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, 1997
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 BANCORP, 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, 1998
$.01 Par Value 12,438,113
-2-
PART I - FINANCIAL INFORMATION
PAGE
Item 1. Financial Statements
Consolidated Statements of Condition at December 31, 1997
(Unaudited) and June 30, 1997 3
Consolidated Statements of Operations for the Three and Six-
month Periods Ended December 31, 1997 and 1996 (Unaudited) 4
Consolidated Statements of Changes in Stockholders' Equity
for the Six Months Ended December 31, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the Six months
Ended December 31, 1997 and 1996 (Unaudited) 6
Notes to Consolidated Financial Statements (Unaudited) 7-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-23
Item 3 Quantitative and Qualitative Disclosure About Market Risk 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23-24
Item 2. Changes in Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 25
Item 6. Exhibits and Reports on Form 8-K 25
Signatures 26
Exhibits 27
EXPLANATORY NOTE: This Form 10-Q contains certain forward looking statements
consisting of estimates with respect to the financial condition, results of
operations and business of the Company that are 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, and
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 the Company's operations and investments.
-3-
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
AT DECEMBER 31,
1997 AT JUNE 30,
(UNAUDITED) 1997
------------ -----------
ASSETS:
Cash and due from banks $13,655 $19,198
Investment securities held to maturity (estimated market value of $104,623
and $102,024 at December 31, 1997 and June 30, 1997, respectively) 104,045 101,587
Investment securities available for sale:
Bonds and notes (amortized cost of $60,613 and $52,426 at December 31,
1997 and June 30, 1997, respectively) 61,004 52,798
Marketable equity securities (historical cost of $6,101 and $4,912 at
December 31, 1997 and June 30, 1997, respectively) 7,801 5,889
Mortgage backed securities held to maturity (estimated market value of
$70,122 and $79,075 at December 31, 1997 and June 30, 1997, respectively) 69,082 78,388
Mortgage backed securities available for sale (amortized cost of $283,897
and $227,776 at December 31, 1997 and June 30, 1997, respectively) 287,490 230,137
Federal funds sold 37,543 18,902
Loans:
Real estate 843,899 744,246
Other loans 5,729 6,076
Less: Allowance for loan losses (11,515) (10,726)
------------ -----------
Total loans, net 838,113 739,596
------------ -----------
Loans held for sale 161 262
Premises and fixed assets 13,594 13,995
Federal Home Loan Bank of New York Capital Stock 9,475 8,322
Other real estate owned, net 965 1,697
Goodwill 25,230 26,433
Other assets 19,916 17,822
------------ -----------
TOTAL ASSETS $1,488,074 $1,315,026
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors $1,027,246 $963,395
Escrow and other deposits 26,315 14,974
Securities sold under agreements to repurchase 154,218 76,333
Federal Home Loan Bank of New York advances 86,005 63,210
Accrued postretirement benefit obligation 2,635 2,546
Other liabilities 5,453 3,679
------------ -----------
TOTAL LIABILITIES 1,301,872 1,124,137
------------ -----------
STOCKHOLDERS' EQUITY:
Preferred stock ($0.01 par, 9,000,000 shares authorized,
none outstanding at December 31, 1997 and June 30, 1997) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 12,438,113 and
13,092,750 shares outstanding at December 31, 1997 and June 30, 1997,
respectively) 145 145
Additional paid-in capital 142,495 141,716
Unallocated common stock of Employee Stock Ownership Plan (9,624) (10,324)
Unwarned common stock of Recognition and Retention Plan (8,616) (9,671)
Treasury stock, at cost (2,109,387 shares and 1,454,750 shares at
December 31, 1997 AND June 30, 1997, respectively) (41,022) (27,703)
Retained earnings (substantially restricted) 99,724 94,695
Unrealized gain on securities available for sale, net of deferred taxes 3,100 2,031
------------ ---------
TOTAL STOCKHOLDERS' EQUITY 186,202 190,889
------------ ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,488,074 $1,315,026
============ =========
See notes to consolidated financial statements
-4-
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
-------- --------- -------- ----------
INTEREST INCOME:
Loans secured by real estate $17,059 $13,417 $33,328 $26,064
Other loans 122 103 251 235
Investment securities 2,866 3,885 5,550 7,803
Mortgage-backed securities 5,713 4,315 10,906 8,013
Federal funds sold 591 517 1,044 1,334
-------- --------- -------- ----------
TOTAL INTEREST INCOME 26,351 22,237 51,079 43,449
-------- --------- -------- ----------
INTEREST EXPENSE:
Deposits and escrow 10,940 9,646 21,272 19,335
Borrowed funds 3,132 622 5,502 980
-------- --------- -------- ----------
TOTAL INTEREST EXPENSE 14,072 10,268 26,774 20,315
NET INTEREST INCOME 12,279 11,969 24,305 23,134
PROVISION FOR LOAN LOSSES 525 1,050 1,050 2,100
-------- --------- -------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 11,754 10,919 23,255 21,034
-------- --------- -------- ----------
NON-INTEREST INCOME:
Service charges and other fees 596 514 1,230 940
Net gain (loss) on sales and redemptions of
securities and other assets 163 135 178 171
Net gain on sales of loans 6 71 24 94
Other 267 332 581 604
-------- --------- -------- ----------
TOTAL NON-INTEREST INCOME 1,032 1,052 2,013 1,809
-------- --------- -------- ----------
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,658 2,322 5,245 4,668
ESOP and RRP compensation expense 1,327 361 2,533 824
Occupancy and equipment 753 840 1,495 1,568
SAIF special assessment - - - 2,032
Federal deposit insurance premiums 85 - 171 251
Data processing costs 279 212 559 459
Provision for losses on Other real estate owned 24 74 79 267
Goodwill amortization 601 606 1,202 1,200
Other 1,133 1,189 2,322 2,467
-------- --------- -------- ----------
TOTAL NON-INTEREST EXPENSE 6,860 5,604 13,606 13,736
-------- --------- -------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE 5,926 6,367 11,662 9,107
INCOME TAX EXPENSE 3,039 1,428 5,937 2,944
-------- --------- -------- ----------
NET INCOME $2,887 $4,939 $5,725 $6,163
======== ========= ======== ==========
EARNINGS PER SHARE:
BASIC $0.25 $0.37 $0.49 $0.46
======== ========= ======= ========
DILUTED $0.24 $0.37 $0.47 $0.46
======== ========= ======= ========
See notes to consolidated financial statements
-5-
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AMOUNTS)
FOR THE SIX
MONTHS ENDED
DECEMBER 31, 1997
----------------
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 141,716
Amortization of excess fair value over cost - ESOP stock 779
----------------
Balance at end of period 142,495
----------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (10,324)
Amortization of earned portion of ESOP stock 700
----------------
Balance at end of period (9,624)
----------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (9,671)
Amortization of earned portion of RRP stock 1,055
----------------
Balance at end of period (8,616)
----------------
TREASURY STOCK:
Balance at beginning of period (27,703)
Purchase of 468,000 shares, at cost (13,319)
----------------
Balance at end of period (41,022)
----------------
RETAINED EARNINGS:
Balance at beginning of period 94,695
Net income for the period 5,725
Cash dividends declared and paid (696)
----------------
Balance at end of period 99,724
----------------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, NET:
Balance at beginning of period 2,031
Change in unrealized gain on securities available for sale
during the period, net of deferred taxes 1,069
----------------
Balance at end of period 3,100
----------------
See notes to consolidated financial statements
-6-
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS
ENDED DECEMBER 31,
1997 1996
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES: (In thousands)
NET INCOME $5,725 $6,163
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net gain on investment and mortgage backed securities sold (117) (99)
Net gain on investment and mortgage backed securities called (9) -
Net gain on sale of other assets - (19)
Net gain on sale of loans held for sale (24) (94)
Net depreciation and amortization (accretion) 371 (1,133)
