<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1996
Registration No.333-10471
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Pre-Effective
Amendment No. 2
to the
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
ROSLYN BANCORP, INC.
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CERTIFICATE OF INCORPORATION)
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DELAWARE 6036 11-3333218
<S> <C> <C>
(state or other jurisdiction of (Primary Standard (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
1400 OLD NORTHERN BOULEVARD
ROSLYN, NEW YORK 11576
(516) 621-6000
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
JOSEPH L. MANCINO
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
THE ROSLYN SAVINGS BANK
ROSLYN, NEW YORK 11576
(516) 621-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
LAWRENCE M.F. SPACCASI, ESQUIRE
MARC P. LEVY, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
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Title of each Class of Amount to Purchase Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price (1) Fee
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Common Stock 43,642,500 $10.00 $436,425,000 $150,492
$.01 par Value Shares (2)
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Participation 589,232 ------- ------ (3)
Interests Shares
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
(2) A registration fee of $139,492 was previously paid upon the initial filing
of the Form S-1. An additional registration fee of $10,945 was paid upon the
filing of the Pre-Effective Amendment No.1 to the Form S-1.
(3) The securities of Roslyn Bancorp, Inc. to be purchased by The Roslyn Savings
Bank 401(k) Savings Plan are included in the amount shown for Common Stock.
Accordingly, no separate fee is required for the participation interests. In
accordance with Rule 457(h) of the Securities Act, as amended, the
registration fee has been calculated on the basis of the number of shares of
Common Stock that may be purchased with the current assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
ROSLYN BANCORP, INC.
Cross Reference Sheet Showing Location in the Subscription and Community
Offering Prospectus ("Prospectus") of Information Required by Items of Form S-1:
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Registration Statement Item and Caption Prospectus Headings
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<S> <C> <C>
1. Forepart of the Registration Statement and Front Cover Page
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back Cover Pages
of Prospectus
3. Summary Information, Risk Factors and Summary; Risk Factors
Ratio of Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Price The Conversion- Stock Pricing
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Front Cover Page; The Conversion - Subscription
Offering and Subscription Rights; -Community
Offering; -Syndicated Community Offering
9. Description of Securities to be Registered The Conversion - Certain Restrictions on Purchases
or Transfer of Shares After Conversion; Restrictions
on Acquisition of the Company and the Bank;
Description of the Capital Stock of the Company;
Description of the Capital Stock of the Bank
10. Interests of Named Experts and Counsel Not Applicable
11. Information with Respect to the Registrant Front Cover Page; Roslyn Bancorp, Inc.; The Roslyn Savings Bank;
Dividend Policy; Consolidated Statements of Operations; Management's
Discussion and Analysis of Financial Condition and Results of
Operations of the Bank; Business of the Bank; Regulation; Management
of the Company; Management of the Bank; The Conversion; Description
of the Capital Stock; Financial Statements
12. Disclosure of Commission Position on Not Applicable
Indemnification for Securities Act Liabilities
</TABLE>
<PAGE>
[To be used in connection with sales to Participants in The Roslyn Savings Bank
401(k) Savings Plan]
PROSPECTUS SUPPLEMENT
- ---------------------
ROSLYN BANCORP, INC.
THE ROSLYN SAVINGS BANK
____PARTICIPATION INTERESTS
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Roslyn Savings Bank 401(k) Savings Plan in RSI
Retirement Trust (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of Roslyn Bancorp, Inc. (the "Common Stock"), as
set forth herein.
In connection with the proposed conversion of The Roslyn Savings Bank (the
"Bank") from a mutual savings bank to a stock savings bank, (the "Conversion")
the Plan has been amended to permit the investment of plan assets in Common
Stock of Roslyn Bancorp, Inc. (the "Holding Company"). The amended Plan will
permit Participants to direct the trustee of the Plan (the "Trustee") to
purchase Common Stock with amounts in the Plan attributable to such
Participants. Based upon the value of the Plan assets at June 28, 1996, 589,232
shares of Common Stock could be purchased with Plan assets (assuming a purchase
price of $10.00 per share). This Prospectus Supplement relates to the initial
election of a Participant to direct that all or a portion of their accounts be
invested in Common Stock in connection with the Conversion and also to elections
by Participants to direct that all or a portion of their accounts be invested in
Common Stock after the Conversion.
The Prospectus dated __________________, 1996 of the Holding Company
(the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Conversion, the Common Stock
and the financial condition, results of operations and business of the Bank.
This Prospectus Supplement, which provides detailed information with respect to
the Plan, should be read only in conjunction with the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "Risk Factors."
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING DEPARTMENT,THE FEDERAL DEPOSIT INSURANCE CORPORATION,
OR ANY OTHER STATE OR FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS
SUCH COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1996.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct as
of any time subsequent to the date hereof. This Prospectus Supplement should be
read only in conjunction with the Prospectus that is attached hereto and should
be retained for future reference.
<PAGE>
TABLE OF CONTENTS
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THE OFFERING.................................................. 1
Securities Offered....................................... 1
Election to Purchase Common Stock in the Conversion...... 1
Value of Participation Interests......................... 1
Method of Directing Transfer............................. 1
Time for Directing Transfer.............................. 2
Irrevocability of Transfer Direction..................... 2
Direction to Purchase Common Stock After the Conversion.. 2
Purchase Price of Common Stock........................... 2
Nature of a Participant's Interest in the Common Stock... 3
Voting and Tender Rights of Common Stock................. 3
DESCRIPTION OF THE PLAN....................................... 3
Introduction............................................. 3
Eligibility and Participation............................ 4
Contributions Under the Plan............................. 5
Limitations on Contributions............................. 6
Investment of Contributions.............................. 8
Benefits Under the Plan.................................. 10
Withdrawals and Distributions From the Plan.............. 11
Administration of the Plan............................... 12
Reports to Plan Participants............................. 12
Plan Administrator....................................... 12
Amendment and Termination................................ 13
Merger, Consolidation or Transfer........................ 13
Federal Income Tax Consequences.......................... 13
ERISA and Other Qualification............................ 16
Restrictions on Resale................................... 16
SEC Reporting and Short-Swing Profit Liability........... 17
EXPERTS....................................................... 18
LEGAL OPINIONS................................................ 18
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to 589,232 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees of the Bank and its subsidiary, Residential First, Inc.
(together hereinafter referred to as the "Employer"), may participate in the
Plan. The Common Stock issued hereby is conditioned on the consummation of the
Conversion. A Participant's purchase of Common Stock in the Conversion is
subject to the priority set forth in the Plan of Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 1400 Old Northern Boulevard, Roslyn, New York 11576. The Bank's telephone
number is (516) 621-6000.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan has been amended to
permit each Participant to direct that all or part of the funds which represent
his or her beneficial interest in the assets of the Plan may be transferred to
an investment fund that will invest in Common Stock (the "Employer Stock Fund")
and used to purchase Common Stock issued in connection with the Conversion. The
ability of each Participant to purchase Common Stock in the Conversion pursuant
to directions to transfer all or a portion of their beneficial assets in the
Plan will be based on such Participant's status as an Eligible Account Holder or
Supplemental Eligible Account Holder pursuant to the Plans, the subscription
priorities set forth in the Plan and the availability of Common Stock. The
Trustee of the Plan will follow the Participants' directions. Funds not
transferred to the Employer Stock Fund will remain in the other investment funds
of the Plan as directed by the Participant.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan were valued as of June 28, 1996, at $5,982,322 and
each Participant was informed of the value of his or her beneficial interest in
the Plan. This value represented the market value as of June 28, 1996 of past
contributions to the Plan by the Employers and the Participants and any earnings
or losses thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form"). If a Participant wishes to
transfer all or part of his or her beneficial interest in the assets of the Plan
to purchase Common Stock issued in connection with the Conversion, he or she
should indicate that decision in part 2 of the Investment Form. If a Participant
does not wish to make such an election, he or she does not need to take any
action.
1
<PAGE>
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ____________________________, 1996. The Investment Form should be
returned to the Bank's Human Resources Department by ____ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable. Participants, however, will be able to direct the investment of
their accounts ("Accounts") under the Plan as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a certain
percentage of such Participant's interests in the trust fund established for the
Plan (the "Trust Fund") be transferred to the Employer Stock Fund and invested
in Common Stock, or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred to the Trust
Fund to be invested in accordance with the terms of the Plan. Participants will
be permitted to direct that future contributions made to the Plan by or on their
behalf will be invested in Common Stock. Following the initial election, the
allocation of a Participant's interest in the Employer Stock Fund may be changed
six times in any plan year by filing a written notice with the plan
administrator at least ten days before the effective date of the change. Special
restrictions apply to transfers directed by those Participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be acquired
in open market transactions. The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2
<PAGE>
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan. Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant. Earnings, e.g., gains and losses, are allocated to
----
the Account of a Participant based on the particular investment designations of
the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust Fund as directed by Participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have a right to vote, each Participant will be allocated
a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The number of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for Common Stock, the Plan provides that each
Participant will be allotted a number of tender instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund. The
percentage of shares of Common Stock held in the Employer Stock Fund that will
be tendered will be the same as the percentage of the total number of tender
instruction rights that are exercised in favor of tendering. The remaining
shares of Common Stock held in the Employer Stock Fund will not be tendered. The
Plan makes provision for Participants to exercise their voting instruction
rights and tender instruction rights on a confidential basis.
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Plan was established effective January 1, 1979 as the Incentive Savings
Plan of The Roslyn Savings Bank. Effective as of April 1, 1985 the Plan was
amended and restated in its entirety as The Roslyn Savings Bank 401(k) Savings
Plan in the Retirement System for Savings Institutions (the "Plan"); and
effective as of January 1, 1987, the Plan was amended and restated in its
entiretly as The Roslyn Savings Bank 401(k) Savings Plan in RSI Retirement
Trust. The Plan is a cash or deferred arrangement established in accordance with
the requirements under Section 401(a) and Section 401(k) of the Internal Revenue
Code of 1986 (the "Code"). The Plan will be submitted to the Internal Revenue
Service (the "IRS") in a timely manner for a determination that the Plan, as
amended and restated, is qualified under Section 401(a) of the Code, and that
its related trust is qualified under Section 501(a) of the Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank will
adopt any amendments to the
3
<PAGE>
Plan that may be necessary to ensure the qualified status of the Plan under the
Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS MADE
PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, REGARDLESS OF WHETHER SUCH
A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER TERMINATION OF
EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in their
entirety by the full text of the Plan. Copies of the Plan are available to all
employees by filing a request with the Plan Administrator, Arthur W. Toohig, The
Roslyn Savings Bank, 1400 Old Northern Boulevard, Roslyn, New York 11576. The
Plan Administrator's telephone number is (516) 621-6000. Each employee is urged
to read carefully the full text of the Plan.
II. ELIGIBILITY AND PARTICIPATION
Any salaried or commission-paid employee of the Bank or its subsidiary
Residential First, Inc. (together referenced to as the "Employer") is eligible
to participate in the Plan on the first day of any calender month following
completion of one year of service with an Employer. Employees compensated on
an hourly basis and employees compensated on a daily, fee or retainer basis,
leased employees (within the meaning of Section 414(n) of the Code) and
employees covered by a collective bargaining agreement which does not expressly
provide for their coverage under the Plan, are not eligible to participate in
the Plan.
As of _______________, 1996, there were approximately ____ employees
eligible to participate in the Plan, and ___ employees had elected to
participate in the Plan.
4
<PAGE>
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Each Participant in the Plan is permitted to
-------------------------
elect to reduce such Participant's Compensation (as defined below) pursuant to a
"Compensation Reduction Agreement" by an amount not less than 1% and not more
than 12% and have that amount contributed to the Plan on such Participant's
behalf. Such amounts are credited to the Participant's "Basic Contribution
Account." For purposes of the Plan, "Compensation" means a Participant's
compensation from an Employer for the year, prior to any reduction pursuant to a
Compensation Reduction Agreement. Compensation includes salary, wages and wage
continuation to an employee who is absent due to an illness or disability of a
short-term nature and commissions paid on loan originations. "Compensation" does
not include expense allowances, commissions other than those paid on the
originations of loans, severance pay, fees, bonuses, incentive payments,
contributions other than Basic Contributions made to the Plan and contributions
made by the Employer to any other pension, insurance welfare or other employee
benefit plan. The annual compensation of each Participant taken into account
under the Plan is limited to $150,000 (adjusted for increases in the cost of
living as permitted by the Code). Generally, a Participant may elect to modify
the amount contributed to the Plan under such participant's Compensation
Reduction Agreement not more often than four times in any plan year by providing
notice to the Plan Administrator at least 10 days before commencement of the
first day of the payroll period for which the modification is to become
effective. However, special restrictions apply to persons subject to Section 16
of the 1934 Act. Basic Contributions are transferred by the Employer to the
Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan, may not be eligible to make additional
contributions under a Compensation Reduction Agreement for a period of twelve
months after the receipt of the hardship distribution.
Employer Contributions. The Employer contributes to the Plan for each Plan
----------------------
Year 50% of the Participant's Basic Contributions, up to a maximum of 3% of the
Participant's Compensation for the Plan Year. In addition, for each Participant
who has been a Participant for a total of at least sixty calendar months, the
Employer contributes an additional 50% of the Participant's Basic Contributions
for a total of 100% of Basic Contributions, up to a maximum of 6% of the
Participant's Compensation for the Plan Year. Such amounts are credited to the
Participant's "Company Contribution Account." After the Conversion, at the
discretion of the Bank, the Employer contributions made with respect to
Participants who are Bank employees will be credited to the Participant's
Account in The Rosyln Savings Bank Employee Stock Ownership Plan. At its
discretion, the Employer may make an additional contribution to the Plan as of
the end of the Plan Year in an amount determined by the Employer for the purpose
of ensuring that the Plan complies with Section 401(k) of the Code. Such amounts
are credited to Participants' "Special Contribution Accounts" based on each
Participant's compensation. Special Contributions may be made only to the
accounts of non-highly compensated employees.
5
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IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the requirements
--------------------------------------------
of the Code, the Plan provides that the amount of contributions and forfeitures
allocated to each Participant's Basic Contribution Account and Matching
Contribution Account during any Plan Year may not exceed the lesser of 25% of
the Participant's Section 415 Compensation for the Plan Year or $30,000
(adjusted for increases in the cost of living as permitted by the Code). A
Participant's Section 415 Compensation is a Participant's Compensation,
excluding any Employer contribution to the Plan or to any other plan of deferred
compensation or any distributions from a plan of deferred compensation. In
addition, annual additions shall be limited to the extent necessary to prevent
the limitations set forth in the Code for all of the qualified defined benefit
plans and defined contribution plans maintained by the Bank from being exceeded.
To the extent that these limitations would be exceeded by reason of excess
annual additions with respect to a Participant, such excess will be disposed of
as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Employer's contributions for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not
---
covered by the Plan at the end of the Limitation Year, the excess amount will be
held unallocated in a suspense account which will then be applied to reduce
future Employer contributions for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
Limitation on 401(k) Plan Contributions. The annual amount of Deferred
---------------------------------------
Compensation under a Compensation Reduction Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation for
1996 is $9,500). Contributions in excess of this limitation ("excess deferrals")
will be included in the Participant's gross income for federal income tax
purposes in the year they are made. In addition, any such excess deferral will
again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of Deferred Compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average
6
<PAGE>
of the ratios, calculated separately for each eligible employee in each group,
by dividing the amount of Deferred Compensation credited to the Basic
Contribution Account of such eligible employee by such eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (i) 125% of the actual deferral percentage of all other
eligible employees, or (ii) the lesser of (x) 200% of the actual deferral
percentage of all other eligible employees, or (y) the actual deferral
percentage of all other eligible employees plus two percentage points. In
addition, the actual contribution percentage for such Plan Years (i.e., the
average of the ratios calculated separately for each eligible employee in each
group, by dividing the amount of voluntary employee and employer matching
contributions credited to the Matching Contribution Account and Special
Contribution Account of such eligible employee by such eligible employee's
compensation for the Plan Year) of the Highly Compensated Employees may not
exceed the greater of (i) 125% of the actual contribution percentage of all
other eligible employees, or (ii) the lesser of (x) 200% of the actual
contribution percentage of all other eligible employees, or (y) the actual
contribution percentage of all other eligible employees plus two percentage
points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combined voting power of all stock of the
Employer), (2) received compensation from the Employer in excess of $100,000,
(3) received compensation from the Employer in excess of $66,000 and was in the
group consisting of the top 20% of employees when ranked on the basis of
compensation paid during the Plan Year, or (4) was at any time an officer of the
Employer and received compensation in excess of $60,000 (a "Highly Compensated
Employee"). The dollar amounts in the foregoing sentence are for 1996. Such
amounts are adjusted annually to reflect increases in the cost of living. If the
Employer does not have at least one officer whose annual compensation is in
excess of $60,000, then the highest paid officer of the Employer will be treated
as a Highly Compensated Employee.
In addition, the compensation of an employee who is a family member of a 5%
owner, or one of the ten most highly compensated employees during the relevant
period is aggregated with that of the Highly Compensated Employee. All such
family members are treated as a single employee with respect to the application
of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
7
<PAGE>
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Bank may be required to make certain
minimum contributions to the Plan on behalf of non-key employees (as defined
below), and (ii) certain additional restrictions would apply with respect to the
combination of annual additions to the Plan and projected annual benefits under
any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants. Key Employees generally include
any employee who, at any time during the Plan Year or any of the four preceding
Plan Years, is (1) an officer of the Bank having annual compensation in excess
of $60,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the Bank, (3) a 5% owner of the
Bank, (i.e., owns directly or indirectly more than 5% of the stock of the Bank,
or stock possessing more than 5% of the total combined voting power of all stock
of the Bank) or (4) a 1% owner of the Bank having annual compensation in excess
of $150,000. The dollar amounts in the foregoing sentence are for 1996.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Bank's Board of Trustees.
Prior to _____________________, 1996, the Accounts of a Participant held in
the Trust have been invested by the Trustee at the direction of the Participant
in the following funds:
a. Core Equity Fund;
b. Emerging Growth Equity Fund;
c. Value Equity Fund;
d. Intermediate - Term Bond Fund;
e Actively Managed Bond Fund; and
f. Short-Term Investment Fund.
The Plan, as amended effective ____________, now provides that in addition
to the Funds specified above, a Participant who is employed by the Bank may
direct the Trustee to invest all or a portion of his Basic Contribution Account,
Rollover Account and Special Contribution Account in the Employer Stock Fund.
The Company Contribution Account of Participants who are Bank employees will be
entirely invested in Employer Stock under the terms of Roslyn Savings Bank
Employee Stock Ownership Plan being implemented by the Bank.
Participants in the Plan who are employees of Residential First, Inc. may
direct the Trustee to invest all or a portion of his Basic Contribution Account,
Company Contribution Account, Rollover Account and Special Contribution Account
in the Employer Stock Fund.
8
<PAGE>
At least once in each calendar quarter, but in no event more frequently
than six times each Plan Year, a Participant may elect (in increments of 5%), to
have both past and future contributions and additions to the Participant's Basic
Contribution Account, Rollover Account and Special Contribution Account invested
either in the Employer Stock Fund or among such other Funds. Participants may
also elect to have past contributions to their Company Contribution Accounts
(and future contributions to the Company Contribution Account for those
Participants who are Residential First, Inc. employees) invested in either the
Employer Stock Fund or among such other Funds. These elections will be effective
on the effective date of the Participant's written notice to the plan
administrator, provided such notice is filed with the administrator at least 10
days before it is to become effective. Any amounts credited to a Participant's
Accounts for which investment directions are not given will be invested in
accordance with the terms of the Plan. Because investment allocations only are
required to be made in increments of 5%, Participants can invest their Accounts
in each of the 7 available investment funds. Lack of diversification with
respect to the investment of a Participant's Account should not be a significant
risk given the 7 investment options available to Participants and the ability of
Participants to make investment designations six times each year.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The balance of a Participant's loan account
represents the unpaid principal and interest (if any) of such participant's loan
from the Plan. Repayments of principal and payments of interest on loans are
invested by the Trustee as directed by the Participant or, if no investment
directions are given, in accordance with the terms of the Plan.
The net gain (or loss) of the Funds from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust) will be determined at least monthly during the
Plan Year. For purposes of such allocations, all assets of the Trust are valued
at their fair market value.
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the six Funds specified above. The annual percentage return on
these funds for the prior three years was:
9
<PAGE>
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------
<S> <C> <C> <C>
a. Core Equity Fund 40.17% 1.31% 10.34%
b. Emerging Growth Equity Fund 42.83 3.53 20.99
c. Value Equity Fund 33.96 (1.14) 8.10
d. Intermediate-Term Bond Fund 13.99 (2.54) 7.63
e. Actively Managed Bond Fund 17.70 (4.21) 11.20
f. Short-Term Investment Fund 5.39 3.40 2.40
</TABLE>
B. The Employer Stock Fund.
-----------------------
The Employer Stock Fund will consist of investments in Common Stock
made on and after the effective date of the Conversion. Cash dividends, if any,
paid on Common Stock held in the Employer Stock Fund will be credited to a cash
dividend subaccount for each Participant investing in the Employer Stock Fund.
The Board of Directors of the Holding Company may consider a policy of paying
cash dividends on the Common Stock in the future; however, no decision as to the
amount or timing of cash dividends, if any, has been made. The Trustee will, to
the extent practicable, use all amounts held by it in the Employer Stock Fund
(except the amounts credited to cash dividend subaccounts) to purchase shares of
Common Stock of the Bank. It is expected that all purchases will be made at
prevailing market prices. Under certain circumstances, the Trustee may be
required to limit the daily volume of shares purchased. Pending investment in
Common Stock, assets held in the Employer Stock Fund will be placed in bank
deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. Participants' Accounts will also be adjusted for any brokerage
commissions, transfer fees and other expenses incurred in the sale and purchase
of Common Stock for the Employer Stock Fund. A Participant's Account will be
adjusted to reflect changes in the value of shares of Common Stock resulting
from stock dividends, stock splits and similar changes.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Holding
Company and the Bank and market conditions for the Common Stock generally.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
IN INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Basic Contribution Account and the earnings thereon under the
Plan. A Participant vests in his Matching Contribution Account under the Plan
according to the following schedule:
10
<PAGE>
<TABLE>
<CAPTION>
Period of Service Vested Percentage
----------------- -----------------
<S> <C>
less than 1 year 0%
1 years 20%
2 years 40%
3 years 60%
4 years 80%
5 or more years 100%
</TABLE>
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. A Participant may make a
----------------------------------------------
withdrawal from his Basic Contribution Account subject to the hardship
distribution rules under the Plan. These requirements insure that Participants
have a true financial need before a withdrawal may be made.
A Participant may make a withdrawal from his Basic Contribution Account or
Rollover Contribution Account after he turns 59 1/2. A Participant may make a
withdrawal from contributions to his Basic Contribution Account made prior to
the 1992 amendment and restatement of the Plan or the vested portion of his
Matching Contribution Account at any time. However, such withdrawals may not be
made more often than four times during any Plan Year.
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employments if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company credited to the
Participant's Account. Benefit payments ordinarily shall be made not later than
60 days following the end of the Plan Year in which occurs the latest of the
Participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event later than the April 1 following the calendar year in which the
Participant attains age 70 1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the Participant
elects to receive to an earlier distribution.
11
<PAGE>
Distribution upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), 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 anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustee is appointed by the Board of Directors of the Bank
--------
to serve at its pleasure. The current Trustee of the Plan is the RSI Retirement
Trust. However, an additional Trustee is being appointed to hold funds invested
in the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Administrator (as defined below) will furnish to each Participant a
statement at least quarterly showing (i) the balance in the Participant's
Account as of the end of that period, (ii) the amount of contributions allocated
to such participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Bank (the
"Administrator").
12
<PAGE>
Currently, the Administrator is Mr. Arthur Toohig, Senior Vice President and
Human Resources Officer of the Bank. The address and telephone number of the
Administrator is c/o 1400 Old Northern Boulevard, Roslyn, New York 11576; (516)
621-6000. The Administrator is responsible for the administration of the Plan,
interpretation of the provisions of the Plan, prescribing procedures for filing
applications for benefits, preparation and distribution of information
explaining the Plan, maintenance of Plan records, books of account and all other
data necessary for the proper administration of the Plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to Participants, Beneficiaries and others under Sections 104
and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee affected by such termination shall have a fully vested interest in
his Accounts. The Bank reserves the right to make, from time to time, any
amendment or amendments to the Plan which do not cause any part of the Trust to
be used for, or diverted to, any purpose other than the exclusive benefit of
Participants or their beneficiaries; provided, however, that the Bank may make
any amendment it determines necessary or desirable, with or without retroactive
effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the 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
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt
13
<PAGE>
from tax under Section 501(a) of the Code. A plan that is "qualified" under
these sections of the Code is afforded special tax treatment which include the
following: (1) The sponsoring employer is allowed an immediate tax deduction for
the amount contributed to the Plan each year; (2) Participants pay no current
income tax on amounts contributed by the employer on their behalf; and (3)
earnings of the plan are tax-exempt thereby permitting the tax-free accumulation
of income and gains on investments. The Plan will be administered to comply in
operation with the requirements of the Code as of the applicable effective date
of any change in the law. The Bank expects to timely adopt any amendments to the
Plan that may be necessary to maintain the qualified status of the Plan under
the Code. Following such an amendment, the Bank will submit the Plan to the IRS
for a determination that the Plan, as amended, continues to qualify under
Sections 401(a) and 501(a) of the Code and that it continues to satisfy the
requirements for a qualified cash or deferred arrangement under Section 401(k)
of the Code. Should the Plan receive from the IRS an adverse determination
letter regarding its tax exempt status, all participants would generally
recognize income equal to their vested interest in the Plan, the participants
would not be permitted to transfer amounts distributed from the Plan to an IRA
or to another qualified retirement plan, and the Bank may be denied certain
deductions taken with respect to the Plan.
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Bank. The portion of any Lump Sum Distribution
that is required to be included in the Participant's or beneficiary's taxable
income for federal income tax purposes (the "total taxable amount") consists of
the entire amount of such Lump Sum Distribution less the amount of after-tax
contributions, if any, made by the Participant to any other profit sharing plans
maintained by the Bank which is included in such distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan
14
<PAGE>
maintained by the Bank (the "ordinary income portion") will be taxable generally
as ordinary income for federal income tax purposes. However, a Participant who
has completed at least five years of participation in this Plan before the
taxable year in which the distribution is made, or a beneficiary who receives a
Lump Sum Distribution on account of the Participant's death (regardless of the
period of the Participant's participation in this Plan or any other profit-
sharing plan maintained by the Employers), may elect to have the ordinary income
portion of such Lump Sum Distribution taxed according to a special averaging
rule ("five-year averaging"). The election of the special averaging rules may
apply only to one Lump Sum Distribution received by the Participant or
beneficiary, provided such amount is received on or after the Participant turns
59 1/2 and the recipient elects to have any other Lump Sum Distribution from a
qualified plan received in the same taxable year taxed under the special
averaging rule. Under a special grandfather rule, individuals who turned 50 by
1986 may elect to have their Lump Sum Distribution taxed under either the five-
year averaging rule or under the prior law ten-year averaging rule. Such
individuals also may elect to have that portion of the Lump Sum Distribution
attributable to the participant's pre-1974 participation in the Plan taxed at a
flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan. The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution, will
be considered long-term capital gain regardless of the holding period of such
Common Stock. Any gain on a subsequent sale or other taxable disposition of the
Common Stock in excess of the amount of net unrealized appreciation at the time
of distribution will be considered either short-term capital gain or long-term
capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations to be issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- ----------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant does
not elect to have an "eligible rollover distribution" transferred directly to
another qualified plan or to an IRA, the distribution will be subject to a
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution
15
<PAGE>
that is (a) one of a series of substantially equal periodic payments made (not
less frequently than annually) over the Participants designated beneficiary, or
(b) for a specified period of ten years or more; (2) any amount that is required
to be distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974, as amended, and will be submitted to the
IRS for a determination that it is qualified under Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of Common Stock under the Plan who is an
"affiliate" of the Bank as the term "affiliate" is used in Rules 144 and 405
under the Securities Act of 1933, as amended (the "Securities Act") (e.g.,
directors, officers and substantial shareholders of the Bank) may reoffer or
resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act. Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him. In addition, Participants are
advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Bank at the time of
---
resale will be free to resell any shares of Common Stock to them under the Plan,
either publicly or privately, without regard to the Registration and Prospectus
delivery requirements of the Securities Act or compliance with the restrictions
and conditions contained in the exemptive rules thereunder. An "affiliate" of
the Bank is someone who directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control, with the
Bank. Normally, a director, principal officer or major shareholder of a
corporation may be deemed to be an "affiliate" of that corporation. A person who
may be deemed an "affiliate" of the Bank at the time of a proposed resale will
be permitted to make public resales of the Bank's Common Stock only pursuant to
a "reoffer" Prospectus or in accordance with the restrictions and conditions
contained in Rule 144 under the Securities Act or some other
16
<PAGE>
exemption from registration, and will not be permitted to use this Prospectus in
connection with any such resale. In general, the amount of the Bank's Common
Stock which any such affiliate may publicly resell pursuant to Rule 144 in any
three-month period may not exceed the greater of one percent of the Bank's
Common Stock then outstanding or the average weekly trading volume reported on
the National Association of Securities Dealers Automated Quotation System during
the four calendar weeks prior to the sale. Such sales may be made only through
brokers without solicitation and only at a time when the Bank is current in
filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as purchases,
sales, gifts and participation in savings and retirement plans must be reported
periodically, either on a Form 4 within ten days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Bank's fiscal year. Participation in the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Holding Company must be reported to the SEC annually on a
Form 5 by such individuals. At ________________, ____% of the Plan assets were
allocated to officers and directors.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
17
<PAGE>
EXPERTS
The financial statements and schedule of The Roslyn Savings Bank 401(k)
Savings Plan as of December 31, 1994 and 1993 and for the years then ended have
been included herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Bank's Conversion from a mutual
savings bank to a stock based organization.
18
<PAGE>
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Investment Form
---------------
Name of Plan Participant: ________________________________
Social Security Number: ________________________________
1. INSTRUCTIONS. In connection with the proposed Conversion of The
------------
Roslyn Savings Bank from a mutual savings bank to a stock based organization
(the "Conversion"), The Roslyn Savings Bank 401(k) Savings Plan in RSI
Retirement Trust ("Plan") has been amended to permit participants to direct
their current account balances for their Basic Contribution Account, Company
Contribution Account, Rollover Account and Special Contribution Account into a
new fund: the Employer Stock Fund. The percentage of a participant's account
transferred at the direction of the participant into the Employer Stock Fund
will be used to purchase shares of common stock of Roslyn Bancorp, Inc. (the
"Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than _____________, 1996. A
representative for the Plan Administrator will retain a copy of this form and
return a copy to you. If you need any assistance in completing this form,
please contact Mr. Arthur Toohig at (516) 621-6000, extension 1253. If you do
not complete and return this form to the Plan Administrator by ____________, the
funds credited to your accounts under the Plan will continue to be invested in
accordance with your prior investment direction, or in accordance with the terms
of the Plan if no investment direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby direct the Plan Administrator to invest the
following percentage (in multiples of not less than 5%) of my Basic Contribution
Account, Company Contribution Account, Rollover Account and Special Contribution
Account in the:
a. Core Equity Fund ____%
b. Emerging Growth Fund ____%
c. Value Equity Fund ____%
d. Intermediate - Term Investment Fund ____%
e. Actively Managed Bond Fund ____%
f. Short-Term Investment Fund ____%
g. Employer Stock Fund ____%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
3. ACKNOWLEDGEMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
_________________________ ________________
Signature of Participant Date
- -----------------------------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
__________________ ________________
By:______________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE NOT
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND ON THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY
ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK. THE
COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
19
<PAGE>
THE ROSLYN SAVINGS BANK
401(K) SAVINGS PLAN
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1994 AND 1993
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Index to Financial Statements
Independent Auditors' Report
Financial Statements:
Statements of Assets Available for Distribution as of December 31,
1994 and 1993
Statements of Changes in Assets Available for Distribution for the
years ended December 31, 1994 and 1993
Notes to Financial Statements
Item 27a - Schedule of Assets Held for Investment Purposes
Item 27d - Schedule of Reportable Transactions
<PAGE>
[KPMG LETTERHEAD APPEARS HERE]
Independent Auditors' Report
----------------------------
Board of Trustees
The Roslyn Savings Bank:
We have audited the accompanying statements of assets available for
distribution of The Roslyn Savings Bank 401(k) Savings Plan as of
December 31, 1994 and 1993, and the related statements of changes in
assets available for distribution for the years then ended. These
financial statements are the responsibility of the Plan'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 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 financial statements referred to above present
fairly, in all material respects, the assets available for distribution
of The Roslyn Savings Bank 401(k) Savings Plan as of December 31, 1994
and 1993, and the changes in assets available for distribution for the
years then ended, in conformity with generally accepted accounting
principles.
Our audits were performed for the purpose of forming an opinion on the
basic financial statements of The Roslyn Savings Bank 401(k) Savings Plan
taken as a whole. The supplemental schedules of assets held for
investment purposes and reportable transactions are presented for the
purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974. The
supplemental schedules have been subjected to the auditing procedures
applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the
basic financial statements taken as a whole.
/s/ KPMG Peat Marwick LLP
September 15, 1995
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Statements of Assets Available for Distribution
December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash $ - 1,422
Investments managed by the RSI Retirement
Trust, at estimated fair value:
Fixed-income funds:
Short-term investments fund 1,537,920 1,926,662
Intermediate-term bond fund 316,013 343,205
Actively managed bond fund 647,119 734,603
--------- ---------
Total fixed-income funds 2,501,052 3,004,470
--------- ---------
Equity funds:
Core equity fund 1,058,702 1,050,064
Emerging growth equity fund 299,795 236,106
Value equity fund 248,029 190,318
--------- ---------
Total equity funds 1,606,526 1,476,488
--------- ---------
Employer contributions receivable - 7,604
Employee contributions receivable - 14,259
Participant loans receivable 370,331 322,440
--------- ---------
Assets available for distribution $ 4,477,909 4,826,683
========= =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Statements of Changes in Assets Available for Distribution
Years ended December 31, 1994 and 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Additions to assets:
Contributions:
Employer $ 220,386 206,842
Employee 428,897 381,539
---------- ---------
Total contributions 649,283 588,381
---------- ---------
Investment income:
Net investment income on fixed-income and equity
funds managed by The RSI Retirement Trust 28,987 279,304
Interest on participant loans 16,295 17,674
----------- ---------
Total investment income 45,282 296,978
---------- ---------
Total additions 694,565 885,359
---------- ---------
Distributions to participants and beneficiaries (1,043,339) (311,606)
---------- ---------
Excess (deficiency) of contributions and
investment income over distributions (348,774) 573,753
Assets available for distribution:
Beginning of year 4,826,683 4,252,930
---------- ---------
End of year $ 4,477,909 4,826,683
========== =========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements
December 31, 1994 and 1993
(1) Description of Plan
-------------------
The following brief description of The Roslyn Savings Bank 401(k) Savings
Plan (the Plan) is provided for general information purposes only.
Participants should refer to the Plan agreement for more complete
information:
(a) General
-------
The Roslyn Savings Bank (Bank) established the Savings Incentive Plan
(Prior Plan), effective as of January 1, 1979, for the benefit of its
eligible employees. Effective April 1, 1985, the Bank became a
Participating Employer in RSI Retirement Trust (formerly The Retirement
System for Savings Institutions) and amended and restated the Prior Plan
in its entirety so as to replace and supersede the same by a plan of
participation in the System to be known as The Roslyn Savings Bank
401(k) Savings Plan (Plan). The Plan is effectuated through the trust
established by the Bank by its adoption of the Agreement and Declaration
of Trust of the Retirement System for Savings Institutions (now known as
The RSI Retirement Trust).
The Plan is a defined contribution and thrift savings plan. All regular,
full-time employees are eligible for voluntary participation after one
or more years of continuous service. Effective June 12, 1992, Roslyn
Savings Bank purchased the East Northport Branch of Riverhead Savings
Bank (Riverhead Branch). With respect to employees of the Riverhead
Branch, who became employees of Roslyn Savings Bank, employment with
Riverhead Savings Bank was deemed employment with the Bank for purposes
of determining eligibility to participate in the Plan.
The Plan provides growth in savings through the Bank's contributions and
income from its investments. It is subject to the provisions of the
Employee Retirement Income Security Act of 1974 as amended (ERISA).
(b) Contributions to the Plan
-------------------------
The Plan allows the participants to contribute a specified percentage of
their base salary. The maximum percentage allowed is 12% and the minimum
is 1%. The Bank makes bi-weekly contributions equal to 50% of an
employee's contribution to the Plan, up to a maximum of 3%, during the
first 60 months in which an employee contributes to the Plan.
Thereafter, the Bank contributes 100% of the employee's contribution, up
to a maximum of 6%.
Under the provisions of the Plan, participants are fully vested to the
extent of their contributions, together with any related investment
earnings thereon. Participants obtain a vested interest in Bank
contributions, together with any related investment earnings thereon
under the following conditions:
100% in the event of:
(i) death prior to termination of employment
(ii) retirement
(iii) termination of employment due to permanent disability
(iv) completion of 5 years of service
(v) termination or partial termination of the Plan (if
participant is affected by such partial termination) or
discontinuance of contributions to the Plan;
(Continued)
<PAGE>
2
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
Otherwise:
(i) 20% upon entrance into the Plan
(ii) 40% after completion of 12 months
(iii) 60% after completion of 24 months
(iv) 80% after completion of 36 months
(v) 100% after completion of 48 months.
Forfeited balances of participants' nonvested accounts are used to reduce
future Bank contributions.
Effective January 1, 1994, the Plan was amended so as to grant vesting
credit from date of employment and to include all years of eligible
service (including any year an employee was eligible but elected not to
participate).
(c) Plan Distributions
------------------
Under the provisions of the Plan, withdrawals of funds other than at
retirement, death, disability, or other termination will be permitted
subject to certain limitations. Distributions to participants are
recorded when paid.
The Plan provides that withdrawals may be made twice during any Plan year
and that such payments do not result in suspension of contributions to
the Plan. The Plan was amended, effective September 1, 1992, such that
each participant may make withdrawals not more than four times during
any Plan year. Participants may withdraw their own contributions made
prior to April 1, 1985 and any or all Bank contributions provided the
participant is 100% vested. Participant contributions made after April
1, 1985 may be withdrawn under the non-hardship withdrawal provisions
provided the individual is 59-1/2. If the individual is under 59-1/2,
withdrawals may be made under the hardship provisions.
Participants under age 59-1/2 may only withdraw their own contributions
made after April 1, 1985 provided they have withdrawn the maximum amount
available under the non-hardship provision and meet the hardship
withdrawal requirements. The reasons for determining financial hardship
must be described on a written notice to the Employee Benefits Committee
(the Committee), which must be submitted 15 days prior to the date the
payment is to be made. The Committee must approve the request and amount
of payment. Hardship shall include, without limitations: serious illness
of a member of your immediate family; or your educational needs or the
needs of your spouse and/or children; or the purchase or construction of
a principal residence; or to prevent the eviction of the participant
from their principal residence or foreclosure of the participant's
mortgage on their principal residence; or any similar circumstances, in
the discretion of the Committee. The Plan was amended, effective
September 1, 1992, such that participants may not apply for a hardship
withdrawal more often than four times during any plan year.
Bank contributions may only be withdrawn provided the participant is 100%
vested in such contributions.
The Plan was amended September 1, 1993 to conform with the following:
1. Unemployment Compensation Amendments of 1992 effective January 1,
1993.
(Continued)
<PAGE>
3
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
As per regulations issued under this Act, the Plan was amended allowing
Plan participants to transfer directly all or a portion of their
distributions to an IRA account or another qualified plan with a new
employer.
2. Technical Liberalizations of Hardship Distributions under Final Section
401(k) regulations.
The plan now allows participants who request hardship distributions to:
a. gross up their distributions to account for income and excise taxes;
b. receive a distribution to cover educational costs for 12 months
instead of only the current semester; and
c. include anticipated medical expenses in the hardship distribution.
Upon a participant's death, the value of his/her account(s) will be
distributed to the surviving beneficiary, or, if there is none, then 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 their sole and absolute discretion, deem to be
reasonable, then to such one or more of the spouse, descendants, and
blood relatives of the deceased participant as the Committee, in their
sole and absolute discretion, may select.
Under the provisions of the Plan, distributions due to termination of
employment or termination of the Plan are to be paid in a lump sum. For
distributions due to retirement, death or disability, the payment can be
in a lump sum or in annual installments over a period not exceeding
fifteen years; this method of payment is at the discretion of the
participant or beneficiary. The Plan was amended, effective September 1,
1992, to allow this optional form of distribution only for employees who
became participants in the Plan prior to September 1, 1992.
(d) Participant Loans
-----------------
Subject to the approval of the Committee, a participant may borrow from his
or her accounts an amount up to the lesser of (i) fifty percent (50%) of
his vested interest in the net value of his or her basic contribution
account, participant contribution account and bank contribution account,
or (ii) $50,000 reduced by the highest outstanding loan balance during
the preceding twelve (12) months. The minimum loan permitted shall be
$500. All loans shall be for a fixed term of not more than five (5)
years, except that a loan which shall be used for the purchase or
construction of the principal residence of the participant or that of a
member of his immediate family, may, in the discretion of the Committee,
be made for a term not exceeding fifteen (15) years. Interest on a loan
will be charged at the three (3) year treasury rate in effect at the
time of the loan, adjusted to the nearest quarter (1/4) of one percent
(1%).
(2) Summary of Significant Accounting Policies
------------------------------------------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. The significant accounting
policies followed by the Plan are as follows:
(a) Basis of Presentation
---------------------
The accompanying financial statements have been prepared on an accrual
basis and present the assets available for distribution and changes in
those assets of the Plan.
(Continued)
<PAGE>
4
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(b) Trust Funds Managed by The RSI Retirement Trust
-----------------------------------------------
Under the terms of a trust agreement between The RSI Retirement Trust (RSI)
and the Bank, the Bank participates in a trust fund managed by RSI. All
assets of the Plan are held in trust at RSI as Trustee for the exclusive
benefit of the participants and their beneficiaries under the Plan. The
Plan is administered by the Bank and, accordingly, the Bank has the
power to remove and replace the Trustee at any time. The RSI consists of
two groups of investment funds - the fixed-income funds, which are
invested in fixed income investments with limited equity holdings, and
the equity funds, which permit a higher percentage of funds to be
invested in common stocks. As of December 31, 1994 and 1993, there were
eight investment funds available of which only six are utilized by the
Plan. The funds currently consist of (i) three fixed-income funds: (a)
Short-Term Investments Fund, (b) Intermediate-Term Bond Fund, and (c)
Actively Managed Bond Fund, and (ii) three equity funds: (a) Core Equity
Fund, (b) Value Equity Fund, and (c) Emerging Growth Equity Fund. The
Plan has elected to permit investments in certain of the fixed-income
funds and the equity funds for which RSI has sole discretionary
authority concerning purchases and sales of investments therein.
The following is a brief description of the eight investment funds
available:
Short-Term Investments Fund - portfolio is invested in high quality
---------------------------
money market instruments maturing in one year or less, with an
average maturity of the portfolio not to exceed twelve months.
Intermediate-Term Bond Fund - diversified, high quality, fixed income
---------------------------
portfolio with all issues maturing within ten years.
Actively Managed Bond Fund - portfolio's maturity, quality and sector
--------------------------
distributions shifted based on management's interest rate and bond
market forecasts.
Dedicated Bond Fund - invested in a diversified portfolio of fixed-
-------------------
income securities with emphasis on predictable cash flows.
Core Equity Fund - invested in a broadly diversified group of
----------------
financially sound, high quality, large capitalization companies.
Emerging Growth Equity Fund - invested primarily in smaller companies
---------------------------
with higher than average earnings and dividend growth potential.
Value Equity Fund - invested in financially sound companies which offer
-----------------
prospects for significant earnings or dividend growth.
International Equity Fund - invested primarily in stocks of companies
-------------------------
that are headquartered in foreign countries with concentration in the
larger equity markets of Europe, Australia and the Far East.
(c) Investments in Trust Funds and Investment Income
------------------------------------------------
The Plan's investments in the funds of RSI consist of units of
beneficial interest in the funds in which the Plan participates (pooled
investments). The net investment income on trust funds managed by RSI
recognized by the Plan includes current earnings from investments, net
gains or losses realized from
(Continued)
<PAGE>
5
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
the sale of investments and the net change in the unrealized
appreciation or depreciation in the Plan's proportionate share of the
pooled investments.
All investments are reported at fair value, as determined by the unit value
reported by RSI which is based on the value of the underlying
investments at the balance sheet date. Fair value is measured by the
market price, if there is an active market for the investment, or at an
estimated fair value if a price is not available. Investments in cash
equivalents are stated at cost which approximates fair value. Mortgages,
if any, are valued on the basis of the future principal and interest
payments discounted at prevailing interest rates for similar
investments. Interest income is recorded on an accrual method and
dividend income is recorded on the ex-dividend date.
(d) Plan Investment Accounts
------------------------
Participants' contributions may be included in the Plan investment accounts
listed below:
Account A - Core Equity Fund
Account B - 1/2 Emerging Growth Equity Fund,
1/2 Value Equity Fund
Account C - 1/3 Intermediate-Term Bond Fund,
2/3 Actively Managed Bond Fund
Account D - Short-Term Investments Fund
Participants must direct the manner in which all contributions made on
their behalf are invested in the Plan investment accounts. Thus, they
may direct the investment of proportionate parts of those contributions
in any of the accounts described above in multiples of 5%. Participants
may change their election concerning choice of account(s) for investment
of contributions in accordance with procedures described in the Plan.
The Plan was amended, effective September 1, 1993, to allow participants
to change their election of investment direction and to transfer account
balances between investment options at least once each calendar quarter,
up to a maximum of six times a Plan year.
On May 23, 1995, RSI Trust unbundled the investment fund Accounts B and C
previously offered to the Roslyn Savings Bank 401(k) participants.
(Account B and Account C were each comprised of two individual
investment accounts). Participants' contributions will be included in
the Plan investment accounts as listed below subsequent to May 23, 1995:
Account A - Core Equity Fund
Account B - Emerging Growth Equity Fund
Account C - Value Equity Fund
Account D - Actively Managed Bond Fund
Account E - Intermediate-Term Bond Fund
Account F - Short-Term Investments Fund
(Continued)
<PAGE>
6
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(e) Administrative Expenses
-----------------------
The Bank bears the costs of administering the Plan.
(f) Benefits
--------
Benefits to participants or their beneficiaries are recorded when paid.
(3) Investments in Trust Funds Managed by The RSI Retirement Trust
--------------------------------------------------------------
The total number of units and the net asset value per unit at December 31,
1994 were as follows:
<TABLE>
<CAPTION>
Unit Current
Units value value
----- ----- -----
<S> <C> <C> <C>
Short-Term Investments Fund 82,862 $ 18.56 1,537,920
Intermediate-Term Bond Fund 12,491 25.30 316,013
Actively Managed Bond Fund 24,737 26.16 647,119
Core Equity Fund 29,865 35.45 1,058,702
Emerging Growth Equity Fund 8,050 37.24 299,795
Value Equity Fund 9,540 26.00 248,029
----- ---------
$ 4,107,578
=========
</TABLE>
The Plan's investment in each of the following funds represent 5% or more
of the assets available for benefits at December 31, 1994; (a) Short-
Term Investments Fund, (b) Intermediate-Term Bond Fund, (c) Actively
Managed Bond Fund, (d) Core Equity Fund, (e) Emerging Growth Equity Fund
and (f) Value Equity Fund.
The total number of units and the net asset value per unit at December 31,
1993 were as follows:
<TABLE>
<CAPTION>
Unit Current
Units value value
----- ----- -----
<S> <C> <C> <C>
Short-Term Investments Fund 107,335 $ 17.95 1,926,662
Intermediate-Term Bond Fund 13,221 25.96 343,205
Actively Managed Bond Fund 26,899 27.31 734,603
Core Equity Fund 30,010 34.99 1,050,064
Emerging Growth Equity Fund 6,564 35.97 236,106
Value Equity Fund 7,236 26.30 190,318
---------
$ 4,480,958
=========
</TABLE>
The Plan's investment in each of the following funds represent 5% or more
of the assets available for benefits at December 31, 1993; (a) Short-
Term Investments Fund, (b) Intermediate-Term Bond Fund, (c) Actively
Managed Bond Fund and (d) Core Equity Fund.
(Continued)
<PAGE>
7
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
(4) Federal Income Taxes
--------------------
A determination letter dated May 24, 1994 had been obtained from the
Internal Revenue Service to the effect that the Prior Plan and all
amendments to the Prior Plan made before July 13, 1992 qualified for tax
exempt status for Federal income tax purposes. In the opinion of the
Plan administrator, the Plan and its underlying trust have operated
within terms of the Plan and remain qualified under applicable
provisions of the Internal Revenue Code.
(5) Participation in Plan Investment Accounts
-----------------------------------------
The assets of the Plan are comprised of assets in four investment accounts,
which are managed by RSI.
The assets available for distribution for Accounts A, B, C and D as of
December 31, 1994 and 1993 and the changes in those assets for the years
then ended are as follows:
<TABLE>
<CAPTION>
1994
----------------------------------------------------------------------------------
Account Account Account Account
A B C D Other Total
- - - - ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fixed-income funds:
Short-term investments fund $ - - - 1,537,920 - 1,537,920
Intermediate-term bond fund - - 316,013 - - 316,013
Actively managed bond fund - - 647,119 - - 647,119
--------- ------- ------- --------- ------- ---------
- - 963,132 1,537,920 - 2,501,052
--------- ------- ------- --------- ------- ---------
Equity funds:
Core equity fund 1,058,702 - - - - 1,058,702
Emerging equity growth fund - 299,795 - - - 299,795
Value equity fund - 248,029 - - - 248,029
--------- ------- ------- --------- ------- ---------
1,058,702 547,824 - - - 1,606,526
--------- ------- ------- --------- ------- ---------
Participant loans receivable - - - - 370,331 370,331
--------- ------- ------- --------- ------- ---------
Assets available for distribution $ 1,058,702 547,824 963,132 1,537,920 370,331 4,477,909
========= ======= ======= ========= ======= =========
</TABLE>
(Continued)
<PAGE>
8
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
1993
----------------------------------------------------------------------------
Account Account Account Account
Cash A B C D Other Total
---- - - - - ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Cash $ 1,422 - - - - - 1,422
Fixed-income funds:
Short-term investments fund - - - - 1,926,662 - 1,926,662
Intermediate-term bond fund - - - 343,205 - - 343,205
Actively managed bond fund - - - 734,603 - - 734,603
---------- --------- --------- --------- --------- --------- ---------
1,422 - - 1,077,808 1,926,662 - 3,004,470
---------- ---------- --------- --------- --------- --------- ---------
Equity funds:
Core equity fund - 1,050,064 - - - - 1,050,064
Emerging growth fund - - 236,106 - - - 236,106
Value equity fund - - 190,318 - - - 190,318
---------- --------- --------- --------- --------- --------- ---------
- 1,050,064 426,424 - - - 1,476,488
----------- ---------- --------- --------- --------- --------- ---------
Employer contributions receivable - - - - - 7,604 7,604
Employee contributions receivable - - - - - 14,259 14,259
---------- --------- --------- --------- --------- --------- ---------
- - - - - 21,863 21,863
---------- --------- ---------- ---------- ---------- ---------- ----------
Participant loans receivable - - - - - 322,440 322,440
---------- --------- --------- --------- --------- --------- ---------
Assets available for distribution $ 1,422 1,050,064 426,424 1,077,808 1,926,662 344,303 4,826,683
========== ========= ========= ========= ========= ========= =========
</TABLE>
(Continued)
<PAGE>
9
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
Account Account Account Account
Cash A B C D
---- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Year ended December 31,
1994:
Contributions:
Employer $ - 71,180 45,882 51,180 59,748
Employee - 148,158 87,164 96,817 111,017
------- --------- ------- --------- ---------
Total contributions - 219,338 133,046 147,997 170,765
Investment income:
Net investment income - 10,998 7,004 (41,745) 52,730
Participant loan repayments, net of
disbursements (including interest
of $16,295) (1,422) (6,651) 4,957 (17,451) (38,470)
------- --------- ------- --------- ---------
(1,422) 4,347 11,961 (59,196) 14,260
Distributions to participants
and beneficiaries - (254,722) (66,273) (300,727) (394,176)
Transfers between funds - 39,675 42,666 97,250 (179,591)
------- --------- ------- --------- ---------
Excess (deficiency) of
contributions and investment
income over distributions (1,422) 8,638 121,400 (114,676) (388,742)
Assets available for distribution:
Beginning of year 1,422 1,050,064 426,424 1,077,808 1,926,662
------- --------- ------- --------- ---------
End of year $ - 1,058,702 547,824 963,132 1,537,920
======= ========= ======= ========= =========
<CAPTION>
Participant
loans
Other receivable Total
----- ---------- -----
<S> <C> <C> <C>
Year ended December 31,
1994:
Contributions:
Employer (7,604) - 220,386
Employee (14,259) - 428,897
--------- ------- ----------
Total contributions (21,863) - 649,283
Investment income:
Net investment income - - 28,987
Participant loan repayments, net of
disbursements (including interest
of $16,295) - 75,332 16,295
--------- ------- ----------
- 75,332 45,282
Distributions to participants
and beneficiaries - (27,441) (1,043,339)
Transfers between funds - - -
--------- ------- ----------
Excess (deficiency) of
contributions and investment
income over distributions (21,863) 47,891 (348,774)
Assets available for
distribution:
Beginning of year 21,863 322,440 4,826,683
--------- ------- ----------
End of year - 370,331 4,477,909
========= ======= ==========
</TABLE>
(Continued)
<PAGE>
10
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Notes to Financial Statements, Continued
<TABLE>
<CAPTION>
Participant
Account Account Account Account loans
Cash A B C D Other receivable Total
---- - - - - ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Contributions:
Employer $ 52,726 33,374 42,123 78,358 261 - 206,842
Employee - 106,959 59,262 75,881 138,821 616 - 381,539
------ --------- ------- --------- --------- ------ ------- ---------
Total contributions - 159,685 92,636 118,004 217,179 877 - 588,381
Investment income:
Net investment income - 87,928 51,784 93,000 46,592 - - 279,304
Participant loan repay-
ments, net of disburse-
ments (including
interest of $17,674) 1,204 (19,322) 1,872 16,401 (3,172) - 20,691 17,674
------ --------- ------- --------- --------- ------ ------- ---------
1,204 68,606 53,656 109,401 43,420 - 20,691 296,978
Distributions to participants
and beneficiaries - (18,817) (15,922) (29,466) (240,729) - (6,672) (311,606)
Transfers between funds - 84,457 (60,584) (132,708) 108,835 - - -
------ --------- ------- --------- --------- ------ ------- ---------
Excess (deficiency) of
contributions and investment
income over distributions 1,204 293,931 69,786 65,231 128,705 877 14,019 573,753
Assets available for
distribution:
Beginning of year 218 756,133 356,638 1,012,577 1,797,957 20,986 308,421 4,252,930
------ --------- ------- --------- --------- ------ ------- ---------
End of year $ 1,422 1,050,064 426,424 1,077,808 1,926,662 21,863 322,440 4,826,683
====== ========= ======= ========= ========= ====== ======= =========
</TABLE>
<PAGE>
Supplemental Schedule 1
-----------------------
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1994
<TABLE>
<CAPTION>
Identity of issuer
or borrower Description of investment Cost Current value
----------- ------------------------- ---- -------------
<S> <C> <C> <C>
RSI Retirement Trust Short-Term Investments Fund (82,862 units) $ 1,539,577 1,537,920
RSI Retirement Trust Intermediate-Term Bond Fund (12,491 units) 322,633 316,013
RSI Retirement Trust Actively Managed Bond Fund (24,737 units) 682,246 647,119
RSI Retirement Trust Core Equity Fund (29,865 units) 705,403 1,058,702
RSI Retirement Trust Emerging Growth Equity Fund (8,050 units) 243,201 299,795
RSI Retirement Trust Value Equity Fund (9,540 units) 257,759 248,029
*Plan participants Participant Loans Receivable (maturing within
15 years at the rates ranging from 4.25% to 8.75%) 370,331 370,331
----------
$ 4,477,909
==========
</TABLE>
<PAGE>
Supplemental Schedule 2
-----------------------
THE ROSLYN SAVINGS BANK
401(k) SAVINGS PLAN
Item 27d - Schedule of Reportable Transactions
Year ended December 31, 1994
<TABLE>
<CAPTION>
Current
value of
Expense asset on
Identity of Purchase Selling Lease incurred with Cost of transaction Net gain
party involved Description of Assets price price rental transaction asset date (loss)
-------------- --------------------- ----- ----- ------ ----------- ----- ---- ------
(1) (2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RSI Retirement Trust Short-Term Investments Fund $ 441,940 - - - - 441,940 -
======= ======= ====== =========== ====== ======= =========
" " " Short-Term Investments Fund $ - 883,411 - - - 883,411 -
======= ======= ====== =========== ====== ======= =========
" " " Actively Managed Bond Fund $ 329,197 - - - - 329,197 -
======= ======= ====== =========== ====== ======= =========
" " " Actively Managed Bond Fund $ - 384,347 - - - 384,347 -
======= ======= ====== =========== ====== ======= =========
" " " Core Equity Fund $ 407,092 - - - - 407,092 -
======= ======= ====== =========== ====== ======= =========
" " " Core Equity Fund $ - 409,452 - - - 409,452 -
======= ======= ====== =========== ====== ======= =========
</TABLE>
(1) Expenses incurred as a result of these transactions were immaterial and
therefore not shown on this schedule.
(2) Actual cost of asset was not available, however, RSI marks each investment
to market, therefore, they are considered to be at fair market value at the
time of sale.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
ROSLYN BANCORP, INC.
(PROPOSED HOLDING COMPANY FOR THE ROSLYN SAVINGS BANK)
__________ SHARES OF COMMON STOCK
Roslyn Bancorp, Inc. (the "Company"), a Delaware corporation, is offering
for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion of
The Roslyn Savings Bank, Roslyn, New York (the "Bank") from a New York chartered
mutual savings bank to a New York chartered stock savings bank and the issuance
of the Bank's outstanding capital stock to the Company pursuant to a plan of
conversion (the "Plan of Conversion"). The remaining __________ shares of the
Common Stock have been subscribed for in subscription and community offerings
(the "Subscription and Community Offerings") by the Bank's holders of deposit
accounts with the Bank with a balance of $100 or more as of April 30, 1995, by
The Roslyn Savings Bank Employee Stock Ownership Plan, a tax-qualified employee
benefit plan, and related trust (the "ESOP"), by holders of deposit accounts
with a balance of $100 or more as of ______________, 1996, by certain other
account holders and borrowers of the Bank and then by certain members of the
general public. See "The Conversion - General." Contained herein is the
Prospectus in the form used in the Subscription and Community Offerings. The
purchase price for all shares purchased in the Syndicated Community Offering
will be the same as the price paid by subscribers in the Subscription and
Community Offerings (the "Purchase Price"). The Purchase Price of $10.00 per
share is the amount to be paid for each share at the time a purchase order is
submitted. See the cover page of the Prospectus and the table below for
information as to the method by which the range within which the number of
shares offered may vary and the method of subscribing for shares of the Common
Stock. For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors" on pages _____ through ________.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1996, unless extended by the Bank and the Company
with the approval of the Superintendent of Banks of the State of New York and
the Federal Deposit Insurance Corporation, if necessary. Such extensions may
not go beyond _______________, 1998. If an extension of time has been granted,
all subscribers will be notified of such extension, and of their rights to
confirm their subscriptions, or to modify or rescind their subscriptions and
have their funds returned promptly with interest, and of the time period within
which the subscriber must notify the Bank of his intention to confirm, modify or
rescind his subscription. If an affirmative response to any resolicitation is
not received by the Bank and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the ESOP,
which may purchase up to
<PAGE>
8% of the total number of shares of Common Stock issued in the Conversion, no
person, together with associates of and persons acting in concert with such
person, may purchase in the Community Offering and the Syndicated Community
Offering more than $675,000 of the aggregate value of Common Stock offered in
the Conversion. See "Plan of Conversion -Limitations on Common Stock
Purchases." The Company reserves the right, in its absolute discretion, to
accept or reject, in whole or in part, any or all subscriptions in the
Syndicated Community Offering.
The Company and the Bank have engaged Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") to assist them in the sale of the Common Stock in the
Syndicated Community Offering. It is anticipated that Sandler O'Neill will use
the services of other registered broker-dealers ("Selected Dealers") and that
fees to Sandler O'Neill and such Selected Dealers will be an amount not to
exceed 7.0% of the aggregate Purchase Price of the shares sold in the Syndicated
Community Offering. Neither Sandler O'Neill nor any Selected Dealer shall have
any obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
The Company has received conditional approval from the National Association
of Securities Dealers ("NASD") to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RSLN." Prior to this Offering, there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop. The absence
or discontinuance of a market may have an adverse impact on both the price and
liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK, THE
NEW YORK BANKING DEPARTMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER FEDERAL OR STATE AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE, OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE NOT
DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS
ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY
OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE
COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE LOSS OF THE PRINCIPAL
INVESTED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
==========================================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Minimum(5) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- --------------------------------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(6) $ $ $ $
==========================================================================================================================
</TABLE>
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription
and Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________
and $__________ at the minimum and the maximum of the estimated price range
and may be deemed to be underwriting fees. The information under "Pro Forma
Data" in the Prospectus was based on the assumptions stated therein, which
may differ from the estimates used for this table. See "The Conversion -
Marketing and Underwriting Arrangements" for a more detailed discussion of
fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon
the sale of the __________ shares subscribed for at a price of $10.00 per
share and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due
to an increase in the Estimated Price Range of up to 15% to reflect changes
in market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1996.
3
<PAGE>
PROSPECTUS
ROSLYN BANCORP, INC.
(Proposed Holding Company for The Roslyn Savings Bank)
36,844,660 Shares of Common Stock
Roslyn Bancorp, Inc. (the "Company" or "Roslyn Bancorp"), a Delaware
corporation, is offering up to 36,844,660 shares of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of The
Roslyn Savings Bank (the "Bank" or "Roslyn") from a New York State chartered
mutual savings bank to a New York State chartered stock savings bank and the
issuance of the Bank's capital stock to the Company pursuant to the Bank's plan
of conversion, as amended (the "Plan" or "Plan of Conversion"). The
simultaneous conversion of the Bank to stock form, the issuance of the Bank's
stock to the Company and the offer and sale of the Common Stock by the Company
are herein referred to as the "Conversion." In certain circumstances, the
Company may increase the amount of Common Stock offered hereby up to 42,371,359
shares. See Footnote 4 to the table below.
(continued on following page)
_________________
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS ON PAGES ___ THROUGH ___."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY, NOR HAS SUCH
COMMISSION, DEPARTMENT, CORPORATION OR ANY STATE SECURITIES COMMISSION OR OTHER
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE
NOT INSURED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION INSURANCE FUND
OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY AND
ARE NOT GUARANTEED BY THE COMPANY OR BANK. THE COMMON STOCK IS SUBJECT TO
INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
ESTIMATED UNDERWRITING
COMMISSIONS AND OTHER FEES
SUBSCRIPTION PRICE(1) AND EXPENSES(2) ESTIMATED NET PROCEEDS(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share $10.00 $0.25 $9.75
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $0.24 $9.76
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $0.23 $9.77
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1) $272,330,100 $6,699,000 $265,631,100
- -----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1) $320,388,350 $7,473,000 $312,915,350
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1) $368,446,600 $8,247,000 $360,199,600
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum as adjusted(4) $423,713,590 $9,137,000 $414,576,590
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by FinPro,
Inc. ("FinPro") dated September 12, 1996, which states that the estimated
pro forma market value of the Common Stock being offered for sale in the
Conversion ranged from $272,330,100 to $368,446,600 with a midpoint of
$320,388,350 (the "Valuation Range"). The independent appraisal of FinPro
is based upon estimates and projections that are subject to change and the
valuation must not be construed as a recommendation as to the advisability
of purchasing the Common Stock nor an assurance that a purchaser of Common
Stock will thereafter be able to sell the Common Stock at prices within the
Valuation Range. Based on the Valuation Range, the Board of Directors of
the Company and the Board of Trustees of the Bank established an estimated
price range of the Common Stock being offered for sale in the Conversion
within the Valuation Range of $272.3 million to $368.4 million (the
"Estimated Price Range") or between 27,233,010 and 36,844,660 shares of
Common Stock issued at the $10.00 per share price (the "Purchase Price") to
be paid for each share of Common Stock subscribed for or purchased in the
Offering. See "The Conversion - Stock Pricing."
