SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 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 102,569,418
- ----------------------------- --------------------------------------
Class Outstanding shares as of July 31, 1997
DIME BANCORP, INC.
June 30, 1997
Form 10-Q
Index
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
as of June 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for the three
months and six months ended June 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders'
Equity for the six months ended June 30, 1997 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Part II. Other Information
Item 1. Legal Proceedings 32
Item 2. Changes in Securities 33
Item 4. Submission of Matters to a Vote of Security Holders 34
Item 5. Other Information 34
Item 6. Exhibits and Reports on Form 8-K 34
Signatures 36
From time to time, Dime Bancorp, Inc. (the "Holding Company" and, together
with its subsidiaries, 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.
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)
June 30, December 31,
1997 1996
- --------------------------------------------------------------------
ASSETS
Cash and due from banks $ 163,450 $ 158,753
Money market investments 35,824 25,764
Loans held for sale 228,487 115,325
Securities available for sale 3,166,733 2,589,572
Securities held to maturity (estimated
fair value of $3,939,578 and $4,279,937
at June 30, 1997 and December 31,
1996, respectively) 4,015,006 4,363,971
Federal Home Loan Bank of New York stock
Loans receivable, net: 272,176 266,244
Residential real estate 8,416,911 8,074,905
Commercial and multifamily real estate 2,415,241 1,885,733
Consumer 711,291 734,281
Business 50,680 43,138
Allowance for loan losses (101,026) (106,495)
- --------------------------------------------------------------------
Total loans receivable, net 11,493,097 10,631,562
- --------------------------------------------------------------------
Other real estate owned, net 23,937 53,255
Accrued interest receivable 118,016 106,041
Premises and equipment, net 113,174 103,541
Mortgage servicing assets 122,131 127,745
Deferred tax asset, net 156,052 183,672
Other assets 179,093 144,663
- --------------------------------------------------------------------
Total assets $20,087,176 $18,870,108
====================================================================
LIABILITIES
Deposits $13,335,199 $12,856,739
Securities sold under agreements to
repurchase 4,265,905 3,550,234
Federal Home Loan Bank of New York
advances 688,218 925,139
Senior notes 197,693 197,584
Guaranteed preferred beneficial
interests in Corporation's junior
subordinated deferrable interest
debentures 196,477 --
Other borrowed funds 151,991 142,234
Other liabilities 192,405 175,841
- --------------------------------------------------------------------
Total liabilities 19,027,888 17,847,771
- --------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01 per share
(200,000,000 shares authorized;
108,262,216 shares issued at June 30, 1997
and December 31, 1996) 1,083 1,083
Additional paid-in capital 914,386 914,386
Retained earnings 212,737 158,956
Treasury stock, at cost (4,543,167
shares at June 30, 1997 and 3,518,297
shares at December 31, 1996) (70,428) (51,498)
Net unrealized gain on securities
available for sale, net of taxes 2,237 22
Unearned compensation (727) (612)
- --------------------------------------------------------------------
Total stockholders' equity 1,059,288 1,022,337
- --------------------------------------------------------------------
Total liabilities and stockholders'
equity $20,087,176 $18,870,108
====================================================================
See accompanying notes to consolidated financial statements.
3
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------------------------------
INTEREST INCOME
Residential real estate loans $150,915 $137,463 $298,019 $271,036
Commercial and multifamily real estate
loans 48,629 38,858 88,463 78,895
Consumer loans 15,270 16,024 31,001 32,640
Business loans 1,105 736 2,076 1,473
Mortgage-backed securities 109,307 124,384 216,958 261,754
Other securities 5,696 8,667 11,251 17,087
Money market investments 8,046 6,683 16,071 13,458
- ---------------------------------------------------------------------------------
Total interest income 338,968 332,815 663,839 676,343
- ---------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 138,912 130,714 272,087 263,511
Borrowed funds 80,959 88,023 155,382 184,419
- ---------------------------------------------------------------------------------
Total interest expense 219,871 218,737 427,469 447,930
- ---------------------------------------------------------------------------------
Net interest income 119,097 114,078 236,370 228,413
Provision for loan losses 23,000 10,250 33,000 20,750
- ---------------------------------------------------------------------------------
Net interest income after provision for
loan losses 96,097 103,828 203,370 207,663
- ---------------------------------------------------------------------------------
NON-INTEREST INCOME
Loan servicing fees, net 10,221 8,843 20,138 18,737
Banking service fees 7,388 6,480 14,156 13,186
Securities and insurance brokerage fees 5,767 5,633 11,818 10,307
Net gains (losses) on sales activities 2,050 (1,906) 4,133 (1,445)
Other 3,810 4,438 6,596 6,271
- ---------------------------------------------------------------------------------
Total non-interest income 29,236 23,488 56,841 47,056
- ---------------------------------------------------------------------------------
NON-INTEREST EXPENSE
General and administrative expense:
Compensation and employee benefits 34,474 31,815 69,215 65,791
Occupancy and equipment, net 13,561 13,434 26,896 26,209
Other 25,655 25,584 49,960 49,027
- ---------------------------------------------------------------------------------
Total general and administrative expense 73,690 70,833 146,071 141,027
Other real estate owned expense, net 1,581 2,159 4,633 4,652
Amortization of mortgage servicing
assets 5,267 4,796 10,469 10,221
Restructuring and merger-related expense -- -- -- 3,504
- ---------------------------------------------------------------------------------
Total non-interest expense 80,538 77,788 161,173 159,404
- ---------------------------------------------------------------------------------
Income before income tax expense 44,795 49,528 99,038 95,315
Income tax expense 17,023 20,539 38,350 39,271
- ---------------------------------------------------------------------------------
Net income $ 27,772 $ 28,989 $ 60,688 $ 56,044
=================================================================================
Primary and fully diluted earnings per
common share $ 0.26 $ 0.27 $ 0.57 $ 0.51
=================================================================================
Primary average common shares
outstanding 106,031 109,100 106,342 109,560
Fully diluted average common shares
outstanding 106,125 109,221 106,397 109,709
=================================================================================
Cash dividend declared per common share $ 0.04 $ -- $ 0.04 $ --
=================================================================================
See accompanying notes to consolidated financial statements.
4
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'
EQUITY
(In thousands, except per share data)
(Unaudited)
Six Months
Ended
June 30, 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 60,688
Cash dividend declared on common stock
($0.04 per share) (4,169)
Treasury stock issued under employee
benefit plans (2,738)
- -------------------------------------------------------
Balance at end of period 212,737
- -------------------------------------------------------
TREASURY STOCK, AT COST
Balance at beginning of period (51,498)
Treasury stock purchased (27,482)
Treasury stock issued under employee
benefit plans 8,552
- -------------------------------------------------------
Balance at end of period (70,428)
- -------------------------------------------------------
NET UNREALIZED 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 2,215
- -------------------------------------------------------
Balance at end of period 2,237
- -------------------------------------------------------
UNEARNED COMPENSATION
Balance at beginning of period (612)
Restricted stock activity (334)
Unearned compensation amortized to
expense 219
- -------------------------------------------------------
Balance at end of period (727)
- -------------------------------------------------------
Total stockholders' equity $1,059,288
- -------------------------------------------------------
See accompanying notes to consolidated financial
statements.
5
DIME BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
---------------------------
1997 1996
- -------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 60,688 $ 56,044
Adjustments to reconcile net income to
net cash provided
by operating activities:
Provisions for loan and other real
estate owned losses 35,014 22,630
Depreciation and amortization of
premises and equipment 8,618 7,814
Other amortization and accretion,
net 27,481 30,906
Provision for deferred income tax
expense 28,991 29,710
Net securities (gains) losses (3,692) 1,836
Net increase in loans held for sale (113,162) (16,853)
Other, net 21,746 4,121
- -------------------------------------------------------------------
Net cash provided by operating
activities 65,684 136,208
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of securities available for
sale (1,164,313) (1,094,646)
Purchases of securities held to maturity (75,935) (256)
Proceeds from sales of securities 350,044 1,007,125
available for sale
Proceeds from maturities of securities
available for sale and held to maturity 696,080 1,110,762
Loans receivable originated and
purchased, net of principal payments (398,852) (366,514)
Acquisition of BFS Bankorp, Inc., net
of cash and cash equivalents acquired (85,529) --
Repurchases of assets sold with recourse (10,525) (14,167)
Proceeds from bulk sales of
non-performing assets 93,063 --
Proceeds from sales of other real
estate owned 24,258 25,791
Other, net (42,782) (29,318)
- -------------------------------------------------------------------
Net cash (used) provided by investing
activities (614,491) 638,777
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 31,174 89,384
Net decrease in borrowings with
original maturities of three months or
less (95,551) (162,616)
Proceeds from issuance of guaranteed
preferred beneficial interests in
Corporation's junior subordinated
deferrable interest debentures 196,474 --
Proceeds from other borrowings 727,875 565,000
Repayment of other borrowings (270,202) (1,286,767)
Proceeds from issuance of common and
treasury stock 5,445 1,360
Purchases of treasury stock (27,482) (25,466)
Payment of dividend on common stock (4,169) --
Other -- (1,913)
- -------------------------------------------------------------------
Net cash provided (used) by financing
activities 563,564 (821,018)
- -------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 14,757 (46,033)
Cash and cash equivalents at beginning
of period 184,517 235,356
- -------------------------------------------------------------------
Cash and cash equivalents at end of
period $ 199,274 $ 189,323
===================================================================
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid on deposits and borrowed
funds $ 401,890 $ 446,634
Net income tax payments (refunds) 339 (7,145)
SUPPLEMENTAL NON-CASH INVESTING
INFORMATION
Loans receivable transferred to other
real estate owned $ 9,425 $ 26,582
In connection with the acquisition of
BFS Bankorp, Inc.:
Fair value of assets acquired 636,763 --
Cash paid 93,325 --
Fair value of liabilities assumed 582,739 --
===================================================================
See accompanying notes to consolidated financial statements.
