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 MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-13094
DIME BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3197414
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
589 FIFTH AVENUE, NEW YORK, NEW YORK 10017
(Address of principal executive offices) (Zip Code)
(212) 326-6170 NOT APPLICABLE
(Registrant's telephone number, (Former name, former address
including area code) and former fiscal year, if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.01 par value 105,202,974
- ----------------------------- ---------------------------------------
Class Outstanding shares as of April 30, 1997
DIME BANCORP, INC.
March 31, 1997
Form 10-Q
Index
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial
Condition as of March 31, 1997 and
December 31, 1996 3
Consolidated Statements of Income for the
three months ended March 31, 1997
and 1996 4
Consolidated Statement of Changes in
Stockholders' Equity for the three
months ended March 31, 1997 5
Consolidated Statements of Cash Flows for
the three months ended March 31, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Part II. Other Information
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
Signatures 31
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In thousands, except share data)
(Unaudited)
March 31, December 31,
1997 1996
- --------------------------------------------------------------------
ASSETS
Cash and due from banks $ 142,433 $ 158,753
Money market investments 18,838 25,764
Loans held for sale 123,563 115,325
Securities available for sale 2,283,937 2,589,572
Securities held to maturity (estimated
fair value of $4,045,250 and $4,279,937
at March 31, 1997 and December 31,
1996, respectively) 4,141,955 4,363,971
Federal Home Loan Bank of New York stock 266,244 266,244
Loans receivable, net:
Residential real estate 8,208,621 8,074,905
Commercial and multifamily real estate 1,903,636 1,885,733
Consumer 731,273 734,281
Business 47,055 43,138
Allowance for loan losses (103,223) (106,495)
- --------------------------------------------------------------------
Total loans receivable, net 10,787,362 10,631,562
- --------------------------------------------------------------------
Other real estate owned, net 47,797 53,255
Accrued interest receivable 105,270 106,041
Premises and equipment, net 103,608 103,541
Mortgage servicing assets 124,871 127,745
Deferred tax asset, net 173,525 183,672
Other assets 145,383 144,663
- --------------------------------------------------------------------
Total assets $18,464,786 $18,870,108
====================================================================
LIABILITIES
Deposits $12,849,906 $12,856,739
Securities sold under agreements to
repurchase 3,494,448 3,550,234
Federal Home Loan Bank of New York
advances 560,101 925,139
Senior notes 197,638 197,584
Other borrowed funds 142,779 142,234
Other liabilities 166,210 175,841
- --------------------------------------------------------------------
Total liabilities 17,411,082 17,847,771
- --------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share
(200,000,000 shares authorized;
108,262,216 shares issued at March 31,
1997 and December 31, 1996) 1,083 1,083
Additional paid-in capital 914,386 914,386
Retained earnings 189,870 158,956
Treasury stock, at cost (3,002,871
shares at March 31, 1997 and 3,518,297
shares at December 31, 1996) (44,632) (51,498)
Net unrealized (loss) gain on
securities available for sale, net
of taxes (6,222) 22
Unearned compensation (781) (612)
- --------------------------------------------------------------------
Total stockholders' equity 1,053,704 1,022,337
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $18,464,786 $18,870,108
====================================================================
See accompanying notes to the consolidated financial statements.
3
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
March 31,
------------------
1997 1996
- ------------------------------------------------------------
INTEREST INCOME
Residential real estate loans $147,104 $133,573
Commercial and multifamily real estate
loans 39,834 40,037
Consumer loans 15,731 16,616
Business loans 971 737
Mortgage-backed securities 107,651 137,370
Other securities 5,555 8,420
Money market investments 8,025 6,775
- ------------------------------------------------------------
Total interest income 324,871 343,528
- ------------------------------------------------------------
INTEREST EXPENSE
Deposits 133,175 132,797
Borrowed funds 74,423 96,396
- ------------------------------------------------------------
Total interest expense 207,598 229,193
- ------------------------------------------------------------
Net interest income 117,273 114,335
Provision for loan losses 10,000 10,500
- ------------------------------------------------------------
Net interest income after provision for
loan losses 107,273 103,835
- ------------------------------------------------------------
NON-INTEREST INCOME
Loan servicing fees, net 9,917 9,894
Banking service fees 6,768 6,706
Securities and insurance brokerage fees 6,051 4,674
Net gains on sales activities 2,083 461
Other 2,786 1,833
- ------------------------------------------------------------
Total non-interest income 27,605 23,568
- ------------------------------------------------------------
NON-INTEREST EXPENSE
General and administrative expense:
Compensation and employee benefits 34,741 33,976
Occupancy and equipment, net 13,335 12,775
Other 24,305 23,443
- ------------------------------------------------------------
Total general and administrative expense 72,381 70,194
Other real estate owned expense, net 3,052 2,493
Amortization of mortgage servicing
assets 5,202 5,425
Restructuring and merger-related expense -- 3,504
- ------------------------------------------------------------
Total non-interest expense 80,635 81,616
- ------------------------------------------------------------
Income before income tax expense 54,243 45,787
Income tax expense 21,327 18,732
- ------------------------------------------------------------
Net income $ 32,916 $ 27,055
============================================================
Primary and fully diluted earnings per
common share $0.31 $0.25
============================================================
Primary average common shares
outstanding 106,652 110,020
Fully diluted average common shares
outstanding 106,663 110,196
============================================================
See accompanying notes to the consolidated financial statements.
4
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
Three Months
Ended
March 31, 1997
- --------------------------------------------------------
COMMON STOCK
Balance at beginning of period $ 1,083
- --------------------------------------------------------
Balance at end of period 1,083
- --------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL
Balance at beginning of period 914,386
- --------------------------------------------------------
Balance at end of period 914,386
- --------------------------------------------------------
RETAINED EARNINGS
Balance at beginning of period 158,956
Net income 32,916
Treasury stock issued under employee
benefit plans (2,002)
- --------------------------------------------------------
Balance at end of period 189,870
- --------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of period (51,498)
Treasury stock issued under employee
benefit plans 6,866
- --------------------------------------------------------
Balance at end of period (44,632)
- --------------------------------------------------------
NET UNREALIZED (LOSS) GAIN ON SECURITIES
AVAILABLE FOR SALE, NET OF TAXES
Balance at beginning of period 22
Net change in estimated fair value of
securities available for sale, net
of taxes (6,244)
- --------------------------------------------------------
Balance at end of period (6,222)
- --------------------------------------------------------
UNEARNED COMPENSATION
Balance at beginning of period (612)
Restricted stock activity (262)
Unearned compensation amortized to
expense 93
- --------------------------------------------------------
Balance at end of period (781)
- --------------------------------------------------------
Total stockholders' equity $1,053,704
========================================================
See accompanying notes to the consolidated financial statements.
5
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
-----------------------
1997 1996
- -----------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 32,916 $ 27,055
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Provision for loan and other real
estate owned losses 11,281 11,390
Depreciation and amortization of
premises and equipment 4,198 3,815
Other amortization and accretion,
net 13,871 15,371
Provision for deferred income tax
expense 14,788 13,982
Net gains on sales and calls of
securities (2,009) (672)
Net increase in loans held for sale (8,238) (83,548)
Other, net 6,030 (7,724)
- -----------------------------------------------------------------
Net cash provided (used) by operating
activities 72,837 (20,331)
- -----------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loans receivable originated and
purchased (597,586) (563,365)
Principal payments received on loans
receivable 428,649 377,429
Purchases of securities available for
sale -- (540,962)
Purchases of securities held to maturity (25) --
Proceeds from sales of securities
available for sale 167,758 1,007,125
Proceeds from maturities of securities
available for sale and held to maturity 347,123 608,525
Repurchases of assets sold with recourse (4,253) (5,873)
Proceeds from sales of other real
estate owned 13,924 10,194
Other, net (28,674) (13,350)
- -----------------------------------------------------------------
Net cash provided by investing
activities 326,916 879,723
- -----------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net (decrease) increase in deposits (6,833) 92,112
Net decrease in borrowings with
original maturities of three months
or less (160,786) (1,134,985)
Proceeds from other borrowings -- 250,000
Repayment of other borrowings (259,945) (105,346)
Proceeds from issuance of common and
treasury stock 4,565 971
Purchases of treasury stock -- (11,560)
- -----------------------------------------------------------------
Net cash used by financing activities (422,999) (908,808)
- -----------------------------------------------------------------
Net decrease in cash and cash
equivalents (23,246) (49,416)
Cash and cash equivalents at beginning
of period 184,517 235,356
- -----------------------------------------------------------------
Cash and cash equivalents at end of
period $ 161,271 $ 185,940
=================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits and borrowed
funds $ 201,494 $ 234,758
Net income tax refunds 1,502 11,369
SUPPLEMENTAL NON-CASH FLOW INFORMATION
Loans receivable transferred to other
real estate owned $ 8,393 $ 13,504
=================================================================
See accompanying notes to the consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Dime Bancorp, Inc. (the "Holding Company") and The Dime Savings Bank
of New York, FSB (the "Bank") and its subsidiaries (together with the Holding
Company, the "Company"). All significant intercompany balances and transactions
have been eliminated in consolidation.
In the opinion of management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting only of normal
recurring accruals) necessary for a fair presentation of the Company's financial
condition as of the dates indicated and results of operations and cash flows for
the periods shown. The unaudited consolidated financial statements presented
herein should be read in conjunction with the consolidated financial statements
and notes thereto included in the Holding Company's Annual Report on Form 10-K
for the year ended December 31, 1996. Certain amounts in the prior period
consolidated financial statements have been reclassified to conform with the
presentation for the current period. In preparing the consolidated financial
statements, management is required to make estimates and assumptions that affect
the reported amounts. Actual results could differ from those estimates. The
results for the three months ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1997.
