UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
Commission file number 0-27782
DIME COMMUNITY BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 11-3297463
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
209 HAVEMEYER STREET, BROOKLYN, NEW YORK 11211
(Address of principal executive offices) (Zip Code)
(718) 782-6200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all the 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.
(1) 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.
CLASSES OF COMMON STOCK NUMBER OF SHARES OUTSTANDING, JANUARY 31, 2001
$.01 Par Value 11,425,389
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PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Condition at December 31, 2000
(Unaudited) and June 30, 2000 3
Consolidated Statements of Operations for the Three and Six
Months Ended December 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended December 31, 2000 and
Comprehensive Income for the Three and Six Months Ended
December 31, 2000 and 1999 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 2000 and 1999 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-22
Item 3 Quantitative and Qualitative Disclosure About Market Risk 22
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities and Use of Proceeds 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
Exhibits
EXPLANATORY NOTES: Statements contained in this Quarterly Report on Form 10-Q
relating to plans, strategies, economic performance and trends, and other
statements that are not descriptions of historical facts may be forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Forward looking
information is inherently subject to various factors which could cause actual
results to differ materially from these estimates. These factors include:
changes in general, economic and market conditions, legislative and regulatory
conditions, or the development of an adverse interest rate environment that
adversely affects the interest rate spread or other income anticipated from our
operations and investments. We have no obligation to update these forward
looking statements.
As used in this Form 10-Q, "we" and "us" and "our" refer to Dime Community
Bancshares, Inc. and/or its consolidated subsidiaries, depending on the
context.
-3-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
AT DECEMBER 31,
2000 AT JUNE 30,
(UNAUDITED) 2000
--------------- -----------
ASSETS:
Cash and due from banks $17,659 $15,371
Investment securities held to maturity (estimated market value of $9,539 and
$17,351 at December 31, 2000 and June 30, 2000, respectively) 9,508 17,489
Investment securities available for sale:
Bonds and notes (amortized cost of $106,847 and $109,057 at December 31,
2000 and June 30, 2000, respectively) 105,628 105,316
Marketable equity securities (historical cost of $14,203 and $14,948 at
December 31, 2000 and June 30, 2000, respectively) 15,687 15,805
Mortgage backed securities held to maturity (estimated market value of
$11,079 and $13,263 at December 31, 2000 and June 30, 2000, respectively) 10,983 13,329
Mortgage backed securities available for sale (amortized cost of $406,230
and $438,160 at December 31, 2000 and June 30, 2000, respectively) 406,945 429,361
Federal funds sold 36,145 9,449
Loans:
Real estate 1,807,977 1,713,552
Other loans 7,468 7,648
Less: Allowance for loan losses (15,382) (14,785)
--------------- -----------
Total loans, net 1,800,063 1,706,415
--------------- -----------
Loans held for sale - 100
Premises and fixed assets, net of accumulated depreciation 14,777 14,771
Federal Home Loan Bank of New York Capital Stock 42,770 42,423
Other real estate owned, net 438 381
Goodwill 57,946 60,254
Other assets 68,135 71,675
--------------- -----------
TOTAL ASSETS $2,586,684 $2,502,139
=============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors $1,264,664 $1,219,148
Escrow and other deposits 62,515 35,161
Securities sold under agreements to repurchase 424,454 434,027
Federal Home Loan Bank of New York advances 567,500 555,000
Subordinated notes payable 25,000 25,000
Other liabilities 26,319 26,634
--------------- -----------
TOTAL LIABILITIES 2,370,452 2,294,970
--------------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par, 9,000,000 shares authorized,
none outstanding at December 31, 2000 and June 30, 2000) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,585,365 shares and
14,583,765 shares issued at December 31, 2000 and June 30, 2000,
respectively, and 11,389,416 shares and 11,664,174 shares outstanding at
December 31, 2000 and June 30, 2000, respectively) 145 145
Additional paid-in capital 150,260 150,034
Retained earnings 140,924 133,769
Accumulated other comprehensive income (loss) 480 (6,309)
Unallocated common stock of Employee Stock Ownership Plan (6,602) (6,853)
Unearned common stock of Recognition and Retention Plan (3,360) (4,324)
Common stock held by Benefit Maintenance Plan (2,449) (1,790)
Treasury stock, at cost (3,195,949 shares and 2,919,591 shares
at December 31, 2000 and June 30, 2000, respectively) (63,166) (57,503)
--------------- -----------
TOTAL STOCKHOLDERS' EQUITY 216,232 207,169
--------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,586,684 $2,502,139
=============== ===========
See notes to consolidated financial statements
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DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
------------------------------ ---------------------------
2000 1999 2000 1999
---------- ---------- --------- --------
INTEREST INCOME:
Loans secured by real estate $34,299 $29,093 $67,620 $56,096
Other loans 159 161 337 310
Investment securities 2,297 2,559 4,472 5,144
Mortgage-backed securities 7,178 7,610 14,566 15,709
Other 1,133 2,474 2,113 3,247
---------- ---------- --------- --------
TOTAL INTEREST INCOME 45,066 41,897 89,108 80,506
---------- ---------- --------- --------
INTEREST EXPENSE:
Deposits and escrow 12,404 11,130 24,419 22,354
Borrowed funds 16,122 14,039 32,302 24,864
---------- ---------- --------- --------
TOTAL INTEREST EXPENSE 28,526 25,169 56,721 47,218
NET INTEREST INCOME 16,540 16,728 32,387 33,288
PROVISION FOR LOAN LOSSES 560 60 620 120
---------- ---------- --------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,980 16,668 31,767 33,168
---------- ---------- --------- --------
NON-INTEREST INCOME:
Service charges and other fees 1,088 1,163 2,053 2,139
Net gain (loss) on sales and redemptions of
securities and other assets 754 (145) 790 (14)
Net gain (loss) on sales of loans (1) - - (8)
Other 930 480 1,730 1,484
---------- ---------- --------- --------
TOTAL NON-INTEREST INCOME 2,771 1,498 4,573 3,601
---------- ---------- --------- --------
NON-INTEREST EXPENSE:
Salaries and employee benefits 3,355 3,532 6,652 6,956
ESOP and RRP compensation expense 726 1,059 1,417 2,189
Occupancy and equipment 1,063 945 2,034 1,883
Federal deposit insurance premiums 63 118 126 233
Data processing costs 467 408 891 840
Goodwill amortization 1,154 1,154 2,308 2,308
Other 1,974 1,793 3,741 3,486
---------- ---------- --------- --------
TOTAL NON-INTEREST EXPENSE 8,802 9,009 17,169 17,895
---------- ---------- --------- --------
INCOME BEFORE INCOME TAXES 9,949 9,157 19,171 18,874
INCOME TAX EXPENSE 3,957 3,741 7,606 7,898
---------- ---------- --------- --------
NET INCOME $5,992 $5,416 $11,565 $10,976
========== ========== ========= ========
EARNINGS PER SHARE:
BASIC $0.57 $0.47 $1.09 $0.95
========== ========== ========= ========
DILUTED $0.54 $0.45 $1.04 $0.90
========== ========== ========= ========
See notes to consolidated financial statements
-5-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS)
FOR THE SIX
MONTHS ENDED
DECEMBER 31, 2000
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning of period $145
-----------------
Balance at end of period 145
-----------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 150,034
Stock options exercised 24
Amortization of excess fair value over cost - ESOP stock 202
-----------------
Balance at end of period 150,260
-----------------
RETAINED EARNINGS:
Balance at beginning of period 133,769
Net income for the period 11,565
Cash dividends declared and paid (4,410)
-----------------
Balance at end of period 140,924
-----------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET:
Balance at beginning of period (6,309)
Change in unrealized gain (loss) on securities available for sale
during the period, net of deferred taxes 6,789
-----------------
Balance at end of period 480
-----------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (6,853)
Amortization of earned portion of ESOP stock 251
-----------------
Balance at end of period (6,602)
-----------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (4,324)
