SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transaction 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 (I.R.S. employer
of incorporation or idntification number)
organization)
209 Havemeyer Street, Brooklyn, NY 11211
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (718) 782-6200
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class)
Indicate by check mark whether the Company (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 twelve months (or for such shorter period that the
Registrant was required to file reports) and (2) has been subject to such
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ X ]
As of September 22, 1997, there were 12,624,750 shares of the Company's
common stock, $0.01 par value, outstanding. The aggregate market value of the
voting stock held by non-affiliates of the Company as of September 22, 1997 was
$209,268,766. This figure is based upon the closing price on the NASDAQ
National Market for a share of the Company's common stock on September 22,
1997, which was $20.125 as reported in the Wall Street Journal on September 23,
1997.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Annual Report to Shareholders for the fiscal year ended June 30, 1997
(Item 1 of Part I, and Items 5 through 8 of Part II) and (2) the definitive
Proxy Statement dated October 6, 1997 to be distributed on behalf of the Board
of Directors of Registrant in connection with the Annual Meeting of
Shareholders to be held on November 13, 1997 and any adjournment thereof and
which is expected to be filed with the Securities and Exchange Commission on or
about October 7, 1997
(Part III).
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS
GENERAL............................................. 3
ACQUISITION OF CONESTOGA BANCORP,INC................ 4
MARKET AREA AND COMPETITION.......................... 4
LENDING ACTIVITIES................................... 5
ASSET QUALITY........................................ 12
ALLOWANCE FOR LOANLOSSES............................. 16
INVESTMENT ACTIVITIES................................ 19
SOURCES OF FUNDS..................................... 23
SUBSIDIARY ACTIVITIES................................ 26
PERSONNEL............................................ 26
FEDERAL , STATE AND LOCAL TAXATION
FEDERAL TAXATION............................... 27
STATE AND LOCAL TAXATION....................... 28
REGULATION
GENERAL........................................ 29
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS..... 29
REGULATION OF HOLDING COMPANY.................. 36
FEDERAL SECURITIES LAWS........................ 37
ITEM 2. PROPERTIES......................................... 38
ITEM 3. LEGAL PROCEEDINGS.................................. 39
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 39
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS......................................... 39
ITEM 6. SELECTED FINANCIAL
DATA........................................................ 39
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.......... 39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE......................... 40
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.... 40
ITEM 11. EXECUTIVE COMPENSATION............................. 40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT....................................... 40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..... 40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.......................................... 40
SIGNATURES................................................... 43
PAGE 2
<PAGE>
Statements contained in this Annual Report on Form 10-K relating to plans,
strategies, economic performance and trends, and other statements that are not
descriptions of historical facts may be forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Forward looking information is inherently
subject to various factors which could cause actual results to differ
materially from these estimates. These factors include: changes in general,
economic and market conditions, 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. The Company has no
obligation to update these forward looking statements.
PART I
ITEM 1. BUSINESS
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, on
June 26, 1996, 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 certain of 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
remaining proceeds of $53.4 million were retained by the Company.
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, which 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. See "-Regulation -
Regulation of the Holding Company."
The Company is a unitary savings and loan holding company, which, under
existing law, is generally not restricted as to the types of business
activities in which it may engage, provided that the Bank continues to be a
qualified thrift lender. Under regulations of the Office of Thrift Supervision
("OTS") the Bank is a qualified thrift lender if its ratio of qualified thrift
investments to portfolio assets ("QTL Ratio") is 65% or more, on a monthly
average basis in nine of every twelve months. At June 30, 1997, the Bank's QTL
Ratio was 94.4%, and the Bank has maintained more that 65% of its portfolio
assets in qualified thrift investments in at least nine of the preceding twelve
months.
In the future, the Company may organize or acquire, through merger or
otherwise, other subsidiaries, including other financial institutions, or
branches thereof, or other financial services related companies, although there
are no current arrangements, understandings or agreements regarding any such
acquisition or expansion.
The Company neither owns nor leases any property but instead uses the
premises and equipment of the Bank. At the present time, the Company does not
employ any persons other than certain officers of the Bank who do not receive
any extra compensation as officers of the Company. The Company utilizes the
support staff of the Bank from time to time, as needed. Additional employees
may be hired as deemed appropriate by the management of the Company.
PAGE 3
<PAGE>
Unless otherwise disclosed, the information presented in this Form 10-K
reflect the financial condition and results of operations of the Company and
the Bank on a consolidated basis. At June 30, 1996, the Company had total
consolidated assets of $1.37 billion, which included $131.1 million of excess
proceeds resulting from the oversubscription to the Company's initial public
offering, which was refunded on July 1, 1996. Certain information which
discloses percentages of total assets will include parenthetical disclosure for
"Adjusted Assets," which represents total assets adjusted for the refund of
excess proceeds on July 1, 1996.
The Bank's principal business has been, and continues to be, gathering
deposits from customers within its market area, and investing those deposits,
primarily in multi-family and one- to four-family residential mortgage loans,
mortgage-backed securities, and obligations of the U.S. Government and
Government Sponsored Entities ("GSEs"). The Bank's revenues are derived
principally from interest on its loan and securities portfolios. The Bank's
primary sources of funds are: deposits; loan amortization, prepayments and
maturities; amortization, prepayments and maturities of mortgage-backed and
investment securities; and borrowings, and, to a lesser extent, the sale of
fixed-rate mortgage loans to the secondary market. The Bank is also a member
of the Federal Home Loan Bank of New York ("FHLBNY").
ACQUISITION OF CONESTOGA BANCORP, INC.
On June 26, 1996 the Bank completed the acquisition (the "Acquisition") of
Conestoga Bancorp, Inc. ("Conestoga"), resulting in the merger of Conestoga's
wholly-owned subsidiary, Pioneer Savings Bank, F.S.B. ("Pioneer") with and into
the Bank, with the Bank as the resulting financial institution.
The Acquisition was accounted for in the financial statements using the
purchase method of accounting. Under purchase accounting, the acquired assets
and liabilities of Conestoga are recognized at their fair value as of the date
of the Acquisition. Shareholders of Conestoga were paid approximately $101.3
million in cash, resulting in goodwill of $28.4 million, which is being
amortized on a straight line basis over a twelve year period.
Since the Acquisition occurred on June 26, 1996, its impact upon the
Company's consolidated results of operations for the fiscal year ended June 30,
1996 was minimal The full effect of the Acquisition is reflected in the
Company's consolidated results of operations for the fiscal year ended June 30,
1997, as well the consolidated statements of financial condition as of June 30,
1997 and 1996.
MARKET AREA AND COMPETITION
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 maintains its headquarters in the Williamsburgh
section of the borough of Brooklyn. Fourteen additional offices are located in
the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau County. The Bank
gathers deposits primarily from the communities and neighborhoods in close
proximity to its branches. The Bank's primary lending area is larger, and
includes much of New York City and Nassau County. Most of the Bank's mortgage
loans are secured by properties located in its primary lending area.
The New York City metropolitan area has historically benefited from having a
large number of corporate headquarters and a diversity of financial services
industries. However, due to (1) the lingering effects of the decline of the
stock market in 1987, (2) the resulting decline in the regional economy and (3)
layoffs and corporate relocations in the financial services industry, the New
York City metropolitan area experienced reduced levels of employment and an
overall decline in the underlying values of local properties from 1987 to 1993.
Since then, the local economy has improved significantly. Unemployment has
remained low, home sales have increased, residential apartment and commercial
property vacancy rates have declined considerably, and local real estate values
have stabilized. The rise and decline of the Bank's non-performing asset
portfolio closely parallels the trend of the local economy during this period.
See "- Asset Quality." A strong local economy existed throughout the Company's
entire fiscal year ended June 30, 1997. Despite these encouraging trends, the
outlook for the local economy remains uncertain.
PAGE 4
<PAGE>
The Bank faces significant competition both in making loans and in
attracting deposits. The Bank's market area has a high density of financial
institutions, many of which have greater financial resources than the Bank, and
all of which are competitors of the Bank to varying degrees. The Bank's
competition for loans comes principally from commercial banks, savings banks,
savings and loan associations, mortgage banking companies and insurance
companies. The Bank has recently faced increased competition for the
origination of multi-family loans, which comprised 66.15% Bank's loan portfolio
at June 30, 1997. Management anticipates that competition for both multi-family
and one- to four-family loans will continue to increase in the future. Thus, no
assurances can be made that the Bank will be able to maintain its current level
of such loans. The Bank's most direct competition for deposits has historically
come from savings and loan associations, savings banks, commercial banks and
direct purchases of government securities. The Bank faces additional
competition for deposits from short-term money market funds and other corporate
and government securities funds, and from other financial institutions such as
brokerage firms and insurance companies. Competition may also increase as a
result of the lifting of restrictions on the overall operations of financial
institutions.
LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. The Bank's loan portfolio consists primarily
of multi-family loans secured by apartment buildings (including loans
underlying apartment buildings organized under cooperative form of ownership,
"underlying cooperatives"), conventional first mortgage loans secured primarily
by one- to four-family residences, including condominiums and cooperative
apartment share loans, and non-residential (commercial) property loans. At June
30, 1997, the Bank's loan portfolio totaled $753.7 million. Within the loan
portfolio, $498.5 million or 66.15% were multi-family loans, $191.7 million or
25.44% were loans to finance the purchase of one- to four-family properties and
cooperative apartment share loans, $43.2 million or 5.73% were loans to
finance the purchase of commercial properties, primarily small shopping
centers, warehouses and nursing homes, and $14.2 million or 1.88% were loans to
finance multi-family and residential properties with either full or partial
credit guarantees provided by either the Federal Housing Administration
(''FHA'') or the Veterans' Administration (''VA''). Of the total mortgage loan
portfolio outstanding at that date, 23.48% were fixed-rate loans and 76.52%
were adjustable-rate loans (''ARMs''), of which 78.16% are multi-family and
non-residential property loans which carry a maturity of 10 years, and an
amortization period of no longer than 25 years. These loans have a fixed
interest rate that adjusts after the fifth year indexed to the 5-year FHLBNY
advance rate, but may not adjust below the initial interest rate of the loan.
At June 30, 1997, the Bank's loan portfolio also included $2.8 million in
passbook loans, $1.2 million in home improvement loans, and $2.0 million in
other consumer loans.
The types of loans that the Bank may originate are subject to federal and
state laws and regulations. Interest rates charged by the Bank on loans are
affected principally by the demand for such loans, the supply of money
available for lending purposes, and the rates offered by its competitors. These
factors are, in turn, affected by general and economic conditions, and the
fiscal and monetary policy of the federal government.
PAGE 5
<PAGE>
The following table sets forth the composition of the Bank's mortgage and other
loan portfolios in dollar amounts and percentages at the dates indicated.
<TABLE>
<CAPTION>
AT June 30,
- ------------------------------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
of of of of of
1997 Total 1996<F1> Total 1995 Total 1994 Total 1993 Total
------- ------ ------- ----- ------ ----- ------- ----- ------ -----
(Dollars In Thousands) (Dollars In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans: <F2>
One-to-four family 140,798 18.68% $170,182 29.05% $58,291 13.52% $59,461 13.74% $75,248 16.26%
Multi-family and
underlying cooperative 498,536 66.15 296,630 50.63 252,436 58.56 242,088 55.92 243,803 52.67
Non-residential 43,180 5.73 37,708 6.44 26,972 6.26 26,896 6.21 25,873 5.59
FHA/VA insured 14,153 1.88 16,686 2.85 22,061 5.12 27,264 6.30 33,421 7.22
Cooperative apartment 50,931 6.76 59,083 10.08 67,524 15.67 73,250 16.92 80,469 17.39
------- ------ ------- ----- ------ ----- ------- ----- ------ -----
Total mortgage loans 747,598 99.20 580,289 99.05 427,284 99.13 428,959 99.09 458,814 99.13
------- ------ ------- ----- ------ ----- ------- ----- ------ -----
Other loans:
Student loans 1,005 0.13 1,307 0.22 1,431 0.33 1,506 0.35 1,696 0.37
Passbook savings (secured
by savings and time
deposits) 2,801 0.37 3,044 0.52 1,510 0.35 1,516 0.35 1,375 0.30
Home improvement loans 1,243 0.16 891 0.15 475 0.11 550 0.13 665 0.14
Consumer installment and
other 1,027 0.14 323 0.06 336 0.08 362 0.08 302 0.06
------- ------ ------- ----- ------ ----- ------- ----- ------ -----
Total other loans 6,076 0.80 5,565 0.95 3,752 0.87 3,934 0.91 4,038 0.87
------- ------ ------- ----- ------ ----- ------- ----- ------ -----
Gross loans 753,674 100.00% 585,854 100.00% 431,036 100.00% 432,893 100.00% 462,852 100.00%
------- ====== ------- ====== ------ ====== ------- ====== ------ =====
Less:
Unearned discounts and net
deferred loan fees 3,090 2,168 1,182 1,300 1,434
Allowance for loan losses 10,726 7,812 5,174 3,633 2,996
------- ------- ------ ------- ------
Loans, net $739,858 $575,874 $424,680 $427,960 $458,422
======= ======= ======= ======= =======
Loans serviced for others:
One-to-four family and
cooperative apartment $60,242 $63,360 $63,192 $65,063 $59,403
Multi-family and underlying
cooperative 9,406 27,690 30,264 34,396 44,079
------- ------ ------- ------- ------
Total loans serviced for
others $69,648 $91,050 $93,456 $99,459 $103,482
======= ====== ======= ======= =======
<FN>
<F1> Includes acquisition of $113.1 million loans from Conestoga on June 26,
1996, substantially all of which were one-to-four family loans.
<F2> Includes loans held for sale.
</TABLE>
PAGE 6
<PAGE>
LOAN ORIGINATIONS, PURCHASES, SALES AND SERVICING. The Bank
originates both ARMs and fixed-rate loans, which activity is
dependent upon customer demand and market rates of interest, and
generally does not purchase whole mortgage loans or loan
participations. Generally, the Bank sells all originated one- to
four-family fixed-rate mortgage loans in the secondary market to
the Federal National Mortgage Association (''FNMA''), the Federal
Home Loan Mortgage Corporation (''FHLMC''), the State of New York
Mortgage Agency (''SONYMA'') and other private secondary market
purchasers. ARMs, including adjustable-rate multi-family loans,
and fixed-rate multi-family and non-residential mortgage loans
with maturities up to 15 years, are retained for the Bank's
portfolio. For the fiscal year ended June 30, 1997 origination of
ARMs totaled $198.1 million or 75.5% of all loan originations.
Originations of fixed-rate mortgage loans totaled $64.1 million,
while sales of fixed-rate loans totaled $4.2 million. The Bank
generally sells all fixed-rate loans without recourse and retains
the servicing rights. As of June 30, 1997, the Bank was servicing
$69.6 million of loans for others. The Bank generally receives a
loan servicing fee equal to 0.25% of the outstanding principal
balance for servicing loans sold.
On April 9, 1996, the Bank entered into a Community
Reinvestment Banking Agreement (the ''CRB Agreement'') with a
local, Bronx-based community group. In the CRB Agreement, the Bank
has agreed to use its best efforts, consistent with safe and sound
banking practices, to increase its dollar volume of lending in
certain low and moderate income neighborhoods to at least $46.8
million and a maximum of $86.0 million over the three-year period
ending December 31, 1998. Pursuant to the CRB Agreement, the Bank
also has agreed to use its best efforts to open three automated
teller machines (''ATMs'') in the neighborhoods of East Brooklyn,
Upper Manhattan and the South Bronx in New York City. Consistent
with the CRB Agreement, the Bank has expanded its Community
Reinvestment Act service territory to include the entirety of
Brooklyn, Manhattan and the Bronx. The Bank is in compliance with
all currently applicable provisions of the CRB Agreement.
The following table sets forth the Bank's loan originations,
loan sales and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the Years Ended June 30,
-----------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
-------- -------- -------
(In Thousands)
Loans (gross):
At beginning of period $585,854 $431,036 $432,893
Mortgage loans originated:
One-to-four family 4,279 6,087 5,509
Multi-family and underlying cooperative 245,324 94,379 36,326
Non-residential 11,055 11,764 2,563
Cooperative apartment 1,582 568 888
-------- -------- --------
Total mortgage loans originated 262,240 112,798 45,286
Other loans originated 2,549 2,122 2,115
-------- -------- --------
Total loans originated 264,789 114,920 47,401
-------- -------- --------
Loans acquired from Conestoga <F1> - 113,140 -
Less:
Principal repayments 91,405 67,308 45,988
Loans sold <F2> 4,157 5,740 2,791
Loans transferred from real estate pending
foreclosure - (875) (2,316)
Mortgage loans transferred to Other Real Estate
Owned 1,407 1,069 2,795
-------- -------- --------
Unpaid principal balance at end of period $753,674 $585,854 $431,036
======== ======== ========
<FN>
<F1> Substantially all of these mortgage loans are one-to-four family mortgage
loans.
<F2> Includes fixed-rate mortgage loans and student loans.
</TABLE>
PAGE 7
<PAGE>
LOAN MATURITY AND REPRICING. The following table shows the earlier of
maturity or repricing period of the Bank's loan portfolio at June 30, 1997.
Loans that have adjustable rates are shown as being due in the period during
which the interest rates are next subject to change. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on the Bank's loan portfolio totaled $91.4 million for
the year ended June 30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
--------------------------------------------------------------------------------------------
Mortgage Loans
----------------------------------------------------------------------
Multi-
family and
One-to- Underlying Non- FHA/VA Cooperative Other Total
Four-Family Cooperative Residential Insured Apartment Loans Loans
<S> <C> <C> <C> <C> <C> <C> <C>
------ ---------- ----------- -------- ---------- ------ ------
(In Thousands)
Amount due:
One year or less $44,285 $29,814 $6,577 $- $39,395 $5,055 $125,126
------ -------- -------- ------- -------- ------ -------
After one year:
One to three years 18,864 101,529 7,052 6,947 11,027 1,021 146,440
More than three years to five 2,565 252,905 23,562 - 477 - 279,509
years
More than five years to ten years 16,728 81,880 4,309 152 32 - 103,101
More than ten years to twenty 29,554 32,408 1,159 7,054 - - 70,175
years
Over twenty years 28,802 - 521 - - - 29,323
------ -------- -------- ------- -------- ------ -------
Total due or repricing after one
year 96,513 468,722 36,603 14,153 11,536 1,021 628,548
------ -------- -------- ------- -------- ------ -------
Total amounts due or repricing,
gross $140,798 $498,536 $43,180 $14,153 $50,931 $6,076 $753,674
======= ======== ======== ======= ======== ====== =======
</TABLE>
The following table sets forth the dollar amounts in each loan category at
June 30, 1997 that are due after June 30, 1998, and whether such loans have
fixed or adjustable-interest rates.
Due after June 30, 1998
------------------------------------
Fixed Adjustable Total
--------- --------- ---------
(In Thousands)
Mortgage loans:
One-to-four family $76,311 $20,202 $96,513
Multi-family and underlying
cooperative 76,363 392,359 468,722
Non-residential 8,416 28,187 36,603
FHA/VA insured 14,153 - 14,153
Cooperative apartment 179 11,357 11,536
Other loans - 1,021 1,021
--------- --------- ---------
Total loans $175,422 $453,126 $628,548
========= ========= =========
Multi-family and Non-residential Lending. The Bank originates adjustable-
rate and fixed-rate multi-family (five or more units) and non-residential loans
which are secured primarily by apartment buildings, underlying cooperatives,
mixed-use (residential combined with commercial) and other non-residential
properties, generally located in the Bank's primary lending area. The main
competitors for loans in this market tend to be other small- to medium-sized
local savings institutions. Multi-family and non-residential loans in the
Bank's portfolio generally range in amount from $100,000 to $9.0 million, and
have an average loan size of approximately $672,000. Residential multi-family
loans in this range generally have between 5 and 100 apartments per building.
The Bank had a total of $439.4 million of multi-family loans in its portfolio
on buildings with under 100 units as of June 30, 1997. Mostly as a result of
rent control and rent stabilization, the associated rent rolls for buildings of
this type indicate a rent range that would be considered affordable for low- to
moderate-income households. In addition, at June 30, 1997, the Bank had a total
of $50.9 million in loans secured by mortgages on underlying cooperative
apartment buildings.
PAGE 8
<PAGE>
The Bank originated multi-family loans totaling $245.3 million during the
fiscal year ended June 30, 1997, versus $94.4 million during the year ended
June 30, 1996. At June 30, 1997, the Bank had $115.1 million of commitments
outstanding to originate mortgage loans, which included $6.4 million of
commitments to refinance existing mortgage loans. This compares to $81.2
million of commitments outstanding at June 30, 1996. All the mortgage
commitments outstanding at June 30, 1997 were issued to borrowers within the
Bank's service area, $114.5 million of which are secured by multi-family and
underlying cooperative apartment buildings.
The Bank's current lending policy requires loans in excess of $500,000 to be
approved by the Board of Directors. The Bank also considers the financial
resources and income level of the borrower, the borrower's experience in owning
or managing similar properties, the market value of the property and the Bank's
lending experience with the borrower. The typical adjustable-rate multi-family
loan carries a maturity of 10 years, and an amortization period of no longer
than 25 years. These loans have a fixed interest rate that adjusts after the
fifth year indexed to the 5-year FHLBNY advance rate, but may not adjust below
the initial interest rate of the loan. Prepayment penalties are assessed
throughout the life of the loans. The Bank also offers fixed-rate, self-
amortizing, multi-family and non-residential loans with maturities of up to 15
years.
At June 30, 1997, the Bank had multi-family loans totaling $498.5 million in
its portfolio, comprising 66.2% of the gross loan portfolio. The underwriting
standards for new loans generally require (1) a maximum loan-to-value ratio of
75% based on an appraisal performed by an independent, state-certified
appraiser and (2) sufficient cash flow from the underlying property to
adequately service the debt, represented by a debt service ratio not below
1.15. Of the Bank's multi-family loans, $434.3 million, or 87.1 %, were
secured by apartment buildings, and $64.2 million, or 12.9 % were secured by
underlying cooperatives at June 30, 1997. Multi-family loans are generally
viewed as exposing the Bank to a greater risk of loss than one- to four-family
residential loans and typically involve higher loan principal amounts. At June
30, 1997, the Bank had 141 multi-family and non-residential loans with
principal balances of $1.0 million or more, totaling $276.4 million. These
loans, while underwritten to the same standards as all other multi-family and
non-residential loans, tend to expose the Bank to a higher degree of risk due
to the potential impact of losses from any one loan relative to the size of the
Bank's capital position. As of June 30, 1997, none of these loans were in
arrears nor in the process of foreclosure. See ''- Asset Quality.''
Loans secured by apartment buildings and other multi-family residential
properties are generally larger and involve a greater degree of risk than
one-to-four family mortgage loans. Repayment of multi-family loans is
dependent, in large part, on sufficient cash flow from the property to cover
operating expenses and debt service. Economic events and government
regulations, such as rent control and rent stabilization laws, which are
outside the control of the borrower or the Bank, could impair the value of the
security for the loan or the future cash flow of such properties. As a result,
rental income might not rise sufficiently over time to meet increases in the
loan rate at repricing, or increases in overhead expenses (I.E., utilities,
taxes). During the last five fiscal years, the Bank's charge-offs related
to its multi-family loan portfolio totaled $6.2 million. As of June 30,
1997, the Bank had $1.6 million of non-performing multi-family loans.
See "- Asset Quality and - Allowance for Loan Losses" for discussions of the
Bank's underwriting procedures utilized in originating multi-family loans.
The Bank's loan portfolio also includes $43.2 million in non-residential
real estate mortgage loans which represented 5.73% of gross loans at June 30,
1997. This portfolio is comprised of commercial and industrial properties, and
shopping centers. The Bank utilizes, where appropriate, rent or lease income,
business receipts, the borrowers' credit history and business experience, and
comparable appraisal values when underwriting non-residential applications. As
of June 30, 1997, there were no non-performing non-residential loans in the
Bank's portfolio. Like multi-family loans, the repayment of non-residential
real estate mortgage loans is dependent, in large part, upon sufficient cash
flows from the property to cover operating expenses and debt service. For this
reason, non-residential real estate mortgage loans are considered to include
greater risk than one-to-four family residential loans.
PAGE 9
<PAGE>
The Bank's three largest loans at June 30, 1997, consisted of a $9.0 million
loan secured by a first mortgage on a 276 unit apartment building located in
midtown Manhattan originated in May, 1997; an $8.5 million first mortgage loan,
originated in June, 1997, secured by a 631 unit apartment building located in
the Forest Hills section of Queens; and a $7.2 million first mortgage loan,
originated in February, 1997, secured by a 306 unit apartment building located
in the Borough Park section of Brooklyn. As of June 30, 1997, all of these
loans were performing in accordance with their terms. See "-Regulation of
Federal Savings Associations - Loans to One Borrower." While the loans are
current, their large loan balance does subject the Bank to a greater potential
loss in the event of non-compliance by the borrower.
The Bank also currently services a total of $9.4 million in multi-family
loans for various private investors. These loans were sold in the late 1980s,
without recourse.
ONE- TO FOUR-FAMILY MORTGAGE AND COOPERATIVE APARTMENT LENDING. The Bank
offers residential first mortgage loans secured primarily by owner-occupied,
one-to four-family residences, including condominiums, and cooperative
apartment share loans. Lending is primarily confined to an area covered by a
50-mile radius from the Bank's Main Office in Brooklyn. The Bank offers
conforming and non-conforming fixed-rate mortgage loans and adjustable-rate
mortgage loans with maturities of up to 30 years and a maximum loan amount of
$500,000. The Bank's residential mortgage loan originations are generally
obtained from existing or past loan customers, depositors of the Bank, members
of the local community and referrals from attorneys, realtors and independent
mortgage brokers who refer members of the communities located in the Bank's
primary lending area. The Bank is a participating seller/servicer with several
government-sponsored mortgage agencies: FNMA, FHLMC, and SONYMA, and generally
underwrites its one- to four-family residential mortgage loans to conform with
standards required by these agencies. Although the collateral for cooperative
apartment loans is comprised of shares in a cooperative corporation (a
corporation whose primary asset is the underlying real estate), cooperative
apartment loans generally are treated as one- to four-family loans. The Bank's
portfolio of such loans is $50.9 million, or 6.76% of total loans as of June
30, 1997. The recent market for cooperative apartment loan financing has
improved with the support of certain government agencies, particularly SONYMA
and FNMA, who are insuring and purchasing, respectively, cooperative apartment
share loans in qualifying buildings. The Bank adheres to underwriting
guidelines established by SONYMA and FNMA for all fixed-rate cooperative
apartment loans which are originated for sale. Adjustable-rate cooperative
apartment loans continue to be originated both for portfolio and for sale.
At June 30, 1997, $191.7 million, or 25.44%, of the Bank's loans consisted of
one-to four- family and cooperative apartment mortgage loans. ARMs represented
60.89% of total one- to four-family and cooperative apartment loans, while
fixed-rate mortgages comprised 39.11% of the total. A large portion of these
fixed rate mortgages were acquired from Conestoga. See "- Acquisition of
Conestoga." The Bank currently offers one- to four-family and cooperative
apartment mortgage ARMs secured by residential properties with rates that
adjust every one or three years. One- to four-family ARMs are offered with
terms of up to 30 years. The interest rate at repricing on one- to four-family
ARMs currently offered fluctuates based upon a spread above the average yield
on United States Treasury securities, adjusted to a constant maturity which
corresponds to the adjustment period of the loan (the ''U.S. Treasury constant
maturity index'') as published weekly by the Federal Reserve Board.
Additionally, one- and three-year one- to four-family ARMs are generally
subject to limitations on interest rate increases of 2% and 3%, respectively,
per adjustment period, and an aggregate adjustment of 6% over the life of the
loan. For the year ended June 30, 1997, the Bank originated $2.6 million of
one- to four-family and cooperative apartment mortgage ARMs.
The volume and types of ARMs originated by the Bank have been affected by
such market factors as the level of interest rates, competition, consumer
preferences and availability of funds. During fiscal 1997, demand for one- to
four-family ARMs was relatively weak due to the prevailing low interest rate
environment and consumer preference for fixed-rate loans. Accordingly, although
the Bank will continue to offer one- to four-family ARMs, there can be no
assurance that in the future the Bank will be able to originate a sufficient
volume of one- to four-family ARMs to increase or maintain the proportion that
these loans bear to total loans.
PAGE 10
<PAGE>
The retention of one- to four-family and cooperative apartment mortgage
ARMs, as opposed to fixed-rate residential mortgage loans, in the Bank's loan
portfolio helps reduce the Bank's exposure to increases in interest rates.
However, one- to four-family ARMs generally pose credit risks different from
the risks inherent in fixed-rate loans, primarily because as interest rates
rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. At the same time, the marketability of the underlying
property may be adversely affected. In order to minimize risks, applicants for
one- to four-family ARMs are qualified at the highest rate which would be in
effect after the first interest rate adjustment, if rates were to rise. The
Bank has not in the past, nor does it currently, originate one- to four-family
ARMs which provide for negative amortization.
The Bank currently offers fixed-rate mortgage loans with terms of 10 to 30
years secured by one- to four-family residences and cooperative apartments.
Interest rates charged on fixed-rates loans are competitively priced based on
market conditions. The Bank generally originates fixed-rate loans for sale in
amounts up to the maximum allowed by FNMA, FHLMC and SONYMA, with private
mortgage insurance required for loans with loan-to-value ratios in excess of
80%. For the year ended June 30, 1997, the Bank originated $3.3 million of
fixed-rate, one- to four-family residential mortgage and cooperative apartment
loans.
The Bank generally sells its newly originated conforming fixed-rate mortgage
loans in the secondary market to federal and state agencies such as FNMA, FHLMC
and SONYMA, and its non-conforming fixed-rate mortgage loans to various private
sector secondary market purchasers. With few exceptions, such as SONYMA, the
Bank retains the servicing rights on all such loans sold. For the year ended
June 30, 1997, the Bank sold mortgage loans totaling $3.3 million. As of June
30, 1997, the Bank's portfolio of one-to four-family fixed-rate mortgage loans
serviced for others totaled $60.2 million. The Bank intends to continue to sell
all of its newly-originated fixed-rate mortgage loans to conform to its
interest-rate risk policy. No assurances can be made, however, that the Bank
will be able to do so.
Originated mortgage loans in the Bank's one-to-four family portfolio
generally include due-on-sale clauses which provide the Bank with the
contractual right to deem the loan immediately due and payable in the event
that the borrower transfers ownership of the property without the Bank's
consent. It is the Bank's policy to enforce due-on-sale provisions within the
applicable regulations and guidelines imposed by New York law and secondary
market purchasers.
Home equity loans currently are originated to a maximum of $250,000. When
combined with the balance of the first mortgage lien, the home equity loan may
not exceed 75% of the appraised value of the property at the time of the loan
commitment. The Bank's home equity loans outstanding at June 30, 1997, totaled
$1.2 million against total available credit lines of $1.8 million.
OTHER LENDING. The Bank also originates other loans, primarily student and
passbook loans. Total other loans outstanding at June 30, 1997, amounted to
$6.1 million, or 0.80%, of the Bank's loan portfolio. Passbook loans, totaling
$2.8 million, and home improvement loans, totaling $1.2 million, comprise the
majority of the Bank's other loan portfolio.
LOAN APPROVAL AUTHORITY AND UNDERWRITING. The Board of Directors
establishes lending authorities for individual officers as to its various types
of loan products. For multi-family and one- to four-family mortgage loans,
including cooperative apartment and condominium loans, the Loan Operating
Committee, which is comprised of the Chief Executive Officer, President, and
Executive Vice President, and the heads of both the residential loan and multi-
family loan origination departments, has the authority to approve loans in
amounts up to $500,000. Any loan in excess of $500,000, however, must be
approved by the Board of Directors. In addition, regulatory restrictions
imposed on the Bank's lending activities limit the amount of credit that can be
extended to any one borrower to 15% of total capital. See ''- Regulation -
Regulation of Federal Savings Associations - Loans to One Borrower.''
For all one- to four-family loans originated by the Bank, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered, income, assets and certain other information are verified by an
independent credit agency, and if necessary, additional financial information
is required to be submitted by the borrower. An appraisal of the real estate
intended to secure the proposed loan is required, which currently is performed
by an independent appraiser designated and approved by the Board of Directors.
In certain cases, the Bank may also require certain environmental hazard
reports on multi-family properties. It is the Bank's policy to require
appropriate insurance protection, including title and hazard insurance, on all
real estate mortgage loans prior to closing. Borrowers generally are required
to advance funds for certain items such as real estate taxes, flood insurance
and private mortgage insurance, when applicable.
PAGE 11
<PAGE>
ASSET QUALITY
DELINQUENT LOANS AND FORECLOSED ASSETS. Management does not expect to
incur significant losses on its current portfolio of delinquent mortgage loans.
Loans in the process of foreclosure and other non-accrual loans, 88 loans in
all, totaled $3.2 million at June 30, 1997 versus $6.6 million at June 30,
1996. The largest loan in this group is a $672,000 foreclosure on an underlying
cooperative apartment building located in Manhattan. The Bank believes that its
allowance for loan losses as of June 30, 1997 is adequate. The Bank had 33
loans totaling $603,000 delinquent 60-89 days at June 30, 1997, as compared to
33 such delinquent loans totaling $2.3 million at June 30, 1996.
The Bank's real estate loan servicing policies and procedures require that
the Bank initiate contact with a delinquent borrower as soon after the tenth
day of delinquency as possible. Generally, the policy calls for a late notice
to be sent 10 days after the due date of the late payment. If payment has not
been received within 30 days of the due date, a letter is sent to the borrower.
Thereafter, periodic letters and phone calls are placed to the borrower until
payment is received. In addition, Bank policy calls for the cessation of
interest accruals on loans delinquent 60 days or more. When contact is made
with the borrower at any time prior to foreclosure, the Bank will attempt to
obtain the full payment due, or work out a repayment schedule with the borrower
to avoid foreclosure. Generally, foreclosure proceedings are initiated by the
Bank when a loan is 90 days past due. If a foreclosure action is instituted and
the loan is not brought current, paid in full, or refinanced before the
foreclosure sale, the real property securing the loan is generally sold at
foreclosure or by the Bank as soon thereafter as practicable.
Management reviews delinquent loans on a continuous basis and reports
monthly to the Board of Directors regarding the status of all delinquent and
non-accrual loans in the Bank's portfolio. The Bank retains outside counsel
experienced in foreclosure and bankruptcy procedures to institute foreclosure
and other actions on the Bank's delinquent loans. It is the policy of the Bank
to initiate foreclosure proceedings after a loan becomes 90 days past due. As
soon as practicable after initiating foreclosure proceedings on a loan, the
Bank prepares an estimate of the fair value of the underlying collateral. It
is the Bank's general policy to dispose of properties acquired through
foreclosure or deeds in lieu thereof as quickly and as prudently as possible in
consideration of market conditions, the physical condition of the property, and
any other mitigating conditions.
The continued adherence to these procedures, as well as a strong local real
estate market resulted in a significant drop in problem loans in the Bank's
portfolio during the fiscal year ended June 30, 1997. Evidence of this is
reflected in declines in both non-performing loans and loans delinquent 60-89
days. Non-performing loans totaled $3.2 million at June 30, 1997 as compared
to $6.6 million at June 30, 1996. The Bank had 33 loans totaling $603,000
million delinquent 60-89 days at June30, 1997, as compared to 33 such
delinquent loans totaling $2.3 million at June 30, 1996.
Under Generally Accepted Accounting Principles ("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 June 30, 1997, totaling $4.7 million, and all
are currently performing according to their restructured terms. The largest
restructured debt, a $2.7 million loan secured by a mortgage on an underlying
cooperative apartment building located in Forest Hills, New York, was
originated in 1987. The loan was first restructured in 1988, and again in 1994.
The current regulations of the Office of Thrift Supervision require that
troubled-debt restructurings remain classified as such until either the loan is
repaid or returns to its original terms. The Bank did not incur any new loan
restructurings during the fiscal year ended June 30, 1997. All four troubled-
debt restructurings as of June 30, 1997 are on accrual status as they have been
performing in accordance with the restructuring terms for over one year.
PAGE 12
<PAGE>
Effective July 1, 1995, the Bank adopted SFAS 114, which established guidelines
for determining and measuring impairment in loans. In the event the carrying
balance of the loan, including all accrued interest, exceeds the estimate of
fair value, the loan is considered to be impaired and a reserve is established
pursuant to SFAS 114. Generally, the Bank considers non-performing loans to be
impaired loans. The recorded investment in loans deemed impairment under the
guidance of SFAS 114 was approximately $4.3 million as of June 30, 1997,
compared to $7.4 million at June 30, 1996, and the average balance of impaired
loans was $4.7 million for the year ended June 30, 1997 compared to $6.7
million for the year ended June 30, 1996. The impaired portion of these loans
is represented by specific reserves totaling $122,000 allocated within the
allowance for loan losses at June 30, 1997. At June 30, 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 June 30, 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 June
30, 1997. At June 30, 1997, approximately $1.6 million of one-to-four family
and cooperative apartment loans on nonaccrual status are not deemed impaired
under SFAS 114. All of these loans have outstanding balances less than
$203,000, and are considered a homogeneous loan pool not covered by SFAS 114.
PAGE 13
<PAGE>
NON-PERFORMING ASSETS AND TROUBLED-DEBT RESTRUCTURINGS. The following
table sets forth information regarding the Bank's non-performing assets and
troubled-debt restructurings at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
--------- --------- --------- --------- --------
(Dollars In Thousands)
Non-performing loans:
One-to-four family $1,123 $1,149 $572 $1,276 $3,449
Multi-family and underlying
cooperative 1,613 4,734 3,978 4,363 7,265
Non-residential - - - - -
Cooperative apartment 415 668 523 609 918
Other loans 39 - - - -
--------- --------- --------- --------- ---------
Total non-performing loans 3,190 6,551 5,073 6,248 11,632
Total Other Real Estate Owned 1,697 1,946 4,466 8,200 7,981
--------- --------- --------- --------- ---------
Total non-performing assets $4,887 $8,497 $9,539 $14,448 $19,613
========= ========= ========= ========= =========
Troubled-debt restructurings $4,671 $4,671 $7,651 $7,421 $5,219
Total non-performing assets and
troubled-debt restructurings $9,558 $13,168 $17,190 $21,869 $24,832
========= ========= ========= ========= =========
Impaired loans <F1> $4,294 $7,419 $- $- $-
Total non-performing loans to total
loans 0.43% 1.12% 1.18% 1.45% 2.52%
Total non-performing assets to total
assets <F2> 0.37 0.62 1.44 2.23 3.04
Total non performing assets and
troubled-debt restructurings to
total assets <3> 0.73 0.96 2.59 3.38 3.84
<FN>
<F1> The Bank adopted SFAS 114 effective July 1, 1995. Impaired loans were not
measured prior to this date.
<F2> Total non-performing assets to total Adjusted Assets were 0.68% at June
30, 1996.
<F3> Total non-performing assets and troubled-debt restructurings to total
Adjusted Assets were 1.06% at June 30, 1996.
</TABLE>
The Bank recorded $188,000 and $357,000 of interest income on non-performing
loans and troubled-debt restructurings, respectively, for the year ended June
30, 1997, and $47,000 and $344,000, respectively, for the fiscal year ended
June 30, 1996. If the Bank's non-performing loans and troubled-debt
restructurings had been performing in accordance with their terms, the Bank
would have recorded additional interest income of $247,000 and $114,
respectively, for the year ended June 30, 1997, and $410,000 and $127,000,
respectively, for the fiscal year ended June 30, 1996.
OTHER REAL ESTATE OWNED ("OREO"). Property acquired by the Bank as a result
of a foreclosure on a mortgage loan is classified as OREO and is recorded at
the lower of the recorded investment in the related loan or the fair value of
the property at the date of acquisition, with any resulting write down charged
to the allowance for loan losses. The Bank obtains an appraisal on a real
estate owned property as soon as practicable after it takes possession of the
real property. The Bank will generally reassess the value of OREO at least
annually thereafter. At June 30, 1997, the Bank had $1.7 million in OREO.
CLASSIFIED ASSETS. The Bank's Loan Loss Reserve Committee meets every other
month to review all problem loans in the portfolio to determine whether any
loans require reclassification in accordance with applicable regulatory
guidelines. Recommendations are reported by the Loan Loss Reserve Committee to
the Board of Directors on a quarterly basis. The Loan Loss Reserve Committee,
subject to Board approval, establishes policy relating to the internal
classification of loans and believes that its classification policies are
consistent with regulatory policies. All non-performing loans and OREO are
considered to be classified assets. In addition, the Bank maintains a "watch
list" comprised of 25 loans totaling $4.9 million at June 30, 1997 which, while
performing, are characterized by weaknesses which require special attention
from management and are considered to be potential problem loans. All loans on
the watch list are considered to be classified assets or are otherwise
categorized as "Special Mention" as discussed below. As a result of its bi-
monthly review of the loan portfolio, the Loan Loss Reserve Committee may
decide to reclassify one or more of the loans on the watch list.
PAGE 14
<PAGE>
Federal regulations and Bank policy require that loans and other assets
considered to be of lesser quality be classified as ''Substandard,''
''Doubtful'' or ''Loss'' assets. An asset is considered ''Substandard'' if it
is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. ''Substandard'' assets have a
well-defined weakness or weaknesses and are characterized by the distinct
possibility that the Bank will sustain ''some loss'' if deficiencies are not
corrected. Assets classified as ''Doubtful'' have all of the weaknesses
inherent in those classified ''Substandard'' with the added characteristic that
the weaknesses present make ''collection or liquidation in full,'' on the basis
of current existing facts, conditions, and values, ''highly questionable and
improbable.'' Assets classified as ''Loss'' are those considered
''uncollectible'' and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not expose the Bank to sufficient risk to warrant classification in
one of the aforementioned categories but possess potential weaknesses that
deserve management's attention are designated ''Special Mention'' by
management. At June 30, 1997 the Bank had $7.7 million of loans designated
Special Mention.
When an insured institution classifies one or more assets, or portion
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
Generally, federally-insured institutions must maintain an allowance for loan
losses at a level that is ''adequate to absorb estimated credit losses
associated with the loan portfolio.'' The general valuation allowance, which is
a regulatory term, represents a loss allowance which has been established to
recognize the inherent risk associated with lending activities, but which,
unlike the specific allowance, has not been allocated to particular problem
assets. When an insured institution classifies one or more assets, or
proportions thereof, as ''Loss,'' it is required to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge-off such amount.
At June 30, 1997, the Bank had $4.5 million of assets classified
Substandard, consisting of 55 loans, no assets classified as doubtful, and
$89,000 of assets classified as Loss, consisting of 2 loans.
PAGE 15
<PAGE>
The following table sets forth at June 30, 1997 the Bank's aggregate
carrying value of the assets classified as Substandard, Doubtful or Loss or
designated as Special Mention.
<TABLE>
<CAPTION>
Special Mention Substandard Doubtful Loss
------------------- ------------------- ------------------- ------------------
Number Amount Number Amount Number Amount Number Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------ ------ ------ ------
(Dollars In Thousands)
Mortgage Loans:
One-to-four family 6 $738 14 $1,640 - $- - $-
Multi-family and
underlying
cooperative 15 6,321 2 642 - - 2 89
Non-residential - - 2 78 - - - -
Cooperative apartment 10 593 5 394 - - - -
------ ------ ------ ------ ------ ------ ------ ------
Total Mortgage Loans 31 7,652 23 2,754 - - 2 89
------ ------ ------ ------ ------ ------ ------ ------
Other Real Estate Owned:
One-to-four family - - 1 328 - - - -
Multi-family and - -
underlying cooperative - - 1 713 - -
Non-residential - - - - - - - -
Cooperative apartment - - 20 656 - - - -
------ ------ ------ ------ ------ ------ ------ ------
Total Other Real Estate
Owned - - 22 1,697 - - - -
------ ------ ------ ------ ------ ------ ------ ------
Total 31 $7,652 55 $4,451 - $- 2 $89
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
ALLOWANCE FOR LOAN LOSSES
The Bank has established a Loan Loss Reserve Committee and has charged it
with, among other things, specific responsibility for monitoring the adequacy
of the loan loss reserve. The Loan Loss Reserve Committee's findings, along
with recommendations for additional loan loss reserve provisions, if any, are
reported directly to senior management of the Bank, and to the Board of
Directors. The Allowance for Loan Losses is supplemented through a periodic
provision for loan losses based on the Loan Loss Reserve Committee's evaluation
of several variables, including the level of non-performing loans, the ratio of
reserves to total performing loans, the level and composition of new loan
activity, and an estimate of future losses determinable at the date the
portfolio is evaluated. Such evaluation, which includes a review of all loans
on which full collectibility may not be reasonably assured, considers among
other matters, the fair value of the underlying collateral, economic
conditions, historical loan loss experience and other factors that warrant
recognition in providing for an adequate loan loss allowance. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses, its valuation of
OREO, and both the level of loans in foreclosure and pending foreclosure. Based
on their judgments about information available to them at the time of their
examination, the regulators may require the Bank to recognize additions to the
allowance.
Loan loss reserves are established based upon a review of the two components
of the Bank's loan portfolio, performing loans and non-performing loans.
Performing loans are reviewed based upon the premise that, over time, the loan
portfolio will generate losses and that some portion of the loan portfolio
which is currently performing will default. The evaluation process is thus
based upon the Bank's historical loss experience.
Non-performing loans are reviewed individually to determine if the
liquidation value of the underlying collateral is sufficient to pay off the
existing debt. Should the bank determine that a non-performing loan is likely
to result in a principal loss, the loan is then placed into one of four
classifications. The particular classification assigned to any one loan, or
proportion thereof, (loss, doubtful, substandard or special mention) is based
upon the actual level of loss attributable to that loan, as determined by the
Loan Loss Reserve Committee. The Bank will then increase its general valuation
allowance in an amount established by the Loan Loss Reserve Committee to
appropriately reflect the anticipated loss from each loss classification
category.
PAGE 16
<PAGE>
Specific reserves are established against loans classified as ''loss.''
Rather than an estimation of potential loss, the establishment of a specific
reserve represents the identification of an actual loss which will result in a
charge-off. This loss amount will be set aside on the Bank's balance sheet as a
specific reserve and will serve to reduce the carrying value of the associated
loan. The Bank's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review by various regulatory
agencies which can order the establishment of additional general or specific
loss allowances.
The Bank has increased its allowance for loan losses to a level which
management believes is adequate to absorb possible losses that may be incurred
within the Bank's loan portfolio. The Bank provided $4.2 million to its
allowance for loan losses for the fiscal year ended June 30, 1997. At June 30,
1997, the total allowance was $10.7 million, which amounted to 336.24% of non-
performing loans and 1.43% of total loans. The increase in the allowance
reflects management's assessment of the risks inherent in its loan portfolio,
including those risks associated with the Bank's emphasis on multi-family
mortgage loans, which are considered to be at greater risk of loss than one- to
four-family loans. The Bank will continue to monitor and modify the level of
its allowance for loan losses in order to maintain such allowance at a level
which management considers adequate to provide for loan losses. For the fiscal
year ended June 30, 1997, the Bank had charge-offs, net of recoveries, of $1.3
million against the allowance. Since 1985, total principal losses attributable
to the Bank's loan portfolio have averaged 0.18% of the average outstanding
loan balance.
PAGE 17
<PAGE>
The following table sets forth activity in the Bank's allowance for loan
losses at or for the dates indicated.
<TABLE>
<CAPTION>
At or for the Year Ended June 30,
------------------------------------------------------
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
-------- -------- -------- -------- --------
(Dollars In Thousands)
Total loans outstanding at end of period <F1> $750,584 $583,686 $429,854 $431,593 $461,418
======== ======== ======== ======== ========
Average total loans outstanding <F1> $648,357 $449,063 $430,845 $455,705 474,362
======== ======== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period $7,812 $5,174 $3,633 $2,996 $2,094
Provision for loan losses 4,200 2,979 2,950 4,105 3,395
Charge-offs
One-to-four family (104) (21) (146) (224) (272)
Multi-family and underlying cooperative (985) (553) (1,081) (2,203) (1,355)
Non-residential - (274) (92) - (19)
FHA/VA insured - - (9) - (13)
Cooperative apartment (276) (170) (328) (1,109) (876)
Other (23) (5) - - -
-------- -------- -------- -------- -------
Total charge-offs (1,388) (1,023) (1,656) (3,536) (2,535)
-------- -------- -------- -------- -------
Recoveries 102 14 247 68 42
-------- -------- -------- -------- -------
Reserve acquired in purchase of Conestoga - 668 - - -
-------- -------- -------- -------- -------
Balance at end of period $10,726 $7,812 $5,174 $3,633 $2,996
======== ======== ======== ======== =======
Allowance for loan losses to total loans
at end of period 1.43% 1.34% 1.20% 0.84% 0.65%
Allowance for loan losses to total non-
performing loans at end of period <F2> 336.24 119.25 101.99 58.15 25.76
Ratio of net charge-offs to average
loans outstanding during the period 0.20 0.22 0.33 0.76 0.53
ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE
OWNED:
Balance at beginning of period $114 $- $- $- $-
Provision charged to operations 450 586 - - -
Charge-offs, net of recoveries (377) (472) - - -
-------- -------- -------- -------- --------
Balance at end of period $187 $114 $- $- $-
======== ======== ======== ======== ========
<F1> Total loans represents loans, net, plus the allowance for loan losses.
Total loans at June 30, 1996 includes $113.1 million of loans acquired
from Conestoga.
<F2> The Bank adopted SFAS No. 114 on July 1, 1995. See ''Management's
Discussion and Analysis of Financial Condition and Results of Operations-
Impact of Accounting Standards.''
</TABLE>
PAGE 18
<PAGE>
The following table sets forth the Bank's allowance for loan losses
allocated by loan category and the percent of loans in each category to total
loans at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------- --------------------- ---------------------- ---------------------- --------------------
Percent Percent Percent Percent Percent
of Loans of Loan of Loans of Loan of Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
Allowance to Total Allowance to Total Allowance to Total Allowance to Total Allowance to Total
Amount Loans<F1> Amount Loans<F1> Amount Loans<F1> Amount Loans<F1> Amount Loans<F1>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------- ------ ------- ------ ------- ------ ------- ------ ------- -------
(Dollars In thousands)
Impaired
loans <F2> $122 0.58% $955 1.30% $- -% $- -% $- -%
One-to-four
family 820 19.04 1,171 29.90 556 14.25 398 14.66 391 17.52
Multi-family
and
underlying 7,398 66.83 3,808 50.81 3,372 61.72 2,267 59.68 1,773 56.77
cooperative
Non-
residential 862 5.84 605 6.63 103 6.60 72 6.63 54 6.02
Cooperative
apartment 1,355 6.89 1,085 10.38 1,031 16.51 784 18.06 669 18.75
Other 169 0.82 188 0.98 112 0.92 112 0.97 109 0.94
-------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total $10,726 100.00% $7,812 100.00% $5,174 100.00% $3,633 100.00% $2,996 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
<FN>
<F1> Total loans represent gross loans less FHA and VA loans, which are
government guaranteed loans.
<F2> The Bank adopted SFAS 114 effective July 1, 1995. Prior to this date,
impaired loans were not measured. At June 30, 1997 and 1996, impaired
loans represent 0.57% and 1.27% of total loans.
</TABLE>
INVESTMENT ACTIVITIES
INVESTMENT STRATEGIES OF THE COMPANY - The Company's
principal asset is its investment in the Bank's common
stock, which amounted to $152.2 million at June 30, 1997
The Company's other investments at that date totaled $28.4
million, which are invested primarily in U.S. agency
obligations which will be utilized for general business
activities which may include, but are not limited to: (1)
repurchases of Common Stock, (2) acquisition of other
companies, (3) subject to applicable limitations, the
payment of dividends, and/or (4) investments in the equity
securities of other financial institutions and other
investments not permitted for federally-insured
institutions. There can be no assurance that the Company
will engage in any of these activities in the future.
Otherwise, the investment policy of the Company calls
for investments in relatively short-term, liquid securities
similar to such securities defined in the securities
investment policy of the Bank.
INVESTMENT POLICY OF THE BANK. The securities
investment policy of the Bank, which is established by its
Board of Directors, is designed to help the Bank achieve
its overall asset/liability management objectives.
Generally, the policy calls for management to emphasize
principal preservation, liquidity, diversification, short
maturities and/or repricing terms, and a favorable return
on investment when selecting new investments for the Bank's
portfolio. The Bank's current securities investment policy
permits investments in various types of liquid assets
including obligations of the U.S. Treasury and federal
agencies, investment grade corporate obligations, various
types of mortgage-backed securities, commercial paper,
certificates of deposit, and federal funds sold to select
financial institutions periodically approved by the Board
of Directors.
PAGE 19
<PAGE>
Investment strategies are implemented by the Asset and
Liability Management Committee ("ALCO") comprised of the
Chief Executive Officer, President, Executive Vice
President and other senior management officers. The
strategies take into account the Bank's overall balance
sheet, including loans and deposits, and are intended to
protect and enhance the Company's earnings and market
value. The strategies are reviewed monthly by the ALCO and
reported regularly to the Board of Directors.
The Bank currently does not participate in hedging
programs, interest rate swaps, or other activities
involving the use of off-balance sheet derivative financial
instruments. These activities are prohibited by the Bank's
securities investment policy. Similarly, the Bank has not
and does not invest in mortgage-backed securities which are
deemed to be ''high risk,'' or purchase bonds which are not
rated investment grade.
MORTGAGE-BACKED SECURITIES. In its securities
investment activities over the past few years the Company
has increased its purchases of mortgage-backed securities,
which provide the portfolio with investments consisting of
desirable repricing, cash flow and credit quality
characteristics. Mortgage-backed securities generally yield
less than the loans that underlie the securities because of
the cost of payment guarantees and credit enhancements that
reduce credit risk to the investor. While mortgage-backed
securities backed by federally sponsored agencies carry a
reduced credit risk as compared to whole loans, such
securities remain subject to the risk that fluctuating
interest rates, along with other factors such as the
geographic distribution of the underlying mortgage loans,
may alter the prepayment rate of such mortgage loans and so
affect both the prepayment speed, and value, of such
securities. However, mortgage-backed securities are more
liquid than individual mortgage loans and may be used to
collateralize borrowings of the Company. Approximately
98.40% of the Company's $308.5 million mortgage-backed
securities portfolio, which represented 23.46% of the
Company's total assets at June 30, 1997, was comprised of
securities backed by either the Governmental National
Mortgage Association (''GNMA''), FHLMC, or FNMA. In
addition to the superior credit quality provided by the
agency backing, the mortgage-backed securities portfolio
also provides the Company with important interest rate risk
management features. One year adjustable-rate mortgage-
backed securities, which total $86.9 million, are the
single largest component of the Company's mortgage-backed
securities portfolio. These securities are structured so
that the interest rate received by the Company adjusts
annually in tandem with changes in other short-term market
interest rates, a feature which reduces the Company's
exposure to interest rate risk. The Company also has a
$85.6 million investment in fixed-rate balloon mortgage-
backed securities which provide a return of principal and
interest on a monthly basis, and have original maturities
of between five to seven years, at which point the entire
remaining principal balance is repaid (the ''balloon''
payment). The remainder of the Company's mortgage-backed
securities portfolio is split between a $15.5 million
investment in seasoned pass-through certificates backed by
GNMA, FNMA or FHLMC, with an average remaining maturity of
7 years, $43.6 million in 15 or 30 year fixed rate FNMA or
GNMA securities, and an $76.9 million of Collateralized
Mortgage Obligations ("CMOs") comprised entirely of fixed
rate, short-term classes with relatively little cash flow
volatility or floating rate classes which reprice
periodically.
At June 30, 1997, the Bank has $72.5 million in CMOs and
REMICSs. All of the securities are undewritten by U.S
agency obligations or highly reputable financial
institutions. In addition, none of these securities have
stripped principal and interest components and the Bank is
positioned in priority tranches in all securities. The
majority of these securities have been purchased from
short-term borrowings as part of securities sold under
agreement to repurchase transactions, in which these
securities act as collateral for the borrowed funds. As of
June 30, 1997, the fair value of these securities equal or
exceed their cost basis.
The Bank adopted SFAS 115 effective July 1, 1994. SFAS
115 requires that investments in equity securities that
have readily determinable fair values and all investments
in debt securities be classified in one of the following
three categories and accounted for accordingly: trading
securities, securities available for sale, or securities
held to maturity. The Company had no securities
classified as trading securities during the year ended
June 30, 1996, and does not intend to trade securities.
Unrealized gains and losses on available for sale
securities are excluded from earnings and are reported as a
separate component of stockholders' equity, net of deferred
taxes. At June 30, 1997, the Company had $288.8 million of
securities classified as available for sale which
represented 21.96% of total assets at June 30, 1997. Given
the size of the available for sale portfolio, future
fluctuations in market values of these securities could
result in fluctuations in the Company's stockholders'
equity.