NOTE 2 -- RECENT ACCOUNTING DEVELOPMENTS
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities
The Company, as of January 1, 1997, adopted the portions of Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" ("SFAS 125"), that
became effective as of that date. Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement
No. 125," had amended SFAS 125 to delay, until January 1, 1998, the effective
date of certain provisions of SFAS 125 relating to collateral, repurchase
agreements, dollar-rolls, securities lending, and similar transactions. SFAS 125
established accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. Under
this approach, an entity, subsequent to a transfer of financial assets, must
recognize the financial and servicing assets it controls and the liabilities it
has incurred, derecognize financial assets when control has been surrendered,
and derecognize liabilities when extinguished.
The Company's adoption, on January 1, 1997, of the effective portions of
SFAS 125 did not have, and is not expected to have, a material impact on its
consolidated financial statements. In addition, the provisions of SFAS 125 that
are required to be adopted by the Company on January 1, 1998 are not expected to
have a material impact on its consolidated financial statements.
Pursuant to SFAS 125, the Company's capitalized excess servicing and
mortgage servicing rights were combined, effective as of January 1, 1997, as
mortgage servicing assets in its Consolidated Statements of Financial Condition.
Prior period balances have been reclassified to reflect this change. In the
Company's Consolidated Statements of Income, prior to the adoption of SFAS 125,
amortization of capitalized excess servicing was reflected as a component of
"Loan servicing fees, net," whereas amortization of mortgage servicing rights
was reported as "Amortization of mortgage servicing rights." Such amortization,
effective with the adoption of SFAS 125, has been combined and reclassified in
the Company's Consolidated Statements of Income to "Amortization of mortgage
servicing assets."
Accounting for Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
SFAS 128, which supersedes Accounting Principles Board Opinion No. 15, "Earnings
per Share," establishes standards for computing, presenting and disclosing
earnings per share.
7
SFAS 128 requires the presentation of basic earnings per share and, for
entities with complex capital structures, diluted earnings per share. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the entity.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997. Earlier application of SFAS 128 is not permitted and
all prior-period earnings per share data must be restated upon its adoption.
The Company's basic earnings per share and diluted earnings per share, as
computed pursuant to SFAS 128, were each $0.31 for the three months ended March
31, 1997, as compared with $0.27 and $0.25, respectively, for the three months
ended March 31, 1996.
NOTE 3 -- SUBSEQUENT EVENTS
Pending Sales of Certain Non-Performing Assets
During April 1997, the Company entered into agreements to sell an aggregate
of approximately $126 million of its non-performing residential real estate
assets. The Company currently estimates that these sales will result in a one-
time pre-tax charge during the second quarter of 1997 of approximately $15
million and that this loss will be substantially offset by reinvestment earnings
and lower credit-related costs during the balance of 1997. The planned sales,
which are subject to certain standard closing conditions, are expected to be
consummated during the second quarter of 1997.
Cash Dividend on Common Stock
On April 25, 1997, the Board of Directors of the Holding Company declared a
cash dividend on the Holding Company's common stock of $0.04 per share. The
dividend is to be paid on June 16, 1997 to stockholders of record as of the
close of business on May 16, 1997.
Acquisition of BFS Bankorp, Inc.
As of the close of business on April 30, 1997, the Company acquired BFS
Bankorp, Inc. and its wholly-owned subsidiary, Bankers Federal Savings FSB
(collectively "BFS"), for $93.3 million in cash. The purchase price was funded
from the normal cash flows of the Company. The acquisition of BFS is being
accounted for under the purchase method of accounting. At March 31, 1997, BFS
operated five New York City branch offices and had consolidated assets of $640.6
million, loans receivable, net, of $582.1 million, substantially all of which
were multifamily real estate loans, and deposits of $454.5 million.
Issuance of Capital Securities, Series A and Junior Subordinated Deferrable
Interest Debentures, Series A
On May 6, 1997, Dime Capital Trust I ("Trust I"), a Delaware statutory
business trust that was recently formed by the Holding Company, issued $200.0
million of 9.33% Capital Securities, Series A (the "Series A Capital
Securities"), representing preferred beneficial interests in Trust I, in an
underwritten public offering and $6.2 million of beneficial interests
represented by its common securities to the Holding Company. In connection
therewith, Trust I purchased $206.2 million of 9.33% Junior Subordinated
Deferrable Interest Debentures, Series A, due May 6, 2027 (the "Series A
Subordinated Debentures") issued by the Holding Company. The Series A
Subordinated Debentures, which are, and will be, the sole assets of Trust I, are
subordinate and junior in right of payment to all present and future senior
indebtedness of the Holding Company. Trust I's obligations under the Series A
Capital Securities are fully and unconditionally guaranteed by the Holding
Company to the extent provided for under the terms of the indenture pursuant to
which the Series A Subordinated Debentures were issued, the Series A
Subordinated Debentures, and the related guarantee agreement, expense agreement,
and trust agreement. The Series A Capital Securities are subject to mandatory
redemption, in whole or in part, upon the repayment of the Series A Subordinated
Debentures at their stated maturity or earlier redemption.
8
DIME BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, new products and markets, and similar matters, which may be
identified by the use of such words as "believe," "expect," "anticipate,"
"planned," and "estimated." The Private Securities Litigation Reform Act of 1995
provides a "safe harbor" for such forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in such forward-
looking statements. The risks and uncertainties that may affect the operations,
performance, development and results of the Company's business include interest
rate movements, competition from both financial and non-financial institutions,
changes in applicable laws and regulations, the timing and occurrence (or non-
occurrence) of transactions and events that may be subject to circumstances
beyond the Company's control, and general economic conditions.
OVERVIEW
The Company reported net income of $32.9 million, or $0.31 per fully diluted
common share, for the first quarter of 1997, as compared with net income of
$27.1 million, or $0.25 per fully diluted common share, for the first quarter of
1996. The 21.7% growth in net income primarily reflects increases in non-
interest income and net interest income of $4.0 million and $2.9 million,
respectively, and the recognition, in the first quarter of 1996, of
restructuring and merger-related expense in the amount of $3.5 million in
connection with the merger, in January 1995, of Anchor Bancorp, Inc. and its
savings bank subsidiary, Anchor Savings Bank FSB, with and into the Holding
Company and the Bank, respectively (the "Merger"). The Company's annualized
return on average stockholders' equity and average assets were 12.66% and 0.69%,
respectively, for the first three months of 1997, as compared with 10.93% and
0.54%, respectively, for the first three months of 1996.
Total non-performing assets declined 5.9% from December 31, 1996 and
amounted to $230.4 million at March 31, 1997. At March 31, 1997, non-performing
assets represented 1.25% of total assets, down from 1.30% at year-end 1996. For
a discussion of pending sales of certain non-performing assets, see "Management
of Credit Risk--Non-Performing Assets."
The Company, as of the close of business on April 30, 1997, acquired BFS for
$93.3 million in cash in a transaction that is being accounted for under the
purchase method of accounting (the "BFS Acquisition"). At March 31, 1997, BFS
operated five New York City branch offices and had consolidated assets of $640.6
million, loans receivable, net, of $582.1 million, substantially all of which
were multifamily real estate loans, and deposits of $454.5 million.
RESULTS OF OPERATIONS
Net Interest Income
The Company's net interest income amounted to $117.3 million for the first
quarter of 1997, an increase of $2.9 million as compared with the corresponding
quarter in 1996. This increase reflects an improvement in the Company's net
interest margin to 2.51% for the three month period ended March 31, 1997 from
2.35% for the comparable period in 1996, which more than offset the effect of a
$1.0 billion reduction in average interest-earning assets for the first quarter
of 1997, as compared with the first quarter of 1996. The cost of the Company's
average interest-bearing liabilities declined 14 basis points to 4.66% for the
quarter ended March 31, 1997 from 4.80% for the corresponding quarter in 1996,
while the yield on average interest-earning assets of 7.06% for the first
quarter of 1997 was unchanged from the comparable prior year quarter.
Average interest-earning assets were $18.4 billion for the first quarter of
1997, down 5.3% from the first quarter of 1996. This decline was principally
attributable to the Company's reduction of its mortgage-backed securities
("MBS") during 1996 and the first quarter of 1997. The Company's average MBS
decreased $1.8 billion for the three months ended March 31, 1997, as compared
with the same quarter one year ago, and includes the
9
effect of sales of approximately $2.3 billion of MBS since January 1, 1996.
Partially offsetting the reduction in MBS was growth in the average balance of
loans of $805.2 million, reflective of the Company's continuing strategy to
increase the level of such interest-earning assets. Average loans represented
59.0% of total average interest-earning assets for the first quarter of 1997, up
from 51.7% of total average interest-earning assets for the comparable 1996
period.
Average interest-bearing liabilities declined to $18.0 billion for the first
quarter of 1997 from $19.1 billion for the comparable quarter in 1996 due to a
$1.3 billion reduction in average borrowed funds, which was partially offset by
a $254.6 million increase in average deposits. The reduction in average borrowed
funds was principally attributable to the use of proceeds from certain MBS sales
to reduce the level of the Company's Federal Home Loan Bank of New York
("FHLBNY") advances. While the average balance of FHLBNY advances declined $3.5
billion for the first quarter of 1997 from the first quarter of 1996, the
average balance of securities sold under agreements to repurchase rose $2.2
billion, reflecting the Company's continued emphasis on this funding source.
10
The following table sets forth, for the periods indicated, the Company's
consolidated average statement of financial condition, net interest income, the
average yield on interest-earning assets and the average cost of interest-
bearing liabilities. Average balances are computed on a daily basis. Non-accrual
loans are included in average balances in the table below.