Amortization of earned portion of RRP stock 964
-----------------
Balance at end of period (3,360)
-----------------
BENEFIT MAINTENANCE PLAN:
Balance at beginning of period (1,790)
Common stock acquired by BMP (659)
-----------------
Balance at end of period (2,449)
-----------------
TREASURY STOCK:
Balance at beginning of period (57,503)
Purchase of 276,358 shares, at cost (5,663)
-----------------
Balance at end of period (63,166)
-----------------
STATEMENTS OF COMPREHENSIVE INCOME:
THREE THREE SIX SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
2000 1999 2000 1999
-------------- ------------ ------------ ------------
Net Income $5,992 $5,416 $11,565 10,976
Reclassification adjustment for securities
sold, net of taxes of $348, and $(628),
during the three months ended December 31,
2000 and 1999, respectively, and $348,
and $(575) during the six months ended
December 31, 2000 and 1999,
respectively. (408) 738 (408) 674
Net unrealized securities gains (losses)
arising during the period, net of deferred
taxes of $3,384 and $(2,563) during the
three months ended December 31, 2000 and
1999, respectively
and $6,131 and $(2,637) during the six months
ended December 31, 2000 and 1999,
respectively. 3,972 (3,009) 7,197 (3,095)
-------------- ------------ ------------ ------------
Total comprehensive income $9,556 $3,145 $18,354 $8,555
============== ============ ============ ============
See notes to consolidated financial statements
-6-
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS
ENDED DECEMBER 31,
--------------------------------
2000 1999
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (In THOUSANDS)
Net Income $11,565 $10,976
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net loss (gain) on investment and mortgage backed securities sold (756) 1,249
Net gain on sale of other assets (34) (12)
Net loss on sale of loans held for sale - 8
Net depreciation and amortization 544 417
ESOP and RRP compensation expense 1,417 2,189
Provision for loan losses 620 120
Goodwill amortization 2,308 2,308
Decrease in loans held for sale 100 -
Increase in other assets and other real estate owned (2,269) (2,164)
Decrease in other liabilities (315) (407)
---------- --------
Net cash provided by operating activities 13,180 14,684
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in Federal funds sold (26,696) (38,328)
Proceeds from maturities of investment securities held to maturity 3,000 45
Proceeds from maturities of investment securities available for sale 2,220 130,422
Proceeds from calls of investment securities held to maturity 5,000 10,000
Proceeds from calls of investment securities available for sale - 2,400
Proceeds from sales of investment securities available for sale 1,729 21,772
Proceeds from sales of mortgage backed securities available for sale - 27,526
Purchases of investment securities available for sale (219) (133,703)
Purchases of mortgage backed securities available for sale - (9,799)
Principal collected on mortgage backed securities held to maturity 2,346 4,844
Principal collected on mortgage backed securities available for sale 31,895 41,684
Net increase in loans (94,267) (196,274)
Purchases of fixed assets (642) (489)
Purchase of Federal Home Loan Bank stock (347) (13,195)
---------- --------
Net cash used in investing activities (75,981) (153,095)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in due to depositors 45,516 (42,280)
Net increase (decrease) in escrow and other deposits 27,354 (19,697)
Proceeds from Federal Home Loan Bank of New York Advances 12,500 285,000
Decrease in securities sold under agreements to repurchase (9,573) (63,490)
Cash dividends paid (4,410) (3,815)
Exercise of stock options and tax benefits of stock options and RRP 24 164
Purchase of common stock by Benefit Maintenance Plan and RRP (659) (959)
Purchase of treasury stock (5,663) (6,481)
---------- --------
Net cash provided by financing activities 65,089 148,442
---------- --------
INCREASE IN CASH AND DUE FROM BANKS 2,288 10,031
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 15,371 17,801
---------- --------
CASH AND DUE FROM BANKS, END OF PERIOD $17,659 $27,832
========== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes 3,830 12,654
========== ========
Cash paid for interest 55,553 44,227
========== ========
Transfer of loans to Other real estate owned 102 412
========== ========
Change in unrealized gain (loss) on available for sale securities,
net of deferred taxes 6,789 (2,421)
========== ========
See notes to consolidated financial statements
-7-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS
Dime Community Bancshares, Inc. is a Delaware corporation organized in
December, 1995 at the direction of the Board of Directors of The Dime Savings
Bank of Williamsburgh (referred to as the Bank), a federally chartered savings
bank, for the purpose of acquiring all of the capital stock of the Bank issued
in the Bank's conversion from a federal mutual savings bank to a federal stock
savings bank on June 26, 1996.
The Bank has been, and intends to continue to be, a community-oriented
financial institution providing financial services and loans for housing within
its market areas. We maintain our headquarters in the Williamsburgh section of
the borough of Brooklyn. As of December 31, 2000, the Bank has seventeen
additional offices located in the boroughs of Brooklyn, Queens, and the Bronx,
and in Nassau County.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In our opinion, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of our financial condition as of December 31,
2000, the results of operations for the three-month and six-month periods ended
December 31, 2000 and 1999, cash flows for the six months ended December 31,
2000 and 1999, changes in stockholders' equity for the six months ended
December 31, 2000 and comprehensive income for the three-month and six-month
periods ended December 31, 2000 and 1999. The results of operations for the
three-month and six-month periods ended December 31, 2000, are not necessarily
indicative of the results of operations for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America (referred to as U.S. GAAP) have been omitted pursuant
to the rules and regulations of the Securities and Exchange Commission.
The preparation of financial statements in conformity with U.S. GAAP
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Areas in the accompanying financial statements where
estimates are significant include the allowance for loans losses and the
carrying value of other real estate.
These consolidated financial statements should be read in conjunction with
our audited consolidated financial statements as of and for the year ended June
30, 2000 and notes thereto.
3. TREASURY STOCK
During the six months ended December 31, 2000, we repurchased 276,358 shares
of our common stock into treasury. The average price of the treasury shares
acquired was $20.48 per share, and all shares have been recorded at the
acquisition cost.
4. RECENTLY ISSUED ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES - In September, 2000, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 140
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities," ("SFAS 140") replacing Financial Accounting Standards Board
Statement No. 125. SFAS 140 revises the standard for accounting and reporting
for transfers and servicing of financial assets such as receivables, loans and
securities, factoring transactions, wash sales, servicing assets and
-8-
liabilities, collateralized borrowing arrangements, securities lending
transactions, repurchase agreements, loan participations, and extinguishments
of liabilities. The new standard is based on consistent application of a
financial-components approach that recognizes the financial and servicing
assets a company controls and the liabilities a company has incurred,
derecognizes financial assets when control has been surrendered and
derecognizes liabilities when extinguished. SFAS 140 provides consistent
guidelines for distinguishing transfers of financial assets from transfers that
are secured borrowings. The Company is required to adopt SFAS 140 by March 31,
2001. SFAS 140 is not expected to have a material impact upon the Company's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Dime Community Bancshares, Inc. is a Delaware corporation and parent
corporation of The Dime Savings Bank of Williamsburgh (referred to as DSBW or
the Bank), a federally chartered stock savings bank. We were organized in
December, 1995 at the direction of the Board of Directors of the Bank for the
purpose of acquiring all of the capital stock of the Bank issued in the
conversion of the Bank from a federal mutual savings bank to a federal stock
savings bank.
