SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( 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, 1999
( 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 BANCSHARES, INC.
(Exact Name of registrant as specified in its charter)
Delaware 11-3297463
(State or other jurisdiction of incorporation or (I.R.S. employer
organization) identification number)
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)
PREFERRED STOCK, PURCHASE RIGHT
(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 XX, 1999, there were 12,725,588 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 27, 1999 was
$212,117,500. This figure is based upon the closing price on the NASDAQ
National Market for a share of the Company's common stock on September 27,
1999, which was $20.13 as reported in the Wall Street Journal on September 28,
1999.
DOCUMENTS INCORPORATED BY REFERENCE
(1) The Annual Report to Shareholders for the fiscal year ended June 30, 1999
(Item 1 of Part I, and Items 5 through 8 of Part II) and (2) the definitive
Proxy Statement dated October 7, 1999 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 10, 1999 and any adjournment thereof and
which is expected to be filed with the Securities and Exchange Commission on or
about October 8, 1999 (Part III)
<PAGE>
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS
GENERAL..........................................................3
ACQUISITION OF FINANCIAL BANCORP, INC............................3
ACQUISITION OF CONESTOGA BANCORP, INC............................4
MARKET AREA AND COMPETITION......................................4
LENDING ACTIVITIES...............................................5
ASSET QUALITY...................................................11
ALLOWANCE FOR LOAN LOSSES.......................................15
INVESTMENT ACTIVITIES...........................................18
SOURCES OF FUNDS................................................22
SUBSIDIARY ACTIVITIES...........................................25
PERSONNEL.......................................................25
FEDERAL , STATE AND LOCAL TAXATION
FEDERAL TAXATION.........................................26
STATE AND LOCAL TAXATION..................................26
REGULATION
GENERAL...................................................27
REGULATION OF FEDERAL SAVINGS ASSOCIATIONS................27
REGULATION OF HOLDING COMPANY.............................34
FEDERAL SECURITIES LAWS...................................35
ITEM 2.
PROPERTIES............................................................36
ITEM 3. LEGAL PROCEEDINGS.............................................37
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........37
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS...................................................37
ITEM 6. SELECTED FINANCIAL DATA.......................................37
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...................................37
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...37
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE..........................38
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY..............38
ITEM 11. EXECUTIVE COMPENSATION.......................................38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................38
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K..............................................38
SIGNATURES............................................41
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<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 Bancshares, 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 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. The primary business of the Company is the operation
of its wholly-owned subsidiary, the Bank. 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,
1999, the Bank's QTL Ratio was 93.50%, 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.
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.
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 FINANCIAL BANCORP, INC.
On January 21, 1999, the Company completed the acquisition of Financial
Bancorp, Inc., ("FIBC") the holding company for Financial Federal Savings Bank,
F.S.B (the "FIBC Acquisition"). Based upon the closing price of the Company's
common stock on January 21, 1999, of $21.25 per share, the total consideration
paid to FIBC stockholders, in the form of cash or the Company's common stock,
was $66.8 million, and was comprised
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<PAGE>
of $34.5 million in cash and 1,504,704
shares of the Company's common stock. The Company's operating results for the
fiscal year ended June 30, 1999 reflect the addition of earnings from the
acquisition of FIBC for the period January 22, 1999 through June 30, 1999. The
FIBC Acquisition is being accounted for as a purchase transaction, and goodwill
of $44.2 million generated from the transaction is being amortized on a
straight-line basis over 20 years.
ACQUISITION OF CONESTOGA BANCORP, INC.
On June 26, 1996 the Bank completed 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 "Conestoga
Acquisition"). The Conestoga 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 Conestoga 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 Conestoga 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 Conestoga Acquisition is
reflected in the Company's consolidated results of operations for all fiscal
years after June 30, 1996.
There are currently no other arrangements, understandings or agreements
regarding any such additional acquisition or expansion.
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. Currently, eighteen additional offices are
located in the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau
County. The FIBC Acquisition added five branches, all of which are
located in Queens and Brooklyn. 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 Bank also originates loans in New Jersey from
time to time.
Since 1993, the Bank's local economy has experienced strong performance.
Unemployment has remained low, home sales have increased, residential apartment
and commercial property vacancy rates have declined considerably, and local
real estate values have increased. A strong local economy existed throughout
the Company's entire fiscal year ended June 30, 1999. Despite these
encouraging trends, the outlook for the local economy remains uncertain.
During the fiscal year ended June 30, 1999, troubled economic conditions in
several nations throughout Europe, Asia and South and Central America created
interest rate volatility for U.S. government and agency obligations. As a
result of this interest rate volatility, the U.S. stock market, especially
amongst financial institutions, experienced even greater volatility. Due to
increased interest rate uncertainty, the overall performance of financial
institutions stocks trailed the overall performance of the aggregate U.S. stock
markets during the period July, 1998 through June, 1999.
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 72.2% of the Bank's loan
portfolio at June 30, 1999. 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
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<PAGE>
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, 1999, the Bank's loan portfolio totaled $1.39 billion. Within the loan
portfolio, $1.00 billion or 72.2% were multi-family loans, $279.0 million or
20.1% were loans to finance the purchase of one-to-four family properties and
cooperative apartment share loans, $88.8 million or 6.4% were loans to finance
the purchase of commercial properties, primarily small shopping centers,
warehouses and nursing homes, and $9.7 million or 0.7% 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, 40.6% were fixed-rate loans and 59.4% were
adjustable-rate loans (''ARMs''), of which 87.5% 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. At June 30, 1999, the Bank's
loan portfolio also included $2.3 million in passbook loans, $3.7 million in
home improvement loans, and $1.9 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 the Bank's
competitors. These factors are, in turn, affected by general and economic
conditions, and the fiscal and monetary policy of the federal government.
<PAGE>
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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,
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent Percent Percent Percent Percent
1999<F1> of 1998 of 1997 of 1996 of 1995 of
Total Total Total <F2> Total Total
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Mortgage loans: <F3>
One-to-four family $246,075 17.75% $125,704 13.18% $140,798 18.68% $170,182 29.05% $58,291 13.52%
Multi-family and underlying
cooperative 1,000,859 72.20 717,638 75.26 498,536 66.15 296,630 50.63 252,436 58.56
Non-residential 88,837 6.41 50,062 5.25 43,180 5.73 37,708 6.44 26,972 6.26
FHA/VA insured 9,699 0.70 11,934 1.25 14,153 1.88 16,686 2.85 22,061 5.12
Cooperative apartment 32,893 2.37 42,553 4.46 50,931 6.76 59,083 10.08 67,524 15.67
- ----------------------------------------------------------------------------------------------------------------------------------
Total mortgage loans 1,378,363 99.43 947,891 99.40 747,598 99.20 580,289 99.05 427,284 99.13
- ----------------------------------------------------------------------------------------------------------------------------------
Other loans:
Student loans 794 0.06 677 0.07 1,005 0.13 1,307 0.22 1,431 0.33
Passbook savings (secured by
savings and time
deposits) 2,271 0.16 2,367 0.25 2,801 0.37 3,044 0.52 1,510 0.35
Home improvement loans 3,666 0.27 1,753 0.18 1,243 0.16 891 0.15 475 0.11
Consumer installment and 1,100 0.08 919 0.10 1,027 0.14 323 0.06 336 0.08
Other
- ---------------------------------------------------------------------------------------------------------------------------------
Total other loans 7,831 0.57 5,716 0.60 6,076 0.80 5,565 0.95 3,752 0.87
- ---------------------------------------------------------------------------------------------------------------------------------
Gross loans 1,386,194 100.00% 953,607 100.00% 753,674 100.00% 585,854 100.00% 431,036 100.00%
Less:
Unearned discounts and net
deferred loan fees 2,853 3,486 3,090 2,168 1,182
Allowance for loan losses 15,081 12,075 10,726 7,812 5,174
- ---------------------------------------------------------------------------------------------------------------------------------
Loans, net $1,368,260 $938,046 $739,858 $575,874 $424,680
==================================================================================================================================
Loans serviced for others:
One-to-four family and
cooperative apartment $53,564 $55,802 $60,242 $63,360 $63,192
Multi-family and underlying
cooperative 293 2,817 9,406 27,690 30,264
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans serviced for
others $53,857 $58,619 $69,648 $91,050 $93,456
==================================================================================================================================
<FN>
<F1> Includes acquisition of $192.3 million loans from FIBC on January 21, 1999,
which were comprised primarily of one-to-four family loans.
<F2> Includes acquisition of $113.1 million loans from Conestoga on June 26,
1996, substantially all of which were one-to-four family loans.
<F3> Includes loans held for sale.
</TABLE>
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<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 (''Fannie Mae''), the Federal Home Loan Mortgage
Corporation (''Freddie Mac''), 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, 1999 origination of ARMs
totaled $338.5 million or 70.8% of all loan originations. Originations of
fixed-rate mortgage loans totaled $139.5 million, while sales of fixed-rate
mortgage loans totaled $6.5 million. The Bank generally sells all fixed-rate
loans without recourse and retains the servicing rights. As of June 30, 1999,
the Bank was servicing $53.9 million of loans for non-related institutions. The
Bank generally receives a loan servicing fee equal to 0.25% of the outstanding
principal balance for servicing loans sold.
The following table sets forth the Bank's loan originations, loan sales and
principal repayments for the periods indicated.
For the Years Ended June 30,
---------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Loans (gross):
At beginning of period $953,607 $753,674 $585,854
Mortgage loans originated:
One-to-four family 16,657 11,438 4,279
Multi-family and underlying
cooperative 424,276 292,555 245,324
Non-residential 28,253 15,929 11,055
Cooperative apartment 2,187 1,281 1,582
Construction 130 - -
- -------------------------------------------------------------------------------
Total mortgage loans originated 471,503 321,203 262,240
Other loans originated 6,567 5,101 2,549
- -------------------------------------------------------------------------------
Total loans originated 478,070 326,304 264,789
- -------------------------------------------------------------------------------
Loans acquired (1) 192,318 - -
Less:
Principal repayments 230,482 120,240 91,405
Loans sold (2) 6,977 5,352 4,157
Loans transferred from real
estate pending foreclosure - - -
Mortgage loans transferred to
Other Real Estate Owned 342 779 1,407
- -------------------------------------------------------------------------------
Unpaid principal balance at
end of period $1,386,194 $953,607 $753,674
===============================================================================
(1) Comprised primarily of one-to-four family mortgage loans received in the
FIBC Acquisition.
(2) Includes fixed-rate mortgage loans and student loans.
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<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, 1999.
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 $230.5 million for
the year ended June 30, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
------------------------------------------------------------------------------------------------
Mortgage Loans
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Multi-
One-to-Four- family and
Family Underlying Non- FHA/VA Cooperative Other Total
Cooperative Residential Insured Apartment Loans Loans
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Amount due:
One year or less $47,518 $23,190 $891 $3,328 $27,928 $2,610 $105,465
- ---------------------------------------------------------------------------------------------------------------------------------
After one year:
One to three years 9,785 162,163 17,930 79 2,507 5,221 197,685
More than three years to
five years 11,310 141,938 24,412 30 27 - 177,717
More than five years to
ten years 42,567 605,886 34,669 86 114 - 683,322
More than ten years to
twenty years 60,283 67,682 10,935 6,176 2,265 - 147,341
Over twenty years 74,612 - - - 52 - 74,664
- ---------------------------------------------------------------------------------------------------------------------------------
Total due or repricing
after one year 198,557 977,669 87,946 6,371 4,965 5,221 1,280,729
- ---------------------------------------------------------------------------------------------------------------------------------
Total amounts due or repricing,
gross $246,075 $1,000,859 $88,837 $9,699 $32,893 $7,831 $1,386,194
=================================================================================================================================
</TABLE>
The following table sets forth the dollar amounts in each loan category at
June 30, 1999 that are due after June 30, 2000, and whether such loans have
fixed or adjustable-interest rates.
Due after June 30, 2000
------------------------------------
Fixed Adjustable Total
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Mortgage loans:
One-to-four family $172,859 $25,698 $198,557
Multi-family and underlying
cooperative 323,264 654,405 977,669
Non-residential 38,622 49,324 87,946
FHA/VA insured 6,371 - 6,371
Cooperative apartment 2,549 2,416 4,965
Other loans - 5,221 5,221
- -------------------------------------------------------------------------------
Total loans $543,665 $737,064 $1,280,729
===============================================================================
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 $765,000. Multi-family loans in
this range generally have between 5 and 100 apartments per building. The Bank
had a total of $763.8 million of multi-family loans in its portfolio on
buildings with under 100 units as of June 30, 1999. 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, 1999, the Bank had a total
of $125.9 million in loans secured by mortgages on underlying cooperative
apartment buildings.
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<PAGE>
The Bank originated multi-family loans totaling $424.3 million during the
fiscal year ended June 30, 1999, versus $292.6 million during the year ended
June 30, 1998. At June 30, 1999, the Bank had $125.3 million of commitments
outstanding to originate mortgage loans, which included $14.3 million of
commitments to refinance existing mortgage loans. This compares to $158.0
million of commitments outstanding at June 30, 1998. All the mortgage
commitments outstanding at June 30, 1999 were issued to borrowers within the
Bank's service area, $123.6 million of which are secured by multi-family and
underlying cooperative apartment buildings.
As part of the underwriting process for multi-family and non-residential
loans, the Bank 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, 1999, the Bank had multi-family and underlying cooperative loans
totaling $1.00 billion in its portfolio, comprising 72.2% 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, $874.9
million, or 87.4%, were secured by apartment buildings and $125.9 million, or
12.6%, were secured by underlying cooperatives at June 30, 1999. 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, 1999, the Bank had 75 multi-family and non-
residential loans with principal balances greater than $2.0 million, totaling
$241.0 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, 1999, 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 $2.8 million. As of June 30, 1999, the Bank had $1.2 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 $88.8 million in non-residential
real estate mortgage loans which represented 6.41% of gross loans at June 30,
1999. 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, 1999, 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.
The Bank's three largest loans at June 30, 1999, consisted of a $8.8 million
loan secured by a first mortgage on a 276 unit apartment building located in
midtown Manhattan originated in May, 1997; an $8.3 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 $7.8 million first mortgage loan,
originated in September, 1998, secured by a 129 unit apartment building located
in Manhattan. As of June 30, 1999, 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.
-9-
<PAGE>
The Bank also currently services a total of $293,000 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: Fannie Mae, Freddie Mac, 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 $32.9 million, or 2.37% of total loans as of June
30, 1999. The market for cooperative apartment loan financing has improved
over the past five years with the support of certain government agencies,
particularly SONYMA and Fannie Mae, who are insuring and purchasing,
respectively, cooperative apartment share loans in qualifying buildings. The
Bank adheres to underwriting guidelines established by SONYMA and Fannie Mae
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, 1999, $279.0 million, or 20.12%, of the Bank's loans consisted
of one-to-four family and cooperative apartment mortgage loans. ARMs
represented 36.65% of total one-to-four-family and cooperative apartment loans,
while fixed-rate mortgages comprised 63.35% of the total. The majority of
these loans were obtained through the acquisitions of Conestoga and FIBC. The
Bank, which is not an aggressive one-to-four-family mortgage lender, 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.
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 the fiscal years ended June 30,
1998 and 1999, 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. For the year
ended June 30, 1999, demand for ARM one-to-four family loans was minimal, and
the Bank originated only $569,000 of one-to-four family and
cooperative apartment mortgage ARMs.
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-rate loans are based upon market conditions.
The Bank generally originates fixed-rate loans for sale in amounts up to the
maximum allowed by Fannie Mae, Freddie Mac and SONYMA, with private mortgage
insurance required for loans with loan-to-value ratios in excess of 80%. For
the year ended June 30, 1999, the Bank originated $18.3 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 either to its wholly-owned subsidiary, DSBW Residential Preferred
Funding, or in the secondary market to federal and state agencies such as
Fannie Mae, Freddie Mac 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, 1999, the Bank sold mortgage loans
totaling $6.5 million to non-affiliates. As of June 30, 1999, the Bank's
portfolio of one-to-four family fixed-rate mortgage loans serviced for others
totaled $53.6 million.
-10-
<PAGE>
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, 1999, totaled
$4.8 million against total available credit lines of $7.9 million. During the
fiscal years ended June 30, 1998 and 1999, the Bank offered home-equity line
promotions to selected mortgage customers, which resulted in the increase in
credit lines from $1.8 million at June 30, 1997 to $7.9 million at June 30,
1999.
OTHER LENDING. The Bank also originates other loans, primarily student and
passbook loans. Total other loans outstanding at June 30, 1999, amounted to
$7.8 million, or 0.57%, of the Bank's loan portfolio. Passbook loans, totaling
$2.3 million, and home improvement loans, totaling $3.7 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 $3.0 million. Any loan in excess of $3.0 million, however, must
be approved by the Board of Directors. All loans in excess of $500,000 are
presented to the Board of Directors for their review. 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.
ASSET QUALITY
DELINQUENT LOANS AND FORECLOSED ASSETS. 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'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. 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. 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.
-11-
<PAGE>
The Bank retains outside counsel experienced in foreclosure and bankruptcy
procedures to institute foreclosure and other actions on the Bank's delinquent
loans.
Non-performing loans totaled $3.0 million at June 30, 1999, as compared to
$884,000 at June 30, 1998. Of the $3.0 million non-performing loans at June
30, 1999, $1.8 million were acquired from FIBC, consisting of 13 one- to four-
family residential loans. Otherwise, non-performing loans increased
approximately $300,000 due primarily to the addition of one multi-family and
underlying cooperative loan with an aggregate principal amount of $657,000
during the fiscal year ended June 30, 1999, and for which the Company recorded
a charge-off of $92,000 during the fiscal year ended June 30, 1999. The
Company had 23 loans totaling $819,000 delinquent 60-89 days at June 30, 1999,
as compared to 30 such delinquent loans totaling $327,000 at June 30, 1998.
The Company has experienced a shift in the composition of its 60-89 day
delinquencies from its conventional mortgage portfolio, which loans typically
carry larger average balances, to smaller balance FHA/VA insured and consumer
loans.
Under Statement of Financial Accounting Standards No. 114 "Accounting by
Creditors for Impairment of a Loan," ("SFAS 114") the Company 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
Company, for economic or legal reasons related to the borrower's financial
difficulties, grants a concession to the borrower that the Company 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 Company had two loans classified as troubled-
debt restructurings at June 30, 1999, totaling $1.2 million, both which are on
accrual status as they have been performing in accordance with the
restructuring terms for over one year. Troubled-debt restructurings totaled
$4.0 million at June 30, 1998, consisting of 3 loans, as one troubled-debt
restructuring totaling $2.8 million was paid-in-full during the fiscal year
ended June 30, 1999. 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 Company
did not have any new troubled-debt restructurings during the fiscal year ended
June 30, 1999.
Under SFAS 114, the Bank 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. The
recorded investment in loans deemed impaired was approximately $1.6
million as of June 30, 1999, compared to $3.1 million at June 30, 1998, and
the average balance of impaired loans was $2.3 million for the year ended
June 30, 1999 compared to $3.8 million for the year ended June 30, 1998.
At June 30, 1999, reserves have been provided on all impaired loans
within specific reserves totaling $62,000 allocated within the allowance
for loan losses. Generally, the Bank considers non-performing loans to
be impaired loans. However, at June 30, 1999, $1.4
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 $227,000, and are considered a
homogeneous loan pool not covered by SFAS 114.
-12-
<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>
<S> <C> <C> <C> <C> <C>
At June 30, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Non-performing loans:
One-to-four family $1,577 $471 $1,123 $1,149 $572
Multi-family and underlying
cooperative 1,248 236 1,613 4,734 3,978
Cooperative apartment 133 133 415 668 523
Other loans 43 44 39 - -
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 3,001 884 3,190 6,551 5,073
Total Other Real Estate Owned 866 825 1,697 1,946 4,466
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $3,867 $1,709 $4,887 $8,497 $9,539
============================================================================================================================
Troubled-debt restructurings $1,290 $3,971 $4,671 $4,671 $7,651
Total non-performing assets and troubled-
debt restructurings $5,157 $5,680 $9,558 $13,168 $17,190
============================================================================================================================
Impaired loans <F1> $1,563 $3,136 $4,294 $7,419 $-
Total non-performing loans to total loans 0.22% 0.09% 0.43% 1.12% 1.18%
Total non-performing loans and troubled-
debt restructurings to total loans 0.31 0.51 1.05 1.92 2.96
Total non-performing assets to total
assets <F2> 0.17 0.11 0.37 0.62 1.44
Total non-performing assets and troubled-
debt restructurings to total assets 0.23 0.35 0.73 0.96 2.59
<FN>
<F1> The Bank adopted SFAS 114 effective July 1, 1995. Impaired loans were not
measured prior to this date.
<F2> Adjusting total assets at June 30, 1996, for $131.0 million of excess
subscription proceeds related to the Company's initial public offering,
total non-performing assets to total assets were 0.68% at June 30, 1996.
The excess subscription proceeds were refunded by the Company on July 1,
1996.
</TABLE>
The Bank recorded $43,000 and $125,000 of interest income on non-performing
loans and troubled-debt restructurings, respectively, for the year ended June
30, 1999, and $130,000 and $306,000, respectively, for the fiscal year ended
June 30, 1998. 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 $108,000 and $57,000,
respectively, for the year ended June 30, 1999, and $51,000 and $109,000,
respectively, for the fiscal year ended June 30, 1998.
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 an OREO
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. The balance of other real estate owned ("OREO")was $866,000,
consisting of 9 properties, at June 30, 1999 compared to $825,000, consisting
of 14 properties, at June 30, 1998. During the year ended June 30, 1999, total
additions to OREO were $644,000, of which $302,000 were acquired from FIBC.
Offsetting this addition, were OREO sales and charge-offs of $618,000 during
the year ended June 30, 1999, of which $204,000 related to OREO acquired from
FIBC. All charge-offs were recorded against the allowance for losses on real
estate owned, which was $149,000 as of June 30, 1999.
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 policies 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 43 loans totaling $4.7 million at June 30, 1999 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
-13-
<PAGE>
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.
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, 1999 the Bank had $2.1 million of loans designated
Special Mention.
At June 30, 1999, the Bank had $4.0 million of assets classified
Substandard, consisting of 29 loans and 9 other real estate owned properties,
$328,000 of assets classified as Doubtful, consisting of 1 loan, and no assets
classified as Loss. Of the assets classified as substandard, 18 loans and 2
other real estate properties totaling $2.9 million were acquired from FIBC.
-14-
<PAGE>
The following table sets forth at June 30, 1999 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
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number Amount Number Amount Number Amount Number Amount
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Mortgage Loans:
One-to-four family 5 $351 18 $1,975 - $- - $-
Multi-family and
underlying 7 1,122 3 687 1 328 - -
cooperative
Non-residential - - 1 90 - - - -
Cooperative apartment 13 595 7 376 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total Mortgage Loans 25 2,078 29 3,128 1 328 - -
- ---------------------------------------------------------------------------------------------------------------------------------
Other Real Estate Owned:
One-to-four family - - 3 558 - - - -
Cooperative apartment - - 6 308 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total Other Real Estate
Owned - - 9 866 - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total 25 $2,078 38 $3,994 1 $328 - $-
=================================================================================================================================
</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.
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
-15-
<PAGE>
subject to review by various regulatory agencies which can order the
establishment of additional general or specific loss allowances.
The Bank has maintained 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 allowance for loan losses has increased
$3.0 million from June 30, 1998 to June 30, 1999, due primarily to the addition
of $3.0 million in loan loss reserves from FIBC which the Company determined
was adequate to cover potential losses on the loans acquired from FIBC. The
reduction in the Company's loan loss provision from $1.6 million during the
fiscal year ended June 30, 1998, to $240,000 during the fiscal year ended
June 30, 1999, resulted from continued stability of non-performing loan and
charge-offs which totaled $201,000 during the fiscal year ended June 30,
1999, compared to $286,000 during the fiscal year ended June 30, 1998.
-16-
<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,
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Total loans outstanding at end of period <F1> $1,383,341 $950,121 $750,584 $583,686 $429,854
=================================================================================================================================
Average total loans outstanding <F1> $1,164,982 $843,148 $648,357 $449,063 $430,845
=================================================================================================================================
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period $12,075 $10,726 $7,812 $5,174 $3,633
Provision for loan losses 240 1,635 4,200 2,979 2,950
Charge-offs
One-to-four family (10) (165) (104) (21) (146)
Multi-family and underlying cooperative (98) (49) (985) (553) (1,081)
Non-residential - - - (274) (92)
FHA/VA insured - - - - (9)
Cooperative apartment (62) (112) (276) (170) (328)
Other (38) (2) (23) (5) -
- ---------------------------------------------------------------------------------------------------------------------------------
Total charge-offs (208) (328) (1,388) (1,023) (1,656)
- ---------------------------------------------------------------------------------------------------------------------------------
Recoveries 7 42 102 14 247
- ---------------------------------------------------------------------------------------------------------------------------------
Reserve acquired in purchase acquisition 2,967 - - 668 -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $15,081 $12,075 $10,726 $7,812 $5,174
=================================================================================================================================
Allowance for loan losses to total loans
at end of period 1.09% 1.27% 1.43% 1.34% 1.20%
Allowance for loan losses to total non-
performing loans at end of period 502.53 1,365.95 336.24 119.25 101.99
Allowance for loan losses to total non-
performing loans and troubled-debt
restructurings at end of period 351.46 248.71 136.45 69.61 40.66
Ratio of net charge-offs to average loans
outstanding during the period 0.03 0.03 0.20 0.22 0.33
ALLOWANCE FOR LOSSES ON OTHER REAL ESTATE
OWNED:
Balance at beginning of period $164 $187 $114 $- $-
Provision charged to operations 16 114 450 586 -
Charge-offs, net of recoveries (31) (137) (377) (472) -
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at end of period $149 $164 $187 $114 $-
=================================================================================================================================
<FN>
<F1> Total loans represents loans, net, plus the allowance for loan losses.
Total loans at June 30, 1999 and June 30, 1996 include $192.3 million and
$113.1 million of loans acquired from FIBC and Conestoga, respectively.
</TABLE>
-17-
<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,
- ---------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent Percent Percent Percent Percent
of Loan of Loan of Loan of Loan of Loan
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(1) Amount Loans<F1> Amount Loans<F1> Amount Loans<F1> Amount Loans<F1>
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
Impaired
loans <F2> $62 0.11% $23 0.33% $122 0.58% $955 1.30% $- -%
One-to-four
family 4,112 17.86 669 13.32 820 19.04 1,171 29.90 556 14.25
Multi-family
and
underlying
cooperative 9,652 72.63 10,160 75.90 7,398 66.83 3,808 50.81 3,372 61.72
Non-
residential 699 6.45 445 5.32 862 5.84 605 6.63 103 6.60
Cooperative
apartment 414 2.39 605 4.52 1,355 6.89 1,085 10.38 1,031 16.51
Other 142 0.56 173 0.61 169 0.82 188 0.98 112 0.92
- ---------------------------------------------------------------------------------------------------------------------------------
Total $15,081 100.00% $12,075 100.00% $10,726 100.00% $7,812 100.00% $5,174 100.00%
=================================================================================================================================
<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, 1999, 1998, 1997 and 1996,
impaired loans represent 0.11%, 0.33%, 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 $189.6 million at June
30, 1999. The Company's other investments at that date totaled $54.8 million,
and are invested in Ginnie Mae adjustable rate mortgage-backed securities,
which are tied closely to short-term borrowings, and equity securities and U.S.
agency obligations which are 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.
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 overall composition of the Bank's 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.
-18-
<PAGE>
The Company did not engage in any hedging transactions utilizing derivative
instruments (such as interest rate swaps and caps) during the fiscal year ended
June 30, 1999, and did not have any such hedging transactions in place at June
30, 1999. In the future, the Company may, with Board approval, engage in
hedging transactions utilizing derivative instruments.
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 readily be used to collateralize borrowings of the Company.
Approximately 50.3% of the Company's $525.7 million mortgage-backed securities
portfolio, which represented 23.4% of the Company's total assets at
June 30, 1999, was comprised of securities backed by either the Governmental
National Mortgage Association (''Ginnie Mae''), Freddie Mac, or Fannie Mae. 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.
At June 30, 1999, the Bank had $344.3 million in CMOs and REMICs, which
comprise the largest component of the Bank's mortgage-backed securities. All
of the securities are either backed by U.S agency obligations or have been
issued by highly reputable financial institutions. In addition, all of the
non-agency backed obligations had been rated in the highest rating category by
at least one nationally recognized rating agency at the time of purchase. 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 using funds from short-
term borrowings as part of reverse repurchase transactions, in which these
securities act as collateral for the borrowed funds. As of June 30, 1999, the
fair value of these securities was approximately $4.7 million below their cost
basis, due primarily to reductions in market values associated with an increase
in short-term interest rates during the quarter ended June 30, 1999.
The Bank's remaining mortgage-backed securities portfolio is comprised of a
$112.5 million investment in adjustable rate Ginnie Mae, Freddie Mac and Fannie
Mae pass-through securities which have an average term to next rate adjustment
of less than one year, a $43.6 million investment in seasoned fixed-rate Ginnie
Mae, Fannie Mae and Freddie Mac pass-through securities, with an estimated
remaining life of less than three years, and a $25.5 million investment in
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).
GAAP 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, 1999, 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, 1999, the Company had $649.5 million of
securities classified as available for sale which represented 28.90% of total
assets at June 30, 1999. 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.
The maturities on the Bank's fixed-rate mortgage-backed securities
(balloons, seasoned Ginnie Mae's and Freddie Mac's) 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.
-19-
<PAGE>
For the Year Ended June 30,
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Amortized cost at beginning of period $408,086 $306,164 $209,542
Purchases/ Sales (net) 263,644 193,086 137,889
Principal repayments (179,434) (90,686) (41,021)
Premium and discount amortization, net 230 (478) (246)
Securities acquired in purchase of FIBC<F1> 37,780 - -
- -------------------------------------------------------------------------------
Amortized cost at end of period $530,306 $408,086 $306,164
===============================================================================
(1) Amount comprised of $13.8 million of Freddie Mac securities, $8.7 million
of Fannie Mae securities and $15.3 of Ginnie Mae securities.
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,
- ---------------------------------------------------------------------------------------------------------------------------------
1999<F1> 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Mortgage-backed securities:
Ginnie Mae $133,057 $133,337 $87,889 $89,706 $103,974 $106,431
Fannie Mae 25,317 25,355 33,085 33,420 71,621 71,745
Freddie Mac 22,994 23,093 31,778 32,016 58,226 58,536
CMOs 348,938 344,254 255,334 256,176 72,343 72,500
- -----------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
Securities 530,306 526,039 408,086 411,318 306,164 309,212
- -----------------------------------------------------------------------------------------------------------------------------
Investment securities:
U.S. treasury and agency 87,475 86,553 92,825 93,302 119,742 120,226
Other <F2> 77,746 76,705 57,981 58,322 34,271 34,596
- -----------------------------------------------------------------------------------------------------------------------------
Total investment securities 165,221 163,258 150,806 151,624 154,013 154,822
Equity securities 14,162 15,142 10,425 12,675 4,912 5,889
Net unrealized (loss)gain <F2> (5,692) - 5,069 - 3,710 -
- -----------------------------------------------------------------------------------------------------------------------------
Total securities, net $703,997 $704,439 $574,386 $575,617 $468,799 $469,923
=============================================================================================================================
<FN>
<F1>Includes $13.8 million of Freddie Mac securities, $8.7 million of Fannie
Mae securities, $15.3 million in Ginnie Mae securities, $37.2 million in
agency obligations, and $6.6 million in equity securities acquired from
FIBC.
<F2> The net unrealized (loss) gain at June 30, 1999, 1998 and 1997 relates to
available for sale securities in accordance with
Statement of Financial Accounting Standards No. 115, "Accounting for
Investments in Debt and Equity Securities," ("SFAS 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>
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, 1999, the Company's portfolio of
corporate debt obligations totaled $69.9 million, or 3.11% of total assets.
-20-
<PAGE>
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,
- ----------------------------------------------------------------------------------------------------------------------------
1999<F1> 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Held-to-Maturity:
Mortgage-backed
securities: <F2>
Pass through securities $22,820 $23,192 $46,714 $47,443 $78,388 $79,075
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities 22,820 23,192 46,714 47,443 78,388 79,075
Investment securities <F3> 31,698 31,768 78,091 78,593 101,587 102,024
- ---------------------------------------------------------------------------------------------------------------------------
Total Held-to Maturity $54,518 $54,960 $124,805 $126,036 $179,975 $181,099
===========================================================================================================================
Available-for-Sale:
Mortgage-backed securities:
Pass through securities $158,548 $158,593 $106,038 $107,699 $155,433 $157,637
CMOs 348,938 344,254 255,334 256,176 72,343 72,500
- ---------------------------------------------------------------------------------------------------------------------------
Total mortgage-backed
securities 507,486 502,847 361,372 363,875 227,776 230,137
Investment securities <F3> 133,523 131,490 72,715 73,031 52,426 52,798
Equity securities 14,162 15,142 10,425 12,675 4,912 5,889
Net unrealized (loss) gain <F4> (5,692) - 5,069 - 3,710 -
- ---------------------------------------------------------------------------------------------------------------------------
Total Available-for-Sale $649,479 $649,479 $449,581 $449,581 $288,824 $288,824
===========================================================================================================================
Total securities, net $703,997 $704,439 $574,386 $575,617 $468,799 $469,923
===========================================================================================================================
<FN>
<F1>Includes $37.8 million of mortgage-backed pass-through securities, $37.2
million in investment securities and $6.6 million in equity securiies
acquired from FIBC, all of which 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 (loss) gain at June 30, 1999, 1998 and 1997 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>
-21-
<PAGE>
The following table sets forth certain information regarding the amortized
cost, fair value and weighted average yield of the Company's securities at June
30, 1999, 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, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Held-to-Maturity Available-for Sale
------------------------------------------ -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted
Amortized Average Amortized Average
Cost Fair Value Yield Cost Fair Value Yield
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Mortgage-backed securities:
Due within 1 year $2,040 $2,049 7.08% $- $- -%
Due after 1 year but within 5 years 15,073 15,173 6.95 11,691 11,506 6.29
Due after 5 years but within
10 years 5,706 5,969 7.94 10,997 10,807 6.47
Due after ten years 1 1 13.17 484,798 480,534 6.35
- ---------------------------------------------------------------------------------------------------------------------------------
Total 22,820 23,192 7.03 507,486 502,847 6.81
- ---------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury and Agency:
Due within 1 year - - - - - -
Due after 1 year but within 5 years 22,401 22,400 6.49 65,074 64,153 5.85
Due after 5 years but within
10 years - - - - - -
Due after ten years - - - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
Total 22,401 22,400 6.49 65,074 64,153 5.85
- ---------------------------------------------------------------------------------------------------------------------------------
Corporate and Other
Due within 1 year 4,169 4,200 6.67 13,103 14,386 5.08
Due after 1 year but within 5 years 3,908 3,939 6.40 61,947 60,837 6.07
Due after 5 years but within
10 years 1,220 1,229 7.32 - - -
Due after ten years - - - 7,561 7,256 6.51
- ---------------------------------------------------------------------------------------------------------------------------------
Total 9,297 9,368 6.64 82,611 82,479 5.36
- ---------------------------------------------------------------------------------------------------------------------------------
Total:
Due within 1 year 6,209 6,249 6.80 13,103 14,386 5.08
Due after 1 year but within 5 years 41,382 41,512 6.65 138,712 136,496 5.99
Due after 5 years but within
10 years 6,926 7,198 7.83 10,997 10,807 6.47
Due after ten years 1 1 13.17 492,359 487,790 6.35
- ---------------------------------------------------------------------------------------------------------------------------------
Total $54,518 $54,960 6.82% $655,171 $649,479 6.25%
=================================================================================================================================
</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 Fannie Mae, Freddie Mac, or SONYMA.
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.
-22-
<PAGE>
Consequently, the communities in which the Bank maintains branch offices have
historically provided the Bank with nearly all of its deposits. At June 30,
1999, the Bank had deposit liabilities of $1.25 billion, up $208.7 million from
June 30, 1998. Within total deposits, $78.7 million, or 6.3%, consisted of
certificates of deposit with balances of $100,000 or greater. Individual
Retirement Accounts (''IRA's'') totaled $124.8 million, or 10.0% of total
deposits.
The following table presents the deposit activity of the Bank for the periods
indicated.
For the Year Ended June 30,
- ------------------------------------------------------------------------------
1999 1998 1997
- ------------------------------------------------------------------------------
(Dollars In Thousands)
Deposits $1,686,616 $1,373,072 $1,702,024
Withdrawals 1,751,003 1,340,838 1,729,025
- ------------------------------------------------------------------------------
Deposits (Withdrawals) in
excess of (deposits) withdrawals (64,387) 32,234 (27,001)
Deposits acquired in
purchase of FIBC (1) 230,627 - -
Interest credited 42,479 42,713 40,282
- ------------------------------------------------------------------------------
TOTAL INCREASE IN DEPOSITS $208,719 $74,947 $13,281
==============================================================================
(1) Amount comprised of $123.0 million in certificates of deposit, $67.4 in
savings accounts, $15.1 million in checking accounts, $16.7 million in
money market accounts, and $7.5 million in NOW and Super NOW accounts.
At June 30, 1999 the Bank had $78.7 million in certificate of deposit
accounts over $100,000 maturing as follows:
Weighted Average
Amount Rate
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Maturity Period
Within three months $23,894 5.32%
After three but within six months 12,785 5.01
After six but within twelve months 26,571 5.52
After 12 months 15,457 5.66
- -------------------------------------------------------------------------------
Total $78,707 5.40%
===============================================================================
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,
-------------------------------------------------------------------------------
1999 1998 1997
------------------------------- ---------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Percent Weighted Percent Weighted Percent Weighted
of Total Average of Total Average of Total Average
Amount Deposits Rate Amount Deposits Rate Amount Deposits Rate
- --------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Checking accounts $58,542 4.70% - % $37,039 3.57% - % $27,391 2.84% - %
NOW and Super NOW accounts 25,687 2.06 1.22 17,927 1.73 1.24 16,324 1.69 1.24
Money market accounts 52,979 4.25 3.55 30,567 2.94 3.09 33,530 3.48 2.96
Savings accounts 406,602 32.60 2.09 340,481 32.79 2.27 344,377 35.75 2.27
Certificates of deposit 703,251 56.39 5.31 612,328 58.97 5.84 541,773 56.24 5.61
- --------------------------------------------------------------------------------------------------------------------------------
Totals $1,247,061 100.00% $1,038,342 100.00% $963,395 100.00%
================================================================================================================================
</TABLE>
-23-
<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, 1999.
<TABLE>
<CAPTION>
Period to Maturity at June 30, 1999 Total at June 30,
-------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Less than One to Four to Over Five
Interest Rate Range One Year Three Years Five Years Years 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
4.00% and below $29,348 $209 $- $1 $29,558 $1 $12
4.01% to 5.00% 278,322 67,511 836 25 346,694 135,153 84,854
5.01% to 6.00% 119,835 37,923 20,014 411 178,183 233,082 282,065
6.01% to 7.00% 101,821 14,105 4,298 14 120,238 231,204 158,528
7.01% and above 22,445 6,099 34 - 28,578 12,888 16,314
- ---------------------------------------------------------------------------------------------------------------------------------
Total $551,771 $125,847 $25,182 451 $703,251 $612,328 $541,773
=================================================================================================================================
</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 rates. The Bank, as a member of the FHLBNY, is provided with
a borrowing line which equaled $547.2 million at June 30, 1999. From time to
time, the Bank will borrow from the FHLBNY for various purposes.
The Bank had borrowings (''Advances'') from the Federal Home Loan Bank
of New York totaling $250.0 million and $103.5 million at June 30, 1999 and
1998, respectively. The average cost of FHLB advances was 5.96% and 6.04%,
respectively, during the years ended June 30, 1999 and 1998, and the average
interest rate on outstanding FHLBNY advances was 5.52% and 6.05%, respectively,
at June 30, 1999 and 1998. At June 30, 1999, the Bank maintained in excess of
$275.0 million of qualifying collateral (principally real estate loans),
as defined by the FHLBNY, to secure such advances.
Securities sold with agreement to repurchase totaled $481.7 million at June
30, 1999. The mortgage-backed securities sold with agreement to repurchase
mature at various periods beginning in January, 2000. 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.
-24-
<PAGE>
Presented below is information concerning securities sold with agreements to
repurchase and FHLB Advances for the years ended June 30, 1999, 1998 and 1997:
Securities Sold Under Agreements to Repurchase:
At or For the Year Ended June 30,
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Balance outstanding at end of period $481,660 $256,601 $76,333
Average interest cost at end of period 5.28% 5.74% 5.69%
Average balance outstanding 381,996 145,676 32,374
Average interest cost during the year 5.45% 5.95% 5.73%
Carrying value of underlying collateral $496,500 $267,469 $83,778
Estimated market value of underlying
collateral 491,750 268,991 84,172
Maximum balance outstanding at
month end during period 481,660 256,601 76,333
FHLB Advances:
At or For the Year Ended June 30,
- -------------------------------------------------------------------------------
1999 1998 1997
- -------------------------------------------------------------------------------
(Dollars In Thousands)
Balance outstanding at end of period $250,000 $103,505 $63,210
Average interest cost at end of period 5.52% 6.05% 6.18%
Average balance outstanding 201,494 86,709 20,121
Average interest cost during the year 5.96% 6.04% 5.79%
Maximum balance outstanding at month
end during period 260,000 103,505 63,210
SUBSIDIARY ACTIVITIES
In addition to the Bank, the Company's direct and indirect subsidiaries
consist of six active wholly-owned subsidiary corporations, one of which is
directly owned by the Company and five of which are directly owned by the Bank.
In addition, DSBW Preferred Funding Corp. is a direct subsidiary of Havemeyer
Equities Inc., a direct subsidiary of the Bank. The following table presents
an overview of the Company's subsidiaries as of June 30, 1999.
<TABLE>
<CAPTION>
<S> <C> <C>
COMPANY Year/ State of Incorporation Primary Business Activities
- --------------------------------------------------------------------------------------------------------------------------------
Havemeyer Equities Inc. 1977 / New York Ownership of DSBW Preferred Funding Corp.
Boulevard Funding Corp. 1981 / New York Currently Inactive
Havemeyer Brokerage Corp. <F1> 1983 / New York <F1> Management of investment portfolio.
Havemeyer Investments Inc. 1997 / New York Sale of annuity products
DSBW Preferred Funding Corp. 1998 / Delaware Real Estate Investment Trust
DSBW Residential Preferred Funding Corp. 1998 / Delaware Real Estate Investment Trust
Finfed Development Corp. <F2> 1985 / New York Currently Inactive
Finfed Funding Corp. <F2> 1985 / New York Currently Inactive
FS Agency Corp. <F2> 1988 / New York Currently Inactive
842 Manhattan Avenue Corp. <F2> 1995/ New York Management and ownership of real estate.
<FN>
<F1> On August 31, 1999, the Board of Directors of Havemeyer Brokerage
Corporation approved a Plan of Liquidation pursuant to which all of the assets
and liabilities of Havemeyer Brokerage Corporation will be transferred to the
Bank.
<F2> Acquired from FIBC on January 21, 1999.
</TABLE>
PERSONNEL
As of June 30, 1999, the Company had 256 full-time employees and 81 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.
-25-
<PAGE>
FEDERAL, STATE AND LOCAL TAXATION
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 will each report its resepective
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 Bank, as a "large bank" (one with assets having
an adjusted basis of more than $500 million), is unable to make additions to
its tax bad debt reserve, is permitted to deduct bad debts only as they occur
and is required to recapture (i.e. take into income), over a multi-year period,
a portion of the balance of its bad debt reserves as of June 30, 1997. 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 the federal
legislation that imposed such recapture. The recapture is suspended during the
tax years ended June 30, 1997 and 1998, based upon the Bank's origination
levels for certain residential loans which met the minimum levels required by
the Small Business Job Protection Act of 1996, (the "1996 Act") to suspend
recapture for that tax year.
DISTRIBUTIONS. To the extent that the Bank makes "non-dividend
distributions" to shareholders, such distributions will be considered to result
in distributions from the Bank's "base year reserve," i.e. its reserve as of
June 30, 1989, to the extent thereof and then from its supplemental reserve for
losses on loans, and an amount based on the amount distributed will be included
in the Bank's taxable 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.
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 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.
New York State (the "State") enacted legislation, which enables the Bank to
avoid the recapture into income of the State tax bad debt reserves unless one
of the following events occur: 1) the Bank's retained earnings represented by
the reserve is
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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'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 1998 calendar year is 10.53% (including
a commuter transportation surcharge) 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.
New York City also enacted legislation which conformed its tax law regarding
bad debt deductions to New York State's tax law.
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.
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 the Savings Association Insurance Fund ("SAIF")
which are administered by the FDIC, and the Bank 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 pubicly-held unitary
savings and loan holding company, is required to file certain reports with,
and otherwise comply with, the rules and regulations of the
Securities and Exchange Commission (the ''SEC'') under the federal securities
laws and of the OTS.
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
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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, with the amount of commercial loans in excess
of 10% of assets being limited to small business 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 inancing 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, 1999, the
Bank's limit on loans to one borrower was $28.6 million. At June 30, 1999, the
Bank's largest aggregate amount of loans to one borrower was $14.7 million and
the second largest borrower had an aggregate balance of $14.3 million.
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, 1999, the Bank maintained 93.5% 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 any 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 and a risk-based
capital ratio requirement of 8% of core and supplementary capital to total
risk-based assets. The OTS regulations also provide that the minimum leverage
capital ratio, or core capital to total adjusted assets, for a depository
institution that has been assigned the highest composite rating of 1 under
the Uniform Financial Institutions Rating is 3% and that the minimum
leverage capital ratio for any other depository institution is 4%, unless a
higher capital ratio is warranted by the particular circumstances or risk
profile of the depository institution. 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
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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 OTS and other federal banking regulators adopted,
effective October 1, 1998, an amendment to their risk-based capital guidelines
that permits insured depository institutions to include in supplementary
capital up to 45% of the pretax net unrealized holding gains on certain
available-for-sale equity securities, as such gain are computed under the
guidelines. 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
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, 1999:
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Actual Minimum Capital Requirement
---------------------- ---------------------------
Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------
As of June 30, 1999: (Dollars In Thousands)
Tangible $123,817 5.83% $31,846 1.5%
Leverage Capital 123,817 5.83 63,693 3.0%
Risk-based capital 138,123 11.45 96,515 8.0%
The following is a reconciliation of generally accepted accounting principles
(GAAP) capital to regulatory capital for the Bank:
Tangible Leverage Risk-Based
At June 30, 1999 Capital Capital Capital
- ------------------------------------------------------------------------------
(Dollars In Thousands)
GAAP capital $189,405 $189,405 $189,405
- ------------------------------------------------------------------------------
Non-allowable assets:
Unrealized loss on available for
sale securities 3,868 3,868 3,868
Goodwill (64,871) (64,871) (64,871)
Core deposit intangible (4,585) (4,585) (4,585)
General valuation allowance - - 14,306
- ------------------------------------------------------------------------------
Regulatory capital 123,817 123,817 138,123
Minimum capital requirement 31,846 63,693 96,515
- ------------------------------------------------------------------------------
Regulatory capital excess $91,971 $60,124 $41,608
==============================================================================
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. Effective April 1, 1999, the OTS
amended its capital distribution regulations to reduce regulatory burdens
on savings associations. Under the amended OTS regulations governing
capital distributions, certain savings associations are permitted to pay
capital distributions during a calendar year that do not exceed the
association's net income for the year plus its retained net income for the
prior two years, without notice to, or the approval of, the OTS.
However, a savings association subsidiary of a savings and loan holding
company, such as the Company, will continue to have to file an application
to receive the approval of the OTS. These new regulations are more
restrictive to the Company than regulations being replaced based upon
the Company's historical dividend declaration activities.
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.''
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 4%. Monetary penalties
may be imposed for failure to meet these liquidity requirements. The Bank's
average liquidity ratio for the month ended June 30, 1999 was 10.0% 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
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assessment expense during the year ended June 30, 1999 totaled $404,000. The
OTS has adopted amendments to its regulations, effective January 1, 1999, that
are intended to assess savings associations on a more equitable basis. The
regulations base the assessment for an individual savings association on
three components: the size of the association, on which the basic assessment
is based; the association's supervisory condition, which results in
percentage increases for any savings institution with a composite rating of 3,
4 or 5 in its most recent safety and soundness examination; and the complexity
of the association's operations, which results in percentage increases for a
savings association that managed over $1 billion in trust assets, serviced for
others loans aggregating more than $1 billion, or had certain off-balance sheet
assets aggregating more than $1 billion. In order to avoid a disproportionate
impact upon the smaller savings institutions, which are those whose total
assets never exceeded $100.0 million, the new regulations provide that the
portion of the assessment based on asset size will be the lesser of the
assessment under the amended regulations or the regulations before the
amendment. Management believes that any changes in the rate of OTS
assessments under the amended regulations will not be material.
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 rates an institution based on its actual performance in
meeting community needs. In particular, the amended system focuses 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.
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.
Currently, a subsidiary of a bank that is not also a depository institution is
not treated as an affiliate of the bank for purposes of Sections 23A and 23B,
but the Federal Reserve Bank has proposed treating any subsidiary of a bank
that is engaged in activities not permissible for bank holding companies under
the BHCA as an affiliate for purposes of Sections 23A and 23B. 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,
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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.
STANDARDS FOR SAFETY AND SOUNDNESS. Pursuant to the requirements of the
FDI Act, as amended by FDICIA and the Riegle Community Development and
Regulatory Improvement Act of 1994 (''Community Development Act''), the OTS,
together with the other federal bank regulatory agencies, have adopted 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, asset quality,
earnings 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. In addition, the OTS adopted regulations
pursuant to FDICIA 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.
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.
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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 Tier 1 risk-based capital ratio that is less than 4.0% or a
leverage ratio (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
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
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<PAGE>
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 institution's 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%. Both the BIF and SAIF currently
satisfy the reserve ratio requirement. 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 of 1996 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. 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.
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. For the semi-annual period beginning July 1, 1998, the
rates of assessment for the FICO bonds is 0.0122% for BIF-assessable deposits
and 0.0610 for SAIF-assessable deposits.
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, 1999, of $28.3 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
$1.5 million, $663,000, and $503,000 and during the years ended June 30, 1999,
1998 and 1997, 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 $46.5 million. The amount of
aggregate transaction accounts in excess of $46.5 million are currently subject
to a reserve ratio of 10%, which ratio the FRB may adjust between 8% and 14%.
The FRB regulations currently exempt $4.9 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,
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<PAGE>
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.
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 file an application with 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.
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<PAGE>
ITEM 2 - PROPERTIES
The Bank conducts its business through nineteen full-service offices,
including eight offices acquired from Conestoga in June, 1996, and five offices
acquired from FIBC in January, 1999. 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>
<S> <C> <C> <C> <C>
Leased or Date Leased Lease Expiration Net Book Value
Owned or Acquired Date at June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE OFFICE Owned 1989 - $3,695,792
275 South 5th Street
Brooklyn. New York 11211
MAIN OFFICE Owned 1906 - $803,775
209 Havemeyer Street
Brooklyn, New York 11211
AVENUE M BRANCH Owned 1993 - $477,115
1600 Avenue M at East 16th
Street
Brooklyn, New York 11230
BAYSIDE BRANCH Leased 1974 May, 2004 $48,337
61-38 Springfield Boulevard
Bayside, New York 11364
BELLMORE BRANCH Owned 1973 - $465,418
2412 Jerusalem Avenue
Bellmore, New York 11710
BENSONHURST BRANCH Owned 1978 - $1,265,741
1545 86th Street
Brooklyn, New York 11228
BRONX BRANCH <F1> Leased 1965 October, 2006 $89,415
1931 Turnbull Avenue
Bronx, New York 10473
FLUSHING BRANCH Leased 1974 November, 2013 $232,947
59-23 Main Street
Flushing, New York 11355
GATES AVENUE BRANCH Owned 1905 - $238,545
1012 Gates Avenue
Brooklyn, New York 11221
GREENPOINT BRANCH Owned 1995 - $832,597
814 Manhattan Avenue
Brooklyn, NY 11222
HELP CENTER Leased 1998 May, 2003 $109,248
1379 Jerusalem Avenue
Merrick, New York 11566
HILLCREST BRANCH Leased 1971 May, 2001 $41,987
176-47 Union Turnpike
Flushing, New York 11366
JACKSON HEIGHTS BRANCH Leased 1990 August, 2005 $199,007
75-23 37th Avenue
Jackson Heights, New York
11372
KINGS HIGHWAY BRANCH Owned 1976 - $766,429
1902-1904 Kings Highway
Brooklyn, New York 11229
LONG ISLAND CITY BRANCH Leased 1976 April, 2001 $91,483
45-14 46{th} Street
Long Island City, New York
11104
MARINE PARK BRANCH Owned 1993 - $825,535
2172 Coyle Street
Brooklyn, NY 11229
MERRICK BRANCH Owned 1960 - $234,958
1775 Merrick Avenue
Merrick, New York 11566
PORT WASHINGTON BRANCH Owned 1971 - $406,056
1000 Port Washington Boulevard
Port Washington, New York
11050
SUNNYSIDE BRANCH Owned 1962 - $2,894,168
42-25 Queens Boulevard
Long Island City, New York
11104
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<PAGE>
PROPERTIES (CONTINUED)
WESTBURY BRANCH <F2> <F3> 1994 - $502,596
622 Old Country Road
Westbury, New York 11590
WHITESTONE BRANCH Owned 1979 - $753,399
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> This branch office opened April 29, 1995.
<F3> Building owned, land leased. Lease expires in October, 2003.
</TABLE>
<PAGE>
ITEM 3 - LEGAL PROCEEDINGS
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 1999 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 1999 Annual Report
to Shareholders for the year ended June 30, 1999 ("1999 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 1999 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 1999 Annual Report to
Shareholders under the caption "Discussion of Market Risk" and is incorporated
herein by reference.
ITEM 8. - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information regarding financial statements and supplementary data, including
the Independent Auditors' Report appears in the 1999 Annual Report under the
captions:
"Independent Auditors' Report," "Consolidated Statements of Financial Condition
at June 30, 1999 and 1998,"
"Consolidated Statements of Operations for each of the years in the three year
period ended June 30, 1999,"
"Consolidated Statements of Stockholders' Equity for each of the years in the
three year period ended
June 30, 1999," "Consolidated Statements of Cash Flows for each of the years in
the three year period ended
June 30,1999,"and "Notes to Consolidated Financial Statements," and is
incorporated herein by this reference.
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<PAGE>
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 10, 1999 (the "Proxy Statement") which will
be filed with the SEC within 120 days of June 30, 1999, 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, 1999, and are incorporated herein by
reference:
Independent Auditors' Report
Consolidated Statements of Financial Condition at June 30, 1999 and 1998
Consolidated Statements of Operations for each of the years in the three
year period ended June 30, 1999
Consolidated Statements of Stockholders' Equity for each of the years in
the three year period ended
June 30, 1999
Consolidated Statements of Cash Flows for each of the years in the three
year period ended
June 30,1999
Notes to Consolidated Financial Statements
Quarterly Results of Operations (Unaudited) for each of the years in the
two year period ended June 30, 1999
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<PAGE>
The remaining information appearing in the 1999 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, 1999
NONE
(c) Exhibits Required by Item 601 of Securities and Exchange Commission
Regulation S-K:
EXHIBIT
NUMBER
- ------------
3.1 Certificate of Incorporation of Dime Community Bancshares, Inc.(1)
3.2 Bylaws of Dime Community Bancshares, Inc. (1)
4.1 Certificate of Incorporation of Dime Community Bancshares, Inc. (See
Exhibit 3.1 hereto).
4.2 Bylaws of Dime Community Bancshares, Inc. (See Exhibit 3.2 hereto).
4.3 Draft Stock Certificate of Dime Community Bancshares, Inc. (1)
4.4 Certificate of Designations, Preferences and Rights of Series A Junior
Participating Preferred Stock (2)
4.5 Rights Agreement, dated as of April 9, 1998, between Dime Community
Bancorp, Inc. and ChaseMellon Shareholder Services, L.L.C., as Rights
Agent (2)
4.6 Form of Rights Certificate (2)
10.1 Agreement and Plan of Merger, dated as of July 18, 1998, by and
between Dime Community Bancshares, Inc. and Financial Bancorp, Inc.
