UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
---------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
---------------------------------------------
Commission File Number 0-22278
------------------------------
QUEENS COUNTY BANCORP, INC.
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1377322
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
38-25 Main Street, Flushing, New York 11354
-------------------------------------------
(Address of principal executive offices)
(Registrant's telephone number, including area code) 718: 359-6400
-------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes |_| No
20,779,319
-------------------------------
Number of shares outstanding at
May 8, 2000
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
FORM 10-Q
Three Months Ended March 31, 2000
INDEX Page No.
- ----- --------
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Condition as of
March 31, 2000 (unaudited) and December 31, 1999 1
Consolidated Statements of Income and Comprehensive
Income for the Three Months Ended March 31, 2000
and 1999 (unaudited) 2
Consolidated Statement of Changes in Stockholders'
Equity for the Three Months Ended March 31, 2000
(unaudited) 3
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 (unaudited) 4
Notes to Unaudited Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 18
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Exhibits 21
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
(in thousands)
March 31, December 31,
2000 1999
(unaudited)
----------- ------------
Assets
Cash and due from banks $ 27,333 $ 31,224
Money market investments 6,000 6,000
Securities held to maturity (estimated market value of
$179,348 and $180,181, respectively) 184,638 184,637
Mortgage-backed securities held to maturity (estimated market
value of $2,085 and $2,135, respectively) 2,031 2,094
Securities available for sale 11,755 12,806
Mortgage loans:
1-4 family 146,858 152,644
Multi-family 1,427,816 1,348,352
Commercial real estate 101,893 96,008
Construction 5,120 4,793
----------- -----------
Total mortgage loans 1,681,687 1,601,797
Other loans 8,643 8,741
Less: Unearned loan fees (2,208) (2,428)
Allowance for loan losses (7,031) (7,031)
----------- -----------
Loans, net 1,681,091 1,601,079
Premises and equipment, net 9,840 10,060
Deferred tax asset, net 5,984 5,496
Other assets 56,976 53,439
----------- -----------
Total assets $ 1,985,648 $ 1,906,835
=========== ===========
Liabilities and Stockholders' Equity
Deposits:
NOW and money market accounts $ 108,999 $ 103,422
Savings accounts 278,895 274,501
Certificates of deposit 621,493 658,238
Non-interest-bearing accounts 43,854 39,857
----------- -----------
Total deposits 1,053,241 1,076,018
----------- -----------
Official checks outstanding 18,643 31,189
FHLB advances 744,154 636,378
Mortgagors' escrow 25,176 10,288
Other liabilities 10,102 15,821
----------- -----------
Total liabilities 1,851,316 1,769,694
----------- -----------
Stockholders' equity:
Preferred stock at par $0.01 (5,000,000 shares authorized;
none issued) -- --
Common stock at par $0.01 (60,000,000 shares authorized;
30,970,693 shares issued; 20,868,061 and 21,010,127 shares
outstanding at March 31, 2000 and December 31, 1999, respectively) 310 310
Paid-in capital in excess of par 149,366 147,607
Retained earnings (substantially restricted) 149,352 150,545
Less: Treasury stock (10,102,632 and 9,960,566 shares, respectively) (148,090) (145,122)
Unallocated common stock held by ESOP (12,295) (12,388)
Common stock held by SERP (3,770) (3,770)
Unearned common stock held by RRPs (41) (41)
Accumulated other comprehensive loss, net of tax effect (500) --
----------- -----------
Total stockholders' equity 134,332 137,141
----------- -----------
Total liabilities and stockholders' equity $ 1,985,648 $ 1,906,835
=========== ===========
See accompanying notes to financial statements.
1
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(in thousands, except per share data)
(unaudited)
For the
Three Months Ended
March 31,
--------------------
2000 1999
-------- --------
Interest Income:
Mortgage and other loans $ 33,126 $ 30,475
Securities 3,023 2,297
Mortgage-backed securities 62 331
Money market investments 58 267
-------- --------
Total interest income 36,269 33,370
-------- --------
Interest Expense:
NOW and money market accounts 785 451
Savings accounts 1,601 1,542
Certificates of deposit 8,076 9,104
FHLB advances 9,357 5,701
Mortgagors' escrow 7 8
-------- --------
Total interest expense 19,826 16,806
-------- --------
Net interest income 16,443 16,564
Reversal of provision for loan losses -- (2,000)
-------- --------
Net interest income after reversal of
provision for loan losses 16,443 18,564
-------- --------
Other Operating Income:
Fee income 501 481
Other 610 149
-------- --------
Total other operating income 1,111 630
-------- --------
Operating Expense:
Compensation and benefits 3,488 3,675
Occupancy and equipment 744 618
General and administrative 1,242 1,239
Other 164 54
-------- --------
Total operating expense 5,638 5,586
-------- --------
Income before income taxes 11,916 13,608
Income tax expense 4,322 5,371
-------- --------
Net income $ 7,594 $ 8,237
Comprehensive income, net of tax:
Unrealized loss on securities (500) (271)
-------- --------
Comprehensive income $ 7,094 $ 7,966
======== ========
Earnings per share $0.42 $0.44
Diluted earnings per share $0.42 $0.43
======== ========
See accompanying notes to financial statements.