(2) Consists of the estimated costs to the Bank and the Company arising from
the Conversion, including estimated fixed expenses of approximately $2.4
million, and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be between $4.3 million and $5.8 million
at the minimum and maximum of the Estimated Price Range, respectively. See
"The Conversion - Marketing Arrangements." The actual fees and expenses may
vary from the estimates. See "Pro Forma Data" for the assumptions used to
arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold in the Offerings and other factors. Includes
the purchase of shares of Common Stock by The Roslyn Savings Bank Employee
Stock Ownership Plan and related trust (the "ESOP") which is intended to be
funded by a loan to the ESOP from the Company or from a third party, which
will be deducted from the Company's stockholders equity. See "Use of
Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market or general financial and economic conditions. See "Pro
Forma Data" and "The Conversion - Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, if any, see "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Limitations on Common Stock Purchases."
_______________
SANDLER O'NEILL & PARTNERS, L.P.
_______________
The date of this Prospectus is _______________, 1996.
<PAGE>
(continued from previous page)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING") HAVE BEEN GRANTED, IN THE FOLLOWING ORDER
OF PRIORITY: (1) TO THE BANK'S ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF
DEPOSIT ACCOUNTS TOTALLING $100 OR MORE AS OF APRIL 30, 1995); (2) TO THE
COMPANY'S AND BANK'S TAX-QUALIFIED EMPLOYEE BENEFIT PLANS (COLLECTIVELY, THE
"EMPLOYEE PLANS"), INCLUDING THE ESOP, WHICH INTENDS TO SUBSCRIBE FOR UP TO 8%
OF THE COMMON STOCK ISSUED IN CONNECTION WITH THE CONVERSION, (INCLUDING SHARES
ISSUED TO THE ROSLYN SAVINGS BANK FOUNDATION (THE "FOUNDATION")); AND (3) TO THE
BANK'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (DEFINED AS HOLDERS OF DEPOSIT
ACCOUNTS TOTALLING $100 OR MORE AS OF SEPTEMBER 30, 1996). SUBSCRIPTION RIGHTS
ARE NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING SUBSCRIPTION RIGHTS WILL
BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE NEW YORK BANKING DEPARTMENT (THE "NYBD"). Concurrently,
and subject to the prior rights of holders of subscription rights, the Company
is offering the shares of Common Stock not subscribed for in the Subscription
Offering for sale in a community offering to certain members of the general
public (the "Community Offering"). Shares not subscribed for in the Subscription
and Community Offerings will be offered to certain members of the general public
in a syndicated community offering (the "Syndicated Community Offering") (the
Subscription Offering, Community Offering and the Syndicated Community Offering
are referred to collectively as the "Offerings").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may, in their respective capacities as such, purchase in the
Subscription Offering more than $675,000 of Common Stock; no person, together
with associates and persons acting in concert with such person, may purchase in
the Community Offering and Syndicated Community Offering more than $675,000 of
Common Stock; and no person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1.0% of the total number of shares of Common
Stock offered in the Conversion; provided, however, such purchase limitations
may be increased and the amount that may be subscribed for may be increased or
decreased at the sole discretion of the Bank and Company without further
approval of subscribers or the Bank's depositors. The minimum purchase is 25
shares. See "The Conversion - Subscription Offering and Subscription Rights,"
"- Community Offering" and "- Limitations on Common Stock Purchases."
Pursuant to the Plan, the Company intends to establish a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create The Roslyn Savings Bank Foundation (the
"Foundation") and fund the Foundation with shares of Common Stock contributed by
the Company from authorized but unissued shares, in an amount equal to 3% of the
number of shares of Common Stock sold in the Conversion. The Foundation will be
dedicated to charitable purposes within the Bank's local community. For a
discussion of the Foundation and its effects on the Conversion, see "Risk
Factors - Establishment of the Charitable Foundation," "Pro Forma Data," and
"The Conversion - Establishment of Charitable Foundation."
The Bank has engaged Sandler O'Neill to consult with and advise the Company
and the Bank in the Offerings and Sandler O'Neill has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill is
not obligated to take or purchase any shares of Common Stock in the Offerings.
The Bank and the Company will pay a fee to Sandler O'Neill which will be based
on the aggregate Purchase Price of the Common Stock sold in the Offerings. The
Company and the Bank have agreed to indemnify Sandler O'Neill against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing and Underwriting
Arrangements."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT __________, NEW
YORK TIME, ON ______________, 1996 (THE "EXPIRATION DATE") UNLESS EXTENDED BY
THE BANK AND THE COMPANY, WITH THE APPROVAL OF THE SUPERINTENDENT OF BANKS OF
THE STATE OF NEW YORK (THE "SUPERINTENDENT") AND THE FEDERAL DEPOSIT INSURANCE
CORPORATION (THE "FDIC"), IF NECESSARY. Orders submitted are irrevocable until
the completion of the Conversion; provided, that, if the Conversion is not
completed within 45 days after the close of the Subscription and Community
Offerings, unless such period has been extended with the consent of the
Superintendent and FDIC, if necessary, all subscribers will have their funds
returned promptly with interest, and all withdrawal authorizations will be
cancelled. Such extensions may not go beyond ___________, 1998. See "The
Conversion - Procedure for Purchasing Shares in Subscription and Community
Offerings."
The Company has received approval from the National Association of
Securities Dealers, Inc. ("NASD"), conditioned on the consummation of the
Conversion, to have its Common Stock quoted on the Nasdaq National Market under
the symbol "RSLN." Prior to this offering there has not been a public market for
the Common Stock, and there can be no assurance that an active and liquid
trading market for the Common Stock will develop, or that resales of the Common
Stock can be made at or above the Purchase Price. To the extent an active and
liquid trading market does not develop, the liquidity and market value of the
Common Stock may be adversely affected. See "Risk Factors -Absence of Market for
Common Stock" and "Market for the Common Stock."
<PAGE>
[MAP SHOWING THE LOCATION OF THE ROSLYN SAVINGS BANK'S HOME/ADMINISTRATIVE
OFFICE, BRANCH OFFICES AND MORTGAGE ORIGINATION OFFICES APPEARS ON THIS PAGE]
OVERVIEW OF THE CONVERSION AND THE OFFERINGS
The following summary of the Conversion and the Offerings is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
Risk Factors................. A purchase of the Common Stock involves a
substantial degree of risk. Eligible Account
Holders, Supplemental Eligible Account Holders
and other prospective investors should carefully
consider the matters set forth under "Risk
Factors." The shares of Common Stock offered
hereby are not insured by the FDIC or any other
government agency and are not guaranteed by the
Company or Bank.
Rosyln Bancorp, Inc.......... Roslyn Bancorp, Inc. is a Delaware corporation
organized at the direction of The Roslyn Savings
Bank to become a savings and loan holding company
and own all of the Bank's capital stock to be
issued upon its conversion from mutual form to
stock form. To date, the Company has not engaged
in any business. Its executive office is located
at 1400 Old Northern Boulevard, Roslyn, New York
11596 and its telephone number is (516) 621-6000.
The Rosyln Savings Bank...... The Bank is a New York chartered mutual savings
bank. At May 31, 1996, the Bank had total assets
of $1.77 billion, total deposits of $1.44 billion
and retained earnings of $222.2 million. The Bank
is located at 1400 Old Northern Boulevard,
Roslyn, New York 11596 and its telephone number
is (516) 621-6000.
The Roslyn Savings Bank
Foundation.................. The Bank's Plan of Conversion provides for the
establishment of a charitable foundation in
connection with the Conversion which will be
incorporated under Delaware law as a non-stock
corporation. The Foundation will be funded with a
contribution by the Company equal to 3% of the
Common Stock sold in the Conversion. The
authority for the affairs of the Foundation will
be vested in the Board of Directors of the
Foundation, all of whom will be members of the
Company's Board of Directors. See "The
Conversion - Establishment of the Charitable
Foundation."
The Conversion............... The Board of Trustees of the Bank has adopted a
Plan of Conversion pursuant to which the Bank
intends to convert to a New York-chartered stock
savings bank and issue all of its stock to the
Company. The Company is offering shares of its
Common Stock in the Offerings in connection with
the Bank's Conversion. Management believes the
Conversion offers a number of advantages,
including: (i) the ability to attract new
customers; (ii) the ability to provide future
access to capital markets; and (iii) the ability
to increase its presence in the communities it
serves through the acquisition or establishment
of branch offices or the acquisition of other
financial institutions.
Terms of the Offering........ The shares of Common Stock of the Company to be
issued in connection with the Conversion are
being offered at a fixed- price of $10.00 per
share in the Subscription Offering pursuant to
subscription rights in the following order of
priority: (i) holders of deposit accounts with
a balance of $100 or more on April 30, 1995
("Eligible Account Holders"); (ii) the Bank's
Employee Plans, including the ESOP; and (iii)
depositors whose accounts in the Bank totalled
$100 or more on September 30, 1996 ("Supplemental
Eligible Account Holders"). Concurrently, and
subject to the prior rights of holders of
subscription rights, any shares of Common Stock
not subscribed for in the Subscription Offering
are being offered in the Community Offering at
$10.00 per share to certain members of the
general public. Subscription rights will expire
if not exercised by_____, New York Time,
on_______, 1996 unless extended by the Bank and
the Company, See "The Conversion - Subscription
Offering and Subscription Rights and " -Community
Offering."
Exercise of Subscription
Rights...................... Forms to order Common Stock offered in the
Subscription Offering and the Community Offering
will be preceded or accompanied by a Prospectus.
Any person receiving a stock order and
certification form who desires to subscribe for
shares must do so prior to the Expiration Date by
delivering to the Bank a properly executed stock
order and certification form together with full
payment. Once tendered, subscription orders
cannot be revoked or modified without the consent
of the Bank. See "The Conversion - Procedure for
Purchasing Shares in Subscription and Community
Offerings."
Payment for Shares........... Payment for subscriptions may be made (i) in cash
(if delivered in person); (ii) by check or money
order; or (iii) by authorization of withdrawal
from deposit accounts maintained at the Bank. See
"Conversion - Procedure for Purchasing Shares in
Subscription and Community Offerings."
Nontransferability of
Subscription Rights......... The subscription rights of Eligible Account
Holders, Supplemental Eligible Account Holders
and the ESOP are nontransferable. See "The
Conversion - Restrictions on Transfer of
Subscription Rights and Shares."
Purchase Limitations......... No Eligible Account Holder or Supplemental
Eligible Account Holder may purchase in the
Subscription Offering more than $675,000 of
Common Stock. No person, together with associates
and persons acting in concert with such person,
may purchase in the Community Offering and the
Syndicated Community Offering more than $675,000
of Common Stock. No person, together with
associates or persons acting in concert with such
person, may purchase more than 1% of the Common
Stock offered. The Employee Plans, including the
ESOP, may purchase up to 10% of the Common Stock
issued, including Shares issued to the
Foundation. Pursuant to the Plan of Conversion,
it is the intent of the ESOP to purchase 8% of
the Common Stock issued, including shares issued
to the Foundation. The minimum purchase is 25
shares of Common Stock.
Securities Offered and
Purchase Price............... The Company is offering between 27,233,010 and
36,844,660 shares of Common Stock at a Purchase
Price of $10.00 per share. The maximum of the
Estimated Price Range may be increased by up to
15% and the number of shares of Common Stock to
be issued may be increased up to 42,371,359
shares due to regulatory considerations and
changes in market or general financial or
economic conditions. See "The Conversion - Stock
Pricing" and "-Number of Shares to be Issued."
Appraisal.................... The Purchase Price per share has been fixed at
$10.00. The total number of shares to be issued
in the Conversion is based upon an independent
appraisal prepared by FinPro, dated as of
September 12, 1996, which states that the
estimated pro forma market value of the Common
Stock ranged form $272,330,100 to $368,446,600.
The final aggregate value will be determined at
the time of closing of the Offerings and is
subject to change due to changing market
conditions and other factors. See "The
Conversion - Stock Pricing."
Use of Proceeds.............. A portion of net proceeds retained by the Company
will be used for general business activity,
including a loan by the Company directly to the
ESOP to enable the ESOP to purchase up to 8% of
the stock issued in connection with the
Conversion, including shares issued to the
Foundation. To the extent shares are unavailable
to satisfy the ESOP's subscription for 8% of the
Common Stock issued, the ESOP may purchase Common
Stock in open market transactions subsequent to
the Conversion, with such purchases to be funded
by contributions from the Bank. The Company
intends to initially utilize the remaining net
proceeds to invest in mortgage-backed and
mortgage related securities, short and medium
term debt securities and preferred stock. The
Bank intends to utilize net proceeds for general
business purposes. See "Use of Proceeds."
Dividend Policy.............. Upon Conversion, the Board of Directors of the
Company will have the authority to declare
dividends on the Common Stock, subject to
statutory and regulatory requirements. In the
future, the Board of Directors of the Company may
consider a policy of paying cash dividends on the
Common Stock. However, no decision has been made
with respect to such dividends, if any See
"Dividend Policy."
Benefits of the Conversion
to Management............... Among the benefits to the Bank and the Company
anticipated from the Conversion is the ability to
attract and retain personnel through the prudent
use of stock options and other stock related
benefit programs. Subsequent to the Conversion,
the Company intends to adopt Stock Programs (as
defined herein) and Stock Option Plans (as
defined herein) for the benefit of directors,
officers and employees. If such benefit plans are
adopted within one year after the Conversion,
such plans will be subject to stockholders'
approval at a meeting of stockholders which may
not be held earlier than six months after the
Conversion. The Company intends to adopt the
Stock programs which would provide for the
granting of Common Stock to officers, directors
and employees of the Bank and Company in an
amount equal to 4% of the Common Stock issued in
the conversion, including shares issued to the
Foundation. The Stock Option Plans that the
Company intends to adopt would provide the
Company with the ability to grant options to
officers, directors and employees of the Bank and
Company to purchase Common Stock equal to 10% of
the number of shares of Common Stock issued in
the Conversion, including shares issued to the
Foundation. For a further description of the
Stock Programs and Stock Option Plans, see "Risk
Factors - Stock Based Benefits to Management,
Employment Contracts and Change in Control
Payments" and "Management of the Bank - Benefit
Plans." See "Management of the Bank -
Subscriptions of Executive Officers, Directors
and Trustees, "Restrictions on Acquisition of the
Company and the Bank - Restructuring in the
Company's Certificate of Incorporation and
Bylaws," and "The Conversion - Establishment of
Charitable Foundation."
Voting Control of
Officers and Directors....... Trustees, Directors and executive officers of the
Bank and the Company expect to purchase
approximately 1.8% or 1.3% of shares of Common
Stock outstanding, based upon the minimum and the
maximum of the Estimated Price Range,
respectively. Additionally, assuming the
implementation of the ESOP, Stock Programs and
Stock Option Plan, directors, executive officers
and employees have the potential to control the
voting of approximately 23.8% or 23.3% of the
Common Stock at the minimum and the maximum of
the Estimated Price Range, respectively.
Additionally, the Foundation will hold 3% of the
Common Stock sold in the Conversion which, if a
waiver from the FDIC of a regulatory condition
agreed to by the Company and the Foundation which
restricts the voting of Common Stock held by the
Foundation is obtained by the Foundation, may be
voted as directed by the Board of Directors of
the Foundation which such Directors are also
Directors of the Company and Bank. See "The
Conversion--Establishment of Charitable
Foundation."
Expiration Date for the
Subscription Offering........ The Expiration Date of the Subscription Offering
is _____________ New York Time on ____________,
1996 unless extended by the Bank and the Company.
See "The Conversion - Subscription Offering and
Subscription Rights."
Expriation Date for the
Community Offering........... The Expiration Date for the Community Offering is
____________ New York Time on ____________, 1996,
unless extended by the Bank and the Company. See
"The Conversion - Community Offering."
Market for Stock.............. As a mutual institution, the Bank has never
issued capital stock and consequently, there is
no existing market for the Common Stock. The
Company has received conditional approval to have
its Common Stock quoted on the Nasdaq National
Market under the symbol "RSLN" subject to the
completion of the Conversion and compliance with
certain conditions, including the presence of at
least two registered and active market makers.
See "Market for the Common Stock."
No Board Recommendations...... The Bank's Board of Trustees is not making any
recommendations to depositors or other potential
investors regarding whether such persons should
purchase the Common Stock. An investment in the
Common Stock must be made pursuant to each
investor's evaluation of his or her best
interests.
Conversion Center............ If you have any questions regarding Conversion,
Call the Conversion Center at (516)________.
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
and Consolidated Financial Statements of the Bank and Notes thereto appearing
elsewhere in this Prospectus.
ROSLYN BANCORP, INC.
Roslyn Bancorp, Inc. is a Delaware corporation recently organized by the
Bank for the purpose of acquiring all of the capital stock of the Bank to be
issued in the Conversion. Immediately following the Conversion, the only
significant assets of the Company will be the capital stock of the Bank, the
Company's loan to the ESOP and the net proceeds of the Offerings retained by the
Company. The Company will purchase all of the capital stock of the Bank to be
issued upon the Conversion in exchange for 50% of the net Conversion proceeds
with the remaining net proceeds to be retained by the Company to be used for
general business activities, including a loan by the Company directly to the
ESOP to enable the ESOP to purchase up to 8% of the Common Stock issued in
connection with the Conversion, including shares issued to the Foundation.
Initially, the net proceeds are expected to be invested by the Company and the
Bank primarily in mortgage-backed and mortgage related securities, short- and
medium-term debt securities and preferred stock. See "Use of Proceeds" and "The
Conversion - General." The business of the Company will consist initially of the
business of the Bank. See "Business of the Company" and "Regulation and
Supervision - Holding Company Regulation."
The Company's executive offices are located at the administrative office
of the Bank at 1400 Old Northern Boulevard, Roslyn, New York 11576. The
Company's telephone number is (516) 621-6000.
THE ROSLYN SAVINGS BANK
The Bank was organized in 1875 as a New York State chartered mutual savings
bank. The Bank's deposits are insured by the Bank Insurance Fund ("BIF"), as
administered by the FDIC, up to the maximum amount permitted by law. The Bank
conducts business from its administrative/home office in Roslyn, New York and
its five branch offices located in the New York counties of Nassau and Suffolk.
In August 1996, the Bank entered into a contract for the purchase of two
additional branch office facilities located in Nassau County which are expected
to open for business in November 1996. The Bank, through its wholly owned
mortgage banking subsidiary, Residential First, Inc. ("RFI"), also operates six
mortgage loan origination offices located in the New York counties of Queens,
Nassau, Suffolk and Albany and the New Jersey counties of Morris and Monmouth.
As of May 31, 1996, the Bank had total assets of $1.77 billion, total deposits
of $1.44 billion, retained earnings of $222.2 million and had a leverage capital
ratio of 12.39% and a total risk-based capital ratio of 28.10%. See "Regulation
and Supervision - FDIC Regulations - Capital Requirements."
The Bank is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers in its primary market
area consisting of the New York counties of Nassau and Suffolk, and investing
those funds in mortgage-backed and mortgage related securities, debt and equity
securities, mortgage loans secured by one- to four-family residences, multi-
family properties and commercial properties construction and development loans,
home equity loans, second mortgage loans and student and consumer loans. The
Bank's primary market area for one- to four-family lending extends beyond Nassau
and Suffolk Counties to the counties in New York and New Jersey where RFI
mortgage origination offices are located. See "Business of the Bank - Lending
Activities -Loan Sales, Servicing and Mortgage Banking Activities."
The Bank's operating strategy concentrated on maintaining profitability by
primarily investing in mortgage-backed and mortgage related securities and U.S.
Government or agency debt securities. Since 1993, the Bank has increased its
emphasis on building its loan portfolio by restructuring its lending department,
hiring experienced
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commercial real estate loan personnel and revising its underwriting policies and
procedures. More recently, through its purchase of certain of the assets and
liabilities of a mortgage banking company and establishment of RFI in 1995, the
Bank has increased its emphasis on mortgage banking activities and developed a
resource for developing its one- to four-family loan portfolio. The Bank's
current operating strategy consists primarily of: (i) investing funds not
utilized for loan originations and purchases in shorter-term debt securities and
mortgage-backed and mortgage related securities and preferred stock of corporate
issuers; (ii) building its loan portfolio by purchasing one- to four-family
loans originated by RFI and placing emphasis on the origination of high quality
commercial real estate loans to selected real estate developers operating in the
Bank's primary market area; (iii) increasing fee income and building its loan
servicing portfolio through its mortgage banking operations whereby it sells,
generally on a servicing retained basis, certain one- to four-family mortgage
loans that it originates through RFI as a means of increasing servicing fee
income; (iv) attracting and retaining deposit accounts by paying competitive
rates on its deposit products and opening new branches; and (v) maintaining a
lower expense ratio by efficiently utilizing personnel and branch facilities to
service its customers.
The Bank's securities investment activities primarily consist of
investments in mortgage-backed and mortgage related securities and various debt
and equity securities. In November 1995, in accordance with the Financial
Accounting Standards Board ("FASB") interpretation regarding Statement of
Financial Accounting Standards ("SFAS") NO. 115, the Bank restructured its
investment portfolio and transferred securities having a carrying value of
$648.7 million and a market value of $658.3 million at that date, from its held-
to-maturity portfolio to its available for sale portfolio. Shortly thereafter,
the Bank sold $115.7 million in lower yeilding U.S. Government securities and
corporate debt obligations at a nominal loss and reinvested the proceeds in
higher yielding mortgage-backed and mortgage related securities. At May 31,
1996, the Bank's securities portfolio totalled $1.27 billion, or 71.4% of total
assets, of which $951.3 million was categorized as available-for-sale and $314.2
million was classified as held-to-maturity. At May 31, 1996, the Bank's
mortgage-backed and mortgage related securities portfolio totalled $831.6
million, or 46.9% of total assets, of which $519.4 million was classified as
available-for-sale and $312.2 million was classified as held-to-maturity, and
consisted of mortgage-backed securities, guaranteed or issued by Governmental-
sponsored and federal agencies such as the Federal National Mortgage Association
("FNMA"), Federal Home Loan Mortgage Corporation ("FHLMC") and Government
National Mortgage Association ("GNMA") and collateralized mortgaged obligations
("CMOs") issued by FNMA, FHLMC, GNMA and private issuers. At May 31, 1996, the
Bank's debt securities portfolio totalled $295.1 million, or 16.7% of total
assets, of which $293.2 million was classified as available-for-sale and $1.9
million was classified as held-to-maturity. The Bank's debt securities generally
consist of United States Government securities, obligations of FNMA, FHLMC and
GNMA, obligations of corporate issuers, public utility bonds and bonds issued by
states and municipalities. At May 31, 1996, the Bank's equity securities
portfolio totalled $138.8 million, or 7.8% of total assets, all of which was
classified as available-for-sale. The Bank's equity securities portfolio at such
date consisted primarily of preferred stock of corporate issuers. See "Business
of the Bank - Securities Investment Activities and "Risk Factors - Dependence on
Securities Investments."
At May 31, 1996, the Bank's gross loan portfolio totalled $438.1 million,
or 24.7% of total assets, of which $213.0 million were one- to four-family
loans, $33.3 million were multi-family loans, $153.6 million were commercial
real estate loans, $31.0 million were construction and development loans, and
$7.2 million were home equity, second mortgage, student and consumer loans. At
May 31, 1996, $14.3 million of the Bank's loans were classified as held-for-sale
and consisted primarily of one- to four-family loans. Currently, all of the
Bank's one- to four-family loan origination and related servicing and sale
activities are conducted through RFI. RFI originates for sale to investors,
including the Bank, one- to four-family loans generally secured by properties
located in the New York Counties of Nassau, Suffolk, Kings, Queens and Albany
and the New Jersey Counties of Morris and Monmouth. For the five months ended
May 31, 1996, the Bank has purchased $21.6 million in one- to four-family loans
from RFI, which represented 16.9% of loans originated by RFI in that period. RFI
generally sells FNMA and FHLMC conforming loans on a servicing retained basis
and services such sold loans for others through a third party subservicer. At
May 31, 1996, loans serviced for others totalled $762.7 million, of which $48.8
million was being directly serviced by the Bank and $713.9 million was being
serviced by RFI. See "Business of the Bank - Lending Activities."
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At May 31, 1996, the Bank's deposit accounts totalled $1.44 billion, or
93.0% of total liabilities, of which $570.0 million, or 39.5%, were comprised of
saving accounts, negotiable order of withdrawal ("NOW") accounts, money market
accounts and non-interest-bearing checking accounts ("core deposits"). In
addition to core deposits, the Bank had $871.9 million of certificate accounts,
or 56.3% of total liabilities, of which $688.2 million were certificates of
deposit with maturities of one year or less and $140.7 million were certificates
of deposit with balances of $100,000 or more ("jumbo deposits").
THE ROSLYN SAVINGS BANK FOUNDATION
In furtherance of the Bank's commitment to its local community, the Bank's
Plan of Conversion provides for the establishment of a charitable foundation in
connection with the Conversion. The Plan provides that the Bank and the Company
will create The Roslyn Savings Bank Foundation, which will be incorporated under
Delaware law as a non-stock corporation and will fund the Foundation with shares
of Common Stock contributed by the Company, as further described below. The
Company and the Bank believe that the funding of the Foundation with Common
Stock of the Company is a means of establishing a common bond between the Bank
and its community and thereby enables the Bank's community to share in the
potential growth and success of the Company over the long term. While the Bank
has made charitible contributions in the past, the Bank has not previously
formed a charitible foundation nor has it made contributions to charitible
organizations of the magnitude of the contribution that will be made to the
Foundation in the Conversion. By further enhancing the Bank's visibility and
reputation in its local community, the Bank believes that the Foundation will
enhance the long-term value of the Bank's community banking franchise. See "The
Conversion - Establishment of Charitable Foundation -Structure of the
Foundation."
The authority for the affairs of the Foundation will be vested in the Board
of Directors of the Foundation, which will be comprised of existing members of
the Company's Board of Directors, who will receive no fees for serving on the
Foundations Board of Directors. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock held by the Foundation. However,
establishment of the Foundation is subject to certain regulatory conditions,
including a requirement that the Common Stock of the Company held by the
Foundation be voted in the same ratio as all other shares of the Company's
Common Stock on all proposals considered by Stockholders of the Company. See
"The Conversion - Establishment of Charitible Foundation - Regulatory Conditions
Imposed on the Foundation."
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 3.0% of the Common Stock sold in the
Offerings, or 816,990, 961,165 and 1,105,340 shares at the minimum, midpoint and
maximum, respectively, of the Estimated Price Range. Such contribution, once
made, will not be recoverable by the Company or the Bank. Assuming the sale of
shares at the maximum of the Estimated Price Range and the issuance of shares to
the Foundation, the Company will have 37,950,000 shares issued and outstanding,
of which the Foundation will own 1,105,340 shares, or 2.9%. DUE TO THE ISSUANCE
OF ADDITIONAL SHARES OF COMMON STOCK TO THE FOUNDATION, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED BY 2.9%. SEE "PRO FORMA DATA."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, offset in part by a
corresponding tax benefit, during the quarter in which the contribution is made,
which is expected to be the fourth quarter of 1996. Such expense will
reduce
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earnings and have a material impact on the Company's earnings for the year.
While management cannot predict earnings for 1996, it expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the year. Assuming a contribution of $11.1 million in
Common Stock in 1996, based on the maximum of the Estimated Price Range and
assuming a tax rate of 37%, the Company estimates a net tax effected expense of
$7.0 million. If the Foundation had been established at December 31, 1995, the
Bank would have recorded net income of $11.7 million, rather than recording net
income of $18.7 million for the year ended December 31, 1995, based on an
assumed tax rate of 37%. In addition to the contribution of Common Stock by the
Company to the Foundation, the Bank expects in the future to continue making
ordinary charitable contributions within its community. The Bank does not
anticipate making future charitable contributions to the Foundation during the
first five years following the initial contribution to the Foundation. For
further discussion of the Foundation and its impact on purchasers in the
Conversion, see "Risk Factors - Establishment of the Charitable Foundation,"
"Pro Forma Data" and "The Conversion."
The establishment and funding of a charitible foundation as part of a
conversion of a mutual savings institution to stock form has, to the knowledge
of the Bank, only been done on one prior occasion. As such, the establishment of
the Foundation in connection with the Conversion and the Superintendent's
approval and FDIC's non-objection to the Plan of Conversion may be subject to
potential challenges which could result in delays in the Conversion. See "Risk
Factors - Establishment of the Charitable Foundation - Potential
Challenges."
THE CONVERSION AND THE OFFERINGS
On May 29, 1996 the Board of Trustees of the Bank adopted the Plan of
Conversion which was subsequently amended on July 30, 1996 and September 30,
1996. Pursuant to the Plan, the Bank is converting from a New York State
chartered mutual savings bank to a New York State chartered stock savings bank,
the Common Stock of the Company will be offered and sold hereby and all of the
outstanding capital stock of the Bank will be acquired by the Company in
exchange for 50% of the net proceeds of the Offerings. The Conversion and the
Offerings are subject to approval by the Superintendent and non-objection by the
FDIC and approval of Eligible Account Holders at a special meeting to be held on
_______, 1996 (the "Special Meeting"). The Superintendent issued an approval
letter on October __, 1996 and the FDIC issued a notice of intent not to object
to the Conversion on October __, 1996. See "The Conversion -General."
The Bank is converting to increase its capital and structure itself in the
holding company form of organization used by many commercial banks and other
business entities and a growing number of savings institutions. The Conversion
will enhance the Bank's ability to access capital markets, expand its current
operations, acquire other financial institutions or branch offices and diversify
into other financial services, to the extent allowable by applicable law and
regulation. The holding company form of organization is expected to provide
additional flexibility to diversify the Bank's business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with other financial institutions, as well as other companies. Although there
are no current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. See "The Conversion -
Purposes of Conversion."
Common Stock will be offered in the Subscription and Community Offerings
and, to the extent shares are available, in the Syndicated Community Offering.
Common Stock offered in the Subscription Offering will be offered in the
following order of priority: (1) depositors whose accounts in the Bank totalled
$100 or more on April 30, 1995 ("Eligible Account Holders"); (2) the Employee
Plans, including the ESOP; and (3) depositors whose accounts in the Bank
totalled $100 or more on September 30, 1996 ("Supplemental Eligible Account
Holders"). Subject to the prior rights of holders of subscription rights, Common
Stock not subscribed for in the Subscription Offering is being concurrently
offered in the Community Offering to certain members of the general public. The
Company and the Bank reserve the absolute right to reject or accept any orders
in the Community Offering, in whole or in part, either at the time of receipt of
an order or as soon as practicable following the Expiration Date.
All shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. The Company and
the Bank
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reserve the absolute right to reject orders, in whole or part, in their sole
discretion, in the Syndicated Community Offering.
The Bank and Company have engaged Sandler O'Neill as conversion agent and
financial advisor in connection with the Offerings and to assist in soliciting
subscriptions and purchase orders in the Offerings. The Bank and Company will
pay a fee to Sandler O'Neill which will be based on the aggregate Purchase Price
of the Common Stock sold in the Offerings. See "The Conversion -Marketing and
Underwriting Arrangements." Neither Sandler O'Neill nor any registered broker-
dealer shall have any obligation to take or purchase any shares of the Common
Stock in the Subscription Offering, Community Offering or Syndicated Community
Offering. However, Sandler O'Neill has agreed to use its best efforts in the
sale of shares in the Syndicated Community Offering. Subscription rights will
expire if not exercised by _____ p.m., New York time on _______, 1996, unless
extended by the Bank and Company. See "The Conversion - Subscription Offering
and Subscription Rights" and "- Community Offering."
PROSPECTUS DELIVERY AND PROCEDURE FOR PURCHASING SHARES
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), no prospectus will be mailed any
later than five days prior to the Expiration Date or hand delivered any later
than two days prior to such date. Stock order forms will only be distributed
with a prospectus. The Bank is not obligated to accept for processing orders not
submitted on an original stock order form. Stock order forms unaccompanied by an
executed certification form will not be accepted. Payment by check, money order,
cash (if delivered in person) or debit authorization to an existing account at
the Bank must accompany the stock order and certification forms. No wire
transfers will be accepted. See "The Conversion - Procedure for Purchasing
Shares in Subscription and Community Offerings."
RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS
Prior to the completion of the Conversion, no person may transfer or enter
into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Following the Conversion, there
generally will be no restrictions on the transfer or sale of shares by
purchasers other than affiliates of the Company and Bank. See "Regulation and
Supervision - Federal Securities Laws" and "The Conversion - Restrictions on
Transfer of Subscription Rights and Shares."
PURCHASE LIMITATIONS
The minimum purchase in the Subscription and Community Offerings is 25
shares. With the exception of the ESOP, no Eligible Account Holder or
Supplemental Eligible Account Holder may purchase, in his or her capacity as
such, in the Subscription Offering more than $675,000 of Common Stock; no
person, together with associates and persons acting in concert with such person,
may purchase in the Community Offering and Syndicated Community Offering more
than $675,000 of Common Stock; and no person or entity, individually or together
with associates and persons acting in concert, may purchase in the aggregate in
the Offerings more than the overall maximum purchase limitation of 1.0% of the
total number of shares of Common Stock offered in the Conversion, exclusive of
any shares issued pursuant to an increase in the Estimated Price Range of up to
15%. At any time during the Conversion and without approval of the Bank's
depositors or a resolicitation of subscribers, the Bank and Company may, in
their sole discretion, decrease the maximum purchase limitation below $675,000
of Common Stock, however, such amount may not be reduced to less than 0.10% of
the Common Stock offered. Additionally, at any time during the Conversion, the
Bank and Company may, in their sole discretion, increase the maximum
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<PAGE>
purchase limitation in the Subscription and Community Offerings to an amount in
excess of $675,000 up to a maximum of 5% of the shares to be issued in the
Conversion. Similarly, the 1.0% overall maximum purchase limitation may be
increased up to 5.0% of total shares of Common Stock offered in the Conversion.
Prior to consummation of the Conversion, if the maximum purchase limitation is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Bank and Company may be, given the
opportunity to increase their subscriptions up to the then applicable limits. In
the event of an increase in the Estimated Price Range, the additional shares
will be distributed and allocated to fill unfilled orders in the Subscription
and Community Offerings without any resolicitation of subscribers as described
in "The Conversion -Subscription Offering and Subscription Rights" and
"- Community Offering" and in accordance with the Plan of Conversion.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
NYBD regulations require that the aggregate purchase price of the Common
Stock to be issued in the Conversion be consistent with an independent appraisal
of the estimated pro forma market value of the Common Stock giving effect to the
Conversion. FinPro, an independent appraiser, has advised the Bank that in its
opinion, dated September 12, 1996, the aggregate estimated pro forma market
value of the Common Stock being offered for sale in connection with the
Conversion ranges from $272.3 million to $368.4 million (with a midpoint of
$320.4 million). For information regarding FinPro, see "The Conversion - Stock
Pricing."
Based upon the above Valuation Range, the Board of Trustees of the Bank
has established the Estimated Price Range of $272.3 million to $368.4 million,
assuming the issuance of 27,233,010 shares to 36,844,660 shares of Common Stock
at the Purchase Price of $10.00 per share. All shares of Common Stock issued in
the Conversion will be sold at the Purchase Price of $10.00 per share, as
determined by the Bank and approved by the Company. The actual number of shares
to be issued in the Conversion will be determined by the Company and the Bank
based upon FinPro's updated estimate of the aggregate pro forma market value of
the Common Stock, giving effect to the Conversion, at the completion of the
Offerings. The maximum of the Estimated Price Range may be increased by up to
15% and the number of shares of Common Stock to be issued may be increased up to
42,371,359 shares due to regulatory considerations and changes in market or
general financial and economic conditions. No resolicitation of subscribers will
be made and subscribers will not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Common Stock are
less than the minimum or more than 15% above the maximum of the current
Estimated Price Range. See "Pro Forma Data," "The Conversion - Stock Pricing"
and "- Number of Shares to be Issued."
The Company will issue an additional amount of Common Stock to the
Foundation from authorized but unissued shares equal to 3.0% of Common Stock
sold in the Conversion (or 816,990 to 1,105,340 shares based on the minimum and
maximum of the Estimated Price Range, respectively) immediately following
completion of the Conversion. As a result, the Company will have a total of
37,950,000 shares of Common Stock outstanding (based on the issuance of
36,844,660 shares of Common Stock being offered for sale) which will have the
effect of diluting the ownership and voting interests of persons purchasing
shares in the Conversion by 2.9% since a greater number of shares will be
outstanding upon completion of the Conversion. See "Pro Forma Data."
USE OF PROCEEDS
Net proceeds from the sale of the Common Stock are estimated to be between
$265.6 million and $360.2 million (or $414.6 million if the Estimated Price
Range is increased by 15%) depending on the
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<PAGE>
number of shares sold and the expenses of the Conversion. See "Pro Forma Data."
The Company will purchase all of the outstanding capital stock of the Bank to be
issued upon Conversion in exchange for 50% of the net proceeds, with the
remaining net proceeds to be retained by the Company. Net proceeds to be
retained by the Company after the purchase of the capital stock of the Bank are
estimated to be between $132.8 million and $180.1 million (or $207.3 million if
the Estimated Price Range is increased by 15%). The Company will be unable to
utilize any of the net proceeds until the close of the Offerings.
Funds retained by the Company will be used for general business activities,
including a loan by the Company directly to the ESOP to enable the ESOP to
purchase up to 8% of the stock issued in connection with the Conversion,
including shares issued to the Foundation. The Company intends to initially
utilize net proceeds not used to fund the ESOP to invest in mortgage-backed and
mortgage related securities, short and medium term debt securities and preferred
stock. Funds may also be used by the Company in the future for the possible
payment of dividends and repurchases of Common Stock. Assuming the acquisition
by the ESOP of 8% of the shares to be issued in the Conversion and Common Stock
issued to the Foundation, the amount of the loan to the ESOP is estimated to be
between $22.4 million and $30.4 million (or $34.9 million if the Estimated Price
Range is increased by 15%) to be repaid over a 30 year period at the prevailing
prime rate, which is currently 8.75%. See "Management of the Bank - Benefit
Plans - ESOP." Funds received by the Bank from the Company's purchase of its
capital stock will be used for general business purposes, including investment
in securities and loans.
The Company and the Bank may also use net proceeds raised in the Conversion
to expand operations through the acquisition or establishment of branch offices
and the acquisition of financial institutions or assets of other financial
institutions or financial services companies. Other than the agreement to
purchase two additional branch office facilities, neither the Bank nor the
Company has any pending agreements or understandings regarding acquisitions of
any specific financial institutions, branch offices, financial services
companies, or assets of other financial institutions or financial services
companies. See "Use of Proceeds" and "Business of the Bank." To the extent that
the stock-based benefit plans which the Company or the Bank intend to adopt
subsequent to the Conversion are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the
Conversion to fund the purchase of stock to be awarded under such stock-based
benefit plans. See "Risk Factors - Stock-Based Benefits to Management,
Employment Contracts and Change in Control Payments" and "Management of the
Bank - Benefit Plans - Stock Option Plans" and "- Stock Programs."
DIVIDENDS
The Board of Directors of the Company intends to consider a policy of
paying cash dividends on the Common Stock. However, no decision has been made as
to the amount or timing of such dividends, if any. See "Dividend Policy."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors.
7
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of
the Bank. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
------------ ----------------------------------------------------------------------------
1996(1) 1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------ ------------
SELECTED FINANCIAL CONDITION (Unaudited) (IN THOUSANDS)
DATA:
<S> <C> <C> <C> <C> <C> <C>
Total assets........................ $1,772,175 $1,596,744 $1,438,379 $1,344,432 $1,305,369 $1,144,217
Debt securities(2):
Available-for-sale/held-for-sale.. 293,151 260,553 - - 31,674 -
Held-to-maturity/held-
for-investment.................. 1,930 1,930 466,204 530,802 477,250 370,996
Equity securities(2):
Available-for-sale................ 138,781 118,778 89,787 - - -
Held-for-investment............... - - - 66,298 38,215 32,377
Mortgage-backed and mortgage
related securities, net(2):
Available-for-sale................ 519,399 413,485 50,711 - - -
Held-to-maturity/held-
for-investment.................. 312,233 347,213 411,341 399,417 373,903 305,856
Loans held for sale, net............ 14,265 17,151 - 8,105 - -
Loans receivable held for
investment, net(3)................ 399,484 365,265 342,091 264,667 307,317 379,275
Deposits............................ 1,441,845 1,335,550 1,219,518 1,141,565 1,134,543 961,521
Borrowed funds...................... 69,598 1,647 - - - 27,244
Retained earnings................... 222,244 226,418 193,071 176,385 152,242 137,315
</TABLE>
(continued on next page)
8
<PAGE>
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS ENDED
MAY 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------------------------------
1996(1) 1995(1) 1995 1994 1993 1992 1991
----------- ---------- ---------- ---------- ---------- ---------- ----------
(Unaudited)
SELECTED OPERATING DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income..................... $50,063 $44,550 $111,034 $94,516 $95,004 $100,641 $94,955
Interest expense.................... 27,128 22,738 59,298 40,353 39,698 46,902 56,603
------ ------ ------ ------ ------ ------ ------
Net interest income
before provision for
possible loan losses............ 22,935 21,812 51,736 54,163 55,306 53,739 38,352
Provision for possible
loan losses....................... 300 250 600 600 6,860 9,300 18,600
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for possible
loan losses..................... 22,635 21,562 51,136 53,563 48,446 44,439 19,752
Non-interest income................. 3,497 1,130 5,714 2,049 4,864 528 18,780
Non-interest expense................ 14,087 11,242 29,622 26,172 24,564 19,124 16,878
------ ------ ------ ------ ------ ------ ------
Income before income taxes
and cumulative effect of
changes in accounting
principles........................ 12,045 11,450 27,228 29,440 28,746 25,843 21,654
Provision for income taxes.......... 3,654 3,876 8,510 10,018 10,586 10,916 10,968
------ ------ ------ ------ ------ ------ ------
Income before cumulative
effect of changes in
accounting principles............. 8,391 7,574 18,718 19,422 18,160 14,927 10,686
Cumulative effect of changes
in accounting principles(4)....... - - - - 5,983 - -
------ ------ ------ ------ ------ ------ ------
Net income.......................... $8,391 $7,574 $18,718 $19,422 $24,143 $14,927 $10,686
======= ======= ======== ======= ======= ======== =======
</TABLE>
(continued on next page)
9
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE FIVE
MONTHS ENDED AT OR FOR THE YEAR ENDED
MAY 31, DECEMBER 31,
------------------------- --------------------------------------------------------
1996(1) 1995(1) 1995 1994 1993(14) 1992 1991
----------- ----------- -------- -------- ----------- -------- --------
(Unaudited) (Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND
OTHER DATA(5):
PERFORMANCE RATIOS:
Return on average assets........... 1.19% 1.20% 1.21% 1.39% 1.35% 1.21% 0.99%
Return on average retained earnings 8.96 8.92 8.82 10.27 10.85 10.26 8.03
Average retained earnings to
average assets................... 13.31 13.50 13.69 13.56 12.48 11.78 12.36
Retained earnings to total assets
at end of period................. 12.54 13.42 14.18 13.42 13.12 11.66 12.00
Net interest rate spread(6)........ 2.74 2.98 2.79 3.54 3.82 3.93 2.72
Net interest margin(7)............. 3.38 3.58 3.45 4.02 4.28 4.49 3.66
Average interest-earning assets
to average interest-bearing
liabilities...................... 116.31 116.16 116.55 116.11 114.72 114.29 117.32
Total non-interest expense
to average assets(8)............. 2.00 1.78 1.89 1.87 1.83 1.55 1.57
Efficiency ratio(9)................ 50.97 46.74 50.14 44.99 41.34 34.57 42.51
Net interest income to
operating expenses................. 162.81 194.01 174.65 206.95 225.15 281.01 227.22
REGULATORY CAPITAL RATIOS(10):
Leveraged capital.................. 12.39 13.34 13.27 13.57 13.07 11.60 12.00
Total Risk-based capital........... 28.10 28.77 28.93 27.01 30.95 33.22 32.58
ASSET QUALITY RATIOS AND DATA:
Total non-performing loans(11)..... $11,945 $18,321 $12,173 $25,055 $31,343 $29,097 $31,905
Real estate owned, net............. 5,366 3,486 6,047 3,359 2,613 2,911 519
Total non-performing assets(12).... 17,311 21,807 18,220 28,414 33,956 32,008 32,424
Non-performing loans as a
percent of loans(11)(13)......... 2.83% 5.02% 3.13% 6.82% 10.84% 8.80% 8.00%
Non-performing assets as a percent
of total assets(12).............. 0.98 1.42 1.14 1.98 2.53 2.45 2.83
Allowance for possible loan losses
as a percent of loans(3)(13)..... 5.29 6.62 6.01 6.84 8.47 7.02 4.94
Allowance for possible loan
losses as a percent of total
non-performing loans(3)(11)...... 186.79 131.68 191.82 100.28 78.17 79.69 61.74
OTHER DATA:
Number of deposit accounts......... 112,543 105,291 107,441 99,305 94,257 99,088 96,511
Number of full service customer
facilities....................... 6 6 6 6 6 6 5
Number of mortgage origination
offices.......................... 6 - 6 - - - -
</TABLE>
(footnotes on next page)
10
<PAGE>
- --------------------------------
(1) The data presented for the five months ended May 31, 1996 and 1995 were
derived from unaudited consolidated financial statements and reflect, in
the opinion of management, all adjustments (consisting only of normal
recurring adjustments) which are necessary to present fairly the results
for such interim periods. Interim results at and for the five months ended
May 31, 1996 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1996.
(2) The Bank adopted SFAS No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," as of January 1, 1994, and reclassified securities
having a market value of $658.3 million from its held-to-maturity portfolio
to its available-for-sale portfolio in November 1995 pursuant to a FASB
interpretation of SFAS No. 115. Prior to the adoption of SFAS No. 115,
securities were carried at amortized cost, as adjusted for amortization of
premiums and accretion of discounts over the remaining terms of the
securities from the dates of purchase. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -Comparison of
Financial Condition at December 31, 1995 and December 31, 1994."
(3) All loans receivable held for investment are presented net of the Bank's
allowance for possible loan losses which at May 31, 1996, December 31,
1995, 1994, 1993, 1992 and 1991 was $22.3 million, $23.4 million, $25.1
million, $24.5 million, $23.2 million and $19.7 million, respectively.
(4) Reflects the net cumulative effect of the Bank's adoption of SFAS No. 106,
"Employer's Accounting for Post-retirement Benefits Other than Pensions"
and SFAS No. 109, "Accounting for Income Taxes." See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Cumulative Effect of Changes in Accounting Principles."
(5) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(6) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities and includes the effect of the
Bank's payment of a special interest payment which has generally ranged
from 10% to 25% of the interest paid on savings and NOW accounts. See
"Business of the Bank - Sources of Funds."
(7) The net interest margin represents net interest income as a percent of
average interest-earning assets and includes the effect of the Bank's
payment of a special interest payment which has generally ranged from 10%
to 25% of the interest paid on savings and NOW accounts. See "Business of
the Bank - Sources of Funds."
(8) Excludes the effect of the amortization of goodwill.
(9) The efficiency ratio represents the ratio of operating expenses, excluding
the amortization of goodwill, divided by the sum of net interest income and
non-interest income.
(10) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - FDIC Regulations-
Capital Requirements." See "Regulatory Capital Compliance" for the Bank's
pro forma capital levels as a result of the Offerings.
(11) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the Bank's policy to generally cease
accruing interest on all loans 90 days or more past due. See "Business of
the Bank - Delinquent Loans, Real Estate Owned and Classified Assets."
(12) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO").
(13) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(14) Does not include the net effect of accounting changes due to the
implementation of SFAS Nos. 106 and 109.
RECENT DEVELOPMENTS
The following table sets forth certain consolidated financial and other
data of the Bank at and for the periods indicated. Consolidated financial and
operating data and financial ratios and other data at and for the year ended
December 31, 1995 have been derived from and should be read in conjunction with
the audited Consolidated Financial Statements of the Bank and Notes thereto
presented elsewhere in this Prospectus. Consolidated financial and operating
data and financial ratios and other data at and for the eight months ended
August 31, 1996 and 1995 were derived from unaudited Consolidated Financial
Statements. The results of operations and ratios and other data, presented for
the eight months ended August 31, 1996 are not necessarily indicative of the
results of operations for the year ending December 31, 1996.
<TABLE>
<CAPTION>
At August 31, At December 31,
----------------- -----------------
1996(1) 1995
----------------- -----------------
Unaudited
<S> <C> <C>
Selected Financial Condition Data: (In thousands)
Total assets......................... $1,973,056 $1,596,744
Debt securities:(2)
Available-for-sale................ 319,733 260,553
Held-to-maturity.................. 1,930 1,930
Equity securities available-for-sale
(2) 145,631 118,778
Mortgage-backed and mortgage
related securities, net(2):
Available-for-sale................ 648,848 413,485
Held-to-maturity.................. 296,146 347,213
Loans held for sale, net............. 12,466 17,151
Loans receivable held for
investment, net(3)................ 438,272 365,265
Deposits............................. 1,542,799 1,335,550
Borrowed funds....................... 162,384 1,647
Retained earnings.................... 227,958 226,418
</TABLE>
<TABLE>
<CAPTION>
For the Eight Months
Ended August 31,
-----------------------------------------
1996(1) 1995(1)
------------------- -------------------
Unaudited
<S> <C> <C>
Selected Operating Data: (In Thousands)
Interest Income.................... $ 83,333 $ 72,516
Interest expense................... 45,771 38,261
------- -------
Net interest income before
provision for possible loan
losses......................... 37,562 34,255
Provision for possible loan losses. 600 400
------ ------
Net interest income after
provision for possible loan
losses......................... 36,962 33,855
Non-interest income................ 5,907 2,010
Non-interest expense............... 22,535 18,736
------ ------
Income before income taxes..... 20,334 17,129
Provision for income taxes......... 6,761 5,536
------ ------
Net income..................... $ 13,573 $ 11,593
======== ========a
</TABLE>
<TABLE>
<CAPTION>
At or For the
Eight Months
Ended August 31,
------------------------------
1996(1) 1995(1)
------------- ------------
<S> <C> <C>
Selected Financial Ratios and
Other Data(4): (Dollars in thousands)
Performance Ratios:
Return on average assets.............. 1.16% 1.14%
Return on average retained earnings... 9.03 8.40
Average retained earnings to
average assets..................... 12.88 13.54
Retained earnings to total assets
at end of period................... 11.55 13.17
Net interest rate spread(5)........... 2.69 2.82
Net interest margin(6)................ 3.35 3.47
Average interest-earning assets
to average interest-bearing
liabilities........................ 116.01 116.83
Total non-interest expense to
average assets(7).................. 1.93 1.84
Efficiency ratio(8)................... 49.67 49.20
Net interest income to
operating expenses................. 166.68 182.83
Regulatory Capital Ratios(9):
Leverage capital...................... 11.39 13.23
Total Risk-based capital.............. 26.78 28.27
Asset Quality Ratios and Data:
Total non-performing loans(10)........ $11,203 $15,993
Real estate owned, net................ 4,918 5,096
Total non-performing assets(11)....... 16,121 21,089
Non-performing loans as a
percent of loans(10)(12) 2.43% 4.41%
Non-performing assets as a percent
of total assets(11)................. 0.82 1.34
Allowance for possible loan losses
as a percent of loans(3)(12)........ 4.80 6.51
Allowance for possible loan losses
as a percent of total
non-performing loans(3)(10)......... 197.25 147.68
Other Data:
Number of deposit accounts.......... 114,602 106,546
Number of full service customer
facilities........................ 6 6
Number of mortgage origination
offices........................... 6 6
</TABLE>
- -----------------------
(1) The data presented for the eight months ended August 31, 1996 and 1995
were derived from unaudited consolidated financial statements and
reflect, in the opinion of management, all adjustments (consisting only
of normal recurring adjustments) which are necessary to present fairly
the results for such interim periods. Interim results at and for the
eight months ended August 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996.
(2) The Bank adopted SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," as of January 1, 1994, and reclassified
securities having a market value of $658.3 million from its held-to-
maturity portfolio to its available-for-sale portfolio in November 1995
pursuant to a FASB interpretation of SFAS No. 115. Prior to the adoption
of SFAS No. 115, securities were carried at amortized cost, as adjusted
for amortization of premiums and accretion of discounts over the
remaining terms of the securities from the dates of purchase. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations-Comparison of Financial Condition at December 31, 1995 and
December 31, 1994."
(3) All loans receivable held for investment are presented net of the Bank's
allowance for possible loan losses which at August 31, 1996 and
December 31, 1995, was $22.1 million and $23.4 million, respectively.
(4) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average monthly balances during the indicated periods and are
annualized where appropriate.
(5) The net interest rate spread represents the difference between the
weighted average yield on average interest-earning assets and the
weighted average cost of average interest-bearing liabilities and
includes the effect of the Bank's payment of a special interest payment
which has generally ranged from 10% to 25% of the interest paid on
savings and NOW accounts. See "Business of the Bank - Sources of Funds."
(6) The net interest margin represents net interest income as a percent of
average interest-earning assets and includes the effect of the Bank's
payment of a special interest payment which has generally ranged from
10% to 25% of the interest paid on savings and NOW accounts. See
"Business of the Bank - Sources of Funds."
(7) Excludes the effect of the amortization of goodwill.
(8) The efficiency ratio represents the ratio of operating expenses,
excluding the amortization of goodwill, divided by the sum of net
interest income and non-interest income.
(9) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - FDIC Regulations
- Capital Requirements." See "Regulatory Capital Compliance" for the
Bank's pro forma capital levels as a result of the Offerings.
(10) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the Bank's policy to generally cease
accruing interest on all loans 90 days or more past due. See "Business
of the Bank - Delinquent Loans, Real Estate Owned and Classified Assets."
(11) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO").
(12) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
Comparison of Financial Condition at August 31, 1996 and December 31, 1995
Assets at August 31, 1996 totalled $1.97 billion, an increase of $376.3
million, or 23.6%, as compared to $1.60 billion at December 31, 1995. The growth
was primarily attributable to the purchase of debt and equity and mortgage-
backed and mortgage related securities funded by deposit inflows and short-term
borrowings. As a result, the Bank's securities available-for-sale portfolio
increased by $321.4 million or 40.5%. Debt and equity securities available-for-
sale increased by $86.1 million to a balance of $465.4 million at August 31,
1996, compared to a balance of $379.3 million at December 31, 1995, and
mortgage-backed and mortgage related securities available-for-sale increased by
$235.3 million to $648.8 million at August 31, 1996 from $413.5 million at
December 31, 1995. Real estate loans, net, also increased by $72.2 million, or
18.7% from $386.8 million at December 31, 1995, to $459.0 million at August 31,
1996, primarily due to increased one-to four-family loan purchases from RFI and
an increase in the origination level of commercial real estate loans. Cash and
due from banks increased by $4.3 million from $9.7 million at December 31, 1995
to $14.0 million at August 31, 1996. Federal funds sold totalled $27.5 million
at August 31, 1996, an increase of $17.5 million from $10.0 million at December
31, 1995. The increase in cash and due from banks and federal funds sold was a
result of the timing of operating and investing cash flows. Real estate loans
held for sale decreased by $4.7 million, or 27.3%, to $12.5 million at
August 31, 1996, from $17.2 million at December 31, 1995 primarily due to the
Bank's purchases of an increased percentage of total loans originated by RFI,
thus reducing the amount of loans available to be sold by RFI to outside
investors in the secondary market.
Deposit balances at August 31, 1996 were $1.54 billion compared to $1.34
billion at December 31, 1995, an increase of $207.2 million, or 15.5%. The
overall increase in deposits is primarily attributable to an increase in
certificates of deposit of $240.1 million, or 33.3%, due to the Bank's strategy
of offering competitive rates on all of its certificate of deposit
products.
Borrowed funds increased to $162.4 million at August 31, 1996 from $1.6
million at December 31, 1995, as management determined to utilize borrowings,
primarily in the form of reverse repurchase agreements, to fund a portion of the
Bank's asset growth.
Retained earnings at August 31, 1996 were $228.0 million, an increase of
$1.6 million, compared to $226.4 million at December 31, 1995. Retained earnings
increased due to net income of $13.6 million which was significantly offset by a
reduction in the net unrealized gain on securities available-for-sale, net of
tax, of $12.0 million due primarily to rising interest rates during 1996 which
resulted in a decline in the fair market value of mortgage-backed securities
available for sale.
Comparison of Operating Results for the Eight Months Ended August 31, 1996 and
August 31, 1995
General
The Bank's net income for the eight months ended August 31, 1996 was $13.6
million, an increase of $2.0 million, or 17.1%, as compared to $11.6 million for
the eight months ended August 31, 1995. The $2.0 million increase was primarily
attributable to a $3.3 million increase in net interest income, which primarily
resulted from an increase in the average balance of interest-earning assets, and
a $3.9 million increase in non-interest income primarily related to the
establishment of RFI in August 1995. The increases were partly offset by a $3.8
million increase in non-interest expense, also due to RFI, and a $1.2 million
increase in income tax expense.
Interest Income
Interest income for the eight months ended August 31, 1996 was $83.3
million, compared to $72.5 million for the eight months ended August 31, 1995,
an increase of $10.8 million, or 14.9%. The increase in interest income was the
result of a significant increase in the average balance of the mortgage-backed
and mortgage related securities available-for-sale portfolio and a 13 basis
point increase in the yield on such securities. The increase in the average
balance of mortgage-backed and mortgage related securities was primarily due to
purchases resulting from the restructuring of the securities portfolio and the
investment of excess funds not utilized for loan demand into these securities.
Interest income on real estate loans increased $2.9 million to $24.8 million for
the eight months ended August 31, 1996 from $21.9 million for the eight months
ended August 31, 1995, reflecting a $70.3 million increase in the average
balance of such loans, partially offset by a 48 basis point decrease in the
average yield which was due in part to a $700,000 interest recovery in March
1995 on the satisfaction of a non-performing loan. The increase in the average
balance of real estate loans, net, was primarily attributable to the
establishment of RFI in August 1995 and a increase in the level of origination
of commercial real estate loans.
Interest Expense
Interest expense on deposits increased $6.1 million to $43.1 million for
the eight months ended August 31, 1996 from $37.0 million for the eight months
ended August 31, 1995. This increase reflects a $144.9 million increase in the
average balance of interest bearing deposits and a 20 basis point increase in
the average rate paid on such liabilities to 4.68% for the eight months ended
August 31, 1996 from 4.48% for the same period in the prior year. The increase
in average interest-bearing deposits was primarily attributable to a $191.4
million increase in the average balance of certificates of deposit to $838.7
million from $647.3 million, partially offset by a $42.8 million decrease in the
average balance of savings accounts to $434.2 million from $477.0 million. The
effect of the increase in the average balance of certificates of deposit was
partly offset by a 16 basis point decrease in the average rate paid on such
accounts resulting in a $6.5 million increase in interest expense on
certificates of deposit. The overall increase in interest expense and average
rate paid on deposits for the eight months ended August 31, 1996 compared to the
same period in the prior year reflects the continuance of depositors shifting
funds from lower yielding core deposit accounts to higher yielding certificate
of deposit accounts and the Bank's competitive pricing of certificate of deposit
accounts to attain and retain such deposits. Interest expense on borrowings
increased $1.2 million in the eight months ended August 31, 1996 compared to the
same period in 1995, primarily reflecting higher average balances due to
management's decision to use borrowings to fund a portion of the Bank's asset
growth and top refund anticipated Conversion proceeds, through the purchase of
investment and mortgage-backed and mortgage related securities.
Provision for Possible Loan Losses
The Bank's provision for possible loan losses totalled $600,000 for the
eight months ended August 31, 1996, as compared to $400,000 for the eight months
ended August 31, 1995, an increase of $200,000 or 50.0%. The Bank's allowance
for possible loan losses at August 31, 1996 was $22.1 million as compared to
$23.3 million at December 31, 1995. Although the level of non-performing loans
in the Bank's portfolio has decreased, management has continued to provide
reserves due to the overall reserves increase in the Bank's loan portfolio,
including continued originations of commercial real estate loans and
management's evaluation of the adequacy of the reserve in the context of the
Bank's historical loan loss experience. Loan charge-offs for the eight month
period ended August 31, 1996 was $1.9 million as compared to $2.0 million for
the same period in 1995. At August 31, 1996, the Bank's allowance for possible
loan losses as a percentage of total loans was 4.80%, compared to 6.51% at
August 31, 1995.
Non-Interest Income
Non-interest income increased to $5.9 million for the eight months ended
August 31, 1996 from $2.0 million for the eight months ended August 31, 1995.
Non-interest income improved primarily due to net gains of $2.8 million on
the sale of loans and loan servicing and fee income of $3.9 million during the
eight months ended August 31, 1996 as compared to net gains of $392,000 on the
sale of loans and loan servicing and fee income of $2.4 million during the same
period in 1995. The increases are primarily reflective of the Bank's
establishment of RFI in August 1995, which has had a significant effect on the
Bank's level of originations and sales of residential one-to four-family loans
and the outstanding balance of loans serviced for others.
Non-Interest Expense
Non-interest expense increased by $3.8 million, or 20.3%, from $18.7
million for the eight months ended August 31, 1995 to $22.5 million for the
eight months ended August 31, 1996 primarily due to the establishment of RFI.
Compensation and employee benefits totalled $12.8 million for the eight months
ended August 31, 1996 as compared to $10.0 million for the same period in 1995,
an increase of $2.8 million or 27.9%. Compensation and employee benefits expense
relating to the operations of RFI amounted to $3.2 million for the eight months
ended August 31, 1996. Other significant changes in the Bank's operating
expenses included a $1.9 million decrease in insurance premiums paid to the FDIC
resulting from the FDIC's decision to lower the insurance premiums paid by BIF-
insured institutions to the legal minimum effective January 1, 1996. See
"Regulation and Supervision - Insurance of Deposits" and "Risk Factors -
Payment of Financing Corporation Bonds." Other non-interest expense increased
$1.7 million from $3.8 million for the eight months ended August 31, 1995 to
$5.5. million for the eight months ended August 31, 1996 primarily due to an
increase in professional fees of $278,000 and other non-interest expenses
associated with RFI of $841,000. Amortization of the excess of cost over fair
value of net assets acquired ("goodwill") increased to $313,000 for the eight
months ended August 31, 1996 from $110,000 for the same period in 1995. The
increase is directly attributable to the Bank's establishment of RFI in August
1995. The consideration paid for the assets and liabilities of RMBI, including a
$623.0 million loan servicing portfolio, exceeded the estimated fair value of
the net assets acquired by approximately $3.5 million, which was recorded by RFI
as goodwill and is being amortized on a straight line basis over a ten year
period.
Income Taxes
Income tax expense was $6.8 million for the eight months ended August 31,
1996, compared to $5.5 million for the eight months ended August 31, 1995. The
increase in income tax expense was the result of the increase in income before
income taxes. The effective tax rate for the eight months ended August 31, 1996
was 33.3% as compared to 32.3% for the same period in 1995.
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RISK FACTORS
The following special considerations, in addition to those discussed
elsewhere in this Prospectus, should be considered by investors in deciding
whether to purchase the Common Stock offered hereby.
SENSITIVITY TO INCREASES IN INTEREST RATES
The Bank'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 its deposits and borrowed funds. Accordingly, the Bank's results of
operations and financial condition are largely dependent on movements in market
interest rates and its ability to manage its assets and liabilities in response
to such movements.
While the Bank emphasizes investment in adjustable rate or shorter term
loans, the Bank currently invests in one- to four-family mortgage loans with
terms in excess of 15 years if such loans bear interest rates of 8% or greater.
At May 31, 1996, 61.7% of the Bank's gross loans had adjustable interest rates
and its loan portfolio had an average weighted maturity of 13.2 years. At such
date, $118.5 million, or 9.4%, of the Bank's securities had adjustable interest
rates and its securities portfolio had a weighted average maturity of 3.2 years.
At May 31, 1996, the Bank had $688.2 million of certificates of deposit with
maturities of one year or less and $140.7 million of deposits over $100,000,
which tend to be less stable sources of funding as compared to core deposits and
represented 46.4% of the Bank's interest-bearing liabilities. As a result, the
ratio of the Bank's ratio of interest-earning assets repricing or maturing
within one year or less as compared to its interest-bearing liabilities maturing
or repricing in one year or less ("one year gap position") was a negative 22.8%.