PAGE 20
<PAGE>
The maturities on the Bank's fixed-term mortgage-backed
securities (balloons, seasoned GNMAs and FHLMCs) are
relatively short as compared to the final maturities on its
ARMs and CMO portfolios. Except for fixed rate mortgage
backed securities acquired from Conestoga, which were
generally classified as available for sale, the Company
typically classifies purchased fixed rate mortgage-backed
securities as held-to-maturity, and carries the securities
at amortized cost. The Company is confident of its ability
to hold these securities to final maturity. The Company
typically classifies purchased ARMs and CMOs as available
for sale, in recognition of the greater prepayment
uncertainty associated with these securities, and carries
these securities at fair market value.
The following table sets forth activity in the Company's
mortgage-backed securities portfolio for the periods
indicated.
For the Year Ended June 30,
-----------------------------------
1997 1996 1995
--------- --------- ---------
(In Thousands)
Amortized cost at beginning of period $209,542 $90,543 $94,356
Purchases/ Sales (net) 137,889 20,743 10,067
Principal repayments (41,021) (25,871 (13,595)
Premium and discount amortization, net (246) (282 (285)
Securities acquired in purchase of Conestoga(1) - 124,409 -
--------- --------- ---------
Amortized cost at end of period 306,164 $209,542 $90,543
========= ========= =========
(1) Amount comprised of $9.9 million of FHLMC securities, $38.4 million of
FNMA securities, $70.1 of GNMA securities, and $6.0 million of CMOs.
The following table sets forth the amortized cost and fair
value of the Company's securities at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------------------------------
1997 1996 <F1> 1995
---------------------------- ----------------------------- ------------------------
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C> <C> <C>
--------- --------- --------- --------- --------- ---------
(In Thousands)
Mortgage-backed securities:
GNMA $103,974 $106,431 $88,133 $88,562 $24,402 $24,960
FNMA 71,621 71,745 56,721 56,653 7,417 7,599
FHLMC 58,226 58,536 56,122 56,153 54,888 55,382
CMOs 72,343 72,500 8,566 8,589 3,836 3,964
--------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities 306,164 309,212 209,542 209,957 90,543 91,905
--------- --------- --------- --------- --------- ---------
Investment securities:
U.S. treasury and agency 119,742 120,226 297,993 297,906 25,834 25,694
Other <F2> 34,271 34,596 83,700 83,611 67,991 67,909
--------- --------- --------- --------- --------- ---------
Total investment securities 154,013 154,822 381,693 381,517 93,825 93,603
Equity securities 4,912 5,889 2,977 3,205 3,304 3,070
Net unrealized gain <F2> 3,710 - 575 - 770 -
--------- --------- --------- --------- --------- ---------
Total securities, net $468,799 $469,923 $594,787 $594,679 $188,442 $188,578
========= ========= ========= ========= ========= =========
<FN>
<F1> Includes $9.9 million of FHLMC securities, $38.4 million of FNMA
securities, $70.1 million in GNMA securities, $6.0 million in CMOs,
$119.1 million in agency obligations, and $51.7 million in corporate
obligations acquired from Conestoga.
<F2> The net unrealized gain at June 30, 1997, 1996 and 1995 relates to
available for sale securities in accordance with SFAS No. 115. The
net unrealized gain is presented in order to reconcile the
''Amortized Cost'' of the Company's securities portfolio to the
recorded value reflected in the Consolidated Statements of
Condition.
</TABLE>
PAGE 21
<PAGE>
CORPORATE DEBT OBLIGATIONS. The Company
invests in the short-term investment grade
debt obligations of various corporations.
Corporate debt obligations generally carry
both a higher rate of return and a higher
degree of credit risk than U.S. Treasury
securities with comparable maturities. In
addition, corporate securities are generally
less liquid than comparable U.S. Treasury
securities. In recognition of the additional
risks associated with investing in these
securities, the Company's investment policy
limits new investments in corporate
obligations to those companies which are
rated single ''A'' or better by one of the
nationally recognized rating agencies, and
limits investments in any one corporate
entity to the lesser of 1% of total assets
or 15% of the Company's equity. At June 30,
1997, the Company's portfolio of corporate
debt obligations totaled $31.1 million, or
6.63% of total assets.
The following table sets forth the amortized
cost and fair value of the Company's
securities, by accounting classification and
by type of security, at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------------------------------
1997 1996 <F1> 1995
---------------------------- ----------------------------- ------------------------
Amortized Cost Fair Value Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C> <C> <C>
--------- --------- --------- --------- --------- ---------
(In Thousands)
Held-to-Maturity:
Mortgage-backed securities<F2>:
Pass through securities $78,388 $79,075 $52,580 $52,596 $53,815 $54,172
-------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities 78,388 79,075 $52,580 $52,596 $53,815 $54,172
Investment securities <F3> 101,587 102,024 43,552 43,428 51,475 51,254
-------- --------- --------- --------- --------- ---------
Total Held-to Maturity $179,975 $181,099 $96,132 $96,024 $105,290 $105,426
======== ========= ========= ========= ========= =========
Available-for-Sale:
Mortgage-backed securities:
Pass through securities $155,433 $157,637 $148,396 $148,772 $32,892 $33,769
CMOs 72,343 72,500 8,566 8,589 3,836 3,964
-------- --------- --------- --------- --------- ---------
Total mortgage-backed
securities 227,776 230,137 156,962 157,361 36,728 37,733
Investment securities <F3> <F5> 52,426 52,798 338,141 338,089 42,350 42,349
Equity securities 4,912 5,889 2,977 3,205 3,304 3,070
Net unrealized gain <F4> 3,710 - 575 - 770 -
-------- --------- --------- --------- --------- ---------
Total Available-for-Sale $288,824 $288,824 $498,655 $498,655 $83,152 $83,152
======== ========= ========= ========= ========= =========
Total securities, net $468,799 $469,923 $594,787 $594,679 $188,442 $188,578
======== ========= ========= ========= ========= =========
<FN>
<F1> Includes $118.4 million of mortgage-backed pass-
through securities, $6.0 million in CMOs, and
$170.8 million in investment securities acquired
from Conestoga. Except, for $10.7 million of
investment securities which were classified as
held-to-maturity, all securities acquired were
classified as available for sale.
<F2> Mortgage-backed securities include investments in
CMOs and REMICs.
<F3> Includes corporate debt obligations.
<F4> The net unrealized gain at June 30, 1997, 1996 and
1995 relates to available for sale securities in
accordance with SFAS No. 115. The net unrealized
gain is presented in order to reconcile the
''Amortized Cost'' of the Company's securities
portfolio to the recorded value reflected in the
Consolidated Statements of Condition.
<F5> Amount includes $125.0 million of investment
securities (short-term agency obligations) which
matured on July 1, 1996 in order to coincide with
the refund of excess subscription proceeds received
in the Company's initial public offering.
</TABLE>
PAGE 22
<PAGE>
The following table sets forth
certain information regarding the
amortized cost, fair value and
weighted average yield of the
Company's debt securities at June
30, 1997, by remaining period to
contractual maturity. With respect
to mortgage-backed securities, the
entire amount is reflected in the
maturity period that includes the
final security payment date and,
accordingly, no effect has been
given to periodic repayments or
possible prepayments. Other than
obligations of federal agencies
and GSEs, the Company has no
investments in securities issued
by any one entity in excess of 10%
of stockholders' equity at June
30, 1997.
<TABLE>
<CAPTION>
At June 30, 1997
------------------------------------------------------------
Held-to-Maturity Available-for Sale
------------------------------------------------------------
Weighted Weighted
Amortized Average Amortized Average
Cost Fair Value Yield Cost Fair Value Yield
<S> <C> <C> <C> <C> <C> <C>
-------- -------- ------ -------- -------- ------
(Dollars In Thousands)
Mortgage-backed securities:
Due within 1 year $7,536 $7,541 6.07% $- $- -%
Due after 1 year but within 5 years 32,295 32,295 6.42 25,441 25,513 6.67
Due after 5 years but within 10
years 28,803 29,105 6.93 7,338 7,330 6.70
Due after ten years 9,754 10,134 7.95 194,997 197,295 7.06
-------- -------- -------- --------
Total 78,388 79,075 6.77 227,776 230,137 7.00
-------- -------- -------- --------
U.S. Treasury and Agency:
Due within 1 year - - - 4,000 3,999 5.72
Due after 1 year but within 5 years 75,133 75,509 6.89 25,461 25,506 6.31
Due after 5 years but within 10
years 10,903 10,909 8.06 4,245 4,302 7.33
Due after ten years - - - - - -
-------- -------- -------- --------
Total 86,036 86,418 7.03 33,706 33,807 6.37
-------- -------- -------- --------
Corporate and Other
Due within 1 year 5,248 5,255 6.30 6,490 6,528 6.83
Due after 1 year but within 5 years 8,829 8,858 6.26 10,981 11,215 7.05
Due after 5 years but within 10
years 229 248 5.81 1,249 1,247 7.68
Due after ten years 1,245 1,245 7.50 - - -
-------- -------- -------- --------
Total 15,551 15,606 6.37 18,720 18,990 7.01
-------- -------- -------- --------
Total:
Due within 1 year 12,784 12,796 6.16 10,490 10,527 6.41
Due after 1 year but within 5 years 116,257 116,662 6.71 61,883 62,234 6.59
Due after 5 years but within 10
years 39,935 40,262 7.28 12,832 12,879 7.00
Due after ten years 10,999 11,379 7.50 194,997 197,295 7.06
-------- -------- -------- --------
Total $179,975 $181,099 6.78% $280,202 $282,935 6.93%
======== ======== ======== ========
</TABLE>
SOURCES OF FUNDS
GENERAL. Deposits, repayments of
loans and mortgage-backed securities,
investment security maturities and
redemptions, and short- to medium-term
borrowings from the FHLBNY, which include
both advances and repurchase agreements
treated as financings, are the Bank's
primary sources of funding for its lending
and investment activities. The Bank is
also active in the secondary mortgage
market, selling substantially all of its
new long-term, fixed-rate residential
mortgage product to either FNMA, FHLMC, or
SONYMA.
PAGE 23
<PAGE>
DEPOSITS. The Bank offers a variety
of deposit accounts having a range of
interest rates and terms. The Bank
presently offers savings accounts, money
market accounts, checking accounts, NOW
and Super NOW accounts, and certificates
of deposit. The flow of deposits is
influenced significantly by general
economic conditions, changes in prevailing
interest rates, and competition from other
financial institutions and investment
products. The Bank has not used brokers to
attract and retain deposits, relying
instead on customer service, convenience
and long-standing relationships with
customers. Consequently, the communities
in which the bank maintains branch offices
have historically provided the Bank with
nearly all of its deposits. At June 30,
1997, the Bank had deposit liabilities of
$963.4 million, up $13.3 million from June
30, 1996. Within total deposits, $40.1
million, or 4.2%, consisted of
certificates of deposit with balances of
$100,000 or greater. Individual Retirement
Accounts (''IRA's'') totaled $98.0
million, or 10.3% of total deposits.
The following table presents the deposit
activity of the Bank for the periods
indicated.
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
--------- --------- ---------
(In thousands)
Deposits $1,702,024 $696,881 $699,479
Withdrawals 1,729,025 718,534 709,317
--------- --------- ---------
Withdrawals in excess of deposits (27,001) (21,653) (9,838)
Deposits acquired in purchase of - 394,250 -
Conestoga <F1>
Interest credited 40,282 22,676 17,918
--------- --------- ---------
Total increase in deposits $13,281 $395,273 $8,080
========= ========= =========
</TABLE>
<F1> Amount comprised of $216.3 million in certificate of deposits,
$129.2 in savings accounts, $16.9 million in checking accounts,
$30.8 million in money market accounts, and $954,000 in NOW and
Super NOW accounts.
At June 30, 1997 the Bank had $46.8 million in certificate of
deposit accounts over $100,000 maturing as follows:
Weighted
Average
Amount Rate
--------- ---------
(Dollars In Thousands)
Maturity Period
Within three months $9,568 5.33%
After three but within six months 7,157 5.25
After six but within twelve months 10,572 5.66
After 12 months 19,509 6.21
---------
Total $46,806 5.76%
=========
The following table sets forth the distribution of
the Bank's deposit accounts and the related weighted\
average interest rates at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
------------------------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------------ ---------------------------------- ----------------------------
Percent Weighted Percent Weighted Percent of Weighted
of Total Average of Total Average Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
------ ------ ------ ------ ------ ------ ------ ------ ------
(Dollars In Thousands)
Checking accounts $27,391 2.84% - % $27,684 2.91% - % $10,219 1.85% -%
NOW accounts 15,817 1.64 1.24 15,029 1.58 1.50 13,877 2.50 1.50
Super NOW accounts 507 0.05 1.24 552 0.06 1.50 674 0.12 1.50
Money market accounts 33,530 3.48 2.96 45,948 4.84 3.04 16,698 3.01 2.65
Savings accounts 344,377 35.75 2.27 365,146 38.43 2.50 238,217 42.93 2.50
Certificates
of deposit 541,773 56.24 5.61 495,755 52.18 5.50 275,156 49.59 5.72
------ ------ ------- ------ ------ ------
Totals $963,395 100.00% $950,114 100.00% $554,841 100.00%
======= ====== ======= ====== ====== ======
</TABLE>
PAGE 24
<PAGE>
The following table presents, by interest rate ranges, the
amount of certificate accounts outstanding at the dates indicated
and the period to maturity of the certificate accounts outstanding
at June 30, 1997.
<TABLE>
<CAPTION>
Period to Maturity at June 30, 1997 Total at June 30,
----------------------------------------------- --------------------------------------
Less than One to Four to Five
Interest Rate Range One Year Three Years Years 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
- --------------- --------- --------- --------- --------- --------- ---------
(In Thousands)
4.00% and below $11 $1 $- $12 $3,300 $20,646
4.01% to 5.00% 82,249 2,605 - 84,854 204,826 45,135
5.01% to 6.00% 210,580 63,386 8,099 282,065 144,331 86,389
6.01% to 7.00% 16,786 135,198 6,544 158,528 116,545 112,929
7.01% and above 3,828 12,409 77 16,314 26,753 10,057
--------- --------- --------- --------- --------- ---------
Total $313,454 $213,599 $14,720 $541,773 $495,755 $275,156
========= ========= ========= ========= ========= =========
</TABLE>
BORROWINGS. The Bank has been a member and shareholder of the FHLBNY since
February 14, 1980. One of the privileges accorded FHLBNY shareholders is the
ability to borrow money under various lending (''Advance'') programs at
competitive interest rates. The Bank's total borrowing capacity at the FHLBNY
at June 30, 1997 is in excess of $166.4 million. Included as part of the total
borrowing capacity at the FHLBNY, the Bank has been approved for an ''Overnight
Line of Credit'' of $50.0 million, and a $50.0 million ''One-Month Overnight
Line of Credit,'' both priced at 0.125% over the prevailing federal funds rate.
The Bank had borrowings (''Advances'') from the Federal Home Loan Bank
of New York totaling $63.2 million and $15.7 million at June 30, 1997 and 1996,
respectively. The average cost of FHLB advances was 5.79% and 5.40%,
respectively, during the years ended June 30, 1997 and 1996, and the average
interest rate on outstanding FHLB advances was 6.18% and 5.40%, respectively,
at June 30, 1997 and 1996. At June 30, 1997, in accordance with the Advances,
Collateral Pledge and Security Agreement, the Bank maintained in excess of
$69.5 million of qualifying collateral (principally bonds and mortgage-backed
securities), as defined, to secure such advances.
Securities sold with agreement to repurchase totaled $76.3 million at June
30, 1997. The mortgage-backed securities sold with agreement to repurchase
mature at various periods beginning in May, 2001. Borrowings under such
reverse repurchase agreements involve the delivery of securities to broker-
dealers who arrange the transactions. The securities remain registered in the
name of the Bank, and are returned upon the maturities of the agreements. Funds
to repay the Bank's securities sold with agreement to repurchase at maturity
will be provided primarily by cash received from the maturing securities.
PAGE 25
<PAGE>
Presented below is information concerning securities sold with agreement to
repurchase and FHLB Advances for the years ended June 30, 1997, 1996 and 1995:
Securities sold Under Agreement to Repurchase:
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
--------- --------- ---------
(Dollars In Thousands)
Balance outstanding at end of period $76,333 $11,998 $2,110
Average interest cost at end of period 5.69% 6.00% 7.50%
Average balance outstanding 32,374 $2,148 2,212
Average interest cost during the year 5.73% 7.13% 7.25%
Carrying value of underlying collateral $83,778 $13,433 $2,767
Estimated market value of underlying collateral 84,172 $13,660 $2,843
Maximum balance outstanding at month end
during period 76,333 11,998 2,164
</TABLE>
FHLB Advances:
<TABLE>
<CAPTION>
At or For the Year Ended June 30,
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
--------- --------- ---------
(Dollars In Thousands)
Balance outstanding at end of period $63,210 $15,710 $15,710
Average interest cost at end of period 6.18% 5.40% 5.40%
Average balance outstanding $20,121 $15,710 $15,710
Average interest cost during the year 5.79% 5.40% 5.40%
Maximum balance outstanding at month end
during period $63,210 $15,710 $15,710
</TABLE>
SUBSIDIARY ACTIVITIES
The Company's only subsidiary is the Bank. The Bank was originally founded in
1864 as a New York State-chartered mutual savings bank. On November 1, 1995,
the Bank converted to a federal mutual savings bank. On June 26, 1996, the
Bank converted from the mutual to the stock form of ownership, and 100% of its
outstanding shares were acquired by the Company. The operation of the Bank is
the primary business of the Company.
The Bank has three wholly-owned subsidiary corporations. Havemeyer Brokerage
Corporation (''HBC''), prior to April, 1997, was engaged in the sale of
insurance and annuity products primarily to the Bank's customers and members of
the local community. Effective April 1, 1997, HBC, with the approval of the
OTS, was redesignated as an operating subsidiary, whose primary function is the
management of a securities portfolio. In May, 1997, the Bank transferred
approximately $139.0 million in investment securities to HBC and HBC began its
new form of operations. As of June 30, 1997, HBC had $140.7 million in
consolidated assets, and for the year ended June 30, 1997, had pre-tax income
of $1.5 million. Havemeyer Equities Corporation (''HEC'') and Boulevard Funding
Corporation (''BFC'') are currently inactive. As of June 30, 1997, HEC had $902
and BFC had $1,464 of consolidated assets. The Bank has formed a new
subsidiary, Havemeyer Investment Inc. ("HII"), whose primary operations will
be sales of insurance and annuity products to the Bank's customers, and is
currently awaiting final approval from the OTS for HII to begin operations.
PERSONNEL
As of June 30, 1997, the Company had 209 full-time employees and 80 part-
time employees. The employees are not represented by a collective bargaining
unit, and the Company considers its relationship with its employees to be good.
FEDERAL, STATE AND LOCAL TAXATION
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FEDERAL TAXATION
General. The following is a discussion of material tax matters and does not
purport to be a comprehensive description of the tax rules applicable to the
Bank or the Company. The Bank was last audited for its taxable year ended
December 31, 1988 For federal income tax purposes, the Company and the Bank
will file separate income tax returns and report their income on a June 30
fiscal year basis using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the Bank's tax reserve for bad debts,
discussed below.
Tax Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Internal Revenue Code of 1986 (the "Code") relating to a
savings institution's use of bad debt reserves for federal income tax purposes
and requires such an institution to recapture (i.e., take into income) certain
portions of its accumulated bad debt reserves. The effect of the 1996 Act on
the Bank is discussed below. Prior to the enactment of the 1996 Act, the Bank
was permitted to establish tax reserves for bad debts and to make annual
additions thereto, which additions, within specified formula limits, were
deducted in arriving at the Bank's taxable income. The Bank's deduction with
respect to "qualifying loans," which are generally loans secured by certain
interests in real property, was permitted to be computed using an amount based
on a six-year moving average of the Bank's charge-offs for actual losses (the
"Experience Method"), or an amount equal to 8% of the Bank's taxable income
(the "PTI Method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. Use of the PTI Method had the effect of reducing
the marginal rate of federal tax on the Bank's income to 32.2%, exclusive of
any minimum or environmental tax, as compared to the generally applicable
maximum corporate federal income tax rate of 35%. The Bank's deduction with
respect to non-qualifying loans was required to be computed under the
Experience Method. Each year the Bank reviewed the most favorable way to
calculate the deduction attributable to an addition to the tax bad debt
reserves.
THE 1996 ACT. Under the 1996 Act, for its current and future taxable years,
the Bank is not permitted to make additions to its tax bad debt reserves. The
Bank will be allowed to deduct bad debts as incurred. In addition, the Bank is
required to recapture (i.e., take into income) over a six year period the
excess of the balance of its tax bad debt reserves as of July 1, 1996 (other
than its supplemental reserve for losses on loans) over the balance of such
reserves as of June 30, 1988 (or over a lesser amount if the Bank's loan
portfolio decreased since June 30, 1988). As a result of such recapture, the
Bank will pay additional federal tax of approximately $1.1 million. Since the
Bank had already provided a deferred income tax liability for this amount prior
to the enactment of the 1996 Act, the enactment of the 1996 Act did not
adversely impact the Bank's financial condition or results of operations.
Moreover, such recapture will be suspended for each of the two successive
taxable years, beginning July 1, 1996, in which the Bank originates a minimum
of certain residential loans based upon the average of the principal amounts of
such loans made by the Bank during its six taxable years preceding its current
taxable year. The recapture was suspended based upon the Bank's origination
levels during the tax year ended June 30, 1997.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserve balance as of June
30, 1988, to the extent thereof, and then from the Bank's supplemental reserve
for losses on loans, to the extent thereof, and an amount based on the amount
distributed (but not in excess of the amount of such reserves) will be included
in the Bank's income. Non-dividend distributions include distributions in
excess of the Bank's current and accumulated earnings and profits, as
calculated for federal income tax purposes, distributions in redemption of
stock, and distributions in partial or complete liquidation. Dividends paid out
of the Bank's current or accumulated earnings and profits will not be so
included in the Bank's income.
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The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, approximately one and
one-half times the amount of such distribution (but not in excess of the amount
of such reserves) would be includable in income for federal income tax
purposes, assuming a 35% federal corporate income tax rate. See "Regulation"
and "Dividend Policy" for limits on the payment of dividends by the Bank. The
Bank does not intend to pay dividends that would result in a recapture of any
portion of its tax bad debt reserves.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax ("AMT") on
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is also
adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of
those items. Thus, the Bank's AMTI is increased by an amount equal to 75% of
the amount by which the Bank's adjusted current earnings exceeds its AMTI
(determined without regard to this adjustment and prior to reduction for net
operating losses).
STATE AND LOCAL TAXATION
STATE OF NEW YORK. The Bank and the Company are subject to New York State
franchise tax on one of several alternative bases, whichever results in the
highest tax, and will file combined returns for purposes of this tax. The basic
tax is measured by "entire net income," which is federal taxable income with
adjustments. For New York State tax purposes, so long as the Bank continues to
meet certain definitional tests relating to its assets and the nature of its
business, it will be permitted deductions, within specified formula limits, for
additions to its bad debt reserves for purposes of computing its entire net
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, may be computed
using an amount based on the Bank's actual loss experience (the "Experience
Method") or an amount equal to 32% of the Bank's entire net income (the "PTI
Method"), computed without regard to this deduction and reduced by the amount
of any permitted addition to the Bank's reserve for non-qualifying loans.
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. The Bank had a deferred tax liability of approximately $1.9
million 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 year ended June 30, 1997 for the full amount of the recovered deferred tax
liability.
The Bank's deduction with respect to non-qualifying loans must be computed
under the Experience Method which is based on the Bank's actual charge-offs.
Each year the Bank will review the most favorable way to calculate the
deduction attributable to an addition to the tax bad debt reserves.
The New York State tax rate for the 1997 calendar year is 10.755%
(including commuter transportation and other surcharges) of net income. In
general, the Company will not be required to pay New York State tax on
dividends and interest received from the Bank.
CITY OF NEW YORK. The Bank and the Company are also subject to a similarly
calculated New York City banking corporation tax of 9% on income allocated to
New York City.
On March 11, 1997, New York City enacted legislation, effective January 1,
1996, which conformed its tax law regarding bad debt deductions to New York
State's tax law. As a result of this legislation, the Bank, in March, 1997,
recovered a deferred tax liability of approximately $1.0 million previously
recorded for the excess of New York City tax bad debt reserves over its base
year reserve at December 31, 1987. This recovery resulted in a reduction of
income tax expense during the year ended June 30, 1997 for the full amount of
the recovered deferred tax liability.
STATE OF DELAWARE. As a Delaware holding company not earning income in
Delaware, the Company is exempted from Delaware corporate income tax, but is
required to file an annual report and pay an annual franchise tax to the State
of Delaware.
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REGULATION
GENERAL
The Bank is subject to extensive regulation, examination, and supervision by
the OTS, as its chartering agency, and the FDIC, as its deposit insurer. The
Bank's deposit accounts are insured up to applicable limits by the Bank
Insurance Fund ("BIF") and Savings Association Insurance Fund ("SAIF")
administered by the FDIC, and it is a member of the FHLBNY. The Bank must file
reports with the OTS and the FDIC concerning its activities and financial
condition, and it must obtain regulatory approvals prior to entering into
certain transactions, such as mergers with, or acquisitions of, other
depository institutions. The OTS and the FDIC conduct periodic examinations to
assess the Bank's compliance with various regulatory requirements. This
regulation and supervision establishes a comprehensive framework of activities
in which a savings association can engage and is intended primarily for the
protection of the insurance fund and depositors. The Company, as a unitary
savings and loan holding company, is required to file certain reports with, and
otherwise comply with, the rules and regulations of the OTS and of the
Securities and Exchange Commission (the ''SEC'') under the federal securities
laws.
The OTS and the FDIC have significant discretion in connection with their
supervisory and enforcement activities and examination policies, including
policies with respect to the classification of assets and the establishment of
adequate loan loss reserves for regulatory purposes. Any change in such
policies, whether by the OTS, the FDIC or the Congress, could have a material
adverse impact on the Company, the Bank, and the operations of both.
The following discussion is intended to be a summary of the material
statutes and regulations applicable to savings associations, and it does not
purport to be a comprehensive description of all such statutes and regulations.
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS
BUSINESS ACTIVITIES. The Bank derives its lending and investment powers
from the Home Owner's Loan Act, as amended (''HOLA''), and the regulations of
the OTS thereunder. Under these laws and regulations, the Bank may invest in
mortgage loans secured by residential and commercial real estate, commercial
and consumer loans, certain types of debt securities, and certain other assets.
The Bank may also establish service corporations that may engage in activities
not otherwise permissible for the Bank, including certain real estate equity
investments and securities and insurance brokerage. These investment powers are
subject to various limitations, including (a) a prohibition against the
acquisition of any corporate debt security that is not rated in one of the four
highest rating categories; (b) a limit of 400% of an association's capital on
the aggregate amount of loans secured by non-residential real estate property;
(c) a limit of 20% of an association's assets on commercial loans; (d) a limit
of 35% of an association's assets on the aggregate amount of consumer loans and
acquisitions of certain debt securities; (e) a limit of 5% of assets on non-
conforming loans (loans in excess of the specific limitations of HOLA); and (f)
a limit of the greater of 5% of assets or an association's capital on certain
construction loans made for the purpose of financing what is or is expected to
become residential property.
LOANS TO ONE BORROWER. Under HOLA, savings associations are generally
subject to the same limits on loans to one borrower as are imposed on national
banks. Generally, under these limits, a savings association may not make a loan
or extend credit to a single or related group of borrowers in excess of 15% of
the association's unimpaired capital and surplus. Additional amounts may be
lent, not in excess of 10% of unimpaired capital and surplus, if such loans or
extensions of credit are fully secured by readily-marketable collateral. Such
collateral is defined to include certain debt and equity securities and
bullion, but generally does not include real estate. At June 30, 1997, the
Bank's limit on loans to one borrower was $22.8 million. At June 30, 1997, the
Bank's largest aggregate amount of loans to one borrower was $13.0 million and
the second largest borrower had an aggregate balance of $9.0 million.
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QTL TEST. HOLA requires a savings association to meet a QTL test. A
savings association may satisfy the QTL test by maintaining at least 65% of its
''portfolio assets'' in certain ''qualified thrift investments'' in at least
nine months of the most recent twelve-month period. ''Portfolio assets'' means,
in general, an association's total assets less the sum of (a) specified liquid
assets up to 20% of total assets, (b) certain intangibles, including goodwill
and credit card and purchased mortgage servicing rights, and (c) the value of
property used to conduct the association's business. ''Qualified thrift
investments'' includes various types of loans made for residential and housing
purposes, investments related to such purposes, including certain mortgage-
backed and related securities, small business loans, education loans, and
credit card loans. At June 30, 1997, the Bank maintained 94.4% of its
portfolio assets in qualified thrift investments. The Bank had also satisfied
the QTL test in each of the prior 12 months and, therefore, was a qualified
thrift lender. A savings association may also satisfy the QTL test by
qualifying as a "domestic building and loan association" as defined in the
Internal Revenue Code of 1986.
A savings association that fails the QTL test must either operate under
certain restrictions on its activities or convert to a bank charter. The
initial restrictions include prohibitions against (a) engaging in any new
activity not permissible for a national bank, (b) paying dividends not
permissible under national bank regulations, (c) obtaining new advances from
any FHLB, and (d) establishing any new branch office in a location not
permissible for a national bank in the association's home state. In addition,
within one year of the date a savings association ceases to meet the QTL test,
any company controlling the association would have to register under, and
become subject to the requirements of, the Bank Holding Company Act of 1956, as
amended. If the savings association does not requalify under the QTL test
within the three-year period after it failed the QTL test, it would be required
to terminate any activity and to dispose of any investment not permissible for
a national bank and would have to repay as promptly as possible any outstanding
advances from an FHLB. A savings association that has failed the QTL test may
requalify under the QTL test and be free of such limitations, but it may do so
only once.
CAPITAL REQUIREMENTS. The OTS regulations require savings associations to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations, a leverage ratio
requirement of 3% of core capital to such adjusted total assets, and a risk-
based capital ratio requirement of 8% of core and supplementary capital to
total risk-based assets. In determining the amount of risk-weighted assets for
purposes of the risk-based capital requirement, a savings association must
compute its risk-based assets by multiplying its assets and certain off-balance
sheet items by risk-weights, which range from 0% for cash and obligations
issued by the United States Government or its agencies, to 100% for consumer
and commercial loans, as assigned by the OTS capital regulation based on the
risks OTS believes are inherent in the type of asset.
Tangible capital is defined, generally, as common stockholders' equity
(including retained earnings), certain noncumulative perpetual preferred stock
and related earnings, minority interests in equity accounts of fully
consolidated subsidiaries, less intangibles other than certain purchased
mortgage servicing rights and investments in and loans to subsidiaries engaged
in activities not permissible for a national bank. Core capital is defined
similarly to tangible capital, but core capital also includes certain
qualifying supervisory goodwill and certain purchased credit card
relationships. Supplementary capital currently includes cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, and the allowance for
possible loan losses. The allowance for loan and lease losses includable in
supplementary capital is limited to a maximum of 1.25% of risk-weighted assets,
and the amount of supplementary capital that may be included as total capital
cannot exceed the amount of core capital.
The OTS regulations require a savings association with ''above normal''
interest rate risk to deduct a portion of such capital from its total capital
to account for the ''above normal'' interest rate risk. A savings association's
interest rate risk is measured by the decline in the net portfolio value of its
assets (I.E., the difference between incoming and outgoing discounted cash
flows from assets, liabilities and off-balance sheet contracts) resulting from
a hypothetical 2% increase or decrease in market rates of interest, divided by
the estimated economic value of the association's assets, as calculated in
accordance with guidelines set forth by the OTS. At the times when the 3-month
Treasury bond equivalent yield falls below 4%, an association may compute its
interest rate risk on the basis of a decrease equal to one-half of that
Treasury rate rather than on the basis of 2%. A savings association whose
measured interest rate risk exposure exceeds 2% would be considered to have
''above normal'' risk. The interest rate risk component is an amount equal to
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one-half of the difference between the association's measured interest rate
risk and 2%, multiplied by the estimated economic value of the association's
assets. That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Any required
deduction for interest rate risk becomes effective on the last day of the third
quarter following the reporting date of the association's financial data on
which the interest rate risk was computed. The OTS has indefinitely deferred
the implementation of the intrest rate risk component in the computation of an
institution's risk-based capital requirements. The OTS continues to monitor
the interest rate risk of individual institutions and retains the right to
impose additional capital requirements on individual institutions.
The table below presents the Bank's regulatory capital as compared to the
OTS regulatory capital requirements at June 30, 1997:
Actual Minimum Capital Requirement
----------------------- ---------------------------
Amount Ratio Amount Ratio
--------- --------- ---------- ----------
As of June 30, 1997: (Dollars In Thousands)
Tangible $124,118 9.86% $18,873 1.5%
Core Capital 124,182 9.87 37,748 3.0%
Risk-based capital 132,465 19.99 53,009 8.0%
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital for the Bank:
At June 30, 1997
Tangible Core Risk-Based
Capital Capital Capital
--------- --------- ---------
(In Thousands)
GAAP capital $152,198 $152,198 $152,198
--------- --------- ---------
Non-allowable assets:
Core deposit intangible (64) - -
Unrealized gain on available for
sale securities (1,583) (1,583) (1,583)
Goodwill (26,433) (26,433) (26,433)
General valuation allowance - - 8,283
--------- --------- ---------
Regulatory capital 124,118 124,182 132,465
Minimum capital requirement 18,873 37,748 53,009
--------- --------- ---------
Regulatory capital excess $105,245 $86,434 $79,456
========= ========= =========
LIMITATION ON CAPITAL DISTRIBUTIONS. OTS regulations currently impose
limitations upon capital distributions by savings associations, such as cash
dividends, payments to repurchase or otherwise acquire its shares, payments to
shareholders of another institution in a cash-out merger, and other
distributions charged against capital. At least 30-days written notice must be
given to the OTS of a proposed capital distribution by a savings association,
and capital distributions in excess of specified earnings or by certain
institutions are subject to approval by the OTS. An association that has
capital in excess of all fully phased-in regulatory capital requirements before
and after a proposed capital distribution and that is not otherwise restricted
in making capital distributions, could, after prior notice but without the
approval of the OTS, make capital distributions during a calendar year equal to
the greater of (a) 100% of its net earnings to date during the calendar year
plus the amount that would reduce by one-half its ''surplus capital ratio''
(the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year, or (b) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. In addition, the OTS can prohibit a proposed capital distribution,
otherwise permissible under the regulation, if the OTS has determined that the
association is in need of more than normal supervision or if it determines that
a proposed distribution by an association would constitute an unsafe or unsound
practice. Furthermore, under the OTS prompt corrective action regulations, the
Bank would be prohibited from making any capital distribution if, after the
distribution, the Bank failed to meet its minimum capital requirements, as
described above. See '' - Prompt Corrective Regulatory Action.''
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LIQUIDITY. The Bank is required to maintain an average daily balance of
liquid assets (cash, certain time deposits, bankers' acceptances, specified
United States Government, state or federal agency obligations, shares of
certain mutual funds and certain corporate debt securities and commercial
paper) equal to a monthly average of not less than a specified percentage of
its net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any amount
within the range of 4% to 10% depending upon economic conditions and the
savings flows of member institutions, and is currently 5%. OTS regulations also
require each savings association to maintain an average daily balance of short-
term liquid assets at a specified percentage (currently 1%) of the total of its
net withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet these liquidity
requirements. The Bank's average liquidity ratio for the month ended June 30,
1997 was 14.98%, which exceeded the applicable requirements. The Bank has never
been subject to monetary penalties for failure to meet its liquidity
requirements.
ASSESSMENTS. Savings associations are required by OTS regulation to pay
assessments to the OTS to fund the operations of the OTS. The general
assessment, paid on a semi-annual basis, is computed upon the savings
association's total assets, including consolidated subsidiaries, as reported in
the association's latest quarterly Thrift Financial Report. The Bank's
assessment expense during the year ended June 30, 1997 totaled $423,000.
BRANCHING. Subject to certain limitations, HOLA and the OTS regulations
permit federally chartered savings associations to establish branches in any
state of the United States. The authority to establish such a branch is
available (a) in states that expressly authorize branches of savings
associations located in another state and (b) to an association that either
satisfies the QTL test for a "qualified thrift lender," or qualifies as a
''domestic building and loan association'' under the Internal Revenue Code of
1986, which imposes qualification requirements similar to those for a
''qualified thrift lender'' under HOLA. See ''QTL Test.'' The authority for a
federal savings association to establish an interstate branch network would
facilitate a geographic diversification of the association's activities. This
authority under HOLA and the OTS regulations preempts any state law purporting
to regulate branching by federal savings associations.
COMMUNITY REINVESTMENT. Under the CRA, as implemented by OTS regulations,
a savings association has a continuing and affirmative obligation consistent
with its safe and sound operation to help meet the credit needs of its entire
community, including low and moderate income neighborhoods. The CRA does not
establish specific lending requirements or programs for financial institutions
nor does it limit an institution's discretion to develop the types of products
and services that it believes are best suited to its particular community,
consistent with the CRA. The CRA requires the OTS, in connection with its
examination of a savings association, to assess the association's record of
meeting the credit needs of its community and to take such record into account
in its evaluation of certain applications by such association. The CRA also
requires all institutions to make public disclosure of their CRA ratings. The
Bank received a ''Satisfactory'' CRA rating in its most recent examination.
In April 1995, the OTS and the other federal banking agencies adopted
amendments revising their CRA regulations. Among other things, the amended CRA
regulations substitute for the prior process-based assessment factors a new
evaluation system that would rate an institution based on its actual
performance in meeting community needs. In particular, the proposed system
would focus on three tests: (a) a lending test, to evaluate the institution's
record of making loans in its service areas; (b) an investment test, to
evaluate the institution's record of investing in community development
projects, affordable housing, and programs benefiting low or moderate income
individuals and businesses; and (c) a service test, to evaluate the
institution's delivery of services through its branches, ATMs, and other
offices. The amended CRA regulations also clarify how an institution's CRA
performance would be considered in the application process.
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TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
transactions with its ''affiliates'' is limited by the OTS regulations and by
Sections 23A and 23B of the Federal Reserve Act (''FRA''). In general, an
affiliate of the Bank is any company that controls the Bank or any other
company that is controlled by a company that controls the Bank, excluding the
Bank's subsidiaries other than those that are insured depository institutions.
The OTS regulations prohibit a savings association (a) from lending to any of
its affiliates that is engaged in activities that are not permissible for bank
holding companies under Section 4(c) of the Bank Holding Company Act (''BHC
Act'') and (b) from purchasing the securities of any affiliate other than a
subsidiary. Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
association and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings association's capital and surplus. Extensions
of credit to affiliates are required to be secured by collateral in an amount
and of a type described in Section 23A, and the purchase of low quality assets
from affiliates is generally prohibited. Section 23B provides that certain
transactions with affiliates, including loans and asset purchases, must be on
terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the association as those
prevailing at the time for comparable transactions with nonaffiliated
companies. In the absence of comparable transactions, such transactions may
only occur under terms and circumstances, including credit standards, that in
good faith would be offered to or would apply to nonaffiliated companies.
The Bank's authority to extend credit to its directors, executive officers,
and 10% shareholders, as well as to entities controlled by such persons, is
currently governed by the requirements of Sections 22(g) and 22(h) of the FRA
and Regulation O of the Federal Reserve Board (''FRB'') thereunder. Among other
things, these provisions require that extensions of credit to insiders (a) be
made on terms that are substantially the same as, and follow credit
underwriting procedures that are not less stringent than, those prevailing for
comparable transactions with unaffiliated persons and that do not involve more
than the normal risk of repayment or present other unfavorable features and (b)
not exceed certain limitations on the amount of credit extended to such
persons, individually and in the aggregate, which limits are based, in part, on
the amount of the association's capital. In addition, extensions of credit in
excess of certain limits must be approved by the association's board of
directors.
ENFORCEMENT. Under the Federal Deposit Insurance Act (''FDI Act''), the
OTS has primary enforcement responsibility over savings associations and has
the authority to bring enforcement action against all ''institution-affiliated
parties,'' including any controlling stockholder or any shareholder, attorney,
appraiser and accountant who knowingly or recklessly participates in any
violation of applicable law or regulation or breach of fiduciary duty or
certain other wrongful actions that causes or is likely to cause a more than a
minimal loss or other significant adverse effect on an insured savings
association. Civil penalties cover a wide range of violations and actions and
range from $5,000 for each day during which violations of law, regulations,
orders, and certain written agreements and conditions continue, up to $1
million per day for such violations if the person obtained a substantial
pecuniary gain as a result of such violation or knowingly or recklessly caused
a substantial loss to the institution. Criminal penalties for certain financial
institution crimes include fines of up to $1 million and imprisonment for up to
30 years. In addition, regulators have substantial discretion to take
enforcement action against an institution that fails to comply with its
regulatory requirements, particularly with respect to its capital requirements.
Possible enforcement actions range from the imposition of a capital plan and
capital directive to receivership, conservatorship, or the termination of
deposit insurance. Under the FDI Act, the FDIC has the authority to recommend
to the Director of OTS that enforcement action be taken with respect to a
particular savings association. If action is not taken by the Director of the
OTS, the FDIC has authority to take such action under certain circumstances.
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STANDARDS FOR SAFETY AND SOUNDNESS. The FDI Act, as amended by FDICIA and
the Riegle Community Development and Regulatory Improvement Act of 1994
(''Community Development Act''), requires the OTS, together with the other
federal bank regulatory agencies, to prescribe standards, by regulations or
guidelines, relating to internal controls, information systems and internal
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, asset quality, earnings, stock valuation, and
compensation, fees and benefits and such other operational and managerial
standards as the agencies deem appropriate. The OTS and the federal bank
regulatory agencies have adopted, effective August 9, 1995, a set of guidelines
prescribing safety and soundness standards pursuant to FDICIA, as amended. The
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines require, among other things, appropriate
systems and practices to identify and manage the risks and exposures specified
in the guidelines. The guidelines prohibit excessive compensation as an unsafe
and unsound practice and describe compensation as excessive when the amounts
paid are unreasonable or disproportionate to the services performed by an
executive officer, employee, director or principal shareholder. The OTS and the
other agencies determined that the adoption of stock valuation standards was
not appropriate. In addition, the OTS adopted regulations pursuant that
authorize, but do not require, the OTS to order an institution that has been
given notice by the OTS that it is not satisfying any of such safety and
soundness standards to submit a compliance plan. If, after being so notified,
an institution fails to submit an acceptable compliance plan or fails in any
material respect to implement an accepted compliance plan, the OTS must issue
an order directing action to correct the deficiency and may issue an order
directing other actions of the types to which an undercapitalized association
is subject under the ''prompt corrective action'' provisions of FDICIA. If an
institution fails to comply with such an order, the OTS may seek to enforce
such order in judicial proceedings and to impose civil money penalties.
Effective October 1, 1996, the OTS and the federal bank regulatory agencies
adopted guidelines for identifying and monitoring asset quality and earnings
standards.
REAL ESTATE LENDING STANDARDS. The OTS and the other federal banking
agencies adopted regulations to prescribe standards for extensions of credit
that (a) are secured by real estate or (b) are made for the purpose of
financing the construction of improvements on real estate. The OTS regulations
require each savings association to establish and maintain written internal
real estate lending standards that are consistent with safe and sound banking
practices and appropriate to the size of the association and the nature and
scope of its real estate lending activities. The standards also must be
consistent with accompanying OTS guidelines, which include loan-to-value ratios
for the different types of real estate loans. Associations are also permitted
to make a limited amount of loans that do not conform to the proposed loan-to-
value limitations so long as such exceptions are reviewed and justified
appropriately. The guidelines also list a number of lending situations in which
exceptions to the loan-to-value standards are justified.
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
action regulations, the OTS is required to take certain, and is authorized to
take other, supervisory actions against undercapitalized savings associations.
For this purpose, a savings association would be placed in one of five
categories based on the association's capital. Generally, a savings association
is treated as ''well capitalized'' if its ratio of total capital to risk-
weighted assets is at least 10.0%, its ratio of core capital to risk-weighted
assets is at least 6.0%, its ratio of core capital to total assets is at least
5.0%, and it is not subject to any order or directive by the OTS to meet a
specific capital level. A savings association will be treated as ''adequately
capitalized'' if its ratio of total capital to risk-weighted assets is at least
8.0%, its ratio of core capital to risk-weighted assets is at least 4.0%, and
its ratio of core capital to total assets is at least 4.0% (3.0% if the
association receives the highest rating on the CAMEL financial institutions
rating system). A savings association that has a total risk-based capital of
less than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than
4.0% (3.0% leverage ratio if the association receives the highest rating on the
CAMEL financial institutions rating system) is considered to be
''undercapitalized.'' A savings association that has a total risk-based capital
of less than 6.0% or a Tier 1 risk-based capital ratio or a leverage ratio of
less than 3.0% is considered to be ''significantly undercapitalized.'' A
savings association that has a tangible capital to assets ratio equal to or
less than 2% is deemed to be ''critically undercapitalized.'' The elements of
an association's capital for purposes of the prompt corrective action
regulations are defined generally as they are under the regulations for minimum
capital requirements. As of the most recent notification from the Office of
Thrift Supervision categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the
institution's category. See ''- Capital Requirements.''
The severity of the action authorized or required to be taken under the
prompt corrective action regulations increases as an association's capital
deteriorates within the three undercapitalized categories. All associations are
prohibited from paying dividends or other capital distributions or paying
management fees to any controlling person if, following such distribution, the
association would be undercapitalized. An undercapitalized association is
required to file a capital restoration plan within 45 days of the date the
association receives notice that it is within any of the three undercapitalized
categories. The OTS is required to monitor closely the condition of an
undercapitalized association and to restrict the asset growth, acquisitions,
branching, and new lines of business of such an association. Significantly
undercapitalized associations are subject to restrictions on compensation of
senior executive officers; such an association may not, without OTS consent,
pay any bonus or provide compensation to any senior executive officer at a rate
exceeding the officer's average rate of compensation (excluding bonuses, stock
PAGE 34
<PAGE>
options and profit-sharing) during the 12 months preceding the month when the
association became undercapitalized. A significantly undercapitalized
association may also be subject, among other things, to forced changes in the
composition of its board of directors or senior management, additional
restrictions on transactions with affiliates, restrictions on acceptance of
deposits from correspondent associations, further restrictions on asset growth,
restrictions on rates paid on deposits, forced termination or reduction of
activities deemed risky, and any further operational restrictions deemed
necessary by the OTS.
If one or more grounds exist for appointing a conservator or receiver for an
association, the OTS may require the association to issue additional debt or
stock, sell assets, be acquired by a depository association holding company or
combine with another depository association. The OTS and the FDIC have a broad
range of grounds under which they may appoint a receiver or conservator for an
insured depository association. Under FDICIA, the OTS is required to appoint a
receiver (or with the concurrence of the FDIC, a conservator) for a critically
undercapitalized association within 90 days after the association becomes
critically undercapitalized or, with the concurrence of the FDIC, to take such
other action that would better achieve the purposes of the prompt corrective
action provisions. Such alternative action can be renewed for successive 90-day
periods. However, if the association continues to be critically
undercapitalized on average during the quarter that begins 270 days after it
first became critically undercapitalized, a receiver must be appointed, unless
the OTS makes certain findings with which the FDIC concurs and the Director of
the OTS and the Chairman of the FDIC certify that the association is viable. In
addition, an association that is critically undercapitalized is subject to more
severe restrictions on its activities, and is prohibited, without prior
approval of the FDIC from, among other things, entering into certain material
transactions or paying interest on new or renewed liabilities at a rate that
would significantly increase the association's weighted average cost of funds.
When appropriate, the OTS can require corrective action by a savings
association holding company under the ''prompt corrective action'' provisions
of FDICIA.
INSURANCE OF DEPOSIT ACCOUNTS - Savings associations are subject to a risk-
based assessment system for determining the deposit insurance assessments to be
paid by insured depository institutions. Under the risk-based assessment
system, which began in 1993, the FDIC assigns an institution to one of three
capital categories based on the institution's financial information as of the
reporting period ending seven months before the assessment period. The three
capital categories consist of (a) well capitalized, (b) adequately capitalized,
or (c) undercapitalized. The FDIC also assigns an institution to one of the
three supervisory subcategories within each capital group. The supervisory
subgroup to which an institution is assigned is based upon a supervisory
evaluation provided to the FDIC by the institutions primary federal regulator
and information that the FDIC determines to be relevant to the institution's
financial condition and the risk posed to the deposit insurance funds. An
institution's assessment rate depends on the capital category and supervisory
category to which it is assigned. Under the regulation, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates currently range from 0.0% of deposits for an institution in
the highest category (i.e., well-capitalized and financially sound, with no
more than a few minor weaknesses) to 0.27% of deposits for an institution in
the lowest category (i.e., undercapitalized and substantial supervisory
concern). The FDIC is authorized to raise the assessment rates as necessary to
maintain the required reserve ratio of 1.25%. As a result of the Deposit
Insurance Funds Act of 1996 (the "Funds Act"). Both the BIF and SAIF currently
satisfy the reserve ratio requirement. See "Recent Development - Insurance
Expense - SAIF Recapitalization." If the FDIC determines that assessment
rates should be increased, institutions in all risk categories could be
affected. The FDIC has exercised this authority several times in the past and
could raise insurance assessment rates in the future. If such action is taken,
it could have an adverse effect upon the earnings of the Bank.
The Funds Act also amended the FDIA to recapitalize the SAIF and to expand
the assessment base for the payments of FICO bonds. Beginning January 1, 1997,
the assessment base included the deposits of both BIF and SAIF-insured
institutions. See "Recent Development - Insurance Expense - DSAIF
Recapitalization." Until December 31, 1999, or such earlier date on which the
last savings association ceases to exist, the rate of assessment for BIF-
assessable deposits shall be one-fifth of the rate imposed on SAIF-assessable
deposits. The annual rate of assessments for the payments of FICO bonds for
the semi-annual period beginning January 1, 1997 was 0.0130% for BIF-assessable
deposits and 0.0648% for SAIF-assessable deposits. For the semi-annual period
beginning on July 1, 1997, the rates of assessment for FICO bonds are 0.0126%
for BIF-assessable deposits and 0.0630% for SAIF-assessable deposits.
PAGE 35
<PAGE>
FEDERAL HOME LOAN BANK SYSTEM. The Bank is a member of the FHLBNY, which
is one of the regional FHLBs composing the FHLB System. Each FHLB provides a
central credit facility primarily for its member institutions. The Bank, as a
member of the FHLBNY, is required to acquire and hold shares of capital stock
in the FHLB in an amount at least equal to the greater of 1% of the aggregate
principal amount of its unpaid residential mortgage loans and similar
obligations at the beginning of each year or one-twentieth{ }of its advances
(borrowings) from the FHLBNY. The Bank was in compliance with this requirement
with an investment in FHLB stock at June 30, 1997, of $8.3 million. Any advances
from a FHLB must be secured by specified types of collateral, and all long-term
advances may be obtained only for the purpose of providing funds for
residential housing finance. The FHLBNY paid dividends on the capital stock of
$503,027, $332,964, and $367,131 and during the years ended June 30, 1997, 1996
and 1995, respectively. If dividends were reduced, or interest on future FHLB
advances increased, the Bank's net interest income would likely also be
reduced. Further, there can be no assurance that the impact of FDICIA and the
Financial Institutions Reform, Recovery and Enforcement Act of 1989
(''FIRREA'') on the FHLBs will not also cause a decrease in the value of the
FHLB stock held by the Bank.
FEDERAL RESERVE SYSTEM. The Bank is subject to provisions of the FRA and
the FRB's regulations pursuant to which depository institutions may be required
to maintain non-interest-earning reserves against their deposit accounts and
certain other liabilities. Currently, reserves must be maintained against
transaction accounts (primarily NOW and regular checking accounts). The FRB
regulations generally require that reserves be maintained in the amount of 3%
of the aggregate of transaction accounts up to $49.3 million. The amount of
aggregate transaction accounts in excess of $49.3 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 12%.
The FRB regulations currently exempt $4.4 million of otherwise reservable
balances from the reserve requirements, which exemption is adjusted by the FRB
at the end of each year. The Bank is in compliance with the foregoing reserve
requirements. Because required reserves must be maintained in the form of
either vault cash, a non-interest-bearing account at a Federal Reserve Bank, or
a pass-through account as defined by the FRB, the effect of this reserve
requirement is to reduce the Bank's interest-earning assets. The balances
maintained to meet the reserve requirements imposed by the FRB may be used to
satisfy liquidity requirements imposed by the OTS. FHLB System members are also
authorized to borrow from the Federal Reserve ''discount window,'' but FRB
regulations require such institutions to exhaust all FHLB sources before
borrowing from a Federal Reserve Bank.
REGULATION OF HOLDING COMPANY
The Company is a non-diversified unitary savings association holding company
within the meaning of HOLA, as amended. As such, the Company is required to
register with the OTS and is subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Company and its non-savings association subsidiaries, if
any. Among other things, this authority permits the OTS to restrict or prohibit
activities that are determined to be a serious risk to the financial safety,
soundness, or stability of a subsidiary savings association.
HOLA prohibits a savings association holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring another savings
association or holding company thereof, without prior written approval of the
OTS; acquiring or retaining, with certain exceptions, more than 5% of a non-
subsidiary savings association, a non-subsidiary holding company, or a non-
subsidiary company engaged in activities other than those permitted by HOLA; or
acquiring or retaining control of a depository institution that is not insured
by the FDIC. In evaluating an application by a holding company to acquire a
savings association, the OTS must consider the financial and managerial
resources and future prospects of the company and savings association involved,
the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community, and competitive factors.
PAGE 36
<PAGE>
As a unitary savings and loan holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage, provided that the Bank continues to satisfy the QTL test. See
''- Regulation of Federal Savings Associations - QTL Test'' for a discussion of
the QTL requirements. Upon any non-supervisory acquisition by the Company of
another savings association or of a savings bank that meets the QTL test and is
deemed to be a savings association by the OTS and that will be held as a
separate subsidiary, the Company will become a multiple savings association
holding company and will be subject to limitations on the types of business
activities in which it can engage. HOLA limits the activities of a multiple
savings association holding company and its non-insured association
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the BHC Act, subject to the prior approval of the OTS,
and to other activities authorized by OTS regulation.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings association holding company controlling savings associations
in more than one state, subject to two exceptions: an acquisition of a savings
association in another state (a) in a supervisory transaction, and (b) pursuant
to authority under the laws of the state of the association to be acquired that
specifically permit such acquisitions. The conditions imposed upon interstate
acquisitions by those states that have enacted authorizing legislation vary.
Some states impose conditions of reciprocity, which have the effect of
requiring that the laws of both the state in which the acquiring holding
company is located (as determined by the location of its subsidiary savings
association) and the state in which the association to be acquired is located,
have each enacted legislation allowing its savings associations to be acquired
by out-of-state holding companies on the condition that the laws of the other
state authorize such transactions on terms no more restrictive than those
imposed on the acquiror by the state of the target association. Some of these
states also impose regional limitations, which restrict such acquisitions to
states within a defined geographic region. Other states allow full nationwide
banking without any condition of reciprocity. Some states do not authorize
interstate acquisitions of savings associations.
Transactions between the Company and the Bank, including any of its
subsidiaries, and any of its affiliates are subject to various conditions and
limitations. See '' Regulation of Federal Savings Associations - Transactions
with Related Parties.'' The Bank must give 30-days written notice to the OTS
prior to any declaration of the payment of any dividends or other capital
distributions to the Company. See ''- Regulation of Federal Savings
Associations - Limitation on Capital Distributions.''
FEDERAL SECURITIES LAWS
The Company's Common stock is registered with the SEC under Section 12(g) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
PAGE 37
<PAGE>
ITEM 2 - PROPERTIES
The Bank conducts its business through fifteen full-service offices,
including eight offices acquired from Conestoga in June, 1996. The Bank's Main
Office and headquarters is located at 209 Havemeyer Street, Brooklyn, New York.
The Bank believes that its current facilities are adequate to meet the present
and immediately foreseeable needs of the Bank and the Company.