2
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Three Months Ended
March 31, 2000
(in thousands) (unaudited)
- --------------------------------------------------------------------------------
Common Stock (Par Value: $0.01):
Balance at beginning of year $ 310
Shares issued --
---------
Balance at end of period 310
---------
Paid-in Capital in Excess of Par:
Balance at beginning of year 147,607
Tax benefit effect on stock plans 1,413
Allocation of ESOP stock 346
---------
Balance at end of period 149,366
---------
Retained Earnings:
Balance at beginning of year 150,545
Net income 7,594
Dividends paid on common stock (4,526)
Exercise of stock options (203,958 shares) (4,261)
---------
Balance at end of period 149,352
---------
Treasury Stock:
Balance at beginning of year (145,122)
Purchase of common stock (346,024 shares) (7,589)
Exercise of stock options (203,958 shares) 4,621
---------
Balance at end of period (148,090)
---------
Employee Stock Ownership Plan:
Balance at beginning of year (12,388)
Allocation of ESOP stock 93
---------
Balance at end of period (12,295)
---------
SERP Plan:
Balance at beginning of year (3,770)
Common stock acquired by SERP --
---------
Balance at end of period (3,770)
---------
Recognition and Retention Plans:
Balance at beginning of year (41)
Earned portion RRPs --
---------
Balance at end of period (41)
---------
Accumulated Comprehensive Loss, Net of Tax:
Balance at beginning of year --
Net unrealized depreciation in securities, net of tax (500)
---------
Balance at end of year (500)
---------
Total stockholders' equity $ 134,332
=========
See accompanying notes to financial statements.
3
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
2000 1999
(in thousands) (unaudited)
- --------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net income $ 7,594 $ 8,237
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 258 220
Reversal of provision for loan losses -- (2,000)
Amortization of premiums, net -- 3
Amortization (accretion) of net deferred loan origination fees 220 (204)
Net gain on redemption of securities and mortgage-backed securities -- (11)
Net gain on sale of foreclosed real estate (32) (100)
Tax benefit effect on stock plans 1,413 1,693
Earned portion of ESOP 439 629
Changes in assets and liabilities:
(Increase) decrease in deferred income taxes (488) 801
Increase in other assets (3,537) (2,103)
Decrease in official checks outstanding (12,546) (11,689)
(Decrease) increase in other liabilities (5,719) 1,425
--------- ---------
Total adjustments (19,992) (11,042)
--------- ---------
Net cash used in operating activities (12,398) (2,805)
--------- ---------
Cash Flows from Investing Activities:
Proceeds from maturity of securities and mortgage-backed
securities held to maturity 63 13,937
Proceeds from redemption of securities available for sale 110 --
Purchase of securities held to maturity -- (6,285)
Net increase in loans (79,820) (41,692)
Proceeds from sale of loans and foreclosed real estate 60 2,596
Purchase of premises and equipment, net (38) (40)
--------- ---------
Net cash used in investing activities (79,625) (31,484)
--------- ---------
Cash Flows from Financing Activities:
Net increase in mortgagors' escrow 14,888 12,784
Net (decrease) increase in deposits (22,777) 5,195
Net increase in FHLB advances 107,776 14,604
Cash dividends paid and options exercised, net (8,787) (25,413)
Purchase of Treasury stock, net of stock
options exercised (2,968) 9,837
--------- ---------
Net cash provided by financing activities 88,132 17,007
--------- ---------
Net decrease in cash and cash equivalents (3,891) (17,282)
Cash and cash equivalents at beginning of period 37,224 46,561
--------- ---------
Cash and cash equivalents at end of period $ 33,333 $ 29,279
========= =========
Supplemental information:
Cash paid for:
Interest $ 19,809 $ 16,778
Income taxes 5,180 2,351
Transfers to foreclosed real estate from loans -- 488
Transfers to real estate held for investment from foreclosed real estate -- 425
See accompanying notes to financial statements.
4
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Queens County Bancorp, Inc. (the "Company") and its wholly-owned
subsidiary, Queens County Savings Bank (the "Bank").
The statements reflect all normal recurring adjustments which, in the opinion of
management, are necessary to present a fair statement of the results for the
periods presented. The results of operations for the three months ended March
31, 2000 are not necessarily indicative of the results of operations that may be
expected for all of 2000.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted, pursuant to the rules and regulations of the
Securities and Exchange Commission.
These unaudited consolidated financial statements should be read in conjunction
with the audited consolidated financial statements and notes thereto included in
the Company's 1999 Annual Report to Shareholders and incorporated by reference
into the Company's 1999 Annual Report on Form 10-K.
5
QUEENS COUNTY BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Queens County Bancorp, Inc. (the "Company") is the holding company for Queens
County Savings Bank (the "Bank"), the first savings bank chartered by the State
of New York in the New York City Borough of Queens. The primary business of the
Bank is gathering deposits from its customers in Queens and Nassau County and
investing these funds in the origination of residential mortgage loans
throughout metropolitan New York.
The Company's first quarter 2000 performance validated the strategic actions
taken in the fourth quarter of 1999. Reflecting the sale of $211.6 million in
multi-family mortgage loans to the Federal Home Loan Bank of New York
("FHLB-NY") on December 29th, the Company recorded a linked-quarter increase in
its interest rate spread and net interest margin, as well as a linked-quarter
increase in its return on average assets. Reflecting a $30.0 million investment
in Bank-Owned Life Insurance ("BOLI") on the 30th of December, the Company
recorded a 76.3% increase in other operating income and a reduction in the
effective tax rate to 36.3%.
These actions contributed to first quarter 2000 earnings of $7.6 million,
equivalent to diluted earnings per share of $0.42.
Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995
The Company's first quarter 2000 performance is discussed in detail on the
following pages. Such discussion occasionally includes forward-looking
statements with regard to the Company's prospective performance and strategies
within the meaning of Section 27A of the Securities Exchange Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The
Company intends for such forward-looking statements to be covered by the safe
harbor provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995, and is including this statement for
purposes of said safe harbor provisions.
The forward-looking statements contained within this report are based on
information currently available to management and on management's current
expectations regarding a range of issues that could potentially impact the
Company's performance and strategies in future periods. Where such
forward-looking statements appear in the text, they are typically accompanied by
cautionary language identifying the specific factors that could adversely affect
the Company's ability to fulfill its performance goals or implement its
strategies. The Company undertakes no obligation to update these forward-looking
statements.