Due to the Bank's level of shorter term certificates of deposit, the Bank's cost
of funds may increase at a greater rate in a rising interest rate environment
than if it had a greater amount of core deposits which, in turn, may adversely
affect net interest income and net income. Accordingly, in a rising interest
rate environment, the Bank's interest-bearing liabilities may adjust upwardly
more rapidly than its yield on its adjustable-rate loans, adversely affecting
the Bank's net interest rate spread, net interest income and net income.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Bank's securities and other interest-
earning assets. At May 31, 1996, $1.15 billion, or 90.6%, of the Bank's
securities had fixed interest rates. Generally, the 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 market value of
interest-earning assets which could adversely affect the Bank's results of
operations if sold or, in the case of interest-earning assets classified as
available-for-sale, the Bank's retained earnings if retained. Increases in
market interest rates also can affect the type (fixed-rate or adjustable-rate)
and amount of loans originated by the Bank and the average life of loans and
securities, which can adversely impact the yields earned on the Bank's loan and
securities portfolio. In periods of decreasing interest rates, the average life
of loans held by the Bank may be shortened to the extent increased prepayment
activity occurs; during such periods which, in turn, may result in the Bank
investing funds from such prepayments in lower yielding assets. The Bank's loan
sale and servicing activity may also be adversely affected by a declining
interest rate environment to the extent such environment results in increased
loan prepayment activity of serviced loans or losses associated with the use of
forward commitment loan sale contracts. In this regard, at May 31, 1996, the
Bank and RFI serviced $762.7 million of loans for others and at such date had
recorded an $8.6 million mortgage servicing rights asset. To the extent loan
prepayment activity of serviced loans increases, it would also result in a
reduction in the value of the Bank's mortgage servicing rights which, in turn,
would adversely affect net income. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management of Interest Rate Risk."
INCREASED LENDING RISKS ASSOCIATED WITH COMMERCIAL REAL ESTATE, MULTI-FAMILY
AND CONSTRUCTION AND DEVELOPMENT LENDING
At May 31, 1996, the Bank's commercial real estate, multi-family and
construction and development loan portfolios totalled $218.0 million, or 49.7%
of total loans and 12.8% of total interest-earning assets. At that date, multi-
family loans totalled $33.3 million, or 7.6% of total loans, commercial real
estate loans totalled $153.6 million, or 35.1% of total loans, and construction
and development loans totalled $31.0 million, or 7.1% of total loans.
Additionally at such date, the Bank had $87.5 million of outstanding commitments
to fund commercial real estate, multi-family and construction and development
loans.
Commercial real estate and multi-family loans are generally viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential loans. Repayment of commercial real estate and multi-family loans
generally is dependent, in large part, on sufficient income from the property to
cover operating expenses and debt service. Economic events and government
regulations, which are outside the control of the borrower or lender, could
impact the value of the security for the loan or the future cash flow of the
affected properties. Additionally, although commercial real estate and multi-
family values have stabilized in recent periods, the decline in real estate
values experienced in the Bank's primary market area in the late 1980s and early
1990s was more pronounced with respect to commercial real estate and multi-
family properties than one- to four-family residential properties. Construction
and development financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate as
the risk of loss on such loans is dependent largely upon the accuracy of the
initial estimate of the property's value at completion of construction or
development compared to the estimated cost (including interest) of construction.
If the estimate of value proves to be inaccurate, the property securing the
loan, when completed, may have a value which is insufficient to assure full
repayment of the loan.
Prior to 1993, the Bank had experienced significant charge-offs on its
commercial real estate and construction and development loans, including charge-
offs of $8.0 million, $5.6 million and $5.2 million for 1991, 1992 and 1993,
respectively. Beginning in 1993, the Bank restructured its multi-family,
commercial real estate and construction and development lending procedures and
policies and hired experienced commercial real estate loan personnel in an
effort to improve such loan programs and, since such time, has placed increased
emphasis on commercial real estate loan originations. Given the recent growth in
the Bank's commercial real estate loan portfolio and the relatively recent
nature of its commercial real estate loan origination activity, the Bank has a
more limited history of loan loss experience on such loans which it may utilize
to base its commercial real estate loan underwriting and to establish its level
of loan loss reserves for such loans. Accordingly, the Bank's historical loan
loss activity associated with its commercial real estate lending may not be
indicative of the future performance of its commercial real estate loan
portfolio. See "- Weaknesses in Local Economy" and "Business of the Bank -
Lending Activities" for discussions of the Bank's underwriting procedures
utilized in originating commercial real estate, multi-family and other loans.
The Bank's commercial real estate portfolio has grown from $101.8 million at
December 31, 1993 to $153.6 million at May 31, 1996. Of the $153.6 million of
commercial real estate loans in the Bank's loan portfolio as of May 31, 1996,
$103.6 million of such loans, or 67.6%, were originated since 1993 and of the
$50.0 million of such loans originated during or prior to 1993, $7.4 million
were included in nonperforming loans at May 31, 1996. Additionally, at May 31,
1996, the Bank had $14.1 million of outstanding commitments to fund commercial
real estate loans.
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DEPENDENCE ON SECURITIES INVESTMENTS
Prior to 1993, the Bank's operating strategy focused heavily on investing
funds in U.S. Government and mortgage-backed and mortgage related securities,
and the Bank did not emphasize investment in whole loans. Beginning in 1993, the
Bank refocused its operating strategy on loan production primarily in the areas
of one- to four-family loans and commercial real estate loans. Although the
Bank's loan portfolio has grown from $297.3 million at December 31, 1993 to
$438.1 million at May 31, 1996, the Bank has not significantly increased its
loan portfolio as a percentage of total assets. As a result, at May 31, 1996,
the Bank's net loan portfolio, excluding loans held for sale, totalled $399.5
million, or 23.5% of total interest earning assets, and its securities portfolio
totalled $1.27 billion, or 74.5% of total interest-earning assets. As of May 31,
1996, the weighted average rate of the Bank's securities portfolio was 6.96% as
compared to the weighted average rate of its mortgage loan portfolio of 8.57%.
As a result, at May 31, 1996, the Bank's net interest spread (the difference
between the average yield on its interest-earning assets and the average cost of
interest-bearing liabilities) was 2.89%. To the extent the Bank's investment in
loans as a percentage of total interest-earning assets remain at current levels
or declines, the net yield on the Bank's interest-earning assets may be below
that of its peer group and its net interest spread may correspondingly be below
its peer group. Investments in mortgage-backed and mortgage related securities
also involve the risk that actual prepayment of the loans underlying the
securities exceed the prepayments estimated over the life of the security, which
may result in the loss of any premium paid for such security and thereby reduce
the net yield on such securities.
In an effort to broaden its lending operations in August 1995, the Bank
purchased certain assets and liabilities of Residential Mortgage Banking, Inc.
("RMBI"), including its loan servicing portfolio, and with such assets and
liabilities established its mortgage banking subsidiary, RFI, on August 1, 1995.
Through RFI, the Bank has attempted to increase its investment in one-to four-
family loans and increase its loan servicing-related income, thereby lessening
its dependence on securities investments. In addition, since 1993, the Bank has
restructured its commercial lending activities by hiring qualified commercial
real estate and construction and development loan personnel who are familiar
with the Bank's primary market area and local developers and by revising its
commercial real estate loan underwriting policies and processing procedures, in
an effort to increase its investment in higher-yielding commercial real estate
and construction and development loans.
If current economic conditions persist and loan demand remains at current
levels, no assurances can be made that the Bank will be able to increase the
level of its mortgage loan portfolio, or that RFI or the Bank will be able to
increase the level of originations or purchases of mortgage loans in the Bank's
primary market area, or that it will be able to invest a significant portion of
the net Conversion proceeds in mortgage loans.
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ESTABLISHMENT OF THE CHARITABLE FOUNDATION
Pursuant to the Plan, the Company intends to voluntarily establish a
charitable foundation in connection with the Conversion. The Plan provides that
the Bank and the Company will establish the Foundation, which will be
incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. The contribution of
Common Stock to the Foundation will be dilutive to the interests of stockholders
and will have an adverse impact on the reported earnings of the Company in 1996,
the year in which the Foundation is established.
Dilution of Stockholders' Interests. The Company proposes to fund the
Foundation with Common Stock of the Company in an amount equal to 3.0% of the
Common Stock to be sold in the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
816,990, 961,165 and 1,105,340 shares, with a value of $8.2 million, $9.6
million and $11.1 million, respectively, based on the Purchase Price of $10 per
share. Assuming the sale of Common Stock at the maximum of the Estimated Price
Range, upon completion of the Conversion and establishment of the Foundation,
the Company will have 37,950,000 shares issued and outstanding of which the
Foundation will own 1,105,340 shares, or 2.9%. AS A RESULT, PERSONS PURCHASING
SHARES IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING INTERESTS IN THE
COMPANY DILUTED BY 2.9%, AS COMPARED TO COMPLETING THE CONVERSION WITHOUT THE
FOUNDATION. SEE "PRO FORMA DATA."
Impact on Earnings. The contribution of Common Stock to the Foundation will
have an adverse impact on the Company's and the Bank's earnings in the year in
which the contribution is made. The Company will recognize the full expense in
the amount of the contribution of Common Stock to the Foundation in the quarter
in which it occurs, which is expected to be the fourth quarter of 1996. The
amount of the contribution will range from $8.2 million to $11.1 million,
depending on the amount of Common Stock sold in the Conversion. The contribution
expense will be partially offset by the tax benefit related to the expense. The
Company and the Bank have been advised by their independent tax advisors that
the contribution to the Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income. Assuming a
contribution of $11.1 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $7.0
million (based upon a 37% tax rate). If the Foundation had been established at
December 31, 1995, the Bank would have reported net income of $11.7 million,
rather than reporting net income of $18.7 million for the year ended December
31, 1995. Management cannot predict earnings for 1996, but expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the year. In addition to the contribution to the
Foundation, the Bank expects in the future to continue making ordinary
charitable contributions within its community but the Company and the Bank do
not currently anticipate making additional contributions to the Foundation
within the first five years following the initial contribution.
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would be classified as a private foundation. In this regard, the Foundation
will submit a request to the IRS to be recognized as an exempt organization. The
Company and the Bank have received an opinion of their independent tax advisors
that the Foundation would qualify as a Section 501(c)(3) exempt organization
under the Code, except that such opinion does not consider the impact of the
regulatory condition on the gift agreed to by the Foundation that Common Stock
issued to the Foundation be voted in the same ratio as all other shares of the
Company's Common Stock on all proposals considered by stockholders of the
Company. See "The Conversion - Establishment of Foundation - Regulatory
Conditions Imposed on the Foundation". In the event that the Company or the
Foundation receives an opinion of their counsel satisfactory to the FDIC that
compliance with the voting restriction would have the effect of causing the
Foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the Foundation, or subject the Foundation to an
excise tax under Section 4941 of the Code, the FDIC shall waive such voting
restriction upon submission of a legal opinion by the Company or the Foundation
that is satisfactory to the FDIC. The independent tax advisors' opinion further
provides that there is substantial authority for the position that the Company's
contribution of its own stock to the Foundation would not constitute an act of
self-dealing, and that the Company would be entitled to a deduction in the
amount of the fair market value of the stock at the time of the contribution,
subject to an annual limitation based on 10% of the Company's annual taxable
income. The Company,
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however, would be able to carry forward any unused portion of the deduction for
five years following the contribution. Thus, while the Company would have
received a charitable contribution deduction of approximately $2.7 million in
1995 (based upon the sale of stock at the maximum of the Estimated Price Range
and a contribution of $11.1 million of Common Stock and the Bank's pre-tax
income for 1995), the Company is permitted under the Code to carryover the
excess contribution in the five following years. Assuming the sale of Common
Stock at the midpoint of the Estimated Price Range, the Company estimates that
substantially all of the deduction should be deductible over the six-year
period. Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company will be entitled to the deduction for
the charitable contribution, there can be no assurances that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that the
deduction will be permitted. In such event, the Company's tax benefit related to
the Foundation would be fully expensed, resulting in a further reduction in
earnings in the year in which the IRS makes such a determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by FinPro in determining the estimated pro forma market value
of the Common Stock of the Company. The aggregate price of the shares of Common
Stock being offered in the Subscription and Community Offerings is based upon
the independent appraisal conducted by FinPro of the estimated pro forma market
value of the Common Stock of the Company. The pro forma aggregate price of the
Common Stock being offered for sale in the Conversion is currently estimated to
be between $272.3 million and $368.4 million, with a midpoint of $320.4 million.
The pro forma price to book ratio and the pro forma price to earnings ratio, at
and for the five months ended May 31, 1996, are 66.14% and 10.96x, respectively,
at the midpoint of the Estimated Price Range. In the event that the Conversion
did not include the Foundation, FinPro has estimated that the estimated pro
forma market value of the Common Stock would be approximately $339.2 million at
the midpoint based on a pro forma price to book ratio and the pro forma price to
earnings ratio that are approximately the same as the independent appraisal at
66.14% and 10.96x, respectively. The amount of Common Stock being offered for
sale in the Conversion at the midpoint of the Estimated Price Range is
approximately $18.8 million less than the estimated amount of Common Stock that
would be offered in the Conversion without the Foundation based on the estimate
provided by FinPro. Accordingly, certain account holders of the Bank who
subscribe to purchase Common Stock in the Subscription Offering would receive
fewer shares depending on the size of a depositor's stock order and the amount
of his or her qualifying deposits in the Bank and the overall level of
subscriptions. See "Comparison of Valuation and Pro Forma Information with No
Foundation." This estimate by FinPro was prepared solely for purposes of
providing Eligible Account Holders and subscribers with information with which
to make an informed decision on the Conversion.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Foundation will not have a significant
effect on the Company or the Bank's capital position. The Bank's regulatory
capital is significantly in excess of its regulatory capital requirements and
will further exceed such requirements following the Conversion. The Bank's
leverage and risk-based capital ratios at May 31, 1996 were 12.39% and 28.10%,
respectively. Assuming the sale of shares at the midpoint of the Estimated Price
Range, the Bank's pro forma leverage and risk-based capital ratios at May 31,
1996 would be 17.82% and 39.92%, respectively. On a consolidated basis, the
Company's pro forma stockholders' equity would be $499.1 million, or
approximately 24.36% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range. Pro forma stockholders'
equity
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per share and pro forma net earnings per share would be $15.12 and $0.38,
respectively. If the Foundation was not being established in the Conversion,
based on the FinPro estimate, the Company's pro forma stockholders' equity would
be approximately $513.0 million, or approximately 24.87% of pro forma
consolidated assets at the midpoint of the estimate, and pro forma stockholder's
equity per share and pro forma net earnings per share would be substantially
similar with the Foundation as without the establishment of the Foundation. See
"Comparison of Valuation and Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 2.9% of the total shares of the Company's Common Stock
outstanding. Such shares will be owned solely by the Foundation; however,
pursuant to a regulatory condition agreed to by the Company and the Foundation,
the shares of Common Stock held by the Foundation must be voted in the same
ratio as all other shares of the Company's Common Stock on all proposals
considered by the stockholders of the Company. The Company and the Foundation
will take the necessary steps to provide this voting restriction in the
Foundation's corporate governance documents. As such, the Company does not
believe the Foundation will have an anti-takeover effect on the Company. In the
event that the FDIC were to waive this voting restriction as provided in the
condition, however, the Foundation's board of directors would exercise sole
voting power over such shares and would no longer be subject to the restriction.
See "The Conversion -Establishment of the Foundation - Regulatory Conditions
Imposed on the Foundation." As the Foundation's board of directors will be
comprised of the members of the board of directors of the Company, in the event
the FDIC waived the voting restriction, management of the Company and the Bank
may benefit to the extent that the board of directors of the Foundation
determines to vote the shares of Common Stock held by the Foundation in favor of
proposals supported by the Company and the Bank. Furthermore, in such an event,
when the Foundation's shares are combined with shares purchased directly by
officers and directors of the Company, shares held by the Stock Programs trust,
and shares held in the ESOP, the aggregate of such shares could exceed 20% of
the Company's outstanding Common Stock, which could enable management to defeat
stockholder proposals requiring 80% approval. Consequently, such potential
voting control might preclude takeover attempts that certain stockholders deem
to be in their best interest, and might tend to perpetuate management. However,
since the ESOP shares are allocated to all eligible employees of the Bank, and
any unallocated shares will be voted by an independent trustee, and because the
Stock Programs must first be approved by stockholders no sooner than six months
following completion of the Conversion, and awards under such proposed plans may
be granted to employees other than executive officers and trustees, management
of the Company does not expect to have voting control of all shares covered by
the ESOP and other stock-based benefit plans. See " - Certain Anti-Takeover
Provisions - Voting Control of Officers and Trustees." Moreover, as the
Foundation sells its shares of Common Stock over time, its ownership interest
and voting power in the Company is expected to decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock form
has been done only on one prior occasion. As such, the Foundation and the
Superintendent's approval of the Conversion and the FDIC's nonobjection to the
Conversion may be subject to potential challenges notwithstanding that the Board
of Directors of the Company and the Board of Trustees of the Bank have carefully
considered the various factors involved in the establishment of the Foundation
in reaching their determination to establish the Foundation as part of the
Conversion. See "The Conversion - Establishment of Charitable Foundation -
Purpose of Foundation." If challenges were to be instituted seeking to require
the Bank to eliminate establishment of the Foundation in connection with the
Conversion, no assurances can be made that the resolution of such challenges
would not result in a delay in the consummation of the Conversion or that any
objecting persons would not be ultimately successful in obtaining such removal
or other relief against the Company or the Bank. Additionally, if the Company
and the Bank are forced to eliminate the Foundation, the Company may be required
to resolicit subscribers in the Offerings.
HIGHLY COMPETITIVE INDUSTRY AND GEOGRAPHIC AREA
The Bank faces significant competition in its primary market area both in
attracting deposits and in originating loans. The Long Island, New York area is
a highly competitive market. The Bank's share of deposits in Suffolk and Nassau
Counties amounts to 2.39%. The Bank faces direct competition from a significant
number of financial institutions operating in its market area, many with a
state-wide or regional presence, and, in some cases, a national presence. This
competition arises from commercial banks, savings banks, mortgage banking
companies, credit unions and other providers of financial services,
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many of which are significantly larger than the Bank and, therefore, have
greater financial and marketing resources than those of the Bank. See "Business
of the Bank - Market Area."
WEAKNESS IN LOCAL ECONOMY
During the late 1980s to the early 1990s, the New York City metropolitan
area experienced reduced employment as a result of layoffs in the financial
services industry, high technology and defense corporate relocations and the
general decline of the local, regional and national economies. Additionally,
during that period the area experienced a general weakening of real estate
values and a decline in home sales and construction. In particular, the New York
Counties of Nassau and Suffolk suffered reduced employment levels as a result of
restructuring and downsizing in the high technology and defense related
industries, which historically have been significant sources of employment in
the Bank's primary market area. As a result, loan delinquencies increased and
the underlying values of properties securing non-performing loans made by
lending institutions generally declined resulting in substantial losses to some
institutions. Since 1993, however, the economy of the Bank's primary market area
began to stabilize as demonstrated by improved employment and economic
indicators. Since such time, residential real estate values in the Bank's
primary market have stabilized and recently have begun to improve. However,
commercial real estate values, which previously experienced the greatest
declines during the late 1980s and early 1990s, have only recently begun to
stabilize and have not improved as much as residential real estate and generally
remain below the values experienced in the late 1980s.
Management does not believe that the current national or local economic
trends will severely affect the Bank's financial condition, since a substantial
portion of the Bank's assets are invested in mortgage-backed securities,
mortgage related securities and U.S. Government securities. There can be no
assurances, however, that conditions in the local economy, national economy, or
real estate market in general will not deteriorate and adversely affect the
financial condition and results of operations of the Bank. Based on information
available to management at this time, management believes the current allowance
for possible loan losses is adequate. Although management of the Bank believes
that the current allowance for loan losses is adequate in light of current
economic conditions, many factors may require additions to the allowance for
loan losses in future periods above those reasonably anticipated. Future
adjustments to the allowance also may be necessary if economic or other
conditions differ substantially from those underlying the assumptions used in
making such estimates. In addition, the Bank's plan to increase its investment
in commercial real estate and multi-family loans can be expected to increase the
overall level of credit risk inherent in the Bank's loan portfolio. The greater
risk associated with commercial real estate and multi-family loans may require
the Bank to increase its provisions for loan losses and to maintain an allowance
for loan losses as a percentage of total loans that is in excess of the
allowance currently maintained by the Bank.
PAYMENT OF FINANCING CORPORATION BONDS
Deposits of the Bank are presently insured by the BIF. Both the BIF and the
Savings Association Insurance Fund ("SAIF"), the deposit insurance fund that
covers most savings and loan association deposits, are statutorily required to
be recapitalized to a 1.25% of insured deposits reserve ratio. A portion
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of the insurance assessment paid by SAIF members has been required by statute to
be used to make payments on bonds issued by the Financing Corporation ("FICO"),
which were issued in the late 1980's to recapitalize the predecessor to the
SAIF.
The BIF has achieved the 1.25% ratio and the FDIC adopted a new assessment
rate schedule of 0 to 27 basis points for BIF members. Under the new schedule,
approximately 92% of BIF members were required to pay only $2,000 per year, the
legal minimum, in insurance premiums. With respect to SAIF member institutions,
the FDIC adopted a final rule retaining the existing assessment rate schedule
applicable to SAIF member institutions of 23 to 31 basis points. The SAIF was
several years away from achieving the required ratio largely due to the required
FICO payments. Consequently, a significant differential in the insurance
premiums paid by BIF and SAIF members arose.
Legislation was recently enacted to mitigate the effect of the BIF/SAIF
premium disparity. The legislation, among other things, imposes a special
assessment on SAIF deposits held as of March 31, 1995 to capitalize the SAIF to
the required levels. The amount of the special assessment is currently
estimated at 65.7 basis points. The legislation also spreads to BIF members a
portion of the burden of making FICO payments. Beginning January 1, 1997, BIF
deposits will assume a FICO payment estimated at 1.3 basis points, while SAIF
deposits will pay an estimated 6.4 basis points on FICO. Full pro rata sharing
--- ----
of the FICO payments by BIF members will occur on the earlier of the date the
BIF and SAIF are merged or January 1, 2000. The legislation specifies that
the BIF and SAIF will be merged on January 1, 1999, provided that there are no
more savings associations as of that date. This will require subsequent
legislation eliminating the thrift charter. Management cannot predict the exact
amount of any FICO obligations or whether the BIF and SAIF will eventually
merge.
CERTAIN ANTI-TAKEOVER PROVISIONS
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Restated
Organization Certificate (the "Restated Organization Certificate") and Bylaws,
as well as certain federal and state regulations, assist the Company in
maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting, staggered
boards of directors, noncumulative voting for directors, limits on the calling
of special meetings of shareholders, limits on the ability to vote Common Stock
in excess of 10% of outstanding shares, and certain uniform price provisions for
certain business combinations. The New York State Banking Regulations prohibit,
for a period of one year following the date of conversion, offers to acquire or
the acquisition of beneficial ownership of more than 10% of the outstanding
stock of the Bank. The Bank's Restated Organization Certificate also prohibits,
for three years, the acquisition, directly or indirectly, of the beneficial
ownership of more than 10% of the Bank's equity securities. Any person, or group
acting in concert, violating this restriction may not vote the Bank's or
Company's securities in excess of 10%. These provisions in the Bank's and the
Company's governing instruments may discourage potential proxy contests and
other potential takeover attempts, particularly those which have not been
negotiated with the Board of Directors, and thus, generally may serve to
perpetuate current management. See "Restrictions on Acquisitions of the Holding
Company and the Bank."
Voting Control of Officers and Trustees. Trustees, directors and executive
officers of the Bank and the Company expect to purchase approximately 1.8% or
1.3% of the shares of Common Stock to be issued in the Conversion, based upon
the minimum and the maximum of the Estimated Price Range, respectively,
exclusive of shares that may be attributable to directors and officers through
the Stock Programs, the Stock Option Plans and the ESOP, which may give
directors, trustees, executive officers and employees the potential to control
the voting of an additional 22% of the Company's Common Stock on a fully diluted
basis at the maximum of the Estimated Price Range. In addition, the Foundation
will be funded with a contribution by the Company equal to 3% of the Common
Stock sold in the Conversion, which if a waiver is obtained from the FDIC, may
be voted as determined by the Directors of the Foundation who are also the
Directors of the Company and the Bank. Management's potential voting control
could, together
19
<PAGE>
with additional stockholder support, defeat stockholder proposals requiring 80%
approval of stockholders. As a result, this potential voting control may
preclude takeover attempts that certain stockholders deem to be in their best
interest and may tend to perpetuate existing management. See "Restrictions on
Acquisition of the Company and the Bank - Restrictions in the Company's
Certificate of Incorporation and Bylaws" and "The Conversion - Establishment of
Charitable Foundation."
ABSENCE OF MARKET FOR COMMON STOCK
The Company, as a newly organized company, has never issued capital stock,
and consequently there is no established market for its Common Stock at this
time. The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RSLN." A public trading market having the
desirable characteristics of depth, liquidity and orderliness depends upon the
existence of willing buyers and sellers at any given time, the presence of which
is dependent upon the individual decisions of buyers and sellers over which
neither the Company nor any market maker has control. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. In the event a liquid market for the Common Stock does not
develop or market makers for the Common Stock discontinue their activities, such
occurrences may have an adverse impact on the liquidity of the Common Stock and
the market value of the Common Stock.
STOCK-BASED BENEFITS TO MANAGEMENT, EMPLOYMENT CONTRACTS AND CHANGE IN CONTROL
PAYMENTS
Stock Programs. The Company intends to adopt stock-based benefit plans
which would provide stock grants of Common Stock to non-employee trustees and
directors and selected officers and employees of the Company and Bank (the
"Stock Programs") and intends to seek stockholder approval of such plans at a
meeting of stockholders following the Conversion, which may be held no earlier
than six months after completion of the Conversion. The Company expects to
acquire Common Stock on behalf of the Stock Programs in an amount equal to 4% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, or 1,122,000 shares and 1,518,000 shares at the
minimum and maximum of the Estimated Price Range, respectively. These shares
will be acquired either through open market purchases or from authorized but
unissued Common Stock. See "- Possible Dilutive Effect of Stock Programs and
Stock Options."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Programs to the
trustees, directors and selected officers and employees of the Company and Bank
to the extent permitted by applicable regulations. Current NYBB and FDIC
regulations provide that, to the extent any non-tax qualified stock or stock
option plan is implemented within one year after conversion, no individual may
receive more than 25% of the shares of any such stock-based benefit plan and
non-employee directors or trustees may not receive more than 5% individually,
or 30% in the aggregate, of the shares awarded under any such plan. These shares
granted under the Stock Programs will be awarded at no cost to the recipients.
Under the terms of the Stock Programs, an independent trustee will vote
unallocated shares in the same proportion as it receives instructions from
recipients with respect to allocated shares which have not been earned and
distributed. Recipients will vote allocated shares. The plan trustee will not
vote allocated shares which have not been distributed if it does not receive
instructions from the recipient. The specific terms of the Stock Programs
intended to be adopted and the amounts of awards thereunder have not yet been
determined by the Board of Directors, and any such determination will include
consideration of various factors, including but not limited to, the financial
20
<PAGE>
condition of the Company, current and past performance of plan participants and
tax and securities law and regulation requirements. The stock-based benefits
provided under the Stock Programs and stock option plans, discussed below, may
be provided under separate plans established for officers and employees and non-
employee trustees and directors or such benefits may be provided for under a
single master stock-based benefit plan adopted by the Company which would
incorporate the benefits and features of the separate plans (the "Master Stock-
Based Benefit Plan"). Additionally, the granting or vesting of awards under such
benefit plans may be conditioned upon the achievement of individual or company-
wide performance goals, including the achievement by the Company or Bank of
specified levels of net income or returns on equity or assets. The
implementation of such Stock Programs may result in increased compensation
expenses to the Company and may have a dilutive effect on existing stockholders
to the extent the Stock Programs are funded with authorized but unissued shares.
See "Management of the Bank -Benefit Plans - Stock Programs" and "- Possible
Dilutive Effect of Stock Programs and Stock Options."
Stock Option Plans. The Company also intends to adopt stock-based benefit
plans which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and non-employee trustees and directors of the Company and
Bank (the "Stock Option Plans") and intends to seek stockholder approval of such
plans at a meeting of stockholders following the Conversion, which may be held
no earlier than six months after completion of the Conversion. Although no
specific determinations have been made, the Company expects that non-employee
directors and selected officers and employees of the Company and Bank will be
granted options to purchase Common Stock in an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to the
Foundation (or 2,805,000 shares and 3,795,000 shares at the minimum and maximum
of the Estimated Price Range, respectively). It is currently intended that the
exercise price of the Stock Options will be equal to the fair market value of
the underlying Common Stock on the date of grant. Stock Options will permit such
trustees, directors, officers and employees to benefit from any increase in the
market value of the shares in excess of the exercise price at the time of
exercise. Recipients of Stock Options will not be required to pay for the shares
until the date of exercise. The specific terms of the Stock Option Plans
intended to be adopted and amounts and awards thereunder have not yet been
determined by the Board and any such determination will include consideration of
various factors, including but not limited to, the financial condition of the
Company, current and past performance of award recipients and tax and securities
law and regulation requirements. The Stock Options discussed above may be
provided under a single stock option plan, may be granted under separate stock
option plans for officers and employees and non-employee directors or may be
provided for under the Master Stock-Based Benefit Plan which would incorporate
the features and benefits of the separate stock option plans and the Stock
Programs, and benefits awarded thereunder may be conditioned upon the
achievement of individual or company-wide performance goals, including the
achievement by the Company or Bank of specified levels of net income or returns
on equity or assets. The implementation of such Stock Option Plans may have a
dilutive effect upon existing stockholders of the Company to the extent option
exercises are satisfied with authorized but unissued shares. See "-Possible
Dilutive Effect of Stock Programs and Stock Options" and "Management of the
Bank - Benefit Plans -Stock Option Plans."
21
<PAGE>
Change In Control Provisions. Employment or change in control agreements
with certain officers of the Bank and Company provide for benefits and cash
payments in the event of their termination following a change in control of the
Company or Bank. These provisions may have the effect of increasing the cost of
acquiring the Company or Bank, thereby discouraging future attempts to take over
the Company or the Bank. Additionally, the Bank's employee severance
compensation plan, which similarly provides a cash payment and benefits to
eligible employees upon such employees' termination upon a change in control of
the Company or Bank, also may have the effect of increasing the cost of
acquiring the Company or Bank. Based on current salaries, cash payments to be
paid in the event of a change in control pursuant to the terms of the employment
agreements, change in control agreements and the employee severance compensation
plan would be approximately $1.2 million. However, the actual amount to be paid
in the event of a change in control of the Bank or the Company cannot be
estimated at this time because the actual amount is based on the average salary
of the employee and other factors existing at the time of the change in control.
See "Restrictions on Acquisition of the Company and the Bank - Restrictions in
the Company's Certificate of Incorporation and Bylaws," "Management of the
Bank - Employment Agreements," "- Change in Control Agreements," "- Employee
Severance Compensation Plan," "-Benefit Plans - Stock Option Plans" and "-
Benefit Plans -Stock Programs."
POSSIBLE DILUTIVE EFFECT OF STOCK PROGRAMS AND STOCK OPTIONS
Following the Conversion, the Stock Programs will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
either through open market purchases or the issuance of authorized but unissued
shares of Common Stock from the Company. If the Stock Programs are funded by the
issuance of authorized but unissued shares, the voting interests of existing
shareholders will be diluted by 3.8%. Also following the Conversion, the Company
intends to implement the Stock Option Plans which will provide trustees,
directors and selected employees of the Company and the Bank with Stock Options
to purchase authorized but unissued shares in an amount equal to 10% of the
Common Stock issued in the Conversion. If all of the Stock Options intended to
be granted were to be exercised using authorized but unissued Common Stock and
if the Stock Programs were funded with authorized but unissued shares, the
voting interests of existing stockholders would be diluted by 12.3%.
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Bank has received an opinion of FinPro that subscription rights granted
to Eligible Account Holders have no value. However, this opinion is not binding
on the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
such recipients could be taxed upon receipt or exercise of such subscription
rights. Additionally, the Bank could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Conversion - Effects of
Conversion" and "- Tax Aspects."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will issue up to
42,371,359 shares of Common Stock at the Purchase Price for an aggregate
purchase price of up to $423,713,590. An increase in the number of shares issued
will decrease a subscriber's pro forma net earnings per share and stockholders'
22
<PAGE>
equity per share and will increase the Company's pro forma consolidated
stockholders' equity and net earnings. Such an increase will also increase the
Purchase Price as a percentage of pro forma stockholders' equity per share and
net earnings per share.
Role of the Marketing Advisor
The Bank has engaged Sandler O'Neill as a conversion agent and Sandler
O'Neill has agreed to assist the Bank in its solicitation of subscriptions and
purchase orders for Common Stock in the Offerings. Sandler O'Neill has not
prepared any report or opinion constituting a recommendation or advice to the
Bank. Sandler O'Neill has expressed no opinion as to the prices at which Common
Stock to be issued in the Offerings may trade. Furthermore, Sandler O'Neill has
not verified the accuracy or completeness of the information contained in the
Prospectus or the Proxy Statement. See "The Conversion - Plan of Distribution,"
"- Marketing Arrangements."
23
<PAGE>
ROSLYN BANCORP, INC.
Roslyn Bancorp was recently organized at the direction of the Board of
Trustees of the Bank for the purpose of acquiring all of the capital stock of
the Bank to be issued in the Conversion. The Company expects to receive approval
from the Office of Thrift Supervision ("OTS") to become a savings and loan
holding company and, upon completion of the Conversion, will be subject to
regulation by the OTS. See "The Conversion - General" and "Regulation and
Supervision - Holding Company Regulation." Upon consummation of the Conversion,
the Company will have no significant assets other than the shares of the Bank's
common stock acquired in the Conversion and an amount equal to 50% of the net
proceeds of the Conversion, including the loan to the ESOP, and will have no
significant liabilities. The Company intends to use a portion of the net
proceeds it retains to loan to the ESOP funds to enable the ESOP to purchase up
to 8% of the stock issued in connection with the Conversion, including shares
issued to the Foundation. See "Use of Proceeds." The management of the Holding
Company is set forth under "Management of the Company." Initially, the Company
will neither own nor lease any property, but will instead use the premises,
equipment and furniture of the Bank. At the present time, the Company does not
intend to employ any persons other than certain officers who are currently
officers of the Bank but will utilize the support staff of the Bank from time to
time. Additional employees will be hired as appropriate to the extent the
Company expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly formed subsidiaries, or through
acquisitions of or mergers with other financial institutions and financial
services related companies. Although there are no current arrangements,
understandings or agreements regarding any such opportunities, the Company will
be in a position after the Conversion, subject to regulatory limitations and the
Company's financial position, to take advantage of any such acquisition and
expansion opportunities that may arise. The initial activities of the Company
are anticipated to be funded by the proceeds to be retained by the Company,
income thereon and through dividends from the Bank.
The Company's executive office is located at the administrative offices of
the Bank, 1400 Old Northern Boulevard, Roslyn, New York 11576. Its telephone
number is (516) 621-6000.
THE ROSLYN SAVINGS BANK
The Bank was organized in 1875 as a New York State chartered mutual savings
bank. The Bank's deposit accounts are insured to the maximum allowable amount by
the BIF as administered by the FDIC. Including the Bank's principal office,
which is located in Roslyn, New York, the Bank services its customers from six
full service banking facilities located in the New York Counties of Nassau and
Suffolk and also operates, through its wholly-owned mortgage banking subsidiary,
RFI, six mortgage loan origination offices located in the New York counties of
Queens, Nassau, Suffolk and Albany and the New Jersey counties of Morris and
Monmouth. In August 1996, the Bank entered into a contract for the purchase of
two additional branch office facilities located in Nassau County which are
expected to open for business in November 1996. At May 31, 1996, the Bank had
total assets of $1.77 billion, total deposits of $1.44 billion and retained
earnings of $222.2 million.
The Bank is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers and investing those funds
in mortgage-backed and mortgage related securities, debt and equity securities,
mortgage loans secured by one-
24
<PAGE>
to four-family residences, multi-family properties and commercial properties,
construction and development loans and home equity, second mortgage, student and
consumer loans. At May 31, 1996, the Bank's securities portfolio totalled $1.27
billion, or 71.4% of total assets, and its gross loan portfolio totalled $438.1
million, or 24.7% of total assets, of which $213.0 million were one- to four-
family loans, $33.3 million were multi-family loans, $153.6 million were
commercial real estate loans, $31.0 million were construction and development
loans, and $7.2 million were home equity and second mortgage, student and
consumer loans. Currently, all of the Bank's one- to four-family loan
origination and related loan servicing and sale activities are conducted through
its wholly-owned mortgage banking subsidiary, RFI, which the Bank formed in
August 1995 in connection with its purchase of certain assets and liabilities of
Residential Mortgage Banking, Inc., a mortgage banking firm that primarily
operated in the New York and New Jersey counties in and surrounding New York
City and Albany, New York.
The Bank's investment activities primarily consist of investments in
mortgage-backed and mortgage related securities and various debt and equity
securities. At May 31, 1996, the Bank had $831.6 million in mortgage-backed and
mortgage related securities, or 46.9% of total assets, including CMOs guaranteed
or issued by governmental-sponsored and federal agencies such as FNMA, FHLMC and
GNMA as well as CMOs issued by private issuers, of which $519.4 was classified
as available-for-sale and $312.2 million was classified as held-to-maturity. The
Bank's debt securities generally consist of United States Government securities,
obligations of FNMA, FHLMC and GNMA, obligations of corporate issuers, public
utility bonds, and bonds issued by states and other municipalities consisting of
$293.2 million of securities classified as available-for-sale and $1.9 million
of securities classified as held-to-maturity. At May 31, 1996, the Bank's equity
securities totalled $138.8 million and consisted of preferred stock of corporate
issuers, common stock of corporate issuers and mutual fund securities, all of
which were classified as available-for-sale. In November 1995, in accordance
with the FASB interpretation regarding SFAS No. 115, the Bank transferred
investment securities having a carrying value of $648.7 and a market value of
$658.3 at that date, from its held-to-maturity portfolio to its available-for-
sale portfolio. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Comparison of Financial Condition at December 31,
1995 and December 31, 1994."
The Bank's executive office is located at 1400 Old Northern Boulevard,
Roslyn, New York 11576. Its telephone number is (516) 621-6000.
25
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At May 31, 1996, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of May 31, 1996, on an historical and pro forma basis
assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Programs are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
PRO FORMA AT MAY 31, 1996 BASED UPON THE SALE AT $10.00 PER SHARE
------------------------------------------------------------------------
27,233,010 SHARES 32,038,835 SHARES
(MINIMUM OF THE (MIDPOINT OF THE
HISTORICAL AT ESTIMATED ESTIMATED
MAY 31, 1996 PRICE RANGE) PRICE RANGE)
--------------------- ----------------------- -----------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
---------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
GAAP(3) Capital............ $222,244 12.54% $321,399 17.17% $339,101 17.95%
======== ======== ========
Leverage Capital:
Capital Level(4)......... $219,267 12.39% 318,423 17.04 336,125 17.82
Requirement(5)........... 53,091 3.00 56,066 3.00 56,597 3.00
-------- ----- -------- ----- -------- -----
Excess................... $166,176 9.39% $262,357 14.04% 279,528 14.82%
======== ===== ======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)...... $229,474 28.10% 329,187 38.23% 346,989 39.92%
Requirement.............. 65,322 8.00 68,891 8.00 69,529 8.00
-------- ----- -------- ----- -------- -----
Excess................... $164,152 20.10% $260,296 30.23% $277,460 31.92%
======== ===== ======== ===== ======== =====
<CAPTION>
42,371,359 SHARES
36,844,660 SHARES (15% ABOVE
(MAXIMUM OF THE MAXIMUM OF THE
ESTIMATED ESTIMATED
PRICE RANGE) PRICE RANGE)(1)
------------------------- -------------------------
PERCENT PERCENT
OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2)
---------- ------------ ---------- ------------
<C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
GAAP(3) Capital............ $356,804 18.71% $377,161 19.57%
======== ========
Leverage Capital:
Capital Level(4)......... 353,827 18.58 374,185 19.44
Requirement(5)........... 57,128 3.00 57,739 3.00
-------- ----- -------- -----
Excess................... 296,699 15.58% 316,446 16.44%
======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)...... 364,791 41.59% 385,263 43.47%
Requirement.............. 70,166 8.00 70,899 8.00
-------- ----- -------- -----
Excess................... $294,625 33.59% $314,364 35.47%
======== ===== ======== =====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations as changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offering.
(2) Leverage capital levels are shown as a percentage of tangible assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Estimated Price Range. These levels also assume funding by
the Bank of the Stock Programs equal to 4% of the Common Stock issued and
repayment of the Company's loan to the ESOP to enable the ESOP to purchase
8% of the Common Stock issued valued at the minimum, midpoint and maximum of
the Estimated Price Range. See "Management of the Bank-Benefit Plans" for a
discussion of the Stock Programs and ESOP.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
rating for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%. See "The Company will not
be subject to regulatory capital requirements. Regulation and Supervision -
FDIC Regulations - Capital Requirements." The Company will not be subject to
regulatory capital requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of May 31,
1996.
26
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $265.6
million and $360.2 million (or $414.6 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable to
utilize any of the net proceeds of the Offerings until the consummation of the
Conversion.
The Company will purchase all of the outstanding capital stock of the Bank
to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $265.6 million to $360.2 million, the
Company expects to utilize between $132.8 million and $180.1 million of net
proceeds to purchase the common stock of the Bank. Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to utilize for general corporate purposes,
including investments in short- and medium-term, investment grade debt
securities, mortgage-backed and mortgage related securities and preferred stock.
The Bank also intends to utilize funds to increase its emphasis on one- to four-
family, multi-family and commercial real estate lending depending on market
conditions. The Bank may also use such funds for the expansion of its
facilities, and to expand operations through acquisitions of other financial
institutions, branch offices or other financial services companies, including
those located within the Bank's primary market area. To the extent that the
stock-based benefit programs which the Company or the Bank intend to adopt
subsequent to the Conversion are not funded with authorized but unissued common
stock of the Company, the Company or Bank may use net proceeds from the
Conversion to fund the purchase of stock to be awarded under such stock benefit
programs. See "Risk Factors -Stock-Based Benefits to Management, Employment
Contracts and Change in Control Payments" and "Management of the Bank - Benefit
Plans - Stock Option Plans" and " - Stock Programs."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $265.2 million to $360.2
million will be between $132.8 million and $180.1 million) to make a loan
directly to the ESOP to enable the ESOP to purchase in the Conversion, or in the
open market to the extent Common Stock is not available to fill the ESOP's
subscription, 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Based upon the sale of 27,233,010
shares or 36,844,660 shares at the minimum and maximum of the Estimated Price
Range, and the issuance of shares to the Foundation, the amount of the loan to
the ESOP would be $22.4 million or $30.4 million, respectively (or $34.9 million
if the Estimated Price Range is increased by 15%), with a term of 30 years at
the prevailing prime rate of interest, which currently is 8.75%. The Company and
Bank may alternatively choose to fund the ESOP's stock purchases through a loan
by a third party financial institution. See "Management of the Bank - Benefit
Plans - ESOP." The remaining net proceeds retained by the Company will initially
be invested in short- and medium-term debt obligations, mortgage-backed and
mortgage related securities and other investment grade marketable
securities.
The net proceeds retained by the Company may also be used to support the
future expansion of operations through branch acquisitions, the establishment of
branch offices and the acquisition of savings associations and commercial banks
or their assets, including those located within the Bank's market area or
diversification into other banking related businesses. Except for the Bank's
intended purchase of two branches, which are expected to open in November 1996,
the Company and the Bank have no current arrangements, understandings or
agreements regarding any such transactions. The Company, upon the Conversion,
will be a savings and loan holding company, which under existing laws would be
restricted
27
<PAGE>
as to the types of business activities in which it may engage. See "Regulation
and Supervision - Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the Superintendent, the Company,
pursuant to NYBD regulations, may not repurchase any Common Stock in the first
year after conversion and, during the next two following years, may only
repurchase up to 5% of its outstanding capital stock during each twelve-month
period. Further, the Company may not repurchase any of its Common Stock if the
repurchases would cause the Bank to become "undercapitalized" within the meaning
of the FDIC prompt corrective action regulation. See "Regulation and
Supervision -Prompt Corrective Regulatory Action." In addition, the FDIC
prohibits an insured mutual state savings bank which has converted from the
mutual to stock form of ownership from repurchasing its capital stock within one
year following the date of its conversion to stock form, except that stock
repurchases of no greater than 5% of a bank's outstanding capital stock may be
repurchased during this one year period where compelling and valid business
reasons are established to the satisfaction of the FDIC. Based upon facts and
circumstances following the Conversion and subject to applicable regulatory
requirements, the Board of Directors may determine to repurchase stock in the
future. Such facts and circumstances may include but not be limited to: (i)
market and economic factors such as the price at which the stock is trading in
the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and the opportunity to improve the Company's
return on equity; (ii) the avoidance of dilution to stockholders by not having
to issue additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion. To the extent that the Company repurchases stock at market prices in
excess of the Purchase Price in the Conversion, such repurchases may have a
dilutive effect upon the interests of existing stockholders. Any stock
repurchases will be subject to the determination of the Board of Directors that
both the Company and the Bank will be capitalized in excess of all applicable
regulatory requirements after any such repurchases and that such capital will be
adequate, taking into account, among other things, the level of non-performing
and other risk assets, the Company's and the Bank's current and projected
results of operations and asset/liability structure, the economic environment,
tax and other considerations. See "The Conversion -Certain Restrictions on
Purchase or Transfer of Shares after Conversion."
While the Company's Board of Directors intends to consider a policy of
paying cash dividends in the future, the Board has not currently formulated a
policy with respect to the payment of dividends. The payment of dividends or
repurchase of stock, however, would be prohibited if stockholders' equity would
be reduced below the amount required to maintain the Bank's liquidation account.
See "Dividend Policy" and "The Conversion - Liquidation Rights" and "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any.
The Bank will not be permitted to pay dividends on its common stock or
repurchase shares of its common stock if its stockholder's equity would be
reduced below the amount required for the liquidation account. See "The
Conversion - Liquidation Rights." Under New York State Banking Law, dividends
may be declared and paid only out of the net profits of the Bank. The approval
of the Superintendent is required if the total of all dividends declared in any
calendar year will exceed net profits for that year plus
28
<PAGE>
the retained net profits of the preceding two years, less any required transfer
to surplus or a fund for the retirement of any preferred stock. In addition, no
dividends may be declared, credited or paid if the effect thereof would cause
the Bank's capital to be reduced below the amount required by the Superintendent
or the FDIC. See "Regulation and Supervision." As of May 31, 1996, the Bank had
$46.5 million available for the payment of dividends without prior approval of
the Superintendent. Subsequent to the Conversion, the availability of the Bank's
funds for the payment of dividends may be limited by the liquidation account.
See "The Conversion - Liquidation Rights." Dividends or any repurchase by the
Bank of its stock in excess of the Bank's current and accumulated earnings could
result in the realization by the Bank of taxable income. See "Federal and State
Taxation - Federal Taxation."
Unlike the Bank, the Company is not subject to NYBD regulatory restrictions
on the payment of dividends to its stockholders, although the source of such
dividends will be, in part, dependent upon dividends from the Bank in addition
to the net proceeds retained by the Company and earnings thereon. 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.
Additionally, in connection with the Conversion, the Company and Bank have
committed to the FDIC that during the one-year period following the consummation
of the Conversion, the Company will not declare an extraordinary dividend which
would be treated by recipient stockholders as a tax-free return of capital for
federal income tax purposes without prior approval of the FDIC.
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
received conditional approval to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RSLN" subject to the completion of the
Conversion and compliance with certain conditions including the presence of at
least two registered and active market makers. The Company will seek to
encourage and assist at least two market makers to make a market in its Common
Stock. Making a market involves maintaining bid and ask quotations and being
able, as principal, to effect transactions in reasonable quantities at those
quoted prices, subject to various securities laws and other regulatory
requirements. There can be no assurance that the Common Stock will be able to
meet the applicable listing criteria in order to maintain its quotation on the
Nasdaq National Market or that an active and liquid trading market will develop
or, if developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Conversion. See "Risk
Factors - Absence of Market for Common Stock."
29
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
May 31, 1996, and the pro forma consolidated capitalization of the Company after
giving effect to the Conversion, including the issuance of shares to the
Foundation, based upon the sale of the number of shares indicated in the table
and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
COMPANY PRO FORMA BASED UPON SALE AT $10.00 PER SHARE
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
42,371,359
27,233,010 32,038,835 36,844,660 SHARES
SHARES SHARES SHARES (15% ABOVE
(MINIMUM OF (MIDPOINT OF (MAXIMUM OF MAXIMUM OF
BANK ESTIMATED ESTIMATED ESTIMATED ESTIMATED
HISTORICAL PRICE RANGE) RICE RANGE) PRICE RANGE) PRICE RANGE)(1)
---------- ------------ ----------- ------------ ---------------
(IN THOUSANDS)
Deposits (2)................................... $1,441,845 $ 1,441,845 $ 1,441,845 $ 1,441,845 $ 1,441,845
---------- ----------- ----------- ----------- -----------
Total deposits and borrowed funds.............. $1,511,443 $ 1,511,443 $ 1,511,443 $ 1,511,443 $ 1,511,443
========== =========== =========== =========== ===========
Stockholders' equity:
Preferred Stock, $.01 par value,
10,000,000 shares authorized;
none to be issued.......................... - - - - -
Common Stock, $.01 par value,
100,000,000 shares authorized;
shares to be issued as reflected........... - 281 330 379 436
Additional paid-in capital(3)................ - 273,520 322,197 370,874 426,852
Retained earnings(4)......................... 222,916 222,916 222,916 222,916 222,916
Less:
Expense of contributions to - (8,170) (9,612) (11,053) (12,711)
Foundation................................
Plus: - 3,023 3,556 4,090 4,703
Tax effect of contribution
to Foundation(5)..........................
Net unrealized loss on (672) (672) (672) (672) (672)
securities available-for-sale, net of taxes..
Less:
Common Stock acquired by the - (22,440) (26,400) (30,360) (34,914)
ESOP(6)...................................
Common Stock acquired by the - (11,220) (13,200) (15,180) (17,457)
Stock Programs(7).......................... ---------- ----------- ----------- ----------- -----------
Total stockholders' equity..................... $ 222,244 $ 457,238 $ 499,115 $ 540,994 $ 589,153
========== =========== =========== =========== ===========
</TABLE>
_______________________
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00
per share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's Stock Option Plans intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. The Stock Option Plans
would provide the grant of stock options to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock issued in the Conversion.
See "Management of the Bank - Benefit Plans - Stock Option Plans."
(4) The retained earnings of the Bank will be substantially restricted after
the Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 37% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion
of the deduction for five years following the year in which the
contribution is made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and the funds used to acquire the ESOP shares will be borrowed from the
Company. The Common Stock acquired by the ESOP is reflected as a reduction
of stockholders' equity. See "Management of the Bank - Benefit Plans -
ESOP" and "- Benefit Plans - Stock Programs."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation
is purchased by the Stock Programs through open market purchases. The
Common Stock purchased by the Stock Programs is reflected as a reduction
of stockholder's equity. See "Risk Factors - Possible Dilutive Effect of
Stock Programs and Stock Options," Footnote 2 to the tables under "Pro
Forma Data" and "Management of the Bank - Benefit Plans - Stock Programs."
30
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $265.6 million and $360.2 million based upon
the following assumptions: (i) $4.5 million will be sold to executive officers,
Trustees, Directors and employees of the Bank and Company, the ESOP will
purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, and the remaining shares will be sold
in the Subscription and Community Offerings; (ii) commissions will be paid as
follows: (A) Sandler O'Neill will receive a fee equal to 1.75% of the aggregate
Purchase Price of the shares sold in the Subscription Offering and Community
Offering; and (B) no fee will be paid with respect to shares purchased by the
ESOP, officers, employees, Trustees and Directors of the Bank and Company and
members of their immediate families; and (iii) the Company will issue to the
Foundation an amount of Common Stock of 3% of the Common Stock sold in the
Conversion from authorized but unissued shares; and (iv) Conversion expenses,
excluding the marketing fees paid to Sandler O'Neill, will be approximately $2.4
million. Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the five months ended
May 31, 1996 and for the year ended December 31, 1995 have been calculated as if
the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.78% (the one year U.S. Treasury bill
rate as of July 30, 1996). The tables do not reflect the effect of withdrawals
from deposit accounts for the purchase of Common Stock. The pro forma after-tax
yield for the Company and the Bank is assumed to be 3.64% for the five months
ended May 31, 1996, (based on an assumed tax rate of 37.0%) and 3.64% for the
year ended December 31, 1995 (based on an assumed tax rate of 37.0%). Historical
and pro forma per share amounts have been calculated by dividing historical and
pro forma amounts by the indicated number of shares of Common Stock, as adjusted
to give effect to the purchase of shares by the ESOP and the effect of the
issuance of shares to the Foundation. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the five months ended May 31, 1996, and at or for
the year ended December 31, 1995, based on the assumptions set forth above and
in the table and should not be used as a basis for projections of market value
of the Common Stock following the Conversion. The tables below give effect to
the Stock Programs, which are expected to be adopted by the Company following
the Conversion and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Bank - Benefit
Plans - Stock Programs." No effect has been given in the tables to the possible
issuance of additional shares reserved for future issuance pursuant to the Stock
Option Plans to be adopted by the Board of Directors of the Company and
presented to stockholders for approval at a meeting of stockholders, nor does
book value as presented give any effect to the liquidation account to be
established for the benefit of Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion -Liquidation
Rights" and "Management of the Bank - Benefit Plans -Stock Option Plans." THE
FOLLOWING
31
<PAGE>
TABLE GIVES EFFECT TO THE ISSUANCE OF AUTHORIZED BUT UNISSUED SHARES OF THE
COMPANY'S COMMON STOCK TO THE FOUNDATION CONCURRENTLY WITH THE COMPLETION OF THE
CONVERSION. THE VALUATION RANGE, AS SET FORTH HEREIN AND IN THE TABLE BELOW,
TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF THE ISSUANCE OF SHARES TO THE
FOUNDATION.
32
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE FIVE MONTHS ENDED MAY 31, 1996
------------------------------------------------------------------
<S> <C> <C> <C> <C>
42,371,359
27,233,010 32,038,835 36,844,660 SHARES SOLD
SHARES SOLD SHARES SOLD SHARES SOLD AT $10.00 PER
AT $10.00 AT $10.00 AT $10.00 SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(8)
-------------- ------------ ------------ ----------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.......................... $ 272,330 $ 320,388 $ 368,447 $ 423,714
Plus: Shares acquired by Charitable
Trust Foundation (equal to 3% of
stock issued in Conversion)......... 8,170 9,612 11,053 12,711
----------- ----------- ----------- -----------
Pro forma market capitalization......... $ 280,500 $ 330,000 $ 379,500 $ 436,425
=========== =========== =========== ===========
Gross proceeds.......................... $ 272,330 $ 320,388 $ 368,497 $ 423,714
Less: Offering expenses and
commissions........................ (6,699) (7,473) (8,247) (9,137)
----------- ----------- ----------- -----------
Estimated net proceeds.................. $ 265,631 $ 312,915 $ 360,200 $ 414,577
Less: Common Stock purchased
by ESOP.......................... (22,440) (26,400) (30,360) (34,914)
Common Stock purchased by
Stock Programs................... (11,220) (13,200) (15,180) (17,457)
----------- ----------- ----------- -----------
Estimated net proceeds, as adjusted.. $ 231,971 $ 273,315 $ 314,660 $ 362,206
=========== =========== =========== ===========
Net income(1):
Historical........................... $ 8,391 $ 8,391 $ 8,391 $ 8,391
Pro forma income on net proceeds,
as adjusted....................... 3,520 4,147 4,774 5,496
Pro forma ESOP adjustment(2)......... (196) (231) (266) (305)
Pro forma Stock
Program adjustment(3)............. (589) (693) (797) (916)
----------- ----------- ----------- -----------
Pro forma net income................ $ 11,126 $ 11,614 $ 12,102 $ 12,666
=========== =========== =========== ===========
Per share net income(1):
Historical........................... $ 0.32 $ 0.27 $ 0.24 $ 0.21
Pro forma income on net proceeds,
as adjusted....................... 0.14 0.14 0.14 0.14
Pro forma ESOP adjustment(2)......... (0.01) (0.01) (0.01) (0.01)
Pro forma Stock Programs
adjustment(3)..................... (0.02) (0.02) (0.02) (0.02)
----------- ----------- ----------- -----------
Pro forma net income per share...... $ 0.43 $ 0.38 $ 0.35 $ 0.32
=========== =========== =========== ===========
Stockholders' equity:
Historical........................... $ 222,244 $ 222,244 $ 222,244 $ 222,244
Estimated net proceeds............... 265,631 312,915 360,200 414,577
Plus: Shares issued to Foundation.... 8,170 9,612 11,053 12,711
Less: Contribution to Foundation..... (8,170) (9,612) (11,053) (12,711)
Plus: Tax benefit of the contribution
to the Foundation................ 3,023 3,556 4,090 4,703
Less: Common Stock acquired
by ESOP(2)....................... (22,440) (26,400) (30,360) (34,914)
Less: Common Stock acquired
by Stock Programs(3)............. (11,220) (13,200) (15,180) (17,957)
----------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(4)(5).................... $ 457,238 $ 499,115 $ 540,994 $ 589,153
=========== =========== =========== ===========
Stockholders' equity per share(6):
Historical........................... $ 7.92 $ 6.73 $ 5.86 $ 5.09
Estimated net proceeds............... 9.47 9.48 9.49 9.50
Plus: Shares issued to Foundation.... 0.29 0.29 0.29 0.29
Less: Shares issued to Foundation.... (0.29) (0.29) (0.29) (0.29)
Plus: Tax benefit of
Charitable Foundation................ 0.11 0.11 0.11 0.11
Less: Common Stock acquired
by ESOP(2)......................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(3).................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma stockholders' equity
per share(3)(4)(5)................. $ 16.30 $ 15.12 $ 14.26 $ 13.50
=========== =========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share........................... 61.35% 66.14% 70.03% 74.07%
Offering price to pro forma net
earnings per share(7)................ 9.69x 10.96x 11.90x 13.02x
</TABLE>
33
<PAGE>
______________________
(1) Does not give effect to the non-recurring expense that will be recognized
in 1996 as a result of the establishment of the Foundation. The Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $5.1 million, $6.1 million, $7.0
million and $8.0 million at the minimum, midpoint, maximum and maximum as
adjusted, of the Estimated Price Range, respectively. Assuming the
contribution to the Foundation was expensed during the five month period
ended May 31, 1996, pro forma net earnings per share would be $0.23, $0.18,
$0.15 and $0.12, at the minimum, midpoint, maximum and maximum as adjusted,
respectfully. Per share net income data is based on 25,837,167, 30,396,667,
34,956,167 and 40,199,592 shares outstanding which represents shares sold
in the Conversion, shares contributed to the Foundation and shares to be
allocated or distributed under the ESOF and Stock Programs for the period
presented.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based upon
30 equal annual installments of principal, with an assumed interest rate at
8.75%. The pro forma net earnings assumes: (i) that the Bank's contribution
to the ESOP is equivalent to the debt service requirement for the five
months ended May 31, 1996, and was made at the end of the period; (ii) that
31,167, 36,667, 42,167, and 48,492 shares at the minimum, midpoint, maximum
and 15% above the maximum of the range, respectively, were committed to be
released during the five months ended May 31, 1996, at an average fair
value of $10.00 per share in accordance with Statement of Position ("SOP")
93-6; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the net earnings per share
calculations. See "Management of the Bank -Benefit Plans - ESOP."
(3) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the Stock
Programs intend to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock sold in the Conversion and issued to the Foundation,
or 1,122,000, 1,320,000, 1,518,000 and 1,745,700 shares of Common Stock at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, either through open market purchases, if
permissible, or from authorized but unissued shares of Common Stock or
treasury stock of the Company, if any. Funds used by the Stock Programs to
purchase the shares will be contributed to the Stock Programs by the Bank.
In calculating the pro forma effect of the Stock Programs, it is assumed
that the shares were acquired by the Stock Programs at the beginning of the
period presented in open market purchases at the Purchase Price and that
8.3% of the amount contributed was an amortized expense during such period.
The issuance of authorized but unissued shares of the Company's Common
Stock to the Stock Programs instead of open market purchases would dilute
the voting interests of existing stockholders by approximately 3.8% and pro
forma net earnings per share would be $0.41, $0.37, $0.33 and $0.30 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, and pro forma stockholders' equity per share would be $16.06,
$14.93, $14.09 and $13.36 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
actual purchase price of the shares granted under the Stock Programs will
be equal to the Purchase Price. See "Management of the Bank - Benefit
Plans - Stock Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock Option
Plans are approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 2,805,000, 3,300,000, 3,795,000 and 4,364,250 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.40 $0.35, $0.32 and $0.29, respectively, and the pro forma
stockholders' equity per share would be $15.73, $14.66, $13.87 and $13.18,
respectively. See "Management of the Bank - Benefit Plans - Stock Option
Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation and Supervision - New York State Law."
(6) Stockholders equity per share data is based upon 28,050,000, 33,000,000,
and 37,950,000 and 43,642,500 shares outstanding representing shares sold
in the conversion, shares contributed to the Foundation and shares
purchased by the ESOP and Stock Programs.
(7) Based on pro forma net earnings for the five months ended May 31, 1996 that
have been annualized.
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
34
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1995
-------------------------------------------------------------
<S> <C> <C> <C> <C>
27,233,010 32,038,835 36,844,660
SHARES SOLD SHARES SOLD SHARES SOLD 42,371,359
AT $10.00 AT $10.00 AT $10.00 SHARES SOLD
PER SHARE PER SHARE PER SHARE AT $10.00 PER
(MINIMUM (MIDPOINT (MAXIMUM SHARE (15%
OF OF OF ABOVE
ESTIMATED ESTIMATED ESTIMATED MAXIMUM
PRICE PRICE PRICE OF ESTIMATED
RANGE) RANGE) RANGE) PRICE RANGE)(8)
--------- -------- ------- --------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gross proceeds.......................... $ 272,330 $ 320,388 $ 368,447 $ 423,714
Plus: Shares acquired by Charitable
Trust Foundation (equal to 3% of
stock issued in Conversion)......... 8,170 9,612 11,053 12,711
----------- ----------- -------- -----------
Pro forma market capitalization......... $ 280,500 $ 330,000 $379,500 $ 436,425
=========== =========== ======== ===========
Gross proceeds.......................... $ 272,330 $ 320,388 $368,447 $ 423,714
Less: Offering expenses and
commissions........................ (6,699) (7,473) (8,247) (9,137)
----------- ----------- -------- -----------
Estimated net proceeds.................. $ 265,631 $ 312,915 $360,200 $ 414,577
Less: Common Stock purchased
by ESOP......................... (22,440) (26,400) (30,360) (34,914)
Common Stock purchased by
Stock Programs................... (11,220) (13,200) (15,180) (17,457)
----------- ----------- -------- -----------
Estimated net proceeds, as adjusted.. $ 231,971 $ 273,315 $314,660 $ 362,206
=========== =========== ======== ===========
Net income(1):
Historical........................... $ 18,718 $ 18,718 $ 18,718 $ 18,718
Pro forma income on net proceeds,
as adjusted....................... 8,447 9,953 11,458 13,189
Pro forma ESOP adjustment(2)......... (471) (554) (638) (733)
Pro forma Stock Programs
adjustment(3)..................... (1,414) (1,663) (1,913) (2,200)
----------- ----------- -------- -----------
Pro forma net income................ $ 25,280 $ 26,454 $ 27,625 $ 28,974
=========== =========== ======== ===========
Per share net income(1):
Historical........................... $ 0.72 $ 0.61 $ 0.53 $ 0.46
Pro forma income on net proceeds,
as adjusted....................... 0.33 0.33 0.33 0.33
Pro forma ESOP adjustment(2)......... (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Programs
adjustment(3)..................... (0.05) (0.05) (0.05) (0.05)
----------- ----------- -------- -----------
Pro forma net income per share...... $ 0.98 $ 0.87 $ 0.79 $ 0.72
=========== =========== ======== ===========
Stockholders' equity:
Historical........................... $ 226,418 $ 226,418 $226,418 $ 226,418
Estimated net proceeds............... 265,631 312,915 360,200 414,577
Plus: Shares issued to Foundation... 8,170 9,612 11,053 12,711
Less: Contribution to Foundation.... (8,170) (9,612) (11,053) (12,711)
Plus: Tax benefit of
Foundation........................ 3,023 3,556 4,090 4,703
Less: Common Stock acquired
by ESOP(2)....................... (22,440) (26,400) (30,360) (34,914)
Less: Common Stock acquired
by Stock Programs(3)............. (11,220) (13,200) (15,180) (17,457)
----------- ----------- -------- -----------
Pro forma stockholders'
equity(3)(4)(5).................... $ 461,412 $ 503,289 $545,168 $ 593,327
=========== =========== ======== ===========
Stockholders' equity per share(6):
Historical........................... $ 8.07 $ 6.86 $ 5.97 $ 5.19
Estimated net proceeds............... 9.47 9.48 9.49 9.50
Plus: Shares issued to Foundation 0.29 0.29 0.29 0.29
Less: Contribution to Foundation (0.29) (0.29) (0.29) (0.29)
Plus: Tax benefit of
Charitable Foundation................ 0.11 0.11 0.11 0.11
Less: Common Stock acquired
by ESOP(2)......................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Programs(3).................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- -------- -----------
Pro forma stockholders' equity
per share(3)(4)(5)................. $ 16.45 $ 15.25 $ 14.37 $ 13.60
=========== =========== ======== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share........................... 60.79% 65.57% 69.59% 73.53%
Offering price to pro forma net
earnings per share(7)................ 10.20x 11.49x 12.66x 13.89x
(see footnotes on next page)
</TABLE>
35
<PAGE>
(1) Does not give effect to the non-recurring expense that will be recognized
in 1996 as a result of the establishment of the Foundation. The Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $5.1 million, $6.1 million, $7.0
million and $8.0 million at the minimum, midpoint, maximum and maximum as
adjusted, of the Estimated Price Range, respectively. Assuming the
contribution to the Foundation was expensed during the year ended December
31, 1995, pro forma net earnings per share would be $0.78, $0.67, $0.59 and
$0.52, at the minimum, midpoint, maximum and maximum as adjusted,
respectfully. Per share net income data is based on 25,880,800, 30,448,000,
35,015,200 and 40,267,480 shares outstanding which represents shares sold
in the Conversion shares contributed to the Foundation and shares to be
allocated or distributed under the ESOP and Stock Program for the period
presented.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based upon
30 equal annual installments of principal, with an assumed interest rate at
8.75%. The pro forma net earnings assumes: (i) that the Bank's contribution
to the ESOP is equivalent to the debt service requirement for the year
ended December 31, 1995, and was made at the end of the period; (ii) that
74,800, 88,000, 101,200 and 116,380 shares at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, were
committed to be released during the year ended December 31, 1995 at an
average fair value of $10.00 per share in accordance with SOP 93-6; and
(iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations. See
"Management of the Bank -Benefit Plans - ESOP."