ESOP and RRP compensation expense 2,533 824
Provision for Loan losses 1,050 2,100
Goodwill amortization 1,202 1,200
Decrease in loans held for sale 125 218
Increase in other assets and other real estate owned (2,274) (2,092)
Increase in accrued postretirement benefit obligation 89 81
Decrease in payable for securities purchased - (33,994)
Increase (Decrease) in other liabilities 1,774 (501)
--------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 10,445 (27,346)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in Federal funds sold (18,641) 82,178
Proceeds from maturities of investment securities held to maturity 2,250 12,035
Proceeds from maturities of investment securities available for sale 20,500 273,460
Proceeds from calls of investment securities held to maturity 24,500 -
Proceeds from calls of investment securities available for sale 6,000 20,000
Proceeds from sale of investment securities available for sale 11,300 15,051
Proceeds from sales and calls of mortgage backed securities available for sale 49,882 -
Purchases of investment securities held to maturity (29,082) (54,789)
Purchases of investment securities available for sale (46,924) (90,283)
Purchases of mortgage backed securities held to maturity - (38,842)
Purchases of mortgage backed securities available for sale (124,231) (42,050)
Principal collected on mortgage backed securities held to maturity 9,209 6,159
Principal collected on mortgage backed securities available for sale 18,204 13,060
Net increase in loans (99,567) (59,468)
Cash disbursed in acquisition of Conestoga Bancorp, net of cash acquired - (328)
Purchases of fixed assets (92) (189)
(Purchase) sale of Federal Home Loan Bank stock (1,153) 6
--------- --------
Net Cash (used in) provided by Investing Activities (177,845) 136,000
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in Due to depositors 63,851 (1,765)
Net increase (decrease) in escrow and other deposits 11,341 (133,249)
Proceeds from Federal Home Loan Bank of New York Advances 22,795 -
Increase in securities sold under agreements to repurchase 77,885 21,148
Cash disbursed for expenses related to issuance of common stock - (190)
Cash dividends paid to stockholders (696) -
Purchase of treasury stock (13,319) -
--------- --------
Net Cash provided by (used in) Financing Activities 161,857 (114,056)
--------- --------
DECREASE IN CASH AND DUE FROM BANKS (5,543) (5,402)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 19,198 17,055
--------- --------
CASH AND DUE FROM BANKS, END OF PERIOD $13,655 $11,653
========= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $5,774 $2,527
========= =======
Cash paid for interest $25,785 $20,306
========= =======
Transfer of loans to Other real estate owned $582 $1,097
========= =======
Change in unrealized gain on available for sale securities, net of deferred taxes $1,069 $1,695
========= =======
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 Bancorp, Inc. (the "Company") is a Delaware corporation
organized in December, 1995 at the direction of the Board of Directors of The
Dime Savings Bank of Williamsburgh (the "Bank"), a federally chartered state
savings bank, for the purpose of acquiring all of the capital stock of the Bank
issued in the Bank's conversion from mutual to stock form (the "Conversion") on
June 26, 1996, in exchange for $76.4 million (54%) of the net proceeds of the
offering of 14,547,500 shares of the Company's common stock (the "Offering").
Presently, the only significant assets of the Company are the capital stock of
the Bank, the Company's loan to the ESOP, and investments of the net proceeds
retained by the Company. A portion of the net proceeds retained by the Company
were utilized to fund the repurchase of common stock into treasury. The Company
is subject to the financial reporting requirements of the Securities Exchange
Act of 1934, as amended.
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. The Bank and the Company maintain their headquarters in the
Williamsburgh section of the borough of Brooklyn. Fourteen additional offices
of the Bank are located in the boroughs of Brooklyn, Queens, and the Bronx, and
in Nassau County.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary for a fair presentation of the
Company's financial condition as of December 31, 1997, the results of
operations for the three-month and six-month periods ended December 31, 1997
and 1996, cash flows for the six months ended December 31, 1997 and 1996, and
changes in stockholders' equity for the six months ended December 31, 1997. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information contained
herein have been made. The results of operations for the three-month and six-
month periods ended December 31, 1997, are not necessarily indicative of the
results of operations to be expected for the remainder of the year. Certain
information and note disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles ("GAAP")
have been omitted pursuant to the rules and regulations of the Securities and
Exchange Commission.
The preparation of financial statements in conformity with 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 the
audited consolidated financial statements as of and for the year ended June 30,
1997 and notes thereto of the Company.
3. TREASURY STOCK
During the six months ended December 31, 1997, the Company repurchased 654,637
shares of its common stock into treasury. The average price of the treasury
shares acquired was $20.34 per share, and all shares have been recorded at the
acquisition cost.
-8-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
1. EARNINGS PER SHARE
During the quarter ended December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share'' ("SFAS 128").
SFAS 128 establishes new standards for computing and presenting earnings per
share. SFAS 128 is applicable to all U.S. entities with publicly held common
stock or potential common stock, and requires disclosure of basic earnings per
share and diluted earnings per share, for entities with complex capital
structures, on the face of the income statement, along with a reconciliation of
the numerator and denominator of basic and diluted earnings per share. SFAS
128 replaces APB Opinion No. 15 ("APB 15"), issued by the American Institute of
Certified Public Accountants in 1971, as the authoritative guidance for
calculation and disclosure of earnings per share, but does not amend the
provisions of SOP 93-6 related to the inclusion of allocated and unallocated
Employee Stock Ownership Plan ("ESOP") shares when calculating average shares
outstanding. As a result, consistent with the calculations of average shares
outstanding performed under APB 15, unallocated ESOP shares are not included in
average shares outstanding under SFAS 128. Restatement of prior periods is
required under SFAS 128.
The following is a reconciliation of the numerator and denominator of basic
earnings per share for the three-month and six-month periods ended December 31,
1997 and 1996.
THREE MONTHS ENDED DECEMBER 31, SIX MONTHS ENDED DECEMBER 31,
------------------------------- ------------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
NUMERATOR:
Net Income $2,887 $4,939 $5,725 $6,163
========== ========== ========== ==========
DENOMINATOR:
Average shares outstanding
utilized in the calculation
of basic earnings per share 11,509,496 13,393,398 11,671,200 13,393,398
---------- ---------- ---------- ----------
Common stock equivalents due to
the dilutive effect of stock
options 509,659 - 436,584 -
---------- ---------- ---------- ----------
Average shares outstanding
utilized in the calculation
of diluted earnings per share 12,019,155 13,393,398 12,107,784 13,393,398
========== ========== ========== ==========
5. SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT
During the quarter ended September 30, 1996, the Bank was assessed a one-time
special assessment of $2.0 million by the Federal Deposit Insurance Corporation
(the "FDIC") in order to recapitalize the SAIF. The special assessment was
recorded in non-interest expense during the quarter ended September 30, 1996.
-9-
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
6. INCOME TAXES
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"), which
requires that deferred taxes be provided for temporary differences between the
book and tax bases of assets and liabilities.