<TABLE>
<CAPTION>
Leased or Date Leased or Lease Expiration Net Book Value
Owned or Acquired Date at June 30, 1997
<S> <C> <C> <C> <C>
-------- -------- ------------ ------------
ADMINISTRATIVE OFFICE Owned 1989 - $3,985,014
275 South 5th Street
Brooklyn. New York 11211
MAIN OFFICE Owned 1906 - $358,939
209 Havemeyer Street
Brooklyn, New York 11211
AVENUE M BRANCH Owned 1993 - $467,368
1600 Avenue M at East 16{th}
Street
Brooklyn, New York 11230
BAYSIDE BRANCH Leased 1974 May, 2004 $48,882
61-38 Springfield Boulevard
Bayside, New York 11364
BELLMORE BRANCH Owned 1973 - $499,146
2412 Jerusalem Avenue
Bellmore, New York 11710
BENSONHURST BRANCH Owned 1978 - $1,097,205
1545 86th Street
Brooklyn, New York 11228
BRONX BRANCH <F1> Leased 1965 October, 2006 $31,102
1931 Turnbull Avenue
Bronx, New York 10473
GATES AVENUE BRANCH Owned 1905 - $273,994
1012 Gates Avenue
Brooklyn, New York 11221
HILLCREST BRANCH Leased 1971 May, 2001 $52,285
176-47 Union Turnpike
Flushing, New York 11366
KINGS HIGHWAY BRANCH Owned 1976 - $810,201
1902-1904 Kings Highway
Brooklyn, New York 11229
MARINE PARK BRANCH <F2> Owned 1993 - $815,842
2172 Coyle Street
Brooklyn, NY 11229
MERRICK BRANCH Owned 1960 - $233,059
1775 Merrick Avenue
Merrick, New York 11566
PORT WASHINGTON BRANCH Owned 1971 - $470,284
1000 Port Washington Boulevard
Port Washington, New York
11050
ROSLYN BRANCH <F5> Owned 1990 - $2,967,444
1075 Northern Boulevard
Roslyn, NY 11576
WESTBURY BRANCH <F3> <F4> 1994 - $552,277
622 Old Country Road
Westbury, New York 11590
WHITESTONE BRANCH Owned 1979 - $807,409
24-44 Francis Lewis Boulevard
Whitestone, New York 11357
<FN>
<F1> The Bank has an option to extend this lease for an additional ten year
term at fair market rent, as determined by the agreement of the parties
or, if the parties cannot agree, by arbitration.
<F2> Prior to October 2, 1993, this branch office was located at 2161 Coyle
Street, Brooklyn, New York.
<F3> This branch office opened April 29, 1995.
<F4> Building owned, land leased. Lease expires in October, 2003.
<F5> Includes premises utilized by Help Center Service and Havemeyer Brokerage
Corp.
</TABLE>
PAGE 38
<PAGE>
ITEM 3 - 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 alleges violations of New York State
and federal trademark law and unfair competition law. Dime of New York seeks
injunctive 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 seeks an order requiring the
Company to change its corporate name and change its Nasdaq Stock Market trading
symbol "DIME." Dime of New York does not seek monetary damages.
The Company and the Bank have answered the complaint and filed counterclaims in
which they seek to enjoin the Dime of New York from employing service marks
that are confusingly similar to the Company's and the Bank's service marks.
The action is in the preliminary stages of discovery. The Company and the Bank
intend to defend vigorously these claims made against them and pursue their
counterclaims.
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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
PART II
ITEM 5- MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Information regarding the market for the Company's common stock and related
stockholder matters appears in the 1997 Annual Report under the caption "Market
for the Company's Common Stock and Related Stockholder Matters," and is
incorporated herein by this reference.
ITEM 6. - SELECTED FINANCIAL DATA
Information regarding selected financial data appears in the 1997 Annual Report
to Shareholders for the year ended June 30, 1997 ("1997 Annual Report") under
the caption "Financial Highlights," and is incorporated herein by this
reference.
ITEM 7. -MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information regarding management's discussion and analysis of financial
condition and results of operations appears in the 1997 Annual Report under
the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and is incorporated herein
by this reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information regarding market risk appears in the 1997 Annual Report to
Shareholders under the caption "Discussion of Market Risk" and is incorporated
herein by reference.
PAGE 39
<PAGE>
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding financial statements and supplementary data, including
the Independent Auditors' Report appears in the 1997 Annual Report under the
captions:
"Independent Auditors' Report," "Consolidated Statements of Financial Condition
at June 30, 1997 and 1996,"
"Consolidated Statements of Operations for each of the years in the three year
period ended June 30, 1997,"
"Consolidated Statements of Stockholders' Equity for each of the years in the
three year period ended
June 30, 1997," "Consolidated Statements of Cash Flows for each of the years in
the three year period ended
June 30,1997,"and "Notes to Consolidated Financial Statements," and is
incorporated herein by this reference.
ITEM 9. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information regarding directors and executive officers of the Company is
presented under the headings "Proposal 1 - Election of Directors - General, "-
Information as to Nominees and Continuing Directors,""- Nominees for Election
as Director," "-Continuing Directors," "-Meetings and Committees of the Board
of Directors," "-Executive Officers," "-Directors' Compensation," "-Executive
Compensation," and "-Section 16(a) Beneficial Ownership Reporting Compliance"
in the Company's definitive Proxy Statement for its Annual Meeting of
Shareholders to be held on November 13, 1997 (the "Proxy Statement") which will
be filed with the SEC within 120 days of June 30, 1997, and is incorporated
herein by reference.
ITEM 11. - EXECUTIVE COMPENSATION
Information regarding executive and director compensation is presented
under the headings "Election of Directors - Directors' Compensation," "-
Executive Compensation," "-Summary Compensation Table," "Employment
Agreements," "- Employee Retention Agreements," "-Employee Severance
Compensation Plan," and "- Benefits," in the Proxy Statement and is
incorporated herein by reference.
ITEM 12. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is included under the headings "Security Ownership of Certain
Beneficial Owners and Management" in the Proxy Statement and is incorporated
herein by reference.
ITEM 13. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information regarding certain relationships and related transactions is
included under the heading "Transactions with Certain Related Persons" in the
Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following consolidated financial statements and schedules of the
Company, and the independent auditors' report thereon are included in
the Company's Annual Report to Shareholders for the year
ended June 30, 1997, and are incorporated herein by reference:
Independent Auditors' Report
Consolidated Statements of Financial Condition at June 30, 1997 and 1996
Consolidated Statements of Operations for each of the years in the three
year period ended June 30, 1997
PAGE 40
<PAGE>
Consolidated Statements of Stockholders' Equity for each of the years in
the three year period ended June 30, 1997
Consolidated Statements of Cash Flows for each of the years in the three
year period ended June 30,1997
Notes to Consolidated Financial Statements
Quarterly Results of Operations (Unaudited) for each of the years in the
two year period ended June 30, 1997
The remaining information appearing in the 1997 Annual Report is not
deemed to be filed as a part of this report, except as expressly
provided herein.
2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated Financial
Statements or Notes thereto.
(b) Reports on Form 8-K filed during the quarter ended June 30, 1997
On May 16, 1997, the Company filed a Current Report on Form 8-K regarding
the death of James M. Fox, director.
(c) Exhibits Required by Item 601 of Securities and Exchange Commission
Regulation S-K:
EXHIBIT
NUMBER
- ------------
3.1 Certificate of Incorporation of Dime Community Bancorp, Inc. (1)
3.2 Bylaws of Dime Community Bancorp, Inc. (2)
4.1 Certificate of Incorporation of Dime Community Bancorp, Inc. (1)
4.2 Bylaws of Dime Community Bancorp, Inc. (2)
4.3 Draft Stock Certificate of Dime Community Bancorp, Inc. (1)
10.1 Agency Agreement, by and among Dime Community Bancorp, Inc., The Dime
Savings Bank of Williamsburgh and Sandler O'Neill & Partners, L.P. (1)
10.2 Agreement and Plan of Merger dated as of the 2nd day of November, 1995
by and between The Dime Savings Bank of Williamsburgh and Conestoga
Bancorp, Inc. (3)
10.3 Stock Option Agreement dated as of the 2nd day of November, 1995 by and
between The Dime Savings Bank of Williamsburgh and Conestoga Bancorp,
Inc. (3)
10.4 Engagement Letter, dated September 11, 1995 between The Dime Savings
Bank of Williamsburgh and Ryan Beck & Co., Inc. (1)
10.5 Amended and Restated Employment Agreement between The Dime Savings Bank
of Williamsburgh and Vincent F. Palagiano (4)
10.6 Amended and Restated Employment Agreement between The Dime Savings Bank
of Williamsburgh and Michael P. Devine (4)
10.7 Amended and Restated Employment Agreement between The Dime Savings Bank
of Williamsburgh and Kenneth J. Mahon (4)
10.8 Employment Agreement between Dime Community Bancorp, Inc. and Vincent F.
Palagiano (4)
10.9 Employment Agreement between Dime Community Bancorp, Inc. and Michael P.
Devine (4)
10.10 Employment Agreement between Dime Community Bancorp, Inc. and Kenneth J.
Mahon (4)
10.11 Form of Employee Retention Agreements by and among The Dime Savings Bank
of Williamsburgh, Dime Community Bancorp, Inc. and certain executive
officers (4)
10.12 Employee Stock Ownership Plan of Dime Community Bancorp, Inc. and
certain affiliates (1)
10.13 First Amendment to Employee Stock Ownership Plan of Dime Community
Bancorp, Inc. and Certain Affiliates (4)
10.14 ESOP Loan Commitment Letter and ESOP Loan Documents (4)
10.15 The Dime Savings Bank of Williamsburgh 401(k) Savings Plan in RSI
Retirement Trust (1)
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<PAGE>
10.18 Seventh, Eighth and Ninth Amendments to The Dime Savings Bank of
Williamsburgh 401(k) Savings Plan
in RSI Retirement Trust (4)
10.16a Tenth and Eleventh Amendments to The Dime Savings Bank of Williamsburgh
401(k) Savings Plan in RSI
Retirement Trust
10.17 The Benefit Maintenance Plan of Dime Community Bancorp, Inc.
10.18 Severance Pay Plan of The Dime Savings Bank of Williamsburgh (4)
10.19 Retirement Plan for Board Members of Dime Community Bancorp, Inc. (4)
10.20 Dime Community Bancorp, Inc. Stock Option Plan for Outside Directors,
Officers and Employees, as
amended by amendments number 1 and 2.
10.21 Recognition and Retention Plan for Outside Directors, Officers and
Employees of Dime Community
Bancorp, Inc., as amended by amendments number 1 and 2.
10.22 Form of stock option agreement for Outside Directors under Dime
Community Bancorp, Inc. 1996 Stock
Option Plan for Outside Directors, Officers and Employees
10.23 Form of stock option agreement for officers and employees under Dime
Community Bancorp, Inc. 1996
Stock Option Plan for Outside Directors, Officers and Employees
10.24 Form of award notice for outside directors under the Recognition and
Retention Plan for Outside Directors,
Officers and Employees of Dime Community Bancorp, Inc.
10.25 Form of award notice for officers and employees under the Recognition
and Retention Plan for Outside
Directors, Officers and Employees of Dime Community Bancorp, Inc.
11.0 Statement Re: Computation of Per Share Earnings
13.1 1997 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant (1)
27.1 Financial Data Schedule (EDGAR filing only)
(1) Incorporated by reference to Exhibits to the Registration Statement on
Form S-1, No. 33-80735 filed on December 22, 1995, as amended.
(2) Incorporated by reference to the registrant's 10-Q dated December 31, 1996.
(3) Incorporated by reference to the Schedule 13D of The Dime Savings Bank of
Williamsburgh, filed with the Commission on November 23, 1995.
(4) Incorporated by reference to Exhibits to the Annual Report on Form 10-K
for the fiscal year ended June 30, 1996 filed on September 27, 1996.
PAGE 42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 of the Securities Exchange
Act of 1934, as amended, the Registrant certifies that it has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on September 26, 1997.
Dime Community Bancorp, Inc.
By: /S/ VINCENT F. PALAGIANO
----------------------------------
Vincent F. Palagiano
Chairman of the Board
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
<S> <C> <C>
/S/ VINCENT F. PALAGIANO
Vincent F. Palagiano Chairman of the Board and Chief September 26,1997
Executive Officer (Principal
executive officer)
/S/ MICHAEL P. DEVINE
Michael P. Devine President and Chief Operating September 26, 1997
Officer and Director
/S/ KENNETH J. MAHON
Kenneth J. Mahon Executive Vice President, September 26, 1997
Secretary and Chief Financial
Officer (Principal financial
officer)
/S/ ANTHONY BERGAMO
Anthony Bergamo Director September 26, 1997
/S/ GEORGE L. CLARK, JR.
George L. Clark, Jr. Director September 26, 1997
/S/ STEVEN D. COHN
Steven D. Cohn Director September 26, 1997
/S/ PATRICK E. CURTIN
Patrick E. Curtin Director September 26, 1997
/S/ JOSEPH H. FARRELL
Joseph H. Farrell Director September 26, 1997
/S/ FRED P. FEHRENBACH
Fred P. Fehrenbach Director September 26, 1997
/S/ JOHN J. FLYNN
John J. Flynn Director September 26, 1997
/S/ MALCOLM T. KITSON
Malcolm T. Kitson Director September 26, 1997
/S/ STANLEY MEISELS
Stanley Meisels Director September 26, 1997
/S/ LOUIS V. VARONE
Louis V. Varone Director September 26, 1997
</TABLE>
PAGE 44
<PAGE>
AMENDMENT NUMBER TEN
TO
THE DIME SAVINGS BANK OF WILLIAMSBURGH
401(k) SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of The Dime Savings Bank of Williamsburgh 401 (k)
Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended effective
as of March 1, 1997:
1. INTRODUCTION - Introduction of the Plan shall be amended by adding the
following paragraph immediately prior to the last paragraph to read as follows:
Elfective March 1, 1997, the Pioneer Savings Bank, FSB Tax Deferral Savings
Plan in RSI Retirement Trust shall be merged with and into The Dime Savings
Bank of Williamsburgh 401(k) Savings Plan in RSI Retirement Trust. The accounts
of employees of Pioneer Savings Bank, FSB and Conestoga Bancorp, Inc. shall be
merged into the Accounts maintained on behalf of each Participant in accordance
with Section 1.1 of the Plan.
2. ARTICLE I - The definition of Accounts, Section 1.1 shall be amended by
adding the following sentence to the end thereof:
Effective March 1, 1997, Accounts shall also include accounts maintained on
behalf of employees of the Acquired Company, acquired on June 26, 1996.
3. ARTICLE I - The definition of Bank Contribution Account, Section 1.10 shall
be amended by adding the following sentence to the end thereof:
Effective March 1, 1997, Bank Contribution Account shall also mean matching
contribution accounts maintained on behalf of Employees of the Acquired Company
under the former Pioneer Plan, as in effect on and prior to February 28, 1997.
4. ARTICLE I - The definition of Basic Contribution Account, Section 1.12 shall
be amended by adding the following sentence to the end thereof:
Effective March 1, 1997, Basic Contribution Account shall also mean basic
contribution accounts maintained on behalf of Employees of the Acquired Company
under the former Pioneer Plan, as in effect on and prior to February 28, 1997.
(717) (1 of 2)
<PAGE>
5. ARTICLE I - The definition of Early Retirement Date, Section 1.22 shall be
amended by adding the following sentence to the end thereof:
Effective March 1, 1997, for Employees who were employed by the Acquired
Company as of the date of acquisition, June 26, 1996, Early Retirement Date
shall also mean the first day of any month coincident with or following such
Employee's attainment of age fifty-five, (55).
6. ARTICLE I - The following definition shall be added immediately prior to the
definition of Plan, Section 1.48, all sections following shall be renumbered
accordingly and all cross-references thereto shall be renumbered accordingly:
1.48 PIONEER PLAN means Pioneer Savings Bank, FSB Tax Deferral Savings Plan
in RSI
Retirement Trust as in effect on and prior to February 28, 1997.
7. ARTICLE I - The definition of Rollover Contribution Account, Section 1.58
prior to its renumbering hereunder, shall be amended by adding the following
sentence to the end thereof:
Effective March 1, 1997, Rollover Contribution Account shall also mean rollover
contribution accounts maintained on behalf of Employees of the Acquired Company
under the former Pioneer Plan as in effect on and prior to February 28, 1997.
<PAGE>
AMENDMENT NUMBER ELEVEN
TO
THE DIME SAVINGS BANK OF WILLIAMSBURGH
401(k) SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of the Dime Savings Bank of Williamsburgh 401(k)
Savings Plan in RSI Retirement Trust ("Plan"), the Plan is amended as follows,
effective September 11, 1997:
1. ARTICLE VIII - Section 8.2 shall be amended by adding the following as the
second sentence thereof and the former second sentence shall follow
accordingly:
Commencing September 11, 1997, a Borrower may request a loan from his
Accounts,in an amount up to the lesser of (a) fifty percent (50%) of
the Net Value as of the close of business on the date the loan is
processed of: his Basic Contribution Account , vested Bank Contribution
Account, Participant Contribution Account and Rollover Contribution
Account, or (b)$50,000, reduced by the highest outstanding loan balance
during the preceding twelve (12) months.
2. ARTICLE VIII - Section 8.4(b) shall be amended by deleting the words "and
one hundred percent (100%) vested" and by adding the word "vested" in the
beginning of Section 8.4(b)(iv).
BENEFIT MAINTENANCE PLAN
OF
DIME COMMUNITY BANCORP, INC.
________________________________
Adopted Effective As Of November 1, 1992
As Amended and Restated To and Including June 10, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1 Actuarial Equivalent 1
Section 1.2 Affiliated Employer 1
Section 1.3 Applicable Limitation 1
Section 1.4 Bank 2
Section 1.5 Beneficiary 2
Section 1.6 Board 2
Section 1.7 Change in Control 2
Section 1.8 Code 3
Section 1.9 Committee 3
Section 1.10 Company 3
Section 1.11 Eligible Employee 3
Section 1.12 Employee 3
Section 1.13 Employer 3
Section 1.14 Employer Contributions 3
Section 1.15 ERISA 4
Section 1.16 ESOP 4
Section 1.17 Exchange Act 4
Section 1.18 Fair Market Value of a Share 4
Section 1.19 Former Participant 4
Section 1.20 Savings Plan 4
Section 1.21 Participant 4
Section 1.22 Plan 4
Section 1.23 Retirement Plan 5
Section 1.24 Share 5
Section 1.25 Stock Unit 5
Section 1.26 Termination of Service 5
ARTICLE II PARTICIPATION
Section 2.1 Eligibility for Participation 5
Section 2.2 Commencement of Participation 6
Section 2.3 Termination of Participation 6
PAGE (i)
<PAGE>
ARTICLE III BENEFITS TO PARTICIPANTS
Section 3.1 Supplemental Retirement Benefit 6
Section 3.2 Supplemental Savings Benefit 7
Section 3.3 Supplemental ESOP Benefits 8
ARTICLE IV DEATH BENEFITS
Section 4.1 Supplemental Retirement Plan Death Benefits 10
Section 4.2 Supplemental Savings Plan Death Benefits 10
Section 4.3 Supplemental ESOP Death Benefits 10
Section 4.4 Beneficiaries 11
ARTICLE V TRUST FUND
Section 5.1 Establishment of Trust. 11
Section 5.2 Contributions to Trust. 12
Section 5.3 Unfunded Character of Plan. 12
ARTICLE VI ADMINISTRATION
Section 6.1 The Committee 12
Section 6.2 Liability of Committee Members and their Delegates 13
PAGE (ii)
<PAGE>
Section 6.3 Plan Expenses 13
Section 6.4 Facility of Payment 14
ARTICLE VII AMENDMENT AND TERMINATION
Section 7.1 Amendment by the Company. 14
Section 7.2 Termination. 14
Section 7.3 Amendment or Termination by Other Employers 14
ARTICLE VIII MISCELLANEOUS PROVISIONS
Section 8.1 Construction and Language 15
Section 8.2 Headings 15
Section 8.3 Non-Alienation of Benefits 15
Section 8.4 Indemnification 16
Section 8.5 Severability 16
Section 8.6 Waiver 16
Section 8.7 Governing Law 16
Section 8.8 Taxes. 16
Section 8.9 No Deposit Account 17
Section 8.10 No Right to Continued Employment 17
Section 8.11 Status of Plan Under ERISA 17
PAGE iii
<PAGE>
BENEFIT MAINTENANCE PLAN
OF
DIME COMMUNITY BANCORP, INC.
ARTICLE I
DEFINITIONS
Wherever appropriate to the purposes of the Plan, capitalized terms shall
have the meanings assigned to them under the Retirement Plan, Savings
Plan or ESOP, as applicable; provided, however, that the following
special definitions shall apply for purposes of the Plan, unless a
different meaning is clearly indicated by the context:
Section 1.1 Actuarial Equivalent means a benefit of equivalent value
determined on the basis of interest rate and mortality assumptions
prescribed under the Retirement Plan. If it shall be necessary to
determine an Actuarial Equivalent in any case for which interest rate and
mortality assumptions shall not have been prescribed under the Retirement
Plan, the Actuarial Equivalent shall be determined using the interest
rate and mortality assumptions prescribed by the Commissioner of Internal
Revenue pursuant to section 417(e) of the Code for the month in which the
determination is being made.
Section 1.2 Affiliated Employer means any corporation which is a member of
a controlled group of corporations (as defined in section 414(b) of the
Code) that includes the Company; any trade or business (whether or not
incorporated) that is under common control (as defined in section 414(c)
of the Code) with the Company; any organization (whether or not
incorporated) that is a member of an affiliated service group (as defined
in section 414(m) of the Code) that includes the Company; any leasing
organization (as defined in section 414(n) of the Code) to the extent
that any of its employees are required pursuant to section 414(n) of the
Code to be treated as employees of the Company; and any other entity that
is required to be aggregated with the Company pursuant to regulations
under section 414(o) of the Code.
Section 1.3 Applicable Limitation means any of the following: (a) the
limitation on annual compensation that may be recognized under a tax-
qualified plan for benefit computation purposes pursuant to section
401(a)(17) of the Code; (b) the maximum limitation on annual benefits
payable by a tax-qualified defined benefit plan pursuant to section
415(b) of the Code; (c) the maximum limitation on annual additions to a
tax-qualified defined contribution plan pursuant to section 415(c) of the
Code; (d) the maximum limitation on aggregate annual benefits and annual
additions under a combination of tax-qualified defined benefit and
defined contribution plans maintained by a single employer pursuant to
section 415(e) of the Code; (e) the maximum limitation on annual elective
deferrals to a qualified cash or deferred arrangement pursuant to section
402(g) of the Code; (f) the annual limitation on elective deferrals under
a qualified cash or deferred arrangement by highly compensated employees
pursuant to section 401(k) of the Code; and (g) the annual limitation on
voluntary employee contributions by, and employer matching contributions
for, highly compensated employees pursuant to section 401(m) of the Code.
<PAGE>
PAGE 2
Section 1.4 Bank means The Dime Savings Bank of Williamsburgh, a federal
stock savings bank, and its successors or assigns.
Section 1.5 Beneficiary means any person, other than a Partic-ipant or
Former Participant, who is determined to be entitled to benefits under
the terms of the Plan.
Section 1.6 Board means the Board of Directors of the Company.
Section 1.7 Change in Control means any of the following events:
(a)the occurrence of any event upon which any "person" (as such term is
used in sections 13(d) and 14(d) of the Exchange Act), other than (i) a
trustee or other fiduciary holding securities under an employee benefit
plan maintained for the benefit of employees of the Company; (ii) a
corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of stock
of the Company; or (iii) any group constituting a person in which
employees of the Company are substantial members, becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the Exchange Act),
directly or indirectly, of securities issued by the Company representing
25% or more of the combined voting power of all of the Company's then
outstanding securities; or
(b)the occurrence of any event upon which the individuals who were
members of the Board on November 1, 1992, together with individuals whose
election by the Board or nomination for election by the Company's
stockholders was approved by the affirmative vote of at least two-thirds
of the members of the Board then in office who were either members of the
Board on the date this Plan is adopted or whose nomination or election
was previously so approved, cease for any reason to constitute a majority
of the members of the Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i)a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation following which both of the
following conditions are satisfied:
(A)either (1) the members of the Board of the Company immediately prior
to such merger or consolidation constitute at least a majority of the
members of the governing body of the institution resulting from such
merger or consolidation; or (2) the shareholders of the Company own
securities of the institution resulting from such merger or consolidation
representing 80% or more of the combined voting power of all such
securities then outstanding in substantially the same proportions as
their ownership of voting securities of the Company before such merger or
consolidation; and
<PAGE>
PAGE 3
(B)the entity which results from such merger or consolidation expressly
agrees in writing to assume and perform the Company's obligations under
the Plan; or
(ii)a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of its
assets; and
(d)any event that would be described in section 1.7(a), (b) or (c) if
"the Bank" were substituted for "the Company" therein.
Section 1.8 Code means the Internal Revenue Code of 1986 (including the
corresponding provisions of any prior law or succeeding law).
Section 1.9 Committee means the Compensation Committee of the Board of
Directors of the Company, or such other person, committee or other entity
as shall be designated by or on behalf of the Board to perform the duties
set forth in Article IV.
Section 1.10 Company means, Dime Community Bancorp, Inc., a Delaware
corporation, any successor thereto.
Section 1.11 Eligible Employee means an Employee who is eligi-ble for
participation in the Plan in accordance with the pro-visions of Article
II.
Section 1.12 Employee means any person, including an officer, who is
employed by the Employer.
Section 1.13 Employer means Dime Community Bancorp, Inc., and any
successor thereto and The Dime Savings Bank of Williamsburgh and any
successor thereto and any Affiliated Employer which, with the prior
written approval of the Board of Directors of Dime Community Bancorp,
Inc. and subject to such terms and conditions as may be imposed by the
Board of Directors of Dime Community Bancorp, Inc., shall adopt this
Plan.
Section 1.14 Employer Contributions means contributions by any Employer to
the Savings Plan or the ESOP.
<PAGE>
PAGE 4
Section 1.15 ERISA means the Employee Retirement Income Security Act of
l974, as amended from time to time (in-cluding the corre-sponding
provisions of any succeeding law).
Section 1.16 ESOP means the Employee Stock Ownership Plan of Dime
Community Bancorp, Inc. and Certain Affiliates, as amended from time to
time (including the corresponding provisions of any successor qualified
employee stock ownership plan adopted by the Company).
Section 1.17 Exchange Act means the Securities Exchange Act of 1934, as
amended from time to time (including the corresponding provisions of any
succeeding law).
Section 1.18 Fair Market Value of a Share means, with respect to a Share
on a specified date:
(a)the final reported sales price on the date in question (or if there is
no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated
reporting system with respect to securities listed or admitted to trading
on the principal United States securities exchange on which the Shares
are listed or admitted to trading; or
(b)if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date
on the National Association of Securities Dealers Automated Quotations
System, or, if no such quotation is provided, on another similar system,
selected by the Committee, then in use; or
(c)if sections 1.18(a) and (b) are not applicable, the fair market value
of a Share as the Committee may determine.
Section 1.19 Former Participant means a person whose participa-tion in the
Plan has terminated as provided under section 1.26
Section 1.20 Savings Plan means the 401(k) Savings Plan of The Dime
Savings Bank of Williamsburgh, as amended from time to time (including
the provisions of any successor qualified defined contribution plan
adopted by the Company).
Section 1.21 Participant means any person who is par-ticipating in the
Plan in accordance with its terms.
Section 1.22 Plan means the Benefit Maintenance Plan of Dime Community
Bancorp, Inc., as amended from time to time (including the corresponding
provisions of any successor plan adopted by the Company).
<PAGE>
PAGE 5
Section 1.23 Retirement Plan means the Retirement Plan of The Dime
Savings Bank of Williamsburgh, as amended from time to time (including
the corresponding provisions of any successor qualified defined benefit
plan adopted by the Bank).
Section 1.24 Share means a share of common stock, par value $.01 per
share, of Dime Community Bancorp., Inc.
Section 1.25 Stock Unit means a right to receive a payment under the
Plan in an amount equal, on the date as of which such payment is made, to
the Fair Market Value of a Share.
Section 1.26 Termination of Service means an Employ-ee's sepa-ration from
service with all Employers as an Employee, whether by resigna-tion,
discharge, death, disability, retirement or other-wise.
ARTICLE II
PARTICIPATION
Section 2.1 Eligibility for Participation.
Only Eligible Employees may be or become Participants. An Employee shall
become an Eligible Employee if:
(a)he holds the office of Senior Vice President, or a more senior office,
of the Employer, or he has been designated an Eligible Employee by
resolution of the Committee; and
(b)he is a Participant in the Retirement Plan, the Savings Plan or the
ESOP, or any combination thereof, and the benefits to which he is
entitled thereunder are limited by one or more of the Applicable
Limitations;
provided, however, that no person shall be named an Eligible Employee,
nor shall any person who has been an Eligible Employee continue as an
Eligible Employee, to the extent that such person's participation, or
continued participation, in the Plan would cause the Plan to fail to be
considered maintained for the primary purpose of providing deferred
compensation for a select group
of management or highly compensated employees for purposes of ERISA.
<PAGE>
PAGE 6
Section 2.2 Commencement of Participation.
An Employee shall become a Participant on the date when he first becomes
an Eligible Employee, unless the Committee shall, by resolution,
establish an earlier or later effective date of participation for a
Participant.
Section 2.3 Termination of Participation.
Participation in the Plan shall cease on the earlier of (a) the date of
the Participant's Termination of Service or (b) the date on which he
ceases to be an Eligible Employee.
ARTICLE III
BENEFITS TO PARTICIPANTS
Section 3.1 Supplemental Retirement Benefit.
(a)A Participant whose benefits under the Re-tirement Plan are limited by
one or more of the Applicable Limitations shall be eligible for a sup-
plemental retirement benefit under this Plan in an amount equal to the
excess of:
(i)the retirement benefit to which he would be entitled under the
Retirement Plan in the absence of the Applicable Limitations; over
(ii)the actual retirement benefit to which he is entitled under the
Retirement Plan;
in each case computed as of the date on which his benefit under the
Retirement Plan is scheduled to commence and on the basis of the benefit
form selected by him under the Retirement Plan; provided, however, that
if the Participant dies before the payment of such supplemental
retirement benefit begins, no benefit shall be payable under this section
3.1 and the survivor benefit, if any, which may be payable shall be
determined under section 4.1.
(b) The supplemental retirement benefit provided for in this section 3.1
shall be paid in the form of a single life annuity commencing on the
first day of the month coincident with or next following the
Participant's Termination of Service or, if later, the earliest date on
which benefits under the Retirement Plan could, with a proper election,
begin to be paid. Notwithstanding the foregoing, a Participant may,
within thirty (30) days after first becoming eligible to participate in
the Plan for purposes of receiving a supplemental retirement benefit,
elect that such supplemental retirement benefit be paid in a different
form or commencing at a different time by filing a written election, in
such form and manner as the Committee may provide, within such thirty
(30) day period, and the amount of such benefit shall be the Actuarial
Equivalent of the benefit payable in the absence of such an election.
<PAGE>
PAGE 7
Section 3.2 Supplemental Savings Benefit.
(a)A Participant whose benefits under the Savings Plan are limited by one
or more of the Applicable Limitations shall be eligible for a
supplemental savings benefit under this Plan in an amount equal to:
(i)the aggregate amount of Employer Contributions (including any
reallocation of amounts forfeited upon the termination of employment of
others participating in the Savings Plan) that would have been credited
to the Participant's account under the Savings Plan in the absence of the
Applicable Limitations if for all relevant periods he had made the
maximum amount of elective deferrals under section 402(g) of the Code or
voluntary employee contributions under section 401(a) of the Code
required to qualify for the maximum possible allocation of Employer
Contributions (and without regard to the amount of elective deferrals or
voluntary employee contributions actually made); over
(ii)the aggregate amount of Employer Contributions (including any
reallocation of amounts forfeited upon the termination of employment of
others participating in the Savings Plan) actually credited to the
Participant's account under the Savings Plan for such periods;
adjusted for earnings and losses as provided section 3.2(b); provided,
however, that if the Participant dies before the payment of such
supplemental savings benefit begins, no benefit shall be payable under
this section 3.2 and the survivor benefit, if any, which may be payable
shall be determined under section 4.2.
(b)The Committee shall cause to be maintained a bookkeeping account to
reflect all Employer Contributions (including any reallocation of
amounts forfeited upon the termination of employment of others
participating in the Savings Plan) that cannot be made to a Participant's
account under the Savings Plan due to the Applicable Limitations and
shall cause such bookkeeping account to be credited with all such
Employer Contributions as of the date on which such Employer
Contributions would have been credited to the Participant's account in
the Savings Plan in the absence of the Applicable Limitations. The
balance credited to such bookkeeping account shall be adjusted for
earnings or losses as follows:
(i)except as provided in section 3.2(b)(ii), the balance credited to such
bookkeeping account shall be credited with interest as of the last day of
each calendar month at a rate for such month equal to one-twelfth of the
annualized yield on 30-year Treasury Securities, Constant Maturities,
prescribed by the Commissioner of Internal Revenue for such month
pursuant to section 417(e) of the Code; or
<PAGE>
PAGE 8
(ii)if and to the extent permitted by the Committee, as though such
Employer Contributions had been contributed to a trust fund and invested,
for the benefit of the Participant, in such investments at such time or
times as the Participant shall have designated in such form and manner as
the Committee shall prescribe.
(c)The supplemental savings benefit payable to a Participant hereunder
shall be paid in a single lump sum as soon as practicable following the
last day of the calendar year in which the Participant's Termination of
Service occurs and shall be equal to the balance credited to his
bookkeeping account as of the last day of the last calendar month to end
prior to the date of payment. Notwithstanding the foregoing, a
Participant may, within thirty (30) days after first becoming eligible to
participate in the Plan for purposes of receiving a supplemental savings
benefit, specify that such supplemental savings benefit be paid in a
different form or commencing at a different time by filing a written
election, in such form and manner as the Committee may prescribe, within
such thirty (30) day period.
Section 3.3 Supplemental ESOP Benefits.
(a)A Participant whose benefits under the ESOP are limited by one or more
of the Applicable Limitations shall be eligible for a supplemental ESOP
benefit under this Plan in an amount equal to the sum of:
(i)a number of Stock Units equal to the excess (if any) of (A) the
aggregate number of Shares (including any reallocation of Shares
forfeited upon the termination of employment of others participating in
the ESOP) that would have been credited to the Participant's account
under the ESOP in the absence of the Applicable Limitations over (B) the
number of Shares actually credited to his account under the ESOP; plus
(ii)if and to the extent that Employer Contributions to the ESOP result
in allocations to the Participant's account of assets other than Shares,
an amount equal to the excess (if any) of (A) the aggregate amount of
Employer Contributions (including any reallocation of amounts forfeited
upon the termination of employment of others participating in the ESOP)
that would have been credited to the Participant's account under the ESOP
in the absence of the Applicable Limitations over (B) the aggregate
amount of Employer Contributions (including any reallocation of amounts
forfeited upon the termination of employment of others participating in
the ESOP) actually credited to the Participant's account under the ESOP;
adjusted for earnings and losses as provided section 3.3(b); provided,
however, that if the Participant dies before the payment of such
supplemental ESOP benefit begins, no benefit shall be payable under this
section 3.3 and the survivor benefit, if any, which may be payable shall
be determined under section 4.3.
<PAGE>
PAGE 9
(b)The Committee shall cause to be maintained a bookkeeping account to
reflect all Shares and Employer Contributions (including any
reallocation of amounts forfeited upon the termination of employment of
others participating in the ESOP) that cannot be allocated to a
Participant's account under the ESOP due to the Applicable Limitations
and shall cause such bookkeeping account to be credited with such
Employer Contributions and Stock Units reflecting such Shares as of the
date on which such Employer Contributions and Shares, respectively, would
have been credited to the Participant's account in the ESOP in the
absence of the Applicable Limitations. The balance credited to such
bookkeeping account shall be adjusted for earnings or losses as follows:
(i)all Stock Units shall be adjusted from time to time so that the value
of a Stock Unit on any date is equal to the Fair Market Value of Share on
such date, and the number of Stock Units shall be adjusted as and when
appropriate to reflect any stock dividend, stock split, reverse stock
split, exchange, conversion, or other event generally affecting the
number of Shares held by all holders of Shares; and
(ii) (A) except as provided in section 3.3(b)(ii)(B), the balance credited
to such bookkeeping accountthat does not consist of Stock Units shall be
credited with interest as of the last day of each calendar month at a rate
for such month equal to one-twelfth of the annualized yield on 30-year
Treasury Securities,Constant Maturities, prescribed by theCommissioner
of Internal Revenue forsuch month pursuant to section 417(e) of the Code; or
(B)if and to the extent permitted by the Committee, the balance credited
to such bookkeeping account that does not consist of Stock Units shall be
adjusted as though such Employer Contributions had been contributed to a
trust fund and invested, for the benefit of the Participant, in such
investments at such time or times as the Participant shall have
designated in such form and manner as the Committee shall prescribe;
provided, however, that to the extent that the Participant shall receive
on a current basis any dividend paid with respect to Shares credited to
his account under the ESOP, the bookkeeping account established for him
under this Plan shall not be adjusted to reflect such dividend and,
instead, the Participant shall be paid an amount per Stock Unit equal to
the dividend par Share received by the Participant under the ESOP, at
substantially the same time as such dividend is paid under the ESOP.
(c)The supplemental ESOP benefit payable to a Participant hereunder shall
be paid in a single lump sum as soon as practicable following the last
day of the calendar year in which the Participant's Termination of
Service occurs and shall be in an amount equal to the balance credited to
his bookkeeping account. Notwithstanding the foregoing, a Participant
may, within thirty (30) days after first becoming eligible to participate
in the Plan for purposes of receiving a supplemental ESOP benefit,
specify that such supplemental ESOP benefit be paid in a different form
or commencing at a different time by filing a written election, in such
form and manner as the Committee may prescribe, within such thirty (30)
day period.
<PAGE>
PAGE 10
ARTICLE IV
DEATH BENEFITS
Section 4.1 Supplemental Retirement Plan Death Benefits.
If a Participant who is eligible for a supplemental retirement benefit
under section
3.1 dies before the payment of such benefit begins, a supplemental
survivor's retirement benefit shall be payable to the Participant's
Beneficiary under this Plan in amount equal to the excess (if any) of (a)
the survivor's benefit that would have been payable under the Retirement
Plan commencing at the earliest permissible date in the absence of the
Applicable Limitations if the Participant had effectively designated such
Beneficiary as his beneficiary under the Retirement Plan, over (b) the
survivor's benefit would have been payable under the Retirement Plan
commencing at the earliest permissible date after giving effect to the
Applicable Limitations if the Participant had effectively designated such
Beneficiary as his beneficiary under the Retirement Plan. Such benefit
shall be paid in a single lump sum which is the Actuarial Equivalent of
the benefit described in the preceding sentence as soon as practicable
following the death of the Participant.
Section 4.2 Supplemental Savings Plan Death Benefits.
If a Participant who is eligible for a supplemental savings benefit under
section 3.2dies before the payment of such benefit begins, a
supplementalsurvivor's savings benefit shall be payable to the
Participant's Beneficiary under this Plan in amount equal to the balance
credited tothe bookkeeping account established for the Participant under
section3.2(b). Such benefit shall be paid in a single lump as soon as
practicable following the death of the Participant and the bookkeeping
account established for such Participant pursuant to section 3.2(b) shall
continue to be adjusted as provided therein through the last day of the
last calendar month to end prior to the date of payment.
Section 4.3 Supplemental ESOP Death Benefits.
If a Participant who is eligible for a supplemental ESOP benefit under
section 3.3 dies before the payment of such benefit begins, a supplemental
ESOP benefit shall be payable to the Participant's Beneficiary under this Plan
in amount equal to the balance credited to the bookkeeping account
established for the Participant under section 3.3(b). Such benefit shall
be paid in a single lump as soon as practicable following the death of
the Participant, and the bookkeeping account established for such
Participant pursuant to section 3.3(b) shall continue to be adjusted as
provided therein through the last day of the last calendar month to end
prior to the date of payment.
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PAGE 11
Section 4.4 Beneficiaries.
A Participant or Former Participant may designate a Beneficiary or
Beneficiaries to receive any survivor benefits payable under the Plan
upon his death. Any such designation, or change therein or revocation
thereof, shall be made in writing in the form and manner prescribed by
the Committee, shall be revocable until the death of the Participant, and
shall thereafter be irrevocable; provided, however, that any change or
revocation shall be effective only if received by the Committee prior to
the Participant's or Former Participant's death. If a Participant or
Former Participant shall die without having effectively named a
Beneficiary, he shall be deemed to have named his estate as his sole
Beneficiary. If a Participant or Former Participant and his designated
Beneficiary shall die in circumstances which give rise to doubt as to
which of them shall have been the first to die, the Participant or Former
Participant shall be deemed to have survived the Beneficiary. If a
Participant or Former Participant designates more than one Beneficiary,
all shall be deemed to have equal shares unless the Participant or Former
Participant shall expressly provide otherwise.
ARTICLE V
TRUST FUND
Section 5.1 Establishment of Trust.
The Company may establish a trust fund which may be used to accumulate
funds to satisfy benefit liabilities to Participants, Former Participants
and their Beneficiaries under the Plan; provided, however, that the
assets of such trust shall be subject to the claims of the creditors of
the Company in the event that it is determined that the Company is
insolvent; and provided, further, that the trust agreement shall contain
such terms, conditions and provisions as shall be necessary to cause the
Company to be considered the owner of the trust fund for federal, state
or local income tax purposes with respect to all amounts contributed to
the trust fund or any income attributable to the investments of the trust
fund. The Company shall pay all costs and expenses incurred in
establishing and maintaining such trust. Any payments made to a
Participant, Former Participant or Beneficiary from a trust established
under this section 5.1 shall offset payments which would otherwise be
payable by the Company in the absence of the establishment of such trust.
Any such trust will conform to the terms of the model trust described in
Revenue Procedure 92-64, as the same may be modified from time to time.
<PAGE>
PAGE 12
Section 5.2 Contributions to Trust.
If a trust is established in accordance with section 5.1, the Company
shall make contributions to such trust in such amounts and at such times
as may be specified by the Committee or as may be required pursuant to
the terms of the agreement governing the establishment and operation of
such trust.
Section 5.3 Unfunded Character of Plan.
Notwithstanding the establishment of a trust pursuant to section 5.1, the
Plan shall be unfunded for purposes of the Code and ERISA. Any liability
of the Bank, the Company or another Employer to any person with respect
to benefits payable under the Plan shall be based solely upon such
contractual obligations, if any, as shall be created by the Plan, and
shall give rise only to a claim against the general assets of the Bank,
the Company or such Employer. No such liability shall be deemed to be
secured by any pledge or any other encumbrance on any specific property
of the Bank, the Company or any other Employer.
ARTICLE VI
ADMINISTRATION
Section 6.1 The Committee.
Except for the functions reserved to the Company or the Board, the
administration of the Plan shall be the responsibility of the Committee.
The Committee shall have the power and the duty to take all actions and
to make all decisions necessary or proper to carry out the Plan. The
determination of the Committee as to any question involving the general
administration and interpretation of the Plan shall be final, conclusive
and binding. Any discretionary actions to be taken under the Plan by the
Committee shall be uniform in their nature and applicable to all persons
similarly situated. Without limiting the generality of the foregoing,
the Committee shall have the following powers:
(a)to furnish to all Participants, upon request, copies of the Plan and
to require any person to furnish such information as it may request for
the purpose of the proper administration of the Plan as a condition to
receiving any benefits under the Plan;
(b)to make and enforce such rules and regulations and prescribe the use
of such forms as it shall deem necessary for the efficient administration
of the Plan;
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PAGE 13
(c)to interpret the Plan, and to resolve ambiguities, inconsistencies and
omissions, and the determinations of the Committee in respect thereof
shall be binding, final and conclusive upon all interested parties;
(d)to decide on questions concerning the Plan in accordance with the
provisions of the Plan;
(e)to determine the amount of benefits which shall be payable to any
person in accordance with the provisions of the Plan, to hear and decide
claims for benefits, and to provide a full and fair review to any
Participant whose claim for benefits has been denied in whole or in part;
(f)to designate a person, who may or may not be a member of the
Committee, as "plan administrator" for purposes of the ERISA;
(g)to allocate any such powers and duties to or among individual members
of the Committee; and
(h)the power to designate persons other than Committee members to carry
out any duty or power which would otherwise be a responsibility of the
Committee or Administrator, under the terms of the Plan.
Section 6.2 Liability of Committee Members and their Delegates
To the extent permitted by law, the Committee and any person to whom it
may delegate any duty or power in connection with administering the Plan,
the Bank, the Company, any Employer, and the officers and directors
thereof, shall be entitled to rely conclusively upon, and shall be fully
protected in any action taken or suffered by them in good faith in the
reliance upon, any actuary, counsel, accountant, other specialist, or
other person selected by the Committee, or in reliance upon any tables,
valuations, certificates, opinions or reports which shall be furnished by
any of them. Further, to the extent permitted by law, no member of the
Committee, nor the Bank, the Company, any Employer, nor the officers or
directors thereof, shall be liable for any neglect, omission or
wrongdoing of any other members of the Committee, agent, officer or
employee of the Bank, the Company or any Employer. Any person claiming
benefits under the Plan shall look solely to the Employer for redress.
Section 6.3 Plan Expenses
All expenses incurred prior to the termination of the Plan that shall
arise in connection with the administration of the Plan (including, but
not limited to administrative expenses, proper charges and disbursements,
compensation and other expenses and charges of any actuary, counsel,
accountant, specialist, or other person who shall be employed by the
Committee in connection with the administration of the Plan), shall be
paid by the Company.
<PAGE>
PAGE 14
Section 6.4 Facility of Payment.
If the Company is unable to make payment to any Participant, Former
Participant Beneficiary, or any other person to whom a payment is due
under the Plan, because it cannot ascertain the identity or whereabouts
of such Participant, Former Participant Beneficiary, or other person
after reasonable efforts have been made to identify or locate such person
(including a notice of the payment so due mailed to the last known
address of such Participant, Former Participant Beneficiary, or other
person shown on the records of the Employer), such payment and all
subsequent payments otherwise due to such Participant, Former
Participant, Beneficiary or other person shall be forfeited twenty-four
(24) months after the date such payment first became due; provided,
however, that such payment and any subsequent payments shall be
reinstated, retroactively, no later than sixty (60) days after the date
on which the Participant, Former Participant, Beneficiary, or other
person is identified or located.
ARTICLE VII
AMENDMENT AND TERMINATION
Section 7.1 Amendment by the Company.
The Company reserves the right, in its sole and absolute discretion, at
any time and from to time, by action of the Board, to amend the Plan in
whole or in part. In no event, however, shall any such amendment
adversely affect the right of any Participant, Former Participant or
Beneficiary to receive any benefits under the Plan in respect of
participation for any period ending on or before the later of the date on
which such amendment is adopted or the date on which it is made
effective.
Section 7.2 Termination.
The Company also reserve the right, in its sole and absolute discretion,
by action of the Board, to terminate the Plan. In such event,
undistributed benefits attributable to participation prior to the date of
termination shall be distributed as though each Participant terminated
employment with the Bank, the Company and all other Employers as of the
effective date of termination of the Plan.
Section 7.3 Amendment or Termination by Other Employers.
In the event that a corporation or trade or business other than the
Company shall adopt this Plan, such cor-poration or trade or business
shall, by adopting the Plan, empower the Company to amend or terminate
the Plan, insofar as it shall cover employees of such corporation or
trade or business, upon the terms and condi-tions set forth in sections
7.17.2; provided, however, that any such corporation or trade or business
may, by action of its board of directors or other govern-ing body, amend
or terminate the Plan, insofar as it shall cover employees of such
corporation or trade or business, at different times and in a different
manner. In the event of any such amend-ment or termina-tion by action of
the board of directors or other governing body of such a corporation or
trade or busi-ness, a separate plan shall be deemed to have been estab-
lished for the employees of such corporation or trade or busi-ness, and
any amounts set aside to provide for the satisfaction of benefit
liabilities with respect to Employees of such corporation or trade or
business shall be segregated from the assets set aside for the purposes
of this Plan at the earliest practicable date and shall be dealt with in
accor-dance with the documents governing such sepa-rate plan.
<PAGE>
PAGE 15
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Construction and Language.
Wherever appropriate in the Plan, words used in the singular may be read
in the plural, words in the plural may be read in the singular, and words
importing the masculine gender shall be deemed equally to refer to the
feminine or the neuter. Any reference to an Article or section shall be
to an Article or section of the Plan, unless otherwise indicated.
Section 8.2 Headings.
The headings of Articles and sections are included solely for convenience
of reference. If there is any conflict between such headings and the
text of the Agreement, the text shall control.
Section 8.3 Non-Alienation of Benefits.
Except as may otherwise be required by law, no distribution or payment
under the Plan to any Participant, Former Participant or Beneficiary
shall be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance or charge, whether voluntary or
involuntary, and any attempt to so anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge the same shall be void; nor shall any
such distribution or payment be in any way liable for or subject to the
debts, contracts, liabilities, engagements or torts of any person
entitled to such distribution or payment. If any Participant, Former
Participant or Beneficiary is adjudicated bankrupt or purports to
anticipate, alienate, sell, transfer, assign, pledge encumber or charge
any such distribution or payment, voluntarily or involuntarily, the
Committee, in its sole discretion, may cancel such distribution or
payment or may hold or cause to be held or applied such distribution or
payment, or any part thereof, to or for the benefit of such Participant,
Former Participant or Beneficiary, in such manner as the Committee shall
direct; provided, however, that no such action by the Committee shall
cause the acceleration or deferral of any benefit payments from the date
on which such payments are scheduled to be made.
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PAGE 16
Section 8.4 Indemnification.
The Company shall indemnify, hold harmless and defend each Participant,
Former Participant and Beneficiary, against their reasonable costs,
including legal fees, incurred by them or arising out of any action, suit
or proceeding in which they may be involved, as a result of their
efforts, in good faith, to defend or enforce the obligation of the Bank,
the Company and any other Employer under the terms of the Plan.
Section 8.5 Severability.
A determination that any provision of the Plan is invalid or
unenforceable shall not affect the validity or enforceability of any
other provision hereof.
Section 8.6 Waiver.
Failure to insist upon strict compliance with any of the terms, covenants
or conditions of the Plan shall not be deemed a waiver of such term,
covenant or condition. A waiver of any provision of the Plan must be
made in writing, designated as a waiver, and signed by the party against
whom its enforcement is sought. Any waiver or relinquishment of any
right or power hereunder at any one or more times shall not be deemed a
waiver or relinquishment of such right or power at any other time or
times.
Section 8.7 Governing Law.
The Plan shall be con-strued, administered Section and enforced according
to the laws of the State of New York without giving effect to the
conflict of laws principles thereof, except to the extent that such laws
are preempted by the federal laws of the United States. Any payments
made pursuant to this Plan are subject to and conditioned upon their
compliance with 12 U.S.C. <section> 1828(k) and any regulations
promulgated thereunder.
Section 8.8 Taxes.
The Employer shall have the right to retain a suffi-cient portion of any
payment made under the Plan to cover the amount re-quired to be with-held
pursuant to any applicable federal, state and local tax law.
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PAGE 17
Section 8.9 No Deposit Account.
Nothing in this Plan shall be held or construed to establish any deposit
account for any Participant or any deposit liability on the part of the
Bank. Participants' rights hereunder shall be equivalent to those of a
general unsecured creditor of each Employer.
Section 8.10 No Right to Continued Employment.
Neither the establishment of the Plan, nor any provi-sions of the Plan
nor any action of the Plan Administrator, the Commit-tee or any Employer
shall be held or construed to confer upon any Employ-ee any right to a
continuation of employment by the Employer. The Employer reserves the
right to dismiss any Employee or other-wise deal with any Employee to the
same extent as though the Plan had not been adopted.
Section 8.11 Status of Plan Under ERISA.
The Plan is intended to be (a) to the maximum extent permitted under
applicable laws, an unfunded, non-qualified excess benefit plan as
contemplated by section 3(36) of ERISA for the purpose of providing
benefits in excess of the limitations imposed under section 415 of the
Code, and (b) to the extent not so permitted, an unfunded, non-qualified
plan maintained primarily for the purpose of providing deferred
compensation for highly compen-sated employees, as contemplated by
sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. The Plan is not
intend-ed to comply with the require-ments of section 401(a) of the Code
or to be subject to Parts 2, 3 and 4 of Title I of ERISA. The Plan shall
be adminis-tered and construed so as to effectuate this intent.
DIME COMMUNITY BANCORP, INC.
1996 STOCK OPTION PLAN FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
______________________________
ADOPTED OCTOBER 8, 1996
EFFECTIVE AS OF DECEMBER 26, 1996
INCORPORATING AMENDMENT NO. 1 AND 2
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
PURPOSE
Section 1.1 General Purpose of the Plan 1
ARTICLE II DEFINITIONS
Section 2.1 Bank 1
Section 2.2 Board 1
Section 2.3 Change in Control 1
Section 2.4 Code 2
Section 2.5 Committee 3
Section 2.6 Company 3
Section 2.7 Disability 3
Section 2.8 Disinterested Board Member 3
Section 2.9 Effective Date 3
Section 2.10 Eligible Director 3
Section 2.11 Eligible Employee 3
Section 2.12 Employer 3
Section 2.13 Exchange Act 3
Section 2.14 Exercise Price 3
Section 2.15 Fair Market Value 3
Section 2.16 Family Member 4
Section 2.17 Incentive Stock Option 4
Section 2.18 Non-Profit Organization 4
Section 2.19 Non-Qualified Stock Option 4
Section 2.20 Option 4
Section 2.21 Option Period 4
Section 2.22 OTS Regulations 4
Section 2.23 Person 4
Section 2.24 Plan 5
Section 2.25 Retirement 5
Section 2.26 Share 5
Section 2.27 Termination for Cause 5
ARTICLE III AVAILABLE SHARES
Section 3.1 Available Shares 6
ARTICLE IV ADMINISTRATION
Section 4.1 Committee 6
Section 4.2 Committee Action 7
PAGE (i)
<PAGE>
Section 4.3 Committee Responsibilities 7
ARTICLE V STOCK OPTIONS FOR ELIGIBLE DIRECTORS
Section 5.1 In General 7
Section 5.2 Exercise Price 8
Section 5.3 Option Period 8
ARTICLE VI STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
Section 6.1 Size of Option 9
Section 6.2 Grant of Options 9
Section 6.3 Exercise Price 10
Section 6.4 Option Period 10
Section 6.5 Required Regulatory Provisions 10
Section 6.6 Additional Restrictions on Incentive Stock Options 12
ARTICLE VII OPTIONS - IN GENERAL
Section 7.1 Method of Exercise 13
Section 7.2 Limitations on Options 14
ARTICLE VIII AMENDMENT AND TERMINATION
Section 8.1 Termination 15
Section 8.2 Amendment 15
Section 8.3 Adjustments in the Event of a Business Reorganization 16
ARTICLE IX MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan 17
Section 9.2 No Right to Continued Employment 17
Section 9.3 Construction of Language 17
Section 9.4 Governing Law 18
Section 9.5 Headings 18
Section 9.6 Non-Alienation of Benefits 18
Section 9.7 Taxes 18
Section 9.8 Approval of Shareholders 18
Section 9.9 Notices 19
PAGE (i)
<PAGE>
Dime Community Bancorp, Inc. 1996 Stock Option Plan
for
Outside Directors, Officers and Employees
ARTICLE I
PURPOSE
Section 1.1 General Purpose of the Plan.
The purpose of the Plan is to promote the growth and profitability of
Dime Community Bancorp, Inc., to provide eligible directors, certain key
officers and employees of Dime Community Bancorp, Inc. and its affiliates
with an incentive to achieve corporate objec-tives, to at-tract and re-
tain individuals of outstanding competence and to provide such
individuals with an equity interest in Dime Community Bancorp, Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
Section 2.1 Bank means The Dime Savings Bank of Williamsburgh, a
federally chartered savings institution, and any successor thereto.
Section 2.2 Board means the board of directors of the Company.
Section 2.3 Change in Control means any of the following events:
(a)the occurrence of any event upon which any "person" (as such term is
used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended ("Exchange Act")), other than (A) a trustee or other fiduciary
holding securities under an employee benefit plan maintained for the
benefit of employees of the Company; (B) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company; or (C) any group
constituting a person in which employees of the Company are substantial
members, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities issued by the Company representing 25% or more of the combined
voting power of all of the Company's then outstanding securities; or
<PAGE>
PAGE 2
(b)the occurrence of any event upon which the individuals who on the date
the Plan is adopted are members of the Board, together with individuals
whose election by the Board or nomination for election by the Company's
stockholders was approved by the affirmative vote of at least two-thirds
of the members of the Board then in office who were either members of the
Board on the date this Plan is adopted or whose nomination or election
was previously so approved, cease for any reason to constitute a majority
of the members of the Board, but excluding, for this purpose, any such
individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of
directors of the Company (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i)a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation following which both of the
following conditions are satisfied:
(A)either (I) the members of the Board of the Company immediately prior
to such merger or consolidation constitute at least a majority of the
members of the governing body of the institution resulting from such
merger or consolidation; or (II) the shareholders of the Company own
securities of the institution resulting from such merger or consolidation
representing 80% or more of the combined voting power of all such
securities of the resulting institution then outstanding in substantially
the same proportions as their ownership of voting securities of the
Company immediately before such merger or consolidation; and
(B)the entity which results from such merger or consolidation expressly
agrees in writing to assume and perform the Company's obligations under
the Plan; or
(ii)a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of its
assets; and
(d)any event that would be described in section 2.3(a), (b) or (c) if
"the Bank" were substituted for "the Company" therein.