=================================================================================================================
Three Months Ended March 31,
-------------------------------------------------------------------------
1997 1996
----------------------------------- ----------------------------------
Average Average
Average Yield/ Average Yield/
(Dollars in thousands) Balance Interest Cost Balance Interest Cost
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Interest-earning assets:
Loans:
Residential real estate $ 8,224,733 $147,104 7.15% $ 7,448,215 $133,573 7.17%
Commercial and multifamily real
estate 1,875,187 39,834 8.50 1,842,664 40,037 8.69
Consumer 736,268 15,731 8.66 748,691 16,616 8.92
Business 41,945 971 9.39 33,361 737 8.88
----------------------------------------------------------------------------------------------------------------
Total loans 10,878,133 203,640 7.50 10,072,931 190,963 7.58
MBS 6,584,888 107,651 6.54 8,354,010 137,370 6.58
Other securities 356,022 5,555 6.31 537,519 8,420 6.29
Money market investments 613,696 8,025 5.23 506,677 6,775 5.29
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 18,432,739 324,871 7.06 19,471,137 343,528 7.06
Other assets 756,793 728,417
- -----------------------------------------------------------------------------------------------------------------
Total assets $19,189,532 $20,199,554
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Demand $ 1,129,097 1,898 0.68 $ 1,055,336 2,209 0.84
Savings 2,445,400 14,992 2.49 2,654,009 16,583 2.51
Money market 1,998,630 18,507 3.76 2,139,420 20,517 3.86
Time 7,244,013 97,778 5.47 6,713,750 93,488 5.60
- -----------------------------------------------------------------------------------------------------------------
Total deposits 12,817,140 133,175 4.21 12,562,515 132,797 4.25
- -----------------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 3,694,714 51,050 5.53 1,482,529 20,382 5.44
FHLBNY advances 1,135,459 16,013 5.64 4,649,624 68,033 5.79
Other 338,321 7,360 8.70 375,379 7,981 8.51
- -----------------------------------------------------------------------------------------------------------------
Total borrowed funds 5,168,494 74,423 5.76 6,507,532 96,396 5.87
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 17,985,634 207,598 4.66 19,070,047 229,193 4.80
Other liabilities 163,811 139,094
Stockholders' equity 1,040,087 990,413
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $19,189,532 $20,199,554
- -----------------------------------------------------------------------------------------------------------------
Net interest income $117,273 $114,335
- -----------------------------------------------------------------------------------------------------------------
Interest rate spread 2.40 2.26
- -----------------------------------------------------------------------------------------------------------------
Net interest margin 2.51 2.35
=================================================================================================================
11
The following table sets forth, for the periods indicated, the changes in
interest income and interest expense for each major component of interest-
earning assets and interest-bearing liabilities and the amounts attributable to
changes in average balances (volume) and average interest rates (rate). The
changes in interest income and interest expense attributable to changes in both
volume and rate have been allocated proportionately to the changes due to volume
and the changes due to rate.
===================================================================================
Three Months Ended March 31,
1997 versus 1996
------------------------------
Increase (Decrease)
Due to
-------------------
(In thousands) Volume Rate Total
- ------------------------------------------------------------------------------------
Interest income:
Loans:
Residential real estate $ 13,889 $ (358) $ 13,531
Commercial and multifamily real estate 700 (903) (203)
Consumer (273) (612) (885)
Business 197 37 234
- ------------------------------------------------------------------------------------
Total loans 14,513 (1,836) 12,677
- ------------------------------------------------------------------------------------
MBS (28,926) (793) (29,719)
Other securities (2,832) (33) (2,865)
Money market investments 1,402 (152) 1,250
- ------------------------------------------------------------------------------------
Total interest income (15,843) (2,814) (18,657)
- ------------------------------------------------------------------------------------
Interest expense:
Deposits:
Demand 146 (457) (311)
Savings (1,284) (307) (1,591)
Money market (1,320) (690) (2,010)
Time 7,221 (2,931) 4,290
- ------------------------------------------------------------------------------------
Total deposits 4,763 (4,385) 378
- ------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements to repurchase 30,565 103 30,668
FHLBNY advances (49,644) (2,376) (52,020)
Other (803) 182 (621)
- ------------------------------------------------------------------------------------
Total borrowed funds (19,882) (2,091) (21,973)
- ------------------------------------------------------------------------------------
Total interest expense (15,119) (6,476) (21,595)
- ------------------------------------------------------------------------------------
Net interest income $ (724) $ 3,662 $ 2,938
====================================================================================
Provision for Loan Losses
The Company's provision for loan losses amounted to $10.0 million for the
first quarter of 1997, as compared with $10.5 million for the first quarter of
1996. The provision for loan losses, as further discussed in "Management of
Credit Risk -- Allowance for Loan Losses," is predicated upon the Company's
assessment of the adequacy of its allowance for loan losses.
For a discussion of pending sales of certain non-performing assets, see
"Management of Credit Risk -- Non-Performing Assets."
12
Non-Interest Income
General. The following table sets forth the components of the Company's non-
interest income for the three months ended March 31, 1997 and 1996.
============================================================
Three Months Ended
March 31,
------------------
(In thousands) 1997 1996
- ------------------------------------------------------------
Loan servicing fees, net $ 9,917 $ 9,894
Banking service fees 6,768 6,706
Securities and insurance brokerage fees 6,051 4,674
Net gains on sales activities 2,083 461
Other 2,786 1,833
- ------------------------------------------------------------
Total non-interest income $27,605 $23,568
============================================================
Loan Servicing Fees, Net. Loan servicing fees, net, of $9.9 million for the
first quarter of 1997 were virtually unchanged from the first quarter of 1996.
At March 31, 1997, the portfolio of loans serviced for others amounted to $11.0
billion, up $1.6 billion, or 17.1%, from March 31, 1996. The level of loan
servicing fees, net, was favorably impacted by this growth in the loan servicing
portfolio; however, the effect thereof was almost entirely offset by a reduction
in the average loan servicing fee rate. The decline in the average loan
servicing fee rate primarily reflects additions to the servicing portfolio of
loans with servicing fee rates lower than the portfolio average, coupled with
principal reductions on seasoned loans with servicing fee rates higher than the
portfolio average.
The Company adopted, as of January 1, 1997, the portions of SFAS 125 that
became effective as of that date. Pursuant to SFAS 125, the Company's
capitalized excess servicing and mortgage servicing rights were combined,
effective as of January 1, 1997, as mortgage servicing assets in its
Consolidated Statements of Financial Condition. Prior period balances have been
reclassified to reflect this change. In the Company's Consolidated Statements of
Income, prior to the adoption of SFAS 125, amortization of capitalized excess
servicing was reflected as a component of "Loan servicing fees, net," whereas
amortization of mortgage servicing rights was reported as "Amortization of
mortgage servicing rights." Such amortization, effective with the adoption of
SFAS 125, has been combined and reclassified in the Company's Consolidated
Statements of Income to "Amortization of mortgage servicing assets."
Banking Service Fees. Banking service fees amounted to $6.8 million for the
first quarter of 1997, relatively consistent with the same quarter one year ago.
While the Company experienced growth in certain banking service fees, including
those earned from the usage of automatic teller machines, this growth was
substantially offset by declines in fees from other banking services.
Securities and Insurance Brokerage Fees. Securities and insurance brokerage
fees were $6.1 million for the first quarter of 1997, up $1.4 million, or 29.5%,
as compared with the corresponding prior year quarter. Fee income from
securities brokerage activities increased to $5.5 million for the three months
ended March 31, 1997 from $4.4 million for the comparable period in 1996,
largely reflecting growth in annuity fees of $0.9 million, or 42.0%. Insurance-
related fees rose to $0.6 million for the three months ended March 31, 1997 from
$0.3 million for the three months ended March 31, 1996.
Net Gains on Sales Activities. Net gains on sales activities amounted to
$2.1 million for the first quarter of 1997, as compared with $0.5 million for
the first quarter of 1996. The increase was principally attributable to the
recognition of gains of $2.0 million during the three months ended March 31,
1997 on the sale of $165.7 million of MBS, as compared with net losses of $0.6
million during the comparable period in 1996 on the sale of $1.0 billion of MBS.
Net gains associated with loans held for sale declined to $0.8 million in the
first quarter of 1997 from $1.9 million in the corresponding prior year quarter.
Total sales of loans held for sale amounted to $206.7 million and $364.3 million
for the three months ended March 31, 1997 and 1996, respectively.
Other Non-Interest Income. Other non-interest income was $2.8 million for
the quarter ended March 31, 1997, an increase of $1.0 million as compared with
the corresponding quarter in 1996. This increase was largely due to interest of
$0.6 million on federal income tax refunds recognized in the first quarter of
1997.
13
Non-Interest Expense
General. The following table sets forth the components of the Company's non-
interest expense for the three months ended March 31, 1997 and 1996.
============================================================
Three Months Ended
March 31,
------------------
(In thousands) 1997 1996
- ------------------------------------------------------------
General and Administrative ("G&A")
expense:
Compensation and employee benefits $34,741 $33,976
Occupancy and equipment, net 13,335 12,775
Other 24,305 23,443
- ------------------------------------------------------------
Total G&A expense 72,381 70,194
Other real estate owned ("ORE")
expense, net 3,052 2,493
Amortization of mortgage servicing
assets 5,202 5,425
Restructuring and merger-related expense -- 3,504
- ------------------------------------------------------------
Total non-interest expense $80,635 $81,616
============================================================
G&A Expense. G&A expense of $72.4 million for the quarter ended March 31,
1997 increased $2.2 million, or 3.1%, from the corresponding quarter in 1996.
Contributing to the higher G&A expense level was the ongoing expansion of the
Company's mortgage banking operations and certain other business activities,
together with the effect of various other strategic initiatives. The Company, in
the near term, expects to continue to incur expenses in connection with such
expansion efforts and initiatives.
