decrease in provision for loan losses.
These were partially offset by a $19.9 million increase in non-interest expense
and a $6.8 million increase in the provision for income taxes.
NET INTEREST INCOME
Net interest income increased by $19.4 million or 20.9% to $112.0
million for the six months ended September 30, 2000 as compared to the same
period in 1999. The increase was due to a $41.9 million increase in interest
income offset in part by a $22.5 million increase in interest expense. The
growth in net interest income reflects primarily the $820.1 million increase in
average interest-earning assets resulting from the assets acquired in connection
with the acquisitions of Broad and Statewide and, to a lesser extent, the growth
in commercial mortgage and business loans.
The Company's net interest margin was 3.57% and 3.39% for the six months
ended September 30, 2000 and 1999, respectively. The 18 basis point increase in
net interest margin for the 2000 period was attributable to the addition of
Broad's higher yielding commercial loan portfolio and the associated lower cost
commercial deposit base, partially offset by interest rate compression
experienced during the period. Since the completion of the Broad and Statewide
acquisitions, the Company has continued to concentrate on expanding its higher
yielding commercial mortgage and business loan portfolios rather than investing
in securities.
Interest income on loans increased $50.0 million due to a $1.20 billion
increase in the average balance of loans combined with a 23 basis point increase
in the yield earned on loans from 7.36% for the fiscal 2000 period to 7.59% for
the fiscal 2001 period. Income on investment securities decreased $1.7 million
due to a $94.9 million decrease in the average balance of investment securities
partially offset by an increase in the yield earned from 5.36% for the six
months ended September 30, 1999 to 6.21% for the six months ended September 30,
2000. Interest income on mortgage-related securities decreased $5.9 million
during the six months of fiscal 2001 compared to the same period in fiscal 2000
as a result of a $210.7 million decrease in the average balance of these
securities partially offset by an 18 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) decreased $0.6 million in the current
six months compared to the same period in the prior year primarily due to a
decrease of $1.4 million in interest on short-term investments. Partially
offsetting these decreases was a $0.8 million increase in dividends on FHLB
stock.
26
<PAGE> 27
Interest expense increased $22.5 million or 23.2% for the six months
ended September 30, 2000 as compared to the six months ended September 30, 1999.
Interest expense on borrowings increased by $6.6 million as a result of the
increased FHLB borrowings which have been used to fund mortgage and commercial
business loan originations. Interest expense on deposits increased $15.5 million
due to a $795.5 million increase in the average balance of deposits, combined
with a 6 basis point increase in the average rate paid on deposits to 3.65% for
the six months ended September 30, 2000, compared to 3.59% for the six months
ended September 30, 1999.
PROVISION FOR LOAN LOSSES
The Company's provision for loan losses decreased by $4.8 million to
$0.8 million as compared to $5.6 million for the same period in the prior year.
As a result of the continued high quality of the Company's loan portfolio,
recent net loan recoveries and fewer loan originations of multi-family and
commercial real estate loans during the past six months, management determined
not to record a provision for loan losses for the second quarter of fiscal 2001.
Although management believes the allowance for loan losses at September 30, 2000
was adequate, it will continue to evaluate the adequacy of the allowance for
loan losses.
NON-INTEREST INCOME
For the six months ended September 30, 2000 non-interest income,
excluding gains and losses on sales of securities, increased $4.1 million or
46.7% from $8.7 million for the six months ended September 30, 1999 to $12.8
million for the six months ended September 30, 2000. The increase was primarily
due to a $5.4 million increase in service fee income, which was directly related
to the expanded branch network resulting from the acquisition of both Broad and
Statewide, increased fees on sales of annuities and mutual funds and increased
banking and service charge fees. Other non-interest income decreased $1.3
million, primarily as a result of lower mortgage prepayment fees of $1.9
million. During the six months ended September 30, 2000, the Company recognized
a net gain of $2.0 million on the sale primarily during the second quarter of
approximately $47.7 million of securities, consisting primarily of equity
securities, which were sold to build up liquidity and take advantage of
favorable market conditions in anticipation of funding the $100 million BOLI
program. In addition, for the prior year period ended September 30, 1999, the
Company realized a net loss of $1.8 million on the sale of approximately $435.0
million of securities which were sold to fund mortgage originations and stock
repurchases.
NON-INTEREST EXPENSES
Non-interest expense increased by $19.9 million, or 37.0%, to $73.7
million for the six months ended September 30, 2000, compared to $53.8 million
for the six months ended September 30, 1999. The increase in expenses was
attributable to increases in personnel costs of $7.0 million, occupancy costs of
$3.7 million, amortization of intangibles of $5.1 million and other non-interest
expenses of $4.1 million.
