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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 December 31, 1999
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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<S> <C>
Delaware 13-3387931
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer
Identification Number)
195 Montague Street
Brooklyn, New York 11201
(Address of principal executive office) (Zip Code)
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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 February 4, 2000,
the registrant had 68,107,468 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 Condition 3
as of December 31, 1999 (unaudited)
and March 31, 1999
Consolidated Statements of Income for 4
the three and nine months ended
December 31, 1999 and 1998 (unaudited)
Consolidated Statements of Changes in 5
Stockholders' Equity for the nine
months ended December 31, 1999 and 1998
(unaudited)
Consolidated Statements of Cash Flows 6
for the nine months ended
December 31, 1999 and 1998(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 31
About Market Risk
Part II Other Information
Item 1 Legal Proceedings 32
Item 2 Changes in Securities and Use of Proceeds 32
Item 3 Defaults upon Senior Securities 32
Item 4 Submission of Matters to a Vote of 32
Security Holders
Item 5 Other Information 32
Item 6 Exhibits and Reports on Form 8-K 32
Signatures 33
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2
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1999 1999
----------- -----------
(Unaudited)
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ASSETS:
Cash and due from banks $ 145,573 $ 70,811
Commercial paper -- 37,290
Federal funds sold 5,012 171,784
----------- -----------
Total cash and cash equivalents 150,585 279,885
----------- -----------
Securities available-for-sale:
Investment securities 399,230 331,795
Mortgage-related securities 795,633 1,189,833
----------- -----------
Total securities available for sale 1,194,863 1,521,628
----------- -----------
Mortgage loans on real estate 3,630,121 2,926,978
Other loans 785,362 579,503
----------- -----------
Total loans 4,415,483 3,506,481
Less: Allowance for possible loan losses 64,173 46,823
----------- -----------
Total loans, net 4,351,310 3,459,658
----------- -----------
Premises, furniture and equipment, net 81,058 68,595
Accrued interest receivable 31,141 30,575
Intangible assets, net 143,926 47,244
Other assets 200,630 129,393
----------- -----------
Total assets $ 6,153,513 $ 5,536,978
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Deposits $ 3,911,270 $ 3,447,364
Borrowings 1,276,962 1,118,364
Company-obligated mandatorily redeemable cumulative
trust preferred securities of a subsidiary trust
holding solely junior subordinated debentures
of the Company 11,500 --
Escrow and other deposits 37,578 61,003
Accrued expenses and other liabilities 110,805 85,285
----------- -----------
Total liabilities 5,348,115 4,712,016
----------- -----------
Stockholders' equity
Common stock: $.01 par value: 125,000,000
shares authorized, 76,043,750 shares issued;
65,825,362 shares and 67,873,876 shares
outstanding at December 31, 1999 and
March 31, 1999, respectively 760 760
Additional paid-in-capital 726,931 739,090
Treasury stock at cost: 10,218,388 shares
and 8,169,874 shares at December 31, 1999 and
March 31, 1999, respectively (142,710) (125,993)
Unallocated common stock held by ESOP (88,985) (92,693)
Unearned common stock held by RRP (29,373) (33,918)
Retained earnings-substantially restricted 369,472 340,019
Accumulated other comprehensive loss:
Net unrealized loss on securities available-
for-sale, net of tax (30,697) (2,303)
----------- -----------
Total stockholders' equity 805,398 824,962
----------- -----------
Total liabilities and stockholders' equity $ 6,153,513 $ 5,536,978
=========== ===========
</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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<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1999 1998 1999 1998
-------- ------- --------- --------
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INTEREST INCOME:
Mortgage loans on real estate $ 66,362 $51,227 $ 185,206 $144,665
Other loans 14,559 9,953 38,423 29,446
Investment securities 4,953 12,574 13,064 37,158
Mortgage-related securities 13,704 7,477 44,880 14,994
Other 2,587 4,719 10,029 20,784
-------- ------- --------- --------
Total interest income 102,165 85,950 291,602 247,047
-------- ------- --------- --------
INTEREST EXPENSE:
Deposits 34,890 33,622 101,165 100,274
Borrowings 16,194 9,862 46,533 21,180
Cumulative trust preferred securities 273 -- 455 --
-------- ------- --------- --------
Total interest expense 51,357 43,484 148,153 121,454
-------- ------- --------- --------
Net interest income 50,808 42,466 143,449 125,593
Provision for loan losses 2,527 3,107 8,086 7,764
-------- ------- --------- --------
Net interest income after
provision for loan losses 48,281 39,359 135,363 117,829
-------- ------- --------- --------
NON-INTEREST INCOME:
Net gain (loss) on sales of loans
and securities 58 37 (1,718) 47
Service fees 3,683 1,374 9,437 3,936
Other 1,409 1,304 4,406 4,118
-------- ------- --------- --------
Total non-interest income 5,150 2,715 12,125 8,101
-------- ------- --------- --------
NON-INTEREST EXPENSE:
Compensation and employee benefits 13,439 10,094 36,676 29,044
Occupancy costs 4,448 3,593 11,495 10,580
Data processing fees 1,781 3,075 6,174 9,249
Advertising 1,415 1,041 4,245 3,487
FDIC insurance premiums 304 279 879 887
Amortization of intangible assets 3,959 2,155 9,473 6,474
Other 5,661 4,865 15,871 14,065
-------- ------- --------- --------
Total non-interest expense 31,007 25,102 84,813 73,786
-------- ------- --------- --------
Income before provision for income taxes 22,424 16,972 62,675 52,144
Provision for income taxes 8,866 5,509 24,096 19,253
-------- ------- --------- --------
Net income $ 13,558 $11,463 $ 38,579 $ 32,891
======== ======= ========= ========
Basic earnings per share $ 0.23 $ 0.17 $ 0.66 $ 0.47
======== ======= ========= ========
Diluted earnings per share $ 0.23 $ 0.17 $ 0.66 $ 0.47
======== ======= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
NINE MONTHS ENDED DECEMBER 31, 1999 AND 1998
(In Thousands, Except Share Amounts)
(Unaudited)
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<CAPTION>
Additional Unallocated Unearned
Common Paid in Treasury Common Stock Common Stock
Stock Capital Stock Held by ESOP Held by RRP
------ ---------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance-March 31,1999 $760 $ 739,090 $(125,993) $(92,693) $(33,918)
Comprehensive income:
Net income for the nine months ended
December 31, 1999 -- -- -- -- --
Other comprehensive income, net of tax benefit
of $23.3 million
Change in net unrealized losses on
securities available-for-sale, net of tax -- -- -- -- --
Less: reclassification adjustment of
net losses realized in net income, net of tax -- -- -- -- --
---- --------- --------- -------- --------
Comprehensive income -- -- -- -- --
Repurchase of common stock (7,279,338 shares) -- -- (94,363) -- --
Treasury stock issued for Broad National
Bancorporation acquisition (4,950,699 shares) -- (7,317) 73,378 -- --
Treasury Stock issued for options exercised
(280,125 shares) -- (3,594) 4,268 -- --
Dividends declared -- -- -- -- --
ESOP shares committed to be released -- (1,050) -- 3,708 --
Amortization of earned portion of RRP -- (198) -- -- 4,545
---- --------- --------- -------- --------
Balance-December 31, 1999 $760 $ 726,931 $(142,710) $(88,985) $(29,373)
==== ========= ========= ======== ========
Balance-March 31, 1998 $760 $ 741,277 $ -- $(97,636) $ --
Comprehensive income:
Net income for the nine months ended
December 31, 1998 -- -- -- -- --
Other comprehensive income, net of tax of $3,174
Change in net unrealized gains on securities
available-for-sale, net of reclassification
adjustment of $0 -- -- -- -- --
---- --------- --------- -------- --------
Comprehensive income -- -- -- -- --
Repurchase of common stock (1,919,400 shares) -- -- (29,919) -- --
Dividends declared -- -- -- -- --
ESOP shares committed to be released -- (485) -- 3,708 --
Issuance of grants and purchase of shares
Under RRP -- (1,247) -- -- (36,919)
Amortization of earned portion of RRP -- -- -- -- 1,553
Other conversion related costs -- (372) -- -- --
---- --------- --------- -------- --------
Balance-December 31, 1998 $760 $ 739,173 $ (29,919) $(93,928) $(35,366)
==== ========= ========= ======== ========
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Accumulated
Other
Retained Comprehensive
Earnings Income/(Loss) Total
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Balance-March 31,1999 $ 340,019 $ (2,303) $ 824,962
Comprehensive income:
Net income for the nine months ended
December 31, 1999 38,579 -- 38,579
Other comprehensive income, net of tax benefit
of $23.3 million
Change in net unrealized losses on
securities available-for-sale, net of tax -- (23,640) (23,640)
Less: reclassification adjustment of
net losses realized in net income, net of tax -- (4,754) (4,754)