SELECTED FINANCIAL HIGHLIGHTS AND OTHER DATA
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------------------- -------------------------
2000 1999 2000 1999
------ ----- ----- ------
PERFORMANCE AND OTHER SELECTED RATIOS:
Return on Average Assets 0.94% 0.88% 0.91% 0.93%
Return on Average Stockholders' Equity 11.24 10.21 10.97 10.36
Core Return on Average Stockholders' Equity (1) 10.97 10.18 10.80 9.95
Stockholders Equity to Total Assets 8.36 8.78 8.36 8.78
Tangible Equity to Total Tangible Assets 6.12 6.41 6.12 6.41
Loans to Deposits at End of Period 143.55 131.07 143.55 131.07
Loans to Earning Assets at End of Period 74.31 69.48 74.31 69.48
Average Interest Rate Spread 2.35 2.48 2.34 2.58
Net Interest Margin 2.75 2.86 2.72 2.96
Average Interest Earning Assets to average interest 109.47 109.78 108.83 110.07
bearing liabilities
Core Non-interest Expense to Average Assets (2) 1.17 1.25 1.14 1.29
Core Efficiency Ratio (2) 40.10 41.64 39.95 41.11
Effective Tax Rate 39.77 40.85 39.67 41.85
Dividend payout ratio 35.19 37.78 36.54 35.56
Average Tangible Equity $153,057 $149,292 $152,585 $147,860
PER SHARE DATA:
Reported EPS (Diluted) 0.54 0.45 1.04 0.90
Core EPS (Diluted) (1) 0.52 0.45 1.02 0.87
Cash dividends per share 0.19 0.17 0.38 0.32
Stated Book Value 18.99 16.97 18.99 16.97
Tangible Book Value 13.56 12.07 13.56 12.07
CASH EARNINGS DATA (3):
Cash Earnings 8,078 7,837 15,703 15,886
Cash EPS (Diluted) 0.73 0.65 1.41 1.31
Core Cash EPS (Diluted) (1) 0.71 0.65 1.39 1.27
Cash Return on Average Assets 1.27% 1.28% 1.24% 1.35%
(TABLE CONTINUED ON NEXT PAGE)
-9-
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
--------------------------- -------------------------
2000 1999 2000 1999
------ ----- ----- ------
Cash Return on Average Stockholders' Equity 15.16 14.77 14.90 14.99
Core Cash Return on Average Stockholders' Equity (1) 14.88 14.74 14.72 14.58
Cash Non-interest Expense to Average Assets (4) 1.05 1.08 1.03 1.10
Cash Efficiency Ratio (4) 36.19 35.87 36.03 35.18
ASSET QUALITY SUMMARY:
Net charge-offs $17 $464 $23 $512
Non-performing Loans 3,950 2,967 3,950 2,967
Other real estate owned 438 1,180 438 1,180
Non-performing Loans/Total Loans 0.22% 0.19% 0.22% 0.19%
Non-performing Assets/Total Assets 0.17 0.17 0.17 0.17
Allowance for Loan Loss/Total Loans 0.85 0.93 0.85 0.93
Allowance for Loan Loss/Non-performing Loans 389.42 495.08 389.42 495.08
REGULATORY CAPITAL RATIOS: (BANK ONLY)
Tangible capital 6.01% 5.66% 6.01% 5.66%
Leverage capital 6.01 5.66 6.01 5.66
Total risk-based capital 12.72 10.73 12.72 10.73
EARNINGS TO FIXED CHARGES RATIOS
Including interest on deposits 1.35x 1.36x 1.34x 1.40x
Excluding interest on deposits 1.62 1.65 1.59 1.76
(1) Amounts exclude gains and losses on sales of assets, and other significant
non-recurring income or expense items.
(2) In calculating these ratios, amortization expense related to goodwill and
core deposit intangibles are excluded from non-interest expense. The actual
efficiency ratio and ratio of non-interest expense to average assets were
47.43% and 1.38%, respectively, for the three months ended December 31,
2000, 49.04% and 1.47%, respectively, for the three months ended December
31, 1999, 47.47% and 1.36%, respectively, for the six months ended December
31, 2000, and 48.48% and 1.52%, respectively, for the six months ended
December 31, 1999.
(3) Amounts exclude non-cash expenses related to goodwill and core deposit
intangible amortization and compensation expense related to stock benefit
plans.
(4) In calculating these ratios, non-interest expense excludes non-cash
expenses related to goodwill and core deposit intangible amortization and
compensation expense related to stock benefit plans.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of funds are deposits, proceeds from principal and
interest payments on loans, mortgage-backed securities and investments,
borrowings, and, to a lesser extent, proceeds from the sale of fixed-rate
mortgage loans to the secondary mortgage market. While maturities and scheduled
amortization of loans and investments are a predictable source of funds,
deposit flows, mortgage prepayments and mortgage loan sales are influenced by
interest rates, economic conditions and competition.
Our primary investing activities are the origination of multi-family real
estate mortgage loans, and the purchase of mortgage-backed and other
securities. Increases in interest rates during the period January, 2000
through December, 2000 has resulted in a decline in our loan origination
activity. During the six months ended December 31, 2000, our real estate loan
originations totaled $148.4 million compared to $296.7 million for the six
months ended December 31, 1999. Purchases of mortgage-backed and other
securities totaled $219,000 for the six months ended December 31, 2000 compared
to $143.5 million for the six months ended December 31, 1999. In response to
both interest rate increases and a reduction in our overall capital ratios from
the previous year, we reduced our level of capital leverage transactions during
the six months ended December 31, 2000, which resulted in a decline in security
purchases during the period.
-10-
Funding for loan originations and security purchases during the six months
ended December 31, 2000, was obtained primarily from principal repayments on
loans and mortgage-backed securities, deposit growth and maturities of
investment securities. Principal repayments on real estate loans and mortgage-
backed securities totaled $91.6 million during the six months ended December
31, 2000, compared to $150.3 million during the six months ended December 31,
1999. Interest rate increases during the period January, 2000 through
December, 2000 significantly slowed principal repayment rates on both real
estate loans and mortgage-backed securities during this period, particularly
loan prepayments. Maturities and calls of investment securities totaled $10.2
million during the six months ended December 31, 2000, and $142.9 million
during the six months ended December 31, 1999. During the six months ended
December 31, 1999, we were concerned over the potential of excessive deposit
outflows due to customer concerns over possible computer problems upon turning
to the Year 2000. In order to alleviate liquidity concerns that could have
resulted in the event of excessive deposit outflows, we maintained a
significant level of short-term, liquid investments during this period. As a
result of the rollover of these short-term securities, our level of security
purchases and maturities were considerably higher during the six ended December
31, 1999, than would have otherwise been planned.
Deposits increased $45.5 million during the six months ended December 31,
2000, compared to a decrease of $42.3 million during the six months ended
December 31, 1999. The increase in deposits during the six months ended
December 31, 2000 primarily reflects increased marketing efforts over the past
twelve months which have helped generate additional deposit balances in both
certificate and non-certificate accounts. The greatest growth during this
period has been realized in our money market accounts, which increased $32.8
million during the six months ended December 31, 2000. The decrease in
deposits during the six months ended December 31, 1999, reflected the runoff of
higher-cost certificate of deposit accounts which were gathered from rate
promotions during the fiscal year ended June 30, 1997. The decline during this
period also reflected the sale of $19.0 million in deposits at our Gates
Avenue, Brooklyn branch in November, 1999. Deposit flows are affected by the
level of interest rates, the interest rates and products offered by local
competitors, and other factors. Certificates of deposit which are scheduled to
mature in one year or less from December 31, 2000 totaled $475.7 million.
Based upon our current pricing strategy and deposit retention experience, we
believe that we will retain a significant portion of such deposits.
Stockholders equity increased $9.1 million during the six months ended
December 31, 2000, due to the addition of net income of $11.6 million and the
change of $6.8 million in the after-tax unrealized gain (loss) on available for
sale securities at June 30, 2000. These increases to equity was partially
offset by cash dividends of $4.4 million and treasury stock repurchases of $5.7
million during the same period. During the six months ended December 31, 2000,
we repurchased 276,358 shares of our common stock into treasury. The average
price of the treasury shares acquired was $20.48 per share, and all shares have
been recorded at the acquisition cost.
As of December 31, 2000, we had 434,016 shares remaining to be repurchased
under our Seventh Stock Repurchase Program. Based upon the closing market
price of $25.25 per share for our common stock as of December 31, 2000, we
would utilize approximately $11.0 million in funds in order to repurchase all
of the remaining authorized shares under the Seventh Stock Repurchase Program.
On January 18, 2001, we declared a cash dividend of $0.19 per common share
to all shareholders of record on January 30, 2001. This dividend is payable on
February 7, 2001.