Compensation and employee benefits expense totaled $34.7 million for the
first quarter of 1997, an increase of $0.8 million, or 2.3%, as compared with
the first quarter of 1996. This increase was principally attributable to higher
securities brokerage sales commissions and retail banking sales incentives,
expanded lending operations, and normal merit increases. These factors were
partially offset by declines in certain employee benefit expenses.
Occupancy and equipment expense, net, amounted to $13.3 million for the
quarter ended March 31, 1997, as compared with $12.8 million for the comparable
quarter of 1996. Contributing significantly to the 4.4% increase was a higher
level of equipment-related expense due, in part, to the continuing enhancement
of the Company's technological capabilities and in support of various business
activities.
Other G&A expense rose to $24.3 million for the first quarter of 1997 from
$23.4 million for the first quarter of 1996. This increase primarily reflects a
higher level of donations and a rise in marketing, data processing and loan-
related expenses, coupled with the impact of business expansion efforts and
other strategic initiatives. Partially offsetting these factors was a reduction
in federal deposit insurance expense to $0.9 million for the first quarter of
1997 from $2.9 million in the same quarter one year ago as a result of the
enactment of the Deposit Insurance Funds Act of 1996 (the "Funds Act"). While
the Funds Act, as of October 1, 1996, brought insurance premiums on deposits
insured by the Savings Association Insurance Fund ("SAIF") of the Federal
Deposit Insurance Corporation ("FDIC") in line with those insured by the Bank
Insurance Fund ("BIF") of the FDIC, it also required the Bank, as a member of
the BIF, to begin to pay, as of January 1, 1997, for a portion of the debt
service of certain bonds issued by the Federal Financing Corporation.
14
ORE Expense, Net. ORE expense, net, rose to $3.1 million for the first
quarter of 1997 from $2.5 million for the comparable quarter in 1996. ORE
expense, net, is impacted by a variety of factors, including the level and type
of properties owned and general economic conditions.
The following table presents the significant components of the Company's ORE
expense, net, for the three months ended March 31, 1997 and 1996.
=============================================================
Three Months Ended
March 31,
-------------------
(In thousands) 1997 1996
- -------------------------------------------------------------
Operating expense, net of rental income $1,875 $2,109
Provision for losses 1,281 890
Net gains on sales (104) (506)
- -------------------------------------------------------------
Total ORE expense, net $3,052 $2,493
=============================================================
See "Management of Credit Risk--Non-Performing Assets" for a discussion of
pending sales of certain ORE, as well as certain non-performing loans.
Amortization of Mortgage Servicing Assets. Amortization of mortgage
servicing assets amounted to $5.2 million for the first quarter of 1997, a
decline of $0.2 million as compared with the corresponding prior year quarter.
This decrease largely reflects generally lower prepayment speeds of the loans
underlying the Company's mortgage servicing assets for the first quarter of
1997, as compared with the first quarter of 1996, the effect of which was
substantially offset by a higher level of mortgage servicing assets.
Restructuring and Merger-Related Expense. Restructuring and other expense
associated with the Merger totaled $3.5 million for the quarter ended March 31,
1996, as compared with no such expense for the comparable quarter of 1997. The
expense for the first quarter of 1996 was principally associated with staff
reductions, the final phase of the conversion of the Bank's retail banking
computer system, and certain computer data center costs.
Income Tax Expense
The Company recorded income tax expense of $21.3 million for the first
quarter of 1997, as compared with $18.7 million for the comparable quarter of
1996. Income tax expense for the first quarter of 1996 was reduced by $0.7
million as a result of the favorable settlement of local income tax issues
during that quarter.
MANAGEMENT OF INTEREST RATE RISK
General
The Company manages its interest rate risk through strategies designed to
maintain acceptable levels of interest rate exposure throughout a range of
interest rate environments. These strategies are intended not only to protect
the Company from significant long-term declines in net interest income as a
result of certain changes in the interest rate environment, but also to mitigate
the negative effect of certain interest rate changes upon the Company's mortgage
banking operating results. The Company seeks to contain its interest rate risk
within a band that it believes is manageable and prudent given its capital and
income generating capacity. As a component of its interest rate risk management
process, the Company employs various derivative financial instruments (see
"Derivative Financial Instruments").
The Company's sensitivity to interest rates is driven primarily by the
mismatch between the term to maturity or repricing of its interest-earning
assets and that of its interest-bearing liabilities. In general, the Company's
interest-bearing liabilities reprice or mature, on average, sooner than its
interest-earning assets.
The Company is also exposed to interest rate risk arising from the "option
risk" embedded in many of the Company's interest-earning assets. For example,
mortgages and the mortgages underlying MBS may contain
15
prepayment options, interim and lifetime interest rate caps and other such
features driven or otherwise influenced by changes in interest rates. Prepayment
option risk affects mortgage-related assets in both rising and falling interest
rate environments as the financial incentive to refinance a mortgage loan is
directly related to the level of the existing interest rate on the loan relative
to current market interest rates.
Extension risk on mortgage-related assets is the risk that the duration of
such assets may increase as a result of declining prepayments due to rising
interest rates. Certain mortgage-related assets are more sensitive to changes in
interest rates than others, resulting in a higher risk profile. Because the
Company's interest-bearing liabilities are not similarly affected, the Company's
overall duration gap generally increases as interest rates rise. In addition, in
a rising interest rate environment, adjustable-rate assets may reach interim or
lifetime interest rate caps, thereby limiting the amount of upward adjustment,
which effectively lengthens the duration of such assets.
Lower interest rate environments may also present interest rate exposure. In
general, lower interest rate environments tend to accelerate prepayment rates,
which both shorten the duration of mortgage-related assets and accelerate the
amortization of any premiums paid in the acquisition of these assets. The
recognition of premiums over a shorter than expected term causes yields on the
related assets to decline from anticipated levels. The Company is also exposed
to interest rate risk resulting from the change in the shape of the yield curve
(i.e., flattening, steepening and inversion; also called "yield curve twist
risk") and to differing indices upon which the yield on the Company's interest-
earning assets and the cost of its interest-bearing liabilities are based
("basis risk").
In evaluating and managing its interest rate risk, the Company employs
complex simulation models to help assess its interest rate risk exposure and the
impact, and probability of occurrence, of alternate interest rate scenarios,
which consider the effects of adjustable-rate loan indices, periodic and
lifetime interest rate adjustment caps, estimated loan prepayments, anticipated
deposit retention rates, and other dynamics of the Company's portfolios of
interest-earning assets and interest-bearing liabilities. Moreover, in order to
reduce its sensitivity to interest rate risk, the Company's investment strategy
has emphasized adjustable-rate loans and securities, as further discussed below,
and fixed-rate medium-term securities.
At March 31, 1997, approximately $6.2 billion, or 76%, of the Company's
residential real estate loans receivable were adjustable-rate loans. The
interest rate adjustments for these loans are based on a fixed margin over
various indices, including cost-of-funds indices ("COFI") and indices based on
certain United States Treasury interest rates ("Treasury Indices"). Because the
repricing of adjustable-rate residential real estate loans that are based on
COFI tends to lag market interest rate changes, substantially all of the
Company's adjustable-rate residential real estate loan production for portfolio
in recent years has consisted of loans tied to Treasury Indices. At March 31,
1997, approximately 71% of the Company's adjustable-rate residential real estate
loans receivable were based on Treasury Indices. Annual interest rate adjustment
caps on the Company's residential real estate loans receivable have generally
been two percentage points. Many of these adjustable-rate loans have lifetime
interest rate adjustment caps, which have generally been six percentage points
over the initial interest rate. At March 31, 1997, the Company's adjustable-rate
residential real estate loans receivable consisted principally of loans with
lifetime interest rate caps ranging from 11.00% to 14.99%.
Adjustable-rate commercial and multifamily real estate loans amounted to
approximately $879 million at March 31, 1997, or approximately 46% of the total
portfolio of such loans at that date. Of such adjustable-rate loans,
approximately 35% were based on a fixed margin over Treasury Indices and
approximately 33% were based on a fixed margin over interest rates on various
FHLBNY advances.
At March 31, 1997, approximately 71% of the aggregate $6.3 billion portfolio
of MBS available for sale and held to maturity consisted of adjustable-rate
securities. The predominant indices underlying these securities were the one-
year Treasury Index and the Eleventh District COFI published by the Federal Home
Loan Bank of San Francisco. The Treasury Indices MBS portfolio, which comprised
approximately 35% of the Company's adjustable-rate MBS portfolio at March 31,
1997, was backed predominantly by one-year adjustable-rate loans with a 2.00%
annual interest rate cap and had a weighted average lifetime interest rate cap
of 11.84%. The COFI MBS portfolio, which represented approximately 62% of the
Company's adjustable-rate MBS portfolio at March 31, 1997, was backed by loans
with interest rates that adjust either monthly with no periodic interest rate
cap, semi-annually with a 1.00%
16
semi-annual interest rate cap, or annually with a weighted average 1.84% annual
interest rate cap. The COFI MBS portfolio had a weighted average lifetime
interest rate cap of 12.22% at March 31, 1997.
Derivative Financial Instruments
The Company utilizes a variety of derivative financial instruments as part
of its overall asset/liability management strategy and to manage certain risks
associated with its mortgage banking activities. Derivative financial
instruments are not currently used by the Company for trading activity purposes.
With the exception of interest rate floors hedging certain mortgage servicing
assets, the derivative financial instruments utilized by the Company provide
protection from rising interest rates. While the hedging activities engaged in
by the Company have served to mitigate the effects of unfavorable interest rate
changes, the Company continues to be susceptible to interest rate risk.
The derivative financial instruments used by the Company, though chosen to
remedy specific risk conditions, may, under certain circumstances, behave in a
manner that is inconsistent with their intended purpose. Thus, such instruments
possess market risk in their own right. The Company has established internal
policies that define the extent of historical correlation between a proposed
hedge and the item to be hedged prior to the use of a derivative financial
instrument as a hedge. The potential exists, however, that this relationship, or
"basis," may change due to extraordinary circumstances. The Company, also by
policy, monitors these relationships at regular intervals to ensure that such
correlation is maintained. The Company cannot guarantee that such relationships,
as have been historically observed, will continue.