(3)
10.2 Amended and Restated Employment Agreement between The Dime Savings
Bank of Williamsburgh and Vincent F. Palagiano (4)
10.3 Amended and Restated Employment Agreement between The Dime Savings
Bank of Williamsburgh and Michael P. Devine (4)
10.4 Amended and Restated Employment Agreement between The Dime Savings
Bank of Williamsburgh and Kenneth J. Mahon (4)
10.5 Employment Agreement between Dime Community Bancorp, Inc. and Vincent
F. Palagiano (4)
10.6 Employment Agreement between Dime Community Bancorp, Inc. and Michael
P. Devine (4)
10.7 Employment Agreement between Dime Community Bancorp, Inc. and
Kenneth J. Mahon (4)
10.8 Form of Employee Retention Agreements by and among The Dime Savings
Bank of Williamsburgh, Dime Community Bancorp, Inc. and certain
executive officers (4)
10.9 The Benefit Maintenance Plan of Dime Community Bancorp, Inc. (5)
10.10 Severance Pay Plan of The Dime Savings Bank of Williamsburgh (4)
10.11 Retirement Plan for Board Members of Dime Community Bancorp, Inc. (5)
10.12 Dime Community Bancorp, Inc. Stock Option Plan for Outside Directors ,
Officers and Employees, as amended by amendments number 1 and 2. (5)
10.13 Recognition and Retention Plan for Outside Directors, Officers and
Employees of Dime Community Bancorp, Inc., as amended by amendments
number 1 and 2. (5)
10.14 Form of stock option agreement for Outside Directors under Dime
Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees. (5)
10.15 Form of stock option agreement for officers and employees under Dime
Community Bancorp, Inc. 1996 Stock Option Plan for Outside Directors,
Officers and Employees (5)
10.16 Form of award notice for outside directors under the Recognition and
Retention Plan for Outside Directors, Officers and Employees of Dime
Community Bancorp, Inc. (5)
10.17 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. (5)
10.18 Financial Federal Savings Bank Incentive Savings Plan in RSI
Retirement Trust.
10.19 Financial Federal Savings Bank Employee Stock Ownership Plan.
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<PAGE>
10.20 Option Certificates between Dime Community Bancshares, Inc. and
each of Messrs. Russo, Segrete, Calamari, Latawiec, O'Gorman
and Ms. Swaya pursuant to Section 1.6(b) of the Agreement and
Plan of Merger, dated as of July 18, 1998, by and between Dime
Community Bancshares, Inc. and Financial Bancorp, Inc.
11.0 Statement Re: Computation of Per Share Earnings
13.1 1999 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
27.1 Financial Data Schedule (EDGAR filing only)
(1) Incorporated by reference to the registrant's Annual Report of Form 10K for
the fiscal year ended June 30, 1998, and filed on September 28, 1998.
(2) Incorporated by reference to the registrant's Current Report on Form 8-K
dated April 9, 1998, and filed on April 16, 1998.
(3) Incorporated by reference to the registrant's Current Report on Form 8-K,
dated July 18, 1998, and filed on July 20, 1998, and amended in July 27,
1998.
(4) Incorporated by reference to Exhibits to the Annual Report on Form 10-K for
the fiscal year ended June 30, 1997 and filed on September 26, 1997.
(5) Incorporated by reference to the registrant's Annual Report of Form 10K for
the fiscal year ended June 30, 1997, and filed on September 26, 1997.
(6) Incorporated by reference to the registrant's Current Report on Form 8-K,
dated July 18, 1998, and filed on July 20, 1998, and amended in July 27,
1998.
-40-
<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 28, 1999.
Dime Community Bancshares, 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 28,1999
Executive Officer (Principal
executive officer)
/S/ MICHAEL P. DEVINE
Michael P. Devine President and Chief Operating September 28, 1999
Officer and Director
/S/ KENNETH J. MAHON
Kenneth J. Mahon Executive Vice President, and September 28, 1999
Chief Financial Officer
(Principal financial officer)
/S/ ANTHONY BERGAMO
Anthony Bergamo Director September 28, 1999
/S/ GEORGE L. CLARK, JR.
George L. Clark, Jr. Director September 28, 1999
/S/ STEVEN D. COHN
Steven D. Cohn Director September 28, 1999
/S/ PATRICK E. CURTIN
Patrick E. Curtin Director September 28, 1999
</TABLE>
-41-
<PAGE>
<TABLE>
<CAPTION>
/S/ JOSEPH H. FARRELL Director September 28, 1999
Joseph H. Farrell
<S> <C> <C>
/S/ FRED P. FEHRENBACH
Fred P. Fehrenbach Director September 28, 1999
/S/ JOHN J. FLYNN
John J. Flynn Director September 28, 1999
/S/ MALCOLM T. KITSON
Malcolm T. Kitson Director September 28, 1999
/S/ STANLEY MEISELS
Stanley Meisels Director September 28, 1999
/S/ LOUIS V. VARONE
Louis V. Varone Director September 28, 1999
</TABLE>
-42-
Financial Federal Savings
and Loan Association
Incentive Savings Plan
In RSI Retirement Trust
(AS AMENDED AND RESTATED EFFECTIVE MARCH 2, 1993
AND AS FURTHER AMENDED THROUGH JANUARY 1, 1994)
q:\789\pldoc\011794
<PAGE>
TABLE OF CONTENTS
TABLE OF CONTENTS 1
INTRODUCTION 4
ARTICLE I - DEFINITIONS 5
ARTICLE II - ELIGIBILITY AND PARTICIPATION 15
2.1 Eligibility 15
2.2 Ineligible Employees 15
2.3 Participation 16
2.4 Termination of Participation 16
2.5 Eligibility upon Reemployment 16
ARTICLE III - CONTRIBUTIONS AND LIMITATIONS ON
CONTRIBUTIONS 18
3.1 Basic Contributions 18
3.2 Limitation on Basic Contributions 18
3.3 Changes in Basic Contributions 19
3.4 Matching Contributions 20
3.5 Special Contributions 21
3.6 Limitation on Matching Contributions 21
3.7 Aggregate Limit; Multiple Use of Alternative
Limitation 22
3.8 Interest on Excess Contributions 23
3.9 Payment of Contributions to the Trust 24
3.10 Rollover Contributions 25
3.11 Section 415 Limits on Contributions 25
ARTICLE IV - VESTING AND FORFEITURES 29
4.1 Vesting 29
4.2 Forfeitures 30
4.3 Vesting upon Reemployment 30
ARTICLE V - TRUST FUND AND INVESTMENT ACCOUNTS 32
5.1 Trust Fund 32
5.2 Interim Investments 32
5.3 Account Values 32
ARTICLE VI - INVESTMENT DIRECTIONS, CHANGES OF
INVESTMENT DIRECTIONS AND
TRANSFERS BETWEEN INVESTMENT ACCOUNTS 34
6.1 Investment Directions 34
6.2 Change of Investment Directions 34
6.3 Transfers Between Investment Accounts 34
6.4 Employees Other than Participants 34
<PAGE>
ARTICLE VII - PAYMENT OF BENEFITS 36
7.1 General 36
7.2 Non-Hardship Withdrawals 36
7.3 Hardship Distributions 37
7.4 Distribution of Benefits Following Retirement
or Termination of Service 40
7.5 Payments upon Retirement or Disability 40
7.6 Payments upon Termination of Service for
Reasons Other Than Retirement or
Disability 42
7.7 Payments upon Death 43
7.8 Direct Rollover of Eligible Rollover
Distributions 45
7.9 Commencement of Benefits 46
ARTICLE VIII - LOANS TO PARTICIPANTS 47
8.1 Definitions and Conditions 47
8.2 Loan Amount 47
8.3 Term of Loan 47
8.4 Operational Provisions 48
8.5 Repayments 49
8.6 Default 50
8.7 Coordination of Outstanding Account
and Payment of Benefits 50
ARTICLE IX - ADMINISTRATION 52
9.1 General Administration of the Plan 52
9.2 Designation of Named Fiduciaries 52
9.3 Responsibilities of Fiduciaries 52
9.4 Plan Administrator 53
9.5 Committee 53
9.6 Powers and Duties of the Committee 53
9.7 Certification of Information 55
9.8 Authorization of Benefit Payments 55
9.9 Payment of Benefits to Legal Custodian 55
9.10 Service in More Than One Fiduciary Capacity 55
9.11 Payment of Expenses 55
ARTICLE X - BENEFIT CLAIMS PROCEDURE 57
10.1 Definition 57
10.2 Claims 57
10.3 Disposition of Claim 57
10.4 Denial of Claim 57
10.5 Inaction by Plan Administrator 58
10.6 Right to Full and Fair Review 58
10.7 Time of Review 58
10.8 Final Decision 58
<PAGE>
ARTICLE XI - AMENDMENT, TERMINATION, AND WITHDRAWAL 59
11.1 Amendment and Termination 59
11.2 Withdrawal from the Trust Fund 59
ARTICLE XII - TOP-HEAVY PLAN PROVISIONS 60
12.1 Introduction 60
12.2 Definitions 60
12.3 Limit on Top-Heavy Earnings 64
12.4 Minimum Contributions 64
12.5 Impact on Section 415 Maximum Benefits 65
12.6 Vesting 65
ARTICLE XIII - MISCELLANEOUS PROVISIONS 67
13.1 No Right to Continued Employment 67
13.2 Merger, Consolidation, or Transfer 67
13.3 Nonalienation of Benefits 67
13.4 Missing Payee 67
13.5 Affiliated Employers 68
13.6 Successor Employer 68
13.7 Return of Employer Contributions 68
13.8 Construction of Language 68
13.9 Headings 68
13.10 Governing Law 69
<PAGE>
INTRODUCTION
Effective as of June 1, 1984, Financial Federal Savings and Loan
Association ("Employer") adopted the Financial Federal Savings and Loan
Association Incentive Savings Plan ("Prior Plan").
Effective as of March 2, 1993, the Employer adopted resolutions wherein RSI
Retirement Trust was named successor trustee and the RSI Retirement Trust
Agreement and Declaration of Trust ("Agreement") was adopted.
Effective as of March 2, 1993, the Prior Plan was amended and restated in
its entirety. The amended and restated plan shall be known as the
Financial Federal Savings and Loan Association Incentive Savings Plan in
RSI Retirement Trust ("Plan"), shall contain the terms and conditions set
forth herein, and shall in all respects be subject to the provisions of the
Agreement which are incorporated herein and made a part hereof.
The Plan as amended and restated hereunder incorporates a cash or deferred
arrangement under Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Plan shall constitute a profit-sharing plan within the meaning of
Section 401(a) of the Code.
Subject to any amendments that may subsequently be adopted by the Employer
prior to his Termination of Service, the provisions set forth in this Plan
shall apply to an Employee who is in the employment of the Employer on or
after March 2, 1993. Except to the extent specifically required to the
contrary under the terms of this Plan, for terminations of employment prior
to March 2, 1993, the rights and benefits of a former participant shall be
determined in accordance with the provisions of the Plan or Prior Plan as
in effect on the date of the former participant's termination of
employment.
The Employer has herein restated the Plan with the intention that (a) the
Plan shall at all times be qualified under Section 401(a) of the Code, (b)
the Agreement shall be tax-exempt under Section 501(a) of the Code, and (c)
Employer contributions under the Plan shall be tax deductible under Section
404 of the Code. The provisions of the Plan and the Agreement shall be
construed to effectuate such intentions.
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ARTICLE I - DEFINITIONS
The following words and phrases shall have the meanings hereinafter
ascribed to them. Those words and phrases which have limited application
are defined in the respective Articles in which such terms appear.
1.1 ACCOUNTS means the Basic Contribution Account, Special Contribution
Account, Matching Contribution Account and Rollover Contribution
Account established under the Plan on behalf of an Employee.
1.2 ACTUAL CONTRIBUTION PERCENTAGE means the ratio (expressed as a
percentage) of the sum of Matching Contributions under the Plan which
are made on behalf of an Eligible Employee for the Plan Year to such
Eligible Employee's compensation (as defined under Section 414(s) of
the Code) for the Plan Year. An Eligible Employee's compensation
hereunder shall include compensation receivable from the Employer for
that portion of the Plan Year during which the Employee is an Eligible
Employee, up to a maximum of $200,000, adjusted as prescribed by the
Secretary of the Treasury under Section 401(a)(17) of the Code.
Commencing January 1, 1994, the amount of Compensation taken into
account for a Plan Year shall not exceed $150,000, adjusted in
multiples of $10,000 for increases in the cost-of-living as prescribed
by the Secretary of the Treasury under Section 401(a)(17)(B) of the
Code. In determining compensation, the rules of Section 414(q)(6) of
the Code shall apply except that the term "family" shall include only
the Spouse and those lineal descendants of the Employee who have not
attained age nineteen (19) before the close of the Plan Year.
1.3 ACTUAL DEFERRAL PERCENTAGE means the ratio (expressed as a percentage)
of the sum of Basic Contributions and Qualified Nonelective
Contributions taken into account under the Plan for the purpose of
determining the Actual Deferral Percentage, which are made on behalf
of an Eligible Employee for the Plan Year to such Eligible Employee's
compensation (as defined under Section 414(s) of the Code) for the
Plan Year. An Eligible Employee's compensation hereunder shall
include compensation receivable from the Employer for that portion of
the Plan Year during which the Employee is an Eligible Employee, up to
a maximum of $200,000, adjusted as prescribed by the Secretary of the
Treasury under Section 401(a)(17) of the Code. Commencing January 1,
1994, the amount of Compensation taken into account for a Plan Year
shall not exceed $150,000, adjusted in multiples of $10,000 for
increases in the cost-of-living as prescribed by the Secretary of the
Treasury under Section 401(a)(17)(B) of the Code. In determining
compensation, the rules of Section 414(q)(6) of the Code shall apply
except that the term "family" shall include only the Spouse and those
lineal descendants of the Employee who have not attained age nineteen
(19) before the close of the Plan Year.
1.4 AFFILIATED EMPLOYER means a member of an affiliated service group (as
defined under Section 414(m) of the Code), a controlled group of
corporations (as defined under Section 414(b) of the Code), a group of
trades or businesses under common control (as defined under Section
414(c) of the Code) of which the Employer is a member, any
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<PAGE>
leasing
organization (as defined under Section 414(n) of the Code) providing
the services of Leased Employees to the Employer, or any other group
provided for under any and all Income Tax Regulations promulgated by
the Secretary of the Treasury under Section 414(o) of the Code.
1.5 AFFILIATED SERVICE means employment with an employer during the period
that such employer is an Affiliated Employer.
1.6 AGREEMENT means the RSI Retirement Trust Agreement and Declaration of
Trust as amended and restated August 1, 1990, as amended from time to
time. The Agreement shall be incorporated herein and constitute a
part of the Plan.
1.7 AVERAGE ACTUAL CONTRIBUTION PERCENTAGE means the average of the Actual
Contribution Percentages of (a) the group comprised of Eligible
Employees who are Highly Compensated Employees or (b) the group
comprised of Eligible Employees who are Non-Highly Compensated
Employees, whichever is applicable.
1.8 AVERAGE ACTUAL DEFERRAL PERCENTAGE means the average of the Actual
Deferral Percentages of (a) the group comprised of Eligible Employees
who are Highly Compensated Employees or (b) the group comprised of
Eligible Employees who are Non-Highly Compensated Employees, whichever
is applicable.
1.9 BASIC CONTRIBUTION ACCOUNT means the separate, individual account
established on behalf of a Participant to which Basic Contributions
made on his behalf are credited, together with all earnings and
appreciation thereon, and against which are charged any withdrawals,
loans and other distributions made from such account and any losses,
depreciation or expenses allocable to amounts credited to such
account.
1.10 BASIC CONTRIBUTIONS means the contributions of the Employer made in
accordance with the Compensation Reduction Agreements of Participants
pursuant to Section 3.1.
1.11 BENEFICIARY means any person who is receiving or is eligible to
receive a benefit under Section 7.7 of the Plan upon the death of an
Employee or former Employee.
1.12 BOARD means the board of trustees, directors or other governing body
of the Employer.
1.13 CODE means the Internal Revenue Code of 1986, as amended from time to
time.
1.14 COMMITTEE means the person or persons appointed by the Employer in
accordance with Section 9.2(b).
1.15 COMPENSATION means an Employee's wages, salary, fees and other amounts
defined as compensation in Section 415(c)(3) of the Code and Income
Tax Regulations Sections 1.415-2(d)(2) and (3), received for personal
services actually rendered in the course of employment with the
Employer for the calendar year, prior to any reduction pursuant to a
Compensation Reduction Agreement. Compensation shall include
commissions, compensation based on profits, overtime, bonuses, wage
continuation payments to an Employee absent due to illness or
disability of a short-term nature, amounts paid or reimbursed by the
Employer for Employee moving expenses (to the extent not deductible by
the Employee), and the value of any nonqualified stock option granted
to an Employee by the Employer (to the extent includable in gross
income for the year granted).
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Compensation does not include contributions made by the Employer to
any other pension, deferred compensation, welfare or other employee
benefit plan, amounts realized from the exercise of a nonqualified
stock option or the sale of a qualified stock option, and other
amounts which receive special tax benefits.
Compensation shall not exceed $200,000, adjusted as prescribed by the
Secretary of the Treasury under Section 401(a)(17) of the Code.
Commencing January 1, 1994, Compensation shall not exceed $150,000,
adjusted in multiples of $10,000 for increases in the cost-of-living,
as prescribed by the Secretary of he Treasury under Section
401(a)(17)(B) of the Code. For purposes of this Section 1.15, if the
Plan Year in which a Participant's Compensation is paid is less than
twelve (12) calendar months, the applicable limitation hereunder, for
such Plan Year multiplied by a fraction, the numerator of which is the
number of months taken into account for such Plan Year and the
denominator of which is twelve (12). In determining the dollar
limitation hereunder, compensation received from any Affiliated
Employer shall be recognized as Compensation and the rules of Section
414(q)(6) of the Code shall apply except that the term "family" shall
include only the Spouse and those lineal descendants of the Employee
who have not attained age nineteen (19) before the close of the Plan
Year.
1.16 COMPENSATION REDUCTION AGREEMENT means an agreement between the
Employer and an Eligible Employee whereby the Eligible Employee agrees
to reduce his Compensation during the applicable payroll period by an
amount equal to any whole percentage thereof and the Employer agrees
to contribute to the Trust, on behalf of such Eligible Employee, an
amount equal to the specified reduction in Compensation.
1.17 COMPUTATION PERIOD means the twelve (12) consecutive month period
commencing with the Employee's Employment Commencement Date and each
Plan Year commencing subsequent to the Employee's Employment
Commencement Date
1.18 DISABILITY means a physical or mental condition, determined after
review of those medical reports deemed satisfactory for this purpose,
which renders the Participant totally and permanently incapable of
engaging in any substantial gainful employment based on his education,
training and experience.
1.19 EARLY RETIREMENT DATE means the first day of any month coincident with
or following the later of (a) the Participant's attainment of age
fifty-five (55) or (b) the completion of a Period of Service of ten
(10) years.
1.20 EFFECTIVE DATE means June 1, 1984.
1.21 ELIGIBLE EMPLOYEE means an Employee who is eligible to participate in
the Plan pursuant to the provisions of Article II.
1.22 EMPLOYEE means any person employed by the Employer.
1.23 EMPLOYER means Financial Federal Savings and Loan Association or any
successor organization which shall continue to maintain the Plan set
forth herein.
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1.24 EMPLOYER RESOLUTIONS means resolutions adopted by the Board.
1.25 EMPLOYMENT COMMENCEMENT DATE means the date on which an Employee first
performs an Hour of Service for the Employer upon initial employment
or, if applicable, upon reemployment.
1.26 ERISA means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
1.27 FORFEITURES means any amounts forfeited pursuant to Section 4.2 by a
Participant whose Termination of Service occurs prior to such
Participant's being fully vested in the Net Value of his Account.
1.28 HARDSHIP means the condition described in Section 7.3.
1.29 HIGHLY COMPENSATED EMPLOYEE means, with respect to a Plan Year, an
Employee or an employee of an Affiliated Employer who is such an
Employee or employee during the Plan Year for which a determination is
being made and who:
(a) during the Plan Year immediately preceding the Plan Year for
which a determination is being made:
(i) received compensation as defined under Section 414(q)(7) of
the Code ("Section 414(q) Compensation") from the Employer
of greater than $75,000, adjusted as prescribed by the
Secretary of the Treasury under Section 415(d) of the Code,
or
(ii) received Section 414(q) Compensation from the Employer of
greater than $50,000, adjusted as prescribed by the
Secretary of the Treasury under Section 415(d) of the Code,
and was a member of the top-paid group of Employees (as
defined under Section 414(q)(4) of the Code) ("Top-Paid
Group"), or
(iii) was an officer (as determined in accordance with Section
414(q)(5) of the Code) of the Employer who received Section
414(q) Compensation from the Employer of greater than fifty
percent (50%) of the dollar limitation in effect under
Section 415(b)(1)(A) of the Code, or if no such officer of
the Employer satisfied such compensation was the highest
paid officer for such year, or
(b) during the Plan Year for which a determination is being made,
satisfies the requirements of subsection (a)(i), (ii) or (iii),
determined without regard to "during the Plan Year immediately
preceding the Plan Year for which a determination is made", and
is a member of the group consisting of the one hundred (100)
Employees receiving the highest Section 414(q) Compensation from
the Employer during such Plan Year ("Top 100 Employees"), or
8
<PAGE>
(c) at any time during the Plan Year for which a determination is
being made or at any time during the Plan Year immediately
preceding the Plan Year for which a determination is being made,
was a five-percent owner as described under Section 414(q)(3) of
the Code.
Highly Compensated Employee also means a former Employee who (A)
incurred a Termination of Service prior to the Plan Year of the
determination, (B) is not credited with an Hour of Service during the
Plan Year of the determination and (C) satisfied the requirements of
subsection (a), (b) or (c) during either the Plan Year of his
Termination of Service or any Plan Year ending coincident with or
subsequent to the Employee's attainment of age fifty-five (55).
If, during either the Plan Year of the determination or the preceding
Plan Year, an Employee is a Family Member of either (1) a five-percent
owner (as defined under Section 414(q)(3) of the Code), or (2) a
Highly Compensated Employee who is among the ten (10) highly
compensated Employees receiving the highest Section 414(q)
Compensation from the Employer during such Plan Year, the Section
414(q) Compensation and the Accounts of the Family Member shall be
aggregated with the Section 414(q) Compensation and the Accounts of
such Highly Compensated Employee and the Family Member and the Highly
Compensated Employee shall be treated as a single Employee. For
purposes of this Section 1.29, Family Member includes the Spouse,
lineal ascendants and descendants of the Employee or former Employee
and the spouse of a lineal ascendant or descendant.
The determination of the number and identity of Employees in the Top-
Paid Group, the Top 100 Employees, and the number of Employees treated
as officers shall be made in accordance with Section 414(q) of the
Code and regulations promulgated thereunder by the Secretary of the
Treasury.
1.30 HOUR OF SERVICE means the following:
(a) each hour for which an Employee is directly or indirectly paid,
or entitled to payment, by the Employer for the performance of
duties. These hours shall be credited to the Employee for the
computation period or periods in which the duties are performed;
and
(b) each hour, up to a maximum of five hundred and one (501) hours
for any single continuous period, for which an Employee is
directly or indirectly paid or entitled to payment by the
Employer for reasons (such as but not limited to vacation,
sickness or disability) other than for the performance of duties
(irrespective of whether the employment relationship has
terminated). These hours shall be credited to the Employee for
the computation period or periods in which the nonperformance of
duties occur; and
(c) each hour for which back pay, irrespective of mitigation of
damage, has been either awarded or agreed to by the Employer.
These hours shall be credited to the Employee for the computation
period or periods to which the award or agreement pertains rather
than the computation period in which the award, agreement, or
payment was made. Hours shall not be credited for payment to an
individual
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<PAGE>
from a plan required by workmen's compensation, or
disability insurance law, nor shall hours be credited for
reimbursement of an individual for his medical or medically
related expenses. These same Hours of Service shall not be
credited under both paragraph (a) or paragraph (b) of this
Section, and under this paragraph (c).
(d) Hours of Service shall be computed and credited in accordance
with Section 2530.200b-2 of the Department of Labor Regulations
which are incorporated herein by reference.
(e) Hours of Service shall include Affiliated Service.
Hours of Service for whom records are not maintained shall be
determined on the assumption that each Employee has completed eight
(8) Hours of Service per day for which he would be required to be
credited with at least one (1) Hour of Service.
1.31 INVESTMENT ACCOUNTS means any and all of the investment accounts
established by a separate written agreement between the Employer and
the Trustees for the purpose of investing contributions made to the
Trust Fund in accordance with the provisions of the Agreement. The
securities and other property in which contributions to the Investment
Accounts of the Trust Fund may be invested shall be specified in the
Agreement and the rights of the Trustees shall be established in
accordance with the provisions of such Agreement.
1.32 LEASED EMPLOYEE means any individual (other than an Employee of the
Employer or an employee of an Affiliated Employer) who, pursuant to an
agreement between the Employer or any Affiliated Employer and any
other person ("leasing organization"), has performed services for the
Employer or any Affiliated Employer on a substantially full-time basis
for a period of at least one (1) year, and such services are of a type
historically performed by employees in the business field of the
Employer or any Affiliated Employer. A determination as to whether a
Leased Employee shall be treated as an Employee of the Employer or an
Affiliated Employer shall be made in accordance with Section 414(n) of
the Code and any and all Income Tax Regulations promulgated
thereunder.
1.33 MATCHING CONTRIBUTION ACCOUNT means the separate, individual account
established on behalf of a Participant to which the Matching
Contributions made on such Participant's behalf under the Prior Plan
or the Plan are credited, together with all earnings and appreciation
thereon, and against which are charged any withdrawals, loans and
other distributions made from such account and any losses,
depreciation or expenses allocable to amounts credited to such
account.
1.34 MATCHING CONTRIBUTIONS means the contributions made by the Employer
pursuant to Section 3.4.
1.35 NAMED FIDUCIARIES means the Trustees and the Committee designated by
the Employer to control and manage the operation and administration of
the Plan.
1.36 NET VALUE means the value of an Employee's Accounts as determined as
of the Valuation Date coincident with or next following the event
requiring such determination.
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1.37 NON-HIGHLY COMPENSATED EMPLOYEE means, with respect to a Plan Year, an
Employee who is neither a Highly Compensated Employee nor a family
member as provided in Section 414(q)(6) of the Code.
1.38 NORMAL RETIREMENT AGE means the date an Employee attains age sixty-
five (65).
1.39 NORMAL RETIREMENT DATE means the first day of the month coincident
with or next following the Participant's Normal Retirement Age.
1.40 ONE YEAR PERIOD OF SEVERANCE means a twelve (12) consecutive month
period following an Employee's Termination of Service with the
Employer during which the Employee did not perform an Hour of Service.
Notwithstanding the foregoing, if an Employee's Employment
Commencement Date occurred prior to the Restatement Date, such
Employee incurs a termination of service (as defined under the Prior
Plan) during the Computation Period commencing immediately prior to
the Restatement Date, such Employee's One Year Period of Severance
shall be deemed to have commenced as of the first day following the
last day of such Computation Period. Prior to the Restatement Date, a
One Year Period of Severance means a Plan Year during which the
Employee did not complete more than five hundred (500) Hours of
Service.
Notwithstanding the foregoing, if an Employee is absent from
employment for maternity or paternity reasons, such absence during the
twenty-four (24) month period commencing on the first date of such
absence shall not constitute a One Year Period of Severance. An
absence from employment for maternity or paternity reasons means an
absence (a) by reason of pregnancy of the Employee, or (b) by reason
of a birth of a child of the Employee, or (c) by reason of the
placement of a child with the Employee in connection with the adoption
of such child by such Employee, or (d) for purposes of caring for such
child for a period beginning immediately following such birth or
placement.
1.41 PARTICIPANT means an Eligible Employee who, in accordance with the
provisions of Section 2.3, has elected to participate in the Plan and
whose participation in the Plan has not been terminated in accordance
with the provisions of Section 2.4.
1.42 PERIOD OF SERVICE means a period commencing with an Employee's
Employment Commencement Date and ending on the date such Employee
first incurs a Termination of Service. Notwithstanding the foregoing,
if and Employee's Employment Commencement Date occurred prior to March
1, 1993, such Employee's Period of Service shall not be less than the
sum of:
(a) the number of years of completed years of service credited to
such Employee as of February 28, 1993 under the provisions of the
Prior Plan; and
(b) and additional year of service for the Computation Period
beginning immediately prior to March 2, 1993, provided the
Employee completes at least one thousand Hours of Service during
such Computation Period; and
(c) the period commencing on March 2, 1993 and ending on the date
such Employee first incurs a Termination of Service.
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Notwithstanding the foregoing, the period between the first and second
anniversary of the first date of a maternity or paternity absence
described under Section 1.40 shall not be included in determining a
Period of Service.
A period on or after the Restatement Date during which an individual
was not employed by the Employer shall nevertheless be deemed to be a
Period of Service if such individual incurred a Termination of Service
and:
(a) such Termination of Service was the result of resignation,
discharge or retirement and such individual is reemployed by the
Employer within one (1) year after such Termination of Service;
or
(b) such Termination of Service occurred when the individual was
otherwise absent for less than one (1) year and he was reemployed
by the Employer within one (1) year after the date such absence
began.
All Periods of Service not disregarded under Sections 2.5 and 4.3
shall be aggregated.
Wherever used in the Plan, a Period of Service means the quotient
obtained by dividing the days in all Periods of Service not
disregarded hereunder by 365 and disregarding any fractional
remainder.
1.43 PLAN means the Financial Federal Savings and Loan Association
Incentive Savings Plan in RSI Retirement Trust, as herein restated and
as it may be amended from time to time.
1.44 PLAN ADMINISTRATOR means the person or persons who have been
designated as such by the Employer in accordance with the provisions
of Section 9.4.
1.45 PLAN FUNDS means the assets of the Plan held in the Trust Fund.
1.46 PLAN YEAR means the calendar year.
1.47 POSTPONED RETIREMENT DATE means the first day of the month coincident
with or next following a Participant's date of actual retirement which
occurs after his Normal Retirement Date.
1.48 PRIOR PLAN means the Financial Federal Savings and Loan Association
Incentive Savings Plan as in effect on the date immediately preceding
the Restatement Date.
1.49 QUALIFIED NONELECTIVE CONTRIBUTIONS means contributions, other than
Matching Contributions, made by the Employer, which (a) Participants
may not elect to receive in cash in lieu of their being contributed to
the Plan; (b) are one hundred percent (100%) nonforfeitable when made;
and (c) are not distributable under the terms of the Plan to
Participants or their Beneficiaries until the earliest of:
(i) the Participant's death, Disability or separation from service
for other reasons;
(ii) the Participant's attainment of age fifty-nine and one-half (59-
1/2); or
(iii) termination of the Plan.
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Special Contributions defined under Section 1.55 are Qualified
Nonelective Contributions.
1.50 RESTATEMENT DATE means March 2, 1993.
1.51 RETIREMENT DATE means the Participant's Normal Retirement Date, Early
Retirement Date or Postponed Retirement Date, whichever is applicable.
1.52 ROLLOVER CONTRIBUTION means (a) a contribution to the Plan of money
received by an Employee from a qualified plan or (b) a contribution to
the Plan of money transferred directly from another qualified plan on
behalf of the Employee, which the Code permits to be rolled over into
the Plan.
1.53 ROLLOVER CONTRIBUTION ACCOUNT means the separate, individual account
established on behalf of an Employee to which his Rollover
Contributions are credited together with all earnings and appreciation
thereon, and against which are charged any withdrawals, loans and
other distributions made from such account and any losses,
depreciation or expenses allocable to amounts credited to such
account.
1.54 SPECIAL CONTRIBUTIONS means the contributions made by the Employer
pursuant to Section 3.5. Special Contributions are Qualified
Nonelective Contributions as defined under Section 1.49.
1.55 SPOUSE means a person to whom the Employee was legally married and
which marriage had not been dissolved by formal divorce proceedings
that had been completed prior to the date on which payments to the
Employee are scheduled to commence.
1.56 TERMINATION OF SERVICE means the earlier of (a) the date on which an
Employee's service is terminated by reason of his resignation,
retirement, discharge, death or Disability or (b) the first
anniversary of the date on which such Employee's active service ceases
for any other reason.
Service in the Armed Forces of the United States of America shall not
constitute a Termination of Service but shall be considered to be a
period of employment by the Employer provided that (i) such military
service is caused by war or other emergency or the Employee is
required to serve under the laws of conscription in time of peace,
(ii) the Employee returns to employment with the Employer within six
(6) months following discharge from such military service and (iii)
such Employee is reemployed by the Employer at a time when the
Employee had a right to reemployment at his former position or
substantially similar position upon separation from such military duty
in accordance with seniority rights as protected under the laws of the
United States of America.
A leave of absence granted to an Employee by the Employer shall not
constitute a Termination of Service provided that the Participant
returns to the active service of the Employer at the expiration of any
such period for which leave has been granted.
Notwithstanding the foregoing, an Employee who is absent from service
with the Employer beyond the first anniversary of the first date of
his absence for maternity or paternity reasons set forth in Section
1.40 shall incur a Termination of Service for purposes of the Plan on
the second anniversary of the date of such absence.
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1.57 TRUST means the trust established or maintained under the Agreement
with respect to the Plan.
1.58 TRUST FUND means the assets held in accordance with the Agreement.
1.59 TRUSTEES means the Trustees of the RSI Retirement Trust.
1.60 UNITS means the units of measure of an Employee's proportionate
undivided beneficial interest in one or more of the Investment
Accounts, valued as of the close of business.
1.61 VALUATION DATE means each business day.
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ARTICLE II -
ELIGIBILITY AND PARTICIPATION
2.1 Eligibility
(a) Every Employee who was a Participant in the Prior Plan
immediately prior to the Restatement Date shall continue to be a
Participant on the Restatement Date.
(b) Every other Employee who is not excluded under the provisions of
Section 2.2 shall become an Eligible Employee upon satisfying all
of the following conditions:
(i) completion of a Period of Service of one (1) year;
(ii) attainment of age twenty-one (21); and
(iii) classification as a salaried Employee or an hourly paid
Employee who is regularly scheduled to complete one thousand
(1,000) Hours of Service in a Plan Year.
(c) For purposes of determining (i) if an Employee completed a Period
of Service of one (1) year and (ii) Periods of Service pursuant
to Section 2.5, employment with an Affiliated Employer shall be
deemed employment with the Employer.
(d) An Employee who otherwise satisfies the requirements of this
Section 2.1 but who is excluded under the provisions of Section
2.2 shall become an Eligible Employee immediately upon
classification as an Employee under the provisions of subsection
(b)(iii).
2.2 INELIGIBLE EMPLOYEES
The following classes of Employees are ineligible to participate in
the Plan:
(a) Employees compensated on an hourly-paid basis who are not
regularly scheduled to complete at least one thousand (1,000)
Hours of Service during a Plan Year.
(b) Employees compensated on a daily, commission, fee, or retainer
basis;
(c) Leased Employees;
(d) Employees in a unit of Employees covered by a collective
bargaining agreement with the Employer pursuant to which employee
benefits were the subject of good faith bargaining and which
agreement does not expressly provide that Employees of such unit
be covered under the Plan; and
(e) Owner-Employees. For purposes of this Section 2.2(e), Owner-
Employee means an individual who is a sole proprietor or who is
a partner owning more than ten
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percent (10%) of either the
capital or profits interest of a partnership which adopted the
Plan.
2.3 PARTICIPATION
An Employee who was a Participant in the Prior Plan immediately prior
to the Restatement Date shall continue to be a Participant in the Plan
on the Restatement Date. Commencing as of the Restatement Date, an
Eligible Employee may elect to participate as of the first day of any
payroll period following satisfaction of the eligibility requirements
set forth in Section 2.1. Such election shall be evidenced by
completing and filing the form prescribed by the Committee not less
than ten (10) days prior to the date participation is to commence.
Such form shall include, but not be limited to, a Compensation
Reduction Agreement, a designation of Beneficiary, and an investment
direction as described in Section 6.1. By completing and filing such
form, the Participant authorizes the Employer to make the applicable
payroll deductions from Compensation, commencing on the first
applicable payday coincident with or next following the effective date
of the Participant's election.
2.4 TERMINATION OF PARTICIPATION
Participation in the Plan shall terminate on the earlier of the date a
Participant dies or the entire vested interest in the Net Value of
such Participant's Accounts has been distributed.
2.5 ELIGIBILITY UPON REEMPLOYMENT
If an Employee incurs a One Year Period of Severance prior to
satisfying the eligibility requirements of Section 2.1, service prior
to such One Year Period of Severance shall be disregarded and such
Employee must satisfy the eligibility requirements of Section 2.1 as a
new Employee.
If an Employee incurs a One Year Period of Severance after satisfying
the eligibility requirements of Section 2.1 and:
(a) if such Employee is not vested in any Matching Contributions,
incurs a One Year Period of Severance and again performs an Hour
of Service, the Employee shall receive credit for Periods of
Service prior to a One Year Period of Severance only if the
number of consecutive One Year Periods of Severance is less than
the greater of: (i) five (5) years or (ii) the aggregate number
of such Employee's Periods of Service credited before his One
Year Period of Severance. If such former Employee's Periods of
Service prior to his One Year Period of Severance are recredited
under this Section 2.5, such former Employee shall be eligible to
participate immediately upon reemployment, provided such Employee
is not excluded from participating under the provisions of
Section 2.2. If such former Employee's Periods of Service prior
to his One Year Period of Severance are not recredited under this
Section 2.5, such Employee must satisfy the eligibility
requirements of Section 2.1 as a new Employee;
(b) if such Employee is vested in any Matching Contributions, incurs
a One Year Period of Severance and again performs an Hour of
Service, the Employee shall
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receive credit for Periods of Service
prior to his One Year Period of Severance and shall be eligible
to participate in the Plan immediately upon reemployment,
provided such Employee is not excluded from participating under
the provisions of Section 2.2.
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ARTICLE III -
CONTRIBUTIONS AND LIMITATIONS ON CONTRIBUTIONS
3.1 Basic Contributions
The Employer shall make Basic Contributions for each payroll period in
an amount equal to the amount by which a Participant's Compensation
has been reduced with respect to such period under his Compensation
Reduction Agreement. Subject to the limitations set forth in Sections
3.2 and 3.11, the amount of reduction authorized by the Eligible
Employee shall be limited to whole percentages of Compensation and
shall not be less than one percent (1%) nor greater than fifteen
percent (15%). The Basic Contributions made on behalf of a
Participant shall be credited to such Participant's Basic Contribution
Account and shall be invested in accordance with Article VI of the
Plan.
3.2 LIMITATION ON BASIC CONTRIBUTIONS
(a) The percentage of Basic Contributions made on behalf of a
Participant who is a Highly Compensated Employee shall be limited
so that the Average Actual Deferral Percentage for the group of
such Highly Compensated Employees for the Plan Year does not
exceed the greater of:
(i) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees
for the Plan Year multiplied by 1.25; or
(ii) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees
for the Plan Year, multiplied by two (2); provided that the
difference in the Average Actual Deferral Percentage for
eligible Highly Compensated Employees and eligible Non-
Highly Compensated Employees does not exceed two percent
(2%). Use of this alternative limitation shall be subject
to the provisions of Income Tax Regulations Section
1.401(m)-2 regarding the multiple use of the alternative
deferral tests set forth in Sections 401(k) and 401(m) of
the Code.
If the Average Actual Deferral Percentage for the group of
eligible Highly Compensated Employees exceeds the limitations set
forth in the preceding paragraph, the amount of excess Basic
Contributions for a Highly Compensated Employee shall be
determined by "leveling" the highest Actual Deferral Percentage
until the Average Actual Deferral Percentage for the group of
eligible Highly Compensated Employees complies with such
limitations. For purposes of this paragraph, "leveling" means
reducing the Actual Deferral Percentage of the Highly Compensated
Employee with the highest Actual Deferral Percentage to the
extent required to:
(A) enable the Average Actual Deferral Percentage limitations to
be met, or
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<PAGE>
(B) cause such Highly Compensated Employee's Actual Deferral
Percentage to equal the Actual Deferral Percentage of the
Highly Compensated Employee with the next highest Actual
Deferral Percentage and repeating such process until the
Average Actual Deferral Percentage for the group of eligible
Highly Compensated Employees complies with the Average
Actual Deferral Percentage limitations.
If Basic Contributions made on behalf of a Participant during any
Plan Year exceed the maximum amount applicable to a Participant
as set forth above, any such contributions, including any
earnings thereon as determined under Section 3.8, shall be
characterized as Compensation payable to the Participant and
shall be paid to the Participant from his Basic Contribution
Account no later than two and one-half (2-1/2) months after the
close of such Plan Year.
In the event that the Plan satisfies the requirements of Section
410(b) of the Code only if aggregated with one or more other
plans, or if one or more other plans satisfy the requirements of
Section 410(b) of the Code only if aggregated with the Plan, then
this Section 3.2 shall be applied by determining the Actual
Deferral Percentages of Eligible Employees as if all such plans
were a single plan.
(b) Basic Contributions and elective deferrals (as defined under
Section 402(g) of the Code) under all other plans, contracts or
arrangements of the Employer made on behalf of any Participant
during the 1993 Plan Year shall not exceed $8,994. For Plan
Years commencing after December 31, 1993, Basic Contributions and
elective deferrals (as defined under Section 402(g) of the Code)
under all other plans, contracts or arrangements of the Employer
shall not exceed $7,000, adjusted as prescribed by the Secretary
of the Treasury under Section 415(d) of the Code.
(c) If Basic Contributions made on behalf of a Participant during any
Plan Year exceed the dollar limitation set forth in subsection
(b), such contributions, including any earnings thereon as
determined under Section 3.8, shall be characterized as
Compensation payable to the Participant and shall be paid to the
Participant from his Basic Contribution Account no later than
April 15th of the calendar year following the close of such Plan
Year.
(d) Subject to the requirements of Sections 401(a) and 401(k) of the
Code, the maximum amounts under subsections (a) and (b) may
differ in amount or percentage as between individual Participants
or classes of Participants, and any Compensation Reduction
Agreement may be terminated, amended, or suspended without the
consent of any such Participant or Participants in order to
comply with the provisions of such subsections (a) and (b).
3.3 CHANGES IN BASIC CONTRIBUTIONS
Unless (a) an election is made to the contrary, or (b) a Participant
receives a Hardship distribution pursuant to Section 7.3(c)(iii), the
percentage of Basic Contributions made under Section 3.1 shall
continue in effect so long as the Participant has a Compensation
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Reduction Agreement in force. A Participant may, by completing the
applicable form, prospectively increase or decrease the rate of Basic
Contributions made on his behalf to any of the percentages authorized
under Section 3.1 or suspend Basic Contributions without withdrawing
from participation in the Plan. Such form must be filed at least ten
(10) days prior to the first day of the payroll period with respect to
which such change is to become effective. A Participant who has Basic
Contributions made on his behalf suspended may resume such
contributions by completing and filing the applicable form. Not more
often than once in any calendar quarter may an election be made which
would prospectively increase, decrease, suspend or resume Basic
Contributions made on behalf of a Participant.
Notwithstanding the foregoing, a Participant who receives a Hardship
distribution pursuant to Section 7.3(c)(iii) shall have his
Compensation Reduction Agreement deemed null and void and all Basic
Contributions made on behalf of such Participant shall be suspended
until the later to occur of: (i) twelve (12) months after receipt of
the Hardship distribution and (ii) the first payroll period which
occurs ten (10) days following the completion and filing of a
Compensation Reduction Agreement authorizing the resumption of Basic
Contributions to be made on his behalf. Basic Contributions following
a Hardship distribution made pursuant to Section 7.3(c)(iii) shall be
subject to the following limitations:
(A) Basic Contributions for the Participant's taxable year
immediately following the taxable year of the Hardship
distribution shall not exceed the applicable limit under Section
402(g) of the Code for such next taxable year less the amount of
such Participant's Basic Contributions for the taxable year of
the Hardship distribution, and
(B) the percentage of Basic Contributions for the twelve (12) month
period following the mandatory twelve (12) month suspension
period shall not exceed the percentage of Basic Contributions
made on behalf of the Participant as set forth in the last
Compensation Reduction Agreement in effect prior to the Hardship
distribution. Basic Contributions based on Compensation for the
period during which such contributions had been suspended or
decreased may not be made up at a later date.
3.4 MATCHING CONTRIBUTIONS
(a) The Employer shall make contributions on behalf of each
Participant in an amount equal to twenty five percent (25%) of
the first four percent (4%) such Participant's Basic
Contributions, up to a maximum of one percent (1%) of the
Participant's Compensation.
(b) Matching Contributions shall be credited to the Participant's
Matching Contribution Account and shall be invested in accordance
with Article VI of the Plan.
(c) If a Participant terminates his Basic Contributions, Matching
Contributions attributable to such contributions will also cease.
If Basic Contributions are suspended, the Matching Contributions
attributable to such contributions will be suspended for the same
period. Subject to the limitations set forth in subsection
20
<PAGE>
(a), if Basic Contributions are increased or decreased, Matching
Contributions attributable to such contributions will be
increased or decreased during the same period. Matching
Contributions for the period during which Basic Contributions had
been suspended or decreased may not be made up at a later date.
(d) Matching Contributions will be reviewed from time to time and may
be modified by the Employer's Board.
3.5 SPECIAL CONTRIBUTIONS
In addition to any other contributions, the Employer may, in its
discretion, make Special Contributions to the Plan for a Plan Year, to
the Special Contribution Account of a Participant. Special
Contributions shall be in an amount determined by the Board, as a
percentage of the Compensation of Participants who are in the employ
of the Employer on the last day of the Plan Year. Such Special
Contributions may be limited to the amount necessary to insure that
the Plan complies with the requirements of Section 401(k) of the Code.
The Special Contributions made on behalf of a Participant shall be
invested in accordance with Article VI of the Plan.
Alternatively, the Employer may provide that Special Contributions be
made only on behalf of each Eligible Employee who is a Non-Highly
Compensated Employee on the last day of the Plan Year. Such Special
Contributions shall be allocated in proportion to each such Eligible
Employee's Compensation for the Plan Year.
Any other provision of the Plan to the contrary notwithstanding, no
Matching Contributions shall be made with respect to any Special
Contributions.
3.6 LIMITATION ON MATCHING CONTRIBUTIONS
The Actual Contribution Percentage made on behalf of a Participant who
is a Highly Compensated Employee shall be limited so that the Average
Actual Contribution Percentage for the group of such Highly
Compensated Employees for the Plan Year shall not exceed the greater
of:
(a) the Average Actual Contribution Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees for
the Plan Year multiplied by 1.25; or
(b) the Average Actual Contribution Percentage for the group of
Eligible Employees who are Non-Highly Compensated Employees for
the Plan Year, multiplied by two (2); provided that the
difference in the Average Actual Contribution Percentage for
Highly Compensated Employees and Non-Highly Compensated Employees
does not exceed two percent (2%). Use of this alternative
limitation shall be subject to the provisions of Income Tax
Regulations Section 1.401(m)-2 regarding the multiple use of the
alternative deferral tests set forth in Sections 401(k) and
401(m) of the Code.
If the Average Actual Contribution Percentage for the group of
eligible Highly Compensated Employees exceeds the limitations set
forth in the preceding paragraph, the amount of excess Matching
Contributions for a Highly
21
<PAGE>
Compensated Employee shall be
determined by "leveling" the highest Actual Contribution
Percentage until the Average Actual Contribution Percentage for
the group of eligible Highly Compensated Employees complies with
such limitations. For purposes of this paragraph, "leveling"
means reducing the Actual Contribution Percentage of the Highly
Compensated Employee with the highest Actual Contribution
Percentage to the extent required to:
(i) enable the Average Actual Contribution Percentage
limitations to be met, or
(ii) cause such Highly Compensated Employee's Actual Contribution
Percentage to equal the Actual Contribution Percentage of
the Highly Compensated Employee with the next highest Actual
Contribution Percentage and repeating such process until the
Average Actual Contribution Percentage for the group of
eligible Highly Compensated Employees complies with the
Average Actual Contribution Percentage limitations.
If Matching Contributions during any Plan Year exceed the maximum
amount applicable to a Participant as set forth above, any such
contributions, including any earnings thereon as determined under
Section 3.8, shall, to the extent vested, be characterized as
Compensation payable to the Participant and any such vested Matching
Contribution, including earnings thereon as determined under Section
3.8, shall be paid to the Participant from the applicable Account no
later than two and one-half (2-1/2) months after the close of such
Plan Year.
In the event that the Plan satisfies the requirements of Section
410(b) of the Code only if aggregated with one or more other plans, or
if one or more other plans satisfy the requirements of Section 410(b)
of the Code only if aggregated with the Plan, then this Section 3.6
shall be applied by determining the Actual Contribution Percentages of
Eligible Employees as if all such plans were a single plan.
3.7 AGGREGATE LIMIT; MULTIPLE USE OF ALTERNATIVE LIMITATION
Multiple use of the alternative limitation in determining the Average
Actual Deferral Percentage and Average Actual Contribution Percentage
shall not be permitted.
Multiple use of the alternative limitation occurs if, for the group of
Eligible Employees who are Highly Compensated Employees, the sum of
the Average Actual Deferral Percentage and the Average Actual
Contribution Percentage exceeds the Aggregate Limit.
For purposes of this Section 3.7, Aggregate Limit shall mean the
greater of (a) or (b), where (a) and (b) are as follows:
(a) the sum of:
(i) one hundred twenty-five percent (125%) of the greater of:
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<PAGE>
(A) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Non-Highly Compensated
Employees for the Plan Year; or
(B) the Average Actual Contribution Percentage for the
group of Eligible Employees who are Non-Highly
Compensated Employees for the Plan Year; and
(ii) two (2) plus the lesser of subsection (a)(i)(A) or
(a)(i)(B). In no event shall this amount exceed two hundred
percent (200%) of the lesser of subsection (a)(i)(A) or
(a)(i)(B).
(b) the sum of:
(i) one hundred twenty-five percent (125%) of the lesser of:
(A) the Average Actual Deferral Percentage for the group of
Eligible Employees who are Non-Highly Compensated
Employees for the Plan Year; or
(B) the Average Actual Contribution Percentage for the
group of Eligible Employees who are Non-Highly
Compensated Employees for the Plan Year; and
(ii) two (2) plus the greater of subsection (b)(i)(A) or
(b)(i)(B). In no event shall this amount exceed two hundred
percent (200%) of the greater of subsection (b)(i)(A) or
(b)(i)(B).
If multiple use of the alternative limitation occurs, the Average
Actual Deferral Percentage for all Highly Compensated Employees under
the Plan shall be reduced in accordance with the provisions of Income
Tax Regulations Section 1.401(m)-2(c).
3.8 INTEREST ON EXCESS CONTRIBUTIONS
In the event Basic Contributions and/or Matching Contributions and/or
Special Contributions made on behalf of a Participant during a Plan
Year exceed the maximum allowable amount as described in Section
3.2(a), 3.2(b) or 3.6 ("Excess Contributions") and such Excess
Contributions and earnings thereon are payable to the Participant
under the applicable provisions of the Plan, earnings on such Excess
Contributions for the period commencing with the first day of the Plan
Year in which the Excess Contributions were made and ending with the
date of payment to the Participant ("Allocation Period") shall be
determined in accordance with the provisions of this Section 3.8.
The earnings allocable to excess Basic Contributions for an Allocation
Period shall be equal to the sum of (a) plus (b) where (a) and (b) are
determined as follows:
(a) The amount of earnings attributable to the Participant's Basic
Contribution Account for the Plan Year multiplied by a fraction,
the numerator of which is the excess Basic Contributions and
Special Contributions for the Plan Year, and the
23
<PAGE>
denominator of
which is the sum of (i) the Net Value of the Participant's Basic
Contribution Account and Special Contribution Account as of the
last day of the immediately preceding Plan Year and (ii) the
contributions (including the Excess Contributions) made to the
Basic Contribution Account and Special Contribution Account on
the Participant's behalf during such Plan Year.
(b) The amount of earnings attributable to the Participant's Basic
Contribution Account and Special Contribution Account for the
period commencing with the first day of the Plan Year in which
payment is made to the Participant and ending with the date of
payment to the Participant multiplied by a fraction, the
numerator of which is the excess Basic Contributions and Special
Contributions made to the Basic Contribution Account and Special
Contribution Account on the Participant's behalf during the Plan
Year immediately preceding the Plan Year in which the payment is
made to the Participant, and the denominator of which is the Net
Value of the Participant's Basic Contribution Account and Special
Contribution Account on the first day of the Plan Year in which
the payment is made to the Participant.
The earnings allocable to excess Matching Contributions for an
Allocation Period shall be equal to the sum of (A) and (B) where
(A) and (B) are determined as follows:
(A) The amount of earnings attributable to the Participant's
Matching Contribution Account for the Plan Year multiplied
by a fraction, the numerator of which is the excess Matching
Contributions for the Plan Year, and the denominator of
which is the sum of (I) the Net Value of the Participant's
Matching Contribution Account as of the last day of the
immediately preceding Plan Year and (II) the contributions
(including the Excess Contributions) made to the Matching
Contribution Account on the Participant's behalf during such
Plan Year.
(B) The amount of earnings attributable to the Participant's
Matching Contribution Account for the period commencing with
the first day of the Plan Year in which payment is made to
the Participant and ending with the date of payment to the
Participant multiplied by a fraction, the numerator of which
is the excess Matching Contributions made to the Matching
Contribution Account on the Participant's behalf during the
Plan Year immediately preceding the Plan Year in which the
payment is made to the Participant, and the denominator of
which is the Net Value of the Participant's Matching
Contribution Account on the first day of the Plan Year in
which the payment is made to the Participant.
3.9 PAYMENT OF CONTRIBUTIONS TO THE TRUST
As soon as possible after each payroll period, but not less often than
once a month, the Employer shall deliver to the Trustees: (a) the
Basic Contributions required to be made to the Trust during such
payroll period under the applicable Compensation Reduction
24
<PAGE>
Agreements,
and (b) the amount of all Matching Contributions required to be made
to the Trust for such payroll period.
Special Contributions to the Trust shall be forwarded by the Employer
to the Trustees no later than the time for filing the Employer's
federal income tax return, plus any extensions thereon, for the Plan
Year to which they are attributable.
3.10 ROLLOVER CONTRIBUTIONS
Subject to such terms and conditions as may from time to time be
established by the Committee and the Trustees, an Employee, whether or
not a Participant, may contribute a Rollover Contribution to the Plan
Fund; provided, however, that such Employee shall submit a written
certification, in form and substance satisfactory to the Committee,
that the contribution qualifies as a Rollover Contribution. The
Committee shall be entitled to rely on such certification and shall
accept the contribution on behalf of the Trustees. Rollover
Contributions shall be credited to an Employee's Rollover Contribution
Account and shall be invested in accordance with Article VI of the
Plan.
3.11 SECTION 415 LIMITS ON CONTRIBUTIONS
(a) For purposes of this Section 3.11, the following terms and
phrases shall have the meanings hereafter ascribed to them:
(i) "Annual Additions" shall mean the sum of the following
amounts credited to a Participant's Accounts for the
Limitation Year: (A) Employer contributions, including
Basic Contributions, Special Contributions and Matching
Contributions; (B) any Employee contributions; (C)
forfeitures; and (D) contributions attributable to medical
benefits as described in Sections 415(1)(1) and 419A(d)(2)
of the Code. Annual Additions include the following
contributions credited to a Participant's Accounts for the
Limitation Year, regardless of whether such contributions
have been distributed to the Participant:
(I) Basic Contributions which exceed the limitations set
forth in Section 3.2(a);
(II) Basic Contributions made on behalf of a Highly
Compensated Employee which exceed the limitations set
forth in Section 3.2(b); and
(III) Matching Contributions made on behalf of a Highly
Compensated Employee which exceed the limitations set
forth in Section 3.6.
(ii) "Current Accrued Benefit" shall mean a Participant's annual
accrued benefit under a defined benefit plan, determined in
accordance with the meaning of Section 415(b)(2) of the
Code, as if the Participant had separated from service as of
the close of the last Limitation Year beginning before
January 1, 1987. In determining the amount of a
Participant's Current Accrued Benefit, the following shall
be disregarded:
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<PAGE>
(A) any change in the terms and conditions of the defined
benefit plan after May 5, 1986; and
(B) any cost of living adjustment occurring after May 5,
1986.