--------- -------- ---------
Comprehensive income 38,579 (28,394) 10,185
Repurchase of common stock (7,279,338 shares) -- --
(94,363)
Treasury stock issued for Broad National
Bancorporation acquisition (4,950,699 shares) -- -- 66,061
Treasury Stock issued for options exercised
(280,125 shares) -- -- 674
Dividends declared (9,126) -- (9,126)
ESOP shares committed to be released -- -- 2,658
Amortization of earned portion of RRP -- -- 4,347
--------- -------- ---------
Balance-December 31, 1999 $ 369,472 $(30,697) $ 805,398
========= ======== =========
Balance-March 31, 1998 $ 298,876 $ 5,847 $ 949,124
Comprehensive income:
Net income for the nine months ended
December 31, 1998 32,891 -- 32,891
Other comprehensive income, net of tax of $3,174
Change in net unrealized gains on securities
available-for-sale, net of reclassification
adjustment of $0 -- (2,279) (2,279)
--------- -------- ---------
Comprehensive income 32,891 (2,279) 30,612
Repurchase of common stock (1,919,400 shares) -- -- (29,919)
Dividends declared (2,113) -- (2,113)
ESOP shares committed to be released -- -- 3,223
Issuance of grants and purchase of shares
Under RRP -- -- (38,166)
Amortization of earned portion of RRP -- -- 1,553
Other conversion related costs -- -- (372)
--------- -------- ---------
Balance-December 31, 1998 $ 329,654 $ 3,568 $ 913,942
========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
5
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
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NINE MONTHS ENDED
DECEMBER 31,
------------------------------
1999 1998
----------- -----------
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 38,579 $ 32,891
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 8,086 7,764
Net loss (gain) on sale of loans and securities 1,718 (47)
Amortization of deferred income and premiums (1,982) (4,673)
Amortization of intangibles 9,473 6,474
Depreciation and amortization 6,918 5,633
Deferred income tax benefit (6,566) (3,985)
Amortization of unearned compensation of
ESOP and RRP 6,956 4,776
Decrease (increase) in accrued interest receivable 2,035 (5,946)
Decrease in accounts receivable-securities
transactions 383 5,029
Increase (decrease) in accrued expenses and other
liabilities 17,816 (43,347)
Other, net (22,354) 18,485
----------- -----------
Net cash provided by operating activities 61,062 109,748
----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Loan originations and purchases (1,082,559) (959,531)
Principal payments on loans 528,671 401,006
Proceeds from sale of loans 2,552 35,317
Proceeds from sale of securities available-for-sale 484,088 213,000
Proceeds from maturities of securities
available-for-sale 141,346 802,983
Principal collected on securities
available-for-sale 142,736 145,006
Purchases of securities available-for-sale (421,833) (1,317,345)
Purchase of FHLB stock (9,438) (10,071)
Cash consideration paid to acquire Broad
National Bancorporation (66,061) --
Cash and cash equivalents acquired from
Broad National Bancorporation acquisition 196,653 --
Proceeds from sale of other real estate 440 128
Net additions to premises, furniture and equipment (9,369) (10,035)
----------- -----------
Net cash provided by (used in) investing activities (92,774) (699,542)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand and savings deposits 3,248 (72,698)
Net (decrease) increase in time deposits (124,149) 91,086
Net increase in borrowings 151,631 76,225
Net decrease in escrow and other deposits (24,829) (12,402)
Purchase of RRP shares -- (38,166)
Repurchase of common stock (94,363) (29,919)
Dividends paid (9,126) (2,113)
----------- -----------
Net cash used in financing activities (97,588) (12,013)
----------- -----------
Net decrease in cash and cash equivalents (129,300) (577,781)
Cash and cash equivalents at beginning of period 279,885 857,251
----------- -----------
Cash and cash equivalents at end of period $ 150,585 $ 279,470
=========== ===========
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INDEPENDENCE COMMUNITY BANK CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------------
1999 1998
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SUPPLEMENTAL INFORMATION
Income taxes paid $ 27,562 $ 26,433
======== ========
Interest paid $143,687 $115,841
======== ========
NON-CASH INVESTING ACTIVITIES:
Treasury stock issued for Broad National
Bancorporation acquisition $ 66,061 $ --
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
7
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INDEPENDENCE COMMUNITY BANK CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.ORGANIZATION/FORM OF OWNERSHIP
Independence Community Bank (the "Bank"), formerly known as
Independence Savings Bank, was originally founded as a New York-chartered
savings bank in 1850. In April 1992, the Bank reorganized into the mutual
holding company form of organization pursuant to which the Bank became a wholly
owned stock savings bank subsidiary of a mutual holding company (the "Mutual
Holding Company").
On April 18, 1997, the Board of Directors of the Bank and the Board of
Trustees of the Mutual Holding Company adopted a Plan of Conversion to convert
the Mutual Holding Company to the stock form of organization and simultaneously
merge with and into the Bank and all of the outstanding shares of Bank common
stock held by the Mutual Holding Company would be cancelled.
As part of the conversion, Independence Community Bank Corp. (the
"Company") was incorporated under Delaware law in June 1997. The Company is
regulated by the Office of Thrift Supervision ("OTS"). The Company completed its
initial public offering on March 13, 1998 and issued 70,410,880 shares of common
stock resulting in proceeds of $685.7 million, net of expenses which totaled
$18.4 million. The Company used $343.0 million or approximately 50% of the net
proceeds to purchase all of the outstanding stock of the Bank. The Company also
loaned $98.9 million to the Company's Employee Stock Ownership Plan (the "ESOP")
which purchased 5,632,870 shares of the Company's common stock in the open
market subsequent to completion of the initial public offering.
As part of the Plan of Conversion, the Company formed the Independence
Community Foundation (the "Foundation") and donated 5,632,870 shares of common
stock of the Company valued at the time of its contribution at $56.3 million.
The Foundation was established in order to further the Company's and the Bank's
commitment to the communities they serve.
Additionally, the Bank established, in accordance with the requirements
of the New York State Banking Department ("Department"), a liquidation account
for the benefit of depositors of the Bank as of March 31, 1996 and September 30,
1997 in the amount of $319.7 million which was equal to the Bank's total equity
as of the date of the latest consolidated statement of financial condition
(August 31, 1997) appearing in the final prospectus used in connection with the
reorganization and conversion of the Bank and the Mutual Holding Company.
The Board of Directors declared the Company's sixth consecutive
quarterly cash dividend on January 25, 2000. The dividend amounted to $0.06 per
share of common stock and is payable on February 24, 2000 to shareholders of
record on February 10, 2000.
On November 30, 1999 the Company announced that its Board of Directors
authorized a fifth stock repurchase plan for up to five percent of common shares
then outstanding or 3,350,529 shares. As of December 31, 1999, 15,449,212 shares
had been purchased at an aggregate cost of $220.4 million pursuant to the
Company's five repurchase programs.
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 two recent acquisitions by the Company (see Note 2 Acquisitions).
Treasury shares also are being used to fund the Company's stock benefit plan, in
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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 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 $106.1 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 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 Independence 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 recently 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 will receive 2.0700 shares of Company 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 will
receive $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 will receive the entire portion of their stock election in the
form of 2.0700 shares of Company common stock for each share of Statewide common
stock,
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plus cash in lieu of any fractional shares, and the cash portion of their
election at the rate of $25.14 per share of Statewide common stock. The
remaining shares of Statewide common stock for which valid elections were not
submitted have been 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 acquisition was accounted for as a purchase resulting in goodwill
of approximately $85 million, based upon the Company's most current estimates.
The goodwill is being amortized on a straight line basis over 15 years.