The Bank is required to maintain a minimum average daily balance of liquid
assets as a percentage of net withdrawable deposit accounts plus short-term
borrowings by the Office of Thrift Supervision (referred to as the OTS)
regulations. The minimum required liquidity ratio is currently 4.0%. At
December 31, 2000, the Bank's liquidity ratio was 12.8%. The levels of the
Bank's short-term liquid assets are dependent on the Bank's operating,
financing and investing activities during any given period. The Bank's
liquidity ratio fluctuates on a daily basis due primarily to deposit flows.
-11-
We monitor our liquidity position on a daily basis. Excess short-term
liquidity is invested in overnight federal funds sales and various money market
investments. In the event that we should require funds beyond our ability to
generate them internally, additional sources of funds are available through the
use of the Bank's $757.7 million borrowing limit at the FHLBNY. At December 31,
2000, the Bank had $585.0 million in short- and medium-term advances
outstanding at the FHLBNY, and a remaining borrowing limit of $172.7 million.
The Bank is subject to minimum capital regulatory requirements imposed by
the OTS, which requirements are, as a general matter, based on the amount and
composition of an institution's assets. Tangible capital must be at least 1.50%
of total tangible assets and total risk-based capital must be at least 8.0% of
risk-weighted assets. In addition, insured institutions in the strongest
financial management condition are required to maintain Tier 1 capital of not
less than 3.0% of total assets (the "leverage capital ratio"). For all other
banks, the minimum leverage capital requirement is 4.0%, unless a higher
leverage capital ratio is warranted by the particular circumstances or risk
profile of the institution. At December 31, 2000, the Bank was in compliance
with all applicable regulatory capital requirements. Tangible capital totaled
$148.0 million, or 6.01% of total tangible assets, leverage capital was 6.01%
of adjusted assets, and total risk-based capital was 12.72% of risk weighted
assets. In addition, at December 31, 2000, the Bank was considered "well-
capitalized" for all regulatory purposes.
ASSET QUALITY
Non-performing loans (loans past due 90 days or more as to principal or
interest) totaled $4.0 million at December 31, 2000, compared to $4.4 million
at June 30, 2000. We also had 29 loans totaling $780,000 delinquent 60-89 days
at December 31, 2000, as compared to 25 such delinquent loans totaling $754,000
at June 30, 2000. The majority of the non-performing loans and loans
delinquent 60-89 are represented by FHA/VA mortgage and consumer loans, which
possess small outstanding balances.
Under Accounting Principles Generally Accepted in the United States of
America, we are required to account for certain loan modifications or
restructurings as ''troubled-debt restructurings.'' In general, the
modification or restructuring of a debt constitutes a troubled-debt
restructuring if we, for economic or legal reasons related to the borrower's
financial difficulties, grant a concession to the borrower that we would not
otherwise consider. We had two loans classified as troubled-debt restructuring
at December 31, 2000, totaling $3.6 million, compared to one such loan totaling
$700,000 at June 30, 2000. During the quarter ended December 31, 2000, we
added one non-residential real estate loan to troubled-debt restructurings.
This loan was delinquent 60 days at September 30, 2000, and was brought current
on all interest through October, 2000, shortly after which time we entered into
a payment restructuring agreement as a result of weaknesses in the short-term
cash flows surrounding the underlying collateral.. Under the terms of this
restructuring agreement, repayments of all principal and interest are scheduled
to commence in April, 2002, and conclude at the stated maturity of the loan in
July, 2003. In connection with this loan, we added a provision of $500,000 to
our allowance for loan losses during the quarter ended December 31, 2000. This
loan is also deemed impaired in accordance with SFAS 114 at December 31, 2000.
The remaining $700,000 troubled-debt restructuring loan is currently on
accrual status and it has been performing in accordance with the restructuring
terms for over one year. The current regulations of the Office of Thrift
Supervision require that troubled-debt restructurings remain classified as such
until either the loan is repaid or returns to its original terms.
SFAS 114 provides guidelines for determining and measuring impairment in
loans. For each loan that we determine to be impaired, impairment is measured
by the amount the carrying balance of the loan, including all accrued interest,
exceeds the estimate of fair value. A specific reserve is established within
the allowance for loan losses, to the extent of impairment. Generally, we
consider non-performing loans to be impaired loans. The recorded investment in
loans deemed impaired was approximately $5.5 million as of December 31, 2000,
consisting of four loans, compared with $2.6 million at June 30, 2000,
consisting of three loans. The average balance of impaired loans was $3.6
-12-
million for the six months ended December 31, 2000 compared to $1.3 million for
the six months ended December 31, 1999. The increase in both current and
average balance of impaired loans resulted primarily from the addition of the
$2.9 million troubled-debt restructuring to impaired status during the quarter
ended December 31, 2000. At December 31, 2000, reserves totaling $1.6 million
have been allocated within the allowance for loan losses for impaired loans.
At December 31, 2000, non-performing loans exceed impaired loans by $1.6
million. This difference is comprised of the previously noted $2.9 million
troubled-debt restructuring loan, which, while not included in non-performing
loans at December 31, 2000, is deemed impaired, and which is partially offset
by $1.3 million of one-to four-family, cooperative apartment and consumer
loans, which, while on non-accrual status, are not deemed impaired. This $1.3
million in one- to four-family, cooperative apartment, and consumer loans are
not deemed impaired since they have outstanding balances less than $227,000,
and are considered a homogeneous loan pool that are not required to be
evaluated for impairment.
The balance of other real estate owned ("OREO") was $438,000, consisting of
6 properties, at December 31, 2000 compared to $381,000, comprised of 7
properties at June 30, 2000. During the six months ended December 31, 2000,
one property with a recorded balance of $102,000 was transferred into OREO, and
was partially offset by the sale of two properties with aggregate recorded
balances of $45,000 during this period.
The following table sets forth information regarding our non-performing
loans, non-performing assets, impaired loans and troubled-debt restructurings
at the dates indicated.
AT DECEMBER 31, 2000 AT JUNE 30, 2000
-------------------- ----------------
(Dollars In Thousands)
NON-PERFORMING LOANS:
One- to four-family $1,181 $1,769
Multi-family and underlying cooperative 2,584 2,591
Cooperative apartment 90 54
Other loans 95 7
-------------------- ----------------
TOTAL NON-PERFORMING LOANS 3,950 4,421
TOTAL OREO 438 381
-------------------- ----------------
TOTAL NON-PERFORMING ASSETS $4,388 $4,802
==================== ================
TROUBLED-DEBT RESTRUCTURINGS $3,624 $700
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS 8,012 5,502
IMPAIRED LOANS 5,508 2,591
TOTAL NON-PERFORMING LOANS TO TOTAL LOANS 0.22% 0.26%
TOTAL IMPAIRED LOANS TO TOTAL LOANS 0.30 0.15
TOTAL NON-PERFORMING ASSETS TO TOTAL ASSETS 0.17 0.19
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS TO TOTAL ASSETS 0.31 0.22
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2000 AND JUNE 30, 2000
ASSETS. Our assets totaled $2.59 billion at December 31, 2000, an increase
of $84.5 million from total assets of $2.50 billion at June 30, 2000. The
growth in assets was experienced primarily in real estate loans, which
increased $94.4 million since June 30, 2000. The increase in real estate loans
resulted primarily from real estate loan originations of $148.4 million during
the six months ended December 31, 2000, of which $126.4 million were multi-
family and underlying cooperative loans. While real estate loan origination
-13-
levels have recently declined, our loan portfolio has still increased as a
result of a corresponding decline in prepayment levels. Both the decline in
origination and prepayment levels have resulted from the interest rate
increases during the period January, 2000 through December, 2000.
Offsetting the increase in real estate loans was an aggregate decline of
$24.8 million in mortgage-backed securities held to maturity and available for
sale, resulting from principal repayments on these securities during the
period, and an aggregate decline of $7.8 million in investment securities held
to maturity and available for sale, resulting from maturities of these
securities during the period. Securities purchase activities were minimal
during the six months ended December 31, 2000, as asset growth has been focused
primarily upon originating real estate loans. See "Capital Leverage Strategy"
below.