(iii) "Defined Benefit Plan" and "Defined Contribution Plan"
shall have the meanings set forth in Section 415(k) of the
Code.
(iv) "Defined Benefit Plan Fraction" for a Limitation Year shall
mean a fraction, (A) the numerator of which is the aggregate
projected annual benefit (determined as of the last day of
the Limitation Year) the Participant under all defined
benefit plans (whether or not terminated) maintained by the
Employer, and (B) the denominator of which is the lesser of:
(I) the product of 125 (or such adjustment as required under
Section 12.5) and the dollar limitation in effect under
Section 415(b)(1)(A) of the Code, adjusted as prescribed by
the Secretary of the Treasury under Section 415(d) of the
Code, or (II) the product of 1.4 and the amount which may be
taken into account with respect to such Participant under
Section 415(b)(1)(B) of the Code for such Limitation Year.
Notwithstanding the above, if the Participant was a
participant in one or more defined benefit plans of the
Employer in existence on May 6, 1986, the dollar limitation
of the denominator of this fraction will not be less than
the Participant's Current Accrued Benefit.
(v) "Defined Contribution Plan Fraction" for a Limitation Year
shall mean a fraction, (A) the numerator of which is the sum
of the Participant's Annual Additions under all defined
contribution plans (whether or not terminated) maintained by
the Employer for the current year and all prior Limitation
Years (including annual additions attributable to the
Participant's nondeductible employee contributions to all
defined benefit plans (whether or not terminated) maintained
by the Employer), and (B) the denominator of which is the
sum of the maximum aggregate amounts for the current year
and all prior Limitation Years with the Employer (regardless
of whether a defined contribution plan was maintained by the
Employer). Maximum aggregate amounts" shall mean the lesser
of (I) the product of 1.25 (or such adjustment as required
under Section 12.5) and the dollar limitation in effect
under Section 415(c)(1)(A) of the Code, adjusted as
prescribed by the Secretary of the Treasury under Section
415(d) of the Code, or (II) the product of 1.4 and the
amount that may be taken into account under Section
415(c)(1)(B) of the Code; provided, however, that the
Committee may elect, on a uniform and nondiscriminatory
basis, to apply the special transition rule of Section
415(e)(6) of the Code applicable to Limitation Years ending
before January 1, 1983 in determining the denominator of the
Defined Contribution Plan Fraction.
(vi) "Limitation Year" shall mean the calendar year.
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<PAGE>
(vii) "Section 415 Compensation" shall be a Participant's
remuneration as defined in Income Tax Regulations Sections
1.415-2(d)(2), (3) and (6).
(b) For purposes of applying the Section 415 limitations, the
Employer and all members of a controlled group of corporations
(as defined under Section 414(b) of the Code as modified by
Section 415(h) of the Code), all commonly controlled trades or
businesses (as defined under Section 414(c) of the Code as
modified by Section 415(h) of the Code), all affiliated service
groups (as defined under Section 414(m) of the Code) of which the
Employer is a member, any leasing organization (as defined under
Section 414(n) of the Code) that employs any person who is
considered an Employee under Section 414(n) of the Code and any
other group provided for under any and all Income Tax Regulations
promulgated by the Secretary of the Treasury under Section 414(o)
of the Code, shall be treated as a single employer.
(c) If the Employer maintains more than one qualified Defined
Contribution Plan on behalf of its Employees, such plans shall be
treated as one Defined Contribution Plan for purposes of applying
the Section 415 limitations of the Code.
(d) Notwithstanding anything contained in the Plan to the contrary,
in no event shall the Annual Additions to a Participant's
Accounts for a Limitation Year exceed the lesser of:
(i) $30,000 or, if greater, one-fourth (1/4th) of the defined
benefit dollar limitation set forth in Section 415(b)(1)(A)
of the Code as in effect for the Limitation Year; or
(ii) twenty-five percent (25%) of the Participant's Section 415
Compensation for such Limitation Year. For purposes of this
subsection (d)(ii), Section 415 Compensation shall not
include (A) any contribution for medical benefits within the
meaning of Section 419A(f)(2) of the Code after separation
from service, which is otherwise treated as an Annual
Addition, and (B) any amount otherwise treated as an Annual
Addition under Section 415(1)(1) of the Code.
(e) If the Annual Additions to a Participant's Accounts for a
Limitation Year exceed the limitation set forth in subsection (d)
above during the Limitation Year, any or all of the following
contributions on behalf of such Participant shall be immediately
adjusted to that amount which will result in such Annual
Additions not exceeding the limitation set forth in subsection
(d):
(i) Basic Contributions;
(ii) Special Contributions; and
(iii) Matching Contributions.
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(f) If the Annual Additions to a Participant's Accounts for a
Limitation Year exceed the limitations set forth in subsection
(d) above at the end of a Limitation Year, such excess amounts
shall not be treated as Annual Additions in such Limitation Year
but shall instead be used to reduce the Basic Contributions,
Matching Contributions and/or Special Contributions to be made on
behalf of such Participant in the succeeding Limitation Year,
provided that such Participant is an Eligible Employee during
such succeeding Limitation Year. If such Participant is not an
Eligible Employee or ceases to be an Eligible Employee during
such succeeding Limitation Year, any remaining excess amounts
from the preceding Limitation Year shall be allocated during such
succeeding Limitation Year to each Participant then actively
participating in the Plan. Such allocation shall be in
proportion to the Basic Contributions made to date on his behalf
for such Limitation Year, or the prior Limitation Year with
respect to an allocation as of the beginning of a Limitation
Year, before any other contributions are made in such succeeding
Limitation Year.
(g) If a Participant participates in both (i) the Plan and/or any
other defined contribution plan maintained by the Employer and
(ii) any defined benefit plan or plans maintained by the
Employer, the sum of the Defined Contribution Plan Fraction and
the Defined Benefit Plan Fraction shall not exceed the sum of
1.0.
(h) If the sum determined under subsection (g) for any Participant
exceeds 1.0, the Defined Contribution Plan Fraction of such
Participant as provided in the defined contribution plan or plans
maintained by the Employer shall be reduced in order that such
sum shall not exceed 1.0.
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ARTICLE IV -
VESTING AND FORFEITURES
4.1 Vesting
(a) An Employee shall always be fully vested in the Net Value of his
Basic Contribution Account, the Net Value of his Special
Contribution Account and the Net Value of his Rollover
Contribution Account.
(b) A Participant shall become fully vested in the Net Value of his
Matching Contribution Account upon the earlier of such
Participant's (i) Normal Retirement Age or (ii) termination of
employment by reason of death, Disability or reaching his
Retirement Date.
(c) A Participant who is not fully vested under subsection (b) shall
be vested in the Net Value of his Matching Contribution Account
in accordance with the following schedule:
Vested
PERIOD OF SERVICE PERCENTAGE
Less than 3 years 0%
3 years but less than 4 years 33-1/3%
4 years but less than 5 years 66-2/3%
5 or more years 100%
For purposes of determining a Participant's Period of Service
under this subsection (c) and under Section 4.3, employment with
an Affiliated Employer shall be deemed employment with the
Employer.
For purposes of determining a Participant's vested percentage of
the Net Value of his Matching Contribution Account, all Periods
of Service shall be included.
(d) The vested Net Value of a Participant's Matching Contribution
Account shall be determined as follows:
(i) the Participant's Matching Contribution Account shall first
be increased to include (A) that portion of such Account
which had been previously withdrawn in accordance with
Sections 7.2 and 7.3 and (B) that portion of such Account
which had been borrowed in accordance with Article VIII and
is outstanding on the date of this determination;
(ii) the applicable vested percentage determined in accordance
with subsection (c) shall then be applied to such Account as
determined in accordance with clause (i);
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(iii) the amount determined in accordance with clause (ii) shall
then be reduced by (A) that portion of such Account which
had been previously withdrawn in accordance with Sections
7.2 and 7.3 and (B) that portion of such Account which had
been borrowed in accordance with Article VIII and is
outstanding on the date of this determination.
4.2 FORFEITURES
If a Participant who is not fully vested in the Net Value of his
Accounts terminates employment, the Units representing the nonvested
portion of his Accounts shall constitute Forfeitures. Forfeitures
shall be treated as Matching Contributions and shall be applied to
reduce the amount of subsequent Matching Contributions otherwise
required to be made.
If a former Participant who is not fully vested in the Net Value of
his Accounts receives a distribution of his vested interest in the Net
Value of his Accounts and is subsequently reemployed by the Employer
prior to incurring five (5) consecutive One Year Periods of Severance,
he shall have the Net Value of his Accounts as of the date he
previously terminated employment reinstated provided he repays the
full amount of his distribution before the end of the five (5)
consecutive One Year Periods of Severance commencing with his
termination of employment. The reinstated amount shall be unadjusted
by any gains or losses occurring subsequent to the Participant's
termination of employment and prior to repayment of such distribution.
Any forfeited amounts required to be reinstated hereunder shall be
made by an additional Employer contribution for such Plan Year. If
such former Participant does not repay the full amount of his
distribution before the end of the five (5) consecutive One Year
Periods of Severance commencing with his termination of employment,
the Net Value of his Accounts as of the date he previously terminated
employment shall not be reinstated.
If a former Participant who is not fully vested in the Net Value of
his Accounts elects to defer distribution of his vested account
interest or elects to receive installment payments pursuant to Section
or 7.6(d), the nonvested portion of such former Participant's Account
shall be forfeited as of the date of his Termination of Service;
provided, however, that if such former Participant is reemployed
before incurring five (5) consecutive One Year Periods of Severance,
the nonvested portion of his Accounts shall be reinstated in its
entirety, unadjusted by any gains or losses occurring subsequent to
the distribution.
4.3 VESTING UPON REEMPLOYMENT
(a) For purposes of this Section 4.3, "Period of Service" means an
Employee's Period of Service determined in accordance with
Section 4.1(c).
(b) For the purpose of determining a Participant's vested interest in
the Net Value of his Matching Contribution Account:
(i) if an Employee is not vested in any Matching Contributions,
incurs a One Year Period of Severance and again performs an
Hour of Service, such Employee shall receive credit for his
Periods of Service prior to his One Year Period of Severance
only if the number of consecutive One Year
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Periods of
Severance is less than the greater of: (A) five (5) years
or (B) the aggregate number of his Periods of Service
credited before his One Year Period of Severance.
(ii) if a Participant is partially vested in any Matching
Contributions, incurs a One Year Period of Severance and
again performs an Hour of Service, such Participant shall
receive credit for his Periods of Service prior to his One
Year Period of Severance; provided, however, that after five
(5) consecutive One Year Periods of Severance, a former
Participant's vested interest in the Net Value of the
Matching Contribution Account attributable to Periods of
Service prior to his One Year Period of Severance shall not
be increased as a result of his Periods of Service following
his reemployment date.
(iii) if a Participant is fully vested in any Matching
Contributions, incurs a One Year Period of Severance and
again performs an Hour of Service, such Participant shall
receive credit for all his Periods of Service prior to his
One Year Period of Severance.
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ARTICLE V -
Trust Fund and Investment Accounts
5.1 Trust Fund
The Employer has adopted the Agreement as the funding vehicle with
respect to the Investment Accounts.
All contributions forwarded by the Employer to the Trustees pursuant
to the Agreement shall be held by them in trust and shall be used to
purchase Units on behalf of the Plan in accordance with the terms and
provisions of the Agreement. Contributions designated for investment
in any Investment Account of the Trust Fund shall be allocated
proportionately to and among the classes of Units so selected for such
Investment Account.
All assets of the Plan shall be held for the exclusive benefit of
Participants, Beneficiaries or other persons entitled to benefits. No
part of the corpus or income of the Trust Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of
Participants, Beneficiaries or other persons entitled to benefits and
for defraying reasonable administrative expenses of the Plan and
Trust. No person shall have any interest in or right to any part of
the earnings of the Trust Fund, or any rights in, to or under the
Trust Fund or any part of its assets, except to the extent expressly
provided in the Plan.
The Trustees shall invest and reinvest the Trust Fund, and the income
therefrom, without distinction between principal and income, in
accordance with the terms and provisions of the Agreement. The
Trustees may maintain such part of the Trust Fund in cash uninvested
as they shall deem necessary or desirable. The Trustees shall be the
owner of and have title to all the assets of the Trust Fund and shall
have full power to manage the same, except as otherwise specifically
provided in the Agreement.
5.2 INTERIM INVESTMENTS
The Trustees may temporarily invest any amounts designated for
investment in any of the Investment Accounts of the Trust Fund
identified herein in the Investment Account which provides for short-
term investments and retain the value of such contributions therein
pending the allocation of such values to the Investment Accounts
designated for investment.
5.3 ACCOUNT VALUES
The Net Value of the Accounts of an Employee means the sum of the
total Net Value of each Account maintained on behalf of the Employee
in the Trust as determined as of the Valuation Date coincident with
or next following the event requiring
the determination of such Net Value. The assets of any Account shall
consist of the Units credited to such
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Account. The Units shall be
valued from time to time by the Trustees in accordance with the
Agreement, but not less often than monthly. On the basis of such
valuations, each Employee's Accounts shall be adjusted to reflect the
effect of income collected and accrued, realized and unrealized
profits and losses, expenses and all other transactions during the
period ending on the applicable Valuation Date.
Upon receipt by the Trustees of Basic Contributions, Matching
Contributions, and, if applicable, Rollover Contributions and Special
Contributions, such contributions shall be applied to purchase Units
for such Employee's Account, using the value of such Units as of the
close of business on the date received. Whenever a distribution is
made to a Participant, Beneficiary or other person entitled to
benefits, the appropriate number of Units credited to such Employee
shall be reduced accordingly and each such distribution shall be
charged against the Units of the Investment Accounts of such Employee
pro rata according to their respective values.
For the purposes of this Section 5.3, fractions of Units as well as
whole Units may be purchased or redeemed for the Account of an
Employee.
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ARTICLE VI -
Investment Directions, Changes of Investment Directions and
Transfers Between Investment Accounts
6.1 INVESTMENT DIRECTIONS
Upon electing to participate, each Participant shall direct that the
contributions made to his Accounts shall be applied to purchase Units
in any one or more of the Investment Accounts of the Trust Fund .
Such direction shall indicate the percentage, in multiples of ten
percent (10%), in which Basic Contributions, Matching Contributions,
Special Contributions and Rollover Contributions shall be made to the
designated Investment Accounts.
To the extent a Participant shall fail to make an investment
direction, contributions made on his behalf shall be applied to
purchase Units in the Investment Account which provides for short-term
investments.
6.2 CHANGE OF INVESTMENT DIRECTIONS
A Participant may change any investment direction not more often than
once in any calendar quarter by completing and filing a notice in the
form and manner prescribed by the Committee at least ten (10) days
prior to the effective date of such direction. Any such change shall
be subject to the same conditions as if it were an initial direction
and shall be applied only to any contributions to be invested on or
after the effective date of such direction.
6.3 TRANSFERS BETWEEN INVESTMENT ACCOUNTS
By filing a notice in the form and manner prescribed by the Committee
at least ten (10) days prior to the effective date of such change, a
Participant or Beneficiary may, not more often than once in any
calendar quarter, direct that multiples of ten percent (10%) of the
Net Value of any one or more Investment Accounts be transferred to any
one or more of the other Investment Accounts. The requisite transfers
shall be valued as of the Valuation Date on which the direction is
received by the Trustees and shall be affected within seven (7) days
of the Trustees' receipt of such direction.
6.4 EMPLOYEES OTHER THAN PARTICIPANTS
(a) INVESTMENT DIRECTION
An Employee who is not a Participant but who has made a Rollover
Contribution in accordance with the provisions of Section 3.10,
shall direct, in the form and manner prescribed by the Committee,
that such contribution be applied to the purchase of Units in any
one or more of the Investment Accounts. Such direction shall
indicate the percentage, in multiples of ten percent (10%), in
which contributions shall be made to the designated Investment
Accounts. To the extent any Employee shall fail to make an
investment direction, the Rollover
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Contributions shall be applied
to the purchase of Units in the Investment Account which provides
for short-term investments.
(b) TRANSFERS BETWEEN INVESTMENT ACCOUNTS
An Employee who is not a Participant may, subject to the
provisions of Section 6.3, not more often than once in any
calendar quarter, direct that multiples of ten percent (10%) of
the Net Value of any one or more Investment Accounts be
transferred to any one or more of the other Investment Accounts.
The requisite transfers shall be valued as of the Valuation Date
on which the direction is received by the Trustees and shall be
affected within seven (7) days of the Trustees' receipt of such
direction.
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ARTICLE VII -
Payment of Benefits *
7.1 GENERAL
(a) The vested interest in the Net Value of any one or more of the
Accounts of a Participant, Beneficiary or any other person
entitled to benefits under the Plan shall be paid only at the
times, to the extent, in the manner, and to the persons provided
in this Article VII.
(b) Notwithstanding the foregoing, if payments are to be made on a
monthly basis and if, in the judgment of the Committee, payments
are too small to warrant monthly payments, the Committee, in its
sole discretion, may determine to make such payments in a lump
sum or in quarterly, semi-annual, or annual installments.
(c) The Net Value of any one or more of the Accounts of a Participant
shall be subject to the provisions of Section 8.7.
(d) Notwithstanding any provisions of the Plan to the contrary, any
and all withdrawals, distributions or payments made under the
provisions of this Article VII shall be made in accordance with
Section 401(a)(9) of the Code and any and all Income Tax
Regulations promulgated thereunder.
7.2 NON-HARDSHIP WITHDRAWALS
(a) Subject to the terms and conditions contained in this Section
7.2, upon ten (10) days prior written notice to the Committee
each Participant who has attained age fifty-nine and one-half
(59-1/2), or each Employee who has attained age fifty-nine and
one-half (59-1/2) and who solely maintains a Rollover
Contribution Account, shall be entitled to withdraw all or any
portion of his Accounts in the following order of priority not
more often than once during any Plan Year:
(i) the Net Value of his Basic Contribution Account;
(ii) the Net Value of his Special Contribution Account;
(iii) the Net Value of the Employee's Rollover Contribution
Account provided that such Participant or Employee shall
have satisfied such additional terms and conditions as the
Committee may deem necessary; and
(iv) only that portion of the vested interest in the Net Value of
his Matching Contribution Account.
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(b) Withdrawals under this Section 7.2 shall be made by the
redemption of Units from each of the Participant's Accounts on a
pro rata basis from the Investment Accounts selected by the
Participant pursuant to Article VI.
7.3 HARDSHIP DISTRIBUTIONS
(a) For purposes of this Section 7.3, a "Hardship" distribution shall
mean a distribution that is (i) made on account of a condition
which has given rise to immediate and heavy financial need of a
Participant and (ii) necessary to satisfy such financial need. A
determination of the existence of an immediate and heavy
financial need and the amount necessary to meet the need shall be
made by the Committee in accordance with uniform
nondiscriminatory standards with respect to similarly situated
persons.
(b) Immediate and Heavy Financial Need:
A Hardship distribution shall be deemed to be made on account of
an immediate and heavy financial need if the distribution is on
account of:
(i) expenses for medical care described under Section 213(d) of
the Code which were previously incurred by the Participant,
the Participant's Spouse or any of the Participant's
dependents as defined under Section 152 of the Code or
expenses which are necessary to obtain medical care
described under Section 213(d) of the Code for the
Participant, the Participant's Spouse or any of the
Participant's dependents as defined under Section 152 of the
Code; or
(ii) purchase (excluding mortgage payments) of a principal
residence of the Participant; or
(iii) payment of tuition and related educational fees for the
next twelve (12) months of post-secondary education for the
Participant, the Participant's Spouse, children or any of
the Participant's dependents as defined under Section 152 of
the Code; or
(iv) the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence; or
(v) any other condition which the Commissioner of Internal
Revenue, through the publication of revenue rulings, notices
and other documents of general applicability, deems to be an
immediate and heavy financial need.
(c) Necessary to Satisfy Such Financial Need:
(i) A distribution will be treated as necessary to satisfy an
immediate and heavy financial need of a Participant if: (A)
the amount of the distribution is not in excess of (1) the
amount required to relieve the financial need of
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the
Participant and (2) if elected by the Participant, an amount
necessary to pay any federal, state or local income taxes or
penalties reasonably anticipated to result from such
distribution, or (B) such need may not be satisfied from
other resources that are reasonably available to the
Participant.
(ii) A distribution will be treated as necessary to satisfy a
financial need if the Committee reasonably relies upon the
Participant's representation that the need cannot be
relieved:
(A) through reimbursement or compensation by insurance or
otherwise,
(B) by reasonable liquidation of the Participant's assets,
to the extent such liquidation would not itself cause
an immediate and heavy financial need,
(C) by cessation of Basic Contributions or Employee
contributions, if any, under the Plan, or
(D) by other distributions or nontaxable loans from plans
maintained by the Employer or by any other employer, or
by borrowing from commercial sources on reasonable
commercial terms.
For purposes of this subsection (c)(ii), the Participant's
resources shall be deemed to include those assets of his
Spouse and minor children that are reasonably available to
the Participant.
(iii) Alternatively, a Hardship distribution will be deemed to be
necessary to satisfy an immediate and heavy financial need
of a Participant if (A) or (B) are met:
(A) all of the following requirements are satisfied:
(I) the distribution is not in excess of (1) the
amount of the immediate and heavy financial need
of the Participant and (2) if elected by the
Participant, an amount necessary to pay any
federal, state or local income taxes or penalties
reasonably anticipated to result from such
distribution;
(II) the Participant has obtained all distributions,
other than Hardship distributions, and all
nontaxable loans currently available under all
plans maintained by the Employer;
(III) the Plan, and all other plans maintained by the
Employer, provide that the Participant's elective
contributions and Employee contributions, if any,
will be suspended for at
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least twelve (12) months
after receipt of the Hardship distribution; and
(IV) the Plan, and all other plans maintained by the
Employer, provide that the Participant may not
make elective contributions for the Participant's
taxable year immediately following the taxable
year of the Hardship distribution in excess of the
applicable limit under Section 402(g) of the Code
for such next taxable year less the amount of such
Participant's elective contributions for the
taxable year of the Hardship distribution; or
(B) the requirements set forth in additional methods, if
any, prescribed by the Commissioner of Internal Revenue
(through the publication of revenue rulings, notices
and other documents of general applicability) are
satisfied.
(d) A Participant who has withdrawn the maximum amounts available to
such Participant under Section 7.2 or a Participant who is not
eligible for a withdrawal thereunder, may, in case of Hardship
(as defined under this Section 7.3), apply not more often than
once in any Plan Year to the Committee for a Hardship
distribution. Any application for a Hardship distribution shall
be made in writing to the Committee at least ten (10) days prior
to the requested date of payment. Hardship distributions may be
made by a distribution of all or a portion of an Employee's (i)
Basic Contributions, (ii) Net Value of his Rollover Contribution
Account and (iii) vested interest in the Net Value of his
Matching Contribution Account.
(e) Distributions under this Section 7.3 shall be made in the
following order of priority:
(i) Participant's Basic Contribution Account, exclusive of
investment earnings;
(ii) the Net Value of the Participant's Special Contribution
Account, if any;
(ii) the Net Value of the Employee's Rollover Contribution
Account; and
(iii) the vested interest in the Net Value of the Participant's
Matching Contribution Account.
(f) Distributions under this Section 7.3 shall be made by the
redemption of Units from each of the Participant's Accounts on a
pro rata basis from the Investment Accounts selected by the
Participant pursuant to Article VI.
(g) A Participant who receives a Hardship distribution under this
Section 7.3 may have his Basic Contributions suspended in
accordance with Section 3.3.
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7.4 DISTRIBUTION OF BENEFITS FOLLOWING RETIREMENT OR TERMINATION OF
SERVICE
(a) If an Employee incurs a Termination of Service for any reason
other than death, a distribution of the vested interest in the
Net Value of his Accounts shall be made to the Employee in
accordance with the provisions of Section 7.5 or 7.6 or 7.8. The
amount of such distribution shall be the vested interest in the
Net Value of his Accounts as of the Valuation Date coincident
with the date of receipt by the Trustees of the proper
documentation acceptable to the Trustees for such purpose.
(b) An election by an Employee to receive the vested interest in the
Net Value of his Accounts in a form other than in the normal form
of benefit payment set forth in Sections 7.5(a) and (b) and
Sections 7.6(a) and (b) may not be revoked or amended by him
after he terminates his employment. Notwithstanding the
foregoing, an Employee who elected to receive payment of benefits
as of a deferred Valuation Date or in the form of installments,
may, by completing and filing the form prescribed by the
Committee, change to another form of benefit payment.
(c) An Employee who incurs a Termination of Service and is reemployed
by the Employer prior to the distribution of all or part of the
entire vested interest in the Net Value of his Accounts in
accordance with the provisions of Section 7.5 or 7.6, shall not
be eligible to receive or to continue to receive such
distribution during his period of reemployment with the Employer.
Upon such Employee's subsequent Termination of Service, his prior
election to receive a distribution in a form other than the
normal form of benefit payment shall be null and void and the
vested interest in the Net Value of his Accounts shall be
distributed to him in accordance with the provisions of Section
7.5 or 7.6 or 7.8.
7.5 PAYMENTS UPON RETIREMENT OR DISABILITY
(a) If an Employee incurs a Termination of Service as of his Normal
Retirement Date or his Postponed Retirement Date, a lump sum
distribution of the Net Value of his Accounts shall be made to
the Employee within seven (7) days of the Valuation Date
coincident with the date of receipt by the Trustees of the proper
documentation indicating that the Employee incurred a Termination
of Service as of such Retirement Date.
(b) If an Employee incurs a Termination of Service as of his Early
Retirement Date or if an Employee incurs a Termination of Service
due to Disability, a lump sum distribution of the vested interest
in the Net Value of his Accounts shall be made to the Employee
within seven (7) days of the Valuation Date coincident with the
date of receipt by the Trustees of the proper documentation
indicating the date the Employee would have attained his Normal
Retirement Date if he were still employed by the Employer.
(c) In lieu of the normal form of benefit payment set forth in
subsection (b), an Employee who incurs a Termination of Service
as of his Early Retirement Date or
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incurs a Termination of
Service due to Disability may file an election form to receive
the vested interest in the Net Value of his Accounts as a lump
sum distribution as of some other Valuation Date following his
Termination of Service and prior to his Normal Retirement Date;
provided, however, that the Valuation Date may not be later than
thirteen (13) months following his Termination of Service. The
vested interest in the Net Value of his Accounts shall be
distributed to such Employee as a lump sum distribution within
seven (7) days of the Valuation Date coincident with the date of
receipt by the Trustees of the proper documentation indicating
the Employee's distribution date.
(d) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination of
Service as of his Retirement Date or incurs a Termination of
Service due to Disability may, subject to the required minimum
distribution provisions of Sections 7.9(b) and 7.9(c), file an
election form to receive the vested interest in the Net Value of
his Accounts in the form of installments over a period not to
exceed ten (10) years. The vested interest in the Net Value of
his Accounts shall be determined as of such Valuation Date or
Valuation Dates in each such Plan Year as may be elected by such
Employee and shall be based on the respective values of the
Employee's Units in each Investment Account as of such Valuation
Date or Valuation Dates. The amount of the installment payment
shall be distributed by the redemption of Units from the
Employee's Accounts on a pro rata basis among such Employee's
Investment Accounts. Any portion of the vested interest in the
Net Value of the Accounts of such former Employee which shall not
have been so paid shall continue to be held for his benefit or
for the benefit of his Beneficiary in the Employee's Investment
Accounts. If an Employee elects to receive his benefit pursuant
to this subsection (d), the installment period may not extend
beyond the life expectancy of such Employee or the life
expectancy of such Employee and his Beneficiary.
(e) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination of
Service as of his Retirement Date or incurs a Termination of
Service due to Disability may elect to defer receipt of the
vested interest in the Net Value of his Accounts beyond his
Normal Retirement Date or Postponed Retirement Date. The
applicable form must be filed at least ten (10) days prior to the
Employee's Retirement Date. If such an election is made, the
vested interest in the Net Value of his Accounts shall continue
to be held in the Trust Fund. Subject to the required minimum
distribution provisions of Sections 7.9(b) and 7.9(c), the vested
interest in the Net Value of his Accounts shall (i) be
distributed to such Employee as a lump sum distribution within
seven (7) days of the Valuation Date coincident with the date of
receipt by the Trustees of the proper documentation indicating
the Employee's deferred distribution date or (ii), upon the
election of the Employee, commence to be distributed in
installments in accordance with the provisions of subsection (d).
(f) In lieu of the normal form of benefit payment set forth in
subsections (a) and (b), an Employee who incurs a Termination of
Service as of his Retirement Date or incurs a Termination of
Service due to Disability may, at least ten (10) days prior
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to
the date on which his benefit is scheduled to be paid, file an
election form that a lump sum distribution equal to the vested
interest in the Net Value of his Accounts be made payable to the
trustee of another qualified pension or profit-sharing plan
designated by the Employee. Such lump sum distribution shall be
made within seven (7) days of the Valuation Date coincident with
the date of receipt by the Trustees of the proper documentation.
7.6 PAYMENTS UPON TERMINATION OF SERVICE FOR REASONS OTHER THAN RETIREMENT
OR DISABILITY
(a) If an Employee incurs a Termination of Service as of a date other
than a Retirement Date or for reasons other than Disability, and
the vested interest in the Net Value of the Employee's Accounts,
as determined by the Trustees in accordance with subsection (e),
is equal to or less than $3,500, a lump sum distribution of the
vested interest in the Net Value of his Accounts shall be made to
the Employee within seven (7) days of the Valuation Date
coincident with the date of receipt by the Trustees of the proper
documentation indicating that he incurred a Termination of
Service.
(b) If an Employee incurs a Termination of Service as of a date other
than a Retirement Date or for reasons other than Disability, has
not elected to receive his benefit pursuant to an optional form
of benefit payment in accordance with the provisions of
subsection (c) or (d) and the vested interest in the Net Value of
the Employee's Accounts, as determined by the Trustees in
accordance with subsection (e), exceeds $3,500, a lump sum
distribution of the vested interest in the Net Value of his
Accounts shall be made to the Employee within seven (7) days of
the Valuation Date coincident with the date of receipt by the
Trustees of the proper documentation indicating the date the
Employee would have attained his Normal Retirement Date if he
were still employed by the Employer.
(c) In lieu of the normal form of benefit payment set forth in
subsection (b), an Employee who incurs a Termination of Service
as of a date other than a Retirement Date or for reasons other
than Disability may, subject to the provisions of Sections 7.9(b)
and 7.9(c), file an election form to receive the vested interest
in the Net Value of his Accounts as a lump sum distribution as of
some other Valuation Date following his termination; provided,
however, that the Valuation Date may not be later than thirteen
(13) months following his Termination of Service. Subject to the
required minimum distribution provisions of Sections 7.9(b) and
7.9(c), the vested interest in the Net Value of his Accounts
shall be distributed to such Employee as a lump sum distribution
within seven (7) days of the Valuation Date coincident with the
date of receipt by the Trustees of the proper documentation
indicating the Employee's distribution date.
(d) In lieu of the normal form of benefit payment set forth in
subsection (b), an Employee who incurs a Termination of Service
as of a date other than his Retirement Date or for reasons other
than Disability may, at least ten (10) days prior to the date on
which his benefit is scheduled to be paid, file an election form
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that a lump sum distribution equal to the vested interest in the
Net Value of his Accounts be made payable to the trustee of
another qualified pension or profit-sharing plan designated by
the Employee. Such lump sum distribution shall be made within
seven (7) days of the Valuation Date coincident with the date of
receipt by the Trustees of the proper documentation.
(e) If an Employee incurs a Termination of Service as of a date other
than a Retirement Date or for reasons other than Disability and
has not elected to receive the vested interest in the Net Value
of his Accounts pursuant to an optional form of benefit payment
in accordance with subsection (c), (d) or (e), the Employer shall
notify the Trustees of such termination.
7.7 PAYMENTS UPON DEATH
(a) In the case of a married Participant, the Spouse shall be the
designated Beneficiary. Notwithstanding the foregoing, such
Participant may effectively elect to designate a person or
persons other than the Spouse as Beneficiary. Such an election
shall not be effective unless (i) such Participant's Spouse
irrevocably consents to such election in writing, (ii) such
election designates a Beneficiary which may not be changed
without spousal consent or the consent of the Spouse expressly
permits designation by the Participant without any requirement of
further consent by the Spouse, (iii) the Spouse's consent
acknowledges understanding of the effect of such election and
(iv) the consent is witnessed by a Plan representative or
acknowledged before a notary public. Notwithstanding this
consent requirement, if the Participant establishes to the
satisfaction of the Plan representative that such written consent
cannot be obtained because there is no Spouse or the Spouse
cannot be located, the consent hereunder shall not be required.
Any consent necessary under this provision shall be valid only
with respect to the Spouse who signs the consent.
(b) In the case of a single Participant, Beneficiary means a person
or persons who have been designated under the Plan by such
Participant or who are otherwise entitled to a benefit under the
Plan.
(c) The designation of a Beneficiary who is other than a
Participant's Spouse and the designation of any contingent
Beneficiary shall be made in writing by the Participant in the
form and manner prescribed by the Committee and shall not be
effective unless filed prior to the death of such person. If
more than one person is designated as a Beneficiary or a
contingent Beneficiary, each designated Beneficiary in such
Beneficiary classification shall have an equal share unless the
Participant directs otherwise. For purposes of this Section 7.7,
"person" includes an individual, a trust, an estate, or any other
person or entity designated as a Beneficiary.
(d) A married Participant who has designated a person or persons
other than the Spouse as Beneficiary may, without the consent of
such Spouse, revoke such prior election by submitting written
notification of such revocation. Such revocation
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shall result in
the reinstatement of the Spouse as the designated Beneficiary
unless the Participant effectively designates another person as
Beneficiary in accordance with the provisions of subsection (a).
The number of election forms and revocations shall not be
limited.
(e) Upon the death of a Participant the remaining vested interest in
the Net Value of his Accounts shall become payable, in accordance
with the provisions of subsection (g), to his Beneficiary or
contingent Beneficiary. If there is no such Beneficiary, the
remaining vested interest in the Net Value of his Accounts shall
be payable to the executor or administrator of his estate, or, if
no such executor or administrator is appointed and qualifies
within a time which the Committee shall, in its sole and absolute
discretion, deem to be reasonable, then to such one or more of
the descendants and blood relatives of such deceased Participant
as the Committee, in its sole and absolute discretion, may
select.
(f) If a designated Beneficiary entitled to payments hereunder shall
die after the death of the Participant but before the entire
vested interest in the Net Value of Accounts of such Participant
has been distributed, then the remaining vested interest in the
Net Value of Accounts of such Participant shall be paid, in
accordance with the provisions of subsection (g), to the
surviving Beneficiary who is not a contingent Beneficiary, or, if
there are no such surviving Beneficiaries then living, to the
designated contingent Beneficiaries as shall be living at the
time such payment is to be made. If there is no designated
contingent Beneficiary then living, the remaining interest in the
Net Value of his Accounts shall be paid to the executor or
administrator of the estate of the last to die of the
Beneficiaries who are not contingent Beneficiaries.
(g) If a Participant dies before his entire vested interest in the
Net Value of his Accounts has been distributed to him, the
remainder of such vested interest shall be paid to his
Beneficiary or, if applicable, his contingent Beneficiary, in a
lump sum distribution as soon as practicable following the date
of the Participant's death. Notwithstanding the foregoing, if,
prior to the Participant's death:
(i) the Participant had elected to receive a deferred lump sum
distribution and had not yet received such distribution,
such Beneficiary shall receive a lump sum distribution as of
the earlier of: (A) the Valuation Date set forth in the
Participant's election or (B) the last Valuation Date which
occurs within one (1) year of the Participant's death; or
(ii) the Participant had elected to receive and had begun
receiving a distribution in the form of installments, such
Beneficiary shall receive distributions over the remaining
installment period, at the times set forth in such election.
If the Beneficiary is the Participant's Spouse and if benefits
are payable to such Beneficiary as an immediate or deferred lump
sum distribution, such Spouse may defer the distribution up to
the date on which the Participant would have attained
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age seventy
and one-half (70-1/2). If such Spouse dies prior to such
distribution, the prior sentence shall be applied as if the
Spouse were the Participant.
(h) Notwithstanding anything in the Plan to the contrary, the
provisions of subsections (a) through (g) shall also apply to a
person who is not a Participant but who has made a contribution
to and maintains a Rollover Contribution Account under the Plan.
7.8 DIRECT ROLLOVER OF ELIGIBLE ROLLOVER DISTRIBUTIONS
For purposes of this Section 7.8, the following definitions shall
apply:
(a) "Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
(b) "Distributee" means an Employee or former Employee. In addition,
the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's Spouse or former spouse who is
the alternate payee under a qualified domestic relations order,
as defined in Section 414(p) of the Code, are Distributees with
regard to the interest of the Spouse or former spouse.
(c) "Eligible Retirement Plan" means an individual retirement account
described in Section 408(a) of the Code, an individual retirement
annuity described in Section 408(b) of the Code, an annuity plan
described in Section 403(a) of the Code, or a qualified trust
described in Section 401(a) of the Code, that accepts the
Distributee's Eligible Rollover Distribution. However, in the
case of an Eligible Rollover Distribution to the surviving
Spouse, an Eligible Retirement Plan is an individual retirement
account or individual retirement annuity.
(d) "Eligible Rollover Distribution" means any distribution of all or
any portion of the balance to the credit of the Distributee,
except that an Eligible Rollover Distribution does not include:
any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) or the Distributee and the
Distributee's designated Beneficiary, or for a specified period
of ten(10) years or more; any distribution to the extent such
distribution is required under Section 401(a)(9) of the Code; and
the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net
unrealized appreciation with respect to employer securities).
This Section 7.8 applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to
the contrary that would otherwise limit a Distributee's election
under this Section, a Distributee may elect, at the time and in
the manner prescribed by the Plan Administrator, to have any
portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Distributee in a Direct
Rollover.
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7.9 COMMENCEMENT OF BENEFITS
(a) Unless the Employee elects otherwise in accordance with the Plan,
in no event shall the payment of benefits commence later than the
sixtieth (60th) day after the close of the Plan Year in which the
latest of the following events occur: (i) the attainment by the
Employee of age sixty-five (65), (ii) the tenth (10th)
anniversary of the year in which the Participant commenced
participation in the Plan, or (iii) the termination of the
Employee's employment with the Employer; provided, however, that
if the amount of the payment required to commence on the date
determined under this sentence cannot be ascertained by such
date, a payment retroactive to such date may be made no later
than sixty (60) days after the earliest date on which the amount
of such payment can be ascertained under the Plan.
(b) Distributions to five-percent owners:
The vested interest in the Net Value of the Accounts of a five-
percent owner (as described in Section 416(i) of the Code and
determined with respect to the Plan Year ending in the calendar
year in which such individual attains age seventy and one-half
(70-1/2)) must be distributed or commence to be distributed no
later than the first day of April following the calendar year in
which such individual attains age seventy and one-half (70-1/2).
The vested interest in the Net Value of the Accounts of an
Employee who is not a five-percent owner (as described in Section
416(i) of the Code) for the Plan Year ending in the calendar year
in which such person attains age seventy and one-half (70-1/2)
but who becomes a five-percent owner (as described in Section
416(i) of the Code) for a later Plan Year must be distributed or
commence to be distributed no later than the first day of April
following the last day of the calendar year that includes the
last day of the first Plan Year for which such individual is a
five-percent owner (as described in Section 416(i) of the Code).
(c) Distributions to other than five-percent owners:
The vested interest in the Net Value of the Accounts of an
Employee who is not a five-percent owner and who attained age
seventy and one-half (70-1/2) prior to January 1, 1988, must be
distributed or commence to be distributed no later than the first
day of April following the calendar year in which occurs the
later of: (i) his termination of employment or (ii) his
attainment of age seventy and one-half (70-1/2).
The vested interest in the Net Value of the Accounts of any
Employee who attains age seventy and one-half (70-1/2) after
December 31, 1987, must be distributed or commence to be
distributed no later than the first day of April following the
calendar year in which such individual attains age seventy and
one-half (70-1/2).
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ARTICLE VIII -
Loans to Participants
8.1 DEFINITIONS AND CONDITIONS
(a) For purposes of this Article VIII, the following terms and
phrases shall have the meanings hereafter ascribed to them:
(i) "Borrower" means a Participant or a "Party in Interest" (as
defined under Section 3(14) of ERISA) who maintains an
Account, provided such Participant or Party in Interest is
not receiving a benefit payment in accordance with the
provision s of Section 7.5(d) or 7.7.
(ii) "Loan Account" means the separate, individual account
established on behalf of a Borrower in accordance with the
provisions of Section 8.4(d).
(b) To the extent permitted under the provisions of this Article VIII
and subject to the terms and conditions set forth herein, a
Borrower may request a loan from his Accounts. Any loans made in
accordance with this Article VIII shall not be subject to the
provisions of Article VI.
8.2 LOAN AMOUNT
Upon a finding by the Committee that all requirements hereunder have
been met, 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 the Basic
Contribution Account, vested Matching Contribution Account, Special
Contribution Account and Rollover Contribution Account, or (b)
$50,000, reduced by the highest outstanding loan balance during the
preceding twelve (12) months. The minimum loan permitted shall be
$1,000. For purposes of this Section 8.2, the Net Value of a
Borrower's Accounts includes the Borrower's Loan Accounts under
Section 8.4(d).
8.3 TERM OF LOAN
All loans shall be for a fixed term of not more than five (5) years,
except that a loan which shall be used to acquire any dwelling which
within a reasonable time is to be used as the principal residence of
the Participant, may, in the discretion of the Committee, be made for
a term of not more than fifteen (15) years. Interest on a loan shall
be based on a reasonable rate of interest. Such rate shall be the
"prime rate" as set forth in the first publication of THE WALL STREET
JOURNAL issued during the month in which the Borrower requests the
loan, rounded to the nearest quarter of one percent (1/4 of 1%),
increased by one (1) percentage point. Such rate shall remain in
effect until the Loan Account is closed.
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8.4 OPERATIONAL PROVISIONS
(a) An application for a loan shall be filed in the form and manner
prescribed by the Committee ten (10) days prior to the Valuation
Date as of which such loan is requested. If the Committee shall
approve such application, the Committee shall establish the
amount of such loan and such loan shall be effected as of such
Valuation Date.
(b) The amount of the loan shall be distributed from the Investment
Accounts in which the Borrower's Accounts are invested, in the
following order of priority:
(i) Basic Contribution Account;
(ii) Special Contribution Account, if any;
(iii) Rollover Contribution Account; and
(iv) vested Matching Contribution Account.
Distributions from each of the foregoing Accounts shall be made
on a pro rata basis among the Investment Accounts selected
pursuant to Section 6.1.
(c) The proceeds of a loan shall be distributed to the Borrower as
soon as practicable after the Valuation Date as of which the loan
is processed; provided, however, that the Borrower shall have
satisfied such reasonable conditions as the Committee shall deem
necessary, including, without limitation: (i) the delivery of an
executed promissory note for the amount of the loan, including
interest, payable to the order of the Trustees; (ii) an
assignment to the Plan of such Borrower's interest in his
Accounts to the extent of such loan; and (iii) if the Borrower is
actively employed by the Employer, an authorization to the
Employer to make payroll deductions in order to repay his loan to
the Plan. The aforementioned promissory note shall be duly
acknowledged and executed by the Borrower and shall be held by
the Trustees, or the Committee as agent for the Trustees, as an
asset of the Borrower's Loan Account pursuant to subsection (d).
(d) A Loan Account shall be established for each Borrower with an
outstanding loan pursuant to this Article VIII. Each Loan
Account shall be comprised of a Borrower's (i) executed
promissory note and (ii) installment payments of principal and
interest made pursuant to Section 8.5(a). Upon full payment and
satisfaction of the outstanding Loan Account balance, a
Borrower's promissory note shall be marked paid in full, returned
to the Borrower, and his Loan Account thereupon closed.
(e) As of each Valuation Date coincident with or next succeeding each
payment of principal and interest on a loan, the then current
balance of each Borrower's Loan Account shall be debited by the
amount of such payment and such amount shall be transferred for
investment in accordance with Section 8.5(c) to the appropriate
Borrower's Account. If the Committee established a lien against
the Borrower's
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Accounts pursuant to Section 8.6(c), and
foreclosure of such lien is deferred until the Borrower's
Termination of Service pursuant to Section 8.6(c)(i), for each
month that foreclosure of the lien is deferred, the then current
balance of the Borrower's Loan Account shall be charged with
interest on the unpaid principal and interest thereon.
(f) A Borrower will be permitted no more than one (1) outstanding
loan at any time, with the exception of any Borrower who had more
than one (1) outstanding loan prior to the Restatement Date.
8.5 REPAYMENTS
(a) If the Borrower is on the payroll of the Employer and unless
otherwise agreed to by the Committee, repayments of loan
principal, or the unpaid balance thereof, and interest thereon
shall be made through payroll deductions. The first repayment
shall be deducted as of the first payroll date occurring no later
than three (3) weeks after the Committee submits the loan form
for processing.
If the Borrower is not on the payroll of the Employer and unless
otherwise agreed to by the Committee, repayments of loan
principal, or the unpaid balance thereof, and interest thereon,
shall be made in cash or cash equivalencies to the Employer in
equal monthly installments for payment to his Loan Account.
(b) Any amount repaid to the Plan by a Borrower with respect to a
loan, including interest thereon, shall be invested as if such
amount were a contribution to be invested in accordance with
Section 6.1.
(c) With respect to each Borrower's Loan Account, any repayment of
principal and interest made by a Borrower shall be credited, as
of the Valuation Date coincident with or next succeeding such
payment, to the Borrower's Accounts in the order of priority
established under Section 8.4(b). No Account having a lesser
degree of priority shall be credited until the Account having the
immediately preceding degree of priority has been restored by an
amount equal to that which had been borrowed from such Account.
(d) A Borrower may prepay his entire loan, plus all interest accrued
and unpaid thereon, as of any Valuation Date. Alternatively and
subject to such other terms and conditions as may be established
from time to time by the Committee, a Borrower may prepay a
portion of his loan on any Valuation Date. Such prepayment shall
be applied first to all accrued and unpaid interest on the
outstanding balance of the loan. After any partial prepayment of
principal, interest will only be charged on the remaining
outstanding balance of the loan.
(e) In the event the Plan is terminated, the entire unpaid principal
amount of the loan hereunder, together with any accrued and
unpaid interest thereon, shall become immediately due and
payable.
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8.6 DEFAULT
(a) If a Borrower fails to make any payment on any loan when due
under this Article VIII, the entire unpaid principal amount of
such loan, together with any accrued and unpaid interest thereon,
shall be deemed in default and become due and payable ninety (90)
days after the initial date of payment delinquency.
(b) If a Borrower fails to make any payment on a loan and is deemed
to be in default pursuant to subsection (a), the Committee shall
establish a lien against the Borrower's Accounts in an amount
equal to any unpaid principal and interest. The lien shall be
foreclosed by applying the value of the Borrower's Loan Account
(determined as of the next Valuation Date immediately following
foreclosure) in satisfaction of said unpaid principal and
interest as follows:
(i) if the Borrower is in the employment of the Employer, upon
the Borrower's Termination of Service; or
(ii) if the Borrower is not in the employment of the Employer,
immediately upon default.
Thereupon, the vested interest in the balance of the Borrower's
Accounts shall be distributed in accordance with the applicable
provisions of the Plan.
(c) The Committee may, in accordance with uniform rules established
by it, restrict the right of any Borrower who has defaulted on a
loan from the Plan to: (i) make withdrawals and/or loans from
his Matching Contribution Account, Basic Contribution Account,
Special Contribution Account and/or Rollover Contribution Account
for a period not exceeding twelve (12) months or (ii) if the
Borrower is an Eligible Employee, authorize Basic Contributions
to be made on his behalf or make any other contributions to the
Plan for a period not exceeding twelve (12) months.
8.7 COORDINATION OF OUTSTANDING ACCOUNT AND PAYMENT OF BENEFITS
(a) If the Borrower has an outstanding Loan Account and is either (i)
scheduled to receive or elects to receive a lump sum distribution
in accordance with the provisions of Article VII, or (ii)
scheduled to receive the last installment payment under a
previous election made in accordance with the provisions of
Article VII to receive payments in a form other than the normal
form of benefit payments, then, at the time of the distribution
or payment under clause (i) or (ii) above, the entire unpaid
principal amount of the loan together with any accrued and unpaid
interest thereon, shall become immediately due and payable. No
Plan distribution, except as permitted under Section 7.2 or
Section 7.3, shall be made to any Borrower unless and until such
Borrower's Loan Account, including accrued interest thereunder,
has been liquidated and closed. If a Borrower fails to pay the
outstanding balance of his Loan Account hereunder, such loan
shall be satisfied as if a default had occurred pursuant to
Section 8.6.
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(b) Except as otherwise provided in Section 8.2, any reference in the
Plan to the Net Value of Units in a Borrower's Accounts available
for distribution to any Borrower, shall mean the value after the
satisfaction of the entire unpaid principal loan amount and any
accrued, unpaid interest thereon, as provided in this Article
VIII
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ARTICLE IX -
Administration
9.1 GENERAL ADMINISTRATION OF THE PLAN
The operation and administration of the Plan shall be subject to the
management and control of the Named Fiduciaries and Plan Administrator
designated by the Employer. The designation of such Named Fiduciaries
and Plan Administrator, the terms of their appointment, and their
duties and responsibilities allocated among them shall be as set forth
in this Article IX.
9.2 DESIGNATION OF NAMED FIDUCIARIES
The management and control of the operation and administration of the
Plan shall be allocated in the following manner:
(a) The Employer shall designate the Trustees as a Named Fiduciary to
perform those functions set forth in the Agreement or the Plan
that are assigned to the Trustees.
(b) The Employer shall designate one or more individuals to serve as
member(s) of an employee benefits Committee to perform those
functions set forth in the Agreement or the Plan that are
assigned to such Committee.
(c) A Trust Participant (as defined under the Agreement) may delegate
to a person or persons the duties and responsibilities for voting
Units set forth under the Agreement.
9.3 RESPONSIBILITIES OF FIDUCIARIES
The Named Fiduciaries and Plan Administrator shall have only those
powers, duties, responsibilities and obligations that are specifically
allocated to them under the Plan or the Agreement.
To the extent permitted by ERISA, each Named Fiduciary and Plan
Administrator may rely upon any direction, information or action of
another Named Fiduciary, Plan Administrator or the Employer as being
proper under the Plan or the Agreement and is not required to inquire
into the propriety of any such direction, information or action and no
Named Fiduciary or Plan Administrator shall be responsible for any act
or failure to act of another Named Fiduciary, Plan Administrator or
the Employer.
No Named Fiduciary, Plan Administrator or the Employer guarantees the
Trust Fund in any manner against investment loss or depreciation in
asset value.
The allocation of responsibility between the Trustees and the Employer
may be changed by written agreement. Such reallocation shall be
evidenced by Employer Resolutions and shall not be deemed an amendment
to the Plan.
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9.4 PLAN ADMINISTRATOR
The Employer shall designate the Trustees as the Trustee Administrator
and shall designate one or more persons to act as Plan Administrator
and to perform those functions set forth in the Agreement or the Plan
that are assigned to the Plan Administrator.
The duties and responsibilities of a plan administrator under ERISA
shall be allocated between the Plan Administrator and the Trustee
Administrator as set forth herein or in the Agreement. Such
allocation may be changed only by written agreement between the
parties and shall not be deemed an amendment to the Plan.
The Plan Administrator shall be solely responsible for monitoring and
notifying the Trustees of an Employee's age for all purposes under the
Plan.
The Plan Administrator is designated as the Plan's agent for the
service of legal process.
9.5 COMMITTEE
The members of the Committee designated by the Employer under Section
9.2(b) shall serve for such term(s) as the Employer shall determine
and until their successors are designated and qualified. The term of
any member of the Committee may be renewed from time to time without
limitation as to the number of renewals. Any member of the Committee
may (a) resign upon at least sixty (60) days written notice to the
Employer or (b) be removed from office but only for his failure or
inability, in the opinion of the Employer, to carry out his
responsibilities in an effective manner. Termination of employment
with the Employer shall be deemed to give rise to such failure or
inability.
The powers and duties allocated to the Committee shall be vested
jointly and severally in its members. Notwithstanding specific
instructions to the contrary, any instrument or document signed on
behalf of the Committee by any member of the Committee may be accepted
and relied upon by the Trustees as the act of the Committee. The
Trustees shall not be required to inquire into the propriety of any
such action taken by the Committee nor shall they be held liable for
any actions taken by them in reliance thereon.
The Employer may, pursuant to Employer Resolutions and upon notice to
the Trustees, change the number of individuals comprising the
Committee, their terms of office or other conditions of their
incumbency provided that there shall be at all times at least one
individual member of the Committee. Any such change shall not be
deemed an amendment to the Plan.
9.6 POWERS AND DUTIES OF THE COMMITTEE
The Committee shall have authority to perform all acts it may deem
necessary or appropriate in order to exercise the duties and powers
imposed or granted by ERISA, the Plan, the Agreement or any Employer
Resolutions. Such duties and powers shall include, but not be limited
to, the following:
(a) Power to Construe - Except as otherwise provided in the
Agreement, the Committee shall have the power to construe the
provisions of the Plan and to determine any questions of fact
which may arise thereunder.
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(b) POWER TO MAKE RULES AND REGULATIONS - The Committee shall have
the power to make such reasonable rules and regulations as it may
deem necessary or appropriate to perform its duties and exercise
its powers. Such rules and regulations shall include, but not be
limited to, those governing (i) the manner in which the Committee
shall act and manage its own affairs, (ii) the procedures to be
followed in order for Employees or Beneficiaries to claim
benefits, and (iii) the procedures to be followed by
Participants, Beneficiaries or other persons entitled to benefits
with respect to notifications, elections, designations or other
actions required by the Plan or ERISA. All such rules and
regulations shall be applied in a uniform and nondiscriminatory
manner.
(c) POWERS AND DUTIES WITH RESPECT TO INFORMATION - The Committee
shall have the power and responsibility:
(i) to obtain such information as shall be necessary for the
proper discharge of its duties;
(ii) to furnish to the Employer, upon request, such reports as
are reasonable and appropriate;
(iii) to receive, review and retain periodic reports of the
financial condition of the Trust Fund; and
(iv) to receive, collect and transmit to the Trustees all
information required by the Trustees in the administration
of the Accounts of the Employee as contemplated in Section
9.7.
(d) POWER OF DELEGATION - The Committee shall have the power to
delegate fiduciary responsibilities (other than trustee
responsibilities defined under Section 405(c)(3) of ERISA) to one
or more persons who are not members of the Committee. Unless
otherwise expressly indicated by the Employer, the Committee must
reserve the right to terminate such delegation upon reasonable
notice.
(e) POWER OF ALLOCATION - Subject to the written approval of the
Employer, the Committee shall have the power to allocate among
its members specified fiduciary responsibilities (other than
trustee responsibilities defined under Section 405(c)(3) of
ERISA). Any such allocation shall be in writing and shall
specify the persons to whom such allocation is made and the terms
and conditions thereof.
(f) DUTY TO REPORT - Any member of the Committee to whom specified
fiduciary responsibilities have been allocated under subsection
(e) shall report to the Committee at least annually. The
Committee shall report to the Employer at least annually
regarding the performance of its responsibilities as well as the
performance of any persons to whom any powers and
responsibilities have been further delegated.
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(g) POWER TO EMPLOY ADVISORS AND RETAIN SERVICES - The Committee may
employ such legal counsel, enrolled actuaries, accountants,
pension specialists, clerical help and other persons as it may
deem necessary or desirable in order to fulfill its
responsibilities under the Plan.
9.7 CERTIFICATION OF INFORMATION
The Committee shall certify to the Trustees on such periodic or other
basis as may be agreed upon, but in no event later than ten (10) days
before any Valuation Date as of which the Trustees must effect any
action with respect to any Accounts held under the provisions of the
Plan, relevant facts regarding the establishment of the Accounts of an
Employee, periodic contributions with respect to such Accounts,
investment elections and modifications thereof and withdrawals and
distributions therefrom. The Trustees shall be fully protected in
maintaining individual Account records and in administering the
Accounts of the Employee on the basis of such certifications and shall
have no duty of inquiry or otherwise with respect to any transactions
or communications between the Committee and Employees relating to the
information contained in such certifications.