As a result of the acquisitions, the Company currently operates 65
banking offices located in the greater New York Metropolitan area, which
includes the five counties of New York City, Nassau County as well as the
Northern New Jersey counties of Essex, Union, Bergen, Hudson and Middlesex,
which was formerly served by Broad National and Statewide Bank.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Financial Statement Presentation
The accompanying financial statements were prepared in accordance with
instructions to Form 10-Q and therefore do not include all the information or
footnotes necessary for a complete presentation of financial condition, results
of operations and cash flows in conformity with generally accepted accounting
principles. All normal, recurring adjustments which, in the opinion of
management, are necessary for a fair presentation of the consolidated financial
statements have been included. The results of operations for the nine months
ended December 31, 1999 are not necessarily indicative of the results to be
expected for the year ending March 31, 2000. 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 to
Shareholders for the year ended March 31, 1999.
Business
The Company's principal business is conducted through the Bank which is
a traditional, full-service, community-oriented savings bank headquartered in
Brooklyn, New York. The Bank currently operates 65 banking offices located in
the greater New York Metropolitan area, which includes the five counties of New
York City, Nassau County and the Northern New Jersey counties of Essex, Union,
Bergen, Hudson and Middlesex. The Bank's deposits are insured by the Bank
Insurance Fund and the Savings Association Insurance Fund to the maximum extent
permitted by law. The Bank is subject to examination and regulation by the
Federal Deposit Insurance Corporation, which is the Bank's primary federal
regulator, and the New York State Banking Department, which is the Bank's
chartering authority and its primary state regulator. The Bank also is subject
to certain reserve requirements established by the Board of Governors of the
Federal Reserve System and is a member of the Federal Home Loan 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
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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 "RRP") shares are not considered to be outstanding for the
calculation of basic EPS. However, a portion of such shares are considered in
the calculation of diluted EPS as common stock equivalents of basic EPS. Basic
and diluted weighted-average common shares outstanding were 59,285,145 shares
for the quarter ended December 31, 1999 compared to 67,609,747 and 67,978,508
shares, respectively for the quarter ended December 31, 1998. For the nine
months ended December 31, 1999 basic and diluted weighted average common shares
outstanding were 58,768,928 shares compared to 69,544,260 and 69,675,626 shares,
respectively, for the nine months ended December 31, 1998.
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 unallocated shares
owned by the ESOP also are utilized to repay the debt. The collateral for the
loan is the shares of common stock of the Company purchased by the ESOP.
Shares held by the ESOP are held by an independent trustee for
allocation among participants as the loan is repaid. The number of shares
released annually is based upon the ratio that the current principal and
interest payments bears to the original principal and interest payments to be
made. ESOP participants will become 100% vested in the ESOP after three years of
service. Compensation expense related to the 70,411 shares committed to be
released during the third quarter of fiscal 2000 was $0.8 million and was $2.6
million with respect to the 211,233 shares committed to be released during the
nine months ended December 31, 1999. At December 31, 1999, 563,288 shares were
allocated to participant accounts.
1998 Recognition and Retention Plan
The 1998 Recognition and Retention Plan ("RRP") was implemented in
September 1998. The RRP may grant up to 4% of the common stock sold in the
Conversion, or 2,816,435 shares. The RRP provides that awards may be designated
as performance share awards, subject to the achievement of performance goals, or
non-performance share awards which are subject to time vesting requirements.
Certain key executive officers were granted performance based-shares. These
shares become payable only upon the achievement of certain annually-defined
corporate performance targets. During fiscal 1999, the RRP purchased all
2,816,435 shares in the open market. On September 25, 1998, (the "Anniversary
Date"), the Board of Directors issued grants covering 2,188,517 shares of stock
of which 844,931 were deemed performance based. During 1999, the Board of
Directors granted two non-performance share awards covering 25,363 shares. The
stock awards granted to date are generally payable over a five-year period at a
rate of 20% per year, beginning one year from the Anniversary Date. Subject to
certain exceptions, awards become 100% vested upon termination of employment due
to death, disability or retirement. Compensation expense is recognized over the
vesting period at the fair market value of the common stock on the date of grant
for non-performance share awards. The expense related to performance share
awards is recognized over the vesting period at the fair market value on the
measurement date. The Company recorded compensation expense of $1.4 million and
$4.3 million related to the RRP for the three and nine months ended December 31,
1999, respectively.
11
<PAGE> 12
1998 Stock Option Plan
The Option Plan was implemented in September 1998. The Option Plan may
grant options covering shares aggregating up to 10% of the common stock sold in
the conversion, or 7,041,088 shares, to officers, key employees and non-employee
directors of the Company. On September 25, 1998 (the "Option Anniversary Date"),
the Board of Directors issued options covering 6,101,608 shares of common stock
vesting over a five-year period at a rate of 20% per year, beginning one year
from the Option Anniversary Date. Subject to certain exceptions, options become
100% vested upon termination of employment due to death, disability or
retirement. The option exercise price of $13.3125 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 it vests and generally is
exercisable until the earlier of ten years after its date of grant or six months
after the date on which the optionee's employment terminates (three years after
termination of service in the case of non-employee directors), unless extended
by the Board of Directors to a period not to exceed five years from such
termination. The granting of these options did not affect the Company's results
of operations for the nine months ended December 31, 1999 or its statement of
condition at December 31, 1999.
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 December 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 151,580 $ -- $(15,607) $ 135,973
Municipals 3,682 -- (112) 3,570
---------- ------ -------- ----------
Total debt securities 155,262 -- (15,719) 139,543
---------- ------ -------- ----------
Equity securities:
Preferred 235,565 -- (93) 235,472
Common 23,367 2,197 (1,349) 24,215
---------- ------ -------- ----------
Total equity securities 258,932 2,197 (1,442) 259,687
---------- ------ -------- ----------
Total investment securities 414,194 2,197 (17,161) 399,230
---------- ------ -------- ----------
Mortgage-related securities:
FNMA pass through certificates 8,272 37 (70) 8,239
GNMA pass through certificates 37,396 722 (68) 38,050
FHLMC pass through
certificates 5,670 40 (76) 5,634
Collateralized mortgage
obligation bonds 783,336 1 (39,627) 743,710
---------- ------ -------- ----------
Total mortgage-related securities 834,674 800 (39,841) 795,633
---------- ------ -------- ----------
Total securities available-
for-sale $1,248,868 $2,997 $(57,002) $1,194,863
========== ====== ======== ==========
</TABLE>
The amortized cost and estimated fair value of securities available-for-sale at
March 31, 1999 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
VALUE GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Investment securities:
Debt securities:
U.S. government and agencies $ 268,524 $ 249 $ (4,550) $ 264,223
Municipals 699 -- -- 699
Corporate 78 -- -- 78
---------- ------- -------- ----------
Total debt securities 269,301 249 (4,550) 265,000
---------- ------- -------- ----------
Equity securities:
Preferred 15,000 -- -- 15,000
Common 47,457 6,995 (2,657) 51,795
---------- ------- -------- ----------
Total equity securities 62,457 6,995 (2,657) 66,795
---------- ------- -------- ----------
Total investment securities 331,758 7,244 (7,207) 331,795
---------- ------- -------- ----------
Mortgage-related securities:
FNMA pass through certificates 3,830 68 (23) 3,875
GNMA pass through certificates 46,981 1,991 (16) 48,956
FHLMC pass through
certificates 6,756 102 (38) 6,820
Collateralized mortgage
obligation bonds 1,136,655 1,188 (7,661) 1,130,182
---------- ------- -------- ----------
Total mortgage related
securities 1,194,222 3,349 (7,738) 1,189,833
---------- ------- -------- ----------
Total securities available-
for-sale $1,525,980 $10,593 $(14,945) $1,521,628
========== ======= ======== ==========
</TABLE>
13
<PAGE> 14
8. LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition of
the Company's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT MARCH 31, 1999
PERCENT PERCENT
OF OF
AMOUNT TOTAL AMOUNT TOTAL
---------- ------- ---------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