On July 30, 1996, New York State (the "State") enacted legislation, effective
January 1, 1996, which generally retains the percentage of taxable income
method for computing allowable bad debt deductions and does not require the
Bank to recapture into income State tax bad debt reserves unless one of the
following events occur: 1) the Bank's retained earnings represented by the
reserve is used for purposes other than to absorb losses from bad debts,
including dividends in excess of the Bank's earnings and profits or
distributions in liquidation or in redemption of stock; 2) the Bank fails to
qualify as a thrift as provided by the State tax law, or 3) there is a change
in state tax law. Upon adoption of this legislation, the Bank had a deferred
tax liability of approximately $1,848 recorded for the excess of State tax bad
debt reserves over its reserve at December 31, 1987 in accordance with SFAS
109. In December, 1996 after evaluating the State tax legislation, as well as
relevant accounting literature and industry practices, management of the Bank
concluded that this liability was no longer required to be recorded, and
recovered the full deferred tax liability. This recovery resulted in a
reduction of income tax expense during the three and six-month periods ended
December 31, 1996 for the full amount of the recovered deferred tax liability.
-10-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Dime Community Bancorp, Inc. (the "Company") is a Delaware corporation
organized in December, 1995 at the direction of the Board of Directors of the
Dime Savings Bank of Williamsburgh (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 (the
"Conversion"). In connection with the Conversion, the Company issued
14,547,500 shares (par value $0.01) of common stock at a price of $10.00 per
share to the Bank's eligible depositors who subscribed for shares and to an
Employee Stock Ownership Plan ("ESOP") established by the Company. The Company
realized net proceeds of $141.4 million from the sale of its common stock and
utilized approximately $76.4 million of the proceeds to purchase 100% of the
Bank's common stock and $11.6 million to fund a loan to the ESOP for its
purchase of 1,163,800 shares, or 8%, of the Company's common stock.
The primary business of the Company is the operation of its wholly-owned
subsidiary, the Bank. In addition to directing, planning and coordinating the
business activities of the Bank, the Company retained proceeds of $53.4 million
in connection with the Conversion. A portion of these proceeds have been
utilized to fund the repurchase of common stock into treasury. All remaining
proceeds retained are invested in federal funds, short-term, investment grade
marketable securities and mortgage-backed securities. The Company also holds a
note evidencing the loan that it made to the ESOP to purchase 8% of its common
stock issued in the Conversion.
SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") SPECIAL ASSESSMENT
During the quarter ended September 30, 1996, the Bank was assessed a one-time
special assessment of $2.0 million by the Federal Deposit Insurance Corporation
("FDIC") in order to recapitalize the SAIF. As a member of the Bank Insurance
Fund ("BIF"), the Bank pays most of its deposit insurance assessments to the
BIF. The SAIF primarily insures the deposits of savings and loan associations,
but also insures the deposits acquired by a BIF-insured institution from a
SAIF-insured institution. With the consummation of the acquisition (the
"Acquisition") of Conestoga Bancorp, Inc. ("Conestoga") in June, 1996, the Bank
acquired the deposits of Conestoga's wholly-owned subsidiary, Pioneer Savings
Bank, FSB ("Pioneer"), a SAIF-insured thrift, which deposits totaled
approximately $394.3 million at June 30, 1996. The Bank pays SAIF assessments
with respect to the Pioneer deposits. In addition, the Bank pays SAIF
assessments on deposits the Bank acquired in a prior branch acquisition. All
SAIF-insured deposits acquired by the Bank qualified as "Oakar deposits," and
were the basis for the one-time assessment, which was recorded in non-interest
expense during the quarter ended September 30, 1996.
-11-
SELECTED FINANCIAL RATIOS AND OTHER DATA
At or For the At or For The
Three Months Ended Six Months Ended
December 31, December 31,
1997 1996 1997 1996
--------- ------- -------- -------
($ IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PERFORMANCE RATIOS:
Return on average assets <F1> 0.81% 1.61% 0.83% 1.02%
Cash basis return on average assets <F2> 1.23 1.89 1.25 1.31
Return on average stockholders' equity <F1> 6.27 9.19 6.15 5.75
Return on average tangible stockholders'
equity <F1> 7.40 10.48 7.25 6.58
Cash basis return on average stockholders'
equity <F2> 9.58 10.77 9.29 7.38
Cash Basis Return on average tangible
stockholders' equity <F2> 11.31 12.29 10.96 8.44
Average stockholders' equity to average
assets 12.88 17.55 13.42 17.69
Stockholders' equity to total assets at
end of period 12.51 17.98 12.51 17.98
Tangible equity to tangible assets at end
of period 10.81 15.96 10.81 15.96
Average interest rate spread 3.01 3.41 3.11 3.33
Net interest margin 3.59 4.13 3.67 4.04
Average interest-earning assets to
average interest-bearing liabilities 114.93 120.36 114.97 120.15
Non-interest expense to average assets <F1> 1.92 1.83 1.96 2.27
Efficiency ratio <F1> 52.20 43.73 52.10 55.66
PER SHARE DATA:
Basic earnings per share <F1> $0.25 $0.37 $0.49 $0.46
Basic cash basis earnings per share <F2> 0.38 0.43 0.74 0.59
Book value per share 14.97 15.23 14.97 15.23
Tangible book value per share 12.69 13.19 12.69 13.19
ASSET QUALITY RATIOS AND OTHER DATA:
Total non-performing loans $2,268 $2,917 $2,268 $2,917
Other real estate owned, net 965 2,270 965 2,270
RATIOS:
Non-performing loans to total loans 0.27% 0.45% 0.27% 0.45%
Non-performing loans and other real estate
owned to total assets 0.22 0.42 0.22 0.42
Allowance for loan losses to:
Non-performing loans 507.72 304.80 507.72 304.80
Total loans 1.36 1.38 1.36 1.38
REGULATORY CAPITAL RATIOS: (BANK ONLY)
Tangible capital 9.22% 10.98% 9.22% 10.98%
Core capital 9.22 10.99 9.22 10.99
Risk-based capital 18.68 23.25 18.68 23.25
<FN>
<F1> Adjusted EARNINGS AND RATIOS. Excluding the effects of the SAIF Special
Assessment, and the recovery of New York State deferred income taxes previously
provided, return on average assets, return on average stockholders' equity,
return on average tangible stockholders' equity, non-interest expense to
average assets, the efficiency ratio and basic earnings per share would have
been 1.01%, 5.75%, 6.56%, 1.83%, 43.73% and $0.23, respectively, for the three
months ended December 31, 1996 and 0.89%, 5.05%, 5.78%, 1.93%, 47.43%, and
$0.40 for the six months ended December 31, 1996.
<F2> CASH EARNINGS. Excluding the effects of the SAIF Special Assessment, and
the recovery of New York State deferred income taxes previously provided, cash
basis return on average assets, cash basis return on average stockholders'
equity, cash basis return on average tangible stockholders' equity, and basic
cash basis earnings per share would have been 1.29%, 7.34%, 8.37%, and $.29,
respectively, for the three months ended December 31, 1996, and 1.18%, 6.67%,
7.64%, and $0.53, respectively for the six months ended December 31, 1996.
-12-
LIQUIDITY AND CAPITAL RESOURCES
The Company's 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.
The primary investing activities of the Bank are the origination of
multi-family and single-family mortgage loans, and the purchase of
mortgage-backed and other securities. During the six months ended
December 31, 1997, the Bank's loan originations totaled $145.5 million
compared to $119.5 million for the six months ended December 31, 1996.