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements of the Holding Company 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. The
results for the three months and six months ended June 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997.
NOTE 2 -- ACQUISITION OF BFS BANKORP, INC.
As of the close of business on April 30, 1997, the Company acquired BFS
Bankorp, Inc. ("BFS Bankorp") and its wholly-owned subsidiary, Bankers Federal
Savings FSB ("Bankers Federal" and, together with BFS Bankorp, "BFS"), for $93.3
million in cash (the "BFS Acquisition"). At that time, BFS Bankorp was
liquidated and Bankers Federal was merged with and into The Dime Savings Bank of
New York, FSB ("the Bank"). The purchase price was funded from the normal cash
flows of the Company. Because the BFS Acquisition was accounted for under the
purchase method of accounting, its impact is only reflected in the Company's
consolidated financial statements beginning on May 1, 1997.
Net assets acquired in, and goodwill arising from, the BFS Acquisition
(after giving effect to purchase accounting adjustments, certain of which are
subject to refinement) amounted to $54.0 million and $39.3 million,
respectively. Such net assets included loans receivable, net, of $577.2 million
and deposits of $447.1 million. Goodwill associated with the BFS Acquisition is
being amortized over a 15 year period using the straight-line method.
NOTE 3 -- ISSUANCE OF CAPITAL SECURITIES, SERIES A AND JUNIOR SUBORDINATED
DEFERRABLE INTEREST DEBENTURES, SERIES A
On May 6, 1997, Dime Capital Trust I ("Dime Capital"), a Delaware statutory
business trust that was 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 Dime Capital, in an underwritten
public offering and $6.2 million of beneficial interests represented by its
common securities to the Holding Company. In connection therewith, Dime Capital
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 Dime Capital, are subordinate and junior in
right of payment to all present and future senior indebtedness of the Holding
Company. Dime Capital'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. Distributions on the Series A Capital Securities
are reflected as interest expense in the Company's Consolidated Statements of
Income.
NOTE 4 -- BULK SALES OF CERTAIN NON-PERFORMING ASSETS
During May 1997, the Company sold approximately $126 million of its non-
performing residential real estate assets in bulk sales (the "NPA Sales"). Such
assets were comprised of approximately $113 million of non-accrual loans and
approximately $13 million of other real estate owned ("ORE"). In connection with
the NPA Sales, a pre-tax charge of $14.6 million was recognized during the
second quarter of 1997.
7
NOTE 5 -- PENDING ACQUISITION OF NORTH AMERICAN MORTGAGE COMPANY ("NAMC") AND
RELATED MATTERS
The Company entered into a definitive agreement (the "NAMC Merger
Agreement"), dated as of June 22, 1997 (and amended and restated as of July 31,
1997) to acquire NAMC, a mortgage banking company headquartered in Santa Rosa,
California (the "NAMC Acquisition"). Under the terms of the NAMC Merger
Agreement, each share of NAMC's common stock outstanding immediately prior to
the closing of the NAMC Acquisition will be converted, subject to certain
adjustments, into 1.37 shares (the "Exchange Ratio") of the Holding Company's
common stock ("Common Stock") and each outstanding option issued by NAMC to
acquire NAMC's common stock will be converted, after giving effect to the
Exchange Ratio, into an option to purchase Common Stock. At June 30, 1997, NAMC
had approximately 14.0 million shares of its common stock outstanding. In
addition, at that date, outstanding options issued by NAMC to acquire its common
stock amounted to approximately 1.5 million. The NAMC Acquisition, which will be
accounted for under the purchase method of accounting, is currently expected to
be consummated during the fourth quarter of 1997. The NAMC Acquisition is
subject to the satisfaction of certain conditions, including approval by NAMC's
stockholders. NAMC currently operates 104 loan origination offices in 30 states
and, at June 30, 1997, serviced $12.7 billion of loans for others.
In connection with the announcement of the NAMC Acquisition, the Holding
Company announced a program to repurchase up to approximately 6.9 million shares
of Common Stock. Such repurchases will be made over time at prevailing prices in
the open market or in privately-negotiated transactions.
NOTE 6 -- 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 ( the "FASB")
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.
8
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 and diluted earnings per share, as computed pursuant to
SFAS 128, for the three- and six-month periods ended June 30, 1997 are set forth
in the following table.
Three Months Six Months
Ended Ended
June 30, June 30,
----------------------------
1997 1996 1997 1996
- --------------------------------------------------------
Basic earnings per share $0.27 $0.28 $0.58 $0.55
Diluted earnings per share 0.26 0.27 0.57 0.51
========================================================
Disclosure of Information about Capital Structure
The FASB issued Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" ("SFAS 129") in February
1997. SFAS 129 supersedes specific disclosure requirements of Accounting
Principles Board Opinions No. 10, "Omnibus Opinion-1966," and No. 15, "Earnings
Per Share," and Statement of Financial Accounting Standards No. 47, "Disclosure
of Long-Term Obligations," and consolidates them in SFAS 129 for ease of
retrieval and for greater visibility to non-public entities. SFAS 129 is
effective for financial statements issued for periods ending after December 15,
1997.
Reporting Comprehensive Income
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. It does not address issues of recognition or measurement
for comprehensive income and its components. SFAS 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. Under the requirements of
SFAS 130, an enterprise must classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position. SFAS
130 is effective for fiscal years beginning after December 15, 1997 and requires
reclassification of financial statements for earlier periods provided for
comparative purposes.
Disclosures about Segments of an Enterprise and Related Information
The FASB, in June 1997, issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements, requires that selected information about operating segments be
reported in interim financial statements issued to shareholders, and establishes
standards for related disclosures about an enterprise's products and services,
geographic areas, and major customers. As defined in SFAS 131, operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the enterprise's chief
operating decision maker in deciding how to allocate resources and in assessing
performance. SFAS 131 supersedes Statement of Financial Accounting Standards No.
14, "Financial Reporting for Segments of a Business," and amends Statement of
Financial Accounting Standards No. 94, "Consolidation of All Majority-
9
Owned Subsidiaries." SFAS 131 is effective for financial statements for periods
beginning after December 15, 1997. SFAS 131 need not be applied to interim
financial statements in the initial year of its application, but comparative
information for interim periods in the initial year of application is to be
reported in financial statements for interim periods in the second year of
application.
10
DIME BANCORP, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company reported net income of $27.8 million, or $0.26 per fully diluted
common share, for the second quarter of 1997, as compared with net income of
$29.0 million, or $0.27 per fully diluted common share, for the second quarter
of 1996. For the six months ended June 30, 1997, net income amounted to $60.7
million, or $0.57 per fully diluted common share, up $4.6 million, or 8.3%, from
the $56.0 million, or $0.51 per fully diluted common share, reported for the
comparable period in 1996. Net income levels for the 1997 periods were adversely
impacted by special provisions for loan and ORE losses totaling $14.6 million
(or approximately $0.09 per fully diluted common share on an after-tax basis)
associated with the sales, during May 1997, of approximately $126 million of
non-performing assets in the NPA Sales, the effects of which were partially
offset by the benefits derived from the BFS Acquisition.
The Company's results of operations for the three- and six-month periods
ended June 30, 1997, as compared with the corresponding periods in 1996, were
favorably affected by increases in net interest income of $5.0 million and $8.0
million, respectively, together with growth in non-interest income of $5.7
million and $9.8 million, respectively. The increase in net income for the six
months ended June 30, 1997, as compared with the corresponding period one year
ago, also reflects the recognition, during the 1996 period, of restructuring and
merger-related expense in the amount of $3.5 million associated with the merger,
in January 1995, of Anchor Bancorp, Inc. and its savings bank subsidiary, Anchor
Savings Bank FSB ("Anchor Savings"), with and into the Holding Company and the
Bank, respectively (the "Anchor Merger"). In addition, the changes in the
Company's results of operations in the 1997 periods from the 1996 periods also
reflect increases in general and administrative ("G&A") expense of $2.9 million
and $5.0 million for the second quarter and first six months of 1997, as
compared with the respective prior year periods
The Company's annualized return on average stockholders' equity was 10.67%
for the second quarter of 1997, as compared with 11.72% for the second quarter
of 1996, and 11.66% for the first six months of 1997, as compared with 11.32%
for the corresponding year ago period. The Company's annualized return on
average assets was 0.56% and 0.62% for the three- and six-month periods ended
June 30, 1997, as compared with 0.59% and 0.56% for the second quarter and first
six months of 1996, respectively.
In addition to the consummation of the NPA Sales and the BFS Acquisition,
the second quarter of 1997 was marked by the announcement of the pending NAMC
Acquisition, the declaration and payment of a cash dividend on the Common Stock
of $0.04 per share, and the issuance of the $200.0 million in principal amount
of Series A Capital Securities.
RESULTS OF OPERATIONS
Net Interest Income
The Company's net interest income amounted to $119.1 million for the second
quarter of 1997, an increase of $5.0 million, or 4.4%, as compared with the
second quarter of 1996. For the six-month period ended June 30, 1997, net
interest income amounted to $236.4 million, up $8.0 million, or 3.5%, relative
to the same period one year ago. These increases reflect, in part, the BFS
Acquisition and the reinvestment of the proceeds from the NPA Sales, which more
than offset the impact of the issuance of the Series A Capital Securities. The
Company's net interest margin increased to 2.52% for each of the three- and six-
month periods ended June 30, 1997 from 2.39% and 2.37% for the second quarter
and first six months of 1996, respectively. Contributing to the higher net
interest margin levels were favorable changes in the mix of both interest-
earning assets and interest-bearing liabilities.