Single-family residential $ 504,720 11.4% $ 491,523 14.0%
Multi-family residential 2,608,303 59.1 2,195,879 62.6
Commercial and other
real estate 526,532 11.9 250,105 7.1
---------- ----- ---------- -----
Total principal balance of
mortgage loans 3,639,555 82.4 2,937,507 83.7
Less net deferred fees 9,434 0.2 10,529 0.3
---------- ----- ---------- -----
Total mortgage loans 3,630,121 82.2 2,926,978 83.4
----------
Other loans:
Cooperative apartment loans 478,260 10.8 458,165 13.1
Student loans 39,282 0.9 41,633 1.2
Home equity loans and lines 75,915 1.7 12,295 0.4
Commercial business loans 159,254 3.6 39,362 1.1
Consumer and other loans 33,749 0.8 28,382 0.8
---------- ----- ---------- -----
Total principal balance
other loans 786,460 17.8 579,837 16.6
Less unearned discounts and
deferred fees 1,098 0.0 334 0.0
---------- ----- ---------- -----
Total other loans 785,362 17.8 579,503 16.6
Total loans receivable 4,415,483 100.0% 3,506,481 100.0%
---------- ===== ---------- =====
Less allowance for loan losses 64,173 46,823
---------- ----------
Loans receivable, net $4,351,310 $3,459,658
========== ==========
</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 collectibility of
interest or principal.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1999 AT MARCH 31, 1999
-------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Non-accrual loans
Mortgage loans:
Single-family residential $ 2,405 $ 2,809
Multi-family residential 2,190 830
Commercial and other 3,544 2,687
Other loans:
Cooperative apartment loans 312 381
Consumer and commercial
business loans(1) 3,490 400
------- -------
Total non-accrual loans 11,941 7,107
------- -------
Loans past due 90 days or more as to:
Interest and accruing 2,010 1,197
Principal and accruing(2) 15,025 30,805
------- -------
Total past due loans and
accruing 17,035 32,002
------- -------
Total non-performing loans 28,976 39,109
------- -------
Other real estate owned, net(3) 103 273
------- -------
Total non-performing assets $29,079 $39,382
======= =======
Allowance for loan losses as a
percent of total loans 1.45% 1.34%
Allowance for loan losses as a
percent of non-performing loans 221.47% 119.72%
Non-performing loans as a percent of
total loans 0.66% 1.12%
Non-performing assets as a percent
of total assets 0.47% 0.71%
</TABLE>
(1) Consists primarily of commercial business loans and 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>
NINE MONTHS ENDED DECEMBER 31,
------------------------------
1999 1998
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Allowance at beginning of period $46,823 $36,347
------- -------
Allowance of acquired institution(1) 6,658 --
Provision:
Mortgage loans(2) 7,925 6,675
Consumer and commercial business loans 161 1,089
------- -------
Total provisions 8,086 7,764
------- -------
Charge-offs:
Mortgage loans(2) 41 162
Consumer and commercial business loans(3) 131 175
------- -------
Total charge-offs 172 337
------- -------
Recoveries:
Mortgage loans(2) 422 237
Consumer and commercial business loans(3) 2,356 129
------- -------
Total recoveries 2,778 366
------- -------
Net recoveries 2,606 29
------- -------
Allowance at end of period $64,173 $44,140
======= =======
Allowance for possible loan
losses as a percent of total loans 1.45% 1.34%
Allowance for possible loan
losses as a percent of total
non-performing loans(4) 221.47% 110.73%
</TABLE>
(1) Represents allowance for loan losses acquired in connection with the
acquisition of Broad effective July 31, 1999.
(2) Includes cooperative apartment loans.
(3) Includes student loans, home equity loans and lines of credit, automobile
loans, secured and unsecured personal loans, and commercial business loans.
(4) 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
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets, which principally consist of loans, mortgage-related
securities and investment securities, and interest expense on interest-bearing
liabilities, which consist of deposits and borrowings. The Company's results of
operations also are affected by the amount of the provision for loan losses,
resulting from management's assessment of the adequacy of the allowance for loan
losses, the level of its non-interest income, including service fees and related
income, gains and losses from the sales of loans and securities, and the level
of its non-interest expenses, including among other things compensation and
employee benefits, occupancy expense, data processing services, amortization of
goodwill 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 December 31, 1999 were $6.15 billion, an increase of
$616.5 million, from $5.54 billion at March 31, 1999. The increase resulted
primarily from the acquisition of Broad in July 1999 partially offset by the use
of the Company's assets to repurchase its stock in the open market. As of the
effective date of the acquisition Broad had total assets of approximately $646.3
million and total deposits of $584.8 million. At December 31, 1999, by
comparison to March 31, 1999, the Company had increases of $909.0 million in the
total loan portfolio, $96.7 million in intangible assets and $71.2 million in
other assets while its portfolio of securities available-for-sale decreased
$326.8 million and cash and cash equivalents decreased $129.3 million during the
same period.
17
<PAGE> 18
CASH, CERTIFICATES OF DEPOSIT, COMMERCIAL PAPER AND FEDERAL FUNDS SOLD
(COLLECTIVELY "CASH AND CASH EQUIVALENTS").
Cash and cash equivalents decreased from $279.9 million at March 31,
1999 to $150.6 million at December 31, 1999. The $129.3 million decrease was
principally due to decreases in Federal funds sold as a result of funding
mortgage loans (see "Loans, net" below) and purchases of Dutch Auction Preferred
Stock securities, which decrease was partially offset by the acquisition of cash
and cash equivalents from Broad.
SECURITIES AVAILABLE-FOR-SALE.
The aggregate securities available-for-sale portfolio (which includes
investment securities and mortgage-related securities) decreased $326.8 million
or 21.5% from $1.52 billion at March 31, 1999 to $1.19 billion at December 31,
1999. Total securities were reduced during the nine months in order to fund
mortgage originations (see "Loans, net" below), consisting primarily of
multi-family residential loans. As of December 31, 1999 and March 31, 1999, the
Company's investment securities totaled $399.2 million and $331.8 million,
respectively, all of which were classified as available for sale. The Company
acquired $70.8 million of investment securities due to the Broad acquisition.
The Company's mortgage-related securities, a portion of which at
December 31, 1999 consisted of collateralized mortgage obligations secured by
mortgage-backed securities issued by Fannie Mae ("FNMA") or Freddie Mac
("FHLMC"), decreased from $1.19 billion at March 31, 1999 to $795.6 million at
December 31, 1999. As a result of the Broad transaction, $5.9 million of
mortgage-related securities were acquired.
At December 31, 1999, the Company had a $30.7 million net unrealized
loss on available-for-sale investment and mortgage-related securities.
LOANS, NET.
Loans, net, increased by $891.7 million or 25.8% to $4.35 billion at
December 31, 1999 from $3.46 billion at March 31, 1999. The Company acquired
$362.3 million of loans, consisting primarily of commercial real estate and
commercial business loans, as a result of the Broad acquisition. During the
first nine months of fiscal 2000, the Company originated approximately $939.8
million of mortgage loans, compared to $902.8 million in the corresponding
period of last year. These mortgage loans, consisting primarily of multi-family
residential loans, were originated primarily for retention in the Company's loan
portfolio. The increased level of loan production is partially attributable to
the favorable refinance market existing during the earlier part of the year. The
Company's continued emphasis on multi-family residential mortgage loan
originations resulted in a net increase of $412.4 million, or 18.8%, in
multi-family loans from $2.20 billion at March 31, 1999 to $2.61 billion at
December 31, 1999. These loans currently comprise 59.1% of the loan portfolio
compared to 62.6% at March 31, 1999, the slight decrease being a reflection of
the growth in commercial real estate and commercial business loans due primarily
to the Broad acquisition.
NON-PERFORMING ASSETS.
The overall quality of the Company's assets remained strong with
non-performing assets as a percentage of total assets declining to 47 basis
points (0.47%) at December 31, 1999 compared to 71 basis points (0.71%) at March
31, 1999. At December 31, 1999, the Company's non-performing assets consisted of
18
<PAGE> 19
$11.9 million of non-accrual loans, $2.0 million of loans past due 90 days or
more as to interest and accruing, $15.0 million of loans past due 90 days or
more as to principal and accruing ($10.6 million of which were multi-family
loans and $3.9 million of which were commercial and other real estate loans) and
$103,000 of other real estate acquired through foreclosure or deed-in-lieu
thereof. Non-performing assets decreased by $10.3 million to $29.1 million at
December 31, 1999 from $39.4 million at March 31, 1999. This decrease was
primarily due to satisfactions totaling $15.8 million on loans which were 90
days or more past maturity which continued to make payments on a basis
consistent with the original repayment schedule. This decrease was partially
offset by a $4.8 million increase in non-accrual loans, primarily commercial
business loans.
ALLOWANCE FOR LOAN LOSSES.