Section 2.4 Code means the Internal Revenue Code of 1986 (including the
corresponding provisions of any succeeding law).
<PAGE>
PAGE 3
Section 2.5 Committee means the Committee described in section 4.1.
Section 2.6 Company means Dime Community Bancorp, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
Section 2.7 Disability means a condition of total in-capa-city, men-tal or
physical, for further performance of duty with the Company which the
Committee shall have deter-mined, on the basis of competent medical evi-
dence, is likely to be permanent.
Section 2.8 Disinterested Board Member means a member of the Board who
(a) is not a current employee of the Company or a subsidiary, (b) is not
a former employee of the Company who receives compensation for prior
services (other than benefits under a tax-qualified retirement plan)
during the taxable year, (c) has not been an officer of the Company, (d)
does not receive remuneration from the Company or a subsidiary, either
directly or indirectly, in any capacity other than as a director and (e)
does not possess an interest in any other transaction, and is not engaged
in a business relationship, for which disclosure would be required
pursuant to Item 404(a) or (b) of the proxy solicitation rules of the
Securities and Exchange Commission. The term Disinterested Board Member
shall be interpreted in such manner as shall be necessary to conform to
the requirements of section 162(m) of the Code or Rule 16b-3 promulgated
under the Exchange Act.
Section 2.9 Effective Date means December 26, 1996.
Section 2.10 Eligible Director means a member of the board of directors
of an Employer who is not also an employee or an officer of an Employer.
Section 2.11 Eligible Employee means any employee whom the Committee may
determine to be a key officer or employee of an Employer and select to
receive a grant of an Option pursuant to the Plan.
Section 2.12 Employer means the Company, the Bank and any successor
thereto and, with the prior approval of the Board, and subject to such
terms and conditions as may be imposed by the Board, any other savings
bank, savings and loan associa-tion, bank, corporation, financial
institution or other business organization or institution. With respect
to any Eligible Employer or Eligible Director, the Employer shall mean
the entity which employs such person or upon whose board of directors
such person serves.
Section 2.13 Exchange Act means the Securities Exchange Act of 1934, as
amended.
Section 2.14 Exercise Price means the price per Share at which Shares
subject to an Option may be purchased upon ex-ercise of the Option,
determined in accordance with section 5.4.
Section 2.15 Fair Market Value means, with respect to a Share on a
specified date:
<PAGE>
PAGE 4
(a)the final reported sales price on the date in question (or if there is
no reported sale on such date, on the last preceding date on which any
reported sale occurred) as reported in the principal consolidated
reporting system with respect to securities listed or admitted to trading
on the principal United States securities exchange on which the Shares
are listed or admitted to trading; or
(b)if the Shares are not listed or admitted to trading on any such
exchange, the closing bid quotation with respect to a Share on such date
on the National Association of Securities Dealers Automated Quotations
System, or, if no such quotation is provided, on another similar system,
selected by the Committee, then in use; or
(c)if sections 2.15(a) and (b) are not applicable, the fair market value
of a Share as the Committee may determine.
Section 2.16 Family Member means the spouse, parent, child or sibling of
an Eligible Director or Eligible Employee.
Section 2.17 Incentive Stock Option means a right to purchase Shares
that is granted to Eligible Employees pursuant to section 6.1, that is
des-ignated by the Committee to be an Incentive Stock Op-tion and that is
intended to satisfy the requirements of section 422 of the Code.
Section 2.18 Non-Profit Organization means any organization which is
exempt from federal income tax under section 501(c)(3), (4), (5), (6),
(7), (8) or (10) of the Internal Revenue Code.
Section 2.19 Non-Qualified Stock Option means a right to purchase Shares
that is granted pursuant to section 5.1 or 6.1. For Eligible Employees,
an Option will be a Non-Qualified Stock Option if (a) it is not des-
ignated by the Committee to be an Incentive Stock Option, or (b) it does
not satisfy the requirements of section 422 of the Code.
Section 2.20 Option means either an Incentive Stock Option or a Non-
Qualified Stock Option.
Section 2.21 Option Period means the period during which an Option may
be exercised, de-termined in accordance with section 5.3 and 6.4.
Section 2.22OTS Regulations means the regulations issued by the Office of
Thrift Supervision and applicable to the Plan, the Bank or the Company.
Section 2.23 Person means an individual, a corpora-tion, a bank, a
savings bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate,
an unincorporated organization and any other business organization or
institution.
<PAGE>
PAGE 5
Section 2.24 Plan means the Dime Community Bancorp, Inc. 1996 Stock Option
Plan for Outside Directors, Officers and Employees, as amended from time
to time.
Section 2.25Retirement means retirement at or after the normal or early
retirement date set forth in any tax-qualified retirement plan of the
Bank.
Section 2.26 Share means a share of Common Stock, par value $.01 per
share, of Dime Community Bancorp, Inc.
Section 2.27 Termination for Cause means one of the following:
(a)for an Eligible Employee who is not an officer or employee of any bank
or savings institution regulated by the Office of Thrift Supervision,
"Termination for Cause" means termination of employment with the Employer
upon the occurrence of any of the following: (i) the employee
intentionally engages in dishonest conduct in connection with his
performance of services for the Employer resulting in his conviction of a
felony; (ii) the employee is convicted of, or pleads guilty or nolo
contendere to, a felony or any crime involving moral turpitude; (iii) the
employee willfully fails or refuses to perform his duties under any
employment or retention agreement and fails to cure such breach within
sixty (60) days following written notice thereof from the Employer; (iv)
the employee breaches his fiduciary duties to the Employer for personal
profit; or (v) the employee's willful breach or violation of any law,
rule or regulation (other than traffic violations or similar offenses),
or final cease and desist order in connection with his performance of
services for the Employer;
(b)for an Eligible Employee who is an officer or employee of a bank or
savings institution regulated by the Office of Thrift Supervision,
"Termination for Cause" means termination of employment for personal
dishonesty, incompetence, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease and desist order, or any
material breach of this Agreement, in each case as measured against
standards generally prevailing at the relevant time in the savings and
community banking industry; provided, however, that such individual
shall not be deemed to have been discharged for cause unless and until he
shall have received a written notice of termination from the Board, which
notice shall be given to such individual not later than five (5) business
days after the board of directors of the Employer adopts, and shall be
accompanied by, a resolution duly approved by affirmative vote of a
majority of the entire board of directors of the Employer at a meeting
called and held for such purpose (which meeting shall be held not less
than fifteen (15) days nor more than thirty (30) days after notice to the
individual), at which meeting there shall be a reason-able oppor-tunity
for the individual to make oral and written presentations to the members
of the board of directors of the Employer, on his own behalf, or through
a repre-sentative, who may be his legal counsel, to refute the grounds
for the proposed determination) finding that in the good faith opinion of
the board of directors of the Employer grounds exist for discharging the
individual for cause.
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ARTICLE III
AVAILABLE SHARES
Section 3.1 Available Shares.
Subject to section 8.3, the maximum aggregate number of Shares with
respect to which Options may be granted at any time shall be equal to the
excess of:
(a) 1,454,750 Shares; over
(b) the sum of:
(i)the num-ber of Shares with respect to which previously granted Options
may then or may in the future be exercised; plus
(ii)the number of Shares with respect to which previously granted Options
have been exer-cised.
A maximum aggregate of 1,018,325 Shares may be granted to Eligible
Employees and a maximum aggregate of 436,425 Shares may be granted to
Eligible Directors. For purposes of this section 3.1, an Option shall
not be considered as having been exercised to the extent that such Option
terminates by reason other than the purchase of related Shares; provided,
however, that for purposes of meeting the requirements of section 162(m)
of the Code, no Eligible Employee who is a covered employee under section
162(m) of the Code shall receive a grant of Options in excess of the
amount specified under this section 3.1, computed as if any Option which
is cancelled reduced the maximum number of Shares.
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee.
The Plan shall be administered by the members of the Compensation
Committee of Dime Community Bancorp, Inc. who are Disinterested Board
Members. If the Committee consists of fewer than two Disinterested Board
Members, then the Board shall appoint to the Commit-tee such additional
Disinterested Board Members as shall be nec-es-sary to provide for a
Committee con-sisting of at least two Disinterested Board Members.
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Section 4.2 Committee Action.
The Committee shall hold such meetings, and may make such administra-tive
rules and regulations, as it may deem proper. A majority of the mem-bers
of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meet-ing at which a quorum
is present, as well as actions taken pursu-ant to the unanimous written
consent of all of the members of the Committee without holding a meeting,
shall be deemed to be ac-tions of the Commit-tee. All actions of the
Committee shall be final and conclusive and shall be binding upon the
Company and all other inter-ested parties. Any Person dealing with the
Committee shall be fully protected in relying upon any written notice,
in-struc-tion, direction or other communication signed by the secre-tary
of the Committee and one member of the Committee, by two members of the
Committee or by a representative of the Committee authorized to sign the
same in its behalf.
Section 4.3 Committee Responsibilities.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed from time to time by the Board, the Committee shall be re-
sponsible for the overall management and administra-tion of the Plan and
shall have such authority as shall be neces-sary or ap-pro-priate in
order to carry out its responsibilities, including, without limitation,
the authority:
(a)to interpret and construe the Plan, and to deter-mine all questions
that may arise under the Plan as to eligibility for participation in the
Plan, the number of Shares subject to the Options, if any, to be granted,
and the terms and conditions thereof;
(b)to adopt rules and regulations and to pre-scribe forms for the
operation and administration of the Plan; and
(c)to take any other action not inconsistent with the provisions of the
Plan that it may deem neces-sary or appropriate.
ARTICLE V
STOCK OPTIONS FOR ELIGIBLE DIRECTORS
Section 5.1 In General.
(a)On the Effective Date, each Eligible Director shall be granted an
Option to purchase 39,675 Shares.
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(b)Any Op-tion granted under this section 5.1 shall be evidenced by a
written agreement which shall specify the number of Shares covered by the
Op-tion, the Exercise Price for the Shares subject to the Option and the
Option Period, all as determined pursuant to this Article V. The Option
agreement shall also set forth specifically or incorporate by ref-erence
the applicable provisions of the Plan.
Section 5.2 Exercise Price.
The price per Share at which an Option granted to an Eligible Director
under section 5.1 may be exercised shall be the Fair Market Value of a
Share on the date on which the Option is granted.
Section 5.3 Option Period.
(a)Subject to section 5.3(b), the Option Period during which an Option
granted to an Eligible Director under section 5.1 may be exercised shall
commence on the date the Option is granted and shall expire on the
earlier of:
(i) removal for cause in accordance with the Employer's bylaws; or
(ii)the last day of the ten-year period commencing on the date on which
the Option was granted.
(b)During the Option Period, the maximum number Shares as to which an
outstanding Option may be exercised shall be as follows:
(i)prior to the first anniversary of the date on which the Plan is
approved by shareholders pursuant to section 9.8, the Option shall not be
exercisable;
(ii)on and after the first anniversary, but prior to the second
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
twenty percent (20%) of the Shares subject to the Option;
(iii)on and after the second anniversary, but prior to the third
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
forty percent (40%) of the Shares subject to the Option, when granted,
including in such number any optioned Shares purchased prior to such
second anniversary;
(iv)on and after the third anniversary, but prior to the fourth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
sixty percent (60%) of the Shares subject to the Option, when granted,
including in such number any optioned Shares purchased prior to such
third anniversary;
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PAGE 9
(v)on and after the fourth anniversary, but prior to the fifth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
eighty percent (80%) of the Shares subject to the Option, when granted,
including in such number any optioned Shares purchased prior to such
fourth anniversary; and
(vi)on and after the fifth anniversary of the date on which the Plan is
approved by shareholders pursuant to section 9.8 and for the remainder of
the Option Period, the Option may be exercised as to the entire number of
optioned Shares not theretofore purchased;
provided, however, that such an Option shall become fully exercisable,
and all optioned Shares not previously purchased shall become available
for purchase, on the date of the Option holder's death or Disability or
Retirement or the date of a Change in Control.
ARTICLE VI
STOCK OPTIONS FOR ELIGIBLE EMPLOYEES
Section 6.1 Size of Option.
Subject to sections 6.2 and 6.5 and such limitations as the Board may
from time to time impose, the number of Shares as to which an Eligible
Employee may be granted Options shall be determined by the Committee, in
its discretion. Except as provided in section 6.5, the maximum number of
Shares that may be optioned to any one individual under this Plan during
its entire duration shall be the entire number of Shares available under
section 3.1 of the Plan.
Section 6.2 Grant of Options.
(a)Subject to the limitations of the Plan, the Committee may, in its
discretion, grant to an Eli-gible Employee an Option to purchase Shares.
The Option for such Eligible Employees must be designated as either an
Incentive Stock Option or a Non-Qualified Stock Option and, if not
designated as either, shall be a Non-Qualified Stock Option.
(b)Any Option granted under this section 6.2 shall be evidenced by a
written agreement which shall:
(i) specify the number of Shares covered by the Option;
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PAGE 10
(ii)specify the Exercise Price, determined in accordance with section
6.3, for the Shares subject to the Option;
(iii)specify the Option Period determined in accordance with sec-tion
6.4;
(iv)set forth specifically or incorporate by ref-erence the applicable
provisions of the Plan; and
(v)contain such other terms and conditions not inconsistent with the
Plan as the Com-mittee may, in its discretion, prescribe with respect to
an Option granted to an Eligible Employee.
Section 6.3 Exercise Price.
The price per Share at which an Option granted to an Eligible Employee
shall be determined by the Com-mittee, in its discretion; provid-ed,
however, that the Exercise Price shall not be less than the Fair Market
Value of a Share on the date on which the Option is granted.
Section 6.4 Option Period.
Subject to section 6.5, the Option Period during which an Option granted
to an Eligible Employee may be exercised shall commence on the date
specified by the Committee in the Op-tion agreement and shall expire on
the date specified in the Option agreement or, if no date is specified,
on the earliest of:
(a)the close of business on the last day of the three-month period
commencing on the date of the Eligible Employee's termination of
employment with the Employer, other than on account of death or
Disability, Retirement or a Termination for Cause;
(b)the close of business on the last day of the one-year period
commencing on the date of the Eligible Employee's termination of
employment due to death, Disa-bility or Retirement;
(c)the date and time when the Eligible Employee ceases to be an employee
of the Employer due to a Termination for Cause; and
(d)the last day of the ten-year period commencing on the date on which
the Option was granted.
Section 6.5 Required Regulatory Provisions.
Notwithstanding anything contained herein to the contrary:
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PAGE 11
(a)no Option shall be granted to an Eligible Employee under the Plan
prior to shareholder approval under section 9.8;
(b)no Eligible Employee may be granted Options to purchase more than
363,687 Shares; provided, however, that an Eligible Employee may be
granted Options to purchase more Shares if such grant is not inconsistent
with section 563b.3(g) of the OTS Regulations.
(c)each Option granted to an Eligible Employee shall become exercisable
as follows:
(i)prior to the first anniversary of the date on which the Plan is
approved by shareholders pursuant to section 9.8, the Option shall not be
exercisable;
(ii)on and after the first anniversary, but prior to the second
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
twenty percent (20%) of the Shares subject to the Option when granted;
(iii)on and after the second anniversary, but prior to the third
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
forty percent (40%) of the Shares subject to the Option when granted,
including in such forty percent (40%) any optioned Shares purchased prior
to such second anniversary;
(iv)on and after the third anniversary, but prior to the fourth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
sixty percent (60%) of the Shares subject to the Option when granted,
including in such sixty percent (60%) any optioned Shares purchased prior
to such third anniversary;
(v)on and after the fourth anniversary, but prior to the fifth
anniversary, of the date on which the Plan is approved by shareholders
pursuant to section 9.8, the Option may be exercised as to a maximum of
eighty percent (80%) of the Shares subject to the Option when granted,
including in such eighty percent (80%) any optioned Shares purchased
prior to such fourth anniversary; and
(vi)on and after the fifth anniversary of the date on which the Plan is
approved by shareholders pursuant to section 9.8 and for the remainder of
the Option Period, the Option may be exercised as to the entire number of
optioned Shares not theretofore purchased;
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PAGE 12
provided, however, that such an Option shall become fully exercisable,
and all optioned Shares not previously purchased shall become available
for purchase, on the date of the Option holder's death or Disability or
Retirement or the date of a Change in Control; and provided, further,
that the Committee may establish a different vesting schedule for any
Options.
(d)The Option Period of any Option granted to an Eligible Employee
hereunder, whether or not previously vested, shall be suspended as of the
time and date at which the Option holder has received notice from the
Board that his or her employment is subject to a possible Termination for
Cause. Such suspension shall remain in effect until the Option holder
receives official notice from the Board that he or she has been cleared
of any possible Termination for Cause, at which time, the original
Exercise Period shall be reinstated without any adjustment for the
intervening suspended period. In the event that the Option Period under
section 6.4 expires during such suspension, the Company shall pay to the
Eligible Employee, within 30 days after his reinstatement as an employee
of the Company, damages equal to the value of the expired Options less
the Exercise Price of such Options.
(e)No Option granted to an Eligible Employee hereunder, whether or not
previously vested, shall be exercised after the time and date at which
the Option holder's employment with the Employer is terminated in a
Termination for Cause.
Section 6.6 Additional Restrictions on Incentive Stock Options.
In addition to the limitations of section 7.3, an Op-tion granted to an
Eligible Employee designated by the Committee to be an Incentive Stock
Op-tion shall be subject to the following limitations:
(a)If, for any calendar year, the sum of (i) plus (ii) exceeds $100,000,
where (i) equals the Fair Market Value (determined as of the date of the
grant) of Shares subject to an Option intended to be an Incentive Stock
Option which first be-come available for purchase during such cal-endar
year, and (ii) equals the Fair Market Value (determined as of the date of
grant) of Shares subject to any other options intended to be Incentive
Stock Options and previously granted to the same Eligible Employee which
first become exercisable in such calendar year, then that number of
Shares optioned which causes the sum of (i) and (ii) to exceed $100,000
shall be deemed to be Shares optioned pursuant to a Non-Qualified Stock
Option or Non-Qualified Stock Options, with the same terms as the Option
or Options intended to be an Incentive Stock Option;
(b)The Exercise Price of an Incentive Stock Option granted to an Eligible
Employee who, at the time the Option is granted, owns Shares comprising
more than 10% of the total combined voting power of all classes of stock
of the Company shall not be less than 110% of the Fair Market Value of a
Share, and if an Option designated as an Incentive Stock Option shall be
granted at an Exercise Price that does not satisfy this requirement, the
designated Exercise Price shall be observed and the Option shall be
treated as a Non-Qualified Stock Option;
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PAGE 13
(c)The Option Period of an Incentive Stock Option granted to an Eligible
Employee who, at the time the Option is granted, owns Shares comprising
more than 10% of the total combined voting power of all classes of stock
of the Company, shall expire no later than the fifth anniversary of the
date on which the Option was granted, and if an Option designated as an
Incentive Stock Option shall be granted for an Option Period that does
not satisfy this requirement, the designated Option Period shall be
observed and the Option shall be treated as a Non-Qualified Stock Option;
(d)An Incentive Stock Option that is exercised during its designated
Option Period but more than:
(i)three (3) months after the termination of employment with the Company,
a parent or a subsidiary (other than on account of disability within the
meaning of section 22(e)(3) of the Code or death) of the Eligible
Employee to whom it was granted; and
(ii)one (1) year after such individual's termination of employment with
the Company, a parent or a subsidiary due to disability (within the
meaning of section 22(e)(3) of the Code);
may be exercised in accordance with the terms but shall at the time of
exercise be treated as a Non-Qualified Stock Option; and
(e)Except with the prior written approval of the Com-mittee, no
individual shall dispose of Shares acquired pursuant to the exercise of
an Incentive Stock Option until after the later of (i) the second
anniversary of the date on which the Incentive Stock Option was gran-ted,
or (ii) the first an-niversary of the date on which the Shares were
acquired.
ARTICLE VII
OPTIONS - IN GENERAL
Section 7.1 Method of Exercise.
(a) Subject to the limitations of the Plan and the Option agreement, an
Option holder may, at any time during the Option Period, exercise his or
her right to purchase all or any part of the Shares to which the Option
relates; provided, however, that the minimum number of Shares which may
be purchased at any time shall be 100, or, if less, the total number of
Shares relating to the Option which remain unpurchased. An Option holder
shall exercise an Option to purchase Shares by:
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PAGE 14
(i)giving written notice to the Committee, in such form and manner as the
Committee may prescribe, of his intent to exercise the Option;
(ii)delivering to the Committee full payment, consistent with section
7.1(b), for the Shares as to which the Option is to be exercised; and
(iii)satisfying such other conditions as may be pre-scribed in the Option
agreement.
(b)The Exercise Price of Shares to be purchased upon ex-ercise of any
Option shall be paid in full in cash (by certi-fied or bank check or such
other instrument as the Company may accept) or, if and to the extent
permitted by the Committee, by one or more of the following: (i) in the
form of Shares already owned by the Option holder having an aggregate
Fair Market Value on the date the Option is exercised equal to the
aggregate Exercise Price to be paid; (ii) by requesting the Company to
cancel without payment Options outstanding to such Person for that number
of Shares whose aggregate Fair Market Value on the date of exercise, when
reduced by their aggregate Exercise Price, equals the aggregate Exercise
Price of the Options being exercised; or (iii) by a combination thereof.
Payment for any Shares to be purchased upon exercise of an Option may
also be made by deliver-ing a properly executed exercise notice to the
Company, to-gether with a copy of irrevocable instructions to a broker to
deliver promptly to the Company the amount of sale or loan proceeds to
pay the purchase price. To facilitate the fore-going, the Company may
enter into agreements for coordinated procedures with one or more
brokerage firms.
(c)When the requirements of section 7.1(a) and (b) have been satisfied,
the Committee shall take such action as is necessary to cause the
issuance of a stock certificate evidencing the Option holder's ownership
of such Shares. The Person exercising the Option shall have no right to
vote or to receive dividends, nor have any other rights with re-spect to
the Shares, prior to the date as of which such Shares are transferred to
such Person on the stock transfer records of the Company, and no
adjustments shall be made for any dividends or other rights for which the
record date is prior to the date as of which such transfer is effected,
ex-cept as may be required under section 8.3.
Section 7.2 Limitations on Options.
(a)An Option by its terms shall not be transferable by the Option holder
other than to Family Members or Non-profit Organizations or by will or by
the laws of descent and distribution and shall be exercisable, during the
lifetime of the Option holder, only by the Option holder, a Family Member
or a Non-profit Organization. Any such transfer shall be effected by
written notice to the Company given in such form and manner as the
Committee may prescribe and shall be recognized only if such notice is
received by the Company prior to the death of the person giving it.
Thereafter, the transferee shall have, with respect to such Option, all
of the rights, privileges and obligations which would attach thereunder
to the transferor if the Option were issued to such transferor. If a
privilege of the Option depends on the life, employment or other status
of the transferor, such privilege of the Option for the transferee shall
continue to depend on the life, employment or other status of the
transferor. The Committee shall have full and exclusive authority to
interpret and apply the provisions of this Plan to transferees to the
extent not specifically described herein. Notwithstanding the foregoing,
an Incentive Stock Option is not transferable by an Eligible Employee
other than by will or the laws of descent and distribution, and is
exercisable, during his lifetime, solely by him.
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PAGE 15
(b) The Company's obligation to deliver Shares with re-spect to an
Option shall, if the Committee so requests, be condi-tioned upon the
receipt of a representation as to the investment inten-tion of the Option
holder to whom such Shares are to be de-liv-ered, in such form as the
Committee shall determine to be nec-essary or advisable to comply with
the provisions of applica-ble federal, state or local law. It may be
provided that any such representation shall become inoperative upon a
registra-tion of the Shares or upon the occurrence of any other event
eliminat-ing the necessity of such representation. The Company shall not
be required to deliver any Shares under the Plan prior to (i) the
admission of such Shares to listing on any stock exchange on which Shares
may then be listed, or (ii) the completion of such registration or other
qualification under any state or federal law, rule or regulation as the
Committee shall determine to be necessary or advisable.
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination.
The Board may suspend or terminate the Plan in whole or in part at any
time prior to the tenth anniversary of the Effective Date by giving
written notice of such sus-pension or ter-mination to the Commit-tee.
Unless soon-er termi-nated, the Plan shall terminate automatically on the
day preceding the tenth anniversary of the Effective Date. In the event
of any suspension or termination of the Plan, all Options theretofore
granted under the Plan that are outstanding on the date of such
suspension or termination of the Plan shall remain outstanding and
exercisable for the period and on the terms and conditions set forth in
the Option agreements evidencing such Options.
Section 8.2 Amendment.
The Board may amend or revise the Plan in whole or in part at any time;
provided, however, that, to the extent required to comply with section
162(m) of the Code, no such amendment or revision shall be effective if
it amends a material term of the Plan unless approved by the holders of a
majority of the voting Shares of Dime Community Bancorp, Inc.
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PAGE 16
Section 8.3 Adjustments in the Event of a Business Reorganization.
(a)In the event of any merger, consolidation, or other business
reorganization in which the Company is the sur-viving entity, and in the
event of any stock split, stock dividend or other event generally
affecting the num-ber of Shares held by each Person who is then a holder
of record of Shares, the number of Shares covered by each outstanding Op-
tion and the number of Shares available pursuant to section 3.1 shall be
ad-justed to account for such event. Such adjust-ment shall be effected
by multi-plying such number of Shares by an amount equal to the
num-ber of Shares that would be owned after such event by a Person who,
immediately prior to such event, was the holder of record of one Share,
and the Exercise Price of the Options shall be adjusted by dividing the
Exercise Price by such number of Shares; provided, however, that the
Committee may, in its discretion, establish another appro-priate method
of adjustment.
(b)In the event of any merger, consolidation, or other business
reorganization in which the Company is not the surviving entity, any
Options granted under the Plan which remain outstanding may be cancelled
as of the effective date of such merger, consolidation, business
reorganization, liquidation or sale by the Board upon 30 days' written
notice to the Option holder; provided, however, that on or as soon as
practicable following the date of cancellation, each Option holder shall
receive a monetary payment in such amount, or other property of such kind
and value, as the Board determines in good faith to be equivalent in
value to the Options that have been cancelled.
(c)In the event that the Company shall declare and pay any dividend with
respect to Shares (other than a dividend payable in Shares) which results
in a nontaxable return of capital to the holders of Shares for federal
income tax purposes or otherwise than by dividend makes distribution of
property to the holders of its Shares, the Company shall, in the
discretion of the Committee, either:
(i) make an equivalent payment to each Person holding an outstanding
Option as of the record date for such dividend. Such payment shall be
made at substantially the same time, in substantially the same form and
in substantially the same amount per optioned Share as the dividend or
other distribution paid with respect to outstanding Shares; provided,
however, that if any dividend or distribution on outstanding Shares is
paid in property other than cash, the Company, in the Committee's
discretion, may make such payment in a cash amount per optioned Share
equal in fair market value to the fair market value of the non-cash
dividend or distribution; or
(ii)adjust the Exercise Price of each outstanding Option in such manner
as the Committee may determine to be appropriate to equitably reflect the
payment of the dividend: or
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(iii)take the action described in section 8.3(c) with respect to certain
outstanding Options and the action described in with respect to the
remaining outstanding Options;
provided, however, that no such action shall be taken without the
approval of the Office of Thrift Supervision until the stockholders of
the Company have voted to approve the provisions of this section 8.3(c)
in a vote taken after June 26, 1997.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan.
This Plan is not intended to satisfy the requirements for qua-lifi-ca-
tion under sec-tion 401(a) of the Code or to satisfy the defini-tional
re-quire-ments for an "employee benefit plan" under section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended. It is
intended to be a non-qualified incentive compen-sation program that is
exempt from the regulatory require-ments of the Employee Retirement
Income Security Act of 1974, as amended. The Plan shall be construed and
administered so as to effectuate this intent.
Section 9.2 No Right to Continued Employment.
Nei-ther the establishment of the Plan nor any provi-sions of the Plan
nor any action of the Board or the Committee with respect to the Plan
shall be held or construed to confer upon any Eligible Director or
Eligible Employee any right to a continuation of his or her position as a
director or employee of the Company. The Employers reserve the right to
remove any Eligible Director or dismiss any Eligible Employee or
otherwise deal with any Eligible Director or Eligible Employee to the
same extent as though the Plan had not been adopt-ed.
Section 9.3 Construction of Language.
Whenever ap-propriate in the Plan, words used in the singular may be read
in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to
the feminine or the neuter. Any reference to an Arti-cle or section
number shall refer to an Article or section of this Plan unless otherwise
indicated.
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PAGE 18
Section 9.4 Governing Law.
The Plan shall be con-strued, administered and enforced according to the
laws of the State of New York without giving effect to the conflict of
laws principles thereof, except to the extent that such laws are
preempted by federal law. The Plan shall be construed to comply with
applicable OTS Regulations.
Section 9.5 Headings.
The headings of Articles and sections are included solely for convenience
of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
Section 9.6 Non-Alienation of Benefits.
The right to receive a benefit under the Plan shall not be subject in any
man-ner to anticipation, alienation or assign-ment, nor shall such right
be liable for or subject to debts, contracts, liabilities, engage-ments
or torts, except to the extent provided in a qualified domestic relations
order as defined in section 414(p) of the Code.
Section 9.7 Taxes.
The Company shall have the right to de-duct from all amounts paid by the
Company in cash with respect to an Op-tion under the Plan any taxes re-
quired by law to be withheld with respect to such Option. Where any
Person is entitled to re-ceive Shares pursuant to the exercise of an
Option, the Company shall have the right to re-quire such Person to pay
the Company the amount of any tax which the Company is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or
to sell without no-tice, a suffi-cient num-ber of Shares to cover the
amount re-quired to be with-held.
Section 9.8 Approval of Shareholders.
The Plan shall not be effective or implemented unless approved by
shareholders of Dime Community Bancorp, Inc. as follows:
(1)if, prior to the one year anniversary of the conversion of Dime
Community Bancorp, Inc. to stock form, the Plan is approved by the
holders of a majority of the total votes eligible to be cast at any duly
called annual or special meeting of the Company, the Plan shall be
effective as of the later of (a) December 26, 1996 or (b) the date of
such approval; and
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PAGE 19
(2)if subsequent to the one year anniversary of such conversion, the Plan
is approved by the affirmative vote of the holders of a majority of
Shares present or represented by proxy at the meeting and entitled to
vote at an annual or special meeting at which a quorum is present, the
Plan shall be effective as of the later of (a) June 26, 1997, or (b) the
date of such approval.
Shareholder approval shall not be obtained earlier than six months
following such conversion unless permitted by the Office of Thrift
Supervision. No Option shall be granted prior to shareholder approval of
the Plan.
Section 9.9 Notices.
Any communication required or permit-ted to be given under the Plan,
including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been
given at such time as it is delivered personally or five (5) days after
mailing if mailed, postage prepaid, by registered or cer-tified mail,
return receipt requested, addressed to such party at the ad-dress listed
below, or at such other address as one such party may by written notice
specify to the other party:
(a) If to the Committee:
Dime Community Bancorp, Inc.
c/o The Dime Savings Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, New York 11211
Attention: Corporate Secretary
(b)If to an Option holder, to the Option holder's address as shown in the
Employer's re-cords.
RECOGNITION AND RETENTION PLAN FOR
OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF
DIME COMMUNITY BANCORP, INC.
______________________________
ADOPTED ON OCTOBER 8, 1996
EFFECTIVE AS OF DECEMBER 26, 1996
INCORPORATING AMENDMENT NO. 1 AND 2
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I PURPOSE
Section 1.1 General Purpose of the Plan 1
ARTICLE II DEFINITIONS
Section 2.1 Award 1
Section 2.2 Award Date 1
Section 2.3 Bank 1
Section 2.4 Beneficiary 1
Section 2.5 Board 1
Section 2.6 Change of Control 2
Section 2.7 Code 3
Section 2.8 Committee 3
Section 2.9 Company 3
Section 2.10 Disability 3
Section 2.11 Disinterested Board Member 3
Section 2.12 Effective Date 3
Section 2.13 Eligible Director 3
Section 2.14 Eligible Employee 3
Section 2.15 Employer 3
Section 2.16 Exchange Act 3
Section 2.17 OTS Regulations 4
Section 2.18 Person 4
Section 2.19 Plan 4
Section 2.20 Retirement 4
Section 2.21 Share 4
Section 2.22 Trust 4
Section 2.23 Trust Agreement 4
Section 2.24 Trust Fund 4
Section 2.25 Trustee 4
ARTICLE III SHARES AVAILABLE UNDER PLAN
Section 3.1 Shares Available Under Plan 5
PAGE (i)
<PAGE>
ARTICLE IV ADMINISTRATION
Section 4.1 Committee 5
Section 4.2 Committee Action 5
Section 4.3 Committee Responsibilities 5
ARTICLE V THE TRUST FUND
Section 5.1 Contributions 6
Section 5.2 The Trust Fund 6
Section 5.3 Investments 6
ARTICLE VI AWARDS
Section 6.1 To Eligible Directors 7
Section 6.2 To Eligible Employees 7
Section 6.3 Awards in General 7
Section 6.4 Share Allocations 8
Section 6.5 Dividend Rights 8
Section 6.6 Voting Rights 8
Section 6.7 Tender Offers 9
Section 6.8 Limitations on Awards 9
ARTICLE VII VESTING AND DISTRIBUTION OF SHARES
Section 7.1 Vesting of Shares Granted to Eligible Directors 10
Section 7.2 Vesting of Shares Granted to Eligible Employees 11
Section 7.3 Designation of Beneficiary 11
Section 7.4 Manner of Distribution 11
Section 7.5 Taxes 12
ARTICLE VIII AMENDMENT AND TERMINATION
Section 8.1 Termination 12
Section 8.2 Amendment 12
PAGE (iii)
<PAGE>
Section 8.3 Adjustments in the Event of a Business Reorganization12
ARTICLE IX MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan 13
Section 9.2 No Right to Continued Employment 13
Section 9.3 Construction of Language 14
Section 9.4 Governing Law 14
Section 9.5 Headings 14
Section 9.6 Non-Alienation of Benefits 14
Section 9.7 Notices 14
Section 9.8 Approval of Shareholders 15
PAGE (iii)
<PAGE>
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES OF DIME COMMUNITY BANCORP, INC.
ARTICLE I
PURPOSE
SECTION . GENERAL PURPOSE OF THE PLAN
The purpose of the Plan is to promote the growth and
profitability of Dime Community Bancorp, Inc. and to provide eligible
directors, certain key officers and employees of Dime Community Bancorp,
Inc. with an incentive to achieve corporate objectives, to at-tract and
retain directors, key officers and employees of outstanding competence
and to provide such directors, officers and employees with an equity
interest in Dime Community Bancorp, Inc.
ARTICLE II
DEFINITIONS
The following definitions shall apply for the purposes of this Plan,
unless a different meaning is plainly indicated by the context:
Section 2.1 Award means a grant of Shares to an Eli-gible Director or
Eligible Employee pursuant to section 6.1 or 6.2.
Section 2.2 Award Date means, with respect to a par-ticular Award, the
date specified by the Committee in the notice of the Award issued to the
Eligible Director or Eligible Employee by the Committee, pursuant to
section 6.1 or 6.2.
Section 2.3 Bank means The Dime Savings Bank of Williamsburgh, a
federally chartered stock savings bank, and any successor thereto.
Section 2.4 Beneficiary means the Person designated by an Eligible
Director or Eligible Employee pursuant to section 7.3, to receive dis-
tribution of any Shares available for distribution to such Eli-gible
Director or Eligible Employee, in the event such Eligible Director or
Eligible Employee dies prior to receiving distribution of such Shares.
Section 2.5 Board means the Board of Directors of the Company.
<PAGE>
PAGE 2
Section 2.6 Change of Control means any of the following events:
(a) the occurrence of any event upon which any "person" (as such term is
used in sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended ("Exchange Act")), other than (A) a trustee or other fiduciary
holding securities under an employee benefit plan maintained for the
benefit of employees of the Company; (B) a corporation owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company; or (C) any group
constituting a person in which employees of the Company are substantial
members, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of
securities issued by the Company representing 25% or more of the combined
voting power of all of the Company's then outstanding securities; or
(b) the occurrence of any event upon which the individuals who on the
date the Plan is adopted are members of the Board, together with
individuals whose election by the Board or nomination for election by the
Company's stockholders was approved by the affirmative vote of at least
two-thirds of the members of the Board then in office who were either
members of the Board on the date this Plan is adopted or whose nomination
or election was previously so approved, cease for any reason to
constitute a majority of the members of the Board, but excluding, for
this purpose, any such individual whose initial assumption of office is
in connection with an actual or threatened election contest relating to
the election of directors of the Company (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Exchange Act); or
(c) the shareholders of the Company approve either:
(i) a merger or consolidation of the Company with any other corporation,
other than a merger or consolidation following which both of the
following conditions are satisfied:
(A) either (I) the members of the Board of the Company immediately prior
to such merger or consolidation constitute at least a majority of the
members of the governing body of the institution resulting from such
merger or consolidation; or (II) the shareholders of the Company own
securities of the institution resulting from such merger or consolidation
representing 80% or more of the combined voting power of all such
securities of the resulting institution then outstanding in substantially
the same proportions as their ownership of voting securities of the
Company immediately before such merger or consolidation; and
(B) the entity which results from such merger or consolidation expressly
agrees in writing to assume and perform the Company's obligations under
the Plan; or
<PAGE>
PAGE 3
(ii) a plan of complete liquidation of the Company or an agreement for
the sale or disposition by the Company of all or substantially all of its
assets; and
(d) any event that would be described in section 2.6(a), (b) or (c) if
"the Bank" were substituted for "the Company" therein.
Section 2.7 Code means the Internal Revenue Code of 1986 (includ-ing the
corresponding provisions of any succeeding law).
Section 2.8 Committee means the Committee des-cribed in section 4.1.
Section 2.9 Company means Dime Community Bancorp, Inc., a corporation
organized and existing under the laws of the State of Delaware, and any
successor thereto.
Section 2.10 Disability means a condition of total in-capa-city, men-tal
or physical, for further performance of duty with the Company which the
Committee shall have deter-mined, on the basis of competent medical evi-
dence, is likely to be per-manent.
Section 2.11 Disinterested Board Member means a member of the Board who
(a) is not a current employee of the Company or a subsidiary, (b) does
not receive remuneration from the Company or a subsidiary, either
directly or indirectly, in any capacity other than as a director and (c)
does not possess an interest in any other transaction, and is not engaged
in a business relationship, for which disclosure would be required
pursuant to Item 404(a) or (b) of the proxy solicitation rules of the
Securities and Exchange Commission. The term Disinterested Board Member
shall be interpreted in such manner as shall be necessary to conform to
the requirements of Rule 16b-3 promulgated under the Exchange Act.
Section 2.12 Effective Date means December 26, 1996.
Section 2.13 Eligible Director means a member of the board of directors
of the Employer who is not also an employee of the Employer.
Section 2.14 Eligible Employee means any employee whom the Committee may
determine to be a key officer or employee of the Employer and select to
receive an Award pursuant to the Plan.
Section 2.15 Employer means the Company, the Bank and any successor
thereto and, with the prior approval of the Board, and subject to such
terms and conditions as may be imposed by the Board, any other savings
bank, savings and loan associa-tion, bank, corporation, financial
institution or other business organization or institution. With respect
to any Eligible Employee or Eligible Director, the Employer shall mean
the entity which employs such person or upon whose board of directors
such person serves.
Section 2.16 Exchange Act means the Securities and Exchange Act of 1934,
as amended.
<PAGE>
PAGE 4
Section 2.17 OTS Regulations means the regulations issued by the Office
of Thrift Supervision and applicable to the Plan, the Bank or the
Company.
Section 2.18 Person means an individual, a corporation, a bank, a savings
bank, a savings and loan association, a financial institution, a
partnership, an association, a joint-stock company, a trust, an estate,
an unincorporated organization and any other business organization or
institution.
Section 2.19 Plan means the Recognition and Retention Plan for Outside
Directors, Officers and Employees of Dime Community Bancorp, Inc. as
amended from time to time.
Section 2.20 Retirement means retirement at or after the normal or early
retirement date set forth in any tax-qualified plan of the Bank.
Section 2.21 Share means a share of common stock of Dime Community
Bancorp, Inc., par value $.01 per share.
Section 2.22 Trust means the legal relationship created by the Trust
Agreement pursuant to which the Trustee holds the Trust Fund in trust.
The Trust may be referred to as the "Recognition and Retention Plan Trust
of Dime Community Bancorp, Inc."
Section 2.23 Trust Agreement means the agreement be-tween Dime Community
Bancorp, Inc. and the Trustee therein named or its successor pursuant to
which the Trust Fund shall be held in trust.
Section 2.24 Trust Fund means the corpus (consisting of contributions
paid over to the Trustee, and investments there-of), and all earnings,
appreciations or additions thereof and thereto, held by the Trustee under
the Trust Agreement in accor-dance with the Plan, less any depreciation
thereof and any pay-ments made therefrom pursuant to the Plan.
Section 2.25 Trustee means the Trustee of the Trust Fund from time to
time in office. The Trustee shall serve as Trustee until it is removed
or resigns from office and is replaced by a successor Trustee or Trustees
appointed by Dime Community Bancorp, Inc.
<PAGE>
PAGE 5
ARTICLE III
SHARES AVAILABLE UNDER PLAN
Section 3.1 Shares Available Under Plan.
The maximum number of Shares under the Plan shall be 581,900. An
aggregate maximum of 174,570 Shares may be granted to Eligible Directors,
with a maximum of 29,095 granted to any one Eligible Director.
ARTICLE IV
ADMINISTRATION
Section 4.1 Committee.
The Plan shall be adminis-tered by the members of the Compensation
Committee of Dime Community Bancorp, Inc. who are Disinterested Board
Members. If the Com-mittee consists of fewer than two Disinter-ested
Board Members, then the Board shall appoint to the Commit-tee such
additional Disinterested Board Members as shall be nec-es-sary to provide
for a Committee con-sisting of at least two Disinterested Board Members.
Section 4.2 Committee Action.
The Committee shall hold such meetings, and may make such administra-tive
rules and regulations, as it may deem proper. A majority of the mem-bers
of the Committee shall constitute a quorum, and the action of a majority
of the members of the Committee present at a meet-ing at which a quorum
is present, as well as actions taken pursu-ant to the unanimous written
consent of all of the members of the Committee without holding a meeting,
shall be deemed to be ac-tions of the Commit-tee. All actions of the
Committee shall be final and conclusive and shall be binding upon the
Company and all other inter-ested parties. Any Person dealing with the
Committee shall be fully protected in relying upon any written notice,
in-struc-tion, direction or other communication signed by the Secre-tary
of the Committee and one member of the Committee, by two members of the
Committee or by a representative of the Committee authorized to sign the
same in its behalf.
Section 4.3 Committee Responsibilities.
Subject to the terms and conditions of the Plan and such limitations as
may be imposed by the Board, the Committee shall be re-sponsible for the
overall management and administra-tion of the Plan and shall have such
authority as shall be neces-sary or ap-pro-priate in order to carry out
its responsibilities, including, without limitation, the authority:
<PAGE>
PAGE 6
(a) to interpret and construe the Plan, and to deter-mine all questions
that may arise under the Plan as to eligibility for Awards under the
Plan, the amount of Shares, if any, to be granted pursuant to an Award,
and the terms and conditions of such Award;
(b) to adopt rules and regulations and to pre-scribe forms for the
operation and administration of the Plan; and
(c) to take any other action not inconsistent with the provisions of the
Plan that it may deem neces-sary or appropriate.
ARTICLE V
THE TRUST FUND
Section 5.1 Contributions.
Dime Community Bancorp, Inc. shall contribute, or cause to be
contributed, to the Trust, from time to time, such amounts of money or
property as shall be deter-mined by the Board, in its discretion. No
con-tribu-tions by Eligible Directors or Eligible Employees shall be per-
mitted.
Section 5.2 The Trust Fund.
The Trust Fund shall be held and invested under the Trust Agreement with
the Trustee. The provisions of the Trust Agreement shall include
provisions conferring powers on the Trustee as to investment, control and
disbursement of the Trust Fund, and such other provi-sions not
inconsistent with the Plan as may be prescribed by or under the authority
of the Board. No bond or security shall be required of any Trustee at
any time in office.
Section 5.3 Investments.
The Trustee shall in-vest the Trust Fund in Shares and in such other
investments as may be per-mitted under the Trust Agreement, including
savings accounts, time or other interest bearing deposits in or other
interest bearing obligations of the Company, in such proportions as shall
be determined by the Com-mittee; provided, however, that in no event
shall the Trust Fund be used to purchase more than 581,900 Shares.
Notwithstanding the immediately preceding sen-tence, the Trustee may
temporarily in-vest the Trust Fund in short-term obligations of, or
guaranteed by, the U.S. Government or an agency thereof, or the Trustee
may retain the Trust Fund unin-vested or may sell assets of the Trust
Fund to provide amounts required for purposes of the Plan.
<PAGE>
PAGE 7
ARTICLE VI
AWARDS
Section 6.1 To Eligible Directors.
On the Effective Date, each Person who is then an Eligible Director shall
be granted an Award of 15,870 Shares.
Section 6.2 To Eligible Employees.
Subject to sec-tion 6.8 and such limitations as the Board may from time
to time impose, the number of Shares as to which an Eligible Employ-ee
may be granted an Award shall be deter-mined by the Committee in its dis-
cretion; provided however, that in no event shall the number of Shares
allocated to an Eligible Employee in an Award exceed the number of Shares
then held in the Trust and not allocated in connection with other Awards.
Section 6.3 Awards in General.
Any Award shall be evidenced by a written notice issued by the Com-mittee
to the Eligible Director or Eligible Employee, which notice shall:
(a) specify the number of Shares covered by the Award;
(b) specify the Award Date;
(c) specify the dates on which such Shares shall be-come available for
dis-tribution to the Eligible Director or Eligible Employee, in accor-
dance with sec-tions 7.1 and 7.2; and
(d) contain such other terms and conditions not incon-sistent with the
Plan as the Board may, in its discretion, prescribe.
<PAGE>
PAGE 8
Section 6.4 Share Allocations.
Upon the grant of an Award to an Eligible Director or Eligible Employee,
the Committee shall no-tify the Trustee of the Award and of the number of
Shares subject to the Award. Thereafter, until such time as the Shares
subject to such Award become vested or are forfeited, the books and
records of the Trustee shall reflect that such number of Shares are being
held for the benefit of the Award recipient.
Section 6.5 Dividend Rights.
(a) Any cash dividends or distributions de-clared and paid with respect
to Shares in the Trust Fund that are, as of the record date for such
dividend, allocated to an Eligi-ble Director or Eligible Employee in
connection with an Award shall be promptly paid to such Eligible Director
or Eligible Employee. Any cash dividends declared and paid with respect
to Shares that are not, as of the record date for such dividend,
allocated to any Eligible Director or Eligible Employee in connection
with any Award shall, at the direction of the Committee, be held in the
Trust or used to pay the administrative expenses of the Plan, including
any compensation due to the Trustee.
(b) Any dividends or distributions declared and paid with respect to
Shares in property other than cash shall be held in the Trust Fund. If,
as of the record date for such dividend or distribution, the Shares with
respect to which it is paid are allocated to an Eligible Director or
Eligible Employee in connection with an Award, the property so
distributed shall be similarly allocated such Eligible Director or
Eligible Employee in connection with such Award and shall be held for
distribution or forfeiture in accordance with the terms and conditions of
the Award.
Section 6.6 Voting Rights.
(a) Each Eligible Director or Eligible Employee to whom an Award has
been made that is not fully vested shall have the right to direct the
manner in which all voting rights appurtenant to the Shares related to
such Award will be exercised while such Shares are held in the Trust
Fund. Such a direction shall be given by completing and filing, with the
inspec-tor of elections, the Trustee or such other person who shall be
indepen-dent of the Company as the Committee shall designate in the
direction, a written direction in the form and manner prescribed by the
Com-mittee. If no such direction is given by an Eligible Director or
Eligible Employee, then the voting rights appurtenant to the Shares
allocated to him shall not be exercised.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all voting rights appurtenant to
such Shares shall be exercised by the Trustee in such manner as the
Committee shall direct to reflect the voting directions given by Eligible
Director or Eligible Employees with respect to Shares allocated in
connection with their Awards.
<PAGE>
PAGE 9
(c) The Committee shall furnish, or cause to be fur-nished, to each
Eligible Director or Eligible Employee, all annual reports, proxy
materials and other informa-tion furnished by Dime Community Bancorp,
Inc., or by any proxy solici-tor, to the holders of Shares.
Section 6.7 Tender Offers.
(a) Each Eligible Director or Eligible Employee to whom an Award has
been made that is not fully vested shall have the right to direct, with
respect to the Shares related to such Award, the manner of response to
any tender offer, exchange offer or other offer made to the holders of
Shares. Such a direction shall be given by completing and filing, with
the inspec-tor of elections, the Trustee or such other person who shall
be indepen-dent of the Company as the Committee shall designate in the
direction, a written direction in the form and manner prescribed by the
Com-mittee. If no such direction is given by an Eligible Director or
Eligible Employee, then the Shares shall not be tendered or exchanged.
(b) To the extent that the Trust Fund contains Shares that are not
allocated in connection with an Award, all responses to tender, exchange
and other offers appurtenant to such Shares shall be given by the Trustee
in such manner as the Committee shall direct to reflect the responses
given by Eligible Director or Eligible Employees with respect to Shares
allocated in connection with their Awards.
(c) The Committee shall furnish, or cause to be fur-nished, to each
Eligible Director or Eligible Employee, all informa-tion furnished by the
offeror to the holders of Shares.
Section 6.8 Limitations on Awards.
(a) Notwithstanding anything in the Plan to the contrary:
(i) No Award shall be granted under the Plan prior to the earlier of the
date on which the Plan is approved by shareholders pursuant to section
9.8 or June 27, 1997;
(ii) No Eligible Employee may be granted Awards covering in excess of
145,475 Shares;
(iii) each Award shall become vested and distributable as follows:
(A) prior to the February 1 following the first anniversary of the date
on which the Plan is approved by shareholders pursuant to section 9.8,
the Award shall not be vested;
(B) on the February 1 following the first anniversary of the date on
which the Plan is approved by shareholders pursuant to section 9.8, the
Award will be vested as to twenty percent (20%) of the Shares subject to
the Award when granted;
<PAGE>
PAGE 10
(C) on the February 1 following the second anniversary of the date on
which the Award is granted, the Award will be vested as to an additional
twenty percent (20%) of the Shares subject to the Award when granted;
(D) on the February 1 following the third anniversary of the date on
which the Plan is approved by shareholders pursuant to section 9.8, the
Award will be vested as to an additional twenty percent (20%) of the
Shares subject to the Award when granted;
(E) on the February 1 following the fourth anniversary of the date on
which the Plan is approved by shareholders pursuant to section 9.8, the
Award will be vested as to an additional twenty percent (20%) of the
Shares subject to the Award when granted; and
(F) on the February 1 following the fifth anniversary of the date on
which the Plan is approved by shareholders pursuant to section 9.8, the
Award will be vested as to an additional twenty percent (20%) of the
Shares subject to the Award when granted;
provided, however, that such an Award shall become fully vested on the
date of the Award holder's death or Disability or Retirement or Change of
Control; and provided, further, that the Committee may establish a
different vesting schedule for any Awards.
(b) An Award by its terms shall not be trans-fer-able by the Eligible
Director or Eligible Employee other than by will or by the laws of de-
scent and distribution, and the Shares granted pursuant to such Award
shall be distributable, during the lifetime of the Recipient, only to the
Recipient.
<PAGE>
PAGE 11
ARTICLE VII
VESTING AND DISTRIBUTION OF SHARES
Section 7.1 Vesting of Shares Granted to Eligible Directors.
The Shares subject to each Award granted to Eligible Directors under the
Plan shall become vested as follows: (i) twenty percent (20%) of such
Shares shall become vested upon the February 1 following the first
anniversary of the date the Plan is approved by shareholders pursuant to
section 9.8; (ii) 20% of such Shares shall become vested upon the
February 1 following the second anniversary of the date the Plan is
approved by shareholders pursuant to section 8.8; (iii) 20% of such
Shares shall become vested upon the February 1 following the third
anniversary of the date the Plan is approved by shareholders pursuant to
section 8.8; (iv) 20% of such Shares shall become vested upon the
February 1 following the fourth anniversary of the date the Plan is
approved by shareholders pursuant to section 8.8; and (v) 20% of such
Shares shall become vested upon the February 1 following the fifth
anniversary of the date the Plan is approved by shareholders pursuant to
section 8.8; provided, however, that the Eligible Director has remained a
director of the Employer during the entire period commencing with the
date the Plan is approved by shareholders pursuant to section 8.8 and
ending on the applicable anniversary of the date of shareholder approval;
and provided, further, an Award shall become 100% vested upon the Award
holder's death or disability or Retirement or the date of a Change in
Control.
Section 7.2 Vesting of Shares Granted to Eligible Employees.
Subject to section 6.8 and the terms and conditions of the Plan, each
Award to an Eligible Employee made under the Plan shall become vested at
the times and upon the conditions specified by the Committee in the Award
notice; provided, however, that an Award shall become fully vested on the
date of the Award holder's death or disability or Retirement or the date
of a Change in Control; and provided, further, that the Committee may
establish a different vesting schedule for any Awards.
Section 7.3 Designation of Beneficiary.
An Eligible Director or Eligible Employee who has received an Award may
designate a Beneficiary to receive any undistributed Shares that are, or
become, available for distribution on, or after, the date of his death.
Such des-ignation (and any change or revocation of such designation)
shall be made in writing in the form and manner prescribed by the Com-
mittee. In the event that the Beneficiary designated by an Eli-gible
Director or Eligible Employee dies prior to the Eligible Director or
Eligible Employee, or in the event that no Benefi-ciary has been
designated, any undistributed Shares that are, or become, available for
dis-tribution on, or after, the Eligible Director's or Eligible
Employee's death shall be paid to the execu-tor or administrator of the
Eligible Director's or Eligible Employee's estate, or if no such executor
or administrator is appointed within such time as the Committee, in its
sole discretion, shall deem reasonable, to such one or more of the spouse
and descendants and blood rela-tives of such de-ceased person as the
Committee may select.
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PAGE 12
Section 7.4 Manner of Distribution.
(a) As soon as practicable following the date any Shares granted
pursuant to an Award be-come vested pursuant to sec-tions 7.1 and 7.2,
the Committee shall take such actions as are necessary to cause the
transfer of record ownership of the Shares that have become vested from
the Trustee to the Award holder and shall cause the Trustee to distribute
to the Award holder all property other than Shares then being held in
connection with the Shares being distributed.
(b) The Company's obligation to deliver Shares with re-spect to an Award
shall, if the Committee so requests, be condi-tioned upon the receipt of
a representation as to the in-vestment intention of the Eligible Director
or Eligible Employee or Beneficiary to whom such Shares are to be de-
livered, in such form as the Committee shall deter-mine to be necessary
or advisable to comply with the pro-vis-ions of applica-ble federal,
state or local law. It may be pro-vided that any such representation
shall become inoperative upon a registration of the Shares or upon the
occurrence of any other event eliminat-ing the necessity of such
representation. The Company shall not be required to deliver any Shares
under the Plan prior to (i) the admission of such Shares to listing on
any stock ex-change on which Shares may then be listed, or (ii) the
completion of such registration or other qualification under any state or
federal law, rule or regulation as the Committee shall determine to be
necessary or advisable.
Section 7.5 Taxes.
The Company, the Committee or the Trustee shall have the right to require
any person entitled to receive Shares pursuant to an Award to pay the
amount of any tax which is required to be withheld with respect to such
Shares, or, in lieu thereof, to retain, or to sell without no-tice, a
suffi-cient num-ber of Shares to cover the amount re-quired to be with-
held.
ARTICLE VIII
AMENDMENT AND TERMINATION
Section 8.1 Termination.
The Board may suspend or terminate the Plan in whole or in part at any
time by giving written notice of such sus-pension or termina-tion to the
Commit-tee; provided, however, that the Plan may not be terminated while
there are outstanding Awards that may thereafter become vested. Upon the
termination of the Plan, the Trustee shall make distributions from the
Trust Fund in such amounts and to such persons as the Committee may
direct and shall return the remaining assets of the Trust Fund, if any,
to Dime Community Bancorp, Inc.
Section 8.2 Amendment.
The Board may amend or revise the Plan in whole or in part at any time.
<PAGE>
PAGE 13
Section 8.3 Adjustments in the Event of a Business Reorganization.