The yields on average interest-earning assets for the three- and six-month
periods ended June 30, 1997 of 7.15% and 7.10%, respectively, were up from the
comparable periods in 1996 by 18 basis points and 8 basis points, respectively.
These improvements were attributable to, among other factors, growth in average
loans, coupled with
11
a reduction in the average balance of mortgage-backed securities ("MBS"), which
in general provide a lower yield than the Company's loans. For the second
quarter and first six months of 1997, as compared with the corresponding periods
in 1996, average loans rose $1.2 billion, or 11.3%, and $1.0 billion, or 9.7%,
respectively, while average MBS declined $1.2 billion, or 14.8%, and $1.5
billion, or 18.1%, respectively. Overall, total average interest-earning assets
decreased $138.0 million for the second quarter of 1997 and $586.8 million for
the first six months of 1997, as compared with the corresponding periods one
year ago.
The cost of the Company's average interest-bearing liabilities was 4.73% for
the 1997 second quarter, up 5 basis points from the 1996 second quarter, and
4.70% for the six months ended June 30, 1997, a decline of 4 basis points as
compared with the corresponding period in 1996. While the cost of average
interest-bearing liabilities during each of the 1997 periods, as compared with
the 1996 periods, was unfavorably affected by somewhat higher short-term
interest rates, it was favorably impacted by growth in average deposits as a
percentage of total average interest-bearing liabilities and a shift in the mix
of borrowed funds from Federal Home Loan Bank of New York ("FHLBNY") advances to
relatively lower costing securities sold under agreements to repurchase. For the
three- and six-month periods ended June 30, 1997, as compared with the same
periods one year ago, average deposits rose $521.4 million and $389.0 million,
respectively, while average borrowed funds declined $664.6 million and $1.0
billion, respectively. Average deposits represented 71.0% and 71.1% of total
average interest-bearing liabilities for the three- and six-month periods ended
June 30, 1997, respectively, up from 67.7% and 66.8% during the respective prior
year periods.
12
The following tables set 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 loan balances in the tables below.
=================================================================================================================
Three Months Ended June 30,
-------------------------------------------------------------------------
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 $ 8,372,476 $150,915 7.21% $ 7,667,511 $137,463 7.17%
Commercial and multifamily real
estate 2,263,548 48,629 8.59 1,817,481 38,858 8.55
Consumer 711,018 15,270 8.61 718,162 16,024 8.97
Business 47,647 1,105 9.30 32,879 736 9.01
----------------------------------------------------------------------------------------------------------------
Total loans 11,394,689 215,919 7.58 10,236,033 193,081 7.55
MBS 6,618,557 109,307 6.61 7,769,279 124,384 6.40
Other securities 366,117 5,696 6.24 579,763 8,667 6.00
Money market investments 575,002 8,046 5.54 507,332 6,683 5.21
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 18,954,365 338,968 7.15 19,092,407 332,815 6.97
Other assets 791,871 706,941
- -----------------------------------------------------------------------------------------------------------------
Total assets $19,746,236 $19,799,348
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Demand $ 1,236,047 2,143 0.70 $ 1,108,924 1,962 0.71
Savings 2,503,437 15,504 2.48 2,611,096 16,328 2.52
Money market 1,966,423 18,324 3.74 2,109,065 20,477 3.90
Time 7,470,223 102,941 5.53 6,825,628 91,947 5.42
- -----------------------------------------------------------------------------------------------------------------
Total deposits 13,176,130 138,912 4.23 12,654,713 130,714 4.15
- -----------------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 3,935,503 56,128 5.64 2,440,071 32,935 5.34
FHLBNY advances 971,673 14,491 5.90 3,228,701 47,184 5.78
Other 465,939 10,340 8.87 368,916 7,904 8.57
- -----------------------------------------------------------------------------------------------------------------
Total borrowed funds 5,373,115 80,959 5.97 6,037,688 88,023 5.77
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 18,549,245 219,871 4.73 18,692,401 218,737 4.68
Other liabilities 155,765 117,518
Stockholders' equity 1,041,226 989,429
- ------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $19,746,236 $19,799,348
- -----------------------------------------------------------------------------------------------------------------
Net interest income $119,097 $114,078
- -----------------------------------------------------------------------------------------------------------------
Interest rate spread 2.42 2.29
- -----------------------------------------------------------------------------------------------------------------
Net interest margin 2.52 2.39
=================================================================================================================
13
=================================================================================================================
Six Months Ended June 30,
-------------------------------------------------------------------------
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 $ 8,299,013 $298,019 7.18% $ 7,557,863 $271,036 7.17%
Commercial and multifamily real
estate 2,070,440 88,463 8.55 1,830,072 78,895 8.62
Consumer 723,574 31,001 8.63 733,426 32,640 8.95
Business 44,811 2,076 9.34 33,120 1,473 8.94
----------------------------------------------------------------------------------------------------------------
Total loans 11,137,838 419,559 7.54 10,154,481 384,044 7.57
MBS 6,601,816 216,958 6.57 8,061,645 261,754 6.49
Other securities 361,098 11,251 6.27 558,641 17,087 6.14
Money market investments 594,241 16,071 5.38 507,005 13,458 5.25
- -----------------------------------------------------------------------------------------------------------------
Total interest-earning assets 18,694,993 663,839 7.10 19,281,772 676,343 7.02
Other assets 774,429 717,679
- -----------------------------------------------------------------------------------------------------------------
Total assets $19,469,422 $19,999,451
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Deposits:
Demand $ 1,182,868 4,041 0.69 $ 1,082,130 4,171 0.78
Savings 2,474,579 30,496 2.49 2,632,553 32,911 2.51
Money market 1,982,437 36,831 3.75 2,124,242 40,994 3.88
Time 7,357,743 200,719 5.50 6,769,689 185,435 5.51
- -----------------------------------------------------------------------------------------------------------------
Total deposits 12,997,627 272,087 4.22 12,608,614 263,511 4.20
- -----------------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 3,815,774 107,178 5.59 1,961,300 53,317 5.38
FHLBNY advances 1,053,113 30,504 5.76 3,939,162 115,217 5.79
Other 402,482 17,700 8.79 372,148 15,885 8.54
- -----------------------------------------------------------------------------------------------------------------
Total borrowed funds 5,271,369 155,382 5.87 6,272,610 184,419 5.82
- -----------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 18,268,996 427,469 4.70 18,881,224 447,930 4.74
Other liabilities 159,766 128,306
Stockholders' equity 1,040,660 989,921
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $19,469,422 $19,999,451
- -----------------------------------------------------------------------------------------------------------------
Net interest income $236,370 $228,413
- -----------------------------------------------------------------------------------------------------------------
Interest rate spread 2.40 2.28
- -----------------------------------------------------------------------------------------------------------------
Net interest margin 2.52 2.37
=================================================================================================================
14
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 Six Months Ended
June 30, 1997 versus 1996 June 30, 1997 versus 1996
--------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
--------------------------------------------------------------
Due To Due To
------------------- ---------------------
(In thousands) Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------
Interest income:
Loans:
Residential real estate $ 12,703 $ 749 $ 13,452 $ 26,614 $ 369 $ 26,983
Commercial and multifamily real
estate 9,582 189 9,771 10,276 (708) 9,568
Consumer (159) (595) (754) (436) (1,203) (1,639)
Business 343 26 369 543 60 603
- ------------------------------------------------------------------------------------------------------
Total loans 22,469 369 22,838 36,997 (1,482) 35,515
- ------------------------------------------------------------------------------------------------------
MBS (18,902) 3,825 (15,077) (47,939) 3,143 (44,796)
Other securities (3,318) 347 (2,971) (6,185) 349 (5,836)
Money market investments 919 444 1,363 2,340 273 2,613
- ------------------------------------------------------------------------------------------------------
Total interest income 1,168 4,985 6,153 (14,787) 2,283 (12,504)
- ------------------------------------------------------------------------------------------------------
Interest expense:
Deposits:
Demand 222 (41) 181 371 (501) (130)
Savings (670) (154) (824) (1,967) (448) (2,415)
Money market (1,356) (797) (2,153) (2,689) (1,474) (4,163)
Time 8,876 2,118 10,994 16,175 (891) 15,284
- ------------------------------------------------------------------------------------------------------
Total deposits 7,072 1,126 8,198 11,890 (3,314) 8,576
- ------------------------------------------------------------------------------------------------------
Borrowed funds:
Securities sold under agreements
to repurchase 20,999 2,194 23,193 51,727 2,134 53,861
FHLBNY advances (33,272) 579 (32,693) (83,136) (1,577) (84,713)
Other 2,144 292 2,436 1,322 493 1,815
- ------------------------------------------------------------------------------------------------------
Total borrowed funds (10,129) 3,065 (7,064) (30,087) 1,050 (29,037)
- ------------------------------------------------------------------------------------------------------
Total interest expense (3,057) 4,191 1,134 (18,197) (2,264) (20,461)
- ------------------------------------------------------------------------------------------------------
Net interest income $ 4,225 $ 794 $ 5,019 $ 3,410 $ 4,547 $ 7,957
======================================================================================================
Provision for Loan Losses
The Company's provision for loan losses, which is predicated upon the
Company's assessment of the adequacy of its allowance for loan losses (see
"Management of Credit Risk -- Allowance for Loan Losses"), amounted to $23.0
million for the second quarter of 1997 and $33.0 million for the first six
months of 1997. This compares with $10.3 million and $20.8 million for the
three- and six-month periods ended June 30, 1996, respectively. The increases in
the 1997 periods, as compared with the 1996 periods, were substantially
attributable to a $14.0 million special provision for loan losses recognized
during the three months ended June 30, 1997 in connection with the NPA Sales
(see Note 4 of Notes to Consolidated Financial Statements).
15
Non-Interest Income
General. The following table sets forth the components of the Company's non-
interest income for the three months and six months ended June 30, 1997 and
1996.