9.8 AUTHORIZATION OF BENEFIT PAYMENTS
The Committee shall forward to the Trustees any application for
payment of benefits within a reasonable time after it has approved
such application. The Trustees may rely on any such information set
forth in the approved application for the payment of benefits to the
Participant, Beneficiary or any other person entitled to benefits.
9.9 PAYMENT OF BENEFITS TO LEGAL CUSTODIAN
Whenever, in the Committee's opinion, a person entitled to receive any
benefit payment is a minor or deemed to be physically, mentally or
legally incompetent to receive such benefit, the Committee may direct
the Trustees to make payment for his benefit to such individual or
institution having legal custody of such person or to his legal
representative. Any benefit payment made in accordance with the
provisions of this Section 9.9 shall operate as a valid and complete
discharge of any liability for payment of such benefit under the
provisions of the Plan.
9.10 SERVICE IN MORE THAN ONE FIDUCIARY CAPACITY
Any person or group of persons may serve in more than one fiduciary
capacity with respect to the Plan, regardless of whether any such
person is an officer, employee, agent or other representative of a
party in interest.
9.11 PAYMENT OF EXPENSES
The Employer will pay the ordinary administrative expenses of the Plan
and compensation of the Trustees to the extent required, except that
any expenses directly related to the Trust Fund, such as transfer
taxes, brokers' commissions, registration charges, or administrative
expenses of the Trustees (including expenses of counsel retained by it
in accordance with the Agreement), shall be paid from the Trust Fund
or from such Investment Account to which such expenses directly
relate.
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The Employer may charge Employees all or part of the reasonable
expenses associated with withdrawals and other distributions or
Account transfers. The Employer will charge Employees loan
origination fees and all annual maintenance fees associated with
loans.
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ARTICLE X -
Benefit Claims Procedure
10.1 DEFINITION
For purposes of this Article X, "Claimant" shall mean any Participant,
Beneficiary or any other person entitled to benefits under the Plan or
his duly authorized representative.
10.2 CLAIMS
A Claimant may file a written claim for a Plan benefit with the Plan
Administrator on the appropriate form to be supplied by the Plan
Administrator. The Plan Administrator shall, in its sole and absolute
discretion, review the Claimant's application for benefits and
determine the disposition of such claim.
10.3 DISPOSITION OF CLAIM
The Plan Administrator shall notify the Claimant as to the disposition
of the claim for benefits under this Plan within ninety (90) days
after the appropriate form has been filed unless special circumstances
require an extension of time for processing. If such an extension of
time is required, the Plan Administrator shall furnish written notice
of the extension to the Claimant prior to the termination of the
initial ninety (90) day period. The extension notice shall indicate
the special circumstances requiring the extension of time and the date
the Plan Administrator expects to render a decision. In no event
shall such extension exceed a period of one hundred-eighty (180) days
from the receipt of the claim.
10.4 DENIAL OF CLAIM
If a claim for benefits under this Plan is denied in whole or in part
by the Plan Administrator, a notice written in a manner calculated to
be understood by the Claimant shall be provided by the Plan
Administrator to the Claimant and such notice shall include the
following:
(a) a statement that the claim for the benefits under this Plan has
been denied;
(b) the specific reasons for the denial of the claim for benefits,
citing the specific provisions of the Plan which set forth the
reason or reasons for the denial;
(c) a description of any additional material or information necessary
for the Claimant to perfect the claim for benefits under this
Plan and an explanation of why such material or information is
necessary; and
(d) appropriate information as to the steps to be taken if the
Claimant wishes to appeal such decision.
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10.5 INACTION BY PLAN ADMINISTRATOR
A claim for benefits shall be deemed to be denied if the Plan
Administrator shall not take any action on such claim within ninety
(90) days after receipt of the application for benefits by the
Claimant or, if later, within the extended processing period
established by the Plan Administrator by written notice to the
Claimant, in accordance with Section 10.3.
10.6 RIGHT TO FULL AND FAIR REVIEW
A Claimant who is denied, in whole or in part, a claim for benefits
under the Plan may file an appeal of such denial. Such appeal must be
made in writing by the Claimant or his duly authorized representative
and must be filed with the Committee within sixty (60) days after
receipt of the notification under Section 10.4 or the date his claim
is deemed to be denied under Section 10.5. The Claimant or his
representative may review pertinent documents and submit issues and
comments in writing.
10.7 TIME OF REVIEW
The Committee, independent of the Plan Administrator, shall conduct a
full and fair review of the denial of claim for benefits under this
Plan to a Claimant within sixty (60) days after receipt of the written
request for review described in Section 10.6; provided, however, that
an extension, not to exceed sixty (60) days, may apply in special
circumstances. Written notice shall be furnished to the Claimant
prior to the commencement of the extension period.
10.8 FINAL DECISION
The Claimant shall be notified in writing of the final decision of
such full and fair review by such Committee. Such decision shall be
written in a manner calculated to be understood by the Claimant, shall
state the specific reasons for the decision and shall include specific
references to the pertinent Plan provisions upon which the decision is
based. In no event shall the decision be furnished to the Claimant
later than sixty (60) days after the receipt of a request for review,
unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered within one
hundred-twenty (120) days after receipt of such request for review.
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ARTICLE XI -
Amendment, Termination, and Withdrawal
11.1 AMENDMENT AND TERMINATION
The Employer expects to continue the Plan indefinitely, but
specifically reserves the right, in its sole and absolute discretion,
at any time, by appropriate action of the Board, to terminate its Plan
or to amend (subject to the approval of the Trustees), in whole or in
part, any or all of the provisions of the Plan. Subject to the
provisions of Section 13.7, no such amendment or termination shall
permit any part of the Trust Fund to be used for or diverted to
purposes other than for exclusive benefit of Participants,
Beneficiaries or other persons entitled to benefits, and no such
amendment or termination shall reduce the interest of any Participant,
Beneficiary or other person who may be entitled to benefits, without
his consent. In the event of a termination or partial termination of
the Plan, or upon complete discontinuance of contributions under the
Plan, the Accounts of each affected Participant shall become fully
vested and shall be distributable in accordance with the provisions of
Article VII. In the event of a complete termination of the Plan, the
Accounts of each affected Participant shall become fully vested and
shall be distributable as a lump sum distribution within seven (7)
days of the Valuation Date coincident with the date of receipt by the
Trustees of the proper documentation indicating the Participant's
distribution date.
If any amendment changes the vesting schedule, any Participant who has
a Period of Service of three (3) or more years may, by filing a
written request with the Employer, elect to have his vested percentage
computed under the vesting schedule in effect prior to the amendment.
The period during which the Participant may elect to have his vested
percentage computed under the prior vesting schedule shall commence
with the date the amendment is adopted and shall end on the latest of:
(a) sixty (60) days after the amendment is adopted;
(b) sixty (60) days after the amendment becomes effective; or
(c) sixty (60) days after the Participant is issued written notice of
the amendment from the Employer.
11.2 WITHDRAWAL FROM THE TRUST FUND
An Employer may withdraw its Plan from the Trust Fund in accordance
with and subject to the provisions of the Agreement.
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ARTICLE XII -
Top-Heavy Plan Provisions
12.1 INTRODUCTION
Any other provisions of the Plan to the contrary notwithstanding, the
provisions contained in this Article XII shall be effective with
respect to any Plan Year in which this Plan is a Top-Heavy Plan, as
hereinafter defined.
12.2 DEFINITIONS
For purposes of this Article XII, the following words and phrases
shall have the meanings stated herein unless a different meaning is
plainly required by the context.
(a) "Account," for the purpose of determining the Top-Heavy Ratio,
means the sum of (i) a Participant's Accounts as of the most
recent Valuation Date and (ii) an adjustment for contributions
due as of the Determination Date.
(b) "Determination Date" means, with respect to any Plan Year, the
last day of the preceding Plan Year. With respect to the first
Plan Year, "Determination Date" means the last day of such Plan
Year.
(c) "Five-Percent Owner" means, if the Employer is a corporation, any
Employee who owns (or is considered as owning within the meaning
of Section 318 of the Code modified by Section 416(i)(1)(B)(iii)
of the Code) more than five percent (5%) of the value of the
outstanding stock of, or more than five percent (5%) of the total
combined voting power of all the stock of, the Employer. If the
Employer is not a corporation, a Five-Percent Owner means any
Employee who owns more than five percent (5%) of the capital or
profits interest in the Employer.
(d) "Key Employee" means any Employee or former Employee (or, where
applicable, such person's Beneficiary) in the Plan who, at any
time during the Plan Year containing the Determination Date or
any of the preceding four (4) Plan Years, is: (i) an Officer
having Top-Heavy Earnings from the Employer of greater than fifty
percent (50%) of the dollar limitation in effect under Section
415(b)(1)(A) of the Code; (ii) one of the ten (10) Employees
having Top-Heavy Earnings from the Employer of more than the
dollar limitation in effect under Section 415(c)(1)(A) of the
Code and owning (or considered as owning within the meaning of
Section 318 of the Code modified by Section 416(i)(1)(B)(iii) of
the Code) both more than a one-half of one percent (1/2%)
interest in value and the largest interests in the value of the
Employer; (iii) a Five-Percent Owner of the Employer; or (iv) a
One-Percent Owner of the Employer having Top-Heavy Earnings from
the Employer greater than $150,000. For purposes of computing
the Top-Heavy
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Earnings in subsections (d)(i), (d)(ii) and
(d)(iv), the aggregation rules of Sections 414(b), (c), (m) and
(o) of the Code shall apply.
(e) "Non-Key Employee" means an Employee or former Employee (or,
where applicable, such person's Beneficiary) who is not a Key
Employee.
(f) "Officer" means an Employee who is an administrative executive in
the regular and continued service of his Employer; any Employee
who has the title but not the authority of an officer shall not
be considered an Officer for purposes of this Article XII.
Similarly, an Employee who does not have the title of an officer
but has the authority of an officer shall be considered an
Officer. For purposes of this Article XII, the maximum number of
Officers that must be taken into consideration shall be
determined as follows: (i) three (3), if the number of Employees
is less than thirty (30); (ii) ten percent (10%) of the number of
Employees, if the number of Employees is between thirty (30) and
five hundred (500); or (iii) fifty (50), if the number of
Employees is greater than five hundred (500). In determining
such limit, the term "Employer" shall be determined in accordance
with Sections 414(b), (c), (m) and (o) of the Code and "Employee"
shall include Leased Employees and exclude employees described in
Section 414(q)(8) of the Code.
(g) "One-Percent Owner" means, if the Employer is a corporation, any
Employee who owns (or is considered as owning within the meaning
of Section 318 of the Code modified by Section 416(i)(1)(B)(iii)
of the Code) more than one percent (1%) of the value of the
outstanding stock of, or more than one percent (1%) of the total
combined voting power of all the stock of, the Employer. If the
Employer is not a corporation, a One-Percent Owner means any
Employee who owns more than one percent (1%) of the capital or
profits interest in the Employer.
(h) A "Permissive Aggregation Group" consists of one or more plans of
the Employer that are part of a Required Aggregation Group, plus
one or more plans that are not part of a Required Aggregation
Group but that satisfy the requirements of Sections 401(a)(4) and
410 of the Code when considered together with the Required
Aggregation Group. If two (2) or more defined benefit plans are
included in the aggregation group, the same actuarial assumptions
must be used with respect to all such plans in determining the
Present Value of Accrued Benefits.
(i) "Present Value of Accrued Benefits" shall be determined in
accordance with the actuarial assumptions set forth in the
defined benefit plan and the assumed benefit commencement date
shall be determined taking into account any nonproportional
subsidy.
(j) "Related Rollover Contributions" means rollover contributions
received by the Plan that are not initiated by the Employee nor
made from another plan maintained by the Employer.
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(k) A "Required Aggregation Group" consists of each plan of the
Employer (whether or not terminated) in which a Key Employee
participates or participated at any time during the Plan Year
containing the Determination Date or any of the four (4)
preceding Plan Years and each other plan of the Employer (whether
or not terminated) which enables any plan in which a Key Employee
participates or participated to meet the requirements of Section
401(a)(4) or 410 of the Code. If two (2) or more defined benefit
plans are included in the aggregation group, the same actuarial
assumptions must be used with respect to all such plans in
determining the Present Value of Accrued Benefits.
(l) A "Super Top-Heavy Plan" means a Plan in which, for any Plan
Year:
(i) the Top-Heavy Ratio (as defined under subsection (o)) for
the Plan exceeds ninety percent (90%) and the Plan is not
part of any Required Aggregation Group (as defined under
subsection (k)) or Permissive Aggregation Group (as defined
under subsection (h)); or
(ii) the Plan is a part of a Required Aggregation Group (but is
not part of a Permissive Aggregation Group) and the Top-
Heavy Ratio for the group of plans exceeds ninety percent
(90%); or
(iii) the Plan is a part of a Required Aggregation Group and part
of a Permissive Aggregation Group and the Top-Heavy Ratio
for the Permissive Aggregation Group exceeds ninety percent
(90%).
(m) "Top-Heavy Earnings" means, for any year, compensation as defined
under Section 414(q)(7) of the Code, up to a maximum of $200,000
adjusted as prescribed by the Secretary of the Treasury under
Section 401(a)(17) of the Code. In determining Top-Heavy
Earnings, the rules of Section 414(q)(6) of the Code shall apply
except that the term "family" shall include only the Spouse and
those lineal descendants of the Employee who have not attained
age nineteen (19) before the close of the Plan Year.
(n) A "Top-Heavy Plan" means a Plan in which, for any Plan Year:
(i) the Top-Heavy Ratio (as defined under subsection (o)) for
the Plan exceeds sixty percent (60%) and the Plan is not
part of any Required Aggregation Group (as defined under
subsection (k)) or Permissive Aggregation Group (as defined
under subsection (h)); or
(ii) the Plan is a part of a Required Aggregation Group but is
not part of a Permissive Aggregation Group and the Top-Heavy
Ratio for the group of plans exceeds sixty percent (60%); or
(iii) the Plan is a part of a Required Aggregation Group and part
of a Permissive Aggregation Group and the Top-Heavy Ratio
for the Permissive Aggregation Group exceeds sixty percent
(60%).
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(o) "Top-Heavy Ratio" means:
(i) if the Employer maintains one or more qualified defined
contribution plans and the Employer has not maintained any
qualified defined benefit plans which during the five (5)
year period ending on the Determination Date have or have
had accrued benefits, the Top-Heavy Ratio for the Plan alone
or for the Required Aggregation Group or Permissive
Aggregation Group, as appropriate, is a fraction, the
numerator of which is the sum of the Account balances under
the aggregated defined contribution plan or plans for all
Key Employees as of the Determination Date, including any
part of any Account balance distributed in the five (5) year
period ending on the Determination Date but excluding
distributions attributable to Related Rollover
Contributions, if any, and the denominator of which is the
sum of all Account balances under the aggregated qualified
defined contribution plan or plans for all Participants as
of the Determination Date, including any part of any Account
balance distributed in the five (5) year period ending on
the Determination Date but excluding distributions
attributable to Related Rollover Contributions, if any,
determined in accordance with Section 416 of the Code and
the regulations thereunder.
(ii) if the Employer maintains one or more qualified defined
contribution plans and the Employer maintains or has
maintained one or more qualified defined benefit plans which
during the five (5) year period ending on the Determination
Date have or have had any accrued benefits, the Top-Heavy
Ratio for any Required Aggregation Group or Permissive
Aggregation Group, as appropriate, is a fraction, the
numerator of which is the sum of the Account balances under
the aggregated qualified defined contribution plan or plans
for all Key Employees, determined in accordance with (i)
above, and the sum of the Present Value of Accrued Benefits
under the aggregated qualified defined benefit plan or plans
for all Key Employees as of the Determination Date, and the
denominator of which is the sum of the Account balances
under the aggregated qualified defined contribution plan or
plans determined in accordance with (i) above, for all
Participants and the sum of the Present Value of Accrued
Benefits under the aggregated qualified defined benefit plan
or plans for all Participants as of the Determination Date,
all determined in accordance with Section 416 of the Code
and the regulations thereunder. The accrued benefits under
a qualified defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are adjusted for any
distribution of an accrued benefit made in the five (5) year
period ending on the Determination Date.
(iii) For purposes of (i) and (ii) above, the value of Account
balances and the Present Value of Accrued Benefits will be
determined as of the most recent Valuation Date that falls
within the twelve (12) month period ending on the
Determination Date, except as provided in Section 416 of the
Code and the regulations thereunder for the first and second
Plan Years of a qualified defined benefit plan. The Account
balances and
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Present Value of Accrued Benefits of a
Participant (A) who is a Non-Key Employee but who was a Key
Employee in a prior year, or (B) who has not been credited
with at least an Hour of Service with any employer
maintaining the Plan at any time during the five (5) year
period ending on the Determination Date will be disregarded.
The calculation of the Top-Heavy Ratio, and the extent to
which distributions, rollovers, and transfers are taken into
account will be made in accordance with Section 416 of the
Code and the regulations thereunder. When aggregating
plans, the value of Account balances and the Present Value
of Accrued Benefits will be calculated with reference to the
Determination Date that falls within the same calendar year.
(p) "Valuation Date", for the purpose of computing the Top-Heavy
Ratio (as defined under subsection (o)) under subsections (1) and
(n) means the last date of the Plan Year.
For purposes of subsections (h), (j) and (k), the rules of Sections
414(b), (c), (m) and (o) of the Code shall be applied in determining
the meaning of the term "Employer".
12.3 LIMIT ON TOP-HEAVY EARNINGS
For any Plan Year in which the Plan is a Top-Heavy Plan, Top-Heavy
Earnings taken into account for purposes of determining Employer
contributions for such Plan Year on behalf of any Participant shall be
limited to a maximum of $200,000. This maximum shall be subject to
annual cost-of-living adjustments prescribed by the Secretary of the
Treasury or his delegate in accordance with regulations adopted by the
Secretary for such purpose.
12.4 MINIMUM CONTRIBUTIONS
If the Plan becomes a Top-Heavy Plan, then any provision of Article
III to the contrary notwithstanding, the following provisions shall
apply:
(a) Subject to subsection (b), the Employer shall contribute on
behalf of each Participant who is employed by the Employer on the
last day of the Plan Year and who is a Non-Key Employee an amount
with respect to each Top-Heavy year which, when added to the
amount of Matching Contributions and Special Contributions, made
on behalf of such Participant, shall not be less than the lesser
of: (i) three percent (3%) of such Participant's Section 415
Compensation (as defined under Section 3.11(a)(vii) of the Plan
and modified by Section 401(a)(17) of the Code), or (ii) if the
Employer has no defined benefit plan which is designated to
satisfy Section 416 of the Code, the largest of Matching
Contributions and Special Contributions, as a percentage of the
first $200,000 of Key Employees' Top-Heavy Earnings; provided,
however, that in no event shall any contributions be made under
this Section 12.4 in an amount which will cause the percentage of
contributions made by the Employer on behalf of any Participant
who is a Non-Key Employee to exceed the percentage at which
contributions are made by the Employer on behalf of the Key
Employee for
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whom the percentage of Matching Contributions is
highest in such Top-Heavy year. Any such contribution shall be
allocated to the Matching Contribution Account of each such
Participant and, for purposes of vesting and withdrawals only,
shall be deemed to be a Matching Contribution.
(b) Notwithstanding the foregoing, this Section 12.4 shall not apply
to any Participant to the extent that such Participant is covered
under any other plan or plans of the Employer (determined in
accordance with Sections 414(b), (c), (m) and (o) of the Code)
and such other plan provides that the minimum allocation or
benefit requirement will be met by such other plan should this
Plan become Top-Heavy.
(c) For purposes of this Article XII, the following shall be
considered as a contribution made by the Employer:
(i) Qualified Nonelective Contributions;
(ii) Matching Contributions made by the Employer on behalf of Key
Employees; and
(iii) Basic Contributions made by the Employer on behalf of Key
Employees.
(d) Subject to the provisions of subsection (b), all Non-Key Employee
Participants who are employed by the Employer on the last day of
the Plan Year shall receive the defined contribution minimum
provided under subsection (a). A Non-Key Employee may not fail
to accrue a defined contribution minimum merely because such
Employee was excluded from participation or failed to accrue a
benefit because (i) his Compensation is less than a stated
amount, or (ii) he failed to make Basic Contributions.
12.5 IMPACT ON SECTION 415 MAXIMUM BENEFITS
For any Plan Year in which the Plan is a Super Top-Heavy Plan,
Sections 3.11(a)(iv) and (v) shall be read by substituting the number
1.0 for the number 1.25 wherever it appears therein. For any Plan
Year in which the Plan is a Top-Heavy Plan but not a Super Top-Heavy
Plan, the Plan shall be treated as a Super Top-Heavy Plan under this
Section 12.5, unless each Non-Key Employee who is entitled to a
minimum contribution or benefit receives an additional minimum
contribution or benefit. If the Non-Key Employee is entitled to a
minimum contribution under Section 12.4(a), the Plan shall not be
treated as a Super Top-Heavy Plan under this Section 12.5 if the
minimum contribution satisfies Section 12.4(a) when four percent (4%)
is substituted for three percent (3%) in Section 12.4(a)(i).
12.6 VESTING
If the Plan becomes a Top-Heavy Plan, then, notwithstanding Section
4.1(c), the Vested Percentage of a Participant who has at least one
(1) Hour of Service with the Employer after the Plan becomes Top-Heavy
shall be equal to the following Vested Percentage of his accrued
benefit, determined in accordance with the following table:
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PERIOD OF SERVICE VESTED PERCENTAGE
Less than 2 years 0%
2 years but less than 3 20%
3 years but less than 4 40%
4 years but less than 5 60%
5 or more years 100%
Notwithstanding the foregoing provision, each Participant with at
least three (3) years of Vested Service with the Employer shall have
his vested percentage computed under the greater of the provisions of
this Section 12.6 or the provisions of Section 4.1(c).
For those Plan Years in which the Plan ceases to be a Top-Heavy Plan,
the vesting schedule shall be determined in accordance with the
provisions of Section 4.1(c), subject to the following conditions:
(a) the vested percentage of a Participant's accrued benefit before
the Plan ceased to be a Top-Heavy Plan shall not be reduced; and
(b) after the Plan ceases to be a Top-Heavy Plan, each Participant
with at least a three (3) year Period of Service with the
Employer shall have his vested percentage computed under the
greater of the provisions of this Section 12.6, or the vesting
schedule set forth in Section 4.1(c).
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ARTICLE XIII -
Miscellaneous Provisions
13.1 NO RIGHT TO CONTINUED EMPLOYMENT
Neither the establishment of the Plan, nor any provisions of the
Plan or of the Agreement establishing the Trust nor any action of
any Named Fiduciary, Plan Administrator or the Employer, shall be
held or construed to confer upon any Employee any right to a
continuation of his employment by the Employer. The Employer
reserves the right to dismiss any Employee or otherwise deal with
any Employee to the same extent and in the same manner that it
would if the Plan had not been adopted.
13.2 MERGER, CONSOLIDATION, OR TRANSFER
The Plan shall not be merged or consolidated with, nor transfer its
assets or liabilities to, any other plan unless each Employee,
Participant, Beneficiary and other person entitled to benefits
under the Plan, would (if such other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit he would have been
entitled to receive if the Plan had terminated immediately before
the merger, consolidation or transfer.
13.3 NONALIENATION OF BENEFITS
Benefits payable under the Plan shall not be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary and any attempt to so anticipate,
alienate, sell, transfer, assign, pledge, encumber, charge,
garnish, execute, levy or otherwise affect any right to benefits
payable hereunder, shall be void. Notwithstanding the foregoing,
the Plan shall permit the payment of benefits in accordance with a
qualified domestic relations order as defined under Section 414(p)
of the Code.
13.4 MISSING PAYEE
Any other provision in the Plan or Agreement to the contrary
notwithstanding, if the Trustees are unable to make payment to any
Employee, Participant, Beneficiary or other person to whom a
payment is due ("Payee") under the Plan because the identity or
whereabouts of such Payee cannot be ascertained after reasonable
efforts have been made to identify or locate such person (including
mailing a certified notice of the payment due to the last known
address of such Payee as shown on the records of the Employer),
such payment and all subsequent payments otherwise due to such
Payee shall be forfeited twenty-four (24) months after the date
such payment first became due. However, such payment and any
subsequent payments shall be reinstated retroactively, without
interest, no later than sixty (60) days after the date on which the
Payee is identified and located.
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13.5 AFFILIATED EMPLOYERS
All employees of all Affiliated Employers shall, for purposes of
the limitations in Article XII and for measuring Hours of Service
and Periods of Service, be treated as employed by a single
employer. No employee of an Affiliated Employer shall become a
Participant of this Plan unless employed by the Employer or an
Affiliated Employer which has adopted the Plan.
13.6 SUCCESSOR EMPLOYER
In the event of the dissolution, merger, consolidation or
reorganization of the Employer, the successor organization may,
upon satisfying the provisions of the Agreement and the Plan, adopt
and continue this Plan. Upon adoption, the successor organization
shall be deemed the Employer with all its powers, duties and
responsibilities and shall assume all Plan liabilities.
13.7 RETURN OF EMPLOYER CONTRIBUTIONS
Any other provision of the Plan or Agreement to the contrary
notwithstanding, upon the Employer's request and with the consent
of the Trustees, a contribution to the Plan by the Employer which
was (a) made by mistake of fact, or (b) conditioned upon initial
qualification of the Plan with the Internal Revenue Service, or (c)
conditioned upon the deductibility by the Employer of such
contributions under Section 404 of the Code, shall be returned to
the Employer within one (1) year after: (i) the payment of a
contribution made by mistake of fact, or (ii) the denial of such
qualification or (iii) the disallowance of the deduction (to the
extent disallowed), as the case may be.
Any such return shall not exceed the lesser of (A) the amount of
such contributions (or, if applicable, the amount of such
contribution with respect to which a deduction is denied or
disallowed) or (B) the amount of such contributions net of a
proportionate share of losses incurred by the Plan during the
period commencing on the Valuation Date as of which such
contributions are made and ending on the Valuation Date as of which
such contributions are returned. All such refunds shall be limited
in amount, circumstances and timing to the provisions of Section
403(c) of ERISA.
13.8 CONSTRUCTION OF LANGUAGE
Wherever appropriate 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 shall be deemed
equally to refer to the female gender. Any reference to a section
number shall refer to a section of this Plan, unless otherwise
indicated.
13.9 HEADINGS
The headings of articles and sections are included solely for
convenience of reference, and if there be any conflict between such
headings and the text of the Plan, the text shall control.
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13.10 GOVERNING LAW
The Plan shall be governed by and construed and enforced in
accordance with the laws of the State of New York, except to the
extent that such laws are preempted by the Federal laws of the
United States of America.
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AMENDMENT NUMBER ONE
TO
FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION
INCENTIVE SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of Financial Federal Savings and Loan
Association Incentive Savings Plan in RSI Retirement Trust ("Plan"), the
Plan is amended as follows, effective as _of the dates set forth herein:
1. ARTICLE I - Effective as of January 1, 1994, the third
sentence of the definition of Actual Contribution Percentage, Section
1.2, shall be amended by substituting the word "compensation" for the
word "Compensation".
2. ARTICLE I - Effective as of January 1, 1994, the third
sentence of the definition of Actual Deferral Percentage, Section 1.3,
shall be amended by substituting the word "compensation" for the word
"Compensation".
3. ARTICLE I - Effective as of March 22, 1994, the definition of
Investment Accounts, Section 1.31, shall be amended by adding the
following sentence to the end thereof:Commencing March 22, 1994,
Investment Accounts shall include any investment account established and
governed pursuant to the pr
ovisions of the Separate Agreement entered into in connection with such
account between the Employer and the Separate Agency elected as trustee
for such investment account.
4. ARTICLE I - Effective as of March 22, 1994, the definition of
Named Fiduciaries, Section 1.35, shall be amended in its entirety to
read as follows:
1.35 Named Fiduciaries means the Trustees, the Committee and such
other parties who are designated by the Employer to control and manage
the operation and administration of the Plan.
5. ARTICLE I - Effective as of March 22, 1994, the definition of
Plan, Section 1.43, shall be amended by adding the following sentence at
the end thereof:
Commencing March 22, 1994 , the Plan shall be a Plan of Partial
Participation as defined in the Agreement.
6. ARTICLE I - Effective as of March 22, 1994, the definition of
Plan Funds, Section 1.45 shall be amended by adding the words "and
Separate Assets held under any Separate Agreement" immediately following
the words "Trust Fund".7.
ARTICLE I - Effective as of
March 22, 1994, Article I shall be amended by adding the following new
definitions as Sections 1.54, 1.55 and 1.56 immediately following the
definition of Rollover Contribution Account, Section 1.53, and the
former Sections 1.54, 1.55 and 1.56 and all subsequent Sections of
Article I and all cross-references thereto shall be renumbered
accordingly:
1.54 Separate Agency means any trustee or insurance carrier holding
Plan Funds under a Separate Agreement.
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1.55 Separate Agreement means the trust agreement or insurance
contract governing the investment and administration of any Separate
Assets.1.56
Separate Assets means
assets of the Plan as described in Section 5.6 which are held under an
insurance contract issued to the Employer or held in a trust other than
the Trust and which assets are not administered by the Trustees.
Effective as of March 22, 1994, the Separate Assets shall consist
exclusively of common stock of the Employer which shall be maintained in
an Investment Account established for such purpose and shall be referred
to herein as the Employer stock fund.
8. ARTICLE II - Effective as of March 22, 1994, Article II shall
be amended by adding the following new Section as Section 2.6 and the
Table of Contents shall be revised accordingly:
2.6 Eligibility Upon Reemployment of Employees Subject to Section
16(b) of the Securities Exchange Act of 1934Notwithstanding anything
contained in the Plan to the contrary, if an Employee subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934
incurs a Termination of Service and again performs an Hour of Service,
such Employee shall not be eligible to participate in the Plan until the
later of: (a) the date which is six (6) months from the date such
Employee incurred a Termination of Service or (b) the date such Employee
again performs an Hour of Service with the Employer; provided such
Employee is not excluded from participating under the provisions of
Section 2.2.
9. ARTICLE III - Effective as of March 22, 1994, Section 3.9
shall be amended in its entirety to read as follows and the Table of
Contents shall be revised accordingly:
3.9 Payment of Contributions to the Trust and Separate AgencyAs
soon as possible after each payroll period, but not less often than once
a month, the Employer shall deliver (a) to the Trustees: (i) the Basic
Contributions required to be made to the Trust during such payroll
period under the applicable Compensation Reduction Agreements, and (ii)
the amount of all Matching Contributions required to be made to the
Trust for such payroll period and (b) to the Separate Agency: (i) the
Basic Contributions required to be made to the Separate Agency during
such payroll period under the applicable Compensation Reduction
Agreements, and (ii) the amount of all Matching Contributions required
to be made to the Separate Agency during such payroll period.
Special Contributions to the Trust and to the Separate Agency shall be
forwarded by the Employer to the Trustees and to the Separate Agency no
later than the time for filing the Employer's federal income tax return,
plus any extensions thereon, for the Plan Year to which they are
attributable.
10. ARTICLE V - Effective as of March 22, 1994, the title of
Article V shall be amended as follows and the Table of Contents shall be
revised accordingly:
Trust Fund, Investment Accounts and Voting Rights
11. ARTICLE V - Effective as of March 22, 1994, the first
paragraph of Section 5.1 shall be amended in its entirety to read as
follows:
The Employer has adopted the Agreement as the funding vehicle with
respect to the Investment Accounts other than the Employer stock fund.
Commencing _ March 22, 1994 , the Employer has adopted the Separate
Agreement as the funding vehicle with respect to the Employer stock
fund.
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12. ARTICLE V - Effective as of March 22, 1994, Section 5.1 shall
be amended by adding the following as the third paragraph thereof and
the former third paragraph and all subsequent paragraphs shall follow
accordingly:
All contributions forwarded by the Employer to the Separate Agency
pursuant to the Separate Agreement shall be held by them in trust in
accordance with the terms and provisions of the Separate Agreement.
13. ARTICLE V - Effective as of March 22, 1994, the second
sentence of the third paragraph of Section 5.1 prior to its renumbering
hereunder shall be amended by deleting "and Trust" that appears at the
end thereof and by adding ",Trust and Separate Agency" in lieu thereof.
14. ARTICLE V - Effective as of March 22, 1994, the third
paragraph of Section 5.1 prior to its renumbering hereunder shall be
amended by deleting the words "Trust Fund" and by inserting the words
"Plan Funds" wherever such words appear.
15. ARTICLE V - Effective as of March 22, 1994, Section 5.1 shall
be amended by adding the following as the last paragraph of such
Section:
The Separate Agency shall invest the Separate Assets in accordance with,
and shall be governed by, the terms and provisions of the Plan and the
Separate Agreement.
16. ARTICLE V - Effective as of March 22, 1994, Section 5.3 shall
be amended in its entirety to read as follows:
5.3 Account ValuesThe Net Value of the Accounts of an Employee
means the sum of the total Net Value of each Account maintained on
behalf of the Employee in the Trust and Separate Agency as determined as
of the Valuation Date coincident with or next following the event
requiring the determination
of such Net Value. The assets of any Account shall consist of the Units
credited to such Account. The applicable Units shall be valued from
time to time by the Trustees and Separate Agency, respectively, in
accordance with the Agreement and Separate Agreement, but not less often
than monthly.
On the basis of such valuations, each Employee's Accounts shall be
adjusted to reflect the effect of income collected and accrued, realized
and unrealized profits and losses, expenses and all other transactions
during the period ending on the applicable Valuation Date.
Upon receipt by the Trustees of Basic Contributions, Matching
Contributions, and, if applicable, Rollover Contributions and Special
Contributions, and upon receipt by a Separate Agency of any Basic
Contributions, Matching Contributions and, if applicable, Rollover
Contributions and Special Contributions such contributions shall be
applied to purchase for such Employee's Account (a) Units other than
Units of the Employer stock fund, using the value of such Units as of
the close of business on the date received and (b) Units of the Employer
stock fund using the value of such Units as of the preceding Valuation
Date. Whenever a distribution is made to a Participant, Beneficiary or
other person entitled to benefits, the appropriate number of Units
credited to such Employee shall be reduced accordingly and each such
distribution shall be charged against the Units of the Investment
Account.
For the purposes of this Section 5.3, fractions of Units as well as
whole Units may be purchased or redeemed for the Account of an Employee.
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17. ARTICLE V - Effective as of March 22, 1994 , Article V
shall be amended by adding the following as Sections 5.4, 5.5, 5.6 and
5.7 and the Table of Contents shall be revised accordingly:
5.4 Voting RightsEach Participant with Units in the Employer stock
fund shall have the right to participate confidentially in the exercise
of voting rights appurtenant to shares held in such Investment Account,
provided that such person had Units in such Account as of the most
recent Valuation Date coincident with or preceding the applicable record
date for which records are available. Such participation shall be
achieved by completing and filing with the inspector of elections, or
such other person who shall be independent of the issuer of shares as
the Committee shall designate, at least ten (10) days prior to the date
of the meeting of holders of shares at which such voting rights will be
exercised, a written direction in the form and manner prescribed by the
Committee. The inspector of elections, or other such person designated
by the Committee shall tabulate the directions given on a strictly
(a) a number of affirmative votes shall be cast equal to the product
of:
(i) the total number of shares held in the Employer stock fund as
of the applicable record date; and(ii)
a fraction, the numerator of which is the aggregate value
(as of the Valuation Date coincident with or immediately preceding the
applicable record date) of the Units in the Employer stock fund of all
persons directing that an affirmative vote be cast, and the denominator
of which is the aggregate value (as of the Valuation Date coincident
with or immediately preceding the applicable record date) of the Units
in the Employer stock fund of all persons directing that an affirmative
or negative vote be cast; and
(b) a number of negative votes shall be cast equal to the product of:
(i) the total number of shares held in the Employer stock fund as
of the applicable record date; and(ii)
a fraction, the numerator of which is the aggregate value
(as of the Valuation Date coincident with or immediately preceding the
applicable record date) of the Units in the Employer stock fund of all
persons directing that a negative vote be cast, and the denominator of
which is the aggregate value (as of the Valuation Date coincident with
or immediately preceding the applicable record date) of the Units in
the Employer stock fund of all persons directing that an affirmative or
negative vote be cast.
The Committee shall furnish, or cause to be furnished, to each person
with Units in the Employer stock fund, all annual reports, proxy
materials and other information known to have been furnished by the
issuer of the shares or by any proxy solicitor, to the holders of
shares.
5.5 Tender Offers and Other Offers Each Participant with Units in
the Employer stock fund shall have the right to participate
confidentially in the response to a tender offer, or any other offer,
made to the holders of shares generally, to purchase, exchange, redeem
or otherwise transfer shares;
provided that such person has Units in the Employer stock fund as of the
Valuation Date coincident with or immediately preceding the first day
for delivering shares or otherwise responding to such tender or other
offer. Such participation shall be achieved by completing and filing
with the inspector of elections, or such other person who shall be
independent of the issuer of shares as the Committee shall designate, at
least ten (10) days prior to the last day for delivering shares or
otherwise responding to such tender or other offer, a written direction
in the form and manner prescribed by the Committee. The inspector of
elewction:
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(a) the total number of shares held in the Employer stock fund;
and(b) a fraction,
the numerator of which is the aggregate value (as of the Valuation Date
coincident with or immediately preceding the first day for delivering
shares or otherwise responding to such tender or other offer) of the
Units in the Employer stock fund of all persons directing that shares be
delivered in response to such tender or other offer, and the denominator
of which is the aggregate value (as of the Valuation Date coincident
with or immediately preceding the first day for delivering shares or
otherwise responding to such tender or other offer) of the Units in the
Employer stock fund of all persons directing that shares be delivered or
that the delivery of shares be withheld; shall be delivered in response
to such tender or other offer. Delivery of the remaining shares then
held in the Employer stock fund shall be withheld. The Committee shall
furnish, or cause to be furnished, to each person whose Account is
invested in whole or in part in the Employer stock fund, all information
concerning such tender offer furnished by the issuer of shares, or
information furnished by or on behalf of the person making the tender or
such other offer.
5.6 Separate AssetsSubject to the terms and conditions of the
Agreement and upon approval by the Trustees, a designated portion of the
assets of the Plan may be held as Separate Assets under the Separate
Agreement. The Trustees shall have no responsibility or liability with
respect to the management and control of any Separate Assets and shall
have only those administrative duties with respect to such Separate
Assets as are set forth in the Plan and the Agreement.
5.7 Power to Invest in Employer Securities
The Committee may direct the Separate Agency to acquire or hold any
security issued by the Employer or any Affiliated Employer which is a
"qualifying employer security" as such term is defined under ERISA and
to invest that portion of the assets of the Plan Funds in such
securities.
18. ARTICLE VI - Effective as of March 22, 1994, the first
sentence of the first paragraph of Section 6.1 shall be amended in its
entirety to read as follows:
Upon electing to participate, each Participant shall direct that the
contributions made to his Accounts shall be applied to purchase Units in
any one or more of the Investment Accounts of the Trust Fund and,
commencing March 22, 1994 , to purchase Units in the Employer stock
fund.
19. ARTICLE VI - Effective as of March 22, 1994, Section 6.2
shall be amended by adding the following sentence immediately preceding
the last sentence of such Section:Participants in the Plan on
March 31, 1994 ,shall be permitted to make one (1) additional change
in investment direction in order to invest in the Employer stock fund
within sixty (60) days of such date and such additional election shall
not count as one (1) of the changes in investment direction that are
otherwise permitted to be made in any Plan Year.
20. ARTICLE VI - Effective as of March 22, 1994, Section 6.3
shall be amended by adding the following sentence immediately preceding
the last sentence of such Section:Participants in the Plan on
March 31, 1994 ,shall be permitted to make one (1) additional transfer
in order to invest in the Employer stock fund within sixty (60) days of
such date and such additional transfer shall not count as one (1) of the
transfers that are otherwise permitted to be made in any Plan Year.
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21. ARTICLE VI - Effective as of March 22, 1994, the first
sentence of Section 6.4(a) shall be amended by adding ", and commencing
March 31, 1994 , to purchase Units in the Employer stock fund"
immediately following the words "Investment Accounts".
22. ARTICLE VI - Effective as of March 22, 1994, Section 6.4(a)
shall be amended by adding the following sentence immediately preceding
the last sentence of such Section:Commencing on March 31, 1994 ,
an Employee who is not a Participant shall be permitted to make one (1)
additional transfer in order to invest in the Employer stock fund within
sixty (60) days of such date and such additional transfer shall not
count as one (1) of the transfers that are otherwise permitted to be
made in any Plan Year.
23. ARTICLE VI - Effective as of March 22, 1994, Section 6.4(b)
shall be amended by adding the following sentence immediately preceding
the last sentence of such Section:Commencing March 31, 1994 , an
Employee who is not a Participant in the Plan shall be permitted to make
one (1) additional transfer in order to invest in the Employer stock
fund within sixty (60) days of such date and such additional transfer
shall not count as one (1) of the transfers that are otherwise permitted
to be made in any Plan Year.
24. ARTICLE VI -Effective as of March 22, 1994, Article VI shall
be amended by adding the following as Section 6.5 and the Table of
Contents shall be revised accordingly:
6.5 Restrictions on Investments in the Employer Stock Fund for
Certain ParticipantsNotwithstanding anything in the Plan to the
contrary, any Participant subject to the provisions of Section 16(b) of
the Securities Exchange Act of 1934: (a) may direct that his Accounts be
transferred into or out of the Employer stock fund, subject to the
provisions of Section 6.3, only once during each quarter, during the
period beginning on the third (3rd) business day following the date of
release of the quarterly and annual statements of sales and earnings by
the issuer of the shares, and ending on the twelfth (12th) business day
following such date; and (b) may not make a transfer in accordance with
the provisions of Section 6.3 within six (6) months of the next
preceding transfer into or out of the Employer stock fund. In addition,
any Participant subject to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 who elects to receive a distribution of
shares f
25. ARTICLE VII - Effective as of March 22, 1994 , Section
7.2 shall be amended by adding the following as Section 7.2(c):
(c) Any withdrawals under this Section 7.2 shall be subject to the
restrictions of Section 6.5.
26. ARTICLE VII - Effective as of March 22, 1994, Section 7.3
shall be amended by adding the following as Section 7.3(h):
(h) Any withdrawals under this Section 7.3 shall be subject to the
restrictions of Section 6.5.
27. ARTICLE VII - Effective as of March 22, 1994, Section 7.4
shall be amended by adding the following as Section 7.4(d):(d)
An Employee's vested interest in the Net
Value of his Accounts in the Employer stock fund shall be distributed to
the Employee by the Separate Agency as soon as administratively possible
following the date the Plan Sponsor is informed by the Trustees of the
Participant's vested interest in such Investment Accounts. The
distribution
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shall be made in accordance with Section 7.10 and the terms
and provisions of the Separate Agreement.
28. ARTICLE VII - Effective as of March 22, 1994, Article VII
shall be amended by adding the following as Section 7.10 and the Table
of Contents shall be revised accordingly:
7.10 Manner of Payment of Distributions from the Employer Stock
FundDistributions from the Employer stock fund shall be made to
Participants and Beneficiaries in cash, unless the Participant or
Beneficiary elects that such distributions may be made wholly or
partially in shares. If the Participant or Beneficiary elects that such
distributions may be made wholly or partially in shares, subject to such
terms and conditions as may be established from time to time by the
Committee, the maximum number of shares to be distributed shall be equal
to the number of whole shares that could be purchased on the date of
distribution based on the fair market value of shares determined as of
the date of payment and on the fair market value of the Participant's
Units in the Employer stock fund on the valuation date preceding the
distribution. An amount of money equal to any remaining amount of the
payment that is less than the fair market value of a whole Share s
29. ARTICLE VIII - Effective as of March 22, 1994, Section 8.4
shall be amended by adding the following as Section 8.4(g):
(g) Any loans under this Article VIII shall be subject to the
restrictions of Section 6.5.
30. ARTICLE IX - Effective as of March 22, 1994, Section 9.2(a)
shall be amended in its entirety to read as follows:
(a) The Employer shall designate the Trustees as a Named Fiduciary
to perform those functions set forth in the Plan or the Agreement which
are applicable to a Plan of Partial Participation.
31. ARTICLE IX - Effective as of March 22, 1994, Section 9.2(b)
shall be amended by adding the phrase ",Separate Agreement" immediately
following the word "Agreement".
32. ARTICLE IX - Effective as of March 22, 1994, Section 9.2(c)
shall be amended by adding the phrase "and Separate Agreement"
immediately following the words "under the Agreement" where they appear
at the end of such section.
33. ARTICLE IX - Effective as of March 22, 1994 , Section
9.3 shall be amended in its entirety to read as follows:
9.3 Responsibilities of Fiduciaries
The Named Fiduciaries and Plan Administrator shall have only those
powers, duties, responsibilities and obligations that are specifically
allocated to them under the Plan, the Agreement or the Separate
Agreement.To the extent permitted by ERISA, each Named Fiduciary and
Plan Administrator may rely upon any direction, information or action of
another Named Fiduciary, Plan Administrator or the Employer as being
proper under the Plan, the Agreement or the Separate Agreement and is
not required to inquire into the propriety of any such direction,
information or action and no Named Fiduciary or Plan Administrator shall
be responsible for any act or failure to act of another Named Fiduciary,
Plan Administrator or the Employer.
No Named Fiduciary, Plan Administrator or the Employer guarantees the
Trust Fund or Separate Assets in any manner against investment loss or
depreciation in asset value.
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The allocation of responsibility between the Trustees and the Employer
or between the Separate Agency and the Employer may be changed by
written agreement. Such reallocation shall be evidenced by Employer
Resolutions and shall not be deemed an amendment to the Plan.To the
extent permitted by ERISA, the Trustees shall have no liability or
responsibility with respect to the administration of any Separate Assets
held outside the Trust except as specifically set forth in the
Agreement. The authority and responsibility of the Trustees extend only
to those Plan assets held in accordance with the Agreement.
34. ARTICLE IX - Effective as of March 22, 1994, the first
paragraph of Section 9.4 shall be amended in its entirety to read as
follows:The Employer shall designate the Trustees as the Trustee
Administrator to perform those functions applicable to Plans of Partial
Participation as set forth in the Agreement. The Employer shall also
designate one or more persons to act as Plan Administrator and to
perform those functions set forth in the Agreement, the Plan or the
Separate Agreement that are assigned to the Plan Administrator.
35. ARTICLE IX - Effective as of March 22, 1994, Section 9.5
shall be amended by adding the words "and Separate Agency" immediately
following the word "Trustees" wherever such word appears.
36. ARTICLE IX - Effective as of March 22, 1994, Section 9.6(c)
shall be amended by deleting the phrase "Trust Fund" and inserting in
its place the phrase "Plan Funds".
37. ARTICLE IX - Effective as of March 22, 1994, Section 9.8
shall be amended in its entirety to read as follows:
9.8 Authorization of Benefit PaymentsThe Committee shall forward
to the Trustees and, if applicable, any Separate Agency, any application
for payment of benefits within a reasonable time after it has approved
such application. The Trustees and Separate Agency may rely on any such
information set forth in the approved application for the payment of
benefits to the Participant, Beneficiary or any other person entitled to
benefits.
38. ARTICLE IX - Effective as of March 22, 1994 , Section
9.9 shall be amended by adding the words "and Separate Agency"
immediately following the word "Trustees".
39. ARTICLE IX - Effective as of March 22, 1994, Section 9.11
shall be amended by adding the following paragraph to the end thereof:
Brokerage commissions incurred in connection with the Employer stock
fund shall be paid by the Employer.
40. ARTICLE IX - Effective as of March 22, 1994, Article IX shall
be amended by adding the following as Section 9.12 and the Table of
Contents shall be revised accordingly:
9.12 Administration of Separate AssetsThe Committee and the
Separate Agency shall be solely responsible for the administration of
the Separate Assets, including the administration, collection and
enforcement of any loans held therein. All contributions to and
withdrawals or disbursements from the Separate Assets shall be made
directly to or by the Separate Agency.
The Trustees may, as agreed upon with the Committee, provide such
combined or coordinated Plan records and reports, which include the
Separate Assets. The Trustees shall be fully protected in relying upon
any information provided to them by the Committee or Separate Agency
with respect to such Separate Assets. The inclusion of any information
pertaining to
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Separate Assets in such combined or coordinated Plan
records and reports shall not increase the responsibility or liability
of the Trustees with respect to the Separate Assets. If Plan Funds may
be transferred between the Separate A
ssets and the other Investment Accounts, the manner in which such
transfers may be made must be agreed to in a written instrument entered
into among the Committee, the Trustees and the Separate Agency.
41. ARTICLE XI - Effective as of March 22, 1994, the second
sentence of the first paragraph of Section 11.1 shall be amended by
deleting the phrase "Trust Fund" and inserting in its place the phrase
"Plan Funds".
42. ARTICLE XIII - Effective as of March 22, 1994, the first
sentence of Section 13.1 shall be amended by deleting the phrase "of the
Plan or of the Agreement" and by inserting the words "or of any Separate
Agreement " immediately following the word "Trust".
43. ARTICLE XIII - Effective as of March 22, 1994, Section 13.4
shall be amended by adding the words "and, if appropriate, any Separate
Agency" immediately following the words "the Trustees".
44. ARTICLE XIII - Effective as of March 22, 1994 , the
first paragraph of Section 13.7 shall be amended by adding the words
"and, if appropriate, any Separate Agency" immediately following the
words "the Trustees".
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AMENDEMENT NUMBER TWO
TO
FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION
INCENTIVE SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of the Financial Federal Savings and Loan
Association Incentive Savings Plan in RSI Retirement Trust ("Plan"), the
Plan is amended, effective as of January 1, 1994, unless otherwise
indicated:
1. ARTICLE VI - Effective March 22, 1994, the sentence
immediately preceding the last sentence of Section 6.4(a) shall be
amended in its entirety to read as follows:Commencing on March 31, 1994,
an Employee who is not a Participant shall be permitted to make one (1)
additional change in investme
nt direction in order to invest in the Employer stock fund within sixty
(60) days of such date and such additional election shall not count as
one (1) of the changes in investment direction that are otherwise
permitted to be made in any Plan Year.
2. ARTICLE VII - Effective January 1, 1994, Section
7.3(c)(i)(A)(2) shall be amended by substituting "and" for "or" at the
end thereof.
3. ARTICLE XII - Effective January 1, 1994, Section 12.2(m)
shall be amended by adding the following after the first sentence
thereof and the former second sentence shall follow accordingly:
Commencing January 1, 1994, the maximum compensation taken into account
for any year shall be $150,000, adjusted in multiples of $10,000 for
increases in the cost-of-living as prescribed by the Secretary of the
Treasury under Section 401(a)(17)(B) of the Code.
4. ARTICLE XII - Effective January 1, 1994, the first sentence
of Section 12.3 shall be amended by adding "commencing prior to January
1, 1994" immediately following the phrase "For any Plan Year".
5. ARTICLE XII - Effective January 1, 1994, Section 12.4(a)(ii)
shall be amended by deleting the words "first $200,000 of" immediately
preceding the words "Key Employees' Top-Heavy Earnings".
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AMENDMENT NUMBER THREE
TO
FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION
INCENTIVE SAVINGS PLAN
IN RSI RETIREMENT TRUST
Pursuant to Section 11.1 of the Financial Federal Savings and Loan
Association Incentive Savings Plan in RSI Retirement Trust ("Plan"), the
Plan is amended, effective as of November 7, 1994:
1. ARTICLE I - Effective November 7, 1994, the first paragraph
of the definition of Compensation, Section 1.15 shall be amended by
adding the following sentence at the end thereof:
Commencing November 7, 1994, Compensation shall exclude commissions
received during a calendar year.
2. ARTICLE VIII - Effective November 7, 1994, Section 8.4(f)
shall be amended by adding the following sentence at the end thereof.
Commencing November 7, 1994, a Borrower will be permitted more than one
(1) outstanding loan at any given time.
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FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE JANUARY 1, 1994, AS AMENDED AND RESTATED
THROUGH JANUARY 19, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1. PLAN IDENTITY 1
1.1 NAME 1
1.2 PURPOSE 1
1.3 EFFECTIVE DATE 1
1.4 FISCAL PERIOD 1
1.5 SINGLE PLAN FOR ALL EMPLOYERS 1
1.6 INTERPRETATION OF PROVISIONS 1
SECTION 2. DEFINITIONS 1
SECTION 3. ELIGIBILITY FOR PARTICIPATION 7
3.1 INITIAL ELIGIBILITY 7
3.2 TERMINATED EMPLOYEES 8
3.3 CERTAIN EMPLOYEES INELIGIBLE 8
3.4 PARTICIPATION AND REPARTICIPATION 8
SECTION 4. EMPLOYER CONTRIBUTIONS AND CREDITS 8
4.1 DISCRETIONARY CONTRIBUTIONS 8
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS 8
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS 9
4.4 CONDITIONS AS TO CONTRIBUTIONS 9
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND
ALLOCATIONS 10
5.2 COORDINATED LIMITATION WITH OTHER PLANS 10
5.3 EFFECT OF LIMITATIONS 11
5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS 12
SECTION 6. TRUST FUND AND ITS INVESTMENT 12
6.1 CREATION OF TRUST FUND 12
6.2 STOCK FUND AND INVESTMENT FUND 12
6.3 ACQUISITION OF STOCK 13
6.4 PARTICIPANTS' OPTION TO DIVERSIFY 13
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK 13
7.1 VOTING AND TENDERING OF STOCK 14
7.2 DIVIDENDS ON STOCK 14
SECTION 8. ADJUSTMENTS TO ACCOUNTS 15
8.1 ADJUSTMENTS FOR TRANSACTIONS 15
8.2 VALUATION OF INVESTMENT FUND 15
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE 15
8.4 ADJUSTMENTS FOR CAPITAL CHANGES 15
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS 16
9.1 DEFERRED VESTING IN ACCOUNTS 16
9.2 COMPUTATION OF VESTING YEARS 16
9.3 FULL VESTING UPON CERTAIN EVENTS 16
9.4 FULL VESTING UPON PLAN TERMINATION 16
9.5 FORFEITURE, REPAYMENT, AND RESTORAL 17
9.6 ACCOUNTING FOR FORFEITURES 17
9.7 VESTING AND NONFORFEITABILITY 17
SECTION 10. PAYMENT OF BENEFITS 17
0.1 BENEFITS FOR PARTICIPANTS 17
10.2 BENEFITS ON A PARTICIPANT'S DEATH 18
10.3 MARITAL STATUS 19
10.4 DELAY IN BENEFIT DETERMINATION 19
10.5 ACCOUNTING FOR BENEFIT PAYMENTS 19
10.6 OPTIONS TO RECEIVE AND SELL STOCK 19
10.7 RESTRICTIONS ON DISPOSITION OF STOCK 20
10.8 DIRECT TRANSFER OF ELIGIBLE PLAN
DISTRIBUTIONS 20
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW
OF APPEALS 21
11.1 CLAIM FOR BENEFITS 21
11.2 NOTIFICATION BY COMMITTEE 21
11.3 CLAIMS REVIEW PROCEDURE 22
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS 22
12.1 AUTHORITY OF COMMITTEE 22
12.2 IDENTITY OF COMMITTEE 22
12.3 DUTIES OF COMMITTEE 22
12.4 VALUATION OF STOCK 23
12.5 COMPLIANCE WITH ERISA 23
12.6 ACTION BY COMMITTEE 23
12.7 EXECUTION OF DOCUMENTATION 23
12.8 ADOPTION OF RULES 24
12.9 RESPONSIBILITIES TO PARTICIPANTS 24
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY 24
12.11 INDEMNIFICATION BY EMPLOYERS 24
12.12 NONPARTICIPATION BY INTERESTED MEMBER 24
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION
OF THE PLAN 24
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS 24
13.2 ADOPTION OF PLAN BY SUCCESSOR 25
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION 25
13.4 RIGHT TO AMEND OR TERMINATE 25
SECTION 14. MISCELLANEOUS PROVISIONS 26
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS 26
14.2 NONASSIGNABILITY OF BENEFITS 26
14.3 LIMIT OF EMPLOYER LIABILITY 26
14.4 TREATMENT OF EXPENSES 26
14.5 NUMBER AND GENDER 26
14.6 NONDIVERSION OF ASSETS 27
14.7 SEPARABILITY OF PROVISIONS 27
14.8 SERVICE OF PROCESS 27
14.9 GOVERNING STATE LAW 27
14.10 SPECIAL RULES FOR PERSONS -SUBJECT TO
SECTION 16(B) REQUIREMENTS 27
SECTION 15. TOP HEAVY PROVISIONS 27
5.1 DETERMINATION OF TOP-HEAVY STATUS 27
15.2 MINIMUM CONTRIBUTIONS 29
15.3 MINIMUM VESTING 29
SECTION 16. 29
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FORM OF
FINANCIAL FEDERAL SAVINGS AND LOAN ASSOCIATION
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1. PLAN IDENTITY.