(a) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in
which Dime Community Bancorp, Inc. is the sur-viving entity, and in the
event of any stock split, stock dividend or other event generally
affecting the number of Shares held by each person who is then a holder
of record of Shares, the number of Shares held in the Trust Fund,
including Shares covered by Awards, shall be ad-justed to ac-count for
such event. Such ad-justment shall be effected by mul-ti-plying such
number of Shares by an amount equal to the num-ber of Shares that would
be owned after such event by a person who, immediately prior to such
event, was the holder of record of one Share; pro-vided, however, that
the Committee may, in its discre-tion, estab-lish another ap-pro-priate
method of adjustment.
(b) In the event of any merger, consolidation, or other business
reorganization (including but not limited to a Change of Control) in
which Dime Community Bancorp, Inc. is not the sur-viving entity, the
Trustee shall hold in the Trust Fund any money, stock, securities or
other property received by holders of record of Shares in connection with
such merger, consolidation, or other business reorganization. Any Award
with respect to which Shares had been allocated to an Eligible Director
or Eligible Employee shall be adjusted by allocating to the Eligible
Director or Eligible Employee receiving such Award the amount of money,
stock, securities or other property received by the Trustee for the
Shares allocated to such Eligible Director or Eligible Employee.
ARTICLE IX
MISCELLANEOUS
Section 9.1 Status as an Employee Benefit Plan.
This Plan is not intended to satisfy the requirements for qualifi-ca-tion
under sec-tion 401(a) of the Code or to satisfy the defini-tional re-
quire-ments for an "employee benefit plan" under section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended. It is
intended to be a non-qualified incentive compen-sation program that is
exempt from the regulatory requirements of the Employee Retirement Income
Security Act of 1974, as amended. The Plan shall be construed and
administered so as to effectuate this intent.
Section 9.2 No Right to Continued Employment.
Nei-ther the establishment of the Plan nor any provisions of the Plan nor
any action of the Board or the Committee with respect to the Plan shall
be held or construed to confer upon any Eligible Director or El-igible
Employee any right to a continuation of employment by the Company. The
Employers reserve the right to dismiss any Eligible Director or Eligible
Employee or otherwise deal with any Eligible Di-rect-or or Eligible
Employee to the same extent as though the Plan had not been adopt-ed.
<PAGE>
PAGE 14
Section 9.3 Construction of Language.
Whenever ap-propriate in the Plan, words used in the singular may be read
in the plural, words used in the plural may be read in the singular, and
words importing the masculine gender may be read as referring equally to
the feminine or the neuter. Any reference to an Arti-cle or section
number shall refer to an Article or section of this Plan unless otherwise
indicated.
Section 9.4 Governing Law.
The Plan shall be con-strued and enforced in accordance with the laws of
the State of New York without giving effect to the conflict of laws
principles thereof, except to the extent that such laws are preempted by
the federal laws of the United States of America. The Plan shall be
construed to comply with applicable OTS Regulations.
Section 9.5 Headings.
The headings of Articles and sections are included solely for convenience
of reference. If there is any conflict between such headings and the
text of the Plan, the text shall control.
Section 9.6 Non-Alienation of Benefits.
The right to receive a benefit under the Plan shall not be subject in any
man-ner to anticipation, alienation or assign-ment, nor shall such right
be liable for or subject to debts, contracts, liabilities, engage-ments
or torts, except to the extent provided in a qualified domestic relations
order as defined in section 414(p) of the Code.
Section 9.7 Notices.
Any communication required or permit-ted to be given under the Plan,
including any notice, direction, designation, comment, instruction,
objection or waiver, shall be in writing and shall be deemed to have been
given at such time as it is personally delivered or 5 days after mailing
if mailed, postage prepaid, by registered or cer-tified mail, return
receipt requested, addressed to such party at the ad-dress listed below,
or at such other address as one such party may by written notice specify
to the other:
<PAGE>
PAGE 15
(a) If to the Stock Compensation Committee:
Dime Community Bancorp, Inc.
c/o The Dime Savings Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, New York 11211
Attention: Corporate Secretary
(b) If to an Eligible Director or Eligible Employee, to the Eligible
Director's or El-igible Employee's address as shown in the Employer's re-
cords.
Section 9.8 Approval of Shareholders.
The Plan shall not be effective or implemented prior to the one year
anniversary of the conversion of Dime Community Bancorp, Inc. to stock
form unless approved by the holders of a majority of the total votes
eligible to be cast at any duly called annual or special meeting of the
Company, in which case the Plan shall be effective as of the later of (a)
December 26, 1996 or (b) the date of such approval. If not effective
prior to such one year anniversary, the Plan shall be effective on such
later date as is specified by the Board.
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE
DIRECTORS,
OFFICERS AND EMPLOYEES
NON-QUALIFIED STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS
- -
------------------------ ---- ----- --------
NAME OF OPTIONEE SOCIAL SECURITY NUMBER
--------------------------------------------------------------------------
STREET ADDRESS
----------------------- ------------- ------------
CITY STATE ZIP CODE
This Non-Qualified Stock Option Agreement is intended to set forth the terms
and conditions on which a Non-Qualified Stock Option has been granted under the
Dime Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees. Set forth below are the specific terms and conditions
applicable to this Non-Qualified Stock Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
Option Grant (A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C>
Grant Date:
Class of Optioned Shares* Common Common Common Common Common
No. of Optioned Shares*
Exercise Price Per Share*
VESTING
Earliest Exercise Date*
Option Expiration Date*
</TABLE>
*SUBJECT TO ADJUSTMENT AS PROVIDED IN THE PLAN AND THE GENERAL TERMS AND
CONDITIONS.
By signing where indicated below, Dime Community Bancorp, Inc. (the "Company")
grants this Non-Qualified Stock Option upon the specified terms and conditions,
and the Optionee acknowledges receipt of this Non-Qualified Stock Option
Agreement, including Exhibit A, and agrees to observe and be bound by the terms
and conditions set forth herein.
DIME COMMUNITY BANCORP, INC. OPTIONEE
By ---------------------------------- -----------------------
NAME: VINCENT F. PALAGIANO
TITLE: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
INSTRUCTIONS: This page should be completed by or on behalf of the
Compensation Committee. Any blank space intentionally left blank should be
crossed out. An option grant consists of a number of optioned shares with
uniform terms and condition. Where options are granted on the same date with
varying terms and conditions (for example, varying exercise prices or earliest
exercise dates), the options should be recorded as a series of grants each with
its own uniform terms and conditions.
<PAGE>
EXHIBIT A
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS,
OFFICERS AND EMPLOYEES
NON-QUALIFIED STOCK OPTION AGREEMENT FOR OUTSIDE DIRECTORS
GENERAL TERMS AND CONDITIONS
SECTION 1. NON-QUALIFIED STOCK OPTION. The Company intends the
Option evidenced hereby not to be an "incentive stock option" within the
meaning of section 422 of the Internal Revenue Code of 1986.
SECTION 2. OPTION PERIOD. (a) Subject to section 2(b), the
Optionee shall have the right to purchase all or any portion of the optioned
Common Stock at any time during the period ("Option Period") commencing on the
Earliest Exercise Date and ending on the earliest to occur of the following
dates:
(i) removal for cause in accordance with the Company's
bylaws; or
(ii) the last day of the ten-year period commencing on
the date on which the Option was granted.
(b) Upon the termination of the Optionee's Service with the
Company, any Option granted hereunder whose Earliest Exercise Date has not
occurred is deemed forfeited. For this purpose, an Optionee's Service shall be
deemed to continue for so long as the Optionee is serving as an officer,
employee, outside director, advisory director, emeritus director or consultant
to the Company or is subject to and is observing the terms of a written
agreement restricting his ability to compete or imposing other restrictive
covenants.
SECTION 3. EXERCISE PRICE. During the Option Period, and after
the applicable Earliest Exercise Date, the Optionee shall have the right to
purchase all or any portion of the Optioned Common Stock at the Exercise Price
per Share.
SECTION 4. METHOD OF EXERCISE. The Optionee may, at any time
during the Option Period provided by section 2, exercise his right to purchase
all or any part of the optioned Common Stock then available for purchase;
PROVIDED, HOWEVER, that the minimum number of shares of optioned Common Stock
which may be purchased shall be one hundred (100) or, if less, the total number
of shares of optioned Common Stock then available for purchase. The Optionee
shall exercise such right by:
(a) giving written notice to the Committee, in the form
attached hereto as Appendix A; and
(b) delivering to the Committee full payment of the Exercise
Price for the Optioned Shares to be purchased.
The date of exercise shall be the earliest date practicable following the date
the requirements of this section 4 have been satisfied, but in no event more
than three (3) days after such date. Payment shall be made (i) in United
States dollars by certified check, money order or bank draft made payable to
the order of Dime Community Bancorp, Inc., (ii) in Shares duly endorsed for
transfer and with all necessary stock transfer tax stamps attached, already
owned by the Optionee and having a fair market value equal to the Exercise
Price, such fair market value to be determined in such manner as may be
provided by the Committee or as may be required in order to comply with or
conform to the requirements of any applicable laws or regulations, or (iii) in
a combination of (i) and (ii).
<PAGE>
SECTION 5. DELIVERY AND REGISTRATION OF OPTIONED SHARES. As soon as is
practicable following the date on which the Optionee has satisfied the
requirements of section 4, the Committee shall take such action as is necessary
to cause the Company to issue a stock certificate evidencing the Optionee's
ownership of the optioned Common Stock that has been purchased. The Optionee
shall have no right to vote or to receive dividends, nor have any other rights
with respect to optioned Common Stock, prior to the date as of which such
optioned Common Stock is transferred to the Optionee on the stock transfer
records of the Company, and no adjustments shall be made for any dividends or
other rights for which the record date is prior to the date as of which such
transfer is effected. The obligation of the Company to deliver Common Stock
under this Agreement shall, if the Committee so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such Common Stock is to be delivered, in such form as the Committee shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the Common Stock
or upon the occurrence of any other event eliminating the necessity of such
representation. The Company shall not be required to deliver any Common Stock
under this Agreement prior to (a) the admission of such Common Stock to listing
on any stock exchange on which Common Stock may then be listed, or (b) the
completion of such registration or other qualification under any state or
federal law, rule or regulations as the Committee shall determine to be
necessary or advisable.
SECTION 6. ADJUSTMENTS IN THE EVENT OF REORGANIZATION. In the
event of any merger, consolidation, or other business reorganization in which
the Company is the surviving entity, and in the event of any stock split, stock
dividend or other event generally affecting the number of shares of Common
Stock held by each person who is then a shareholder of record, the number of
shares of Common Stock subject to the option granted hereunder and the Exercise
Price per share of such option shall be adjusted in accordance with section 5.3
of the Plan to account for such event. In the event of any merger,
consolidation, or other business reorganization in which the Company is not the
surviving entity, the option granted hereunder shall be canceled or adjusted in
accordance with the Plan. In the event that the Company shall declare and pay
any dividend with respect to Shares (other than a dividend payable in Shares or
a regular quarterly cash dividend), including a dividend which results in a
nontaxable return of capital to the holders of Shares for federal income tax
purposes, or otherwise than by dividend makes distribution of property to the
holders of its Shares, at the election of the Committee, the Company (i) shall
make an equivalent payment to each Person holding an outstanding Option as of
the record date for such dividend in accordance with section 5.3 of the Plan
and (ii) the Committee, in its discretion applied uniformly to all outstanding
Options, may adjust the Exercise Price per Share of outstanding Options in such
a manner as the Committee may determine to be necessary to reflect the effect
of the dividend or other distribution on the Fair Market Value of a Share.
SECTION 7. NO RIGHT TO CONTINUED SERVICE. Nothing in this
Agreement nor any action of the Board or Committee with respect to this
Agreement shall be held or construed to confer upon the Optionee any right to a
continuation of service by the Company. The Optionee may be dismissed or
otherwise dealt with as though this Agreement had not been entered into.
SECTION 8. TAXES. Where any person is entitled to receive shares
pursuant to the exercise of the Option granted hereunder, the Company shall
have the right to require such person to pay to the Company the amount of any
tax which the Company is required to withhold with respect to such shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of
shares to cover the amount required to be withheld.
SECTION 9. NOTICES. Any communication required or permitted to be
given under the Plan, including any notice, direction, designation, comment,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is delivered personally or five (5) days
after mailing if mailed, postage prepaid, by registered or certified mail,
return receipt requested, addressed to such party at the address listed below,
or at such other address as one such party may by written notice specify to the
other party:
<PAGE>
(a) If to the Committee:
Dime Community Bancorp, Inc.
Attention: COMPENSATION COMMITTEE
(b) If to the Optionee, to the Optionee's address as shown in the
Company's personnel records.
SECTION 10. RESTRICTIONS ON TRANSFER. The option granted hereunder
shall not be subject in any manner to anticipation, alienation or assignment,
nor shall such option be liable for or subject to debts, contracts,
liabilities, engagements or torts, nor shall it be transferable by the Optionee
other than by will or by the laws of descent and distribution or as otherwise
permitted by the Plan.
SECTION 11. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and shall be binding upon the Company and the Optionee and their
respective heirs, successors and assigns.
SECTION 12. CONSTRUCTION OF LANGUAGE. Whenever appropriate in the
Agreement, words used in the singular may be read in the plural, words used in
the plural may be read in the singular, and words importing the masculine
gender may be read as referring equally to the feminine or the neuter. Any
reference to a section shall be a reference to a section of this Agreement,
unless the context clearly indicates otherwise. Capitalized terms not
specifically defined herein shall have the meanings assigned to them under the
Plan.
SECTION 13. GOVERNING LAW. This Agreement shall be construed,
administered and enforced according to the laws of the State of New York
without giving effect to the conflict of laws principles thereof, except to the
extent that such laws are preempted by the federal law.
SECTION 14. AMENDMENT. This Agreement may be amended, in whole or
in part and in any manner not inconsistent with the provisions of the Plan, at
any time and from time to time, by written agreement between the Company and
the Optionee.
SECTION 15. PLAN PROVISIONS CONTROL. This Agreement and the rights
and obligations created hereunder shall be subject to all of the terms and
conditions of the Plan. In the event of any conflict between the provisions of
the Plan and the provisions of this Agreement, the terms of the Plan, which are
incorporated herein by reference, shall control. By signing this Agreement,
the Optionee acknowledges receipt of a copy of the Plan.
SECTION 16. CHANGE IN CONTROL. This Option is granted with a
related Limited Appreciation Right that is exercisable only in the event of a
change in control. A "change in control" shall be as defined in the Plan.
<PAGE>
APPENDIX A TO STOCK OPTION AGREEMENT
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
NOTICE OF EXERCISE OF STOCK OPTION
USE THIS NOTICE TO INFORM THE COMMITTEE ADMINISTERING THE DIME COMMUNITY
BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES ("PLAN") THAT YOU ARE EXERCISING YOUR RIGHT TO PURCHASE SHARES OF
COMMON STOCK ("SHARES") OF DIME COMMUNITY BANCORP,INC. ("DIME") PURSUANT TO AN
OPTION ("OPTION") GRANTED UNDER THE PLAN. IF YOU ARE NOT THE PERSON TO WHOM
THE OPTION WAS GRANTED("OPTION RECIPIENT"),YOU MUST ATTACH TO THIS NOTICE PROOF
OF YOUR RIGHT TO EXERCISE THE OPTION GRANTED UNDER THE STOCK OPTION
AGREEMENT ENTERED INTO BETWEEN DIME AND THE OPTION RECIPIENT ("AGREEMENT").
THIS NOTICE SHOULD BE PERSONALLY DELIVERED OR MAILED BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED TO: DIME COMMUNITY BANCORP, INC., C/O THE DIME
SAVINGS BANK OF WILLIAMSBURGH, 209 HAVEMEYER STREET, BROOKLYN, NEW YORK
11211, ATTENTION: CORPORATE SECRETARY. THE EFFECTIVE DATE OF THE EXERCISE OF
THE OPTION SHALL BE THE EARLIEST DATE PRACTICABLE FOLLOWING THE DATE THIS
NOTICE IS RECEIVED BY DIME, BUT IN NO EVENT MORE THAN THREE DAYS AFTER SUCH
DATE ("EFFECTIVE DATE"). EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY
HEREIN, CAPITALIZED TERMS SHALL HAVE THE MEANINGS ASSIGNED TO THEM UNDER THE
PLAN. THIS NOTICE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS OF THE PLAN
AND THE AGREEMENT.
OPTION INFORMATION IDENTIFY BELOW THE OPTION THAT YOU ARE EXERCISING BY
PROVIDING THE FOLLOWING INFORMATION FROM THE STOCK OPTION AGREEMENT.
NAME OF OPTIONEE: ____________________________________________________________
OPTION GRANT DATE:_____________, _____ EXERCISE PRICE PER SHARE: $_______.____
(MONTH AND DAY) (YEAR)
EXERCISE PRICE:COMPUTE THE EXERCISE PRICE BELOW AND SELECT A METHOD OF PAYMENT.
Total Exercise Price ______________ x $________.______ = $_____________________
(No. of Shares) (Exercise Price) Total Exercise Price
METHOD OF PAYMENT
___ I enclose a certified check, money order, or bank draft payable
to the order of Dime Community Bancorp, Inc. in the amount of $__________
___ I enclose Shares duly endorsed for transfer to Dime with all
stamps attached and having a fair market value of $__________________
Total Exercise Price $__________________
ISSUANCE OF CERTIFICATES
I hereby direct that the stock certificates representing the Shares purchased
pursuant to section 2 above be issued to the following person(s) in the amount
specified below:
NAME AND ADDRESS SOCIAL SECURITY NO. NO. OF SHARES
__________________________________ ______-____-_______ ___________________
__________________________________
__________________________________ ______-____-_______ ___________________
__________________________________
WITHHOLDING ELECTIONS FOR EMPLOYEE OPTION RECIPIENTS WITH NON-QUALIFIED STOCK
OPTIONS ONLY.
BENEFICIARIES AND OUTSIDE DIRECTORS SHOULD NOT COMPLETE.
I understand that I am responsible for the amount of federal, state and
local taxes required to be withheld with respect to the Shares to be issued
to me pursuant to this Notice, but that I may request Dime to retain or sell
a sufficient number of such Shares to cover the amount to be withheld.
I hereby request that any taxes required to be withheld be paid in the
following manner [check one]:
__ With a certified or bank check that I will deliver to the Administrator
on the day after the Effective Date of my Option exercise.
__ With the proceeds from a sale of Shares that would otherwise be distributed
to me.
__ Retain shares that would otherwise be distributed to me.
I understand that the withholding elections I have made on this form are
not binding on the Committee, and that the Committee will decide the amount
to be withheld and the method of withholding and advise me of its decision
prior to the Effective Date. I further understand that the Committee may
request additional information or assurances regarding the manner and time at
which I will report the income attributable to the distribution to be made to
me.
I further understand that if I have elected to have Shares sold to satisfy tax
withholding, I may be asked to pay a minimal amount of such taxes in cash in
order to avoid the sale of more Shares than are necessary.
COMPLIANCE WITH TAX AND SECURITIES LAWS
I understand that I must rely on, and consult with, my own tax and
S H legal counsel (and not Dime Community Bancorp, Inc.) regarding the
I E application of all laws -- particularly tax and securities laws -- to
G R the transactions to be effected pursuant to my Option and this Notice.
N E I understand that I will be responsible for paying any federal, state
and local taxes that may become due upon the sale (including a sale
pursuant to a "cashless exercise") or other disposition of Shares
issued pursuant to this Notice and that I must consult with my own tax
advisor regarding how and when such income will be reportable.
--------------------- ----------------
Signature Date
-----------------------------------------------------------------_
Address
INTERNAL USE ONLY
Corporate Secretary
Received [CHECK ONE]: ___ By Hand ___ By Mail Post Marked
-----------------
DATE OF POST MARK
By ------------------------------- -----------------
AUTHORIZED SIGNATURE DATE OF RECEIPT
APPENDIX B TO STOCK OPTION AGREEMENT
DIME COMMUNITY BANCORP, INC. 1996
STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES
BENEFICIARY DESIGNATION FORM
GENERAL INFORMATION
USE THIS FORM TO DESIGNATE THE BENEFICIARY(IES) WHO MAY EXERCISE OPTIONS
OUTSTANDING TO YOU AT THE TIME OF YOUR DEATH.
Name of Person
Making a Designation___________________________________________________
Social Security Number________-______-________
BENEFICIARY DESIGNATION
COMPLETE SECTIONS A AND B. IF NO PERCENTAGE SHARES ARE SPECIFIED, EACH
BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL HAVE AN EQUAL
SHARE. IF ANY DESIGNATED BENEFICIARY PREDECEASES YOU, THE SHARES OF EACH
REMAINING BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL
BE INCREASED PROPORTIONATELY.
A. PRIMARY BENEFICIARY(IES). I hereby designate the following person
as my primary Beneficiary under the Plan, reserving the right to change
or revoke this designation at any time prior to my death:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total= 100%
</TABLE>
B. CONTINGENT BENEFICIARY(IES). I hereby designate the following person(s)
as my contingent Beneficiary(ies) under the Plan to receive benefits only
if all of my primary Beneficiaries should predecease me, reserving the
right to change or revoke this designation at any time prior to my death
as to all outstanding Options:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total = 100%
</TABLE>
S H I understand that this Beneficiary Designation shall be effective only
I E if properly completed and received by the Corporate Secretary of Dime
G R Community Bancorp, Inc. prior to my death, and that it is subject to
N E all of the terms and conditions of the Plan. I also understand that an
effective Beneficiary designation revokes my prior designation(s) with
respect to all outstanding Options.
------------------------------- -------------
YOUR SIGNATURE Date
INTERNAL USE ONLY
This Beneficiary Designation was received by the Corporate Comments
Secretary of Dime Community Bancorp, Inc. on the date
Indicated.
By ---------------------------- ------------ ____________
AUTHORIZED SIGNATURE DATE
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE
DIRECTORS,OFFICERS AND EMPLOYEES
STOCK OPTION AGREEMENT
- -
------------------------ ---- ----- --------
NAME OF OPTIONEE SOCIAL SECURITY NUMBER
--------------------------------------------------------------------------
STREET ADDRESS
----------------------- ------------- ------------
CITY STATE ZIP CODE
This INCENTIVEStock Option Agreement is intended to set forth the terms
and conditions on which a Non-Qualified Stock Option has been granted under the
Dime Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees. Set forth below are the specific terms and conditions
applicable to this Non-Qualified Stock Option. Attached as Exhibit A are its
general terms and conditions.
<TABLE>
<CAPTION>
Option Grant (A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C>
Grant Date: 12/26/96 12/26/96 12/26/96 12/26/96 12/26/96
Class of Optioned Shares* Common Common Common Common Common
No. of Optioned Shares*
Exercise Price Per Share* $14.50 $14.50 $14.50 $14.50 $14.50
Option Type (ISO or NQSO) ISO ISO ISO ISO ISO
VESTING
Earliest Exercise Date* 12/26/97 12/26/97 12/26/97 12/26/97 12/26/97
Option Expiration Date* 12/25/2006 12/25/2006 12/25/2006 12/25/2006 12/25/2006
</TABLE>
*SUBJECT TO ADJUSTMENT AS PROVIDED IN THE PLAN AND THE GENERAL TERMS AND
CONDITIONS.
By signing where indicated below, Dime Community Bancorp, Inc. (the "Company")
grants this Incentive Stock Option upon the specified terms and conditions,
and the Optionee acknowledges receipt of this Incentive Stock Option
Agreement, including Exhibit A, and agrees to observe and be bound by the terms
and conditions set forth herein.
DIME COMMUNITY BANCORP, INC. OPTIONEE
By ---------------------------------- -----------------------
NAME: VINCENT F. PALAGIANO
TITLE: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
INSTRUCTIONS: This page should be completed by or on behalf of the
Compensation Committee. Any blank space intentionally left blank should be
crossed out. An option grant consists of a number of optioned shares with
uniform terms and condition. Where options are granted on the same date with
varying terms and conditions (for example, varying exercise prices or earliest
exercise dates), the options should be recorded as a series of grants each with
its own uniform terms and conditions.
<PAGE>
EXHIBIT A
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS,
OFFICERS AND EMPLOYEES
STOCK OPTION AGREEMENT
GENERAL TERMS AND CONDITIONS
SECTION 1. INCENTIVE STOCK OPTION. If the Option is designated as
an ISO, the Company intends the Option evidenced hereby to be an "incentive
stock option" within themeaning of section 422 of the Internal Revenue Code
of 1986 ("Code").If the Option does not qualify as an "incentive stock option"
under the Plan or the Code, the Option or the part not qualifying shall be
treated as a Non-Qualified Stock Option under the Code.
SECTION 2. OPTION PERIOD. (a) Subject to section 2(b), the
Optionee shall have the right to purchase all or any portion of the optioned
Common Stock at any time during the period ("Option Period") commencing on the
Earliest Exercise Date and ending on the earliest to occur of the following
dates:
(i) the close of business on the last day of the 3-month
period commencing on the date of the termionation of all
employment with the Company and the Dime Savings Bank of
Williamsburgh; provided, however, that if such termination
is on account of death, Disability or Retirement, such date
shall be the last day of the 1-year period commencing on
such termination;
(ii) the date of termination for Cause; or
(iii) the last day of the ten-year period commencing on
the date on which the Option was granted.
(c) Upon the termination of the Optionee's Service with the
Company, any Option granted hereunder whose Earliest Exercise Date has not
occurred is deemed forfeited. To the extent authorized pursuant to a Plan
provision that is approved by the Company's shareholders after June 26, 1997,
in the event of the Optionee's retirement (as defined by the Plan) or a change
of control (as defined by the Plan), the date of such retirement or change of
control shall be the Earliest Exercise Date of any Options that are not already
exercisable.
SECTION 3. EXERCISE PRICE. During the Option Period, and after
the applicable Earliest Exercise Date, the Optionee shall have the right to
purchase all or any portion of the Optioned Common Stock at the Exercise Price
per Share.
SECTION 4. METHOD OF EXERCISE. The Optionee may, at any time
during the Option Period provided by section 2, exercise his right to purchase
all or any part of the optioned Common Stock then available for purchase;
PROVIDED, HOWEVER, that the minimum number of shares of optioned Common Stock
which may be purchased shall be one hundred (100) or, if less, the total number
of shares of optioned Common Stock then available for purchase. The Optionee
shall exercise such right by:
(a) giving written notice to the Committee, in the form
attached hereto as Appendix A; and
(b) delivering to the Committee full payment of the Exercise
Price for the Optioned Shares to be purchased.
The date of exercise shall be the earliest date practicable following the date
the requirements of this section 4 have been satisfied, but in no event more
than three (3) days after such date. Payment shall be made (i) in United
States dollars by certified check, money order or bank draft made payable to
the order of Dime Community Bancorp, Inc., (ii) in Shares duly endorsed for
transfer and with all necessary stock transfer tax stamps attached, already
owned by the Optionee and having a fair market value equal to the Exercise
Price, such fair market value to be determined in such manner as may be
provided by the Committee or as may be required in order to comply with or
conform to the requirements of any applicable laws or regulations, or (iii) in
a combination of (i) and (ii).
<PAGE>
SECTION 5. DELIVERY AND REGISTRATION OF OPTIONED SHARES. As soon as is
practicable following the date on which the Optionee has satisfied the
requirements of section 4, the Committee shall take such action as is necessary
to cause the Company to issue a stock certificate evidencing the Optionee's
ownership of the optioned Common Stock that has been purchased. The Optionee
shall have no right to vote or to receive dividends, nor have any other rights
with respect to optioned Common Stock, prior to the date as of which such
optioned Common Stock is transferred to the Optionee on the stock transfer
records of the Company, and no adjustments shall be made for any dividends or
other rights for which the record date is prior to the date as of which such
transfer is effected. The obligation of the Company to deliver Common Stock
under this Agreement shall, if the Committee so requests, be conditioned upon
the receipt of a representation as to the investment intention of the person to
whom such Common Stock is to be delivered, in such form as the Committee shall
determine to be necessary or advisable to comply with the provisions of
applicable federal, state or local law. It may be provided that any such
representation shall become inoperative upon a registration of the Common Stock
or upon the occurrence of any other event eliminating the necessity of such
representation. The Company shall not be required to deliver any Common Stock
under this Agreement prior to (a) the admission of such Common Stock to listing
on any stock exchange on which Common Stock may then be listed, or (b) the
completion of such registration or other qualification under any state or
federal law, rule or regulations as the Committee shall determine to be
necessary or advisable.
SECTION 6. ADJUSTMENTS IN THE EVENT OF REORGANIZATION. In the
event of any merger, consolidation, or other business reorganization in which
the Company is the surviving entity, and in the event of any stock split, stock
dividend or other event generally affecting the number of shares of Common
Stock held by each person who is then a shareholder of record, the number of
shares of Common Stock subject to the option granted hereunder and the Exercise
Price per share of such option shall be adjusted in accordance with section 5.3
of the Plan to account for such event. In the event of any merger,
consolidation, or other business reorganization in which the Company is not the
surviving entity, the option granted hereunder shall be canceled or adjusted in
accordance with the Plan. In the event that the Company shall declare and pay
any dividend with respect to Shares (other than a dividend payable in Shares or
a regular quarterly cash dividend), including a dividend which results in a
nontaxable return of capital to the holders of Shares for federal income tax
purposes, or otherwise than by dividend makes distribution of property to the
holders of its Shares, at the election of the Committee, the Company shall
either (i) make an equivalent payment to each Person holding an outstanding
Option as ofthe record date for such dividend in accordance with section
8.3 of the Plan or (ii) adjust the Exercise Price per Share of outstanding
Options in sucha manner as the Committee may determine to be necessary to
reflect the effect of the dividend or other distribution, or (iii) take any
other action described in section 8.3 of the Plan. Actions taken under section
8.3(c) of the Plan are subject to the approval of the Office of Thrift
Supervision unless section 8.3(c) is approved by the stockholders of the
Company after June 26, 1997.
SECTION 7. NO RIGHT TO CONTINUED SERVICE. Nothing in this
Agreement nor any action of the Board or Committee with respect to this
Agreement shall be held or construed to confer upon the Optionee any right to a
continuation of service by the Company. The Optionee may be dismissed or
otherwise dealt with as though this Agreement had not been entered into.
SECTION 8. TAXES. Where any person is entitled to receive shares
pursuant to the exercise of the Option granted hereunder, the Company shall
have the right to require such person to pay to the Company the amount of any
tax which the Company is required to withhold with respect to such shares, or,
in lieu thereof, to retain, or to sell without notice, a sufficient number of
shares to cover the amount required to be withheld.
SECTION 9. NOTICES. Any communication required or permitted to be
given under the Plan, including any notice, direction, designation, comment,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is delivered personally or five (5) days
after mailing if mailed, postage prepaid, by registered or certified mail,
return receipt requested, addressed to such party at the address listed below,
or at such other address as one such party may by written notice specify to the
other party:
<PAGE>
(a) If to the Committee:
Dime Community Bancorp, Inc.
Attention: COMPENSATION COMMITTEE
(b) If to the Optionee, to the Optionee's address as shown in the
Company's personnel records.
SECTION 10. RESTRICTIONS ON TRANSFER. The option granted hereunder
shall not be subject in any manner to anticipation, alienation or assignment,
nor shall such option be liable for or subject to debts, contracts,
liabilities, engagements or torts, nor shall it be transferable by the Optionee
other than by will or by the laws of descent and distribution or as otherwise
permitted by the Plan. To name a beneficiary who may exercise your Options
following your death, complete the attached Appendix B and file it with the
Corporate Secretary of Dime Community Bancorp, Inc.
SECTION 11. SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit of and shall be binding upon the Company and the Optionee and their
respective heirs, successors and assigns.
SECTION 12. CONSTRUCTION OF LANGUAGE. Whenever appropriate in the
Agreement, words used in the singular may be read in the plural, words used in
the plural may be read in the singular, and words importing the masculine
gender may be read as referring equally to the feminine or the neuter. Any
reference to a section shall be a reference to a section of this Agreement,
unless the context clearly indicates otherwise. Capitalized terms not
specifically defined herein shall have the meanings assigned to them under the
Plan.
SECTION 13. GOVERNING LAW. This Agreement shall be construed,
administered and enforced according to the laws of the State of New York
without giving effect to the conflict of laws principles thereof, except to the
extent that such laws are preempted by the federal law.
SECTION 14. AMENDMENT. This Agreement may be amended, in whole or
in part and in any manner not inconsistent with the provisions of the Plan, at
any time and from time to time, by written agreement between the Company and
the Optionee.
SECTION 15. PLAN PROVISIONS CONTROL. This Agreement and the rights
and obligations created hereunder shall be subject to all of the terms and
conditions of the Plan. In the event of any conflict between the provisions of
the Plan and the provisions of this Agreement, the terms of the Plan, which are
incorporated herein by reference, shall control. By signing this Agreement,
the Optionee acknowledges receipt of a copy of the Plan.
SECTION 16. CHANGE IN CONTROL. This Option is granted with a
related Limited Appreciation Right that is exercisable only in the event of a
change in control. A "change in control" shall be as defined in the Plan.
<PAGE>
APPENDIX A TO STOCK OPTION AGREEMENT
DIME COMMUNITY BANCORP, INC. 1996 STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
NOTICE OF EXERCISE OF STOCK OPTION
USE THIS NOTICE TO INFORM THE COMMITTEE ADMINISTERING THE DIME COMMUNITY
BANCORP, INC. 1996 STOCK OPTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES ("PLAN") THAT YOU ARE EXERCISING YOUR RIGHT TO PURCHASE SHARES OF
COMMON STOCK ("SHARES") OF DIME COMMUNITY BANCORP,INC. ("DIME") PURSUANT TO AN
OPTION ("OPTION") GRANTED UNDER THE PLAN. IF YOU ARE NOT THE PERSON TO WHOM
THE OPTION WAS GRANTED("OPTION RECIPIENT"),YOU MUST ATTACH TO THIS NOTICE PROOF
OF YOUR RIGHT TO EXERCISE THE OPTION GRANTED UNDER THE STOCK OPTION
AGREEMENT ENTERED INTO BETWEEN DIME AND THE OPTION RECIPIENT ("AGREEMENT").
THIS NOTICE SHOULD BE PERSONALLY DELIVERED OR MAILED BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED TO: DIME COMMUNITY BANCORP, INC., C/O THE DIME
SAVINGS BANK OF WILLIAMSBURGH, 209 HAVEMEYER STREET, BROOKLYN, NEW YORK
11211, ATTENTION: CORPORATE SECRETARY. THE EFFECTIVE DATE OF THE EXERCISE OF
THE OPTION SHALL BE THE EARLIEST DATE PRACTICABLE FOLLOWING THE DATE THIS
NOTICE IS RECEIVED BY DIME, BUT IN NO EVENT MORE THAN THREE DAYS AFTER SUCH
DATE ("EFFECTIVE DATE"). EXCEPT AS SPECIFICALLY PROVIDED TO THE CONTRARY
HEREIN, CAPITALIZED TERMS SHALL HAVE THE MEANINGS ASSIGNED TO THEM UNDER THE
PLAN. THIS NOTICE IS SUBJECT TO ALL OF THE TERMS AND CONDITIONS OF THE PLAN
AND THE AGREEMENT.
OPTION INFORMATION IDENTIFY BELOW THE OPTION THAT YOU ARE EXERCISING BY
PROVIDING THE FOLLOWING INFORMATION FROM THE STOCK OPTION AGREEMENT.
NAME OF OPTIONEE: ____________________________________________________________
OPTION GRANT DATE:_____________, _____ EXERCISE PRICE PER SHARE: $_______.____
(MONTH AND DAY) (YEAR)
EXERCISE PRICE:COMPUTE THE EXERCISE PRICE BELOW AND SELECT A METHOD OF PAYMENT.
Total Exercise Price ______________ x $________.______ = $_____________________
(No. of Shares) (Exercise Price) Total Exercise Price
METHOD OF PAYMENT
___ I enclose a certified check, money order, or bank draft payable
to the order of Dime Community Bancorp, Inc. in the amount of $__________
___ I enclose Shares duly endorsed for transfer to Dime with all
stamps attached and having a fair market value of $__________________
Total Exercise Price $__________________
ISSUANCE OF CERTIFICATES
I hereby direct that the stock certificates representing the Shares purchased
pursuant to section 2 above be issued to the following person(s) in the amount
specified below:
NAME AND ADDRESS SOCIAL SECURITY NO. NO. OF SHARES
__________________________________ ______-____-_______ ___________________
__________________________________
__________________________________ ______-____-_______ ___________________
__________________________________
WITHHOLDING ELECTIONS FOR EMPLOYEE OPTION RECIPIENTS WITH NON-QUALIFIED STOCK
OPTIONS ONLY.
BENEFICIARIES AND OUTSIDE DIRECTORS SHOULD NOT COMPLETE.
I understand that I am responsible for the amount of federal, state and
local taxes required to be withheld with respect to the Shares to be issued
to me pursuant to this Notice, but that I may request Dime to retain or sell
a sufficient number of such Shares to cover the amount to be withheld.
I hereby request that any taxes required to be withheld be paid in the
following manner [check one]:
__ With a certified or bank check that I will deliver to the Administrator
on the day after the Effective Date of my Option exercise.
__ With the proceeds from a sale of Shares that would otherwise be distributed
to me.
__ Retain shares that would otherwise be distributed to me.
I understand that the withholding elections I have made on this form are
not binding on the Committee, and that the Committee will decide the amount
to be withheld and the method of withholding and advise me of its decision
prior to the Effective Date. I further understand that the Committee may
request additional information or assurances regarding the manner and time at
which I will report the income attributable to the distribution to be made to
me.
I further understand that if I have elected to have Shares sold to satisfy tax
withholding, I may be asked to pay a minimal amount of such taxes in cash in
order to avoid the sale of more Shares than are necessary.
COMPLIANCE WITH TAX AND SECURITIES LAWS
I understand that I must rely on, and consult with, my own tax and
S H legal counsel (and not Dime Community Bancorp, Inc.) regarding the
I E application of all laws -- particularly tax and securities laws -- to
G R the transactions to be effected pursuant to my Option and this Notice.
N E I understand that I will be responsible for paying any federal, state
and local taxes that may become due upon the sale (including a sale
pursuant to a "cashless exercise") or other disposition of Shares
issued pursuant to this Notice and that I must consult with my own tax
advisor regarding how and when such income will be reportable.
--------------------- ----------------
Signature Date
-----------------------------------------------------------------_
Address
INTERNAL USE ONLY
Corporate Secretary
Received [CHECK ONE]: ___ By Hand ___ By Mail Post Marked
-----------------
DATE OF POST MARK
By ------------------------------- -----------------
AUTHORIZED SIGNATURE DATE OF RECEIPT
APPENDIX B TO STOCK OPTION AGREEMENT
DIME COMMUNITY BANCORP, INC. 1996
STOCK OPTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES
BENEFICIARY DESIGNATION FORM
GENERAL INFORMATION
USE THIS FORM TO DESIGNATE THE BENEFICIARY(IES) WHO MAY EXERCISE OPTIONS
OUTSTANDING TO YOU AT THE TIME OF YOUR DEATH.
Name of Person
Making a Designation___________________________________________________
Social Security Number________-______-________
BENEFICIARY DESIGNATION
COMPLETE SECTIONS A AND B. IF NO PERCENTAGE SHARES ARE SPECIFIED, EACH
BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL HAVE AN EQUAL
SHARE. IF ANY DESIGNATED BENEFICIARY PREDECEASES YOU, THE SHARES OF EACH
REMAINING BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL
BE INCREASED PROPORTIONATELY.
A. PRIMARY BENEFICIARY(IES). I hereby designate the following person
as my primary Beneficiary under the Plan, reserving the right to change
or revoke this designation at any time prior to my death:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total= 100%
</TABLE>
B. CONTINGENT BENEFICIARY(IES). I hereby designate the following person(s)
as my contingent Beneficiary(ies) under the Plan to receive benefits only
if all of my primary Beneficiaries should predecease me, reserving the
right to change or revoke this designation at any time prior to my death
as to all outstanding Options:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total = 100%
</TABLE>
S H I understand that this Beneficiary Designation shall be effective only
I E if properly completed and received by the Corporate Secretary of Dime
G R Community Bancorp, Inc. prior to my death, and that it is subject to
N E all of the terms and conditions of the Plan. I also understand that an
effective Beneficiary designation revokes my prior designation(s) with
respect to all outstanding Options.
------------------------------- -------------
YOUR SIGNATURE Date
INTERNAL USE ONLY
This Beneficiary Designation was received by the Corporate Comments
Secretary of Dime Community Bancorp, Inc. on the date
Indicated.
By ---------------------------- ------------ ____________
AUTHORIZED SIGNATURE DATE
DIRECTORS
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF DIME COMMUNITY BANCORP, INC.
RESTRICTED STOCK AWARD NOTICE
- ------------------------------ -------------------------
NAME OF AWARD RECIPIENT SOCIAL SECURITY NUMBER
---------------------------------------------------------
Street Address
- ------------------------- ---------------- -----------
CITY STATE ZIP CODE
This Restricted Stock Award Notice is intended to set forth the terms and
conditions on which a Restricted Stock Award has been granted under the
Recognition and Retention Plan for Outside Directors, Officers and Employees of
Dime Community Bancorp, Inc. Set forth below are the specific terms and
conditions applicable to this Restricted Stock Award. Attached as Exhibit A
are its general terms and conditions.
<TABLE>
<CAPTION>
Restricted Stock Award (A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C>
Effective Date 12/26/96 12/26/96 12/26/96 12/26/96 12/26/96
Class of Shares* Common Common Common Common Common
No. of Awarded Shares* 3,174 3,174 3,174 3,174 3,174
Vesting Date* 2/1/98 2/1/99 2/1/2000 2/1/2001 2/1/2002
</TABLE>
*SUBJECT TO ADJUSTMENT AS PROVIDED IN THE PLAN AND THE GENERAL TERMS AND
CONDITIONS.
By signing where indicated below, Dime Community Bancorp, Inc. (the "Company")
grants this Restricted Stock Award upon the specified terms and conditions, and
the Optionee acknowledges receipt of this Restricted Stock Award Notice,
including Exhibit A, and agrees to observe and be bound by the terms and
conditions set forth herein.
DIME COMMUNITY BANCORP, INC. AWARD RECIPIENT
By ----------------------------------------- --------------------
NAME: VINCENT F. PALAGIANO
TITLE: CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS
INSTRUCTIONS: This page should be completed by or on behalf of the
Compensation Committee. Any blank space intentionally left blank should be
crossed out. A Restricted Stock Award consists of a number of Awarded Shares
with uniform terms and conditions. Where Awarded Shares are awarded on the
same date with varying terms and conditions (for example, varying vesting
dates), the awards should be recorded as a series of grants each with its own
uniform terms and conditions.
<PAGE>
EXHIBIT A
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES OF DIME COMMUNITY BANCORP, INC.
RESTRICTED STOCK AWARD
GENERAL TERMS AND CONDITIONS
Section 1. OWNERSHIP OF SHARES. The shares of Common Stock, par
value $.01 per share, of Dime Community Bancorp, Inc. ("Shares") covered by
this Award ("Awarded Shares") are held in trust by Marine Midland Bank, N.A.,
the Trustee of the Plan, for your benefit until such time as they are
distributed to you or, if earlier, until you forfeit your rights to the Awarded
Shares.
Section 2. VESTING. In general the Awarded Shares shall become
vested and available for distribution to you at the dates set forth in the
Restricted Stock Award Notice. In the event that your service with the Company
terminates on account of your death or Disability, then any Awarded Shares not
therefore forfeited shall become immediately vested. In addition, to the
extent authorized pursuant to a Plan provision that is approved by the
Company's shareholders after June 26, 1997, in the event your service
terminates due to retirement (as defined in the Plan) or in the event a change
of control (as defined in the Plan) occurs, then any Awarded Shares not
theretofore forfeited shall become immediately vested.
Section 3. FORFEITURES. In the event that your service with the
Company terminates before all of the Awarded Shares become vested, any Awarded
Shares that have not yet become vested pursuant to section 2 of this Award
Notice shall be forfeited. Following such a forfeiture, you will have no
rights whatsoever with respect to the Awarded Shares forfeited.
Section 4. DIVIDENDS. Any cash or stock dividends declared and
paid with respect to Awarded Shares not forfeited shall be allocated to you,
and such dividends (and any earnings attributable to them) shall be held in the
Trust Fund subject to such restrictions and shall become vested under the same
terms and conditions as the Awarded Shares to which they pertain.
Section 5. VOTING RIGHTS. You shall have the exclusive right to
direct the manner in which all voting rights appurtenant to Awarded Shares not
forfeited will be exercised while such Awarded Shares are held in the Trust
Fund. Such a direction shall be given by completing and filing a written
direction, in the form and manner prescribed by the Committee, with such person
as the Committee shall designate, prior to the date of the meeting of holders
of Shares at which such voting rights will be exercised.
Section 6. DISTRIBUTION UPON VESTING. As soon as practicable
following the date any Awarded Shares become vested pursuant to the Award
Notice, the Company will issue to you, or your Beneficiary entitled to such
Awarded Shares, a stock certificate evidencing ownership of the Shares. Any
additional Shares attributable to stock dividends paid with respect to the
Awarded Shares then being distributed pursuant to this section 6 shall also be
distributed and shall be evidenced by such stock certificate. At the same
time, you will receive a cash distribution of any related cash dividends and
earnings thereon.
Section 7. REGISTRATION OF SHARES. The Company's obligation to
deliver Shares pursuant to this Award Notice shall, if the Committee so
requests, be conditioned upon the receipt of a representation as to the
investment intention of you or your Beneficiary to whom such Shares are to be
delivered, in such form as the Committee shall determine to be necessary or
advisable to comply with the provisions of applicable federal, state or local
law. It may be provided that any such representation shall become inoperative
upon a registration of the Shares or upon the occurrence of any other event
eliminating the necessity of such representation. The Company shall not be
required to deliver any Shares under the Plan prior to (a) the admission of
such Shares to listing on any stock exchange on which Shares may then be
listed, or (b) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Committee shall determine
to be necessary or advisable.
Section 8. NO RIGHT TO CONTINUED SERVICE. Nothing in this Award
Notice nor any action of the Board or the Committee with respect to this Award
Notice shall be held or construed to confer upon you any right to a
continuation of service with the Company or any of its affiliates which retain
you. You may be dismissed or otherwise dealt with to the same extent as though
this Award had not been made.
<PAGE>
Section 9. TAXES. The Company, the Committee or the Trustee shall
have the right to require you to pay the amount of any tax which is required to
be withheld with respect to the Awarded Shares, or, in lieu thereof, to retain,
or to sell without notice, a sufficient number of Awarded Shares to cover the
amount required to be withheld.
Section 10. NOTICES. Any communication required or permitted to
be given under the Plan, including any notice, direction, designation, comment,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is personally delivered or five (5) days
after mailing if mailed, postage prepaid, by registered or certified mail,
return receipt requested, addressed to such party at the address listed below,
or at such other address as one such party may by written notice specify to the
other:
(a) If to the Committee:
Dime Community Bancorp, Inc.
c/o The Dime Savings Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, New York 11211
Attention: CORPORATE SECRETARY
(b) If to you, to your address as shown in the Company's personnel
records.
Section 11. NO ASSIGNMENT. The Awarded Shares shall not be
transferable by you other than by will or by the laws of descent and
distribution, and the Awarded Shares shall be distributable only to you during
your lifetime. To name a Beneficiary who may receive distribution of shares of
Common Stock available for distribution after your death, complete the attached
Appendix A and file it with the Corporate Secretary of Dime Community Bancorp,
Inc.
Section 12. SUCCESSORS AND ASSIGNS. This Award Notice shall inure
to the benefit of and shall be binding upon you and the Company and your
respective heirs, successors and assigns.
Section 13. CONSTRUCTION OF LANGUAGE. Whenever appropriate in
this Award Notice, words used in the singular may be read in the plural, words
used in the plural may be read in the singular, and words importing the
masculine gender may be read as referring equally to the feminine or the
neuter. Any reference to a section shall be a reference to a section of this
Award Notice, unless the context clearly indicates otherwise. Capitalized
terms not specifically defined herein shall have the meanings assigned to them
under the Plan.
Section 14. GOVERNING LAW. This Award Notice shall be construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of laws principles thereof, except to the extent
that such laws are preempted by the federal laws of the United States of
America.
Section 15. AMENDMENT. This Award Notice may be amended, in whole
or in part and in any manner not inconsistent with the provisions of the Plan,
at any time and from time to time, by written agreement between you and the
Company.
Section 16. PLAN PROVISIONS CONTROL. This Award Notice, and the
rights and obligations created hereunder, shall be subject to all of the terms
and conditions of the Plan. In the event of any conflict between the
provisions of the Plan and the provisions of this Award Notice, the terms of
the Plan, which are incorporated herein by reference, shall control. By
signing this Award Notice, you acknowledge receipt of a copy of the Plan.
<PAGE>
APPENDIX A TO RESTRICTED STOCK AWARD NOTICE
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES OF DIME COMMUNITY BANCORP, INC.
BENEFICIARY DESIGNATION FORM
GENERAL INFORMATION
USE THIS FORM TO DESIGNATE THE BENEFICIARY(IES) WHO MAY EXERCISE OPTIONS
OUTSTANDING TO YOU AT THE TIME OF YOUR DEATH.
Name of Person
Award Recipient___________________________________________________
Social Security Number________-______-________
BENEFICIARY DESIGNATION
COMPLETE SECTIONS A AND B. IF NO PERCENTAGE SHARES ARE SPECIFIED, EACH
BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL HAVE AN EQUAL
SHARE. IF ANY DESIGNATED BENEFICIARY PREDECEASES YOU, THE SHARES OF EACH
REMAINING BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL
BE INCREASED PROPORTIONATELY.
A. PRIMARY BENEFICIARY(IES). I hereby designate the following person
as my primary Beneficiary under the Plan, reserving the right to change
or revoke this designation at any time prior to my death:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total= 100%
</TABLE>
B. CONTINGENT BENEFICIARY(IES). I hereby designate the following person(s)
as my contingent Beneficiary(ies) under the Plan to receive benefits only
if all of my primary Beneficiaries should predecease me, reserving the
right to change or revoke this designation at any time prior to my death
as to all outstanding Options:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total = 100%
</TABLE>
S H I understand that this Beneficiary Designation shall be effective only
I E if properly completed and received by the Corporate Secretary of Dime
G R Community Bancorp, Inc. prior to my death, and that it is subject to
N E all of the terms and conditions of the Plan. I also understand that an
effective Beneficiary designation revokes my prior designation(s) with
respect to all outstanding Options.
------------------------------- -------------
YOUR SIGNATURE Date
INTERNAL USE ONLY
This Beneficiary Designation was received by the Corporate Comments
Secretary of Dime Community Bancorp, Inc. on the date
Indicated.
By ---------------------------- ------------ ____________
AUTHORIZED SIGNATURE DATE
Officers and Employees
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES
OF DIME COMMUNITY BANCORP, INC.
RESTRICTED STOCK AWARD NOTICE
- ------------------------------ -------------------------
NAME OF AWARD RECIPIENT SOCIAL SECURITY NUMBER
---------------------------------------------------------
Street Address
- ------------------------- ---------------- -----------
CITY STATE ZIP CODE
This Restricted Stock Award Notice is intended to set forth the terms and
conditions on which a Restricted Stock Award has been granted under the
Recognition and Retention Plan for Outside Directors, Officers and Employees of
Dime Community Bancorp, Inc. Set forth below are the specific terms and
conditions applicable to this Restricted Stock Award. Attached as Exhibit A
are its general terms and conditions.
<TABLE>
<CAPTION>
Restricted Stock Award (A) (B) (C) (D) (E)
<S> <C> <C> <C> <C> <C>
Effective Date 12/26/96 12/26/96 12/26/96 12/26/96 12/26/96
Class of Shares* Common Common Common Common Common
No. of Awarded Shares*
Vesting Date* 2/1/98 2/1/99 2/1/2000 2/1/2001 2/1/2002
</TABLE>
*SUBJECT TO ADJUSTMENT AS PROVIDED IN THE PLAN AND THE GENERAL TERMS AND
CONDITIONS.
By signing where indicated below, Dime Community Bancorp, Inc. (the "Company")
grants this Restricted Stock Award upon the specified terms and conditions, and
the Optionee acknowledges receipt of this Restricted Stock Award Notice,
including Exhibit A, and agrees to observe and be bound by the terms and
conditions set forth herein.
DIME COMMUNITY BANCORP, INC. AWARD RECIPIENT
By ----------------------------------------- --------------------
NAME: VINCENT F. PALAGIANO
TITLE: CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD OF DIRECTORS
INSTRUCTIONS: This page should be completed by or on behalf of the
Compensation Committee. Any blank space intentionally left blank should be
crossed out. A Restricted Stock Award consists of a number of Awarded Shares
with uniform terms and conditions. Where Awarded Shares are awarded on the
same date with varying terms and conditions (for example, varying vesting
dates), the awards should be recorded as a series of grants each with its own
uniform terms and conditions.
<PAGE>
EXHIBIT A
RECOGNITION AND RETENTION PLAN
FOR OUTSIDE DIRECTORS, OFFICERS AND EMPLOYEES OF DIME COMMUNITY BANCORP, INC.
RESTRICTED STOCK AWARD
GENERAL TERMS AND CONDITIONS
Section 1. OWNERSHIP OF SHARES. The shares of Common Stock, par
value $.01 per share, of Dime Community Bancorp, Inc. ("Shares") covered by
this Award ("Awarded Shares") are held in trust by Marine Midland Bank, N.A.,
the Trustee of the Plan, for your benefit until such time as they are
distributed to you or, if earlier, until you forfeit your rights to the Awarded
Shares.
Section 2. VESTING. In general the Awarded Shares shall become
vested and available for distribution to you at the dates set forth in the
Restricted Stock Award Notice. In the event that your service with the Company
terminates on account of your death or Disability, then any Awarded Shares not
therefore forfeited shall become immediately vested. In addition, to the
extent authorized pursuant to a Plan provision that is approved by the
Company's shareholders after June 26, 1997, in the event your service
terminates due to retirement (as defined in the Plan) or in the event a change
of control (as defined in the Plan) occurs, then any Awarded Shares not
theretofore forfeited shall become immediately vested.
Section 3. FORFEITURES. In the event that your service with the
Company terminates before all of the Awarded Shares become vested, any Awarded
Shares that have not yet become vested pursuant to section 2 of this Award
Notice shall be forfeited. Following such a forfeiture, you will have no
rights whatsoever with respect to the Awarded Shares forfeited.
Section 4. DIVIDENDS. Any cash or stock dividends declared and
paid with respect to Awarded Shares not forfeited shall be allocated to you,
and such dividends (and any earnings attributable to them) shall be held in the
Trust Fund subject to such restrictions and shall become vested under the same
terms and conditions as the Awarded Shares to which they pertain.
Section 5. VOTING RIGHTS. You shall have the exclusive right to
direct the manner in which all voting rights appurtenant to Awarded Shares not
forfeited will be exercised while such Awarded Shares are held in the Trust
Fund. Such a direction shall be given by completing and filing a written
direction, in the form and manner prescribed by the Committee, with such person
as the Committee shall designate, prior to the date of the meeting of holders
of Shares at which such voting rights will be exercised.
Section 6. DISTRIBUTION UPON VESTING. As soon as practicable
following the date any Awarded Shares become vested pursuant to the Award
Notice, the Company will issue to you, or your Beneficiary entitled to such
Awarded Shares, a stock certificate evidencing ownership of the Shares. Any
additional Shares attributable to stock dividends paid with respect to the
Awarded Shares then being distributed pursuant to this section 6 shall also be
distributed and shall be evidenced by such stock certificate. At the same
time, you will receive a cash distribution of any related cash dividends and
earnings thereon.
Section 7. REGISTRATION OF SHARES. The Company's obligation to
deliver Shares pursuant to this Award Notice shall, if the Committee so
requests, be conditioned upon the receipt of a representation as to the
investment intention of you or your Beneficiary to whom such Shares are to be
delivered, in such form as the Committee shall determine to be necessary or
advisable to comply with the provisions of applicable federal, state or local
law. It may be provided that any such representation shall become inoperative
upon a registration of the Shares or upon the occurrence of any other event
eliminating the necessity of such representation. The Company shall not be
required to deliver any Shares under the Plan prior to (a) the admission of
such Shares to listing on any stock exchange on which Shares may then be
listed, or (b) the completion of such registration or other qualification under
any state or federal law, rule or regulation as the Committee shall determine
to be necessary or advisable.
Section 8. NO RIGHT TO CONTINUED SERVICE. Nothing in this Award
Notice nor any action of the Board or the Committee with respect to this Award
Notice shall be held or construed to confer upon you any right to a
continuation of service with the Company or any of its affiliates which retain
you. You may be dismissed or otherwise dealt with to the same extent as though
this Award had not been made.