LIABILITIES. Total liabilities increased $75.5 million during the six months
ended December 31, 2000, due primarily to an increase of $45.5 million in
deposits. The growth in deposits resulted mainly from the success of various
sales and marketing activities during the past twelve months. These sales and
marketing activities targeted growth in non-certificate balances (with
particular emphasis upon money market and checking accounts) and customer
households (with a focus upon relationship development). In addition, escrow
and other deposits increased $27.4 million during this period as a result of
growth in mortgage escrow funds. Since the growth in deposits and escrow
funding was adequate to fund asset growth during the six months ended December
31, 2000, borrowings remained relatively constant during the six months ended
December 31, 2000.
STOCKHOLDERS' EQUITY. Stockholders equity increased $9.1 million during
the six months ended December 31, 2000. See "Liquidity and Capital Resources."
CAPITAL LEVERAGE STRATEGY. As a result of the initial public offering in
June, 1996, our capital level significantly exceeded all regulatory
requirements. A portion of the "excess" capital generated by the initial
public offering has been deployed through the use of a capital leverage
strategy whereby we invest in high quality mortgage-backed securities (referred
to as leverage assets) funded by short term borrowings from various third party
lenders under securities sold under agreement to repurchase transactions. The
capital leverage strategy generates additional earnings for us by virtue of a
positive interest rate spread between the yield on the leverage assets and the
cost of the borrowings. Since the average term to maturity of the leverage
assets exceeds that of the borrowings used to fund their purchase, the net
interest income earned on the leverage strategy would be expected to decline in
a rising interest rate environment. To date, the capital leverage strategy has
been undertaken in accordance with limits established by our Board of
Directors, aimed at enhancing profitability under moderate levels of interest
rate exposure. Due to increases in interest rates during the period January,
2000 through December, 2000, which have resulted in less favorable interest
rate spreads on capital leverage transactions, we reduced our activity in these
transactions. Additionally, as our capital ratios decline, we expect that our
emphasis on increasing the overall level of these transactions will accordingly
decline.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS ENDED DECEMBER 31,
2000 AND 1999
GENERAL. Net income was $6.0 million during the three months ended December
31, 2000, an increase of $576,000 over net income of $5.4 million during the
three months ended December 31, 1999. During this period, an increase of $1.3
million in non-interest income and a decline of $207,000 in non-interest
expense, was partially offset by a decline of $188,000 in net interest income
and an increase of $500,000 in the provision for loan losses. Income tax
expense increased by $216,000 during this period as a result of increased pre-
tax income of $792,000.
NET INTEREST INCOME. The discussion of net interest income for the three
months ended December 31, 2000 and 1999, presented below, should be read in
conjunction with the following table, which sets forth certain information
relating to our consolidated statements of operations for the three months
ended December 31, 2000 and 1999, and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
-14-
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. The yields and costs include fees which are
considered adjustments to yields.
ANALYSIS OF NET INTEREST INCOME (UNAUDITED)
For the Three Months Ended December 31,
--------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
-------------- ----------- ------------- ------------- ----------- ---------
Assets: DOLLARS IN THOUSANDS
Interest-earning assets:
Real Estate Loans (1) $1,772,045 $34,299 7.74% $1,533,984 $29,093 7.59%
Other loans 6,986 159 9.10 7,482 161 8.61
Mortgage-backed securities (2) 422,361 7,178 6.80 472,838 7,610 6.44
Investment securities (2) 135,755 2,297 6.77 150,379 2,559 6.81
Other 64,957 1,133 6.98 172,559 2,474 5.73
-------------- ----------- ------------- -----------
TOTAL INTEREST-EARNING ASSETS 2,402,104 $45,066 7.50% 2,337,242 $41,897 7.17%
-------------- =========== ------------- ===========
NON-INTEREST EARNING ASSETS 145,327 114,537
-------------- -------------
TOTAL ASSETS $2,547,431 $2,451,779
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Now and Super Now $26,021 $78 1.19% $27,534 $82 1.18%
Money Market accounts 172,181 1,857 4.28 82,779 885 4.25
Savings accounts 362,971 1,849 2.02 393,292 2,022 2.04
Certificates of deposit 630,786 8,620 5.42 644,213 8,141 5.01
Borrowed funds 1,002,371 16,122 6.38 981,257 14,039 5.68
-------------- ----------- ------------- -----------
TOTAL INTEREST-BEARING LIABILITIES 2,194,330 $28,526 5.16% 2,129,075 $25,169 4.69%
-------------- =========== ------------- ===========
CHECKING ACCOUNTS 59,425 53,008
OTHER NON-INTEREST-BEARING LIABILITIES 80,510 57,491
-------------- -------------
TOTAL LIABILITIES 2,334,265 2,239,574
STOCKHOLDERS' EQUITY 213,166 212,205
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,547,431 $2,451,779
============== =============
NET INTEREST INCOME/ INTEREST RATE
SPREAD (3) $16,540 2.35% $16,728 2.48%
=========== ===========
NET INTEREST-EARNING ASSETS/ NET
INTEREST MARGIN (4) $207,774 2.75% $208,167 2.86%
============== =============
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 109.47% 109.78%
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Includes securities classified "held to maturity" and "available for sale."
(3) Net interest rate spread represents the difference between the average rate
on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-15-
RATE/VOLUME ANALYSIS
THREE MONTHS ENDED
DECEMBER 31, 2000
COMPARED TO
THREE MONTHS ENDED
DECEMBER 31, 1999
INCREASE/ (DECREASE)
DUE TO
VOLUME RATE TOTAL
-------------- ------------ ------------
Interest-earning assets: (DOLLARS IN THOUSANDS)
Real Estate Loans $4,573 $633 $5,206
Other loans (11) 9 (2)
Mortgage-backed securities (835) 403 (432)
Investment securities (248) (14) (262)
Other (1,712) 371 (1,341)
-------------- ------------ ------------
Total $1,767 $1,402 $3,169
============== ============ ============
Interest-bearing liabilities:
NOW and Super Now accounts $(5) $1 $(4)
Money market accounts 962 10 972
Savings accounts (154) (19) (173)
Certificates of deposit (179) 658 479
Borrowed funds 327 1,756 2,083
-------------- ------------ ------------
Total 951 2,406 3,357
-------------- ------------ ------------
Net change in net interest income $816 $(1,004) $(188)
============== ============ ============
Net interest income for the three months ended December 31, 2000 decreased
$188,000 to $16.5 million from $16.7 million during the three months ended
December 31, 1999. This decrease was attributable to an increase of $3.4
million in interest expense, which exceeded the increase of $3.2 million in
interest income. The net interest rate spread declined 13 basis points from
2.48% for the three months ended December 31, 1999 to 2.35% for the three
months ended December 31, 2000, and the net interest margin declined 11 basis
points from 2.86% to 2.75% during the same period.
The decline in interest rate spread and net interest margin both reflect a
47 basis point increase in the average cost of interest bearing liabilities,
resulting primarily from an increase in the average cost of borrowed funds of
70 basis points, certificate of deposit accounts of 41 basis points and money
market accounts of 3 basis points. These interest rate increases all reflect
increases in general interest rates during the period January 1, 2000 through
December 31, 2000. The narrowing of the interest rate spread and net interest
margin also reflects the $21.1 million increase in average borrowed funds,
which possess the highest average cost of interest bearing liabilities. Our
issuance, on April 12, 2000, of $25.0 million in subordinated notes with a
stated annual coupon of 9.25% also contributed to the growth in interest
expense on borrowed funds.
On January 3, 2001, the Federal Reserve Bank of New York reduced its federal
funds borrowing rate by 50 basis points. This action resulted in a similar
decline in general borrowing interest rates available to us. Currently, our
liabilities posses a shorter average term to maturity than our assets. For
example, approximately $375.0 million of our outstanding borrowings as of
December 31, 2000, are scheduled to mature prior to June 30, 2001. Since our
liabilities possess shorter average maturities than our assets, we anticipate
that the reduction in interest rates will favorably impact our net interest
income in the upcoming six months. See "Quantitative and Qualitative
Disclosure About Market Risk."