1.1 NAME. The name of this Plan is "Financial Federal Savings and
Loan Association Employee Stock Ownership Plan."
1.2 PURPOSE. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be
credited and paid to the Participants and their Beneficiaries.
1.3 EFFECTIVE DATE. The Effective Date of this Plan is January 1,
1994.
1.4 FISCAL PERIOD. This Plan shall be operated on the basis of a
January 1-December 31 fiscal year for the purpose of keeping the Plan's
books and records and distributing or filing any reports or returns
required by law.
1.5 SINGLE PLAN FOR ALL EMPLOYERS. This Plan shall be treated as a
single plan with respect to all participating Employers for the purpose
of crediting contributions and forfeitures and distributing benefits,
determining whether there has been any termination of Service, and
applying the limitations set forth in Section 5.
1.6 INTERPRETATION OF PROVISIONS. The Employers intend this Plan
and the Trust to be a qualified stock bonus plan under Section 401(a) of
the Code and an employee stock ownership plan within the meaning of
Section 407(d)(6) of ERISA and Section 4975(e)(7) of the Code. The Plan
is intended to have its assets invested primarily in qualifying employer
securities of one or more Employers within the meaning of Section
407(d)(5) of ERISA, and to satisfy any requirement under ERISA or the
Code applicable to such a plan. Accordingly, the Plan and Trust
Agreement shall be interpreted and applied in a manner consistent with
this intent and shall be administered at all times and in all respects in
a nondiscriminatory manner.
SECTION 2. DEFINITIONS. The following capitalized words and phrases
shall have the meanings specified when used in this Plan and in the Trust
Agreement, unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated
under this Plan as expressed in terms of a separate account balance which
is periodically adjusted to reflect his Employer's contributions, the
Plan's investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the
eligibility requirements of Section 3 and who qualifies as an Active
Participant for a particular Plan Year under Section 4.3.
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"Association" means Financial Federal Savings and Loan Association, and
any entity which succeeds to the business of the Association and adopts
this Plan as its own pursuant to Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the
Participant's death. In the absence of any designation or if all the
designated Beneficiaries shall die before the Participant dies or shall
die before all benefits have been paid, the Participant's Beneficiary
shall be his surviving spouse, if any, or his estate if he is not
survived by a spouse. The Committee may rely upon the advice of the
Participant's executor or administrator as to the identity of the
Participant's spouse.
"Break in Service" means any five or more consecutive 12-month
periods beginning January 1 in which an Employee has 500 or fewer Hours
of Service per period. Solely for this purpose, an Employee shall be
considered employed for his normal hours of paid employment during a
Recognized Absence, unless he does not resume his Service at the end of
the Recognized Absence. Further, if an Employee is absent for any period
(i) by reason of the Employee's pregnancy, (ii) by reason of the birth of
the Employee's child, (iii) by reason of the placement of a child with
the Employee in connection with the Employee's adoption of the child, or
(iv) for purposes of caring for such child for a period beginning
immediately after such birth or placement, the Employee shall be credited
with the Hours of Service which would normally have been credited but for
such absence, up to a maximum of 501 Hours of Service, in the first
12-month period which would otherwise be counted toward a Break in
Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration
of this Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally
and permanently disabled due to sickness or injury, such disability is
likely to be continuous and permanent, and such disability renders the
Participant unable to continue a like gainful occupation. In any event,
the Committee's good faith decision as to whether a Participant's Service
has been terminated by Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's
attainment of age 55 and the completion of ten years of service for an
Employer.
"Effective Date" means January 1, 1994.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual
employed by a leasing organization who, pursuant to an agreement between
an Employer and the leasing organization, has performed services for the
Employer and any related persons (within the meaning of Section 414(n)(6)
of the Code) on a substantially full-time basis for more than one year,
if such services are of a type historically performed by employees in the
Employer's business field. However, such a "leased employee" shall not
be considered an Employee if (i) he participates in a money purchase
pension
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plan sponsored by the leasing organization which provides for
immediate participation, immediate full vesting, and an annual
contribution of at least 10 percent of the Employee's Total Compensation,
and (ii) leased employees do not constitute more than 20 percent of the
Employer's total work force (including leased employees, but excluding
Highly Paid Employees and any other employees who have not performed
services for the Employer on a substantially full-time basis for at least
one year).
"Employer" means the Association or any affiliate within the purview
of section 414(b), (c) or (m) and 415(h) of the Code, any other
corporation, partnership, or proprietorship which adopts this Plan with
the Association's consent pursuant to Section 13.1, and any entity which
succeeds to the business of any Employer and adopts the Plan pursuant to
Section 13.2.
"Entry Date" means the Effective Date of the Plan and the first day
of each July and January of each Plan Year thereafter.
"ERISA" means the Employee Retirement Income Security Act of 1974
(P.L. 93-406, as amended).
"Highly Paid Employee" for any Plan Year means an Employee who,
during either of that or the immediately preceding Plan Year, (i) owned
more than five percent of the outstanding equity interest or the
outstanding voting interest in any Employer, (ii) had Total Compensation
exceeding $75,000 (as adjusted pursuant to section 415(d) of the Code),
(iii) had Total Compensation exceeding $50,000 (as adjusted pursuant to
section 415(d) of the Code) and was among the most highly compensated
one-fifth of all Employees, or (iv) was at any time an officer of an
Employer and had Total Compensation exceeding $45,000 (or 50 percent of
the currently applicable dollar limit under Section 415(b)(1)(A) of the
Code). For this purpose:
(a) "Total Compensation" shall include any amount which is
excludable from the Employee's gross income for tax purposes pursuant to
Sections 125, 402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated
one-fifth of all Employees" shall be determined by taking into account
all individuals working for all related employer entities described in
the definition of "Service", but excluding any individual who has not
completed six months of Service, who normally works fewer than 17-1/2
hours per week or in fewer than six months per year, who has not reached
age 2 1, whose employment is covered by a collective bargaining
agreement, or who is a nonresident alien who receives no earned income
from United States sources.
(c) The number of individuals counted as "officers" shall not
be more than the lesser of (i) 50 individuals and (ii) the greater of 3
individuals or 10 percent of the total number of Employees. If no
officer earns more than $45,000 (or the adjusted limit), then the highest
paid officer shall be a Highly Paid Employee.
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(d) A former employee shall be treated as a highly compensated employee
if such employee was a highly paid employee when such employee separated
from service, or if such employee was a highly paid employee at any time
after attaining age 55.
For Plan Years beginning after December 31, 1996, an Employee is a Highly
Paid Employee if the Employee (i) was a 5-percent owner of the Employer
at any time during the Plan Year or the preceding Plan Year, or (ii) had
compensation for the preceding Plan Year in excess of $80,000 (indexed
for inflation) and, if the Employer elects, the Employee was in the top
20% of Employees by Total Compensation for such Plan Year.
"Holding Company" means Financial Bancorp, Inc., the holding company
of Financial Federal Savings and Loan Association, and any entity which
succeeds to the business of the Holding Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to
be paid for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly
paid or is entitled to be paid for a period of vacation, holidays,
illness, disability, lay-off, jury duty, temporary military duty, or
leave of absence is an Hour of Service. However, except as otherwise
specifically provided, no more than 501 Hours of Service shall be
credited for any single continuous period in which an Employee performs
no duties. Further, no Hours of Service shall be credited on account of
payments made solely under a plan maintained to comply with worker's
compensation, unemployment compensation, or disability insurance laws, or
to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of
damages) is either awarded or agreed to by an Employer is an Hour of
Service. However, no more than 501 Hours of Service shall be credited
for any single continuous period during which an Employee would not have
performed any duties.
(d) Hours of Service shall be credited in any one period only
under one of the foregoing paragraphs (a), (b) and (c); an Employee may
not get double credit for the same period.
(e) If an Employer finds it impractical to count the actual
Hours of Service for any class or group of non-hourly Employees, each
Employee in that class or group shall be credited with 45 Hours of
Service for each weekly pay period in which he has at least one Hour of
Service. However, an Employee shall be credited only for his normal
working hours during a paid absence.
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(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to
the respective portions of the period included in the several Plan Years.
However,
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in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be
counted as required by Section 2530.200b-2(b) and (c) of the Department
of Labor's regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of
assets other than Stock.
"Normal Retirement Age" means a Participant's 65th birthday.
"Normal Retirement Date" means the first day of the month coincident
with or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan,
or who has previously participated in the Plan and still has a balance
credited to his Account.
"Plan Year" means January 1, 1994 and ending December 31, 1994 and
each period of 12 consecutive months beginning on January 1 of each
succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a
limited period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because
of a change in business conditions; or
(c) an Employee is on active military duty, but only to the
extent that his employment rights are protected by the Military Selective
Service Act of 1967 (38 U.S.C. sec. 2021).
"Service" means an Employee's period(s) of employment or
self-employment with an Employer, excluding for initial eligibility
purposes any period in which the individual was a nonresident alien and
did not receive from an Employer any earned income which constituted
income from sources within the United States. An Employee's Service
shall include any service which constitutes service with a predecessor
employer within the meaning of Section 414(a) of the Code. An Employee's
Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other
entity is a member of a controlled group of corporations or is under
common control with other trades and businesses within the meaning of
Section 414(b) or 414(c) of the Code, and a member of the controlled
group or one of the trades and businesses is an Employer, or (ii) for a
period after 1979 in which the other entity is a member of an affiliated
service group within the meaning of Section 414(m) of the Code, and a
member of the affiliated service group is an Employer. Notwithstanding
any provision of the Plan to the contrary, contributions, benefits and
the calculation of Service with
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respect to qualified military service
will be provided in accordance with Section 414(u) of the Code.
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"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or
on the date of the Participant's death, if earlier.
"Stock" means shares of the Association's voting common stock or
preferred stock meeting the requirements of Section 409(e)(3) of the Code
Issued by an Employer or an affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of
Stock.
"Stock Obligation" means an indebtedness arising from any extension
of credit to the Plan or the Trust which was obtained for the purpose of
buying Stock and which satisfies the requirements set forth in Section
6.3.
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"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal
services rendered while in Service from any Employer or an affiliate
(within the purview of Section 414(b), (c), and (m) of the Code), plus
his earned income from any such entity as defined in Section 401(c)(2) of
the Code if he is self-employed. "Total Compensation" shall include (i)
severance payments and amounts paid as a result of termination, (ii)
amounts excludable from gross income under Section 911 of the Code, (iii)
amounts described in Sections 104(a)(3), 105(a), and 105(h) of the Code
to the extent includable in gross income, (iv) amounts received from an
Employer for moving expenses which are not deductible under Section 217
of the Code, (v) amounts includable in gross income in the year of, and
on account of, the grant of a nonqualified stock option, (vi) amounts
includable in gross income pursuant to Section 83(b) of the Code, and
(vii) amounts includable in gross income under an unfunded nonqualified
plan of deferred compensation, but shall exclude (viii) Employer
contributions to or amounts received from a funded or qualified plan of
deferred compensation, (ix) Employer contributions to a simplified
employee pension account to the extent deductible under Section 219 of
the Code, (x) Employer contributions to a Section 403(b) annuity
contract, and (0) amounts includable in gross income pursuant to Section
83(a) of the Code, (xii) amounts includable in gross income upon the
exercise of nonqualified stock option or upon the disposition of stock
acquired under any stock option, and (xiii) any other amounts expended by
the Employer on the Participant's behalf which are excludable from his
income or which receive special tax benefits. A Participant's Total
Compensation shall exclude any compensation in any limitation year in
excess of the limit currently in effect under Section 401 (a)(17) of the
Code. In addition to other applicable limitations set forth in the Plan,
and notwithstanding any provision of the Plan to the contrary, the annual
compensation of each employee taken into account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993") annual
compensation limit. The OBRA 1993 annual compensation limit is $150,000,
as adjusted by the Commissioner of the Internal Revenue Service for
increases in the cost-of-living in accordance with Section 401(a)(17)(b)
of the Code. The cost-of-living adjustment in effect for a calendar year
applies to any period, not exceeding 12 months, over which compensation
is determined (the "Determination Period") beginning in such calendar
year. If a Determination Period consists of
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fewer than 12 months, the
OBRA 1993 annual compensation limitation will be multiplied by a
fraction, the numerator of which is the number of months in the
Determination Period, and the denominator of which is 12. For Plan Years
beginning after December 31, 1997, for purposes of the Code Section
415(c) limit on contributions and benefits, Total Compensation will
include (I) elective deferrals to 401(k) plans and similar arrangements,
and (ii) salary reduction contributions to a cafeteria plan.
"Trust" or "Trust Fund" means the trust fund created under this
Plan.
"Trust Agreement" means the agreement between the Association and
the Trustee concerning the Trust Fund. If any assets of the Trust Fund
are held in a co-mingled trust fund with assets of other qualified
retirement plans, "Trust Agreement" shall be deemed to include the trust
agreement governing that co-mingled trust fund. With respect to the
allocation of investment responsibility for the assets of the Trust Fund,
the provisions of the Trust Agreement are incorporated herein by
reference.
"Trustee" means one or more corporate persons and individuals
selected from time to time by the Association to serve as trustee or
co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund
consisting of the Plan's holding of stock which have been acquired in
exchange for one or more Stock Obligations and which have not yet been
allocated to the Participant's Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other
date as of which the committee shall determine the investment experience
of the Investment Fund and adjust the Participants' accounts accordingly.
"Valuation Period" means the period following a Valuation Date and
ending with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant
pursuant to Section 9.2 for purposes of determining his vested interest
in his Account.
SECTION 3. ELIGIBILITY FOR PARTICIPATION.
3.1 INITIAL ELIGIBILITY. An Employee shall enter the Plan as of
the Entry Date coinciding with or next following the later of the
following dates:
(a) the date an Employee completes twelve consecutive calendar
months of employment with the Employer, commencing with the day on which
the Employee first completes an Hour of Service, during which the
Employee completes at least 1,000 hours of service for the Employer, and
(b) attainment by the Employee of age 21. However, if an
Employee is not in active Service with an Employer on the date he would
otherwise first enter the Plan, his entry shall be deferred until the
next day he is in Service.
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3.2 TERMINATED EMPLOYEES. No Employee shall have any interest or
rights under this Plan if he is never in active Service with an Employer
on or after the Effective Date.
1.1
3.3 CERTAIN EMPLOYEES INELIGIBLE. No Employee shall participate in
the Plan while his Service is covered by a collective bargaining
agreement between an Employer and the Employee's collective bargaining
representative if (i) retirement benefits have been the subject of good
faith bargaining between the Employer and the representative and (ii) the
collective bargaining agreement does not provide for the Employee's
participation in the Plan. No Employee shall participate in the Plan
while he is actually employed by a leasing organization rather than an
Employer.
3.4 PARTICIPATION AND REPARTICIPATION. Subject to the satisfaction
of the foregoing requirements, an Employee shall participate in the Plan
during each period of his Service from his Entry Date until his Break in
Service. For this purpose, an Employee returning after a Break in
Service, who previously satisfied the initial eligibility requirements,
shall re-enter the Plan as of the date of his reemployment.
SECTION 4. EMPLOYER CONTRIBUTIONS AND CREDITS.
4.1 DISCRETIONARY CONTRIBUTIONS. Each Employer shall from time to
time contribute, with respect to a Plan Year, such amounts as it may
determine from time to time. An Employer shall have no obligation to
contribute any amount under this Plan except as so determined in is sole
discretion. The Employers' contributions and available forfeitures for a
Plan Year shall be credited as of the last day of the year to the
Accounts of the Active Participants in proportion to their amounts of
Cash Compensation.
4.2 CONTRIBUTIONS FOR STOCK OBLIGATIONS. If the Trustee, upon
instructions from the Committee, incurs any Stock Obligation upon the
purchase of Stock, the Employer shall, subject to the provisions of the
Association's Plan of Conversion and any regulatory prohibitions,
contribute for each Plan Year an amount sufficient to cover all payments
of principal and interest as they come due under the terms of the Stock
Obligation. If there is more than one Stock Obligation, the Employers
shall designate the one to which any contribution is to be applied. The
Employer's obligation to make contributions under this Section 4.2 shall
be reduced to the extent of any investment earnings realized on such
contributions and any dividends paid by the Employers on Stock held in
the Unallocated Stock Account, which earnings and dividends shall be
applied to the Stock Obligation related to that Stock.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments
under a Stock Obligation, a certain number of shares of the Stock
acquired with that Stock Obligation which is then held in the Unallocated
Stock Fund shall be released for allocation among the Participants. The
number of shares released shall bear the same ratio to the total number
of those shares then held in the Unallocated Stock Fund (prior to the
release) as (i) the principal and interest payments made on the Stock
Obligation in the current Plan Year bears to (ii) the sum of (i) above,
and the remaining principal
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and interest payments required (or projected
to be required on the basis of the interest rate in effect at the end of
the Plan Year) to satisfy the Stock Obligation.
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At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the
number of shares to be released in each year if (i) the Stock Obligation
provides for annual payments of principal and interest at a cumulative
rate that is not less rapid it any time than level annual payments of
such amounts for 10 years, (ii) the interest included in any payment is
ignored only to the extent that it would be determined to be interest
under standard loan amortization tables, and (iii) the term of the Stock
Obligation, by reason of renewal, extension, or refinancing, has not
exceeded 10 years from the original acquisition of the Stock.
For these purposes, each Stock Obligation, the Stock purchased with
it, and any dividends on such Stock, shall be considered separately. The
Stock released from the Unallocated Stock Fund in any Plan Year shall be
credited as of the last day of the year to the Accounts of the Active
Participants in proportion to their amounts of Cash Compensation.
4.3 DEFINITIONS RELATED TO CONTRIBUTIONS. For the purposes of this
Plan, the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has completed at least
1,000 Hours of Service during the Plan Year. However, a Participant
shall not qualify as an Active Participant unless (i) he is in active
Service with an Employer as of the last day of the Plan Year, or (ii) he
is on a Recognized Absence as of that date, or (iii) his Service
terminated during the Plan Year by reason of Normal Retirement, Early
Retirement, Disability or death.
"Cash Compensation" means the Participant's compensation as reported
on Form W-2, including overtime but excluding commissions and taxable
fringe benefits. A Participant's Cash Compensation shall exclude any
compensation in excess of the limit currently in effect under Section
401(a)(17) of the Code. In addition to other applicable limitations set
forth in the Plan, and notwithstanding any provision of the Plan to the
contrary, the annual compensation of each employee taken in to account
under the Plan shall not exceed the Omnibus Budget Reconciliation Act of
1993 ("OBRA 1993") annual compensation limit. The OBRA 1993 annual
compensation limit is $150,000 as adjusted by the Commissioner of the
Internal Revenue Service for increases in the cost-of-living in
accordance with Section 401(a)(17)(b) of the Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined (the
"Determination Period) beginning in such calendar year. If a
Determination Period consists of fewer than 12 months, the OBRA 1993
annual compensation limitation will be multiplied by a fraction, the
numerator of which is the number of months in the Determination Period,
and the denominator of which is 12. For plan years commencing January 1,
1997 or later, the Family Member aggregation rules of Code Section
414(q)(6) shall not apply.
4.4 CONDITIONS AS TO CONTRIBUTIONS. Employers' contributions shall
in any event be subject to the limitation set forth in Section 5.
Contributions may be made in the form of cash, or
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securities and other
property to the extent permissible under ERISA, including Stock, and
shall be held by the Trustee in accordance with the Trust Agreement. In
addition to the provisions of Section 13.3 for the return of an
Employer's contributions in connection with a failure of the Plan to
qualify initially under the Code, any amount contributed by an Employer
due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the
Code, shall be returned to the Employer within one year after the date on
which the contribution was originally made, or within one year after its
nondeductibility has been finally determined. Notwithstanding the
preceding sentence, any contribution made incident to initial
qualification must be returned within one year after the date initial
qualification is denied, but only if application for initial
qualification is made by the time prescribed by law for the filing of the
Employer's federal tax return for the taxable year in which the Plan is
adopted, or such later date as the Secretary of the Treasury may
prescribe. However, the amount to be returned shall be reduced to take
account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less
that it would have been if the contribution had never been made.
SECTION 5. LIMITATIONS ON CONTRIBUTIONS AND ALLOCATIONS
5.1 Notwithstanding the provisions of Section 4, the maximum
"annual additions" credited to a Participant's Accounts for any
"limitation year" shall equal the lesser of (1) $30,000 (or, if greater,
one-fourth of the dollar limitation in effect under Code Section
415(b)(1)(A), except that this alternative limitation will not apply for
any plan years commencing after December 31, 1996), or (2) twenty-five
percent (25%) of the Participant's "415 Compensation" for such
"limitation year".
For purposes of this Section 5.1 and the following Section 5.2, the
"annual addition" to a Participant's accounts means the sum of (i) the
Employer contributions and Employee forfeitures credited to a
Participant's accounts with respect to a limitation year, plus (ii) the
Participant's total voluntary contributions for that year. The $30,000
Section 415(b)(1)(A) limitations referred to shall, for each limitation
year, be automatically adjusted to the new dollar limitations determined
by the Commissioner of Internal Revenue for the calendar year beginning
in that limitation year, Notwithstanding the foregoing, if the special
limitations on annual additions described in section 415(c)(6) of the
Code applies, the limitations described in this section shall be adjusted
accordingly. A "limitation year" means each 12 consecutive month period
beginning January 1.
5.2 COORDINATED LIMITATION WITH OTHER PLANS. Aside from the
limitation prescribed by Section 5.1 with respect to the annual addition
to a Participant's accounts for any single limitation year, if a
Participant has ever participated in one or more defined benefit plans
maintained by an Employer or an affiliate, then the benefits provided
under the defined benefit plan on his account shall be limited on a
cumulative basis so that the sum of his defined contribution plan
fraction and his defined benefit plan fraction does not exceed one. In
addition, any reduction in contributions to a defined contribution plan
shall first be made from defined contribution plans other than this plan.
For this purpose:
5.2-1 A Participant's defined contribution plan fraction with
respect to a Plan Year shall be a fraction, (i) the numerator
of which is the sum of the annual
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additions to his accounts
under all defined contribution plans (whether or not
terminated) maintained by the Employer for the current year and
all prior limitation years (including) annual additions of the
Participant's nondeductible employee contributions to all
defined benefit plans, whether or not terminated, maintained by
an Employer, and the annual additions attributable to all
welfare benefit plans, individual medical accounts, and
simplified employee pensions maintained by the Employer), and
(ii) the denominator of which is the sum of the lesser of the
following amounts -A- and -B- determined for the current
limitation year and each prior limitation year of Service with
an Employer: -A- is 1.25 times the dollar limitation determined
under Section 415(c)(1)(A) of the Code, or 1.0 times such
dollar limitation if the Plan is top-heavy, and -B- is 35
percent of the Participant's Total Compensation for such year.
If the Employee was a Participant as of the end of the first
limitation year beginning after December 31, 1986 in one or
more defined contribution plans maintained by an Employer which
plan(s) were in existence on May 6, 1986, and if the sum of
this fraction and the defined benefit fraction (described
below) would otherwise exceed 1.0 under the terms of this Plan,
the numerator of this fraction will be adjusted. To affect
this adjustment, an amount equal to the product of the excess
of the sum of the fractions over 1.0, multiplied by the
denominator of this fraction shall be permanently subtracted
from the numerator of this fraction. This adjustment shall be
calculated using the fractions as they would be computed as of
the end of the last limitation year beginning before January 1,
1987, and disregarding any changes in the terms and conditions
of the Plan made after May 5, 1986, but using the limitation
applicable under Section 415 of the Code for the first
limitation year beginning on or after January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with
respect to a limitation year shall be a fraction, (i) the
numerator of which is his projected annual benefit payable at
normal retirement under the Employers' defined benefit plans,
and (ii) the denominator of which is the lesser of (a) 1.25
times $90,000, or 1.0 times such dollar limitation if the Plan
is top-heavy, and (b) 1.4 times the Participant's average Total
Compensation during his highest-paid three consecutive
limitation years.
5.3 EFFECT OF LIMITATIONS. The Committee shall take whatever
action may be necessary from time to time to assure compliance with the
limitations set forth in Section 5.1 and 5.2. Specifically, the Committee
shall see that each Employer restrict its contributions for any Plan year
to an amount which, taking into account the amount of available
forfeitures, may be completely allocated to the Participants consistent
with those limitations. Where the limitations would otherwise be
exceeded by any Participant, further allocations to the Participant shall
be curtailed to the extent necessary to satisfy the limitations. Where
an excessive amount is contributed on account of a mistake as to one or
more Participants' compensation, or there is an amount of forfeitures
which may not be credited in the Plan Year in which it becomes available,
the amount shall be held in a suspense account to be allocated in lieu of
any Employer contributions in future years until it is eliminated, and to
be returned to the Employer if it cannot be credited consistent with
these limitations upon the termination of the Plan.
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5.4 LIMITATIONS AS TO CERTAIN PARTICIPANTS. Aside from the
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any
Stock in a transaction as to which a selling shareholder or the estate of
a deceased shareholder is claiming the benefit of Section 1042 of the
Code, the Committee shall see that none of such Stock, and no other
assets in lieu of such Stock, are allocated to the Accounts of certain
Participants in order to comply with Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns
(taking into account the attribution rules under Section 318(a) of the
Code, without regard to the exception for employee plan trusts in Section
318(a)(2)(B)(i) more than 25 percent of any class of stock of a
corporation which issued the Stock acquired by the Plan, or another
corporation within the same controlled group, as defined in Section
409(l)(4) of the Code (any such class of stock hereafter called a
"Related Class"). For this purpose, a Participant who owns more than 25
percent of any Related Class at any time within the one year preceding
the Plan's purchase of the Stock shall be subject to the restriction as
to all allocations of the Stock, but any other Participant shall be
subject to the restriction only as to allocations which occur at a time
when he owns more than 25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder
claiming the benefit of Section 1042 and any other Participant who is
related to such a shareholder within the meaning of Section 267(b) of the
Code, during the period beginning on the date on which the Plan purchases
the Stock and ending 10 years after the later of (i) the date of such
purchase, and (ii) the date of the allocation under Section 4.2
attributable to the final payment on whatever Stock Obligations were
incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated
under the Plan for the benefit of all such descendants do not exceed five
percent of the Stock acquired from the shareholder.
SECTION 6. TRUST FUND AND ITS INVESTMENT FUND.
6.1 CREATION OF TRUST FUND. All amounts received under the Plan
from the Employer and investments shall be held as the Trust Fund
pursuant to the terms of this Plan and of the Trust Agreement between the
Association and the Trustee. The benefits described in this Plan shall
be payable only from the assets of the Trust Fund, and none of the
Association, any other Employer, its board of directors or trustees, its
stockholders, its officers, its employees, the Committee, and the Trustee
shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 STOCK FUND AND INVESTMENT FUND. The Trust Fund held by the
Trustee shall be divided into the Stock Fund, consisting entirely of
Stock, and the Investment Fund, consisting of all assets of the Trust
other than Stock. The Trustee shall have no investment responsibility
for the Stock Fund, but shall accept any Employer contributions made in
the form of Stock, and shall acquire, sell, exchange, distribute, and
otherwise deal with and dispose of Stock in accordance with the
instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the
extent such responsibility may be delegated from time to time to one or
more investment managers pursuant to the Trust Agreement.
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6.3 ACQUISITION OF STOCK. From time to time the Committee may, in
its sole discretion, direct the Trustee to acquire Stock from the issuing
Employer or from shareholders, including shareholders who are or have
been Employees, Participants, or fiduciaries with respect to the Plan.
The Trustee shall pay for such Stock no more than its fair market value,
which shall be determined conclusively by the Committee pursuant to
Section 12-4. The Committee may direct the Trustee to finance the
acquisition of Stock by incurring or assuming indebtedness to the seller
or another party which indebtedness shall be called a "Stock Obligation".
Any Stock Obligation shall be subject to the following conditions and
limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall
not be payable on demand except in the event of default, and
shall bear a reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for
the Stock Obligation, or the Stock previously pledged in
connection with a prior Stock Obligation which is being repaid
with the proceeds of the current Stock Obligation. No other
assets of the Plan and Trust may be used as collateral for a
Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets
other than Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must
provide for the release of pledged Stock in connection with
payments on the Stock Obligations in the ratio prescribed in
Section 4.2.
6.3-4 Repayments of principal and interest on any Stock
Obligation generally shall be made by the Trustee from cash
contributions designated for such payments, from earnings on
such contributions, and from cash dividends received on Stock
held in the Unallocated Stock Fund.
6.4 PARTICIPANTS' OPTION TO DIVERSIFY'. The Committee shall
provide for a procedure under which each Participant may, during the
first five years of a certain six-year period, elect to have up to 25
percent of the value of his Account committed to alternative investment
options within the Investment Fund. For the sixth year in this period,
the Participant may elect to have up to 50 percent of the value of his
Account committed to other investments. The six-year period shall begin
with the Plan Year following the first Plan Year in which the Participant
has both reached aged 55 and completed 10 years of participation in the
Plan; a Participant's election to diversify his Account must be made
within the 90-day period immediately following the last day of each of
the six Plan Years. The Committee shall see that the Investment Fund
includes a sufficient number of investment options to comply with Section
401(a)(28)(B) of the Code. The Trustee shall comply with any investment
directions received from Participants in accordance with the procedures
adopted from time to time by the Committee under this Section 6.4.
SECTION 7. VOTING RIGHTS AND DIVIDENDS ON STOCK.
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7.1 VOTING AND TENDERING OF STOCK. The Trustee generally shall
vote all shares of Stock held under the Plan. However, if any Employer
has registration-type class of securities within the meaning of Section
409(e)(4) of the Code, or if a matter submitted to the holders of the
Stock involves a merger, consolidation, recapitalization,
reclassification, liquidation, dissolution, or sale of substantially all
assets of an entity, then (i) the shares of Stock which have been
allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the
Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been
received and any unallocated Stock in a manner calculated to most
accurately reflect the instructions it has received from Participants
regarding the allocated Stock. In the event no shares of Stock have been
allocated to Participants' Accounts at the time Stock is to be voted,
each Participant shall be deemed to have one share of Stock allocated to
his or her account for the sole purpose of providing the Trustee with
voting instructions. Notwithstanding any provision hereunder to the
contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions
and all unallocated shares of Stock must be voted by the Trustee in a
manner determined by the Trustee to be solely in the interest of the
Participants and Beneficiaries. Whenever such voting rights are to be
exercised, the Employers, the Committee, and the Trustee shall see that
all Participants and Beneficiaries are provided with the same notices and
other materials as are provided to other holders of the Stock, and are
provided with adequate opportunity to deliver their instructions to the
Trustee regarding the voting of Stock allocated to their Accounts. The
instructions of the Participants' with respect to the voting of allocated
shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered
by the Trustee in the same manner as set forth above with
respect to the voting of Stock. Notwithstanding any provision
hereunder to the contrary, Stock must be tendered by the
Trustee in a manner determined by the Trustee to be solely in
the interest of the Participants and Beneficiaries.
7.1-2. In connection with the merger of the Holding Company
with and into Dime, contemplated by the Agreement and Plan of
Merger between the Holding Company and Dime, dated as of July
18, 1998, pursuant to which, at the election of the holders
thereof, the common stock of the Holding Company is to be
converted into either cash or common stock of Dime, (i)
elections with respect to the shares of Stock which have been
allocated to Participants' Accounts shall be made by the
Trustee in accordance with the Participants' written
instructions and (ii) elections with respect to the shares of
Stock which have been allocated to Participants' Accounts for
which no instructions have been received shall be made in
accordance with the instructions of the Holding Company.
7.2 DIVIDENDS ON STOCK. Dividends on Stock which are received by
the Trustee in the form of additional Stock shall be retained in the
Stock Fund, and shall be allocated among the Participant's Accounts and
the Unallocated Stock Fund in accordance with their holdings of the Stock
on which the dividends have been paid. Dividends on Stock credited to
Participants' Accounts which are received by the Trustee in the form of
cash shall, at the direction of the Association paying the dividends,
either (i) be credited to the Accounts in accordance with
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Section 8.3 and
invested as part of the Investment Fund, (ii) be distributed immediately
to the Participants in proportion with the Participants' Account balance;
(iii) be distributed to the Participants within 90 days of the close of
the Plan Year in which paid in proportion with the Participants' Account
balance; or (iv) be used to repay principal and interest on the Stock
Obligation used to acquire Stock on which the dividends were paid.
Dividends on Stock held in the Unallocated Stock Fund which are received
by the Trustee in the form of cash shall be applied as soon as
practicable to payments of principal and interest under the Stock
Obligation incurred with the purchase of the Stock.
SECTION 8. ADJUSTMENTS TO ACCOUNTS
8.1 ADJUSTMENTS FOR TRANSACTIONS. An Employer contribution
pursuant to Section 4.1 shall be credited to the Participants' Accounts
as of the last day of the Plan Year for which it is contributed. Stock
released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the
Participants' Accounts as of the last day of the Plan Year in which the
repayment occurred. Any excess amounts remaining from the use of
proceeds of a sale of Stock from the Unallocated Stock Fund to repay a
Stock Obligation shall be allocated as of the last day of the Plan Year
in which the repayment occurred among the Participants' Accounts in
proportion to the opening balance in each Account. Any benefit which is
paid to a Participant or Beneficiary pursuant to Section 10 shall be
charged to the Participant's Account as of the first day of the Valuation
Period in which it is paid. Any forfeiture or restoral shall be charged
or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to
Section 9.6.
8.2 VALUATION OF INVESTMENT FUND. As of each Valuation Date, the
Trustee shall prepare a balance sheet of the Investment Fund, recording
each asset (including any contribution receivable from an Employer) and
liability at its fair market value. Any liability with respect to short
positions or options and any item of accrued income or expense and
unrealized appreciation or depreciation shall be included; provided,
however, that such an item may be estimated or excluded if it is not
readily ascertainable unless estimating or excluding it would result in a
material distortion. The Committee shall then determine the net gain or
loss of the Investment Fund since the preceding Valuation Date, which
shall mean the entire income of the Investment Fund, including realized
and unrealized capital gains and losses, net of any expenses to be
charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with
the balance sheets of the Investment Fund for the current and preceding
Valuation Dates.
8.3 ADJUSTMENTS FOR INVESTMENT EXPERIENCE. Any net gain or loss of
the Investment Fund during a Valuation Period, as determined pursuant to
Section 8.2, shall be allocated as of the last day of the Valuation
Period among the Participants' Accounts in proportion to the opening
balance in each Account, as adjusted for benefit payments and forfeitures
during the Valuation Period, without regard to whatever Stock may be
credited to an Account.
8.4 ADJUSTMENTS FOR CAPITAL CHANGES. In the event of any change in
the outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization,
combination or exchange of shares, or
15
<PAGE>
other similar corporate change, or
other increase or decrease in such shares effected without receipt or
payment of consideration by the bank issuing the Stock, the Committee
shall adjust the number of shares of Stock allocated to the Participants'
Accounts to prevent dilution or enlargement of such Accounts.
<PAGE>
SECTION 9. VESTING OF PARTICIPANTS' INTERESTS.
9.1 DEFERRED VESTING IN ACCOUNTS. A Participant's vested interest
in his Account shall be based on his Vesting Years in accordance with the
following Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
fewer than 3 0%
3 20%
4 40%
5 60%
6 80%
7 or more 100%
9.2 COMPUTATION OF VESTING YEARS. For purposes of this Plan, a
"Vesting Year" means each 12-consecutive month period in which an
Employee has at least 1,000 Hours of Service, beginning with his initial
Service with the Employer. However, a Participant's Vesting Years shall
be computed subject to the following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated
before a Break in Service shall be determined without regard to any
Service after the Break. Further, if a Participant has a Break in
Service before his interest in his Account has become vested to some
extent, he shall lose credit for any Vesting Year before the Break.
(b) Unless otherwise specifically excluded, a Participant's
Vesting Years shall include any period of active military duty to the
extent required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
9.3 FULL VESTING UPON CERTAIN EVENTS. Notwithstanding Section 9.1,
a Participant's interest in his Account shall fully vest on the
Participant's Normal Retirement Date, provided the Participant is in
Service on or after that date. The Participant's interest shall also
fully vest in the event that his Service is terminated, by Early
Retirement, Disability or by death.
9.4 FULL VESTING UPON PLAN TERMINATION. Notwithstanding Section
9.1, a Participant's interest in his Account shall fully vest if he is in
active Service upon termination of this Plan or upon the permanent and
complete discontinuance of contributions by his Employer. In the event
16
<PAGE>
of a partial termination, the interest of each Participant who is in
Service shall fully vest with respect to that part of the Plan which is
terminated.
9.5 FORFEITURE, REPAYMENT, AND RESTORAL, REPAYMENT, AND RESTORAL,
REPAYMENT, AND RESTORAL. If a Participant's Service terminates before
his interest in his Account is fully vested, that portion which has not
vested shall be forfeited if he either (i) receives a distribution of his
entire vested benefit , or (ii) has a Break in Service. If a Participant
who has received his entire vested interest returns to Service before he
has a Break in Service, he may repay to the Trustee an amount equal to
the distribution. The Participant may repay such amount at any time
within five years after he has returned to Service. The amount shall be
credited to his Account as of the last day of the Plan Year in which it
is repaid; an additional amount equal to the portion of his Account which
was previously forfeited shall be restored to his Account at the same
time from other Employees' forfeitures and, if such forfeitures are
insufficient, from a special contribution by his Employer for that year.
In the case of a terminated Participant who does not receive a
distribution of his entire vested interest and whose Service resumes
after a Break in Service, any undistributed balance from his prior
participation which was not forfeited shall be maintained as a fully
vested subaccount with his Account. If a portion of a Participant's
Account is forfeited, assets other that Stock must be forfeited before
any Stock may be forfeited. In the case of a Participant who has
incurred a Break in Service and then returns to Service, all years of
Service after the Break in Service will be disregarded for the purpose of
vesting his Account accrued before the Break in Service, but both
pre-Break and post-Break Service will count for the purpose of vesting
the Participant's Account that accrues after the Break in Service. If a
Participant's Service terminates prior to his Account having become
vested to any extent, such Participant shall be deemed to have received a
distribution of his entire vested interest as of the Valuation Date next
following his termination of Service.
9.6 ACCOUNTING FOR FORFEITURES. A forfeiture shall be charged to
the Participant's Account as of the first day of the first Valuation
Period in which the forfeiture becomes certain pursuant to Section 9.5.
Except as otherwise provided in that Section, a forfeiture shall be added
to the contributions of the terminated Participant's Employer which are
to be credited to other Participants pursuant to Section 4.1 as of the
last day of the Plan Year in which the forfeiture becomes certain.
9.7 VESTING AND NONFORFEITABILITY. A Participant's interest in his
Account which has become vested shall be nonforfeitable for any reason.
SECTION 10. PAYMENT OF BENEFITS.
10.1 BENEFITS FOR PARTICIPANTS. A Participant whose Service ends
for any reason shall receive the vested portion of his Account in a
single payment on a date selected by the Committee. That date shall be on
or before the 60th day after the end of the Plan Year in which his
Service ends. Notwithstanding the foregoing, if the balance credited to
his Account exceeds $3,500 ($5,000 for all Plan Years commencing after
August 5, 1997), his benefits shall not be paid before the latest of his
65th birthday or the tenth anniversary of the year in which he commenced
participation in the Plan unless he elects an early payment date in a
written election filed with the Committee. A Participant may modify such
an election at any time, provided any
17
<PAGE>
new benefit payment date is at
least 30 days after a modified election is delivered to the Committee.
Such an election is not valid unless it is made after the Participant has
received the required notice under Section 1.411 (a)-11(c) of the Income
Tax Regulations that provides a general description of the material
features of a lump sum distribution and the Participant's right to defer
receipt of his benefit. The Notice shall be provided no less than 30
days and no more than 90 days before the first day on which all events
have occurred which entitle the Participant to such benefit. Written
consent of the Participant to the distribution generally may not be made
within 30 days of the date the Participant receives the notice and shall
not be made more than 90 days from the date the Participant receives the
notice. However, a distribution may be made less than 30 days after the
notice provided under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, if:
(a) the Committee clearly informs the Participant that he has
a right to period of at least 30 days after receiving the notice to
consider the decision of whether or not to elect a distribution (and if
applicable, a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively
elects a distribution.
A Participant may modify such an election at any time, provided in
all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits
from that portion of his Account committed to the Investment Fund shall
be calculated on the basis of the most recent Valuation Date before the
day of payment.
For Plan Years beginning after December 31, 1996, distributions to
Participants who are not "five percent owners" will not be required to be
distributed until April 1 of the calendar year following the later of
either (i) the calendar year in which the Participant reaches age
70 1/2 , or (ii) the calendar year in which the Participant retires.
Participants who attained age 70 1/2 in any year prior to 1999 and
who are not "five percent owners" shall be offered the choice of
receiving distributions pursuant to this section or electing to delay
receiving distributions until they retire. If distributions under this
section have already commenced prior to 1999 to any Participant who is
not a "five percent owner", the Participant shall be offered the choice
of continuing the distributions or terminating the distributions until he
retires.
10.2 BENEFITS ON A PARTICIPANT'S DEATH. If a Participant dies
before his benefits are paid pursuant to Section 10.1, the balance
credited to his Account shall be paid to his Beneficiary in a single
distribution on or before the 60th day after the end of the Plan Year in
which he died. The benefits from that portion of the Account committed
to the Investment Fund shall be calculated on the basis of the most
recent Valuation Date before the date of payment.
If a married Participant dies before his benefit payments begin,
than unless he has specifically elected otherwise the Committee shall
cause the balance in his Account to be paid to his Spouse. No election
by a married Participant of a different Beneficiary shall be valid unless
18
<PAGE>
the election is accompanied by the Spouse's written consent, which (i)
must acknowledge the effect of the election, (ii) must explicitly provide
either that the designated Beneficiary may not subsequently be changed by
the Participant without the Spouse's further consent, or that it may be
changed without such consent, and (iii) must be witnessed by the
Committee, its representative, or a notary public. This requirement
shall not apply if the Participant establishes to the Committee's
satisfaction that the Spouse may not be located.
<PAGE>
10.3 MARITAL STATUS. The Committee shall from time to time take
whatever steps it deems appropriate to keep informed of each
Participant's marital status. Each Employer shall provide the Committee
with the most reliable information in the Employer's possession regarding
its Participants' marital status, and the Committee may, in its
discretion, require a notarized affidavit from any Participant as to his
marital status. The Committee, the Plan, the Trustee, and the Employers
shall be fully protected and discharged from any liability to the extent
of any benefit payments made as a result of the Committee's good faith
and reasonable reliance upon information obtained from a Participant and
his Employer as to his marital status.
10.4 DELAY IN BENEFIT DETERMINATION. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or
before the latest date prescribed for payment pursuant to Section 10.1 or
10.2, the benefits shall in any event be paid within 60 days after they
can first be determined, with whatever makeup payments may be appropriate
in view of the delay.
10.5 ACCOUNTING FOR BENEFIT PAYMENTS. Any benefit payment shall be
charged to the Participant's Account as of the first day of the Valuation
Period in which the payment is made.
10.6 OPTIONS TO RECEIVE AND SELL STOCK. A terminated Participant or
the Beneficiary of a deceased Participant may instruct the Committee to
distribute the Participant's entire vested interest in his Account in the
form of Stock or cash. Notwithstanding the foregoing, such terminated
Participant or Beneficiary of a deceased Participant may not elect to
receive such distribution in the form of Stock, if, at the time of his
election, ownership of virtually all Stock is restricted to active
Employees and qualified retirement plans for the benefit of Employees
pursuant to the certificates of incorporation or by-laws of the Employers
issuing Stock. In the event that a terminated Participant or the
Beneficiary of a deceased Participant instructs the Committee to
distribute the Participant's entire vested interest in his Account in
Stock, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from
any owner of Stock to make the required distribution.
Any Participant who receives Stock pursuant to Section 10.1, and any
person who has received Stock from the Plan or from such a Participant by
reason of the Participant's death or incompetency, by reason of divorce
or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall have the
right to require the Employer which issued the Stock to purchase the
Stock for its current fair market value (hereinafter referred to as the
"put right"). The put right shall be exercisable by written notice to
the Committee during the first 60 days after the Stock is distributed by
the Plan, and, if not exercised in that period, during the first 60 days
in the following Plan Year after the Committee has communicated to the
Participant its determination as to the Stock's current fair market
value. However, the put
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<PAGE>
right shall not apply to the extent that the
Stock, at the time the put right would otherwise be exercisable, may be
sold on an established market in accordance with federal and state
securities laws and regulations. If the put right is exercised, the
Trustee may, if so directed by the Committee in its sole discretion,
assume the Employer's rights and obligations with respect to purchasing
the Stock.
<PAGE>
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually,
over a period not longer than five years from the 30th day after the put
right is exercised, with adequate security and interest at a reasonable
rate on the unpaid balance, all such terms to be set forth in a
promissory note delivered to the seller with normal terms as to
acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create
or maintain a public market to facilitate the transfer or disposition of
any Stock. The put right described herein may only be exercised by a
person described in the second preceding paragraph, and may not be
transferred with any Stock to any other person. As to all Stock
purchased by the Plan in exchange for any Stock Obligation, the put right
be nonterminable. The put right for Stock acquired through a Stock
Obligation shall continue with respect to such Stock after the Stock
Obligation is repaid or the Plan ceases to be an employee stock ownership
plan.
10.7 RESTRICTIONS ON DISPOSITION OF STOCK. Except in the case of
Stock which is traded on an established market, a Participant who
receives Stock pursuant to Section 10.1, and any person who has received
Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation
from the Participant, or by reason of a rollover contribution described
in Section 402(c) of the Code, shall, prior to any sale or other transfer
of the Stock to any other person, first offer the Stock to the issuing
Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary,
or by operation of law, and whether for consideration or gratuitous.
Either the Employer or the Trustee may accept the offer within 14 days
after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this
Section 10.7, as well as any other restrictions upon the transfer of the
Stock imposed by federal and state securities laws and regulations.
10.8 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS.
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a "Distributee's" (as defined below) election under this
section, a Distributee may elect, at the time and in the manner
prescribed by the Committee, to have any portion of an "Eligible rollover
distribution" (as defined below) paid directly to an eligible retirement
plan in a "Direct Rollover" (as defined below).
Definitions:
(a) Eligible rollover distribution: An eligible rollover
distribution is any distribution of all or any portion of the balance to
the credit of the distributee, except that an eligible rollover
distribution does not include: any distribution that is one of a series
of substantially equal periodic payments (not less frequently than
annually) made for the life (or life
20
<PAGE>
expectancy) of the distributee or
the joint lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specific period of ten
years or more; any distribution to the extent such distribution is
required under section 401(a)(9) of the Code; and the portion of any
distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with Respect to
Stock).
(b) Eligible retirement plan: An eligible retirement plan is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified
trust described in section 401(a) of the Code, that accepts the
distributee's eligible rollover distribution. However, in the case of an
eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
(c) Distributee: A distributee includes an Employee or former
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are distributees with regard to
the interest of the spouse or former spouse.
(d) Direct Ro1lover: A direct rollover is a payment by the
plan to the eligible retirement plan specified by the distributee.
SECTION 11. RULES GOVERNING BENEFIT CLAIMS AND REVIEW OF APPEALS.
11.1 CLAIM FOR BENEFITS. Any Participant or Beneficiary who
qualifies for the payment of benefits shall file a claim for his benefits
with the Committee on a form provided by the Committee. The claim,
including any election of an alternative benefit form, shall be filed at
least 30 days before the date on which the benefits are to begin. If a
Participant or Beneficiary fails to file a claim by the 30th day before
the date on which benefits become payable, he shall be presumed to have
filed a claim for payment for the Participant's benefits in the standard
form prescribed by Sections 10.1 or 10.2
11.2 NOTIFICATION BY COMMITTEE. Within 90 days after receiving a
claim for benefits (or within 180 days, if special circumstances require
an extension of time and written notice of the extension is given to the
Participant or Beneficiary within 90 days after receiving the claim for
benefits), the Committee shall notify the Participant or Beneficiary
whether the claim has been approved or denied. If the Committee denies a
claim in any respect, the Committee shall set forth in a written notice
to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions
on which the denial is based;
21
<PAGE>
(iii) a description of any additional material or
information which could be submitted by the Participant or
Beneficiary to support his claim, with an explanation of
the relevance of such information; and
(iv) an explanation of the claims review procedures set
forth in Section 11.3.
11.3 CLAIMS REVIEW PROCEDURE. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for
benefits has been denied in any respect, he may file with the Committee a
written notice of appeal setting forth his reasons for disputing the
Committee's determination. In connection with his appeal the Participant
or Beneficiary or his representative may inspect or purchase copies of
pertinent documents and records to the extent not inconsistent with other
Participants' and Beneficiaries' rights of privacy. Within 60 days after
receiving a notice of appeal from a prior determination (or within 120
days, if special circumstances require an extension of time and written
notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal),
the Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final
decision with respect to his claim, including the reasons for such
decision and the particular Plan provisions upon which it is based.
SECTION 12. THE COMMITTEE AND ITS FUNCTIONS.
12.1 AUTHORITY OF COMMITTEE. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application
of its provisions, except to the extent such responsibility and authority
are otherwise specifically (i) allocated to the Association, the
Employers, or the Trustee under the Plan and Trust Agreement, (ii)
delegated in writing to other persons by the Association, the Employers,
the Committee, or the Trustee, or (iii) allocated to other parties by
operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan.
The Committee shall have no investment responsibility with respect to the
Investment Fund except to the extent, if any, specifically provided in
the Trust Agreement. In the discharge of its duties, the Committee may
employ accountants, actuaries, legal counsel, and other agents (who also
may be employed by an Employer or the Trustee in the same or some other
capacity) and may pay their reasonable expenses and compensation.
12.2 IDENTITY OF COMMITTEE. The Committee shall consists of three
or more individuals selected by the Association. Any individual,
including a director, trustee, shareholder, officer, or employee of an
Employer, shall be eligible to service as a member of the Committee. The
Association shall have the power to remove any individual serving on the
Committee at any time without cause upon 10 days written notice, and any
individual may resign from the Committee at any time upon 10 days written
notice to the Association. The Association shall notify the Trustee of
any change in membership of the Committee.
12.3 DUTIES OF COMMITTEE. The Committee shall keep whatever records
may be necessary to implement the Plan and shall furnish whatever reports
may be required from time to
22
<PAGE>
time by the Association. The Committee
shall furnish to the Trustee whatever information may be necessary to
properly administer the Trust. The Committee shall see to the filing
with the appropriate government agencies of all reports and returns
required of the plan Committee under ERISA and other laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee
in all respects regarding the purchase, retention, sale, exchange, and
pledge of Stock and the creation and satisfaction of Stock Obligations.
The Committee shall at all times act consistently with the Association's
long-term intention that the Plan, as an employee stock ownership plan,
be invested primarily in Stock. Subject to the direction of the
Committee with respect to Stock Obligations pursuant to the provision of
Section 4.2, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts
invested in Stock or in assets other than Stock, the Committee shall
determine in its sole discretion the extent to which assets of the Trust
shall be used to repay Stock Obligations, to purchase Stock, or to invest
in other assets to be selected by the Trustee or an investment manager.
No provision of the Plan relating to the allocation or vesting of any
interests in the Stock Fund or the Investment Fund shall restrict the
Committee from changing any holdings of the Trust, whether the changes
involve an increase or a decrease in the Stock or other assets credited
to Participants' Accounts. In determining the proper extent of the
Trust's investment in Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents to pay
their reasonable expenses and compensation.
12.4 VALUATION OF STOCK. If the valuation of any Stock is not
established by reported trading on a generally recognized public market,
the Committee shall have the exclusive authority and responsibility to
determine its value for all purposes under the Plan. Such value shall be
determined as of each Valuation Date, and on any other date as of which
the Plan purchases or sells such Stock. The Committee shall use
generally accepted methods of valuing stock of similar corporations for
purposes of arm's length business and investment transactions, and in
this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 COMPLIANCE WITH ERISA. The Committee shall perform all acts
necessary to comply with ERISA. Each individual member or employee of
the Committee shall discharge his duties in good faith and in accordance
with the applicable requirements of ERISA.
12.6 ACTION BY COMMITTEE. All actions of the Committee shall be
governed by the affirmative vote of a number of members which is a
majority of the total number of members currently appointed, including
vacancies. The members of the Committee may meet informally and may take
any action without meeting as a group.
12.7 EXECUTION OF DOCUMENTATION. Any instrument executed by the
Committee shall be signed by any member or employee of the Committee.
23
<PAGE>
12.8 ADOPTION OF RULES. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate
for the proper administration and interpretation of the Plan.
12.9 RESPONSIBILITIES TO PARTICIPANTS. The Committee shall
determine which Employees qualify to enter the Plan. The Committee shall
furnish to each eligible Employee whatever summary plan descriptions,
summary annual reports, and other notices and information may be required
under ERISA. The Committee also shall determine when a Participant or
his Beneficiary qualifies for the payment of benefits under the Plan.
The Committee shall furnish to each such Participant or Beneficiary
whatever information is required under ERISA (or is otherwise
appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the
Committee shall provide for the payment of benefits in the proper form
and amount from the assets of the Trust Fund. The Committee may decide
in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with applicable law and
the best interests of the individuals concerned.
12.10 ALTERNATIVE PAYEES IN EVENT OF INCAPACITY. If the Committee
finds at any time that an individual qualifying for benefits under this
Plan is a minor or is incompetent, the Committee may direct the benefits
to be paid, in the case of a minor, to his parents, his legal guardian, a
custodian for him under the Uniform Transfers to Minors Act, or the
person having actual custody of him, or, in the case of an incompetent,
to his spouse, his legal guardian, or the person having actual custody of
him, the payments to be used for the individual's benefit. The Committee
and the Trustee shall not be obligated to inquire as to the actual use of
the funds by the person receiving them under this Section 12.10, and any
such payment shall completely discharge the obligations of the Plan, the
Trustee, the Committee, and the Employers to the extent of the payment.
12.11 INDEMNIFICATION BY EMPLOYERS. Except as separately agreed in
writing, the Committee, and any member or employee of the Committee,
shall be indemnified and held harmless by the Employers, jointly and
severally, to the fullest extent permitted by law against any and all
cost, damages, expenses, and liabilities reasonably incurred by or
imposed upon it or him in connection with any claim made against it or
him or in which it or he may be involved by reason of its or his being,
or having been, the Committee, or a member or employee of the Committee,
to the extent such amounts are not paid by insurance.
12.12 NONPARTICIPATION BY INTERESTED MEMBER. Any member of the
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits,
unless his abstention would leave the Committee incapable of acting on
the matter.
SECTION 13. ADOPTION, AMENDMENT, OR TERMINATION OF THE PLAN.
13.1 ADOPTION OF PLAN BY OTHER EMPLOYERS. With the consent of the
Association, any entity may become a participating Employer under the
Plan by (i) taking such action as shall be necessary to adopt the Plan,
(ii) becoming a party to the Trust Agreement establishing the Trust
24
<PAGE>
Fund,
and (iii) executing and delivering such instruments and taking such other
action as may be necessary or desirable to put the Plan into effect with
respect to the entity's Employees.
13.2 ADOPTION OF PLAN BY SUCCESSOR OF PLAN. In the event that any
Employer shall be reorganized by way of merger, consolidation, transfer
of assets or otherwise, so that an entity other than an Employer shall
succeed to all or substantially all of the Employer's business, the
successor entity may be substituted for the Employer under the Plan by
adopting the Plan and becoming a party to the Trust Agreement.
Contributions by the Employer shall be automatically suspended from the
effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan
becomes effective. If, within 90 days following the effective date of
any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of
complete liquidation other than in connection with a reorganization, the
Plan shall be automatically terminated with respect to Employees of the
Employer as of the close of business on the 90th day following the
effective date of the reorganization, or as of the close of business on
the date of adoption of a plan of complete liquidation, as the case may
be.