The Company's allowance for loan losses amounted to $64.2 million at
December 31, 1999 as compared to $46.8 million at March 31, 1999. At December
31, 1999, the Company's allowance amounted to 1.45% of total loans and 221.4% of
total non-performing loans compared to 1.34% and 119.7% at March 31, 1999. . It
is management's policy to maintain an allowance for loan losses based upon total
loans outstanding, the volume of loan originations, the type, size and
geographic concentration of loans held by the Company, general economic
conditions, the level of past due and non-accrual loans and the number of loans
requiring heightened management oversight.
The Company's allowance for loan losses increased $17.4 million from
March 31, 1999 to December 31, 1999 due to $6.7 million acquired as a result of
the Broad acquisition, provisions of $8.1 million, and net recoveries of $2.8
million. The increase during the period was due to several factors, including
growth in the size of the Company's loan portfolio, the Company's continued
increased investment in multi-family residential and commercial real estate
loans, all of which were concentrated in the New York City metropolitan area
(including northern New Jersey), which loans as a general matter are considered
to involve a greater risk of loss than single-family residential loans, and the
continued increase in the number of larger multi-family residential and
individual cooperative apartment loans as compared to prior years. As a result
of the reduction in non-performing assets and continued strong asset quality
ratios, management reduced the provision for loan losses for the third quarter
ended December 31, 1999 compared to the same period in the prior year.
INTANGIBLE ASSETS.
The Company's intangible assets consist of goodwill and other
intangibles resulting primarily from (i)the acquisition of Broad and its wholly
owned subsidiary, Broad National, effective July 31, 1999, (ii)the acquisition
of Bay Ridge Bancorp, Inc. and its wholly owned subsidiary Bay Ridge Federal
Savings Bank (collectively, "Bay Ridge") in January 1996 and (iii)the completion
in fiscal 1996 of two branch purchase transactions (the "Branch Acquisitions").
At December 31, 1999, intangibles totaled $143.9 million and consisted of $103.1
million related to the acquisition of Broad, $18.5 million related to the
acquisition of Bay Ridge and $22.3 million related to the Branch Acquisitions.
The Company's intangible assets increased by $96.7 million to $143.9 million at
December 31, 1999 from $47.2 million at March 31, 1999 as a result of the Broad
acquisition offset partially by the amortization of the intangible assets during
the nine months ended December 31, 1999. Amortization of such intangibles will
continue to reduce net income until such intangible assets are fully amortized.
The Statewide transaction, which closed effective January 7, 2000, also will
increase intangible assets by approximately $85 million, based upon the
Company's most current estimates. The related amortization of intangibles will
directly impact fiscal 2000 earnings.
19
<PAGE> 20
DEPOSITS.
Deposits increased $463.9 million or 13.5% to $3.91 billion at December
31, 1999. The increase was due to $584.8 million of deposits acquired as a
result of the Broad acquisition, interest credited of $101.2 million partially
offset by deposit outflows totaling $222.1 million. The deposit outflows in the
nine months of the fiscal year were attributable to the run off at maturity of
certain higher costing municipal deposits previously offered by Broad National,
disintermediation resulting primarily from of customer transfers of funds to the
equities markets and, to a lesser extent, to other financial institutions
conducting deposit gathering campaigns by paying above market rates.
EQUITY.
At December 31, 1999, total stockholders' equity totaled $805.4
million, compared to $825.0 million at March 31, 1999. This $19.6 million
decrease was primarily due to a $94.4 million reduction in capital due to the
purchase of shares in connection with the Company's stock repurchase program, a
$9.1 million decrease for dividends paid and a net $28.4 million increase in the
unrealized loss on securities available for sale reflecting the effect of the
recent shift in interest rates. Such reductions were partially offset by $66.1
million of treasury shares reissued in connection with the Broad acquisition,
net income of $38.6 million, amortization of the earned portion of RRP grants of
$4.3 million and $2.7 million related to ESOP shares committed to be released
for the first nine months of fiscal 2000. Tangible book value per share was
$10.05 and the tangible equity to assets ratio was 11.01% at December 31, 1999.
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 of the Company from
interest-earning assets and the resultant average yields; (ii) the total dollar
amount of interest expense on interest-bearing liabilities and the resultant
average rate; (iii) net interest income; (iv) the interest rate spread; and (v)
the net interest margin. Information is based on average daily balances during
the indicated periods and is annualized where appropriate.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
---------------------------------------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
-------------------------------------- ------------------------------------
(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 $3,585,455 $ 66,362 7.40% $2,715,128 $51,227 7.55%
Other loans:
Cooperative apartment
loans 485,458 8,423 6.94 421,549 7,512 7.13
Consumer and commercial
business loans(2) 296,733 6,136 8.27 116,361 2,441 8.39
---------- ---------- ---------- -------
Total loans 4,367,646 80,921 7.41 3,253,038 61,180 7.52
Mortgage-related securities 849,700 13,704 6.45 465,128 7,477 6.43
Investment securities 367,795 4,953 5.39 875,993 12,574 5.74
Other interest-earning
assets(3) 202,948 2,587 5.10 380,326 4,719 4.96
---------- ---------- ---------- -------
Total interest-earning
assets 5,788,089 102,165 7.06 4,974,485 85,950 6.91
Non-interest-earning ---------- ---- ------- ----
assets 361,759 193,352
---------- ----------
Total assets $6,149,848 $5,167,837
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $1,005,181 4,190 1.65 $ 655,852 3,545 2.14
Savings deposits 1,070,305 5,684 2.11 955,707 5,880 2.44
Certificates of deposit 1,950,419 25,016 5.09 1,785,614 24,197 5.38
---------- ---------- ---------- -------
Total deposits 4,025,905 34,890 3.44 3,397,173 33,622 3.93
---------- ---------- ---------- -------
Cumulative trust
preferred securities(5) 11,500 273 9.50 -- -- .00
Total borrowings 1,181,621 16,194 5.44 716,603 9,862 5.46
---------- ---------- ---------- -------
Total interest-bearing
liabilities 5,219,026 51,357 3.90 4,113,776 43,484 4.19
---------- ---- ------- ----
Non-interest-bearing
liabilities 140,526 121,105
---------- ----------
Total liabilities 5,359,552 4,234,881
Total stockholders' equity 790,296 932,956
---------- ----------
Total liabilities and
equity $6,149,848 $5,167,837
========== ==========
Net interest-earning
assets $ 569,063 $ 860,709
========== ==========
Net interest income/interest
rate spread $ 50,808 3.16% $42,466 2.72%
========== ==== ======= ====
Net interest margin 3.54% 3.41%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.11 1.21
========== ==========
</TABLE>
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
-----------------------------------------------------------------------------------------
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------------------ -----------------------------------------------
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 $3,345,439 $185,206 7.38% $2,514,537 $ 144,665 7.67%
Other loans:
Cooperative apartment
loans 481,700 25,052 6.93 404,842 21,783 7.17
Consumer and commercial
business loans(2) 217,077 13,371 8.18 119,006 7,663 8.59
---------- -------- ---------- ----------
Total loans 4,044,216 223,629 7.37 3,038,385 174,111 7.64
Mortgage-related securities 948,442 44,880 6.31 302,122 14,994 6.62
Investment securities 324,047 13,064 5.38 884,645 37,158 5.60
Other interest-earning
assets(3) 269,400 10,029 4.96 503,064 20,784 5.51
---------- -------- ---------- ----------
Total interest-earning
assets 5,586,105 291,602 6.96 4,728,216 247,047 6.97
-------- ---- ---------- ----
Non-interest-earning
assets 289,926 202,261
---------- ----------
Total assets $5,876,031 $4,930,477
========== ==========
Interest-bearing liabilities:
Deposits:
Demand deposits(4) $ 893,450 11,739 1.74 $ 657,817 10,656 2.15
Savings deposits 1,031,556 17,064 2.20 972,666 18,770 2.56
Certificates of deposit 1,884,984 72,362 5.10 1,728,629 70,848 5.44
---------- -------- ---------- ----------
Total deposits 3,809,990 101,165 3.52 3,359,112 100,274 3.96
---------- -------- ---------- ----------
Cumulative trust
preferred securities(5) 6,398 455 9.50 -- -- .00
Total borrowings 1,140,583 46,533 5.41 504,042 21,180 5.58
---------- -------- ---------- ----------
Total interest-bearing
liabilities 4,956,971 148,153 3.97 3,863,154 121,454 4.17
-------- ---- ---------- ----
Non-interest-bearing
liabilities 107,519 118,265
---------- ----------
Total liabilities 5,064,490 3,981,419
Total stockholders' equity 811,541 949,058
---------- ----------
Total liabilities and
equity $5,876,031 $4,930,477
========== ==========
Net interest-earning
assets $ 629,134 $ 865,062
========== ==========
Net interest income/interest
rate spread $143,449 2.99% $ 125,593 2.80%
======== ==== ========== ====
Net interest margin 3.44% 3.54%
==== ====
Ratio of average interest-
earning assets to average
interest-bearing liabilities 1.13 1.22
========== ==========
</TABLE>
(1) The average balance of loans receivable includes non-performing loans,
interest on which is recognized on a cash basis.