=================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
Loan servicing fees, net $10,221 $ 8,843 $20,138 $18,737
Banking service fees 7,388 6,480 14,156 13,186
Securities and insurance brokerage fees 5,767 5,633 11,818 10,307
Net gains (losses) on sales activities 2,050 (1,906) 4,133 (1,445)
Other 3,810 4,438 6,596 6,271
- ---------------------------------------------------------------------------------
Total non-interest income $29,236 $23,488 $56,841 $47,056
=================================================================================
Loan Servicing Fees, Net. Loan servicing fees, net, of $10.2 million for the
second quarter of 1997 and $20.1 million for the first six months of 1997 rose
from the comparable prior year periods by 15.6% and 7.5%, respectively. These
increases resulted principally from growth in the portfolio of loans serviced
for others, the balance of which amounted to $10.8 billion at June 30, 1997, an
increase of $1.6 billion, or 17.4%, from one year earlier. Partially offsetting
the impact of the growth in the loan servicing portfolio were declines in the
average loan servicing fee rate, which were primarily due to 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.
Banking Service Fees. Banking service fees amounted to $7.4 million for the
second quarter of 1997, an increase of $0.9 million, or 14.0%, from the same
quarter one year ago. For the six months ended June 30, 1997, banking service
fees amounted to $14.2 million, representing growth of $1.0 million, or 7.4%, as
compared with the corresponding 1996 period. These improvements reflect volume
increases in certain underlying transactions, together with changes in the
Company's fee structure.
Securities and Insurance Brokerage Fees. Securities and insurance brokerage
fees were $5.8 million for the second quarter of 1997 and $11.8 million for the
six months ended June 30, 1997, up from $5.6 million and $10.3 million for the
three- and six-month periods ended June 30, 1996, respectively. Fees from
securities brokerage activities amounted to $5.4 million for the second quarter
of 1997, a $0.3 million, or 5.1%, increase from the second quarter of 1996, and
$10.9 million for the first six months of 1997, an increase of $1.4 million, or
14.1%, as compared with the same period in 1996. These increases were largely
driven by higher levels of annuity sales. Insurance-related fee income declined
$0.1 million for the second quarter of 1997 from the second quarter of 1996, but
increased $0.2 million for the first six months of 1997 from the comparable
prior year period.
Net Gains (Losses) on Sales Activities. The Company recognized net gains on
sales activities of $2.1 million and $4.1 million for the second quarter and
first six months of 1997, respectively, as compared with net losses of $1.9
million and $1.4 million for the respective prior year periods. Net gains on
securities transactions amounted to $1.7 million for the 1997 second quarter and
$3.7 million for the first six months of 1997. In comparison, the Company
recognized net losses on securities transactions of $1.2 million and $1.8
million during the three- and six-month periods ended June 30, 1996,
respectively. The net losses on securities transactions during the 1996 periods
included losses of $1.2 million associated with the other than temporary
impairment in value of certain MBS (see "Management of Credit Risk -- MBS"). The
Company recognized net gains on loan sales in connection with its mortgage
banking activities of $0.9 million for the 1997 second quarter, as compared with
net losses of $0.4 million in the prior year quarter, and net gains on loan
sales of $1.7 million for the first six months of 1997, up from net gains of
$1.5 million for the comparable 1996 period.
Other Non-Interest Income. Other non-interest income was $3.8 million and
$6.6 million for the three- and six-month periods ended June 30, 1997,
respectively, as compared with $4.4 million and $6.3 million for the respective
year earlier periods. Loan-related fee income, which is a principal component of
other non-interest income, amounted to $2.9 million for the second quarter of
1997, relatively unchanged from the comparable prior year quarter, and $5.0
million for the first six months of 1997, up $0.2 million from the corresponding
period in
16
1996. Other non-interest income for the first six months of 1997 also included
interest income of $0.6 million on federal income tax refunds recognized during
the first quarter of the year, as well as $0.7 million of income recorded during
the second quarter of 1997 in connection with the resolution of certain legal
proceedings. Other non-interest income during the first six months of 1996
included $1.0 million of income associated with the settlement of certain
litigation during the first quarter of that year.
Non-Interest Expense
General. The following table sets forth the components of the Company's non-
interest expense for the three months and six months ended June 30, 1997 and
1996.
================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------
(In thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------
G&A expense:
Compensation and employee benefits $34,474 $31,815 $ 69,215 $ 65,791
Occupancy and equipment, net 13,561 13,434 26,896 26,209
Other 25,655 25,584 49,960 49,027
- --------------------------------------------------------------------------------
Total G&A expense 73,690 70,833 146,071 141,027
ORE expense, net 1,581 2,159 4,633 4,652
Amortization of mortgage servicing
assets 5,267 4,796 10,469 10,221
Restructuring and merger-related expense -- -- -- 3,504
- --------------------------------------------------------------------------------
Total non-interest expense $80,538 $77,788 $161,173 $159,404
================================================================================
G&A Expense. G&A expense amounted to $73.7 million for the second quarter of
1997, an increase of $2.9 million, or 4.0%, from the second quarter of 1996. For
the six months ended June 30, 1997, G&A expense was $146.1 million, an increase
of $5.0 million, or 3.6%, as compared with the year-earlier period. Factors
contributing to the higher G&A expense levels included the ongoing expansion of
the Company's mortgage banking operations and other lending activities, the BFS
Acquisition, and the implementation of certain other strategic initiatives.
Compensation and employee benefits expense totaled $34.5 million for the
second quarter of 1997 and $69.2 million for the six months ended June 30, 1997,
representing increases of $2.7 million, or 8.4%, and $3.4 million, or 5.2%, as
compared with the corresponding periods in 1996. The growth in the expense
levels was largely attributable to the Company's expansion of its lending
operations, the BFS Acquisition, higher commission- and incentive-based
compensation levels, and normal merit increases. The Company's full-time
equivalent employee complement was 3,011 at June 30, 1997, up from 2,903 one
year earlier and 2,872 at December 31, 1996.
Occupancy and equipment expense, net, amounted to $13.6 million for the
second quarter of 1997, up $0.1 million from the comparable quarter of 1996.
For the six months ended June 30, 1997, occupancy and equipment expense, net,
was $26.9 million, an increase of $0.7 million as compared with the
corresponding year-earlier period. These increases reflect, in part, the BFS
Acquisition, the continuing enhancement of the Company's technological
capabilities, and costs incurred in support of the ongoing expansion of certain
of the Company's business activities, the effects of which were partially offset
by a variety of factors.
Other G&A expense was $25.7 million and $50.0 million for the second quarter
and first six months of 1997, respectively, as compared with $25.6 million and
$49.0 million for the three- and six-month periods ended June 30, 1996,
respectively. The increases in the 1997 periods, as compared with the 1996
periods, were due to numerous factors, including the absorption of BFS's
operations, the amortization of goodwill associated with the BFS Acquisition,
business expansion efforts, and various other strategic initiatives. These
factors were partially offset by reduced marketing costs, primarily due to lower
television advertising levels, and declines in federal deposit insurance
premiums as a result of the enactment of the Deposit Insurance Funds Act of
1996.
ORE Expense, Net. ORE expense, net, which is impacted by a variety of
factors, including the level and type of properties owned and general economic
conditions, was $1.6 million for the second quarter of 1997, a decline of $0.6
million, or 26.8%, from the comparable quarter in 1996. For the six months
ended June 30, 1997, ORE expense, net, was $4.6 million, virtually unchanged
from the corresponding period in 1996. The levels of
17
ORE expense, net, for the 1997 periods benefited from a reduced level of ORE,
primarily as a result of the sales of approximately $13 million of residential
ORE during the 1997 second quarter in connection with the NPA Sales, the effects
of which were partially offset by a $0.6 million special provision for loss
associated with the NPA Sales recorded during the second quarter of 1997.
The following table presents the significant components of the Company's ORE
expense, net, for the three months and six months ended June 30, 1997 and 1996.
=================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------
(In thousands) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------
Operating expense, net of rental income $ 987 $1,693 $2,862 $ 3,802
Provision for losses /(1)/ 733 990 2,014 1,880
Net gains on sales (139) (524) (243) (1,030)
- ---------------------------------------------------------------------------------
Total ORE expense, net $1,581 $2,159 $4,633 $ 4,652
=================================================================================
(1) The three- and six-month periods ended June 30, 1997 include a $0.6 million
provision for losses associated with the NPA Sales.
Amortization of Mortgage Servicing Assets. Amortization of mortgage
servicing assets amounted to $5.3 million for the first quarter of 1997 and
$10.5 million for the first six months of 1997, up $0.5 million and $0.2 million
from the respective periods during 1996. These increases principally reflect the
higher level of mortgage servicing assets during the 1997 periods, as compared
with the 1996 periods.
Restructuring and Merger-Related Expense. Restructuring and other expense
associated with the Anchor Merger totaled $3.5 million for the six months ended
June 30, 1996, all of which was incurred during the first quarter of that year.
No such expense was incurred during the first six months of 1997. The expense
incurred during 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
Income tax expense amounted to $17.0 million and $38.4 million for the
three- and six-month periods ended June 30, 1997, respectively. In comparison,
income tax expense for the second quarter and first six months of 1996 was $20.5
million and $39.3 million, respectively. The declines in income tax expense
reflect the net impact of changes in pre-tax income, reductions in the Company's
effective income tax rates in the 1997 periods as compared with the 1996 periods
as a result of various tax planning strategies, and favorable settlements of
local income tax issues which reduced income tax expense for the three months
and six months ended June 30, 1996 by $0.6 million and $1.3 million,
respectively.
The Company's effective income tax rate was 38.0% for the second quarter of
1997, down from 41.5% for the second quarter of 1996. For the six months ended
June 30, 1997 and 1996, the Company's effective income tax rates were 38.7% and
41.2%, respectively.