13.3 PLAN ADOPTION SUBJECT TO QUALIFICATION. Notwithstanding any
other provision of the Plan, the adoption of the Plan and the execution
of the Trust Agreement are conditioned upon their being determined
initially by the Internal Revenue Service to meet the qualification
requirements of Section 401(a) of the Code, so that the Employers may
deduct currently for federal income tax purposes their contributions to
the Trust and so that the Participants may exclude the contributions from
their gross income and recognize income only when they receive benefits.
In the event that this Plan is held by the Internal Revenue Service not
to qualify initially under Section 401(a), the Plan, may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations
in order to secure qualification under Section 401(a) . If this Plan is
held by the Internal Revenue Service not to qualify initially under
Section 401(a) either as originally adopted or as amended, each
Employer's contributions to the Trust under this Plan (including any
earnings thereon) shall be returned to it and this Plan shall be
terminated provided however any contribution made incident to initial
qualification must be returned within one year after the date initial
qualification is denied, but only if application for initial
qualification is made by the time prescribed by law for the filing of the
Employer's federal tax return for the taxable year in which the Plan is
adopted, or such late date as the Secretary of the Treasury may
prescribe. In the event that this Plan is amended after its initial
qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be
modified retroactively to the earliest date permitted by U.S. Treasury
Regulations in order to secure approval of the amendment under Section
401(a).
13.4 RIGHT TO AMEND OR TERMINATE. The Association intends to
continue this Plan as a permanent program. However, each participating
Employer separately reserves the right to suspend, supersede, or
terminate the Plan at any time and for any reason, as it applies to that
Employer's Employees, and the Association reserves the right to amend,
suspend, supersede, merge, consolidate, or terminate the Plan at any time
and for any reason, as it applies to the Employees of all Employers. No
amendment, suspension, supersession, merger, consolidation, or
termination of the Plan shall reduce any Participant's or Beneficiary's
proportionate interest in the Trust Fund, or shall divert any portion of
the Trust Fund to purposes other than the exclusive
25
<PAGE>
benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of
compliance with the Code or ERISA, each as amended from time to time,
neither the provisions of Section 4.1 and 4.2 relating to the crediting
of contributions, forfeitures and shares of Stock released from the
Unallocated Stock Fund, nor any other provision of the Plan relating to
the allocation of benefits to Participants, may be amended more
frequently than once every six months. Moreover, there shall not be any
transfer of assets to a successor plan or merger or consolidation with
another plan unless, in the event of the termination of the successor
plan or the surviving plan immediately following such transfer, merger,
or consolidation, each participant or beneficiary would be entitled to a
benefit equal to or greater than the benefit he would have been entitled
to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or
consolidation. Following a termination of this Plan by the Association,
the trustee shall continue to administer the Trust and pay benefits in
accordance with the Plan as amended from time to time and the Committee's
instructions.
SECTION 14. MISCELLANEOUS PROVISIONS.
14.1 PLAN CREATES NO EMPLOYMENT RIGHTS. Nothing in this Plan shall
be interpreted as giving any Employee the right to be retained as an
Employee by an Employer, or as limiting or affecting the rights of an
Employer to control its Employees or to terminate the Service of any
Employee at any time and for any reason, subject to any applicable
employment or collective bargaining agreements.
14.2 NONASSIGNABILITY OF BENEFITS. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by
the Employers, the Committee, or the Trustee. Moreover, benefits from
the Plan shall not be subject to attachment, garnishment, or other legal
process for debts or liabilities of any Participant or Beneficiary, to
the extent permitted by law. This prohibition on assignment or
alienation shall apply to any judgment, decree, or order (including
approval of a property settlement agreement) which relates to the
provision of child support, alimony, or property rights to a present or
former spouse, child or other dependent of a Participant pursuant to a
State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified
domestic relations order within the meaning of Section 414(p) of the
Code.
14.3 LIMIT OF EMPLOYER LIABILITY. The liability of the Employers
with respect to Participants under this Plan shall be limited to making
contributions to the Trust from time to time, in accordance with Section
4.
14.4 TREATMENT OF EXPENSES. All expenses incurred by the Committee
and the Trustee in connection with administering this Plan and Trust Fund
shall be paid by the Trustee from the Trust Fund to the extent the
expenses have not been paid or assumed by the Employers or by the
Trustee.
14.5 NUMBER AND GENDER. Any use of the singular shall be
interpreted to include the plural, and the plural the singular. Any use
of the masculine, feminine, or neuter shall be interpreted to include the
masculine, feminine, or neuter, as the context shall require.
26
<PAGE>
14.6 NONDIVERSION OF ASSETS. Except as provided in Sections 5.3 and
13.3, under no circumstances shall any portion of the Trust Fund be
diverted to or used for any purpose other than the exclusive benefit of
the Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan.
14.7 SEPARABILITY OF PROVISIONS. If any provision of this Plan is
held to be invalid or unenforceable, the other provisions of the Plan
shall not be affected but shall be applied as if the invalid or
unenforceable provision had not been included in the Plan.
14.8 SERVICE OF PROCESS. The agent for the service of process upon
the Plan shall be the president of the Association, or such other person
as may be designated from time to time by the Association.
14.9 GOVERNING STATE LAW. This Plan shall be interpreted in
accordance with the laws of the State of New York to the extent those
laws are applicable under the provisions of ERISA.
14.10 SPECIAL RULES FOR PERSONS -SUBJECT TO SECTION 16(B)
REQUIREMENTS. Notwithstanding anything herein to the contrary, any
former Participant who is subject to the provisions of Section 16(b) of
the Securities Exchange Act of 1934, who becomes eligible to again
participate in the Plan, may not become a Participant prior to the date
that is six months from the date such former Participant terminated
participation in the Plan.
In addition, any person subject to the provisions of Section 16(b)
of the 1934 Act receiving a distribution of Stock from the Plan must hold
such Stock for a period of six months commencing with the date of
distribution. However, this restriction will not apply to Stock
distributions made in connection with death, retirement, disability of
termination of employment or made pursuant to the terms of a qualified
domestic relations order.
SECTION 15. TOP HEAVY PROVISIONS.
15.1 DETERMINATION OF TOP-HEAVY STATUS. The Committee shall
determine on a regular basis whether each Plan Year is or is not a
"Top-Heavy Year" for purposes of implementing the provisions of Sections
15.2, 15.3, 15.4, and 5.2 which apply only to the extent the Plan is
top-heavy or super top-heavy within the meaning of Section 416 and the
Treasury Regulations promulgated thereunder. In making this
determination, the Committee shall use the following definitions and
principles:
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning
of Sections 414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key
Employee is a Participant during the Plan Year, (ii) which
enables any plan described in clause (i) to satisfy the
requirements of Section 401(a)(4) or 410 of the Code, or (iii)
which provides
27
<PAGE>
contributions or benefits comparable to those of
the plans described in clauses (i) and (ii) and which is
designated by the Committee as part of the plan aggregation
group.
15.1-3 The "determination date," with respect to the first Plan
Year of any plan, means the last day of that Plan Year, and
with respect to each subsequent Plan Year, means the last day
of the preceding Plan Year. If any other plan has a
determination date which differs from this Plan's determination
date, the top-heaviness of this Plan shall be determined on the
basis of the other plan's determination date falling within the
same calendar years as this Plan's determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the
top-heavy determination date for the Plan Year has received
compensation from an Employer and has been (i) an officer of
the Employer having Total Compensation greater than 50 percent
of the limit then in effect under Section 415(b)(1)(A) of the
Code, (ii) one of the 10 Employees owning the largest interests
in the Employer having Total Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner
of more than five percent of the outstanding equity interest or
the outstanding voting interest in any Employer, or (iv) an
owner of more than one percent of the outstanding equity
interest or the outstanding voting interest in an Employer
whose Total Compensation exceeds $150,000. In determining
which individuals are Key Employees, the rules of Section
415(i) of the Code and Treasury Regulations promulgated
thereunder shall apply. The Beneficiary of a Key Employee
shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" ' means an Employee who at any time
during the five years ending on the top-heavy determination
date for the Plan Year has received compensation from an
Employer and who has never been a Key Employee, and the
Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i)
the adjusted account balances in defined contribution plans on
the determination date, plus (ii) the adjusted value of accrued
benefits in defined benefit plans, calculated as of the annual
valuation date coinciding with or next preceding the
determination date, with respect to Key Employees and Non-key
Employees under all plans within the plan aggregation group
which includes this Plan. For this purpose, the "adjusted
account balance" for and the "adjusted value of accrued
benefit" for any Employee shall be increased by all plan
distributions made with respect to the Employee during the five
years ending on the determination date. Further, the adjusted
account balance under a plan shall not include any amount
attributable to a rollover contribution or similar transfer to
the plan initiated by an Employee and made after 1983, unless
both plans involved are maintained by the Employer, in which
event the transferred amount shall be counted in the transferee
plan and ignored for all purposes in the transferor plan.
Finally, the adjusted value of accrued benefits
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<PAGE>
under any
defined Benefit plan shall be determined by assuming whichever
actuarial assumptions were applied by the Pension Benefit
Guaranty Corporation to determine the sufficiency of plan
assets for plans terminating on the valuation date.
<PAGE>
15.1-7 This Plan shall be "top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 60
percent of the total aggregated benefits for both Key Employees
and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year
in which the aggregated benefits of the Key Employees exceed 90
percent of the total aggregated benefits for both Key Employees
and Non-key Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan
is top-heavy.
15.2 MINIMUM CONTRIBUTIONS. For any Top-Heavy Year, each Employer
shall make a special contribution on behalf of each Participant to the
extent that the total allocations to his Account pursuant to Section 4 is
less than the lesser of (i) four percent of his Total Compensation
for that year, or (ii) the highest ratio of such allocation to Total
Compensation received by any Key Employee for that year. For purposes of
the special contribution of this Section 15.2, a Key Employee's Total
Compensation shall include amounts the Key Employee elected to defer
under a qualified 401(k) arrangement. Such a special contribution shall
be made on behalf of each Participant who is employed by an Employer on
the last day of the Plan Year, regardless of the number of his Hours of
Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key
Employee is a Participant in both this Plan and a defined benefit plan
included in the plan aggregation group which is top heavy, the sum of the
Employer contributions and forfeitures allocated to the Account of each
such Non-key Employee shall be equal to at least five percent (5%) of
such Non-key Employee's Total Compensation for that year.
15.3 MINIMUM VESTING. If a Participant's vested interest in his
Account is to be determined in a Top-Heavy Year, it shall be based on the
following "top-heavy table":
Vesting Percentage of
Years Interest Vested
fewer than 3 0%
3 or more 100%
Section 16.
16.1 Pursuant to the authority granted in Section 13.4 of the Plan,
the Plan shall be terminated as of the Closing Date, as defined in the
Merger Agreement between the Holding Company and Dime, dated as of July
18, 1998. Such termination shall be subject to the
29
<PAGE>
submission of an
application to receive a favorable determination letter from the Internal
Revenue Service with respect to the qualified status of the Plan as of
its termination. There shall be no further benefit accrual to any
Participant in the Plan after the Closing Date.
16.2 The Holding Company shall (i) use its best efforts to cause the
Trustee to make such elections under Sections 1.4 and 1.5 of the Merger
Agreement with respect to the Unallocated Stock Fund as are necessary to
obtain cash at least equal to all remaining Stock Obligations and (ii)
cause the Trustee to use such cash to repay in full all such Stock
Obligations.
16.3 Notwithstanding any other provision of Section 9 of the Plan,
each Participant's interest in his Account shall become a fully vested
and nonforfeitable on the Closing Date.
16.4 Following satisfaction by the Trustee of the Stock Obligations,
any cash or shares of Stock remaining the Unallocated Stock Fund shall be
allocated, as of the Closing Date, to the Account of each Participant who
has an interest in an Account of the Closing Date. Such allocation shall
be made among the Participants' Accounts in proportion to the balance in
each Account as of the Closing Date.
16.5 The balance of each Participant's Account shall be distributed
to such Participant in the form of a lump sum (or transferred in
accordance with Section 401(a)(31) of the Code) as soon as practicable
following the later of (i) the Closing Date or (ii) the receipt by the
Association of a favorable determination letter from the Internal Revenue
Service regarding the qualified status of the Plan upon its termination.
30
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
Peter S. Russo ###-##-####
Name of Option Holder Social Security Number
58 Ridge Road
Street Address
East Williston NY 11596
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A) (B)
FIBC OPTION
Grant Date: 1/26/95 6/17/97
Class of Optioned Shares Common Common
No. of Shares 10,925 5,925
Exercise Price Per Share $9.44 $17.00
Option Type (ISO or NQSO) NQSO NQSO
Plan (Employee or Director)Director Director
Option Expiration Date 1/26/05 6/17/07
CONVERTED OPTION
Class of Optioned Shares* Common Common
No. of Shares* 19,973 10,832
Exercise Price Per Share* $5.17 $9.30
Option Type (ISO or NQSO) NQSO NQSO
Option Expiration Date 1/26/05 6/17/07
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
Dominick L. Segrete ###-##-####
Name of Option Holder Social Security Number
106 New Market Road
Street Address
Garden City NY 11530
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A)
FIBC OPTION
Grant Date: 1/26/95
Class of Optioned Shares Common
No. of Shares 10,925
Exercise Price Per Share $9.44
Option Type (ISO or NQSO) NQSO
Plan (Employee or Director)Director
Option Expiration Date 1/26/05
CONVERTED OPTION
Class of Optioned Shares* Common
No. of Shares* 19,973
Exercise Price Per Share* $5.17
Option Type (ISO or NQSO) NQSO
Option Expiration Date 1/26/05
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
Raymond M. Calamari ###-##-####
Name of Option Holder Social Security Number
5 Orchard Street
Street Address
Glen Head NY 11545
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A)
FIBC OPTION
Grant Date: 10/22/96
Class of Optioned Shares Common
No. of Shares 5,000
Exercise Price Per Share $14.25
Option Type (ISO or NQSO) NQSO
Plan (Employee or Director)Director
Option Expiration Date 10/22/06
CONVERTED OPTION
Class of Optioned Shares* Common
No. of Shares* 9,141
Exercise Price Per Share* $7.80
Option Type (ISO or NQSO) NQSO
Option Expiration Date 10/22/06
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
Frank S. La tawiec ###-##-####
Name of Option Holder Social Security Number
10 Smith Street
Street Address
Glen Head NY 11545
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A) (B) (C)
FIBC OPTION
Grant Date: 12/21/95 2/18/97 6/17/97
Class of Optioned Shares Common Common Common
No. of Shares 5,000 24,000 9,000
Exercise Price Per Share $13.50 $18.00 $17.00
Option Type (ISO or NQSO) NQSO ISO ISO
Plan (Employee or Director)Director Employee Employee
Option Expiration Date 12/21/05 2/18/07 6/17/07
CONVERTED OPTION
Class of Optioned Shares* Common Common Common
No. of Shares* 9,141 43,876 16,453
Exercise Price Per Share* $7.39 $9.85 $9.30
Option Type (ISO or NQSO) NQSO NQSO NQSO
Option Expiration Date 12/21/05 2/18/07 6/17/07
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
P. James O'Gorman ###-##-####
Name of Option Holder Social Security Number
331 Deer Track Lane
Street Address
Valley Cottage NY 10989
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A) (B) (C)
FIBC OPTION
Grant Date: 1/26/95 2/18/97 6/17/97
Class of Optioned Shares Common Common Common
No. of Shares 200 16,000 6,000
Exercise Price Per Share $9.44 $18.00 $17.00
Option Type (ISO or NQSO) NQSO ISO ISO
Plan (Employee or Director)Employee Employee Employee
Option Expiration Date 1/26/05 2/18/07 6/17/07
CONVERTED OPTION
Class of Optioned Shares* Common Common Common
No. of Shares* 365 29,251 10,969
Exercise Price Per Share* $5.17 $9.85 $9.30
Option Type (ISO or NQSO) NQSO NQSO NQSO
Option Expiration Date 1/26/05 2/18/07 6/17/07
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
Dime Community Bancshares, Inc.
Stock Options Assumed Pursuant to section 1.6(b)
of the Agreement and Plan of Merger Dated July 18, 1998
by and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Option Conversion Certificate
Valerie M. Swaya ###-##-####
Name of Option Holder Social Security Number
222 Grand Street, Unit 3G
Street Address
Hoboken NJ 07030
City State ZIP Code
This Option Conversion Certificate sets forth the terms and conditions on
which options to purchase common stock of Financial Bancorp, Inc. ("FIBC
Options") granted to the Continuing Option Holder named above by Financial
Bancorp, Inc. ("FIBC") and outstanding at the Effective Time of the merger
of FIBC into Dime Community Bancshares, Inc. ("DCB") have been converted
into options to purchase common stock of DCB ("Converted Options") pursuant
to section 1.6(b) of the Agreement and Plan of Merger dated as of July 18,
1998, by and between DCB and FIBC (the "Merger Agreement"). Below are
specific terms and conditions applicable to this Converted Option.
Attached as Exhibit A are its general terms and conditions.
(A)
FIBC OPTION
Grant Date: 6/17/97
Class of Optioned Shares Common
No. of Shares 4,000
Exercise Price Per Share $17.00
Option Type (ISO or NQSO) ISO
Plan (Employee or Director) Employee
Option Expiration Date 6/17/07
CONVERTED OPTION
Class of Optioned Shares* Common
No. of Shares* 7,312
Exercise Price Per Share* $9.30
Option Type (ISO or NQSO) NQSO
Option Expiration Date 6/17/07
*Subject to adjustment as provided in the General Terms and
Conditions.
By signing where indicated below, DCB grants this Converted Option upon the
specified terms and conditions, and the Option Holder (1) acknowledges
receipt of this Option Conversion Certificate, including Exhibit A and
Appendices A and B thereto, and agrees to observe and be bound by the terms
and conditions set forth herein,(2) acknowledges receipt of the Prospectus
dated January 21, 1999 pursuant to which shares of common stock of DCB
which may be acquired upon exercise of Converted Options are being offered
and (3) agrees that this Option Conversion Certificate and the attached
Exhibit A (and Appendices A and B attached thereto) supersede, in their
entirety, any and all prior terms and conditions, agreements,
understandings and arrangements, whether or not in writing, with respect to
his or her FIBC Options.
Dime Community Bancshares, Inc. Option Holder
By
Name: _________________________
Title: _________________________
<PAGE>
EXHIBIT A
Dime Community Bancshares, Inc.
Stock Options Granted Pursuant to section 1.6(b)
of the Agreement and Plan of Merger, dated July 18, 1998
By and Between Dime Community Bancshares, Inc. and Financial Bancorp, Inc.
General Terms and Conditions
Section 1. Applicability.
This Exhibit A establishes the general terms and conditions applicable to
all options to purchase Common Stock, par value $.01 per share, of Dime
Community Bancshares, Inc. ("DCB Common Stock") that have been granted by
Dime Community Bancshares, Inc. ("DCB") pursuant to section 1.6(b) of the
Agreement and Plan of Merger, dated July 18, 1998, by and between DCB and
Financial Bancorp, Inc. (the "Merger Agreement") in substitution for
options to purchase common stock of Financial Bancorp, Inc. ("FIBC Common
Stock") outstanding under the Financial Bancorp, Inc. 1995 Incentive Stock
Option Plan (the "FIBC ISO Plan"), as amended, or the Financial Bancorp,
Inc. 1995 Stock Option Plan for Outside Directors (the "FIBC Outside
Directors Plan"), as amended, at the Effective Time of the merger of
Financial Bancorp, Inc. ("FIBC") with and into DCB pursuant to the Merger
Agreement (the "Effective Time"). For purposes of this Exhibit A and the
Option Conversion Certificate to which it is attached, options to purchase
FIBC Common Stock that are outstanding at the Effective Time are referred
to as "FIBC Options," the options to purchase DCB Common Stock that are
granted in substitution therefor are referred to as "Converted Options,"
and the undersigned individual shall be referred to as the "Option Holder."
This Exhibit A, together with the Option Conversion Certificate to which it
is attached, constitute an Option Conversion Agreement containing all of
the terms and conditions of the Converted Options and supersede in their
entirety all of the terms and conditions of the FIBC ISO Plan or the FIBC
Outside Directors Plan, as the case may be, and any other agreements,
understandings or arrangements, whether or not in writing, evidencing or
pertaining to any FIBC Option.
Section 2. DCB Common Stock Subject to Converted Option.
The maximum number of shares of DCB Common Stock which may be purchased
upon exercise of a Converted Option is the number shown on the Continuing
Option Holder's Option Conversion Certificate. The number of shares of DCB
Common Stock which may be purchased upon exercise of the Converted Option
at any time is the maximum number shown on the Continuing Option Holder's
Option Conversion Certificate reduced by one share for each share of DCB
Common Stock as to which the Converted Option has previously been
exercised.
Section 3. Incentive Stock Option Treatment - Options Under the FIBC
ISO Plan.
The FIBC Options granted under the FIBC ISO Plan, designated as "incentive
stock options" ("ISOs") on the Option Holder's Stock Option Certificate,
were intended be ISOs
Page 1
<PAGE>
within the meaning of section 422 of the Internal
Revenue Code of 1986 ("Code") to be the maximum permissible extent. The
Option Holder acknowledges that if his or her FIBC Option was designated as
an ISO, as a result of the conversion of the FIBC Option and the terms and
conditions herein, the Converted Option may not be an ISO and may be
treated as a non-qualified stock option under the Code after the date of
this Agreement, including for purposes of income tax withholding, and that
he is aware of the tax consequences.
Section 4. Option Period.
The Options shall expire one hundred and twenty (120) months following the
date of grant unless sooner exercised.
Section 5. Exercise Price.
During the Option Period, the Option Holder shall have the right to
purchase all or any portion of the DCB Common Stock then available for
purchase upon exercise of the Converted Option at the Exercise Price per
Share specified for the Converted Option on the Stock Option Certificate.
Section 6. Method of Exercise.
(a) The Option Holder may, at any time during the Option Period,
exercise his or her right to purchase all or any part of the optioned DCB
Common Stock. The Option Holder shall exercise such right by:
(i) giving written notice to DCB, in the form attached hereto as
Appendix A; and
(ii) delivering to DCB full payment of the Exercise Price for the Common
Stock to be purchased, with such payment made in cash or by check, or in
whole or in part, through the surrender of shares of Common Stock, which
shares will be valued at Fair Market Value (as defined below) on the date
of the exercise of the Option.
(b) Fair Market Value, when used in connection with Common Stock on a
certain date, shall mean:
(i) 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
(ii) 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
Page 2
<PAGE>
no such quotation is provided, on another similar system, selected
by the Committee, then in use; or
(iii) if subsections (a) and (b) are not applicable, the fair market
value of a Share as the Committee may determine.
(c) The exercise price, upon the election of the Option Holder, may be
paid by such Option Holder's broker-dealer if such broker-dealer is to be
repaid with the proceeds of the sale of a portion of the shares of Common
Stock underlying the exercised options as permitted under Rule 16b-6(b) of
the Securities Exchange Act of 1934, as amended ("Cashless Exercise").
(d) The Option Holder shall not be entitled to any rights as a
stockholder with respect to shares of Common Stock being acquired pursuant
to the exercise of the Option unless and until certificates evidencing such
Common Stock are issued. No adjustments shall be made for dividends or
distributions or other rights for which the record date is prior to the
date such certificates are issued except as provided in Section 8.
Section 7. Stock Appreciation Rights.
The Option Holder shall have no right to receive from DCB any cash payment
in full or partial settlement of his rights in, to or under a Converted
Option.
Section 8. Dilution and Other Adjustments.
In the event of any change in the outstanding shares of Common Stock by
reason of any stock dividend or split, recapitalization, merger,
consolidation, spin-off, reorganization, combination or exchange of shares,
or other similar corporate change, proportionate and equitable adjustments
to the Option shall be made to the number of shares of Common Stock covered
by the Option and to the Exercise Price per share covered by the Option to
prevent dilution or enlargement of the rights of the Option Holder.
Section 9. Delivery and Registration of DCB Common Stock.
The obligation of DCB to deliver DCB Common Stock pursuant to any Converted
Option shall, if the Compensation Committee of Dime Community Bancorp, Inc.
(the "DCB Committee") so requests, be conditioned upon the receipt of a
representation as to the investment intention of the person to whom such
DCB Common Stock is to be delivered, in such form as the DCB 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 DCB
Common Stock or upon the occurrence of any other event eliminating the
necessity of such representation. DCB shall not be required to deliver any
DCB Common Stock under this Agreement prior to (a) the admission of such
DCB Common Stock to listing on any stock exchange on which DCB 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
DCB Committee shall determine to be necessary or advisable.
Section 10. Administration.
Page 3
<PAGE>
(a) Each Converted Option shall be administered by the members of the
DCB Committee.
(b) The DCB Committee is authorized to construe and interpret the
Converted Option and this Option Conversion Agreement to promulgate, amend
and rescind rules and regulations relating to the implementation,
administration and maintenance of the Converted Options. Subject to the
terms and conditions hereof, the DCB Committee shall make all
determinations necessary or advisable for the implementation,
administration and maintenance of the Converted Options including, without
limitation, correcting any technical defect(s) or technical omission(s), or
reconciling any technical inconsistency(ies), in the Converted Options
and/or the terms and conditions contained in this Option Conversion
Agreement. The DCB Committee may designate persons other than members of
the DCB Committee to carry out the day-to-day ministerial administration of
the Converted Options under such conditions and limitations as it may
prescribe. The DCB Committee's determinations need not be uniform and may
be made selectively among Option Holders, whether or not such Option
Holders are similarly situated. Any determination, decision or action of
the DCB Committee in connection with the construction, interpretation,
administration, implementation or maintenance of any Converted Option shall
be final, conclusive and binding upon all Option Holders and any person(s)
claiming under or through any Option Holders.
Section 11. No Right to Continued Service.
Nothing herein nor any action of the Board of Directors of DCB or of the
DCB Committee with respect to a Converted Option shall be held or construed
to confer upon the Option Holder any right to a continuation of service by
DCB or any direct or indirect subsidiary thereof. The Option Holder may be
dismissed or otherwise dealt with as though this Converted Option or the
related FIBC Option did not exist.
Section 12. Taxes.
Where any person is entitled to receive shares of DCB Common Stock pursuant
to the exercise of the Converted Option granted hereunder, DCB shall have
the right to require such person to pay to DCB the amount of any tax which
DCB 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 of DCB Common Stock to cover the amount required to be withheld.
Section 13. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt
requested) or delivered by an express courier (with confirmation) 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:
(a) If to DCB:
Page 4
<PAGE>
Dime Community Bancshares, Inc.
209 Havermeyer Street
Brooklyn, NY 11211
Attention: President
(b) If to the Option Holder, to the Option Holder's address as shown on
the Stock Option Certificate or specified in any subsequent notice to DCB.
Section 14. Restrictions on Transfer.
The right to receive a benefit under the Plan shall not be subject in any
manner to anticipation, alienation or assignment, nor shall such right be
liable for or subject to debts, contracts, liabilities, engagements or
torts.
Section 15. Successors and Assigns.
The Option Conversion Agreement shall inure to the benefit of and shall be
binding upon DCB and the Option Holder and their respective heirs,
successors and assigns.
Section 16. Construction of Language.
Whenever appropriate in the Exhibit A, 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 Exhibit A, unless the context clearly
indicates otherwise.
Section 17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York, without regard to any applicable conflicts of
law.
Section 18. Amendment.
This instrument contains the entire agreement of the parties relating to
the subject matter hereof, and supercedes in its entirety any and all prior
agreements, understandings or representations relating to the subject
matter hereof. No modifications of this Agreement shall be valid unless
made in writing and signed by the parties hereto.
Page 5
<PAGE>
Appendix A to Option Conversion Agreement
Stock Options Granted Pursuant to section 1.6(b)
of the Agreement and Plan of Merger, dated as of the 18th day of
July, 1998
By and between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Notice of Exercise of Stock Option
Use this Notice to inform the DCB Committee administering the Stock Options
granted pursuant to section 1.6(b) of the Agreement and Plan of Merger
dated as of the 18th day of July, 1998 by and between Dime Community
Bancshares, Inc. and Financial Bancorp, Inc. that you are exercising your
right to purchase shares of Common Stock of Dime Community Bancshares, Inc.
("DCB") pursuant to an option ("Converted Option") granted under the FIBC
ISO Plan or the FIBC Outside Directors 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 Option
Conversion Agreement entered into by DCB and the Option Recipient ("Option
Conversion Agreement"). This Notice should be personally delivered or
mailed by certified mail, return receipt requested to: Dime Community
Bancshares, Inc., 209 Havemeyer Street, Brooklyn, NY 11211, Attention:
President. The effective date of the exercise of the Option shall be the
earliest date practicable following the date this properly completed Notice
is received by DCB, but in no event more than three business 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 Option Conversion Agreement. This Notice is subject to all of
the terms and conditions of the Option Conversion Agreement.
OPTION INFORMATION Identify below the Option that you are exercising by
providing the following information from the Option Conversion Agreement.
Name of Option Holder:
_________________________________________________________
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 [check and complete one or more; you may select
(a) or (b), or a combination thereof, or (c). If you choose to pay the
exercise price with a combination of (a) and (b), the sum of the amounts
shown in (a) and (b) must equal the total Exercise Price shown above]
(a)
o
I enclose a certified check, money order, or bank draft payable to the
order of Dime Community Bancshares, Inc. in the amount of the Total
Exercise Price.
$
(b)
o
I enclose Shares of Common Stock already owned by the Option Holder duly
endorsed for transfer to Dime Community Bancshares, Inc. with all necessary
stock transfer stamps attached and having a Fair Market Value of
.
$
(c)
o
I authorize _____________________ [enter name of brokerage firm] to sell,
pursuant to a "cashless exercise," such Shares subject to the Option having
a Fair Market Value of .
$
ISSUANCE OF CERTIFICATES
I hereby direct that the stock certificates representing the shares
of DCB Common Stock 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 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 of DCB
Common Stock to be issued to me pursuant to this Notice, but that I may
request DCB 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]:
o
With a certified or bank check that I will deliver to DCB on or before the
Effective Date of my Option exercise.
o
With the proceeds from a sale of Shares of DCB Common Stock that would
otherwise be distributed to me.
o
Retain Shares of DCB Common Stock that would otherwise be distributed to
me.
I understand that the withholding elections I have made on this form are
not binding on the DCB Committee, and that the DCB 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
DCB 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 of DCB
Common Stock 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 of DCB Common Stock than are necessary.
COMPLIANCE WITH TAX AND SECURITIES LAWS
S
I
GN
H
E
RE
I understand that I must rely on, and consult with, my own tax and legal
counsel (and not Dime Community Bancshares, Inc.) regarding the application
of all laws -- particularly tax and securities laws -- to the transactions
to be effected pursuant to my Option and this Notice. 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 of DCB Common Stock 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
Dime Community Bancshares, Inc.
Received [check one]: By Hand By Mail Post Marked
_______________________________
Date of Post Mark
By
_______________________________
Authorized Signature Date of Receipt
<PAGE>
Appendix B to Stock Option Conversion Agreement
Stock Options Granted Pursuant to section 1.6(b)
of the Agreement and Plan of Merger, Dated as of the 18th Day of
July, 1998
By and Between Dime Community Bancshares, Inc. and Financial
Bancorp, Inc.
Beneficiary Designation Form
GENERAL
INFORMATION
Use this form to designate the Beneficiary(ies) who may exercise Converted
Options outstanding to you at the time of your death under the Option
Conversion Agreement dated January 21, 1999 between Dime Community
Bancshares, Inc. and the Option Holder named below.
Name of Person
Making Designation
Social Security Number _______-_____-__________
Name of
Option Holder
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(s) as
my primary Beneficiary(ies) under the Option Conversion Agreement,
reserving the right to change or revoke this designation at any time prior
to my death:
Name
Address
Relationship
Birthdate
Share
%
%
%
Total = 100%
B CONTINGENT BENEFICIARY(IES). I hereby designate the following person(s)
as my contingent Beneficiary(ies) under the Option Conversion Agreement 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 Converted Options:
Name
Address
Relationship
Birthdate
Share
%
%
%
Total = 100%
S
I
G
N
H
E
R
E
I understand that this Beneficiary Designation shall be effective only if
properly completed and received by the Corporate Secretary of Dime
Community Bancshares, Inc. prior to my death, and that it is subject to all
of the terms and conditions of the Option Conversion Agreement. I also
understand that an effective Beneficiary designation revokes my prior
designation(s) with respect to all outstanding Converted Options.
Your Signature Date
Internal Use Only
This Beneficiary Designation was received by Dime Community Bancshares,
Inc. on the date indicated.
By
Authorized Signature Date
Comments
<PAGE>
DIME COMMUNITY BANCORP, INC. AND SUBSIDIARY
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Net Income $19,861 $13,098 $12,316
- ------------------------------------------------------------------------------------------------------------------
DENOMINATOR:
Average shares outstanding utilized in the calculation of
basic earnings per share 10,951 11,001 12,898
- ------------------------------------------------------------------------------------------------------------------
Unvested shares of Recognition and Retention Plan 372 517 36
Common stock equivalents due to the dilutive effect of
stock options 528 523 47
- ------------------------------------------------------------------------------------------------------------------
Average shares outstanding utilized in the calculation of
diluted earnings per share 11,851 12,041 12,981
- ------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $1.81 $1.19 $0.95
- ------------------------------------------------------------------------------------------------------------------
DILUTED $1.68 $1.09 $0.95
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
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 June 30,
1996 and prior 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. Financial Bancorp, Inc. was merged into the Company on January 21,
1999.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
At or for the fiscal years ended June 30, 1999 1998 1997 1996 <F1> 1995
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL CONDITION DATA:
Total assets $2,247,615 $1,623,926 $1,315,026 $1,371,821 $662,739
Loans, net <F1> 1,368,260 938,046 739,858 575,874 424,680
Mortgage-backed securities 525,667 410,589 308,525 209,941 91,548
Investment securities <F2> 206,611 174,551 168,596 392,450 101,695
Federal funds sold 11,011 9,329 18,902 115,130 17,809
Goodwill 64,871 24,028 26,433 28,438 -
Deposits 1,247,061 1,038,342 963,395 950,114 554,841
Borrowings 731,660 360,106 139,543 27,708 17,820
Stockholders' equity 211,695 186,349 190,889 213,071 77,067
Tangible stockholders' equity 145,562 159,558 162,361 184,188 76,321
- ---------------------------------------------------------------------------------------------------------------------------
SELECTED OPERATING DATA:
Interest income $133,912 $106,464 $89,030 $52,619 $49,223
Interest expense on deposits and
borrowings 77,219 56,935 41,564 23,516 18,946
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income 56,693 49,529 47,466 29,103 30,277
Provision for losses 240 1,635 4,200 2,979 2,950
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 56,453 47,894 43,266 26,124 27,327
Non-interest income 7,916 7,007 4,133 1,375 1,773
Non-interest expense <F3> 30,493 29,937 27,492 14,021 14,053
- ---------------------------------------------------------------------------------------------------------------------------
Income before income tax expense and
cumulative effect of changes in
accounting principle 33,876 24,964 19,907 13,478 15,047
Income tax expense <F4> 14,015 11,866 7,591 6,181 6,621
- ---------------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of
changes in accounting principle 19,861 13,098 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 <F5> - - - (1,032) -
- ---------------------------------------------------------------------------------------------------------------------------
Net income <F6> $19,861 $13,098 $12,316 $6,265 $8,426
- ---------------------------------------------------------------------------------------------------------------------------
<FN>
<F1> Loans, net, represents gross loans less net deferred loan fees and
allowance for loan losses.
<F2> Amount includes investment in Federal Home Loan Bank of New York
("FHLBNY") capital stock.
<F3> Excluding a non-recurring charge of $2.0 million related to the
recapitalization of the Savings Association Insurance Fund ("SAIF") of
the Federal Deposit Insurance Corporation ("FDIC") , non-interest
expense was $25.5 million during the year ended June 30, 1997.
<F4> 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.
<F5>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.
<F6> Excluding a non-recurring charge of $2.0 million relating to
recapitalization of the SAIF and the recovery of New York State and City
deferred income taxes previously provided, net income would have been $10.5
million, 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.
<F7> 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.
<F8> Income before cumulative effect of changes in accounting principles is
used to calculate return on average assets and return on average equity
ratios.
NOTES CONTINUED ON NEXT PAGE
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
At or for the fiscal years ended June 30, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS AND OTHER DATA <F11>:
FINANCIAL AND PERFORMANCE RATIOS:
Return on average assets <F6> <F8> 1.02% 0.90% 1.00% 1.07% 1.33%
Return on average stockholders' equity <F6> <F8> 10.34 7.06 5.94 9.07 11.50
Return on average tangible stockholders'
equity <F6> <F8> 13.50 8.24 6.84 11.84 11.53
Stockholders' equity to total assets
at end of period 9.42 11.48 14.52 15.53 11.63
Tangible equity to tangible assets at end of period 6.67 9.99 12.62 13.72 11.53
Loans to deposits at end of period 110.93 91.50 77.91 61.43 77.47
Average interest rate spread <F9> 2.61 2.97 3.38 3.85 4.51
Net interest margin <F10> 3.06 3.56 4.07 4.41 4.91
Average interest earning assets to average
interest bearing liabilities 111.03 114.38 119.33 115.68 113.15
Non-interest expense to average assets <F6> 1.57 2.05 2.24 2.06 2.21
Core non-interest expense to average assets <F12> 1.37 1.73 1.87 2.06 2.21
Efficiency ratio <F6> <F11> 47.84 56.09 54.32 45.98 44.11
Core efficiency ratio <F11> <F12> 41.96 47.39 45.55 45.98 44.11
Dividend payout ration 30.36% 21.10% 0.05% N/A N/A
PER SHARE DATA:
Diluted Earnings per share <F6> $1.68 $1.09 $0.95 N/A N/A
Cash dividends per share 0.51 0.23 0.045 $- N/A
Book value per share 16.57 15.30 14.58 14.65 N/A
Tangible book value per share 11.39 13.10 12.40 12.66 N/A
CASH EARNINGS INFORMATION:
Cash return on average assets <F8> <F13> 1.49 1.44% 1.45% 1.07% 1.33%
Cash return on average
stockholders' equity <F8> <F13> 15.05 11.34 8.61 9.07 11.50
Cash return on average tangible stockholders'
equity <F8> <F13> 19.64 13.23 9.91 9.07 11.50
Cash earnings per share <F13> $2.44 $1.75 $1.37 N/A N/A
ASSET QUALITY RATIOS AND OTHER DATA:
Total non-performing loans $3,001 $884 $3,190 $6,551 $5,073
Other real estate owned, net 866 825 1,697 1,946 4,466
Ratios:
Non-performing loans to total loans 0.22% 0.09% 0.43% 1.12% 1.18%
Non-performing loans and real estate
owned to total assets 0.17 0.11 0.37 0.62 1.44
ALLOWANCE FOR LOAN LOSSES TO:
Non-performing loans 502.53% 1,365.95% 336.24% 119.25% 101.99%
Total loans <F14> 1.09 1.27 1.43 1.34 1.20
REGULATORY CAPITAL RATIOS: (Bank only)
Tangible capital 5.83% 8.32% 9.86% 9.49% 11.53%
Core capital 5.83 8.32 9.87 9.50 11.56
Risk-based capital 11.45 16.58 19.99 21.24 22.18
FULL SERVICE BRANCHES 19 14 15 15 7
<FN>
<F9> Average interest rate spread represents the difference between the
weighted average yield on interest-earning assets and the weighted
average cost of interest-bearing liabilities.
<F10> The net interest margin represents net interest income as a percentage of
average interest-earning assets.
<F11> 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.
<F12> In calculating these ratios, amortization expense related to goodwill and
the SAIF recapitalization charge are excluded from non-interest expense.
<F13> In calculating these ratios, non-interest expense excludes expenses such
as goodwill amortization and 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 1.31%, 7.75%, 8.29%,
and $1.29 for the year ended June 30, 1997.
<F14> Total loans represents loans, net, plus the allowance for loan losses.
</TABLE>
- 2 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The primary business of the Company is the operation of its wholly
owned subsidiary, the Bank.
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
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.
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;
seeks to maintain the Bank's asset quality for loans and other investments; and
uses 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. On January 21, 1999, the Company completed the acquisition
of Financial Bancorp, Inc. ("FIBC"), the holding company for Financial Federal
Savings Bank, F.S.B. ("FFSB") (the "FIBC Acquisition"). At the time of the
acquisition, FIBC's assets and liabilities totaled $326.1 million and $301.1
million, respectively. Based upon the closing price of the Company's common
stock on January 21, 1999 of $21.25 per share, the total consideration paid to
FIBC stockholders, in the form of cash or the Company's common stock, was $66.8
million and was comprised of $34.5 million in cash and 1,504,704 shares of the
Company's common stock. The Company's operating results for the fiscal year
ended June 30, 1999 reflect the addition of earnings from the acquisition of
FIBC for the period January 22, 1999 through June 30, 1999. The FIBC
Acquisition was accounted for as a purchase transaction, and goodwill of $44.2
million generated from the transaction is being amortized on a straight-line
basis over 20 years.
On June 26, 1996 the Company completed 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 "Conestoga
Acquisition"). The Conestoga Acquisition was accounted for in the financial
statements using the purchase method of accounting. Shareholders of Conestoga
were paid approximately $101.3 million in cash. Since the Conestoga 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 Company continues 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
customer household and/or deposit balances and the number of the Bank's
services used per household among its existing customers.
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
-3-
<PAGE>
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 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. The assets under the capital
leverage program approximate $489.6 million, $282.9 million and $96.3 million,
respectively, at June 30, 1999, 1998 and 1997.
In addition to the capital leverage strategy, the Bank undertook
additional medium-term borrowings of $146.5 million and $40.3 million from the
FHLBNY during the years ended June 30, 1999 and 1998 in order to fund multi-
family and underlying cooperative loan originations and other operations. 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. In addition, the
short- and medium-term maturities on the underlying borrowings have helped the
Bank 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, 1999, the Bank's
loan originations totaled $478.1 million compared to $326.3 million for the
year ended June 30, 1998. Purchases of mortgage-backed and other securities
totaled $410.4 million for the year ended June 30, 1999 compared to $432.6
million for the year ended June 30, 1998. 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 real estate loans and
mortgage-backed securities totaled $315.6 million during the year ended June
30, 1999, compared to $210.9 million for the year ended June 30, 1998.
Maturities of investment securities totaled $90.8 million and $73.4 million,
respectively, during the fiscal years ended June 30, 1999 and 1998. Loan and
security sales, which totaled $16.9 million and $116.9 million, respectively,
during the fiscal years ended June 30, 1999 and 1998, provided some additional
cash flows.
Deposits increased $208.7 million and $74.9 million during the
fiscal years ended June 30, 1999 and 1998, respectively. The increase in
deposits during the fiscal year ended June 30, 1999 resulted primarily from the
acquisition of $230.7 million in deposits from FIBC. 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, 1999 totaled $551.8
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 $371.6 million
during the fiscal year ended June 30, 1999, with the majority of this growth
experienced in securities sold under agreement to repurchase ("Repo")
transactions, consistent with the Company's capital leverage strategy.
-4-
<PAGE>
On July 9, 1999, the Company announced that it had entered into a
definitive agreement with The Roslyn Savings Bank ("Roslyn"), whereby Roslyn
will acquire all of the deposit liabilities of the Bank's retail branch located
at 1012 Gates Avenue, Brooklyn, which totaled approximately $19.5 million at
June 30, 1999. This transaction, which is subject to regulatory approval, is
expected to close during the fourth calendar quarter of 1999.
Stockholders' equity increased $25.3 million during the year ended
June 30, 1999. This increase resulted primarily from the addition of $34.7
million in equity resulting from the FIBC acquisition and net income of $19.9
million. Offsetting these increases were repurchases of common stock into
treasury of $21.2 million, cash dividends paid of $5.9 million and change in
accumulated other comprehensive loss of $6.1 million due to unrealized losses
on available for sale securities.
In June 1997, the Company commenced payment of regular quarterly
cash dividends, the per share amount of which has been increased for each
successive dividend payment to date. During the year ended June 30, 1998, the
Company declared and paid three cash dividends totaling $2.6 million, or $0.23
per outstanding common share on the respective dates of record. During the year
ended June 30, 1999, the Company paid four cash dividends totaling $5.9
million, or $0.51 per outstanding common share on the respective dates of
record. On July 15, 1999, the Company declared a cash dividend of $0.15 per
common share to all shareholders of record on July 30, 1999. This dividend was
paid on August 11, 1999.
The Bank is required to maintain a minimum average daily balance of
liquid assets as a percentage of net withdrawable deposit accounts plus short-
term borrowings by the Office of Thrift Supervision ("OTS") regulations. The
minimum required liquidity ratio is currently 4.0%. At June 30, 1999, the
Bank's liquidity ratio was 10.0%. The levels of the Bank's short-term liquid
assets are dependent on the Bank's operating, financing and investing
activities during any given period.
The Bank monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sales and various
money market investments. In the event that the Bank should require funds
beyond its ability to generate them internally, additional sources of funds are
available through the use of the Bank's $547.2 million borrowing limit at the
FHLBNY. At June 30, 1999, the Bank had $257.5 million in short- and medium-term
advances outstanding at the FHLBNY.
The Bank is subject to minimum regulatory requirements imposed by
the OTS, which requirements are, as a general matter, based on the amount and
composition of an institution's assets. At June 30, 1999, the Bank was in
compliance with all applicable regulatory capital requirements. Tangible
capital totaled $123.8 million, or 5.83% of total tangible assets, compared to
a 1.50% regulatory requirement; leverage capital, at 5.83% of adjusted assets,
exceeded the required 3.0% regulatory minimum, and total risk-based capital, at
11.45% of risk weighted assets, exceeded the 8.0% regulatory minimum. In
addition, at June 30, 1999, the Bank was considered "well-capitalized" for all
regulatory purposes.
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. During the years ended June 30, 1999 and 1998, the Company operated
under a "flat yield curve" interest rate environment, which features little
discrepancy in rates offered on short-term and long-term investments. Under a
flat yield curve environment, financial institutions often experience both
increased interest rate competition related to loan originations, and above-
average prepayment activities related to mortgage-backed investments, both of
which adversely impact long-term profitability. The flat yield curve
environment experienced during the 1998 and 1999 fiscal years was a primary
factor in the reduction of the Company's interest rate spread compared to the
fiscal year ended June 30, 1997.
Since a substantial majority of the Company's interest-earning
assets and interest-bearing liabilities 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. See "Asset Quality." The Company
does not own any trading assets. The Company did not engage in any hedging
transactions utilizing derivative instruments (such as interest rate swaps and
caps) during the fiscal year ended June 30, 1999, and did not have any such
hedging transactions in place at June 30, 1999. In the future, the Company may,
with Board approval, engage in hedging transactions utilizing derivative
instruments.
-5-
<PAGE>
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. Multi-family loans typically carry a shorter average term to maturity
than one-to-four family residential loans, thus significantly reducing the
overall level of interest rate risk. In addition, in order to manage interest
rate risk, management emphasizes origination of adjustable rate multi-family
loans. Approximately 75% of multi-family loans originated during the year ended
June 30, 1999, were adjustable rate, with repricing typically occurring after
five or seven years, compared to 60% during the previous year. 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
three years or less. At June 30, 1999, adjustable-rate whole loans totaled
$821.3 million, or 36.5% of total assets, and adjustable-rate investment
securities (CMO's, REMIC's, mortgage-backed securities issued by GSEs and other
securities) totaled $149.3 million, or 6.6% of total assets. At June 30, 1998,
adjustable-rate whole loans totaled $617.2 million, or 38.0% of total assets,
and adjustable-rate securities totaled $125.3 million, or 7.7% of total assets.
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 except 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,
1999, were $543.8 million, or 43.6% of total deposits. The balance of
certificates of deposit as of June 30, 1999 was $703.3 million, or 56.4% of
total deposits, of which $551.8 million, or 78.5% of total certificates of
deposits, mature within 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. During the
fiscal year ended June 30, 1999, the Bank experienced a decrease of $118.0
million in higher-cost certificate of deposit accounts which related to
specific rate promotions offered in previous periods which the Bank elected not
to match during the most recent fiscal year. Excluding this decrease, the Bank
experienced a strong retention rate on maturing certificates of deposit during
the fiscal year ended June 30, 1999.
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 $547.2 million.
From time to time, the Bank will borrow from the FHLBNY for various purposes.
At June 30, 1999, the Bank had outstanding advances of $257.5 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.
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, 1999, 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, 1999 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 Bank's
historical deposit decay rate experience, which for savings accounts was 13% in
the one year or less category. For NOW and Super NOW accounts and money market
accounts, the Bank utilized the most recent decay rates published by the OTS,
which, in the one year or less category, were 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.
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
More than More than More than Non-
3 Months 3 Months 6 Months to 1 Year to 3 Years to More than interest
At June 30, 1999 or Less to 6 Months 1 Year 3 Years 5 Years to 5 Years bearing Total
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-EARNING (DOLLARS IN THOUSANDS)
ASSETS <F1>
Mortgages and
other loans $56,161 $56,161 $112,322 $344,314 $246,872 $567,511 $- $1,383,341
Investment
securities 12,881 - 5,800 47,690 103,484 8,475 - 178,330
Mortgage-backed
securities <F2> 67,648 59,634 111,646 137,216 65,708 83,815 - 525,667
Federal funds sold 11,011 - - - - - - 11,011
FHLB capital stock 28,281 - - - - - - 28,281
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest
earning assets 175,982 115,795 229,768 529,220 416,064 659,801 - 2,126,630
LESS:
Allowance for loan
losses - - - - - - (15,081) (15,081)
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest-earning
assets 175,982 115,795 229,768 529,220 416,064 659,801 (15,081) 2,111,549
Non-interest-earning
assets - - - - - - 136,066 136,066
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $175,982 $115,795 $229,768 $529,220 $416,064 $659,801 $120,985 $2,247,615
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES:
Savings Accounts $13,499 $13,051 $24,816 $84,086 $64,182 $206,968 $- $406,602
NOW and Super
NOW accounts 2,376 2,156 3,733 8,481 2,624 6,317 - 25,687
Money market
accounts 10,463 8,397 12,147 10,448 5,480 6,044 - 52,979
Certificates of
Deposit 221,368 137,654 192,749 125,847 25,182 451 - 703,251
Borrowed funds 215,779 4,985 25,131 259,942 127,025 98,798 - 731,660
Interest-bearing
escrow - - - - - 4,385 - 4,385
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing liabilities 463,485 166,243 258,576 488,804 224,493 322,963 - 1,924,564
Checking accounts - - - - - - 58,542 58,542
Other non-interest
bearing
liabilities - - - - - - 52,814 52,814
Stockholders' equity - - - - - - 211,695 211,695
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $463,485 $166,243 $258,576 $488,804 $224,493 $322,963 $323,051 $2,247,615
- ----------------------------------------------------------------------------------------------------------------------------------
Interest sensitivity
gap per period $(287,503) $(50,448) $(28,808) $40,416 $191,571 $336,838 -
- ------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap $(287,503) $(337,951) $(366,759) $(326,343) $(134,772) $202,066 -
- ------------------------------------------------------------------------------------------------------------------
Cumulative interest
sensitivity gap as
a percent of
total assets (12.79)% (15.04)% (16.32)% (14.52)% (6.00)% 8.99% -
Cumulative total
interest-
earning assets as
a percent of
cumulative
total interest
bearing liabilities 37.97% 46.33% 58.71% 76.30% 91.59% 110.50% -
<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>
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 10.9% and 54.3%, respectively, of total
deposits at June 30, 1999. At June 30, 1999, the Bank's interest-bearing
liabilities maturing or repricing within one year totaled $888.3 million, while
interest-earning assets maturing or repricing within one year totaled $521.5
million, resulting in a negative one-year interest sensitivity gap of $366.8
million, or 16.3% of total assets. The increase in the level of the negative
one-year interest sensitivity gap resulted from an increase in the proportion
of certificates of deposit and borrowings maturing within one year or less, as
a result of continued growth in shorter-term Repo borrowings and deposit
pricing strategies. In comparison, at June 30, 1998, the Bank had a negative
one-year interest sensitivity gap of $201.2 million, or 12.4% of total assets.
The Bank's
-7-
<PAGE>
estimate of repricing liabilities for selected deposit types which
do not carry contractual maturities, such as savings accounts, is based upon
the Bank's historical deposit decay rate experience.
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, 1999, 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 Company'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 Company's interest-earning assets, which
could adversely affect the Company's results of operations if sold, or, in the
case of interest-earning assets classified as available for sale, the Company's
stockholders' equity, if retained. Under Generally Accepted Accounting
Principles ("GAAP"), changes in the unrealized gains and losses, net of taxes,
on securities classified as available for sale will be reflected in the
Company's stockholders' equity. As of June 30, 1999, the Company's securities
portfolio included $649.5 million in securities classified as available for
sale. Accordingly, due to the magnitude of the Company'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 Company. The Company does not own any trading
assets.
On a quarterly basis, an interest rate risk exposure compliance
report is prepared and presented to the Company's Board of Directors. This
report, prepared in accordance with Thrift Bulletin #13a issued by the OTS,
presents an analysis of the net portfolio value resulting from an increase or
decrease in the level of interest rates. The calculated estimates of 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 Company's
interest rate exposure report as of June 30, 1999:
PROJECTED NET
PORTFOLIO VALUE
- -----------------------------------------------------------------------
CALCULATED AS OF
CHANGE IN INTEREST RATE LIMIT JUNE 30, 1999
- -----------------------------------------------------------------------
- -300 Basis Points 7.00% 10.12%
- -200 Basis Points 6.50 9.77
- -100 Basis Points 6.00 9.45
Flat Rate 5.50 9.05
+100 Basis Points 5.00 8.13
+200 Basis Points 4.50 6.90
+300 Basis Points 4.00 5.43
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
-8-
<PAGE>
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.
Asset Quality
The Company's real estate loan servicing policies and procedures
require that the Company 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 ten 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, Company 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 Company
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 Company 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 Company 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 Company's portfolio. The Company retains outside
counsel experienced in foreclosure and bankruptcy procedures to institute
foreclosure and other actions on the Company's delinquent loans. It is the
policy of the Company to initiate foreclosure proceedings after a loan becomes
90 days past due. As soon as practicable after initiating foreclosure
proceedings on a loan, the Company prepares an estimate of the fair value of
the underlying collateral. It is the Company'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.
Non-performing loans totaled $3.0 million at June 30, 1999, as
compared to $884,000 at June 30, 1998. Of the $3.0 million non-performing loans
at June 30, 1999, $1.8 million were acquired from FIBC consisting of 13 one-to-
four family residential loans. Otherwise, non-performing loans increased
approximately $300,000 due primarily to the addition of one multi-family and
underlying cooperative loan with an aggregate principal amount of $657,000
during the fiscal year ended June 30, 1999, and for which the Company recorded
a charge-off of $92,000 during the fiscal year ended June 30, 1999. The Company
had 23 loans totaling $819,000 delinquent 60-89 days at June 30, 1999, as
compared to 35 such delinquent loans totaling $328,000 at June 30, 1998. The
Company has experienced a shift in the composition of its 60-89 delinquencies
from its conventional mortgage portfolio, which loans typically carry larger
average balances, to smaller balance FHA/VA insured and consumer loans. Under
GAAP, the Company 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
Company, for economic or legal reasons related to the borrower's financial
difficulties, grants a concession to the borrower that the Company would not
otherwise consider. The Company had two loans classified as troubled-debt
restructurings at June 30, 1999, totaling $1.3 million, both of which are on
accrual status as they have been performing in accordance with the
restructuring terms for over one year. The current regulations of the Office of
Thrift Supervision require that troubled-debt restructurings remain classified
as such until either the loan is repaid or returns to its original terms. The
Company did not have any new troubled-debt restructurings during the fiscal
year ended June 30, 1999. Troubled-debt restructurings totaled $4.0 million at
June 30, 1998, consisting of three loans. One troubled-debt restructuring
totaling $2.8 million was paid-in-full during the fiscal year ended June 30,
1999.
Pursuant to Company guidelines for determining and measuring
impairment in loans within the meaning of SFAS 114, 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.