The following table summarizes, by category of asset or liability being
hedged, the notional amount and estimated fair value of derivative financial
instruments used by the Company for asset/liability management purposes at March
31, 1997 and December 31, 1996.
=======================================================================================
March 31, 1997 December 31, 1996
------------------------ ----------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------
Interest rate swaps hedging:
Loans receivable $ 656,757 $ 6,174 $ 660,216 $(2,994)
Securities sold under agreements to
repurchase 446,000 1,917 420,000 1,241
FHLBNY advances -- -- 30,000 (690)
- ----------------------------------------------------------------------------------------
Total interest rate swaps 1,102,757 8,091 1,110,216 (2,443)
- ----------------------------------------------------------------------------------------
Interest rate caps hedging:
Loans receivable 402,470 571 424,484 527
MBS available for sale 182,188 258 192,153 239
MBS held to maturity 243,470 345 256,787 319
Securities sold under agreements to
repurchase 361,000 5,509 361,000 4,647
- ----------------------------------------------------------------------------------------
Total interest rate caps 1,189,128 6,683 1,234,424 5,732
- ----------------------------------------------------------------------------------------
Total $2,291,885 $14,774 $2,344,640 $ 3,289
========================================================================================
17
The table that follows sets forth the contractual maturities of the
Company's interest rate swap agreements outstanding at March 31, 1997 by
category of asset or liability being hedged, as well as the related weighted
average interest rates receivable and payable at that date. Variable-rates in
the table are assumed to remain constant at their March 31, 1997 levels. All of
the Company's outstanding interest rate swaps at March 31, 1997 provide for it
to be a fixed-rate payer and a variable-rate receiver based on short-term London
Interbank Offered Rates ("LIBOR").
===================================================================================================================
Maturing in the Year Ending December 31,
-----------------------------------------------------------------
(Dollars in thousands) 1997 1998 1999 2000 2001 Thereafter Total
- -------------------------------------------------------------------------------------------------------------------
Interest rate swaps hedging:
Loans receivable:
Notional amount $ 97,009 $152,165 $133,468 $39,007 $163,779 $71,329 $ 656,757
Weighted average:
Variable-rate receivable 5.53% 5.47% 5.49% 5.51% 5.53% 5.59% 5.51%
Fixed-rate payable 5.63% 6.16% 6.36% 6.53% 6.44% 6.68% 6.27%
Securities sold under agreements
to repurchase:
Notional amount $386,000 $ 30,000 $ 30,000 $ -- $ -- $ -- $ 446,000
Weighted average:
Variable-rate receivable 5.73% 5.52% 5.56% --% --% --% 5.70%
Fixed-rate payable 5.34% 6.24% 7.06% --% --% --% 5.52%
-------------------------------------------------------------------------------------------------------------------
Total:
Notional amount $483,009 $182,165 $163,468 $39,007 $163,779 $71,329 $1,102,757
Weighted average:
Variable-rate receivable 5.69% 5.47% 5.50% 5.51% 5.53% 5.59% 5.59%
Fixed-rate payable 5.40% 6.17% 6.49% 6.53% 6.44% 6.68% 5.97%
===================================================================================================================
Under each of its outstanding interest rate cap agreements at March 31,
1997, the Company, in return for a premium paid to the counterparty at
inception, receives cash payments from the counterparty at specified dates in
the amount by which a specified market interest rate is higher than a designated
cap interest rate, as applied to the notional amount of the agreement. The
Company, at March 31, 1997, had outstanding interest rate cap agreements with a
notional amount of $828.1 million that were entered into in order to hedge the
periodic and lifetime interest rate caps embedded in certain of its adjustable-
rate real estate loans and MBS. Each such agreement is amortizing in nature and
provides for the Company to receive cash payments from the counterparty when the
weekly average yield of the one-year constant maturity Treasury Index ("CMT")
rises above a specified cap interest rate. At March 31, 1997, the one-year CMT
was 6.02% and the weighted average specified cap interest rate on these
agreements was 8.00%. In addition, at March 31, 1997, the Company had interest
rate cap agreements outstanding with a notional amount of $361.0 million that
were entered into for the purpose of locking-in maximum interest costs on
certain of its securities sold under agreements to repurchase. These interest
rate cap agreements, the notional amounts of which do not change during their
term, provide for the Company to receive cash payments when the one-month LIBOR,
which was 5.69% at March 31, 1997, rises above a specified cap interest rate. At
March 31, 1997, the weighted average specified cap interest rate on these
agreements was 7.04%. Unamortized premiums on the Company's outstanding interest
rate cap agreements amounted to $10.3 million at March 31, 1997.
The following table sets forth the contractual maturities of the Company's
interest rate cap agreements outstanding at March 31, 1997 by category of asset
or liability being hedged. Certain of the amounts set forth in the table are
subject to change in the event that specified cap interest rates exceed the
specified interest rates.
==============================================================================================
Maturing in the Year Ending December 31,
------------------------------------------
(In thousands) 1997 1998 1999 2001 Total
- ----------------------------------------------------------------------------------------------
Interest rate caps hedging:
Loans receivable $ 87,352 $213,548 $101,570 $ -- $ 402,470
MBS available for sale 39,542 96,668 45,978 -- 182,188
MBS held to maturity 52,843 129,183 61,444 -- 243,470
Securities sold under agreements to
repurchase -- -- 165,000 196,000 361,000
- ----------------------------------------------------------------------------------------------
Total $179,737 $439,399 $373,992 $196,000 $1,189,128
==============================================================================================
The Company's use of derivative financial instruments for asset/liability
management purposes resulted in a reduction of net interest income of $4.9
million for the first quarter of 1997, as compared with an increase in net
interest income during the comparable quarter in 1996 of $3.5 million.
18
With regard to its mortgage banking activities, the Company uses forward
contracts and options to hedge risks associated with its loan sales activities.
In addition, the Company utilizes interest rate floor agreements to minimize the
impact of the potential loss of net future servicing revenues associated with
certain of its mortgage servicing assets as a result of an increase in loan
prepayments, which is generally triggered by declining interest rates.
The following table summarizes, at March 31, 1997 and December 31, 1996, the
notional amount and estimated fair value of derivative financial instruments
used by the Company in connection with its mortgage banking activities.
======================================================================
March 31, 1997 December 31, 1996
------------------------ ----------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair value Amount Fair value
- ----------------------------------------------------------------------
Forward contracts $ 205,554 $2,080 $ 136,770 $575
Options 49,500 239 40,000 64
Interest rate floors 942,794 11 996,498 77
- ----------------------------------------------------------------------
Total $1,197,848 $2,330 $1,173,268 $716
======================================================================
Under each of its interest rate floor agreements, the Company, in return for
a premium paid to the counterparty at inception, receives cash payments from the
counterparty when either the five- or ten-year CMT, which were 6.77% and 6.92%,
respectively, at March 31, 1997, declines below a designated floor interest
rate. At March 31, 1997, interest rate floor agreements with a notional amount
of $171.6 million were indexed to the five-year CMT and had a weighted average
designated floor interest rate of 5.30%, and $771.2 million were indexed to the
ten-year CMT and had a weighted average designated floor interest rate of 5.54%.
The Company's interest rate floor agreements outstanding at March 31, 1997
terminate at various dates from August 1998 through October 1999. At March 31,
1997, unamortized premiums on the Company's outstanding interest rate floor
agreements amounted to $0.6 million.
Asset/Liability Repricing
The measurement of differences (or "gaps") between the Company's interest-
earning assets and interest-bearing liabilities that mature or reprice within a
period of time is an indication of the Company's sensitivity to changes in
interest rates. A negative gap generally indicates that, in a period of rising
interest rates, deposit and borrowing costs will increase more rapidly than the
yield on loans and securities and, therefore, reduce net interest income. The
opposite effect will generally occur in a declining interest rate environment.
Although the Company has a large portfolio of adjustable-rate assets, the
protection afforded by such assets in the event of substantial rises in interest
rates for extended time periods is limited due to interest rate reset delays,
periodic and lifetime interest rate caps, payment caps and the fact that indices
used to reprice a portion of the Company's adjustable-rate assets lag changes in
market rates. Moreover, in declining interest rate environments or certain
shifts in the shape of the yield curve, these assets may prepay at significantly
faster rates than otherwise anticipated. It should also be noted that the
Company's gap measurement reflects broad judgmental assumptions with regard to
repricing intervals for certain assets and liabilities.
19
The following table reflects the repricing or maturity of the Company's
interest-earning assets, interest-bearing liabilities and related derivative
financial instruments at March 31, 1997 and December 31, 1996. The amount of
each asset, liability or derivative financial instrument is included in the
table at the earlier of the next repricing date or maturity. Prepayment
assumptions for loans and MBS utilized in preparing the table are based upon
industry standards as well as the Company's experience and estimates. Non-
performing loans have been included in the "Over One Through Three Years"
category. For the purposes of determining its gap position, the Company had
historically assigned its demand deposits and money market deposits to the "One
Year or Less" category and spread its savings accounts ratably over a 20-year
period. Effective March 31, 1997, the Company modified its interest rate
sensitivity assumptions so that its demand deposits, money market deposits and
savings accounts are now allocated to the various repricing intervals in the
table based on the Company's experience and estimates. In addition, the Company
had historically reported its cumulative gap as a percentage of total interest-
earning assets. Effective March 31, 1997, the Company is reporting its
cumulative gap as a percentage of total assets. Information in the table below
for December 31, 1996 has been restated to reflect the changes discussed above.