-16-
INTEREST INCOME. Interest income for the three months ended December 31,
2000, was $45.1 million, an increase of $3.2 million from $41.9 million during
the three months ended December 31, 1999. The increase in interest income was
attributable to increased interest income on real estate loans of $5.2 million.
The increase in interest income on real estate loans was attributable primarily
to an increase of $238.1 million in the average balance of real estate loans,
resulting from $338.2 million of real estate loans originated during the
twelve-month period ended December 31, 2000. Partially offsetting the increase
in interest income on real estate loans was a decline of $1.3 million in income
on other interest earnings assets (comprised of federal funds sold, commercial
paper, and FHLBNY capital stock). This decline resulted from a decline in the
average balance of these assets of $107.6 million, as we maintained a higher
than normal level of investment in these short-term assets during the quarter
ended December 31, 1999 for liquidity purposes. See "Liquidity and Capital
Resources." Interest income on investment securities declined $262,000,
reflecting a decline in average balance of $14.6 million, and interest income
on mortgage-backed securities declined $432,000, reflecting a decline of $50.5
million in average balance. These declines in average balance resulted from
our ongoing shift in composition of interest earning assets towards real estate
loans, and our reduction in capital leverage transactions during the six months
ended December 31, 2000, compared to the six months ended December 31, 1999.
Overall, the yield on interest-earning assets increased 33 basis points from
7.17% during the three months ended December 31, 1999 to 7.50% during the three
months ended December 31, 2000. The increase was attributable primarily to
increases in the average yield of 15 basis points on real estate loans, 36
basis points on mortgage-backed securities, and 125 basis points on other
interest earning assets, resulting primarily from general market interest rate
increases during the period January, 2000 through December, 2000. The average
interest rate on real estate loan originations during the quarter ended
December 31, 2000, was 8.30%, compared to 7.58% during the quarter ended
December 31, 1999, reflecting the increase in general market interest rates
during this period.
INTEREST EXPENSE. Interest expense increased $3.4 million, to $28.5 million
during the three months ended December 31, 2000, from $25.1 million during the
three months ended December 31, 1999. This increase resulted primarily from
increased interest expense of $2.1 million on borrowed funds, which resulted
from both an increase in the average cost of borrowed funds of 70 basis points
during the three months ended December 31, 2000 compared to the three months
ended December 31, 1999, and an increase in the average balance of $21.1
million during this same period. The increase in the average balance of
borrowed funds resulted primarily from the addition of $25.0 million in
subordinated debt on April 12, 2000, at a stated annual coupon of 9.25%. The
subordinated notes contributed $599,000 to interest expense during the quarter
ended December 31, 2000. The increase in average cost of borrowed funds
reflects the overall increase in interest rates during the period January, 2000
through December, 2000. Further, interest expense on money market accounts
increased $972,000, resulting mainly from an increase of $89.4 million in the
average balance of these deposits during this period. The growth in the
average balance of these accounts resulted from ongoing promotions related to
these accounts. Interest expense on certificates of deposits also increased
$479,000, due primarily to an increase of 41 basis points in average cost of
these deposits, reflecting the overall increase in interest rates during the
period January, 2000 through December, 2000.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $560,000
during the three months ended December 31, 2000, compared to $60,000 during the
three months ended December 31, 1999. During the three months ended December
31, 2000, an additional provision of $500,000 was recorded related to a recent
troubled-debt restructuring loan. Otherwise, our overall asset quality
remained relatively stable. See "Asset Quality." The remaining loan loss
provision of $60,000 during the period reflects both our response to continued
growth in real estate loans and our recognition of slight increases in
delinquent and impaired loans. The allowance for loan losses increased
$543,000 during the three months ended December 31, 2000, as the loan loss
provision of $560,000 exceeded net charge-offs of $17,000 during the period.
-17-
NON-INTEREST INCOME. Non-interest income increased $1.3 million to $2.8
million during the three months ended December 31, 2000, from $1.5 million
during the three months ended December 31, 1999. The increase resulted
primarily from an increase of $899,000 on the gain or loss on the disposal of
securities, other assets and deposits. During the quarter ended December 31,
2000, we recorded a gain on the sale of equity investments of $756,000. During
the quarter ended December 31, 1999, we recorded net losses of $1.4 million
associated with the sales of investments and mortgage-backed securities, which
were offset by a gain of $1.2 million on the sale of deposits at the Gates
Avenue, Brooklyn branch. Additionally, our investment in Bank Owned Life
Insurance (hereafter referred to as "BOLI"), which was instituted in May, 2000,
contributed $530,000 to other non-interest income during the quarter ended
December 31, 2000. Loan prepayment fees, which declined $114,000 to $141,000
during the quarter ended December 31, 2000 compared to $255,000 during the
quarter ended December 31, 1999, were partially offset by increased bank retail
fee income of $77,000 during this period.
NON-INTEREST EXPENSE. Non-interest expense decreased $207,000, from $9.0
million during the three months ended December 31, 1999, to $8.8 million during
the three months ended December 31, 2000.
Salary and employee benefits declined $510,000 during this period. Employee
benefit plan restructurings, which became effective on July 1, 2000, resulted
in cost savings of $736,000 in salary and employee benefits expense during this
period. Partially offsetting these savings were increases in salaries and
401(k) plan expenses, as 401(k) plan contributions were reinstated effective
July 1, 2000.
Occupancy and equipment expense increased $118,000, due primarily to the
accelerated depreciation of computer equipment acquired from Financial Bancorp,
Inc. in January, 1999. This accelerated depreciation, which resulted from our
revised estimate of the useful life of the equipment, increased depreciation
expense by $99,000 during the quarter ended December 31, 2000.
Federal deposit insurance premiums also declined $55,000 during the quarter
ended December 31, 2000 compared to December 31, 1999, as a result of a
reduction in our insurance rate which was instituted in January, 2000.
Other expenses increased $181,000 due primarily to increased banking floor
losses of $100,000 recorded during the quarter ended December 31, 2000, and
increased advertising expenses of $59,000.
INCOME TAX EXPENSE. Income tax expense increased $216,000, or 6%, during the
quarter ended December 31, 2000 compared to the quarter ended December 31,
1999. Our effective tax rate declined from 40.9% to 39.8% during this period,
due to the favorable tax status on income associated with our recent BOLI
investment.
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS ENDED DECEMBER 31, 2000
AND 1999
GENERAL. Net income was $11.6 million during the six months ended December
31, 2000, an increase of $589,000 over net income of $11.0 million during the
six months ended December 31, 1999. During this period, an increase of
$972,000 million in non-interest income and a decline of $726,000 in non-
interest expense, was partially offset by a decline of $901,000 in net interest
income and an increase of $500,000 in the provision for loan losses. Income
tax expense declined by $292,000 during this period as a result of a decline in
effective tax rate from 41.9% to 39.7%.
NET INTEREST INCOME. The discussion of net interest income for the six
months ended December 31, 2000 and 1999, presented below, should be read in
conjunction with the following table, which sets forth certain information
relating to our consolidated statements of operations for the six months ended
December 31, 2000 and 1999, and reflects the average yield on assets and
average cost of liabilities for the periods indicated. Such yields and costs
are derived by dividing income or expense by the average balance of assets or
liabilities, respectively, for the periods shown. Average balances are derived
from average daily balances. The yields and costs include fees which are
considered adjustments to yields.