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").
18
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 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
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 and fixed-rate medium-term
securities.
The measurement of differences (or "gaps") between the Company's interest-
earning assets and interest-bearing liabilities that mature or reprice within a
given period of time is one 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.
The following table reflects the repricing or maturity of the Company's
interest-earning assets, interest-bearing liabilities and related derivative
financial instruments at June 30, 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, prior to 1997, had 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 in 1997,
the Company modified its
19
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, prior to 1997, had reported its cumulative gap as a
percentage of total interest-earning assets. Effective in 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
- --------------------------------------------------------------------------------
June 30, 1997:
Interest-earning assets:
Loans $ 5,463 $3,321 $3,039 $11,823
MBS 5,614 1,072 405 7,091
Other 44 13 341 398
- --------------------------------------------------------------------------------
Total interest-earning assets 11,121 4,406 3,785 19,312
- --------------------------------------------------------------------------------
Interest-bearing liabilities:
Deposits 7,756 2,560 3,019 13,335
Borrowed funds 4,966 238 296 5,500
- --------------------------------------------------------------------------------
Total interest-bearing liabilities 12,722 2,798 3,315 18,835
- --------------------------------------------------------------------------------
Impact of derivative financial
instruments 1,203 (681) (522) --
-------------------------------------------------------------------------------
Periodic gap $ (398) $ 927 $ (52) $ 477
- --------------------------------------------------------------------------------
Cumulative gap $ (398) $ 529 $ 477
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (2.0)% 2.6% 2.4%
- --------------------------------------------------------------------------------
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 620 (346) (274) --
instruments
------------------------------------------------------------------------------
Periodic gap $ (619) $ 633 $ 413 $ 427
- --------------------------------------------------------------------------------
Cumulative gap $ (619) $ 14 $ 427
- --------------------------------------------------------------------------------
Cumulative gap as a percentage of
total assets (3.3)% --% 2.3%
================================================================================
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.
20
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 June
30, 1997 and December 31, 1996.
=========================================================================================
June 30, 1997 December 31, 1996
------------------------ ---------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair Value Amount Fair Value
- -----------------------------------------------------------------------------------------
Interest rate swaps hedging:
Residential real estate loans
receivable $1,037,121 $ 1,480 $ 438,432 $ 414
Commercial and multifamily real
estate loans receivable 330,713 (2,991) 221,784 (3,408)
MBS held to maturity 67,122 (227) -- --
Securities sold under agreements to
repurchase 430,000 593 420,000 1,241
FHLBNY advances -- -- 30,000 (690)
- -----------------------------------------------------------------------------------------
Total interest rate swaps 1,864,956 (1,145) 1,110,216 (2,443)
- -----------------------------------------------------------------------------------------
Interest rate caps hedging:
Residential real estate loans
receivable 377,249 154 424,484 527
MBS available for sale 170,771 70 192,153 239
MBS held to maturity 228,213 93 256,787 319
Securities sold under agreements to
repurchase 361,000 3,013 361,000 4,647
- -----------------------------------------------------------------------------------------
Total interest rate caps 1,137,233 3,330 1,234,424 5,732
- -----------------------------------------------------------------------------------------
Options hedging residential real estate
loans receivable 40,000 362 -- --
Interest rate futures hedging
commercial and multifamily
real estate loans receivable 13,200 60 -- --
- -----------------------------------------------------------------------------------------
Total $3,055,389 $ 2,607 $2,344,640 $ 3,289
=========================================================================================
The table that follows sets forth the contractual maturities of the
Company's interest rate swap agreements outstanding at June 30, 1997, 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 June 30,
1997 levels. All of the Company's outstanding interest rate swaps at June 30,
1997 provide for it to be a fixed-rate payer and a variable-rate receiver based
on short-term London Interbank Offered Rates ("LIBOR").
================================================================================
Weighted Average
----------------------------
Notional Variable-Rate Fixed-Rate
(Dollars in thousands) Amount Receivable Payable
- --------------------------------------------------------------------------------
Maturing in the year ending December 31:
1997 $ 495,062 5.75% 5.45%
1998 394,495 5.69 6.28
1999 341,645 5.71 6.39
2000 139,664 5.70 6.43
2001 275,781 5.69 6.47
Thereafter 218,309 5.69 6.64
- --------------------------------------------------------------------------------
Total $1,864,956 5.71% 6.16%
================================================================================
Under each of its outstanding interest rate cap agreements at June 30, 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 June
30, 1997, had outstanding interest rate cap agreements with a notional amount of
$766.2 million that were entered into in order to hedge the periodic and
lifetime interest rate caps embedded in certain of its adjustable-rate
residential 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 June 30,
1997, the one-year CMT was 5.67% and the weighted average specified cap interest
rate on these agreements was 8.00%. In addition, at June 30, 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 June 30, 1997, rises above a specified cap interest
rate. At June
21
30, 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 $9.5 million at June 30, 1997.
The following table sets forth the contractual maturities of the Company's
interest rate cap agreements outstanding at June 30, 1997. 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.
====================================================
Notional
(In thousands) Amount
- ----------------------------------------------------
Maturing in the year ending December 31:
1997 $ 127,842
1998 439,399
1999 373,992
2001 196,000
- ----------------------------------------------------
Total $1,137,233
====================================================
The Company's use of derivative financial instruments for asset/liability
management purposes resulted in reductions of net interest income for the
three- and six-month periods ended June 30, 1997 of $4.6 million and $9.5
million, respectively, as compared with reductions of net interest income during
the comparable periods in 1996 of $3.9 million and $7.4 million, respectively.
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 June 30, 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.
=======================================================================
June 30, 1997 December 31, 1996
-------------------------------------------------
Notional Estimated Notional Estimated
(In thousands) Amount Fair value Amount Fair value
- -----------------------------------------------------------------------
Forward contracts $ 334,539 $(2,154) $ 136,770 $575
Options 147,500 (120) 40,000 64
Interest rate floors 892,198 13 996,498 77
- -----------------------------------------------------------------------
Total $1,374,237 $(2,261) $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 6.40% and 6.51%,
respectively, at June 30, 1997, declines below a designated floor interest rate.
At June 30, 1997, interest rate floor agreements with a notional amount of
$161.8 million were indexed to the five-year CMT and had a weighted average
designated floor interest rate of 5.30%, and $730.4 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 June 30, 1997
terminate at various dates from August 1998 through October 1999. At June 30,
1997, unamortized premiums on the Company's outstanding interest rate floor
agreements amounted to $0.5 million.
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 also is 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.
22
Non-Performing Assets
The Company's non-performing assets consist of non-accrual loans and ORE,
net. 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").
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 the second quarter of 1997, the
Company sold approximately $126 million of its non-performing residential real
estate assets in the NPA Sales. As a result, non-performing assets, which
amounted to $127.1 million at June 30, 1997 (including $9.3 million resulting
from the BFS Acquisition), declined $117.8 million, or 48.1%, since year-end
1996. At June 30, 1997, non-performing assets represented 0.63% of total assets
and non-accrual loans represented 0.89% of loans receivable, down from 1.30% and
1.78%, respectively, at December 31, 1996. Although the NPA Sales substantially
reduced the Company's non-performing residential real estate assets, certain
residential real estate loans will continue to enter non-performing status and,
due to the generally significant amount of time necessary to resolve loans that
become non-performing, new non-performing loans initially may exceed exits from
the existing portfolio. Accordingly, non-performing residential real estate
assets may increase in the near term.
The following table presents the components of the Company's non-performing
assets at June 30, 1997 and December 31, 1996.
=================================================================
June 30, December 31,
(In thousands) 1997 1996
- -----------------------------------------------------------------
Non-accrual loans:
Residential real estate $ 65,092 $163,791
Commercial and multifamily real estate 31,728 21,047
Consumer 5,952 6,645
Business 369 107
- -----------------------------------------------------------------
Total non-accrual loans 103,141 191,590
- -----------------------------------------------------------------
ORE, net:
Residential real estate 10,338 36,182
Commercial and multifamily real estate 16,059 20,367
Allowance for losses (2,460) (3,294)
- -----------------------------------------------------------------
Total ORE, net 23,937 53,255
- -----------------------------------------------------------------
Total non-performing assets $127,078 $244,845
=================================================================
During the first six months of 1997, the Company expanded its lending
activities and product mix and anticipates that such expansion efforts will
continue. The Company intends to continue to monitor closely the effects of
these efforts on the overall risk profile of its loan portfolio, which the
Company expects will continue to change over time.
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 June 30, 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 $ 36,462 $ 16,097 $52,559
Commercial and multifamily real estate 5,517 1,812 7,329
loans
Consumer loans 4,304 1,265 5,569
Business loans 51 -- 51
- ---------------------------------------------------------------------
Total $ 46,334 $ 19,174 $65,508
=====================================================================
23
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 may provide them with an opportunity to restructure the
terms of their loans. These arrangements, which are negotiated individually,
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 June 30, 1997 and December 31, 1996, the
Company's loans that have been modified in a TDR, excluding those classified as
non-accrual loans.
================================================================
June 30, December 31,
(In thousands) 1997 1996
- ----------------------------------------------------------------
Residential real estate loans $ 39,239 $ 42,684
Commercial and multifamily real estate 149,544 170,323
loans
- ----------------------------------------------------------------
Total $188,783 $213,007
================================================================
Impaired Loans
The table below sets forth information regarding the Company's impaired
loans at June 30, 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.