(3) Gives effect to the Stock Programs expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Programs are approved by stockholders, the Stock
Programs intend to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 1,122,000, 1,320,000, 1,518,000 and
1,745,700 shares of Common Stock at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Price Range, respectively, either
through open market purchases, if permissible, or from authorized but
unissued shares of Common Stock or treasury stock of the Company, if any.
In calculating the pro forma effect of the Stock Programs, it is assumed
that the shares were acquired by the Stock Programs at the beginning of the
period presented in open market purchases at the Purchase Price and that
20% of the amount contributed was an amortized expense during such period.
The issuance of authorized but unissued shares of the Company's Common
Stock to the Stock Programs instead of open market purchases would dilute
the voting interests of existing stockholders by approximately 3.8% and pro
forma net earnings per share would be $0.94, $0.83, $0.76 and $0.69 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be $16.20,
$15.05, $14.20 and $13.46 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively. There can be no assurance that the
actual purchase price of the shares granted under the Stock Programs will
be equal to the Purchase Price. See "Management of the Bank - Benefit
Plans - Stock Programs."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plans expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plans for approval at a meeting of stockholders. If the Stock Option
Plans are approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 2,805,000, 3,300,000, 3,795,000 and 4,364,250 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plans. The
issuance of Common Stock pursuant to the exercise of options under the
Stock Option Plans will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.88, $0.78, $0.71 and $0.65, respectively, and the pro forma
stockholders' equity per share would be $15.86, $14.77, $13.97 and $13.27,
respectively. See "Management of the Bank - Benefit Plans - Stock Option
Plans."
(5) The retained earnings of the Bank will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation and Supervision - New York State Law."
(6) Stockholders equity per share data is based upon 28,050,000, 33,000,000,
37,950,000 and 43,642,500 shares outstanding representing shares sold in
the conversion, shares contributed to the Foundation and shares purchased
by the BSOP and Stock Programs.
(7) Based on pro forma net earnings for the five months ended May 31, 1996
that has been annualized.
(8) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
36
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, FinPro has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $339.2 million at the
midpoint, which is approximately $9.2 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is included,
and would result in approximately an $18.8 million increase in the amount of
Common Stock offered for sale in the Conversion. The pro forma price to book
ratio and pro forma price to earnings ratio would be the same under both the
current appraisal and the estimate of the value of the Company without the
Foundation. Further, assuming the midpoint of the Estimated Price Range, pro
forma stockholders' equity per share and pro forma earnings per share would be
the same with the Foundation as without the Foundation. In this regard, pro
forma stockholders' equity and pro forma net income per share would be $15.12
and $0.38, respectively, at the midpoint of the estimate, assuming no
Foundation, and $15.12 and $0.38, respectively, with the Foundation. The pro
forma price to book ratio and the pro forma price to earnings ratio are 66.14%
and 10.96x, respectively, at the midpoint of the estimate, assuming no
Foundation and are 66.14% and 10.96x, respectively, with the Foundation. There
is no assurance that in the event the Foundation was not formed that the
appraisal prepared at that time would have concluded that the pro forma market
value of the Company would be the same as that estimated herein. Any appraisal
prepared at that time would be based on the facts and circumstances existing at
that time, including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion was completed at
May 31, 1996.
<TABLE>
<CAPTION>
AT THE MAXIMUM,
AT THE MINIMUM AT THE MIDPOINT AT THE MAXIMUM AS ADJUSTED
-------------------------------------------------------------------------------------------------------
WITH NO WITH NO WITH NO WITH NO
FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION FOUNDATION
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Estimated offering amount.. $ 272,330 $ 288,320 $ 320,388 $ 339,200 $ 368,447 $ 390,080 $ 423,714 $ 448,592
Pro forma market
capitalization............ 280,500 288,320 330,000 339,200 379,500 390,080 436,425 448,592
Total assets............... 2,007,169 2,018,952 2,049,046 2,062,909 2,090,925 2,106,867 2,139,084 2,157,418
Total liabilities.......... 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931 1,549,931
Pro forma stockholders'
equity.................... 457,238 469,021 499,115 512,978 540,994 556,936 589,153 607,487
Pro forma consolidated net
earnings.................. 11,126 11,328 11,614 11,853 12,102 12,377 12,666 12,980
Pro forma stockholders'
equity per share.......... $ 16.30 $ 16.27 $ 15.12 $ 15.12 $ 14.26 $ 14.28 $ 13.50 $ 13.54
Pro forma consolidated net
earnings per
share..................... 0.43 0.43 0.38 0.38 0.35 0.34 0.32 0.31
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share... 61.35% 61.46% 66.14% 66.14% 70.13% 70.03% 74.07% 73.86%
Offering price to pro
forma
net earnings per
share.............. 9.69x(1) 9.69x 10.96x(1) 10.96x 11.90x(1) 11.90x 13.02x(1) 13.24x
Pro Forma Market
Capitalization to assets. 13.97% 14.28% 16.10% 16.44% 18.15% 18.51% 20.40% 20.79%
Pro Forma Financial Ratios:
Return on assets......... 1.33(2) 1.35 1.36(2) 1.38 1.39(2) 1.41 1.42(2) 1.44
Return on stockholders'
equity.................. 5.84(3) 5.80 5.58(3) 5.55 5.37(3) 5.33 5.16(3) 5.13
Stockholders' equity to
assets.................. 22.78 23.23 24.36 24.87 25.87 26.43 27.54 28.16
</TABLE>
- ------------------
(1) If the contribution to the Foundation had been expensed during the five
months ended May 31, 1996, the offering price to pro forma net earnings per
share would have been 18.12x, 23.15x, 27.78x and 34.72x at the minimum,
midpoint, maximum and maximum as adjusted, respectively.
(2) If the contribution to the Foundation had been expensed during the five
months ended May 31, 1996, return on assets would have been 0.71%, 0.65%
0.59% and 0.52% at the minimum, midpoint, maximum and maximum as adjusted,
respectively.
(3) If the contribution to the Foundation had been expensed during the five
months ended May 31, 1996, return on stockholders' equity would have been
3.14%, 2.67%, 2.28% and 1.90% at the minimum, midpoint, maximum and maximum
as adjusted, respectively.
37
<PAGE>
THE ROSLYN SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of the
years in the three-year period ended December 31, 1995 have been audited by KPMG
Peat Marwick LLP, independent certified public accountants, whose report thereon
appears elsewhere in this Prospectus. Such report includes an explanatory
paragraph relating to changes in accounting principles. With respect to
information for the five months ended May 31, 1996 and 1995, which is unaudited,
in the opinion of management, all adjustments necessary for a fair presentation
of such interim periods have been included and are of a normal recurring nature.
Results for the five months ended May 31, 1996 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1996. These
statements should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS FOR THE YEAR
ENDED MAY 31, ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
--------- --------- --------- --------- -----------
(unaudited)
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Federal funds sold and short term deposits......................... $ 587 $ 722 $ 1,819 $ 1,069 $ 949
Debt and equity securities......................................... 11,287 15,197 37,891 38,972 39,638
Mortgage-backed and mortgage
related securities................................................ 22,940 14,207 37,086 27,976 27,897
Real estate loans.................................................. 15,024 13,751 33,341 24,665 24,742
Consumer and student loans......................................... 225 673 897 1,834 1,778
--------- -------- --------- -------- ---------
Total interest income............................................ 50,063 44,550 111,034 94,516 95,004
--------- -------- --------- -------- ---------
Interest expense:
Deposits........................................................... 26,198 22,038 57,744 40,353 39,516
Borrowed funds..................................................... 930 700 1,554 - 182
--------- -------- --------- -------- ---------
Total interest expense 27,128 22,738 59,298 40,353 39,698
--------- -------- --------- -------- ---------
Net interest income before provision
for possible loan losses 22,935 21,812 51,736 54,163 55,306
Provision for possible loan losses.................................... 300 250 600 600 6,860
--------- -------- --------- -------- ---------
Net interest income after provision
for possible loan losses........................................... 22,635 21,562 51,136 53,563 48,446
--------- -------- --------- -------- ---------
Non-interest income:
Loan servicing and fee income...................................... 2,477 1,226 3,729 3,339 3,363
Net gains (losses) on sales of loans............................... 1,351 455 1,827 (289) 33
Net (losses) gains on securities................................... (257) (758) (811) (1,181) 3,123
Net (losses) gains on real estate operations....................... (271) 203 714 156 (1,665)
Other non-interest income.......................................... 197 4 255 24 10
--------- -------- --------- -------- ---------
Total non-interest income........................................ 3,497 1,130 5,714 2,049 4,864
--------- -------- --------- -------- ---------
Non-interest expense:
General and administrative expenses:
Compensation and employee benefits................................. 8,167 6,032 15,815 13,409 12,492
Occupancy and equipment............................................ 1,427 1,245 3,288 2,845 2,539
Deposit insurance premiums......................................... 1 1,142 1,430 2,630 2,587
Advertising and promotion.......................................... 918 604 1,708 1,350 1,200
Other non-interest expenses........................................ 3,378 2,168 7,115 5,816 5,654
--------- -------- --------- -------- ---------
Total general and administrative expenses........................ 13,891 11,191 29,356 26,050 24,472
Amortization of excess of cost over fair
value of net assets acquired..................................... 196 51 266 122 92
--------- -------- --------- -------- ---------
Total non-interest expense....................................... 14,087 11,242 29,622 26,172 24,564
--------- -------- --------- -------- ---------
Income before income taxes and cumulative
effect of changes in accounting principles 12,045 11,450 27,228 29,440 28,746
Provision for income taxes............................................ 3,654 3,876 8,510 10,018 10,586
--------- -------- --------- -------- ---------
Income before cumulative effect of changes in
accounting principles.............................................. 8,391 7,574 18,718 19,422 18,160
Cumulative effect of changes in accounting
principles......................................................... - - - - 5,983
--------- -------- --------- -------- ---------
Net income............................................................ $ 8,391 $ 7,574 $ 18,718 $ 19,422 $ 24,143
========= ======== ========= ======== =========
</TABLE>
(See accompanying notes to the consolidated financial statements)
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by the
Bank's provision for possible loan losses, real estate operations expense,
securities and loan sale activities and loan servicing activities. The Bank's
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, federal deposit insurance premiums and other
expenses. Results of operations are also significantly affected by general
economic and competitive conditions, particularly changes in interest rates,
government policies and actions of regulatory authorities. See "Regulation and
Supervision" for a discussion of the regulatory changes resulting from the
Financial Institutions Reform Recovery and Enforcement Act of 1989 ("FIRREA")
and the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
and the impact of such changes on the Bank. Future changes in applicable law,
regulations or government policies may materially impact the Bank. On August 1,
1995, the Bank acquired through its wholly-owned subsidiary, RFI, certain assets
and liabilities, including the loan origination business and the loan servicing
portfolio of Residential Mortgage Banking, Inc., a mortgage banking company
which primarily operated in New York and New Jersey counties in and surrounding
the New York City metropolitan area and in Albany, New York. The acquisition was
accounted for under the purchase method of accounting. Accordingly, the
information contained in this section regarding periods subsequent to July 31,
1995 reflects the consolidated operations of the Bank, inclusive of its mortgage
banking subsidiary.
MANAGEMENT STRATEGY
In recent years, the Bank's operating strategy concentrated on maintaining
profitability by primarily investing in mortgage-backed and mortgage related and
U.S. Government or agency debt securities. Since 1993, the Bank has decreased
its emphasis on investments in U.S. Government securities and increased its
emphasis on building its loan portfolio by restructuring its lending department,
hiring experienced commercial real estate loan personnel and revising its
underwriting policies and procedures. More recently, through its purchase of
certain of the assets and liabilities of a mortgage banking company and the
establishment of RFI, the Bank has increased its emphasis on mortgage banking
activities and developed a resource for developing its one- to four-family loans
portfolio. The Bank's current operating strategy consists primarily of: (i)
investing funds not utilized for loan originations and purchases in shorter-term
debt securities and mortgage-backed and mortgage related securities and
preferred stock of corporate issuers; (ii) building its loan portfolio by
purchasing one- to four-family loans originated by RFI and placing emphasis on
the origination of high quality commercial real estate loans to selected real
estate developers operating in the Bank's primary market area; (iii) increasing
fee income and building its loan servicing portfolio through its mortgage
banking operations whereby it sells, generally on a servicing retained basis,
one- to four-family mortgage loans that it originates through RFI as a means of
increasing servicing fee income; (iv) attracting and retaining deposit accounts
by paying competitive rates on its deposit products and opening new branches;
and (v) maintaining a lower expense ratio by efficiently utilizing personnel and
branch facilities to service its customers.
39
<PAGE>
MANAGEMENT OF INTEREST RATE RISK
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Trustees' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank's Board of Trustees
reviews the Bank's interest rate risk position on a monthly basis. The Bank's
Asset/Liability Committee is comprised of the Bank's senior management under the
direction of the Board of Trustees, with senior management responsible for
reviewing with the Board of Trustees its activities and strategies, the effect
of those strategies on the Bank's net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Bank's portfolio and the Bank's exposure limits. See "Risk Factors - Sensitivity
to Increases in Interest Rates."
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and second mortgage loans; (2) selling substantially all 30-year fixed-
rate mortgage loans originated to the secondary market without recourse and on a
servicing retained basis (except for such loans with interest rates of 8% or
greater, which the Bank retains in its loan portfolio); and (3) investing in
shorter term and, to a lesser extent, adjustable rate securities which may
generally bear lower yields as compared to longer term investments, but which
better position the Bank for increases in market interest rates. In recent
years, the Bank has attempted to shorten the maturities of its interest-earning
assets by increasing its investment in shorter term investments to better match
the maturities of its deposit accounts, in particular its certificates of
deposit that mature in one year or less, which, at May 31, 1996, totalled $688.2
million, or 46.4% of total interest-bearing liabilities. These strategies may
adversely impact net interest income due to lower initial yields on these
investments in comparison to longer term fixed rate investments and whole loans.
However, management believes that reducing its exposure to interest rate
fluctuations will enhance long-term profitability.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. At May 31, 1996, the Bank's one-year gap position, the difference
between the amount of interest-earning assets maturing or repricing within one
year and interest-bearing liabilities maturing or repricing within one year, was
negative 22.8%. A gap is considered positive when the amount of interest rate
sensitive assets exceeds the amount of interest rate sensitive liabilities. A
gap is considered negative when the amount of interest rate sensitive
liabilities exceeds the amount of interest rate sensitive assets. Accordingly,
during a period of rising interest rates, an institution with a negative gap
position would be in a worse position to invest in higher yielding assets which,
consequently, may result in the cost of its interest-bearing liabilities
increasing at a rate faster than its yield on interest-earning assets than if it
had a positive gap. During a period of falling interest rates, an institution
with a negative gap would tend to have its interest-bearing liabilities
repricing downward at a faster rate than its interest-earning assets as compared
to an institution with a positive gap which, consequently, may tend to
positively affect the growth of its net interest income. Given the Bank's
existing liquidity position and its ability to sell securities from its
available-for-sale portfolio, management of the Bank believes that its negative
gap position will have no material adverse effect on its liquidity position. If
interest rates decrease, there will be a corresponding effect on the Bank's
interest rate margin and corresponding operating results.
40
<PAGE>
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at May 31, 1996, which are anticipated
by the Bank, based upon certain assumptions, to reprice or mature in each of the
future time periods shown (the "GAP Table"). Except as stated below, the amount
of assets and liabilities shown which reprice or mature during a particular
period were determined in accordance with the earlier of term to repricing or
the contractual maturity of the asset or liability. The table sets forth an
approximation of the projected repricing of assets and liabilities at May 31,
1996, on the basis of contractual maturities, anticipated prepayments, and
scheduled rate adjustments within a three month period and subsequent selected
time intervals. For loans on residential properties, adjustable-rate loans, and
fixed-rate loans, prepayment rates were assumed to range from 6.66% to 15.24%
annually. Mortgage-backed securities were assumed to prepay at rates between
6.54% and 36.54% annually. Savings accounts were assumed to decay at 7.00%,
7.00%, 7.00%, 10.00%, 10.00%, 10.00% and 49.00%, NOW accounts and money market
savings accounts were assumed to decay at 10.00%, 5.00%, 5.00%, 10.00%, 10.00%,
10.00% and 50.00%, for the periods of three months or less, three to six months,
six to 12 months, one to three years, three to five years, five to ten years and
more than ten years, respectively. Prepayment and deposit decay rates can have a
significant impact on the Bank's estimated gap. While the Bank believes such
assumptions to be reasonable, there can be no assurance that assumed prepayment
rates and decay rates will approximate actual future loan prepayment and deposit
withdrawal activity. See "Business of the Bank - Lending Activities," "-
Investment Activities" and "-Sources of Funds."
41
<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, 1996
--------------------------------------------------------
3 MORE THAN MORE THAN MORE THAN 1
MONTHS 3 MONTHS TO 6 MONTHS TO YEAR TO
OR LESS 6 MONTHS 1 YEAR 3 YEARS
------------ ------------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold.................................. $ 18,500 $ - $ - $ -
Debt and equity securities(2)....................... 12,530 8,988 21,005 143,373
Mortgage-backed and
mortgage related securities(2)................... 75,686 56,622 106,320 290,740
Real estate loans, net(3)(4)........................ 55,746 4,452 104,873 34,835
Consumer and student loans(4)....................... 1,915 4 9 35
-------- -------- -------- --------
Total interest-earning assets................. 164,377 70,066 232,207 468,983
-------- -------- -------- --------
INTEREST-BEARING LIABILITIES:
Money market savings accounts....................... 6,141 3,071 3,071 6,141
Savings accounts.................................... 30,505 31,994 30,505 43,578
NOW accounts........................................ 3,736 1,868 1,868 3,736
Certificates of deposit............................. 226,486 226,486 235,404 88,506
Borrowed funds...................................... 69,598 - - -
-------- -------- -------- ---------
Total interest-bearing liabilities............ 336,466 263,419 270,848 141,961
-------- -------- -------- ---------
Interest sensitivity gap(5)......................... ($172,089) ($193,353) ($38,641) $ 327,022
======== ======== ======== =========
Cumulative interest sensitivity gap................. ($172,089) ($365,442) ($404,083) ($77,061)
======== ======== ======== =========
Cumulative interest sensitivity gap as a percentage
of total assets................................... (9.71%) (20.62%) (22.80%) (4.35%)
Cumulative interest sensitivity gap as a percentage
of total interest-earning assets ................. (104.69%) (521.57%) (174.02%) (16.43%)
Cumulative net interest-earning assets as a
percentage of cumulative interest-bearing
liabilities....................................... 48.85% 39.08% 53.59% 92.39%
<CAPTION>
AT MAY 31, 1996
--------------------------------------------------------
MORE THAN MORE THAN
3 YEARS TO 5 YEARS TO MORE THAN
5 YEARS 10 YEARS 10 YEARS TOTAL
--------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold.................................. $ - $ - $ - $ 18,500
Debt and equity securities(2)....................... 70,939 137,379 33,132 427,346
Mortgage-backed and
mortgage related securities(2)................... 170,893 109,137 29,923 839,321
Real estate loans, net(3)(4)........................ 128,847 66,766 26,159 421,678
Consumer and student loans(4)....................... 35 88 352 2,438
-------- -------- -------- ---------
Total interest-earning assets................. 370,714 313,370 89,566 1,709,283
-------- -------- -------- ---------
INTEREST-BEARING LIABILITIES:
Money market savings accounts....................... 6,141 6,141 30,705 61,411
Savings accounts.................................... 43,578 43,578 213,534 437,272
NOW accounts........................................ 3,736 3,736 18,679 37,359
Certificates of deposit............................. 83,139 11,855 - 871,876
Borrowed funds...................................... - - - 69,598
-------- -------- -------- ---------
Total interest-bearing liabilities............ 136,594 65,310 262,918 1,477,516
-------- -------- -------- ---------
Interest sensitivity gap(5)............................. $234,120 $248,060 ($173,352) $231,767
======== ======== ======== =========
Cumulative interest sensitivity gap..................... $157,059 $405,119 $231,767
======== ======== ========
Cumulative interest sensitivity gap as a percentag
of total assets..................................... 8.86% 22.86% 13.08%
Cumulative interest sensitivity gap as a percentage
of total interest-earning assets.................... 42.37% 129.28% 258.77%
Cumulative net interest-earning assets as a
percentage of cumulative interest-bearing
liabilities......................................... 113.67% 133.35% 115.69%
</TABLE>
_____________________
(1) Interest-earning assets are included in the period in which the balances
are expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage related securities are
shown excluding the market value adjustment of ($1.2 million) before tax,
from the implementation of SFAS No. 115. Equity securities primarily
consist of callable preferred stock, the maturities of which have been
assumed to be the date on which they are initially callable.
(3) For purposes of the gap analysis, the allowance for possible loan losses
and non-performing loans have been excluded.
(4) Loans held for sale are included in the 3 months or less category.
(5) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
42
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the GAP Table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
Net Portfolio Value. The Bank's interest rate sensitivity is monitored by
management through the use of a Net Portfolio Value Model which generates
estimates of the change in the Bank's net portfolio value ("NPV") over a range
of interest rate scenarios. NPV is the present value of expected cash flows from
assets, liabilities, and off-balance sheet contracts. The NPV ratio, under any
interest rate scenario, is defined as the NPV in that scenario divided by the
market value of assets in the same scenario. The model assumes estimated loan
prepayment rates, reinvestment rates and deposit decay rates similar to the
assumptions utilized for the GAP Table. The following NPV Table sets forth the
Bank's NPV as of May 31, 1996.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
CHANGE IN NET PORTFOLIO VALUE VALUE OF ASSETS
INTEREST RATES --------------------------- ------------------------
IN BASIS POINTS % NPV %
(RATE SHOCK) AMOUNT $ CHARGE CHANGE RATIO CHANGE
------------------- ------------ ----------- ----------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $260,158 $(108,917) (29.51)% 17% (10.97)%
300 286,734 (82,341) (22.31) 18 (8.35)
200 315,619 (53,455) (14.48) 19 (5.55)
100 342,633 (26,442) (7.16) 20 (2.79)
Static 369,075 0 0 21 0.00
(100) 388,416 19,342 5.24 22 2.43
(200) 396,441 27,366 7.41 22 4.28
(300) 399,318 30,243 8.19 21 5.91
(400) 405,999 36,924 10.00 21 7.84
</TABLE>
As is the case with the GAP Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV Table presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Accordingly, although the NPV Table provides an
indication of the Bank's interest rate risk exposure at a particular point in
time, such measurements are not intended to and do not provide a precise
forecast of the effect of changes in market interest rates on the Bank's net
interest income and will differ from actual results.
43
<PAGE>
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends on the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
44
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Bank at May 31, 1996 and for the five months ended May 31, 1996
and 1995 and for the years ended December 31, 1995, 1994 and 1993. The average
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown and reflect annualized yields and costs.
Average balances are derived from average daily balances. The yields and costs
include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS ENDED MAY 31,
---------------------------------------------------------------------
AT MAY 31, 1996 1996 1995
---------------------- ---------------------------------- ---------------------------------
AVERAGE AVERAGE AVERAGE
YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE COST BALANCE INTEREST COST BALANCE INTEREST COST
---------- ---------- ----------- ----------- -------- ----------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Federal funds sold and
short-term deposits......... $ 18,500 5.16% $ 26,984 $ 587 5.22% $ 28,738 $ 722 6.03%
Debt and equity securities... 433,862 7.34 403,020 11,287 6.72 572,400 15,197 6.37
Mortgage-backed and mortgage
related securities, net..... 831,632 6.77 803,795 22,940 6.85 509,206 14,207 6.70
Real estate loans, net(2).... 411,311 8.57 388,682 15,024 9.28 333,265 13,751 9.90
Consumer and student loans... 2,438 9.38 4,296 225 12.57 18,908 673 8.54
---------- ---------- ------- ---------- -------
Total interest-earning
assets................ 1,697,743 7.34 1,626,777 50,063 7.39 1,462,517 44,550 7.31
Non-interest-earning assets..... 74,432 ------ 62,917 ------- ------ 46,723 ------- ------
---------- ---------- ----------
Total assets........... $1,772,175 $1,689,694 $1,509,240
========== ========== ==========
LIABILITIES AND RETAINED EARNINGS:
Interest-bearing liabilities:
Deposits:
Money market accounts......... $ 61,411 2.97% $ 64,051 $ 768 2.88% $ 73,539 $ 872 2.85%
Savings accounts (3)(4)....... 441,842 2.58 451,871 6,045 3.21 507,861 6,437 3.04
NOW accounts(4)............... 37,359 2.24 35,163 373 2.55 33,367 336 2.42
Certificates of deposit....... 871,876 5.52 806,584 19,012 5.66 618,016 14,393 5.59
---------- ---------- ------- ---------- -------
Total deposits......... 1,412,488 4.40 1,357,669 26,198 4.63 1,232,783 22,038 4.29
Borrowed funds................ 69,598 5.44 41,041 930 5.44 26,276 700 6.39
---------- ---------- ------- ---------- -------
Total interest-bearing
liabilities........... 1,482,086 4.45 1,398,710 27,128 4.65 1,259,059 22,738 4.33
------ ------ ------
Non-interest-bearing liabilities.. 67,845 66,121 46,383
---------- ---------- ----------
Total liabilities...... 1,549,931 1,464,831 1,305,442
Total retained earnings........... 222,244 224,863 203,798
---------- ---------- ----------
Total liabilities and
retained earnings..... $1,772,175 $1,689,694 $1,509,240
========== ========== ==========
Net interest income/interest rate
spread(5)........................ 2.89% $22,935 2.74% $21,812 2.98%
====== ======= ====== ======= ======
Net interest margin as a
percentage of interest-earning
assets(6)........................ 3.38% 3.58%
====== ======
Ratio of interest-earning assets
to interest-bearing liabilities.. 114.55% 116.31% 116.16%
====== ====== ======
</TABLE>
___________________________
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, deferred mortgage interest,
unamortized discounts net and allowance for possible loan losses and
includes loans held for sale and non-performing loans.
(3) Savings accounts includes mortgagor's escrow deposits.
(4) The average cost of savings and NOW accounts at May 31, 1996 does not
reflect the payment of a special interest payment of approximately 25% of
interest paid on such accounts in prior years. To the extent such special
interest payments were paid on such accounts, the additional average cost
of savings and NOW accounts would have been 64 basis points and 56 basis
points at May 31, 1996, respectively. Such payments resulted in an
additional cost of savings accounts of 63 basis points and 57 basis points
for the five months ended May 31, 1996 and 1995, respectively, and an
additional cost of NOW accounts of 50 basis points and 40 basis points for
the five months ended May 31, 1996 and 1995, respectively.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
45
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------
1995 1994 1993
-----------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST BALANCE INTEREST COST
----------- ---------- ------- ---------- -------------------- ------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets(1):
Federal funds sold and
short-term deposits....... $ 30,568 $ 1,819 5.95% $ 23,420 $ 1,069 4.56% $ 28,600 $ 949 3.32%
Debt and equity securities. 560,663 37,891 6.76 586,096 38,972 6.65 603,367 39,638 6.57
Mortgage-backed and
mortgage related
securities, net........... 545,642 37,086 6.80 439,239 27,976 6.37 371,397 27,897 7.51
Real estate loans, net(2).. 350,802 33,341 9.50 275,661 24,665 8.95 268,944 24,742 9.20
Consumer and student loans. 9,816 897 9.14 21,580 1,834 8.50 21,325 1,778 8.34
---------- -------- ---------- ------- ---------- -------
Total
interest-earning
assets............. 1,497,491 111,304 7.41 1,345,996 94,516 7.02 1,293,633 95,004 7.34
---------- -------- ---- ------- ---- ------- ----
Non-interest-earning assets. 53,237 49,302 46,797
---------- ---------- ----------
Total assets........ $1,550,728 $1,395,298 $1,340,430
========== ========== ==========
LIABILITIES AND RETAINED
EARNINGS:
Interest-bearing liabilities:
Deposits:
Money market accounts...... $ 69,237 $ 2,007 2.90 $ 83,482 $ 2,025 2.43 $ 91,606 $ 2,241 2.45
Savings accounts(3)(4)..... 480,572 15,317 3.19 612,447 17,844 2.91 604,487 19,588 3.24
NOW accounts(4)............ 33,135 837 2.53 33,248 820 2.47 30,012 854 2.85
Certificates of deposit.... 677,510 39,583 5.84 430,022 19,664 4.57 396,040 16,833 4.25
---------- -------- ---------- ------- ---------- -------
Total deposits...... 1,260,454 57,744 4.58 1,159,199 40,353 3.48 1,122,145 39,516 3.52
Borrowed funds............. 24,345 1,554 6.38 - - 0.00 5,527 182 3.29
---------- -------- ---------- ------- ---------- -------
Total
interest-bearing
liabilities........ 1,284,799 59,298 4.62 1,159,199 40,353 3.48 1,127,672 39,698 3.52
------ ------ ------
Non-interest-bearing
liabilities................ 53,610 46,914 45,430
---------- ---------- ----------
Total liabilities... 1,338,409 1,206,113 1,173,102
Total retained earnings..... 212,319 189,185 167,328
---------- ---------- ----------
Total liabilities
and retained
earnings........... $1,550,728 $1,395,298 $1,340,430
========== ========== ==========
Net interest income/interest
rate spread(5)............. $ 51,736 2.79% $54,163 3.54% $55,306 3.82%
======== ====== ======= ====== ======= ======
Net interest margin as a
percentage of
interest-earning assets(6). 3.45% 4.02% 4.28%
Ratio of interest-earning ====== ====== ======
assets to interest-bearing
liabilities................ 116.55% 116.11% 114.72%
====== ====== ======
</TABLE>
______________________________
(1) Includes related assets available-for-sale and unamortized discounts and
premiums.
(2) Amount is net of deferred loan fees, deferred mortgage interest,
unamortized discounts net and allowance for possible loan losses and
includes loans held for sale and non-performing loans.
(3) Savings accounts includes mortgagor's escrow deposits.
(4) The average cost of savings and NOW accounts for the periods above reflects
the payment of a special interest payment of approximately 25% of interest
paid on such accounts. Such payments resulted in additional cost of
savings accounts of 61 basis points, 46 basis points and 52 basis points
for the years ended December 31, 1995, December 31, 1994 and December 31,
1993, respectively, and additional cost of NOW accounts of 49 basis points,
39 basis points and 44 basis points for the years ended December 31, 1995,
December 31, 1994 and December 31, 1993, respectively.
(5) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(6) Net interest margin represents net interest income divided by average
interest-earning assets.
46
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank'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 (changes
in volume multiplied by prior rate); (ii) changes attributable to changes in
rate (changes in rate multiplied by prior volume); and (iii) the net change. The
changes attributable to the combined impact of volume and rate have been
allocated proportionately to the changes due to volume and the changes due to
rate.
<TABLE>
<CAPTION>
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 1996 DECEMBER 31,1995 DECEMBER 31, 1994
COMPARED TO COMPARED TO COMPARED TO
FIVE MONTHS ENDED YEAR ENDED YEAR ENDED
MAY 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------- -------------------------------- -----------------------------
INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO DUE TO DUE TO
------------------ -------------------- ---------------------
VOLUME RATE NET VOLUME RATE NET VOLUME RATE NET
------ ------- ----- -------- ------- ------ --------- -------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS(1):
Federal funds sold and
short-term
deposits................ $ (42) $ (93) $ (135) $ 375 $ 375 $ 750 $ (192) $ 312 $ 120
Debt and equity
securities.............. (4,706) 796 (3,910) (1,716) 635 (1,081) (1,145) 479 (666)
Mortgage-backed and
mortgage related
securities, net......... 8,408 325 8,733 7,125 1,985 9,110 4,668 (4,589) 79
Real estate loans, net... 2,176 (903) 1,273 7,080 1,596 8,676 607 (684) (77)
Consumer and student
loans................... (672) 224 (448) (1,066) 129 (937) 22 34 56
------- ------- ------ -------- -------- -------- ------ ------ ------
Total interest-earning
assets.............. 5,164 349 5,513 11,798 4,720 16,518 3,960 (4,448) (448)
------- ------- ------ -------- -------- -------- ------ ------ ------
INTEREST-BEARING
LIABILITIES:
Money market accounts.... (113) 9 (104) (376) 358 (18) (198) (18) (216)
Savings accounts(2)...... (737) 345 (392) (4,117) 1,590 (2,527) 257 (2,001) (1,744)
NOW accounts............. 19 18 37 (3) 20 17 87 (121) (34)
Certificates of deposit.. 4,437 182 4,619 13,433 6,486 19,919 1,508 1,323 2,831
Borrowed funds........... 346 (116) 230 1,554 - 1,554 (182) - (182)
------- ------- ------ -------- -------- -------- ------ ------ ------
Total interest-bearing
liabilities........ $3,952 $438 $4,390 $10,491 $8,454 $ 18,945 $ 1,472 ($817) $655
------- ------- ------ -------- -------- -------- ------ ------ ------
Net change in net interest
income.................... $1,212 ($89) $1,123 $1,307 ($3,734) ($2,427) $ 2,488 ($3,631) ($1,143)
======= ======= ====== ======== ======== ======== ====== ====== ======
</TABLE>
___________________
(1) Includes assets available-for-sale.
(2) Includes mortgagors' escrow deposits.
47
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT MAY 31, 1996 AND DECEMBER 31, 1995
Total assets increased by $175.4 million, or 11.0%, from $1.60 billion at
December 31, 1995 to $1.77 billion at May 31, 1996. The growth in assets is
primarily attributable to a $158.5 million increase in debt, equity and
mortgage-backed and mortgage related securities available-for-sale and a $33.5
million increase in real estate loans held-for-investment, net. Asset growth was
funded primarily through deposit inflows and borrowed funds. The asset growth
was partially offset by a $35.0 million decrease in mortgage-backed and mortgage
related securities held-to-maturity. Debt and equity securities at May 31, 1996,
totalled $433.9 million, an increase of $52.6 million, or 13.8%, compared to
$381.3 million at December 31, 1995. Mortgage-backed and mortgage related
securities increased by $70.9 million, or 9.32%, from $760.7 million at December
31, 1995 to $831.6 million at May 31, 1996. Substantially all of the increase in
securities was attributable to new purchases of adjustable-rate and short-term
fixed-rate mortgage-backed and mortgage related securities and federal agency
obligations, and preferred stock of corporate issuers. The Bank's held-to-
maturity securities portfolio continued to decrease through the normal
amortization of securities so designated. Real estate loans, net, increased by
$33.5 million, or 8.7%, from $386.8 million at December 31, 1995 to $420.3
million at May 31, 1996, primarily due to increased one- to four-family loan
purchases from RFI and increased origination of commercial real estate loans.
The relatively low interest rate environment in late 1995 and early 1996
increased one- to four-family loan refinance activity, primarily in the
adjustable-rate and 15-year fixed-rate mortgage products, which the Bank
retains. Premises and equipment increased by $2.2 million, or 17.7%, primarily
due to the purchase in May 1996 of land and a building, which upon renovation
will provide additional office space for the Bank's administrative operations.
The renovation is due to be completed in October 1996.
Total deposits at May 31, 1996 were $1.44 billion, an increase of $106.3
million, or 8.0%, compared to $1.34 billion at December 31, 1995. The increase
was primarily due to an increase of $122.1 million, or 16.3%, in certificates of
deposit from $749.8 million at December 31, 1995 to $871.9 million at May 31,
1996. The increase in certificates of deposit was primarily attributable to the
Bank's strategy of offering competitive rates on all of its certificates of
deposit products in order to fund the Bank's asset growth and increase net
interest income. To a lesser extent, the increase in certificate accounts and
decrease in core deposits is reflective of depositors shifting funds from lower
yielding core savings accounts into higher-yielding certificates of deposit. The
Bank's core deposit accounts, which totalled $585.8 million at December 31,
1995, declined by $15.8 million during the five month period ending May 31,
1996. Borrowed funds increased to $69.6 million at May 31, 1996 from $1.6
million at December 31, 1995 as management determined to utilize borrowings,
primarily in the form of reverse repurchase agreements, to fund a portion of the
Bank's asset growth.
Retained earnings decreased by $4.2 million, or 1.8%, from $226.4 million
at December 31, 1995 to $222.2 million at May 31, 1996, resulting in the Bank's
ratio of equity capital to total assets decreasing from 14.18% at December 31,
1995 to 12.54% at May 31, 1996. The decrease in equity resulted from a $12.6
million decline in the after-tax net unrealized gain on available-for-sale
securities due to higher market interest rates which adversely affected the
market value of the Bank's securities which was offset, in part, by net income
of $8.4 million during the period.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1995 AND DECEMBER 31, 1994
Total assets at December 31, 1995 were $1.60 billion as compared to total
assets of $1.44 billion at December 31, 1994, an increase of $158.4 million, or
11.0%. Asset growth was funded primarily through deposits which increased $116.0
million, or 9.5%, from $1.22 billion at December 31, 1994 to $1.34 billion at
December 31, 1995, primarily due to a $232.3 million increase in certificates of
deposit. Asset growth during the year-ended December 31, 1995 was concentrated
in the mortgage-backed and
48
<PAGE>
mortgage related securities and one- to four-family and commercial real estate
loans. The securities portfolio increased by $123.9 million, or 12.2%, from
$1.02 billion at December 31, 1994 to $1.14 billion at December 31, 1995. The
growth in the securities portfolio resulted primarily from total mortgage-backed
and mortgage related securities increasing by $298.6 million, or 64.6%, from
$462.1 million at December 31, 1994, to $760.7 million at December 31, 1995,
offset by a $174.7 million, or 31.4%, decrease in debt and equity securities.
The increase in the mortgage-backed securities portfolio was primarily
attributable to new purchases of both adjustable-rate and short-term fixed-rate
securities, consistent with the Bank's interest rate risk management strategy.
In November 1995, in accordance with the FASB interpretation regarding SFAS
No. 115, the Bank transferred securities having a carrying value of $648.7
million and a market value of $658.3 million at that date, from its held-to-
maturity portfolio to its available-for-sale portfolio. The securities
reclassified consisted of $415.3 million of debt securities and $233.4 million
of mortgage-backed and mortgage related securities from held-to-maturity to
available-for-sale. Subsequent to this reclassification, but prior to the end of
1995, the Bank sold $115.7 million in lower yielding U.S. Government obligations
and corporate bonds, incurring a loss of $14,000. The sale proceeds were
reinvested primarily in private label and agency issued mortgage-backed and
mortgage related securities with average lives not exceeding four years. Under
the provisions of SFAS No. 115, securities categorized as available-for-sale are
reported at fair value, with unrealized gains and losses reported as a separate
component of equity. At December 31, 1995, the fair value of the Bank's debt and
equity and mortgage-backed and mortgage-related securities available-for-sale
exceeded the related amortized cost by $20.8 million.
Gross loans increased by $38.7 million, or 10.5%, to $407.7 million at
December 31, 1995. One-to-four family loans increased by $44.2 million, or
28.8%, commercial real estate loans increased by $10.7 million, or 9.3%, multi-
family loans increased by $17.7 million, or 95.3%, and construction and
development loans decreased $14.6 million, or 25.9%. Due to changes in the
Federal Family Educational Loan Program, in April 1995, the Bank sold $21.5
million of student loans to the Student Loan Marketing Association ("SLMA"),
recording an aggregate net gain of $496,000. The sale proceeds were reinvested
in short-term adjustable and fixed-rate mortgage-backed securities. The increase
in one- to four-family loans was primarily attributable to origination activity
of the Bank's mortgage banking operations through RFI, which commenced on August
1, 1995. At December 31, 1995, real estate loans held-for-sale were $15.3
million compared to none at December 31, 1994. Federal funds sold totalled $10.0
million at December 31, 1995, a decrease of $15.0 million from December 31,
1994. Cash and due from banks was $9.7 million at December 31, 1995, an increase
of $7.4 million from $2.3 million at December 31, 1994. The increase in cash and
due from banks was a result of the timing of operating and investing cash flows.
Mortgage servicing rights, net, were $8.3 million at December 31, 1995, which
primarily represented servicing purchased from RMBI. The purchase of certain
assets and liabilities of RMBI also resulted in the Bank's recognition of $3.5
million of goodwill which is being amortized over a ten year period.
The increase in deposit growth was attributable to the combined effect of
net deposit inflows of $58.8 million and interest paid on deposits of $57.2
million during the period. The composition of the Bank's deposits continued
to change, as reflected in the shift of deposits out of lower yielding savings
accounts and into higher yielding certificates of deposit in the declining
interest rate environment during 1995. The Bank's core deposit accounts,
which totalled $585.8 million at December 31, 1995, declined by $116.3
million, or 16.6%, during the year-ended December 31, 1995. Certificates of
deposit, on the other hand, increased by $232.3 million, or 44.9%, during the
period to $749.8 million, representing 56.1% of total deposits at December 31,
1995. The shift in deposits reflects depositors shifting funds from lower
yielding core deposit accounts to higher yielding certificate of deposit
accounts in the declining interest rate environment and the Bank's competitive
pricing of certificate of deposit accounts. See "- Management Strategy" and
"- Management of Interest Rate Risk."
49
<PAGE>
Retained earnings totalled $226.4 million at December 31, 1995, or 14.2% of
total assets, an increase of $33.3 million from December 31, 1994. The increase
is attributable to net income of $18.7 million during the period and a $14.6
million increase in the component of net unrealized gain on the Bank's
available-for-sale securities portfolio, net of taxes, as required by SFAS No.
115.
COMPARISON OF OPERATING RESULTS FOR THE FIVE MONTHS ENDED MAY 31, 1996 AND MAY
31, 1995
GENERAL
Net income for the five months ended May 31, 1996 increased by $817,000, or
10.8%, from $7.6 million for the five months ended May 31, 1995 to $8.4 million
for the same period in 1996. The increase was due primarily to an increase in
net interest income which primarily resulted from an increase in the average
balance of interest-earning assets, an increase in non-interest income related
to the sale of loans by RFI and a decrease in FDIC insurance premiums. The
increases were partially offset by a 24 basis point decrease in the average
interest rate spread to 2.74% for the 1996 period from 2.98% for the 1995
period, and a $2.2 million increase in non-interest expense due primarily to the
operations of RFI.
INTEREST INCOME
Interest income amounted to $50.1 million for the five months ended May 31,
1996, representing an increase of $5.5 million from the same period in 1995. The
increase was the result of the combined effect of a $164.3 million increase in
average interest-earning assets and an 8 basis point increase in the yield on
interest earning assets. The increase in the average interest rate on interest
earning assets was primarily due to the higher interest rate environment during
the five month period ended May 31, 1996 which affected both new securities
purchased and the reallocation of interest-earning assets from lower yielding
U.S. Government securities to higher yielding real estate loans and mortgage-
backed and mortgage related securities and repricing assets, mostly adjustable-
rate mortgage-backed and mortgage related securities and whole loans. Generally,
market interest rates during January and February of 1996 remained at the levels
experienced during 1995 and began to increase in March 1996 through May 1996.
Interest income on mortgage-backed and mortgage related securities increased
$8.7 million for the five months ended May 31, 1996, as compared to the same
period in 1995. This increase was primarily due to an increase in the average
balance of mortgage-backed and mortgage related securities of $294.6 million,
which resulted from the restructuring of the securities portfolio and investment
of excess funds not utilized for loan demand into mortgage-backed and mortgage
related securities. The yield on the mortgage-backed and mortgage related
securities portfolio increased by 15 basis points due to the increased rate
environment for new purchases and the repricing of adjustable-rate securities
purchased in prior periods. Interest income on debt and equity securities
decreased $3.9 million due to management's restructuring of its securities
portfolio.
The increase in interest income on loans was a result of growth in the
average balance of loans outstanding. As a result of the establishment of RFI in
August 1995, and the relatively low interest rate environment during most of the
first quarter of 1996, the Bank was able to increase its one- to four-family
loan portfolio through an increased market presence and refinance activity,
primarily in adjustable-rate and 15-year fixed-rate mortgage products, which the
Bank retains. Further contributing to the increase in interest income for the
period was a 34.8% decrease in non-performing loans, from $18.3 million at May
31, 1995 to $11.9 million at May 31, 1996. Although interest income on real
estate loans increased during the period, the average yield decreased by 62
basis points, from 9.90% for the five months ended May 31, 1995 to 9.28% for the
same period in 1996, primarily because of a $700,000 interest recovery in March
1995 on the satisfaction of a non-performing loan. Interest income on consumer
and student
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loans decreased $448,000 from $673,000 for the five months ended May 31, 1995 to
$225,000 for the same period in 1996, principally due to the sale in April 1995
of $21.5 million of student loans to SLMA.
INTEREST EXPENSE
Interest expense for the five months ended May 31, 1996 was $27.1 million,
compared to $22.7 million for the five months ended May 31, 1995, an increase of
$4.4 million, or 19.3%. This increase reflects both a $124.9 million increase in
the average balance of interest-bearing deposits in the 1996 period compared to
the 1995 period, and a 34 basis point increase in the average rate paid on such
liabilities over the same period due to a higher interest rate environment. The
increase in average interest-bearing deposits was primarily attributable to an
increase in the average balance of certificates of deposit to $806.6 million for
the five months ended May 31, 1996 from $618.0 million for the five months ended
May 31, 1995. Certificates of deposit increased during this period due to a
higher interest rate environment resulting in a continued shift of deposits out
of savings accounts and into higher costing certificate of deposit accounts, and
management's strategy of funding its asset growth by offering competitive rates.
The combined effect of the higher average balance and rate was an increase of
$4.6 million in interest expense on certificates of deposit. Interest expense
decreased $392,000 on savings accounts to $6.0 million for the five months ended
May 31, 1996 from the same period a year earlier. This decrease was attributable
to a decline in the average balance of these accounts to $451.9 million for the
five months ended May 31, 1996, from $507.9 million during the comparable period
in 1995, partially offset by an increase in the average cost to 3.21% from 3.04%
during the same periods.
Interest expense on borrowed funds increased $230,000, or 32.9%, in the
five months ended May 31, 1996 to $930,000 due to a $14.8 million increase in
the average balance of such funds to $41.0 million, which was offset by a 95
basis point reduction in the average rate paid on borrowed funds to 5.44% at May
31, 1996. The increase in borrowed funds in 1996 reflects management's decision
to increase its utilization of reverse repurchase agreements to fund investments
in securities in periods when such agreements are cost effective as a source of
funds. See "Business of the Bank - Borrowed Funds."
PROVISION FOR POSSIBLE LOAN LOSSES
The Bank's provision for possible loan losses increased by $50,000, or
20.0%, from $250,000 for the five months ended May 31, 1995, to $300,000 for the
five months ended May 31, 1996. The increase in the provision was due primarily
to management's assessment of charge-off activity, particularly commercial real
estate and construction and development loan charge-offs relating to five loans
which totalled $1.3 million during the five month period ending May 31, 1996.
The events leading to such charge-offs associated with such loans were generally
attributable to events occurring in early 1996 which resulted in the Bank
reevaluating such loans or obtaining updated appraisals on the properties
securing such loans. The increased provision also reflects management's
assessment of its continuation of the origination of commercial real estate and
construction and development loans, which amounted to 42.1% and 40.9% of loans
at May 31, 1996 and 1995, respectively. Such loans generally bear a greater
degree of risk as compared to one- to four-family loans. At May 31, 1996, the
Bank's allowance for possible loan losses as a percentage of total non-
performing loans was 186.79%, compared to 131.68% at May 31, 1995, due to the
increase in the provision and a decrease in non-performing loans from $18.3
million at May 31, 1995 to $11.9 million at May 31, 1996. At May 31, 1996, the
Bank's allowance for possible loan losses as a percentage of loans, net,
excluding loans held for sale was 5.29%. Management of the Bank assesses the
adequacy of the allowance for possible loan losses based on evaluating known and
inherent risks in the loan portfolio and upon management's continuing analysis
of the factors underlying the quality of the loan portfolio. While management
believes that, based on information currently available, the Bank's allowance
for possible loan losses is sufficient to cover losses inherent in its loan
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portfolio at this time, no assurances can be given that the Bank's level of
allowance for possible loan losses will be sufficient to cover future possible
loan losses incurred by the Bank or that future adjustments to the allowance for
possible loan losses will not be necessary if economic and other conditions
differ substantially from the economic and other conditions used by management
to determine the current level of the allowance for possible loan losses.
Management may in the future increase its level of allowance for possible loan
losses as a percentage of total loans and non-performing loans in the event it
increases the level of commercial real estate, multi-family, commercial,
construction and development or consumer lending as a percentage of its total
loan portfolio. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for possible
loan losses. Such agencies may require the Bank to provide additions to the
allowance based upon judgements different from management. See "Risk Factors -
Increased Lending Risks Associated with Commercial Real Estate, Multi-Family,
and Construction and Development Lending" and "Business of the Bank - Delinquent
Loans, Real Estate Owned and Classified Assets" and "Allowance for Possible Loan
Losses."
NON-INTEREST INCOME
Non-interest income is composed of fee income for bank services and profits
from the sale of assets. Total non-interest income for the five months ended May
31, 1996 increased $2.4 million, or 209.5%, from $1.1 million for the five
months ended May 31, 1995 to $3.5 million for the five months ended May 31,
1996. The primary reason for the improvement was due to net gains of $1.4
million on the sale of loans and loan servicing and fee income of $2.5 million
during the five months ended May 31, 1996 as compared to net gains of $455,000
on the sale of loans and loan servicing and fee income of $1.2 million in the
comparable period for 1995. The increases are primarily reflective of the Bank's
establishment of RFI in August 1995, which has had a significant effect on the
Bank's level of originations and sales of residential one-to four-family loans
and the outstanding balance of loans serviced for others. One- to four-family
originations increased $121.5 million for the five months ended May 31, 1996
from $7.1 million for the same period in 1995. For the same period, loan sales
were $106.2 million and $18.9 million, respectively. At May 31, 1996 the Bank
and RFI were servicing $762.7 million of loans for others compared to $36.5
million at May 31, 1995, resulting in loan servicing fee income of $828,000 for
the five months ended May 31, 1996 as compared to $51,000 for the same period in
1995. Additionally, non-interest income increased in 1996 due to a $501,000
reduction in the losses on securities from losses of $758,000 in 1995 to losses
of $257,000 in 1996. The increases in these items on non-interest income were
partially offset by a reduction in gains in real estate operations from gains of
$203,000 for 1995 to losses of $271,000 for 1996.
NON-INTEREST EXPENSE
Non-interest expense increased by $2.9 million, or 25.3%, from $11.2
million for the five months ended May 31, 1995 to $14.1 million for the five
months ended May 31, 1996 primarily due to increased costs related to the August
1995 establishment of RFI. Compensation and employee benefits expense increased
$2.1 million to $8.2 million for the five months ended May 31, 1996 from $6.0
million for the same period in 1995. Compensation and employee benefits expense
relating to the operations of RFI amounted to $2.0 million for the five months
ended May 31, 1996. Other significant changes in the Bank's operating expenses
included a $1.1 million decrease in the insurance premiums paid to the Federal
Deposit Insurance Corporation resulting from the FDIC's decision to lower the
insurance premiums paid by BIF-insured institutions to the legal minimum
effective January 1, 1996. See "Regulation and Supervision - Insurance of
Deposits" and "Risk Factors - Payment of Financing Corporation Bonds." Other
non-interest expenses increased $1.2 million to $3.4 million for the five months
ended May 31, 1996 compared to $2.2 million for the five months ended May 31,
1995 primarily due to an increase in professional fees of $343,000, mortgage
recording taxes of $223,000, and certain general and
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administrative costs associated with RFI. The Bank expects that compensation and
benefits expense may increase after the Conversion, primarily as a result of the
adoption of various employee benefit plans and compensation adjustments
contemplated in connection with the Conversion. In this regard, the proposed
ESOP, which intends to purchase 8% of the Common Stock issued in connection with
the Offering, including shares issued to the Foundation, and the Stock Programs
which, if implemented, would purchase an amount of Common Stock equal to 4% of
the Common Stock issued in connection with the Offering, including shares issued
to the Foundation, may result in increased compensation and benefits expense as
the amortization of the ESOP loan and amortization of the Stock Program awards
will be reflected as compensation expense. See "Management of the Bank - Benefit
Plans - ESOP." In addition, the Bank expects non-interest expenses to increase
in future periods as a result of its current renovation of a new administrative
office and the opening of at least two new branch offices in late 1996.
INCOME TAXES
Total income tax expense was $3.7 million for the five months ended May 31,
1996 compared to $3.9 million for the same period in 1995. Despite an increase
in pre-tax income for the 1996 period of $595,000, the decrease in income tax
expense of $222,000, or 5.7%, was due primarily to an increase in the Bank's
dividends received deduction on its equity securities portfolio of $688,000. The
effective tax rate was 30.3% for the five months ended May 31, 1996 as compared
to 33.9% for the same period in 1995.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1995 AND
DECEMBER 31, 1994
GENERAL
Net income for the year ended December 31, 1995 was $18.7 million, compared
to $19.4 million for the year ended December 31, 1994. Interest rates rose
sharply in early 1994, then gradually declined after January 1995, resulting in
a higher yield on interest-earning assets and higher cost of interest-bearing
liabilities in 1995 than in 1994 and more interest-bearing liabilities repricing
than interest-earning assets during the year. The result was a decline in both
net interest income and net income for the Bank during 1995. Net income
decreased $704,000, or 3.6%, from the previous year, due to the decline in net
interest income, which decreased by $2.4 million, and an increase in non-
interest expense of $3.5 million which were substantially offset by an increase
in non-interest income of $3.7 million and a reduction in income tax expense of
$1.5 million. The increases in both non-interest income and non-interest expense
is primarily attributable to the Bank's acquisition of assets and liabilities of
RMBI in connection with the establishment of RFI in August 1995. The decrease in
income tax expense is attributable to both a decrease in taxable income and a
decrease in the Bank's effective tax rate due to a higher level of preferred
stock purchased in 1995.
INTEREST INCOME
Interest income totalled $111.0 million for 1995 compared to $94.5 million
for 1994. This increase reflects a $151.5 million increase in total average
interest-earning assets in 1995 compared to 1994 and a 39 basis point increase
in the average yield on such assets over the same period. Interest income on
real estate loans increased by $8.7 million to $33.3 million for 1995 from $24.7
million in 1994, reflecting a $75.1 million increase in the average balance of
real estate loans and a 55 basis point increase in the average yield to 9.50%.
The increase in the average balance of real estate loans was primarily due to an
increase in residential one-to-four family and multi-family loans. The increase
in the average yield on interest-earning assets was due primarily to an increase
in market interest rates and a 51.4% decrease in non-performing loans, from
$25.1 million to $12.2 million, at December 31, 1994 and
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1995, respectively. On a combined basis, interest income on debt and equity and
mortgage-backed and mortgage related securities increased $8.0 million to $75.0
million for 1995 from $67.0 million for 1994. The increase was primarily due to
a $9.1 million increase in interest income on mortgage-backed and mortgage
related securities, attributable to a $106.4 million increase in the average
balance of such securities to $545.6 million and a 43 basis point increase in
the yield to 6.80%. Interest income on debt and equity securities decreased $1.1
million to $37.9 million for 1995, reflecting a $25.4 million decrease in the
average balance of such securities, consistent with management's continuing
reallocation of its securities portfolio from lower yielding government bonds to
higher yielding real estate loans and mortgage-backed and mortgage related
securities. The average yield on debt and equity securities increased 11 basis
points during the period due to an increase in market interest rates. Interest
income on consumer and student loans decreased $937,000 from $1.8 million for
1994 to $897,000 for 1995, principally due to the sale in April 1995 of $21.5
million of student loans to SLMA.
INTEREST EXPENSE
Total interest expense for 1995 was $59.3 million, compared to $40.4
million for 1994, an increase of $18.9 million, or 46.9%. The increase in
interest expense was the result of a $125.6 million increase in the average
balance of interest-bearing liabilities and an increase in the average costs of
deposits and borrowings to 4.62% for 1995, from 3.48% for 1994. Interest on
deposits increased by $17.4 million to $57.7 million for 1995 compared to $40.4
million for 1994. This increase reflects both a $101.3 million increase in the
average balance of interest-bearing deposits in 1995 compared to 1994, and a 110
basis point increase in the average rate paid on such liabilities over the same
period. Such increase was primarily attributable to an increase in the average
balance of higher yielding certificates of deposit, which increased from $430.0
million for 1994 to $677.5 million for 1995 and an increase in the average rate
paid on such accounts from 4.57% to 5.84%, respectively. These two increases
resulted in the interest expense on certificate of deposit accounts increasing
from $19.7 million for 1994 to $39.6 million for 1995, a 101.3% increase. These
increases were partially offset by a decrease in interest expense on savings
accounts due to the combined effect of a decline in the average balance of such
accounts, which declined from $612.4 million for 1994 to $480.6 million for
1995, and an increase in the average rate paid on such accounts from 2.91% to
3.19%, resulting in a $2.5 million, or 14.2%, decrease in interest expense on
savings accounts. The increase in the average balance of certificates of deposit
and the decrease in the average balance of savings accounts was due primarily to
customers shifting funds from lower yielding savings accounts to higher yielding
certificates of deposit.
The Bank incurred interest expense on borrowed funds for 1995 of $1.6
million as compared to no expense for 1994 reflecting management's decision to
utilize borrowings to fund a portion of its asset growth, and, to a lesser
extent, RFI's utilization of government-sponsored agencies to fund a portion of
its loan origination activity. The average balance in borrowed funds increased
$24.3 million for the year ended December 31, 1995 as there were no borrowings
outstanding during 1994. The average rate paid on such borrowings for 1995 was
6.38%.
PROVISION FOR POSSIBLE LOAN LOSSES
For 1995, the Bank's provision for possible loan losses was $600,000, the
same amount as was provided in 1994. Management determined that an increase in
the provision was unnecessary in light of its review of the Bank's loan
portfolio, asset quality, trends in the Bank's delinquent and non-performing
loans and the national and regional economies. In particular, non-performing
loans decreased by $12.9 million, or 51.4%, from $25.1 million at December 31,
1994, or 6.82% of loans, to $12.2 million at December 31, 1995, or 3.13% of
loans, primarily reflective of the general improvement in the overall credit
quality of the Bank's loan portfolio during 1995. The decrease in non-performing
loans was
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primarily attributable to the improvement in the regional economy and also to
the favorable results of the Bank's increased efforts to resolve problem loans.
At December 31, 1995, the allowance for possible loan losses totalled 191.82% of
total non-performing loans, an increase from 100.28% at December 31, 1994. Net
charge-offs for the year ended December 31, 1995 were $2.4 million representing
an increase of $2.4 million from the year ended December 31, 1994. The $2.4
million increase was primarily due to two commercial real estate loans. See
"Business of the Bank - Delinquent Loans, Real Estate Owned and Classified
Assets" and "- Allowance for Possible Loan Losses."
NON-INTEREST INCOME
Total non-interest income was $5.7 million for 1995, a $3.7 million
increase from the $2.0 million for 1994. Net gains on sales from secondary
market activity increased to $1.8 million for 1995 compared to net losses of
$289,000 for 1994. Loan servicing and fee income increased to $3.7 million for
1995 compared to $3.3 million for 1994. These increases are a result of the
increased volume of loans originated and sold in late 1995 with servicing
retained and the right to service $623.0 million in loans in the August 1995
acquisition from RMBI. One- to four-family originations increased $100.5 million
for the year ended December 31, 1995 from $52.7 million for the prior year. At
December 31, 1995 the Bank and RFI serviced $704.8 million of loans for others
compared to $37.1 million at December 31, 1994. Additionally, the net gains on
real estate owned operations increased from $156,000 for 1994 to $714,000 for
1995, primarily due to the sale of two commercial real estate properties which
resulted in net gains of $927,000. Total net losses on securities decreased
$370,000 to $811,000 for 1995 from $1.2 million for 1994. The decrease was
primarily attributable to the sale in late 1995 of $38.3 million of adjustable-
rate mortgage-backed securities at a gain of $818,000. These securities were
sold based on the anticipation of increased prepayment levels due to a decline
in market interest rates in the latter half of 1995.
NON-INTEREST EXPENSE
Total non-interest expense increased from $26.2 million for 1994 to $29.6
million for 1995. Compensation and employee benefits expense increased $2.4
million from $13.4 million for 1994 to $15.8 million for 1995, primarily due to
the added personnel costs associated with the employees of RFI which amounted to
$1.7 million during 1995. This was partially offset by a reduction in the rate
paid to the FDIC for deposit insurance premiums, combined with a refund from the
FDIC for premiums previously paid in the amount of $797,000, which lowered this
expense by $1.2 million during 1995. Other non-interest expense increased $1.3
million from $5.8 million for the year ended December 31, 1994 to $7.1 million
for the year ended December 31, 1995, primarily due to a $635,000 of increase in
expenses related to the operations of RFI and a provision for possible losses of
$500,000 related to a litigation initiated by the Bank against another
depository institution which provided check processing for the Bank to recover
check clearing balances.
INCOME TAXES
Tax expense totalled $8.5 million for the year ended December 31, 1995
compared to $10.0 million in 1994. The decrease was attributable to lower pre-
tax income which fell from $29.4 million for the year ended December 31, 1994 to
$27.2 million in 1995, and to an increase in the Bank's dividends received
deduction on its equity securities portfolio of $864,000.
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COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED DECEMBER 31, 1994 AND
DECEMBER 31, 1993
GENERAL
Net income decreased $4.7 million, or 19.6%, from $24.1 million for the
year ended December 31, 1993 to $19.4 million for the year ended December 31,
1994. The decrease was primarily attributable to $6.0 million of income
recognized in 1993 resulting from the net cumulative effect of changes in
accounting principles and a $1.1 million decrease in net interest income, a $2.8
million decrease in non-interest income, and a $1.6 million increase in non-
interest expenses. These items were partially offset by a $6.3 million reduction
in the Bank's provision for possible loan losses and a lower provision for taxes
due to a reduction in the Bank's effective tax rate.
INTEREST INCOME
Total income from interest-earning assets declined slightly from $95.0
million in 1993 to $94.5 million in 1994, a reduction of $488,000 due primarily
to a 32 basis point decline in the average yield on interest earning assets
which was offset, in part, by a $52.4 million increase in the average balance of
interest earning assets. Interest income on the Bank's securities portfolio fell
$587,000 from $67.5 million for the year ended December 31, 1993 to $66.9
million for the year ended December 31, 1994. New mortgage-backed securities
purchased during 1994 in the lower interest rate environment contributed to the
yield reduction on the Bank's securities portfolio. The yield on mortgage-backed
securities fell from 7.51% in 1993 to 6.37% in 1994, while the yield on the
Bank's debt and equity securities remained relatively stable at 6.65% and 6.57%,
for 1994 and 1993, respectively. Interest income on real estate loans decreased
by $77,000 for the year ended December 31, 1994. This was primarily attributable
to a $6.7 million increase in the average balance of real estate loans to $275.7
million for the year ended December 31, 1994 from $268.9 million for the year
ended December 31, 1993. The average yield on real estate loans decreased 25
basis points, to 8.95% in 1994, from 9.20% in 1993. The decrease was due to the
high levels of prepayments on higher rate mortgage loans during late 1993 and
the effects of lower interest rates on new loan originations.