In general, factors that could cause future results to vary from current
expectations include, but are not limited to, general economic conditions;
changes in interest rates, deposit flows, loan demand, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation and regulation; and various other economic, competitive,
governmental, regulatory, and technological issues that could affect the
Company's operations, pricing, products and services. These risks and
uncertainties should be considered in evaluating any forward-looking statements,
and undue reliance should not be placed upon them.
6
Financial Condition
The Company recorded total assets of $2.0 billion at March 31, 2000, up $78.8
million from the balance recorded at December 31, 1999. The increase stemmed
from a $79.9 million rise in mortgage loans outstanding to $1.7 billion,
representing 84.7% of total assets, after originations of $142.4 million in the
first quarter of 2000. Multi-family mortgage loans accounted for $1.4 billion of
the $1.7 billion total, up $79.5 million after first quarter originations of
$131.9 million.
The growth in multi-family mortgage loans was complemented by a $5.9 million
increase in commercial real estate loans to $101.9 million and a $327,000 rise
in construction loans to $5.1 million, offsetting a $5.8 million decline in the
balance of one-to-four family mortgage loans to $146.9 million.
The Company's asset quality continued to be solid, as the number of consecutive
quarters without any net charge-offs increased to 22. In addition,
non-performing assets totaled $3.2 million, representing 0.16% of total assets,
at March 31, 2000, as compared to $3.2 million, or 0.17% of total assets, at
December 31, 1999. Non-performing loans totaled $3.2 million, or 0.19% of loans,
net, at the close of the current first quarter, while foreclosed real estate
declined to zero at quarter's end.
In the absence of any net charge-offs or provisions for loan losses, the loan
loss allowance was maintained at $7.0 million, representing 220.48% of
non-performing loans and 0.42% of loans, net, at March 31, 2000.
Reflecting management's focus on mortgage loan production, the Company's
portfolio of securities held to maturity was essentially unchanged from the
year-end 1999 level at $184.6 million, while money market investments held
steady at $6.0 million. The growth in assets was partly tempered by a $1.0
million decline in securities available for sale to $11.8 million, a $63,000
decline in mortgage-backed securities held to maturity to $2.0 million, and a
$98,000 decline in other loans to $8.6 million.
Deposits totaled $1.1 billion at the close of the current first quarter, down
$22.8 million since December 31, 1999. The decrease was the net effect of a
$14.0 million increase in core deposits to $431.8 million and a $36.7 million
reduction in CDs to $621.5 million. The balance of FHLB advances, meanwhile,
rose $107.8 million to $744.2 million at March 31, 2000.
Supported by cash earnings of $10.1 million, stockholders' equity totaled $134.3
million, representing 6.77% of total assets and a book value of $7.42 per share
based on 18,111,985 shares. In the first quarter of 2000, the Company
distributed cash dividends totaling $5.2 million and allocated $7.6 million
toward the repurchase of 346,024 shares. At quarter's end, 17,044 shares
remained available for repurchase under the November 23, 1999 authorization. The
Board of Directors authorized the repurchase of an additional 500,000 shares of
Company stock on April 11, 2000.
The Company's capital ratios continued to exceed the minimum levels required by
the FDIC. In addition, the Bank recorded a leverage capital ratio of 9.30%, a
Tier 1 risk-based capital ratio of 13.45%, and a total risk-based capital ratio
of 13.98%, at March 31, 2000.
7
Loans
Despite the rise in market interest rates over the course of the quarter, the
Company originated $142.4 million in mortgage loans during the first three
months of 2000, including $131.9 million in multi-family mortgage loans.
At March 31, the balance of mortgage loans was $1.7 billion, up $79.9 million
from the year-end 1999 level, boosted by a $79.5 million rise in multi-family
mortgage loans to $1.4 billion. Multi-family mortgage loans represented 84.9% of
mortgage loans outstanding and 92.6% of mortgage originations year-to-date. At
March 31, 2000, the average loan in the multi-family portfolio had a principal
balance of $1.3 million and a loan-to-value ratio of 55.9%.
Loan growth was further supported by a $5.9 million increase in commercial real
estate loans to $101.9 million and a $327,000 rise in construction loans to $5.1
million, after first quarter 2000 originations of $7.3 million and $1.2 million,
respectively. These increases served to offset a $5.8 million decline in the
balance of one-to-four family mortgage loans to $146.9 million after first
quarter 2000 originations of $2.1 million. At March 31, 2000, the average loan
in the commercial real estate portfolio had a principal balance of $710,100 and
a loan-to-value ratio of 47.4%; the average one-to-four family mortgage loan had
a principal balance of $67,600 and a loan-to-value ratio of 40.5%.
In addition to mortgage loans, the Company originates other loans to address the
needs of its customers. At March 31, 2000, the Company's portfolio of other
loans totaled $8.6 million, down $98,000 from the volume recorded at December
31, 1999.
While loan demand has softened somewhat in the face of the Federal Reserve
Board's recent measures, the Company had a pipeline of $129.7 million at April
11, 2000.
Asset Quality
The Company extended its record of superior asset quality in the first quarter
of 2000, with the number of consecutive quarters without any net charge-offs
increasing to 22. Non-performing assets totaled $3.2 million at both March 31,
2000 and December 31, 1999, representing 0.16% and 0.17% of total assets,
respectively, at the corresponding dates.
Non-performing loans rose $81,000 to $3.2 million, or 0.19% of loans, net, at
the close of the current first quarter from $3.1 million, or 0.19% of loans,
net, at December 31, 1999. Included in the March 31, 2000 amount were 27
mortgage loans in foreclosure totaling $3.0 million and five loans 90 days or
more delinquent totaling $222,000. All of the Company's non-performing loans
were secured by one-to-four family homes. At the same time, the balance of
foreclosed real estate declined from $66,000 to zero, pursuant to the sale of a
single property in March 2000.