Purchases of mortgage-backed and other securities totaled $200.2 million
for the six months ended December 31, 1997, compared to $226.0 million
for the six months ended December 31, 1996. These activities were
funded primarily by principal repayments on loans and mortgage-backed
securities, maturities of investment securities, and borrowings by means
of repurchase agreements and Federal Home Loan Bank of New York
("FHLBNY") advances. Principal repayments on loans and mortgage-backed
securities totaled $72.1 million during the six months ended December
31, 1997, compared to $76.8 million for the six months ended December
31, 1996. Maturities and calls of investment securities totaled $53.3
million and $305.4 million, respectively, during the six months ended
December 31, 1997 and 1996. Loan and security sales, which totaled
$62.6 million and $17.8 million, respectively, during the six months
ended December 31, 1997 and 1996, provided some additional cash flows.
Deposits increased $63.9 million during the six months ended
December 31, 1997, compared to a net decrease in total deposits of $1.8
million during the six months ended December 31, 1996. Deposit flows
are affected by, among other things, 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, 1997, totaled $347.1 million. Based upon
the Company's current pricing strategy and deposit retention experience,
management believes that a significant portion of such deposits will
remain with the Company. On July 1, 1996, the Company refunded $141.1
million in excess subscription proceeds related to its conversion to a
stock company in June, 1996. This refund was the primary component of
the decline in escrow and other deposits of $133.2 million during the
six months ended December 31, 1996. Net borrowings increased $100.7
million during the six months ended December 31, 1997, comprised of
growth of $77.9 million and $22.8 million, respectively, in securities
sold under agreements to repurchase ("Repo") transactions and FHLBNY
advances.
The Bank is required to maintain a minimum average daily balance of
liquid assets as defined by Office of Thrift Supervision regulations.
The minimum required liquidity ratio is currently 4.0%. At December 31,
1997, the Bank's liquidity ratio was 18.8%. 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 monitors its 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 the Bank should
require funds beyond its ability to generate them internally, additional
sources of funds are available through the use of the Bank's borrowing
privileges at the FHLBNY. At December 31, 1997, the Bank had fully
utilized its borrowing capacity with the FHLBNY of $189.5 million.
Additional borrowing capacity can be obtained through the purchase by
the Bank of additional FHLBNY capital stock.
At December 31, 1997, the Bank was in compliance with all applicable
regulatory capital requirements. Tangible capital totaled $133.1
million, or 9.22% of total tangible assets, compared to a 1.50%
regulatory requirement; core capital, at 9.22%, exceeded the required
3.0% regulatory minimum, and total risk-based capital, at 18.68% of risk
weighted assets, exceeded the 8.0% regulatory requirement.
-13-
During the six months ended December 31, 1997, the Company
repurchased 654,637 shares of its common stock into treasury. The
aggregate cost of such repurchase was $13.3 million, for an average
price of $20.34 per share.
The Company declared and paid cash dividends totaling $696,000 during
the six months ended December 31, 1997. The Company did not declare or
pay any dividends during the six months ended December 31, 1996. On
January 15, 1998, the Company declared a cash dividend of $0.08 per
share to all shareholders of record as of the close of business on
January 30, 1998. The dividends will be paid on February 13, 1998.
ASSET QUALITY
Non-performing loans (loans past due 90 days or more as to principal or
interest) totaled $2.3 million at December 31, 1997, as compared to $3.2
million at June 30, 1997. In addition, the Bank had 31 loans totaling
$486,000 delinquent 60-89 days at December 31, 1997, as compared to 33
such delinquent loans totaling $603,000 at June 30, 1997.
Under GAAP, the Bank is 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 the Bank, for economic or legal reasons
related to the borrower's financial difficulties, grants a concession to
the borrower that the Bank would not otherwise consider. Debt
restructurings or loan modifications for a borrower do not necessarily
always constitute troubled-debt restructurings, however, and troubled-
debt restructurings do not necessarily result in non-accrual loans. The
Bank had four loans classified as troubled-debt restructurings at
December 31, 1997, totaling $4.7 million, and all are currently
performing according to their restructured terms.
The recorded investment in loans for which impairment has been
recognized under the guidance of Statement of Financial Accounting
Standards No. 114 "Accounting for a Creditor for Impairment of a Loan,"
("SFAS 114") was approximately $4.2 million as of December 31, 1997,
compared to $4.3 million at June 30, 1997. The average balance of
impaired loans was $4.2 million for the six months ended December 31,
1997. The impaired portion of these loans is represented by specific
reserves totaling $46,000 allocated within the allowance for loan losses
at December 31, 1997. At December 31, 1997, one loan totaling $2.7
million, was deemed impaired for which no reserves have been provided.
This loan, which is included in troubled-debt restructurings at December
31, 1997, has performed in accordance with the provisions of the
restructuring agreement signed in October, 1995. The loan has been
retained on accrual status at December 31, 1997. At December 31, 1997,
approximately $783,000 of one-to-four family and cooperative apartment
loans on nonaccrual status were not deemed impaired under SFAS 114. Each
of these loans have outstanding balances less than $203,000, and are
considered a homogeneous loan pool not covered by SFAS 114.
-14-
The following table sets forth information regarding the Bank's non-
performing loans, non-performing assets, impaired loans and troubled-
debt restructurings at the dates indicated.
AT DECEMBER 31, AT JUNE 30,
1997 1997
------------------- ----------------
($ In Thousands)
NON-PERFORMING LOANS:
One- to four-family $731 $1,123
Multi-family and underlying cooperative 1,266 1,613
Non-residential - -
Cooperative apartment 227 415
Other loans 44 39
------------------ ---------------
TOTAL NON-PERFORMING LOANS 2,268 3,190
TOTAL OREO 965 1,697
------------------ ---------------
TOTAL NON-PERFORMING ASSETS $3,233 $4,887
================= ===============
TROUBLED-DEBT RESTRUCTURINGS $4,671 $4,671
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS 7,904 9,558
IMPAIRED LOANS 4,166 4,294
TOTAL NON-PERFORMING LOANS TO TOTAL LOANS 0.27% 0.43%
TOTAL IMPAIRED LOANS TO TOTAL LOANS 0.49 0.57
TOTAL NON-PERFORMING ASSETS TO TOTAL ASSETS 0.22 0.37
TOTAL NON-PERFORMING ASSETS AND TROUBLED-DEBT
RESTRUCTURINGS TO TOTAL ASSETS 0.53 0.73
Comparison of Financial Condition at December 31, 1997 and
June 30, 1997
ASSETS. The Company's assets totaled $1.49 billion at
December 31, 1997, an increase of $173.0 million from total
assets of $1.32 billion at June 30, 1997. The growth in
assets was experienced primarily in real estate loans,
mortgage-backed securities available for sale and federal
funds sold, which increased $99.6 million, $57.4 million,
and $18.6 million, respectively.
The increase in real estate loans resulted primarily from
originations of $145.5 million during the six months ended
December 31, 1997, of which $142.5 million were multi-
family and underlying cooperative and non-residential
loans. The increased loan originations resulted from both
an active local real estate market and a favorable interest
rate environment during the past six months. The increase
in mortgage backed securities available for sale resulted
from purchases of $124.2 million during the six months
ended December 31, 1997, primarily attributable to the
capital leverage program. These purchases were offset by
sales and calls of $49.9 million and principal repayments
of $18.2 million on these securities. The increase in
federal funds sold resulted primarily from the flattened
yield curve, which reduced the attractiveness of
investments possessing longer terms to maturity.
LIABILITIES. Funding for the growth in real estate loans
and federal funds sold was obtained primarily from
increased deposits of $63.9 million and increased FHLBNY of
$22.8 million during the six month period.