Compensation and employee benefits expense increased $7.0 million, or
30.3%, to $30.3 million for the six months ended September 30, 2000 as compared
to the same period in the prior year. The increase was due to increased
compensation of $6.8 million and increased medical insurance costs of $1.0
million for the six months ended September 30, 2000 resulting from staff
additions due to the Statewide and Broad acquisitions. This was partially offset
by a $1.7 million reduction in pension expense resulting from the pension plan
amendments adopted in the quarter ended September 30, 2000. The amendments will
result in a projected annual savings of approximately $3.0 million.
27
<PAGE> 28
Occupancy costs increased $3.7 million to $10.8 million during the six
months ended September 30, 2000 as compared to the six months ended September
30, 1999. The increase is primarily the result of the expansion of operations
resulting from the acquisition of Broad in July 1999 and Statewide in January
2000. As a result of the current de novo branch activities, the Company
anticipates higher operating costs associated with the opening of new branch
facilities. Two de novo branches opened during the third quarter of the fiscal
year with a third planned to open in the fourth quarter of fiscal 2001.
Data processing service expenses decreased $46,000, to $4.3 million
during the six months ended September 30, 2000 as compared to the six months
ended September 30, 1999. The decrease was a result of $0.7 million Year 2000
expenses in the fiscal 2000 period, partially offset by additional costs
associated with the expansion of operations resulting from the acquisitions of
Broad and Statewide.
Amortization of intangibles increased $5.1 million to $10.6 million for
the six months ended September 30, 2000 compared to $5.5 million for the same
period in the prior year. The increase is primarily due to the goodwill
associated with the Broad and Statewide acquisitions, which is being amortized
over 15 years.
Other non-interest expenses increased $4.1 million for the six months
ended September 30, 2000 as compared to the six months ended September 30, 1999
primarily due to additional expenses associated with the expansion of operations
resulting from the acquisitions of Broad and Statewide. These expenses included
items such as equipment expenses, office supplies, postage, telephone expenses,
maintenance and security.
INCOME TAXES
Income tax expense amounted to $22.1 million and $15.2 million during
the six months ended September 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 six months ended September 30, 2000 to 42.2%,
compared to 37.8% for the six months ended September 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.
28
<PAGE> 29
REGULATORY CAPITAL REQUIREMENTS
The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at September 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% $262,320 8.2% $539,172 4.2% $276,852
Risk-based capital
ratios:(2)
Tier I 4.0 175,418 12.2 539,172 8.2 363,754
Total 8.0 350,837 13.5 594,292 5.5 243,455
</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 and commercial business loans the
Company has increased its FHLB borrowings, which totaled $1.41 billion at
September 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 September 30, 2000, there were outstanding commitments and unused lines of
credit by the Company to originate or acquire mortgage loans aggregating $177.5
consisting primarily of fixed and adjustable-rate multi-family residential loans
and fixed-rate commercial real estate loans, which are expected to close during
the twelve months ended September 30, 2001. At September 30, 2000 outstanding
commitments for other loans totaled $52.3 million, primarily comprised of home
equity loans and lines of credit. In addition, at September 30, 2000, unused
commercial business lines of credit and warehouse mortgage lines of credit
outstanding were $166.3 million and $152.9 million, respectively. Certificates
of deposit scheduled to mature in one year or less at September 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.
29
<PAGE> 30
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 September 30, 2000.
<TABLE>
<CAPTION>
CHANGE (IN BASIS POINTS) IN NPV AS % OF PORTFOLIO
INTEREST RATES ---------------------
NET PORTFOLIO VALUE VALUE OF ASSETS
------------------- ---------------
NPV % CHANGE IN
------ ---------
AMOUNT $ CHANGE CHANGE RATIO NPV RATIO
------ -------- ------ ----- ---------
<S> <C> <C> <C> <C> <C> <C>
+300 435,376 (354,572) (44.89)% 7.15% (4.54)%
+200 539,110 (250,838) (31.75) 8.56 (3.13)
+100 656,447 (133,501) (16.90) 10.07 (1.62)
0 789,948 -- -- 11.69 --
-100 920,669 130,721 16.55 13.17 1.48
-200 1,032,499 242,551 30.70 14.36 2.67
-300 1,187,352 397,404 50.31 16.04 4.35
</TABLE>
As of September 30, 2000, the Company's NPV was $789.9 million, or
11.69% of the market value of assets. Following a 200 basis point increase in
interest rates, the Company's "post shock" NPV was $539.1 million, or 8.56% of
the market value of assets. The change in the NPV ratio or the Company's
Sensitivity Measure was negative 3.12%.
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%.
30
<PAGE> 31
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
None
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
None
31
<PAGE> 32
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 10, 2000 By:/s/ Charles J. Hamm
----------------- --------------------------------
Charles J. Hamm
Chairman, President and
Chief Executive Officer
Date: November 10, 2000 By:/s/ John B. Zurell
----------------- --------------------------------
John B. Zurell
Executive Vice President and
Chief Financial Officer
32