From time to time, properties that are classified as "foreclosed real estate"
are profitably rented by the Company. When this occurs, such properties are
reclassified as "real estate held for investment" and included in "other assets"
on the balance sheet. At March 31, 2000, the Company had 16 such investments
totaling $1.6 million and yielding an average rate of return of 9.35%.
In view of the quality of the Company's loans, no provisions for loan losses
were made in the first quarter of 2000. In the absence of any net charge-offs or
provisions for loan losses, the loan loss allowance was maintained at $7.0
million, representing 220.48% of non-performing loans and 0.42% of loans, net,
at March 31, 2000. In addition, the $7.0 million allowance represented 493.06%
of accumulated net charge-offs since 1987.
8
Asset Quality Analysis
At or For the At or For the
Three Months Ended Year Ended
March 31, December 31,
2000 1999
(dollars in thousands) (unaudited)
- --------------------------------------------------------------------------------------
Allowance for Loan Losses:
Balance at beginning of period $7,031 $9,431
Reversal of provision for loan losses -- (2,400)
------ ------
Balance at end of period $7,031 $7,031
====== ======
Non-performing Assets at Period-end:
Mortgage loans in foreclosure $2,967 $2,886
Loans 90 days or more delinquent 222 222
------ ------
Total non-performing loans 3,189 3,108
Foreclosed real estate -- 66
------ ------
Total non-performing assets $3,189 $3,174
====== ======
Ratios:
Non-performing loans to loans, net 0.19% 0.19%
Non-performing assets to total assets 0.16 0.17
Allowance for loan losses to non-performing loans 220.48 226.22
Allowance for loan losses to loans, net 0.42 0.44
Allowance for loan losses to accumulated
net charge-offs since 1987 493.06 493.06
Securities and Money Market Investments
While mortgage loan production remains the Company's primary focus, its asset
mix is enriched by a portfolio of short-term securities held to maturity and
securities available for sale. At March 31, 2000, the balance of securities held
to maturity totaled $184.6 million, $1,000 higher than the balance at December
31, 1999. The portfolio of securities available for sale declined $1.0 million
to $11.8 million, while money market investments, consisting entirely of Federal
funds sold, held steady at $6.0 million.
The Company's securities held to maturity consist primarily of U.S. Government
and agency obligations, and FHLB stock. At March 31, 2000, U.S. Government and
agency obligations represented $140.3 million of the total, with FHLB stock
representing $40.8 million. The average maturity of the portfolio was two years.
At March 31, 2000 and December 31, 1999, the market values of securities held to
maturity were, respectively, $179.3 million and $180.2 million, equivalent to
97.1% and 97.6% of carrying value at the respective dates.
Mortgage-backed Securities Held to Maturity
Reflecting prepayments and the absence of any new investments in such assets,
the portfolio of mortgage-backed securities declined $63,000 to $2.0 million at
March 31, 2000. The quarter-end market value of the portfolio was $2.1 million,
or 102.7% of carrying value, as compared to $2.1 million, or 102.0% of carrying
value, at December 31, 1999.
9
The Company holds all mortgage-backed securities to maturity; at March 31, 2000,
the average maturity of the portfolio was 2.5 years.
Sources of Funds
Funding for the Company's mortgage loan production stems primarily from deposits
and from its line of credit with the FHLB-NY. Additional funding stems from
interest and principal payments on loans and the interest on, and maturity of,
securities.
At March 31, 2000, the Company recorded deposits of $1.1 billion, down $22.8
million since December 31, 1999. The decrease was the net effect of a $14.0
million rise in core deposits to $431.8 million and a $36.7 million reduction in
CDs to $621.5 million. The Company has experienced a steady shift in the mix of
its deposits over the past five quarters, with CDs representing 59.0% of the
total at March 31, 2000, as compared to 61.2% and 65.5% at December 31 and March
31, 1999, respectively. Core deposits represented 41.0% of total deposits at the
close of the current first quarter, as compared to 38.8% and 34.4%,
respectively, at the earlier dates.
The growth in core deposits reflects an increase in all three categories,
including a $5.6 million increase in NOW and money market accounts to $109.0
million; a $4.4 million increase in savings accounts to $278.9 million; and a
$4.0 million increase in non-interest-bearing accounts to $43.9 million. The
increase in non-interest-bearing accounts, in particular, reflects the success
of the Company's Mobile CSR program. Since 1997, the Company has been sending
customer service representatives to various Queens locations for the purpose of
opening new accounts on site.
To supplement the funding provided by deposits, the Company maintains a line of
credit with the FHLB-NY, which totaled $794.3 million at March 31, 2000. FHLB
advances at that date totaled $744.2 million, up $107.8 million since December
31, 1999.
Market Risk and Interest Rate Sensitivity
Given the extent to which changes in market interest rates may influence net
interest income, one of management's primary objectives is matching the interest
rate sensitivity of the Company's assets and liabilities in order to manage
interest rate risk.
The process of assessing and managing interest rate risk is governed by policies
established by senior management that are reviewed and approved by the Board of
Directors. Senior management meets periodically to evaluate the impact of
changes in market interest rates on assets and liabilities, net interest margin,
liquidity, and capital, as well as to evaluate its strategies. As part of this
process, management measures the sensitivity of net interest income to changes
in interest rates. This process involves making estimations, based on certain
assumptions that management believes to be reasonable. In addition to
considering the relative sensitivity of assets and liabilities to market
interest rate fluctuations, management considers such factors as scheduled
maturities, repricing characteristics, deposit growth and retention, and
estimated cash flows.
The relative sensitivity of assets and liabilities is particularly important, as
the Bank's core deposits are not subject to the same degree of interest rate
sensitivity as its assets. Core deposit costs are internally controlled, and
generally exhibit less sensitivity to changes in interest rates than adjustable
rate assets, which feature yields based on external indices.