INTEREST EXPENSE
Interest expense for the year ended December 31, 1994 was $40.4 million,
compared to $39.7 million for the year ended December 31, 1993, an increase of
$655,000, or 1.6%. The increase is primarily due to a $37.1 million increase in
the average balance of deposits outstanding, partly offset by a decrease in the
average cost of deposits to 3.48% for 1994, from 3.52% for 1993. The interest
expense on savings accounts decreased by $1.7 million, or 8.9%, from $19.6
million for 1993 to $17.8 million for 1994 due primarily to the Bank's
determination to reduce the rate paid on such accounts during 1994, which was
partially offset by an increase in the average balance of such accounts from
$604.5 million for 1993 to $612.4 million for 1994. The average rate paid on
savings accounts for 1994 was 2.91% compared to 3.24% for 1993. Despite the
effect of the lower interest rate environment and the decreased cost of savings
accounts, interest expense increased primarily due to higher rates paid on
certificate of deposit accounts. The average rate paid on certificates of
deposit accounts increased from 4.25% for the year ended December 31, 1993 to
4.57% for the year ended December 31, 1994 due primarily to the Bank's deposit
pricing strategy whereby it offered more competitive rates on certificate of
deposit accounts than on savings accounts in an effort to extend the maturity of
its deposit accounts resulting in an increase in the average balance of such
accounts from $396.0 million for 1993 to $430.0 million for 1994. The increase
in interest expense on certificates of deposit accounts of $2.8 million more
than offset the decrease in interest expense on savings accounts.
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PROVISION FOR POSSIBLE LOAN LOSSES
During 1994, the provision for possible loan losses was reduced to $600,000
from the prior year's level of $6.9 million. The lower provision was based on
management's evaluation of existing real estate market conditions, improvement
in the level of charge-offs and non-performing loans as well as a stabilization
of general economic conditions in the Bank's market area. In particular, charge-
offs decreased by $5.4 million for the year ended December 31, 1994 and
nonperforming loans decreased by $6.3 million from 10.84% of total loans to
6.82% of total loans at December 31, 1993 and December 31, 1994, respectively.
At December 31, 1993, the Bank's allowance for possible loan losses to total
non-performing loans and total loans was 78.17% and 8.47%, respectively, as
compared to 100.28% and 6.84%, respectively, at December 31, 1994.
NON-INTEREST INCOME
Non-interest income decreased by $2.8 million, or 57.9%, from $4.9 million
in 1993 to $2.0 million in 1994. The decrease was primarily attributable to the
decrease in net gains/(losses) on securities of $4.3 million from a net gain of
$3.1 million in 1993 to a net loss of $1.2 million in 1994, as a result of
amortizing premiums paid on certain callable preferred stocks and a reduced
level of sales of securities. This was partially offset by a $1.8 million
increase in the net gains/(losses) on real estate owned operations from a $1.7
million net loss in 1993 to a $156,000 net gain in 1994, which was primarily
attributable to the decrease in the provision for losses on real estate owned
from $1.2 million in 1993 to none in 1994. The provision for losses on real
estate owned in 1993 resulted from the Bank's reevaluation of its real estate
owned and based upon updated appraisals of such properties.
NON-INTEREST EXPENSE
Total non-interest expense increased $1.6 million in 1994 to $26.2 million,
as compared to $24.6 million in 1993. The increase primarily relates to
compensation and employee benefits which increased by $917,000, or 7.3%, from
$12.5 million in 1993 to $13.4 million in 1994, primarily the result of normal
salary increases and an increase in the Bank's pension related expenses.
INCOME TAXES
The provision for income taxes decreased by $568,000, or 5.4%, from $10.6
million in 1993 to $10.0 million in 1994, primarily as a result of the decrease
in the Bank's effective tax rate. The effective tax rate was 34.0% for the year
ended December 31, 1994 as compared to 36.8% for the prior year. The decrease in
the effective tax rate was primarily due to the Bank increasing its portfolio of
preferred stocks which earn dividends that are substantially non-taxable.
CUMULATIVE EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES
In February 1992, the FASB issued Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109
required a change from the deferred method to the asset and liability method
attributable to accounting for income taxes. Under the asset and liability
method, deferred tax assets and liabilities are recognized for the estimated
future tax consequences of the differences between the tax bases and financial
reporting bases of existing assets and liabilities. The Bank adopted SFAS No.
109 effective January 1, 1993, which resulted in a cumulative credit to earnings
of $7.5 million.
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In December 1990, the FASB issued Statement of Accounting Standards No. 106
("SFAS No. 106"), "Employer's Accounting for Post-retirement Benefits Other Than
Pensions." SFAS No. 106 focuses principally on post-retirement health care
benefits and significantly changed the previous practice of accounting for post-
retirement benefits on a cash basis to requiring accrual during the years that
the employee renders the necessary service, of the expected cost of providing
those benefits to an employee and the employee's beneficiaries and covered
dependents. SFAS No. 106 became effective for fiscal years beginning after
December 15, 1992, and adoption was required on a prospective basis. The Bank
adopted SFAS No. 106 effective January 1, 1993, which resulted in an accrued
liability, net of tax, of $1.5 million. See "-Impact of New Accounting
Standards" for a further description of SFAS No. 106.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and mortgage related
and debt and equity securities, and to a lesser extent, proceeds from the sale
of fixed-rate mortgage loans to the secondary market. While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit outflows, mortgage prepayments and mortgage loan sales are greatly
influenced by general interest rates, economic conditions and competition.
The primary investing activities of the Bank are the origination of both
residential one-to four-family and commercial real estate loans and the purchase
of mortgage-backed and mortgage related and debt and equity securities. During
the five months ended May 31, 1996 and the years ended December 31, 1995, 1994,
and 1993, the Bank's loan originations totalled $189.9 million, $226.3 million,
$141.1 million and $61.0 million, respectively. Purchases of mortgage-backed,
mortgage related and debt and equity securities totalled $305.4 million, $642.5
million, $225.7 million and $459.7 million for the five months ended May 31,
1996 and the years ended December 31, 1995, 1994, and 1993, respectively. These
activities were funded primarily by deposit growth, principal repayments on
loans, mortgage-backed and mortgage related securities and debt and equity
securities. Loan sales provided additional liquidity to the Bank, totaling
$106.2 million, $134.1 million, $15.7 million and $15.8 million for the five
months ended May 31, 1996 and the years ended December 31, 1995, 1994 and 1993,
respectively. The increased loan sale activity commencing in 1995 reflects the
establishment of RFI during that year.
The Bank experienced a net increase in total deposits of $106.3 million,
$116.0 million, $78.0 million and $7.0 million for the five months ended May 31,
1996 and the years ended December 31, 1995, 1994, and 1993, respectively.
Deposit flows are affected by the level of interest rates, the interest rates
and products offered by the local competitors, the Bank and other factors.
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
the Bank should require funds beyond its ability to generate them internally,
additional sources of funds are available through the use of reverse repurchase
agreements. At May 31, 1996, the Bank had outstanding $67.1 million in short-
term reverse repurchase agreements with third parties.
Loan commitments totalled $162.2 million at May 31, 1996, comprised of
$72.6 million in one-to four-family loan commitments and $14.1 million in
commercial real estate loan commitments, $73.4 million in construction and
development loan commitments and $2.1 million in home equity loan commitments.
Management of the Bank anticipates that it will have sufficient funds available
to meet its current loan commitments. Certificates of deposit which are
scheduled to mature in one year or less from May 31, 1996 totalled $688.2
million. From January 1, 1995 to May 31, 1996, the Bank experienced a 92.6%
retention rate of funds maturing from certificates of deposit. Based upon this
experience and the
58
<PAGE>
Bank's current pricing strategy, management believes that a significant portion
of such deposits will remain with the Bank.
At May 31, 1996, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $219.3 million, or 12.39% of
adjusted assets, which is above the required level of $53.1 million and risk-
based capital of $229.5 million, or 28.10% of adjusted assets, which is above
the required level of $65.3 million, or 8.00%. See "Regulatory Capital
Compliance."
The Bank's most liquid assets are cash and interest-bearing demand
accounts. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At May 31,
1996, cash and interest-bearing demand accounts totalled $28.4 million, or 1.6%
of total assets.
IMPACT OF INFLATION AND CHANGING PRICES
The Consolidated 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 dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result, interest
rates have a greater impact on the Bank's performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the price of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
Accounting for Long Lived Assets. In 1995, the FASB issued Statement of
Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived
Assets and for Long Lived Assets to be Disposed of" ("SFAS No. 121"). This
Statement establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. This Statement became effective on January 1,
1996. Adoption of this Statement did not have a material impact on the earnings
or financial statements of the Bank.
Accounting for Stock-Based Compensation. In November 1995, the FASB issued
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS No. 123 permits the
Bank to choose either a new fair value based method or the current Accounting
Principles Board ("APB") Opinion 25 intrinsic value based method of accounting
for its stock-based compensation arrangements. SFAS No. 123 requires pro forma
disclosures of net earnings and earnings per share computed as if the fair value
based method had been applied in financial statements of companies that continue
to follow current practice in accounting for such arrangements under APB Opinion
25. SFAS No. 123 applies to all stock-based employee compensation plans in which
an employer grants shares of its stock or other equity instruments to employees
except for employee stock ownership plans. SFAS No. 123 also applies to plans in
which the employer incurs liabilities to employees in amounts based on the price
of the employer's stock, (e.g., stock option plans, stock purchase plans,
restricted stock plans, and stock appreciation rights). The statement also
specifies the accounting for transactions in which a company issues stock
options or other equity instruments for services provided by nonemployees or to
acquire goods or services from outside suppliers or vendors. The recognition
provisions of SFAS No. 123 for companies choosing to adopt the new fair value
based method of
59
<PAGE>
accounting for stock-based compensation arrangements may be adopted immediately
and will apply to all transactions entered into in fiscal years that begin after
December 15, 1995, however disclosure of the pro forma net earnings and earnings
per share, as if the fair value method of accounting for stock-based
compensation had been elected, is required for all awards granted in fiscal
years beginning after December 31, 1994. Any effect that this statement will
have on the Bank will be applicable upon the consummation of the Conversion.
Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities. In June 1996 the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" ("SFAS No. 125"). This Statement provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities based on consistent application of a financial-
components approach that focuses on control. It distinguishes transfers of
financial assets that are sales from transfers that are secured borrowings.
Under the financial-components approach, after a transfer of financial assets,
an entity recognizes all financial and servicing assets it controls and
liabilities it has incurred and derecognizes financial assets it no longer
controls and liabilities that have been extinguished. The financial-components
approach focuses on the assets and liabilities that exist after the transfer.
Many of these assets and liabilities are components of financial assets that
existed prior to the transfer. If a transfer does not meet the criteria for a
sale, the transfer is accounted for as a secured borrowing with pledge of
collateral. The Statement is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31, 1996, and
should be applied prospectively. Earlier or retroactive application of this
Statement is not permitted. The Company has not yet determined the impact that
this Statement will have on the Company's consolidated financial statements.
60
<PAGE>
BUSINESS OF THE COMPANY
GENERAL
The Company was organized in July 1996 at the direction of the Board of
Trustees of the Bank for the purpose of becoming a holding company to own all of
the outstanding capital stock of the Bank. Upon consummation of the Conversion,
it is anticipated that the Bank will become a wholly-owned subsidiary of the
Company. Upon the consummation of the Conversion, the Company will be a savings
and loan holding company. See "Regulation and Supervision -Holding Company
Regulation." The Company filed an application with, and received the approval
of, the OTS to become a savings and loan holding company and to acquire the
Bank.
The Company is currently not an operating company. Following the
Conversion, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains primarily in short and medium term securities, mortgage-backed and
mortgage related securities and preferred stock. In addition, the Company
intends to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of
the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation; however, a third party lender may be utilized to lend
funds to the ESOP. In the future, the Company may acquire or organize other
operating subsidiaries, including other financial institutions and financial
services companies. See "Use of Proceeds." Presently, there are no agreements or
understandings for an expansion of the Holding Company's operations. Initially,
the Company will neither own nor lease any property from any third party, but
will instead use the premises, equipment and furniture of the Bank. At the
present time, the Company does not intend to employ any persons other than
certain officers of the Bank, who will not be separately provided cash
compensation by the Holding Company. The Company may utilize the support staff
of the Bank from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Holding Company expands its business in the
future.
BUSINESS OF THE BANK
GENERAL
The Bank is a community-oriented mutual savings bank which was originally
chartered by the State of New York in 1875. In August 1995, the Bank completed
its acquisition of certain assets and liabilities of RMBI, including its loan
servicing portfolio, through its wholly-owned mortgage banking subsidiary, RFI.
The Bank's principal business consists of the acceptance of retail deposits from
the general public in the area surrounding its branch offices and the investment
of those deposits, together with funds generated from operations and borrowings,
primarily in mortgage-backed and mortgage related securities, various debt and
equity securities, one- to four-family residential mortgage loans and commercial
real estate loans. The Bank also invests in multi-family, construction and
development, home equity and second mortgage loans, and consumer and student
loans. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management Strategy." The Bank currently originates all
one- to four-family loans through RFI. Currently, it is the Bank's policy to
sell, on a servicing retained basis, most longer-term fixed-rate one- to four-
family loans as a method of managing its interest rate risk and increasing its
loan servicing fee income. However, the Bank currently retains for its portfolio
one- to four-family loans in excess of 15 years which have interest rates of 8%
or greater. The Bank's revenues are derived principally from the interest on its
securities, mortgage, consumer and commercial loans and loan sale and servicing
fees. The Bank's primary sources of funds are deposits, principal and interest
payments on loans and securities, and proceeds from the sale of loans and
securities.
61
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The Bank's mortgage banking subsidiary, RFI, conducts mortgage banking
activities consisting of the origination, sale and servicing of one- to four-
family loans secured by properties in the Bank's primary lending area as well as
through RFI's six mortgage origination offices located in the New York counties
of Nassau, Suffolk, Queens and Albany and the New Jersey Counties of Morris and
Monmouth. See "-Lending Activities - Loan Portfolio Composition," "- Lending
Activities -Loan Originations" and "- Loan Sales, Servicing and Mortgage Banking
Activities." Currently, all of the Bank's origination of one- to four-family
loans is conducted through RFI, which originates loans on behalf of the Bank as
well as various other financial institutions and investors. See "- Lending
Activities - Loan Sales, Servicing and Mortgage Banking Activities."
In addition to RFI, the Bank maintains various wholly-owned subsidiaries
most of which were incorporated in New York to maintain ownership of specific
real estate properties the Bank has taken ownership over as a result of
foreclosure or in connection with its lending activities. The Bank also offers
savings bank life insurance through a department of the Bank.
MARKET AREA
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank currently operates six full service
banking offices in Nassau and Suffolk Counties and has recently entered into an
agreement to purchase two branch facilities located in Nassau County which it
expects to open in November 1996. The Bank's primary deposit gathering area is
currently concentrated around the areas where its full service banking offices
are located in Nassau and Suffolk Counties which the Bank generally considers to
be its primary market area. The Bank's primary lending area has also
historically been concentrated in Nassau and Suffolk Counties. However, with the
establishment of RFI in August 1995, the Bank's primary lending area with regard
to one- to four-family loans was broadened to include the area surrounding RFI's
mortgage origination offices in the New York Counties of Suffolk, Nassau, Queens
and Albany and the New Jersey Counties of Morris and Monmouth.
The New York City metropolitan area has historically benefitted from
having a large number of corporate headquarters and a diversity of financial
service entities. Additionally, the Counties of Nassau and Suffolk have
historically benefitted from a large developed suburban market, well educated
employment base and a diversity of industrial, service and high technology
businesses. During the late 1980s and early 1990s, however, due in part to the
effects of a prolonged period of weakness in the national economy, the decline
in the regional economy, layoffs in the financial services industry and
corporate relocations, the New York City metropolitan area experienced reduced
levels of employment. In addition, the Counties of Nassau and Suffolk
experienced reduced employment as a result of restructuring and downsizing in
the high technology defense related industries. These conditions, in conjunction
with a surplus of available commercial and residential property, resulted in an
overall decline in the underlying values of properties located in the area
during the late 1980s and early 1990s. Since 1993, the prices and values of real
estate have stabilized and, in certain areas, the prices and values of real
estate have increased. See "Risk Factors -Weakness in Local Economy."
LENDING ACTIVITIES
Loan Portfolio Composition. The types of loans that the Bank may originate
are subject to federal and state law and regulations. Interest rates charged by
the Bank on loans are affected principally by the demand for such loans, the
supply of money available for lending purposes and the rates offered by its
competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
62
<PAGE>
The Bank's loan portfolio consists primarily of first mortgage loans
secured by one- to four-family residences and commercial real estate properties
located in its primary lending area. At May 31, 1996, the Bank's gross loan
portfolio totalled $438.1 million, of which $213.0 million were one- to four-
family residential mortgage loans, or 48.6% of total gross loans, and $153.6
million were commercial real estate loans, or 35.1% of gross loans. At such
date, the remainder of the loan portfolio consisted of $33.3 million of multi-
family loans, or 7.6% of total gross loans; $31.0 million of construction and
development loans, or 7.1% of total gross loans; $4.7 million of home equity and
second mortgage loans, or 1.1% of total gross loans; $1.5 million of consumer
loans, primarily consisting of home modification and passbook loans, or 0.3% of
total gross loans; and $955,000 of student loans, or 0.2% of total gross loans.
The following table sets forth the composition of the Bank's loan
portfolio, including loans held for sale, in dollar amounts and in percentages
of the respective portfolios at the dates indicated.
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<PAGE>
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
----------------- ---------------------------------------------------------
1996 1995 1994 1993
------------------ ------------------ ------------------ ------------------
PERCENT PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family....... $213,045 48.63% $197,357 48.41% $153,203 41.52% 134,248 45.16%
Multi-family.............. 33,320 7.60 36,353 8.92 18,617 5.05 21,642 7.28
Commercial real estate.... 153,592 35.05 124,976 30.65 114,317 30.98 101,806 34.24
Construction and 31,046 7.09 41,611 10.21 56,163 15.22 12,983 4.37
development..............
Home equity and second
mortgage.............. 4,690 1.07 3,672 0.90 4,346 1.18 5,255 1.77
Consumer(1)................ 1,483 0.34 1,760 0.43 1,680 0.46 1,995 0.67
Student.................... 955 0.22 1,959 0.48 20,626 5.59 19,345 6.51
-------- ------ -------- ------ -------- ------ -------- ------
Gross loans................ 438,131 100.00% 407,688 100.00% 368,952 100.00% 297,274 100.00%
====== ====== ====== ======
Less:
Unamortized discounts, net. 749 763 978 -
Deferred loan fees......... 769 666 611 -
Deferred mortgage interest. 552 493 145 -
Allowance for possible loan
Loans...................... 22,312 23,350 25,127 24,502
------ ------- ------ --------
Total loans, net........... 413,749 382,416 342,091 272,772
Less:
Loans held for sale, net:
One- to four-family...... 13,310 15,278 - 8,105
Student.................. 955 1,873 - -
-------- -------- -------- --------
Loans receivable held $399,484 $365,265 $342,091 $264,667
for investment, net... ======== ======== ======== ========
<CAPTION>
--------------------------------------
1992 1991
----------------- -----------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------ -------- ------ ---------
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family....... 161,693 48.92% 222,907 55.87%
Multi-family.............. 24,090 7.29 25,631 6.42
Commercial real estate.... 100,894 30.53 99,048 24.83
Construction and 17,020 5.15 23,415 5.87
development..............
Home equity and second
mortgage.............. 4,607 1.39 5,122 1.28
Consumer(1)................ 2,970 0.90 3,232 0.81
Student.................... 19,230 5.82 19,618 4.92
-------- ------ -------- ------
Gross loans................ 330,504 100.00% 398,973 100.00%
====== ======
Less:
Unamortized discounts, net. - -
Deferred loan fees......... - -
Deferred mortgage interest. - -
Allowance for possible loan 23,187 19,698
losses..................... -------- --------
Total loans, net........... 307,317 379,275
Less:
Loans held for sale, net:
One- to four-family...... - -
Student.................. - -
-------- --------
Loans receivable held $307,317 $379,275
for investment, net... ======== ========
</TABLE>
______________________
(1) Consumer loans include modernization and passbook loans.
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<PAGE>
Loan Originations. Prior to the establishment of its mortgage banking
subsidiary, RFI, in August 1995, all of the Bank's loan origination activity was
conducted directly by the Bank's loan personnel at its six branch offices and
through referrals from local real estate agents, attorneys and builders. While
the Bank continues to directly originate all commercial real estate, multi-
family, construction and development, home equity and second mortgage, and
consumer and student loans, since the establishment of RFI in August 1995, all
one- to four- family loan origination activity has been conducted through RFI
and RFI's commissioned loan officers operating in the Bank's full-service
banking offices as well as in RFI's six mortgage origination offices located in
the New York Counties of Nassau, Suffolk, Queens and Albany and the New Jersey
Counties of Morris and Monmouth.
All loans originated by the Bank or by RFI on behalf of the Bank are
underwritten pursuant to the Bank's loan underwriting policies and procedures.
The Bank originates both adjustable-rate and fixed-rate one- to four-family
loans (through RFI), commercial real estate loans, multi-family loans, home
equity and second mortgage loans, construction and development loans, consumer
loans and student loans. Since 1993, the Bank has placed increased emphasis on
the origination and retention of one- to four-family loans and commercial real
estate loans to selected real estate developers operating within the Bank's
primary market area. See "Risk Factors - Increased Lending Risks Associated with
Commercial Real Estate, Multi-Family and Construction and Development Lending."
In 1995, the Bank began to phase out its direct student loan originations
(except for its direct lending program with SLMA) in response to the federal
government's initiation of the Federal Family Education Loan Program, which is a
direct student lending program. The Bank's and RFI's ability to originate loans
is dependent upon the relative customer demand for the type of loan and demand
for fixed-rate or adjustable-rate loans, which is affected by the current and
expected future levels of interest rates.
Loan Sales, Servicing and Mortgage Banking Activities. Prior to the
establishment of RFI, the Bank's loan sale, purchase and servicing activities
were primarily conducted directly by the Bank. Since August 1995, all of the
Bank's mortgage banking operations have been conducted through RFI with the
exception of the servicing of one- to four-family loans originated by the Bank
prior to the establishment of RFI, which continue to be serviced directly by the
Bank. RFI was formed in conjunction with the Bank's August 1995 acquisition of
certain assets and liabilities, including its loan servicing portfolio, of RMBI,
a mortgage banking firm operating in the New York and New Jersey counties in and
surrounding the New York City and Albany, New York. RFI's activities are
directed by its two executive officers, who were the co-founders of RMBI, with
such activities being overseen by the Bank. RFI's mortgage banking activities
primarily involve the origination, sale and servicing of one- to four-family
loans generally secured by properties located in the areas surrounding RFI
mortgage origination offices.
RFI originates one- to four-family loans through its commissioned loan
personnel and through referrals from real estate brokers, builders, developers
and other sources. RFI loan personnel operate in the Bank's six branch offices
as well as RFI's six mortgage origination offices. RFI also utilizes a network
of approved mortgage brokers and loan correspondents. As a mortgage banking
company, RFI originates one- to four-family loans for sale to the Bank as well
as a variety of other investors, including financial institutions and securities
brokerage firms. RFI also originates loans for sale directly to FNMA and FHLMC
based upon loan terms and underwriting criteria provided to RFI by such
agencies. RFI delivers loan products to investors in the form of whole loans and
in the form of mortgage-backed securities issued by FNMA and FHLMC which it
receives in exchange for the sale of whole loans to such agencies. RFI's one- to
four-family loan production is not dedicated to the Bank as RFI offers a variety
of competing loan products to customers pursuant to loan programs that are pre-
approved by other potential loan investors. Accordingly, the Bank competes with
RFI's other investors for the purchase of one- to four-family loans on the basis
of rates and terms. With the exception of all Federal Housing Authority
("FHA")/Veterans Administration ("VA") loans and non-conforming loans, all loans
sold by RFI are sold on a servicing retained basis. The Bank's policy as to the
types of loans it will originate for investment through RFI
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<PAGE>
varies in relation to the Bank's analysis of the current and anticipated market
interest rates and other market conditions. It is currently the policy of the
Bank to purchase from RFI for investment all adjustable-rate one- to four-family
loans and fixed-rate one- to four-family mortgage loans with terms of 15 years
or less or which have interest rates of 8% or more. For the five months ended
May 31, 1996, RFI originated $127.5 million of loans of which $21.6 million was
purchased by the Bank for its loan portfolio. RFI currently does not offer
commercial real estate, multi-family, construction and development, home equity,
second mortgage or consumer loans.
Funding for the origination of all loans by RFI is provided by the Bank
through a $30 million revolving line of credit whereby borrowings on such line
of credit are immediately paid down by RFI upon the sale of loans. At May 31,
1996, $2.5 million of RFI's mortgage loans were pledged to secure notes payable
to FNMA under a warehouse line of credit known as the FNMA "As Soon As Pooled
Plus Program." The notes are repaid as the related mortgage loans are sold or
collected.
RFI's mortgage banking revenues generally consist of loan origination fees,
interest income on mortgages during the period they are held for sale, less the
interest expense incurred to finance the mortgages, gains (or losses) from the
sale of mortgage loans, loan servicing fees and gains (or losses) from the sale
of any loan servicing.
The loan products currently offered by RFI include mortgage loans insured
by the FHA and VA, as well as a variety of loans which conform to the
underwriting standards specified by FNMA and FHLMC ("conforming loans") and, to
a lesser extent, non-conforming loans. Because all loans originated by RFI are
sold, such loans must meet the origination and underwriting criteria established
by the final investors in the loans, including the Bank. All loans originated
by RFI are sold pursuant to commitments negotiated with FNMA, FHLMC and other
investors to purchase loans meeting such investor's defined criteria which may
require RFI to deliver a specific amount of mortgage loans. RFI sells most of
the conforming mortgage loans it originates to FNMA and FHLMC in exchange for
FNMA and FHLMC mortgage-backed securities through purchase and guarantee
programs sponsored by these agencies; RFI, in turn, sells such FNMA and FHLMC
mortgage-backed securities to private investors. These programs provide either
for direct sale of mortgage loans to FNMA or FHLMC, or for pooling of mortgage
loans in exchange for securities guaranteed by FNMA and FHLMC. Exchanges of
loans into agency securities and sales of loans are generally made without
recourse to RFI in the event of default by the borrower, except, in the case of
VA loans, which are subject to limitations on the VA's loan guarantees. RFI
generally retains the servicing rights on the mortgage loans exchanged for
mortgage-backed securities but generally sells loans to institutional investors
on a servicing released basis. Non-conforming one- to four-family loans
originated by RFI that do not meet FNMA and FHLMC guidelines are generally sold
to the Bank and private institutional investors.
Between the time RFI issues loan commitments and the time such loans or the
securities into which they are converted are sold, RFI is exposed to movements
in the market price due to changes in market interest rates. RFI attempts to
manage this risk by utilizing forward cash sales to FNMA, FHLMC and other
approved investors or agencies and forward sales of mortgage-backed securities
to securities brokers and dealers, other financial institutions and private
investors (such forward sales of loans or mortgage-backed securities are
collectively referred to as "forward sale commitments"). Generally, RFI
attempts to cover between 75% and 105% of the principal amount of the loans that
it has committed to fund at specified interest rates with forward sale
commitments. However, the type, amount and delivery date of forward sale
commitments RFI will enter into is based upon anticipated movements in market
interest rates, bond market conditions and management's estimates as to closing
volumes and the length of the origination or purchase commitments. Differences
between the volume and timing of actual loan originations and purchases and
management's estimates can expose the Bank and RFI to losses. If RFI
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<PAGE>
is not able to deliver the mortgage loans or mortgage-backed securities during
the appropriate delivery period called for by the forward sale commitment, RFI
may be required to pay a non-delivery fee, repurchase the delivery commitments
at current market prices or purchase whole loans at premium for delivery. The
above activity is managed continually; however, there can be no assurance that
RFI will be successful in its efforts to eliminate the risk of interest rate
fluctuation between the time origination or purchase commitments are issued and
the ultimate sale of the loans. At May 31, 1996, RFI had $57.6 million of
forward sale commitments representing 99.3%, of closed loans and loan
commitments at specified interest rates at such date. See "Risk Factors -
Sensitivity to Increases in Interest Rates."
Currently, the Bank services all of its commercial real estate, multi-
family, home equity and second mortgage and consumer and student loans and all
one- to four-family loans originated for its portfolio prior to its
establishment of RFI on August 1, 1995. RFI services all loans it originates on
behalf of the Bank as well as for all conforming loans sold to other investors.
All FHA and VA loans are sold on a servicing-released basis, as are other
selected loans sold to private institutional investors. In addition, in
connection with the Bank's acquisition of certain liabilities and assets from
RMBI, the Bank acquired the servicing rights of $623 million of loans sold by
RMBI. At May 31, 1996, RFI's loan servicing portfolio totalled $739.9 million,
primarily consisting of conforming fixed-rate loans. The Bank's loan servicing
portfolio totalled $417.4 million as of May 31, 1996 and primarily consisted of
one- to four-family, commercial real estate and construction and development
loans originated by the Bank prior to its acquisition of certain assets and
liabilities from RMBI. Loan servicing includes collecting and remitting loan
payments, accounting for principal and interest, contacting delinquent
mortgagors, supervising foreclosures and property dispositions in the event of
unremedied defaults, making certain insurance and tax payments on behalf of the
borrowers and generally administering the loans. RFI utilizes a third party
subservicer, Essex Home Mortgage Service Corporation ("Essex"), to service all
loans. Essex receives an annual flat fee per loan and any ancillary fee income
and RFI recognizes servicing fee income in excess of servicing fees paid to
Essex and retains the use of the escrow balances. During the years ended
December 31, 1995 and 1994, the Bank sold without recourse, including loans sold
in 1995 by RFI, approximately $70.4 million and $15.9 million, respectively, of
whole loans with loan servicing retained. For the five months ended May 31,
1996, the Bank sold without recourse, including loans sold by RFI, approximately
$72.2 million of whole loans with loan servicing retained.
The following tables set forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated and includes RFI's loan
originations on behalf of the Bank commencing August 1, 1995.
67
<PAGE>
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS
ENDED MAY 31, FOR THE YEAR ENDED DECEMBER 31,
----------------------- ----------------------------------
1996 1995 1995 1994 1993
---------- ----------- ---------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Gross loans(1):
Balance outstanding at beginning of $407,688 $368,952 $368,952 $297,274 $330,504
period.................................. -------- -------- -------- -------- --------
Loans originated:
One- to four-family................... 128,559 7,073 153,206 52,668 42,106
Multi-family.......................... - 5,500 19,310 960 -
Commercial real estate................ 39,489 9,292 17,310 26,431 5,349
Construction and 16,978 15,331 31,598 55,950 8,974
development.........................
Home equity and second
mortgage............................ 2,980 - 50 424 1,072
Consumer and student (2).............. 1,889 2,302 4,845 4,664 3,476
-------- -------- -------- -------- --------
Total loans originated.............. 189,895 39,498 226,319 141,097 60,977
Loans purchased......................... - - 22,059 12,764 66
-------- -------- -------- -------- --------
Total loans originated and 189,895 39,498 248,378 153,861 61,043
purchased.......................... -------- -------- -------- -------- --------
Less:
Principal repayments.................... 51,626 19,610 66,084 61,196 70,947
Sales of loans.......................... 106,210 18,927 134,084 15,697 15,765
Transfers to real estate owned.......... 276 1,797 6,964 5,119 2,016
Principal charged off................... 1,340 1,300 2,510 171 5,545
-------- -------- -------- -------- --------
Total loans........................... 438,131 366,816 407,688 368,952 297,274
Less: Loans held for sale, net.......... (14,265) (83) (17,151) - (8,105)
-------- -------- -------- -------- --------
Loans receivable held for investment at $423,866 $366,733 $390,537 $368,952 $289,169
end of period........................ ======== ======== ======== ======== ========
</TABLE>
(1) Gross loans includes loans receivable held for investment and loans held for
sale.
(2) Consumer loans originated consist of modernization and passbook loans.
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<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity of the Bank's loan portfolio at May 31, 1996. The table does not
include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totalled $51.6 million for
the five months ended May 31, 1996, $66.1 million for fiscal 1995 and $61.2
million for fiscal 1994.
<TABLE>
<CAPTION>
AT MAY 31, 1996
----------------------------------------------------------------------------------------------
REAL ESTATE LOANS
------------------------------------------------------------
HOME
ONE-TO COMMERCIAL CONSTRUCTION EQUITY AND TOTAL
FOUR- MULTI- REAL AND SECOND LOANS
FAMILY FAMILY ESTATE DEVELOPMENT MORTGAGE CONSUMER STUDENT RECEIVABLE
--------- -------- --------- ------------ ------------- --------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year...................... $ 14,037 $ 253 $ 17,055 $21,453 $ 174 $ 46 $955 $ 53,973
-------- ------- -------- ------------ ------ ------ -------- --------
After one year:
More than one year to three years... 1,527 300 14,799 9,440 1,324 169 - 27,559
More than three years to five years. 2,678 672 18,119 153 1,712 474 - 23,808
More than five years to 10 years.... 25,694 28,180 88,902 - 731 793 - 144,300
More than 10 years to 20 years...... 64,248 3,915 13,219 - 103 1 - 81,486
More than 20 years.................. 104,861 - 1,498 - 646 - - 107,005
-------- ------- -------- ------------ ------ ------ -------- --------
Total due after May 31, 1997........ 199,008 33,067 136,537 9,593 4,516 1,437 - 384,158
-------- ------- -------- ------------ ------ ------ -------- --------
Total amount due.................... $213,045 $33,320 $153,592 $31,046 $4,690 $1,483 $955 438,131
======== ======= ======== ============ ====== ====== ======== --------
Less:
Unamortized discounts, net........ 749
Deferred loan fees, net........... 769
Deferred mortgage interest........ 552
Allowance for possible loan losses 22,312
--------
Total loans, net.................... 413,749
Less: Loans held for sale, net..... 14,265
--------
Loans receivable held for invest $399,484
net................................. ========
</TABLE>
69
<PAGE>
The following table sets forth at May 31, 1996, the dollar amount of gross
loans receivable contractually due after May 31, 1997, and whether such loans
have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER MAY 31, 1997
--------------------------------
FIXED ADJUSTABLE TOTAL
--------- ------------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
One- to four-family........... $127,937 $ 71,071 $199,008
Multi-family.................. 4,073 28,994 33,067
Commercial real estate........... 19,927 116,610 136,537
Construction and development..... - 9,593 9,593
Home equity and second mortgage.. 912 3,604 4,516
-------- -------- --------
Total real estate loans......... 152,849 229,872 382,721
Consumer and student loans(1).... 1,437 - 1,437
-------- -------- --------
Total loans receivable.......... $154,286 $229,872 $384,158
======== ======== ========
</TABLE>
______________
(1) Includes modernization loans and passbook loans.
One- to Four-Family Loans. The Bank, through RFI, currently offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences located in the Bank's primary market area as well as in the New York
and New Jersey areas in which RFI operates mortgage origination offices, with
maturities up to thirty years. See "- Market Area." One- to four-family
mortgage loan originations are generally obtained from RFI's loan
representatives operating in the Bank's branch offices and RFI's offices and
through their contacts with the local real estate industry and through direct
consumer advertising. RFI has approximately 55 commissioned loan originators
who actively solicit mortgage loan applications.
At May 31, 1996, the Bank's one- to four-family loans totalled $213.0
million, or 48.6%, of gross loans. Of the one- to four-family loans outstanding
at that date, 66.0% were fixed-rate loans and 34.0% were adjustable-rate
mortgage loans. The Bank, through RFI, offers fixed-rate mortgage loans with
terms of ten, fifteen, twenty and thirty years. The Bank, through RFI,
currently offers a number of adjustable-rate mortgage loans with terms of up to
30 years and interest rates which adjust annually from the outset of the loan or
which adjust annually after a three, seven or ten year initial fixed period.
The interest rates for the majority of the Bank's adjustable-rate mortgage loans
are indexed to the one year and five year Constant Maturity Treasury ("CMT")
Index. Interest rate adjustments on such loans are limited to 2% annual
adjustment cap and a maximum adjustment of 6% over the life of the loan.
Certain of the Bank's adjustable-rate mortgage loans can be converted to a
fixed-rate loan with interest rates based upon the then-current market rates
plus a varying margin.
The volume and type of adjustable-rate mortgage loans originated by RFI on
behalf of the Bank have been affected by such market factors as the level of
interest rates, competition, consumer preferences and the availability of funds.
The origination of adjustable-rate residential mortgage loans, as opposed
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<PAGE>
to fixed-rate residential mortgage loans, helps reduce the Bank's exposure to
increases in interest rates. However, adjustable-rate loans generally pose
credit risks not inherent in fixed-rate loans, primarily because as interest
rates rise, the underlying payments of the borrower rise, thereby increasing the
potential for default. Periodic and lifetime caps on interest rate increases
help to reduce the risks associated with adjustable-rate loans but also limit
the interest rate sensitivity thereof.
One- to four-family residential mortgage loans are generally underwritten
according to FNMA and FHLMC guidelines. The Bank, through RFI, currently
originates one- to four-family residential mortgage loans in amounts up to 90%
of the lower of the appraised value or the selling price of the property
securing the loan up to a maximum amount of $600,000 for loans originated for
sale and up to a maximum amount of $1 million for loans to be sold to private
investors, subject to certain exceptions to these guidelines which must be
approved by either the Chief Executive Officer or Chief Lending Officer and
reviewed by the Board of Trustees. The Bank currently requires private mortgage
insurance to be obtained for loans in excess of an 80% loan to value ratio.
Mortgage loans originated by the Bank 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 the borrower transfers ownership of the property
without the Bank's consent. Due-on-sale clauses are an important means of
adjusting the yields on the Bank's fixed-rate mortgage loan portfolio and the
Bank has generally exercised its rights under these clauses.
In an effort to provide financing for low and moderate income home buyers,
RFI participates in residential mortgage programs and products sponsored by the
State of New York Mortgage Agency ("SONYMA") and the New Jersey Mortgage Housing
Finance Agency ("NJMHFA"). The SONYMA and NJMHFA mortgage programs provide low
and moderate income households with fixed-rate loans which are generally below
prevailing fixed-rate mortgages and which allow below market down payments.
Such loans generally are sold by RFI.
Multi-Family Lending. The Bank originates fixed- and adjustable-rate
multi-family mortgage loans generally secured by forty to four hundred unit
apartment buildings located in the Bank's primary market area. At May 31, 1996,
the Bank's multi-family loan portfolio was $33.3 million, or 7.6%, of gross
loans. In reaching its decision on whether to make a multi-family loan, the
Bank considers the qualifications and financial condition of the borrower,
including credit history, profitability and expertise, as well as the value and
condition of the underlying property. The factors considered by the Bank
include: the net operating income of the mortgaged premises before debt service
and depreciation; the debt coverage ratio (the ratio of net earnings to debt
service); and the ratio of loan amount to appraised value. Pursuant to the
Bank's underwriting policies, a multi-family mortgage loan may be made in an
amount up to 75% of the lower of the appraised value or sales price of the
underlying property with terms of up to 30 years. The Bank's adjustable-rate
multi-family loans are originated with rates that are fixed for the first five
years and adjust every five years thereafter based upon the 5 year U.S. Treasury
bill plus a margin of 1.75% to 3.0%. The Bank offers multi-family loans with
terms of up to 10 years. The Bank's current policies limit the amount of multi-
family loans the Bank may have to 25% of the aggregate loan portfolio. The
Bank's current policies limit such loans to $10 million per project and an
aggregate of $30 million in loans outstanding per borrower, although the Bank
will make exceptions to this policy provided full board approval for the loan is
obtained. In addition, the Bank generally requires a debt service coverage ratio
of a minimum of 120% and the personal guarantee of the borrower during the
construction stage. The Bank also requires an appraisal on the property
conducted by an independent appraiser and title insurance. Additionally, the
Bank requires a market occupancy rate of at least 90% prior to lending for
multi-unit apartment buildings. At May 31, 1996, the Bank's largest multi-family
loan was a $6.25 million loan secured by a 112 unit apartment building located
in Holbrook, New York.
When evaluating the qualifications of the borrower for a multi-family loan,
the Bank considers the financial resources and income level of the borrower, the
borrower's experience in owning or managing similar property and the Bank's
lending experience with the borrower. The Bank's underwriting
71
<PAGE>
policies require that the borrower be able to demonstrate management skills and
the ability to maintain the property from current rental income. The Bank's
policy requires borrowers to present evidence of the ability to repay the
mortgage and a history of making mortgage payments on a timely basis. In making
its assessment of the creditworthiness of the borrower, the Bank generally
reviews the financial statements and credit history of the borrower, as well as
other related documentation.
Loans secured by apartment buildings and other multi-family residential
properties generally involve larger principal amounts and a greater degree of
risk than one- to four-family residential mortgage loans. Because payments on
loans secured by multi-family properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks through its underwriting
policies, which require, among other things, such loans to be qualified at
origination on the basis of the property's income and debt coverage ratio. As
part of its operating strategy, the Bank intends to increase its multi-family
lending in its primary market area depending on market demand for such loans.
Commercial Real Estate Lending. The Bank originates commercial real estate
loans that are generally secured by properties used for business purposes or a
combination of residential and retail purposes which are located in the Bank's
primary market area. The Bank's underwriting procedures provide that commercial
real estate loans generally may be made in amounts up to 75% of the lower of the
appraised value or sales value of the property, subject to the Bank's current
loans-to-one-borrower limit, which at May 31, 1996, was $30 million; however,
the Bank's policies limit such loans to $10 million per project and an aggregate
of $30 million in loans outstanding per borrower. These loans may be made with
terms up to 20 years and are generally offered at interest rates which adjust in
accordance with the CMT Index. The Bank's underwriting standards and procedures
are similar to those applicable to its multi-family loans, whereby the Bank
considers the net operating income of the property and the borrower's expertise,
credit history and profitability. The Bank has generally required that the
properties securing commercial real estate loans have debt service coverage
ratios of at least 125%. At May 31, 1996, the Bank's commercial real estate
loan portfolio totalled approximately $153.6 million or 35.1% of total loans.
The largest commercial real estate loan in the Bank's portfolio at May 31, 1996,
was an $8.3 million loan secured by a shopping center located in Holbrook, New
York.
Loans secured by commercial real estate properties, like multi-family
loans, generally involve larger principal amounts and a greater degree of risk
than one- to four-family residential mortgage loans. Because payments on loans
secured by commercial real estate properties are often dependent on successful
operation or management of the properties, repayment of such loans may be
subject to adverse conditions in the real estate market or the economy. The
Bank seeks to minimize these risks through its underwriting standards, which
require such loans to be qualified on the basis of the property's income and
debt service coverage ratio. As part of the operating strategy, the Bank
intends to continue to emphasize its commercial real estate lending activities
in its primary market area depending on the demand for such loans and commercial
real estate market conditions.
Construction and Development Lending. The Bank originates loans for the
development of commercial and residential property located in its primary market
area. The Bank will originate loans for the acquisition of commercial and
residential property located in its primary market area only if such acquisition
loan is part of an overall development loan. Construction and development loans
are offered primarily to experienced local developers operating in the Bank's
primary market area. The majority of the Bank's construction loans are
originated primarily to finance the construction of one- to four-family, owner-
occupied residential, multi-family and commercial real estate properties located
in the Bank's primary market area. Such loans are offered for the construction
of properties that are pre-sold or for
72
<PAGE>
which permanent financing has been secured. At May 31, 1996, the Bank had $70.8
million of construction loans committed to the construction of one- to four-
family properties. Construction loans are generally offered with terms up to
three years for residential property and up to two years for multi-family and
commercial property. Construction loans may be made in amounts up to 90% of the
estimated cost of construction. With respect to construction loans, the Bank's
policy is to require borrowers to secure permanent financing commitments from
generally recognized lenders for an amount equal to or greater than the amount
of the loan. In some cases, the Bank may itself provide permanent financing.
Loan proceeds are disbursed on a monthly basis in increments as construction
progresses and as inspections by the Bank's supervising engineer warrant. The
Bank does not originate loans secured by undeveloped land. The largest
construction loan in the Bank's portfolio at May 31, 1996 was an unfunded loan
commitment for $14.8 million for the construction of 55 single family residences
in Dix Hills, New York.
Construction and development financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Bank may be confronted with a project, when completed, having a value which
is insufficient to assure full repayment.
Home Equity and Second Mortgage Lending. The Bank offers fixed-rate,
fixed-term home equity loans and adjustable-rate home equity lines of credit in
its primary market area. Fixed-rate, fixed-term home equity loans are offered
in amounts up to 80% of the appraised value of the property (including the first
mortgage) with a maximum loan amount of $50,000. Fixed-rate, fixed-term home
equity loans are offered with terms up to ten years and home equity lines of
credit are offered for terms up to thirty years, with interest-only payments
during the first ten years and repayment of principal and interest during the
final twenty years. Adjustable-rate home equity lines of credit are offered in
amounts up to 75% of the appraised value of the property (including the first
mortgage) with a maximum line amount of $100,000.
Consumer, Student and Other Lending. The Bank's portfolio of consumer,
student and other loans primarily consists of home modernization loans secured
by the improvement itself, loans secured by deposit accounts and student loans.
As of May 31, 1996, consumer and student loans amounted to $2.4 million, or
0.56% of the Bank's total loan portfolio, of which $955,000 were student loans.
The Bank has begun to phase out its direct student loan originations, except for
its direct lending program with SLMA. This phase-out was made necessary by the
initiation of the federal government's direct student loan origination program.
During the year ended December 31, 1995, the Bank sold approximately $21.5
million of its student loan portfolio, recording an aggregate gain of $496,000.
The Bank also has phased out its home improvement loans by expanding its home
equity loan program.
Loan Approval Procedures and Authority. The Board of Trustees establishes
the lending policies and loan approval limits of the Bank. The Board of
Trustees has established an Executive Committee, comprised of rotating members
of the Board of Trustees, to review and approve loans in amounts greater than
management has the authority to approve. The Board of Trustees has authorized
the following persons to approve loans up to the amounts indicated: commercial
real estate loans of up to $200,000 can be approved by the President or Senior
Lending Officer plus one additional officer in the Lending Division; all
commercial real estate loans, multi-family loans, construct loans and loan
participations in excess of $200,000 require the approval of the Executive
Committee of the Board of Trustees; when these loans exceed $1.0 million, they
require the approval of the Executive Committee and the Board of Trustees. Home
equity loans and lines of credit are approved by two officers within the lending
department, with one of those officers being a senior officer of the Bank. All
residential loans of up to
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<PAGE>
$300,000 are approved within RFI by the underwriter; loans in excess of this
amount require the countersignature of a senior officer of RFI.
With respect to all loans originated by RFI on behalf of the Bank, upon
receipt of a completed loan application from a prospective borrower, a credit
report is ordered and certain other information is verified by an independent
credit agency. If necessary, additional financial information may be required.
An appraisal of real estate intended to secure a proposed loan generally is
required to be performed by appraisers approved by the Bank. For proposed
mortgage loans, the Board annually approves independent appraisers used by the
Bank and approves the Bank's appraisal policy. The Bank's policy is to obtain
title and hazard insurance on all mortgage loans and the Bank may require
borrowers to make payments to a mortgage escrow account for the payment of
property taxes. Any exceptions to the Bank's underwriting policies must be
noted on an underwriting standards checklist and approved by the Executive
Committee for loans of up to $1 million and by the Board of Trustees for loans
of $1 million or more. The Bank subjects all loan commitments for non-
residential mortgage loans to an environmental site assessment.
DELINQUENT LOANS, REAL ESTATE OWNED AND CLASSIFIED ASSETS
Management and the Board of Trustees perform a monthly review of all
delinquent loans. The procedures taken by the Bank with respect to
delinquencies vary depending on the nature of the loan and period of
delinquency. The Bank generally requires that delinquent mortgage loans be
reviewed and that a delinquency notice be mailed no later than the 16th day of
delinquency and a late charge is assessed after 15 days. RFI's subservicer,
Essex, follows similar delinquency procedures. The Bank's policies provide that
telephone contact will be attempted to ascertain the reasons for delinquency and
the prospects of repayment. When contact is made with the borrower at any time
prior to foreclosure, the Bank will attempt to obtain full payment or work out a
repayment schedule with the borrower to avoid foreclosure. It is the Bank's
general policy to discontinue accruing interest on all loans which are past due
90 days or when in the opinion of management such suspension is warranted.
Property acquired by the Bank as a result of foreclosure on a mortgage loan is
classified as "real estate owned" and is recorded at the lower of the unpaid
principal balance or fair value less costs to sell at the date of acquisition
and thereafter. Upon foreclosure, it is the Bank's policy to generally require
an appraisal of the property and, thereafter, appraisal of the property on an
as-needed basis.
At May 31, 1996, the Bank's real estate owned, net, consisting of
foreclosed assets totalled $5.4 million and was held directly by the Bank and by
its subsidiaries which were formed for the purpose of holding and maintaining
certain real estate owned. See "- Subsidiary Activities." At such date, real
estate owned, net, was comprised of six (6) one- to four-family properties with
an aggregate carrying value of $597,000, and nine (9) commercial real estate
properties with an aggregate carrying value of $4.8 million. Bank personnel or
an independent inspector generally conducts periodic external inspections on all
properties securing loans in foreclosure and generally conducts external
appraisals on all properties prior to taking ownership of the property. Based
upon such inspections and appraisals, the Bank will charge off any loan
principal it deems appropriate at such time. Bank personnel conduct monthly
reviews of its foreclosed real estate and periodically adjust its valuation
allowance for possible declines in the value of real estate owned. The Bank's
allowance for possible losses on real estate owned at May 31, 1996 totalled $1.1
million, or 17.2% of the aggregate gross value of real estate owned. The Bank
is currently offering for sale all real estate owned as a result of foreclosure
through brokers and through its own personnel.
The Bank's policies permit the financing of the sale of its foreclosed real
estate on substantially the same terms applicable to its other real estate
mortgage loans with the exception that the Bank may loan up to 80% of the lesser
of the appraised value or sales price of the foreclosed property.
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<PAGE>
Federal regulations and the Bank's Classification of Assets Policy require
that the Bank utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Bank currently classifies
problem and potential problem assets 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 include those characterized by the distinct
possibility that the insured institution will sustain "some Loss" if the
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 currently 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 currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for possible loan losses in an amount deemed prudent by
management unless the loss of principal appears to be remote. General valuation
allowances represent loss allowances which have been established to recognize
the inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
insured institution classifies one or more assets, or portions thereof, as Loss,
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the assets so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
FDIC and NYBD, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management has
established acceptable allowance evaluation processes that meet the objectives
set forth in the policy statement. While the Bank believes that it has
established an adequate allowance for possible loan losses, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to materially increase at that time its allowance for possible
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.
The Bank's senior management reviews and classifies the Bank's loans on a
monthly basis and reports the results of its review to the Board of Trustees. At
May 31, 1996, the Bank had $14.7 million of assets designated as Substandard,
consisting of 47 commercial real estate, one- to four-family and construction
loans, $600,000 of assets classified as Doubtful, consisting of one commercial
real estate loan, and no assets classified as Loss, respectively. At May 31,
1996, the Bank had $20.1 million of assets designated as Special Mention,
consisting of 43 commercial real estate, one- to four-family and construction
loans which were designated Special Mention due to past loan delinquencies.
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<PAGE>
The following table sets forth delinquencies in the Bank's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, 1996 AT DECEMBER 31, 1995
------------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- -------------------------- ---------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- --------- --------- --------------- --------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ $ 1 40 22 $ 1,912 4 $ 297 23 $ 1,915
Multi-family............... - - - - - - - -
Commercial real estate..... 1 45 11 6,446 - - 15 6,536
Construction and - - 2 752 - - 1 150
development...............
Home equity and second 2 79 - - - - 1 123
mortgage..................
Consumer loans(1).......... 1 13 4 27 - - - -
Student loans.............. - - - - - - 11 42
-- ------ --- ------- --- ------ --- -------
Total...................... 5 $ 177 39 $ 9,137 4 $ 297 51 $ 8,766
== ====== === ======= === ====== === =======
Delinquent loans to total
loans(2).................. 0.04% 2.17% 0.08% 2.26%
====== ======= ====== =======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1994 AT DECEMBER 31, 1993
------------------------------------------------- ---------------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- -------------------------- ---------------------- ---------------------------
PRINCIPAL PRINCIPAL PRINCIPAL PRINCIPAL
NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE NUMBER BALANCE
OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS OF LOANS
----------- --------- --------- --------------- --------- ----------- --------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family........ 6 $ 173 20 $ 2,750 30 $1,401 57 $ 6,539
Multi-family............... - - - - - - 6 3,933
Commercial real estate..... 1 787 21 13,541 4 2,782 27 14,816
Construction and 1 388 3 2,900 1 970 3 3,226
development...............
Home equity and second - - 1 60 2 222 1 227
mortgage..................
Consumer loans(1).......... - - - - 2 26 2 14
Student loans.............. 86 330 128 605 81 309 59 222
-- ------ --- ------- --- ------ --- -------
Total...................... 94 $1,678 173 $19,856 120 $5,710 155 $28,977
== ====== === ======= === ====== === =======
Delinquent loans to total
loans(2).................. 0.46% 5.41% 1.97% 10.02%
====== ======= ====== =======
</TABLE>
_______________________
(1) Consumer loans consist of modernization loans and passbook loans.
(2) Total loans includes loans receivable held-for-investment, less deferred
loan fees, deferred mortgage interest and unamortized discounts, net.
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Non-Accrual and Past-Due Loans. The following table sets forth information
regarding non-accrual loans and REO.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT MAY 31, ---------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------- -------- ----------- -------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family............. $ 2,936 $ 2,965 $ 4,708 $ 6,041 $ 5,130 $ 7,440
Multi-family.................... - - 263 1,037 925 -
Commercial real estate.......... 8,144 8,650 16,519 17,350 14,221 7,887
Construction and 752 150 2,900 3,226 5,475 10,149
development................... ------- ------- ------- ------- ------- -------
Total non-accrual loans........ 11,832 11,765 24,390 27,654 25,751 25,476
Loans contractually past due 90 113 408 665 3,689 3,346 6,429
days or more, other than non- ------- ------- ------- ------- ------- -------
accruing.......................
Total non-performing loans..... 11,945 12,173 25,055 31,343 29,097 31,905
Real estate owned, net(1)........ 5,366 6,047 3,359 2,613 2,911 519
------- ------- ------- ------- ------- -------
Total non-performing $17,311 $18,220 $28,414 $33,956 $32,008 $32,424
assets......................... ======= ======= ======= ======= ======= =======
Allowance for possible
loan losses as a percent
of loans(2).................... 5.29% 6.01% 6.84% 8.47% 7.02% 4.94%
Allowance for possible
loan losses as a percent
of total non-performing
loans(3)....................... 186.79% 191.82% 100.28% 78.17% 79.69% 61.74%
Non-performing loans
as a percent of loans(2)(3).... 2.83% 3.13% 6.82% 10.84% 8.80% 8.00%
Non-performing assets
as a percent of total
assets(3)...................... 0.98% 1.14% 1.98% 2.53% 2.45% 2.83%
</TABLE>
________________________________
(1) Real estate owned balances are shown net of related loss allowances.
(2) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(3) Non-performing assets consist of non-performing loans and REO. Non-
performing loans consist of non-accruing loans and all loans 90 days or more
past due and other loans which have been identified by the Bank as
presenting uncertainty with respect to the collectibility of interest or
principal.
77
<PAGE>
Non-accrual loans totalled $11.8 million as of May 31, 1996, and included
35 one- to four-family loans, with an aggregate balance of $2.9 million and 20
commercial real estate loans and construction and development loans with an
aggregate balance of $8.9 million. Non-accrual loans do not include student
loans delinquent 90 days or more as the Bank does not classify such loans as
non-accrual because delinquent principal and interest on guaranteed student
loans is guaranteed by the U.S. government.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
The allowance for possible loan losses is maintained through provisions for
possible loan losses based on management's on-going evaluation of the risks
inherent in its loan portfolio in consideration of the trends in its loan
portfolio, the national and regional economies and the real estate market in the
Bank's primary lending area. The allowance for possible loan losses is
maintained at an amount management considers adequate to cover estimated losses
in its loan portfolio which are deemed probable and estimable based on
information currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property, and
costs and expenses associated with maintaining and holding the property until
sale and the costs associated with the Bank's inability to utilize funds for
other income producing activities during the estimated holding period of the
property.
As of May 31, 1996, the Bank's allowance for possible loan losses was $22.3
million, or 5.3%, of total loans and 186.8% of non-performing loans as compared
to $23.4 million, or 6.0% of total loans and 191.8% of non-performing loans as
of December 31, 1995. The Bank had total non-performing loans of $11.9 million
and $12.2 million at May 31, 1996 and December 31, 1995, respectively, and non-
performing loans to total loans of 2.8% and 3.1%, respectively. The Bank will
continue to monitor and modify its allowance for possible loan losses as
conditions dictate. While management believes that, based on information
currently available, the Bank's allowance for possible loan losses is sufficient
to cover losses inherent in its loan portfolio at this time, no assurances can
be given that the Bank's level of allowance for possible loan losses will be
sufficient to cover future possible loan losses incurred by the Bank or that
future adjustments to the allowance for possible loan losses will not be
necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance for possible loan losses. Management may in the future
increase its level of loan loss allowance as a percentage of total loans and
non-performing loans in the event it increases the level of multi-family,
commercial real estate, construction and development or other lending as a
percentage of its total loan portfolio. In addition, the FDIC and NYBD as an
integral part of their examination process periodically reviews the Bank's
allowance for possible loan losses. Such agencies may require the Bank to make
additional provisions for estimated possible loan losses based upon judgments
different from those of management.
78
<PAGE>
The following table sets forth activity in the Bank's allowance for
possible loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
AT OR FOR THE
FIVE MONTHS
ENDED MAY 31, AT OR FOR THE YEAR ENDED DECEMBER 31,
-------------- --------------------------------------------------
1996 1995 1994 1993 1992 1991
-------------- ------ ------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........ $23,350 $25,127 $24,502 $23,187 $19,698 $ 9,098
Provision for possible loan losses.... 300 600 600 6,860 9,300 18,600
Charge-offs:
Real estate loans:
One- to four-family............... 16 14 - 304 162 -
Multi-family...................... - - - - - -
Commercial real estate............ 828 2,385 59 3,977 520 -
Construction and development...... 495 111 112 1,264 5,129 8,000
Consumer and student loans.......... 1 - - - - -
------- ------- ------- ------- ------- -------
Total charge-offs............... 1,340 2,510 171 5,545 5,811 8,000
Recoveries:
Real estate loans:
One- to four-family............... 2 40 107 - - -
Multi-family...................... - - - - - -
Commercial real estate............ - 92 89 - - -
Construction and development...... - 1 - - - -
Consumer and student loans.......... - - - - - -
------- ------- ------- ------- ------- -------
Total recoveries................ 2 133 196 - - -
Net charge-offs (recoveries).......... 1,338 2,377 (25) 5,545 5,811 8,000
------- ------- ------- ------- ------- -------
Balance at end of period.............. $22,312 $23,350 $25,127 $24,502 $23,187 $19,698
======= ======= ======= ======= ======= =======
</TABLE>
79
<PAGE>
The following tables set forth the Bank's percent of allowance for possible
loan losses to total allowance and the percent of loans to total loans in each
of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
AT MAY 31, 1996
----------------------------------------------------------
PERCENT OF PERCENT OF
ALLOWANCE LOANS IN
TO TOTAL EACH CATEGORY
AMOUNT ALLOWANCE TO TOTAL LOANS
------------------ --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
One- to four-family................................ $2,278 10.21% 48.63%
Multi-family....................................... 2,820 12.64 7.60
Commercial real estate............................. 7,321 32.81 35.05
Construction and development....................... 4,276 19.16 7.09
Home equity and second mortgage loans.............. 40 0.18 1.07
Consumer and student............................... 33 0.15 0.56
Unallocated........................................ 5,544 24.85 -
------- ------ ------
Total allowance for possible loan losses........ $22,312 100.00% 100.00%
======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
-------------------------------------------------------------------------
1995 1994
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
PERCENT OF EACH PERCENT OF EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TOTAL TO TO TOTAL TOTAL TO
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family..................... $ 2,176 9.32% 48.41% $ 2,677 10.65% 41.52%
Multi-family...................... 3,036 13.00 8.92 2,824 11.24 5.05
Commercial real
estate............................ 7,185 30.77 30.65 7,523 29.94 30.98
Construction and
development....................... 3,872 16.58 10.21 4,426 17.61 15.22
Home equity/second
mortgages......................... 35 0.15 0.90 31 0.13 1.18
Consumer and student.............. 34 0.15 0.91 35 0.14 6.05
Unallocated....................... 7,012 30.03 - 7,611 30.29 -
------- ------ ------ ------- ------ ------
Total allowance for
possible loan losses............. $23,350 100.00% 100.00% $25,127 100.00% 100.00%
======= ====== ====== ======= ====== ======
<CAPTION>
-------------------------------------------------------------------------
1993 1992
---------------------------------- ----------------------------------
PERCENT OF PERCENT OF
LOANS IN LOANS IN
PERCENT OF EACH PERCENT OF EACH
ALLOWANCE CATEGORY ALLOWANCE CATEGORY
TO TOTAL TOTAL TO TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
One- to
four-family..................... $ 2,801 11.43% 45.16% $ 3,121 13.46% 48.92%
Multi-family...................... 2,938 11.99 7.28 3,172 13.68 7.29
Commercial real
estate............................ 9,525 38.87 34.24 10,014 43.19 30.53
Construction and
development....................... 2,533 10.34 4.37 2,333 10.06 5.15
Home equity/second
mortgages......................... 32 0.13 1.77 31 0.13 1.39
Consumer and student.............. 38 0.16 7.18 43 0.18 6.72
Unallocated....................... 6,635 27.08 - 4,473 19.30 -
------- ------ ------ ------- ------ ------
Total allowance for
possible loan losses............. $24,502 100.00% 100.00% $23,187 100.00% 100.00%
======= ====== ====== ====== ====== ======
<CAPTION>
----------------------------------
1991
----------------------------------
PERCENT OF
LOANS IN
PERCENT OF EACH
ALLOWANCE CATEGORY
TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS
-------- --------- ----------
<S> <C> <C> <C>
One- to
four-family..................... $ 3,289 16.70% 55.87%
Multi-family...................... 2,097 10.64 6.42
Commercial real
estate............................ 7,821 39.70 24.83
Construction and
development....................... 4,102 20.83 5.87
Home equity/second
mortgages......................... 39 0.20 1.28
Consumer and student.............. 46 0.23 5.73
Unallocated....................... 2,304 11.70 -
------- ------ ------
Total allowance for
possible loan losses............. $19,698 100.00% 100.00%
======= ====== ======
</TABLE>
80
<PAGE>
ENVIRONMENTAL ISSUES
The Bank encounters certain environmental risks in its lending activities.
Under federal and state environmental laws, lenders may become liable for costs
of cleaning up hazardous materials found on property securing their loans. In
addition, the existence of hazardous materials may make it unattractive for a
lender to foreclose on such properties. Although environmental risks are usually
associated with loans secured by commercial real estate, risks also may be
substantial for loans secured by residential real estate if environmental
contamination makes security property unsuitable for use. This could also have a
negative effect on nearby property values. The Bank attempts to control its risk
by requiring a phase one environmental assessment be completed as part of its
underwriting review for all non-residential mortgage applications. In addition,
the Bank's policy is to maintain ownership of specific real estate properties
acquired by the Bank as a result of foreclosure in separately incorporated
subsidiaries.
The Bank believes its procedures regarding the assessment of environmental
risk are adequate and, as of May 31, 1996, the Bank was unaware of any
environmental issues which would subject it to any material liability at this
time. However, no assurance can be given that the values of properties securing
loans in the Bank's portfolio will not be adversely affected by unforeseen
environmental risks.
SECURITIES INVESTMENT ACTIVITIES
The Board of Trustees sets the securities investment policy of the Bank.
This policy dictates that investment decisions will be made based on the safety
of the investment, liquidity requirements of the Bank and potential return on
the investments. In pursuing these objectives, the Bank considers the ability of
an investment to provide earnings consistent with factors of quality, maturity,
marketability and risk diversification. The Board of Trustees has established an
Investment Committee comprised of three Trustees and the Investment Officer to
supervise the Bank's securities investment program. The Bank's Investment
Committee meets quarterly and evaluates all investment activities for safety and
soundness, evaluates investment policy and objectives for the next quarterly
period and submits a report to the Board of Trustees. The Bank's Investment
Officer is responsible for making securities investment portfolio decisions in
accordance with the Bank's policies. While the Investment Officer has the
authority to conduct trades within specific guidelines established by the Bank's
investment policy, all transactions are reviewed by the Investment Committee on
a quarterly basis and reported to the Board of Trustees on a monthly basis.