-15-
Funding for the increase in mortgage-backed securities available for sale
was obtained primarily from increased securities sold under
agreement to repurchase transactions of $77.9 million,
resulting from the capital leverage program.
STOCKHOLDERS' EQUITY. Stockholders' equity declined $4.7
million during the six months ended December 31, 1997.
During the six months ended December 31, 1997, the Company
purchased 654,637 shares of its common stock into treasury
at an aggregate cost of $13.3 million. Offsetting the
share repurchases, was net income of $5.7 million,
amortization of the Company's Stock Plans of $2.5 million,
and an increase of $1.1 million of the unrealized gain on
investment and mortgage-backed securities available for
sale.
CAPITAL LEVERAGE STRATEGY. As a result of the initial
public offering in June, 1996, the Bank's 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 the Bank invests in high
quality mortgage-backed securities ("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 the Company 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. See "Market
Risk." To date, the capital leverage strategy has been
undertaken in accordance with limits established by the
Board of Directors, aimed at enhancing profitability under
moderate levels of interest rate exposure. Assets under
the capital leverage strategy were $170.1 million, on a net
basis, at December 31, 1997, compared to $96.3 million at
June 30, 1997.
COMPARISON OF THE OPERATING RESULTS FOR THE THREE MONTHS
ENDED DECEMBER 31, 1997 AND 1996
GENERAL. Net income for the three months ended December 31,
1997, totaled $2.9 million compared to $4.9 million during
the three months ended December 31, 1996. Net income for
the three months ended December 31, 1996, was affected by
the one-time recovery of previously recorded income tax
expense of $1.8 million. Net income for the three months
ended December 31, 1996, excluding this non-recurring item,
was $3.1 million.
The discussion of interest income and expense for the three
months ended December 31, 1997 and 1996, presented below,
should be read in conjunction with the following table,
which sets forth certain information relating to the
Company's consolidated statements of operations for the
three months ended December 31, 1997 and 1996, and reflects
the average yield on assets and average cost of liabilities
for the periods indicated. Such yields and costs are
derived by dividing income or expense by the average
balance of assets or liabilities, respectively, for the
periods shown. Average balances are derived from average
daily balances. The yields and costs include fees which are
considered adjustments to yields.
-16-
FOR THE THREE MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- ---------- ----------- --------- --------
($ IN THOUSANDS)
ASSETS:
INTEREST-EARNING ASSETS:
Real Estate Loans <F1> $814,442 $17,059 8.38% $624,498 $13,417 8.59%
Other loans 5,431 122 8.99 5,312 103 7.76
Mortgage-backed securities <F2> 332,763 5,713 6.87 259,097 4,315 6.66
Investment securities <F2> <F3> 171,990 2,866 6.43 234,022 3,885 6.37
Federal funds sold 43,984 591 5.37 36,854 517 5.61
----------- ---------- ----------- ---------
TOTAL INTEREST-EARNING ASSETS 1,368,610 $26,351 7.70% 1,159,783 $22,237 7.67%
----------- ========== ----------- =========
NON-INTEREST EARNING ASSETS 61,374 64,873
----------- -----------
TOTAL ASSETS $1,429,984 $1,224,656
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY:
INTEREST-BEARING LIABILITIES:
NOW, Super NOW and
Money Market Accounts $48,746 $287 2.34% $56,745 $370 2.61%
Savings Accounts 336,129 1,913 2.26 349,036 2,083 2.39
Certificates of Deposit 597,359 8,706 5.78 509,688 7,174 5.63
Mortgagors' Escrow 4,586 34 2.94 3,999 19 1.90
Borrowed Funds 203,967 3,132 6.09 44,132 622 5.64
----------- ---------- ----------- ---------
TOTAL INTEREST-BEARING
LIABILITIES 1,190,787 $14,072 4.69% 963,600 $10,268 4.26%
----------- ========== ----------- =========
CHECKING ACCOUNTS 28,396 26,760
OTHER NON-INTEREST-BEARING
LIABILITIES 26,553 19,331
----------- -----------
TOTAL LIABILITIES 1,245,736 1,009,691
STOCKHOLDERS' EQUITY 184,248 214,965
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $1,429,984 $1,224,656
=========== ===========
NET INTEREST INCOME/ INTEREST RATE
SPREAD <F4> $12,279 3.01% $11,969 3.41%
========== =========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F5> $177,823 3.59% $196,183 4.13%
=========== ===========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 114.93% 120.36%
<FN>
<F1> In computing the average balance of loans, non-accrual loans
have been included.
<F2> Includes securities classified "available for sale."
<F3> The average yield on investment securities during the three
months ended December 31, 1997 and 1996 have been adjusted
to reflect capital gains distributions of $134 and $208 in
December 31, 1997 and December 31, 1996, respectively, which
are non-recurring and therefore were not annualized.
<F4> Net interest rate spread represents the difference between
the average rate on interest-earning assets and the average cost
of interest-bearing liabilities.
<F5> Net interest margin represents net interest income as a
percentage of average interest-earning assets.
-17-
RATE/VOLUME ANALYSIS
THREE MONTHS ENDED
DECEMBER 31, 1997
COMPARED TO
THREE MONTHS ENDED
DECEMBER 31, 1996
INCREASE/(DECREASE)
DUE TO
VOLUME RATE TOTAL
------------- ------------ ------------
($ IN THOUSANDS)
INTEREST-EARNING ASSETS:
Real Estate Loans $4,026 $(384) $3,642
Other loans 3 16 19
Mortgage-backed securities 1,244 154 1,398
Investment securities (1,021) 2 (1,019)
Federal funds sold 98 (24) 74
------------- ------------ ------------
TOTAL $4,350 $(236) $4,114
============= ============ ============
INTEREST-BEARING LIABILITIES:
NOW, Super Now and money market accounts $(48) $(35) $(83)
Savings accounts (67) (103) (170)
Certificates of deposit 1,291 241 1,532
Mortgagors' escrow 4 11 15
Borrowed funds 2,365 145 2,510
------------- ------------ ------------
TOTAL 3,545 259 3,804
------------- ------------ ------------
NET CHANGE IN NET INTEREST INCOME $805 $(495) $310
============= ============ ============
NET INTEREST INCOME. Net interest income for the three
months ended December 31, 1997 increased $310,000 to
$12.3 million from $12.0 million during the three
months ended December 31, 1996. The increase was
attributable primarily to an increase of $208.8
million in interest earning assets, offset by a
decline in the net interest rate spread of 40 basis
points during the three months ended December 31,
1997. The net interest margin declined 54 basis
points from 4.13% for the three months ended December
31, 1996 to 3.59% for the three months ended December
31, 1997.
INTEREST INCOME. Interest income for the three months
ended December 31, 1997, was $26.3 million, an
increase of $4.1 million from $22.2 million during the
three months ended December 31, 1996. The increase in
interest income was attributable primarily to
increased interest income on real estate loans and
mortgage-backed securities of $3.6 million and $1.4
million, respectively. The increase in interest
income on real-estate loans was attributable primarily
to an increase of $189.9 million in the average
balance of real estate loans during the three months
ended December 31, 1997, resulting primarily from
$289.6 million of real estate loans originated during
the period January 1, 1997 through December 31, 1997.
The increases in interest income on mortgage-backed
securities was also attributable primarily to an
increase in average balances of $73.7 million during
the three months ended December 31, 1997, resulting
from $170.1 million in mortgage-backed securities
purchased through the Bank's capital leverage program.
Offsetting these increases to interest income was a
decrease in interest income on investment securities
of $1.0 million, resulting from a decline in average
balance of investment securities of $62.0 million.