10
It is management's objective to maintain a stable level of net interest income
under a range of probable rate scenarios. In order to accomplish this objective,
management has emphasized the origination of adjustable rate mortgage loans on
one-to-four-family homes and multi-family buildings, and has generally limited
its other investments to short-term securities. On the liability side of the
balance sheet, management closely monitors the pricing of its depository
products and has profitably utilized its FHLB line of credit to generate
interest-earning asset growth.
The sale of $211.6 million in multi-family mortgage loans to the FHLB-NY in the
fourth quarter of 1999 was partly designed to bolster net interest income in the
current rising rate environment, by facilitating the origination of mortgage
loans at higher yields. Thus, at March 31, 2000, the Company's exposure to
interest rate risk was comparable to that discussed in the 1999 Annual Report to
Shareholders, despite the 50-basis point rise in market interest rates in the
first quarter of this year.
Liquidity and Capital Position
Liquidity
As previously indicated, the Company's primary funding sources are deposits and
FHLB advances. Additional funding stems from interest and principal payments on
loans, securities, and mortgage-backed securities, and the occasional sale of
loans and foreclosed real estate. While FHLB advances and scheduled amortization
of loans and securities are predictable funding sources, deposit flows and
mortgage prepayments are less so, being subject to such external factors as
economic conditions, competition, and market interest rates.
The Company primarily invests in mortgage loan originations and supplements such
investments with the purchase of short-term securities. In the first quarter of
2000, the net cash used in investing activities totaled $79.6 million,
essentially reflecting a $79.8 million net increase in loans after first quarter
2000 originations of $142.4 million. The Company's investing activities were
funded by cash flows generated by financing activities. In the first quarter of
2000, the net cash provided by financing activities totaled $88.1 million,
primarily reflecting a $107.8 million net increase in FHLB advances.
Simultaneously, the net cash used in operating activities totaled $12.4 million.
The Company monitors its liquidity on a daily basis to ensure that sufficient
funds are available to meet its financial obligations, including outstanding
loan commitments and withdrawals from depository accounts. The Company's most
liquid assets are cash and due from banks and money market investments, which
collectively totaled $33.3 million at March 31, 2000 and $37.2 million at
December 31, 1999. The Company also had securities available for sale of $11.8
million and $12.8 million at the corresponding dates. Additional liquidity is
available through the Bank's FHLB line of credit and an additional $10.0 million
line of credit with a money center bank.
At April 18, 2000, the Bank had loans totaling $129.7 million in the pipeline,
which management anticipates having the ability to fund. In addition, CDs due to
mature in one year or less from March 31, 2000 totaled $463.6 million; based on
its historic retention rate, as well as current pricing, management believes
that a significant portion of such deposits will remain with the Bank.
Capital Position
Supported by first quarter 2000 cash earnings of $10.1 million, stockholders'
equity totaled $134.3 million at March 31, 2000, representing 6.77% of total
assets and a book value of $7.42 per share, based on 18,111,985 shares. At
December 31, 1999, stockholders' equity totaled $137.1 million, representing
7.19% of total assets and a book value of $7.52 per share, based on 18,233,153
shares. In addition to distributing cash dividends of $5.2 million in the first
quarter of 2000, the Company allocated $7.6 million toward the repurchase of
346,024
11
shares of Company stock. Under the November 23, 1999 authorization, 17,044
shares remained available for repurchase at the close of the quarter; on April
11, 2000, the Board of Directors authorized the repurchase of up to an
additional 500,000 Company shares.
The Company's capital strength is paralleled by the solid capital position of
the Bank, as reflected in the excess of its regulatory capital ratios over the
minimum levels required by the FDIC. At March 31, 2000, the Company's leverage
capital totaled $178.3 million, or 9.30% of adjusted average assets, while its
Tier 1 and total risk-based capital amounted to $178.3 million and $185.3
million, or 13.45% and 13.98% of risk-weighted assets, respectively. The minimum
Federal requirements for leverage, Tier 1, and total risk-based capital are
3.00%, 4.00%, and 8.00%, respectively.
Regulatory Capital Analysis (Bank Only)
At March 31, 2000
-----------------
Risk-Based Capital
------------------
Leverage Capital Tier 1 Total
---------------- ------ -----
(dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
Total savings bank equity $ 178,260 9.30% $ 178,260 13.45% $ 185,291 13.98%
Regulatory capital
requirement 57,514 3.00 53,025 4.00 106,050 8.00
--------- ----- --------- ----- --------- -----
Excess $ 120,746 6.30% $ 125,235 9.45% $ 79,241 5.98%
========= ===== ========= ===== ========= =====
Comparison of the Three Months Ended March 31, 2000 and March 31, 1999
Earnings Summary
The Company recorded earnings of $7.6 million, or $0.42 per diluted share, for
the first quarter of 2000, providing a 1.58% return on average assets ("ROA")
and a 23.49% return on average stockholders' equity ("ROE"). The $7.6 million
was up 5.8% from core earnings of $7.2 million in the year-earlier quarter,
while the $0.42 was up 10.5% from core diluted earnings per share of $0.38. The
first quarter 1999 amounts exclude a net benefit of $1.1 million, or $0.05 per
share, stemming from the reversal of $2.0 million from the allowance for loan
losses, which increased first quarter 1999 earnings to $8.2 million, or $0.43
per diluted share.
In addition, the Company's cash earnings totaled $10.1 million, or $0.56 per
diluted share, representing a cash ROA of 2.11% and a cash ROE of 31.36%. The
Company's cash earnings contributed $2.5 million, or 33.5%, more to
stockholders' equity than its GAAP earnings alone.