The Bank's current policies generally limit securities investments to U.S.
Government and agency securities, municipal bonds and corporate debt obligations
and corporate equities. In addition, the Bank's policies permit investments in
mortgage-backed and mortgage related securities, including securities issued and
guaranteed by FNMA, FHLMC, GNMA and privately-issued CMOs. The Bank's current
securities investment strategy is to deemphasize its investment in U.S.
government obligations, corporate debt and municipal bonds and to emphasize the
purchase of mortgage-backed and mortgage related securities and preferred stock
issued by corporate issuers in order to increase its overall investment
securities yield while remaining in short- and medium-term investments for
purposes of interest rate risk management.
At May 31, 1996, the Bank had $1.27 billion in securities, consisting
primarily of U.S. Government and agency obligations, mortgage-backed and
mortgage related securities, municipal, public utility and corporate
obligations, and preferred and common stocks. SFAS No. 115 requires the Bank to
designate its securities as held-to-maturity, available-for-sale or trading
depending on the Bank's intent regarding its investments. The Bank does not
currently maintain a trading portfolio of securities. In accordance with the
Special Report of the FASB regarding SFAS No. 115, in November 1995, the Bank
reclassified $415.3 million of debt securities and $233.4 million of mortgage-
backed and mortgage related
81
<PAGE>
securities from held-to-maturity to available-for-sale. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Comparison of Financial Condition at December 31, 1995 and December 31, 1994."
As of May 31, 1996, $951.3 million of the Bank's securities portfolio, or 53.7%
of total assets was classified as available-for-sale, with an average life of
the portfolio of 3.6 years. At such date, $314.2 million of the Bank's
securities portfolio, or 17.7% of total assets, was classified as held-to-
maturity, with a market value of $311.2 million and an average life of the
portfolio of 2.0 years. Since December 1995, the Bank designates all newly-
purchased securities as available-for-sale.
Mortgage-Backed and Mortgage Related Securities. The Bank purchases
mortgage-backed and mortgage related securities in order to: (i) generate
positive interest rate spreads with minimal administrative expense; (ii) lower
its credit risk as a result of the guarantees provided by FHLMC, FNMA, and GNMA;
(iii) utilize these securities as collateral for borrowings; and (iv) increase
the liquidity of the Bank. The Bank has primarily invested in mortgage-backed
and mortgage related securities issued or sponsored by FNMA, FHLMC and GNMA and
private issuers. The Bank also invests in CMOs issued or sponsored by FNMA and
FHLMC as well as private issuers. At May 31, 1996, mortgage-backed and mortgage
related securities totalled $831.6 million, or 46.9% of total assets and 49.0%
of total interest earning assets of which $519.4 million was classified as
available-for-sale and $312.2 million was classified as held-to-maturity. At May
31, 1996, 14.3% of the mortgage-backed and mortgage related securities were
adjustable-rate and 85.7% were fixed-rate. The mortgage-backed and mortgage
related securities portfolio had coupon rates ranging from 5.0% to 13.5% and had
a weighted average yield of 6.77% at May 31, 1996. The estimated fair value of
the Bank's mortgage-backed securities available-for-sale at May 31, 1996, was
$519.4 million, which is $7.7 million less than the amortized cost of $527.1
million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) pool and resell the participation interests in the form of securities
to investors such as the Bank and guarantee the payment of principal and
interest to investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, mortgage-backed securities are usually
more liquid than individual mortgage loans and may be used to collateralize
certain liabilities and obligations of the Bank. Investments in mortgage-backed
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby reducing the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in the
event such securities are redeemed by the issuer. In addition, the market value
of such securities may be adversely affected by changes in interest rates. The
Bank estimates prepayments for its mortgage-backed securities at purchase to
ensure that prepayment assumptions are reasonable considering the underlying
collateral for the mortgage-backed securities at issue and current mortgage
interest rates and to determine the yield and estimated maturity of its
mortgage-backed security portfolio. Of the Bank's $831.6 mortgaged-backed
securities portfolio at May 31, 1996, $67.3 million with a weighted average
yield of 5.68% had contractual maturities within five years and $764.3 million
with a weighted average yield of 6.86% had contractual maturities over five
years. However, the actual maturity of a mortgage-backed security may be less
than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
82
<PAGE>
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances, the Bank may be subject to reinvestment risk because,
to the extent that the Bank's mortgage-backed securities prepay faster than
anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
At May 31, 1996, the Bank's CMO portfolio totalled $541.5 million, or
30.6%, of total assets and 31.9% of total interest earning assets, consisting of
$377.2 million of CMOs issued by private issuers such as GE Capital Mortgage
Services, Inc., Prudential Home Mortgage Securities, Inc., Residential Funding
Mortgage Securities, Inc. and Citicorp Mortgage Securities, Inc., and $164.3
million issued by government sponsored agencies such as FNMA and FHLMC. It is
the policy of the Bank to limit its privately issued CMOs to non-high risk
securities rated "AAA" by two rating agencies with an average life of seven
years or less. The Bank also limits the amount of such investments to $25
million per transaction, 10% of the issuer's outstanding CMOs and 35% of the
Bank's assets. For government sponsored CMOs, the Bank's policy limits such
investments to non-high risk securities that have an average life of ten years
or less. The Bank also limits the amount of such investments to $50 million per
transaction. The Bank monitors the credit rating of its CMOs on a regular basis.
The current securities investment policy of the Bank prohibits the purchase of
higher risk CMOs, which are defined as those securities exhibiting significantly
greater volatility of estimated average life and price relative to interest
rates than do standard 30-year fixed rate securities. At May 31, 1996, $229.2
million of the Bank's CMO portfolio was classified as available-for-sale and
$312.2 million was classified as held-to-maturity with a market value of $309.1
million. At such date, the Bank's CMO portfolio had an average estimated life of
2.5 years and an average weighted yield of 6.69%.
CMOs are a type of debt security issued by a special purpose entity that
aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules as well as a residual interest with each class possessing different
risk characteristics. The cash flows from the underlying collateral is generally
divided into "tranches" or classes whereby tranches have descending priorities
with respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage-backed securities as opposed to pass through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. In contrast to mortgage-backed securities from which cash flow
is received (and hence, prepayment risk is shared) pro rata by all securities
holders, the cash flow from the mortgages or mortgage-backed securities
underlying CMOs is paid in accordance with a predetermined priority to investors
holding various tranches of such securities or obligations. A particular tranche
of CMOs may therefore carry prepayment risk that differs from that of both the
underlying collateral and other tranches. Accordingly, CMOs attempt to moderate
reinvestment risk associated with conventional mortgage-backed securities
resulting from unexpected prepayment activity. Investments in CMOs involve a
risk that actual prepayments will be greater than estimated prepayments over the
life of the security, which may require adjustments to the amortization of any
premium thereby reducing the net yield on such securities. Additionally, the
market value of such securities may be adversely affected by changes in the
market interest rates. Management believes these securities may represent
attractive alternatives relative to other investments due to the wide variety of
maturity, repayment and interest rate options available.
Debt Securities. The Bank's investment in debt securities generally
consists of investments in U.S. Treasury securities and debt securities issued
by government sponsored agencies such as FNMA, GNMA and FHLMC. To a lesser
extent, the Bank invests in debt securities and commercial paper issued by
industrial and financial companies and obligations of municipalities and public
utilities.
U.S. Government and Agency Obligations. At May 31, 1996, the Bank's U.S.
Government securities portfolio totalled $188.8 million, all of which were
classified as available-for-sale. Such
83
<PAGE>
portfolio primarily consists of short- to medium-term (maturities of one to five
years) securities. The Bank's current investment practice, however, is to
deemphasize its investments in such instruments. At May 31, 1996, the Bank's
agency securities portfolio totalled $86.9 million, all of which was classified
as available-for-sale and consisted of agency structured notes and callable
debentures. The agency structured notes generally provide for predetermined
interest rate adjustments ("step-ups") primarily consisting of annual interest
rate increases of 25 to 255 basis points. While such step-up structured notes
generally do not involve credit risk, such securities involves interest rate
risk in the event market interest rates increase at a rate faster than the
structured rate adjustment, which, in turn, may adversely affect the market
value of such investment. The Bank's callable agency debentures generally are
callable on either a quarterly or semi-annual basis following a holding period
of three to six months. The current policy of the Bank limits the purchase of
agency debt obligations to a maturity of thirty years or less and limits such
purchases to $50 million per transaction, although purchases of structured notes
are limited to $20 million per transaction and 10% of the Bank's assets.
Corporate Bonds. The Bank's corporate bond portfolio, which at May 31,
1996, totalled $17.4 million, all of which is classified as available-for-sale,
was composed primarily of short- and medium-term, floating-rate investment grade
issues of General Motors Corporation, U.S. West, Citicorp, Massachusetts
Electric Co. and Phillip Morris, Inc. as well as $2.8 million in public utility
bonds. At May 31, 1996, the portfolio had an average life of approximately 2
years and an average coupon rate of 7.7%. The Bank's policy limits investments
in corporate bonds with maturities of ten years or less to bonds rated "A" or
better by at least one nationally recognized rating agency and to a total
investment of 25% of the Bank's assets, with a 1% limitation of a single issuer.
The Bank's policy limits investments in corporate bonds with maturities between
ten years and thirty years to bonds rated "A" or better by at least one
nationally recognized rating agency and a total investment of no more than 33%
of the Bank's current total corporate investments. Consistent with the Bank's
current securities investment strategy, the Bank intends to deemphasize
investments in corporate debt obligations.
Municipal Bonds. The Bank's municipal bond portfolio, which at May 31,
1996 totalled $1.9 million, had an estimated fair value of $2.1 million. All of
such securities were classified as held-to-maturity and were comprised of
general obligation bonds (i.e., obligations backed by the general credit of the
issuer). All of the Bank's municipal bonds are currently rated "AAA." At May 31,
1996, the Bank's municipal bond portfolio was comprised of 12 bonds, the average
principal amount of which was $1.9 million. At such date the average life of the
portfolio was approximately 3.3 years and the portfolio had an average coupon
rate of 7.4%. Interest earned on municipal bonds is exempt from federal, state
and local income taxes. The Bank's current policy is to deemphasize its
investment in municipal bonds.
Equity Securities. At May 31, 1996, the Bank's equity securities portfolio
totalled $138.8 million all of which were classified as available-for-sale. Such
portfolio consisted of $133.2 million of preferred stock issued by corporate
issuers such as Ford Motor Co., McDonald's and other nationally recognized
companies and $5.0 million of common stock issued by FHLMC. The substantial
majority of the Bank's preferred stock portfolio is redeemable by the issuers
pursuant to the terms of the preferred stock, generally after a three to five
year holding period. As of May 31, 1996, the Bank had $68.4 million of preferred
stock eligible for redemption on or before December 31, 1997. The Bank benefits
from its investment in common and preferred stocks due to a tax deduction the
Bank receives with regard to dividends paid by corporate issuers on equity
securities held by other corporate entities such as the Bank. Accordingly, on an
after tax basis, the yield on the Bank's preferred stock portfolio was 9.89%. At
May 31, 1996, the Bank also had a $600,000 investment in Institutional Investors
Mutual Fund, a common stock mutual fund. The Bank's policy limit for its common
and preferred stock investments is 7.50% of its total assets and allows only for
the purchase of common stock with a 1% limitation on the purchase of any single
issuer and a total investment of 5% of the Bank's total assets. The Bank's
current policies
84
<PAGE>
permit the purchase of preferred stock rated "Baa" or better, with a 1%
limitation on the purchase of preferred stock of any single issuer. See
"Regulation and Supervision-FDIC Regulations."
85
<PAGE>
The following table sets forth the composition of the Bank's debt and
equity and mortgage-backed and mortgage related securities portfolios in dollar
amounts and in percentages at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
------------------------- ------------------------------------------------------
1996 1995 1994
------------------------- ------------------------- -------------------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ------------ ---------- ------------ ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
U.S. Government obligations........... $ 188,847 14.92% $ 204,626 17.92% $ 333,234 32.73%
Agency securities..................... 86,856 6.86 34,744 3.04 34,996 3.44
Municipal bonds....................... 1,930 .15 1,930 .17 2,715 .27
Corporate obligations................. 14,678 1.16 18,384 1.61 75,680 7.43
Other debt obligations(1)............. 2,770 .22 2,799 .25 19,579 1.92
---------- ------ ---------- ------ ---------- ------
Total debt securities.............. 295,081 23.31 262,483 22.99 466,204 45.79
---------- ------ ---------- ------ ---------- ------
Equity securities:
Preferred stock....................... 133,212 10.53 113,768 9.96 86,305 8.48
Common stock.......................... 5,569 .44 5,010 .44 3,482 .34
---------- ------ ---------- ------ ---------- ------
Total equity securities............ 138,781 10.97 118,778 10.40 89,787 8.82
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage related
securities:
FHLMC................................. 141,861 11.21 116,267 10.18 86,044 8.45
GNMA.................................. 141,385 11.17 113,616 9.95 36,185 3.56
FNMA.................................. 6,925 .55 27,299 2.39 45,580 4.48
CMOs.................................. 541,461 42.79 503,516 44.09 294,243 28.90
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage
related securities................. 831,632 65.72 760,698 66.61 462,052 45.39
---------- ------ ---------- ------ ---------- ------
Total securities................ 1,265,494 100.00% 1,141,959 100.00% 1,018,043 100.00%
========== ====== ========== ====== ========== ======
Debt and equity securities
available-for-sale................. 431,932 34.13 379,331 33.22 89,787 8.82
Debt and equity securities
held-to-maturity................... 1,930 .15 1,930 .17 466,204 45.79
---------- ------ ---------- ------ ---------- ------
Total debt and equity
securities........................ 433,862 34.28 381,261 33.39 555,991 54.61
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage related
securities available-for-sale...... 519,399 41.05% 413,485 36.20% 50,711 4.98%
Mortgage-backed and mortgage related
securities held-to-maturity........ 312,233 24.67 347,213 30.41 411,341 40.41
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage
related securities................. 831,632 65.72 760,698 66.61 462,052 45.39
---------- ------ ---------- ------ ---------- ------
Total securities................... $1,265,494 100.00% $1,141,959 100.00% $1,018,043 100.00%
========== ====== ========== ====== ========== ======
- ------------------
<CAPTION>
-----------------------
1993
-----------------------
PERCENT
AMOUNT OF TOTAL
---------- ------------
<S> <C> <C>
Debt securities:
U.S. Government obligations........... $ 375,357 37.67%
Agency securities..................... 39,995 4.01
Municipal bonds....................... 3,235 .33
Corporate obligations................. 78,075 7.83
Other debt obligations(1)............. 34,140 3.43
--------- ------
Total debt securities.............. 530,802 53.27
---------
Equity securities:
Preferred stock....................... 65,581 6.58
Common stock.......................... 717 .07
--------- ------
Total equity securities............ 66,298 6.65
--------- ------
Mortgage-backed and mortgage related
securities:
FHLMC................................. 86,013 8.63
GNMA.................................. 41,588 4.17
FNMA.................................. - -
CMOs.................................. 271,816 27.28
--------- ------
Total mortgage-backed and mortgage
related securities................. 399,417 40.08
--------- ------
Total securities................. 996,517 100.00%
========= ======
Debt and equity securities
available-for-sale................. -
Debt and equity securities
held-to-maturity................... 597,100 59.92
--------- ------
Total debt and equity
securities........................ 597,100 59.92
--------- ------
Mortgage-backed and mortgage related
securities available-for-sale...... - -
Mortgage-backed and mortgage related
securities held-to-maturity........ 399,417 40.08
--------- ------
Total mortgage-backed and mortgage
related securities................. 399,417 40.08
--------- ------
Total securities................... $996,517 100.00%
======== ======
</TABLE>
_____________
(1) Includes public utility, Canadian and industrial bonds.
86
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE FIVE MONTHS FOR THE YEAR
ENDED MAY 31, ENDED DECEMBER 31,
----------------------- ----------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BEGINNING BALANCE................................. $1,141,959 $1,018,043 $1,018,043 $ 996,517 $ 921,042
---------- ---------- ---------- ---------- ---------
Debt securities purchased - held -
to - maturity................................... - 88,018 176,308 24,807 174,422
Debt securities purchased - available - for-
sale............................................. 92,384 - 2,002 - -
Equity securities purchased - held-to-maturity.... - - - - 38,878
Equity securities purchased - available-for-sale.. 34,849 10,745 32,957 37,470 -
Mortgage-backed and mortgage related
securities purchased - held-to-maturity........ - 60,878 240,702 109,433 246,373
Mortgage-backed and mortgage related
securities purchased - available-for-sale......... 178,190 37,625 190,564 54,000 -
LESS:
Sale of debt securities - available-for-sale...... - - 112,077 - -
Sale of debt securities - held-to-maturity........ - 19,970 60,022 46,062 75,012
Sale of equity securities - available-for-sale.... 12,180 687 11,077 5,164 -
Sale of equity securities - held-to-maturity...... - - - - 10,693
Sale of mortgage-backed and mortgage 19,657 8,880 48,463 - -
related securities available-for-sale..........
Principal repayments on mortgage-backed 75,905 23,138 91,987 100,381 223,002
and mortgage related securities..................
Maturities of debt securities..................... 52,393 34,913 218,757 44,542 78,058
Realized gains (losses) received on sales
of mortgage-backed and mortgage related
securities....................................... 28 85 904 - -
Realized and unrealized gains (losses)
on debt and equity
securities........................................ (285) (843) (1,715) (1,181) 3,123
Accretion of discount/Amortization of
(premium)........................................ 439 (632) (962) (2,076) (556)
Change in net unrealized gains (losses)
on available-for-sale securities................. (21,935) 10,717 25,539 (4,778) -
---------- ---------- ---------- ---------- --------
ENDING BALANCE.................................... $1,265,494 $1,137,048 $1,141,959 $1,018,043 $996,517
========== ========== ========== ========== ========
</TABLE>
87
<PAGE>
The following table sets forth certain information regarding the amortized
cost and market values of the Bank's debt and equity and mortgage-backed and
mortgage related securities, at the dates indicated:
<TABLE>
<CAPTION>
AT MAY 31, AT DECEMBER 31,
----------------------------------------------------------------------
1996 1995 1994 1993
---------------------- ---------------------- -------------------------- -----------
AMORTIZED MARKET AMORTIZED MARKET AMORTIZED MARKET AMORTIZED
COST VALUE COST VALUE COST VALUE COST
--------- --------- ---------- ---------- ----------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Debt securities
held-to-maturity:
U.S. Government
obligations............ $ - $ - $ - $ - $ 333,234 $ 326,163 $ 375,357
Agency securities....... - - - - 34,996 33,539 39,995
Municipal bonds......... 1,930 2,086 1,930 2,151 2,715 2,867 3,235
Corporate obligations... - - - - 75,680 73,343 78,075
Other debt
obligations(2)......... - - - - 19,579 18,786 34,140
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt securities
held-to-maturity.......... 1,930 2,086 1,930 2,151 466,204 454,698 530,802
---------- ---------- ---------- ---------- ---------- -------- --------
Debt securities
available-for-sale:
U.S. Government
obligations............ 185,658 188,847 195,701 204,626 - - -
Agency securities....... 88,556 86,856 34,764 34,744 - - -
Corporate obligations... 14,409 14,678 17,838 18,384 - - -
Other debt
obligations(3)......... 2,745 2,770 2,742 2,799 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt securities
available-for-sale..... 291,368 293,151 251,045 260,553 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Equity securities
held-to-maturity:
Preferred stock......... - - - - - - 65,581
Common stock............ 717
---------- ---------- ---------- ---------- ---------- -------- --------
Total equity
securities held-to-
maturity............. - - - - - - 66,298
---------- ---------- ---------- ---------- ---------- -------- --------
Equity securities
available-for-sale:
Preferred stock......... 133,188 133,212 111,896 113,766 92,634 86,305 -
Common stock............ 860 5,569 259 5,012 717 3,482 -
---------- ---------- ---------- ---------- ---------- -------- --------
Total equity securities
available-for-sale......... 134,048 138,781 112,155 118,778 93,351 89,787 -
---------- ---------- ---------- ---------- ---------- -------- --------
Total debt and equity
securities................ 427,346 434,018 365,130 381,482 559,555 544,485 597,100
---------- ---------- ---------- ---------- ---------- -------- --------
Mortgage-backed and mort-
gage related securities:
Held-to-maturity:
FHLMC............... - - - - 57,288 52,167 86,013
GNMA................ - - - - 28,319 29,043 41,588
FNMA................ - - - - 31,491 28,598 -
CMOs................ 312,233 309,068 347,213 348,799 294,243 284,662 271,816
---------- ---------- ---------- ---------- ---------- -------- --------
Total mortgage-backed and
mortgage related securi-
ties held-to-maturity..... 312,233 309,068 347,213 348,799 411,341 394,470 399,417
---------- ---------- ---------- ---------- ---------- -------- ---------
Available-for-sale:
FHLMC............... 146,761 141,861 116,100 116,267 29,351 28,756 -
GNMA................ 139,451 141,385 109,966 113,616 8,103 7,866 -
FNMA................ 7,197 6,925 27,689 27,299 14,471 14,089 -
CMOs................ 233,679 229,228 155,100 156,303 - - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total mortgage-backed and
mortgage related securi-
ties available-for-sale.. 527,088 519,399 408,855 413,485 51,925 50,711 -
---------- --------- ---------- --------- --------- -------- --------
Total mortgage-backed and
mortgage related
securities............... 839,321 828,467 756,068 762,284 463,266 445,181 399,417
---------- ---------- ---------- ---------- ---------- -------- --------
Net unrealized (losses) gains
on available-for-sale
securities.............. (1,173) - 20,761 - (4,778) - -
---------- ---------- ---------- ---------- ---------- -------- --------
Total securities........... $1,265,494 $1,262,485 $1,141,959 $1,143,766 $1,018,043 $989,666 $996,517
========== ========== ========== ========== ========== ======== ========
<CAPTION>
1993(1)
-----------
MARKET
VALUE
-----------
<S> <C>
Debt securities
held-to-maturity:
U.S. Government
obligations........ $ 394,872
Agency securities....... 40,480
Municipal bonds......... 3,586
Corporate obligations... 80,015
Other debt
obligations(2)......... 34,977
Total debt securities ----------
held-to-maturity....... 553,930
Debt securities ----------
available-for-sale:
U.S. Government
obligations............ -
Agency securities....... -
Corporate obligations... -
Other debt
obligations(3)......... -
----------
Total debt securities
available-for-sale..... -
----------
Equity securities
held-to-maturity:
Preferred stock......... 67,513
Common stock............ 3,550
----------
Total equity
securities held-to-
maturity............. 71,063
----------
Equity securities
available-for-sale:
Preferred stock......... -
Common stock............ -
----------
Total equity securities
available-for-sale......... -
----------
Total debt and equity
securities................ 624,993
----------
Mortgage-backed and
mortgage related
securities:
Held-to-maturity:
FHLMC............... 86,323
GNMA................ 44,881
FNMA................ -
CMOs................ 274,734
----------
Total mortgage-backed and
mortgage related
securities
held-to-maturity.......... 405,938
----------
Available-for-sale:
FHLMC............... -
GNMA................ -
FNMA................ -
CMOs................ -
----------
Total mortgage-backed
and mortgage
related
securities
available-for-sale.
Total mortgage-backed and
mortgage
related securities....... 405,938
----------
Net unrealized (losses)
gains
on available-for-sale
securities.............. -
----------
Total securities........... $1,030,931
==========
</TABLE>
_______________________________
(1) The Bank adopted the provisions set forth in SFAS No. 115 on January 1,
1994, which requires entities to carry securities that are available-for-
sale at their market value.
(2) At May 31, 1996 and December 31, 1995, these securities include public
utilities. At December 1994, these securities consist of public utility
bonds and Canadian bonds and at December 1993, these securities include
public utility bonds, Canadian bonds and industrial bonds.
88
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of May 31, 1996.
<TABLE>
<CAPTION>
AT MAY 31, 1996
---------------------------------------------------------------------------------------------------------
MORE THAN ONE MORE THAN FIVE
ONE YEAR OR LESS YEAR TO FIVE YEARS YEARS TO TEN YEARS MORE THAN TEN YEARS
---------------------- ------------------------ ------------------------ ----------------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD
----------- --------- ---------- ----------- ---------- ----------- ----------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Municipal bonds........... $ - -% $ 1,860 7.39% $ 70 7.71% $ - -%
Mortgage-backed and
mortgage
related.................. - - 9,515 5.72 28,432 6.36 274,286 6.86
------- -------- -------- --------
Total held-to-maturity... - - 11,375 5.99 28,502 6.37 274,286 6.86
------- -------- -------- --------
Available-for-sale:
Mortgage-backed and
mortgage related
securities:
FHLMC.................... - - 46,519 5.68 - - 95,342 7.12
GNMA..................... - - 948 5.64 3,316 8.76 137,120 7.18
FNMA..................... - - 6,925 5.68 - - - -
CMOs..................... - - 3,455 5.61 36,920 6.38 188,853 6.63
------- -------- -------- --------
Total mortgage-backed
and mortgage related
securities............. - - 57,847 5.67 40,236 6.58 421,315 6.92
------- -------- -------- --------
Debt Securities:
U.S. Government
obligations............. 30,200 6.79 142,869 7.14 15,778 7.46 - -
Agency securities.......... - - 23,700 6.26 63,156 6.61 - -
Corporate obligations...... 1,005 7.65 12,423 8.02 1,250 6.50 - -
Other debt obligations(1).. 2,770 8.39 - - - - - -
------- -------- -------- --------
Total debt securities..... 33,975 6.94 178,992 7.09 80,184 6.78 - -
------- -------- --------
Equity Securities:
Preferred stock............ - - - - - - - -
Common stock............... - - - - - - - -
------- -------- -------- --------
Total equity securities... - - - - - - - -
------- -------- -------- --------
Total available-for-sale 33,975 6.94% 236,839 6.74% 120,420 6.71% 421,315 6.92%
------- -------- -------- --------
Total securities........... $33,975 $248,214 $148,922 $695,601
======= ======== ======== ========
<CAPTION>
AT MAY 31,1996
-----------------------------
TOTAL
-----------------------------
WEIGHTED
CARRYING AVERAGE
VALUE YIELD
----------- ----------
Held-to-maturity: <C> <C>
Municipal bonds........... $ 1,930 7.40%
Mortgage-backed and ---------- 6.78
mortgage
related.................. 312,233
----------
Total held-to-maturity... 314,163 6.78
----------
Available-for-sale:
Mortgage-backed and
mortgage related
securities:
FHLMC.................... 141,861 6.65
GNMA..................... 141,385 7.23
FNMA..................... 6,925 5.68
CMOs....................... 229,228 6.57
----------
Total mortgage-backed
and mortgage related
securities............. 519,399 6.76
----------
Debt Securities:
U.S. Government
obligations............. 188,847 7.11
Agency securities.......... 86,856 6.52
Corporate obligations...... 14,678 7.87
Other debt obligations(1).. 2,770 8.39
----------
Total debt securities...... 293,151 6.98
Equity Securities: ----------
Preferred stock............ 133,212 7.20
Common stock............... 5,569 29.04
----------
Total equity securities.... 138,781 8.08
----------
Total available-for-sale 951,331 7.02%
----------
Total securities........... $1,265,494
==========
</TABLE>
- ---------------------
(1) Other debt obligations consist of public utility bonds.
89
<PAGE>
SOURCES OF FUNDS
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, and proceeds from maturing
securities and cash flows from operations are the primary sources of the Bank's
funds for use in lending, investing and for other general purposes. To a lesser
extent, the Bank utilizes borrowed funds, primarily reverse-repurchase
agreements to fund its operations.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, NOW
accounts, checking accounts, money market accounts, school savings and club
accounts and certificates of deposit accounts. The Bank offers certificate of
deposit accounts with balances in excess of $100,000 at preferential rates
(jumbo certificates) and also offers Individual Retirement Accounts ("IRAs") and
other qualified plan accounts. To enhance the deposit products it offers and
increase its market share, in 1995, the Bank added commercial checking accounts
for small- to moderately-sized commercial businesses, a payroll accounts service
with direct deposit features, as well as a low-cost checking account service for
low-income customers.
At May 31, 1996, the Bank's deposits totalled $1.44 billion or 97.2% of
interest-bearing liabilities. For the five months ended May 31, 1996, the
average balance of core deposits (savings, NOW, money market and non-interest-
bearing checking accounts) totalled $580 million, or 41.8% of total average
deposits. At May 31, 1996, the Bank had a total of $871.9 million in
certificates of deposit, of which $688.2 million had maturities of one year or
less reflecting the shift in deposit accounts from savings accounts to shorter-
term certificate accounts that has occurred in recent years. For the year ended
December 31, 1993, the average balance of core deposits represented
approximately 65.1% of total deposits and certificate accounts represented
34.9%, as compared to core deposits representing 41.8% of total deposits and
certificate accounts representing 58.2% of deposits for the five months ended
May 31, 1996. See "Risk Factors - Sensitivity to Increases in Interest Rates."
Although the Bank has a significant portion of its deposits in shorter term
certificates of deposit, management monitors activity on the Bank's certificate
of deposit accounts and, based on historical experience and the Bank's current
pricing strategy, believes it will retain a large portion of such accounts upon
maturity.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Bank's deposits are obtained predominantly from the areas in
which its branch offices are located. The Bank relies primarily on competitive
pricing of its deposit products and customer service and long-standing
relationships with customers to attract and retain these deposits; however,
market interest rates and rates offered by competing financial institutions
significantly affect the Bank's ability to attract and retain deposits. In
addition, the Bank has historically paid a special interest payment on savings
and NOW accounts, ranging from 10% to 25% of interest paid on the savings
accounts during the year. For the year ended December 31, 1995, the Bank paid a
special interest payment of 25% of interest paid on savings and NOW accounts,
which totalled $3.0 million. While it is the present intention of the Bank to
pay a special interest payment on savings and NOW accounts for the year ended
December 31, 1996, the Bank has made no decision as to the amount of such
special interest payment or whether such special payments will continue after
1996. The Bank uses traditional means of advertising its deposit products,
including radio and print media and generally does not solicit deposits from
outside its market area. While certificate accounts in excess of $100,000 are
accepted by the Bank, and may be subject to preferential rates, the Bank does
not actively solicit such deposits as such deposits are more difficult to retain
than core deposits. Although the Bank has historically not used brokers to
obtain deposits, the Bank has authorized the utilization of brokers to obtain
deposits to fund its activities and has recently entered into a relationship
with a nationally recognized retail brokerage firm to accept deposits sold by
such brokerage firm. The Bank intends to use such brokered deposits to fund
investments in securities with durations which match the maturities of such
brokered
90
<PAGE>
deposits. The Bank's policies limit the amount of brokered deposits which the
Bank may have at any time to 10% of total retail deposits. At May 31, 1996, the
Bank had no brokered deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
FOR THE FIVE
MONTHS
ENDED MAY 31, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net deposits (withdrawals)............. $ 84,030 $23,901 $ 58,840 $37,903 $(32,610)
Interest credited on deposit accounts.. 22,265 18,414 57,192 40,050 39,632
-------- ------- -------- ------- --------
Total increase in deposit accounts..... $106,295 $42,315 $116,032 $77,953 $ 7,022
======== ======= ======== ======= ========
</TABLE>
At May 31, 1996, the Bank had outstanding $140.7 million in certificate of
deposit accounts in amounts of $100,000 or more, maturing as follows:
<TABLE>
<CAPTION>
WEIGHTED
MATURITY PERIOD AMOUNT AVERAGE RATE
------------------------------ --------- --------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Three months or less........... $ 53,426 5.39%
Over three through six months.. 27,764 5.34
Over six through 12 months..... 33,846 5.59
Over 12 months................. 25,631 6.40
--------
Total.......................... $140,667 5.61%
========
</TABLE>
91
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods
presented utilize average daily balances.
<TABLE>
<CAPTION>
For the Five Months
Ended May 31, For the Year Ended December 31,
----------------------------------- ----------------------------------
1996 1995
----------------------------------- ----------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
----------- ----------- --------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market accounts......... $ 64,051 4.62% 2.88% $ 69,237 5.41% 2.90%
Savings accounts(1)........... 445,015 32.09 3.21 473,682 36.99 3.21
NOW accounts(2)............... 35,163 2.54 2.55 33,135 2.59 2.53
Non-interest-bearing
accounts..................... 35,908 2.59 - 26,901 2.10 -
---------- ------ ---------- ------
Total......................... 580,137 41.84 2.96 602,955 47.09 2.99
---------- ------ ---------- ------
Certificates of deposit:
Less than six months.......... 153,775 11.09 5.10 119,414 9.33 5.28
Over six through 12 months.... 292,008 21.05 5.52 238,283 18.60 5.76
Over 12 through 24 months..... 82,252 5.93 5.73 74,302 5.80 5.62
Over 24 months................ 149,357 10.77 6.45 147,580 11.53 6.51
Certificates over $100,000.... 129,192 9.32 5.66 97,931 7.65 5.90
---------- ------ ---------- ------
Total certificates of
deposit................... 806,584 58.16 5.66 677,510 52.91 5.84
---------- ------ ---------- ------
Total average deposits... $1,386,721 100.00% 4.53 $1,280,465 100.00% 4.50
========== ====== ========== ======
<CAPTION>
For the Year Ended December 31,
---------------------------------------------------------------------------
1994 1993
------------------------------------- -----------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
----------- ------------------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Money market accounts......... $ 83,482 7.12% 2.43% $ 91,606 8.08% 2.45%
Savings accounts(1)........... 605,797 51.65 2.93 597,191 52.67 3.26
NOW accounts(2)............... 33,248 2.83 2.47 30,012 2.65 2.85
Non-interest-bearing 20,357 1.74 - 18,948 1.67 -
accounts..................... ---------- ------ ---------- ------
Total......................... 742,884 63.34 2.77 737,757 65.07 3.06
---------- ------ ---------- ------
Certificates of deposit:
Less than six months.......... 98,683 8.41 3.29 119,432 10.53 3.04
Over six through 12 months.... 102,913 8.77 3.61 99,757 8.80 3.54
Over 12 through 24 months..... 48,424 4.13 4.48 37,153 3.28 4.26
Over 24 months................ 121,376 10.35 6.52 88,214 7.78 6.88
Certificates over $100,000.... 58,626 5.00 4.45 51,484 4.54 3.95
---------- ------ ---------- ------
Total certificates of
deposit..................... 430,022 36.66 4.57 396,040 34.93 4.25
---------- ------ ---------- ------
Total average deposits...... $1,172,906 100.00% 3.43 $1,133,797 100.00% 3.48
========== ====== ========== ======
</TABLE>
___________________
(1) Reflects special interest payment made by the Bank on such accounts which
for the five month period ended May 31, 1996 and years ended December 31,
1995, 1994 and 1993, which resulted in an increased cost of such accounts
of 63 basis points, 61 basis points, 46 basis points and 52 basis points,
respectively.
(2) Reflects special interest payment made by the Bank on such accounts which
for the five month period ended May 31, 1996 and years ended December 31,
1995, 1994 and 1993, which resulted in an increased cost of such accounts
of 50 basis points, 49 basis points, 39 basis points and 44 basis points,
respectively.
92
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM MAY 31, 1996 AT DECEMBER 31,
--------------------------------------------------------------- ---------------------------
LESS
THAN ONE TO TWO TO
ONE TWO THREE THREE TO FOUR TO FIVE YEARS AT
YEAR YEARS YEARS FOUR YEARS FIVE YEARS OR MORE MAY 31, 1996 1995 1994 1993
------- ------- ------- ---------- ----------- ---------- ------------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 4.00%................ $ 475 $ - $ 56 $ 2 $ - $ 39 $ 572 $ 3,720 $108,015 $253,446
4.01 to 5.00%............. 65,792 1,108 1,133 - - - 68,033 18,094 131,208 37,947
5.01 to 6.00%............. 563,758 54,971 23,332 728 7,466 1,696 651,951 464,858 142,642 31,834
6.01 to 7.00%............. 47,439 3,804 2,104 47,633 12,474 8,485 121,939 225,343 97,811 26,028
7.01 to 8.00%............. 4,116 8 28 3,552 678 1,642 10,024 12,762 13,621 14,765
8.01 to 9.00%............. 2,309 1,634 825 4,867 5,319 39 14,993 14,704 14,500 15,521
Over 9.01%................ 4,355 - - 6 3 - 4,364 10,294 9,640 8,951
-------- ------- ------- ------- ------- ------- -------- -------- -------- --------
Total................... $688,244 $61,525 $27,478 $56,788 $25,940 $11,901 $871,876 $749,775 $517,437 $388,492
======== ======= ======= ======= ======= ======= ======== ======== ======== ========
</TABLE>
93
<PAGE>
Borrowed Funds. At May 31, 1996, the Bank had $69.6 million of borrowed
funds which primarily consisted of outstanding reverse-repurchase agreements
entered into with nationally recognized securities brokerage firms. Reverse-
repurchase agreements are contracts for the sale of securities owned or borrowed
by the Bank with an agreement to repurchase those securities at an agreed upon
price and date. Historically, the Bank has entered into reverse-repurchase
agreements as a method of providing the Bank with cost effective funding in
periods where its needs for funds exceeded the amount of funds provided by its
deposit gathering activities. Currently, the Bank utilizes such reverse-
repurchase agreements in periods when the Bank can generate securities
investments with yields in excess of its cost of such borrowing. The Bank's
policies limit the Bank's use of reverse-repurchase agreements to maturities of
overnight to five years, with collateral consisting of U.S. Treasury
obligations, U.S. agency obligations or GNMAs. Securities brokers utilized by
the Bank in these agreements must have a minimum of $100 million of "net" excess
capital with a Public Securities Association Master repurchase agreement on
file. There were no reverse-repurchase agreements outstanding as of December 31,
1995, although the Bank averaged approximately $22.3 million pursuant to such
agreements during the year ended December 31, 1995. At May 31, 1996, $2.5
million of RFI's mortgage loans were pledged to secure notes payable to FNMA
under a warehouse line of credit known as the FNMA "As Soon As Pooled Plus
Program." These notes are repaid as the related mortgage loans are sold or
collected.
The following table sets forth certain information regarding borrowed funds
for the dates indicated:
<TABLE>
<CAPTION>
For the Five Months For the Year Ended December 31,
Ended May 31,
--------------------- -------------------------------
1996 1995 1995 1994 1993
---------- -------- ------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
FNMA warehouse line of credit:
Average Balance Outstanding............... $ 3,532 $ - $ 2,053 $ - $ -
Maximum amount outstanding at any month
end during the period................... 2,455 - 5,734 - -
Balance outstanding at end of period...... 2,455 - 1,647 - -
Weighted average interest rate during
the period.............................. 5.71% - 6.04% - -
Weighted average interest rate at end of
period.................................. 6.43% - 6.84% - -
Reverse repurchase agreements:
Average Balance Outstanding............... $37,509 $26,276 $22,292 - $ 5,527
Maximum amount outstanding at any month
end during the period................... 68,392 40,700 40,850 - 40,030
Balance outstanding at end of period...... 67,143 40,700 - - -
Weighted average interest rate during
the period.............................. 5.41% 6.39% 6.42% - 3.29%
Weighted average interest rate at end of
period................................. 5.36% 6.37% - - -
Total borrowed funds:
Average Balance Outstanding............... $41,041 $26,276 $24,345 $ - $ 5,527
Maximum amount outstanding at
any month end during the period........ 70,847 40,700 46,584 - 40,030
Balance outstanding at end
of period............................... 69,598 40,700 1,647 - -
Weighted average interest rate
during the period...................... 5.44% 6.39% 6.38% - 3.29%
Weighted average interest rate at
end of period.......................... 5.44% 6.37% 6.84% - -
</TABLE>
94
<PAGE>
SAVINGS BANK LIFE INSURANCE
The Bank, through its Savings Bank Life Insurance ("SBLI") department,
engages in group life insurance coverage per individual under SBLI's Financial
Institution Group Life Insurance policy. The SBLI Department's activities are
segregated from the Bank and, while they do not directly affect the Bank's
earnings, management believes that offering SBLI is beneficial to the Bank's
relationship with its depositors and the general public. The SBLI Department
pays its own expenses and reimburses the Bank for expenses incurred on its
behalf.
SUBSIDIARY ACTIVITIES
Residential First, Inc. RFI is the Bank's wholly owned mortgage banking
subsidiary which was established in August 1995 for the origination, sale and
servicing of one- to four-family loans. RFI was formed in connection with the
Bank's acquisition of certain assets and liabilities of Residential Mortgage
Banking, Inc., a mortgage banking entity operating in the New York and New
Jersey counties in and surrounding the New York City metropolitan area and
Albany, New York. The consideration paid for the assets and liabilities of
RMBI, including a $623.0 million loan servicing portfolio, exceeded the
estimated fair market value of the net assets acquired by approximately $3.5
million, which was recorded by RFI as goodwill and is being amortized on a
straight line basis over a ten year period. RFI is operated under the direction
of its executive officers who are the co-founders of RMBI and who are overseen
by RFI's Board of Directors which consists of certain members of the Board of
Trustees of the Bank and the President and Executive Vice President of RFI. In
addition to being authorized to operate as a mortgage banking company in New
York and New Jersey, RFI is authorized to conduct mortgage banking activities in
Connecticut. For a discussion of RFI's activities, see "Business of the Bank -
Lending Activities - Loan Sale, Servicing and Mortgage Banking Activities."
RSB Agency, Inc. RSB Agency, Inc., a wholly-owned subsidiary of the Bank
incorporated in 1983, previously engaged in the sale of life insurance. RSB
Agency, Inc. is currently inactive except for its collection of commissions for
previously-issued life insurance policies.
Other Subsidiaries. The Bank has five other wholly-owned subsidiaries.
Blizzard Realty Corp., 1400 Corp. and BSR 1400 Corp. are periodically used to
hold real estate owned. Residential Mortgage Banking, Inc. was established to
preserve the name thereof for future use. Old Northern Co. Ltd. currently is an
inactive subsidiary.
COMPETITION
The Bank faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a high density of
financial institutions, many of which are branches of significantly larger
institutions 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 savings banks, commercial banks, savings and
loan associations, mortgage banking companies, credit unions and insurance
companies and other financial service companies. Its most direct competition
for deposits has historically come from savings and loan associations, savings
banks, commercial banks and credit unions. The Bank faces additional
competition for deposits from non-depository competitors such as the mutual fund
industry, securities and brokerage firms and insurance companies. Competition
may also increase as a result of the lifting of restrictions on the interstate
operations of financial institutions.
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<PAGE>
PROPERTIES
The Bank currently conducts its business through six full service banking
offices. In addition, RFI conducts its business through the Bank's banking
offices as well as six mortgage origination offices. The following table sets
forth the Bank's and RFI's offices as of May 31, 1996 and does not include the
two branch office facilities which the Bank plans to acquire subsequent to such
date, which are expected to open in November 1996.
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION MAY 31, 1996
- ---------------------------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE: (In thousands)
Roslyn Office: Owned 1932 Not Applicable $4,368
1400 Old Northern Blvd.
Roslyn, NY 11576
BRANCH OFFICES:
West Hempstead Office: Owned 1965 Not Applicable $934
50 Hempstead Turnpike
West Hempstead, NY 11552
Farmingdale Office: Owned 1968 Not Applicable $704
14 Conklin Street
Farmingdale, NY 11567
Bellmore Office: Owned 1972 Not Applicable $748
2641 Merrick Road
Bellmore, NY 11710
Woodbury Office(1): Leased 1976 2009 $790
8081 Jericho Turnpike
Woodbury, NY 11797
East Northport Office: Owned 1992 Not Applicable $1,881
580 Larkfield Road
East Northport, NY 11731
ADMINISTRATIVE OFFICE:
Port Washington Office: Owned 1996 Not Applicable $1,612
Two Seaview Blvd.
Port Washington, NY 11050
RFI MORTGAGE ORIGINATION OFFICES:
Hauppauge Office: Leased 1986 1996 -
350 Motor Parkway
Hauppauge, NY 11788
East Meadow Office: Leased 1992 month to -
325 Merrick Avenue month
East Meadow, NY 11554
Albany Office: Leased 1992 1996 -
427 New Karner Road
Albany, NY 12205
Bayside Office: Leased 1993 1998 -
218-15 Northern Blvd.
Bayside, NY 11361
</TABLE>
96
<PAGE>
<TABLE>
<CAPTION>
ORIGINAL NET BOOK VALUE
YEAR OF PROPERTY OR
LEASED LEASED DATE OF LEASEHOLD
OR OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION MAY 31, 1996
- ---------------------------------- ----------- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Shrewsbury Office: Leased 1993 1998 -
1 Revmont Dr. No., Rt. 35
Shrewsbury, NJ 07702
Parsippany Office: Leased 1995 1996 -
140 Littleton Road
Parsippany, NJ 07054
</TABLE>
______________________________
(1) The Bank owns the building but leases the majority portion of the land.
The Bank has the option to renew the lease upon expiration for two (2)
additional consecutive terms of thirty-three (33) years each.
LEGAL PROCEEDINGS
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Bank.
PERSONNEL
As of May 31, 1996, the Bank and RFI had 303 full-time employees and 77
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good. See "Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Holding Company and the Bank will report their income on a
consolidated basis, using a calendar year and 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 treatment
of its reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Holding Company. The
Bank had been audited by the IRS for the year ended December 31, 1991 resulting
in no change to taxable income. The Bank was also audited by the State of New
York for the three-year period ended December 31, 1993, resulting in adjustments
which were immaterial to the Bank's financial statements. RFI has not been
audited by the IRS, the State of New York or New York City to date.
Bad Debt Reserves.
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<PAGE>
The Small Business Job Protection Act of 1996 (the "1996 Act"), which was
enacted on August 20, 1996, made significant changes to provisions of the
Internal Revenue Code of 1986 (the "Code") relating to a savings institution's
use of bad debt reserves for federal income tax purposes and requires such
institutions to recapture (i.e. take into income) certain portions of their
accumulated bad debt reserves. The effect of the 1996 Act on the Bank is
discussed below. Prior to the enactment of the 1996 Act, the Bank was permitted
to establish tax reserves for bad debts and to make annual additions thereto,
which additions, within specified formula limits, were deducted in arriving at
the Bank's taxable income. The Bank's deduction with respect to "qualifying
loans," which are generally loans secured by certain interests in real property,
could be computed using an amount based on a six-year moving average of the
Bank's actual loss experience (the "Experience Method"), or a percentage equal
to 8% of the Bank's taxable income (the "PTI Method"), computed without regard
to this deduction and with additional modifications and reduced by the amount of
any permitted addition to the non-qualifying reserve. The Bank's deduction with
respect to non-qualifying loans was required to be computed under the Experience
Method. As of December 31, 1995, the overall 12% of deposits limitation has
restricted the Bank's deduction for additions to its bad debt reserves.
The 1996 Act. Under the 1996 Act, for its current and future taxable years,
the Bank is not permitted to make additions to its tax bad debt reserves. In
addition, the Bank is required to recapture (i.e. take into income) over a six
year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987. As
of December 31, 1995, the Bank's tax bad debt reserve is equal to the balance of
such reserve as of December 31, 1987. As such, the Bank will not incur an
additional tax liability.
Distributions. Under the 1996 Act, if the Bank makes "non-dividend
distributions" to the Company, such distributions will be considered to have
been made from the Bank's unrecaptured tax bad debt reserves (including the
balance of its reserves as of December 31, 1987) to the extent thereof, and an
amount based on the amount distributed (but not in excess of such reserves) will
be included in the Bank's income. Non-dividend distributions is defined as
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, if, after Conversion,
the Bank makes a non-dividend distribution to the Company, 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
Supervision" 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.
<PAGE>
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. Only 90% of AMTI can
be offset by net operating loss carryforwards. The adjustment to AMTI based on
book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses). In
addition, for taxable years beginning after December 31, 1986 and before January
1, 1996, an environmental tax of .12% of the excess of AMTI (with certain
modifications) over $2 million, is imposed on corporations, including the Bank,
whether or not an Alternative Minimum Tax ("AMT") is paid. Under the
President's legislative proposals, the AMT environmental tax would be extended
for tax years beginning before 2007. The Bank does not expect to be subject to
the AMT but is subject to the environmental tax liability.
Dividends Received Deduction and Other Matters. The Holding Company may
exclude from its income 100% of dividends received from the Bank as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Holding Company and the Bank will not file a
consolidated tax return, except that if the Holding Company and the Bank own
more than 20% of the stock of a corporation distributing a dividend, then 80% of
any dividends received may be excluded.
STATE AND LOCAL TAXATION
New York State and New York City Taxation. The Bank is subject to the New
York State Franchise Tax on Banking Corporations in an annual amount equal to
the greater of (i) 9% of the Bank's "entire net income" allocable to New York
State during the taxable year, or (ii) the applicable alternative minimum tax.
The alternative minimum tax is generally the greatest of (a) .01% of the value
of the taxable assets allocable to New York State with certain modifications,
(b) 3% of the Bank's "alternative entire net income" allocable to New York State
or (c) $250. Entire net income is similar to federal taxable income, subject to
certain modifications (including that net operating losses cannot be carried
back or carried forward) and alternative entire net income is equal to entire
net income without certain adjustments. While the Bank is not directly subject
to any New York City tax, RFI will be subject to a New York City tax of 9% on
income allocated to New York City. For purposes of computing its entire net
income, the Bank is permitted a deduction for an addition to the reserve for
losses on qualifying real property loans. For New York State purposes, the
applicable percentage to calculate bad debt deduction under the percentage of
taxable income method is 32%. However, the Bank cannot fully utilize this
deduction because its New York reserve for qualifying real property loans is at
the 6% of the qualifying real property loan limit. The New York State tax law
was recently amended to prevent the recapture of tax bad debt reserves that
would otherwise occur as a result of the enactment of the 1996 Act. See "Federal
Taxation - Bad Debt Reserves." However, the New York bad debt reserve is
subject to recapture for "non-dividend distributions" in a manner similar to the
recapture of the federal bad debt reserves for such distributions. See "Federal
Taxation - Distributions." Also, the New York bad debt reserve is subject to
recapture in the event that the Bank fails to satisfy certain definitional tests
relating to its assets and the nature of its business. 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.
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<PAGE>
A Temporary Metropolitan Transportation Business Tax Surcharge on banking
corporations doing business in the metropolitan district has been applied since
1982. The Bank does all of its business within this District and is subject to
this surcharge. For the tax year ended December 31, 1996, the surcharge rate is
17%. In addition, a 2.5% tax surcharge on the Bank's New York State Franchise
Tax is imposed on the Bank.
Delaware State Taxation. 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 with and pay an annual franchise tax to the
State of Delaware.
REGULATION AND SUPERVISION
GENERAL
The Bank is a New York State chartered mutual savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the Bank
Insurance Fund ("BIF"). The Bank is subject to extensive regulation by the NYBD,
as its chartering agency, and by the FDIC, as the deposit insurer. The Bank
must file reports with the NYBD and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the NYBD and the FDIC to assess the Bank's compliance with
various regulatory requirements and financial condition. This regulation and
supervision establishes a framework of activities in which a savings bank can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive 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 regulation, whether by the NYBD, the
FDIC or through legislation, could have a material adverse impact on the Holding
Company and the Bank and their operations and stockholders. The Holding Company
will also be required to file certain reports with, and otherwise comply with
the rules and regulations, of the OTS, the NYBD and of the Securities and
Exchange Commission ("SEC") under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Holding Company are
referred to below or elsewhere herein.
NEW YORK STATE LAW
The Bank derives its lending, investment and other authority primarily from
the applicable provisions of New York State Banking Law and the regulations of
the NYBD, as limited by FDIC regulations. See "- Investments and Activities."
Under these laws and regulations, savings banks, including the Bank, may invest
in real estate mortgages, consumer and commercial loans, certain types of debt
securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types of corporate
equity securities and certain other assets. Under the statutory authority for
investing in equity securities, a savings bank may directly invest up to 7.5% of
its assets in certain corporate stock and may also invest up to 7.5% of its
assets in certain mutual fund securities. Investment in the stock of a single
corporation is limited to the lesser of 2% of the outstanding stock of such
corporation or 1% of the savings bank's assets, except as set forth below. Such
equity securities must meet certain tests of financial performance. A savings
bank's lending powers are not subject to percentage of asset limitations,
although there are limits applicable to single borrowers. A savings bank may
also, pursuant to the "leeway" authority, make investments not otherwise
permitted under the New York State Banking Law. This authority permits
investments in otherwise
100
<PAGE>
impermissible investments of up to 1% of the savings bank's assets in any single
investment, subject to certain restrictions and to an aggregate limit for all
such investments of up to 5% of assets. Additionally, in lieu of investing in
such securities in accordance with and reliance upon the specific investment
authority set forth in the New York State Banking Law, savings banks are
authorized to elect to invest under a "prudent person" standard in a wider range
of debt and equity securities as compared to the types of investments
permissible under such specific investment authority. However, in the event a
savings bank elects to utilize the "prudent person" standard, it will be unable
to avail itself of the other provisions of the New York State Banking Law and
regulations which set forth specific investment authority. A New York State
chartered stock savings bank may also exercise trust powers upon approval of the
New York State Banking Board.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment power. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities which may be authorized by the
Banking Department. Investment by a savings bank in the stock, capital notes
and debentures of its service corporations is limited to 3% of the bank's
assets, and such investments, together with the bank's loans to its service
corporations, may not exceed 10% of the savings bank's assets.
The exercise by an FDIC-insured savings bank of the lending and investment
powers of a savings bank under the New York State Banking Law is limited by FDIC
regulations and other federal law and regulations. In particular, the
applicable provisions of New York State Banking law and regulations governing
the investment authority and activities of an FDIC insured state-chartered
savings bank have been effectively limited by the Federal Deposit Insurance
Corporation Improvement Act of 1991 and the FDIC regulations issued pursuant
thereto. See "- Investments and Activities."
With certain limited exceptions, a New York State chartered savings bank
may not make loans or extend credit for commercial, corporate or business
purposes (including lease financing) to a single borrower, the aggregate amount
of which would be in excess of 15% of the bank's net worth. The Bank currently
complies with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, a New York State chartered stock savings
bank may declare and pay dividends out of its net profits, unless there is an
impairment of capital, but approval of the Superintendent is required if the
total of all dividends declared in a calendar year would exceed the total of its
net profits for that year combined with its retained net profits of the
preceding two years, subject to certain adjustments.
Under the New York State Banking Law, the Superintendent may issue an order
to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the New York State
Banking Board that any director, trustee or officer of any banking organization
has violated any law, or has continued unauthorized or unsafe practices in
conducting the business of the banking organization after having been notified
by the Superintendent to discontinue such practices, such director, trustee or
officer may be removed from office by the New York State Banking Board after
notice and an opportunity to be heard. The Bank does not know of any past or
current practice, condition or violation that might lead to any proceeding by
the Superintendent or the NYBD against the Bank or any of its Trustees or
officers. The Superintendent also may take possession of a banking organization
under specified statutory criteria.
FDIC REGULATIONS
Capital Requirements. The FDIC has adopted risk-based capital guidelines
to which the Bank is subject. The guidelines establish a systematic analytical
framework that makes regulatory capital
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<PAGE>
requirements more sensitive to differences in risk profiles among banking
organizations. The Bank is required to maintain certain levels of regulatory
capital in relation to regulatory risk-weighted assets. The ratio of such
regulatory capital to regulatory risk-weighted assets is referred to as the
Bank's "risk-based capital ratio." Risk-based capital ratios are determined by
allocating assets and specified off-balance sheet items to four risk-weighted
categories ranging from 0% to 100%, with higher levels of capital being required
for the categories perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The first
tier ("Tier I") includes common equity, retained earnings, certain non-
cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
FDIC may, however, set higher leverage and risk-based capital requirements on
individual institutions when particular circumstances warrant. Savings banks
experiencing or anticipating significant growth are expected to maintain capital
ratios, including tangible capital positions, well above the minimum levels.
The following is a summary of the Bank's regulatory capital at May 31,
1996:
<TABLE>
<S> <C>
GAAP Capital to Total Assets......................... 12.54%
Total Capital to Risk-Weighted Assets................ 28.10%
Tier I Leverage Ratio................................ 12.39%
</TABLE>
In August 1995, the FDIC, along with the other federal banking agencies,
adopted a regulation providing that the agencies will take account of the
exposure of a bank's capital and economic value to changes in interest rate risk
in assessing a bank's capital adequacy. According to the agencies, applicable
considerations include the quality of the bank's interest rate risk management
process, the overall financial condition of the bank and the level of other
risks at the bank for which capital is needed. Institutions with significant
interest rate risk may be required to hold additional capital. The agencies
recently issued a joint policy statement providing guidance on interest rate
risk management, including a discussion of the critical factors affecting the
agencies' evaluation of interest rate risk in connection with capital adequacy.
The agencies have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate.
The federal banking agencies adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness (the "Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before
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<PAGE>
capital becomes impaired. The Guidelines address internal controls and
information systems; internal audit system; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; asset quality;
earnings and compensation; fees and benefits. If the appropriate federal banking
agency determines that an institution fails to meet any standard prescribed by
the Guidelines, the agency may require the institution to submit to the agency
an acceptable plan to achieve compliance with the standard, as required by the
Federal Deposit Insurance Act, as amended, ("FDI Act"). The final regulation
establishes deadlines for the submission and review of such safety and soundness
compliance plans.
Real Estate Lending Standards. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC 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 FDIC guidelines, which include loan-to-value
limitations 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 standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement powers
to prohibit a savings bank from paying dividends if, in its opinion, the payment
of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable capital requirements on a pro forma basis.
Additionally, the Bank, as a subsidiary of a savings and loan holding company,
will be required to provide the OTS with 30 days prior written notice before
declaring any dividend. The Plan of Conversion also restricts the Bank's
payment of dividends in the event the dividend would impair the liquidation
account established in connection with the Conversion. The Bank is also subject
to dividend declaration restrictions imposed by New York law. See "- New York
State Law" and "Dividend Policy."
INVESTMENTS AND ACTIVITIES
Since the enactment of the Federal Deposit Insurance Corporation
Improvement Act of 1991, all state-chartered financial institutions, including
savings banks and their subsidiaries, have generally been limited to activities
as principal and equity investments of the type and in the amount authorized for
national banks, notwithstanding state law. FDICIA and the FDIC regulations
thereunder permit certain exceptions to these limitations. For example, certain
state chartered banks, such as the Bank, may, with FDIC approval, continue to
exercise state authority to invest in common or preferred stocks listed on a
national securities exchange or the National Market System of NASDAQ and in the
shares of an investment company registered under the Investment Company Act of
1940, as amended. Such banks may also continue to sell savings bank life
insurance. In addition, the FDIC is authorized to permit such institutions to
engage in state authorized activities or investments that do not meet this
standard (other than non-subsidiary equity investments) for institutions that
meet all applicable capital requirements if it is determined that such
activities or investments do not pose a significant risk to the BIF. All non-
subsidiary equity investments, unless otherwise authorized or approved by the
FDIC, must be divested by December 19, 1996, pursuant to a FDIC-approved
divestiture plan unless such investments were grandfathered by the FDIC. The
Bank received grandfathering authority from the FDIC in February 1993 to invest
in listed stocks and/or registered shares subject to the maximum permissible
investment of 100% of Tier 1 capital, as specified by the FDIC's regulations, or
the maximum amount permitted by New York
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<PAGE>
State Banking Law, whichever is less. Such grandfathering authority is subject
to termination upon the FDIC's determination that such investments pose a safety
and soundness risk to the Bank or in the event the Bank converts its charter or
undergoes a change in control. As of May 31, 1996, the Bank had $138.8 million
of securities which were subject to such grandfathering authority.
PROMPT CORRECTIVE REGULATORY ACTION
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital tiers: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective action
legislation. Among other things, the regulations define the relevant capital
measures for the five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio of 10% or greater, a
Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5% or
greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total risk-
based capital ratio of 8% or greater, a Tier I risk-based capital ratio of 4% or
greater, and generally a leverage ratio of 4% or greater. An institution is
deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions. If
an "undercapitalized" bank fails to submit an acceptable plan, it is treated as
if it is "significantly undercapitalized." "Significantly undercapitalized"
banks are subject to one or more of a number of additional restrictions,
including but not limited to an order by the FDIC to sell sufficient voting
stock to become adequately capitalized, requirements to reduce total assets and
cease receipt of deposits from correspondent banks or dismiss directors or
officers, and restrictions on interest rates paid on deposits, compensation of
executive officers and capital distributions by the parent holding company.
"Critically undercapitalized" institutions also may not, beginning 60 days after
becoming "critically undercapitalized," make any payment of principal or
interest on certain subordinated debt or extend credit for a highly leveraged
transaction or enter into any material transaction outside the ordinary course
of business. In addition, "critically undercapitalized" institutions are
subject to appointment of a receiver or conservator. Generally, subject to a
narrow exception, the appointment of a receiver or conservator is required for a
"critically undercapitalized" institution within 270 days after it obtains such
status.
TRANSACTIONS WITH AFFILIATES
Under current federal law, transactions between depository institutions and
their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
subsidiary. In a holding company context, at a minimum, the parent holding
company of a savings bank and any companies which are controlled by such parent
holding company are affiliates of the savings bank. Generally, Section 23A
limits the extent to which the savings bank or its subsidiaries may engage
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in "covered transactions" with any one affiliate to an amount equal to 10% of
such savings bank's capital stock and surplus, and contains an aggregate limit
on all such transactions with all affiliates to an amount equal to 20% of such
capital stock and surplus. The term "covered transaction" includes the making
of loans or other extensions of credit to an affiliate; the purchase of assets
from an affiliate, the purchase of, or an investment in, the securities of an
affiliate; the acceptance of securities of an affiliate as collateral for a loan
or extension of credit to any person; or issuance of a guarantee, acceptance, or
letter of credit on behalf of an affiliate. Section 23A also establishes
specific collateral requirements for loans or extensions of credit to, or
guarantees, acceptances on letters of credit issued on behalf of an affiliate.
Section 23B requires that covered transactions and a broad list of other
specified transactions be on terms substantially the same, or no less favorable,
to the savings bank or its subsidiary as similar transactions with
nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings bank
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons.
Section 22(g) of the Federal Reserve Act places additional limitations on loans
to executive officers.
ENFORCEMENT
The FDIC has extensive enforcement authority over insured savings banks,
including the Bank. This enforcement authority includes, among other things,
the ability to assess civil money penalties, to issue cease and desist orders
and to remove directors and officers. In general, these enforcement actions may
be initiated in response to violations of laws and regulations and to unsafe or
unsound practices.
The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
capital to total assets of less than 2%. See "- Prompt Corrective Regulatory
Action." The FDIC may also appoint a conservator or receiver for a state
savings bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including: (i) insolvency, (whereby the assets of
the savings bank are less than its liabilities to depositors and others); (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that the savings bank will be unable to
meet the demands of its depositors or to pay its obligations in the normal
course of business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without federal
assistance.
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INSURANCE OF DEPOSIT ACCOUNTS
The FDIC has adopted a risk-based insurance assessment system. 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, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which 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. Assessment rates currently range from 0 basis points (subject to a
statutorily required annual payment of $2,000) to 27 basis points. The FDIC is
authorized to raise the assessment rates in certain circumstances. The FDIC has
exercised this authority several times in the past and may raise insurance
premiums in the future. If such action is taken by the FDIC, it could have an
adverse effect on the earnings of the Bank. In addition, recent legislation
requires BIF-insured institutions like the Bank to assist in the payment of
FICO bonds. See "Risk Factors - Payment of Financing Corporation Bonds."
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
Division. The management of the Bank does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
FEDERAL RESERVE SYSTEM
The Federal Reserve Board regulations require depository institutions to
maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $52.0 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $52.0
million, the reserve requirement is $1.6 million plus 10% (subject to adjustment
by the Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $52.0 million. The first $4.3 million of
otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing 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 Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. Federal Home Loan Bank ("FHLB") System members are also authorized to
borrow from the Federal Reserve "discount window," but Federal Reserve Board
regulations require institutions to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank.
COMMUNITY REINVESTMENT ACT
Federal Regulation. Under the Community Reinvestment Act, as amended,
("CRA"), as implemented by FDIC regulations, a savings bank 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
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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 FDIC,
in connection with its examination of a savings institution, to assess the
institution'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
institution. The Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA") amended the CRA to require, effective July 1, 1990, public
disclosure of an institution's CRA rating and require the FDIC to provide a
written evaluation of an institution's CRA performance utilizing a four-tiered
descriptive rating system which replaced the five-tiered numerical rating
system. The Bank's latest CRA rating, received from the FDIC was
"satisfactory."