The decline in the average balance resulted from the
Bank utilizing funds from matured investment
securities to fund loan originations. Overall, the
yield on interest earning assets increased 3 basis
points from 7.67% during the three months ended
December 31, 1996 to 7.70% during the three months
ended December 31, 1997, due primarily to the movement
of funds from matured investment securities into
higher yielding real
-18-
estate loans. The average yield on real estate loans declined 21 basis
points due to increased interest rate competition on loan
originations, while the yield on mortgage-backed
securities increased 21 basis points reflecting
purchases of higher-yielding securities under the
capital leverage strategy, which possess longer
average terms-to-maturity.
INTEREST EXPENSE. Interest expense increased $3.8
million, to $14.1 million during the three months
ended December 31, 1997, from $10.3 million during the
three months ended December 31, 1996. This increase
resulted primarily from increased interest expense of
$1.5 million and $2.5 million, respectively, on
certificate of deposit accounts and borrowed funds,
which resulted from increased average balances of
$87.7 million and $159.8 million, respectively during
the three months ended December 31, 1997, compared to
the three months ended December 31, 1996. The
increase in the average balance on certificates of
deposit resulted primarily from increased deposit
flows due to higher rates offered on selected
certificate accounts during 1997. The increase in
average balance of borrowed funds resulted primarily
from $169.5 million of borrowed funds added during the
period October 1, 1996 to December 31, 1997, under the
capital leverage program. In addition to the growth
in average balances, the average cost of interest
bearing liabilities increased 43 basis points to 4.69%
during the quarter ended December 31, 1997, from 4.26%
during the quarter ended December 31, 1996. The
increase in average cost resulted from an increase of
$87.7 million in the average balance of certificate of
deposit accounts, which generally have a higher
average cost than other deposits, the increase of 15
basis points in average cost on certificate of deposit
accounts resulting from a rate promotion instituted
during the previous quarter, and an increase of 45
basis points in average cost on borrowed funds,
resulting from higher-rate, longer-term borrowings
undertaken during the past two quarters in order to
fund loan originations.
PROVISION FOR LOAN LOSSES. The Provision for Loan
Losses decreased $525,000 to $525,000 for the three
months ended December 31, 1997, from $1.05 million for
the three months ended December 31, 1996. The decline
in the provision for loan losses reflects the
improvement in non-performing loans. Non-performing
loans decreased to $2.3 million during the three
months ended December 31, 1997, from $3.2 million at
June 30, 1997. See "Asset Quality" The Allowance for
loan losses increased to $11.5 million at December 31,
1997, from $11.2 million at September 30, 1997, as the
loan loss provision of $525,000 was offset by net
charge-offs of $160,000. In management's judgment, it
was prudent to continue the loan loss provision to
supplement the loan loss allowance, based upon the
Bank's growing volume of multi-family loan
originations and the composition of its loan
portfolio. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income remained
relatively constant during the three months ended
December 31, 1997 compared to the three months ended
December 31, 1996. An decrease in other income
resulting from decreased rental income on properties
previously owned by Conestoga was offset by an
increase in service charges and other fees, resulting
from increased loan commitment fee income from loan
origination activity. In addition, an increase in
gain on sale of securities and other assets was offset
by a decrease in gain on sale of loans.
NON-INTEREST EXPENSE. Non-interest expense increased
$1.3 million to $6.9 million during the three months
ended December 31, 1997, from $5.6 million during the
three months ended December 31, 1996. This increase
resulted primarily from increased expense related to
the Company's ESOP and RRP plans of $966,000. A
portion of this increased expense resulted from the
RRP, for which no expense was recorded during the
three months ended December 31, 1996 since the plan
was approved by the shareholders in December, 1996.
The remaining increase in the ESOP and RRP expense
resulted from the increased ESOP expense attributable
to the increase in the Company's stock price, as
expense related to the ESOP is recorded based upon the
market value of the Company's stock. In addition to
the increased ESOP and RRP expense, salaries and
employee benefits expense increased $336,000 due to
general salary increases, the federal deposit
insurance premium expense increased $85,000 as the
Company incurred no insurance cost during the three
months ended December 31, 1996, due to legislation
resulting from the SAIF Recapitalization charge paid
in September, 1996, and the data processing costs
increased as a result of increased loan and deposit
activity. Offsetting these increases were declines of
$87,000, $50,000 and $56,000 respectively, in
occupancy and equipment expense, provision for losses
on other real estate owned, and other expenses during
the three months ended December 31, 1997, compared to
1996. The reduction
-19-
in occupancy and equipment expense resulted primarily
from decreased rental expense, and the reduced provision for
losses on other real estate owned resulted primarily from a
reduction in other real estate owned balance from $2.0 million
at Decembr 31, 1996, to $965,000 at December 31,
1997. The decrease in other expenses resulted
primarily from reductions of $67,000 and $27,000,
respectively, in legal expenses and accounting
expenses, both of which were higher in the prior year
due to the Company being in its initial stages as a
public company.
INCOME TAX EXPENSE. Income tax expense for the quarter
ended December 31, 1997, was $3.0 million, resulting
in an effective tax rate of 51.28%. Excluding the
effect of the New York State income tax recovery, the
Company's effective tax rate would have been 51.45%
during the quarter ended December 31, 1996. The
decline in the effective tax rate was primarily
attributable to reduced income tax expenses on
securities interest income resulting from operational
changes made by the Company in April, 1997. The
Company's generally higher effective tax rate is
caused by certain non-deductible recurring expenses
such as goodwill. Excluding these non-deductible
items, the Company's effective tax rate for the three
months ended December 31, 1997, would have been
43.56%.
COMPARISON OF THE OPERATING RESULTS FOR THE SIX MONTHS
ENDED DECEMBER 31, 1997 AND 1996
GENERAL. Net income for the six months ended December
31, 1997, totaled $5.7 million compared to $6.2
million during the six months ended December 31, 1996.
Net income for the six months ended December 31, 1996,
was affected by the one-time recovery of previously
recorded income tax expense of $1.8 million recorded
in December, 1996, and the non-recurring special
assessment of $1.1 million, after taxes, for the
recapitalization of the SAIF. Net income for the six
months ended December 31, 1996, excluding these non-
recurring items, was $5.4 million.
The discussion of interest income and expense for the
six months ended December 31, 1997 and 1996, presented
below, should be read in conjunction with the
following table, which sets forth certain information
relating to the Company's consolidated statements of
operations for the six months ended December 31, 1997
and 1996, and reflects the average yield on assets and
average cost of liabilities for the periods indicated.
Such yields and costs are derived by dividing income
or expense by the average balance of assets or
liabilities, respectively, for the periods shown.
Average balances are derived from average daily
balances. The yields and costs include fees which are
considered adjustments to yields.