The Company's first quarter 2000 performance reflects the benefit of actions
taken in the trailing quarter. The December 29, 1999 sale of $211.6 million in
multi-family mortgage loans to the FHLB-NY at a pass-through rate of interest
resulted in a higher interest rate spread and net interest margin on a
linked-quarter basis, as well as an increase in linked-quarter ROA. The
investment of $30.0 million in BOLI resulted in a significant increase in other
operating income and a significant reduction in income tax expense.
Specifically, other operating income rose $481,000, or 76.3%, to $1.1 million,
the result of a $461,000 increase in other income to $610,000 and a $20,000
increase in fee income to $501,000. Income tax expense declined $1.1 million,
reflecting a $1.7 million reduction in pre-tax income to $11.9 million, as well
as a decline in the effective tax rate to 36.3% from 39.5%.
12
These favorable factors served to offset a $121,000 decline in net interest
income and a $52,000 increase in operating expense. Net interest income totaled
$16.4 million in the current first quarter, the net effect of a $2.9 million
rise in interest income to $36.3 million and a $3.0 million rise in interest
expense to $19.8 million. In addition to the rise in market interest rates and
the increased use of FHLB advances, the level of net interest income was
impacted by the aforementioned FHLB-NY transaction, which reduced the average
balance of interest-earning assets on a linked-quarter basis more than it did
the average balance of interest-bearing liabilities. However, the transaction
also contributed to a five-basis point increase in interest rate spread to 3.25%
and a seven-basis point increase in net interest margin to 3.58%.
Operating expense totaled $5.6 million in the first quarter of 2000,
representing 1.18% of average assets and contributing to an efficiency ratio of
32.12%. While compensation and benefits expense declined $187,000 to $3.5
million, this reduction was offset by the combination of a $126,000 increase in
occupancy and equipment expense to $744,000, a $3,000 rise in general and
administrative expense to $1.2 million, and a $110,000 rise in other operating
expense to $164,000.
Reflecting the ongoing quality of its assets, the Company suspended the
provision for loan losses in the current first quarter, extending a practice
initiated in the third quarter of 1995. In the year-earlier quarter, the Company
reversed $2.0 million from the allowance for loan losses, which resulted in the
aforementioned net gain of $1.1 million, or $0.05 per share.
Cash Earnings Analysis
(in thousands, except per share data)
For the Three Months Ended
March 31,
2000 1999
------- --------
Net income $ 7,594 $ 8,237
Additional contributions to stockholders' equity:
Amortization and appreciation of
stock-related benefit plans 439 628
Associated tax benefits 1,413 1,693
Amortization of goodwill -- --
Other 695 715
------- -------
Cash earnings $10,141 $11,273
======= =======
Cash earnings per share $0.57 $0.61
Diluted cash earnings per share $0.56 $0.59
Interest Income
The level of interest income in any given period depends upon the average
balance and mix of the Company's interest-earning assets, the yield on said
assets, and the current level of market interest rates.
The Company recorded interest income of $36.3 million in the first quarter of
2000, up $2.9 million from $33.4 million in the first quarter of 1999. The 8.7%
increase was the net effect of a $152.2 million rise in the average balance of
interest-earning assets to $1.8 billion and a two-basis point drop in the
average yield to 7.89%.
Mortgage and other loans accounted for $33.1 million of interest income in the
current first quarter, up 8.7% from $30.5 million in the first quarter of 1999.
The $2.7 million increase was the net effect of a $144.0 million, or 9.7%, rise
in the average balance to $1.6 billion and a seven-basis point drop in the
average yield to 8.10%.
13
As anticipated, the average balance of mortgage and other loans was deflated by
the sale of $211.6 million in multi-family mortgage loans to the FHLB-NY in
December 1999; however, the sale of these loans also contributed to a
linked-quarter increase in the average yield. Mortgage and other loans
represented 88.9% of average interest-earning assets in the first quarter of
2000 (as compared to 88.4% in the year-earlier three-month period) and generated
91.3% of interest income (unchanged from the year-earlier percentage).
Securities contributed interest income of $3.0 million in the first quarter of
2000, up 31.6% from $2.3 million in the year-earlier three months. The $726,000
increase reflects a $42.7 million, or 27.8%, rise in the average balance to
$196.0 million and an 18-basis point rise in the average yield to 6.17%.
Securities represented 10.7% of total interest-earning assets in the current
quarter and contributed 8.3% of interest income, up from 9.1% and 6.9%,
respectively, in the year-earlier three months.
The significant interest income produced by these interest-earning assets was
supplemented by the interest income produced by mortgage-backed securities and
money market investments. Mortgage-backed securities held to maturity provided
interest income of $62,000, down $269,000 from the year-earlier level, the net
effect of a $15.3 million decline in the average balance to $3.5 million and a
nine-basis point rise in the average yield to 7.13%. Money market investments
produced interest income of $58,000, down $209,000, the net effect of a $19.2
million reduction in the average balance to $4.3 million and a 92-basis point
rise in the average yield to 5.46%.
Interest Expense
The level of interest expense is driven by the average balance and composition
of the Company's interest-bearing liabilities and by the respective costs of the
funding sources found within this mix. These factors are influenced, in turn, by
competition for deposits and by the level of market interest rates.
The Company recorded first quarter 2000 interest expense of $19.8 million, as
compared to $16.8 million in the first quarter of 1999. The $3.0 million, or
18.0%, increase stemmed from a $185.0 million, or 12.1%, rise in the average
balance of interest-bearing liabilities to $1.7 billion and a 19-basis point
rise in the average cost to 4.64%.
FHLB advances accounted for the majority of the increase, contributing interest
expense of $9.4 million in the current first quarter as compared to $5.7 million
in the first quarter of 1999. The $3.7 million increase reflects both a $235.5
million rise in the average balance to $674.5 million and a 32-basis point rise
in the average cost to 5.58%. FHLB advances thus represented 39.3% and 28.7%,
respectively, of average interest-bearing liabilities in the current and prior
first quarters, and accounted for 47.2% and 33.9%, respectively, of interest
expense.