New York State Regulation. The Bank is also subject to provisions of the
New York State Banking Law which impose continuing and affirmative obligations
upon banking institutions organized in New York State to serve the credit needs
of its local community ("NYCRA"), which are substantially similar to those
imposed by the CRA. Pursuant to the NYCRA, a bank must file an annual NYCRA
report and copies of all federal CRA reports with the Banking Department. The
NYCRA requires the NYBD to make an annual written assessment of a bank's
compliance with the NYCRA, utilizing a four-tiered rating system, and make such
assessment available to the public. The NYCRA also requires the Superintendent
to consider a bank's NYCRA rating when reviewing a bank's application to engage
in certain transactions, including mergers, asset purchases and the
establishment of branch offices or automated teller machines, and provides that
such assessment may serve as a basis for the denial of any such application.
The Bank's latest NYCRA rating, received from the NYBD was "satisfactory."
HOLDING COMPANY REGULATION
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners' Loan Act, as amended, ("HOLA"). Such election would result in
its holding company being regulated as a savings and loan holding company by the
OTS rather than as a bank holding company by the Federal Reserve Board. The Bank
has made such election and the OTS has approved the Company's application to
become a savings and loan holding company. Accordingly, the Company will be
regulated as a non-diversified unitary savings and loan holding company within
the meaning of the HOLA. As such, the Company will be required to register with
the OTS and will be subject to OTS regulations, examinations, supervision and
reporting requirements. In addition, the OTS has enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. Additionally, the
Bank will be required to notify the OTS at least 30 days before declaring any
dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage. Upon any non-supervisory acquisition by the Company of
another savings association as a separate subsidiary, the Company would become a
multiple savings and loan holding company and would be subject to extensive
limitations on the types of business activities in which it could engage. The
HOLA limits the activities of a multiple savings and loan holding company and
its non-insured institution subsidiaries primarily to activities permissible for
bank holding companies under Section 4(c)(8) of the Bank Holding Company Act, as
amended ("BHC Act"), subject to the prior approval of the OTS, and to other
activities authorized by OTS regulation. Multiple savings and loan holding
companies are prohibited from acquiring or retaining, with certain exceptions,
more than 5% of a non-subsidiary holding company, or a non-subsidiary company
engaged in activities other than those permitted by the HOLA. Recently proposed
legislation would treat all savings and loan holding companies as bank holding
companies and would limit the activities of such companies to those permissible
for bank holding companies.
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The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution or holding company thereof or
from acquiring such an institution or company by merger, consolidation or
purchase of its assets, without prior written approval of the OTS. In
evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) interstate supervisory acquisitions by savings
and loan holding companies, and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a QTL. In order to qualify
as a QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test
("QTL Test"). Under the QTL Test, a savings institution is required to maintain
at least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails the QTL test must either convert to a bank holding company and thereby
become subject to the regulation and supervision of the Federal Reserve Board or
operate under certain restrictions. As of May 31, 1996, the Bank maintained in
excess of 75.51% of its portfolio assets in qualified thrift investments. The
Bank also met the QTL test in each of the prior 12 months and, therefore, met
the QTL test. Recent legislative amendments have broadened the scope of
"qualified thrift investments" that go toward meeting the QTL test to fully
include credit card loans, educational loans and small business loans.
New York State Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in New York State may be also subject to regulation under the New York State
Banking Law. The term "bank holding company," for the purposes of the New York
State Banking Law, is defined generally to include any person, company or trust
that directly or indirectly either controls the election of a majority of the
directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions, including commercial banks and state
savings banks and savings and loan associations organized in stock form. In
general, a holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the New York State Banking Law. Under New York State Banking Law, the prior
approval of the NYBD is required before: (1) any action is taken that causes
any company to become a bank holding company; (2) any action is taken that
causes any banking institution to become or to be merged or consolidated with a
subsidiary of a bank holding company; (3) any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or substantially all of the assets of a banking institution; or (5) any
action is taken that causes any bank holding company to merge or consolidate
with another bank holding company. Additionally, certain restrictions apply to
New York State bank holding companies regarding the acquisition of banking
institutions which have been chartered five years or less and are located in
smaller communities. Officers, directors and employees of New York State bank
holding companies are subject to limitations regarding their affiliation with
securities underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries. Although the
Company will not be a bank holding company for purposes of New York State
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law upon the Effective Date of the Conversion, any future acquisition of
ownership, control, or the power to vote 10% or more of the voting stock of
another banking institution or bank holding company would cause it to become
such.
INTERSTATE BANKING AND BRANCHING
The Company, as a savings and loan holding company, will be limited under
HOLA with respect to its acquisition of a savings association located in a state
other than New York. In general, a savings and loan holding company may not
acquire an additional savings association subsidiary that is located in a state
other than the home state of its first savings association subsidiary unless
such an interstate acquisition is permitted by the statutes of such other state.
Many states permit such interstate acquisitions if the statutes of the home
state of the acquiring savings and loan holding company satisfy various
reciprocity conditions. New York is one of a number of states that permit,
subject to the reciprocity conditions of the New York Banking Law, out-of-state
bank and savings and loan holding companies to acquire New York savings
associations.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available to a
state bank such as the Bank. Out-of-state branches of savings banks are
authorized under the New York Banking Law, but similar authority does not exist
generally under the laws of most other states. The Interstate Banking Act
permits, beginning June 1, 1997, the responsible federal banking agencies to
approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permits a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permits a
state to " opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date. Accordingly, the Interstate Banking
Act will, beginning no later than June 1, 1997, permit a bank, such as the Bank,
to acquire branches in a state other than New York unless the other state has
opted out of the Interstate Banking Act. The Interstate Banking Act also
authorizes de novo branching into another state if the host state enacts a law
-- ----
expressly permitting out of state banks to establish such branches within its
borders.
The Interstate Banking Act may facilitate the further consolidation of the
banking industry. The effect of the Interstate Banking Act on the Bank, if any,
is likely to occur as banking institutions, state legislators, and bank
regulators respond to the new federal regulatory structure. The states will
have to establish appropriate corporate law, tax and regulatory structures to
adjust to the growth of new interstate banks.
FEDERAL SECURITIES LAWS
The Company has filed with the SEC a registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), for the registration
of the Common Stock to be issued pursuant to the Conversion. Upon completion of
the Conversion, the Company's Common Stock will be registered with the SEC under
the Exchange Act. The Company will then be subject to the information, proxy
solicitation, insider trading restrictions and other requirements under the
Exchange Act.
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The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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MANAGEMENT OF THE COMPANY
DIRECTORS OF THE COMPANY
The Board of Directors of the Company is divided into three classes,
each of which contains one-third of the Board. The directors shall be elected by
the stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. Calabrese, Martin and Webel, has a term of office expiring at the first
annual meeting of stockholders, a second class, consisting of Messrs. Swiggett,
Freese and Mancino, has a term expiring at the second annual meeting of
stockholders and a third class, consisting of Messrs. York, McCuaig and
Nicholson, has a term of office expiring at the third annual meeting of
stockholders. The biographical information of each Director is set forth under
"Management of the Bank - Trustees." It is currently intended that Directors of
the Company will receive no additional fees for their services as Directors of
the Company. However, subsequent to the Conversion, the Company and the Bank
intend to engage a compensation consultant to study the level and structure of
compensation paid to the Boards of Directors of the Company and the Bank as
compared to similarly situated publicly-traded financial institutions and, upon
a review of such study, may revise the amounts of fees paid to Board members and
frequency of Board or Committee meetings. See "- Compensation of Trustees" for a
discussion of fees paid to Trustees of the Bank.
EXECUTIVE OFFICERS OF THE COMPANY
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names. The biographical
information for each executive officer is set forth under "Management of the
Bank - Trustees of the Bank" and "- Executive Officers Who Are Not Trustees."
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME WITH THE COMPANY
------------------------------------- --------------------------------------------------
<S> <C>
Joseph L. Mancino Chairman of the Board, President and
Chief Executive Officer
John R. Bransfield, Jr. Vice President
Michael P. Puorro Treasurer and Chief Financial Officer
Mary M. Ehrich Secretary
</TABLE>
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
Directors or other personnel has received remuneration from the Company.
Executive officers of the Company will be compensated as described below under
"Management of the Bank."
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MANAGEMENT OF THE BANK
TRUSTEES OF THE BANK
The Directors of the Company are also Trustees of the Bank. Upon
consummation of the Conversion, the current Trustees of the Bank will become
Directors of the stock chartered Bank. The following table sets forth certain
information regarding the Board of Trustees of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD
NAME AGE(1) WITH THE BANK TERM EXPIRES
- ------------------------ ---------- ------------------- ------------------
<S> <C> <C> <C>
Joseph L. Mancino 58 Chairman of the Board,
President and Chief
Executive Officer 1998
Floyd N. York 73 Trustee 1999
Victor C. McCuaig 67 Trustee 1999
John P. Nicholson 71 Trustee 1999
James E. Swiggett 64 Trustee 1998
Robert G. Freese 66 Trustee 1998
Thomas J. Calabrese, Jr. 54 Trustee 1997
Dr. Edwin Martin, Jr. 64 Trustee 1997
Richard C. Webel 44 Trustee 1997
</TABLE>
- ------------------
(1) As of May 31, 1996.
EXECUTIVE OFFICERS OF THE BANK
The following table sets forth certain information regarding the
executive officers of the Bank.
<TABLE>
<CAPTION>
POSITION(S) HELD
WITH
NAME AGE(1) THE BANK
- --------------------------------- -------------------- ----------------------------------------------------
<S> <C> <C>
Joseph L. Mancino 58 Chairman of the Board, President and Chief
Executive Officer
John R. Bransfield, Jr. 54 Senior Vice President and Senior Lending
Officer
Mary M. Ehrich 53 Senior Vice President and Secretary
John L. Klag 38 Vice President and Investment Officer
Daniel L. Murphy 36 Senior Vice President and Retail Banking
Officer
Michael P. Puorro 37 Vice President and Chief Financial Officer
Peter J. Russo 52 President and Chief Executive Officer, RFI
Anthony F. Panza 50 Executive Vice President, RFI
</TABLE>
- ------------------
(1) As of May 31, 1996.
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The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of Directors
of the Bank held immediately after the first annual meeting of stockholders of
the Bank subsequent to Conversion, and until their successors are elected and
qualified or until death, resignation, retirement or removal by the Board of
Directors. Officers are re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
TRUSTEES OF THE BANK
Joseph L. Mancino is Chairman of the Board of Trustees, President and
Chief Executive Officer of the Bank. Mr. Mancino was elected as Chairman of the
Board in 1995, has served as President since 1991 and Chief Executive Officer
since 1992 and served in various capacities with the Bank since 1960. Mr.
Mancino also serves on the board of directors of the Institutional Investors
Mutual Fund (a diversified open end investment fund), the Community Bankers
Association of New York State and the Savings Bank Life Insurance Fund. Mr.
Mancino also serves as President of Old Northern Co. Ltd., RSB Agency, 1400
Corp., BSR 1400 Corp. and Blizzard Realty Corp., as well as Chairman of
Residential First, Inc., which are subsidiaries of the Bank.
Thomas J. Calabrese, Jr. has served as a Trustee of the Bank since
1994. Mr. Calabrese also serves as a Director of RFI, a subsidiary of the Bank.
Mr. Calabrese is currently Managing Director - Human Resources of the NYNEX
Corporation, a telecommunications firm, and has been associated with the NYNEX
Corporation since 1963.
Robert G. Freese has served as a Trustee of the Bank since 1988. Mr.
Freese also serves as a Director of BSR 1400 Corp., a subsidiary of the Bank.
Mr. Freese retired as Vice Chairman and Chief Financial Officer of Grumman
Corporation, a defense contractor, in 1991 and served with Grumman Corp. from
1956 to his retirement in 1991.
Dr. Edwin W. Martin, Jr. has served as a Trustee of the Bank since
1994. Dr. Martin also serves as a Director of Old Northern Co. Ltd., BSR 1400
Corp. and Blizzard Realty Corp., which are subsidiaries of the Bank. Dr. Martin
served as President and Chief Executive Officer of the National Center for
Disability Services, a non-profit education, rehabilitation and research
corporation from 1981 to 1994. He is presently President Emeritus and a Director
of the National Center. He is also a Director of National Captioning Institute,
a non-profit agency which promotes captioning on television for the deaf. Dr.
Martin currently serves as a Director of Interboro Mutual Indemnity Insurance
Company, an insurance company, and Pall Corp., a manufacturer of industrial
filters.
Victor C. McCuaig has served as a Trustee of the Bank since 1970. Mr.
McCuaig also serves as a Director of RFI and Blizzard Realty Corp., which are
subsidiaries of the Bank. Mr. McCuaig is currently of counsel to and was
previously a partner in the law firm of Payne, Wood & Littlejohn, which serves
as general counsel to the Bank.
John P. Nicholson has served as a Trustee of the Bank since 1975. Mr.
Nicholson also serves as a Director of Old Northern Co. Ltd., RSB Agency, Inc.
and 1400 Corp., which are subsidiaries of the Bank. Mr. Nicholson has served as
the Chairman of Nicholson & Galloway since 1991 and was the President and Chief
Executive Officer from 1960 to 1991. Nicholson & Galloway is a local
construction firm specializing in roofing construction. Mr. Nicholson also
serves as an Advisory Director of Bank of New York, Long Island Division.
James E. Swiggett has served as a Trustee of the Bank since 1980. Mr.
Swiggett also serves as a Director of RSB Agency, Inc., 1400 Corp. and RFI.,
which are subsidiaries of the Bank. Mr. Swiggett served as President and then
Chief Executive Officer and Board Chairman of Kollmorgen Corp. during the period
from 1985 to 1990 when he retired. Kollmorgen Corp. is a diversified technology
manufacturing company.
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Richard C. Webel has served as a Trustee of the Bank since 1995. Mr.
Webel also serves as a Director of Blizzard Realty Corp., a subsidiary of the
Bank. Mr. Webel has served as the managing director of Innocenti & Webel, an
architectural firm, since 1985, as well as President of the Webel Corporation, a
strategic planning company since 1984, and PlantAmerica, LLC, a software
development corporation since 1996. Mr. Webel also serves as a general partner
of Roundbush Associates, a real estate development partnership.
Floyd N. York has served as a Trustee of the Bank since 1967. He served
as President of the Bank from 1968 to 1972, as President and Chief Executive
Officer from 1972 to 1978 and as Chairman, President and Chief Executive Officer
from 1978 to 1992. Mr. York also serves as a Director of Old Northern Co. Ltd.,
RSB Agency, Inc. and 1400 Corp., which are subsidiaries of the Bank. He also
served as a member of the Board of Directors of Nationar, a defunct data and
financial services provider for the financial institutions community, for
approximately six years ending in 1993.
EXECUTIVE OFFICERS OF THE BANK WHO ARE NOT TRUSTEES
Mary M. Ehrich joined the Bank in 1960 and has served the Bank in a
variety of capacities. Since 1992, Mrs. Ehrich has served as a Senior Vice
President and Secretary. Her primary area of responsibility is as Corporate
Secretary for the Bank and each of its subsidiaries.
Michael P. Puorro joined the Bank in 1992 as Assistant Vice President
and Controller; in 1994 he was appointed Vice President and Treasurer and in
1995 he became Vice President and Chief Financial Officer. His primary area of
responsibility is accounting issues and regulatory reporting matters. Mr. Puorro
also serves as an officer of each of the Bank's subsidiaries. Prior to joining
the Bank, Mr. Puorro was a senior manager at KPMG Peat Marwick LLP and is a
certified public accountant.
John R. Bransfield, Jr. joined the Bank in 1993. He serves as a Senior
Vice President and Senior Lending Officer and operates as the chief lending
officer of the Bank overseeing all lending operations. Prior to joining the
Bank, Mr. Bransfield served as President of the Long Island Region of Fleet Bank
from 1988 to 1992 and Executive Vice President for Fleet Bank from 1992 to 1993.
John L. Klag joined the Bank in 1993 as Vice President and Investment
Officer. Mr. Klag's primary responsibilities include overseeing the Bank's
investment activities. Prior to joining the Bank, Mr. Klag was with a New
York-based savings bank from 1985 to 1993 and served as Vice President-Fixed
Income Portfolio Manager from 1988 to 1993.
Daniel L. Murphy joined the Bank in 1978 and served as Vice President
and Retail Banking Officer from 1993 to 1995 when he was elected Senior Vice
President and Retail Banking Officer. Mr. Murphy's primary responsibilities
include overseeing the Bank's retail deposit gathering and branch
administration.
Peter J. Russo is Director, President and Chief Executive Officer of
RFI. Mr. Russo is primarily responsible for RFI's residential lending and
mortgage banking operations. Prior to joining RFI, Mr. Russo was a co-founder
and President of Residential Mortgage Banking, Inc., a full-service mortgage
banking company which was incorporated in 1986 as Residential Mortgage Services,
Inc., the assets and liabilities of which were acquired by the Bank in August
1995. Mr. Russo is a Certified Mortgage Banker with 23 years of mortgage banking
experience.
Anthony F. Panza is a Director and Executive Vice President of RFI. Mr.
Panza is primarily responsible for RFI's residential lending and mortgage
banking operations. Prior to joining Mr. Panza was a co-founder and Executive
Vice President of Residential Mortgage Banking Inc. Mr. Panza has 15 years of
mortgage banking experience.
114
<PAGE>
MEETINGS AND COMMITTEES OF THE BOARDS OF THE BANK AND THE COMPANY
The Board of Trustees meets monthly and may have additional special
meetings as may be called by the Chairman or at the written request of three
trustees. During the fiscal year ended December 31, 1995, the Board held 14
meetings. No Trustee attended fewer than 75% in the aggregate of the total
number of meetings of the Board or Board Committees on which such Trustee served
for the year ended December 31, 1995. There are currently five committees of the
Board of Trustees consisting of the Investment Committee, Executive Committee,
Examining and Compliance Committee, Personnel Committee and Marketing Committee.
Subsequent to the Conversion, the Board of Trustees may consider and make
revisions to the current structure of its committees.
The Board of Trustees of the Bank has established the following
committees:
The Examining Committee consists of Messrs. Freese, Nicholson,
Swiggett, York and Webel. The Bank's Compliance Officer and Acting Auditor
reports to this committee. The purposes of this committee are to review audit
reports and management's actions regarding the implementation of audit findings
and to review compliance with all relevant laws and regulations. The committee
generally meets on a quarterly basis and met 5 times in 1995.
The Executive Committee consists of Messrs. McCuaig, Swiggett,
Calabrese, Jr., Mancino and two rotating members. The purposes of this Committee
are to approve certain loans and secondary market activities. The committee
meets on a weekly basis and met 50 times in 1995.
The Investment Committee consists of Messrs. McCuaig, York and Mancino.
This Committee is responsible for all matters regarding the Bank's investment
securities. This Committee meets on a quarterly basis and met 4 times in 1995.
The Marketing Committee consists of Messrs. Martin, Jr. and Calabrese,
Jr. This Committee is responsible for reviewing all marketing and promotional
matters. This Committee meets on an as needed basis and met 1 time in 1995.
The Personnel Committee consists of Messrs. Freese, Nicholson,
Swiggett, Calabrese, Jr. and Martin, Jr. This Committee is responsible for all
matters regarding compensation and fringe benefits. The committee meets on an as
needed basis and met 5 times in 1995.
Additionally, the Bank has a number of other management committees
including the Asset/Liability and the Loan and Asset Classification Committees.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Freese, Swiggett,
Nicholson, York and Webel; the Pricing Committee consisting of Messrs. Mancino,
McCuaig, Calabrese, Jr., Swiggett and Webel; and the Compensation Committee
consisting of Messrs. Mancino, Calabrese, Jr., Freese, Swiggett, Nicholson and
Martin, Jr.
COMPENSATION OF TRUSTEES
Trustees of the Bank receive fees of $1,700 per Board meeting attended
and $800 per Committee meeting attended. Subsequent to the Conversion, the
Company and the Bank intend to engage a compensation consultant to study the
level and structure of compensation paid to the Boards of Directors of the
Company and the Bank as compared to similarly situated publicly-traded financial
institutions and, upon review of such study, may revise the amount of fees paid
to Board members and frequency of Board and Committee meetings.
115
<PAGE>
TRUSTEES EMERITUS
The Bank maintains a Board of Trustees Emeritus which currently
consists of three former Trustees of the Bank. Pursuant to the Bank's bylaws,
Trustees must retire in the year they reach age 75 and any Trustee who retires
because of such age limitation and has 20 years prior service on the Board of
Trustees is eligible to be elected as a Trustee Emeritus. Trustees Emeritus may
be re-elected until the year in which such person reaches age 80, although one
Trustee Emeritus has been excepted from this policy. Trustees Emeritus have no
vote and receive the same meeting fees as Trustees of the Bank.
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<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the year ended December
31, 1995, to the Chief Executive Officer and the four highest paid executive
officers of the Bank who received salary and bonus in excess of $100,000 ("Named
Executive Officers").
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
ANNUAL COMPENSATION(1)
----------------------------------------------------
OTHER
ANNUAL
NAME AND PRINCIPAL COMPENSATION
POSITIONS YEAR SALARY($) BONUS($) ($)(2)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. Mancino 1995 $336,539 $ 1,600 --
Chairman of the Board of Trustees,
President and Chief Executive
Officer
John R. Bransfield, Jr. 1995 151,719 75,736 --
Senior Vice President and Senior
Lending Officer
John L. Klag 1995 90,423 47,870 --
Vice President and Investment
Officer
Arthur W. Toohig 1995 91,692 44,500 --
Senior Vice President and Human
Resources Officer
Michael P. Puorro 1995 85,846 43,340 --
Vice President and Chief Financial
Officer
</TABLE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LONG-TERM COMPENSATION
-----------------------------------------------------------
AWARDS PAYOUTS
-----------------------------------------------------------
(I)
SECURITIES
RESTRICTED UNDERLYING LTIP ALL OTHER
NAME AND PRINCIPAL STOCK AWARDS OPTIONS/SARS PAYOUTS COMPENSATION
POSITIONS ($)(3) (#)(4) ($)(5) ($)(6)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph L. Mancino -- -- -- $20,433
Chairman of the Board of Trustees,
President and Chief Executive
Officer
John R. Bransfield, Jr. -- -- -- 10,578
Senior Vice President and Senior
Lending Officer
John L. Klag -- -- -- 3,004
Vice President and Investment
Officer
Arthur W. Toohig -- -- -- 7,400
Senior Vice President and Human
Resources Officer
Michael P. Puorro -- -- -- 2,847
Vice President and Chief Financial
Officer
</TABLE>
- ------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Named Executive Officer under the Bank's 401(k) Plan and
the column titled "Bonus" consists of board approved discretionary bonus as
well as attendance bonuses, loan referral bonuses and recruitment bonuses.
(2) For 1995, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1995, the Bank had no restricted stock or stock
related plans in existence.
3) Does not include awards pursuant to the Stock Programs, which may be
granted in conjunction with a meeting of shareholders of the Company,
subject to regulatory and shareholder approval, as such awards were not
earned, vested or granted in fiscal 1995. For a discussion of the terms of
the Stock Programs which are intended to be adopted by the Company, see "-
Benefit Plans - Stock Programs." For 1995, the Bank had no stock plans in
existence.
(4) No stock options or SARs were earned or granted in 1995. For a discussion
of the Stock Option Plans which are intended to be adopted by the Company,
see "Benefit Plans - Stock Option Plans."
(5) For 1995, there were no payouts or awards under any long-term incentive
plan.
6) Other compensation includes other benefits such as the Bank's matching
contribution under the Bank's 401(k) Plan, group term life insurance and
automobile allowance.
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<PAGE>
REPORT OF INDEPENDENT COMPENSATION CONSULTANT
Pursuant to the NYBD regulations governing the Conversion, the Bank
must obtain the opinion of an independent compensation consultant as to whether
or not the total compensation for the executive officers, directors or trustees
of the Bank, viewed as a whole and on an individual basis, is reasonable and
proper in comparison to the compensation provided to executive officers,
directors or trustees of similar publicly-traded financial institutions. The
Bank has obtained an opinion from William M. Mercer, Incorporated, which
provides that, based upon published professional survey data of similarly
situated publicly-traded financial institutions operating in the relevant
markets as of September 1, 1996, with respect to the total cash compensation
(base salary and annual incentive) for executive officers and total compensation
for trustees of the Bank, such compensation, viewed as a whole and on an
individual basis, is reasonable and proper in comparison to the compensation
provided to similarly situated publicly-traded financial institutions, and that,
with respect to the amount of shares of Common Stock to be reserved under the
ESOP, the Stock Programs and Stock Option Plans that such amounts reserved for
granting are reasonable in comparison to similar publicly-traded financial
institutions.
EMPLOYMENT AGREEMENTS
Currently, Mr. Panza and Mr. Russo are the only officers of the Bank or
any of its subsidiaries who have employment agreements with the Bank through
their employment with RFI. Messrs. Panza's and Russo's employment agreements
were entered into in connection with the Bank's purchase of certain assets and
liabilities of RMBI in August 1995. Such employment agreements are substantially
similar and provide for five year terms which will expire in July 2000. The
agreements provide for base salaries of $225,000 per year for each of Messrs.
Panza and Russo, and also provide for an incentive cash bonus equal to 12.5
basis points of the principal amount of one- to four-family loans closed by RFI
in excess of $200 million, subject to certain adjustments. The incentive cash
bonus provided under the agreements are subject to RFI meeting specified
financial performance goals and subject to the loan portfolio serviced by RFI
meeting certain delinquency performance goals. The agreements also provide that
Messrs. Panza and Russo shall be eligible to participate in any tax-qualified
defined contribution or defined benefit plan that is maintained by RFI and any
other insurance or medical benefits provided to employees of RFI. Additionally,
the agreements provide that the Bank shall indemnify Messrs. Panza and Russo to
the fullest extent permitted by law and provide indemnity insurance coverage.
Pursuant to the agreements, Messrs. Panza and Russo may be terminated for cause,
as defined in the agreements, and, upon termination for cause, all unpaid
compensation and benefits due under the agreements shall be forfeited. The
agreements prohibit Messrs. Panza and Russo from competing with the Bank in any
state in which the Bank engages in business for one year after they cease to
receive compensation from RFI under the agreements.
Upon the Conversion, the Bank intends to enter into employment
agreements with Messrs. Mancino, Bransfield, Klag, Toohig and Puorro, Ms. Ehrich
and two other executive officers (individually, the "Executive") and the Company
intends to enter into employment agreements with Messrs. Mancino, Bransfield
and Puorro and Ms. Ehrich (collectively, the "Employment Agreements"). The
Employment Agreements are subject to the review of the NYBD and may be amended
as a result of such review. The Employment Agreements are intended to ensure
that the Bank and the Company will be able to maintain a stable and competent
management base after the Conversion. The continued success of the Bank and the
Company depends to a significant degree on the skills and competence of the
above referenced officers.
The Employment Agreements provide for three-year terms for each
Executive. The terms of the Employment Agreements shall be extended on a daily
basis unless written notice of non-renewal is given by the Board of Directors.
The Employment Agreements provide that the Executive's base salary will be
reviewed annually. The base salaries which will be effective for such Employment
Agreements for Messrs. Mancino, Bransfield, Klag, Toohig, Puorro and Ms. Ehrich
will be $420,000, $240,000, $130,500, $131,500, $140,000 and $118,000
respectively. In addition to the base salary, the Employment Agreements provide
for, among other things, participation in stock benefits plans and other fringe
benefits applicable to executive
118
<PAGE>
personnel. The agreements provide for termination by the Bank or the Company for
cause, as defined in the Employment Agreements, at any time. In the event the
Bank or the Company chooses to terminate the Executive's employment for reasons
other than for cause, or in the event of the Executive's resignation from the
Bank and the Company upon: (i) failure to re-elect the Executive to his current
offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a relocation of the Executive's principal place of
employment by more than 25 miles; (iv) a reduction in the benefits and
perquisites being provided to the Executive under the Employment Agreement;
(v) liquidation or dissolution of the Bank or the Company; or (vi) a breach of
the agreement by the Bank or the Company, the Executive or, in the event of
death, his beneficiary would be entitled to receive an amount equal to the
remaining base salary payments due to the Executive for the remaining term of
the Agreement and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Bank and the Company during the
remaining term of the agreement. The Bank and the Company would also continue
and pay for the Executive's life, health, dental and disability coverage for the
remaining term of the Agreement. Upon any termination of the Executive, the
Executive is subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, the
Executive or, in the event of the Executive's death, his beneficiary, would be
entitled to a severance payment equal to the greater of: (i) the payments due
for the remaining terms of the agreement; or (ii) three times the average of the
five preceding taxable years' annual compensation. The Bank and the Company
would also continue the Executive's life, health, and disability coverage for
thirty-six months. Notwithstanding that both the Bank and Company Employment
Agreements provide for a severance payment in the event of a change in control,
the Executive would only be entitled to receive a severance payment under one
agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under federal and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company, the total amount of payments due under the Agreements, based solely
on cash compensation paid to the officers who will receive Employment Agreements
over the past five fiscal years and excluding any benefits under any employee
benefit plan which may be payable, would be approximately $3.2 million.
CHANGE IN CONTROL AGREEMENTS
Upon Conversion, the Bank intends to enter into two-year Change in
Control Agreements (the "CIC Agreements") with seven Vice Presidents of the
Bank, none of whom will be covered by employment contracts. Commencing on the
first anniversary date and continuing on each anniversary thereafter, the Bank
CIC Agreements may be renewed by the Board of Directors of the Bank for an
additional year. The Bank's CIC Agreements will provide that in the event
voluntary or involuntary termination follows a change in control of the Bank,
the officer would be entitled to receive a severance payment equal to two times
the officer's average annual compensation for the five most recent taxable
years. The Bank would also continue and pay for the officer's life, health and
disability coverage for 24 months following termination. In the event of a
change in control of the Bank, the total payments that would be due under the
CIC Agreements, based solely on the current annual compensation paid to the
officers covered by the CIC Agreements and excluding any benefits under any
employee benefit plan which may be payable, would be approximately $1.2
million.
119
<PAGE>
EMPLOYEE SEVERANCE COMPENSATION PLAN
The Bank's Board of Directors intends to, upon Conversion, establish
the Roslyn Savings Bank Employee Severance Compensation Plan ("Severance Plan")
which will provide eligible employees with severance pay benefits in the event
of a change in control of the Bank or the Company following Conversion.
Management personnel with Employment Agreements or CIC Agreements are not
eligible to participate in the Severance Plan. Generally, employees are eligible
to participate in the Severance Plan if they have completed at least one year of
service with the Bank. The Severance Plan vests in each participant a
contractual right to the benefits such participant is entitled to thereunder.
Under the Severance Plan, in the event of a change in control of the Bank or the
Company, eligible employees who are terminated from or terminate their
employment within one year (for reasons specified under the Severance Plan),
will be entitled to receive a severance payment. If the participant, whose
employment has terminated, has completed at least one year of service, the
participant will be entitled to a cash severance payment equal to one-twelfth of
annual compensation for each year of service up to a maximum of 199% of annual
compensation. Such payments may tend to discourage takeover attempts by
increasing costs to be incurred by the Bank in the event of a takeover. In the
event the provisions of the Severance Plan are triggered, the total amount of
payments that would be due thereunder, based solely upon current salary levels,
would be approximately $3.3 million. However, it is management's belief that
substantially all of the Bank's employees would be retained in their current
positions in the event of a change in control, and that any amount payable under
the Severance Plan would be considerably less than the total amount that could
possibly be paid under the Severance Plan.
BENEFIT PLANS
Retirement Plan. The Bank maintains a defined benefit plan ("Retirement
Plan") for eligible employees. The Retirement Plan is intended to satisfy the
requirements of section 401(a) of the Code. Employees who have attained age 21,
have completed at least one year of service for the Bank in which the employee
completes at least 1,000 hours of service and are not (i) paid on an hourly-rate
or contract basis, (ii) regularly employed outside the Bank's own offices in
connection with the operation and maintenance of building and other property
acquired through foreclosure or deed, or (iii) leased employees. Participants
become vested in their benefits under the Retirement Plan after being credited
with at least five years of service and the attainment of age 23.
The Retirement Plan provides for a monthly benefit to the participant
upon retirement at or after the later of (i) attainment of age 65 or (ii) the
fifth anniversary of initial participation in the Plan. The Retirement Plan also
provides for a benefit upon the participant's death or early retirement. The
annual normal retirement benefit for a participant under the Retirement Plan is
determined as (i) 2% of average annual earnings multiplied by years of credited
service (up to a maximum of 30 years), plus (ii) 0.5% of average annual earnings
multiplied by the participant's number of years and months of credited service
in excess of 30 years. For purposes of the Retirement Plan, average annual
earnings means the participant's average annual basic compensation during the 36
consecutive calendar months that yields the highest average within the
participants' final 120 consecutive calendar months of service. A participant is
eligible to receive an early retirement benefit upon the completion of at least
ten consecutive years of vested service in the Retirement Plan and (i)
attainment of age 60, or (ii) the sum of the participant's age and years of
service equals at least 75. Early retirement benefits are a reduced benefit
payable compared to the normal retirement benefit. Benefits are generally paid
in a straight life annuity with respect to unmarried participants and in the
form of a 50% joint and survivor annuity (with the spouse as designated
beneficiary) for married participants. Other forms of benefit payments are
available under the Retirement Plan.
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<PAGE>
Benefit Restoration Plan. The Bank maintains the Benefit Restoration
Plan (the "BRP"). The BRP is a non-qualified plan that is designed to permit
certain employees to receive supplemental retirement income from the Bank.
Participants in the BRP receive a benefit equal to the amount the participant
would have received under the 401(k) Plan and the Retirement Plan, but for the
reductions on such benefits and other limitations imposed on the benefits
payable under tax qualified plans under Section 401(a)(17), 401(m), 401(k)(3),
402(g) and 415 of the Code. The BRP is being amended to provide BRP participants
to also receive a benefit equal to the amount of benefits the Participant would
have received under the ESOP but for the Code limitations. The Plan is an
unfunded plan, which provides participants only with a contractual right to
obtain the benefits provided thereunder from the general assets of the Bank.
Currently, only Messrs. Mancino and Bransfield are eligible to participate in
the BRP.
The following table sets forth the estimated annual benefits payable
under the Retirement Plan upon a participant's retirement at age 65 for the year
ended December 31, 1995, expressed in the form of a straight life annuity, and
any related amounts payable under the Benefit Restoration Plan. The covered
compensation under the Retirement Plan and Benefit Restoration Plan includes the
base salary for participants, including Named Executive Officers and does not
consider any cash bonus amounts. The benefits listed in the table below for the
Retirement Plan and Benefit Restoration Plan are not subject to a deduction for
social security benefits or any other offset amount.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35 40
- -------------------- ------------- ------------- ------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
$50,000 $ 15,000 $ 20,000 $ 25,000 $ 30,000 $ 31,250 $ 32,500
100,000 30,000 40,000 50,000 60,000 62,500 65,000
150,000 45,000 60,000 75,000 90,000 93,750 97,500
200,000 60,000 80,000 100,000 120,000 125,000 130,000
250,000 75,000 100,000 125,000 150,000 156,250 162,500
300,000 90,000 120,000 150,000 180,000 187,500 195,000
350,000 105,000 140,000 175,000 210,000 218,750 227,500
400,000 120,000 160,000 200,000 240,000 250,000 260,000
450,000 135,000 180,000 225,000 270,000 281,250 290,500
</TABLE>
The approximate years of service, as of December 31, 1995, for the
named executive officers are as follows:
<TABLE>
<CAPTION>
YEARS OF
SERVICE
----------------------
<S> <C>
Joseph L. Mancino................................. 35
John Klag......................................... 2
John Bransfield................................... 2
Arthur Toohig..................................... 19
Michael Puorro.................................... 3
</TABLE>
401(k) Plan. The Bank maintains the 401(k) Savings Plan ("401(k)
Plan"), a tax-qualified profit sharing and salary reduction plan under Sections
401(a) and 401(k) of the Code. The 401(k) Plan provides participants with
retirement benefits and may also provide benefits upon death, disability or
termination of employment with the Bank. Salaried, and as of August, 1995,
commission-paid employees, are eligible to participate in the Plan following the
completion of one year of service.
121
<PAGE>
Participants may make salary reduction contributions to the 401(k) Plan
up to the lesser of 12% of the participant's compensation or the legally
permissible limit (currently $9,500). The Bank matches 50% of the amount of the
participant's salary reduction contributions up to a maximum of 3% of the
participant's compensation. For those employees who have been participants in
the 401(k) Plan for at least sixty months, the Bank contributes an additional
50% of that amount of the participant's salary reduction contributions up to a
maximum of 6% of the participant's compensation. The 401(k) Plan permits
participants to direct the investment of their 401(k) plan account into various
investment alternatives. The investment accounts are valued daily and
participants are provided with information regarding the market value of the
participant's investments and all contributions made on his or her behalf on at
least a quarterly basis.
Participants are always 100% vested in their salary reduction
contributions. Participants become 20% vested in Bank matching contributions
after the completion of one year of service with the Bank. Their vested interest
in Bank matching contribution increases by 20% for each year of service
completed, so that after the completion of 5 years of service, the participant
is 100% vested in Bank matching contributions. A participant who terminates
employment due to death, disability, or retirement also becomes fully vested in
the Bank's matching contributions credited to his or her account. A
participant's vested portion of his or her 401(k) Plan account is distributable
from the 401(k) Plan upon the termination of the participant's employment,
death, disability or retirement. In addition, a participant may withdraw amounts
rolled over to the 401(k) Plan from another qualified plan if the participant
has attained age 59 1/2. Participants may also receive hardship distributions
from the 401(k) Plan. Any distribution made to a participant prior to the
participant's attainment of age 59 1/2 is subject to a 10% tax penalty.
Participants may borrow against the vested portion of their accounts. The Board
of Directors may at any time discontinue the Bank's contributions to employee
accounts. For the years ended December 31, 1995, 1994 and 1993, the Bank's
matching contributions to the 401(k) Plan were $255,257, $220,386 and $206,841,
respectively.
Participants may direct the investment of their 401(k) Plan accounts
into specified investment funds. In connection with the Conversion, the Bank
will amend the 401(k) Plan to permit participants to invest in an Employer
Stock Fund as one of the investment alternatives. The Employer Stock Fund will
be invested primarily in shares of Common Stock. The trustee may follow the
voting directions of 401(k) Plan participants investing in the Employer Stock
Fund, provided that the trustee determines such voting is consistent with its
fiduciary duties. However, the trustee is not required to follow the voting
directions of the 401(k) Plan participants with respect to Common Stock held in
the Employer Stock Fund.
ESOP. In connection with the Conversion, the Bank intends to implement
an employee stock ownership plan ("ESOP"). The ESOP is a tax qualified
retirement plan designed to invest primarily in the Common Stock. The ESOP will
permit the Bank to contribute to the ESOP the Bank matching contributions
accrued under the 401(k) Plan to ESOP participant accounts. The Bank will make
additional contributions to the ESOP on behalf of all ESOP participants. The
ESOP will provide eligible employees with the opportunity to receive a Bank
funded retirement benefit based on the value of the Common Stock. All full-time
salaried employees of the Bank who have completed a year of service with the
Bank in which the employee completes at least 1,000 hours of service will be
eligible to participate in the ESOP portion of the combined plan.
The ESOP intends to purchase 8% of the Common Stock issued in
connection with the Conversion, including the issuance of shares to the
Foundation. As part of the Conversion and in order to fund the ESOP's purchase
of the Common Stock to be issued in the Conversion, the ESOP intends to borrow
funds from the Company equal to 100% of the aggregate purchase price of the
Common Stock
122
<PAGE>
to be purchased by the ESOP. Alternatively, the Company and Bank may choose to
fund the ESOP's purchase of stock through a loan from a third party financial
institution. The collateral for the loan will be the Common Stock purchased by
the ESOP with the loan proceeds, as described below. The term of the ESOP loan
will be 30 years and it will be repaid principally from the Company's or the
Bank's contributions to the ESOP. The Bank intends to use matching contributions
made with respect to ESOP participants' 401(k) salary reduction contributions
and other discretionary contributions to meet the ESOP loan obligations.
Additionally, any dividends that may be paid on unallocated stock held by the
ESOP will also be used to repay the ESOP Plan. Subject to receipt of any
necessary regulatory approvals or opinions, the Bank may make additional
contributions to the ESOP for repayment of the loan or to reimburse the Company
for contributions made by it. The interest rate for the loan is expected to be
the prime rate, which currently is 8.75%.
Shares of Common Stock purchased by the ESOP with the loan proceeds
will initially be pledged as collateral for the loan, and will be held in a
suspense account until released for allocation among participants as the loan is
repaid. The pledged shares will be released annually from the suspense account
in an amount proportional to the repayment of the ESOP loan for each plan year.
The released shares will be allocated to the accounts of ESOP participants
pursuant to two methods. First, for each eligible ESOP participant, a portion of
the shares released for the plan year will be allocated to a special "matching"
account under the ESOP equal in value to the amount of matching contribution, if
any, that such participant would be entitled to under the terms of the Roslyn
Savings Bank 401(k) Plan for the plan year. Second, the remaining shares which
have been released for the plan year will be allocated to each eligible
participant's general ESOP account based on the ratio of each such participant's
base compensation to the total base compensation of all eligible ESOP
participants. Participants will vest in their ESOP account at a rate of 20%
annually commencing after the completion of one year of service, with 100%
vesting upon the completion of 5 years of service. Participants will also
completely vest if their service is terminated due to death, retirement,
permanent disability, or upon the occurrence of a change in control. Prior to
the completion of one year of credited service, a participant who terminates
employment for reasons other than death, retirement, disability, or change in
control of the Bank or the Company will not receive any benefit. Forfeitures
will be reallocated among remaining participating employees, in the same
proportion as contributions. Benefits may be payable upon death, retirement,
early retirement, or separation from service. The annual contributions to the
ESOP are not fixed, so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, a Committee of the
Board of Directors and officers of the Bank will be appointed to administer the
ESOP (the "ESOP Committee"). An unrelated corporate trustee for the ESOP and the
401(k) Plan Employer Stock Fund will be appointed prior to the Conversion and
continuing thereafter. The ESOP Committee may instruct the trustee regarding
investment of funds contributed to the ESOP. The ESOP trustee, subject to its
fiduciary duties, must vote all allocated shares held in the ESOP in accordance
with the instructions of the participating employees. Under the ESOP,
unallocated shares and allocated shares for which no instructions are given will
be voted by the trustee in a manner calculated to most accurately reflect the
instructions it has received from participants regarding the allocated stock,
provided that such vote is in accordance with the provisions of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-qualified Supplemental Executive Retirement Plan ("SERP") to
provide certain officers and highly compensated employees with additional
retirement benefits. The SERP benefit is intended to make up benefits lost under
the ESOP allocation procedures to participants who retire prior to the complete
repayment of the ESOP loan. At the retirement of a participant, the benefits
under the SERP are determined by first: (i) projecting the number of shares that
would have been allocated to the participant
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under the ESOP if they had been employed throughout the period of the ESOP loan
(measured from the participant's first date of ESOP participation); and
(ii) reducing the number determined by (i) above by the number of shares
actually allocated to the Participant's account under the ESOP; and second, by
multiplying the number of shares that represent the difference between such
figures by the average fair market value of the Common Stock over the preceding
five years. Benefits under the SERP vest in 20% annual increments over a five
year period commencing as of the date of a Participant's participation in the
SERP. The vested portion of the SERP Participant's benefits are payable upon the
retirement of the Participant upon or after the attainment of age 65 or in
accordance with the requirements of early retirement under the Retirement Plan.
The Bank will amend the existing irrevocable grantor's trust
("grantor's trust") established in connection with the BRP to hold the assets of
the SERP. This trust would be funded with contributions from the Bank for the
purpose of providing the benefits promised under the terms of the SERP. The
grantor's trust may hold a variety of assets including the Company's stock,
other securities, insurance contracts and cash. The SERP participants have only
the rights of unsecured creditors with respect to the trust's assets, and will
not recognize income with respect to benefits provided by the SERP until such
benefits are received by the participants. The assets of the grantor's trust are
considered part of the general assets of the Bank and are subject to the claims
of the Bank's creditors in the event of the Bank's insolvency. Earnings on the
trust's assets are taxable to the Bank.
Stock Option Plans. Following the conversion, the Board of Directors of
the Company intends to adopt stock-based benefit plans which would provide for
the granting of options to purchase Common Stock to eligible officers, employees
and directors of the Company and Bank. Stock options are intended to be granted
under either a separate stock option plan for officers and employees (the
"Incentive Option Plan") and a separate option plan for outside directors (the
"Directors' Option Plan") (collectively, the "Option Plans") or under a single
Master Stock-Based Benefit Plan which would incorporate the benefits and
features of the Incentive Option Plan and Directors' Option Plan. At a meeting
of stockholders of the Company following the Conversion, which under applicable
NYBD regulations may be held no earlier than six months after the completion of
the Conversion, the Board of Directors intends to present the Option Plans or
the Master Stock-Based Benefit Plan to stockholders for approval and has
reserved an amount equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 3,795,000 shares based
upon the issuance of 3,795,000 shares), for issuance under the Option Plans or
Master Stock-Based Benefit Plan. NYBD regulations provide that, in the event
such plan is implemented within the one year following the conversion, no
individual officer or employee of the Bank may receive more than 25% of the
options granted under the Option Plans or Master Stock- Based Benefit Plan and
non-employee directors may not receive more than 5% individually, or 30% in the
aggregate of the options granted under the Option Plans, and NYBD and FDIC
regulations provide that exercise price of any options granted under any such
plan must be the market price of the Common Stock as of the date of grant.
The stock option benefits provided under the Incentive Option Plan or
Master Stock-Based Benefit Plan will be designed to attract and retain qualified
personnel in key positions, provide officers and key employees with a
proprietary interest in the Company as an incentive to contribute to the success
of the Company and reward key employees for outstanding performance. The
granting or vesting of stock options may be conditioned upon the achievement of
individual or Company-wide performance goals, including the achievement by the
Company or Bank of specified levels of net income, asset growth, return on
equity or other specific financial performance goals. All full-time salaried and
commission paid employees of the Company and its subsidiaries may be eligible to
participate in the Incentive Option Plan. The Incentive Option Plan or Master
Stock-Based Benefit Plan will provide for the grant of: (i) options to purchase
the Company's Common Stock intended to qualify as incentive stock options under
Section
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422 of the Code ("Incentive Stock Options"); (ii) options that do not so qualify
("Non-Statutory Stock Options"); and (iii) Limited Rights (discussed below)
which will be exercisable only upon a change in control of the Bank or the
Company. Unless sooner terminated, the Incentive Option Plan or Master
Stock-Based Benefit Plan will be in effect for a period of ten years from the
earlier of adoption by the Board of Directors or approval by the Company's
Stockholders. Subject to stockholder approval, the Company intends to grant
options with Limited Rights under the Incentive Option Plan or Master Stock-
Based Benefit Plan at an exercise price equal to the fair market value of the
underlying Common Stock on the date of grant. Subject to any applicable NYBD and
FDIC regulations, upon exercise of "Limited Rights" in the event of a change in
control, the employee will be entitled to receive a lump sum cash payment equal
to the difference between the exercise price of the related option and the fair
market value of the shares of common stock subject to the option on the date of
exercise of the right in lieu of purchasing the stock underlying the option. It
is anticipated that all options granted contemporaneously with stockholder
approval of the Incentive Option Plan will be intended to be Incentive Stock
Options to the extent permitted under Section 422 of the Code.
Under the Incentive Option Plan or Master Stock-Based Benefit Plan, it
is expected that the Personnel Committee will determine which officers and
employees will be granted options and Limited Rights, whether such options will
be Incentive or Non-Statutory Stock Options, the number of shares subject to
each option, the exercise price of each non-statutory stock option, whether such
options may be exercised by delivering other shares of Common Stock and when
such options become exercisable. It is expected that the per share exercise
price of an Incentive Stock Option will be required to be at least equal to the
fair market value of a share of Common Stock on the date the option is granted.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, an employee will not be deemed to have
received taxable income upon grant or exercise of any Incentive Stock Option,
provided that such shares received through the exercise of such option are not
disposed of by the employee for at least one year after the date the stock is
received in connection with the option exercise and two years after the date of
grant of the option. No compensation deduction would be able to be taken by the
Company as a result of the grant or exercise of Incentive Stock Options,
provided such shares are not disposed of before the expiration of the period
described above (a "disqualifying disposition"). In the case of a Non-Statutory
Stock Option and in the case of a disqualifying disposition of an Incentive
Stock Option, an employee will be deemed to receive ordinary income upon
exercise of the stock option in an amount equal to the amount by which the
exercise price is exceeded by the fair market value of the Common Stock
purchased by exercising the option on the date of exercise. The amount of any
ordinary income deemed to be received by an optionee upon the exercise of a
Non-Statutory Stock Option or due to a disqualifying disposition of an Incentive
Stock Option would be a deductible expense for tax purposes for the Company. In
the case of Limited Rights, upon exercise, the option holder would have to
include the amount paid to him or her upon exercise in his gross income for
federal income tax purposes in the year in which the payment is made and the
Company would be entitled to a deduction for federal income tax purposes of the
amount paid.
If the Incentive Option Plan or Master Stock-Based Benefit Plan is
adopted in the form described above, stock options would become vested and
exercisable in the manner specified by the Company, subject to applicable NYBD
and FDIC regulations. Options granted in connection with the Incentive Option
Plan or Master Stock-Based Benefit Plan could be exercisable for three months
following the date on which the employee ceases to perform services for the Bank
or the Company, except that in the event of death or disability, options
accelerate and become fully vested and could be exercisable for up to one year
thereafter or such longer period as determined by the Company. However, any
Incentive Stock Options exercised more than three months following the date the
employee ceases to perform services as an employee, other than termination due
to death or disability, would be treated as a Non-Statutory Stock
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Option as described above. In the event of retirement, if the optionee continues
to perform services as a Director, Director Emeritus or consultant on behalf of
the Bank, the Company or an affiliate, unvested options would continue to vest
in accordance with their original vesting schedule until the optionee ceases to
serve as a Director, Director Emeritus or consultant. If the Incentive Stock
Option Plan or Master Stock-Based Benefit Plan is adopted in the form described
above, the Company, if requested by the optionee, could elect, in exchange for
vested options, to pay the optionee, or beneficiary in the event of death, the
amount by which the fair market value of the Common Stock exceeds the exercise
price of the options on the date of the employee's termination of employment.
Under the Directors' Option Plan or Master Stock-Based Benefit Plan
contemplated, the exercise price per share of each option granted may be equal
to the fair market value of the shares of Common Stock on the date the option is
granted. All Options granted to outside directors under the Directors' Option
Plan or Master Stock-Based Benefit Plan would be Non-Statutory Stock Options and
would vest and become exercisable in a manner specified by the Company, subject
to applicable NYBD and FDIC regulations, and would expire upon the earlier of
ten years following the date of grant or one year following the date the
optionee ceases to be a Director, Director Emeritus or consultant. In the event
of the death or disability of a participant, all previously granted options
would immediately vest and become fully exercisable.
It is intended that, subject to any applicable NYBD or FDIC
regulations, the Incentive Option Plan and the Directors' Option Plan or Master
Stock-Based Benefit Plan described above provide for accelerated vesting of
previously granted options in the event of a change in control of the Company or
the Bank. A change in control would be defined in the contemplated Incentive
Option Plan, Master Stock-Based Benefit Plan or the Directors' Option Plan
generally to occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of any class of equity security of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
Stock Programs. Following the Conversion, the Company intends to
establish performance based Stock Programs as a method of providing officers,
employees and non-employee directors of the Bank and Company with a proprietary
interest in the Company in a manner designed to encourage such persons to remain
with the Bank. The benefits intended to be granted under the Stock Programs may
be provided for under either a separate plan for officers and employees and a
separate plan for outside directors or under the Master Stock-Based Benefit Plan
which would incorporate the benefits and features of such separate Stock Program
plans and the Stock Option Plans discussed above. The Company intends to present
the Stock Programs or Master Stock-Based Benefit Plan for stockholder approval
at a meeting of stockholders, which pursuant to applicable NYBD regulations, may
be held no earlier than six months after the completion of the Conversion.
The Bank or Company expects to contribute funds to the Stock Programs
or Master Stock-Based Benefit Plan to enable such plans to acquire, in the
aggregate, an amount equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 1,518,000 shares based
upon the issuance of 37,950,000 shares). These shares would be acquired through
open market purchases, if permitted, or from authorized but unissued shares.
Although no specific award determinations have been made, the Company
anticipates that it would provide stock awards to the directors and employees
of the Company or Bank or their affiliates to the extent permitted by applicable
regulations. NYBD regulations provide that, to the extent the Stock Programs are
implemented within one year after the Conversion, no individual employee may
receive more than 25% of the shares of any
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plan and non-employee directors may not receive more than 5% of any plan
individually or 30% in the aggregate for all directors.
A committee of the Board of Directors would administer the Stock
Programs or Master Stock-Based Benefit Plan described above. Under the Stock
Programs or Master Stock-Based Benefit Plan, awards would be granted in the form
of shares of Common Stock held by the plans. Awards will be non-transferable and
non-assignable. The Board intends to appoint an independent fiduciary to serve
as trustee of the trust to be established pursuant to the Stock Programs or
Master Stock-Based Benefit Plan. Allocations and grants to officers and
employees under the Stock Programs or Master Stock-Based Benefit Plan may be
made in the form of base grants and allocations based on performance goals. The
granting or vesting of stock awards under the Stock Programs or Master
Stock-Based Benefit Plan may be conditioned upon the achievement of individual
or Company-wide performance goals, including the Company's or Bank's achievement
of specified levels of net income, return on assets, return on equity or other
specified financial performance goals and will be subject to applicable NYBD and
FDIC regulations.
In the event of death, grants would be 100% vested. In the event of
disability, grants would be 100% vested upon termination of employment of an
officer or employee, or upon termination of service as a director. In the event
of retirement, if the participant continues to perform services as a Director,
Director Emeritus or consultant on behalf of the Bank, the Company or an
affiliate or, in the case of a retiring Director, Director Emeritus, or as a
consulting director, unvested grants would continue to vest in accordance with
their original vesting schedule until the recipient ceases to perform such
services at which time any unvested grants would lapse.
It is intended that the Stock Programs or Master Stock-Based Benefit
Plan described above would provide for accelerated vesting of shares granted
under the Stock Programs or Master Stock-Based Benefit Plan in the event of a
change in control of the Bank or Company. A change in control is expected to be
defined in the Stock Programs or Master Stock-Based Benefit Plan generally to
occur when a person or group of persons acting in concert acquires beneficial
ownership of 20% or more of a class of equity securities of the Company or the
Bank or in the event of a tender or exchange offer, merger or other form of
business combination, sale of all or substantially all of the assets of the
Company or the Bank or contested election of directors which results in the
replacement of a majority of the Board of Directors by persons not nominated by
the directors in office prior to the contested election.
When shares become vested in accordance with the Stock Programs or
Master Stock-Based Benefit Plan described above, the participants would
recognize income equal to the fair market value of the Common Stock at that
time. The amount of income recognized by the participants would be a deductible
expense for tax purposes for the Company. When shares become vested and are
actually distributed in accordance with the Stock Programs or Master Stock-Based
Benefit Plan, the participants would receive amounts equal to any accrued
dividends with respect thereto. Prior to vesting, recipients of grants could
direct the voting of the shares awarded to them. Shares not subject to grants
and shares allocated subject to the achievement of performance and high
performance goals will be voted by the trustee of the Stock Programs or Master
Stock-Based Benefit Plan in proportion to the directions provided with respect
to shares subject to grants. Vested shares are distributed to recipients as soon
as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are
acquired by the Stock Programs or Master Stock-Based Benefit Plan after the
Conversion, the interests of existing shareholders would be diluted. See "Pro
Forma Data."
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TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policies do not permit the Bank to make loans to any of its
Trustees and executive officers. The Company intends that all transactions
between the Company and its executive officers, directors, holders of 10% or
more of the shares of any class of its Common Stock and affiliates thereof, will
contain terms no less favorable to the Company than could have been obtained by
it in arms-length negotiations with unaffiliated persons and will be approved by
a majority of independent outside directors of the Company not having any
interest in the transaction.
SUBSCRIPTIONS BY EXECUTIVE OFFICERS, DIRECTORS AND TRUSTEES
The following table sets forth the number of shares of Common Stock the
Bank's executive officers, Trustees and Directors, and their associates, propose
to purchase, assuming shares of Common Stock are issued at the minimum and
maximum of the Estimated Price Range and that sufficient shares will be
available to satisfy their subscriptions. The table also sets forth the total
expected beneficial ownership of Common Stock as to all Trustees, Directors and
executive officers as a group.
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<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED PRICE OF THE ESTIMATED PRICE
RANGE(1) RANGE(1)
-------------------------------- ---------------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ---------------------------- ---------- ------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Joseph L. Mancino $650,000 65,000 0.23% 65,000 0.17%
Floyd N. York 400,000 40,000 0.15 40,000 0.11
Victor C. McCuaig 500,000 50,000 0.18 50,000 0.14
John P. Nicholson 670,000 67,000 0.25 67,000 0.18
James E. Swiggett 600,000 60,000 0.22 60,000 0.16
Robert G. Freese 50,000 5,000 0.02 5,000 0.01
Thomas J. Calabrese, Jr. 100,000 10,000 0.04 10,000 0.03
Dr. Edwin Martin, Jr. 40,000 4,000 0.01 4,000 0.01
Richard C. Webel 100,000 10,000 0.04 10,000 0.03
John R. Bransfield, Jr. 100,000 10,000 0.04 10,000 0.03
Mary M. Ehrich 150,000 15,000 0.06 15,000 0.04
John L. Klag 100,000 10,000 0.04 10,000 0.03
Daniel L. Murphy 200,000 20,000 0.07 20,000 0.05
Michael P. Puorro 160,000 16,000 0.06 16,000 0.04
Peter J. Russo 500,000 50,000 0.18 50,000 0.14
Anthony F. Panza 500,000 50,000 0.18 50,000 0.14
---------- ------- ---- ------- ----
All Directors and
Executive Officers as a
group (16 persons) $4,820,000 482,000 1.77% 482,000 1.31%
========== ======= ==== ======= ====
</TABLE>
- --------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8% of the shares issued in the Conversion, including shares
issued to the Foundation. Also does not include shares to be contributed to
the Foundation equal to 3% of the Common Stock sold, Common Stock which
may be awarded under the Stock Programs to be adopted equal to 4% of the
Common Stock issued in the Conversion, including shares issued to the
Foundation and Common Stock which may be purchased pursuant to options
which may be granted under the Stock Option Plans equal to 10% of the
number of shares of Common Stock issued in the Conversion, including shares
issued to the Foundation.
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THE CONVERSION
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE
PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S ELIGIBLE ACCOUNT
HOLDERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY
THE SUPERINTENDENT.
GENERAL
On May 29, 1996 the Bank's Board of Trustees adopted the Plan of
Conversion pursuant to which the Bank will be converted from a New York State
chartered mutual savings bank to a New York State chartered stock savings bank.
The Plan was subsequently amended on July 30, 1996, to provide for the
establishment and funding of the Foundation in connection with the Conversion.
It is currently intended that all of the capital stock of the Bank will be held
by the Company, which is incorporated under Delaware law. The Plan has been
approved by the Superintendent and the Bank has received a notice of intent not
to object to the Plan from the FDIC, subject to, among other things, approval of
the Plan by the Bank's Eligible Account Holders. A special meeting of Eligible
Account Holders has been called for this purpose to be held on , 1996.
-------
The Company expects to receive approval from the OTS to become a
savings and loan holding company and to acquire all of the common stock of the
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion. The
Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or all of the common stock of the Bank, if
the holding company form of organization is not utilized, to be issued in the
Conversion.
The Plan provides that the Board of Trustees of the Bank, at any time
prior to the issuance of the Common Stock and for any reason, may decide not to
use the holding company form of organization in implementing the Conversion.
Such reasons may include possible delays resulting from overlapping regulatory
processing, or policies or conditions, which could adversely affect the Bank's
or the Company's ability to consummate the Conversion and transact its business
after the Conversion as contemplated herein and in accordance with the Bank's
operating policies. In the event that such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and will take all
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Superintendent. In such event, and provided
there is no regulatory action, directive or other consideration upon which basis
the Bank determines not to complete the Conversion, if permitted by the
Superintendent, the Bank will issue and sell the common stock of the Bank and
subscribers will be notified of the elimination of the Company and resolicited
(i.e., be permitted to affirm their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their funds will be promptly refunded with interest,
or be permitted to modify or rescind their subscriptions) and notified of the
time period within which the subscriber must affirmatively notify the Bank of
his intention to affirm, modify or rescind his subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
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below will apply to the conversion of the Bank from the mutual to stock form of
organization and the sale of the Bank's common stock.
The Plan provides generally that (i) the Bank will convert from a
mutual savings bank to a capital stock savings bank and (ii) the Company will
offer Common Stock for sale in the Subscription Offering to Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders. Concurrently,
shares will be offered in the Community Offering to certain members of the
general public. It is anticipated that all shares not subscribed for in the
Subscription and Community Offerings will be offered for sale by the Company to
the general public in a Syndicated Community Offering. The Bank and Company have
the right to accept or reject, in whole or in part, any orders to purchase
shares of the Common Stock received in the Community Offering or Syndicated
Community Offering.
The aggregate price of the shares of Common Stock to be sold in the
Conversion will be determined based upon an independent appraisal prepared by
FinPro of the estimated pro forma market value of the Common Stock giving effect
to the Conversion. All shares of Common Stock to be issued and sold in the
Conversion will be sold at the same price. FinPro's independent appraisal will
be updated and the final price of the shares will be determined at the
completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
independent appraisal has been performed by FinPro, a consulting firm
experienced in the valuation and appraisal of savings institutions. See "- Stock
Pricing" for a determination of the estimated pro forma market value of the
Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available upon written request from the Bank and is
available for inspection at each branch office of the Bank and at the office of
the Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
ESTABLISHMENT OF CHARITABLE FOUNDATION
General. In furtherance of the Bank's commitment to its local
community, the Bank's Plan of Conversion provides for the establishment of a
charitable foundation in connection with the Bank's Conversion. The Plan
provides that the Bank and the Company will establish the Foundation, which will
be incorporated under Delaware law as a non-stock corporation, and will fund the
Foundation with Common Stock of the Company, as further described below. The
Company and the Bank believe that the funding of the Foundation with Common
Stock of the Company is a means of establishing a common bond between the Bank
and its community and thereby enables the Bank's community to share in the
potential growth and success of the Company over the long term. By further
enhancing the Bank's visibility and reputation in its local community, the Bank
believes that the Foundation will enhance the long-term value of the Bank's
community banking franchise. The Foundation will be dedicated to charitable
purposes within the Bank's local community, including community development
activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received a
satisfactory Community Reinvestment Act ("CRA") rating in its last CRA
examination. The Foundation is being formed as a complement to the Bank's
existing
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community activities, not as a replacement for such activities. The Bank intends
to continue to emphasize community lending and community development activities
following the Conversion. However, such activities are not the Bank's sole
corporate purpose. The Foundation, conversely, will be completely dedicated to
community activities and the promotion of charitable causes, and may be able to
support such activities in ways that are not presently available to the Bank.
Since the Bank has a satisfactory record of serving its community under the CRA
and already engages in community development activities, the Bank believes that
the Foundation will enable the Company and the Bank to assist their local
community in areas beyond community development and lending. The Bank believes
the establishment of the Foundation will enhance its current activities under
the CRA. In this regard, the Board of Trustees believes the establishment of a
charitable foundation is consistent with the Bank's commitment to community
service. The Board further believes that the funding of the Foundation with
Common Stock of the Company is a means of enabling the Bank's community to share
in the growth and success of the Company long after completion of the
Conversion. The Foundation will accomplish that goal by providing for continued
ties between the Foundation and Bank, thereby forming a partnership with the
Bank's community. The establishment of the Foundation will also enable the
Company and the Bank to develop a unified charitable donation strategy and will
centralize the responsibility for administration and allocation of corporate
charitable funds. Charitable foundations have been formed by other financial
institutions for this purpose, among others. The Bank, however, does not expect
the contribution to the Foundation to take the place of the Bank's traditional
community lending and charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's bylaws,
the Foundation's Board of Directors will be comprised of nine members, all of
whom are existing directors of the Company. A Nominating Committee of the Board,
which is to be comprised of a minimum of three members of the board, will
nominate individuals eligible for election to the board of directors. The Board
of Directors of the Foundation will elect the Directors at the annual meeting of
the Foundation from those nominated by the Nominating Committee. Directors will
be divided into three classes with each class appointed for three-year terms.