-18-
ANALYSIS OF NET INTEREST INCOME (UNAUDITED)
For the Six Months Ended December 31,
--------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ --------- --------- ---------- --------- -------
Assets: (DOLLARS IN THOUSANDS)
Interest-earning assets:
Real Estate Loans (1) $1,752,397 $67,620 7.72% $1,474,700 $56,096 7.61%
Other loans 7,141 337 9.44 7,539 310 8.22
Mortgage-backed securities (2) 425,899 14,566 6.84 494,109 15,709 6.36
Investment securities (2) 137,246 4,472 6.52 161,317 5,144 6.38
Other 61,679 2,113 6.85 110,681 3,247 5.87
------------ --------- --------- ---------- --------- ---------
TOTAL INTEREST-EARNING ASSETS 2,384,362 $89,108 7.47% 2,248,346 $80,506 7.16%
------------ ========= ---------- =========
NON-INTEREST EARNING ASSETS 146,918 109,397
------------ ----------
TOTAL ASSETS $2,531,280 $2,357,743
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING LIABILITIES:
Now and Super Now $26,114 $155 1.18% $26,954 $159 1.17%
Money Market accounts 164,869 3,568 4.29 69,923 1,398 3.97
Savings accounts 366,835 3,755 2.03 400,814 4,120 2.04
Certificates of deposit 625,428 16,941 5.37 660,060 16,677 5.01
Borrowed funds 1,007,599 32,302 6.36 884,918 24,864 5.57
------------ --------- --------- ---------- --------- ---------
TOTAL INTEREST-BEARING
LIABILITIES 2,190,845 $56,721 5.14% 2,042,669 $47,218 4.59%
------------ ========= ---------- =========
CHECKING ACCOUNTS 58,260 53,333
OTHER NON-INTEREST-BEARING
LIABILITIES 71,346 49,822
------------ ----------
TOTAL LIABILITIES 2,320,451 2,145,824
STOCKHOLDERS' EQUITY 210,829 211,919
------------ ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,531,280 $2,357,743
============ ==========
NET INTEREST INCOME/ INTEREST RATE
SPREAD (3) $32,387 2.34% $33,288 2.58%
========= =========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN (4) $193,517 2.72% $205,677 2.96%
============ ==========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 108.83% 110.07%
(1) In computing the average balance of loans, non-accrual loans have been
included.
(2) Includes securities classified "held to maturity" and "available for sale."
(3) Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-19-
RATE/VOLUME ANALYSIS
SIX MONTHS ENDED
DECEMBER 31, 2000
COMPARED TO
SIX MONTHS ENDED
DECEMBER 31, 1999
INCREASE/ (DECREASE)
DUE TO
VOLUME RATE TOTAL
-------------- ------------ -------------
(DOLLARS IN THOUSANDS)
Interest-earning assets:
Real Estate Loans $10,638 $886 $11,524
Other loans (18) 45 27
Mortgage-backed securities (2,249) 1,106 (1,143)
Investment securities (777) 105 (672)
Other (1,557) 423 (1,134)
-------------- ------------ ------------
Total $6,037 $2,565 $8,602
============== ============ ============
Interest-bearing liabilities:
NOW and Super Now accounts $(5) $1 $(4)
Money market accounts 1,977 193 2,170
Savings accounts (347) (18) (365)
Certificates of deposit (905) 1,169 264
Borrowed funds 3,680 3,758 7,438
-------------- ------------ ------------
Total 4,400 5,103 9,503
-------------- ------------ ------------
Net change in net interest income $1,637 $(2,538) $(901)
============== ============ ============
Net interest income for the six months ended December 31, 2000 decreased
$901,000 to $32.4 million from $33.3 million during the six months ended
December 31, 1999. This decrease was attributable to an increase of $9.5
million in interest expense, which exceeded the increase of $8.6 million in
interest income. The net interest rate spread declined 24 basis points from
2.58% for the six months ended December 31, 1999 to 2.34% for the six months
ended December 31, 2000, and the net interest margin declined 24 basis points
from 2.96% to 2.72% during the same period.
The decline in interest rate spread and net interest margin both reflect a
55 basis point increase in the average cost of interest bearing liabilities,
resulting primarily from an increase in the average cost of borrowed funds of
79 basis points, certificates of deposit accounts of 36 basis points and money
market accounts of 32 basis points. These interest rate increases all reflect
increases in general interest rates during the period January 1, 2000 through
December 31, 2000. The narrowing of the interest rate spread and net interest
margin also reflects the $122.7 million increase in average borrowed funds,
which possess the highest average cost of interest bearing liabilities. Our
issuance, on April 12, 2000, of $25.0 million in subordinated notes with a
stated annual coupon of 9.25% also contributed to the growth in interest
expense on borrowed funds.
INTEREST INCOME. Interest income for the six months ended December 31,
2000, was $89.1 million, an increase of $8.6 million from $80.5 million during
the six months ended December 31, 1999. The increase in interest income was
attributable to increased interest income on real estate loans of $11.5
million. The increase in interest income on real estate loans was attributable
primarily to an increase of $277.7 million in the average balance of real
estate loans, resulting from $338.2 million of real estate loans originated
during the twelve-month period ended December 31, 2000. Partially offsetting
the increase in interest income on real estate loans was a decline of $1.1
-20-
million in income on other interest earnings assets (comprised of federal funds
sold, commercial paper, and FHLBNY capital stock). This decline resulted from
a decline in the average balance of these assets of $49.0 million, as we
maintained a higher than normal level of investment in these short-term assets
during the quarter ended December 31, 1999 for liquidity purposes. See
"Liquidity and Capital Resources." Interest income on mortgage-backed
securities declined $1.1 million, reflecting a decline of $68.2 million in
average balance, and interest income on investment securities declined
$672,000, reflecting a decline in average balance of $24.1 million. These
declines in average balance resulted from our ongoing shift in composition of
interest earning assets towards real estate loans. See "Capital Leverage
Strategy."
Overall, the yield on interest-earning assets increased 31 basis points from
7.16% during the six months ended December 31, 1999 to 7.47% during the six
months ended December 31, 2000. The increase was attributable primarily to
increases in the average yield of 11 basis points on real estate loans, 48
basis points on mortgage-backed securities, and 98 basis points on other
interest earning assets, resulting primarily from general market interest rate
increases during the period January, 2000 through December, 2000. The average
interest rate on real estate loan originations during the six months ended
December 31, 2000, was 8.37%, compared to 7.37% during the six months ended
December 31, 1999, reflecting the increase in general market interest rates
during this period.
INTEREST EXPENSE. Interest expense increased $9.5 million, to $56.7 million
during the six months ended December 31, 2000, from $47.2 million during the
six months ended December 31, 1999. This increase resulted primarily from
increased interest expense of $7.4 million on borrowed funds, which resulted
from both an increase in the average balance of $122.7 million during the six
months ended December 31, 2000 compared to the six months ended December 31,
1999, and an increase in the average cost of borrowed funds of 79 basis points.
The increase in the average balance of borrowed funds resulted from the growth
in FHLBNY advances from $250.0 million at June 30, 1999 to $567.5 million at
December 31, 2000. While much of this growth occurred during the period July
1, 1999 through June 30, 2000, the full effects of this growth upon average
balance is realized during the six months ended December 31, 2000, while only a
portion of the growth was realized during the six months ended December 31,
1999. In addition, average borrowings grew as a result of the $25.0 million in
subordinated debt added on April 12, 2000, at a stated annual coupon of 9.25%.
The subordinated notes contributed $1.2 million to interest expense during the
six months ended December 31, 2000. The increase in average cost of borrowed
funds reflects the overall increase in interest rates during the period
January, 2000 through December, 2000. Further, interest expense on money
market accounts increased $2.2 million, resulting primarily from an increase of
$94.9 million in the average balance of these deposits during this period. The
growth in the average balance of these accounts resulted primarily from ongoing
promotions related to these accounts. The increase in average cost of money
market accounts reflects the growth of these accounts from ongoing interest
rate promotions during the period July 1, 1999 through December 31, 2000.
Interest expense on certificates of deposits also increased $264,000, which
resulted primarily from an increase of 36 basis points in average cost of these
deposits, reflecting the overall increase in interest rates during the period
January, 2000 through December, 2000.
PROVISION FOR LOAN LOSSES. The provision for loan losses was $620,000
during the six months ended December 31, 2000, compared to $120,000 during the
six months ended December 31, 1999. During the quarter ended December 31,
2000, an additional provision of $500,000 was recorded related to a recent
troubled-debt restructuring loan. Otherwise, our overall asset quality
remained relatively stable. See "Asset Quality." The remaining loan loss
provision of $120,000 during the period reflects both our response to continued
growth in real estate loans and our recognition of slight increases in
delinquent and impaired loans. The allowance for loan losses increased
$597,000 during the six months ended December 31, 2000, as the loan loss
provision of $620,000 exceeded net charge-offs of $23,000 during the period.