===============================================================================
Over One
Through Over
One Year Three Three
(Dollars in millions) or Less Years Years Total
- --------------------------------------------------------------------------------
March 31, 1997:
Interest-earning assets:
Loans $ 5,257 $2,930 $2,827 $11,014
MBS 4,852 983 504 6,339
Other 33 13 326 372
- --------------------------------------------------------------------------------
Total interest-earning assets 10,142 3,926 3,657 17,725
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 7,269 2,625 2,956 12,850
Borrowed funds 4,070 185 140 4,395
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 11,339 2,810 3,096 17,245
- --------------------------------------------------------------------------------
Impact of derivative financial
instruments 609 (346) (263) --
--------------------------------------------------------------------------------
Periodic gap $ (588) $ 770 $ 298 $ 480
- --------------------------------------------------------------------------------
Cumulative gap $ (588) $ 182 $ 480
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (3.2)% 1.0% 2.6%
================================================================================
December 31, 1996:
Interest-earning assets:
Loans $ 5,238 $2,948 $2,667 $10,853
MBS 5,167 883 813 6,863
Other 39 16 328 383
- --------------------------------------------------------------------------------
Total interest-earning assets 10,444 3,847 3,808 18,099
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 7,194 2,682 2,981 12,857
Borrowed funds 4,489 186 140 4,815
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 11,683 2,868 3,121 17,672
- --------------------------------------------------------------------------------
Impact of derivative financial
instruments 620 (346) (274) --
- --------------------------------------------------------------------------------
Periodic gap $ (619) $ 633 $ 413 $ 427
- --------------------------------------------------------------------------------
Cumulative gap $ (619) $ 14 $ 427
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (3.3)% --% 2.3%
================================================================================
MANAGEMENT OF CREDIT RISK
General
The Company's major exposure to credit risk results from the possibility
that it will not recover amounts due from borrowers or issuers of securities.
The Company is also subject to credit risk in connection with its utilization of
derivative financial instruments. The Company has a process of credit risk
controls and management procedures by which it monitors and manages its level of
credit risk.
20
Non-Performing Assets
Non-performing assets at March 31, 1997 and December 31, 1996 were comprised
of non-accrual loans and ORE, net. Non-accrual loans are all loans 90 days or
more delinquent, as well as loans less than 90 days past due for which the full
collectability of contractual principal or interest payments is doubtful. When a
loan is placed on non-accrual status, any accrued but unpaid interest income on
the loan is reversed, and future interest income on the loan is recognized only
if actually received by the Company and full collection of principal is not in
doubt. Loans are generally returned to accrual status when principal and
interest payments are current, full collectability of principal and interest is
reasonably assured and a consistent record of performance has been demonstrated.
At March 31, 1997, non-performing assets amounted to $230.4 million, or
1.25% of total assets, down from $244.8 million, or 1.30% of total assets, at
year-end 1996. Total non-accrual loans represented 1.68% of total loans
receivable at March 31, 1997, as compared with 1.78% of total loans receivable
at December 31, 1996.
The following table presents the components of the Company's non-performing
assets at March 31, 1997 and December 31, 1996. Loans modified in a troubled
debt restructuring ("TDR") that have demonstrated a sufficient payment history
to warrant return to performing status are not included within non-accrual loans
(see "Loans Modified in a TDR").
==================================================================
March 31, December 31,
(In thousands) 1997 1996
- ------------------------------------------------------------------
Non-accrual loans:
Residential real estate $155,521 $163,791
Commercial and multifamily real estate 20,590 21,047
Consumer 6,008 6,645
Business 526 107
- ------------------------------------------------------------------
Total non-accrual loans 182,645 191,590
- ------------------------------------------------------------------
ORE, net:
Residential real estate 33,917 36,182
Commercial and multifamily real estate 17,066 20,367
Allowance for losses (3,186) (3,294)
- ------------------------------------------------------------------
Total ORE, net 47,797 53,255
- ------------------------------------------------------------------
Total non-performing assets $230,442 $244,845
==================================================================
The Company generally has pursued a loan-by-loan/property-by-property
disposition strategy with respect to its non-performing assets, while also
considering the appropriateness of alternate disposition strategies, including
bulk sales of non-performing assets. During April 1997, the Company entered into
agreements to sell an aggregate of approximately $126 million of its non-
performing residential real estate assets. The Company currently estimates that
these sales will result in a one-time pre-tax charge during the second quarter
of 1997 of approximately $15 million and that this loss will be substantially
offset by reinvestment earnings and lower credit-related costs during the
balance of 1997. The planned sales, which are subject to certain standard
closing conditions, are expected to be consummated during the second quarter of
1997.
During the first three months of 1997, the Company expanded certain of its
business activities, including its commercial and multifamily real estate
lending and business lending, and anticipates that such expansion efforts will
continue. The Company intends to continue to closely monitor the credit quality
of its loan portfolio and the effects of these expansion efforts on the overall
risk profile of such portfolio, which the Company expects may change over time.
As previously discussed, the Company completed the BFS Acquisition as of the
close of business on April 30, 1997. The level of the Company's non-performing
assets was not materially affected as a result of this transaction.
21
The level of loans delinquent less than 90 days may, to some degree, be a
leading indicator of future levels of non-performing assets. The following table
sets forth, at March 31, 1997, such delinquent loans of the Company, net of
those already in non-performing status.
====================================================================
Delinquency Period
--------------------
30 - 59 60 - 89
(In thousands) Days Days Total
- ---------------------------------------------------------------------
Residential real estate loans $ 49,270 $ 19,485 $68,755
Commercial and multifamily real estate
loans 7,554 9,254 16,808
Consumer loans 4,471 1,251 5,722
Business loans 30 -- 30
- ---------------------------------------------------------------------
Total $ 61,325 $ 29,990 $91,315
=====================================================================
Loans Modified in a TDR
When borrowers encounter financial hardship but are able to demonstrate to
the Company's satisfaction an ability and willingness to resume regular monthly
payments, the Company often seeks to provide them with an opportunity to
restructure the terms of their loans. These arrangements, which are individually
negotiated, generally provide for interest rates that are lower than those
initially contracted for, but which may be higher or lower than current market
interest rates for loans with comparable risk, and may, in some instances,
include a reduction in the principal amount of the loan. The Company evaluates
the costs associated with any particular restructuring arrangement and may enter
into such an arrangement if it believes it is economically beneficial for the
Company to do so.
The following table sets forth, at March 31, 1997 and December 31, 1996, the
Company's loans that have been modified in a TDR, excluding those classified as
non-accrual loans.
================================================================
March 31, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------
Residential real estate loans $ 42,860 $ 42,684
Commercial and multifamily real estate
loans 161,601 170,323
- -----------------------------------------------------------------
Total $204,461 $213,007
=================================================================
Impaired Loans
The table below sets forth information regarding the Company's impaired
loans at March 31, 1997 and December 31, 1996. The Company considers a loan
impaired when, based upon current information and events, it is probable that it
will be unable to collect all amounts due, both principal and interest,
according to the contractual terms of the loan agreement.
===============================================================================================================
March 31, 1997 December 31, 1996
------------------------------------ ----------------------------------
Related Related
Allowance Allowance
Recorded for Loan Net Recorded for Loan Net
(In thousands) Investment Losses Investment Investment Losses Investment
- ----------------------------------------------------------------------------------------------------------------
Residential real estate loans:
With a related allowance $ 4,236 $ (265) $ 3,971 $ 3,290 $ (206) $ 3,084
Without a related allowance 10,751 -- 10,751 11,322 -- 11,322
- ----------------------------------------------------------------------------------------------------------------
Total residential real estate loans 14,987 (265) 14,722 14,612 (206) 14,406
- ----------------------------------------------------------------------------------------------------------------
Commercial and multifamily real estate loans:
With a related allowance 33,351 (3,279) 30,072 39,388 (3,919) 35,469
Without a related allowance 6,587 -- 6,587 8,752 -- 8,752
- ----------------------------------------------------------------------------------------------------------------
Total commercial and multifamily real
estate loans 39,938 (3,279) 36,659 48,140 (3,919) 44,221
- ----------------------------------------------------------------------------------------------------------------
Business loans with a related allowance 526 (174) 352 107 (53) 54
- ----------------------------------------------------------------------------------------------------------------
Total impaired loans $55,451 $(3,718) $51,733 $62,859 $(4,178) $58,681
================================================================================================================
22
Allowance for Loan Losses
The Company's allowance for loan losses is intended to be maintained at a
level sufficient to absorb all estimable and probable losses inherent in the
loans receivable portfolio. In determining the appropriate level of the
allowance for loan losses and, accordingly, the level of the provision for loan
losses, the Company reviews its loans receivable portfolio on at least a
quarterly basis, taking into account the size, composition and risk profile of
the portfolio, including delinquency levels, historical loss experience, cure
rates on delinquent loans, economic conditions and other pertinent factors, such
as assumptions and projections of future conditions. While the Company believes
that the allowance for loan losses is adequate, additions to the allowance for
loan losses may be necessary in the event of future adverse changes in economic
and other conditions that the Company is unable to predict.
The following table sets forth the activity in the Company's allowance for
loan losses for the three months ended March 31, 1997 and 1996.
============================================================
Three Months Ended
March 31,
-------------------
(In thousands) 1997 1996
- -------------------------------------------------------------
Balance at beginning of period $106,495 $128,295
Provision charged to operations 10,000 10,500
Charge-offs:
Residential real estate loans (11,708) (9,868)
Commercial and multifamily real
estate loans (2,418) (2,504)
Consumer loans (1,081) (1,445)
Business loans -- (8)
- -------------------------------------------------------------
Total charge-offs (15,207) (13,825)
- -------------------------------------------------------------
Recoveries:
Residential real estate loans 1,247 1,171
Commercial and multifamily real
estate loans 154 312
Consumer loans 480 674
Business loans 54 66
- -------------------------------------------------------------
Total recoveries 1,935 2,223
- -------------------------------------------------------------
Net charge-offs (13,272) (11,602)
- -------------------------------------------------------------
Balance at end of period $103,223 $127,193
=============================================================
At March 31, 1997, the Company's allowance for loan losses represented 0.95%
of loans receivable and 56.52% of non-accrual loans, as compared with 0.99% of
loans receivable and 55.58% of non-accrual loans at December 31, 1996 and 1.27%
of loans receivable and 49.93% of non-accrual loans at March 31, 1996.