<PAGE>
Section 9. TAXES. The Company, the Committee or the Trustee shall
have the right to require you to pay the amount of any tax which is required to
be withheld with respect to the Awarded Shares, or, in lieu thereof, to retain,
or to sell without notice, a sufficient number of Awarded Shares to cover the
amount required to be withheld.
Section 10. NOTICES. Any communication required or permitted to
be given under the Plan, including any notice, direction, designation, comment,
instruction, objection or waiver, shall be in writing and shall be deemed to
have been given at such time as it is personally delivered or five (5) days
after mailing if mailed, postage prepaid, by registered or certified mail,
return receipt requested, addressed to such party at the address listed below,
or at such other address as one such party may by written notice specify to the
other:
(a) If to the Committee:
Dime Community Bancorp, Inc.
c/o The Dime Savings Bank of Williamsburgh
209 Havemeyer Street
Brooklyn, New York 11211
Attention: CORPORATE SECRETARY
(b) If to you, to your address as shown in the Company's personnel
records.
Section 11. NO ASSIGNMENT. The Awarded Shares shall not be
transferable by you other than by will or by the laws of descent and
distribution, and the Awarded Shares shall be distributable only to you during
your lifetime. To name a Beneficiary who may receive distribution of shares of
Common Stock available for distribution after your death, complete the attached
Appendix A and file it with the Corporate Secretary of Dime Community Bancorp,
Inc.
Section 12. SUCCESSORS AND ASSIGNS. This Award Notice shall inure
to the benefit of and shall be binding upon you and the Company and your
respective heirs, successors and assigns.
Section 13. CONSTRUCTION OF LANGUAGE. Whenever appropriate in
this Award Notice, words used in the singular may be read in the plural, words
used in the plural may be read in the singular, and words importing the
masculine gender may be read as referring equally to the feminine or the
neuter. Any reference to a section shall be a reference to a section of this
Award Notice, unless the context clearly indicates otherwise. Capitalized
terms not specifically defined herein shall have the meanings assigned to them
under the Plan.
Section 14. GOVERNING LAW. This Award Notice shall be construed
and enforced in accordance with the laws of the State of New York without
giving effect to the conflict of laws principles thereof, except to the extent
that such laws are preempted by the federal laws of the United States of
America.
Section 15. AMENDMENT. This Award Notice may be amended, in whole
or in part and in any manner not inconsistent with the provisions of the Plan,
at any time and from time to time, by written agreement between you and the
Company.
Section 16. PLAN PROVISIONS CONTROL. This Award Notice, and the
rights and obligations created hereunder, shall be subject to all of the terms
and conditions of the Plan. In the event of any conflict between the
provisions of the Plan and the provisions of this Award Notice, the terms of
the Plan, which are incorporated herein by reference, shall control. By
signing this Award Notice, you acknowledge receipt of a copy of the Plan.
<PAGE>
APPENDIX A TO RESTRICTED STOCK AWARD NOTICE
RECOGNITION AND RETENTION PLAN FOR OUTSIDE DIRECTORS, OFFICERS AND
EMPLOYEES OF DIME COMMUNITY BANCORP, INC.
BENEFICIARY DESIGNATION FORM
GENERAL INFORMATION
USE THIS FORM TO DESIGNATE THE BENEFICIARY(IES) WHO MAY EXERCISE OPTIONS
OUTSTANDING TO YOU AT THE TIME OF YOUR DEATH.
Name of Person
Award Recipient___________________________________________________
Social Security Number________-______-________
BENEFICIARY DESIGNATION
COMPLETE SECTIONS A AND B. IF NO PERCENTAGE SHARES ARE SPECIFIED, EACH
BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL HAVE AN EQUAL
SHARE. IF ANY DESIGNATED BENEFICIARY PREDECEASES YOU, THE SHARES OF EACH
REMAINING BENEFICIARY IN THE SAME CLASS (PRIMARY OR CONTINGENT) SHALL
BE INCREASED PROPORTIONATELY.
A. PRIMARY BENEFICIARY(IES). I hereby designate the following person
as my primary Beneficiary under the Plan, reserving the right to change
or revoke this designation at any time prior to my death:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total= 100%
</TABLE>
B. CONTINGENT BENEFICIARY(IES). I hereby designate the following person(s)
as my contingent Beneficiary(ies) under the Plan to receive benefits only
if all of my primary Beneficiaries should predecease me, reserving the
right to change or revoke this designation at any time prior to my death
as to all outstanding Options:
<TABLE>
<CAPTION>
NAME ADDRESS RELATIONSHIP BIRTHDATE SHARE
<S> <C> <C> <C> <C>
______________________________________ ______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________
______________________________________
______________________________________ ______________ ______________ ___________%
______________________________________ Total = 100%
</TABLE>
S H I understand that this Beneficiary Designation shall be effective only
I E if properly completed and received by the Corporate Secretary of Dime
G R Community Bancorp, Inc. prior to my death, and that it is subject to
N E all of the terms and conditions of the Plan. I also understand that an
effective Beneficiary designation revokes my prior designation(s) with
respect to all outstanding Options.
------------------------------- -------------
YOUR SIGNATURE Date
INTERNAL USE ONLY
This Beneficiary Designation was received by the Corporate Comments
Secretary of Dime Community Bancorp, Inc. on the date
Indicated.
By ---------------------------- ------------ ____________
AUTHORIZED SIGNATURE DATE
EXHIBIT NUMBER 11
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (1)
FOR THE
YEAR ENDED
JUNE 30, 1997
-------------
Net income $12,316
Weighted average common shares outstanding 12,934
Common stock equivalents due to dilutive
effect of stock options 47
------------
Total weighted average common shares and
common share equivalents 12,980
============
Earnings per common share and common share
equivalents $0.95
============
Total weighted average common shares and
common share equivalents 12,980
Additional dilutive shares using ending
period market value versus average market
value for the period when utilizing the treasury
stock method regarding stock options 157
------------
Total shares for fully diluted earnings per
share 13,137
============
Fully diluted earnings per common share and
common share equivalents $0.94
============
(1) Earnings per share information is not presented for the year ended
June 30, 1996 as it not considered meaningful since the initial public
offering of the Company's stock did not occur until June, 1996.
FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto. Earnings
per share information for the Company for the fiscal years ended prior to June
30, 1996 are not meaningful since the sale of the Company's common stock and
the merger of Conestoga Bancorp, Inc. into the Bank occurred on June 26, 1996.
<TABLE>
<CAPTION>
At or for the years ended June 30, 1997 1996 <F1> 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------- ------------- ------------- ---------- ---------- -----------
FINANCIAL CONDITION DATA:
Total assets <F2> $1,315,026 $1,371,821 $662,739 $646,458 $645,899
Loans, net <F3> 739,858 575,874 424,680 427,960 458,422
Mortgage-backed securities <F4> 308,525 209,941 91,548 94,356 82,077
Investment securities <F2> <F4> 168,596 392,450 101,695 86,686 56,724
Federal funds sold <F2> 18,902 115,130 17,809 7,029 21,037
Goodwill 26,433 28,438 - - -
Deposits 963,395 950,114 554,841 546,761 564,110
Borrowings 139,543 27,708 17,820 17,871 11,981
Stockholders' equity <F5> 190,889 213,071 77,067 67,919 58,920
Tangible Stockholders' equity <F5> 162,361 184,188 76,321 67,646 58,577
- ---------------------------------------------- ------------- ------------- --------- ---------- -----------
SELECTED OPERATING DATA:
Interest income $89,030 $52,619 $49,223 $49,821 $51,393
Interest expense on deposits and borrowings 41,564 23,516 18,946 17,594 21,251
- ---------------------------------------------- ------------- ------------- --------- ---------- -----------
Net interest income 47,466 29,103 30,277 32,227 30,142
Provision for losses 4,200 2,979 2,950 4,105 3,395
- ---------------------------------------------- ------------- ------------- --------- ---------- -----------
Net interest income after provision for loan
losses 43,266 26,124 27,327 28,122 26,747
Non-interest income 4,133 1,375 1,773 2,267 3,195
Non-interest expense <F6> 27,492 14,021 14,053 12,714 12,214
- ---------------------------------------------- ------------- ------------- --------- --------- -----------
Income before income tax expense and
cumulative effect of changes in
accounting principle 19,907 13,478 15,047 17,675 17,728
Income tax expense <F7> 7,591 6,181 6,621 8,211 8,530
- ---------------------------------------------- ------------- ------------- ---------- ---------- -----------
Income before cumulative effect of changes
in accounting principle 12,316 7,297 8,426 9,464 9,198
Cumulative effect on prior years of changing
to a different method of accounting
for:
Income taxes <F8> - - - (383) -
Postretirement benefits other than
pensions <F9> - (1,032) - - -
- ---------------------------------------------- ------------- ------------- ----------- ----------- ------------
Net income <F10> $12,316 $6,265 $8,426 $9,081 $9,198
============================================== ============== ============= =========== =========== ===========
<FN>
<F1>Since the acquisition of Conestoga was completed at June 26, 1996, its
contribution to the Company's earnings and the effect upon average balance
computations for fiscal year ended June 30, 1996 were not material.
<F2>At June 30, 1996, investment securities and federal funds sold include
125.0 million and $6.1 million, respectively, of excess proceeds resulting
from the oversubscription to the Company's initial public
offering. The excess proceeds were refunded on July 1, 1996.
<F3>Loans, net, represents gross loans less net deferred loan fees and
allowance for loan losses.
<F4>The Company has classified its securities as ''held-to-maturity'' or
''available-for-sale'' since July 1, 1994, when it adopted SFAS No. 115
''Accounting for Investments in Debt and Equity Securities'' (''SFAS
115''). Amount includes investment in Federal Home Loan Bank of New York
("FHLBNY") capital stock.
<F5>Stockholders' Equity and tangible stockholders' equity increased from June
30, 1995 to June 30, 1996 primarily due to the initial public offering.
<F6>Excluding a non-recurring charge of $2.0 million related to the
recapitalization of the Savings Association Insurance Fund, non-interest
expense was $25.5 million during the year ended June 30, 1997. See
"Impact of Recent Legislation."
<F7>Excluding non-recurring New York State and New York City income tax
recoveries of $1.9 million and $1.0 million, respectively, income tax
expense was $10.5 million during the fiscal year ended June 30, 1997.
<F8>Pursuant to Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," ('SFAS 109"), on July 1, 1993, the Bank
changed prospectively to the deferred method of accounting for income
taxes. The effect of the adoption of this standard is reflected in the
selected operating data as the cumulative effect of adopting a change in
accounting principles.
<F9>The Bank adopted Statement of Financial Accounting Standards No. 106,
''Employers' Accounting for Postretirement Benefits Other Than Pensions''
("SFAS 106") effective July 1, 1995. The Bank elected to record
the full accumulated post retirement benefit obligation upon adoption. This
resulted in a cumulative effect adjustment of $1,032,000 (after
reduction for income taxes of $879,000) to apply retroactively to previous
years the new method of accounting, which is shown in the consolidated
statement of income for the year ended June 30, 1996.
</TABLE>
PAGE 1
<PAGE>
<TABLE>
<CAPTION>
At or for the fiscal years ended June 30, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- -------------------------------------------- --------- -------- --------- --------- ---------
SELECTED FINANCIAL RATIOS AND OTHER DATA (11):
FINANCIAL AND PERFORMANCE RATIOS:
Return on average assets <F10> <F12> 1.00% 1.07% 1.33% 1.46% 1.47%
Return on average stockholders' equity <F10> 5.94 9.07 11.50 14.66 16.83
<F12>
Return on average tangible
stockholders' equity <F10> <F12> 6.84 11.84 11.53 14.66 16.83
Stockholders' equity to total assets
at end of period 14.52 15.53 11.63 10.51 9.12
Tangible equity to tangible assets at end of
period 12.62 13.72 11.53 10.47 9.07
Loans to deposits at end of period 77.91 61.43 77.47 78.94 81.80
Average interest rate spread <F13> 3.38 3.85 4.51 4.80 4.61
Net interest margin <F14> 4.07 4.41 4.91 5.12 4.95
Average interest earning assets to average
interest bearing liabilities 119.33 115.68 113.15 111.50 109.66
Non-interest expense to average assets <F10> 2.24 2.06 2.21 1.97 1.95
Core non-interest expense to average assets 1.87 2.06 2.21 1.97 1.95
<F16>
Efficiency ratio <F10><F15> 54.32 45.98 44.11 37.63 38.18
Core efficiency ratio <F15> <F16> 45.55 45.98 44.11 37.63 38.18
PER SHARE DATA:
Earnings per share <F10> $0.95 N/A N/A N/A N/A
Cash dividends per share 0.045 $- N/A N/A N/A
Book value per share 14.58 14.65 N/A N/A N/A
Tangible book value per share 12.40 12.66 N/A N/A N/A
CASH EARNINGS INFORMATION:
Cash return on average assets <F12> <F17> 1.36% 1.07% 1.33% 1.46% 1.47%
Cash return on average
stockholders' equity <F12> <F17> 8.06 9.07 11.50 14.66 16.83
Cash return on average tangible stockholders'
equity <F12> <F17> 9.27 9.07 11.50 14.66 16.83
Cash earnings per share <F17> $1.29 N/A N/A N/A N/A
ASSET QUALITY RATIOS AND OTHER DATA:
Total non-performing loans <F18> $3,190 $6,551 $5,073 $6,248 11,632
Other real estate owned, net 1,697 1,946 4,466 8,200 7,981
Ratios:
Non-performing loans to total loans 0.43% 1.12% 1.18% 1.45% 2.52%
Non-performing loans and real estate
owned to total assets 0.37 0.62 1.44 2.23 3.04
ALLOWANCE FOR LOAN LOSSES TO:
Non-performing loans 336.24% 119.25% 101.99% 58.15% 25.76%
Total loans <F19> 1.43 1.34 1.20 0.84 0.65
REGULATORY CAPITAL RATIOS: (Bank only)
Tangible capital 9.86% 9.49% 11.53% 10.47% 9.07%
Core capital 9.87 9.50 11.56 10.51 9.12
Risk-based capital 19.99 21.24 22.18 19.83 14.13
FULL SERVICE BRANCHES 15 15 7 7 7
<FN>
<F10>Excluding the effects of the Savings Association Insurance Fund ("SAIF')
Special Assessment and the recovery of New York State and City deferred
income taxes previously provided, net income would have been $10.5million,
and the 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 earnings per share
would have been 0.86%, 5.08%, 5.85%, 2.07%, 50.30% and $0.81,
respectively, for the year ended June 30, 1997.
<F11>With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods. Asset Quality Ratios
and Regulatory Capital Ratios are end of period ratios.
<F12>Income before cumulative effect of changes in accounting principles is
used to calculate return on average assets and return on average equity
ratios.
<F13>Avedrage interest rate spread represents the difference between the
weighted-average yield on interest-earning assets and the weighted-average
cost of interest-bearing liabilities.
<F14>The net interest margin represents net interest income as a percentage of
average interest-earning assets.
<F15>The efficiency ratio represents non-interest expense as a percentage of
the sum of net interest income and non-interest income excluding any gains
or losses on sales of assets.
<F16>In calculating these ratios, amortization expense related to goodwill and
the SAIF recapitalization charge are excluded from non-interest expense.
<F17>In calculating these ratios, non-interest expense excludes expenses such
as goodwill amortization and the after-tax effect of compensation
expense related to the Company's stock benefit plans which are accretive
to book value.Excluding the effects of the SAIF Special Assessment and the
recovery of New York State and City deferred income taxes previously
provided, cash return on average assets, cash return on average
stockholders' equity, cash return on average tangible stockholders'
equity, and cash earnings per share would have been 1.21%, 7.19%, 8.28%,
and $1.15 for the year ended June 30, 1997.
<F18> Non-performing loans consists of non-accrual loans; the Bank did not have
any loans that were 90 days or more past due and still accruing at any of
the dates presented. Non-performing loans do not include troubled-debt
restructurings (''TDRs''). See "Asset Quality.''
<F19> Total loans represents loans, net, plus the allowance for loan losses.
</TABLE>
PAGE 2
<PAGE>
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, on
June 26, 1996, from a federal mutual savings bank to a federal stock savings
bank (the "Conversion"). The Company had no operations prior to June 26, 1996.
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 in connection
with the Conversion, which are invested primarily in federal funds and short-
term, investment grade marketable securities.
The Bank's principal business has been, and continues to be, gathering
deposits from customers within its market area, and investing those deposits,
primarily in multi-family and one- to four-family residential mortgage loans,
mortgage-backed securities, and obligations of the U.S. Government and
Government Sponsored Entities ("GSEs"). The Bank's revenues are derived
principally from interest on its loan and securities portfolios. The Bank's
primary sources of funds are: deposits; loan amortization, prepayments and
maturities; amortization, prepayments and maturities of mortgage-backed and
investment securities, borrowed funds; and, to a lesser extent, the sale of
fixed-rate mortgage loans to the secondary market.
The Company's consolidated results of operations are dependent primarily on
net interest income, which is the difference between the interest income earned
on its interest-earning assets, such as loans and securities, and the interest
expense paid on its interest-bearing liabilities, such as deposits. The Bank
also generates non-interest income such as service charges and other fees. The
Bank's non-interest expenses primarily consist of employee compensation and
benefits, occupancy expenses, federal deposit insurance premiums, net costs of
other real estate owned, data processing fees and other operating expenses. The
Bank's results of operations are also significantly affected by general
economic and competitive conditions (particularly changes in market interest
rates), government policies, changes in accounting standards and actions of
regulatory agencies.
ACQUISITION OF CONESTOGA BANCORP, INC.
On June 26, 1996 the Bank completed the acquisition (the "Acquisition") of
Conestoga Bancorp, Inc. ("Conestoga"), resulting in the merger of Conestoga's
wholly-owned subsidiary, Pioneer Savings Bank, F.S.B. ("Pioneer") with and into
the Bank, with the Bank as the resulting financial institution.
The Acquisition was accounted for in the financial statements using the
purchase method of accounting. Under the purchase method of accounting, the
acquired assets and liabilities of Conestoga are recognized at their fair value
as of the date of the Acquisition. Shareholders of Conestoga were paid
approximately $101.3 million in cash, resulting in goodwill of $28.4 million,
which is being amortized on a straight line basis over a twelve year period.
Since the Acquisition occurred on June 26, 1996, its impact upon the
Company's consolidated results of operations for the fiscal year ended June 30,
1996 was minimal. The full effect of the Acquisition is reflected in the
Company's consolidated results of operations for the fiscal year ended June 30,
1997, as well the consolidated statements of financial condition as of June 30,
1997 and 1996.
SAIF SPECIAL ASSESSMENT
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds
Act") was enacted into law, and it amended the Federal Deposit Insurance Act in
several ways to recapitalize the SAIF and reduce the disparity in the
assessment rates for the BIF and the SAIF. The Funds Act authorized the FDIC
to impose a special assessment on all institutions with SAIF-assessable
deposits in the amount necessary to recapitalize the SAIF. As implemented by
the FDIC, the special assessment was $0.657 per $100 of an institution's SAIF-
assessable deposits as of March 31, 1995. However, under the Funds Act, the
Bank was entitled to reduce the amount of such deposits by 20% in computing the
special assessment. Accordingly, the SAIF special assessment, which totaled
$2.0 million, was paid by the Bank in November, 1996. The SAIF special
assessment, although paid in November, 1996, was recorded as non-interest
expense during the three months ended September 30, 1996.
MANAGEMENT STRATEGY
The Bank's primary management strategy is to increase its household and
deposit market shares in the communities it serves, either through acquisitions
or purchases of deposits, or by direct marketing, and to increase its
origination of, and investment in, mortgage loans, with an emphasis on multi-
family loans. Multi-family lending is a significant business of the Bank and
reflects the fact that much of the housing in the Bank's primary lending area
is multi-family housing. The Bank also strives to provide a stable source of
liquidity and earnings through the purchase of investment grade securities;
seek to maintain the Bank's asset quality for loans and other investments; and
use appropriate portfolio and asset/liability management techniques in an
effort to manage the effects of interest rate volatility on the Bank's
profitability and capital.
FRANCHISE EXPANSION. The Bank completed its merger of Conestoga into the
Bank on June 26, 1996, providing eight additional full service branches with
deposits totaling $394.3 million at June 26, 1996. The Bank will continue to
evaluate acquisition and other growth opportunities as they become available.
Additionally, management plans to supplement this strategy with direct
marketing efforts designed to increase household balances and the number of the
Bank's services used per household among its existing customers.
PAGE 3
<PAGE>
LOAN ORIGINATIONS WITH AN EMPHASIS ON MULTI-FAMILY LENDING. Management
believes that multi-family loans provide advantages as portfolio investments.
First, they provide a higher yield than single family loans or investment
securities of comparable maturities or terms to repricing. Second, the Bank's
market area generally has provided a stable flow of new and refinanced multi-
family loan originations. In addition to its emphasis on multi-family lending,
the Bank will continue to market and originate residential first mortgage loans
secured primarily by owner-occupied, one- to four-family residences, including
condominiums and cooperative apartments. Third, origination and processing
costs for the Bank's multi-family loans are lower per thousand dollars of
originations than comparable single family costs. In addition, to address the
higher credit risk associated with multi-family lending, management has
developed what it believes are reliable underwriting standards for loan
applications in order to maintain a consistent credit quality for new loans.
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 temporarily 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. 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 added under the capital leverage strategy were $96.3 million, on a net
basis, at June 30, 1997.
In addition to the capital leverage strategy, the Bank undertook an additional
$30.0 million in medium term borrowings from the FHLBNY during the year ended
June 30, 1997 in order to fund multi-family and underlying ccoperative loan
originations. The Bank earns a net interest rate spread between the yield on
the multi-family and underlying cooperative loans and the cost of the
borrowings. Since the repricing terms on the multi-family and underlying
cooperative loans and the maturities on the underlying borrowings are closely
matched, the Bank has been able to reduce its exposure to interest rate risk.
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 year ended June 30, 1997, the Bank's loan
originations totaled $264.8 million compared to $114.9 million for the year
ended June 30, 1996. Purchases of mortgage-backed and other securities totaled
$362.9 million for the year ended June 30, 1997 compared to $574.5 million for
the year ended June 30, 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
FHLB advances. Principal repayments on loans and mortgage-backed securities
totaled $132.4 million during the year ended June 30, 1997, compared to $93.2
million for the year ended June 30, 1996. Maturities of investment securities
totaled $378.8 million and $412.2 million, respectively, during the fiscal
years ended June 30, 1997 and 1996. Loan and security sales, which totaled
$47.2 million and $8.8 million, respectively, during the fiscal years ended
June 30, 1997 and 1996, provided some additional cash flows.
Deposits increased $13.3 million during the fiscal year ended June 30,
1997. The Bank experienced a net increase in total deposits of $395.3 million
during the fiscal year ended June 30, 1996, attributable primarily to the
acquisition of $394.3 million in deposits from Conestoga. Deposit flows are
affected by the level of interest rates, the interest rates and products
offered by local competitors, and other factors. Certificates of deposit which
are scheduled to mature in one year or less from June 30, 1997 totaled $313.5
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. Net borrowings increased $111.8 million
during the fiscal year ended June 30, 1997, with the majority of this growth
experienced in securities sold under agreement to repurchase ("Repo")
transactions.
Stockholders' equity declined $22.2 million during the year ended June 30,
1997. During the fiscal year ended June 30, 1997, the Company repurchased (the
"Repurchase") 1,454,750 shares of its common stock into treasury. The
aggregate cost of the Repurchase was $27.7 million, at an average price of
$19.04 per share. Offsetting the Repurchase, was net income of $12.3 million
and amortization of the Company's Stock Plans of $3.1 million during the fiscal
year ended June 30, 1997.
On May 15, 1997, the Company declared its first quarterly cash dividend.
This dividend, which totaled $589,000, or $.045 per share, was paid in June,
1997.
The Bank is required to maintain a minimum average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by Office of Thrift Supervision
regulations. The minimum required liquidity and short-term liquidity ratios are
currently 5.0% and 1.0%, respectively. At June 30, 1997, the Bank's liquidity
ratio and short-term liquid asset ratio were 14.98% and 4.15%, respectively.
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.
PAGE 4
<PAGE>
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 $166.4 million borrowing limit at the Federal
Home Loan Bank of New York ("FHLBNY") . At June 30, 1997, the Bank had $132.6
million in short and medium term borrowings outstanding at the FHLBNY,
comprised of outstanding advances of $63.2 million and securities sold under
agreement to repurchase of $69.4 million, and a remaining unused borrowing
capacity from the FHLBNY of $33.8 million.
At June 30, 1997, the Bank was in compliance with all applicable regulatory
capital requirements. Tangible capital totaled $124.1 million, or 9.86% of
total tangible assets, compared to a 1.50% regulatory requirement; core
capital, at 9.87%, exceeded the required 3.0% regulatory minimum, and total
risk-based capital, at 19.99% of risk weighted assets, exceeded the 8.0%
regulatory requirement.
DISCUSSION OF MARKET RISK
As a financial institution, the Company's primary component of market risk
is interest rate volatility. Fluctuations in interest rates will ultimately
impact both the level of income and expense recorded on a large portion of the
Bank's assets and liabilities, and the market value of all interest earning
assets, other than those which possess a short term to maturity. Since all of
the Company's interest bearing liabilities and virtually all of the Company's
interest earning assets are located at the Bank, virtually all of the Company's
interest rate risk exposure lies at the Bank level. As a result, all
significant interest rate risk management procedures are performed at the Bank
level. Based upon the bank's nature of operations, the Bank is not subject to
foreign currency exchange or commodity price risk. The Bank's real estate loan
portfolio, concentrated primarily within New York City, is subject to risks
associated with the local economy. The Company does not own any trading
assets. See "Asset Quality." At June 30, 1997, the Company does not have any
hedging transactions in place such as interest rate swaps and caps.
The Bank's interest rate management strategy is designed to stabilize net
interest income and preserve capital over a broad range of interest rate
movements and has three primary components:
ASSETS. The Bank's largest single asset type is the multi-family real
estate loan. In order to manage interest rate risk, management emphasizes
origination of adjustable rate multi-family loans. During the year ended June
30, 1997, approximately 75% of multi-family loans originated were adjustable
rate, with repricing typically occurring after five years. In addition,
management has sought to include various types of adjustable-rate single family
(including cooperative apartment) whole loans and adjustable and floating-rate
investment securities in its portfolio, which generally have repricing terms of
3 years or less. Adjustable-rate whole totaled $571.0 million, or 43.4% of
total assets, as of June 30, 1997, and adjustable-rate investment securities
(CMO's, REMIC's and mortgage-backed securities issued by GSEs) totaled $148.3
million, or 11.3% of total assets, at the same date.
DEPOSIT LIABILITIES. The Bank, a traditional community-based savings
bank, is largely dependent upon its base of competitively priced core deposits
(consisting of all deposits excepting certificates of deposit) to provide
stability on the liability side of the balance sheet. The Bank has retained
many loyal customers over the years through a combination of quality service,
convenience, and a stable and experienced staff. Core deposits, at June 30,
1997 were $421.6 million, or 43.76% of total deposits. The balance of
certificates of deposit as of June 30, 1997 was $541.8 million, or 56.24% of
total deposits, of which $228.3 million, or 23.7% of total deposits, mature
after one year. Depending on market conditions, management prices its
certificates of deposit in an effort to encourage the extension of the average
maturities of deposit liabilities beyond one year. Over the twelve-month period
ending June 30, 1997, the Bank experienced a strong retention rate on maturing
certificates of deposit.
WHOLESALE FUNDS. The Bank does not accept brokered deposits as a source
of funds and has no plans to do so in the future. However, the Bank is a member
of the FHLBNY which provides it with a borrowing line equal to $166.4 million.
From time to time, the Bank will borrow ("Advances") from the FHLBNY for
various purposes. At June 30, 1997, the Bank had outstanding borrowings of
$132.6 million with the FHLBNY.
The Bank actively manages interest rate risk through the use of a
simulation model which measures the sensitivity of future net interest income
and the net portfolio value to changes in interest rates. In addition, the
Bank regularly monitors interest rate sensitivity through GAP Analysis, which
measures the terms to maturity or next repricing date of interest earning
assets and interest bearing liabilities.
PAGE 5
<PAGE>
GAP ANALYSIS
The following table sets forth the amounts of the Company's consolidated
interest-earning assets and interest-bearing liabilities, outstanding at
June 30, 1997, which are anticipated, based upon certain assumptions, to
reprice or mature in each of the future time periods shown. Except as stated
below, the amount of assets and liabilities shown which reprice or mature
during a particular period were determined based on the earlier of term to
repricing or the term to repayment of the asset or liability. The table is
intended to provide an approximation of the projected repricing of assets and
liabilities at June 30, 1997 on the basis of contractual maturities,
anticipated prepayments, and scheduled rate adjustments within a three-month
period and subsequent selected time intervals. For purposes of presentation in
the following table, the Bank utilized the national deposit decay rate
assumptions published by the OTS as of December 31, 1992 (the latest
available), which for savings accounts, NOW and Super NOW accounts and money
market accounts in the one year or less category, were 17%, 37% and 79%,
respectively. The loan amounts in the table reflect principal balances expected
to be redeployed and/or repriced as a result of contractual amortization and
anticipated early payoffs of adjustable-and fixed-rate loans, and as a result
of contractual rate adjustments on adjustable-rate loans. The amounts
attributable to mortgage-backed securities reflect principal balances expected
to be redeployed and/or repriced as a result of anticipated principal
repayments, and as a result of contractual rate adjustments on adjustable-rate
mortgage-backed securities.
<TABLE>
<CAPTION More More
than than 6 More More
3 3 Months Months than 1 than 3 More Non-
At June 30,1997 Months to 6 to 1 Year to Years to than interest
or Less Months Year 3 Years 5 Years 5 Years bearing Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- --------------- -------- --------- --------- --------- --------- --------- --------- ---------
INTEREST-EARNING (Dollars In Thousands)
Mortgages and
other loans $60,462 $56,471 $77,618 $213,181 $192,577 $150,275 $- $750,584
Investment 5,709 1,995 8,026 57,263 63,466 23,815 - 160,274
securities
Mortgage-backed
securities <F2> 89,927 23,282 39,399 59,376 49,219 47,322 - 308,525
Federal funds sold 18,902 - - - - - - 18,902
FHLB capital stock 8,322 - - - - - - 8,322
-------- ---------- --------- --------- --------- --------- --------- ---------
Total interest
earning assets 183,322 81,748 125,043 329,820 305,262 221,412 - 1,246,607
LESS:
Allowance for loan
losses - - - - - - (10,726) (10,726)
-------- --------- --------- --------- --------- --------- --------- ----------
Net interest-earning
assets 183,322 81,748 125,043 329,820 305,262 221,412 (10,726) 1,235,881
Non-interest-earning
assets - - - - - - 79,145 79,145
-------- --------- -------- -------- -------- -------- -------- ----------
Total assets $183,322 $81,748 $125,043 $329,820 $305,262 $221,412 $68,419 $1,315,026
========= ========== ========= ========= ========= ========= ========= ==========
INTEREST-BEARING LIABILITIES:
Savings Accounts $14,636 $14,636 $29,272 $88,923 $57,970 $138,940 $- $344,377
NOW and Super
NOW accounts 1,510 1,510 3,020 5,529 1,479 3,276 - 16,324
Money market
accounts 6,622 6,622 13,245 3,689 1,756 1,596 - 33,530
Certificates of
Deposit 116,828 88,912 107,714 213,599 14,720 - - 541,773
Borrowed funds 77,105 4,500 2,500 16,005 20,000 19,433 - 139,543
Interest-bearing
escrow - - - - - 3,464 - 3,464
-------- ---------- --------- --------- --------- --------- --------- ---------
Total interest bearing
liabilities 216,701 116,180 155,751 327,745 95,925 166,709 - 1,079,011
Checking accounts - - - - - - 27,391 27,391
Other non-interest
bearing liabilities - - - - - - 17,735 17,735
Stockholders' equity - - - - - - 190,889 190,889
-------- ---------- --------- --------- ---------- --------- --------- ---------
Total liabilities and
stockholders' equity $216,701 $116,180 $155,751 $327,745 $95,925 $166,709 $236,015 $1,315,026
========= ========== ========= ========== ========== =========== ============ ==========
Interest sensitivity
gap per period $(33,379) $(34,432) $(30,708) $2,075 $209,337 $54,703 -
========= ========= ========= ========== =========== ===========
Cumulative interest
sensitivity gap $(33,379) $(67,811) $(98,519) $(96,444) $112,893 $167,596 -
========= ========= ========= ========= =========== ===========
Cumulative interest
sensitivity gap
as a percent of
total assets (2.54)% (5.16)% (7.49)% (7.33)% 8.58% 12.74% -
Cumulative total
interest-earning
assets as a
percent of
cumulative total
interest bearing
liabilities 84.60% 79.63% 79.84% 88.19% 112.37% 115.53% -
<FN>
<F1> Interest-earning assets are included in the period in which the
balances are expected to be redeployed and/or repriced as result of
anticipated pre-payments, scheduled rate adjustments, and contractual
maturities.
<F2> Based upon historical repayment experience.
</TABLE>
PAGE 6
<PAGE>
The Bank's balance sheet is primarily comprised of assets which mature or
reprice within five years, with a significant portion maturing or repricing
within one year. In addition, the Bank's deposit base is comprised primarily of
savings accounts, and certificates of deposit with maturities of three years or
less, representing 15.3% and 54.7%, respectively, of total deposits at June 30,
1997. As a result, at June 30, 1997, the Bank's interest-bearing liabilities
maturing or repricing within one year totaled $488.6 million, while interest
earning assets maturing or repricing within one year totaled $390.1 million,
resulting in a negative one-year interest sensitivity gap of $98.5 million, or
7.5% of total assets. The Bank's estimate of repricing liabilities for selected
deposit types which do not carry contractual maturities, such as savings
accounts, is based upon the decay rate tables published by the OTS.
Certain shortcomings are inherent in the method of analysis presented in
the foregoing table. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may not react
correspondingly to changes in market interest rates. Also, the interest rates
on certain types of assets and liabilities may fluctuate with changes in market
interest rates, while interest rates on other types of assets may lag behind
changes in market rates. Additionally, certain assets, such as adjustable-rate
loans, have features, like annual and lifetime rate caps, which restrict
changes in interest rates both on a short-term basis and over the life of the
asset. Further, in the event of a change in interest rates, prepayment and
early withdrawal levels would likely deviate from those assumed in the table.
Finally, the ability of certain borrowers to make scheduled payments on their
adjustable-rate loans may decrease in the event of an interest rate increase.
Under interest rate scenarios other than that which existed on June 30,
1997, the gap ratio for the Bank's assets and liabilities could differ
substantially based upon different assumptions about how core deposit decay
rates and loan prepayments would change. For example, the Bank's interest rate
risk management model assumes that in a rising rate scenario, by paying
competitive rates on non-core deposits, a large share of core deposits will
transfer to certificates of deposit and be retained, although at higher cost to
the Bank. Also, loan and mortgage-backed security prepayment rates would be
expected to slow, as borrowers postpone property sales or loan refinancings
until rates again decline.
INTEREST RATE RISK EXPOSURE COMPLIANCE
Increases in the level of interest rates also may adversely affect the fair
value of the Bank's securities and other earning assets. Generally, the fair
value of fixed-rate instruments fluctuates inversely with changes in interest
rates. As a result, increases in interest rates could result in decreases in
the fair value of the Bank's interest-earning assets, which could adversely
affect the Bank's results of operations if sold, or, in the case of interest
earning assets classified as available for sale, the Bank's stockholders'
equity, if retained. Under SFAS 115, which was adopted by the Bank on July 1,
1994, changes in the unrealized gains and losses, net of taxes, on securities
classified as available for sale will be reflected in the Bank's stockholders'
equity. As of June 30, 1997, the Bank's securities portfolio included $288.8
million in securities classified as available for sale. Accordingly, as a
result of adoption of SFAS 115 and the magnitude of the Bank's holdings of
securities available for sale, changes in interest rates could produce
significant changes in the value of such securities and could produce
significant fluctuations in the stockholders' equity of the Bank. The Bank
does not own any trading assets.
On a quarterly basis, an interest rate risk exposure compliance report is
prepared and presented to the Bank's Board of Directors. This report, prepared
in accordance with Thrift Bulletin #13 issued by the OTS, presents an analysis
of the change in net interest income and net portfolio value resulting from an
increase or decrease in the level of interest rates. All changes are measured
as percentage changes from the values of projected net interest income and net
projected portfolio value in the flat rate scenario. The calculated estimates
of change in net interest income and net portfolio value are compared to
current limits established by management and approved by the Board of
Directors. The following is a summary of the interest rate exposure report as
of June 30, 1997:
<TABLE>
<CAPTION> PERCENTAGE CHANGE IN
NET INTEREST INCOME NET PORTFOLIO VALUE
CHANGE IN INTEREST RATE LIMIT PROJECTED CHANGE LIMIT PROJECTED CHANGE
<S> <C> <C> <C> <C>
- -400 Basis Points -50.00% -10.48% -50.00% 15.09%
- -300 Basis Points -37.50 -3.95 -37.50 8.34
- -200 Basis Points -25.00 0.77 -25.00 3.69
- -100 Basis Points -12.50 3.14 -12.50 2.95
Flat Rate (1) - - - -
+100 Basis Points -12.50 -9.50 -12.50 -8.24
+200 Basis Points -25.00 -17.38 -25.00 -17.97
+300 Basis Points -37.50 -25.92 -37.50 -28.52
+400 Basis Points -50.00% -35.31% -50.00% -38.83%
</TABLE>
The model utilized to create the report presented above makes various
estimates at each level of interest rate change regarding cash flows from
principal repayments on loans and mortgage-backed securities and/or call
activity on investment securities. Actual results could differ significantly
from these estimates which would result in significant differences in the
calculated projected change. In addition, the limits stated above do not
necessarily represent the level of change under which management would
undertake specific measures to realign its portfolio in order to reduce the
projected level of change.
PAGE 7
<PAGE>
ASSET QUALITY
The Bank's real estate loan servicing policies and procedures require that
the Bank initiate contact with a delinquent borrower as soon as possible after
the payment is late ten days. Generally, the policy calls for a late notice to
be sent 10 days after the due date of the payment. If payment has not been
received within 30 days of the due date, a letter is sent to the borrower.
Thereafter, periodic letters and phone calls are placed to the borrower until
payment is received. In addition, Bank policy calls for the cessation of
interest accruals on loans delinquent 90 days or more. When contact is made
with the borrower at any time prior to foreclosure, the Bank will attempt to
obtain the full payment due, or work out a repayment schedule with the borrower
to avoid foreclosure. Generally, foreclosure proceedings are initiated by the
Bank when a loan is 90 days past due. If a foreclosure action is instituted and
the loan is not brought current, paid in full, or refinanced before the
foreclosure sale, the real property securing the loan is generally either sold
at foreclosure or sold subsequently by the Bank as soon thereafter as
practicable.
Management reviews delinquent loans on a periodic basis and reports monthly
to the Board of Directors regarding the status of all delinquent and non-
accrual loans in the Bank's portfolio. The Bank retains outside counsel
experienced in foreclosure and bankruptcy procedures to institute foreclosure
and other actions on the Bank's delinquent loans. It is the policy of the Bank
to initiate foreclosure proceedings after a loan becomes 90 days past due. As
soon as practicable after initiating foreclosure proceedings on a loan, the
Bank prepares an estimate of the fair value of the underlying collateral. It is
the Bank's general policy to dispose of properties acquired through foreclosure
or deeds in lieu thereof as quickly and as prudently as possible in
consideration of market conditions, the physical condition of the property, and
any other mitigating conditions.
The continued adherence to these procedures, as well as a strong local real
estate market, resulted in a significant drop in problem loans in the Bank's
portfolio, particularly multi-family and underlying cooperative loans, during
the fiscal year ended June 30, 1997. Evidence of this is reflected in declines
in both non-performing loans and loans delinquent 60-89 days. Non-performing
loans totaled $3.2 million at June 30, 1997, as compared to $6.6 million at
June 30, 1996. The Bank had 33 loans totaling $603,000 delinquent 60-89 days at
June 30, 1997, as compared to 33 such delinquent loans totaling $2.3 million at
June 30, 1996. Early intervention procedures implemented during the fiscal
year ended June 30, 1997, have been preventing new mortgage delinquencies.
Under Generally Accepted Accounting Principles ("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 June 30, 1997,
totaling $4.7 million, and all are currently performing according to their
restructured terms. The largest restructured debt, a $2.7 million loan secured
by a mortgage on an underlying cooperative apartment building located in Forest
Hills, New York, was originated in 1987. The loan was first restructured in
1988, and again in 1994. The Office of Thrift Supervision's current
regulations require that troubled-debt restructurings remain classified as such
until the loan is either paid off or returned to its original terms. The Bank
has had no new loan restructurings during the fiscal year ended June 30, 1997.
All four troubled-debt restructurings as of June 30, 1997 are on accrual status
as they have been performing in accordance with their restructured terms for
over one year.
In the event the carrying balance of a loan, including all accrued
interest, exceeds the estimate of fair value, the loan is considered to be
impaired and a reserve is established pursuant to Statement of Financial
Accounting Standards No. 114 "Accounting by a Creditor for Impairment of a
Loan" ("SFAS 114"). The Bank adopted SFAS 114 effective July 1, 1995. SFAS
114 established guidelines for determining and measuring impairment in loans.
Generally, the Bank considers non-performing loans to be impaired loans. The
recorded investment in loans deemed impaired under the guidance of SFAS 114 was
approximately $4.3 million as of June 30, 1997, compared to $7.4 million at
June 30, 1996, and the average balance of impaired loans was $4.7 million for
the year ended June 30, 1997 compared to $6.7 million for the year ended June
30, 1996. The impaired portion of these loans is represented by specific
reserves totaling $122,000 allocated within the allowance for loan losses at
June 30, 1997. At June 30, 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 June 30, 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 June 30, 1997.
At June 30, 1997, approximately $1.6 million of one-to-four family, cooperative
apartment and consumer loans on nonaccrual status are not deemed impaired under
SFAS 114. All of these loans have outstanding balances less than $203,000, and
are considered a homogeneous loan pool not covered by SFAS 114. See "Notes to
Consolidated Financial Statements" for a further discussion of impaired loans.
The balance of Other real estate owned ("OREO")was $1.7 million at June 30,
1997 compared to $1.9 million at June 30, 1996. During the year ended June 30,
1997, $1.4 million in loans were transferred into OREO. Offsetting this
addition, were OREO sales and charge-offs of $1.2 million and $305,000,
respectively, during the year ended June 30, 1997. All charge-offs were
recorded against the allowance for losses on real estate owned, which was
$187,000 as of June 30, 1997.
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.
<TABLE>
<CAPTION>
At Year Ended June 30, 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
- ------------------------------------------ -------- -------- -------- -------- --------
(Dollars In Thousands)
NON-PERFORMING LOANS
One-to four-family $1,123 $1,149 $572 $1,276 $3,449
Multi-family and underlying cooperative 1,613 4,734 3,978 4,363 7,265
Non-residential - - - - -
Cooperative apartment 415 668 523 609 918
Other 39 - - - -
- ------------------------------------------ -------- -------- -------- -------- --------
Total non-performing loans 3,190 6,551 5,073 6,248 11,632
Other Real Estate Owned 1,697 1,946 4,466 8,200 7,981
- ------------------------------------------ -------- -------- -------- -------- --------
Total non-performing assets $4,887 $8,497 $9,539 $14,448 $19,613
========================================== ======== ======== ======== ======== ========
Troubled-debt restructurings $4,671 $4,671 $7,651 $7,421 $5,219
Total non-performing assets and
troubled-debt restructurings $9,558 $13,168 $17,190 $21,869 $24,832
Impaired loans <F1> $4,294 $7,419 N/A N/A N/A
RATIOS:
Total non-performing loans to total loans 0.43% 1.12% 1.18% 1.45% 2.52%
Total non-performing assets to total assets 0.37 0.62 1.44 2.23 3.04
Total non-performing assets and troubled-debt
restructurings to total assets 0.73 0.96 2.59 3.38 3.84
<FN>
<F1> The Bank adopted SFAS 114 effective July 1, 1995. Impaired loans were not
measured prior to adoption.
</TABLE>
PAGE 8
<PAGE>
ANALYSIS OF NET INTEREST INCOME
The Company's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as
loans and securities, and its interest expense on interest-bearing liabilities,
such as deposits and borrowings. Net interest income depends upon the relative
amounts of interest-earning assets and interest-bearing liabilities and the
interest rates earned or paid on them.
The following table sets forth certain information relating to the
Company's consolidated statements of operations for the years ended June 30,
1997, 1996 and 1995, 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.
<TABLE>
<CAPTION>
For the years ended
June 30, 1997 1996 1995
------------------------------ -------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE Average Average
AVERAGE YIELD/ Average Yield/ Average Yield/
BALANCE INTEREST COST Balance Interest Cost Balance Interest Cost
--------- -------- -------- -------- -------- ------ ------- -------- ------
(Dollars in Thousands)
ASSETS:
Interest-earning
assets
Real estate loans $642,913 $54,965 8.55% $435,948 $39,314 9.02% $427,042 $38,375 8.99%
<F1>
Other loans 5,444 460 8.45 3,497 340 9.72 3,803 307 8.07
Investment
securities 215,809 13,654 6.33 107,206 5,738 5.35 84,188 4,402 5.23
<F2><F3>
Mortgage-backed
securities 261,275 17,704 6.78 89,001 5,927 6.66 89,232 5,464 6.12
<F2>
Federal funds sold 40,349 2,247 5.57 23,904 1,300 5.44 12,179 675 5.54
--------- --------- -------- -------- -------- ------ ------- -------- ------
Total interest-
earning assets 1,165,790 $89,030 7.64 659,556 $52,619 7.98% 616,444 $49,223 7.99%
Non-interest earning
assets 64,148 20,424 19,258
----------- --------- --------
Total assets $1,229,938 $679,980 $635,702
LIABILITIES AND =========== ========= =========
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
NOW, Super NOW
and Money
market accounts $55,327 $1,404 2.54% $30,759 $634 2.06% $33,583 $716 2.13%
Savings accounts 349,821 8,192 2.34 232,631 5,789 2.49 264,247 6,575 2.49
Certificates of
deposit 515,542 28,869 5.60 285,524 16,013 5.61 225,785 10,571 4.68
Mortgagors' escrow 3,792 79 2.08 3,371 72 2.14 3,253 71 2.18
Borrowed funds 52,495 3,020 5.75 17,854 1,008 5.65 17,922 1,013 5.65
--------- -------- -------- -------- -------- ------ ------- -------- ------
Total interest-
bearing liabilities 976,977 $41,564 4.26% 570,139 $23,516 4.13% 544,790 $18,946 3.48%
--------- -------- -------- -------- -------- ------ ------- -------- ------
Checking accounts 27,653 11,646 10,950
Other non-interest-
bearing liabilites 18,131 17,718 6,678
--------- -------- -------
Total liabilities 1,022,761 599,503 562,418
Stockholders' equity 207,177 80,477 73,284
--------- -------- -------
Total liabilities and
stockholders' equity $1,229,938 $679,980 $635,702
========== ======== ========
Net interest income/
interest rate spread <F4> $47,466 3.38% $29,103 3.85% $30,277 4.51%
======= ======= =======
Net interest-earning
assets/netinterest $188,813 4.07% $89,417 4.41% $71,654 4.91%
margin<F5> ========= ======== ========
Ratio of interest-
earning assets to
interest-bearing
liabilities 119.33% 115.68% 113.15%
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included.
<F2> Includes securities classified ''available for sale.''
<F3> Includes interest bearing deposits in other banks and FHLB stock.
<F4> Net interest rate spread represents the difference between the average
yield 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.
</TABLE>
PAGE 9
<PAGE>
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates on interest-earning assets and interest-bearing liabilities and
changing the volume or amount of these assets and liabilities. The following
table represents the extent to which changes in interest rates and changes in
the volume of interest-earning assets and interest-bearing liabilities have
affected the Company's interest income and interest expense during the periods
indicated. Information is provided in each category with respect to (i) changes
attributable to changes in volume (change in volume multiplied by prior rate),
(ii) changes attributable to rate (changes in rate multiplied by prior volume),
and (iii) the net change. Changes attributable to the combined impact of volume
and rate have been allocated proportionately to the changes due to the volume
and the changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED Year Ended Year Ended
JUNE 30, 1997 June 30, 1996 June 30, 1995
COMPARED TO Compared to Compared to
YEAR ENDED Year Ended Year Ended
JUNE 30, 1996 June 30, 1995 June 30, 1994
INCREASE/(DECREASE) Increase/(Decrease) Increase/(Decrease)
DUE TO Due to Due to
VOLUME RATE NET Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
--------- ------ ------- ------- ------ ----- ------- ----- ------
INTEREST-EARNING (Dollars in Thousands)
ASSETS
Real estate loans $18,182 $(2,531) $15,651 $802 $137 $939 $(2,216) $(5) $(2,221)
Other loans 177 (57) 120 (28) 61 33 (17) (13) (30)
Investment
securities 6,339 1,577 7,916 1,431 (95) 1,336 722 226 948
Mortgage-backed
securities 11,571 206 11,777 (24) 487 463 188 418 606
Federal funds sold 905 42 947 1,036 (411) 625 (254) 353 99
--------- ------ ------- ------- ------ ----- ------- ----- ------
Total $37,174 $(763) $36,411 $3,217 $179 $3,396 $(1,577) $979 $(598)
========= ======= ======== ======== ======= ====== ======== ====== =======
INTEREST-BEARING
LIABILITIES:
NOW, Super NOW
and Money market
accounts $565 $205 $770 $(76) $(6) $(82) $(82) $(42) $(124)
Savings accounts 2,834 (431) 2,403 (976) 190 (786) (759) (177) (936)
Certificates of
deposit 12,893 (37) 12,856 3,846 1,596 5,442 542 1,810 2,352
Mortgagors' escrow 9 (2) 7 8 (7) 1 2 2 4
Borrowed funds 1,975 37 2,012 (6) 1 (5) 63 (7) 56
--------- ------ ------- ------- ------ ----- ------- ----- ------
Total 18,276 (228) 18,048 2,796 1,774 4,570 (234) 1,586 1,352
--------- ------ ------- ------- ------ ----- ------- ----- ------
Net change in
interest income $18,898 $(535) $18,363 $421 $(1,595) $(1,174) $(1,343) $(607) $(1,950)
========= ======= ======== ======== ======= ====== ======== ====== ======
</TABLE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND JUNE 30, 1996
The Company's assets totaled $1.32 billion at June 30, 1997, a decrease of
$56.8 million from total assets of $1.37 billion at June 30, 1996. This
decline resulted primarily from the refund, on July 1, 1996, of $131.1 million
in excess proceeds related to the oversubscription to the Company's initial
public offering (the "oversubscription refund"), which were included in Escrow
and other deposits at June 30, 1996. The oversubscription refund was paid from
the proceeds of matured investment securities of $125.0 million, and from a
reduction of $6.1 million in federal funds sold. Removing the effects of the
oversubscription refund, total assets increased $74.3 million, reflecting the
Company's capital leverage strategy.
Real estate loans and loans held for sale increased $166.4 million,
resulting primarily from originations of $262.2 million during the year ended
June 30, 1997, of which $256.2 million were multi-family and underlying
cooperative and non-residential loans. Mortgage backed securities increased
98.6 million and investment securities held to maturity increased $58.0
million, respectively during the fiscal year ended June 30, 1997. Much of the
growth in these assets was realized from the movement of earning assets from
lower yielding investment securities available for sale and federal funds sold
into these higher-yielding assets. In addition, in order to fund the growth in
these assets, borrowings increased $111.8 million and deposits increased $13.3
million. At June 30, 1996, the Company had an unsettled security purchase
totaling $34.0 million, which was funded in July, 1996. No such unsettled
trades existed as of June 30, 1997.
Stockholders' equity totaled $190.9 million at June 30, 1997, a decrease of
$22.2 million from June 30, 1996. The decrease resulted primarily from the
$27.7 million repurchase of the Company's common stock into treasury, and the
$10.8 million open market purchase of the Company's common stock by the
Recognition and Retention Plan ("RRP") during the year ended June 30, 1997.
Offsetting these items was net income of $12.3 million, an increase of $1.7
million in the equity component of the unrealized gain on available for sale
securities and a direct contribution to stockholders' equity of $3.1 million
related to the benefit expense associated with the Company's ESOP and RRP
Plans.
PAGE 10
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1996 AND JUNE 30, 1995
The Company's assets grew $709.1 million during the fiscal year ended June
30, 1996, increasing to $1.37 billion at June 30, 1996 from $662.7 million at
June 30, 1995. The growth resulted primarily from increases of $406.3 million
and $151.2 million in investment and mortgage-backed securities and loans,
respectively. Both investment and loan growth were enhanced by the acquisition
of Conestoga, which provided $295.2 million and $113.1 million of investments
and mortgage-backed securities and loans, respectively.
In addition, the Company's investment in federal funds sold increased by
$97.3 million, due primarily to net proceeds of $141.4 million raised in the
Company's initial public offering, as well as excess proceeds of $131.1 million
resulting from the oversubscription to the Company's initial public offering,
which were refunded to subscribers on July 1, 1996.
The Company continued its strategy of emphasizing multi-family lending with
multi-family loan originations of $94.4 million during the fiscal year ended
June 30, 1996. As a result, multi-family loans grew to $296.6 million or 21.6%
of at June 30, 1996 from $252.4 million at June 30, 1995. In addition, the
Company increased its non-residential loans by $10.7 million. Growth in both
of these segments were attributable to more competitive loan pricing during the
period. Offsetting this growth were declines of $2.4 million and $14.2 million
in one-to-four family residential loans (excluding loans acquired from
Conestoga) and cooperative apartment loans, as the Company originated only $6.6
million of one-to-four family and cooperative apartment loans, the majority of
which were fixed rate loans sold in the secondary market.
The acquisition of Conestoga provided $124.4 million of mortgage-backed
securities, of which $70.0 million were GNMAs, and $170.8 of investment
securities, comprised of $119.1 million and $51.7 million, respectively. The
growth in the securities portfolio also reflected the proceeds from the initial
public offering and the excess subscription proceeds.
The growth in assets was funded primarily through increased stockholders'
equity of $136.0 million and the excess subscription proceeds of $131.1 million
included in escrow and other deposits at June 30, 1996. The growth in
stockholders' equity was due primarily to $141.4 million in net proceeds
received from the Company's initial public offering and $6.3 million in net
income for the year. Offsetting these increases to equity was the purchase of
the Company's Common Stock by the ESOP totaling $11.6 million. Total
stockholders' equity was $213.1 million, or 15.53% of total assets at June 30,
1996.
The Company acquired deposits totaling $394.3 million from Conestoga.
Removing this effect, deposits increased by $1.0 million during the year ended
June 30, 1996, as net outflows of $21.6 million offset interest credits of
$22.7 million. Liabilities at June 30, 1996 reflect a purchase by the Company
of $34.0 million of investment securities available for sale dated June 28,
1996, for which the proceeds were not disbursed until after July 1, 1996.
The Company utilized the proceeds raised in the initial public offering to
fund the Merger Consideration of $101.3 million for the Bank's acquisition of
Conestoga. The Acquisition resulted in goodwill of $28.4 million, which is
currently being amortized over a twelve year period.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1997 AND
1996
GENERAL. Net income for the fiscal year ended June 30, 1997 totaled $12.3
million compared to $6.3 million during the fiscal year ended June 30, 1996.
Net income for the fiscal year ended June 30, 1997 was affected by the New York
State and New York City income tax recoveries of $1.9 million and $1.0 million,
respectively, and the one-time special assessment of $1.1 million, after taxes,
for the recapitalization of the SAIF of the Federal Deposit Insurance
Corporation ("FDIC") recorded during the quarter ended September 30, 1996. Net
income for the fiscal year ended June 30, 1997, excluding these non-recurring
items, was $10.5 million.
Also affecting the comparison of the fiscal years ended June 30, 1997 and
1996 was the Bank's adoption, on July 1, 1995 of Statement of Financial
Accounting Standards No. 106, "Accounting for Post-Retirement Benefits Other
than Pensions," whereby the Bank elected to record the full accumulated post-
retirement medical benefit obligation upon adoption. Adoption of this standard
resulted in a cumulative effect reduction of net income of approximately $1.0
million for the fiscal year ended June 30, 1996. Income before cumulative
effect of change in accounting principles for the fiscal year ended June 30,
1996 was $7.3 million.
NET INTEREST INCOME. Net interest income totaled $47.5 million during the
year ended June 30, 1997 compared to $29.1 million. This increase was
attributable primarily to an increase of $506.2 million in average balance of
interest earning assets, offset by a decline in the net interest rate spread of
47 basis points. The net interest margin declined 34 basis points from 4.41%
for the year ended June 30, 1996 to 4.07% for the year ended June 30, 1997.