(2) Includes home equity loans and lines of credit and improvement loans,
student loans, automobile loans, passbook loans, credit card loans,
personal loans and commercial business loans.
(3) Includes federal funds sold, interest-earning bank deposits, FHLB stock,
overnight commercial paper and certificates of deposit.
(4) Includes NOW, money market and checking accounts.
(5) Acquired in connection with the acquisition of Broad effective 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 DECEMBER 31, 1999 NINE MONTHS ENDED DECEMBER 31, 1999
COMPARED TO THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 1998
------------------------------------------------ -----------------------------------------------
(IN THOUSANDS)
Increase Increase
(Decrease) due to Total Net (Decrease) due to Total Net
----------------------- Increase ------------------------ Increase
Rate Volume (Decrease) Rate Volume (Decrease)
------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable:
Mortgage loans $ (969) $ 16,104 $ 15,135 $ (5,653) $ 46,194 $ 40,541
Co-operative apartment loans (205) 1,116 911 (750) 4,019 3,269
Consumer and commercial
business loans(1) (36) 3,731 3,695 (379) 6,087 5,708
------- -------- -------- -------- -------- --------
Total loans receivable (1,210) 20,951 19,741 (6,782) 56,300 49,518
Mortgage-related securities 22 6,205 6,227 (735) 30,621 29,886
Investment securities (742) (6,879) (7,621) (65) (24,029) (24,094)
Other interest-earning assets 121 (2,253) (2,132) (1,902) (8,853) (10,755)
------- -------- -------- -------- -------- --------
Total net change in income on
interest-earning assets (1,809) 18,024 16,215 (9,484) 54,039 44,555
Interest-bearing liabilities:
Deposits:
Demand deposits (930) 1,575 645 (2,276) 3,359 1,083
Savings deposits (845) 649 (196) (2,803) 1,097 (1,706)
Certificates of deposit (1,332) 2,151 819 (4,618) 6,132 1,514
------- -------- -------- -------- -------- --------
Total deposits (3,107) 4,375 1,268 (9,697) 10,588 891
Cumulative trust preferred
securities -- 273 273 -- 455 455
Borrowings (36) 6,368 6,332 (627) 25,980 25,353
------- -------- -------- -------- -------- --------
Total net change in expense on
interest-bearing liabilities (3,143) 11,016 7,873 (10,324) 37,023 26,699
------- -------- -------- -------- -------- --------
Net change in net interest
income $(1,334) $ 7,008 $ 8,342 $ 840 $ 17,016 $ 17,856
======= ======== ======== ======== ======== ========
</TABLE>
(1) Includes home equity loans and lines of credit and improvement loans,
student loans, automobile loans, passbook loans, personal loans.
22
<PAGE> 23
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
AND 1998
GENERAL.
The Company reported a 35.2% increase in diluted earnings per share to
$0.23 for the quarter ended December 31, 1999 compared to $0.17 for the quarter
ended December 31, 1998. Net income increased 18.3% to $13.6 million for the
quarter ended December 31, 1999 compared to $11.5 million for the quarter ended
December 31, 1998.
Cash earnings (which include net income adjusted for the amortization
of intangibles and certain charges related to the Company's stock related
benefit plans, net of tax) for the third quarter of fiscal year 2000 increased
24.0% to $18.9 million and increased 45.5% per diluted share to $0.32 compared
to the same period in the prior fiscal year. Management believes the reporting
of cash earnings along with traditional earnings calculated in accordance with
generally accepted accounting principles provides a more complete picture of the
Company's operating performance.
NET INTEREST INCOME.
Net interest income increased by $8.3 million or 19.6% to $50.8 million
for the three months ended December 31, 1999 as compared to $42.5 million for
the three months ended December 31, 1998. The increase was due to a $16.2
million increase in interest income offset in part by a $7.9 million increase in
interest expense. The growth in net interest income reflects primarily the
$813.6 million increase in average interest-earning assets during the three
months ended December 31, 1999 as compared to the same period in the prior year.
This increase was primarily attributable to the combination of the assets
acquired in connection with the acquisition of Broad in the second quarter of
fiscal 2000 and, to a lesser extent, the implementation of the Company's
leveraging strategy initiated in fiscal 1999. The Company's leveraging strategy
was initiated to support asset growth, primarily mortgage-related securities and
multi-family loans, with FHLB advances as its primary funding source.
The Company's net interest margin was 3.54% and 3.41% for the three
months ended December 31, 1999 and 1998, respectively. The 13 basis point
increase in net interest margin for the 1999 period is primarily the result of
the effect of the acquisition of Broad's higher yielding commercial loan
portfolio and the associated lower cost commercial deposit base.
The increase in interest income was primarily due to a $813.6 million
increase in the average balance of the Company's interest-earning assets
combined with a 15 basis point increase in the weighted average yield earned
thereon from 6.91% to 7.06% for the three months ended December 31, 1998 and
1999, respectively. The increase in the average balance was primarily
attributable to the combination of the assets acquired in connection with the
acquisition of Broad in the second quarter of fiscal 2000 and, to a lesser
extent, the implementation of the Company's leveraging strategy initiated in
fiscal 1999. Interest income on loans increased $19.7 million due to a $1.11
billion increase in the average balance of loans partially offset by an 11 basis
point decline in the yield earned on loans from 7.52% for the three-month fiscal
1999 period to 7.41% for the three-month fiscal 2000 period. Income on
investment securities decreased $7.6 million due to a $508.2 million decrease in
the average balance of investment securities along with a 35 basis point decline
in the yield earned for the quarter ended
23
<PAGE> 24
December 31, 1999 compared to the quarter ended December 31, 1998. Interest
income on mortgage-related securities increased $6.2 million during the third
quarter of fiscal 2000 compared to the same period in fiscal 1999 as a result of
a $384.6 million increase in the average balance of these securities combined
with a 2 basis point increase in the yield earned. In conjunction with its
leveraging strategy, the Company reallocated its assets from investment
securities to higher yielding mortgage-related securities. Income on other
interest-earning assets (consisting primarily of interest on federal funds and
dividends on FHLB stock in the current period) decreased $2.1 million in the
current quarter compared to the prior year quarter due to a decrease of $1.9
million of interest income earned from securities lending activities and $1.4
million in interest on federal funds and overnight deposits which was partially
offset by an increase of $0.6 million in dividends on FHLB stock.
Interest expense increased $7.9 million to $51.4 million or 18.1% for
the three months ended December 31, 1999 as compared to the three months ended
December 31, 1998. The increased FHLB borrowings associated with the
implementation of the Company's leveraging strategy resulted in additional
interest expense of $8.3 million. The increase was partially offset by a $1.9
million decrease in interest paid on borrowings related to securities lending
activities. The $628.7 million increase in the average balance of deposits
increased interest paid on deposits by $1.3 million which was partially offset
by a 49 basis point decline in the average rate paid on deposits to 3.44% for
the quarter ended December 31, 1999 compared to 3.93% for the quarter ended
December 31, 1998 reflecting the acquisition of Broad's lower cost commercial
deposit base and declines in market rates of interest.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses decreased from $3.1 million for
the three months ended December 31, 1998 to $2.5 million for the three months
ended December 31, 1999. The Company continues to provide for loan losses due to
its ongoing and increasing investment in multi-family residential and commercial
real estate loans, which, while not delinquent, may be subject to greater risk
of loss. The decrease in the provision for the quarter is based on the continued
strength of the Company's asset quality with non-performing assets as a
percentage of total assets declining to 47 basis points at December 31, 1999
compared to 71 basis points at March 31, 1999.
NON-INTEREST INCOME.