================================================================================================================
June 30, 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 $ 1,599 $ (100) $ 1,499 $ 3,290 $ (206) $ 3,084
Without a related allowance 3,680 -- 3,680 11,322 -- 11,322
- ----------------------------------------------------------------------------------------------------------------
Total residential real estate loans 5,279 (100) 5,179 14,612 (206) 14,406
- ----------------------------------------------------------------------------------------------------------------
Commercial and multifamily real estate
loans:
With a related allowance 32,486 (4,334) 28,152 39,388 (3,919) 35,469
Without a related allowance 6,572 -- 6,572 8,752 -- 8,752
- ----------------------------------------------------------------------------------------------------------------
Total commercial and multifamily real
estate loans 39,058 (4,334) 34,724 48,140 (3,919) 44,221
- ----------------------------------------------------------------------------------------------------------------
Business loans with a related allowance 369 (142) 227 107 (53) 54
- ----------------------------------------------------------------------------------------------------------------
Total impaired loans $44,706 $(4,576) $40,130 $62,859 $(4,178) $58,681
================================================================================================================
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.
24
The following table sets forth the activity in the Company's allowance for
loan losses for the three months and six months ended June 30, 1997 and 1996.
===================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
(In thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------
Balance at beginning of period $103,223 $127,193 $106,495 $128,295
Provision charged to operations /(1)/ 23,000 10,250 33,000 20,750
Allowance for loan losses acquired in
the BFS Acquisition 13,249 -- 13,249 --
Charge-offs:
Residential real estate loans /(2)/ (39,520) (10,572) (51,228) (20,439)
Commercial and multifamily real (237) (3,224) (2,655) (5,729)
estate loans
Consumer loans (1,131) (1,238) (2,212) (2,683)
Business loans -- -- -- (8)
- -----------------------------------------------------------------------------------
Total charge-offs (40,888) (15,034) (56,095) (28,859)
- -----------------------------------------------------------------------------------
Recoveries:
Residential real estate loans 861 1,617 2,108 2,788
Commercial and multifamily real
estate loans 1,039 180 1,193 492
Consumer loans 525 690 1,005 1,364
Business loans 17 6 71 72
- -----------------------------------------------------------------------------------
Total recoveries 2,442 2,493 4,377 4,716
- -----------------------------------------------------------------------------------
Net charge-offs (38,446) (12,541) (51,718) (24,143)
- -----------------------------------------------------------------------------------
Balance at end of period $101,026 $124,902 $101,026 $124,902
===================================================================================
(1) The three- and six-month periods ended June 30, 1997 include a provision of
$14.0 million associated with the NPA Sales.
(2) The three- and six-month periods ended June 30, 1997 include charge-offs of
$35.8 million associated with the NPA Sales.
At June 30, 1997, the allowance for loan losses represented 0.87% of loans
receivable, down from 0.99% at the end of 1996 and 1.23% at June 30, 1996. The
allowance for loan losses was 97.9% of non-accrual loans at the end of June
1997, up from 55.6% and 51.1% at December 31, 1996 and June 30, 1996,
respectively.
Loans Sold with Recourse
In the past, the Company sold certain residential and multifamily real
estate loans with limited recourse. At June 30, 1997, the balance of loans sold
with recourse amounted to $701.1 million, down from $751.5 million at December
31, 1996. The Company's related maximum potential recourse exposure was
approximately $185 million at June 30, 1997, as compared with approximately $196
million at the end of 1996. Of the loans sold with recourse at June 30, 1997,
$9.0 million were delinquent 90 days or more. During the first six months of
1997, the Company repurchased loans sold with recourse totaling $9.7 million.
MBS
In general, the Company's MBS carry a significantly lower credit risk than
its loans receivable. Of the $7.1 billion aggregate carrying value of the
Company's MBS available for sale and held to maturity at June 30, 1997,
approximately 31% 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 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 the other than temporary impairment in
value of certain privately-issued MBS. No such losses were incurred during the
first six months of 1997. The losses in 1996 and 1995 were necessitated by the
erosion in the
25
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 $83 million at June 30, 1997, will not be incurred. While
substantially all of the $4.9 billion of privately-issued MBS held by the
Company at June 30, 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 June 30, 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 amounted to $1.2 billion during the
second quarter of 1997, up from $812.7 million in the immediately preceding
quarter and up from $863.9 million in the second quarter of 1996. For the first
six months of 1997, total loan production was $2.0 billion, representing growth
of $154.4 million as compared with the corresponding period in 1996.
Residential real estate loan production of $997.3 million for the second
quarter of 1997 increased $359.7 million, or 56.4%, as compared with the first
quarter of the year and increased $290.5 million, or 41.1%, as compared with the
second quarter of 1996. These increases largely reflect the impact of the
Company's recent restructuring of its mortgage banking operations. As part of
this restructuring, the Company increased its number of approved brokers and
correspondents to 844 and 150, respectively, at June 30, 1997 from 451 and 26,
respectively, at year-end 1996. For the first six months of 1997, the Company
produced $1.6 billion of residential real estate loans, up slightly from the
comparable period in 1996.
Total commercial and multifamily real estate loan production of $85.4
million for the second quarter of 1997, was up 22.8% from the comparable quarter
of 1996. For the first six months of 1997, total commercial and multifamily real
estate loan production was $147.6 million, an increase of 46.9% as compared with
the same period one year ago.
Consumer loan originations increased to $121.0 million and $221.2 million
for the three- and six-month periods ended June 30, 1997 from $81.5 million and
$154.8 million during the respective periods in 1996, primarily attributable to
increased production of home equity loans. During the second quarter and first
six months of 1997, originations of home equity loans increased $39.3 million,
or 87.7%, and $66.2 million, or 84.2%, as compared with the respective prior
year periods.
26
The Company has also experienced growth in its business loan production
levels, which increased $9.0 million and $17.6 million during the three- and
six-month periods ended June 30, 1997, as compared with the corresponding year-
earlier periods.
The following table summarizes the Company's loan production, both for
portfolio and for sale in the secondary market, for the three months and six
months ended June 30, 1997 and 1996.
======================================================================================
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------------------------
(In thousands) 1997 1996 1997 1996
- --------------------------------------------------------------------------------------
Residential real estate loan production:
Originated $ 765,236 $685,453 $1,296,316 $1,459,245
Purchased 232,102 21,369 338,667 152,485
- --------------------------------------------------------------------------------------
Total residential real estate loan
production 997,338 706,822 1,634,983 1,611,730
- --------------------------------------------------------------------------------------
Commercial and multifamily real estate
loans originated:
Commercial real estate loans 32,532 26,349 80,055 39,839
Multifamily real estate loans 52,837 43,170 67,590 60,667
- --------------------------------------------------------------------------------------
Total commercial and multifamily real
estate loans originated 85,369 69,519 147,645 100,506
- --------------------------------------------------------------------------------------
Consumer loans originated:
Home equity loans 84,138 44,832 144,758 78,585
Other consumer loans 36,867 36,620 76,424 76,206
- --------------------------------------------------------------------------------------
Total consumer loans originated 121,005 81,452 221,182 154,791
- --------------------------------------------------------------------------------------
Business loans originated 15,108 6,118 27,747 10,149
- --------------------------------------------------------------------------------------
Total loan production $1,218,820 $863,911 $2,031,557 $1,877,176
======================================================================================
FINANCIAL CONDITION
General
The Company's total assets amounted to $20.1 billion at June 30, 1997, an
increase of $1.2 billion, or 6.4%, from December 31, 1996. This growth
reflected, among other factors, the BFS Acquisition and the investment of the
proceeds from the issuance of the Series A Capital Securities.
Securities
The Company's securities available for sale amounted to $3.2 billion at June
30, 1997, an increase of $577.2 million, or 22.3%, since December 31, 1996.
Purchases of securities available for sale during the six months ended June 30,
1997 amounted to $1.2 billion, all of which were MBS. Sales of securities
available for sale during the first six months of 1997 totaled $347.4 million,
including $340.5 million of MBS.
Securities held to maturity by the Company, which amounted to $4.0 billion
at June 30, 1997, declined $349.0 million, or 8.0%, during the first six months
of 1997. The Company purchased $75.9 million of securities held to maturity
during the six months ended June 30, 1997, substantially all of which were MBS.
27
The following table summarizes the amortized cost and estimated fair value
of securities available for sale and securities held to maturity at June 30,
1997 and December 31, 1996.
========================================================================================
June 30, 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 $1,074,576 $1,065,384 $1,232,276 $1,228,264
FNMA 1,568,032 1,577,128 916,452 919,346
FHLMC 236,356 238,981 165,540 167,073
GNMA 193,885 197,171 185,166 187,006
Interest-only 1,709 1,162 1,850 1,291
- ----------------------------------------------------------------------------------------
Total MBS 3,074,558 3,079,826 2,501,284 2,502,980
- ----------------------------------------------------------------------------------------
U.S. government and federal agency 25,503 25,467 18,117 17,969
State and municipal 43,012 42,030 44,322 43,307
Domestic corporate 10,765 10,656 15,467 15,328
- ----------------------------------------------------------------------------------------
Total debt securities 3,153,838 3,157,979 2,579,190 2,579,584
- ----------------------------------------------------------------------------------------
Equity securities 8,968 8,754 10,343 9,988
- ----------------------------------------------------------------------------------------
Total securities available for sale $3,162,806 $3,166,733 $2,589,533 $2,589,572
========================================================================================
Securities Held to Maturity:
MBS:
Pass-through securities:
Privately-issued $2,280,290 $2,231,670 $2,520,013 $2,464,840
FHLMC 38,884 39,551 44,711 44,942
Collateralized mortgage obligations:
Privately-issued 1,573,405 1,548,196 1,670,983 1,644,120
FNMA 94,390 93,387 94,412 93,649
FHLMC 24,095 23,750 30,089 29,648
- ----------------------------------------------------------------------------------------
Total MBS 4,011,064 3,936,554 4,360,208 4,277,199
- ----------------------------------------------------------------------------------------
Other debt securities 3,942 3,024 3,763 2,738
- ----------------------------------------------------------------------------------------
Total securities held to maturity $4,015,006 $3,939,578 $4,363,971 $4,279,937
========================================================================================
Loans Receivable
The Company's total loans receivable, exclusive of the allowance for loan
losses, amounted to $11.6 billion at June 30, 1997, up 8.0% from $10.7 billion
at the end of 1996. Contributing to this increase was the impact of the BFS
Acquisition, in connection with which the Company acquired approximately $590
million of loans. A significant component of the Company's current operating
strategy is to seek continuing growth in its loans receivable portfolio.