Loans Sold with Recourse
In the past, the Company sold certain residential and multifamily real
estate loans with limited recourse. At March 31, 1997, the balance of loans sold
with recourse amounted to $731.0 million, down from $751.5 million at December
31, 1996. The Company's related maximum potential recourse exposure was
approximately $190 million at March 31, 1997, as compared with approximately
$196 million at the end of 1996. Of the loans sold with recourse, $8.8 million
were delinquent 90 days or more at March 31, 1997. During the first three months
of 1997, the Company repurchased loans sold with recourse totaling $4.1 million.
MBS
In general, the Company's MBS carry a significantly lower credit risk than
its loans receivable. Of the $6.3 billion aggregate carrying value of the
Company's MBS available for sale and held to maturity at March 31, 1997,
approximately 19% were issued by the Federal Home Loan Mortgage Corporation
("FHLMC"), the Government National Mortgage Association ("GNMA") and the Federal
National Mortgage Association ("FNMA"). The Company's privately-issued MBS,
which have been issued by entities other than FHLMC, GNMA and FNMA, have
generally been underwritten by large investment banking firms, with the timely
payment of principal and interest on these securities supported ("credit
enhanced") in varying degrees by either insurance issued by a
23
financial guarantee insurer, letters of credit or subordination techniques.
Privately-issued MBS are subject to certain credit-related risks normally not
associated with MBS issued by FHLMC, GNMA and FNMA, including the limited loss
protection generally provided by the various forms of credit enhancements, as
losses in excess of certain levels are not protected. Furthermore, the credit
enhancement itself is subject to the creditworthiness of the provider. Thus, in
the event that a provider of a credit enhancement does not fulfill its
obligations, the MBS holder could be subject to risk of loss similar to a
purchaser of a whole loan pool.
During 1996 and 1995, the Company recognized losses of $4.7 million and $3.3
million, respectively, associated with other than temporary impairment in value
of certain privately-issued MBS. No such losses were incurred during the first
quarter of 1997. The losses in 1996 and 1995 were necessitated by the erosion in
the underlying credit enhancements, coupled with the Company's projections of
estimated future losses on the securities. No assurance can be given that future
losses on these securities, the carrying value of which amounted to
approximately $87 million at March 31, 1997, will not be incurred. While
substantially all of the $5.1 billion of privately-issued MBS held by the
Company at March 31, 1997 were rated "AA" or better by one or more of the
nationally recognized securities rating agencies, no assurance can be given that
such ratings will be maintained, and the Company cannot predict whether losses
will or will not be recognized on any such securities.
Derivative Financial Instruments
The credit risk from the Company's derivative financial instruments arises
from the possible default by a counterparty on its contractual obligations. The
level of credit risk associated with derivative financial instruments depends on
a variety of factors, including the estimated fair value of the instrument, the
collateral maintained, the use of master netting arrangements, and the ability
of the counterparty to comply with its contractual obligations. The Company has
established policies and procedures limiting its credit exposure to
counterparties of derivative financial instrument agreements, which include
consideration of credit ratings on a continuous basis, collateral requirements
and exposure to any one counterparty, among other issues. In addition, as deemed
necessary, the Company may enter into master netting agreements, under which it
may offset payable and receivable positions, to the extent they exist, with the
same counterparty in the event of default. There were no past due amounts
related to the Company's derivative financial instruments at March 31, 1997 or
December 31, 1996.
In connection with its use of derivative financial instruments, to the
extent a counterparty defaults, the Company would be subject to an economic loss
that corresponds to the cost to replace the agreement. With respect to interest
rate swaps, an added element of credit risk is introduced when there exists a
mismatch in the frequency of payment exchanges (i.e., the Company makes a
payment on a quarterly basis but receives a payment on a different payment
frequency). For interest rate floors, interest rate caps and over-the-counter
option agreements, the Company is also subject to credit risk to the extent
contractual payments required under the agreements have not been received.
LOAN PRODUCTION
The Company's total loan production of $812.7 million during the first
quarter of 1997 represents a $200.5 million decrease from the same quarter in
1996. Residential real estate loan production for the first quarter of 1997
amounted to $637.6 million (including $215.2 million for sale in the secondary
market) as compared with $904.9 million for the first quarter of 1996 (including
$449.9 million for sale in the secondary market), a decrease of 29.5%. These
declines largely reflect a reduction in residential real estate loan
originations due to, among other factors, a lower level of refinancing activity.
Of the residential real estate loans originated by the Company during the
three months ended March 31, 1997 and 1996 of $531.1 million and $773.8 million,
respectively, approximately 31% and 52%, respectively, were refinance loans, the
proceeds of which were used in full or in part to prepay loans previously
originated by the Company or other lenders. The level of refinance loans is
influenced by relative interest rates as well as other factors, including
refinancing costs, the availability of credit on terms acceptable to the
borrower and the Company, and real estate values.
24
The Company expects that its ongoing mortgage banking expansion efforts,
which included the opening of several loan production offices during the first
quarter of 1997, will favorably impact the Company's residential real estate
loan production levels going forward.
For the first three months of 1997, as compared with the same period one
year ago, the Company experienced growth in commercial and multifamily real
estate loan originations of $31.3 million, consumer loan originations of $26.9
million, and business loan originations of $8.6 million.
The following table summarizes the Company's loan production, both for
portfolio and for sale in the secondary market, for the three months ended March
31, 1997 and 1996.
==============================================================
Three Months Ended
March 31,
--------------------
(In thousands) 1997 1996
- --------------------------------------------------------------
Residential real estate loan production:
Originated $531,080 $ 773,792
Purchased 106,565 131,116
- --------------------------------------------------------------
Total residential real estate loan
production 637,645 904,908
- --------------------------------------------------------------
Commercial and multifamily real estate
loans originated:
Commercial real estate loans 47,523 17,497
Multifamily real estate loans 14,753 13,490
- --------------------------------------------------------------
Total commercial and multifamily real
estate loans originated 62,276 30,987
- --------------------------------------------------------------
Consumer loans originated:
Home equity loans 60,620 33,753
Other consumer loans 39,557 39,586
- --------------------------------------------------------------
Total consumer loans originated 100,177 73,339
- --------------------------------------------------------------
Business loans originated 12,639 4,031
- --------------------------------------------------------------
Total loan production $812,737 $1,013,265
==============================================================
FINANCIAL CONDITION
General
The Company's total assets amounted to $18.5 billion at March 31, 1997, a
decline of $405.3 million, or 2.1%, from December 31, 1996. This decline
primarily reflects a reduction in securities available for sale and securities
held to maturity, the impact of which was partially offset by an increase in
loans receivable.
Securities
The Company's securities available for sale amounted to $2.3 billion at
March 31, 1997, a decrease of $305.6 million, or 11.8%, as compared with
December 31, 1996. This decrease reflects, in part, sales of approximately $166
million of MBS. There were no purchases of securities available for sale by the
Company during the first three months of 1997.
Securities held to maturity by the Company, which amounted to $4.2 billion
at March 31, 1997, declined $222.0 million, or 5.1%, during the first quarter of
1997. Purchases of securities held to maturity by the Company amounted to less
than $0.1 million during the three months ended March 31, 1997.
25
The following table summarizes the amortized cost and estimated fair value
of securities available for sale and securities held to maturity at March 31,
1997 and December 31, 1996.
=======================================================================================
March 31, 1997 December 31, 1996
------------------------------------------------
Amortized Estimated Amortized Estimated
(In thousands) Cost Fair Value Cost Fair Value
- ----------------------------------------------------------------------------------------
Securities Available for Sale:
Debt securities:
MBS:
Pass-through securities:
Privately-issued $1,155,311 $1,149,339 $1,232,276 $1,228,264
FNMA 884,582 881,142 916,452 919,346
FHLMC 150,877 151,590 165,540 167,073
GNMA 17,616 17,810 185,166 187,006
Interest-only 1,778 1,274 1,850 1,291
- ----------------------------------------------------------------------------------------
Total MBS 2,210,164 2,201,155 2,501,284 2,502,980
- ----------------------------------------------------------------------------------------
U. S. government and federal agency 18,112 17,925 18,117 17,969
State and municipal 42,401 41,298 44,322 43,307
Domestic corporate 13,766 13,577 15,467 15,328
- ----------------------------------------------------------------------------------------
Total debt securities 2,284,443 2,273,955 2,579,190 2,579,584
- ----------------------------------------------------------------------------------------
Equity securities 10,340 9,982 10,343 9,988
- ----------------------------------------------------------------------------------------
Total securities available for sale $2,294,783 $2,283,937 $2,589,533 $2,589,572
========================================================================================
Securities Held to Maturity:
MBS:
Pass-through securities:
Privately-issued $2,393,540 $2,337,868 $2,520,013 $2,464,840
FHLMC 41,705 42,132 44,711 44,942
Collateralized mortgage obligations:
Privately-issued 1,582,359 1,544,198 1,670,983 1,644,120
FNMA 94,401 92,754 94,412 93,649
FHLMC 26,163 25,561 30,089 29,648
- ----------------------------------------------------------------------------------------
Total MBS 4,138,168 4,042,513 4,360,208 4,277,199
- ----------------------------------------------------------------------------------------
Other debt securities 3,787 2,737 3,763 2,738
- ----------------------------------------------------------------------------------------
Total securities held to maturity $4,141,955 $4,045,250 $4,363,971 $4,279,937
========================================================================================
Loans Receivable
The Company's total loans receivable, exclusive of the allowance for loan
losses, amounted to $10.9 billion at March 31, 1997, up from $10.7 billion at
the end of 1996. A significant component of the Company's current operating
strategy is to seek continuing growth in its loans receivable portfolio.