-20-
FOR THE SIX MONTHS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1997 1996
-----------------------------------------------------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------------ ---------- ---------- ----------- -------- --------
($ IN THOUSANDS)
ASSETS: ($ InThousands)
INTEREST-EARNING ASSETS:
Real Estate Loans <F1> $793,640 $33,328 8.40% $608,032 $26,064 8.57%
Other loans 5,463 251 9.19 5,413 235 8.68
Mortgage-backed securities <F2> 318,317 10,906 6.85 234,210 8,013 6.84
Investment securities <F2> <F3> 167,296 5,550 6.55 250,135 7,803 6.16
Federal funds sold 38,491 1,044 5.42 47,415 1,334 5.63
------------ ---------- ----------- --------
TOTAL INTEREST-EARNING ASSETS 1,323,207 $51,079 7.72% 1,145,205 $43,449 7.59%
NON-INTEREST EARNING ASSETS 64,503 ========== 65,608 ========
------------ -----------
TOTAL ASSETS $1,387,710 $1,210,813
============ ===========
LIABILITIES AND EQUITY:
INTEREST BEARING LIABILITIES:
NOW, Super Now and money
market accounts $48,942 $579 2.35% $58,377 $785 2.69%
Savings accounts 338,367 3,849 2.26 352,698 4,320 2.45
Certificates of deposit 579,225 16,792 5.75 503,798 14,192 5.63
Mortgagors' escrow 4,125 52 2.50 3,716 38 2.05
Borrowed Funds 180,268 5,502 6.05 34,592 980 5.67
------------ ---------- ----------- --------
TOTAL INTEREST-BEARING
LIABILITIES 1,150,927 $26,774 4.61% 953,181 $20,315 4.26%
------------ ========== ----------- ========
CHECKING ACCOUNTS 27,966 27,027
OTHER NON-INTEREST BEARING
LIABILITIES 22,565 16,407
------------ -----------
TOTAL LIABILITIES 1,201,458 996,615
STOCKHOLDERS' EQUITY 186,252 214,198
------------ -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $1,387,710 $1,210,813
============ ===========
NET INTEREST INCOME/INTEREST
RATE SPREAD <F4> $24,305 3.11% $23,134 3.33%
========== ========
NET INTEREST-EARNING ASSETS/NET
INTEREST MARGIN <F5> $172,280 3.67% $192,024 4.04%
============ ===========
RATIO OF INTEREST-EARNING ASSETS
TO INTEREST-BEARING LIABILITIES 114.97% 120.15%
<FN>
<F1> In computing the average balance of loans, non-accrual loans
have been included.
<F2> Includes securities classified "available for sale."
<F3> The average yield on investment securities during the
six months ended December 31, 1996 and 1995 have been adjusted to
reflect capital gains distributions of $134 and $208 in December 31, 1997
and December 31, 1996 respectively, which are non-recurring and therefore
were not annualized.
<F4> Net interest rate spread represents the difference between the average
rate on interest-earning assets and the average cost of interest-bearing
liabilities.
<F5> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
-21-
SIX MONTHS ENDED
DECEMBER 31, 1997
COMPARED TO
SIX MONTHS ENDED
DECEMBER 31, 1996
INCREASE/(DECREASE)
DUE TO
VOLUME RATE TOTAL
------------- ------------ ------------
($ IN THOUSANDS)
INTEREST-EARNING ASSETS:
Real Estate Loans $7,869 $(605) $7,264
Other loans 2 14 16
Mortgage-backed securities 2,879 14 2,893
Investment securities (2,646) 393 (2,253)
Federal funds sold (245) (45) (290)
------------- ------------ ------------
TOTAL $7,859 $(229) $7,630
============= ============ ============
INTEREST-BEARING LIABILITIES:
NOW, Super Now and money market accounts $(117) $(89) $(206)
Savings accounts (155) (316) (471)
Certificates of deposit 2,218 382 2,600
Mortgagors' escrow 5 9 14
Borrowed funds 4,308 214 4,522
------------- ------------ ------------
TOTAL 6,259 200 6,469
------------- ------------ ------------
NET CHANGE IN NET INTEREST INCOME $1,600 $(429) $1,171
============= ============ ============
NET INTEREST INCOME. Net interest income for the
six months ended December 31, 1997 increased
$1.2 million to $24.3 million from $23.1 million
during the six months ended December 31, 1996.
The increase was attributable primarily to an
increase of $178.0 million in interest earning
assets, offset by a decline in the net interest
rate spread of 22 basis points. The net
interest margin declined 37 basis points from
4.04% for the six months ended December 31, 1996
to 3.67% for the six months ended December 31,
1997.
INTEREST INCOME. Interest income for the six
months ended December 31, 1997, was $51.1
million, an increase of $7.7 million from $43.4
million during the six months ended December 31,
1996. The increase in interest income was
attributable to increased interest income on
real estate loans and mortgage-backed securities
of $7.3 million and $2.9 million, respectively.
The increase in interest income on real-estate
loans was attributable primarily to an increase
of $185.6 million in the average balance of real
estate loans, resulting primarily from $289.6
million of real estate loans originated during
the period January 1, 1997 through December 31,
1997. The increases in interest income on
mortgage-backed securities was also attributable
primarily to an increase in the average balance
of $84.1 million, resulting from mortgage-backed
securities purchased through the Bank's capital
leverage program. Offsetting these increases to
interest income was a decrease in interest
income on investment securities of $2.3 million,
resulting from a decline in the average balance
of investment securities of $82.8 million. The
decline in the average balance resulted from the
Bank utilizing funds from matured investment
securities to fund loan originations. Overall,
the yield on interest earning assets increased
13 basis points from 7.59% during the six months
ended December 31, 1996 to 7.72% during the six
months ended December 31, 1997, due primarily to
the movement of funds from matured investment
securities into higher yielding real estate
loans. The average
-22-
yield on real estate loans
declined 21 basis points due to increased
interest rate competition on loan originations,
while the yield on investment securities
increased 39 basis points reflecting the runoff
of lower-yielding, short-term securities, for
which the proceeds were utilized to fund new
loan originations.
INTEREST EXPENSE. Interest expense increased
$6.5 million, to $26.8 million during the six
months ended December 31, 1997, from $20.3
million during the six months ended December 31,
1996. This increase resulted primarily from
increased interest expense of $2.6 million and
$4.5 million, respectively, on certificate of
deposit accounts and borrowed funds, which
resulted from increased average balances of
$75.4 million and $145.7 million, respectively
during the six months ended December 31, 1997,
compared to the six months ended December 31,
1996. The increase in the average balance on
certificates of deposit resulted primarily from
increased deposit flows due to higher rates
offered on selected certificate accounts during
1997. The increase in the average balance of
borrowed funds resulted primarily from $169.5
million of borrowed funds added during the
period October 1, 1996 to December 31, 1997,
under the capital leverage program. In addition
to the growth in the average balances, the
average cost of interest bearing liabilities
increased 35 basis points to 4.61% during the
six months ended December 31, 1997, from 4.26%
during the six months ended December 31, 1996.
The increase in average cost resulted from an
increase of $75.4 million in the average balance
of certificate of deposit accounts, which
generally have a higher average cost than other
deposits, the increase of 12 basis points in
average cost on certificate of deposit accounts
resulting from a t rate promotion instituted
during the first quarter of the fiscal year, and
an increase of 38 basis points in average cost
on borrowed funds, resulting from higher-rate,
longer-term borrowings undertaken during the
past two quarters in order to fund loan
originations.
PROVISION FOR LOAN LOSSES. The provision for
loan losses decreased $1.05 million to $1.05
million for the six months ended December 31,
1997, from $2.1 million for the six months ended
December 31, 1996. The decline in the provision
for loan losses reflects the improvement in non-
performing loans. Non-performing loans
decreased to $2.3 million during the six months
ended December 31, 1997, from $3.2 million at
June 30, 1997. See "Asset Quality" The
allowance for loan losses increased to $11.5
million at December 31, 1997, from $10.7 million
at June 30, 1997, as the loan loss provision of
$1.05 million was offset by net charge-offs of
$261,000. In management's judgment, it was
prudent to continue the loan loss provision to
supplement the loan loss allowance, based upon
the Bank's growing volume of multi-family loan
originations and the composition of its loan
portfolio. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income
increased $204,000 to $2.0 million during the
six months ended December 31, 1997, compared to
$1.8 million during the six months ended
December 31, 1996. This increase was
attributable primarily to an increase of
$290,000 in service charges and other fees,
which resulted from an increase of $263,000 in
loan commitment fee income from increased
origination activity, offset by a decrease of
$70,000 on net gains on the sale of loans.