Residential real estate loans, which consist of one-to-four family first
mortgage loans and cooperative apartment loans, represented 72.6% of the loans
receivable portfolio at June 30, 1997. This segment of the loans receivable
portfolio rose $342.0 million as compared with the level at December 31, 1996
and amounted to $8.4 billion at June 30, 1997. Total residential real estate
loan production for portfolio totaled $1.0 billion during the first six months
of 1997.
The Company's commercial and multifamily real estate loans receivable
portfolio amounted to $2.4 billion at June 30, 1997, which represents growth,
primarily due to the BFS Acquisition, of $529.5 million, or 28.1%, as compared
with the level at the end of 1996. At June 30, 1997, commercial and multifamily
real estate loans represented 20.8% of the total loans receivable portfolio, as
compared with 17.6% of the total loans receivable portfolio at December 31,
1996.
The Company's consumer loans receivable portfolio of $711.3 million at June
30, 1997 decreased $23.0 million from year-end 1996, largely due to the
repurchase of the Company's portfolio of third-party originated automobile loans
by the seller. However, home equity loans rose $23.9 million since December 31,
1996 and
28
amounted to $562.0 million at June 30, 1997. Home equity loans represented
approximately 79% of the consumer loans receivable portfolio at that date, up
from approximately 73% at the end of 1996. The Company's efforts to expand its
home equity loan portfolio continue to be impacted by a high level of principal
repayments. At June 30, 1997, unused home equity lines of credit amounted to
approximately $385 million.
The Company's business loans receivable amounted to $50.0 million at June
30, 1997. This represents a 17.5% increase from the $43.1 million outstanding at
December 31, 1996.
Deposits
At June 30, 1997, the Bank operated 91 branches, comprised of 90 branches in
the greater New York metropolitan area and one branch in Florida. The Company
experienced deposit growth of $478.5 million, or 3.7%, since December 31, 1996,
largely due to the BFS Acquisition. In connection with this acquisition, the
Company acquired five New York City branches and $447.1 million of deposits. At
June 30, 1997, approximately 66% of the Bank's deposits were assessable by the
Bank Insurance Fund of the Federal Deposit Insurance Corporation (the "FDIC")
and approximately 34% of its deposits were assessable by the Savings Association
Insurance Fund of the FDIC, in each case insured up to applicable limits.
The following table sets forth a summary of the Company's deposits at June
30, 1997 and December 31, 1996.
===========================================================================
June 30, 1997 December 31, 1996
---------------------------------------------------
Percentage Percentage
(Dollars in thousands) Amount of Total Amount of Total
- ---------------------------------------------------------------------------
Demand $ 1,264,283 9.5% $ 1,130,863 8.8%
Savings 2,528,559 19.0 2,460,367 19.1
Money market 1,942,830 14.5 2,007,448 15.6
Time 7,599,527 57.0 7,258,061 56.5
- ---------------------------------------------------------------------------
Total deposits $13,335,199 100.0% $12,856,739 100.0%
===========================================================================
Borrowed Funds
The Company's total borrowed funds were $5.5 billion at June 30, 1997, an
increase of $685.1 million, or 14.2%, from the level at December 31, 1996. This
increase reflects the funding of the Company's asset growth, including through
the BFS Acquisition, together with the issuance of the Series A Capital
Securities.
The following table summarizes the Company's total borrowed funds at June
30, 1997 and December 31, 1996.
===========================================================================================
June 30, 1997 December 31, 1996
---------------------------------------------------
Percentage Percentage
(Dollars in thousands) Amount of Total Amount of Total
- -------------------------------------------------------------------------------------------
Securities sold under agreements to
repurchase $4,265,905 77.5% $3,550,234 73.7%
FHLBNY advances 688,218 12.5 925,139 19.2
Senior notes 197,693 3.6 197,584 4.1
Series A Capital Securities 196,477 3.6 -- --
Other 151,991 2.8 142,234 3.0
- -------------------------------------------------------------------------------------------
Total borrowed funds $5,500,284 100.0% $4,815,191 100.0%
===========================================================================================
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.
During the second quarter of 1997, Dime Capital, in an underwritten public
offering, issued $200.0 million in principal amount of Series A Capital
Securities, representing preferred beneficial interests in Dime Capital. For a
further discussion of the Series A Capital Securities, see Note 3 of Notes to
Consolidated Financial Statements.
29
Stockholders' Equity
Stockholders' equity amounted to $1.1 billion at June 30, 1997, an increase
of $37.0 million from December 31, 1996. Although the Company recorded net
income of $60.7 million during the six months ended June 30, 1997, growth in
stockholders' equity was limited principally by the $27.5 million cost of
1,655,200 shares of Common Stock repurchased during the period in connection
with a repurchase program announced during the 1996 fourth quarter and a cash
dividend declared in April 1997 on the Common Stock (see below). At June 30,
1997, stockholders' equity represented 5.27% of total assets and tangible
stockholders' equity represented 5.04% of total tangible assets, as compared
with 5.42% and 5.37%, respectively, at the end of 1996. The Company's book value
per common share and tangible book value per common share amounted to $10.21 and
$9.74, respectively, at June 30, 1997, as compared with $9.76 and $9.67,
respectively, at December 31, 1996.
The Common Stock repurchase program announced during the fourth quarter of
1996 was completed early in the third quarter of 1997. In total, 5,413,000
shares of Common Stock were repurchased under this program at an average cost
per share of $15.82.
In June 1997, the Holding Company, in connection with the NAMC Acquisition,
announced a program to repurchase up to approximately 6.9 million additional
shares of Common Stock. Such repurchases will be made over time at prevailing
prices in the open market or in privately-negotiated transactions.
On April 25, 1997, the Board of Directors of the Holding Company declared a
cash dividend on the Common Stock of $0.04 per share, which resulted in a $4.2
million reduction in stockholders' equity. This dividend was paid on June 16,
1997. On July 24, 1997, the Holding Company's Board of Directors declared an
additional cash dividend of $0.04 per share on the Common Stock, which is
expected to be paid on September 8, 1997 to holders of record of the Common
Stock as of the close of business on August 14, 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.
The Company's sources of liquidity include principal repayments on loans and
MBS, borrowings through securities sold under agreements to repurchase and the
FHLBNY, 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
six months of 1997, the Bank paid dividends of $64.0 million to the Holding
Company.
On May 6, 1997, Dime Capital issued $200.0 million of Series A Capital
Securities, representing preferred beneficial interests in Dime Capital, in an
underwritten public offering and $6.2 million of beneficial interests
represented by its common securities to the Holding Company. In connection
therewith, Dime Capital 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
30
at least 1.0%. For the month of June 1997, the Bank's average liquidity ratio
was 5.1% and its average short-term liquidity ratio was 4.5%.
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 total 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
June 30, 1997.
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 June 30,
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 June 30, 1997 and December 31, 1996. The declines in the Bank's regulatory
capital ratios from year-end 1996 to June 30, 1997 reflected asset growth during
the period, due in part to the BFS Acquisition, coupled with the deduction from
regulatory capital of the goodwill arising from the BFS Acquisition.
==============================================================================
Bank Regulatory Capital
---------------------------------------------------
June 30, 1997 December 31, 1996
---------------------------------------------------
(Dollars in thousands) Amount Ratio /(1)/ Amount Ratio /(1)/
- ------------------------------------------------------------------------------
Tangible capital $1,130,652 5.66% $1,139,443 6.06%
Leverage capital 1,130,652 5.66 1,139,443 6.06
Tier 1 risk-based capital 1,130,652 11.05 1,139,443 11.96
Total risk-based capital 1,231,678 12.03 1,245,938 13.08
==============================================================================
(1) The tangible capital and leverage capital ratios are to adjusted total
assets of $20.0 billion and $18.8 billion at June 30, 1997 and December 31,
1996, respectively. The tier 1 risk-based capital and total risk-based
capital ratios are to total risk-weighted assets of $10.2 billion and $9.5
billion at June 30, 1997 and December 31, 1996, respectively.
31
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 13, 1995, Anchor Savings filed suit in the United States Court of
Federal Claims against the United States for breach of contract and taking of
property without compensation in contravention of the Fifth Amendment to the
United States Constitution. The action arose because the passage of the
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA")
and the regulations adopted by the OTS pursuant to FIRREA deprived Anchor
Savings of the ability to include supervisory goodwill and certain other assets
for purposes of computing its regulatory capital as the Federal Savings and Loan
Insurance Corporation ("FSLIC") had agreed it could. The direct effect was to
cause Anchor Savings to go from an institution that substantially exceeded its
regulatory capital requirements to one that was critically undercapitalized upon
the effectiveness of the FIRREA-mandated capital requirements.
From 1982 to 1985, Anchor Savings had acquired eight FSLIC-insured
institutions that were in danger of failing and causing a loss to the FSLIC.