NON-INTEREST INCOME. Non-interest income increased $972,000 to $4.6 million
during the six months ended December 31, 2000, from $3.6 million during the six
months ended December 31, 1999. The increase resulted primarily from an
increase of $804,000 on the gain or loss on the disposal of securities and
-21-
other assets. During the six months ended December 31, 2000, the Company
recorded a gain on the sale of equity investments of $756,000. During the six
months ended December 31, 1999, we recorded net losses of $1.2 million
associated with the sales of investments and mortgage-backed securities, which
were offset by a gain of $1.2 million on the sale of deposits at the Gates
Avenue, Brooklyn branch. Additionally, our investment in BOLI, which was
instituted in May, 2000, contributed $1.1 million to other non-interest income
during the six months ended December 31, 2000. Loan prepayment fees, which
declined $844,000 from $185,000 during the six months ended December 31, 2000
compared to $1.0 million during the six months ended December 31, 1999, were
partially offset by increased bank retail fee income of $96,000 during this
period.
NON-INTEREST EXPENSE. Non-interest expense decreased $726,000, from $17.9
million during the six months ended December 31, 1999, to $17.2 million during
the six months ended December 31, 2000.
Salary and employee benefits declined $1.1 million during this period.
Employee benefit plan restructurings, which became effective on July 1, 2000,
provided declines of $1.6 million in salaries and employee benefits expense
during this period. Partially offsetting these declines were increases in
salaries and 401(k) plan expenses, as 401(k) plan contributions were reinstated
effective July 1, 2000.
Occupancy and equipment expense increased $151,000, due primarily to the
accelerated depreciation of computer equipment acquired from Financial Bancorp,
Inc. in January, 1999. This accelerated depreciation, which resulted from our
revised estimate of the estimated useful life of the equipment, increased
depreciation expense by $99,000 during the six months ended December 31, 2000.
In addition, electricity and heating costs on our branch offices increased
approximately $40,000 during this period as a result of higher energy costs.
Federal deposit insurance premiums also declined $107,000 during the six
months ended December 31, 2000 compared to December 31, 1999, as a result of a
reduction in our insurance rate that was instituted in January, 2000.
Other expenses increased $255,000 due primarily to an increase in banking
operational losses of $206,000, and increased advertising expenses of $74,000.
INCOME TAX EXPENSE. Income tax expense decreased $292,000, during the six
months ended December 31, 2000 compared to the six months ended December 31,
1999, despite an increase in pre-tax income of $297,000. Our effective tax
rate declined from 41.9% to 39.7% during this period, due to additional tax
benefits associated with activities of subsidiary companies as well as the
favorable tax status on income associated with our recent BOLI investment.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at
June 30, 2000 in Exhibit 13.1 to our Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on September 28, 2000. The following is an
update of the discussion provided therein:
GENERAL. Our largest component of market risk continues to be interest rate
risk. Virtually all of this risk continues to reside at the Bank level. The
Bank still is not subject to foreign currency exchange or commodity price risk.
At December 31, 2000, we owned no trading assets, nor did we utilize hedging
transactions such as interest rate swaps and caps.
ASSETS, DEPOSIT LIABILITIES AND WHOLESALE FUNDS. There has been no material
change in the composition of assets, deposit liabilities or wholesale funds
from June 30, 2000 to December 31, 2000.
GAP ANALYSIS. Our primary source of income is net interest income, which is
the difference between the interest income earned on interest earning assets
and the interest expense incurred on interest bearing liabilities.
-22-
At December 31, 2000, our one-year interest rate sensitivity gap (the
difference between our interest rate sensitive assets maturing or repricing
within one year and our interest rate sensitive liabilities maturing or
repricing within one year, expressed as a percentage of total assets) was
negative 25%, compared to negative 23% at June 30, 2000. In a rising
interest rate environment, an institution with a negative gap would
generally be expected, absent the effects of other factors, to experience a
greater increase in its cost of liabilities relative to its yield on assets,
and thus decrease an institution's net interest income. Due to
competitive conditions in the market for multi-family lending, we have
increased our origination of fixed interest rate multi-family loans with
maturities up to 15 years compared to our historical practice of
originating multi-family loans with fixed interest rates for the first five
years of the loan and that adjust at the conclusion of the initial five year
term to a market index for the remainder of the term of the loan, typically
another five years. At December 31, 2000, we had approximately $58.4 million of
fixed-rate multi-family loans, or 3.2% of our total loan portfolio, with
maturities of 15 years. We have also experienced an increase in the proportion
of certificates of deposit and borrowings maturing within one year or less. If
these trends continue, our one-year interest rate sensitivity gap may continue
to widen.
INTEREST RATE RISK COMPLIANCE. We continue to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in
the same manner as at June 30, 2000. There have been no changes in our board
approved limits of acceptable variance in net interest income and net portfolio
value at December 31, 2000 compared to June 30, 2000, and the projected changes
continue to fall within the board approved limits at all levels of potential
interest rate volatility.
As a federal savings bank, the Bank is required to monitor changes in the
net present value of the expected future cash flows of its assets and
liabilities, which is referred to as net portfolio value or NPV. In addition,
we monitor the Bank's NPV ratio, which is its NPV divided by the estimated
market value of total assets. The NPV ratio can be viewed as a corollary to the
Bank's capital ratios. To monitor the Bank's overall sensitivity to changes in
interest rates, we simulate the effect of instantaneous changes in interest
rates of up to 200 basis points on the Bank's assets and liabilities. As of
September 30, 2000, an increase in interest rates of 200 basis points would
have reduced the Bank's NPV by approximately 30.0%, resulting in an NPV ratio
of 6.85%. There can be no assurance that future changes in the Bank's mix of
assets and liabilities will not result in more extensive declines in the Bank's
NPV and NPV ratio. Our focus on multi-family lending may subject us to greater
risk of an adverse impact on our operations from a downturn in the economy.
While we are currently reviewing the Bank's NPV calculation as of December 31,
2000, we anticipate that the Bank's NPV ratio, under an increase in interest
rates of 200 basis points, will remain above 6.00%
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various legal actions arising in the ordinary course of
its business which, in the aggregate, involve amounts which are believed to be
immaterial to our financial condition and results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
-23-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(l) Our Annual Meeting of Shareholders was held on November 9, 2000.
(m) Not applicable.
(c) The following is a summary of the matters voted upon at the meeting
and the votes obtained:
VOTES VOTES BROKER
DESCRIPTION VOTES FOR AGAINST ABSTENTIONS WITHHELD NON-VOTES
1) Election of the
following individuals as
Director for a term of three
years:
Michael P. Devine 10,323,870 -0- -0- 238,543 -0-
Anthony Bergamo 10,324,866 -0- -0- 237,547 -0-
Joseph H. Farrell 10,324,866 -0- -0- 237,547 -0-
Louis V. Varone 10,324,166 -0- -0- 238,247 -0-
2) Ratification of the
appointment of Deloitte &
Touche LLP to act as
independent auditors for the
Company for the fiscal year
ended June 30, 2001 10,529,280 27,053 6,080 -0- -0-
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(n) EXHIBITS
Exhibit 11. Statement Re: Computation of Per Share Earnings
Exhibit 27. Financial Data Schedule (included only with EDGAR
filing).
(B) REPORTS ON FORM 8-K
On November 9, 2000, the Company filed a Current Report on Form 8-K
providing public disclosure of financial data presented at its Annual
Shareholders Meeting.
-24-
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 Community Bancshares, Inc.
/s/ VINCENT F. PALAGIANO
Dated: February 13, 2001 By: ____________________________________
Vincent F. Palagiano
Chairman of the Board and Chief
Executive Officer
/s/ KENNETH J. MAHON
Dated: February 13, 2001 By: ____________________________________
Kenneth J. Mahon
Executive Vice President and Chief
Financial Officer