CDs produced interest expense of $8.1 million in the first quarter of 2000, down
from $9.1 million in the year-earlier three months. The $1.0 million decline was
the net effect of a $90.0 million, or 12.3%, reduction in the average balance
and a two-basis point jump in the average cost to 5.07%. CDs thus represented
37.3% and 47.7%, respectively, of average interest-bearing liabilities in the
current and prior first quarters, and contributed 40.7% and 54.2%, respectively,
of interest expense.
Other funding (including NOW and money market accounts, savings accounts,
mortgagors' escrow, and non-interest-bearing deposits) generated interest
expense of $2.4 million in the current first quarter, as compared to $2.0
million in the first quarter of 1999. The $393,000 increase reflects a $46.4
million rise in the average balance to $443.4 million and a 14-basis point rise
in the average cost to 2.16%. The higher average balance includes a $6.7 million
increase in non-interest-bearing deposits, to $41.4 million from $34.8 million.
14
NOW and money market accounts generated interest expense of $785,000, up from
$451,000 in the year-earlier three months. The $334,000 increase stemmed from a
$36.8 million rise in the average balance to $105.8 million and a 34-basis point
rise in the average cost to 2.99%.
Savings accounts produced first quarter 2000 interest expense of $1.6 million,
as compared to $1.5 million in the first quarter of 1999. The $59,000 increase
stemmed from a $4.6 million rise in the average balance to $275.4 million,
coupled with a three-basis point uptick in the average cost to 2.34%.
The interest expense produced by mortgagors' escrow dropped to $7,000 from
$8,000, the result of a $1.7 million decrease in the average balance to $20.9
million and a one-basis point drop in the average cost to 0.13%.
Net Interest Income Analysis
(dollars in thousands)
Three Months Ended March 31,
---------------------------
2000 1999
---- ----
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------- -------- ---- ------- -------- ----
Assets
Interest-earning Assets:
Mortgage and other loans, net $ 1,635,542 $ 33,126 8.10% $ 1,491,518 $ 30,475 8.17%
Securities 196,005 3,023 6.17 153,309 2,297 5.99
Mortgage-backed securities 3,478 62 7.13 18,809 331 7.04
Money market investments 4,271 58 5.46 23,502 267 4.54
----------- -------- ----- ----------- -------- -----
Total interest-earning assets 1,839,296 $ 36,269 7.89% 1,687,138 $ 33,370 7.91%
Non-interest-earning assets 78,801 44,830
----------- -----------
Total assets $ 1,918,097 $ 1,731,968
=========== ===========
Liabilities and Stockholders' Equity
Interest-bearing Liabilities:
NOW and money market accounts $ 105,754 $ 785 2.99% $ 68,948 $ 451 2.65%
Savings accounts 275,350 1,601 2.34 270,721 1,542 2.31
Certificates of deposit 641,041 8,076 5.07 731,088 9,104 5.05
FHLB advances 674,542 9,357 5.58 439,232 5,701 5.26
Mortgagors' escrow 20,906 7 0.13 22,635 8 0.14
----------- -------- ----- ----------- -------- -----
Total interest-bearing liabilities 1,717,593 $ 19,826 4.64% 1,532,624 $ 16,806 4.45%
Non-interest-bearing deposits 41,431 34,772
Other liabilities 29,732 26,749
----------- -----------
Total liabilities 1,788,756 1,594,145
Stockholders' equity 129,341 137,823
----------- -----------
Total liabilities and stockholders'
equity $ 1,918,097 $ 1,731,968
=========== ===========
Net interest income/interest rate
spread $ 16,443 3.25% $ 16,564 3.46%
======== ========
Net interest-earning assets/net
interest margin $121,703 3.58% $154,514 3.93%
=========== ===========
Ratio of interest-earning assets to
interest-bearing liabilities 1.07x 1.10x
===== =====
15
Net Interest Income
Net interest income is the Company's primary source of income. Its level is a
function of the average balance of interest-earning assets, the average balance
of interest-bearing liabilities, and the spread between the yield on said assets
and the cost of said liabilities. These factors are influenced by the pricing
and mix of the Company's interest-earning assets and interest-bearing
liabilities which, in turn, may be impacted by such external factors as economic
conditions, competition for loans and deposits, and the monetary policy of the
Federal Open Market Committee ("FOMC") of the Federal Reserve Board of
Governors.
In the first quarter of 2000, the Company's net interest income totaled $16.4
million, down a modest $121,000 from the year-earlier level, despite the
125-basis point increase in short-term interest rates since June 1999. In
addition to the rise in rates and the increased use of FHLB advances, the
current level of net interest income reflects the sale of $211.6 million in
multi-family mortgage loans to the FHLB-NY in the fourth quarter of 1999. While
this transaction reduced the average balance of interest-earning assets and
interest-bearing liabilities on a linked-quarter basis, it also contributed to a
five-basis point rise in the Company's interest rate spread to 3.25% and a
seven-basis point rise in net interest margin to 3.58%.
While it is currently management's expectation that the Company's interest rate
spread and net interest margin will remain relatively stable through the
remainder of 2000, these measures could be adversely impacted by a
higher-than-anticipated increase in market interest rates.
Provision for Loan Losses
The provision for loan losses is based on management's periodic assessment of
the adequacy of the loan loss allowance. This, in turn, is based on such
interrelated factors as the composition of the loan portfolio and its inherent
risk characteristics; the level of non-performing loans and charge-offs, both
current and historic; local economic conditions; the direction of real estate
values; and current trends in regulatory supervision.