Non-interest income increased $2.5 million to $5.2 million for the
three months ended December 31, 1999 compared to $2.7 million for the three
months ended December 31, 1998. Service fee income increased $2.3 million
primarily as a result of fee income generated by the Broad branch network,
increased fees on sales of annuities and mutual funds and an increase in banking
service and ATM fees. The Company recognized a net gain of $0.1 million on the
sale of approximately $52.1 million of securities which were sold to fund
mortgage originations. Other non-interest income increased $0.1 million as a
result of $0.6 million income from the Company's investment in a mortgage
brokerage company partially offset by lower mortgage prepayment fees of $0.5
million associated with the decline in refinancing of mortgage loans.
24
<PAGE> 25
NON-INTEREST EXPENSES.
Non-interest expense amounted to $31.0 million for the quarter ended
December 31, 1999 compared to $25.1 million for the quarter ended December 31,
1998. The $5.9 million growth in expenses was primarily attributable to
increases in personnel costs of $3.3 million, amortization of intangibles of
$1.8 million, occupancy costs of $0.9 million and other non-interest expenses of
$0.8 million. These increases were offset by a $1.3 million decrease in data
processing service expense.
Compensation and employee benefits expense increased $3.3 million or
33.1% to $13.4 million for the three months ended December 31, 1999 as compared
to the same period in the prior year. The increase is primarily the result of
staff additions related to Broad and normal merit salary increases totaling $2.4
million.
Occupancy costs increased $0.9 million to $4.4 million during the three
months ended December 31, 1999 as compared to the three months ended December
31, 1998. The increase is primarily the result of the expansion of operations
resulting from the acquisition of Broad in the second quarter of fiscal 2000.
Data processing service expenses decreased by $1.3 million or 42.1% to
$1.8 million during the three months ended December 31, 1999 as compared to the
three months ended December 31, 1998. During the 1998 period, the Company was
involved in the third phase of its data processing conversion which was
completed during the fourth quarter of fiscal 1999. Accordingly, the Company's
data processing costs have substantially declined.
Amortization of intangibles increased $1.8 million or 83.7% to $4.0
million for the quarter ended December 31, 1999 as compared to $2.2 million for
the quarter ended December 31, 1998. The increase is primarily due to
approximately $106.1 million of goodwill associated with the Broad acquisition
which is being amortized over 15 years.
Other non-interest expenses increased $0.8 million for the three months
ended December 31, 1999 compared to the same period in the prior year primarily
due to additional expenses associated with the expansion of operations resulting
from the acquisition of Broad National. These expenses also include items such
as equipment expenses, office supplies, postage, telephone expenses and
maintenance and security.
INCOME TAXES.
Income tax expense amounted to $8.9 million and $5.5 million for the
three months ended December 31, 1999 and 1998, respectively. The increase
experienced in the fiscal 2000 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 December 31, 1999 to 39.5%
compared to 32.5% for the three months ended December 31, 1998.
As of December 31, 1999, the Company had a net deferred tax asset of
$83.3 million. No valuation allowance was deemed necessary with respect to such
asset.
25
<PAGE> 26
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED DECEMBER 31, 1999
AND 1998
GENERAL.
The Company reported a 40% increase in diluted earnings per share to
$0.66 for the nine months ended December 31, 1999 compared to $0.47 for the nine
months ended December 31, 1998. Net income for the nine months ended December
31, 1999 increased $5.7 million, or 17.3%, to $38.6 million, compared to the
nine months ended December 31, 1998.
Cash earnings for the nine months ended December 31, 1999 increased
23.5% to $52.3 million compared to $42.4 million for the same period in the
prior year. Cash earnings per diluted share increased 45.9% to $0.89 as compared
to $0.61 for the nine months ended December 31, 1998.
The $5.7 million increase in net income during the nine months ended
December 31, 1999 compared to the same period in the prior year was primarily
due to increases of $17.9 million in net interest income and $4.0 million in
non-interest income. These increases were partially offset by a $11.0 million
increase in non-interest expense, a $4.9 million increase in the provision for
income taxes and a $0.3 million increase in provision for loan losses.
NET INTEREST INCOME.
Net interest income increased by $17.9 million or 14.2% to $143.4
million for the nine months ended December 31, 1999 as compared to the same
period in 1998. The increase was due to a $44.6 million increase in interest
income offset in part by a $26.7 million increase in interest expense. The
growth in net interest income reflects primarily the $857.9 million increase in
average interest-earning assets which is primarily attributable to the
implementation of the Company's leveraging strategy in the third quarter of
fiscal 1999 and to a lesser extent the assets acquired in connection with the
July 31, 1999 acquisition of Broad. Such growth was partially offset by a lower
interest rate environment resulting from the flattening of the yield curve as
well as interest rate compression associated with the leveraging of the balance
sheet.
The Company's net interest margin was 3.44% and 3.54% for the nine
months ended December 31, 1999 and 1998, respectively. The 10 basis point
decrease in net interest margin for the 1999 period is primarily the result of
the implementation of the Company's leveraging strategy during the third quarter
of fiscal 1999 under which the increased investment in mortgage-related
securities was funded with FHLB advances which bear interest generally at higher
rates than deposits, thus increasing the Company's cost of funds. Also
contributing to the interest margin compression were the generally lower yields
on loans originated during the 1999 periods combined with the downward repricing
of adjustable-rate mortgages. The decline also reflected the Company's use of
$190.4 million of its earning assets to fund its stock repurchase program. This
decline was partially offset by a reduction in the overall cost of deposits.
The increase in interest income was primarily due to a $857.9 million
increase in the average balance of the Company's interest-earning assets, offset
in part by a decline in the weighted average yield earned thereon from 6.97% to
6.96%. Interest income on loans increased $49.5 million due to a $1.01 billion
increase in the average balance of loans partially offset by a 27 basis point
decline in the yield earned on loans from 7.64% for the fiscal 1999 period to
7.37% for the fiscal 2000 period. The decline in yield is attributable to the
26
<PAGE> 27
effects of originations at the lower interest rates existing throughout much of
the 1999 period combined with the repricing downward of some of the Company's
adjustable-rate loans. Income on investment securities decreased $24.1 million
due to a $560.6 million decrease in the average balance of investment securities
along with a decline in the yield earned from 5.60% for the nine months ended
December 31, 1998 to 5.38% for the nine months ended December 31, 1999. Interest
income on mortgage-related securities increased $29.9 million during the first
nine months of fiscal 2000 compared to the same period in fiscal 1999 as a
result of a $646.3 million increase in the average balance of these securities
which was partially offset by a 31 basis point decline in the yield earned. In
conjunction with its leveraging strategy, the Company reallocated its assets
from investment securities to higher yielding mortgage-related securities.
Income on other interest-earning assets (consisting primarily of interest on
federal funds and dividends on FHLB stock) decreased $10.8 million in the 1999
period compared to the nine months ended December 31, 1998 primarily due to a
decrease of $10.4 million of interest income earned from securities lending
activities in the 1998 period along with a $2.0 million decrease in interest on
federal funds and overnight deposits. Partially offsetting these decreases was a
$1.7 million increase in dividends on FHLB stock.
Interest expense increased $26.7 million or 22.0% for the nine months
ended December 31, 1999 as compared to the nine months ended December 31, 1998.
The increased FHLB borrowings associated with the implementation of the
Company's leveraging strategy resulted in additional interest expense of $35.5
million which was partially offset by a $10.2 million decrease in interest paid
on borrowings related to securities lending activities. Interest paid on
deposits increased by $0.9 million due to the $450.9 million increase in the
average balance of deposits, primarily as a result of the acquisition of Broad
National. This was partially offset by a 44 basis point decline in the average
rate paid on deposits to 3.52% for the nine months ended December 31, 1999
compared to 3.96% for the nine months ended December 31, 1998 reflecting the
acquisition of Broad's lower cost commercial deposit base combined with
decreases in market rates of interest.
PROVISION FOR LOAN LOSSES.
The Company's provision for loan losses increased by $0.3 million or
4.1% to $8.1 million as compared to $7.8 million for the same period in the
prior year. The Company continues to provide for loan losses due to its ongoing
and increasing investment in multi-family residential and commercial real estate
loans, which while not delinquent may be subject to greater risk of loss than
single-family owner occupied residential loans. As a result of the reduction in
non-performing assets and continued strong asset quality ratios, management
reduced the provision for loan losses for the third quarter ended December 31,
1999 compared to the same period in the prior year.
NON-INTEREST INCOME.
For the nine months ended December 31, 1999 non-interest income
increased $4.0 million or 49.7% from $8.1 million for the nine months ended
December 31, 1998 to $12.1 million for the nine months ended December 31, 1999.