NON-INTEREST EXPENSE. Non-interest expense
decreased $130,000 to $13.6 million during the
six months ended December 31, 1997, from $13.7
million during the six months ended December 31,
1996. This decrease resulted from the SAIF
Special Assessment of $2.0 million incurred
during the six months ended December 31, 1996.
Excluding the SAIF Special Assessment, non-
interest expense increased $1.9 million,
primarily as a result of increased expense
related to the Company's ESOP and RRP plans of
$1.7 million. A portion of this increased ESOP
and RRP expense resulted from the RRP, which was
not recorded during the six months ended
December 31, 1996, since the plan was not
approved by the shareholders until December,
1996. The remaining increase in the ESOP and
RRP expense resulted from the increased ESOP
expense attributable to the increase in the
Company's stock price, as expense related to the
ESOP is recorded based upon the market value of
the Company's stock. In addition to the
increased ESOP and RRP expense, salaries and
employee benefits expense increased $577,000 due
to general salary increases, the data processing
costs increased $100,000 as a result of
increased loan and deposit activity. Offsetting
these increases were declines of $73,000,
$188,000 and $145,000, respectively, in
occupancy and equipment expense, provision for
losses on other real estate owned, and other
expenses during the three months ended December
31, 1997, compared to 1996. The reduction in
occupancy and equipment expense
-23-
resulted primarily from decreased depreciation expense,
and the reduced provision for losses on other
real estate owned resulted primarily from a
reduction in other real estate owned balance
from $2.0 million at December 31, 1996, to
$965,000 at December 31, 1997. The decrease in
other expenses resulted primarily from
reductions of $176,000 and $36,000,
respectively, in legal expenses and accounting
expenses, both of which were higher in the prior
year due to the Company being in its initial
stages as a public company.
INCOME TAX EXPENSE. Income tax expense for the
six months ended December 31, 1997, was $5.9
million, resulting in an effective tax rate of
50.91%. Excluding the effects of both the New
York State income tax recovery and the SAIF
recapitalization charge, the Company's effective
tax rate would have been 51.41% for the six
months ended December 31, 1996. The decline in
the effective tax rate was primarily
attributable to reduced income tax expenses on
securities interest income operational resulting
from operational changes made by the Company in
April, 1997. The Company's generally higher
effective tax rate is caused by certain non-
deductible recurring expenses such as goodwill.
Excluding these non-deductible items, the
Company's effective tax rate for the six months
ended December 31, 1997, would have been 43.52%.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
Quantitative and qualitative disclosure about
market risk is presented at June 30, 1997 in
Exhibit 13.1 to the Company's Annual Report on
Form 10-K, filed with the Securities and
Exchange Commission on September 26, 1997.
There have been no material changes in the
Company's market risk at December 31, 1997
compared to June 30, 1997. The following is an
update of the discussion provided therein:
GENERAL. The Company's 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, 1997,
neither the Company nor the Bank owned any
trading assets, nor did they utilize hedging
transactions such as interest rate swaps and
caps.
ASSETS, DEPOSIT LIABILITIES AND WHOLESALE
FUNDS. During the six months ended December 31,
1997, the Company has added $73.8 million in
capital leverage transactions, under which high-
quality mortgage-backed securities are purchased
utilizing funding from short term borrowings.
While these transactions have served to increase
the Company's interest rate risk, particularly
under a rising interest rate environment, the
Company's overall level of interest rate risk,
inclusive of the effects of these transactions,
has not changed materially from June 30, 1997 to
December 31, 1997. There have been no other
material changes in the composition of assets,
deposit liabilities or wholesale funds from June
30, 1997 to December 31, 1997.
GAP ANALYSIS. The one-year and five-year
cumulative interest sensitivity gap as a
percentage of total assets still fall within 2%
of their levels at June 30, 1997 utilizing the
same assumptions as at June 30, 1997.
INTEREST RATE RISK COMPLIANCE. The Bank
continues to monitor the impact of interest rate
volatility upon net interest income and net
portfolio value in the same manner as at June
30, 1997. There have been no changes in the
board approved limits of acceptable variance in
net interest income and net portfolio value at
December 31, 1997 compared to June 30, 1997, and
the projected changes continue to fall within
the board approved limits at all levels of
potential interest rate volatility.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On December 5, 1996, Dime Bancorp, Inc. and its
wholly-owned subsidiary, Dime Savings Bank of
New York, FSB (together "Dime of New York,")
filed a complaint in the United States District
Court, Southern District of New York against the
Company and the Bank. Dime of New York alleged
violations of New York State and federal
trademark law and unfair competition law. Dime
of New York sought injunctive
-24-
relief in the form of an order requiring the Bank to
use its full name with identical type-size and type-style
in marketing and advertising materials, or in the
alternative requiring the Bank to change its
name, due to alleged inequitable conduct. The
complaint also sought an order requiring the
Company to change its corporate name and change
its Nasdaq Stock Market trading symbol "DIME."
In January, 1998, The Company signed an
agreement settling the suit on terms acceptable
to all parties. As part of the settlement
agreement, the Company has committed to change
its corporate name and ticker symbol on or
before September 1, 1998.
The Bank is involved in various other legal
actions arising in the ordinary course of its
business which, in the aggregate, involve
amounts which are believed to be immaterial to
the financial condition and results of
operations of the Bank.
ITEM 2. CHANGES IN SECURITIES AND USE OF
PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Company's Annual Meeting of Shareholders was held on
November 13, 1997.
(b) Not applicable.
(c) The following is a summary of the matters voted upon at
the meeting and the votes obtained:
-25-
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:
Anthony Bergamo 10,909,739 -0- -0- 96,820 -0-
Michael P. Devine 10,909,839 -0- -0- 96,720 -0-
Joseph H. Farrell 10,880,703 -0- -0- 125,856 -0-
Louis V. Varone 10,907,908 -0- -0- 98,651 -0-
2) Ratification of Amendments
to the Dime Community Bancorp,
Inc. 1996 Stock Option Plan
for Outside Directors,
Officers and Employees 10,330,931 383,417 56,048 -0- 236,163
3) Ratification of Amendments
to the Recognition and
Retention Plan for
Outside Directors, Officers
and Employees of Dime
Community Bancorp, Inc. 10,477,980 450,323 78,256 -0- -0-
4) Ratification of the
appointment of Deloitte &
Touche LLP to act as
independent auditors for the
Company for the fiscal year
ended June 30, 1998 10,938,140 39,741 28,678 -0- -0-
(d) Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
-----------
Exhibit 3(ii) Amended and Restated Bylaws of Dime Community
Bancorp, Inc.
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
----------------------------
None.
-26-
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 Bancorp, Inc.
Dated: February 13, 1998 By: /S/ VINCENT F. PALAGIANO
-------------------------
Vincent F.Palagiano
Chairman of the Board and
Chief Executive Officer
Dated: February 13, 1998 By: /S/ KENNETH J. MAHON
-------------------------
Kenneth J. Mahon
Executive Vice President and
Chief Financial Officer
-27-
EXHIBITS
========
Exhibit 3(ii) Amended and Restated Bylaws of Dime Community Bancorp, Inc.