As noted in the discussion of asset quality on page 8 of this report, the
Company's loan portfolio continued to deliver a strong performance in the first
quarter of 2000. The Company recorded its 22nd consecutive quarter without any
net charge-offs and continued to benefit from the fully performing status of its
multi-family mortgage loans. Non-performing loans totaled $3.2 million,
representing 0.19% of loans, net, at March 31, 2000, as compared to $5.6
million, or 0.37% of loans, net, at March 31, 1999.
Accordingly, the Company extended its practice of suspending the provision for
loan losses in the first quarter of 2000, maintaining the allowance for loan
losses at $7.0 million, or 220.48% of non-performing loans at quarter's end. In
the year-earlier quarter, the Company reversed $2.0 million from the allowance
for loan losses, resulting in a $1.1 million, or $0.05 per share, net benefit.
Absent a significant downturn in the economy or in the quality of the Company's
assets, management anticipates that it will maintain the allowance for loan
losses at the current level by suspending the provision for loan losses for the
remainder of the year.
Other Operating Income
The Company has traditionally derived other operating income from service fees
and fees charged on loans and depository accounts. In the fourth quarter of
1999, the Company invested $30.0 million in BOLI, which will provide other
operating income of approximately $1.9 million over the course of 2000.
16
Accordingly, other operating income rose $481,000 to $1.1 million, the result of
a $461,000 increase in other income to $610,000 and a $20,000 increase in fee
income to $501,000.
The higher level of fee income partly reflects the addition of alternative
investment products to the Bank's product mix. In the first quarter of 2000, the
Bank initiated the sale of fixed annuities through its branch network; in the
coming quarters, additional fee-generating products, including variable
annuities and mutual funds, will be introduced.
Operating Expense
Operating expense consists of compensation and benefits, occupancy and
equipment, general and administrative ("G&A"), and other expenses. The Company's
ability to contain such expenses is one of its distinguishing characteristics,
and is reflected in its ratio of operating expense to average assets and to the
sum of net interest income and other operating income (the "efficiency ratio").
Included in compensation and benefits expense are expenses associated with the
amortization and appreciation of shares held in the Company's stock-related
benefit plans ("plan-related expenses"), which are added back to stockholders'
equity at the end of the period.
The Company recorded operating expense of $5.6 million in the first quarter of
2000, up $52,000 from the level recorded in the first quarter of 1999.
Reflecting a $188,000 reduction in plan-related expenses to $440,000,
compensation and benefits expense declined to $3.5 million from $3.7 million in
the year-earlier three months. The reduction in compensation and benefits
expense was offset by a $126,000 increase in occupancy and equipment expense to
$744,000, together with a $3,000 increase in G&A expense to $1.2 million and a
$110,000 increase in other expense to $164,000. The higher level of occupancy
and equipment expense in the first quarter of 2000 reflects the expansion of the
branch network in the second half of 1999. The increase in other expense
partially reflects costs associated with the addition of alternative investment
products to the Bank's product mix, as such addition necessitated the training
and licensing of certain Bank employees.
The Company's operating expense represented 1.18% of average assets in the
current first quarter, an improvement from 1.29% in the first quarter of 1999.
Similarly, the efficiency ratio improved to 32.12% from 32.49%. On the basis of
cash earnings, the Company's ratio of operating expense to average assets
improved to 1.08% from 1.15% over the twelve-month period, while the efficiency
ratio rose to 29.61% from 28.84%.
The number of full-time equivalent employees at March 31, 2000 was 284.
Income Tax Expense
The Company recorded first quarter 2000 income tax expense of $4.3 million, down
from $5.4 million in the year-earlier three months. In addition to a $1.7
million decrease in pre-tax income to $11.9 million, the $1.0 million reduction
reflects a $280,000 decline in plan-related items to $1.4 million, and a decline
in the effective tax rate to 36.3% from 39.5%. The lower effective tax rate
reflects both the Company's fourth quarter 1999 investment in BOLI, and a
decline in the market price of shares held in the Company's stock benefit plans.
Reflecting the ongoing benefit of the BOLI investment, it is currently expected
that the effective tax rate will stabilize at approximately 37.0% in 2000.
17
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about the Company's market risk were
presented in the discussion and analysis of Market Risk and Interest Rate
Sensitivity that appear on pages 16 - 18 of the Company's 1999 Annual Report to
Shareholders, filed on March 29, 2000. As of March 31, 2000, there was no
material change in the Company's market risk profile since the 1999 Annual
Report was filed.
18
QUEENS COUNTY BANCORP, INC.
PART 2 - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to the Company's financial condition, results of operations, or cash flows.
Item 2. Changes in Securities
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other Information
On April 18, 2000 the Board of Directors declared a quarterly cash dividend of
$0.25 per share, payable on May 15, 2000 to shareholders of record at the close
of business on May 1, 2000.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 3.1: Certificate of Incorporation*
Exhibit 3.2: Bylaws**
Exhibit 11: Statement re: Computation of Per Share Earnings -
filed herewith
Exhibit 27: Financial Data Schedule - filed herewith
(b) Reports on Form 8-K
Not applicable.
* Incorporated by reference to the Exhibits filed with the Registration
Statement on Form S-1, as amended, Registration No. 33-65852.
** Incorporated by reference to the Exhibits filed with the Annual Report on
SEC Form 10K for the fiscal year ended December 31, 1999, File No.
0-22278.
19
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Queens County Bancorp, Inc.
---------------------------
(Registrant)
DATE: May 10, 2000 BY: /s/ Joseph R. Ficalora
-----------------------------------
Joseph R. Ficalora
Chairman, President, and
Chief Executive Officer
(Duly Authorized Officer)
DATE: May 10, 2000 BY: /s/ Robert Wann
-----------------------------------
Robert Wann
Senior Vice President,
Comptroller, and
Chief Financial Officer
(Principal Financial Officer)
20