Generally, the Company considers non-performing loans to be impaired loans. The
recorded investment in loans deemed impaired was approximately $1.6 million as
of June 30, 1999, consisting of six loans, compared to $3.1 million at June 30,
1998, consisting of three loans, and the average balance of impaired loans was
$2.3 million for the year ended June 30, 1999 compared to $3.8 million for the
year ended June 30, 1998. At June 30, 1999, reserves have been provided for all
impaired loans within reserves totaling $62,000 allocated within the allowance
for loan losses. At June 30, 1999, $1.4 million of one-to-four family,
cooperative apartment and consumer loans on nonaccrual status are not deemed
impaired. All of these loans have outstanding balances less than $227,000, and
are considered a homogeneous loan
-9-
<PAGE>
pool which are not required to be evaluated
for impairment. See "Notes to Consolidated Financial Statements" for a further
discussion of impaired loans.
The balance of other real estate owned ("OREO")was $866,000,
consisting of 13 properties, at June 30, 1999 compared to $825,000 million,
consisting of 14 properties, at June 30, 1998. During the year ended June 30,
1999, total additions to OREO were $644,000, of which $302,000 were acquired
from FIBC. Offsetting this addition, were OREO sales and charge-offs of
$618,000 during the year ended June 30, 1999, of which $204,000 were related to
OREO acquired from FIBC. All charge-offs were recorded against the allowance
for losses on real estate owned, which was $149,000 as of June 30, 1999.
The following table sets forth information regarding the Company's
non-performing loans, non-performing assets, impaired loans and troubled-debt
restructurings at the dates indicated.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
At June 30, 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------
(Dollars In Thousands)
Non-performing loans:
One-to-four family $1,577 $471 $1,123 $1,149 $572
Multi-family and underlying
cooperative 1,248 236 1,613 4,734 3,978
Cooperative apartment 133 133 415 668 523
Other loans 43 44 39 - -
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 3,001 884 3,190 6,551 5,073
Total Other Real Estate Owned 866 825 1,697 1,946 4,466
- ----------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $3,867 $1,709 $4,887 $8,497 $9,539
============================================================================================================================
Troubled-debt restructurings $1,290 $3,971 $4,671 $4,671 $7,651
Total non-performing assets and troubled-
debt restructurings $5,157 $5,680 $9,558 $13,168 $17,190
============================================================================================================================
Impaired loans <F1> $1,563 $3,136 $4,294 $7,419 N/A
Total non-performing loans to total loans 0.22% 0.09% 0.43% 1.12% 1.18%
Total non-performing loans and troubled-
debt restructurings to total loans 0.31 0.51 1.05 1.92 2.96
Total non-performing assets to total
assets 0.17 0.11 0.37 0.62 1.44
Total non-performing assets and troubled-
debt restructurings to total assets 0.23 0.35 0.73 0.96 2.59
<FN>
<F1> The Bank adopted SFAS 114 effective July 1, 1995. Impaired loans were not
measured prior to this date.
</TABLE>
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,
1999, 1998 and 1997, 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.
-10-
<PAGE>
<TABLE>
<CAPTION>
For the years ended June 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<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 $1,158,549 $91,569 7.90% $837,755 $69,824 8.33% $642,913 $54,965 8.55%
<F1>
Other loans 6,433 558 8.67 5,393 487 9.03 5,444 460 8.45
Investment
securities 176,205 10,654 6.05 164,265 10,798 6.57 215,809 13,654 6.33
<F2>
Mortgage-backed
securities 478,166 29,683 6.21 349,910 23,463 6.71 261,275 17,704 6.78
Federal funds sold 31,353 1,448 4.62 35,540 1,892 5.32 40,349 2,247 5.57
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-
earning assets 1,850,706 $133,912 7.24% 1,392,863 $106,464 7.64% 1,165,790 $89,030 7.64%
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest earning
assets 95,172 66,008 64,148
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $1,945,878 $1,458,871 $1,229,938
==================================================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
NOW, Super NOW
and Money market
accounts $62,463 $1,542 2.47% $48,556 $1,131 2.33% $55,327 $1,404 2.54%
Savings accounts 366,947 7,712 2.10 338,062 7,628 2.26 349,821 8,192 2.34
Certificates of
deposit 648,776 35,061 5.40 594,098 34,174 5.75 515,542 28,869 5.60
Mortgagors' escrow 5,103 102 2.00 4,700 94 2.00 3,792 79 2.08
Borrowed funds 583,490 32,802 5.62 232,385 13,908 5.98 52,495 3,020 5.75
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest-
bearing
liabilities 1,666,779 $77,219 4.63% 1,217,801 $56,935 4.68% 976,977 $41,564 4.26%
- ----------------------------------------------------------------------------------------------------------------------------------
Checking accounts 51,496 31,457 27,653
Other non-interest-
bearing liabilities 35,603 24,097 18,131
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,753,878 1,273,355 1,022,761
Stockholders' equity 192,000 185,516 207,177
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities
and stockholders'
equity $1,945,878 $1,458,871 $1,229,938
==================================================================================================================================
Net interest income/
interest rate
spread <F3> $56,693 2.61 $49,529 2.97% $47,466 3.38%
==================================================================================================================================
Net interest-earning
assets/net interest
margin <F4> $183,927 3.06 $175,062 3.56% $188,813 4.07%
==================================================================================================================================
Ratio of interest-
earning assets to
interest-bearing
liabilities 111.03% 114.38% 119.33%
==================================================================================================================================
<FN>
<F1> In computing the average balance of loans, non-accrual loans have been
included. Interest income includes loan servicing fees as defined under
SFAS 91.
<F2> Includes interest bearing deposits in other banks and FHLB stock.
<F3> Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average cost of interest-bearing
liabilities.
<F4> Net interest margin represents net interest income as a percentage of
average interest-earning assets.
</TABLE>
-11-
<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, 1999 June 30, 1998 June 30, 1997
COMPARED TO Compared to Compared to
YEAR ENDED Year Ended Year Ended
JUNE 30, 1998 June 30, 1997 June 30, 1996
INCREASE/(DECREASE) Increase/(Decrease) Increase/(Decrease)
DUE TO Due to Due to
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
VOLUME RATE NET Volume Rate Net Volume Rate Net
- ----------------------------------------------------------------------------------------------------------------------------------
(Dollars in Thousands)
INTEREST-EARNING
ASSETS:
Real estate loans $26,042 $(4,297) $21,745 $16,466 $(1,607) $14,859 $18,182 $(2,531) $15,651
Other loans 92 (21) 71 (5) 32 27 177 (57) 120
Investment
securities 748 (892) (144) (3,318) 462 (2,856) 6,339 1,577 7,916
Mortgage-backed
securities 8,285 (2,065) 6,220 5,974 (215) 5,759 11,571 206 11,777
Federal funds sold (209) (235) (444) (261) (94) (355) 905 42 947
- ----------------------------------------------------------------------------------------------------------------------------------
Total $34,958 $(7,510) $27,448 $18,856 $(1,422) $17,434 $37,174 $(763) $36,411
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST-BEARING
LIABILITIES
NOW, Super NOW
and Money
market $ 333 78 411 $(164) $(109) $(273) $565 $205 $770
accounts
Savings accounts 639 (555) 84 (280) (284) (564) 2,834 (431) 2,403
Certificates of
deposit 3,056 (2,169) 887 4,465 840 5,305 12,893 (37) 12,856
Mortgagors' escrow 8 - 8 19 (4) 15 9 (2) 7
Borrowed funds 20,372 (1,478) 18,894 10,558 330 10,888 1,975 37 2,012
- ----------------------------------------------------------------------------------------------------------------------------------
Total 24,408 (4,124) 20,284 14,598 773 15,371 18,276 (228) 18,048
- ----------------------------------------------------------------------------------------------------------------------------------
Net change in
net interest
income $10,550 $(3,386) $7,164 $4,258 $(2,195) $2,063 $18,898 $(535) $18,363
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Comparison of Financial Condition at June 30, 1999 and June 30, 1998
Assets. The Company's assets totaled $2.25 billion at June 30, 1999, an
increase of $623.7 million from total assets of $1.62 billion at June 30, 1998.
The growth in assets was experienced primarily in real estate loans and
mortgage-backed securities available for sale, which increased $431.6 million
and $139.0 million, respectively.
The increase in real estate loans resulted primarily from
originations of $471.5 million during the fiscal year ended June 30, 1999, of
which $452.6 million were multi-family and underlying cooperative and non-
residential loans. The increased loan originations resulted from both an active
local real estate market and a continuation of local competition for interest
rates on new loan originations throughout the year. The increase in real estate
loans also resulted from the acquisition of $192.3 million of such loans from
FIBC. The increase in mortgage-backed securities available for sale resulted
from purchases of $263.6 million during the year ended June 30, 1999, primarily
attributable to the capital leverage program, and $37.8 million of mortgage-
backed securities
-12-
<PAGE>
acquired from FIBC. See "Management Strategy." These
purchases were partially offset by principal repayments of $155.6 million on
these securities. Investment securities available for sale and goodwill
increased $58.5 million and $40.8 million due primarily to the acquisition of
$43.5 million in such securities and the addition of $44.2 million in goodwill
from the FIBCacquisition which is being amortized over a 20-year period.
Offsetting these increases, investment securities and mortgage-backed
securities held-to-maturity declined $46.4 million and $23.9 million,
respectively, as proceeds from sales, calls, maturities and principal
repayments on these securities were utilized to fund loan originations and
purchases of mortgage-backed securities available for sale.
Liabilities. Liabilities increased $598.3 million during the fiscal year ended
June 30, 1999. The largest components of this increase were deposits, FHLBNY
advances and securities sold under agreement to repurchase, which increased
$208.7 million, $146.5 million, and $225.1 million, respectively. The
acquisition of FIBC resulted in the addition of $230.7 million in deposits and
$42.0 in securities sold under agreements to repurchase. The growth in FHLBNY
advances of $146.5 million during the fiscal year ended June 30, 1999, was
utilized to fund both loan originations and a significant portion of the cash
consideration related to the FIBC acquisition. The increase in securities sold
under agreement to repurchase of $183.0 million, exclusive of the FIBC
acquisition, was utilized primarily to fund purchases of mortgage-backed
securities available for sale. Deposits, excluding the effects of the FIBC
acquisition, decreased $21.9 million during the fiscal year ended June 30,
1999, due primarily to the cessation of a deposit rate promotion that the
Company maintained from July 1997 to June 1998.
Stockholders' Equity. Stockholders' equity increased $25.3 million during the
fiscal year ended June 30, 1999. This increase resulted primarily from the
addition of $34.7 million in equity resulting from the FIBC acquisition and net
income of $19.9 million. Offsetting these increases, were repurchases of common
stock into treasury of $21.2 million and cash dividends paid of $5.9 million,
and a decline of $6.1 million in accumulated other comprehensive income related
to the net unrealized gain or loss on securities available-for-sale.
Comparison of Financial Condition at June 30, 1998 and June 30, 1997
Assets. The Company's assets totaled $1.62 billion at June 30, 1998, an
increase of $308.9 million from total assets of $1.32 billion at June 30, 1997.
The growth in assets was experienced primarily in real estate loans and
mortgage-backed securities available for sale, which increased $199.9 million
and $133.7 million, respectively.
The increase in real estate loans resulted primarily from
originations of $321.2 million during the fiscal year ended June 30, 1998, of
which $308.4 million were multi-family and underlying cooperative and non-
residential loans. The increased loan originations resulted from both an active
local real estate market and a decline throughout the year of medium- and long-
term market interest rates throughout the year. The increase in mortgage-backed
securities available for sale resulted from purchases of $290.6 million during
the year ended June 30, 1998, primarily attributable to the capital leverage
program. See "Management Strategy." These purchases were partially offset by
sales and calls of $92.8 million and principal repayments of $64.5 million on
these securities. Mortgage-backed securities held-to-maturity declined $31.7
million, as proceeds from sales and principal repayments on these securities
were utilized to fund loan originations and purchases of mortgage-backed
securities available for sale.
Liabilities. Funding for the growth in real estate loans was obtained primarily
from increased deposits of $74.9 million, primarily reflecting an increase in
certificates of deposit with maturities of one year or less and increased
FHLBNY advances of $40.3 million during the past fiscal year. Funding for the
increase in mortgage-backed securities available for sale was obtained
primarily from increased securities sold under agreement to repurchase
transactions of $180.3 million, consistent with the capital leverage program.
As of June 30, 1998, assets were increased by $18.0 million due to
unsettled sales of mortgage-backed securities, and liabilities were increased
by $12.1 million, respectively, due to unsettled purchases of investment and
mortgage-backed securities.
Stockholders' Equity. Stockholders' equity declined $4.6 million to $186.3
million at June 30, 1998, from $190.9 million at June 30, 1997. During the
fiscal year ended June 30, 1998, the Company purchased 919,837 shares of its
common stock into treasury at an aggregate cost of $20.8 million. Offsetting
the share repurchases was retained net income of $13.1 million, amortization of
the Company's ESOP and Recognition and Retention Plan ("RRP") of $5.4
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million,
and an increase of $732,000 of the unrealized gain on investment and mortgage-
backed securities available for sale. Also contributing to the decline on
stockholders' equity during the year ended June 30, 1998 were cash dividends
declared and paid totaling $2.6 million.
Comparison of the Operating Results for the Fiscal Year Ended June 30, 1999
and 1998
General. Net income for the fiscal year ended June 30, 1999, totaled $19.9
million compared to $13.1 million for the fiscal year ended June 30, 1998. The
increase in net income resulted primarily from an increase of $7.2 million in
net interest income, a decline of $1.4 million in the provision for loan
losses, and an increase of $909,000 in non-interest income.
Net Interest Income. Net interest income for the fiscal year ended June 30,
1999 increased $7.2 million to $56.7 million from $49.5 million during the
fiscal year ended June 30, 1998. The increase was attributable primarily to an
increase of $457.8 million in average interest-earning assets, offset by a
decline in the net interest rate spread of 36 basis points. The net interest
margin declined 50 basis points from 3.56% for the fiscal year ended June 30,
1998 to 3.06% for the fiscal year ended June 30, 1999.
The narrowing interest rate spread and margin reflect, in part, the
Company's exposure to interest rate risk resulting from certain changes in the
shape of the yield curve (particularly a flattening or inverting of the yield
curve) and to differing indices upon which the yield on the Company's interest-
earning assets and the cost of its interest-bearing liabilities are based. For
example, over the past two years the market has experienced a more significant
reduction in interest rates on long-term instruments as compared to the
reduction in interest rates on short-term instruments resulting in rates on
long-term instruments approximating (and in some cases, going below) the rates
on short-term instruments. More importantly, the spreads earned on the rate
differential between assets and the liabilities funding such assets have
narrowed more with respect to long-term assets as compared to short-term
assets. Since a larger percentage of the Company's assets are longer term, the
Company has experienced a continuous narrowing of spreads as well as a negative
impact on net interest income that has been more than offset by the Company's
growth in interest-earning assets. The narrowing of the spread and margin also
reflects the continued activities of the capital leverage program, as the
interest rate spread between assets and underlying liabilities under the
capital leverage program are significantly less than the interest rate spread
between the Company's other interest-earning assets and interest-bearing
liabilities.
Interest Income. Interest income for the fiscal year ended June 30, 1999, was
$133.9 million, an increase of $27.4 million from $106.5 million during the
fiscal year ended June 30, 1998. The increase in interest income was
attributable to increased interest income on real estate loans and mortgage-
backed securities of $21.7 million and $6.2 million, respectively. The increase
in interest income on real estate loans was attributable primarily to an
increase of $320.8 million in the average balance of real estate loans,
resulting from both $471.5 million of real estate loans originated during the
fiscal year ended June 30, 1999, and $192.3 million of real estate loans
acquired from FIBC on January 21, 1999. The increase in interest income on
mortgage-backed securities was also attributable primarily to an increase in
the average balance of $313.9 million, resulting from mortgage-backed
securities purchased in accordance with the Company's capital leverage program
during the fiscal year ended June 30, 1999, and $37.8 million added in the FIBC
Acquisition. Overall, the yield on interest-earning assets decreased 40 basis
points from 7.64% during the fiscal year ended June 30, 1998 to 7.24% during
the fiscal year ended June 30, 1999. The decline was attributable primarily to
a decrease of 43 basis points in the average yield on real estate loans
resulting primarily from continued competition in the real estate lending
market and the continued flat yield curve environment. The decline also
reflects declines in the average yield on mortgage-backed securities and
investment securities of 50 basis points and 52 basis points, respectively, due
to declines in overall interest rates during the fiscal year ended June 30,
1999.
Interest Expense. Interest expense increased $20.3 million, to $77.2 million
during the fiscal year ended June 30, 1999, from $56.9 million during the
fiscal year ended June 30, 1998. This increase resulted primarily from
increased interest expense of $18.9 million on borrowed funds, which resulted
from an increase in the average balance of $351.1 million during the fiscal
year ended June 30, 1999 compared to the fiscal year ended June 30, 1998. The
increase in the average balance of borrowed funds resulted primarily from
$183.0 million of borrowed funds added during the fiscal year ended June 30,
1999 under the capital leverage program. The increase in the average balance
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of borrowed funds also reflects the Company's use of FHLBNY advances, which
generally are medium-term interest-bearing liabilities, to fund the Company's
loan originations. In addition, the average cost of interest-bearing
liabilities decreased five basis points to 4.63% during the fiscal year ended
June 30, 1999, from 4.68% during the fiscal year ended June 30, 1998,
reflecting the decline in the average cost of certificates of deposit and
borrowed funds of 35 basis points and 36 basis points, respectively. The
decline in the average cost of borrowed funds resulted from reductions in
overall interest rates, while the reduction in the average cost of certificates
of deposit resulted from both lower overall interest rates and the cessation of
deposit rate promotions that the Company maintained from July 1997 to June
1998. While the decline in the average cost of certificates of deposits and
borrowed funds helped reduce the average cost of interest-bearing liabilities
during the fiscal year ended June 30, 1999, their respective average balances
increases of $54.7 million and $351.1 million contributed to the increase in
the average cost of interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses decreased $1.4 million
to $240,000 for the fiscal year ended June 30, 1999, from $1.6 million for the
fiscal year ended June 30, 1998. The allowance for loan losses has increased
$3.0 million from June 30, 1998 to June 30, 1999, due primarily to the addition
of $3.0 million in loan loss reserves from FIBC which the Company determined
was adequate to cover potential losses on the loans acquired from FIBC. The
reduction in the Company's loan loss provision from the prior fiscal year
resulted from continued stability of non-performing loan and charge-offs which
totaled $201,000 during the fiscal year ended June 30, 1999, compared to
$286,000 during the fiscal year ended June 30, 1998. See "Asset Quality."
Non-Interest Income. Non-interest income increased $909,000 to $7.9 million
during the fiscal year ended June 30, 1999, from $7.0 million during the fiscal
year ended June 30, 1998. Service charges and fees increased $471,000 due
primarily to increased service fees and charges on deposits of $619,000,
resulting primarily from adjustments in the Company's deposit fee and service
charges. Other income increased $2.5 million due primarily to increased loan
prepayment penalties of $1.6 million, which resulted from increased interest
rate competition on new loans, and increased income on FHLBNY capital stock of
$815,000, due to an increase in the balance of FHLBNY capital stock from $10.8
million at June 30, 1998 to $28.3 million at June 30, 1999. The increase in the
average balance of FHLBNY capital stock resulted from the Company's desire to
increase its overall borrowing level with the FHLBNY during this period. See
"Liquidity and Capital Resources." Offsetting these increases was a reduction
in the gains on sales and redemptions of securities and other assets of $2.1
million, due primarily to a non-recurring gain of $2.0 million from the sale of
a branch premise in Roslyn, New York during the fiscal year ended June 30,
1998.
Non-Interest Expense. Non-interest expense increased $556,000, from $29.9
million during the fiscal year ended June 30, 1998, to $30.5 million during the
fiscal year ended June 30, 1999. During the fiscal year ended June 30, 1998,
the Company recorded one-time charges of $1.6 million of benefit costs and
$598,000 of RRP costs associated with an early retirement option offered by the
Company and accepted by eligible employees. Excluding this charge to expense,
non-interest expense increased $2.8 million during the fiscal year ended June
30, 1999. Salaries and employee benefit expense increased $1.2 due to staffing
and salary increases during the past 12 months and additional salary expense
resulting from the FIBC acquisition. Compensation expense related to the
Company's ESOP and RRP decreased by approximately $263,000 due to the reduction
in the Company's average stock price.
Occupancy and equipment expense declined $28,000 due primarily to
refunds of $190,000 related to real estate taxes on branch properties, which
were recorded as a reduction of occupancy and equipment expense during the
fiscal year ended June 30, 1999, and cost savings associated with the sale of
the Company's Roslyn office in May 1998. These cost savings were partially
offset by increased expenses associated with the five branch offices obtained
in the FIBC acquisition. Data processing costs increased $147,000 during the
fiscal year ended June 30, 1999, compared to the fiscal year ended June 30,
1998, due primarily to increased loan activity resulting from the FIBC
acquisition and Year 2000 compliance costs. See "The Year 2000 Problem."
The provision for losses on other real estate owned declined
$98,000 due to the low level of real estate owned during the fiscal year ended
June 30, 1999.
Goodwill expense increased $977,000 due to the increased goodwill
of $44.2 million associated with the FIBC acquisition.
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Other expenses increased $748,000 due primarily to increased
expenses associated with former operations of FIBC and an increase of $301,000
in core deposit premium amortization.
Income Tax Expense. Income tax expense totaled $14.0 million for the fiscal
year ended June 30, 1999, compared to $11.9 million for the fiscal year ended
June 30, 1998, an increase of $2.1 million. During the fiscal year ended June
30, 1999, the Company recorded income tax expense benefits totaling $670,000
related to recoveries of previously recorded deferred taxes and adjustments
from the filing of its June 1998 tax returns. Excluding these income tax
benefits, the Company's income tax expense would have increased $2.8 million,
reflecting an increase of $8.9 million in pretax income, offset by a reduction
in the effective tax rate from 47.5% during the fiscal year ended June 30,
1998, to 43.3% during the fiscal year ended June 30, 1999.
Comparison of Operating Results for the Fiscal Years Ended June 30, 1998
and 1997
General. Net income for the fiscal year ended June 30, 1998 totaled $13.1
million compared to $12.3 million during the fiscal year ended June 30, 1997.
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 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. Net income for the year
ended June 30, 1998, includes an after-tax gain of $1.1 million related to the
sale of the Roslyn branch premise, and an after-tax charge of $1.2 million
related to an early retirement program offered during the year.
Net Interest Income. Net interest income totaled $49.5 million during the year
ended June 30, 1998 compared to $47.5 million in the previous year. This
increase was attributable primarily to an increase of $227.1 million in average
balance of interest-earning assets, offset by a decline in the net interest
rate spread of 41 basis points, reflecting the flat yield curve interest rate
environment experienced during the 1998 fiscal year. See "Discussion of Market
Risk." The net interest margin declined 51 basis points from 4.07% for the year
ended June 30, 1997 to 3.56% for the year ended June 30, 1998.
Interest Income. Interest income for the year ended June 30, 1998 was $106.5
million, an increase of $17.5 million from $89.0 million during the year ended
June 30, 1997. The largest components contributing to this increase were
interest income on real estate loans and mortgage-backed securities, which
increased by $14.9 million and $5.8 million, respectively. The increase in
interest income on real estate loans was attributable primarily to an increase
of $194.8 million in the average balance of real estate loans, resulting from
new loan originations of $321.2 million during the fiscal year ended June 30,
1998. The increases in interest income on mortgage-backed securities was also
attributable primarily to increases in average balances of $88.6 million,
resulting from $169.1 million in net purchases of mortgage-backed securities as
part of the Bank's capital leverage program. Partially offsetting these
increases to interest income was a decrease in interest income on investment
securities of $2.9 million, primarily resulting from a decline in average
balance of investment securities of $51.5 million. The decline in the average
balance resulted from the Bank utilizing funds from matured investment
securities to fund loan originations. Overall, the yield on interest-earning
assets remained constant at 7.64%, as the impact from the movement of funds
from investment securities to higher-yielding real estate loans, was offset by
a decline in average yield on real estate loans of 22 basis points due to the
decline in medium- and long-term interest rates and increased interest rate
competition throughout the 1998 fiscal year. See "Discussion of Market Risk."
In addition, the yield on mortgage-backed securities declined seven basis
points due to both prepayments on higher-yielding securities and the overall
decline in interest rate environment experienced during the year.
Interest Expense. Interest expense increased $15.3 million, to $56.9 million
during the fiscal year ended June 30, 1998, from $41.6 million during the
fiscal year ended June 30, 1997. This increase resulted primarily from
increases of $5.3 million and $10.9 million in interest expense on certificate
of deposit accounts and borrowed funds, respectively, which resulted primarily
from increased average balances of $78.6 million and $179.9 million,
respectively, during the fiscal year ended June 30, 1998, compared to the
fiscal year ended June 30, 1997. The increase in the average balance on
certificates of deposit resulted primarily from increased deposit flows due to
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<PAGE>
competitive rates offered on selected certificate accounts for the past 12
months. The increase in average balance of borrowed funds resulted primarily
from approximately $180.3 million of borrowed funds added for the period July
1, 1997 to June 30, 1998, under the capital leverage program. In addition to
the growth in average balances, the average cost of interest-bearing
liabilities increased 42 basis points to 4.68% for the fiscal year ended June
30, 1998, from 4.26% in the previous year. The increase in average cost
resulted from an increase of $78.6 million in the average balance of
certificate of deposit accounts, which generally have a higher average cost
than other deposits, the increase of 15 basis points in average cost on
certificate of deposit accounts resulting from a rate promotion instituted for
the past 12 months, and an increase of 42 basis points in the average cost on
borrowed funds, resulting from an increase in the average balance of higher-
rate, longer-term borrowings undertaken during the recent fiscal year in order
to fund loan originations and the capital leverage program.
Provision for Loan Losses. The provision for loan losses decreased $2.6 million
to $1.6 million for the fiscal year ended June 30, 1998, from $4.2 million for
the fiscal year ended June 30, 1997. The Allowance for Loan Losses increased by
$1.3 million during the fiscal year ended June 30, 1998, as the loan loss
provision of $1.6 million was partially offset by net charge-offs of $286,000.
While the allowance for loan losses increased, non-performing loans declined
from $3.2 million at June 30, 1997, to $884,000 at June 30, 1998. The Allowance
for Loan Losses as a percentage of non-performing loans and total loans was
1,365.95% and 1.27%, respectively, at June 30, 1998, compared to 336.24% and
1.43%, respectively, at June 30, 1997. The reduction in the provision reflects
the significant decline experienced in non-performing loans during the past
year. However, in management's judgment, it was prudent to continue the loan
loss provision, and thereby increase 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 $2.9 million to $7.0 million
during the fiscal year ended June 30, 1998 compared to $4.1 million during the
fiscal year ended June 30, 1997. This increase was attributable primarily to a
gain of $1.9 million from the sale of the Bank's Roslyn branch premise in May
1998. In addition, service charges and other fees increased $418,000 due to
various increases in loan and deposit fees, and other income increased $459,000
due primarily to increased income on FHLBNY capital stock and a reimbursement
of $182,000 of legal expenses previously provided, which was recorded in other
income.
Non-Interest Expense. Non-interest expense increased $2.4 million to $29.9
million during the fiscal year ended June 30, 1998 from $27.5 million during
the fiscal year ended June 30, 1997. This increase resulted primarily from
increases of $3.0 million and $2.3 million in salary and employee benefits and
ESOP and RRP compensation expense, respectively, offset by declines of $2.1
million, $336,000 and $484,000, respectively, in federal deposit insurance
premiums, provision for losses on other real estate owned, and other expenses.
The increase in salaries and employee benefits was attributable primarily to a
one-time charge of $1.6 million related to benefit costs, other than RRP
related costs, associated with an early retirement program offered during the
fiscal year ended June 30, 1998. The remainder of the increase resulted from
general salary and staff increases. The increase in ESOP and RRP compensation
expense was attributable primarily to several factors. First, the RRP expense
increased $1.5 million as a full 12 months of expense was recorded during the
fiscal year ended June 30, 1998, compared to five months of expense recorded
during the fiscal year ended June 30, 1997. The RRP was approved in December
1996, and expense recognition began in February 1997. In addition, a one-time
charge of $598,000 was recorded during the fiscal year ended June 30, 1998,
related to vested shares of retiree's who accepted the early retirement
program. Finally, the ESOP compensation expense increased $787,000 due to the
50% appreciation in the average price of the Company's common stock during the
fiscal year ended June 30, 1998, as the periodic ESOP compensation expense,
under GAAP, is recorded based upon the average market value of the Company's
common stock.
The increase in data processing costs resulted from both increased
loan and deposit system utilization charges and expenses recorded related to
the Year 2000 computer compliance. See "The Year 2000 Problem." The decline in
federal deposit insurance expense resulted primarily from the non-recurring
SAIF special assessment of $2.1 million which was recorded during the fiscal
year ended June 30, 1997. The reduction in provision for losses on other real
estate owned resulted primarily from a decline of 49% in average balance of
other real estate owned during the most recent fiscal year. The reduction in
other expenses was attributable primarily to reduced legal expenses due to the
settlement of a lawsuit during the past fiscal year, which had caused an
increase in legal expenses in prior years. The settlement of such lawsuit
resulted in a reimbursement of certain of such
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expenses. The Company
anticipates that its sale of the Roslyn branch premise will result in cost
efficiencies for future periods related to occupancy and equipment and other
operating expenses.
Income Tax Expense. Income tax expense totaled $11.9 million for the fiscal
year ended June 30, 1998, compared to $7.6 million for the fiscal year ended
June 30, 1997. 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. Income tax expense, exclusive of these recoveries, totaled $10.5
million during the fiscal year ended June 30, 1997. The increase of $1.4
million in income taxes, excluding the non-recurring recoveries, was primarily
attributable to an increase of $5.1 million in pretax income, offset by a
reduction in the effective tax rate. During the year ended June 30, 1998, the
Company's effective tax rate was 47.53% compared to 52.61% in the prior year
(excluding the non-recurring income tax recoveries). The decline in the
effective tax rate was primarily attributable to certain tax benefits
associated with the formation and funding of subsidiaries of the Bank during
the fiscal year ended June 30, 1998.
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 costs of
the Company's operations. Unlike industrial companies, nearly all of the assets
and liabilities of the Company are monetary in nature. As a result, interest
rates have a greater impact on the Company'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 Legislation
Deposit Insurance-SAIF Recapitalization. In response to the disparity in
deposit insurance assessment rates that existed between banks insured by the
BIF and thrifts insured by the SAIF, the Deposit Funds Insurance Act of 1996
(the "Funds Act") was enacted on September 30, 1996. 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. The
special SAIF assessment for the Company of $2.0 million, or $1.1 million net of
taxes, was charged against income in the quarter ended September 30, 1996 and
paid in November 1996.
As a result of the recapitalization of the SAIF in 1996 after the
enactment of the Funds Act, the FDIC reduced the assessment rates for deposit
insurance for SAIF-assessable deposits for 1997 to a range of 0 to 27 basis
points. The Company's SAIF-assessable deposits are also subject to assessments
for payments on the bonds issued in the late 1980's by the Financial
Corporation (the "FICO" bonds) to recapitalize the now defunct Federal Savings
and Loan Insurance Corporation. The Company's total expenses for the fiscal
years ended June 30, 1999 and 1998, for the assessments for deposit insurance
and the FICO payments were $404 and $350, respectively, decreased from the
total amount of $423 paid during the fiscal year ended June 30, 1997.
Recapture of Bad Debt Reserves. The Bank, as a "large bank" (one with assets
having an adjusted basis of more than $500 million), is unable to make
additions to its tax bad debt reserve, is permitted to deduct bad debts only as
they occur and is required to recapture (i.e., take into income) over a multi-
year period, a portion of the balance of its bad debt reserves as of June 30,
1997. 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
federal legislation that imposed such recapture.
New York State (the "State") has enacted legislation, that has
enabled the Bank to avoid recapture into income the State tax bad debt reserves
that otherwise would have occurred as a result of changes in the federal law.
New York City has enacted legislation similar to the State legislation.
The Year 2000 Problem
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The "Year 2000 Problem" centers upon the inability of computer
systems to recognize the year 2000. Many existing computer programs and systems
were originally programmed with six digit dates that provided only two digits
to identify the calendar year in the date field, without considering the
upcoming change in the century. With the impending millennium, these programs
and computers will recognize "00" as the year 1900 rather than the year 2000.
Like most financial providers, the Company and its operations may be
significantly affected by the Year 2000 Problem due to the nature of financial
information. Software, hardware and equipment both within and outside the
Company's direct control and with whom the Company electronically or
operationally interfaces (e.g., third party vendors providing data processing,
information system management, maintenance of computer systems, and credit
bureau information) are likely to be affected. Furthermore, if computer systems
are not adequately changed to identify the year 2000, many computer
applications could fail or create erroneous results. As a result, many
calculations which rely upon the date field information, such as interest,
payment or due dates and other operating functions, will generate results which
could be significantly misstated, and the Company could experience a temporary
inability to process transactions, send invoices or engage in similar normal
business activities. In addition, under certain circumstances, failure to
adequately address the Year 2000 Problem could adversely affect the viability
of the Company's suppliers and creditors and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Year 2000 Problem could
result in a significant adverse impact upon the Company's products, services
and competitive condition and therefore, its results of operations and could be
deemed to imperil the safety and soundness of the Company.
There have been a small, but increasing, number of lawsuits filed
against corporations regarding the Year 2000 Problem and their compliance
efforts, many of which remain unresolved, have been dismissed or settled out of
court without a final court determination as to the substantive issues.
The OTS, the Company's primary federal bank regulatory agency,
along with the other federal bank regulatory agencies has published substantive
guidance on the Year 2000 Problem and has included year 2000 compliance as a
substantive area of examination for both regularly scheduled and special bank
examinations. These publications, in addition to providing guidance as to
examination criteria, have outlined requirements for creation and
implementation of a compliance plan and target dates for testing and
implementation of corrective action, as discussed below. As a result of the
oversight by and authority vested in the federal bank regulatory agencies, a
financial institution that does not become year 2000 compliant could become
subject to administrative remedies similar to those imposed on financial
institutions otherwise found not to be operating in a safe and sound manner,
including remedies available under prompt correction active regulations.
The Company developed and has implemented a Year 2000 Project Plan
(the "Plan") to address the Year 2000 Problem and its effects on the Company.
The Plan includes five components which address issues involving awareness,
assessment, renovation, validation and implementation. The Company has
completed all phases of the Plan. During the awareness and assessment phases of
the Plan, the Company inventoried all material information systems and reviewed
them for year 2000 compliance. Among the systems reviewed were computer
hardware and systems software, applications software and communications
hardware and software as well as embedded or automated devices. As noted below,
this review included both internal systems and those of third party vendors
which provide systems such as retail deposit processing, loan origination
processing, loan servicing and general ledger and accounting systems and
software. The Bank and the Company have completed testing of core mission
critical internal systems, both internally and externally supplied systems and
have completed all renovation consistent with regulatory requirements. The
Company has additionally completed testing of its mission critical systems, and
its customer systems. The Company will continue to test, renovate and validate
all such systems. The Company agreed to use its facilities as a test site for
its major retail deposit processor allowing the Company additional opportunity
to test and stress such system.
As part of the Plan, the Company has had formal communications with
all of its significant suppliers to determine the extent to which the Company
is vulnerable to those third parties' failure to remediate their own Year 2000
Problem and has been following the progress of those vendors with their year
2000 compliance status. The Company presently believes that, modifications to
existing software and conversions to new software and hardware where necessary
have mitigated the Year 2000 Problem without causing a material adverse impact
on the operations of the Company. At this time, the Company believes most of
its hardware and software systems to be year 2000 compliant, tested and
operational. However, if such modifications and conversions were not made or
completed accurately, the Year 2000 Problem could have an adverse impact on the
operations of the Company.
Despite its best efforts to ensure year 2000 compliance, it is
possible that one or more of the Company's internal or external systems may
fail to operate. In the event that system failures occur related to the Year
2000 Problem, the Company has revised contingency plans, which involve, among
other actions, utilization of
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an alternate service provider or alternate
products available through the current vendor. The Company is currently
revising its contingency plan to specifically address other potential business
continuance issues related to the Year 2000 Problem such as general utility
failures. The revised contingency plan is expected to be approved by the
Company's Board of Directors prior to October 31, 1999.
The Company has reviewed its customer base to determine whether
they pose significant year 2000 risks. A portion of the Company's customer base
is comprised of individuals who utilize the Company's services for personal,
household or consumer uses. Individually, such customers are not likely to pose
significant year 2000 risks directly. The remaining portion of the Company's
customer base are landlords who manage apartment buildings throughout the
Company's principal lending area. The Company has maintained formal
communications with landlords who possess significant outstanding borrowings in
order to determine the extent to which the Company is vulnerable to failure, by
these landlords, to remediate their own Year 2000 Problem. The Company has been
monitoring the progress of these borrowers with their year 2000 compliance
status and is comfortable that many of its large borrowers are addressing the
Year 2000 Problem. Should a significant number of borrowers encounter failures
related to the year 2000, such failures could result in a material adverse
impact upon the Company's earnings. The Company will continue to monitor the
status of year 2000 Compliance amongst these borrowers in order to ensure that
any adverse impact which may occur from potential year 2000 failures is
minimized. It is not possible at this time to gauge the indirect risks which
could be faced if employers, or other business entities from which these
significant borrowers derive a substantial portion of their cash flows,
encounter unresolved Year 2000 issues.
Additionally, public concerns over the Year 2000 Problem could
adversely impact the Company's deposit flows near the end of 1999. Although the
Company has made every effort to inform its deposit customers of the efforts
taken in order to ensure that its deposit computer systems will not be
adversely effected by the Year 2000 Problem, there still exists a likelihood
that some customers will remove their deposit funds as a precautionary measure.
While the Company believes that deposit outflows related solely to the Year
2000 Problem will likely be both minimal and short-term in nature, it has
planned for potential alternative funding sources in the event that such
deposit outflows occur.
Monitoring and managing the year 2000 project has resulted in
additional direct and indirect costs to the Company. Direct costs include
potential charges by third party software vendors for product enhancements,
costs involved in testing software products for year 2000 compliance, and any
resulting costs for developing and implementing contingency plans for critical
software products which are not enhanced. Indirect costs principally consist of
the time devoted by existing employees in monitoring software vendor progress,
testing enhanced software products and implementing any necessary contingency
plans. The Company estimates that total costs related to the Year 2000 Problem
from start to completion will not exceed $100,000. Both direct and indirect
costs of addressing the Year 2000 Problem will be charged to earnings as
incurred. To date, virtually all of the total estimated costs associated with
the Year 2000 Problem have already been expensed.
Impact of Recent Accounting Standards
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("SFAS 133"), as amended by Statement of
Financial Accounting Standards No. 137, "Accounting for Derivative Instruments
and Hedging Activities-Deferral of the Effective Date of FASB Statement No.
133"("SFAS 137"). SFAS 133 requires that entities recognize all derivatives as
either assets or liabilities in the statement of financial condition and
measure those instruments at fair value. Under SFAS 133, an entity may
designate a derivative as a hedge of exposure to either changes in: (a) fair
value of a recognized asset or liability or firm commitment, (b) cash flows of
a recognized or forecasted transaction, or (c) foreign currencies of a net
investment in foreign operations, firm commitments, available-for-sale
securities or a forecasted transaction. Depending upon the effectiveness of the
hedge and/or the transaction being hedged, any changes in the fair value of the
derivative instrument is either recognized in earnings in the current year,
deferred to future periods, or recognized in other comprehensive income.
Changes in the fair value of all derivative instruments not recognized as hedge
accounting are recognized in current year earnings. Under SFAS 137, adoption of
SFAS 133 is required for all fiscal quarters or fiscal years beginning after
June 15, 2000. Adoption of SFAS 133 is not expected to have an impact on the
Company's consolidated financial condition or results of operations.
In October 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 134, "Accounting for Mortgage
Securities Retained after the Securitization of Mortgage
-20-
<PAGE>
Loans Held for Sale by
a Mortgage Banking Enterprise" ("SFAS 134"). SFAS 134 requires that an entity
engaged in mortgage banking activities classify the retained mortgage-backed
security or other interest, which resulted from the securitization of a
mortgage loan held for sale based upon its ability and intent to sell or hold
these investments. The Company adopted SFAS 134 effective July 1, 1999.
Adoption of SFAS 134 did not have a significant impact on the Company's
consolidated financial condition or results of operations.
-21-
<PAGE>
Market for the Company's Common Stock
and Related Stockholder Matters
Dime Community Bancshares, Inc. Common Stock is traded on the
Nasdaq National Market and quoted under the symbol "DCOM." Prior to June 15,
1998, the Company's common stock was quoted under the symbol "DIME."
The following table shows the high and low sales price for the
Company's common stock and dividends declared by the Company 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, 1999 Fiscal Year End June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended High Low High Low
Dividends Sales Closing Dividends Sales Sales
Declared Price Price Declared Price Price
- -----------------------------------------------------------------------------------------------------------------------
September 30th $0.10 $28-1/2 $15-1/4 $- $20-1/2 $18-3/8
December 31st 0.12 27-7/16 14-3/4 0.06 25-3/4 18-3/8
March 31st 0.14 25-3/8 19-3/4 0.08 25-1/4 18-3/4
June 30th 0.15 23-7/8 20 0.09 29-1/2 24-3/8
</TABLE>
On June 30, 1999, the last trading date in the fiscal year, the
Company's stock closed at $231/4. At September 20, 1999 the Company had
approximately 940 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 12,775,588 shares of common stock outstanding at June 30,
1999.
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, require
approval for dividend payments in any year to the greater of (i) 100% of net
retained income for the current year-to-date period plus the two previous
calendar years. 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.
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.
Research Reports
As of the date of this report, the following investment firms have
issued research reports on the Company:
Advest, Inc.; Friedman, Billings, Ramsey & Co., Inc.;
Keefe Bruyette & Woods, Inc.; McConnell Budd & Downes;
Merrill Lynch & Co.; Ryan, Beck & Co.;
Sandler O'Neill & Partners, L.P.
Copies of these research reports are available upon request to:
Dime Community Bancshares, Inc.
Investor Relations,
209 Havemeyer Street,
Brooklyn, NY 11211
-22-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors of
Dime Community Bancshares, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of condition of Dime
Community Bancshares, Inc. (formerly Dime Community Bancorp, Inc.) and
Subsidiaries (the ''Company'') as of June 30, 1999 and 1998, and the related
consolidated statements of operations and comprehensive income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended June 30, 1999. 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 Dime Community
Bancshares, Inc. and Subsidiaries as of June 30, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
August 12, 1999
-23-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
JUNE 30, 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $17,801 $16,266
Investment securities held-to-maturity (estimated market value of
$31,768 and $78,593 at June 30, 1999 and 1998, respectively) (Note 4) 31,698 78,091
Investment securities available for sale (Note 4):
Bonds and notes (amortized cost of $133,523 and $72,715 at
June 30, 1999 and 1998, respectively) 131,490 73,031
Marketable equity securities (historical cost of $14,162 and $10,425
at June 30, 1999 and 1998, respectively) 15,142 12,675
Mortgage-backed securities held-to-maturity (estimated market
value of $23,192 and $47,443 at June 30, 1999 and 1998,
respectively) (Note 5) 22,820 46,714
Mortgage backed securities available for sale (amortized cost of
$507,486 and $361,372 at June 30, 1999 and 1998,
respectively)(Note 5) 502,847 363,875
Federal funds sold 11,011 9,329
Loans (Note 6):
Real estate 1,375,510 943,864
Other loans 7,831 5,716
Less allowance for loan losses (Note 7) (15,081) (12,075)
Total loans, net 1,368,260 937,505
Loans held for sale - 541
Premises and fixed assets (Note 9) 14,975 10,742
Federal Home Loan Bank of New York capital stock (Note 10) 28,281 10,754
Other real estate owned, net (Note 7) 866 825
Goodwill (Note 3) 64,871 24,028
Receivable for securities sold - 18,008
Other assets (Notes 14 and 15) 37,553 21,542
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $2,247,615 $1,623,926
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to depositors (Note 11) $1,247,061 $1,038,342
Escrow and other deposits 36,577 15,395
Securities sold under agreements to repurchase (Note 12) 481,660 256,601
Federal Home Loan Bank of New York advances (Note 13) 250,000 103,505
Payable for securities purchased - 12,062
Other liabilities (Note 15) 20,622 11,672
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,035,920 1,437,577
- ----------------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Note 16)
Stockholders' Equity
Preferred stock ($0.01 par, 9,000,000 shares authorized, none issued or
outstanding at June 30, 1999 and June 30, 1998) - -
Common stock ($0.01 par, 45,000,000 shares authorized, 14,583,400 shares and
14,551,100 shares issued at June 30, 1999 and 1998, respectively, and
12,775,588 and 12,176,513 shares outstanding at June 30, 1999 and 1998,
respectively) 145 145
Additional paid-in capital 148,865 143,322
Retained earnings (Note 2) 119,100 105,158
Accumulated other comprehensive income (loss), net of deferred taxes (3,323) 2,763
Unallocated common stock of Employee Stock Ownership Plan (Note 15) (8,016) (9,175)
Unearned common stock of Recognition and Retention Plan (Note 15) (6,040) (6,963)
Common stock held by Benefit Maintenance Plan (Note 15) (831) (431)
Treasury stock, at cost (1,807,812 shares and 2,374,587 shares at
June 30, 1999 and 1998, respectively ) (Note 18) (38,205) (48,470)
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 211,695 186,349
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,247,615 $1,623,926
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to consolidated financial statements.
-24-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans secured by real estate $91,569 $69,824 $54,965
Other loans 558 487 460
Investment securities 10,654 10,798 13,654
Mortgage-backed securities 29,683 23,463 17,704
Federal funds sold 1,448 1,892 2,247
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 133,912 106,464 89,030
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits and escrow 44,417 43,027 38,544
Borrowed funds 32,802 13,908 3,020
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 77,219 56,935 41,564
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 56,693 49,529 47,466
Provision for loan losses 240 1,635 4,200
- ----------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 56,453 47,894 43,266
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges and other fees 2,823 2,352 1,934
Net gain on sales and redemptions of securities and
other assets 804 2,873 859
Net gain on sales of loans 66 108 125
Other 4,223 1,674 1,215
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 7,916 7,007 4,133
- ----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE:
Salaries and employee benefits 12,365 12,748 9,794
ESOP and RRP compensation expense 4,517 5,378 3,058
Occupancy and equipment 2,983 3,011 3,084
SAIF special assessment - - 2,032
Federal deposit insurance premiums 404 350 423
Data processing costs 1,316 1,169 1,000
Provision for losses on other real estate owned 16 114 450
Goodwill amortization 3,382 2,405 2,405
Other 5,510 4,762 5,246
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 30,493 29,937 27,492
- ----------------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 33,876 24,964 19,907
Income tax expense 14,015 11,866 7,591
- ----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $19,861 $13,098 $12,316
- ----------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $1.81 $1.19 $0.95
- ----------------------------------------------------------------------------------------------------------------------------------
DILUTED $1.68 $1.09 $0.95
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF COMPREHENSIVE INCOME:
<S> <C> <C> <C>
Net Income $19,861 $13,098 $12,316
Change in unrealized (loss) gain on securities available for
sale, net (6,086) 732 1,720
Reclassification adjustment for securities sold, net of tax (314) (512) (415)
- ----------------------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME $13,461 $13,318 $13,621
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to consolidated financial statements.
-25-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK (PAR VALUE $0.01):
Balance at beginning of period $145 $145 $145
Issuance of common stock in initial public offering - - -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 145 145 145
- ----------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
Balance at beginning of period 143,322 141,716 141,240
Issuance of common stock 3,327 - -
Cost of issuance of common stock - - (190)
Stock options exercised 468 52 -
Tax benefit of RRP shares 312 33 -
Amortization of excess fair value over cost - ESOP stock 1,436 1,521 666
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 148,865 143,322 141,716
- ----------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of period 105,158 94,695 82,916
Net income for the period 19,861 13,098 12,316
Cash dividends declared and paid (5,919) (2,635) (537)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period 119,100 105,158 94,695
- ----------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS), NET:
Balance at beginning of period 2,763 2,031 311
Change in unrealized gain (loss) on securities available for sale
during the period, net of deferred taxes (6,086) 732 1,720
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (3,323) 2,763 2,031
- ----------------------------------------------------------------------------------------------------------------------------------
EMPLOYEE STOCK OWNERSHIP PLAN:
Balance at beginning of period (9,175) (10,324) (11,541)
Amortization of earned portion of ESOP stock 1,159 1,149 1,217
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (8,016) (9,175) (10,324)
- ----------------------------------------------------------------------------------------------------------------------------------
RECOGNITION AND RETENTION PLAN:
Balance at beginning of period (6,963) (9,671) -
Common stock acquired by RRP (999) - (10,846)
Amortization of earned portion of RRP stock 1,922 2,708 1,175
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (6,040) (6,963) (9,671)
- ----------------------------------------------------------------------------------------------------------------------------------
TREASURY STOCK:
Balance at beginning of period (48,470) (27,703) -
Issuance of stock in acquisition 31,463 - -
Purchase of treasury shares, at cost (21,198) (20,767) (27,703)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (38,205) (48,470) (27,703)
- ----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK HELD BY BENEFIT MAINTENANCE PLAN:
Balance at beginning of period (431) - -
Common stock acquired (400) (431) -
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period (831) (431) -
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to consolidated financial statements.
-26-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE YEARS ENDED JUNE 30, 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $19,861 $13,098 $12,316
Adjustments to reconcile net income to net cash provided by operating activities
Net gain on investment and mortgage backed securities called (113) (9) -
Net gain on investment and mortgage backed securities sold (555) (1,123) (768)
Net gain on sale of loans held for sale (66) (108) (125)
Net gain on sale of other assets - (1,973) (19)
Net depreciation and amortization (accretion) 1,660 847 (958)
ESOP and RRP compensation expense 4,517 5,378 3,058
Provision for loan losses 240 1,635 4,200
Goodwill amortization 3,382 2,405 2,405
Decrease (increase) in loans held for sale 607 (171) 322
Increase in other assets and other real estate owned (3,005) (3,476) (2,401)
Decrease (increase) in receivable for securities sold 18,008 (18,008) -
(Decrease) increase in payable for securities purchased (12,062) 12,062 (33,994)
Increase in other liabilities 6,617 5,447 1,023
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) Operating Activities 39,091 16,004 (14,941)
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold 37,618 9,573 96,228
Proceeds from maturities of investment securities held to maturity 4,830 10,250 19,075
Proceeds from maturities of investment securities available for sale 85,979 63,145 359,710
Proceeds from calls of investment securities held to maturity 41,660 42,500 5,000
Proceeds from calls of investment securities available for sale 30,268 11,500 26,011
Proceeds from sales of investment securities available for sale 9,373 13,437 27,253
Proceeds from sales of mortgage backed securities held to maturity - 5,317 -
Proceeds from sales and calls of mortgage backed securities available
for sale - 92,776 16,713
Purchases of investment securities held to maturity - (29,082) (82,010)
Purchases of investment securities available for sale (146,786) (112,930) (126,741)
Purchases of mortgage backed securities held to maturity - - (38,842)
Purchases of mortgage backed securities available for sale (263,644) (290,576) (115,265)
Principal collected on mortgage backed securities held to maturity 23,822 26,216 12,820
Principal collected on mortgage backed securities available for sale 155,612 64,470 28,201
Net increase in loans (241,114) (199,545) (168,381)
Cash disbursed in acquisitions, net of cash acquired (33,644) - (400)
(Purchases) sales of fixed assets, net (819) 4,262 (652)
Purchase of Federal Home Loan Bank stock (15,417) (2,432) (718)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by Investing Activities (312,262) (291,119) 58,002
- ----------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in due to depositors (21,978) 74,947 13,281
Net increase (decrease) in escrow and other deposits 19,893 421 (126,758)
Proceeds from Federal Home Loan Bank of New York Advances 146,495 40,295 47,500
Increase in securities sold under agreements to repurchase 157,906 180,268 64,335
Common stock issued for exercise of Stock Options and tax benefits of
RRP 906 85 -
Cash disbursed for expenses related to issuance of common stock - - (190)
Purchase of common stock by the Recognition and Retention Plan (999) - (10,846)
Purchase of common stock by Benefit Maintenance Plan (400) (431) -
Cash dividends paid to stockholders (5,919) (2,635) (537)
Purchase of treasury stock (21,198) (20,767) (27,703)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) Financing Activities 274,706 272,183 (40,918)
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS 1,535 (2,932) 2,143
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 16,266 19,198 17,055
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $17,801 $16,266 $19,198
- ----------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes $11,462 $10,984 $8,486
- ----------------------------------------------------------------------------------------------------------------------------------
Cash paid for interest $74,939 $54,941 $41,270
- ----------------------------------------------------------------------------------------------------------------------------------
Transfer of loans to Other real estate owned $342 $779 $1,407
- ----------------------------------------------------------------------------------------------------------------------------------
Change in unrealized gain on available for sale securities, net of
deferred taxes $(6,086) $732 $1,720
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On January 21, 1999, the Bank acquired all of the outstanding common stock of
Financial Bancorp, Inc. in exchange for a combination of cash and common stock
of Dime Community Bancshares, Inc. In connection with this acquisition, the
following assets were acquired and liabilities assumed:
Fair Value of Investments, Loans and Other Assets Acquired, net $369,398
Dime Community Bancshares, Inc. Common Stock Issued (34,664)
Cash paid (33,251)
------------------------------------------------------------------------------
Deposits and Other Liabilities Assumed $301,483
------------------------------------------------------------------------------
See Notes to consolidated financial statements.
-27-
<PAGE>
DIME COMMUNITY BANCSHARES, INC. AND SUBSIDIARIES
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 Bancshares, Inc. (formerly Dime Community
Bancorp, Inc.) (the "Company" OR "DCB"), is a Delaware corporation organized by
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 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, investments retained
by the Company, and an investment real estate property owned through the
Company's wholly-owned subsidiary 842 Manhattan Avenue Corporation. 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. Eighteen additional offices
are located in the boroughs of Brooklyn, Queens, and the Bronx, and in Nassau
County.
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 1999, 1998 and 1997 consolidated
financial statements include the accounts of the Company, and its wholly-owned
subsidiaries, the Bank and 842 Manhattan Avenue Corp. All financial statements
presented also include the accounts of the Bank's eight wholly-owned
subsidiaries, Havemeyer Equities Corp. (''HEC''), Boulevard Funding Corp.
(''BFC''), Havemeyer Brokerage Corp. (''HBC''), Havemeyer Investments Inc.
("HII") and DSBW Residential Preferred Funding Corp. ("DRPFC"), FS Agency Corp.
("FSA"), Finfed Funding Corp. ("FFC") and Finfed Development Corp. ("FDC").
842 Manhattan Avenue Corp. owns and manages a real estate property which housed
a former branch premise of Financial Bancorp, Inc. ("FIBC"), which the Company
acquired on January 21, 1999 in connection with its acquisition of FIBC. HBC's
primary function is the management of an investment securities portfolio. HII
was established during the fiscal year ended June 30, 1998, and its primary
function is the sale of insurance and annuity products. DRPFC, established in
March, 1998, is intended to qualify as a real estate investment trust for
federal tax purposes. BFC was established in order to invest in real estate
joint ventures and other real estate assets. BFC has no investments in real
estate at June 30, 1999, and is currently inactive. HEC was also originally
established in order to invest in real estate joint ventures and other real
estate assets. In June, 1998, HEC assumed direct ownership of DSBW Preferred
Funding Corp. ("DPFC"). DPFC, established as a direct subsidiary of the Bank
in March, 1998, is intended to qualify as real estate investment trust for
federal tax purposes. HEC has no other investments as of June 30, 1999. FSA,
FFC, and FDC are all inactive as of June 30, 1999. 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.
SFAS No. 115, ''Accounting for Investments in Debt and Equity Securities''
(''SFAS 115'') 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 net income and reported net of income taxes as other
comprehensive income. At June 30, 1999 and 1998, all equity securities are
classified as available for sale.
-28-
<PAGE>
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. While management uses available
information to estimate losses on loans, future additions to or reductions in
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 or
reductions in 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.
SFAS No. 114, ''Accounting by Creditors for Impairment of a Loan'' (''SFAS
114'') 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.
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, generally,
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 and any disposition expenses charged
to the valuation allowance for possible losses on other real estate owned.