Four institutions were acquired with some financial assistance from the FSLIC
and four were unassisted "supervisory" cases. In acquiring the institutions,
Anchor Savings assumed liabilities determined to exceed the assets it acquired
by over $650 million at the dates of the respective acquisitions. The difference
between the fair values of the assets acquired and the liabilities assumed in
the transactions were recorded on Anchor Savings' books as goodwill. At the time
of these acquisitions, the FSLIC had agreed that this supervisory goodwill was
to be amortized over periods of up to 40 years. Without that agreement, Anchor
Savings would not have made the acquisitions. When the capital regulations
imposed under FIRREA became effective, Anchor Savings still had over $518
million of supervisory goodwill on its books and approximately 20 years
remaining to amortize it under the agreements with FSLIC. The FIRREA-mandated
capital requirements excluded all but approximately $124 million of Anchor
Savings' supervisory goodwill, over $42 million attributable to the FSLIC
contribution in one acquisition, and, until the formation of Anchor Bancorp,
Inc. in 1991, $157 million associated with preferred stock issued to the FSLIC
as a result of one of the acquisitions. FIRREA also required the remaining
supervisory goodwill to be eliminated by December 31, 1994 for regulatory
capital purposes. The elimination of the supervisory goodwill resulted in severe
limitations on Anchor Savings' activities and required the disposition of
valuable assets under liquidation-like circumstances, as a result of which
Anchor Savings was damaged. The complaint asks that the government make Anchor
Savings whole for the effects of the loss, which are estimated to exceed
substantially the goodwill remaining at the time FIRREA was enacted.
There are approximately 130 cases involving similar issues pending in the
United States Court of Federal Claims, which has entered summary judgment for
the plaintiffs as to liability, but not damages, in three of the cases. Those
cases, referred to as the Winstar cases, were appealed to the United States
Supreme Court, which, on July 1, 1996, affirmed the decision that the government
was liable for breach of contract.
All of the Winstar-related cases, including Anchor Savings' lawsuit (which
was assumed by the Bank upon consummation of the Anchor Merger), have been
assigned to the Chief Judge of the Court of Federal Claims. The Chief Judge has
issued an Omnibus Case Management Order ("OCMO") that controls the proceedings
in all these cases, which imposes procedures and schedules different from most
cases in the Court of Federal Claims. Under the OCMO, the Bank has moved for
partial summary judgment as to the existence of a contract and the inconsistency
of the government's actions with that contract in each of the related
transactions. The government has disputed the existence of a contract in each
case and cross-moved for summary judgment. The government also submitted a
filing acknowledging that it is not aware of any affirmative defenses. Briefing
on the motions was completed on August 1, 1997, but no timetable has been set
for disposition of the Bank's motions and the government cross-motions. In
August 1997, the Court held a hearing on summary judgment motions in four other
cases. As part of that hearing, the Court heard argument on eleven issues that
the plaintiffs contend are common to many of the pending cases, including the
Bank's case. The Court indicated it would issue its order on those common issues
in early September 1997. If the Court's rulings are favorable, the Bank expects
to avail itself of a procedure to have those determinations applied in its case
as part of the determination of its pending summary judgment motions. It is not
possible to predict whether any of the Bank's partial summary judgment motions
will
32
be granted or, if so, when the Chief Judge will schedule a trial on damages
and any remaining liability issues.
The Court has ordered that certain discovery proceed during the last five
months of 1997. The government is required to produce certain documents relating
to unassisted acquisitions of failing institutions effected by the Bank and five
other plaintiffs. In addition, the Court has directed that full discovery of
facts common to all pending cases be conducted. Such discovery will include
materials concerning the policies and procedures of the Federal Home Loan Bank
Board (the predecessor of the OTS) and the FSLIC during the thrift crisis of the
1980's, when the transactions that are the subject of the litigation occurred.
In addition, the common discovery will include generally applicable information
concerning the operations of the FSLIC that will be relevant under certain
damage theories.
Commencing in January 1998, the oldest 30 of the pending cases (after
excluding certain specific cases) that elect to proceed will be allowed to
commence full discovery as to liability and damages in their cases. The case-
specific discovery will continue for one year, unless extended by the Court. The
second 30 cases will start discovery in 1999, and so on. Discovery of damage
experts will follow the fact discovery in each case. Cases will not be assigned
to trial judges until after the fact discovery is completed. The Bank believes
the date on which it filed its complaint will place it about 36th among the
cases. Consequently, if six or more of the cases filed earlier elect not to
proceed at this time, the Bank will be among the cases to commence full
discovery in January 1998. Since a number of the cases filed prior to the Bank's
claim have not been actively prosecuted, the Bank believes there is a reasonable
possibility that its case will be among the first 30 to start discovery.
There have been no decisions determining damages in any of the Winstar-
related cases. The trial in the first of the Winstar-related cases to proceed to
trial on damages is expected to be concluded by the end of 1997, and the second
is scheduled to commence in January 1998. It is likely that any determination of
damages by the Court of Federal Claims will be appealed. It is impossible to
predict the measure of damages that will be upheld in cases in which liability
is found. The Company, nevertheless, believes that its claim is meritorious,
that it is one of the more significant cases before the Court, and that it is
entitled to damages, that, as noted, are estimated to exceed substantially the
goodwill remaining on Anchor Savings' books at the time FIRREA was enacted.
ITEM 2. CHANGES IN SECURITIES
As previously stated herein, on May 6, 1997, Dime Capital issued the Series
A Capital Securities in a public offering. The proceeds of this offering were
used to purchase the Series A Subordinated Debentures of the Holding Company.
The Series A Subordinated Debentures were issued pursuant to the terms of
the Junior Subordinated Indenture, dated as of May 6, 1997, between the Holding
Company and The Chase Manhattan Bank ("Chase"), as trustee (the "Indenture"). In
addition, the Holding Company is a party to a Guarantee Agreement, dated as of
May 6, 1997, with Chase, as guarantee trustee (the "Guarantee"), with respect to
Dime Capital.
Under the terms of the Indenture, the Holding Company is generally
prohibited from taking certain actions, including declaring or paying any
dividends or distributions on, or repurchasing any, Common Stock if, at the time
thereof: (i) there has occurred a default under the Indenture and the Holding
Company has not taken affirmative steps to cure such default; (ii) the Holding
Company is in default with respect to its payment of any obligations under the
Guarantee; or (iii) the Holding Company elects to defer the payment of interest
on the Series A Subordinated Debentures as allowed under the terms of the
Indenture.
33
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Holding Company's Annual Meeting of Stockholders was held on May 7, 1997
(the "Annual Meeting"). The following matters received the number of affirmative
votes, negative votes, withheld votes, abstentions, and broker non-votes set
forth below.
(a) Election of five directors:
The following individuals were duly elected as directors of the Holding
Company for three year terms:
Affirmative Withheld
Votes Votes
----------- ---------
J. Barclay Collins II 84,710,119 1,451,645
James F. Fulton 84,641,329 1,520,435
Virginia M. Kopp 84,619,393 1,542,371
Salley Hernandez-Pinero 84,631,346 1,530,418
Lawrence J. Toal 84,724,262 1,437,502
(b) The approval of the Dime Bancorp, Inc. 1997 Stock Incentive Plan for Outside
Directors was ratified after receiving 70,366,197 affirmative votes, which
was more than a majority of the shares of Common Stock represented, in
person or by proxy, at the Annual Meeting. This proposal also received
13,468,575 negative votes and 0 withheld votes, with 2,326,992 abstentions
and 0 broker non-votes.
(c) The appointment of KPMG Peat Marwick LLP as independent public accountants
was ratified after receiving 84,969,588 affirmative votes, which was more
than a majority of the shares of Common Stock represented, in person or by
proxy, at the Annual Meeting. This proposal also received 285,550 negative
votes and 0 withheld votes, with 906,626 abstentions and 0 broker non-votes.
ITEM 5. OTHER INFORMATION
During the second quarter of 1997, the Company announced that Anthony R.
Burriesci was appointed Chief Financial Officer of the Holding Company and the
Bank, effective as of July 1, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit 2 -- NAMC Merger Agreement
Exhibit 3 -- By-laws of the Holding Company
Exhibit 27 -- Financial Data Schedule
(B) REPORTS ON FORM 8-K
On April 23, 1997, the Holding Company filed with the Securities and
Exchange Commission (the "Commission") a Current Report on Form 8-K, which
reported that, on April 22, 1997, it issued a press release announcing its
preliminary financial results for the first quarter of 1997.
On April 25, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, on April 25, 1997, it
issued a press release announcing that its Board of Directors declared a
cash dividend of $0.04 per share on the Common Stock to be paid on June 16,
1997 to stockholders of record as of the close of business on May 16, 1997.
On May 9, 1997, the Holding Company filed with the Commission a Current
Report on Form 8-K, which reported that, on May 1, 1997, it had issued a
press release announcing the consummation of the BFS Acquisition.
34
On June 16, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, on May 6, 1997, Dime
Capital issued the Series A Capital Securities.
On June 23, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which reported that, (i) on June 22, 1997, the
Holding Company, the Bank, and NAMC entered into a definitive agreement
providing for the acquisition of NAMC by the Holding Company (the "Original
NAMC Merger Agreement") and (ii) the Holding Company, in connection with
the NAMC Acquisition, announced, in a press release dated June 23, 1997, a
program to repurchase up to 6.9 million shares of Common Stock.
On June 27, 1997, the Holding Company filed with the Commission a
Current Report on Form 8-K, which attached a copy of the Original NAMC
Merger Agreement.
35
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: August 13,1997 By: /s/ Lawrence J. Toal
-------------- --------------------
Lawrence J. Toal
Chief Executive Officer, President
and Chief Operating Officer
Dated: August 13, 1997 By: /s/ Anthony R. Burriesci
--------------- ------------------------
Anthony R. Burriesci
Executive Vice President
and Chief Financial Officer
36
EXHIBIT INDEX
EXHIBIT
NUMBER IDENTIFICATION OF EXHIBIT
- ------ -------------------------
2 NAMC Merger Agreement
3 By-laws of the Holding Company
27 Financial Data Schedule (filed electronically only)
37