The principal segment of the Company's loans receivable portfolio is
residential real estate loans, which consist of one-to-four family first
mortgage loans and cooperative apartment loans. This segment of the loans
receivable portfolio rose $133.7 million during the first quarter of 1997 and
amounted to $8.2 billion at March 31, 1997. Total residential real estate loan
production for portfolio totaled $422.5 million during the first three months of
1997.
The Company's commercial and multifamily real estate loans receivable
portfolio amounted to $1.9 billion at March 31, 1997, an increase of $17.9
million from the end of 1996. (See the discussion of the BFS Acquisition in
"Overview.") Multifamily real estate loans receivable represented approximately
41% of this portfolio.
The Company's consumer loans receivable of $731.3 million at March 31, 1997
decreased $3.0 million from year-end 1996, primarily due to declines in
manufactured home loans and automobile loans. With respect to its consumer loans
receivable portfolio, the Company's primary focus continues to be home equity
loans, the principal balances of which rose $4.1 million during the first
quarter of 1997. The Company's efforts to expand its home equity loan portfolio
continue to be impacted by a high level of principal repayments. At March 31,
1997, unused home equity lines of credit amounted to approximately $370 million.
26
The following table presents a summary of the Company's consumer loans
receivable at the dates indicated.
================================================================
March 31, December 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------
Consumer loans:
Principal balances:
Home equity $531,535 $527,442
Manufactured home 57,050 60,965
Automobile 39,712 43,661
Loans secured by deposit accounts 39,080 39,684
Other 52,628 51,923
- ----------------------------------------------------------------
Total principal balances 720,005 723,675
Net deferred yield adjustments 11,268 10,606
- ----------------------------------------------------------------
Total consumer loans $731,273 $734,281
================================================================
The Company's business loans receivable increased to $47.1 million at March
31, 1997 from $43.1 million at December 31, 1996.
Deposits
At March 31, 1997, the Bank operated 86 branches, comprised of 85 branches
in the greater New York metropolitan area and one branch in Florida. (See the
discussion of the BFS Acquisition in "Overview.") Approximately 68% of the
Bank's deposits are assessable by the BIF and approximately 32% of its deposits
are assessable by the SAIF, in each case insured up to applicable limits.
The following table sets forth a summary of the Company's deposits at March
31, 1997 and December 31, 1996.
===========================================================================
March 31, 1997 December 31, 1996
---------------------------------------------------
Percentage Percentage
(Dollars in thousands) Amount of Total Amount of Total
- ---------------------------------------------------------------------------
Demand $ 1,165,261 9.1% $ 1,130,863 8.8%
Savings 2,447,318 19.0 2,460,367 19.1
Money market 1,996,785 15.5 2,007,448 15.6
Time 7,240,542 56.4 7,258,061 56.5
- ---------------------------------------------------------------------------
Total deposits $12,849,906 100.0% $12,856,739 100.0%
===========================================================================
Borrowed Funds
The Company's borrowed funds totaled $4.4 billion at March 31, 1997, down
$420.2 million, or 8.7%, from December 31, 1996.
At March 31, 1997, securities sold under agreements to repurchase amounted
to $3.5 billion, or 79.5% of total borrowed funds, as compared with $3.6
billion, or 73.7% of total borrowed funds, at December 31, 1996. Securities sold
under agreements to repurchase are subject to various risks, including those
relating to the financial strength of the counterparty to the transaction and
the difference between the carrying value of the securities sold and the amount
of funds obtained. The Company monitors the risks associated with its securities
sold under agreements to repurchase on an ongoing basis.
FHLBNY advances amounted to $560.1 million at March 31, 1997. Such advances
totaled $925.1 million at year-end 1996.
27
Stockholders' Equity
The Company's stockholders' equity amounted to $1.1 billion at March 31,
1997, an increase of $31.4 million from December 31, 1996. At March 31, 1997,
stockholders' equity represented 5.71% of total assets, up from 5.42% of total
assets at the end of 1996. The Company's book value per common share and
tangible book value per common share amounted to $10.01 and $9.92, respectively,
at March 31, 1997, as compared with $9.76 and $9.67, respectively, at December
31, 1996.
In the fourth quarter of 1996, the Holding Company announced a program to
repurchase up to approximately 5,000,000 shares of its common stock. As of March
31, 1997, the Holding Company had repurchased 3,025,900 shares of its common
stock under this program. No time limit has been established to complete this
repurchase program, and there can be no assurances as to when, or if, it will be
completed.
On April 25, 1997, the Board of Directors of the Holding Company declared a
cash dividend on the Holding Company's common stock of $0.04 per share. The
dividend is to be paid on June 16, 1997 to stockholders of record as of the
close of business on May 16, 1997.
LIQUIDITY
The liquidity position of the Company is managed pursuant to established
policies and guidelines and is monitored on a continuous basis. The Company's
liquidity management process focuses on ensuring that sufficient funds exist to
meet deposit withdrawals, loan and investment funding commitments, the repayment
of borrowed funds, and other obligations and expenditures.
Principal payments and prepayments on loans and MBS, which aggregated $772.2
million in the first quarter of 1997, continued to represent principal sources
of liquidity for the Company. Other potential sources of liquidity for the
Company include, but are not limited to, borrowed funds, net new deposits, sales
of loans in connection with mortgage banking activities, sales of securities
available for sale, and net cash provided by operations. Additionally, the
Company has access to the capital markets for issuing debt or equity securities,
as well as access to the discount window of the Federal Reserve Bank of New
York, if necessary, for the purpose of borrowing to meet temporary liquidity
needs, although it has not utilized this funding source in the past.
Excluding funds raised through the capital markets, the primary source of
funds of the Holding Company, on an unconsolidated basis, has been dividends
from the Bank, whose ability to pay dividends is subject to regulations of the
Office of Thrift Supervision ("OTS"), its primary regulator. During the first
quarter of 1997, the Bank paid dividends of $30.0 million to the Holding
Company.
On May 6, 1997, Trust I issued $200.0 million of Series A Capital
Securities, representing preferred beneficial interests in Trust I, in an
underwritten public offering and $6.2 million of beneficial interests
represented by its common securities to the Holding Company. In connection
therewith, Trust I purchased $206.2 million of Series A Subordinated Debentures
from the Holding Company.
Pursuant to regulations promulgated by the OTS, the Bank is required to
maintain (i) a ratio of average eligible liquid assets for the month to the sum
of average net withdrawable accounts and short-term borrowings during the
preceding month of at least 5.0% and (ii) a ratio of average eligible short-term
liquid assets for the month to the sum of average net withdrawable accounts and
short-term borrowings during the preceding month of at least 1.0%. For the month
of March 1997, the Bank's average liquidity ratio was 5.5% and its average
short-term liquidity ratio was 4.9%.
REGULATORY CAPITAL
Pursuant to OTS regulations, the Bank is required to maintain tangible
capital of at least 1.50% of adjusted total assets, leverage capital of at least
3.00% of adjusted total assets, and risk-based capital of at least 8.00% of
risk-weighted assets (the "Capital Adequacy Regulations"). As detailed in the
table below, the Bank was in compliance with the Capital Adequacy Regulations at
March 31, 1997.
28
Under the prompt corrective action regulations adopted by the OTS pursuant
to the Federal Deposit Insurance Corporation Improvement Act of 1991, an
institution is considered well capitalized, the highest of five categories, if
it has a leverage capital ratio of at least 5.00%, a tier 1 risk-based capital
ratio (leverage capital to risk-weighted assets) of at least 6.00%, and a total
risk-based capital ratio of at least 10.00%, and it is not subject to an order,
written agreement, capital directive, or prompt corrective action directive to
meet and maintain a specific capital level for any capital measure. At March 31,
1997, the Bank met the published standards for a well capitalized designation
under these regulations.
The following table sets forth the regulatory capital position of the Bank at
March 31, 1997 and December 31, 1996.
=================================================================
Bank Regulatory Capital
---------------------------------------
March 31, 1997 December 31, 1996
------------------- -----------------
(Dollars in thousands) Amount Ratio Amount Ratio
- ------------------------------------------------------------------
Tangible capital $1,162,477 6.32% $1,139,443 6.06%
Leverage capital 1,162,477 6.32 1,139,443 6.06
Tier 1 risk-based capital 1,162,477 12.21 1,139,443 11.96
Total risk-based capital 1,265,700 13.30 1,245,938 13.08
==================================================================
As a result of the BFS Acquisition, the Bank's regulatory capital ratios, on
a pro forma basis at March 31, 1997, while lower, would have continued to exceed
the Capital Adequacy Regulations and the published standards for a well
capitalized designation.
29
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
During the first quarter of 1997, the Company announced that, effective as
of March 1, 1997, David E. Sparks resigned as Chief Financial Officer of the
Holding Company and the Bank. A successor to Mr. Sparks has not yet been named.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
Exhibit 27 -- Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
30
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.
DIME BANCORP, INC.
(Registrant)
Dated: May 13,1997 By: /s/ Lawrence J. Toal
---------------------------
Lawrence J. Toal
Chief Executive Officer, President
and Chief Operating Officer
Dated: May 13, 1997 By: /s/ Harold E. Reynolds
----------------------
Harold E. Reynolds
Senior Vice President
and Controller
31
EXHIBIT INDEX
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------ -------------------------
27 Financial Data Schedule (filed electronically only)
32