Subsequent write downs are charged directly to operating expenses.
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
Computer equipment 33.33% per year
Leasehold improvements are amortized over the remaining non-cancelable terms of
the related leases.
EARNINGS PER SHARE ("EPS")- Earnings per share are calculated and reported in
accordance with Statement of Financial Accounting Standards No. 128, "Earnings
Per Share'' ("SFAS 128"). SFAS 128, which replaced APB Opinion No. 15 (issued
by the American Institute of Certified Public Accountants in 1971), as the
-29-
<PAGE>
authoritative guidance for calculation and disclosure of earnings per share,
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. Earnings per share amounts for the year
ended June 30, 1997 have been restated to reflect the adoption of SFAS 128.
The following is a reconciliation of the numerator and denominator of basic
earnings per share for the years ended June 30, 1999, 1998 and 1997 (in
thousands).
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------
NUMERATOR:
Net Income $19,861 $13,098 $12,316
- ------------------------------------------------------------------------------------------------------------------
DENOMINATOR:
Average shares outstanding utilized in the calculation of
basic earnings per share 10,951 11,001 12,898
- ------------------------------------------------------------------------------------------------------------------
Unvested shares of Recognition and Retention Plan 372 517 36
Common stock equivalents due to the dilutive effect of
stock options 528 523 47
- ------------------------------------------------------------------------------------------------------------------
Average shares outstanding utilized in the calculation of
diluted earnings per share 11,851 12,041 12,981
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Common stock equivalents due to the dilutive effect of stock options are
calculated based upon the average market value of the Company's common stock
during the fiscal years ended June 30, 1999, 1998 and 1997.
GOODWILL - Goodwill generated from the Company's acquisition of Conestoga
Bancorp, Inc. on June 26, 1996 is recorded on a straight line basis over a
twelve year period. Goodwill generated from the Company's acquisition of
Financial Bancorp, Inc. on January 21, 1999 is recorded on a straight line
basis over a twenty 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. No such event or change in
circumstance has occurred which has caused the Company to review its recorded
level of goodwill associated with assets acquired from either Conestoga
Bancorp, Inc. or Financial Bancorp, Inc.
INCOME TAXES - Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
109") which requires that deferred taxes be provided for temporary differences
between the book and tax bases of assets and liabilities.
CASH FLOWS - For purposes of the Consolidated Statement of Cash Flows, the
Company 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 provides additional postretirement benefits to employees, which are
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 Company
elected to record the full cumulative liability at the time of adoption.
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
-30-
<PAGE>
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 acquisition cost of all allocated RRP
shares.
FINANCIAL INSTRUMENTS - Statement of Financial Accounting Standards No. 119
"Disclosure About Derivative Financial Instruments and Fair Value of Financial
Instruments" ("SFAS 119") 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, 1999, 1998 or 1997.
COMPREHENSIVE INCOME - Comprehensive income for the fiscal years ended June 30,
1999, 1998 and 1997 are determined in accordance with Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income.'' Comprehensive
income includes revenues, expenses, and gains and losses which, under current
GAAP, bypass net income and are typically reported as a component of
stockholders' equity.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION - In
September 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")". This statement is effective
for the Company's 1999 Consolidated Financial Statements.
SFAS 131 establishes standards for the way public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in subsequent interim financial reports issued to shareholders. It
also establishes standards for related disclosure about products and services,
geographic areas, and major customers. The statement requires that a public
business enterprise report financial and descriptive information about its
reportable operating segments. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and assess performance. The statement also requires that
public enterprises report a measure of segment profit or loss, certain specific
revenue and expense items and segment assets. It also requires that
information be reported about revenues derived from the enterprises' products
or services, or about the countries in which the enterprises earn revenues and
holds assets, and about major customers, regardless of whether that information
is used in making operating decisions.
-31-
<PAGE>
The Company has one reportable segment, " Community Banking." All of the
Company's activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the
others. For example, commercial lending is dependent upon the ability of the
Bank to fund itself with retail deposits and other borrowings and to manage
interest rate and credit risk. This situation is also similar for consumer and
residential mortgage lending. Accordingly, all significant operating decisions
are based upon analysis of the Company as one operating segment or unit.
General information required by SFAS 131 is disclosed in the Consolidated
Financial Statements and accompanying notes. Additionally, for the years
ended June 30, 1999, 1998, and 1997, there is no customer that accounted for
more than 10% of the Company's revenue.
RECENTLY ISSUED ACCOUNTING STANDARDS - In June, 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities " ("SFAS 133") as
amended in June, 1999 by Statement of Financial Accounting Standards No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133." ("SFAS 137"). SFAS 133 requires
that entities recognize all derivatives as either assets or liabilities in the
statement of financial condition and measure those instruments at fair value.
Under SFAS 133 an entity may designate a derivative as a hedge of exposure to
either changes in: (a) fair value of a recognized asset or liability or firm
commitment, (b) cash flows of a recognized or forecasted transaction, or (c)
foreign currencies of a net investment in foreign operations, firm commitments,
available-for-sale securities or a forecasted transaction. Depending upon the
effectiveness of the hedge and/or the transaction being hedged, any changes in
the fair value of the derivative instrument is either recognized in earnings in
the current year, deferred to future periods, or recognized in other
comprehensive income. Changes in the fair value of all derivative instruments
not recognized as hedge accounting are recognized in current year earnings.
Under SFAS 137, adoption of SFAS 133 is required for all fiscal quarters or
fiscal years beginning after June 15, 2000. Adoption of SFAS 133 is not
expected to have an impact on the Company's consolidated financial condition or
results of operations.
In October, 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 134, "Accounting for Mortgage Securities
Retained after the Securitization of Mortgage Loans Held for Sale by a Mortgage
Banking Enterprise" ("SFAS 134"). SFAS 134 requires that an entity engaged in
mortgage banking activities classify the retained mortgage-backed security or
other interest, which resulted from the securitization of a mortgage loan held
for sale based upon its ability and intent to sell or hold these investments.
The Company adopted SFAS 134 effective July 1, 1999. The adoption of SFAS 134
did not have a significant impact on the Company's consolidated financial
condition or results of operations.
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 acquisitions of Conestoga and FIBC and the fair
value of financial instruments.
RECLASSIFICATION - Certain June 30, 1998, and 1997 amounts have been
reclassified to conform to the June 30, 1999 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
-32-
<PAGE>
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. Costs related to the conversion were charged
against the Company's proceeds from the sale of the stock.
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 is 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.
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 Company acquired FIBC on January 21, 1999. The liquidation account
previously established by FIBC's subsidiary, Financial Federal Savings Bank
during its initial public offering was assumed by the Company in the
acquisition.
The Company 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. ACQUISITION OF FINANCIAL BANCORP, INC.
On January 21, 1999, the Company completed the acquisition of FIBC, the holding
company for Financial Federal Savings Bank, F.S.B. Pursuant to the Merger
Agreement, each FIBC stockholder who submitted a valid election for cash
received $39.14 in cash and each FIBC stockholder who submitted a valid
election for DCB common stock received 1.8282 shares of DCB common stock, plus
cash in lieu of any fractional shares, in exchange for each of their shares of
FIBC common stock. The remaining shares of FIBC common stock for which a valid
election was not submitted were converted into, pursuant to the Merger
Agreement, a combination of DCB stock and cash such that each such shareholder
received $31.257 in cash and 0.3682 shares of DCB common stock for each share
of FIBC common stock, except that all stockholders of FIBC who owned less than
50 shares of FIBC common stock received cash. Upon consummation of the
acquisition, shares of FIBC common stock that were owned by FIBC as treasury,
that were unallocated shares held in FIBC's Recognition and Retention Plan or
that were held directly by DCB other than in a fiduciary capacity or in
satisfaction of a debt previously contracted were canceled and retired. No
payment was be made with respect to such shares of FIBC common stock.
Holders of stock options which had been granted by FIBC to purchase 60,133
shares of FIBC common stock were paid an amount in cash computed by multiplying
(i) any positive difference obtained by subtracting the per share exercise
price applicable to such option from $39.14, by (ii) the number of shares of
FIBC common stock subject to such option. These payments totaled approximately
$1,545. In addition, holders of stock options which had been granted by FIBC
to purchase 96,975 shares of FIBC common stock were converted into options to
purchase 177,286 shares DCB common stock (the "Converted Options"). The
expiration dates on all Converted Options remained unchanged from initial grant
by FIBC. Based upon the closing price of DCB common stock on January 21, 1999,
the total consideration paid to FIBC stockholders, in the form of cash or DCB
stock, was $66,750.
The Bank received approximately $190,000, $43,800, and $37,800 of net loans,
investment securities, and mortgage-backed securities, respectively, at fair
value and assumed approximately $230,700 of customer deposit liabilities. A
core deposit premium of $4,950 was recorded related to the deposits assumed and
is being amortized on a straight line basis over six years.
-33-
<PAGE>
The acquisition was recorded using the purchase method of accounting;
accordingly, the purchase price was allocated to the respective assets
acquired and liabilities assumed based on their estimated fair values. Goodwill
generated in the transaction of $44,200 is being amortized on a straight line
basis over 20 years for financial reporting purposes.
The information below presents, on an unaudited pro forma basis, the
consolidated statement of operations for the Company for the years ended June
30, 1999 and 1998. All information below is adjusted for the acquisition of
FIBC, as if the transaction had been consummated on July 1, 1997.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Actual
Consolidated Pro-Forma Pro Forma Pro Forma
for the Six for the Six for the for the
Months Ended Months Ended Year Ended Year Ended
June 30, 1999<Fa> December 31, 1998 June 30, 1999 June 30, 1999
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $31,607 $29,805 $61,412 $58,682
Provision for possible loan losses 120 292 412 2,068
Non-interest income 4,255 4,137 8,392 8,033
Non-interest expense:
Goodwill and core deposit amortization 2,543 1,804 4,347 3,636
Other non-interest expense 14,184 15,404 29,588 33,219
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 16,727 17,208 33,935 36,855
- -----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $19,015 $16,442 $35,457 $27,792
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
<a> Amounts exclude the operations of FIBC during the period January 1, 1999
through January 21, 1999, which are not material to the total combined
operations for the year ended June 30, 1999.
</TABLE>
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, 1999 were as
follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
--------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $22,401 $34 $(35) $22,400
Obligations of state and political
subdivisions 1,819 30 - 1,849
Corporate securities 7,478 41 - 7,519
- ---------------------------------------------------------------------------------------------------------------------------------
$31,698 $105 $(35) $31,768
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities held to
maturity at June 30, 1999, 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.
Amortized Estimated Market
Cost Value
- -------------------------------------------------------------------------------
Due in one year or less $4,049 $4,079
Due after one year through five years 26,430 26,460
Due after five years through ten years 1,219 1,229
- -------------------------------------------------------------------------------
$31,698 $31,768
- -------------------------------------------------------------------------------
During the year ended June 30, 1999, proceeds from the calls of investment
securities held to maturity totaled $41,660. A gain of $86 resulted on these
calls. There were no sales of investment securities held to maturity during
the year ended June 30, 1999.
The amortized/historical cost, gross unrealized gains and losses and estimated
market value of investment securities available for sale at June 30, 1999 were
as follows:
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<PAGE>
<TABLE>
<CAPTION>
Investment Securities Available for Sale
-----------------------------------------
<S> <C> <C> <C> <C>
Amortized/ Gross Unrealized Gross Unrealized Estimated Market
Historical Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $65,074 $439 $(1,360) $64,153
Corporate securities 63,402 141 (1,167) 62,376
Public utilities 5,047 - (86) 4,961
- --------------------------------------------------------------------------------------------------------------------------------
133,523 580 (2,613) 131,490
EQUITY SECURITIES: 14,162 1,614 (634) 15,142
- --------------------------------------------------------------------------------------------------------------------------------
$147,685 $2,194 $(3,247) $146,632
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities
available for sale at June 30, 1999, 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.
Amortized Estimated Market
Cost Value
- -------------------------------------------------------------------------------
Due in one year or less $6,313 $6,746
Due after one year through five years 127,210 124,744
Due in five years to ten years - -
- -------------------------------------------------------------------------------
$133,523 $131,490
- -------------------------------------------------------------------------------
During the year ended June 30, 1999, proceeds from the sales and calls of
investment securities available for sale totaled $9,373 and $30,268,
respectively. Net gains of $555 and $27, respectively, resulted from the sales
and calls.
The amortized cost, gross unrealized gains and losses and estimated market
value of investment securities held to maturity at June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Investment Securities Held to Maturity
--------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $64,448 $412 $(49) $64,811
Obligations of state and political
subdivisions 1,899 43 - 1,942
Corporate securities 11,494 96 - 11,590
Public utilities 250 - - 250
- ---------------------------------------------------------------------------------------------------------------------------------
$78,091 $551 $(49) $78,593
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 1998, proceeds from the calls of investment
securities held to maturity totaled $42,500. A gain of $9 resulted on these
calls. There were no sales of investment securities held to maturity during
the year ended June 30, 1998.
-35-
<PAGE>
The amortized/historical cost, gross unrealized gains and losses and estimated
market value of investment securities available for sale at June 30, 1998 were
as follows:
<TABLE>
<CAPTION>
Investment Securities Available for Sale
-----------------------------------------
<S> <C> <C> <C> <C>
Amortized/ Gross Unrealized Gross Unrealized Estimated Market
Historical Cost Gains Losses Value
- --------------------------------------------------------------------------------------------------------------------------------
DEBT SECURITIES:
U.S. Treasury securities and obligations
of U.S. Government corporations and
agencies $28,377 $133 $(19) $28,491
Corporate securities 37,494 295 (43) 37,746
Public utilities 6,844 14 (64) 6,794
- --------------------------------------------------------------------------------------------------------------------------------
72,715 442 (126) 73,031
EQUITY SECURITIES: 10,425 2,317 (67) 12,675
- --------------------------------------------------------------------------------------------------------------------------------
$83,140 $2,759 $(193) $85,706
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 1998, proceeds from the sales and calls of
investment securities available for sale totaled $13,437 and $11,500,
respectively. A gain of $520 resulted from the sales. No gain or loss
resulted from the calls.
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, 1999 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Held to Maturity
-------------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
GNMA pass-through certificates $5,772 $259 $- $6,031
FHLMC pass-through certificates 9,140 68 - 9,208
FNMA pass-through certificates 7,908 57 (12) 7,953
- ---------------------------------------------------------------------------------------------------------------------------------
$22,820 $384 $(12) $23,192
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost, gross unrealized gains and losses and the estimated market
value of mortgage-backed securities available for sale at June 30, 1999 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
---------------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
Collateralized mortgage obligations $348,938 $220 $(4,904) $344,254
GNMA pass-through certificates 127,285 730 (709) 127,306
FHLMC pass-through certificates 13,854 105 (74) 13,885
FNMA pass-through certificates 17,409 127 (134) 17,402
- ---------------------------------------------------------------------------------------------------------------------------------
$507,486 $1,182 $(5,821) $502,847
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
There were no sales or calls of mortgage-backed securities held to maturity or
available for sale during the year ended June 30, 1999.
-36-
<PAGE>
The amortized cost, gross unrealized gains and losses and the estimated market
value of mortgage-backed securities held to maturity at June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Held to Maturity
-------------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
GNMA pass-through certificates $7,364 $344 $- $7,708
FHLMC pass-through certificates 23,086 229 (11) 23,304
FNMA pass-through certificates 16,264 173 (6) 16,431
- ---------------------------------------------------------------------------------------------------------------------------------
$46,714 $746 $(17) $47,443
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the sales of mortgage-backed securities held to maturity were
$5,317 during the fiscal year ended June 30, 1998. A gain of $175 was
recognized from these sales. The unpaid principal of the securities at the
dates of sale was less than 15% of their acquired par value, and thus are
permissable sales under SFAS 115.
The amortized cost, gross unrealized gains and losses and the estimated market
value of mortgage-backed securities available for sale at June 30, 1998 were as
follows:
<TABLE>
<CAPTION>
Mortgage-Backed Securities Available for Sale
---------------------------------------------
<S> <C> <C> <C> <C>
Amortized Gross Unrealized Gross Unrealized Estimated Market
Cost Gains Losses Value
- ---------------------------------------------------------------------------------------------------------------------------------
Collateralized mortage obligations $255,334 $1,072 $(230) $256,176
GNMA pass-through certificates 80,525 1,473 - 81,998
FHLMC pass-through certificates 8,692 34 (14) 8,712
FNMA pass-through certificates 16,821 208 (40) 16,989
- ---------------------------------------------------------------------------------------------------------------------------------
$361,372 $2,787 $(284) $363,875
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Proceeds from the calls and sales of mortgage-backed securities available for
sale were $92,776 during the year ended June 30, 1998. A gain of $428 was
recognized on these sales.
6. LOANS
The Company's real estate loans are comprised of the following:
At June 30, 1999 1998
- ----------------------------------------------------------------------------
One-to-four family $246,075 $125,163
Multi-family and underlying
cooperative 1,000,859 717,638
Nonresidential 88,837 50,062
F.H.A. and V. A. insured mortgage loans 9,699 11,934
Co-op loans 32,893 42,553
- ----------------------------------------------------------------------------
1,378,363 947,350
Net unearned fees (2,853) (3,486)
- ----------------------------------------------------------------------------
$1,375,510 $943,864
- ----------------------------------------------------------------------------
The Bank originates both adjustable and fixed interest rate real estate loans.
At June 30, 1999, the approximate composition of these loans was as follows:
Fixed Rate Variable Rate
- ------------------------------------- ------------------------------------
Period to Maturity Period to Maturity
or Next Repricing Book Value or Next Repricing Book Value
- ------------------------------------- ------------------------------------
1 month-1 year $16,155 1 month-1 year $86,700
1 year-3 years 4,624 1 year-3 years 187,840
3 years-5 years 18,865 3 years-5 years 158,851
5 years-10 years 300,135 5 years-10 years 383,189
Over 10 years 220,041 Over 10 years 1,963
- ------------------------------------- ------------------------------------
$559,820 $818,543
- ------------------------------------- ------------------------------------
-37-
<PAGE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the Federal Home Loan Bank of New York ("FHLBNY") 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 multi-family and underlying
cooperative properties located in the New York City metropolitan area.
The Company's other loans are comprised of the following:
At June 30, 1999 1998
- ----------------------------------------------------------------------------
Student loans $794 $677
Passbook loans (secured by savings
and time deposits) 2,271 2,367
Home improvement loans 3,666 1,753
Consumer installment and other loans 1,100 919
- ----------------------------------------------------------------------------
$7,831 $5,716
- ----------------------------------------------------------------------------
Loans on which the accrual of interest has been discontinued were $3,001 and
$884 at June 30, 1999 and 1998, respectively. Nonaccrual loans totaling $1,772
as of June 30, 1999 were acquired on January 21, 1999 from FIBC. Interest
income foregone on nonaccrual loans, which excludes foregone interest on
nonaccrual loans acquired from FIBC during the period July 1, 1998 to January
21, 1999, was not material during the fiscal years ended June 30, 1999 and
1998.
The Bank had outstanding loans considered troubled-debt restructurings of
$1,290 and $3,971 at June 30, 1999 and 1998, respectively. Income recognized on
these loans was approximately $125 and $306 for the years ended June 30, 1999
and 1998, respectively, compared to interest income of $183 and $415 calculated
under the original terms of the loans, for the years ended June 30, 1999 and
1998, respectively.
The recorded investment in loans for which impairment has been recognized under
the guidance of SFAS 114 was approximately $1,564 and $3,136 at June 30, 1999
and 1998, respectively. The average balance of impaired loans was approximately
$2,329 and $3,838 for the years ended June 30, 1999 and 1998, respectively.
Write-downs on impaired loans were not material during the years ended June 30,
1999 and 1998, respectively. At June 30, 1999 and 1998, specific reserves
totaling $62 and $23 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, 1999 and 1998 were not material.
Reserves have been provided on all impaired loans as of June 30, 1999. At June
30, 1998, one loan totaling $2,681, was deemed impaired for which no reserves
have been provided. This loan, which was included in troubled-debt
restructurings at June 30, 1998, was satisfied during the fiscal year ended
June 30, 1999. All other loans deemed impaired, which total 5 and 3 loans as
of June 30, 1999 and 1998, 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 $227 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 $227 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. At June 30, 1999 and 1998, all impaired
loans were on nonaccrual status. In addition, at June 30, 1999 and 1998,
-38-
<PAGE>
respectively, approximately $1,437 and $429 of one-to-four family residential
mortgage loans, loans on cooperative apartments and consumer loans with a
balance of less than $227 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, 1999, 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.
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>
<S> <C> <C> <C>
For the year ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
Balance at beginning of period $12,075 $10,726 $7,812
Provision charged to operations 240 1,635 4,200
Loans charged off (208) (328) (1,388)
Recoveries 7 42 102
Reserve acquired in purchase of FIBC 2,967 - -
- ------------------------------------------------------------------------------------------------------
Balance at end of period $15,081 $12,075 $10,726
- ------------------------------------------------------------------------------------------------------
</TABLE>
Changes in the allowance for possible losses on real estate owned were as
follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended June 30, 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
Balance at beginning of period $164 $187 $114
Provision charged to operations 16 114 450
Charge-offs, net of recoveries (31) (137) (377)
- ------------------------------------------------------------------------------------------------------
Balance at end of period $149 $164 $187
- ------------------------------------------------------------------------------------------------------
</TABLE>
8. MORTGAGE SERVICING ACTIVITIES
At June 30, 1999 and 1998, the Bank was servicing loans for others having
principal amounts outstanding of approximately $53,857 and $58,619
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 $654 and
$569 at June 30, 1999 and 1998, respectively.
-39-
<PAGE>
9. PREMISES AND FIXED ASSETS
The following is a summary of premises and fixed assets:
At June 30, 1999 1998
- -------------------------------------------------------------------------------
Land $2,462 $2,164
Buildings 10,689 11,753
Leasehold improvements 8,357 1,282
Furniture and equipment 7,712 6,503
- -------------------------------------------------------------------------------
29,220 21,702
Less: accumulated appreciation
and amortization (14,245) (10,960)
- -------------------------------------------------------------------------------
$14,975 $10,742
- -------------------------------------------------------------------------------
Depreciation and amortization expense amounted to approximately $954, $964, and
$1,076 for the years ended June 30, 1999, 1998 and 1997, respectively.
10. FEDERAL HOME LOAN BANK OF NEW YORK CAPITAL STOCK
The Bank is a Savings Bank Member of the FHLBNY. Membership requires the
purchase of shares of FHLBNY capital stock at $100 per share. The Bank owned
282,813 and 107,535 shares at June 30, 1999 and 1998, respectively. The FHLBNY
paid dividends on the capital stock of 6.9%, 7.2%, and 6.4% during the years
ended June 30, 1999, 1998 and 1997, respectively.
11. DUE TO DEPOSITORS
The deposit accounts of each depositor 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>
At June 30, 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EFFECTIVE COST LIABILITY EFFECTIVE COST LIABILITY
- -----------------------------------------------------------------------------------------------------------------------
Savings accounts 2.09% $406,602 2.27% $340,481
Certificates of deposit 5.31 703,251 5.84 612,328
Money market accounts 3.55 52,979 3.09 30,567
NOW and Super NOW accounts 1.22 25,687 1.24 17,927
Non-interest bearing checking accounts - 58,542 - 37,039
- -----------------------------------------------------------------------------------------------------------------------
3.85% $1,247,061 4.30% $1,038,342
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The distribution of certificates of deposits by remaining maturity was as
follows:
At June 30, 1999 1998
- -----------------------------------------------------------------------
Maturity in three months or less $221,368 $139,108
Over 3 through 6 months 137,654 103,472
Over 6 through 12 months 192,749 163,791
Over 12 months 151,480 205,957
- -----------------------------------------------------------------------
Total certificates of deposit $703,251 $612,328
- -----------------------------------------------------------------------
The aggregate amount of certificates of deposits with a minimum denomination of
$100 was approximately $78,707 and $60,259 at June 30, 1999 and 1998,
respectively.
-40-
<PAGE>
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, 1999 1998
- -------------------------------------------------------------------------------
Balance outstanding at end of period $481,660 $256,601
Average interest cost at end of period 5.28% 5.74%
Average balance outstanding during the year $381,996 $145,676
Average interest cost during the year 5.45% 5.95%
Carrying value of underlying collateral at
end of period $496,500 $267,469
Estimated market value of underlying collateral $491,750 $268,991
Maximum balance outstanding at month end during
period $481,660 $256,601
13. FEDERAL HOME LOAN BANK OF NEW YORK ADVANCES
The Bank had borrowings (''Advances'') from the FHLBNY totaling $250,000 and
$103,505 at June 30, 1999 and 1998, respectively. The average cost of FHLB
advances was 5.96% and 6.04%, respectively, during the years ended June 30,
1999 and 1998, and the average interest rate on outstanding FHLB advances was
5.52% and 6.05%, respectively, at June 30, 1999 and 1998. At June 30, 1999, in
accordance with the Advances, Collateral Pledge and Security Agreement with the
FHLBNY, the Bank maintained in excess of $275,000 of qualifying collateral with
the FHLBNY (principally real estate loans), as defined by
the FHLBNY, 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, 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<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 $11,045 $1,685 $12,730 $8,687 $2,698 $11,385 $6,047 $4,541 $10,588
Deferred 1,915 (630) 1,285 776 (295) 481 2,153 (5,150) (2,997)
- --------------------------------------------------------------------------------------------------------------------------------
$12,960 $1,055 $14,015 $9,463 $2,403 $11,866 $8,200 $(609) $7,591
- --------------------------------------------------------------------------------------------------------------------------------
</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.
-41-
<PAGE>
The components of Federal and net State and City deferred income tax assets and
liabilities were as follows:
<TABLE>
<CAPTION>
At June 30, 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
STATE STATE
FEDERAL AND CITY FEDERAL AND CITY
- --------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Excess book bad debt over tax
bad debt reserve $3,809 $2,691 $2,990 $2,188
Employee benefit plans 3,921 2,344 2,858 1,682
Tax effect of purchase
accounting fair value
adjustments - - 366 216
Tax effect of unrealized gain on
securities available for sale 1,752 618 - -
Other 165 102 - -
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax assets 9,647 5,755 6,214 4,086
Less: Valuation allowance on
deferred tax assets - - - -
- --------------------------------------------------------------------------------------------------------------------
Deferred tax assets after
valuation allowance $9,647 $5,755 $6,214 $4,086
- --------------------------------------------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Undistributed earnings of
subsidiary $4,865 $21 $1,677 $358
Difference in book and tax
carrying value of fixed assets 192 2 412 245
Tax effect of purchase
accounting fair value
adjustments 921 549 - -
Tax effect of unrealized gain on
securities available for sale - - 1,436 871
Other - - 122 7
- --------------------------------------------------------------------------------------------------------------------
Total deferred tax liabilities $5,978 $572 $3,647 $1,481
- --------------------------------------------------------------------------------------------------------------------
Net deferred tax asset $3,669 $5,183 $2,567 $2,605
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
During the year ended June 30, 1999, deferred tax assets include an increase of
$4,677 resulting from adjustments pursuant to SFAS 115, an increase of $1,872
related to deferred tax assets originally recorded on FIBC's books, and an
increase of $595 related to adjustments resulting from the filing of prior
period tax returns. During the year ended June 30, 1999, deferred tax
liabilities include an increase of $2,179 related to the tax effect of purchase
accounting adjustments resulting from the FIBC acquisition.
The provision for income taxes differed from that computed at the Federal
statutory rate as follows:
Year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Tax at Federal statutory rate $11,856 $8,737 $6,967
State and local taxes, net of
Federal income tax benefit 685 1,562 (396)
Goodwill amortization 1,185 843 843
Amortization of excess fair value
over cost - ESOP stock 406 532 233
Other, net (117) 193 (56)
- -------------------------------------------------------------------------------
$14,015 $11,867 $7,591
- -------------------------------------------------------------------------------
Effective tax rate 41.37% 47.53% 38.13%
- -------------------------------------------------------------------------------
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.
-42-
<PAGE>
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 $15,280. 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 had no effect on the Company's
consolidated statement of operations.
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 RSI Retirement Trust. 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. During the year ended June 30, 1998, the Bank offered an
early retirement program to all Plan participants who met certain eligibility
criterion. As a result of the early retirement program, a non-recurring charge
of $1,611 was recorded.
Prior to January 21, 1999, FIBC maintained an employee retirement plan covering
all eligible employees (the "FIBC Retirement Plan"). Effective, January 21,
1999, the Bank assumed sponsorship of the FIBC Retirement Plan, for which the
projected benefit obligation and plan assets totaled $2,281 and $2,675,
respectively. Participants in the FIBC Retirement Plan, by amendment dated
August 17, 1999, were provided with full vesting on their benefits through
January 21, 1999. The projected benefit obligation and plan assets of the FIBC
Retirement Plan are reflected in the projected benefit obligation and plan
assets of the Bank's pension plan as of June 30, 1999.
-43-
<PAGE>
The retirement cost for the pension plan includes the following components
(including a non-recurring charge of $1,611 related to an early retirement
program in 1998 and costs associated with the acquired FIBC Retirement Plan
obligation during the period January 21, 1999 to June 30, 1999):
For the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Service cost $444 $332 $400
Interest cost 915 781 727
Actual return on plan assets (1,272) (2,931) (838)
Net amortization and deferral (32) 1,843 (224)
Expense associated with early
retirement program - 1,611 -
- -------------------------------------------------------------------------------
Net periodic cost $55 $1,636 $65
- -------------------------------------------------------------------------------
The funded status of the plan was as follows:
JUNE 30, 1999 1998
- -------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $14,286 $10,015
Service cost 444 332
Interest cost 915 781
Actuarial (gain) loss (393) 2,127
Benefit payments (795) (580)
Settlements (2) -
Early retirement obligation (132) 1,611
Obligation of acquired plan 2,281 -
- -------------------------------------------------------------------------------
Balance at end of period 16,604 14,286
- -------------------------------------------------------------------------------
Plan assets at fair value (investments in
trust funds managed by RSI):
Balance at beginning of period 13,599 11,121
Return on plan assets 786 2,932
Contributions - 126
Benefit payments (795) (580)
Settlements (2) -
Assets of acquired plan 2,675 -
- -------------------------------------------------------------------------------
Balance at end of period 16,263 13,599
- -------------------------------------------------------------------------------
FUNDED STATUS:
Deficiency of plan assets over projected
benefit obligation (341) (687)
Unrecognized loss from experience
different from that assumed 626 560
Unrecognized net past service liability (175) (207)
- -------------------------------------------------------------------------------
(Accrued) Prepaid retirement expense
included in Other (liabilities) assets $110 $(334)
- -------------------------------------------------------------------------------
Amount recognized in statement of financial condition consists of:
Prepaid asset / (accrued liability) $110 $(334)
Intangible asset - -
- -------------------------------------------------------------------------------
Net amount recognized $110 $(334)
- -------------------------------------------------------------------------------
Major assumptions utilized were as follows:
At June 30, 1999 1998
- --------------------------------------------------------------
Discount rate 7.00% 6.75%
Rate of increase in compensation levels 5.00 4.50
Expected long-term return on plan assets 9.00 9.00
BENEFIT 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 Benefit Maintenance Plan
("BMP"), and sponsorship was transferred to the Company. As of June 30, 1999,
the Benefit Maintenance Plan has an investment in the Company's common stock of
$831.
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 their 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.
-44-
<PAGE>
The retirement cost for the defined benefit portion of the BMP and Directors'
Retirement plan include the following components:
For the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Service cost $141 $104 $203
Interest cost 236 248 211
Net amortization and deferral 175 170 178
- -------------------------------------------------------------------------------
$552 $522 $592
- -------------------------------------------------------------------------------
The defined contribution costs incurred by the Bank related to the BMP/SERP for
the years ended June 30, 1999, 1998 and 1997 were $990, $522 and $305,
respectively.
The funded status of the defined benefit portion of the plans was as follows:
The funded status of the plan was as follows:
JUNE 30, 1999 1998
- ------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $3,562 $3,276
Service cost 141 104
Interest cost 236 249
Benefit payments - (29)
Actuarial (gain) loss 25 (38)
- ------------------------------------------------------------------------------
Balance at end of period 3,964 3,562
- ------------------------------------------------------------------------------
Plan assets at fair value:
Balance at beginning of period - -
Contributions - 29
Benefit payments - (29)
- ------------------------------------------------------------------------------
Balance at end of period - -
- ------------------------------------------------------------------------------
FUNDED STATUS:
Deficiency of plan assets over projected
benefit obligation (3,964) (3,562)
Unrecognized loss from experience
different from that assumed 1,088 1,219
Unrecognized net past service liability 739 759
- -------------------------------------------------------------------------------
Accrued expense included in other liabilities $(2,137) $(1,584)
- -------------------------------------------------------------------------------
Amount recognized in statement of financial condition consists of:
Accrued liability $(2,887) $(2,444)
Intangible asset 750 860
- -------------------------------------------------------------------------------
Net amount recognized $(2,137) $(1,584)
- -------------------------------------------------------------------------------
Major assumptions utilized were as follows:
At June 30, 1999 1998
- -----------------------------------------------------------------------------
DIRECTORS' DIRECTORS'
RETIREMENT PLAN BMP RETIREMENT PLAN BMP
- -----------------------------------------------------------------------------
Discount rate 7.00% 7.25% 6.75% 6.50%
Rate of increase in
compensation levels 5.00 4.00 4.50 4.00
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.
Effective January 1, 1997, the Bank ceased all participant pre-tax
contributions to the Plan. No expense was recorded related to the 401(k) plan
during the fiscal years ended June 30, 1999, 1998 and 1997. The 401(k) plan
owns participant investments in the Company's common stock for the accounts of
participants which totaled $5,001, $6,630 and $4,758 at June 30, 1999, 1998 and
1997, respectively.
Prior to January 21, 1999, FIBC maintained a savings incentive ("401(k)") plan
for all eligible employees (the "FIBC 401(k) Plan"). Effective, January 21,
1999, the Bank assumed sponsorship of the FIBC 401(k) Plan, for which the plan
assets total $724 as of June 30, 1999. Consistent with the Bank's existing
401(k) Plan, effective January 21, 1999, participant pre-tax contributions and
employer matching contributions to the FIBC 401(k) Plan were ceased. As a
result, no expenses associated with the FIBC 401(k) are reflected in the
Company's statement of operations.
-45-
<PAGE>
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 postretirement cost includes the following components:
For the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Service cost $48 $37 $75
Interest cost 179 178 192
Unrecognized past service liability (20) (29) -
- -------------------------------------------------------------------------------
$207 $186 $267
- -------------------------------------------------------------------------------
The funded status of the postretirement benefit plan was as follows:
JUNE 30, 1999 1998
- ------------------------------------------------------------------------------
PROJECTED BENEFIT OBLIGATION:
Balance at beginning of period $2,714 $2,355
Service cost 48 37
Interest cost 179 177
Actuarial (gain) loss 80 245
Benefit payments (133) (100)
- ------------------------------------------------------------------------------
Balance at end of period 2,888 2,714
- ------------------------------------------------------------------------------
Plan assets at fair value:
Balance at beginning of period - -
Contributions 133 100
Benefit payments (133) (100)
- ------------------------------------------------------------------------------
Balance at end of period - -
- ------------------------------------------------------------------------------
FUNDED STATUS:
Deficiency of plan assets over projected
benefit obligation (2,888) (2,714)
Unrecognized loss from experience
different from that assumed 451 290
Unrecognized net past service liability (268) (297)
- -------------------------------------------------------------------------------
Accrued expense included in other liabilities $(2,705) $(2,721)
- -------------------------------------------------------------------------------
Amount recognized in statement of financial condition consists of:
Accrued liability $(2,705) $(2,721)
Intangible asset - -
- -------------------------------------------------------------------------------
Net amount recognized $(2,705) $(2,721)
- -------------------------------------------------------------------------------
The assumed medical cost trend rates used in computing the accumulated
postretirement benefit obligation was 7.0% in 1998 and was assumed to decrease
gradually to 5.0% in 2004 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 $129.
The assumed discount rate and rate of compensation increase used to measure the
accumulated postretirement benefit obligation at June 30, 1999 were 7.00% and
5.00%, respectively. The assumed discount rate and rate of compensation
increase used to measure the accumulated postretirement benefit obligation at
June 30, 1998 were 6.75% and 4.50%, respectively.
-46-
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN - In connection with the Conversion, the Board of
Directors of the Company adopted the Dime Community Bancshares 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 from the date of the
Conversion. 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 $8,016 and $9,175, respectively at June 30, 1999 and 1998, and a
fixed rate of 8.0%.
Prior to January 21, 1999, FIBC maintained an employee stock ownership plan for
all eligible employees (the "FIBC ESOP"). Effective, January 21, 1999, the Bank
assumed sponsorship of the ESOP, for which the plan assets total $5,376 as of
June 30, 1999. The Bank is currently in the process of dissolving the FIBC
ESOP and distributing the plan assets to the respective participants, and has
received a federal tax determination letter dated August 5, 1999, indicating
that the termination of the FIBC ESOP will not adversely impact its tax
qualified status.
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 in the event of a "change of control" of
the Company as defined in the ESOP. Shares of common stock allocated to
participating employees totaled 115,832, 116,380 and 121,702 during the years
ended June 30, 1999, 1998 and 1997. The ESOP benefit expense recorded in
accordance with SOP 93-6 for allocated shares totaled $2,595, $2,670 and
$1,883, respectively, for the years ended June 30, 1999, 1998 and 1997.
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. All
allocated RRP shares vest on February 1{st }of each year over a total period of
five years, and become 100% vested in the event of death or disability of the
participant, or in the event of a "change of control" of the Company as defined
by the RRP. 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.
The following is a summary of activity related to the RRP for the years
ended June 30, 1999, 1998 and 1997:
At or for the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Shares acquired (a) 46,770(a) - 581,900
Shares vested 103,456 164,876 15,870
Shares forfeited 3,200 - -
Unallocated shares - end of period 46,770 - -
Unvested allocated shares -end of period 310,368 417,024 566,030
Compensation recorded to expense $1,922 $2,708 $1,175
EFFECTS OF ACCOUNTING FOR COMPENSATION UNDER
SFAS 123 INSTEAD OF APB 25:
Decrease in compensation expense $422 $601 $315
Increase in Basic EPS $0.02 $0.03 $0.01
Increase in Diluted EPS $0.02 $0.02 $0.01
(a) Represents awarded shares retained for tax withholding.
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 Bancshares, 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
-47-
<PAGE>
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 option grants.
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 by
participants on December 26, 1997, 1998, 1999, 2000 and 2001, respectively.
On January 21, 1999, holders of stock options which had been granted by FIBC to
purchase 96,975 shares of FIBC common stock were converted into options to
purchase 177,286 shares DCB common stock (the "Converted Options"). The
expiration dates on all Converted Options remained unchanged from initial grant
by FIBC.
Activity related to the Stock Option Plan for the fiscal years ended June 30,
1999, 1998 and 1997 is as follows:
Year Ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Options outstanding - beginning of year 1,388,225 1,393,425 -
Options granted - - 1,393,425
FIBC stock options converted into
Company stock options 177,286 - -
Options exercised 32,300 3,600 -
Options forfeited 8,000 1,600 -
Options outstanding - end of year 1,525,211 1,388,225 1,393,425
Remaining options available for grant
under the plan 70,925 62,925 61,325
Exercisable options at end of year 771,361 305,225 39,675
Weighted average exercise price on
exercisable options - end of year $13.10 $14.50 $14.50
The weighted average fair value per option at the date of grant/conversion for
stock options granted/converted was estimated as follows:
Granted FIBC Converted
Options Options
- ------------------------------------------------------------------------------
Estimated fair value on date
of grant/conversion $5.72 $13.81
Pricing methodology utilized Binomial Option Binomial Option
Expected life (in years) 10 10
Interest rate 5.79% 5.25%
Volatility 22.89 22.78
Dividend yield 1.40 2.00
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 $1,063, $1,063 and $532,
respectively, for the years ended June 30, 1999, 1998 and 1997, net income
would have decreased by $574, $574 and $287 respectively for the years ended
June 30, 1999, 1998 and 1997, both basic and diluted earnings per share would
have decreased by $0.05 for the years ended June 30, 1999 and 1998, and both
basic and diluted earnings would have decreased by $0.02 during the year ended
June 30, 1997. The effects of applying SFAS 123 for disclosing compensation
cost may not be representative of the effect on reported net income for future
years.
-48-
<PAGE>
16. COMMITMENTS AND CONTINGENCIES
MORTGAGE LOAN COMMITMENTS AND LINES OF CREDIT - At June 30, 1999 and 1998, the
Bank had outstanding commitments to make mortgage loans aggregating
approximately $111,008 and $158,042, respectively.
At June 30, 1999, commitments to originate fixed rate and adjustable rate
mortgage loans were $18,221 and $92,787 respectively. Interest rates on fixed
rate commitments ranged between 6.38% to 8.00%. 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 multi-family and underlying cooperative properties located within the
New York City metropolitan area.
The Bank had available at June 30, 1999 unused lines of credit with the Federal
Home Loan Bank of New York totaling $100,000, expiring on September 13, 1999.
LEASE COMMITMENTS - At June 30, 1999, aggregate net minimum annual rental
commitments on leases are as follows:
Year Ended June 30, Amount
- -------------------------------
2000 $657
2001 665
2002 522
2003 541
2004 526
Thereafter 1,719
Net rental expense for the years ended June 30, 1999, 1998 and 1997
approximated $150, $183, and $197, 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.
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 Company 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 Company 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.
-49-
<PAGE>
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.
The estimated fair values of the Company's financial instruments at June 30,
1999 and 1998 were as follows:
CARRYING FAIR
June 30, 1999 AMOUNT VALUE
- -------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $17,801 $17,801
Investment securities held to maturity 31,698 31,768
Investment securities available for sale 146,632 146,632
Mortgage-backed securities held to maturity 22,820 23,192
Mortgage-backed securities available for sale 502,847 502,847
Loans and loans held for sale 1,368,260 1,375,248
Federal funds sold 11,011 11,011
FHLB stock 28,281 28,281
LIABILITIES:
Savings, money market, NOW Super NOW and
checking accounts $543,810 $543,810
Certificates of Deposit 703,251 701,695
Escrow, other deposits and borrowed funds 768,237 768,237
Other liabilities 20,622 20,622
- -------------------------------------------------------------------------------
CARRYING FAIR
June 30, 1998 AMOUNT VALUE
- -------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $16,266 $16,266
Investment securities held to maturity 78,091 78,593
Investment securities available for sale 85,706 85,706
Mortgage-backed securities held to maturity 46,714 47,443
Mortgage-backed securities available for sale 363,875 363,875
Loans and loans held for sale 938,046 942,341
Federal funds sold 9,329 9,329
FHLB stock 10,754 10,754
LIABILITIES:
Savings, money market, NOW Super NOW and
checking accounts $426,014 $426,014
Certificates of Deposit 612,328 610,296
Escrow, other deposits and borrowed funds 375,501 375,501
Other liabilities 23,734 23,734
Off-balance sheet liability-
commitments to extend credit - (1,431)
- -------------------------------------------------------------------------------
-50-
<PAGE>
18. TREASURY STOCK
The Company repurchased 937,929, 919,837 shares and 1,454,750 shares of its
common stock into treasury during the fiscal years ended June 30, 1999, 1998
and 1997, respectively. All shares were repurchased in accordance with
applicable regulations of the Office of Thrift Supervision and Securities and
Exchange Commission. The Company reissued 1,504,704 shares of treasury stock
in conjunction with its acquisition of FIBC.
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.
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%. In addition, insured institutions in
the strongest financial and managerial condition, with a rating of one (the
highest examination of the Office of Thrift Supervision under the Uniform
Financial Institutions Rating System) are required to maintain Tier 1 capital
ratio of not less than 3.0% of total assets (the "leverage capital ratio").
For all other banks, the minimum leverage capital requirement is 4.0%, unless a
higher leverage capital ratio is warranted by the particular circumstances or
risk profile of the institution. The Bank is also subject to prompt corrective
action requirement regulations set forth by the FDIC. These regulations
require 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, 1999, that the Bank meets all capital adequacy requirements to which it is
subject.
As of June 30, 1999, 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 CATEGORIZED
AS "WELL CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible capital $123,817 5.83% $31,846 1.5% N/A N/A
Leverage capital 123,817 5.83 63,693 3.0% N/A N/A
Total risk-based capital (to risk weighted
assets) 138,123 11.45 96,515 8.0% $120,644 10.00%
Tier I risk-based capital (to risk weighted
assets) 123,817 10.28 N/A N/A 72,387 6.00
Tier I leverage capital (to average assets) 123,817 6.52 N/A N/A 94,904 5.00
</TABLE>
-51-
<PAGE>
<TABLE>
<CAPTION>
To Be Categorized
TO BE CATEGORIZED
AS "WELL CAPITALIZED"
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE ACTION
ACTUAL PURPOSES PROVISIONS
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------------------------------------------------------------------------------------------------------------------
Tangible capital $131,186 8.32% $23,655 1.5% N/A N/A
Leverage capital 131,186 8.32 47,309 3.0% N/A N/A
Total risk-based capital (to risk weighted
assets) 141,885 16.58 68,472 8.0% $85,590 10.00%
Tier I risk-based capital (to risk weighted
assets) 131,186 15.33 N/A N/A 51,354 6.00
Tier I leverage capital (to average assets) 131,186 9.06 N/A N/A 72,380 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, 1999 1998
- -------------------------------------------------------------------------------------------------------------------------------
TANGIBLE LEVERAGE RISK-BASED Tangible Leverage Risk-Based
CAPITAL CAPITAL CAPITAL Capital Capital Capital
<S> <C> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------------
GAAP capital $189,405 $189,405 $189,405 $156,718 $156,718 $156,718
Non-allowable assets:
Core deposit intangible (4,585) (4,585) (4,585) - - -
Unrealized loss (gain) on
available for sale
securities 3,868 3,868 3,868 (1,504) (1,504) (1,504)
Goodwill (64,871) (64,871) (64,871) (24,028) (24,028) (24,028)
General valuation
allowance - - 14,306 - - 10,699
- --------------------------------------------------------------------------------------------------------------------------------
Regulatory capital 123,817 123,817 138,123 131,186 131,186 141,885
Minimum capital
requirement 31,846 63,693 96,515 23,655 47,309 68,472
- --------------------------------------------------------------------------------------------------------------------------------
Regulatory capital
excess $91,971 $60,124 $41,608 $107,531 $83,877 $73,413
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-52-
<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, 1999 and 1998.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months Ended September 30, 1998 December 31, 1998 March 31, 1999<F1> June 30, 1999<F1>
- -----------------------------------------------------------------------------------------------------------------------
Net interest income $12,600 $12,486 $15,489 $16,118
Provision for loan losses 60 60 60 60
Net interest income after
provision for loan losses 12,540 12,426 15,429 16,058
Non-interest income 1,254 2,407 1,906 2,349
Non-interest expense: 6,692 7,074 8,172 8,555
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 7,102 7,759 9,163 9,852
Income tax expense 3,119 3,074 3,614 4,208
- -----------------------------------------------------------------------------------------------------------------------
Net income $3,983 $4,685 $5,549 $5,644
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE <F2>:
Basic $0.38 $0.46 $0.49 $0.49
- -----------------------------------------------------------------------------------------------------------------------
Diluted $0.35 $0.42 $0.45 $0.45
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
For the Three Months Ended September 30, 1997 December 31, 1997 March 31, 1998 June 30, 1998
- -----------------------------------------------------------------------------------------------------------------------
Net interest income $12,026 $12,279 $12,459 $12,765
Provision for loan losses 525 525 525 60
Net interest income after
provision for loan losses 11,501 11,754 11,934 12,705
Non-interest income 981 1,032 1,261 3,733
Non-interest expense: 6,746 6,860 7,063 9,268
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 5,736 5,926 6,132 7,170
Income tax expense 2,898 3,039 2,794 3,135
- -----------------------------------------------------------------------------------------------------------------------
Net income $2,838 $2,887 $3,338 $4,035
- -----------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE (2):
Basic $0.25 $0.26 $0.31 $0.37
- -----------------------------------------------------------------------------------------------------------------------
Diluted $0.23 $0.24 $0.28 $0.34
- -----------------------------------------------------------------------------------------------------------------------
<FN>
<F1> On January 21, 1999, the Company completed the FIBC acquisition.
<F2> The quarterly earnings per share amounts, when added, may not agree to
earnings per share reported on the Consolidated Statement of Operations due to
differences in the computed weighted average shares outstanding as well as
rounding differences.
</TABLE>
-53-
<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, 1999 and 1998, and the related statements of
operations and cash flows for the years ended June 30, 1999, 1998 and 1997
reflect the Company's investment in its wholly-owned subsidiaries, the Bank and
842 Manhattan Avenue Corp., using the equity method of accounting:
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF FINANCIAL CONDITION
(Dollars in thousands except share amounts)
At June 30, 1999 1998
- -------------------------------------------------------------------------------
ASSETS:
Cash and due from banks $61 $55
Investment securities available for sale 9,529 18,677
Mortgage-backed securities available for sale 45,248 -
Federal funds sold 3,517 1,291
ESOP loan to subsidiary 8,016 9,175
Investment in subsidiary 189,575 156,718
Receivable for securities sold - 1,264
Other assets 264 184
- -------------------------------------------------------------------------------
TOTAL ASSETS $256,210 $187,364
- -------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Securities sold under agreement to repurchase $43,766 $-
Other liabilities 875 1,015
Stockholders' equity 211,569 186,349
- -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY: $256,210 $187,364
- -------------------------------------------------------------------------------
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Dollars in thousands except share amounts)
For the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------
Net interest income $1,503 $2,041 $3,585
Dividends received from Bank 54,000 13,000 -
Gain on sales of securities 555 521 11
Less:
Non-interest expense 431 481 446
- -------------------------------------------------------------------------------
Income before income taxes and equity of undistributed
(overdistributed) earnings of the Bank 55,627 15,081 3,150
Income tax expense 752 935 1,487
- -------------------------------------------------------------------------------
Income before equity of undistributed (overdistributed) earnings
of Subsidiaries 54,875 14,146 1,663
Equity in (overdistributed) undistributed
earnings of Subsidiaries (1) (35,014) (1,048) 10,653
- -------------------------------------------------------------------------------
NET INCOME $19,861 $13,098 $12,316
- -------------------------------------------------------------------------------
(1) The equity in overdistributed earnings of Subsidiaries for the years
ended June 30, 1999 and 1998, represents dividends paid to the Company by
its subsidiaries in excess of the current year's earnings of Subsidiaries.
-54-
<PAGE>
DIME COMMUNITY BANCSHARES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in thousands except share amounts)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For the year ended June 30, 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $19,861 $13,098 $12,316
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in overdistributed (undistributed) earnings of 35,014 1,048 (10,653)
Subsdiaries
Gain on sale of investment securities available for sale (555) (520) (11)
Net accretion of discount on investment securities
available for sale (283) (291) (1,130)
Decrease (Increase) in other assets (80) 160 (321)
Decrease (Increase) in receivable for securities purchased 1,264 (1,264) -
(Decrease) Increase in payable for securities purchased - - (33,994)
(Decrease)Increase in other liabilities (747) (71) (225)
- -------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by operating activities 54,474 12,160 (34,018)
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease (Increase) in federal funds sold (2,226) 4,749 47,583
Proceeds from sale of investment securities available for sale 9,373 13,439 10,011
Proceeds from calls and maturities of investment securities
available for sale 5,000 13,500 120,595
Purchases of investment securities available for sale (5,425) (20,940) (117,006)
Purchases of mortgage-backed securities available for sale (54,015) - -
Principal repayments on mortgage-backed securities available for 8,485 - -
sale
Principal repayments on ESOP loan 691 911 1,165
Cash disbursed in acquisition of Financial Bancorp, net of cash (33,068) - -
acquired
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (71,185) 11,659 62,348
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in securities sold under agreement to repurchase 43,766 - -
Cash disbursed for expenses related to issuance of common stock - - (190)
COMMON STOCK ISSUED FOR EXERCISE OF STOCK OPTIONS 468 52 -
CASH DIVIDENDS PAID TO STOCKHOLDERS (5,919) (2,635) (537)
PURCHASE OF TREASURY STOCK (21,198) (20,767) (27,703)
PURCHASE OF COMMON STOCK BY BENEFIT MAINTENANCE PLAN (400) (431) -
- -------------------------------------------------------------------------------------------------------------------------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES 16,717 (23,781) (28,430)
- -------------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND DUE FROM BANKS 6 38 (100)
CASH AND DUE FROM BANKS, BEGINNING OF PERIOD 55 17 117
- -------------------------------------------------------------------------------------------------------------------------
CASH AND DUE FROM BANKS, END OF PERIOD $61 $55 $17
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
* * * * *
-55-
EXHIBIT 21.1
Subsidiaries of Dime Community Bancshares, Inc. - The following are the
significant subsidiaries of Dime Community Bancshares, Inc.
Name: The Dime Savings Bank of Williamsburgh
Jurisdiction of incorporation: United States of America
Names under which it does business:
The Dime Savings Bank of Williamsburgh
Name: 842 Manhattan Avenue Corporation
Jurisdiction of incorporation: New York
Names under which it does business:
842 Manhattan Avenue Corporation
Subsidiaries of The Dime Savings Bank of Williamsburgh - The following are
the significant subsidiaries of The Dime Savings Bank of Williamsburgh.
Name: DSBW Preferred Funding Corporation
Jurisdiction of incorporation: Delaware
Names under which it does business:
DSBW Preferred Funding Corporation
Name: Havemeyer Equities, Inc.
Jurisdiction of incorporation: New York
Names under which it does business:
Havemeyer Equities, Inc.
Name: Havemeyer Brokerage Corporation
Jurisdiction of incorporation: New York
Names under which it does business:
1
<PAGE>
Havemeyer Brokerage Corporation
Name: Finfed Development Corporation
Jurisdiction of incorporation: New York
Names under which it does business:
Finfed Development Corporation
Name: Finfed Funding Corporation
Jurisdiction of incorporation: New York
Names under which it does business:
Finfed Funding Corporation
Name: FS Agency Corporation
Jurisdiction of incorporation: New York
Names under which it does business:
FS Agency Corporation
The remaining subsidiaries, which are all direct or indirect subsidiaries
of The Dime Savings Bank of Williamsburgh would not, when considered in the
aggregate as a single subsidiary, constitute a significant subsidiary as
defined in 17 C.F.R. 210.1-02 (v) Rule 1-02(v) of Regulation S-X as of June
30, 1999. For a description of the Registrant's subsidiaries, see Item 1
of "Business" of the Registrant's Annual Report on Form 10-K for the fiscal
year ended June 30, 1999.
2
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
IN THOUSANDS EXCEPT PER SHARE AMOUNTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 17,801
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,011
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 649,479
<INVESTMENTS-CARRYING> 54,518
<INVESTMENTS-MARKET> 54,960
<LOANS> 1,383,341
<ALLOWANCE> 15,081
<TOTAL-ASSETS> 2,247,615
<DEPOSITS> 1,247,061
<SHORT-TERM> 245,895
<LIABILITIES-OTHER> 57,199
<LONG-TERM> 485,765
0
0
<COMMON> 145
<OTHER-SE> 211,550
<TOTAL-LIABILITIES-AND-EQUITY> 2,247,615
<INTEREST-LOAN> 92,127
<INTEREST-INVEST> 40,337
<INTEREST-OTHER> 1,448
<INTEREST-TOTAL> 133,912
<INTEREST-DEPOSIT> 44,417
<INTEREST-EXPENSE> 77,219
<INTEREST-INCOME-NET> 56,693
<LOAN-LOSSES> 240
<SECURITIES-GAINS> 668
<EXPENSE-OTHER> 30,493
<INCOME-PRETAX> 33,876
<INCOME-PRE-EXTRAORDINARY> 33,876
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,861
<EPS-BASIC> 1.81
<EPS-DILUTED> 1.68
<YIELD-ACTUAL> 7.24
<LOANS-NON> 3,001
<LOANS-PAST> 0
<LOANS-TROUBLED> 1,290
<LOANS-PROBLEM> 4,659
<ALLOWANCE-OPEN> 12,075
<CHARGE-OFFS> 208
<RECOVERIES> 7
<ALLOWANCE-CLOSE> 15,081
<ALLOWANCE-DOMESTIC> 15,081
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 15,081
</TABLE>