INTEREST INCOME. Interest income for the year ended June 30, 1997 was $89.0
million, an increase of $36.4 million from $52.6 million during the year ended
June 30, 1996. The largest components contributing to this increase were
interest income on real estate loans, investment securities, and mortgage-
backed securities, which increased by $15.7 million, $7.9 million, and $11.8
million, respectively. The increase in interest income on real-estate loans
was attributable primarily to an increase of $207.0 million in the average
balance of real estate loans, resulting from both the acquisition of $113.1
million of loans from Conestoga on June 26, 1996, and new loan originations of
$262.2 million during the fiscal year ended June 30, 1997, offset by a 47 basis
point decrease in the average yield as compared to the prior year. The
increases in interest income on investment securities and mortgage-backed
securities were also attributable primarily to increases in average balances of
$108.6 million and $172.3 million, respectively, during the fiscal year ended
June 30, 1997 compared to the fiscal year ended June 30, 1996. The acquisition
of $170.8 million and $124.4 million of investment securities and mortgage-
backed securities, respectively, from Conestoga, contributed significantly to
these average balance increases. In addition, the average yield on investment
securities and mortgage-backed securities increased by 98 basis points and 12
basis points, respectively, during the fiscal year ended June 30, 1997,
compared to the fiscal year ended June 30, 1996, contributing significantly to
the increase in interest income. This increase in yields resulted primarily
from both higher yields on securities acquired or repricing during the fiscal
year ended June 30, 1997, as well as the acquisition of higher yielding
investment and mortgage-backed securities from Conestoga.
PAGE 11
<PAGE>
INTEREST EXPENSE. Interest expense increased $18.1 million, to $41.6
million during the fiscal year ended June 30, 1997, from $23.5 million during
the fiscal year ended June 30, 1996. This increase resulted primarily from
increases of $12.9 million, $2.4 million and $2.0 million in interest expense
on Certificate of Deposit accounts, Savings accounts and borrowed funds,
respectively, which resulted from increased average balances of $230.0 million,
$117.2 million and $34.6 million, respectively, during the fiscal year ended
June 30, 1997, compared to the fiscal year ended June 30, 1996. The
acquisition of $216.3 million and $129.2 million of Certificate of Deposit
accounts and Savings accounts, respectively, from Conestoga contributed
significantly to these average balance increases. The increase in borrowing
resulted from the capital leverage strategy instituted during the current
fiscal year. See "Management Strategy." Overall, the average cost of interest
bearing liabilities increased 13 basis points from 4.12% during the fiscal year
ended June 30, 1996, to 4.25% during the fiscal year ended June 30, 1997, due
primarily to an increase of 48 basis points in the average cost on NOW, Super
Now and money market accounts, which resulted from increased rates offered on
these deposits under management's deposit pricing strategy, as well an
increase of 10 basis points on the cost of borrowed funds resulting from the
current year borrowing activity.
PROVISION FOR LOAN LOSSES. The Provision for Loan Losses increased $1.2
million to $4.2 million for the fiscal year ended June 30, 1997 from $3.0
million for the fiscal year ended June 30, 1996. The Allowance for Loan Losses
increased by $2.9 million during the fiscal year ended June 30, 1997, as the
loan loss provision of $4.2 million was partially offset by net charge-offs of
$1.3 million. While the allowance for loan losses increased, non-performing
loans declined from $6.6 million at June 30, 1996, to $3.2 million at June 30,
1997. The Allowance for Loan Losses as a percentage of non-performing loans
and total loans was 336.24% and 1.43%, respectively, at June 30, 1997, compared
to 119.25% and 1.34%, respectively, at June 30, 1996. In management's
judgment, it was prudent to continue the loan loss provision in order to
supplement the loan loss allowance, based upon the Bank's growing volume of
multi-family loan originations, the composition of its loan portfolio and the
Bank's historical charge-off experience. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income increased $2.7 million to $4.1
million during the fiscal year ended June 30, 1997 compared to $1.4 million
during the fiscal year ended June 30, 1996. This increase was attributable
primarily to increases of $1.0 million and $733,000 in service charges and
other fees, and other income, respectively. Contributing to the increase in
service charges and other fees were increased income of $465,000 related to
deposit accounts attributable to the growth in deposits from the acquisition of
Conestoga, and increases of $272,000 and $162,000, respectively, related to
safe deposit boxes and the Bank's funding of official checks. The increase in
other income was attributable primarily to increased rental income of $241,000
received from retail and other commercial premises acquired from Conestoga.
Also contributing to the increase in other income were increases of $170,000
and $120,000 on Federal Home Loan Bank of New York capital stock dividend
income and loan prepayment penalty income, respectively. In addition, net
gains on sale of assets totaled $984,000 during the year ended June 30, 1997
compared to a net loss of $18,000 during the year ended June 30, 1996. Sales
of assets occur periodically in response to management's review of portfolio
assets in light of current market conditions.
NON-INTEREST EXPENSE. Non-interest expense increased $13.5 million to
$27.5 million during the fiscal year ended June 30, 1997 from $14.0 million
during the fiscal year ended June 30, 1996. Several factors contributed to this
increase, including an increase of $2.3 million in federal deposit insurance
premium expense. As a result of the Acquisition of Pioneer the Bank acquired
$394.3 million in deposits which were insured by the SAIF. The Bank paid
higher assessment rates on these deposits during the three months ended
September 30, 1996. In addition, the Bank was required to pay $2.0 million,
before taxes, related to the SAIF Special Assessment paid during the three
months ended September 30, 1996 on all of its SAIF deposits, which were
primarily comprised of the deposits obtained from Pioneer. As a result of the
recapitalization of SAIF, the Bank, which currently has a Bank Insurance Fund
("BIF")/SAIF deposit ratio of 54/46, has experienced a reduction in FDIC
insurance expense during all fiscal quarters subsequent to September 30, 1996.
See "Impact of Recent Legislation." Should the Bank maintain its status as a
well-capitalized institution, given the current FDIC assessment rates, this
reduction in quarterly FDIC insurance expense is expected to continue. During
the fiscal year ended June 30, 1996, the Bank received a refund from the FDIC
of $319,000 related to the Bank's insurance expense, which reduced its federal
deposit insurance premium expense for the period to $109,000. During the fiscal
year ended June 30, 1996, virtually all of the Bank's deposits were insured by
the BIF. See "Impact of Recent Legislation."
Salary and employee benefits, occupancy and equipment, data processing, and
other operating expenses increased $2.4 million, $1.3 million, $443,000, and
$1.8 million, respectively, resulting from both the acquisition of Conestoga
and increased costs associated with activities as a public company. In
addition, during the fiscal year ended June 30, 1997, the Bank incurred
increased expenses of $2.9 million related to Employee Stock Ownership Plan
("ESOP") and RRP benefits, and $2.4 million related to goodwill amortization
resulting from its acquisition of Conestoga. Only minor expenses were recorded
during the fiscal year ended June 30, 1996 related to these items, as the Bank
completed its initial public offering (from which the ESOP and RRP were
generated) and its acquisition of Conestoga (from which goodwill was generated)
on June 26, 1996. Partially offsetting these increased expenses was a decrease
of $136,000 related to losses on other real estate owned, resulting from
management's periodic review of reserves established for losses on other real
estate owned. Overall, non-interest expense was 2.24% of average assets for
the fiscal year ended June 30, 1997. Excluding the effects of the non-
recurring SAIF charge, non-interest expense was 2.07% of average assets during
the fiscal year ended June 30, 1997 compared to 2.06% for the fiscal year ended
June 30, 1996.
PAGE 12
<PAGE>
INCOME TAX EXPENSE. Income tax expense totaled $7.6 million. Income tax
expense was reduced by $2.9 million during the fiscal year ended June 30, 1997,
due to New York State and New York City recoveries of $1.9 million and $1.0
million, respectively, related to the Bank's deferred tax liability. Both of
these recoveries resulted from recent tax legislation passed by both New York
State and New York City. See "Impact of Recent Legislation." Income tax
expense, exclusive of these recoveries, totaled $10.5 million during the fiscal
year ended June 30, 1997, compared to $6.2 million during the fiscal year ended
June 30, 1996, an increase of $4.3 million. This increase was attributable to
both an increase of $6.4 million in pre-tax income and an increase in the
effective tax rate from 45.9% for the fiscal year ended June 30, 1996, to 52.6%
for the fiscal year ended June 30, 1997. The increased effective tax rate
during the fiscal year ended June 30, 1997, (before recoveries) resulted
primarily from the acquisition of Conestoga being accounted for as a tax-free
transaction, resulting in the Company receiving no tax benefit for goodwill
expense. In addition, the Company received no tax deduction for $666,000 of
ESOP compensation expense related to the excess of the average fair market
value of the Company's stock during the fiscal year ended June 30, 1997, over
the original purchase price of the stock by the ESOP. Excluding the effects of
these items, the effective tax rate for the fiscal year ended June 30, 1997 was
45.6%.
COMPARISON OF OPERATING RESULTS FOR THE FISCAL YEARS ENDED JUNE 30, 1996 AND
1995
GENERAL. Net income for the fiscal year ended June 30, 1996 was $6.3
million as compared to $8.4 million for the fiscal year ended June 30, 1995.
Income before cumulative effect of change in accounting principles for the year
ended June 30, 1996 was $7.3 million, a decrease of $1.1 million from $8.4
million for the prior year. Decreases of $1.2 million and $398,000 in net
interest income and non-interest income, respectively, were offset by a
$440,000 decrease in income tax expense.
INTEREST INCOME. Interest income amounted to $52.6 million for the year
ended June 30, 1996, representing an increase of $3.4 million from the prior
year. The increase was the result of the effect of a $43.1 million increase in
average interest-earning assets, as the average yield on interest-earning
assets decreased by 1 basis point. The largest components of the increase in
interest income were interest income on real estate loans, investment
securities and federal funds sold, of $939,000, $1.3 million and $625,000,
respectively. All of these increases were driven primarily by the increases in
average interest-earning assets of $8.9 million, $23.0 million and $11.7
million, in real estate loans, investment securities and federal funds sold,
respectively. Average yields on real estate loans, and investment securities
increased by 3 basis points and 12 basis points respectively, while the average
yield on federal funds sold declined by 10 basis points. The small increase in
yields on these assets resulted from general increase in interest rates during
the year ended June 30, 1996, offset by a shift of funds to shorter-term, lower
yielding investments and competitive loan pricing, which reduced rates slightly
on loan originations. Since much of the real estate loan originations occurred
during the fourth fiscal quarter, the effect upon average balance and interest
income for the year ended June 30, 1996 was minor.
INTEREST EXPENSE. Interest expense was $23.5 million for the year ended
June 30, 1996, an increase of $4.6 million from the prior year. Interest-
bearing liabilities averaged $570.1 million for the year ended June 30, 1996,
representing an increase of $25.3 million, or 4.65%, over the prior year. The
average rate paid on interest-bearing liabilities increased 64 basis points,
from 3.48% to 4.12%. The increase in the average rate paid on interest-bearing
liabilities resulted from the higher interest rate environment and from a
steady shift of deposits out of savings accounts and into higher costing
certificates of deposit. Management's strategy of paying competitive interest
rates on certificates of deposit with maturities in excess of one year, which
management believes should help to stabilize the Bank's cost of funds over the
longer term, contributed to a higher cost of funds in the current period.
Average savings account balances decreased by $31.6 million from $264.2 million
for the year ended June 30, 1995, to $232.6 million for the year ended June 30,
1996, at the same time the average certificates of deposit balance increased by
$59.7 million, from $225.8 million for the year ended June 30, 1995, to $285.5
million for the year ended June 30, 1996. The average rate paid on certificates
of deposit increased by 93 basis points over the same period.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
slightly to $2.97 million for the year ended June 30, 1996, from $2.95 million
for the year ended June 30, 1995. The Allowance for Loan Losses increased from
$5.2 million at June 30, 1995 to $7.8 million at June 30, 1996, reflecting net
charge-offs of $1.0 million during the fiscal year ended June 30, 1996,
compared to $1.4 million for the fiscal year ended June 30, 1995, the provision
for loan losses, and the addition for Conestoga allowance for loan losses of
$668,000. In management's judgment, it was prudent to continue to increase the
loan loss allowance based upon an evaluation of the adequacy of the reserve in
the context of the Bank's historical loan loss experience and to reflect the
growing volume of multi-family loan originations during 1996. Although charge-
offs declined during fiscal 1996 from fiscal 1995, the Bank experienced an
increase in non-performing loans of $1.5 million, from $5.1 million at June 30,
1995 to $6.6 million at June 30, 1996. See "Asset Quality."
NON-INTEREST INCOME. Non-interest income declined $398,000 to $1.4 million
for the year ended June 30, 1996, from $1.8 million for the year ended June 30,
1995. This decrease reflects a $53,000 reduction in net gain on the sale of
Other Real Estate Owned ("OREO"), a decrease of $258,000 on net gains on sales
of stock, and a decline of $136,000 in income provided from service charges.
The decrease in net gain on sale of stocks was attributable primarily to a loss
of $195,000 on the sale of preferred stocks in December, 1995. The decrease in
income provided by service charges resulted primarily from a change in the
manner in which the Bank accounts for income from the rental of safe deposit
boxes. In addition, declines of $34,000 and $39,000 occurred in dividends on
FHLBNY stock and annuity fees, respectively. Offsetting these declines, was an
increase of $106,000 in net gains on sale of bonds.
NON-INTEREST EXPENSE. Non-interest expense declined $32,000 from $14.1
million for the year ended June 30, 1995, to $14.0 million for the year ended
June 30, 1996, attributable primarily to a decrease of $1.1 million in
insurance premiums paid to the Federal Deposit Insurance Corporation ("FDIC").
This decrease resulted from a reduction in the BIF rate paid by the Bank to the
FDIC for deposit insurance premiums, combined with a refund from the FDIC for
BIF premiums previously paid in the amount of $319,000. The decrease in
deposit insurance expense was partially offset by a $594,000 increase in
compensation and benefits expense, which was attributable to an increase in
employee bonuses and normal salary increases, and a $586,000 provision for
losses attributable to the Bank's holding of OREO. Beginning with the fiscal
year ended June 30, 1996, periodic provisions to the OREO valuation reserve are
recorded as non-interest expense.
INCOME TAX EXPENSE. Income tax expense totaled $6.2 million for the year
ended June 30, 1996, compared to $6.6 million for the year ended June 30, 1995,
a decline of $440,000. The decline was attributable primarily to a decrease of
$1.6 million in pre-tax income, offset by an increase in the effective tax rate
from 44.0% for the year ended June 30, 1995 to 45.9% for the year ended June
30, 1996. The lower effective tax rate during the year ended June 30, 1995,
resulted substantially from the utilization of capital gains tax loss
carryforwards totaling $183,000 during the fiscal year.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES. On July 1, 1995,
the Bank adopted SFAS 106, which requires accrual of post-retirement benefits,
such as health care benefits, during the years an employee provides services.
The cumulative effect of the adoption of SFAS 106 on prior years was
$1,032,000, after a reduction for income taxes of $879,000. As permitted by the
Standard, the Bank elected to record this liability at the time of adoption.
PAGE 13
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The Financial Statements and Notes thereto presented herein have been
prepared in accordance with GAAP, which require the measurement of financial
position and operating results in terms of historical dollars without
considering the changes in the relative purchasing power of money over time due
to inflation. The impact of inflation is reflected in the increased cost of the
Bank's operations. Unlike industrial companies, nearly all of the assets and
liabilities of the Bank are monetary in nature. As a result, interest rates
have a greater impact on the Bank's performance than do the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF RECENT LEGISLATION
SAIF RECAPITALIZATION. The is currently a member of the BIF. The FDIC
also maintains another insurance fund, the SAIF, which 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 of Conestoga, the Bank acquired the
deposits of Pioneer (the "Pioneer Deposits"), a member of the SAIF, which
deposits totaled approximately $394.3 million at June 26, 1996. The Bank is
now required to pay SAIF assessments with respect to the Pioneer Deposits. In
addition, the Bank is required to pay SAIF assessments on all previously
acquired SAIF deposits ("Oakar Deposits").
Under law and regulation in effect at June 30, 1996, BIF-assessable
deposits were assessed at a rate of $2,000 per year while SAIF-assessable
deposits were assessed at rates ranging from $0.23 to $0.31 per $100 of SAIF-
assessable deposits. This disparity resulted from the BIF's achievement of the
required 1.25% reserve ratio while the SAIF had not reached the required 1.25%
reserve, due primarily to the fact that a significant portion of SAIF
assessments had been and were then being used to make payments on bonds ("FICO
bonds") issued in the late 1980s by the Financing Corporation.
On September 30, 1996, the Deposit Insurance Funds Act of 1996 (the "Funds
Act") was enacted into law, and it amended the Federal Deposit Insurance Act in
several ways to recapitalize the SAIF and reduce the disparity in the
assessment rates for the BIF and the SAIF. The Funds Act authorized the FDIC
to impose a special assessment on all institutions with SAIF-assessable
deposits in the amount necessary to recapitalize the SAIF. As implemented by
the FDIC, the special assessment was $0.657 per $100 of an institution's SAIF-
assessable deposits as of March 31, 1995. As applied to the Bank, the special
assessment was imposed with respect to the Pioneer deposits, because Pioneer no
longer exists as a corporate entity, as well as $39.3 million of Oakar
Deposits. However, under the Funds Act, the Bank was entitled to reduce the
amount of such deposits by 20% in computing the special assessment.
Accordingly, the SAIF special assessment, which totaled $2.0 million, was paid
by the Bank in November, 1996. The SAIF special assessment, although paid in
November, 1996, was recorded as non-interest expense during the three months
ended September 30, 1996.
In view of the recapitalization of the SAIF and consistent with certain
requirements of the Funds Act, the FDIC announced, in December, 1996, a
reduction in the annual assessment rates on SAIF-assessable deposits for
periods beginning on October 1, 1996 to 0 to 27 basis points for the quarterly
period beginning October 1, 1996, with the rate of 0 basis points applied to
well-capitalized institutions in the top supervisory group, such as the Bank.
This rate range was identical to the rates previously approved for BIF members.
In addition to the rate change, the FDIC elected to refund the Bank's regular
assessment expense of $251,000 recorded during the three months ended September
30, 1996. This refund was recorded in other income during the three months
ended December 31, 1996. As a result of this ruling, the Bank, as a well-
capitalized institution in the top supervisory group, incurred, on a net basis,
no expense beyond the SAIF special assessment charge for deposit insurance
during the year ended June 30, 1997.
Based upon the above, as long as the Bank maintains its current regulatory
status, the Bank will either not have to pay, or will pay substantially lower,
regular SAIF assessments compared to those paid prior to and including the
three months ended September 30, 1996, assuming that the designated reserve
ratio of 1.25% is maintained by the SAIF.
In addition, the Funds Act expanded the assessment base for the payments
on the FICO bonds to include, beginning January 1, 1997, the deposits of both
BIF members and SAIF members. Until December 31, 1999, or such earlier date on
which the last savings association ceases to exist, the rate of assessment for
the FICO bonds on BIF-assessable deposits shall be one-fifth of the rate
imposed on SAIF-assessable deposits. The rate of assessments for the FICO bonds
beginning on January 1, 1997, was $0.013 per $100 of BIF-assessable deposits
and $0.0648 per $100 of SAIF-assessable deposits. During the year ended June
30, 1997, the Bank incurred $172,000 of expense related to the FICO bond
assessments, which has been included in Federal deposit insurance premium
expense in the consolidated statement of operations. For the semi-annual
period beginning on July 1, 1997, the rates of assessment for the FICO bonds
are 0.0126% for BIF-assessable deposits and 0.0630% for SAIF-assessable
deposits.
The Funds Act also provides for the merger of the BIF and SAIF on January
1, 1999, with such merger being conditioned upon the prior elimination of the
thrift charter. The Secretary of the Treasury was required to conduct a study
of relevant factors with respect to the development of a common charter for all
insured depository institutions and abolition of separate charters for banks
and thrifts and to report the Secretary's conclusions and findings to the
Congress. The Secretary of Treasury has recommended to the Congress that the
separate charter for thrifts be eliminated only if other legislation is adopted
that permits bank holding companies to engage in certain non-financial
activities. Absent legislation permitting bank holding companies to engage in
such non-financial activities, the Secretary of the Treasury recommended that
the thrift charter be retained. Several bills have been introduced in Congress
to eliminate the federal thrift charter, but no determination has been made as
to the enactment of legislation with respect to the thrift charter.
PAGE 14
<PAGE>
RECAPTURE OF BAD DEBT RESERVES. Prior to the enactment, on August 20,
1996, of the Small Business Job Protection Act of 1996 (the "1996 Act"), for
federal income tax purposes, thrift institutions such as the Bank, which met
certain definitional tests primarily relating to their assets and the nature of
their business, were permitted to establish tax reserves for bad debts and to
make annual additions thereto, which additions could, within specified
limitations, be deducted in arriving at their taxable income. The Bank's
deduction with respect to "qualifying loans," which are generally loans secured
by certain interests in real property, could be computed using an amount based
on a six-year moving average of the Bank's actual loss experience (the
"Experience Method"), or a percentage equal to 8.0% of the Bank's taxable
income (the "PTI Method"), computed without regard to this deduction and with
additional modifications and reduced by the amount of any permitted addition to
the non-qualifying reserve. Similar deductions for additions to the Bank's bad
debt reserve were permitted under the New York State Bank Franchise Tax and the
New York City Banking Corporation Tax; however, for purposes of these taxes,
the effective allowable percentage under the PTI method was 32% rather than 8%.
Under the 1996 Act, the PTI Method was repealed and the Bank, as a "large
bank" (one with assets having an adjusted basis of more than $500 million),
will be unable to make additions to its tax bad debt reserve, will be permitted
to deduct bad debts only as they occur and will be required to recapture (I.E.,
take into income) over a six-year period, beginning with the Bank's taxable
year beginning July 1, 1996, the excess of the balance of its bad debt reserves
(other than the supplemental reserve) as of June 30, 1997 over the greater of
the balance of such reserves as of December 31, 1987 (or over a lesser amount
if the Bank's loan portfolio decreased since June 30, 1988). However, under
the 1996 Act, such recapture requirements will be suspended for each of the two
successive taxable years beginning July 1, 1996 in which the Bank originates a
minimum amount of certain residential loans during such years that is not less
than the average of the principal amounts of such loans made by the Bank during
its six taxable years preceding July 1, 1996. Since the Bank has already
provided a deferred income tax liability for this tax for financial reporting
purposes, there was no adverse impact to the Bank's financial condition or
results of operations from the enactment of this legislation.
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. The Bank had a deferred tax liability of approximately $1.9
million 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 year ended June 30, 1997 for the full amount of the recovered deferred tax
liability.
On March 11, 1997, New York City enacted legislation, effective January 1,
1996, which conformed its tax law regarding bad debt deductions to New York
State's tax law. As a result of this legislation, the Bank, in March, 1997,
recovered a deferred tax liability of approximately $1.0 million previously
recorded for the excess of New York City tax bad debt reserves over its base
year reserve at December 31, 1987. This recovery resulted in a reduction of
income tax expense during the year ended June 30, 1997 for the full amount of
the recovered deferred tax liability.
IMPACT OF RECENT ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 125, ''Accounting for Transfers of
Financial Assets and Extinguishments of Liabilities'' ("SFAS 125"). SFAS 125
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are borrowings. SFAS 125 also requires that
liabilities and derivatives incurred or obtained as part of a transfer be
measured initially at fair value. This statement also provides guidance on
measurement of servicing rights on assets transferred and derecognition of
liabilities transferred. SFAS 125 is effective for all transfers, servicing, or
extinguishments occurring after December 31, 1996, except for certain
provisions relating to the accounting for secured borrowings and collateral and
the accounting for transfers and servicing of repurchase agreements, dollar
rolls, securities lending and similar transactions, for which the effective
date was deferred until January 1, 1998, in accordance with Statement of
Financial Accounting Standards No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125" ("SFAS 127"). The Company
adopted SFAS 125 as amended by SFAS 127 effective January 1, 1997. The
adoption of this standard did not have a material impact on the financial
condition or results of operations of the Bank.
In February, 1997, the Financial Accounting Standards Board issued
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, 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 ESOP shares when calculating average shares outstanding. SFAS 128
is effective for financial statements issued for periods ending after December
15, 1997, including interim periods. Early adoption is not permitted, and
restatement of prior periods is required. Basic and diluted earnings per share,
if computed under the standards of SFAS 128, would have been $0.95 and $0.95,
respectively, for the year ended June 30, 1997.
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income''
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. SFAS 130 requires that financial statements report and
display comprehensive income in the same prominence as net income, but permits
the statement of comprehensive income to be presented either together with or
apart from the income statement. Comprehensive income, as defined by SFAS 130
includes revenues, expenses, and gains and losses which, under current GAAP,
bypass net income and are typically reported as a component of stockholders'
equity. SFAS 130 is applicable for all entities which present a full set of
financial statements and is effective for fiscal years beginning after December
15, 1997, with early adoption permitted.
PAGE 15
<PAGE>
In June, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information'' ("SFAS 131"). SFAS 131 introduces a new
model for segment reporting entitled the "management approach," which focuses
upon the manner in which the chief operating decision makers organize segments
within a company for making operating decisions and assessing performance.
Under the management approach, reportable segments can be based upon, but are
not limited to, products and services, geography and legal or management
structure. SFAS 131 requires full financial disclosure for each segment, but
only requires limited quarterly segment disclosure. SFAS 131 is applicable for
all public, for-profit companies, and is effective for fiscal years beginning
after December 15, 1997, with early application encouraged. Management of the
Company is currently evaluating SFAS 131.
PAGE 16
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
the Dime Community Bancorp, Inc. and Subsidiary
We have audited the accompanying consolidated statements of condition of the
Dime Community Bancorp, Inc. and Subsidiary (the ''Company'') as of June 30,
1997 and 1996, and the related consolidated statements of operations, changes
in stockholders' equity and cash flows for each of the three years in the
period ended June 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Dime Community
Bancorp, Inc. and Subsidiary as of June 30, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 1997 in conformity with generally accepted accounting
principles.
As discussed in Notes 1 and 15, effective July 1, 1995, the Company changed its
method of accounting for postretirement benefits other than pensions to comply
with Statement of Financial Accounting Standards No. 106.
/S/ DELOITTE & TOUCHE LLP
New York, New York
August 8, 1997
PAGE 17
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
JUNE 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------------------------- ------------- ------------
ASSETS:
Cash and due from banks $19,198 $17,055
Investment securities held-to-maturity (estimated market value of
$102,024 and $43,428 at June 30, 1997 and 1996, respectively)
(Notes 2, 4, and 12) 101,587 43,552
Investment securities available for sale (Notes 2, 4, and 12):
Bonds and notes (amortized cost of $52,426 and $338,141 at
June 30, 1997 and 1996, respectively) 52,798 338,089
Marketable equity securities (historical cost of $4,912 and $2,977
at June 30, 1997 and 1996, respectively) 5,889 3,205
Mortgage-backed securities held-to-maturity (estimated market
value of $79,075 and $52,596 at June 30, 1997 and 1996,
respectively) (Notes 5 and 12) 78,388 52,580
Mortgage backed securities available for sale (amortized cost of
$227,776 and $156,962 at June 30, 1997 and 1996,
respectively)(Notes 5 and 12) 230,137 157,361
Federal funds sold (Note 2) 18,902 115,130
Loans (Note 6):
Real estate 744,246 577,663
Other loans 6,076 5,564
Less allowance for loan losses (Note 7) (10,726) (7,812)
- -------------------------------------------------------------------- ------------- ------------
Total loans, net 739,596 575,415
- -------------------------------------------------------------------- ------------- ------------
Loans held for sale 262 459
Premises and fixed assets (Note 9) 13,995 14,399
Federal Home Loan Bank of New York capital stock (Note 10) 8,322 7,604
Other real estate owned, net (Note 7) 1,697 1,946
Goodwill (Note 3) 26,433 28,438
Other assets (Notes 14 and 15) 17,822 16,588
- -------------------------------------------------------------------- ------------- ------------
TOTAL ASSETS $1,315,026 $1,371,821
==================================================================== ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors (Note 11) $963,395 $950,114
Escrow and other deposits (Note 2) 14,974 141,732
Securities sold under agreements to repurchase (Note 12) 76,333 11,998
Federal Home Loan Bank of New York advances 63,210 15,710
Payable for securities purchased (Note 12) - 33,994
Accrued postretirement benefit obligation (Note 15) 2,546 2,381
Other liabilities (Note 1 and 15) 3,679 2,821
- -------------------------------------------------------------------- ------------- ------------
TOTAL LIABILITIES 1,124,137 1,158,750
- -------------------------------------------------------------------- ------------- ------------
COMMITMENTS AND CONTINGENCIES (Note 16)
STOCKHOLDERS' EQUITY
Preferred stock ($0.01 par, 9,000,000 shares authorized, none issued or
outstanding at June 30, 1997 and June 30, 1996) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,547,500 shares
issued, 13,092,750 and 14,547,500 shares outstanding at June 30, 1997
and 1996, respectively 145 145
Additional paid-in capital 141,716 141,240
Unallocated common stock of Employee Stock Ownership Plan (Note 15) (10,324) (11,541)
Unearned common stock of Recognition and Retention Plan (Note 15) (9,671) -
Treasury stock, at cost (1,454,750 shares at June 30, 1997) (Note 18) (27,703) -
Retained earnings (Note 2 and 14) 94,695 82,916
Unrealized gain on securities available for sale, net of deferred taxes 2,031 311
- -------------------------------------------------------------------- ------------- ------------
TOTAL STOCKHOLDERS' EQUITY 190,889 213,071
- -------------------------------------------------------------------- ------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,315,026 $1,371,821
==================================================================== ============= ============
</TABLE>
See notes to consolidated financial statements.
PAGE 18
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
<S> <C> <C> <C>
- ------------------------------------------------------- ------------ ----------- -------------
INTEREST INCOME:
Loans secured by real estate $54,965 $39,314 $38,375
Other loans 460 340 307
Investment securities 13,654 5,738 4,402
Mortgage-backed securities 17,704 5,927 5,464
Federal funds sold 2,247 1,300 675
- ------------------------------------------------------- ------------ ----------- -------------
TOTAL INTEREST INCOME 89,030 52,619 49,223
- ------------------------------------------------------- ------------ ----------- -------------
INTEREST EXPENSE:
Deposits and escrow 38,544 22,508 17,933
Borrowed funds 3,020 1,008 1,013
- ------------------------------------------------------- ------------ ----------- -------------
TOTAL INTEREST EXPENSE 41,564 23,516 18,946
NET INTEREST INCOME 47,466 29,103 30,277
Provision for loan losses 4,200 2,979 2,950
- ------------------------------------------------------- ------------ ----------- -------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 43,266 26,124 27,327
- ------------------------------------------------------- ------------ ----------- -------------
NON-INTEREST INCOME:
Service charges and other fees 1,934 911 1,047
Net gain on sales and redemptions of securities and
other assets 859 (30) 159
Net gain on sales of loans 125 12 33
Other 1,215 482 534
- ------------------------------------------------------- ------------ ----------- -------------
TOTAL NON-INTEREST INCOME 4,133 1,375 1,773
- ------------------------------------------------------- ------------ ----------- -------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 9,794 7,359 6,879
ESOP and RRP compensation expense 3,058 114 -
OCCUPANCY AND EQUIPMENT 3,084 1,775 1,610
SAIF special assessment 2,032 - -
Federal deposit insurance premiums 423 109 1,245
Data processing costs 1,000 557 481
Provision for losses on Other real estate owned 450 586 -
Goodwill amortization 2,405 25 -
Other 5,246 3,496 3,838
- ------------------------------------------------------- ------------ ----------- -------------
TOTAL NON-INTEREST EXPENSE 27,492 14,021 14,053
- ------------------------------------------------------- ------------ ----------- -------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES 19,907 13,478 15,047
Income tax expense 7,591 6,181 6,621
- ------------------------------------------------------- ------------ ----------- -------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE
12,316 7,297 8,426
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGING TO A DIFFERENT
METHOD OF ACCOUNTING FOR:
Postretirement benefits other than pensions - (1,032) -
- ------------------------------------------------------- ------------ ----------- -------------
NET INCOME $12,316 $6,265 $8,426
======================================================= ============ =========== =============
EARNINGS PER SHARE:
PRIMARY $0.95 N/A N/A
======================================================= ============ =========== =============
FULLY DILUTED $0.94 N/A N/A
======================================================= ============ =========== =============
</TABLE>
See Notes to consolidated financial statements.
PAGE 20
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
<S> <C> <C> <C>
- -------------------------------------------------------- ------------ ------------ ------------
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning of period $145 $- $-
Issuance of common stock in initial public offering
(14,547,500 shares) - 145 -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period 145 145 -
- -------------------------------------------------------- ------------ ------------ ------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 141,240 - -
Issuance of common stock in initial public offering - 145,330 -
Cost of issuance of common stock (190) (4,107) -
Amortization of excess fair value over cost - ESOP stock 666 17 -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period 141,716 141,240 -
- -------------------------------------------------------- ------------ ------------ ------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (11,541) - -
Common stock acquired by ESOP - (11,638) -
Amortization of earned portion of ESOP stock 1,217 97 -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period (10,324) (11,541) -
- -------------------------------------------------------- ------------ ------------ ------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period - - -
Common stock acquired by RRP (10,846) - -
Amortization of earned portion of RRP stock 1,175 - -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period (9,671) - -
- -------------------------------------------------------- ------------ ------------ ------------
TREASURY STOCK:
Balance at beginning of period - - -
Purchase of 1,454,750 shares, at cost (27,703) - -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period (27,703) - -
- -------------------------------------------------------- ------------ ------------ ------------
RETAINED EARNINGS:
Balance at beginning of period 82,916 76,651 68,225
Net income for the period 12,316 6,265 8,426
CASH DIVIDENDS DECLARED AND PAID (537) - -
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period 94,695 82,916 76,651
- -------------------------------------------------------- ------------ ------------ ------------
MARKETABLE EQUITY SECURITIES VALUATION RESERVE:
Balance at beginning of period - - (306)
Effect of adoption of SFAS 115, net of deferred taxes - - 306
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period - - -
- -------------------------------------------------------- ------------ ------------ ------------
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, NET:
Balance at beginning of period 311 416 -
Effect of adoption of SFAS 115, net of deferred taxes - - (146)
Change in unrealized gain on securities available for sale
during the period, net of deferred taxes 1,720 (105) 562
- -------------------------------------------------------- ------------ ------------ ------------
Balance at end of period $2,031 $311 $416
- -------------------------------------------------------- ------------ ------------ ------------
</TABLE>
See notes to consolidated financial statements.
PAGE 21
<PAGE>
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $12,316 $6,265 $8,426
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net gain on investment and mortgage backed securities called - (79) -
Net (gain) loss on investment and mortgage backed securities sold (768) 164 11
Net gain on sale of loans held for sale (125) (12) (33)
Net gain on sale of other assets (19) - -
Net depreciation and amortization (accretion) (958) 102 1,509
ESOP and RRP compensation expense 3,058 114 -
Provision for loan losses 4,200 2,979 2,950
Goodwill amortization 2,405 25 -
Decrease (increase) in loans held for sale 322 (310) 580
(Increase) decrease in other assets and other real estate owned (2,401) 3,040 3,762
Increase in accrued postretirement benefit obligation 165 2,115 -
(DECREASE) INCREASE IN PAYABLE FOR SECURITIES PURCHASED (33,994) 33,994 -
Increase in other liabilities 858 1,677 291
- --------------------------------------------------------------- ---------- ---------- ----------
Net cash (used in) provided by Operating Activities (14,941) 50,074 17,496
- --------------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in Federal funds sold 96,228 (52,253) (10,780)
Proceeds from maturities of investment securities held to maturity 19,075 13,065 2,060
Proceeds from maturities of investment securities available for sale 359,710 399,135 26,300
Proceeds from calls of investment securities held to maturity 5,000 11,056 -
Proceeds from calls of investment securities available for sale 26,011 11,323 -
Proceeds from sales of investment securities available for sale 27,253 501 -
Proceeds from sales of mortgage backed securities held to maturity - 2,555 1,067
Proceeds from sales of mortgage backed securities available for sale 16,713 - -
Purchases of investment securities held to maturity (82,010) (9,292) (1,000)
Purchases of investment securities available for sale (126,741) (541,951) (43,251)
Purchases of mortgage backed securities held to maturity (38,842) (11,714) (6,093)
Purchases of mortgage backed securities available for sale (115,265) (11,554) (5,053)
Principal collected on mortgage backed securities held to maturity 12,820 9,995 7,905
Principal collected on mortgage backed securities available for sale 28,201 15,877 5,690
Net increase in loans (168,381) (41,856) (215)
Cash disbursed in acquisition of Conestoga Bancorp, net of cash acquired (400) (93,074) -
Purchases of fixed assets (652) (779) (125)
Purchase of Federal Home Loan Bank stock (718) (123) 188
- --------------------------------------------------------------- ---------- ---------- ----------
Net cash provided by (used in) Investing Activities 58,002 (299,089) (23,307)
- --------------------------------------------------------------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Due to depositors 13,281 1,019 8,080
Net decrease (increase) in escrow and other deposits (126,758) 128,625 (1,187)
Proceeds from Federal Home Loan Bank of New York Advances 47,500 - -
Increase (decrease) in securities sold under agreements to repurchase 64,335 (111) (51)
Proceeds from issuance of common stock, net of ESOP stock purchase - 133,837 -
Cash disbursed for expenses related to issuance of common stock (190) (4,107) -
Purchase of common stock by the Recognition and Retention Plan (10,846) - -
Cash dividends paid to stockholders (537) - -
Purchase of treasury stock (27,703) - -
- --------------------------------------------------------------- ---------- ---------- ----------
Net cash (used in) provided by Financing Activities (40,918) 259,263 6,842
- --------------------------------------------------------------- ---------- ---------- ----------
INCREASE IN CASH AND DUE FROM BANKS 2,143 10,248 1,031
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 17,055 6,807 5,776
- --------------------------------------------------------------- ---------- ---------- ----------
CASH AND DUE FROM BANKS, END OF PERIOD $19,198 $17,055 $6,807
=============================================================== ========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $8,486 $6,993 $5,996
Cash paid for interest $41,270 $23,744 $18,932
TRANSFER OF LOANS TO OTHER REAL ESTATE OWNED $1,407 $1,069 2,795
Transfer of investment and mortgage backed securities held-to-maturity
to available for sale $- $3,300 70,000
Change in unrealized gain on available for sale securities,
net of deferred taxes $1,720 $(105) 562
</TABLE>
On June 26, 1996, the Bank acquired all of the outstanding common stock of
Conestoga Bancorp, Inc. for cash. In connection with this acquisition, the
following assets were acquired and liabilities assumed:
Fair Value of Investments, Loans and Other Assets Acquired, net $507,023
Cash paid for Common Stock (101,272)
- ----------------------------------------------------------------- -----------
Deposits and Other Liabilities Assumed $405,751
================================================================= ===========
See Notes to consolidated financial statements.
PAGE 22
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
NATURE OF OPERATIONS - Dime Community Bancorp, Inc. (the
"Company") is a Delaware corporation organized by the Bank for
the purpose of acquiring all of the capital stock of The Dime
Savings Bank of Williamsburgh (the "Bank") issued in the
Conversion on June 26, 1996. Presently, the significant assets
of the Company are the capital stock of the Bank, the Company's
loan to the Bank's ESOP, and investments of the net conversion
proceeds retained by the Company. The Company is subject to the
financial reporting requirements of the Securities Exchange Act
of 1934, as amended.
The Bank was originally founded in 1864 as a New York State-
chartered mutual savings bank. On November 1, 1995, the Bank
converted to a federal mutual savings bank. 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 maintains its headquarters in
the Williamsburgh section of the borough of Brooklyn. Fourteen
additional offices are located in the boroughs of Brooklyn,
Queens, and the Bronx, and in Nassau County.
Since the sale of the Company's stock and the merger of
Conestoga Bancorp, Inc. into the Bank occurred on June 26, 1996,
the Company's results of operations for the years ended June 30,
1996 and 1995 are comprised of the results of operations of the
Bank. Earnings per share information for the Company for the
years ended June 30, 1996 and 1995 are not meaningful.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The accounting and
reporting policies of the Company conform to generally accepted
accounting principles. The following is a description of the
significant policies:
PRINCIPLES OF CONSOLIDATION - The accompanying 1997, 1996 and
1995 consolidated financial statements include the accounts of
the Company, and its wholly-owned subsidiary, the Bank. All
financial statements presented include the accounts of the
Bank's three wholly-owned subsidiaries, Havemeyer Equities Corp.
(''HEC''), Boulevard Funding Corp. (''BFC'') and Havemeyer
Brokerage Corp. (''HBC''). Prior to April, 1997, HBC was engaged
in the sale of insurance and annuity products primarily to the
Bank's customers and members of the local community. In April,
1997 HBC was changed from a service corporation to an operating
subsidiary, whose primary function is the management of an
investment securities portfolio. BFC and HEC were established
in order to invest in real estate joint ventures and other real
estate assets. BFC and HEC had no investments in real estate at
June 30, 1997 and are currently inactive. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - Purchases
and sales of Investments and Mortgage-backed securities are
recorded on trade date. Gains and losses on sales of Investment
and Mortgage-backed securities are recorded on the specific
identification basis.
On July 1, 1994, the Bank adopted SFAS No. 115, ''Accounting for
Investments in Debt and Equity Securities'' (''SFAS 115''). The
Statement requires that debt and equity securities that have
readily determinable fair values be carried at fair value unless
they are held to maturity. Debt securities are classified as
held to maturity and carried at amortized cost only if the
reporting entity has a positive intent and ability to hold these
securities to maturity. If not classified as held to maturity,
such securities are classified as securities available for sale
or as trading securities. Unrealized holding gains or losses on
securities available for sale are excluded from earnings and
reported net of income taxes as a separate component of
stockholders' equity. The effect of adopting this statement was
not material. At June 30, 1997, 1996 and 1995, all equity
securities are classified as available for sale. At June 30,
1994, all debt securities were carried at amortized cost and all
equity securities were carried at lower of cost or market.
LOANS HELD FOR SALE - Mortgage loans originated and intended for
sale in the secondary market are carried at the lower of
aggregate cost or estimated market value.
ALLOWANCE FOR LOAN LOSSES - It is the policy of the Bank to
provide a valuation allowance for estimated losses on loans
based on the Bank's past loan loss experience, known and
inherent risks in the portfolio, adverse situations which may
affect the borrower's ability to repay, estimated value of
underlying collateral and current economic conditions in the
Bank's lending area. The allowance is increased by provisions
for loan losses charged to operations and is reduced by charge-
offs, net of recoveries. Management's periodic evaluation of the
adequacy of the allowance is based on the Bank's past loan loss
experience, known and inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current
economic conditions. While management uses available information
to estimate losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions beyond
management's control. In addition, various regulatory agencies,
as an integral part of their examination process, periodically
review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based
on judgments different from those of management. Management
believes, based upon all relevant and available information,
that the allowance for loan losses is adequate to absorb losses
inherent in the portfolio.
PAGE 23
<PAGE>
On July 1, 1995, the Bank adopted Statement of Financial
Accounting Standards No. 114, ''Accounting by Creditors for
Impairment of a Loan'' (''SFAS 114''). The Statement requires
all creditors to account for impaired loans, except those loans
that are accounted for at fair value or at the lower of cost or
fair value, at the present value of expected future cash flows
discounted at the loan's effective interest rate. As an
expedient, creditors may account for impaired loans at the fair
value of the collateral or at the observable market price of the
loan if one exists. The adoption of SFAS 114, as amended by SFAS
118, did not have a material effect on the Bank's financial
condition or results of operations.
LOAN INCOME RECOGNITION - Interest income on loans is recorded
under the level yield method. Under this method, discount
accretion and premium amortization are included in interest
income.
Accrual of interest is discontinued when its receipt is in doubt
but no later than when a loan becomes ninety days past due as to
principal or interest. When interest accruals are discontinued,
any interest credited to income in the current year is reversed.
Payments on nonaccrual loans are applied to principal.
Management may elect to continue the accrual of interest when a
loan is in the process of collection and the estimated fair
value of collateral is sufficient to cover the principal balance
and accrued interest. Loans are returned to accrual status once
the doubt concerning collectibility has been removed and the
borrower has demonstrated performance in accordance with the
loan terms and conditions.
LOAN FEES - Loan origination fees and certain direct loan
origination costs are deferred and amortized as a yield
adjustment over the contractual loan terms.
OTHER REAL ESTATE OWNED, NET - Properties acquired as a result
of foreclosure on a mortgage loan are classified as Other real
estate owned and are recorded at the lower of the recorded
investment in the related loan or the fair value of the property
at the date of acquisition, with any resulting write down
charged to the allowance for loan losses. Subsequent write
downs are charged to the valuation allowance for possible losses
on Other real estate owned.
Prior to July 1, 1995, the Bank was required to include in Other
real estate owned loans which have been in substance foreclosed.
Effective July 1, 1995, the Bank adopted SFAS 114. The
provisions of this Statement eliminated the Bank's requirement
to include in substance foreclosed loans in other real estate
owned, except where the Bank has completed foreclosure
proceedings. In substance foreclosed real estate is not material
to the financial condition or results of operations of the Bank.
PREMISES AND FIXED ASSETS - Land is stated at original cost.
Buildings and furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is computed by the
straight-line method over the estimated useful lives of the
properties as follows:
Buildings 2.22% to 2.50% per year
Furniture and equipment 10% per year
Leasehold improvements are amortized over the remaining non-
cancelable terms of the related leases.
EARNINGS PER SHARE ("EPS")- Primary and fully diluted EPS for
the year ended June 30, 1997 are computed by dividing net income
by the average number of common shares outstanding during the
period, adjusted for common stock equivalents related to stock
options granted. The dilutive effect of stock options is
computed using the average market price of the common stock for
primary EPS and the greater of the average market price or
closing market price for fully diluted EPS. Unallocated shares
owned by the ESOP and treasury stock are excluded from the
number of shares outstanding. RRP shares are included in the
number of shares outstanding. The average shares utilized for
primary and fully diluted earnings per share were 12,980,190 and
13,137,482, respectively, for the year ended June 30, 1997.
Earnings per share information is not presented for the years
ended June 30, 1996 and 1995 as it is not considered meaningful
since the initial public offering of the Company's stock did not
occur until June 26, 1996.
GOODWILL - Goodwill generated from the Bank's acquisition of
Conestoga Bancorp, Inc. on June 26, 1996 is recorded on a
straight line basis over a twelve year period. In March 1995,
the FASB issued SFAS No. 121, ''Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of''
which requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for
impairment and reported at the lower of carrying amount or fair
value, less cost to sell, whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. Since June 26, 1996, no such event or
change in circumstance has occurred which has caused the Company
to review the recorded level of goodwill associated with assets
acquired from Conestoga.
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 basis of assets and liabilities.
CASH FLOWS - For purposes of the Consolidated Statement of Cash
Flows, the Bank considers cash and due from banks to be cash
equivalents.
EMPLOYEE BENEFITS - The Company maintains a Retirement Plan and
401(k) Plan for substantially all of its employees, both of
which are tax qualified under the Employee Retirement Income
Security Act of 1974 (ERISA).
The Company maintains a separate plan which provides additional
postretirement benefits to employees, which is recorded in
accordance with Statement of Financial Accounting Standards No.
106, ''Employers' Accounting for Postretirement Benefits Other
Than Pensions'' ("SFAS 106"). This Statement requires accrual
of postretirement benefits (such as health care benefits) during
the years an employee provides services. The Company adopted
SFAS 106 on July 1, 1995. As permitted by SFAS 106, the Bank
elected to record the full cumulative liability at the time of
adoption, which resulted in a cumulative effect adjustment of
$1,032, after reduction for income taxes of $879, which was
charged to operations during the fiscal year ended June 30,
1996.
PAGE 24
<PAGE>
The Company maintains an Employee Stock Ownership Plan for
employees ("ESOP"). Compensation expense related to the ESOP is
recorded in accordance with SOP 93-6, which requires the
compensation expense to be recorded during the period in which
the shares become committed to be released to participants. The
compensation expense is measured based upon the fair market
value of the stock during the period, and, to the extent that
the fair value of the shares committed to be released differs
from the original cost of such shares, the difference is
recorded as an adjustment to additional paid-in capital.
In December, 1996, the Company adopted a Recognition and
Retention Plan for employees and outside directors ("RRP') and
Stock Option Plan for Employees and Outside Directors (the
"Stock Option Plan"), which are subject to the accounting
requirements of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation," ("SFAS 123").
SFAS 123 encourages, but does not require companies to record
compensation cost for stock-based employee compensation plans at
fair value. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," and related
Interpretations ("APB 25"). Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted
market price of the Company's stock at the date of the grant
over the amount an employee must pay to acquire the stock. To
date, no compensation expense has been recorded for stock
options, since, for all granted options, the market price on the
date of grant equals the amount employees must pay to acquire
the stock. In accordance with APB 25, compensation expense
related to the RRP is recorded for all shares earned by
participants during the period at $18.64 per share, the average
historical cost of the shares of all RRP shares acquired.
FINANCIAL INSTRUMENTS - Statement of Financial Accounting
Standards No. 119 "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments became
effective in 1994 and requires disclosures about financial
instruments, which are defined as futures, forwards, swap and
option contracts and other financial instruments with similar
characteristics. On balance sheet receivables and payables are
excluded from this definition. The Company did not hold any
derivative financial instruments as defined by SFAS 119 at June
30, 1997, 1996 or 1995.
RECENTLY ISSUED ACCOUNTING STANDARDS- In June 1996, the
Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, ''Accounting for
Transfers of Financial Assets and Extinguishments of
Liabilities'' ("SFAS 125"). SFAS 125 provides consistent
standards for distinguishing transfers of financial assets that
are sales from transfers that are borrowings. SFAS 125 also
requires that liabilities and derivatives incurred or obtained
as part of a transfer be measured initially at fair value. This
statement also provides guidance on measurement of servicing
rights on assets transferred and derecognition of liabilities
transferred. SFAS 125 is effective for all transfers, servicing,
or extinguishments occurring after December 31, 1996, except for
certain provisions relating to the accounting for secured
borrowings and collateral and the accounting for transfers and
servicing of repurchase agreements, dollar rolls, securities
lending and similar transactions, for which the effective date
was deferred until January 1, 1998, in accordance with Statement
of Financial Accounting Standards No. 127, "Deferral of the
Effective Date of Certain Provisions of FASB Statement No. 125"
("SFAS 127"). The Company adopted SFAS 125 as amended by SFAS
127 effective January 1, 1997. The adoption of this standard
did not have a material impact on the financial condition or
results of operations of the Bank.
In February, 1997 the Financial Accounting Standards Board
issued 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, 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 ESOP
shares when calculating average shares outstanding. SFAS 128 is
effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. Early
adoption is not permitted, and restatement of prior periods is
required. Basic and diluted earnings per share, if computed
under the standards of SFAS 128, would have been $0.95 and
$0.95, respectively, for the year ended June 30, 1997.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income'' ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and
its components in a full set of general purpose financial
statements. SFAS 130 requires that financial statements report
and display comprehensive income in the same prominence as net
income, but permits the statement of comprehensive income to be
presented either together with or apart from the income
statement. Comprehensive income, as defined by SFAS 130 includes
revenues, expenses, and gains and losses which, under current
GAAP, bypass net income and are typically reported as a
component of stockholders' equity. SFAS 130 is applicable for
all entities which present a full set of financial statements
and is effective for fiscal years beginning after December 15,
1997, with early adoption permitted.
In June, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related
Information'' ("SFAS 131"). SFAS 131 introduces a new method for
segment reporting referred to as the "management approach,"
which focuses upon the manner in which the chief operating
decision makers organize segments within a company for making
operating decisions and assessing performance. Under the
management approach, reportable segments can be based upon, but
are not limited to, products and services, geography and legal
or management structure. SFAS 131 requires full financial
disclosure for each segment, but only requires limited quarterly
segment disclosure. SFAS 131 is applicable for all public, for-
profit companies, and is effective for fiscal years beginning
after December 15, 1997, with early application encouraged.
Management of the Company is currently evaluating SFAS 131.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -
The preparation of financial statements in conformity with
generally accepted accounting principles 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, the carrying
value of other real estate, purchase accounting adjustments
related to the acquisition of Conestoga and the fair value of
financial instruments.
PAGE 25
<PAGE>
RECLASSIFICATION - Certain June 30, 1996, and 1995 amounts have
been reclassified to conform to the June 30, 1997 presentation.
2. CONVERSION TO STOCK FORM OF OWNERSHIP:
On November 2, 1995, the Board of Directors of the Bank adopted
a Plan of Conversion to convert from mutual to stock form. As
part of the conversion, the Company was incorporated under
Delaware law for the purpose of acquiring and holding all of the
outstanding stock of the Bank. On June 26, 1996, the Company
completed its initial public offering and issued 14,547,500
shares of common stock (par value $.01 per share) at a price of
$10.00 per share, resulting in net proceeds of approximately
$141,368 prior to the acquisition of stock by the Employee Stock
Ownership Plan. The Company retained approximately $53,397 of
the net proceeds and used the remaining net proceeds to purchase
all of the outstanding stock of the Bank. Costs related to the
conversion were charged against the Company's proceeds from the
sale of the stock.
The Company received approximately $131,078 of excess proceeds
resulting from the oversubscription of the Company's initial
public offering. In accordance with the terms of the offering,
these funds were refunded on July 1, 1996 inclusive of interest
earned at the Bank's existing passbook rate for the period held.
The excess proceeds were recorded in Escrow and other deposits,
and were invested in short-term Investment securities and
Federal funds sold at June 30, 1996.
At the time of conversion, the Bank established a liquidation
account in an amount equal to the retained earnings of the Bank
as of the date of the most recent financial statements contained
in the final conversion prospectus. The liquidation account will
be reduced annually to the extent that eligible account holders
have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder will be
entitled to receive a distribution from the liquidation account
in an amount proportionate to the current adjusted qualifying
balances for accounts then held.
As discussed in Note 3, the Company acquired Conestoga Bancorp,
Inc. on June 26, 1996. The liquidation account previously
established by Conestoga's subsidiary, Pioneer Savings Bank,
F.S.A. during its initial public offering in March, 1993, was
assumed by the Company in the acquisition.
The Bank may not declare or pay cash dividends on or repurchase
any of its shares of common stock if the effect thereof would
cause stockholders' equity to be reduced below applicable
regulatory capital maintenance requirements, the amount required
for the liquidation account, or if such declaration and payment
would otherwise violate regulatory requirements.
3. BUSINESS ACQUISITIONS
On June 26, 1996, the Bank completed the acquisition of
Conestoga Bancorp, Inc., the holding company for the Pioneer
Savings Bank, F.S.B. The Bank received approximately $170,836,
$124,411 and $111,991 of investment securities, mortgage-backed
securities and loans, respectively, at fair value and assumed
approximately $394,250 of customer deposit liabilities.
Approximately $10,000 of investment securities acquired were
classified as held-to-maturity at June 30, 1996. All other
securities acquired were classified as available for sale.
Total cash paid for the acquisition was $101,272. The goodwill
generated in the transaction of $28,438 is being amortized on a
straight line basis over 12 years for financial reporting
purposes.
This acquisition was recorded using the purchase method of
accounting; accordingly, the purchase price is allocated to the
respective assets acquired and liabilities assumed based on
their estimated fair values.
All operations of Conestoga acquired by the Bank are reflected
in the consolidated statement of operations of the Company for
the year ended June 30, 1997. The consolidated statements of
financial condition as of June 30, 1997 and 1996 include the
assets acquired from Conestoga. The information below presents,
on an unaudited pro forma basis, the consolidated statement of
operations for the Company for the years ended June 30, 1996 and
1995. All information below is adjusted for the acquisition of
Conestoga, as if the transaction had been consummated on July 1,
1995 and 1994 respectively for the years ended June 30, 1996 and
1995.
Pro Forma for Year Ended June 30, 1996 1995
- ------------------------------------- --------- ---------
Net interest income $43,129 $44,658
Provision for possible loan losses 3,083 2,914
Non-interest income 3,965 3,603
Non-interest expense:
Goodwill amortization 2,350 2,347
Other non-interest expense 20,540 19,833
- ------------------------------------- --------- ---------
Total non-interest expense 22,890 22,180
- ------------------------------------- --------- ---------
Income before income taxes $21,121 $23,167
===================================== ========= =========
PAGE 26
<PAGE>
4. INVESTMENT SECURITIES HELD TO MATURITY AND AVAILABLE FOR SALE
The amortized cost, gross unrealized gains and losses and
estimated market value of investment securities held to maturity
at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $86,036 $498 $(116) $86,418
Obligations of state and political
subdivisions 1,974 43 - 2,017
Corporate securities 13,327 28 (14) 13,341
Public utilities 250 - (2) 248
----------- ----------- ----------- -----------
$101,587 $569 $(132) $102,024
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of investment
securities held to maturity at June 30, 1997, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
- ----------------------------------- ----------- -----------
Due in one year or less $5,248 $5,255
Due after one year through five years 83,962 84,367
Due after five years through ten years 11,132 11,157
Due after ten years 1,245 1,245
- ----------------------------------- ----------- -----------
$101,587 $102,024
=================================== =========== ===========
During the year ended June 30, 1997, proceeds from the calls of
investment securities held to maturity totaled $5,000. No gain
or loss was realized on these calls. There were no sales of
investment securities held to maturity during the year ended
June 30, 1997.