The increase was primarily due to a $5.5 million increase in service fee income
primarily as a result of fee income generated by the Broad National branch
network, increased fees on sales of annuities and mutual funds and an increase
in banking service and ATM fees. Other non-interest income increased $0.3
million primarily as a result of $0.6 million income from the Company's
investment in a mortgage brokerage company which was partially offset by lower
mortgage prepayment fees. The
27
<PAGE> 28
increase was partially offset by a $1.8 million net loss on the sale of
approximately $485.8 million of securities, consisting primarily of
collateralized mortgage obligation bonds, which were sold primarily to fund
mortgage loan originations and the Company's stock repurchase program.
NON-INTEREST EXPENSES.
Non-interest expense increased by $11.0 million, or 14.9%, to $84.8
million for the nine months ended December 31, 1999. The increase in expenses
was attributable to increases in personnel costs of $7.6 million, amortization
of intangibles of $3.0 million, other non-interest expenses of $1.8 million,
occupancy expense of $0.9 million, and advertising expense of $0.8 million.
These increases were partially offset by a decrease in data processing service
expenses of $3.1 million.
Compensation and employee benefits expense increased $7.6 million, or
26.3%, to $36.7 million for the nine months ended December 31, 1999 as compared
to the same period in the prior year. The increase is primarily the result of a
$2.8 million increase in expense due to the implementation of the Company's RRP
during the later part of the third quarter of fiscal 1999, $4.0 million of staff
additions primarily relating to the Broad acquisition as well as normal merit
salary increases.
Occupancy costs increased $0.9 million to $11.5 million during the nine
months ended December 31, 1999 as compared to the same period in the prior year.
The increase is primarily the result of the expansion of operations resulting
from the acquisition of Broad in the second quarter of fiscal 2000.
Data processing service expenses decreased $3.1 million, or 33.2%, to
$6.2 million during the nine months ended December 31, 1999, respectively as
compared to the nine months ended December 31, 1998. During the 1998 period the
Company was involved in the third phase of its data processing conversion. Such
third phase was completed during the fourth quarter of fiscal 1999. Accordingly,
the Company's data processing costs have substantially declined.
For the nine months ended December 31, 1999 advertising expense
amounted to $4.2 million as compared to $3.5 million for the nine months ended
December 31, 1998. The increase reflects the Company's focus on brand awareness
through, in part, increased advertising in print media and radio.
Amortization of intangibles increased 46.3% to $9.5 million for the
nine months ended December 31, 1999 compared to $6.5 million for the same period
in the prior year. The increase is primarily due to $106.1 million goodwill
recognized as a result of the Broad acquisition which is being amortized over 15
years.
Other non-interest expenses increased $1.8 million for the nine months
ended December 31, 1999 as compared to the nine months ended December 31, 1998
primarily due to additional expenses associated with the expansion of operations
resulting from the acquisition of Broad National. These expenses included items
such as equipment expenses, office supplies, postage, telephone expenses,
maintenance and security.
INCOME TAXES.
Income tax expense amounted to $24.1 million and $19.3 million during
the nine months ended December 31, 1999 and 1998, respectively. The increase
28
<PAGE> 29
experienced in the fiscal 2000 period reflected in part the increase in the
Company's income before income taxes. In addition, the Company's effective tax
rate for the nine months ended December 31, 1999 was 38.4% compared to 36.9% for
the nine months ended December 31, 1998.
REGULATORY CAPITAL REQUIREMENTS
The following table sets forth the Bank's compliance with applicable
regulatory capital requirements at December 31, 1999.
<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% $240,237 8.8% $526,718 4.8% $286,481
Risk-based capital
ratios: (2)
Tier I 4.0 184,721 11.4 526,718 7.4 341,997
Total 8.0 369,441 12.7 584,523 4.7 215,081
</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
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 which provide liquidity to meet lending
requirements. Historically the Company has been able to generate sufficient cash
through its deposits and has only utilized borrowings, consisting primarily of
advances from the FHLB, to a limited degree as a source of funds during the past
five years. However, due to the increased demand for mortgage loans during
fiscal 1999 and as part of the Company's leveraging strategy, the Company
increased its FHLB advances which totaled $1.27 billion at December 31, 1999.
Liquidity management is both a daily and long-term function of business
management. Excess liquidity is generally invested in short-term investments
such as federal funds sold or Dutch Auction Preferred Stock securities. On a
longer term basis, the Company maintains a strategy of investing in various
lending products. The Company uses its sources of funds primarily to meet its
ongoing commitments, to pay maturing certificates of deposit and savings
withdrawals, fund loan commitments and maintain a portfolio of mortgage-related
securities and debt
29
<PAGE> 30
and equity securities. At December 31, 1999, there were outstanding commitments
and unused lines of credit by the Company to originate or acquire mortgage loans
and other loans aggregating $62.4 million and $115.7 million, respectively,
consisting primarily of fixed and adjustable-rate residential loans and
fixed-rate commercial real estate loans that are expected to close during the
twelve months ended December 31, 2000. Certificates of deposit scheduled to
mature in one year or less at December 31, 1999 totaled $1.51 billion. Based on
historical experience, management believes that a significant portion of
maturing deposits will remain with the Company. The Company anticipates that it
will continue to have sufficient funds, together with borrowings, to meet its
current commitments.
THE YEAR 2000 ISSUE
Year 2000 issues result from the inability of many computer programs or
computerized equipment to accurately calculate, store or use data for the year
2000 or later. These potential shortcomings could result in a system failure or
miscalculations causing disruptions of operation, including among other things,
a temporary inability to process transactions, track important customer
information, provide convenient access to this information, or engage in normal
business operations. While lingering concern exists about certain dates during
Year 2000, the most significant date, January 1, 2000, has passed without
incident. As a result of its diligent efforts, the Company is pleased to report
no interruptions of business or financial losses resulting from Year 2000
Issues.
Please be advised that this portion of this Quarterly Report is
designated as a Year 2000 Readiness Disclosure pursuant to the Year 2000
Information and Readiness Disclosure Act (Public Law 105-271, October 19, 1998).
It is intended for informational purposes only and is not intended to be a
representation or warranty.
30
<PAGE> 31
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, 1999, which was filed with the Securities and Exchange
Commission on June 28, 1999.
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 the present value of expected cash flows from assets,
liabilities and off-balance sheet contracts. 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 December 31, 1999.
<TABLE>
<CAPTION>
NPV AS % OF
CHANGE (IN BASIS POINTS) PORTFOLIO
IN INTEREST RATES NET PORTFOLIO VALUE VALUE OF ASSETS
---------------------------
NPV CHANGE IN
AMOUNT $ CHANGE % CHANGE RATIO NPV RATIO
--------- -------- -------- ----- ----------
<S> <C> <C> <C> <C> <C>
+300 532,971 (325,949) (38.30)% 9.64% (4.32)%
+200 632,393 (226,527) (26.37) 11.05 (2.91)
+100 746,126 (112,794) (13.13) 12.57 (1.39)
0 858,920 -- -- 13.96 --
- -100 973,364 114,444 11.76 15.29 1.32
- -200 1,102,924 244,004 28.41 16.77 2.80
- -300 1,274,081 415,161 48.34 18.71 4.75
</TABLE>
As of December 31, 1999, the Company's NPV was $858.9 million, or
13.96% of the market value of assets. Following a 200 basis point increase in
interest rates, the Company's "post shock" NPV was $632.4 million, or 11.05% of
the market value of assets. The change in the NPV ratio or the Company's
Sensitivity Measure was negative 2.91%.
As of September 30, 1999, the Company's NPV was $1.01 billion, or
16.44% of the market value of assets. Following a 200 basis point increase in
interest rates, the Company's "post shock" NPV was $754.8 million, or 13.26% of
the market value of assets. The change in the NPV ratio or the Company's
Sensitivity Measure was negative 3.18%.
31
<PAGE> 32
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
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Not applicable
b) Reports on Form 8-K
Not applicable
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
INDEPENDENCE COMMUNITY BANK CORP.
Date: February 11, 2000 By:/s/ Charles J. Hamm
------------------ ----------------------------------
Charles J. Hamm
Chairman, President and
Chief Executive Officer
Date: February 11, 2000 By:/s/ John B. Zurell
------------------ ----------------------------------
John B. Zurell
Executive Vice President and
Chief Financial Officer
33
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