The amortized/historical cost, gross unrealized gains and losses
and estimated market value of investment securities available
for sale at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Investment Securities Available for Sale
Amortized/ Gross Gross Estimated
Historical Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $33,706 $130 $(28) $33,808
Corporate securities 17,471 277 (5) 17,743
Public utilities 1,249 12 (14) 1,247
- ----------------------------------- ----------- ----------- ----------- -----------
52,426 419 (47) 52,798
EQUITY SECURITIES: 4,912 980 (3) 5,889
- ----------------------------------- ----------- ----------- ----------- -----------
$57,338 $1,399 $(50) $58,687
=================================== =========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of investment
securities available for sale at June 30, 1997, by contractual
maturity, are shown below. Expected maturities may differ from
contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Estimated
Amortized Market
Cost Value
- ----------------------------------- ----------- -----------
Due in one year or less $10,490 $10,527
Due after one year through five years 36,442 36,722
Due after five years through ten years 5,494 5,549
----------- -----------
$52,426 $52,798
========== ===========
During the year ended June 30, 1997, proceeds from the sales and
calls of investment securities available for sale totaled $27,253
and $26,011, respectively. A loss of $273 and gain of $11 resulted
from the sales and calls, respectively.
PAGE 27
<PAGE>
The amortized cost, gross unrealized gains and losses and
estimated market value of investment securities held to maturity
at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $18,705 $- $(58) $18,647
Obligations of state and political
subdivisions 2,048 31 - 2,079
Corporate securities 20,531 34 (117) 20,448
Public utilities 2,268 - (14) 2,254
- ----------------------------------- ----------- ----------- ----------- -----------
$43,552 $65 $(189) $43,428
=================================== =========== =========== =========== ===========
</TABLE>
During the year ended June 30, 1996, proceeds from the calls of
investment securities held to maturity totaled $11,056. A gain
of $56 was realized on these calls. There were no sales of
investment securities held to maturity during the year ended
June 30, 1996.
The amortized/historical cost, gross unrealized gains and losses
and estimated market value of investment securities available
for sale at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Investment Securities Available for Sale
Amortized/ Gross Gross Estimated
Historical Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $277,240 $20 $(80) $277,180
Corporate securities 58,652 27 - 58,679
Public utilities 2,249 9 (28) 2,230
- ----------------------------------- ----------- ----------- ----------- -----------
338,141 56 (108) 338,089
EQUITY SECURITIES:
Mutual funds 2,977 229 (1) 3,205
- ----------------------------------- ----------- ----------- ----------- -----------
$341,118 $285 $(109) $341,294
=================================== =========== =========== =========== ===========
</TABLE>
During the year ended June 30, 1996, proceeds from the sales and
calls of investment securities available for sale totaled $501 and
$11,323, respectively. A loss of $195 and gain of $24 resulted from
the sales and calls respectively.
5. MORTGAGE-BACKED SECURITIES HELD TO MATURITY AND AVAILABLE
FOR SALE
The amortized cost, gross unrealized gains and losses and the
estimated market value of mortgage-backed securities held to
maturity at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Held to Maturity
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
GNMA pass-through certificates $15,100 $562 $(2) $15,660
FHLMC pass-through certificates 40,528 127 (56) 40,599
FNMA pass-through certificates 22,760 120 (64) 22,816
- ----------------------------------- ----------- ----------- ----------- -----------
$78,388 $809 $(122) $79,075
=================================== =========== =========== =========== ===========
</TABLE>
There were no sales of mortgage-backed securities held to
maturity during the fiscal year ended June 30, 1997.
The amortized cost, gross unrealized gains and losses and the
estimated market value of mortgage-backed securities available
for sale at June 30, 1997 were as follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
Collateralized mortage obligations $72,343 $333 $(176) $72,500
GNMA pass-through certificates 88,874 1,903 (6) 90,771
FHLMC pass-through certificates 17,698 293 (54) 17,937
FNMA pass-through certificates 48,861 416 (348) 48,929
- ----------------------------------- ----------- ----------- ----------- -----------
$227,776 $2,945 $(584) $230,137
=================================== =========== =========== =========== ===========
</TABLE>
Proceeds from the sale of mortgage-backed securities available
for sale were $16,713 during the year ended June 30, 1997. A
gain of $495 was recognized on these sales.
PAGE 28
<PAGE>
The amortized cost, gross unrealized gains and losses and the
estimated market value of mortgage-backed securities held to
maturity at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
GNMA pass-through certificates $17,997 $437 $(8) $18,426
FHLMC pass-through certificates 27,296 15 (274) 27,037
FNMA pass-through certificates 7,287 2 (156) 7,133
- ----------------------------------- ----------- ----------- ----------- -----------
$52,580 $454 $(438) $52,596
=================================== =========== =========== =========== ===========
</TABLE>
Proceeds from the sale of mortgage-backed securities held to
maturity were approximately $2,555 for the year ended June 30,
1996. A gain of approximately $31 was realized on these sales.
The securities sold met the DE MINIMUS exemption in SFAS 115, as
the unpaid principal at the date of sale was less than 15% of
their acquired par value.
The amortized cost, gross unrealized gains and losses and the
estimated market value of mortgage-backed securities available
for sale at June 30, 1996 were as follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
----------- ----------- ----------- -----------
Collateralized mortage obligations $8,566 $23 $- $8,589
GNMA pass-through certificates 70,136 - - 70,136
FHLMC pass-through certificates 28,826 344 (54) 29,116
FNMA pass-through certificates 49,434 118 (32) 49,520
- ----------------------------------- ----------- ----------- ----------- -----------
$156,962 $485 $(86) $157,361
=================================== =========== =========== =========== ===========
</TABLE>
There were no sales of mortgage-backed securities available for
sale during the year ended June 30, 1996.
6. LOANS
The Company's real estate loans are comprised of the following:
At June 30, 1997 1996
- ------------------------------- ----------- -----------
One-to-four family $140,536 $169,723
Multi-family and underlying
cooperative 498,536 296,630
Nonresidential 43,180 37,708
F.H.A. insured mortgage loans 12,275 14,132
V.A. insured mortgage loans 1,878 2,554
Co-op loans 50,931 59,083
- ------------------------------- ----------- -----------
747,336 579,830
Net unearned fees (3,090) (2,167)
- ------------------------------- ----------- -----------
$744,246 $577,663
=============================== =========== ===========
The Bank originates both adjustable and fixed interest rate real
estate loans. At June 30, 1997, the approximate composition of
these loans was as follows:
<TABLE>
<CAPTION>
Fixed Rate Variable Rate
<S> <C> <C> <C> <C>
Period to Maturity or Next Repricing Book Value Period to Maturity or Next Repricing Book Value
- ------------------------------ --------- ------------------------------ ---------
1 month-1 year $1,196 1 month-1 year $118,874
1 year-3 years 8,991 1 year-3 years 136,427
3 years-5 years 5,288 3 years-5 years 274,223
5 years-10 years 71,740 5 years-10 years 31,361
Over 10 years 89,141 Over 10 years 10,095
- ------------------------------ --------- ------------------------------ ---------
$176,356 $570,980
============================== ========= ============================== =========
</TABLE>
The adjustable rate loans have interest rate adjustment
limitations and are generally indexed to the Federal Home Loan
Bank of New York five-year borrowing funds rate, the one-year
constant maturity Treasury index, or the Federal Home Loan Bank
national mortgage contract rate.
A concentration of credit risk exists within the Bank's loan
portfolio, as the majority of real estate loans are
collateralized by properties located in New York City and Long
Island.
PAGE 29
<PAGE>
The Company's other loans are comprised of the following:
At June 30, 1997 1996
- --------------------------------- ----------- -----------
Student loans $1,005 $1,307
Passbook loans (secured by savings
and time deposits) 2,801 3,044
Home improvement loans 1,243 891
Consumer installment and other loans 1,027 323
- --------------------------------- ----------- -----------
6,076 5,565
Unearned discount - (1)
- --------------------------------- ----------- -----------
$6,076 $5,564
================================= =========== ===========
Loans on which the accrual of interest has been discontinued
were $3,190 and $6,551 at June 30, 1997 and 1996, respectively.
If interest on those loans had been accrued, interest income
would have been increased by approximately $247 and $410 for the
years ended June 30, 1997 and 1996, respectively.
The Bank had outstanding loans considered troubled-debt
restructurings of $4,671 at both June 30, 1997 and 1996,
respectively. Income recognized on these loans was approximately
$357 and $344 for the years ended June 30, 1997 and 1996,
respectively, compared to interest income of $471 and $471
calculated under the original terms of the loans, for the years
ended June 30, 1997 and 1996, respectively.
The recorded investment in loans for which impairment has been
recognized under the guidance of SFAS 114 was approximately
$4,294 and $7,419 at June 30, 1997 and 1996, respectively. The
average balance of impaired loans was approximately $4,736 and
$6,696 for the years ended June 30, 1997 and 1996, respectively.
Write-downs of $985 and $553 were taken on impaired loans during
the years ended June 30, 1997 and 1996, respectively. At June
30, 1997 and 1996, specific reserves totaling $122 and $955 were
allocated within the allowance for loan losses for impaired
loans. Net principal received and interest income recognized on
impaired loans during the years ended June 30, 1997 was not
material. At June 30, 1997 and 1996, one loan totaling $2,681,
was deemed impaired for which no reserves have been provided.
This loan, which is included in troubled-debt restructurings at
June 30, 1997 and 1996, has performed in accordance with the
provisions of the restructuring agreement signed in October,
1995. The loan was on accrual status at both June 30, 1997 and
1996. All other loans deemed impaired, which total 6 and 10
loans as of June 30, 1997 and 1996, respectively, have reserves
allocated towards their outstanding balance.
The following assumptions were utilized in evaluating the loan
portfolio pursuant to the provisions of SFAS 114:
HOMOGENOUS LOANS - One-to-four family residential mortgage loans
and loans on cooperative apartments having a balance of less
than $203 and consumer loans are considered to be small balance
homogenous loan pools and, accordingly, are not covered by SFAS
114.
LOANS EVALUATED FOR IMPAIRMENT - All non-homogeneous loans
greater than $1,000 are individually evaluated for potential
impairment. Additionally, residential mortgage loans exceeding
$203 and delinquent in excess of 60 days are evaluated for
impairment. A loan is considered impaired when it is probable
that all contractual amounts due will not be collected in
accordance with the terms of the loan. A loan is not deemed to
be impaired if a delay in receipt of payment is expected to be
less than 30 days or if, during a longer period of delay, the
Bank expects to collect all amounts due, including interest
accrued at the contractual rate during the period of the delay.
Factors considered by management include the property location,
economic conditions, and any unique circumstances affecting the
loan. Except as noted above, at June 30, 1997 and 1996, all
impaired loans were on nonaccrual status. In addition, at June
30, 1997 and 1996, respectively, approximately $1,577 and $1,817
of one to four family residential mortgage loans and loans on
cooperative apartments with a balance of less than $203 were on
nonaccrual status. These loans are considered as a homogeneous
loan pool not covered by SFAS 114.
RESERVES AND CHARGE-OFFS - The Bank allocates a portion of its
total allowance for loan losses to loans deemed impaired under
SFAS 114. All charge-offs on impaired loans are recorded as a
reduction in both loan principal and the allowance for loan
losses. Management evaluates the adequacy of its allowance for
loan losses on a regular basis. At June 30, 1997, management
believes that its allowance is adequate to provide for losses
inherent in the total loan portfolio, including impaired loans.
MEASUREMENT OF IMPAIRMENT - Since all impaired loans are
collateralized by real estate properties, the fair value of the
collateral is utilized to measure impairment.
INCOME RECOGNITION - Accrual of interest is discontinued on
loans identified as impaired and past due ninety days.
Subsequent cash receipts are applied initially to the
outstanding loan principal balance. Additional receipts beyond
the recorded outstanding balance at the time interest is
discontinued are recorded as recoveries in the Bank's allowance
for loan losses.
PAGE 30
<PAGE>
7. ALLOWANCE FOR LOAN LOSSES AND POSSIBLE LOSSES ON OTHER REAL
ESTATE OWNED
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
For the year ended June 30, 1997 1996 1995
<S> <C> <C> <C>
- --------------------------- --------- --------- ---------
Balance at beginning of period $7,812 $5,174 $3,633
Provision charged to operations 4,200 2,979 2,950
Loans charged off (1,388) (1,023) (1,656)
Recoveries 102 14 247
Reserve acquired in purchase
of Conestoga - 668 -
- --------------------------- --------- --------- ---------
$10,726 $7,812 $5,174
=========================== ========= ========= =========
</TABLE>
Changes in the allowance for possible losses on real estate
owned were as follows:
For the year ended June 30, 1997 1996
- --------------------------- --------- ---------
Balance at beginning of period $114 $-
Provision charged to operations 450 586
Charge-offs, net of recoveries (377) (472)
- --------------------------- --------- ---------
$187 $114
=========================== ========= =========
Prior to July 1, 1995, no valuation allowance for possible
losses on Other real estate owned was maintained by the Bank.
8. MORTGAGE SERVICING ACTIVITIES
At June 30, 1997 and 1996, the Bank was servicing loans for
others having principal amounts outstanding of approximately
$69,648 and $91,050 respectively. Servicing loans for others
generally consists of collecting mortgage payments, maintaining
escrow accounts, disbursing payments to investors and
foreclosure processing. In connection with these loans serviced
for others, the Bank held borrowers' escrow balances of
approximately $652, $1,055 and $1,440 at June 30, 1997, 1996 and
1995, respectively.
9. PREMISES AND FIXED ASSETS
The following is a summary of premises and fixed assets:
At June 30, 1997 1996
- ------------------------------ --------- ---------
Land $3,964 $3,964
Buildings 12,778 12,527
Leasehold improvements 1,190 1,190
Furniture and equipment 7,105 6,673
- ------------------------------ --------- ---------
25,037 24,354
Less: accumulated appreciation
and amortization (11,042) (9,955)
- ------------------------------ --------- ---------
$13,995 $14,399
============================== ========= =========
Depreciation and amortization expense amounted to approximately
$1,076, $501, and $459 for the years ended June 30, 1997, 1996
and 1995, respectively.
10. FEDERAL HOME LOAN BANK OF NEW YORK CAPITAL STOCK
The Bank is a Savings Bank Member of the Federal Home Loan Bank
of New York (FHLBNY). Membership requires the purchase of shares
of FHLBNY capital stock at $100 per share. The Bank owned 83,215
and 76,043 shares at June 30, 1997 and 1996, respectively. The
FHLBNY paid dividends on the capital stock of 6.4% , 6.9%, and
7.5% during the years ended June 30, 1997, 1996 and 1995,
respectively.
11. DUE TO DEPOSITORS
The deposit accounts of each deposit household are insured up to
$100 by either the Bank Insurance Fund or the Savings
Association Insurance Fund of the Federal Deposit Insurance
Corporation ("FDIC").
Deposits are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1997 1996
<S> <C> <C> <C> <C>
- --------------------------- --------- --------- --------- ---------
EFFECTIVE Effective
COST LIABILITY Cost Liability
- --------------------------- --------- --------- --------- ---------
Savings accounts 2.27% $344,377 2.50% $365,146
Certificates of deposit 5.61 541,773 5.50 495,755
Money market accounts 2.96 33,530 2.65 45,948
NOW accounts 1.24 15,817 1.51 15,029
Super NOW accounts 1.24 507 1.51 552
Non-interest bearing checking
accounts - 27,391 - 27,684
--------- ---------
4.09% $963,395 4.09% $950,114
========= =========
</TABLE>
PAGE 31
<PAGE>
The distribution of certificates of deposits by remaining
maturity was as follows:
At June 30, 1997 1996
- ---------------------------- --------- ---------
Maturity in three months or less $116,828 $124,903
Over 3 through 6 months 88,912 96,316
Over 6 through 12 months 107,714 138,137
Over 12 months 228,319 136,399
- ---------------------------- --------- ---------
Total certificates of deposit $541,773 $495,755
============================ ========= =========
The aggregate amount of Certificates of deposits with a minimum
denomination of $100 was approximately $46,806 and $40,065 at
June 30, 1997 and 1996, respectively.
12. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Presented below is information concerning securities sold with
agreement to repurchase:
At or for the year ended June 30, 1997 1996
- ----------------------------------- ----------- -----------
Balance outstanding at end of period $76,333 $11,998
Average interest cost at end of period 5.69% 6.00%
Average balance outstanding $32,374 $2,148
Average interest cost during the year 5.73% 7.13%
Carrying value of underlying collateral $83,778 $13,433
Estimated market value of underlying
collateral $84,172 $13,660
Maximum balance outstanding at month
end during period $76,333 $11,998
13. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES
The Bank had borrowings (''Advances'') from the Federal Home
Loan Bank of New York totaling $63,210 and $15,710 at
June 30, 1997 and 1996, respectively. The average cost of FHLB
advances was 5.79% and 5.40%, respectively, during the years
ended June 30, 1997 and 1996, and the average interest rate on
outstanding FHLB advances was 6.18% and 5.40%, respectively, at
June 30, 1997 and 1996. At June 30, 1997, in accordance with
the Advances, Collateral Pledge and Security Agreement, the Bank
maintained in excess of $69,531 of qualifying collateral
(principally bonds and mortgage-backed securities), as defined,
to secure such advances.
14. INCOME TAXES
The Company's Federal, State and City income tax provisions were
comprised of the following:
<TABLE>
<CAPTION>
Year Ended June 30, 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATE State State
FEDERAL AND CITY TOTAL Federal and City Total Federal and City Total
------- -------- --------- ------- -------- ------- ------- -------- ------
Current $6,047 $4,541 $10,588 $4,218 $2,563 $6,781 $4,328 $2,416 $6,744
Deferred 2,153 (5,150) (2,997) (332) (268) (600) (314) 191 (123)
------- -------- --------- ------- -------- ------- ------- -------- ------
$8,200 $(609) $7,591 $3,886 $2,295 $6,181 $4,014 $2,607 $6,621
======= ======== ========= ======= ======== ======= ======= ======== ======
</TABLE>
In accordance with SFAS 109, deferred tax assets and liabilities
are recorded for temporary differences between the book and tax
bases of assets and liabilities.
PAGE 32
<PAGE>
The components of Federal and net State and City deferred income
tax assets and liabilities were as follows
At June 30, 1997 1996
- --------------------------- --------- --------- --------- ---------
STATE State
FEDERAL AND CITY Federal and City
- --------------------------- --------- --------- --------- ---------
DEFERRED TAX ASSETS:
Deferred loan fees $33 $21 $47 $30
Excess book bad debt over tax
bad debt reserve 2,417 1,880 2,300 -
Net operating loss carryforward 305 - - -
Accumulated postretirment
benefit obligation 735 448 598 374
Tax effect of purchase
accounting fair value
adjustments 1,173 715 1,173 735
Other 114 98 70 56
- --------------------------- --------- --------- --------- ---------
Total deferred tax assets 4,777 3,162 4,188 1,195
Less: Valuation allowance on
deferred tax assets - - - -
- --------------------------- --------- --------- --------- ---------
Deferred tax assets after
valuation allowance $4,777 $3,162 $4,188 $1,195
=========================== ========= ========= ========= =========
DEFERRED TAX LIABILITIES:
Excess tax bad debt over
book bad debt $- $- $- $2,083
Difference in book and tax
carrying value of fixed assets 265 164 309 196
Tax effect of unrealized gain on
securities available for sale 1,057 623 160 104
- --------------------------- --------- --------- --------- ---------
Total deferred tax liabilities $1,322 $787 $469 $2,383
=========================== ========= ========= ========= =========
Net deferred tax asset (liability) $3,455 $2,375 $3,719 $(1,188)
=========================== ========= ========= ========= =========
During the year ended June 30, 1997, deferred tax liabilities
include an increase of $1,416 resulting from adjustments
pursuant to SFAS 115.
The provision for income taxes differed from that computed at
the Federal statutory rate as follows:
Year ended June 30, 1997 1996 1995
- --------------------------- --------- --------- ---------
Tax at Federal statutory rate $6,967 $4,717 $5,266
State and local taxes, net of
Federal income tax benefit (396) 1,492 1,694
Goodwill amortization 843 - -
Amortization of excess fair value
over cost - ESOP stock 233 - -
Reserve for losses on sale of
loans - - (185)
Utilization of capital loss on sale
of securities - - (86)
Other, net (56) (28) (68)
- --------------------------- --------- --------- ---------
$7,591 $6,181 $6,621
=========================== ========= ========= =========
Effective tax rate 38.13% 45.9% 44.0%
=========================== ========= ========= =========
Savings banks that meet certain definitions, tests, and other
conditions prescribed by the Internal Revenue Code are allowed
to deduct, with limitations, a bad debt deduction. Prior to
August, 1996, this deduction could be computed as a percentage
of taxable income before such deduction ("PTI Method") or based
upon actual loss experience for Federal, New York State and New
York City income taxes.
Pursuant to SFAS 109, the Bank is not required to provide
deferred taxes on its tax loan loss reserve as of
December 31, 1987 ("base year reserve"). The amount of this
reserve on which no deferred taxes have been provided is
approximately $12,153. This reserve could be recognized as
taxable income and create a current tax liability using the
income tax rates then in effect if one of the following 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 or distributions in liquidation; 2) the Bank
fails to qualify as a Bank as provided by the Internal Revenue
Code, or 3) there is a change in federal tax law.
On August 20, 1996, Federal legislation was signed into law
which repealed the reserve method of accounting for bad debts,
including the percentage of taxable income method used by the
Bank. This repeal is effective for the Bank's taxable year
beginning January 1, 1996. In addition, the legislation
requires the Bank to include in taxable income its bad debt
reserves in excess of its base year reserve over a 6 to 8 year
period depending upon the maintenance of certain loan
origination levels. Since the percentage of taxable income
method tax bad debt deduction and the corresponding increase in
the tax bad debt reserve in excess of the base year have been
treated as temporary differences pursuant to SFAS 109, this
change in tax law will have no effect on the Company's future
consolidated statement of operations. Since the Bank's bad debt
reserve exceeds its base year reserve by $3,100, approximately
$176 will be currently payable as a result of the legislation.
PAGE 33
<PAGE>
In anticipation of the Federal legislation, 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. The
Bank had a deferred tax liability of approximately $1.9 million
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 year ended June 30, 1997 for the full
amount of the recovered deferred tax liability.
On March 11, 1997, New York City enacted legislation, effective
January 1, 1996, which conformed its tax law regarding bad debt
deductions to New York State's tax law. As a result of this
legislation, the Bank, in March, 1997, recovered a deferred tax
liability of approximately $1.0 million previously recorded for
the excess of New York City tax bad debt reserves over its
reserve at December 31, 1987. This recovery resulted in a
reduction of income tax expense during the year ended June 30,
1997 for the full amount of the recovered deferred tax
liability.
15. EMPLOYEE BENEFIT PLANS
EMPLOYEE RETIREMENT PLAN - The Bank is a participant in a
noncontributory defined benefit retirement plan with the Savings
Bank Retirement System. Substantially all full-time employees
are eligible for participation after one year of service. In
addition, a participant must be at least 21 years of age at the
date of enrollment.
The retirement cost (benefit) for the pension plan includes the
following components:
For the year ended June 30, 1997 1996 1995
- ------------------------ --------- --------- ---------
Service cost $400 $206 $216
Interest cost 727 488 455
Actual return on plan assets (838) (546) (227)
Net amortization and deferral (224) (82) (325)
- ------------------------ --------- --------- ---------
$65 $66 $119
======================== ========= ========= =========
The funded status of the plan was as follows:
At June 30, 1997 1996
- ----------------------------------- ----------- -----------
Accumulated benefit obligation, including
vested benefits of $8,976 and $8,613,
respectively $9,031 $8,848
=================================== =========== ===========
Projected benefit obligation $10,015 $9,960
Plan assets at fair value (investments in
trust funds managed by RSI and
comingled New York State Retirement
Fund) 11,121 10,594
- ----------------------------------- ----------- -----------
Excess of plan assets over projected
benefit obligation 1,106 634
Additional employer contribution 126 -
Unrecognized loss from experience
different from that assumed 380 967
Unrecognized transition asset (72) (167)
Unrecognized net past service liability (239) (271)
- ----------------------------------- ----------- -----------
Prepaid retirement expense included in
Other assets $1,301 $1,163
=================================== =========== ===========
Major assumptions utilized were as follows:
At June 30, 1997 1996
- ----------------------------------- -------- --------
Discount rate 8.00% 7.50%
Rate of increase in compensation levels 6.00 5.50
Expected long-term return on plan assets 9.00 9.00
BENEFITS MAINTENANCE PLAN AND DIRECTORS' RETIREMENT PLAN -
During the fiscal year ended June 30, 1994, The Bank established
a Supplemental Executive Retirement Plan (''SERP'') for its
executive officers. The SERP was established to compensate the
executive officers for any curtailments in benefits due to the
statutory limitations on benefit plans. The SERP exists as a
nonqualified plan which supplements the existing qualified
plans. Defined benefit and defined contribution costs are
incurred annually related to the SERP. During the year ended
June 30, 1997, the SERP was renamed the Benefits Maintenance
Plan ("BMP"). No significant changes to the plan's provisions
occurred.
Effective July 1, 1996, The Company established a non-qualified
Retirement plan for all of its Outside Directors, which will
provide benefits to each eligible Outside Director commencing
upon his termination of Board service or at age 65. Each
Outside Director who serves or has agreed to serve as an outside
director will automatically become a participant in the plan.
PAGE 34
<PAGE>
The retirement cost (benefit) for the defined benefit portion of
the BMP and Directors' Retirement plan include the following
components:
For the year ended June 30, 1997 1996 1995
- ------------------------ --------- --------- ---------
Service cost $203 $56 $51
Interest cost 211 88 75
Net amortization and deferral 178 49 54
- ------------------------ --------- --------- ---------
$592 $193 $180
======================== ========= ========= =========
The defined contribution costs incurred by the Bank related to
the BMP/SERP for the years ended June 30, 1997, 1996 and 1995
were $305, $25 and $20, respectively. During the fiscal year
ended June 30, 1997, benefits related to the Employee Stock
Ownership Plan were added to the defined contribution cost of
the BMP.
The funded status of the defined benefit portion of the plans
was as follows:
At June 30, 1997 1996
- ----------------------------------- ----------- -----------
Accumulated benefit obligation, including
vested benefits of $1,530 and $450
respectively $1,808 $450
=================================== =========== ===========
Projected benefit obligation $3,276 $1,690
Plan assets at fair value - -
- ----------------------------------- ----------- -----------
Deficiency of plan assets over projected
benefit obligation (3,276) (1,690)
Unrecognized loss from experience
different from that assumed 834 884
Unrecognized net past service liability 1,350 317
- ----------------------------------- ----------- -----------
Accrued expense prior to additional
minimum liability included in other
liabilities (1,092) (489)
- ----------------------------------- ----------- -----------
Additional minimum liability (931) -
- ----------------------------------- ----------- -----------
Accrued expense after minimum liability $(2,023) $(489)
=================================== =========== ===========
Major assumptions utilized were as follows:
At June 30, 1997 1996
- --------------------------- ---------------------- ---------
DIRECTORS'
RETIREMENT
BMP PLAN SERP
--------- ----------- --------
Discount rate 7.50% 7.25% 7.50%
Rate of increase in
compensation levels 5.50 4.00 5.50
401(K) PLAN - The Bank also has a 401(k) plan which covers
substantially all employees. Prior to May 31, 1996, under such
plan the Bank matched 50% of each participant's contribution up
to 6% of the participant's annual compensation for the first
four years of participation and thereafter 100% of the
participant's contribution up to a maximum of 6%. Effective May
31, 1996, the plan was amended whereby the Bank ceased all
contributions to the plan. Participation in the 401(k) plan is
voluntary. A salaried employee becomes eligible for the plan
after completion of one year of service. The Bank contributed
approximately $181 and $190 for the years ended June 30, 1996
and 1995, respectively, to the plan. The 401(k) plan owns
participant investments in the Company's common stock which
totaled $4,758 and $2,092 at June 30, 1997 and 1996,
respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - The Bank offers
additional postretirement benefits to its retired employees who
have provided at least five (5) consecutive years of credited
service and were active employees prior to April 1, 1991, as
follows:
(1) Employees who retired prior to April 1, 1991 receive
full medical coverage in effect until their death at no cost to
such retirees;
(2) Eligible employees retiring after April 1, 1991 will
be eligible for continuation of their medical coverage in effect
at the time of such employees' retirement until their death.
Throughout an employee's retirement, the Bank will continue to
pay the premiums for this coverage up to the premium amount paid
for the first year of retirement coverage. Should the premiums
increase, the employee will have to pay the differential to
maintain full medical coverage.
Postretirement medical benefits are only available to those
full-time employees who, upon termination of service, start
collecting retirement benefits immediately from the Bank. The
Bank reserves the right at any time, and to the extent permitted
by law, to change, terminate or discontinue any of the group
benefits, and can exercise the maximum discretion permitted by
law, in administering, interpreting, modifying or taking any
other action with respect to the plan or benefits.
The Bank accrues the cost of such benefits during the years an
employee renders the necessary service. The Bank adopted SFAS
106 effective July 1, 1995. The Bank elected to record the full
accumulated postretirement benefit obligation upon adoption.
This resulted in a cumulative effect adjustment of $1,032 (after
reduction for income taxes of $879), which is shown in the
consolidated statement of income for the year ended June 30,
1996.
The postretirement cost includes the following components:
For the year ended June 30, 1997 1996
- ------------------------ --------- ---------
Service cost $75 $62
Interest cost 192 167
- ------------------------ --------- ---------
$267 $229
======================== ========= =========
PAGE 35
<PAGE>
The funded status of the postretirement benefit plan was as
follows:
At June 30, 1997 1996
- ----------------------------------- ----------- -----------
Accumulated benefit obligation:
Retirees $1,229 $1,364
Fully eligible active participants 163 173
Other active participants 963 1,005
- ----------------------------------- ----------- -----------
Total 2,355 2,542
Plan assets at fair value - -
- ----------------------------------- ----------- -----------
Deficiency of plan assets over
accumulated benefit obligation 2,355 2,542
Unrecognized loss (gain) from experience
different from that assumed 191 (161)
- ----------------------------------- ----------- -----------
Accrued postretirement benefit obligation $2,546 $2,381
=================================== =========== ===========
The assumed medical cost trend rates used in computing the
accumulated postretirement benefit obligation was 7.5% in 1997
and was assumed to decrease gradually to 5.0% in 2003 and to
remain at that level thereafter. Increasing the assumed medical
care cost trend rates by 1% in each year would increase the
accumulated postretirement benefit obligation by approximately
$162.
The assumed discount rate and rate of compensation increase used
to measure the accumulated postretirement benefit obligation at
June 30, 1997 were 8.0% and 6.0%, respectively. The assumed
discount rate and rate of compensation increase used to measure
the accumulated postretirement benefit obligation at June 30,
1996 were 7.5% and 5.5%, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN - In connection with the
conversion, the Board of Directors of the Company adopted the
Dime Community Bancorp Employee Stock Ownership Plan (the
"ESOP"). The ESOP borrowed $11,638 from the Company and used
the funds to purchase 1,163,800 shares of the Company's common
stock. The loan will be repaid principally from the Bank's
discretionary contributions to the ESOP over a period of time
not to exceed 10 years. The Bank's obligation to make such
contributions is reduced by any investment earnings realized on
such contributions or any dividends paid by the Company on stock
held in the unallocated account. The loan had an outstanding
balance of $10,324 and $11,541, respectively at June 30, 1997
and 1996, and a fixed rate of 8.0%.
Shares purchased with the loan proceeds are held in a suspense
account for allocation among participants as the loan is repaid.
Contributions to the ESOP and shares released from the suspense
account are allocated among participants on the basis of
compensation, as described in the plan, in the year of
allocation. The ESOP vests at a rate of 25% per year of service
beginning after two years with full vesting after five years, or
upon attainment of age 65, death, disability, retirement or
change of control. Shares of common stock allocated to
participating employees totaled 121,702 and 9,698 during the
years ended June 30, 1997 and 1996. The ESOP benefit expense
recorded in accordance with SOP 93-6 for allocated shares
totaled $1,883 and $114, respectively, for the years ended
June 30, 1997 and 1996.
STOCK BENEFIT PLANS
RECOGNITION AND RETENTION PLAN ("RRP") - In December,
1996, the shareholders approved the RRP, which is designed to
encourage key officers and directors of the Company and Bank to
remain with the Company, as well as to provide these persons
with a proprietary interest in the Company. During the year
ended June 30, 1997, the Bank contributed $7.2 million to the
RRP, which purchased 581,900 shares of the Company's common
stock in open market transactions. As of June 30, 1997, all of
the shares under the RRP have been allocated to officers or
directors of the Company or Bank. The RRP shares vest on
February 1{st }of each year over a total period of five years.
Shares become 100% vested in the event of death or disability of
the participant. As of June 30, 1997, 15,870 shares have vested
under the RRP. During the year ended June 30, 1997, the Company
recognized compensation expense of $1,175, which related
primarily to the earned portion of shares scheduled to vest on
February 1, 1998 during the period February 1, 1997 to June 30,
1997.
The Company continues to account for compensation expense under
the RRP under APB 25, measuring compensation cost based upon the
average acquisition value of the RRP shares. Had the Company
recorded compensation expense under the fair value methodology
encouraged under SFAS 123, compensation expense would have
decreased by $315 and net income and EPS would have increased by
$173 and $.01, respectively. The effects of applying SFAS 123
for disclosing compensation cost may not be representative of
the effect on reported net income for future years.
STOCK OPTION PLAN - In November, 1996, the Company
adopted the Dime Community Bancorp, Inc. 1996 Stock Option Plan
for Outside Directors, Officers and Employees (the "1996 Stock
Option Plan"), which permits the Company to grant up to
1,454,750 incentive or non-qualified stock options to outside
directors, officers and other employees of the Company or the
Bank. The Compensation Committee of the Board of Directors
administers the Stock Option Plan and authorizes all share
grants. A total of 1,454,750 shares were authorized for grant
under the 1996 Stock Option Plan.
PAGE 36
<PAGE>
On December 26, 1996, 1,393,425 stock options were granted to
outside directors, officers and certain employees. All stock
options granted under the 1996 Stock Option Plan, expire on
December 26, 2006. One-fifth of the shares granted to
participants under the 1996 Stock Option Plan become exercisable
to participants on December 26, 1997, 1998, 1999, 2000 and 2001,
respectively. Stock-based compensation for the fiscal year
ended June 30, 1997 is as follows:
FISCAL YEAR ENDED
JUNE 30, 1997
-----------------
Options outstanding - beginning of year -
Options granted 1,393,425
Options exercised -
Options outstanding - end of year 1,393,425
Remaining options available for grant under the plan 61,325
The exercise price on all stock options granted during the year
ended June 30, 1997 was $14.50, which, under the terms of the
Stock Option Plan, was equivalent to the fair market value of
the Company's stock as of the close of business on the grant
date. At June 30, 1997, 39,675 shares are currently exercisable
due to the death of a participant.
The weighted average fair value per option at the date of grant
for stock options granted during the fiscal year ended June 30,
1997 was estimated to be $5.72 using the Binomial Option Pricing
model with the following assumptions:
FISCAL YEAR ENDED
JUNE 30, 1997
-----------------
Expected life (in years) 10
Interest rate 5.79%
Volatility 22.89
Dividend yield 1.40
The Company continues to account for Stock Options under APB 25,
accordingly no compensation cost has been recognized. Had the
Company recorded compensation expense under the fair value
methodology encouraged under SFAS 123, compensation expense
would have increased by $532 and net income and EPS would have
decreased by $287 and $0.02, respectively. The effects of
applying SFAS 123 for disclosing compensation cost may not be
representative of the effect on reported net income for future
years.
16. COMMITMENTS AND CONTINGENCIES
MORTGAGE LOAN COMMITMENTS AND LINES OF CREDIT - At June 30, 1997
and 1996, the Bank had outstanding commitments to make mortgage
loans aggregating approximately $115,076 and $81,252,
respectively.
At June 30, 1997, commitments to originate fixed rate and
adjustable rate mortgage loans were $86,549 and $28,527
respectively. Interest rates on fixed rate commitments ranged
between 7.13% to 8.88%. Substantially all of the Bank's
commitments will expire within two months. A concentration risk
exists with these commitments as virtually all of the
outstanding mortgage loan commitments involve properties located
within New York City.
The Bank had available at June 30, 1997 unused lines of credit
with the Federal Home Loan Bank of New York totaling $100,000,
expiring on August 8, 1997. These credit lines were renewed on
August 8, 1997 for one year.
LEASE COMMITMENTS - At June 30, 1997, aggregate net minimum
annual rental commitments on leases are as follows:
Year Ended June 30, Amount
- ------------------- -----------
1998 $392
1999 401
2000 422
2001 423
2002 376
Thereafter 1,810
Net rental expense for the years ended June 30, 1997, 1996 and
1995 approximated $197, $278, and $267, respectively.
LITIGATION - The Company and its subsidiary are subject to
certain pending and threatened legal actions which arise out of
the normal course of business. Management believes that the
resolution of any pending or threatened litigation will not have
a material adverse effect on the financial condition or results
of operations.
PAGE 37
<PAGE>
OUTSTANDING CLAIMS WITH NATIONAR - On February 8, 1995 the New
York State Banking Department took possession of Nationar, a
check clearing and trust company. At that time, the Bank had
$2,500 invested in Nationar, comprised of approximately $1,900
in cash demand accounts and Federal funds sold and approximately
$567 in debenture bonds and stock. During the year ended
June 30, 1995, the Bank established reserves for possible losses
related to investments in Nationar. The following is a summary
of activity in the reserve account:
Year ended June 30, 1997 1996 1995
- --------------------------- ------ ------ ------
Beginning balance $216 $640 $-
Provision for losses, net of
recoveries received (216) 143 640
Charge-off of investments
deemed uncollectible - (567) -
- --------------------------- ------ ------ ------
Ending balance $- $216 $640
=========================== ====== ====== ======
During the year ended June 30, 1996, management of the Bank
deemed the investments in debentures worthless, and accordingly
charged-off all outstanding amounts against the established
reserve. During the year ended June 30, 1996, the Bank received
approximately $1,700 in refunds from the New York State Banking
Department which was related primarily to its cash demand
accounts. During the year ended June 30, 1997, the Bank
received additional refunds of $388 for settlement of all
remaining outstanding claims, which were recorded as a
reduction of operating expenses during the year. Upon receipt
of the refunds for the remaining claims, the Bank reduced the
outstanding reserve balance to zero.
17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of
financial instruments is made in accordance with the
requirements of Statement of Financial Standards No. 107,
''Disclosures About Fair Value of Financial Instruments.'' The
estimated fair value amounts have been determined by the Bank
using available market information and appropriate valuation
methodologies. However, considerable judgment is required to
interpret market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current
market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the
estimated fair value amounts.
CASH AND DUE FROM BANKS - The fair value is assumed to be equal
to their carrying value as these amounts are due upon demand.
INVESTMENT SECURITIES AND MORTGAGE-BACKED SECURITIES - The fair
value of these securities is based on quoted market prices
obtained from an independent pricing service.
FEDERAL FUNDS SOLD - The fair value of these assets, principally
overnight deposits, is assumed to be equal to their carrying
value due to their short maturity.
FEDERAL HOME LOAN BANK OF NEW YORK (FHLBNY) STOCK - The fair
value of FHLBNY stock is assumed to be equal to the carrying
value as the stock is carried at par value and redeemable at par
value by the FHLBNY.
LOANS AND LOANS HELD FOR SALE - The fair value of loans
receivable is determined by utilizing either secondary market
prices, or, to a greater extent, by discounting the future cash
flows, net of prepayments of the loans using a rate for which
similar loans would be originated to new borrowers with similar
terms. This methodology is applied to all loans, inclusive of
impaired and non-accrual loans.
DEPOSITS - The fair value of savings, money market, NOW, Super
NOW and checking accounts is assumed to be their carrying
amount. The fair value of certificates of deposit is based upon
the discounted value of contractual cash flows using current
rates for instruments of the same remaining maturity.
ESCROW, OTHER DEPOSITS AND BORROWED FUNDS - The estimated fair
value of escrow, other deposits and borrowed funds is assumed to
be the amount payable at the reporting date.
OTHER LIABILITIES - The estimated fair value of other
liabilities, which primarily include trade accounts payable, is
assumed to be their carrying amount.
COMMITMENTS TO EXTEND CREDIT - The fair value of commitments is
estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the
counterparties. For fixed-rate loan commitments, fair value also
considers the difference between current levels of interest
rates and the committed rates.
PAGE 38
<PAGE>
The estimated fair values of the Bank's financial instruments at
June 30, 1997 and 1996 were as follows:
Carrying Fair
June 30, 1997 Amount Value
- ----------------------------------- --------- ---------
ASSETS:
Cash and due from banks $19,198 $19,198
Investment securities held to maturity 101,587 102,024
Investment securities available for sale 58,687 58,687
Mortgage-backed securities held to
maturity 78,388 79,075
Mortgage-backed securities available for
sale 230,137 230,137
Loans and loans held for sale 739,858 738,958
Federal funds sold 18,902 18,902
FHLB stock 8,322 8,322
LIABILITIES:
Savings, money market, NOW Super
NOW and checking accounts $421,622 $421,622
Certificates of Deposit 541,773 540,319
Escrow , other deposits and borrowed
funds 154,517 154,517
Other liabilities 6,225 6,225
Off-balance sheet liability-commitments
to extend credit $- $(1,179)
Carrying Fair
June 30, 1996 Amount Value
- ----------------------------------- --------- ---------
ASSETS:
Cash and due from banks $17,055 $17,055
Investment securities held to maturity 43,552 $43,428
Investment securities available for sale 341,294 341,294
Mortgage-backed securities held to
maturity 52,580 52,596
Mortgage-backed securities available for
sale 157,361 157,361
Loans and loans held for sale 575,874 571,942
Federal funds sold 115,130 115,130
FHLB stock $7,604 $7,604
LIABILITIES:
Savings, money market, NOW Super
NOW and checking accounts $454,359 $454,359
Certificates of Deposit 495,755 494,975
Escrow , other deposits and borrowed
funds 169,440 169,440
Other liabilities 36,816 36,816
Off-balance sheet liability-commitments
to extend credit $- $(664)
18. TREASURY STOCK
During the fiscal year ended June 30, 1997, the Company
repurchased 1,454,750 shares of its common stock into treasury.
The average cost of all shares repurchased was $19.04, for an
aggregate cost of $27,703. All shares were repurchased in
accordance with applicable regulations of the Office of Thrift
Supervision and Securities and Exchange Commission.
19. REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and
possibly additional discretionary-- actions by regulators that,
if undertaken, could have a direct material effect on the Bank's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must
meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are
also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
PAGE 39
<PAGE>
Quantitative measures that have been established by regulation
to ensure capital adequacy require the Bank to maintain minimum
capital amounts and ratios (set forth in the table below). The
Bank's primary regulatory agency, the OTS, requires that the
Bank maintain minimum ratios of tangible capital (as defined in
the regulations) of 1.5%, core capital (as defined) of 3%, and
total risk-based capital (as defined) of 8%. The Bank is also
subject to prompt corrective action requirement regulations set
forth by the FDIC. The FDIC requires the Bank to maintain
minimum of Total and Tier I capital (as defined in the
regulations) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined). Management
believes, as of June 30, 1997, that the Bank meets all capital
adequacy requirements to which it is subject.
As of June 30, 1997, the most recent notification from the OTS
categorized the Bank as "well capitalized" under the regulatory
framework for prompt corrective action. To be categorized as
"well capitalized" the Bank must maintain minimum total risk-
based, Tier I risk-based, Tier I leverage ratios as set forth in
the table. There are no conditions or events since that
notification that management believes have changed the
institution's category.
<TABLE>
<CAPTION>
To Be
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Purposes Provisions
As of June 30, 1997 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------ -------- -------- -------- -------- --------- ---------
Tangible capital: $124,118 9.86% $18,873 1.5% N/A N/A
Core capital: 124,182 9.87 37,748 3.0% N/A N/A
Total risk-based capital (to risk weighted 132,465 19.99 53,009 8.0% $66,261 10.00%
assets)
Tier I risk-based capital (to risk weighted 124,182 18.74 N/A N/A 39,756 6.00
assets)
Tier I leverage capital (to average assets) 124,182 10.35 N/A N/A 59,980 5.00
</TABLE>
<TABLE>
To Be
"Well Capitalized"
For Capital Under Prompt
Adequacy Corrective Action
Actual Purposes Provisions
<CAPTION>
As of June 30, 1996 Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------ -------- -------- -------- -------- --------- ---------
Tangible capital: $119,125 9.49% $18,828 1.5% N/A N/A
Core capital: 119,259 9.50 37,659 3.0% N/A N/A
Total risk-based capital (to risk weighted 126,715 21.24 47,718 8.0% $59,659 10.00%
assets)
Tier I risk-based capital (to risk weighted 119,259 19.99 N/A N/A 35,795 6.00
assets)
Tier I leverage capital (to average assets) 119,259 16.58 N/A N/A 35,970 5.00
</TABLE>
The following is a reconciliation of generally accepted
accounting principles (GAAP) capital to regulatory capital for
the Bank:
<TABLE>
<CAPTION>
At June 30, 1997 1996
<S> <C> <C> <C> <C> <C> <C>
TANGIBLE CORE RISK-BASED Tangible Core Risk-Based
CAPITAL CAPITAL CAPITAL Capital Capital Capital
--------- --------- --------- --------- --------- ----------
- ---------
GAAP capital $152,198 $152,198 $152,198 $148,008 $148,008 $148,008
Non-allowable assets:
Core deposit intangible (64) - - (134) - -
Unrealized gain on
available for sale
securities (1,583) (1,583) (1,583) (311) (311) (311)
Goodwill (26,433) (26,433) (26,433) (28,438) (28,438) (28,438)
General valuation
allowance - - 8,283 - - 7,456
--------- --------- --------- --------- --------- ---------
Regulatory capital 124,118 124,182 132,465 119,125 119,259 126,715
Minimum capital
requirement 18,873 37,748 53,009 18,828 37,659 47,718
--------- --------- --------- --------- --------- ---------
Regulatory capital
excess $105,245 $86,434 $79,456 $100,297 $81,600 $78,997
========= ========= ========= ========= ========= =========
</TABLE>
PAGE 40
<PAGE>
20. QUARTERLY FINANCIAL INFORMATION
The following represents the unaudited results of operations for
each of the quarters during the fiscal years ended June 30, 1997
and 1996. Since the Bank's conversion to a public company
occurred substantially at year end (June 26, 1996), earnings per
share information during the year ended June 30, 1996 is not
considered meaningful.
<TABLE>
<CAPTION>
For the three September 30, 1996 December 31, 1996 March 31, 1997 June 30, 1997
months ended
<S> <C> <C> <C> <C>
- --------------------- ------------------- ----------------- --------------- --------------
Net interest income $11,165 $11,969 $12,116 $12,216
Provision for loan losses 1,050 1,050 1,050 1,050
Net interest income after
provision for loan losses 10,115 10,919 11,066 11,166
Non-interest income 757 1,052 781 1,543
Non-interest expense: 8,132 5,604 6,741 7,015
- --------------------- ------------ ------------ --------- ---------
Income before income
taxes 2,740 6,367 5,106 5,694
Income tax expense 1,516 1,428 1,608 3,039
- --------------------- ------------ ------------ --------- ---------
Net income $1,224 $4,939 $3,498 $2,655
===================== ============ ============ ========= =========
EARNINGS PER SHARE (1):
Primary $0.09 $0.37 $0.26 $0.22
===================== ============ ============ ========= =========
Fully diluted $0.09 $0.37 $0.26 $0.21
===================== ============ ============ ========= =========
SUPPLEMENTAL DISCLOSURE:
SAIF special assessment
charge $2,032 $- $- $-
Income tax recovery - 1,848 1,034 -
Fully diluted EPS
excluding SAIF special
assessment and income
tax recoveries $0.17 $0.23 $0.19 $0.21
- --------------------- ------------ ------------ --------- ---------
</TABLE>
<TABLE>
<CAPTION>
For the three September 30, 1995 December 31, 1995 March 31, 1996 June 30, 1996
months ended
<S> <C> <C> <C> <C>
- --------------------- ------------------ ------------------ --------------- --------------
Net interest income $6,913 $7,379 $7,171 $7,640
Provision for loan losses 600 351 900 1,128
Net interest income after
provision for loan losses 6,313 7,028 6,271 6,512
Non-interest income 414 186 379 396
Non-interest expense: 2,922 3,478 3,901 3,720
- --------------------- ------------ ------------ ------------ ------------
Income before income
taxes and cumulative
effect of change in
accounting principle 3,805 3,736 2,749 3,188
Income tax expense 1,741 1,705 1,266 1,469
Income before
cumulative effect of
change in accounting
principle 2,064 2,031 1,483 1,719
Cumulative effect of
change in accounting
principle (1,032) - - -
- --------------------- ------------ ------------ ------------ ------------
Net income $1,032 $2,031 $1,483 $1,719
===================== ============ ============ ============ ===========
EARNINGS PER SHARE (1):
Primary N/A N/A N/A N/A
===================== ============ ============ ============ ===========
Fully diluted N/A N/A N/A N/A
===================== ============ ============ ============ ===========
</TABLE>
(1) The quarterly earnings per share amounts, when added, total
$0.94 for the year ended June 30, 1997. This amount differs
from earnings per share for the year ended June 30, 1997 in
the consolidated statement of operations due to differences
in the computed weighted average shares outstanding as well
as rounding differences.
PAGE 41
<PAGE>
21. CONDENSED PARENT COMPANY ONLY FINANCIAL STATEMENTS:
The Company began operations on June 26, 1996. The following
statements of condition as of June 30, 1997 and 1996, and the
related statements of operations and cash flows for the years
ended June 30, 1997 and 1996, reflect the Company's investment
in its wholly-owned subsidiary, the Bank, using the equity
method of accounting:
DIME COMMUNITY BANCORP, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
At June 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------- ----------- -----------
ASSETS:
Cash and due from banks $17 $117
Investment securities available
for sale 22,363 33,994
Federal funds sold 6,040 53,623
ESOP loan to subsidiary 10,324 11,541
Investment in subsidiary 152,198 148,008
Other assets 344 23
- -------------------------------------------------- ----------- -----------
TOTAL ASSETS $191,286 $247,306
================================================== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Payable for securities purchased $- $33,994
Other liabilities 397 241
Stockholders' equity 190,889 213,071
- -------------------------------------------------- ----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $191,286 $247,306
================================================== =========== ===========
</TABLE>
DIME COMMUNITY BANCORP, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
For the year ended June 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------- ----------- -----------
Interest income $3,585 $27
Gain on sales of securities 11 -
Non-interest expense 446 -
- -------------------------------------------------- ----------- -----------
Income before income taxes and equity of undistributed
earnings of subsidiary 3,150 27
Income tax expense 1,487 -
- -------------------------------------------------- ----------- -----------
Income before equity of undistributed earnings of
subsidiary 1,663 27
Equity in undistributed earnings of subsidiary 10,653 6,238
- -------------------------------------------------- ----------- -----------
NET INCOME $12,316 $6,265
================================================== =========== ===========
</TABLE>
PAGE 42
<PAGE>
DIME COMMUNITY BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
For the year ended June 30, 1997 1996
<S> <C> <C>
- -------------------------------------------------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $12,316 $6,265
Adjustments to reconcile net income to net
cash provided by operating activities:
Undistributed earnings of subsidiary (10,653) (6,238)
Gain on sale of investment securities available for sale (11) -
Net accretion of discount on investment securities
available for sale (1,130) -
Increase in other assets (321) (23)
Increase in payable for securities purchased (33,994) 33,994
(Decrease)Increase in other liabilities (225) 241
- -------------------------------------------------- ----------- -----------
Net cash (used in) provided by operating activities (34,018) 34,239
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in federal funds sold 47,583 (53,623)
Proceeds from sale of investment securities available for
sale 10,011 -
Proceeds from calls and maturities of investment securities
available for sale 120,595 -
Purchases of investment securities available for sale (117,006) (33,994)
Principal repayments on ESOP loan 1,165 97
Cash disbursed in purchase of subsidiary stock - (76,332)
- -------------------------------------------------- ----------- -----------
Net cash provided by (used in) investing activities 62,348 (163,852)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock - 129,730
Cash disbursed for expenses related to issuance of
common stock (190) -
CASH DIVIDENDS PAID TO STOCKHOLDERS (537) -
PURCHASE OF TREASURY STOCK (27,703) -
- -------------------------------------------------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (28,430) 129,730
- -------------------------------------------------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS (100) 117
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 117 -
- -------------------------------------------------- ----------- -----------
CASH AND DUE FROM BANKS, END OF PERIOD $17 $117
================================================== =========== ===========
</TABLE>
PAGE 43
<PAGE>
MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Dime Community Bancorp, Inc. Common Stock is traded on the Nasdaq National
Market and quoted under the symbol "DIME."
The following table shows the high and low sales price during the period
indicated. The Company's Common stock began trading on June 26, 1996, the date
of the initial public offering.
<TABLE>
<CAPTION>
Fiscal Year End June 30, 1997 Fiscal Year End June 30, 1996
---------------------------- -------------------------
Quarter Ended High Low High Low
<S> <C> <C> <C> <C> <C>
- -------------------- ------------ ------------ ------------ ------------
September 30th $14 11{3/4} N/A N/A
December 31st 15{1/8} 13{1/4} N/A N/A
March 31st 19{5/8} 14{1/2} N/A N/A
June 30th $20 $16{5/8} $11{3/4} $11{11/16}
</TABLE>
On June 30, 1997, the last trading date in the fiscal year, the Company's
stock closed at $20. At September 22, 1997 the Company had approximately 1,200
shareholders of record, not including the number of persons or entities holding
stock in nominee or street name through various brokers and banks. There were
13,092,750 shares of common stock outstanding at June 30, 1997.
On May 15, 1997, the Company declared its first cash dividend of 4{1/2}
cents per share for all shareholders of record as of the close of business on
June 2, 1997. The dividend was paid on June 27, 1997. No dividends have been
declared subsequently. The Board of Directors of the Company plans to maintain
a regular quarterly dividend in the future, and will continue to review the
dividend payment amount in relation to the Company's earnings, financial
condition or other relevant factors.
As the principal asset of the Company, the Bank could be called upon to
provide the principal source of funds for payment of dividends by the Company.
The Bank will not be permitted to pay dividends on its capital stock if its
stockholders' equity would be reduced below applicable regulatory requirements
or the amount required for the liquidation account established during the
Bank's conversion. See Note 2 to the Consolidated Financial Statements of the
Company for a further discussion of the liquidation account. The OTS capital
distribution regulations applicable to savings institutions (such as the Bank)
that meet their regulatory capital requirements, generally limit dividend
payments in any year to the greater of (i) 100% of year-to-date net income plus
an amount that would reduce surplus capital by one-half or (ii) 75% of net
income for the most recent four quarters. Surplus capital is the excess of
actual capital at the beginning of the year over the institution's minimum
regulatory capital requirement. In addition, capital distributions from the
Bank to the Company, if in excess of established limits, could result in
recapture of the Bank's New York State and City bad debt reserves. See Note 14
to the Consolidated Financial Statements of the Company for a further
discussion of this tax matter.
Unlike the Bank, the Company is not subject to OTS
regulatory restrictions on the payment of dividends to its
shareholders, although the source of such dividends will be
dependent on the net proceeds retained by the Company and
earnings thereon and may be dependent, in part, upon dividends
from the Bank. The Company is subject, however, to the
requirements of Delaware law, which generally limit dividends to
an amount equal to the excess of the net assets of the Company
(the amount by which total assets exceed total liabilities) over
its statutory capital, or if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal
year.
PAGE 44
<TABLE> <S> <C>
<ARTICLE> 9
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 19198
<INT-BEARING-DEPOSITS> 939647
<FED-FUNDS-SOLD> 18902
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<LONG-TERM> 55438
0
0
<COMMON> 145
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<INCOME-PRETAX> 19907
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<CHANGES> 0
<NET-INCOME> 12316
<EPS-PRIMARY> 0.95
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<YIELD-ACTUAL> 7.64
<LOANS-NON> 3190
<LOANS-PAST> 0
<LOANS-TROUBLED> 4671
<LOANS-PROBLEM> 2933
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<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