The certificate of incorporation of the Foundation provides that the corporation
is organized exclusively for charitable purposes, including community
development, as set forth in Section 501(c)(3) of the Code. The Foundation's
certificate of incorporation further provides that no part of the net earnings
of the Foundation will inure to the benefit of, or be distributable to its
directors, officers or members.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a nonprofit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation. However, as a condition to receiving the nonobjection of the FDIC to
the Bank's Conversion, the Foundation has agreed that all shares of Common Stock
held by the Foundation will be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that the FDIC shall waive this voting restriction
under certain circumstances if compliance with the voting restriction would: (i)
cause a violation of the law of the State of Delaware; (ii) would cause the
Foundation to lose its tax-exempt status, or cause the Internal Revenue Service
to deny the Foundation's request for a determination that it is an exempt
organization or otherwise have a material and adverse tax consequence on the
Foundation; or (iii) would cause the Foundation to be subject to an excise tax
under Section 4941 of the Code. In order for the FDIC to waive such voting
restriction, the Company's or the Foundation's legal counsel must render an
opinion satisfactory to FDIC that compliance with the voting restriction would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the FDIC will grant a waiver of the voting requirement upon
submission of such legal opinion(s) by the Company or the Foundation that are
satisfactory to the FDIC. In the event that the FDIC were to waive the voting
requirement, the directors would direct the voting of the Common Stock held by
the Foundation.
The Company intends to capitalize the Foundation with Common Stock of
the Company in an amount equal to 3.0% of the total amount of Common Stock to be
sold in connection with the Conversion. At the minimum, midpoint and maximum of
the Estimated Price Range, the contribution to the Foundation would equal
816,990, 961,165 and 1,105,340 shares, which would have a market value of
$8,169,900, $9,611,650 and $11,053,400, respectively, assuming the Purchase
Price of $10.00 per share. The Company and the Bank determined to fund the
Foundation with Common Stock rather than cash because it desired to form a bond
with its community in a manner that would allow the community to share in the
potential growth and success of the Company and the Bank over the long term. The
funding of the Foundation with stock also provides the Foundation with a
potentially larger endowment than if the Company contributed cash to the
Foundation since, as a shareholder, the Foundation will share in the potential
growth and success of the Company. As such, the contribution of stock to the
Foundation has
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the potential to provide a self-sustaining funding mechanism which reduces the
amount of cash that the Company, if it were not making the stock donation, would
have to contribute to the Foundation in future years in order to maintain a
level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that
may be paid on the Company's Common Stock in the future, and subject to
applicable federal and state laws, loans collateralized by the Common Stock or
from the proceeds of the sale of any of the Common Stock in the open market from
time to time as may be permitted to provide the Foundation with additional
liquidity. As a private foundation under Section 501(c)(3) of the Code, the
Foundation will be required to distribute annually in grants or donations, a
minimum of 5% of the average fair market value of its net investment assets. One
of the conditions imposed on the gift of Common Stock by the Company is that the
amount of Common Stock that may be sold by the Foundation in any one year shall
not exceed 5% of the average market value of the assets held by the Foundation,
except where the Board of Directors of the Foundation determines that the
failure to sell an amount of common stock greater than such amount would result
in a long-term reduction of the value of the Foundation's assets and as such
would jeopardize the Foundation's capacity to carry out its charitable purposes.
Upon completion of the Conversion and the contribution of shares to the
Foundation immediately following the Conversion, the Company would have
28,050,000, 33,000,000 and 37,950,000 shares issued and outstanding at the
minimum, midpoint and maximum of the Estimated Price Range. Because the Company
will have an increased number of shares outstanding, the voting and ownership
interests of shareholders in the Company's common stock would be diluted by
2.9%, as compared to their interests in the Company if the Foundation was not
established. For additional discussion of the dilutive effect, see "Pro Forma
Data."
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would likely be classified as a private foundation. The Foundation will submit a
request to the IRS to be recognized as an exempt organization. As long as the
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization. The Company's independent accountants,
however, have not rendered any advice on the regulatory condition to the
contribution agreed to by the Foundation which requires that all shares of
Common Stock of the Company held by the Foundation must be voted in the same
ratio as all other outstanding shares of Common Stock of the Company. In the
event that the Company or the Foundation receives an opinion of their legal
counsel satisfactory to the FDIC that compliance with this voting restriction
would have the effect of causing the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation, or
subject the Foundation to an excise tax under Section 4941 of the Code, the FDIC
will waive such voting restriction upon submission of a legal opinion(s) by the
Company or the Foundation satisfactory to the FDIC. See "-Regulatory Conditions
Imposed on the Foundation."
In addition, under Delaware law, the Company is authorized by statute
to make charitable contributions and case law has recognized the benefits of
such contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Company may deduct up to 10% of its
taxable income in any one year and any contributions made by the Company in
excess of the deductible amount will be deductible over each of the five
succeeding taxable years. The Company and the Bank believe that the Conversion
presents a unique opportunity to establish and fund a charitable foundation
given the substantial amount of additional capital being raised in the
Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the contribution of Common Stock to the Foundation on the
amount of Common Stock available to be offered for sale in the Conversion. Based
on such consideration, the Company and Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Estimated Price Range, the Company would have pro forma
consolidated capital of $499.1 million or 24.4% of pro forma consolidated assets
and the Bank's pro forma leverage and risk-based capital ratios would be 17.82%
and 39.92%, respectively. See "Regulatory Capital Compliance," "Capitalization,"
and "Comparison of Valuation and Pro Forma Information with No Foundation."
Thus, the amount of the contribution will not adversely impact the financial
condition of the Company and the Bank and the
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Company and the Bank therefore believe that the amount of the charitable
contribution is reasonable given the Company's and the Bank's pro forma capital
positions. As such, the Company and the Bank believe that the contribution does
not raise safety and soundness concerns.
The Company and the Bank have received an opinion of their independent
tax advisors that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company will be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a limitation based on 10% of the
Company's annual taxable income. The Company, however, would be able to carry
forward any unused portion of the deduction for five years following the
contribution. If the Foundation would have been established in 1995, the Company
would have received a charitable contribution deduction of approximately $2.7
million (based on the Bank's pre-tax income for 1995, an assumed tax rate of 37%
and a contribution of Common Stock equal to $11.1 million). The Company is
permitted under the Code to carryover the excess contribution over the five year
period following the contribution to the Foundation. Assuming the close of the
Offerings at the midpoint of the Estimated Price Range, the Company estimates
that all of the deduction should be deductible over the six-year period. Neither
the Company nor the Bank expect to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Bank may consider future contributions to the
Foundation. Any such decisions would be based on an assessment of, among other
factors, the financial condition of the Company and the Bank at that time, the
interests of shareholders and depositors of the Company and the Bank, and the
financial condition and operations of the Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's tax benefit related to the
contribution to the Foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors - Establishment of Charitable Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant. The Foundation will also be required to file an
annual report with the Charities Bureau of the Office of the Attorney General of
the State of New York.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following regulatory conditions agreed to by the
Foundation as a condition to receiving the FDIC's non-objection of the Bank's
Conversion (i) the Foundation will be subject to examination by the FDIC;
(ii) the Foundation must comply with supervisory directives imposed by the FDIC;
(iii) the Foundation will operate in accordance with written policies adopted by
the board of directors, including a conflict of interest policy; (iv) the
Foundation will not engage in self-dealing and will comply with all laws
necessary to maintain its tax-exempt status; and (v) any shares of Common Stock
of the Company held by the Foundation must be voted in the same ratio as all
other outstanding shares of Common Stock of the Company on all proposals
considered by stockholders of the Company; provided, however, that the FDIC
shall waive this voting restriction under certain circumstances if compliance
with the voting restriction would: (a) cause a violation of the law of the State
of Delaware; (b) would cause the Foundation to lose its tax-exempt status or
otherwise have a material and adverse tax consequence on the Foundation; or
(c) would cause the Foundation to be subject to an excise tax under Section 4941
of the Code. In order for the FDIC to waive such voting restriction, the
Company's or the Foundation's legal counsel must render an opinion satisfactory
to FDIC that compliance with the voting restriction would have the effect
described in clauses (a), (b) or (c) above. Under those circumstances, the FDIC
will grant a waiver of the voting restriction upon submission of an opinion(s)
by the Company or the Foundation satisfactory to the FDIC. There can be no
assurances that a legal opinion addressing these issues will be rendered, or if
rendered, that the FDIC will grant an unconditional waiver of the voting
restriction. In no event will the voting restriction survive the sale of shares
of the Common Stock held by the Foundation.
PURPOSES OF CONVERSION
The Bank, as a New York State chartered mutual savings bank, does not
have stockholders and has no authority to issue capital stock. By converting to
the capital stock form of organization, the Bank will be structured in the form
used by commercial banks, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the Bank by providing a larger capital base on which the Bank may
operate, enhanced future access to capital markets, enhanced ability to
diversify into other financial services related activities and enhanced ability
to render services to the public.
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The holding company form of organization, would provide
additional flexibility to diversify the Bank's business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with both mutual and stock financial institutions, as well as other companies.
Although there are no current arrangements, understandings or agreements
regarding any such opportunities, the Company will be in a position after the
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such opportunities that may arise. While
there are benefits associated with the holding company form of organization,
such form of organization may involve additional costs associated with its
maintenance and regulation as a savings and loan company, such as additional
administrative expenses, taxes and regulatory filings or examination fees.
The potential impact of Conversion upon the Bank's capital base is
significant. At May 31, 1996, the Bank had Tier I Leverage capital of $219.3
million, or 12.39% of total assets. Assuming that $312.9 million (based on the
$330.0 million at the midpoint of the Estimated Price Range) of net proceeds are
realized from the sale of Common Stock (see "Pro Forma Data" for the basis of
this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Bank, the Bank's Tier I Leverage
capital would increase to $336.1 million, resulting in a pro forma leverage
capital ratio of 17.82% giving effect to the Conversion. In the event that the
holding company form of organization is not utilized and all the net proceeds,
at the midpoint of the Estimated Price Range, are retained by the Bank, the
Bank's core capital would increase to $492.6 million, resulting in a pro forma
leverage capital ratio of 24.11% at May 31, 1996. The investment of the net
proceeds from the sale of the Common Stock will provide the Bank with additional
income to further increase its capital position.
After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options under the Stock Option Plans or Master Stock-Based Benefit Plan or
the possible issuance of authorized but unissued shares to the Stock Programs or
Master Stock-Based Benefit Plan. Following the Conversion, the Company will also
be able to use stock-based benefit plans to attract and retain executive and
other personnel for itself and its subsidiaries. See "Management of the Bank -
Executive Compensation."
EFFECTS OF CONVERSION
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would have a claim to
share pro rata in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds
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representing the liquidation account established in connection with the
Conversion. Additionally, permanent nonwithdrawable capital stock is created and
offered to depositors which represents the ownership of the institution's net
worth, subject to certain claims of Eligible Account Holders with respect to
amounts representing the liquidation account. THE COMMON STOCK IS SEPARATE AND
APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT INSURED BY THE FDIC OR ANY
OTHER GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
permanent stock. The stock certificates are transferable, and therefore the
stock may be sold or traded if a purchaser is available with no effect on any
deposit account the seller may hold in the institution.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
Superintendent and the FDIC. After Conversion, the Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The Trustees of the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. The Directors of the Company will
consist of the same individuals who will serve on the Board of Directors of the
Bank. All officers of the Bank at the time of Conversion will retain their
positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after the
Conversion, and each such deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion. Depositors will
continue to hold their existing passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the Conversion.
Effect on Voting Rights of Depositors. In its current mutual form,
voting rights and control of the Bank are vested exclusively in the Board of
Trustees. After the Conversion, direction of the Bank will be under the control
of the Board of Directors of the Bank. The Company, as the holder of all of the
outstanding common stock of the Bank, will have exclusive voting rights with
respect to any matters concerning the Bank requiring stockholder approval,
including the election of Directors of the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Company.
Each holder of Common Stock will, subject to the restrictions and limitations
set forth in the Company's Certificate of Incorporation discussed below, be
entitled to vote on any matters to be considered by the Company's stockholders,
including the election of directors of the Company.
Tax Effects. The Bank has received an opinion of counsel with regard to
federal income taxation and an opinion of its independent auditors with regard
to New York State and New York City taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal, New York State or New York City income and corporate
franchise tax purposes to the Bank or its eligible account holders or the
Company, and will likely not be taxable for purposes of New York State and New
York City real estate transfer taxes, subject to the limitations and
qualifications contained in such opinions. See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there
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were any assets remaining, depositors would have a claim to receive such
remaining assets, pro rata, based upon the deposit balances in their deposit
accounts immediately prior to liquidation. In the unlikely event that the Bank
were to liquidate after Conversion, all claims of creditors (including those of
depositors, to the extent of their deposit balances) would also be paid first,
followed by distribution of the "liquidation account", if any, to certain
depositors (as described in "- Liquidation Rights," below), with any assets
remaining thereafter distributed to the Company as the holder of the Bank's
capital stock.
STOCK PRICING
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common Stock,
as determined on the basis of an independent appraisal. The Bank and the Company
have retained FinPro to make such appraisal. For its services in making such
appraisal, FinPro will receive a fee of $70,000, including fees related to the
preparation of a business plan for the Company and Bank, and will be reimbursed
for certain of its expenses. The Bank and the Company have agreed to indemnify
FinPro and its employees and affiliates against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services as the independent appraiser, except where FinPro's liability
results from its negligence or willful misconduct.
An appraisal has been made by FinPro in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
FinPro also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank,
including liquidity, capitalization, asset composition, funding mix, amount of
intangible assets owned, and level of interest rate risk; the economic,
demographic and competitive aspects of the Bank's existing marketing area; the
quality and depth of the Bank's management; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other savings
institutions; the aggregate size of the offering of the Common Stock; the impact
of Conversion on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; the trading market for securities
of comparable institutions and general conditions in the market for such
securities; and recent regulatory matters. In particular, the appraisal
considered the Bank's financial condition and projected and historical operating
results, including income and expense trends, asset size, loan portfolio
composition, non-performing loans and assets, interest rate sensitivity
position, capital position, and yields on assets and costs of liabilities in
comparison to other publicly-traded thrifts with assets greater than or equal to
$800 million and less than or equal to $5 billion located in the New York City
metropolitan area and other metropolitan areas in New York, New Jersey,
Pennsylvania and Connecticut. The Board of Trustees of the Bank and Board
of Directors of the Company have reviewed the appraisal of FinPro in determining
the reasonableness and adequacy of such appraisal consistent with NYBD and FDIC
regulations and have reviewed the methodology and reasonableness of assumptions
utilized by FinPro in the preparation of such appraisal and established the
Estimated Price in a manner consistent with this appraisal.
On the basis of the foregoing, FinPro has advised the Company and the
Bank that, in its opinion dated September 12, 1996, the estimated pro forma
market value of the Common Stock being sold in connection with the Conversion
ranged from a minimum of $272.3 million to a maximum of $368.4 million (the
"Valuation Price Range") with a midpoint of $320.4 million. The Board of
Trustees established the Estimated Price Range of $272.3 million to $368.4
million within the Valuation Price Range based on the issuance of 27,233,010 to
36,844,660 shares at the Purchase Price of $10.00 per share. The Estimated Price
Range may be amended with the approval of the Superintendent and FDIC (if
required), if necessitated by subsequent developments in the financial condition
of the Company or the Bank or market conditions generally.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES OF
COMMON STOCK. FINPRO DID NOT
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INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION
PROVIDED BY THE BANK, NOR DID FINPRO VALUE INDEPENDENTLY THE ASSETS OR
LIABILITIES OF THE BANK. THE APPRAISAL CONSIDERS THE BANK AS A GOING CONCERN AND
SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE BANK.
MOREOVER, BECAUSE SUCH APPRAISAL IS NECESSARILY BASED UPON ESTIMATES AND
PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM TIME
TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SUCH SHARES IN The
CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE THE
PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA
MARKET VALUE THEREOF. The appraisal of FinPro may be inspected by any Eligible
Account Holder or Supplemental Eligible Account Holder at the Bank's main office
located at 1400 Old Northern Boulevard, Roslyn, New York, during regular
business hours of the bank. Copies of the appraisal may also be requested by an
Eligible Account holder; provided, however, that such Eligible Account Holder
shall be responsible for all costs associated with the copying and transmittal
of such appraisal.
Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock being sold in the Conversion may be increased to
42,371,359 shares due to regulatory considerations, changes in the market and
general financial and economic conditions, without the resolicitation of
subscribers. See "- Limitations on Common Stock Purchases" as to the method of
distribution and allocation of additional shares that may be issued in the event
of an increase in the Estimated Price Range to fill unfilled orders in the
Subscription and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause FinPro to conclude
that the value of the Common Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription and Community Offerings.
If the pro forma market value of the Common Stock is either more than
15% above the maximum of the Estimated Price Range or less than the minimum of
the Estimated Price Range, the Bank and the Company, after consulting with the
Superintendent and FDIC, may terminate the Plan and return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order, extend or hold a new Subscription and Community
Offering, establish a new Estimated Price Range, commence a resolicitation of
subscribers or take such other actions as permitted by the Superintendent and
FDIC in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation following the conclusion of the Subscription and Community
Offerings would not exceed 45 days or, if following the Syndicated Community
Offering, would not exceed 60 days, unless such resolicitation period is further
extended by the Superintendent or FDIC for periods of up to 60 days not to
extend beyond _______________, 1998.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, then the Bank and the Company expect to offer the remaining
shares in a Syndicated Community Offering which would occur as soon as
practicable following the close of the Subscription and Community Offerings but
may commence the Syndicated Community Offering during the Subscription and
Community Offerings subject to prior rights of subscribers. All shares of Common
Stock will be sold at the same price per share in the Syndicated Community
Offering as in the Subscription and Community Offerings. See "--Syndicated
Community Offering."
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No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
FinPro to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro forma market value of the
Common Stock of the Company at the time of the Syndicated Community Offering.
Any change which would result in an aggregate purchase price which is below or
more than 15% above the Estimated Price Range would be subject to Superintendent
and FDIC approval. If such confirmation is not received, the Bank may extend the
Conversion, extend, reopen or commence new Subscription and Community Offerings
or Syndicated Community Offering, establish a new Estimated Price Range and
commence a resolicitation of all subscribers with the approval of the
Superintendent and FDIC or take such other actions as permitted by the
Superintendent and FDIC in order to complete the Conversion, or terminate the
Plan and cancel the Subscription and Community Offerings and/or the Syndicated
Community Offering. In the event market or financial conditions change so as to
cause the aggregate purchase price of the shares to be below the minimum of the
Estimated Price Range or more than 15% above the maximum of such range, and the
Company and the Bank determine to continue the Conversion, subscribers will be
resolicited (i.e., be permitted to continue their orders, in which case they
will need to affirmatively reconfirm their subscriptions prior to the expiration
of the resolicitation offering or their subscription funds will be promptly
refunded with interest at the Bank's passbook rate of interest, or be permitted
to decrease or cancel their subscriptions). Any change in the Estimated Price
Range must be approved by the Superintendent and FDIC. A resolicitation, if any,
following the conclusion of the Subscription and Community Offerings would not
exceed 45 days, or if following the Syndicated Community Offering, 60 days,
unless further extended by the Superintendent for periods up to 60 days not to
extend beyond _______________, 1998. If such resolicitation is not effected, the
Bank will return all funds promptly with interest at the Bank's passbook rate of
interest on payments made by check, bank draft or money order.
Copies of the appraisal report of FinPro including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
NUMBER OF SHARES TO BE ISSUED
Depending upon market or financial conditions following the
commencement of the Subscription and Community Offerings, the total number of
shares to be sold in the Conversion may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the price per share is not below the minimum of the Estimated Price
Range or more than 15% above
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the maximum of the Estimated Price Range. Based on a fixed purchase price of
$10.00 per share and FinPro's estimate of the pro forma market value of the
Common Stock ranging from a minimum of $272.3 million to a maximum, as increased
by 15%, of $423.7 million, the number of shares of Common Stock expected to be
issued is between a minimum of 27,233,010 shares and a maximum, as adjusted by
15%, of 42,371,359 shares. The actual number of shares issued between this range
will depend on a number of factors and shall be determined by the Bank and
Company subject to Superintendent and FDIC approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the Superintendent and FDIC. If the number of shares issued in the
Conversion is increased due to an increase of up to 15% in the Estimated Price
Range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares. See "- Limitations on Common
Stock Purchases."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the
sale of Common Stock in the Conversion will be increased by a number of shares
equal to 3.0% of the Common Stock issued in the Conversion to fund the
Foundation. Assuming the sale of shares in the Offerings at the maximum of the
Estimated Price Range, the Company will issue 1,105,340 shares of its Common
Stock from authorized but unissued shares to the Foundation immediately
following the completion of the Conversion. In that event, the Company will have
total shares of Common Stock outstanding of 37,950,000 shares. Of that amount,
the Foundation will own 2.9%. Funding the Foundation with authorized but
unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the Conversion by 2.9% since a greater
number of shares will be outstanding upon completion of the Conversion than
would be if the Foundation were not established. See "Pro Forma Data."
SUBSCRIPTION OFFERING AND SUBSCRIPTION RIGHTS
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with the Bank who had a balance of $100 or more as of April 30,
1995 ("Eligible Account Holders"); (2) the Employee Plans, including the ESOP;
(3) holders of deposit accounts with a balance of $100 or more as of September
30, 1996 ("Supplemental Eligible Account Holders"). All subscriptions received
will be subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
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and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "- Limitations on Common Stock
Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the amount permitted
to be purchased in the Community Offering, currently $675,000 of Common Stock,
subject to the overall maximum purchase limitation and exclusive of an increase
in the number of shares issued pursuant to an increase in the Estimated Price
Range of up to 15%. See "- Limitations on Common Stock Purchases." Subscription
rights received by officers and trustees of the Bank and their associates based
on increased deposits in the Bank in the one-year period preceding April 30,
1995 will be subordinated to all other subscription rights of Eligible Account
Holders.
In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Common Stock in excess of the total number of such
shares eligible for subscription, the shares of Common Stock will be allocated
so as to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Eligible Account Holders whose subscriptions remain unfilled,
exclusive of any increase in the shares issued pursuant to an increase in the
Estimated Price Range of up to 15%.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed.
Subscription rights received from officers and trustees of the Bank and their
associates based on increased deposits in the Bank in the one year period
preceding April 30, 1995 will be subordinated to all other subscription rights
of Eligible Account Holders.
Priority 2: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of the subscriptions by Eligible Account
Holders, the Employee Plans, including the ESOP, will receive, without payment
therefor, second priority, nontransferable subscription rights to purchase, in
the aggregate, up to 10% of Common Stock issued in the Conversion, including any
increase in the number of shares of Common Stock to be issued in the Conversion
after the date hereof as a result of an increase of up to 15% in the maximum of
the Estimated Price Range. The ESOP intends to purchase 8% of the shares to be
issued in connection with the Conversion, including shares issued to the
Foundation, or 2,244,000 shares and 3,036,000 shares, based on the issuance of
27,233,010 shares and 36,844,660 shares, respectively. Subscriptions by the ESOP
will not be aggregated with shares of Common Stock purchased directly by or
which are otherwise attributable to any other participants in the Subscription
and Community Offerings, including subscriptions of any of the Bank's trustees,
officers, employees or associates thereof. See "Management of the Bank - Benefit
Plans - ESOP."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders and the Employee Plans, each Supplemental Eligible
Account Holder will receive, without payment therefor, as third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the amount permitted to be purchased in the Community Offering,
currently $675,000 of Common Stock, subject to the overall maximum purchase
limitation and exclusive of an increase in the shares issued pursuant to an
increase in the Estimated Price Range of up to 15%. See "- Limitations on Common
Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders and the Employee Plans, the shares of
Common Stock will be allocated so as to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated
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among the remaining subscribing Supplemental Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Supplemental Eligible Account Holders whose subscriptions remain
unfilled, exclusive of any increase in the shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his or her stock order form all accounts in which
such Supplemental Eligible Account Holder has an ownership interest. Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed. The subscription rights received by Eligible Account Holders
will be applied in partial satisfaction of the subscription rights to be
received as a Supplemental Eligible Account Holder.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on the Expiration Date ( _________________, 1996) at ____
p.m., New York time, unless extended for up to 45 days by the Bank and Company
or such additional periods with the approval of the Superintendent and FDIC.
Subscription rights which have not been exercised prior to the Expiration Date
will become void. The Bank will not execute orders until all shares of Common
Stock have been subscribed for or otherwise sold. If all shares have not been
subscribed for or sold within 45 days after the Expiration Date, unless such
period is extended with the consent of the Superintendent and FDIC, all funds
delivered to the Bank pursuant to the Subscription Offering will be returned
promptly to the subscribers with interest and all withdrawal authorizations will
be cancelled. If an extension beyond the 45 day period following the Expiration
Date is granted, the Bank will notify subscribers of the extension of time and
of any rights of subscribers to modify or rescind their subscriptions and have
their funds returned promptly with interest, and of the time period within which
subscribers must affirmatively notify the Bank of their intention to confirm,
modify, or rescind their subscription. If an affirmative response to any
resolicitation is not received by the Company from a subscriber, such order will
be rescinded and all subscription funds will be promptly returned with interest.
Such extensions may not go beyond _______________, 1998.
The Plan of Conversion provides that the Company complete the sale of
the Common Stock within 45 days after the close of the Subscription Offering. In
the event that the Company is unable to complete the sale of Common Stock and
effect the conversion within the 45-day time period, one or more extensions,
with each such extension up to 60 days, may be granted but such extensions may
not go beyond __________, 1998 unless waived by the Superintendent and FDIC, if
necessary. If an extension is granted, each subscriber will have the right to
affirm, increase, decrease or rescind the subscription at any time prior to 20
days before the end of the extension period or at any time prior to the date of
the commencement of the Syndicated Community Offering. No assurance can be given
that an extension would be granted if requested. If an extension is granted, the
Company will notify subscribers of such extension and of any rights of
subscribers to modify or rescind their subscriptions.
COMMUNITY OFFERING
To the extent that shares remain available for purchase after
satisfaction of all subscriptions of Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders, the Bank has determined to offer shares
pursuant to the Plan to certain members of the general public. The Plan provides
that with regard to shares offered in the Community Offering, the Bank and
Company may establish relative preferences, priorities and allocations of shares
among persons, including institutional investors, subscribing for shares. The
Bank and the Company have made no decisions on such preference at this time and
will make such determination upon a review of subscriptions received in
connection with the Community Offering. Such persons, together with associates
of and persons acting in concert with such persons, may purchase up to $675,000
of Common Stock, subject to the maximum overall purchase limitation and
exclusive of shares issued pursuant to an increase in the Estimated Price Range
by up to 15%. See "- Limitations on Common Stock Purchases." This amount may be
increased to up to a maximum of 5% of the Common Stock issued or decreased to
less than $675,000 at the sole discretion of the Company and the Bank. THE
OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING
CATEGORY IS SUBJECT TO THE RIGHT OF THE BANK AND THE COMPANY, IN ITS SOLE
DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT
THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE
EXPIRATION DATE.
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Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of preferred subscribers after completion of the
Subscription and Community Offerings and the filling of institutional investor
orders, such stock will be allocated first to each preferred subscriber whose
order is accepted by the Bank, in an amount equal to the lesser of 100 shares or
the number of shares subscribed for by each such preferred subscriber, if
possible. Thereafter, unallocated shares will be allocated among the preferred
subscribers whose order remains unsatisfied on a 100 shares per order basis
until all such orders have been filled or the remaining shares have been
allocated. If there are any shares remaining, shares will be allocated to other
persons of the general public who purchase in the Community Offering applying
the same allocation described above for preferred subscribers.
Residents of Foreign Countries and Certain States. The Company and
the Bank will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the Plan reside. The Plan provides that the Bank and the
Company are not required to offer stock in the Subscription Offering to any
person who resides in a foreign country.
MARKETING AND UNDERWRITING ARRANGEMENTS
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill
will receive a fee equal to 1.75% of the aggregate Purchase Price of all shares
sold in the Offerings, excluding in each case shares purchased by trustees,
directors, officers and employees of the Bank or Company and any immediate
family member thereof and the ESOP for which Sandler O'Neill will not receive a
fee. In the event that a selected dealers agreement is entered into in
connection with a Syndicated Community Offering, the Company and Bank will pay a
fee (to be negotiated at such time under such agreement) to such selected
dealers, any sponsoring dealers fees, and a management fee to Sandler O'Neill of
1.5% for shares sold by a NASD member firm pursuant to a selected dealers
agreement; provided, however, that the aggregate fees payable to Sandler O'Neill
for Common Stock sold by them pursuant to such a selected dealers agreement
shall not exceed 1.75% of the aggregate Purchase Price and provided, further,
however, that the aggregate fees payable to Sandler O'Neill and the selected
dealers will not exceed 7% of the aggregate purchase price of the Common Stock
sold by selected dealers. Fees to Sandler O'Neill and to any other broker-dealer
may be deemed to be underwriting fees, and Sandler O'Neill and such
broker-dealers may be deemed to be underwriters. Sandler O'Neill will also be
reimbursed for its reasonable out-of-pocket expenses, including legal fees.
Notwithstanding the foregoing, in the event the Offerings are not consummated or
Sandler O'Neill ceases, under certain circumstances after the subscription
solicitation activities are commenced, to provide assistance to the Company,
Sandler O'Neill will be entitled to a fee for its management advisory services
in an amount to be agreed upon by the Bank and Sandler O'Neill, and based upon
the amount of services performed by
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Sandler O'Neill and will also be reimbursed for its reasonable out-of-pocket
expenses as described above. The Company and the Bank have agreed to indemnify
Sandler O'Neill for reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act.
Sandler O'Neill has received advances towards its marketing and financial
advisory service fees totalling $50,000. Total marketing fees to Sandler O'Neill
are expected to be $4,294,939 and $5,838,378 at the minimum and the maximum of
the Estimated Price Range, respectively. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
Conversion and will receive a fee for these services of $55,000, plus
reimbursement of reasonable out-of-pocket expenses.
Directors, trustees and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Bank may participate in the Offering in ministerial capacities
or providing clerical work in effecting a sales transaction. Other questions of
prospective purchasers will be directed to executive officers or registered
representatives. Such other employees have been instructed not to solicit offers
to purchase Common Stock or provide advice regarding the purchase of Common
Stock. The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of
Common Stock will be conducted within the requirements of Rule 3a4-1, so as to
permit officers, trustees, directors and employees to participate in the sale of
Common Stock. No officer, trustee, director or employee of the Company or the
Bank will be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
PROCEDURE FOR PURCHASING SHARES IN SUBSCRIPTION AND COMMUNITY OFFERINGS
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Subscription and Community Offerings, an
executed stock order form and certification form with the required payment for
each share subscribed for, or with appropriate authorization for withdrawal from
the Bank's deposit account (which may be given by completing the appropriate
blanks in the stock order form), must be received by the Bank at any of its
offices by _____ p.m., New York time, on the Expiration Date. Stock order forms
which are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Bank and Company are not obligated to accept
orders submitted on photocopied or facsimilied stock order forms and will not
accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company and Bank shall have the right, each
in their sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally binding commitment for payment and to
thereafter pay for the shares of Common Stock for which they subscribe in the
Community Offering at any time prior to 48 hours before the completion of the
Conversion. The Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed stock order form may not be
modified, amended or rescinded without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription and Community Offerings, unless such period has been extended.
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In order to ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors as of the Eligibility Record Date (April 30, 1995) and/or
the Supplemental Eligibility Record Date (September 30, 1996) must list all
accounts on the stock order form giving all names in each account and the
account number.
Payment for subscriptions may be made (i) in cash if delivered in
person at any branch office of the Bank, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Bank's passbook
rate of interest from the date payment is received until the completion or
termination of the Conversion. If payment is made by authorization of withdrawal
from deposit accounts, the funds authorized to be withdrawn from a deposit
account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription and Community
Offering, if all shares are sold, or upon consummation of the Syndicated
Community Offering if shares remain to be sold in such offering; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Subscription and Community
Offerings, provided that such IRAs or other Qualified Plan accounts are not
maintained at the Bank. Persons with self-directed IRAs or Qualified Plan
accounts maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, the provisions of ERISA and
IRS regulations require that officers, directors and ten percent shareholders
who use self-directed IRA or Qualified Plan account funds to purchase shares of
Common Stock in the Subscription and Community Offerings, make such purchases
for the exclusive benefit of the IRAs or Qualified Plan accounts.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
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RESTRICTIONS ON TRANSFER OF SUBSCRIPTION RIGHTS AND SHARES
Prior to the completion of the Conversion, the NYBD conversion
regulations prohibit any person with subscription rights, including the Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the Plan
or the shares of Common Stock to be issued upon their exercise. Such rights may
be exercised only by the person to whom they are granted and only for his or her
account. Each person exercising such subscription rights will be required to
certify that he or she is purchasing shares solely for his or her own account
and that he or she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. THE COMPANY AND
THE BANK HAVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $675,000 of Common Stock;
provided, however, that shares of Common Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
1.0% of the shares offered exclusive of an increase in shares issued pursuant to
an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the
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selected dealer. Alternatively, selected dealers may solicit indications of
interest from their customers to place orders for shares. Such selected dealers
shall subsequently contact their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall execute order forms and forward them to their selected dealer or
authorize the selected dealer to execute such forms. The selected dealer will
acknowledge receipt of the order to its customer in writing on the following
business day and will debit such customer's account on the third business day
after the customer has confirmed his intent to purchase (the "debit date") and
on or before noon of the next business day following the debit date will send
order forms and funds to the Bank for deposit in a segregated account. Although
purchasers' funds are not required to be in their accounts with selected dealers
until the debit date in the event that such alternative procedure is employed
once a confirmation of an intent to purchase has been received by the selected
dealer, the purchaser has no right to rescind his order.
Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the Superintendent and FDIC. Such extensions may not be beyond
_______________, 1998. See "- Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
LIMITATIONS ON COMMON STOCK PURCHASES
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the amount permitted to be
purchased in the Community Offering, currently $675,000 of
Common Stock, subject to the overall maximum purchase
limitation described in (7) below;
(3) The Employee Plans, including the ESOP, are permitted to
purchase, in the aggregate, up to 10% of the shares of Common
Stock issued in the Conversion, including shares issued in the
event of an increase in the Estimated Price Range of 15%, and
the ESOP intends to purchase 8% of the shares of Common Stock
issued in connection with the Conversion, including shares
issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater of
the amount permitted to be purchased in the Community
Offering, currently $675,000 of Common Stock, subject to the
overall maximum purchase limitation described in (7) below;
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(5) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons
acting in concert with such persons, may purchase in the
Community Offering up to $675,000 of Common Stock, subject to
the overall maximum purchase limitation described in (7)
below;
(6) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of and persons
acting in concert with such persons, may purchase in the
Syndicated Offering up to $675,000 of Common Stock subject to
the overall maximum purchase limitation described in (7) below
and, provided further that shares of Common Stock purchased in
the Community Offering by any persons, together with
associates of and persons acting in concert with such persons,
will be aggregated with purchases in the Syndicated Community
Offering in applying the $675,000 purchase limitation;
(7) Eligible Account Holders and Supplemental Eligible Account
Holders may purchase stock in the Community Offering and
Syndicated Community Offering, subject to the purchase
limitations described in (5) and (6) above, provided that,
except for the ESOP, the overall maximum number of shares of
Common Stock subscribed for or purchased in all categories of
the Conversion by any person, together with associates of and
groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock offered in the
Conversion and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range
of up to 15%; and
(8) No more than 25% of the total number of shares issued in the
Conversion may be purchased by trustees, directors and
officers of the Bank or Company and their associates in the
aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of depositors of
the Bank or subscribers for Common Stock, both the individual amount permitted
to be subscribed for and the overall maximum purchase limitation may be
increased to up to a maximum of 5% of the Common Stock to be issued at the sole
discretion of the Company and the Bank. If such amount is increased, subscribers
for the maximum amount will be, and certain other large subscribers in the sole
discretion of the Bank may be, given the opportunity to increase their
subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
1.0% and the individual amount permitted to be subscribed for may not be reduced
by the Bank to less than .10% without the further approval of members or
resolicitation of subscribers. An Eligible Account Holder or Supplemental
Eligible Holder may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1.0% of the shares offered, but may make such
purchase, together with associates of and persons acting in consert with such
person, by also purchasing in other available categories of the Conversion,
subject to availablity of shares and the maximum overall purchase limit for
purchases in the Conversion.
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The term "associate" of a person is defined to mean: (i) any
corporation (other than the Bank or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a trustee or officer of the Bank. Trustees are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers, Directors and Trustees," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Bank."
LIQUIDATION RIGHTS
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive their pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor would
have a claim to receive a pro rata share of any such remaining assets in the
same proportion as the value of such depositor's deposit accounts to the total
value of all deposit accounts in the Bank at the time of liquidation. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Bank. However, except as described below, his claim
would be solely in the amount of the balance in their deposit account plus
accrued interest. Such depositor would not have an interest in the value or
assets of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders in an amount equal to the surplus and reserves of the Bank as of
the date of its latest balance sheet contained in the final Prospectus used in
connection with the Conversion. Eligible Account Holders, if they were to
continue to maintain their deposit account at the Bank, would, on a complete
liquidation of the Bank, have a claim to an interest in the liquidation account
after payment of all creditors prior to any payment to the stockholders of the
Bank. Each Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, demand account, NOW account, money
market deposit account, and certificate of deposit account, with a balance of
$100 or more held in the Bank on April 30, 1995 ("Deposit Account"). Each
Eligible Account Holder will have a claim to a pro rata interest in the total
liquidation account for each of his Deposit Accounts based on the proportion
that the balance of each such Deposit Account on the April 30, 1995 eligibility
record date bore to the balance of all Deposit Accounts in the Bank on such
date.
If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements subsequent
to the effective date of the Conversion ("annual closing date"), the amount in
any Deposit Account is less than the amount in such Deposit Account on any other
annual closing date, then such person's interest in the liquidation account
relating to such Deposit Account would be reduced from time to time by the
proportion of any such reduction, and such interest will cease to exist if such
Deposit Account is withdrawn or closed. For purposes of the liquidation account,
time deposit accounts shall be deemed to be closed upon maturity regardless of
any renewal thereof. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Deposit
Account. Any assets remaining after the above liquidation rights of
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Eligible Account Holders are satisfied would be distributed to the Company as
the sole stockholder of the Bank.
TAX ASPECTS
Consummation of the Conversion is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of its
independent auditors with respect to certain New York state taxation, to the
effect that the Conversion will not be a taxable transaction to the Company, the
Bank, Eligible Account Holders or Supplemental Eligible Account Holders, except
as noted below. The federal and New York tax consequences will remain unchanged
in the event that a holding company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, which has been filed with the SEC as an exhibit to
the Company's Registration Statement to the effect that for federal income tax
purposes, among other matters: (i) the Bank's change in form from mutual to
stock ownership will constitute a reorganization under section 368(a)(1)(F) of
the Internal Revenue Code and neither the Bank nor the Company will recognize
any gain or loss as a result of the Conversion; (ii) no gain or loss will be
recognized to the Bank or the Company upon the purchase of the Bank's capital
stock by the Company or to the Company upon the purchase of its Common Stock in
the Conversion; (iii) no gain or loss will be recognized by Eligible Account
Holders or Supplemental Eligible Account Holders upon the issuance to them of
Deposit Accounts in the Bank in its stock form plus their interests in the
liquidation account in exchange for their deposit accounts in the Bank; (iv) the
tax basis of the depositors' deposit accounts in the Bank immediately after the
Conversion will be the same as the basis of their deposit accounts immediately
prior to the Conversion; (v) the tax basis of each Eligible Account Holder's or
Supplemental Eligible Account Holder's interest in the liquidation account will
be zero; (vi) no gain or loss will be recognized by Eligible Account Holders or
Supplemental Eligible Account Holders upon the distribution to them of
nontransferable subscription rights to purchase shares of the Common Stock,
provided that the amount to be paid for the Common Stock is equal to the fair
market value of such stock; and (vii) the tax basis to the stockholders of the
Common Stock of the Company purchased in the Conversion will be the amount paid
therefor and the holding period for the shares of Common Stock purchased by such
persons will begin on the date on which their subscription rights are exercised.
KPMG Peat Marwick LLP has opined, subject to the limitations and qualifications
in its opinion, that the Conversion will not be a taxable transaction to the
Company, the Bank, Eligible Account Holders or Supplemental Eligible Account
Holders for the purposes of the New York State or New York City income taxes and
will likely not be a taxable transaction for purposes of New York State and City
real estate transfer taxes. The Conversion may result in certain other New York
City tax liabilities, which, if imposed, will be paid by the Company or the
Bank. Management believes that any possible tax liability imposed by New York
State or New York City will not be material. Certain portions of both the
federal and the state and local tax opinions are based upon the opinion of
FinPro that subscription rights issued in connection with the Conversion will
have no value.
In the opinion of FinPro, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the Purchase Price for the unsubscribed shares of Common Stock. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, such recipients could
be taxed either on the receipt or exercise of such subscription rights.
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Unlike private rulings, an opinion of counsel is not binding on the IRS
and the IRS could disagree with conclusions reached therein. In the event of
such disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
CERTAIN RESTRICTIONS ON PURCHASE OR TRANSFER OF SHARES AFTER CONVERSION
All shares of Common Stock purchased in connection with the Conversion
by a Director, Trustee or an executive officer of the Bank or Company will be
subject to a restriction that the shares not be sold for a period of one year
following the Conversion, except in the event of the death of such Director,
Trustee or executive officer. Each certificate for such restricted shares will
bear a legend giving notice of this restriction on transfer, and instructions
will be issued to the effect that any transfer within such time period of any
certificate or record ownership of such shares other than as provided above is a
violation of such restriction. Any shares of Common Stock issued at a later date
as a stock dividend, stock split, or otherwise, with respect to such restricted
stock will be subject to the restriction that they may not be sold for a period
of one year following the Conversion. The Directors, Trustees and executive
officers of the Bank or Company will also be subject to the insider trading
rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
Trustees, directors, executive officers (or any person who was an executive
officer or Trustee of the Bank after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the Superintendent. This restriction does not apply,
however, to the purchase of Common Stock pursuant to the Stock Plan or the
Directors' Plan.
INTERPRETATION, AMENDMENT AND TERMINATION
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan
may be substantively amended prior to the solicitation of proxies from Eligible
Account Holders by a vote of the Board of Trustees; amendment of the Plan
thereafter requires the approval of the Superintendent and FDIC. The Plan will
terminate if the sale of all shares of stock being offered pursuant to the Plan
is not completed prior to 24 months after the date of the approval of the Plan
by the Superintendent unless a longer time period is permitted by governing laws
and regulations. The Plan may be terminated by a vote of the Board of Trustees
of the Bank at any time prior to the Special Meeting, and thereafter by such a
vote with the approval of the Superintendent and FDIC.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
GENERAL
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and in connection therewith, a
Restated Organization Certificate and Bylaws to be adopted by Eligible Account
Holders of the Bank. The Plan also provides for the concurrent formation of a
holding company. See "The Conversion - General." Certain provisions in the
Company's Certificate of Incorporation and Bylaws and in its management
remuneration provided for in the Conversion, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, the Bank's
Restated Organization Certificate and Bylaws and management remuneration
provided for in the Conversion may have anti-takeover effects as described
below. Finally, regulatory restrictions may make it difficult for persons or
companies to acquire control of either the Company or the Bank.
RESTRICTIONS IN THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
A number of provisions of the Company's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity
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to do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "Additional Information" as to how to obtain a copy of these
documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise and shares as to which
such person and his affiliates have sole or shared voting or investment power,
but shall not include shares that are subject to a publicly solicited revocable
proxy and that are not otherwise deemed to be beneficially owned by such person
and his affiliates. No Director or officer (or any affiliate thereof) of the
Company shall, solely by reason of any or all of such Directors or officers
acting in their capacities as such, be deemed to beneficially own any shares
beneficially owned by any other Director or officer (or affiliate thereof) nor
will the ESOP or any similar plan of the Company or the Bank or any trustee with
respect thereto (solely by reason of such trustee's capacity) be deemed to
beneficially own any shares held under any such plan. The Certificate of
Incorporation of the Company further provides that the provisions limiting
voting rights may only be amended upon the vote of the holders of at least 80%
of the voting power of all then outstanding shares of capital stock entitled to
vote thereon (after giving effect to the provision limiting voting rights).
Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of Directors being
elected each year. The Company's Certificate of Incorporation and Bylaws provide
that the size of the Board shall be determined by a majority of the Whole Board
of Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the Directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. Directors may be removed by the shareholders only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by a resolution adopted by a majority of the Whole Board of Directors of
the Company. The Certificate of Incorporation also provides that any action
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required or permitted to be taken by the stockholders of the Company may be
taken only at an annual or special meeting and prohibits stockholder action by
written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 100 million shares of Common Stock and 10 million shares of
preferred stock. The shares of Common Stock and preferred stock were authorized
in an amount greater than that to be issued in the Conversion to provide the
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits and employee stock options. However, these additional authorized shares
may also be used by the Board of Directors consistent with its fiduciary duty to
deter future attempts to gain control of the Company. The Board of Directors
also has sole authority to determine the terms of any one or more series of
preferred stock, including voting rights, conversion rates, and liquidation
preferences. As a result of the ability to fix voting rights for a series of
preferred stock, the Board has the power to the extent consistent with its
fiduciary duty to issue a series of preferred stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board currently has no plans for the
issuance of additional shares, other than the issuance of additional shares upon
exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with
Interested Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock entitled to vote thereon to approve certain "Business Combinations" with
an "Interested Stockholder," each as defined therein, and related transactions.
UNDER DELAWARE LAW, ABSENT THIS PROVISION, BUSINESS COMBINATIONS, INCLUDING
MERGERS, CONSOLIDATIONS AND SALES OF ALL OR SUBSTANTIALLY ALL OF THE ASSETS OF A
CORPORATION MUST, SUBJECT TO CERTAIN EXCEPTIONS, BE APPROVED BY THE VOTE OF THE
HOLDERS OF ONLY A MAJORITY OF THE OUTSTANDING SHARES OF COMMON STOCK OF THE
COMPANY AND ANY OTHER AFFECTED CLASS OF STOCK. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholder (as defined below) except (i) in cases where
the proposed transaction has been approved by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were Directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include, among others, any individual, a group acting
in concert, corporation, partnership, association or other entity (other than
the Company or its subsidiary) who or which is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include: (i) any merger or
consolidation of the Company or any of its subsidiaries with any Interested
Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an
Interested Stockholder or any corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested Stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or
with any Interested Stockholder or Affiliate of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiary; (iii) the issuance
or transfer to any Interested Stockholder or its Affiliate by the Company (or
any subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Company; (iv) the
adoption of any plan for the liquidation or dissolution of the Company proposed
by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any
reclassification of securities, recapitalization, merger or consolidation of the
Company with any of its subsidiaries which has the effect of increasing the
proportionate share of
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Common Stock or any class of equity or convertible securities of the Company or
subsidiary owned directly or indirectly, by an Interested Stockholder or
Affiliate thereof. The Trustees and executive officers of the Bank are
purchasing in the aggregate approximately 1.3% of the shares of the Common Stock
based on the maximum of the Estimated Price Range. In addition, the ESOP intends
to purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation. Additionally, if at a meeting of
stockholders following the Conversion stockholder approval of the proposed Stock
Programs and Stock Options Plans is received, the Company expects to acquire 4%
of the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, on behalf of the Stock Programs and expects to grant
options to issue an amount equal to 10% of the Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, under the Stock
Option Plans to directors and executive officers. As a result, assuming the
Stock Programs and Stock Option Plans are approved by stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 23.3% of the Company's Common Stock on a fully diluted basis at
the maximum of the Estimated Price Range, thereby enabling them to prevent the
approval of the transactions requiring the approval of at least 80% of the
Company's outstanding shares of voting stock described hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, those
factors that directors of any subsidiary (including the Bank) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: the Company's present and future customers and employees and those of
its subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank to
fulfill the objectives of a New York State chartered stock savings bank under
applicable statutes and regulations. By having these standards in the
Certificate of Incorporation of the Company, the Board of Directors may be in a
stronger position to oppose such a transaction if the Board concludes that the
transaction would not be in the best interest of the Company, even if the price
offered is significantly greater than the then market price of any equity
security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
Directors, Director and officer indemnification by the Company and amendment of
the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws may
be amended by a majority of the Whole Board of Directors, or by a vote of the
holders of at least 80% (after giving effect to the provision limiting voting
rights) of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of the Company. The notice
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provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
ANTI-TAKEOVER EFFECTS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
AND MANAGEMENT REMUNERATION ADOPTED IN CONVERSION
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Stock Plans and Stock Programs provide for accelerated
benefits to participants in the event of a change in control of the Company or
the Bank or a tender or exchange offer for their stock. See "Management of the
Bank - Benefit Plans - Stock Option Plans," and "- Benefit Plans - Stock
Programs." The Company and the Bank have also entered into agreements with key
officers and intends to establish the Severance Compensation Plan which will
provide such officers and eligible employees with additional payments and
benefits on the officer's termination in connection with a change in control of
the Company or the Bank. See "Management of the Bank Employment Agreements,"
"-Change in Control Agreements" and "- Employee Severance Compensation Plan."
The foregoing provisions and limitations may make it more difficult for
companies or persons to acquire control of the Bank. Additionally, the
provisions could deter offers to acquire the outstanding shares of the Company
which might be viewed by stockholders to be in their best interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws and Management Remuneration Plans are in
the best interest of the Company and its stockholders. An unsolicited
non-negotiated takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of the Company and its
stockholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts.
DELAWARE CORPORATE LAW
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an "Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder,
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excluding, for purposes of determining the number of shares outstanding, shares
owned by the corporation's directors who are also officers and certain employee
stock plans; (iii) any business combination with an Interested Stockholder that
is approved by the board of directors and by a two-thirds vote of the
outstanding voting stock not owned by the Interested Stockholder; and (iv)
certain business combinations that are proposed after the corporation had
received other acquisition proposals and which are approved or not opposed by a
majority of certain continuing members of the board of directors. A corporation
may exempt itself from the requirements of the statute by adopting an amendment
to its certificate of incorporation or bylaws electing not to be governed by
Section 203. At the present time, the Board of Directors does not intend to
propose any such amendment.
RESTRICTIONS IN THE BANK'S RESTATED ORGANIZATION CERTIFICATE AND NEW BYLAWS
Although the Board of Trustees of the Bank is not aware of any effort
that might be made to obtain control of the Bank after Conversion, the Board of
Trustees believes that it is appropriate to adopt certain provisions permitted
by General Regulations of the Banking Board of the State of New York to protect
the interests of the converted Bank and its stockholders from any hostile
takeover. Such provisions may, indirectly, inhibit a change in control of the
Company, as the Bank's sole stockholder. See "Risk Factors - Certain Anti-
Takeover Provisions."
The Bank's Restated Organization Certificate will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of the Bank by any
person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of three years
following the date of completion of the Conversion. Any stock in excess of 10%
acquired in violation of the charter provision will not be counted as
outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event that
holders of revocable proxies for more than 10% of the shares of the Common Stock
of the Company seek, among other things, to elect one-third or more of the
Company's Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Restated Organization Certificate against such holders. Although the Board of
Directors of the Bank is not currently able to determine when and if it would
assert this provision of the Bank's Restated Organization Certificate, the Board
of Directors, in exercising its fiduciary duty, may assert this provision if it
were deemed to be in the best interests of the Bank, the Company and its
stockholders. It is unclear, however, whether this provision, if asserted, would
be successful against such persons in a proxy contest which could result in a
change in control of the Bank indirectly through a change in control of the
Company.
In addition, stockholders will not be permitted to call a special
meeting of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Restated Organization Certificate and Bylaws provide for
the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion.
156
<PAGE>
Finally, the Restated Organization Certificate provides for the
issuance of shares of preferred stock on such terms, including conversion and
voting rights, as may be determined by the Bank's Board of Directors without
stockholder approval. Although the Bank has no arrangements, understandings or
plans at the present time for the issuance or use of the shares of undesignated
preferred stock (the "Preferred Stock") proposed to be authorized, the Board of
Trustees believes that the availability of such shares will provide the Bank
with increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which may arise. In the event
of a proposed merger, tender offer or other attempt to gain control of the Bank
of which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Trustees does
not intend to issue any Preferred Stock except on terms which the Board deems to
be in the best interest of the Bank and its then existing stockholders.
REGULATORY RESTRICTIONS
New York State Banking Board Conversion Regulations. The New York State
Banking Board Conversion Regulations prohibit any person, prior to the
completion of the Conversion, from transferring, or from entering into any
agreement or understanding to transfer, to the account of another, legal or
beneficial ownership of the subscription rights issued under the or the Common
Stock to be issued upon their exercise. The New York State Banking Board
Conversion Regulations also prohibit any person, prior to the completion of the
Conversion, from offering, or making an announcement of an offer or intent to
make an offer, to purchase such subscription rights or Common Stock. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
For one year following the Conversion, New York State Banking Board
regulations prohibit any person from acquiring or making an offer to acquire
more than 10% of the stock of any converted savings institution, except with the
prior approval of the Superintendent.
OTS Regulations. In addition, any proposal to acquire 10% of any class
of equity security of the Company generally would be subject to approval by the
OTS under the Change in Bank Control Act. The OTS requires all persons seeking
control of a savings institution and, therefore, indirectly its holding company,
to obtain regulatory approval prior to offering to obtain control. Federal law
generally provides that no "person," acting directly or indirectly or through or
in concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved it is determined, among other
things, that (i) the acquisition would substantially less competition; (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to a set time period but will apply for
as long as the regulations are in effect. Persons holding revocable or
irrevocable proxies may be deemed to be beneficial owners of such securities
under OTS regulations and therefore prohibited from voting all or the portion of
such proxies in excess of the 10% aggregate beneficial ownership limit. Such
regulatory restrictions may prevent or inhibit proxy contests for control of the
Company or the Bank which have not received prior regulatory approval.
157
<PAGE>
New York State Bank Holding Company Regulation. Under New York Banking
Law, the prior approval of the Banking Department is required before: (1) any
action is taken that causes any company to become a bank holding company; (2)
any action is taken that causes any banking institution to become or to be
merged or consolidated with a subsidiary of a bank holding company; (3) any bank
holding company acquires direct or indirect ownership or control of more than 5%
of the voting stock of a banking institution; (4) any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. See "Regulation and
Supervision - Company Regulation - New York Bank Company Regulation."
New York State Change in Control Regulation. Prior approval of the New
York State Banking Board is also required before any action is taken that causes
any company to acquire direct or indirect control of a banking institution.
Control is presumed to exist if any company directly or indirectly owns,
controls or holds with power to vote 10% or more of the voting stock of a
banking institution or of any company that owns, controls or holds with power to
vote 10% or more of the voting stock of a banking institution. Accordingly,
prior approval of the Banking Board would be required before any company could
acquire 10% or more of the common stock of the Company.
FRB Regulations. In the event the Bank does not qualify to be a QTL,
attempts to acquire control of the Bank become subject to regulations of the FRB
under the Change in Bank Control Act.
DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY
GENERAL
The Company is authorized to issue 100 million shares of Common Stock
having a par value of $.01 per share and 10 million shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). Based on the sale
of Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 3% of the Common Stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
40,468,500 shares of Common Stock (based on the maximum of the Estimated Price
Range, as adjusted by 15%) and no shares of Preferred Stock in the Conversion.
Except for shares issued in connection with the Conversion, the Company
presently does not have plans to issue Common Stock. Each share of the Company's
Common Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Actual
Purchase Price for the Common Stock, in accordance with the Plan of Conversion,
all such stock will be duly authorized, fully paid and nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
COMMON STOCK
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
158
<PAGE>
Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
the Company and the Bank," each holder of Common Stock will be entitled to one
vote per share. Stockholders will not have any right to cumulate votes in the
election of Directors. If the Company issues Preferred Stock, holders of the
Preferred Stock may also possess voting rights. Certain matters require an 80%
stockholder vote (after giving effect to the provision limiting voting rights).
See "Restrictions on Acquisition of the Company and the Bank."
As a New York State mutual savings bank, corporate powers and control
of the Bank are vested in its Board of Trustees, who elect the officers of the
Bank and who fill any vacancies on the Board of Trustees as it exists upon
Conversion. Subsequent to Conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of the Bank, which will be the
Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders (see "The Conversion - Liquidation Rights"),
all assets of the Bank available for distribution. In the event of liquidation,
dissolution or winding up of the Company, the holders of its Common Stock would
be entitled to receive, after payment or provision for payment of all of its
debts and liabilities, all of the assets of the Company available for
distribution. If Preferred Stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of liquidation or
dissolution.
Preemptive Rights; Redemption. Holders of the Common Stock of the
Company will not be entitled to preemptive rights with respect to any shares
which may be issued. The Common Stock is not subject to redemption.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. Such
provisions provide that each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the Company shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition. In addition,
a Director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages except for liability for any breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, under Section 174 of the
Delaware General Corporation, or for any transaction from which the Director
derived an improper personal benefit.
PREFERRED STOCK
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
In the event the holding company form of organization is not utilized
in connection with the Conversion, the Bank may offer shares of its common stock
in connection with the Conversion. The following is a discussion of the capital
stock of the Bank.
The Restated Organization Certificate of the Bank, to be effective
upon the Conversion, authorizes the issuance of capital stock consisting of 100
million shares of common stock, par value $0.01 per share, and ten million
shares of preferred stock, par value $0.01 per share, which preferred stock may
be issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of Common Stock
of the Bank will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. After the Conversion, the Board
of Directors will be authorized to approve the issuance of Common Stock up to
the amount authorized by the Restated Organization Certificate without the
approval of the Bank's stockholders. Assuming that the holding company form of
organization is utilized, all of the issued and outstanding common stock of the
Bank will be held by the Company as the Bank's sole stockholder. THE CAPITAL
STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN
ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
Common Stock
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock will possess exclusive voting rights in the Bank. Each
holder of shares of common stock will be entitled to one vote for each share
held. Shareholders shall not be entitled to cumulate their votes for the
election of directors. See "Restrictions on Acquisition of the Company and the
Bank -Anti-Takeover Effects of the Company's Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit
accounts and accrued interest thereon), and distribution of the balance in the
special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Bank available for distribution in
cash or in kind. If additional preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. Upon receipt by the Bank of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is [Transfer
Agent].
159
<PAGE>
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of December 31, 1995 and 1994, and for each of the years in the three-year
period ended December 31, 1995, have been included herein in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing. Such report includes an explanatory paragraph relating
to changes in accounting principles.
William M. Mercer, Incorporated has consented to the publication herein
of the summary of its opinion relating to compensation matters.
FinPro has consented to the publication herein of the summary of its
report to the Bank and Company setting forth its opinion as to the estimated pro
forma market value of the Common Stock upon Conversion and its opinion with
respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Bank and Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
Company. The federal income tax consequences of The Roslyn Savings Bank
Foundation will be passed upon for the Bank and the Company by KPMG Peat Marwick
LLP, independent certified public accountants. Muldoon, Murphy & Faucette will
rely as to certain matters of Delaware law on the opinion of Morris, Nichols,
Arsht & Tunnell. New York State and New York City income tax consequences will
be passed upon by O'Reilly, Marsh & Corteselli. Certain legal matters will be
passed upon for Sandler O'Neill by Thacher Proffitt & Wood.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a web site (http: //www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by Eligible Account
Holders and Supplemental Eligible Account Holders at the offices of the Bank
during normal business hours. The statements contained in this Prospectus as to
the contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
The Bank has filed an application for approval of conversion with the
Superintendent and the FDIC. Pursuant to the rules and regulations of the
Superintendent, this Prospectus omits certain information contained in that
application. The application may be examined at the principal office of the
Superintendent, Two Rector Street, New York, New York 10006.
The Company has filed with the Office of Thrift Supervision an
Application to Form a Holding Company. This Prospectus omits certain information
contained in such Application. Such Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
160
<PAGE>
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Trustees, officers and greater than 10% stockholders, the
annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
Federal Deposit Insurance Corporation under Section 12(g) of the Exchange Act
and, upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the
Company and the Restated Organization Certificate and Bylaws of the Bank are
available without charge from the Bank. The Bank's principle office is located
at 1400 Old Northern Boulevard, Roslyn, New York and its telephone number is
(516) 621-6000.
161
<PAGE>
THE ROSLYN SAVINGS BANK
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report.............. F-2
Consolidated Statements of Financial
Condition as of May 31, 1996
(unaudited), and December 31, 1995,
1994 and 1993........................... F-3
Consolidated Statements of Income for
the five months ended May 31, 1996 and
1995 (unaudited), and the years ended
December 31, 1995, 1994 and 1993........ 38
Consolidated Statements of Changes in
Retained Earnings for the five months
ended May 31, 1996 (unaudited), and
the years ended December 31, 1995,
1994 and 1993........................... F-4
Consolidated Statements of Cash Flows
for the five months ended May 31, 1996
and 1995 (unaudited), and the years
ended December 31, 1995, 1994 and 1993.. F-5 TO F-8
Notes to Consolidated Financial
Statements.............................. F-9 TO F-42
</TABLE>
All schedules are omitted because they are not required or applicable, or
the required information is shown in the consolidated financial statements or
notes thereto.
The financial statements of Roslyn Bancorp, Inc. have been omitted because
Roslyn Bancorp, Inc. has not yet issued any stock, has no assets and no
liabilities, and has not conducted any business other than of an organizational
nature.
<PAGE>
Independent Auditors' Report
----------------------------
The Board of Trustees
The Roslyn Savings Bank:
We have audited the consolidated financial statements of The Roslyn Savings Bank
and subsidiaries (the Bank) as of December 31, 1995 and 1994, and for each of
the years in the three-year period ended December 31, 1995, as listed in the
accompanying index to the consolidated financial statements. These consolidated
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on those consolidated 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of The Roslyn Savings
Bank and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in note 1(d) to the consolidated financial statements, effective
January 1, 1995, the Bank adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights".
As discussed in note 1(c) to the consolidated financial statements, effective
January 1, 1994, the Bank adopted the provisions of SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". As discussed in notes
1(j) and 1(k) to the consolidated financial statements, effective January 1,
1993, the Bank adopted the provisions of SFAS Nos. 109, "Accounting for Income
Taxes", and 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions".
/s/ KPMG Peat Marwick LLP
Jericho, New York
March 8, 1996
F-2
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Financial Condition
May 31, 1996 (unaudited) and December 31, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
December 31,
May 31, -----------------
Assets 1996 1995 1994
------ ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Cash and cash equivalents:
Cash and cash items $ 1,044 1,479 1,841
Due from banks 8,877 8,224 418
Federal funds sold 18,500 10,000 25,000
---------- --------- ---------
28,421 19,703 27,259
Debt and equity securities, net
Held-to-maturity (estimated fair
value of $2,086, $2,151 and
$454,698, respectively) 1,930 1,930 466,204
Available-for-sale 431,932 379,331 89,787
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity (estimated fair
value of $309,068, $348,799
and $394,470, respectively) 312,233 347,213 411,341
Available-for-sale 519,399 413,485 50,711
---------- --------- ---------
1,265,494 1,141,959 1,018,043
Loans held for sale, net 14,265 17,151 -
Loans receivable held for
investment, net:
Real estate loans, net 420,313 386,769 344,912
Consumer and student 1,483 1,846 22,306
---------- --------- ---------
421,796 388,615 367,218
Less allowance for possible
loan losses (22,312) (23,350) (25,127)
---------- --------- ---------
399,484 365,265 342,091
Banking house and equipment, net 14,624 12,423 11,647
Accrued interest receivable 11,881 11,563 13,988
Mortgage servicing rights, net 8,619 8,297 -
Excess of cost over fair
value of net assets acquired 3,648 3,844 642
Real estate owned, net 5,366 6,047 3,359
Deferred tax asset, net 16,511 7,368 18,856
Other assets 3,862 3,124 2,494
---------- --------- ---------
Total assets $1,772,175 1,596,744 1,438,379
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31,
May 31, -----------------
Liabilities and Retained Earnings 1996 1995 1994
--------------------------------- ---- ---- ----
(unaudited)
<S> <C> <C> <C>
Deposits:
Savings accounts $ 437,273 455,511 566,648
Certificates of deposit 871,876 749,775 517,437
Money market accounts 61,411 64,426 77,359
Demand deposit accounts 71,285 65,838 58,074
--------- --------- ---------
Total deposits 1,441,845 1,335,550 1,219,518
Borrowed funds 69,598 1,647 -
Accrued dividends and interest
on deposits 5,077 883 489
Mortgagors' escrow and
security deposits 5,501 7,091 6,462
Accrued taxes payable 9,595 8,265 9,063
Accrued expenses and other
liabilities 18,315 16,890 9,776
---------- --------- ---------
Total liabilities 1,549,931 1,370,326 1,245,308
---------- --------- ---------
Retained earnings:
Surplus fund 22,484 22,484 22,484
Undivided profits 200,432 192,041 173,323
Net unrealized (loss) gain on
securities available-for-sale,
net of tax (672) 11,893 (2,736)
---------- --------- ---------
Total retained earnings 222,244 226,418 193,071
---------- --------- ---------
Total liabilities and
retained earnings $1,772,175 1,596,744 1,438,379
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Changes in Retained Earnings
Five months ended May 31, 1996 (unaudited) and
years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<S> <C>
Balance at December 31, 1992 $ 152,242
Net income for year ended December 31, 1993 24,143
-------
Balance at December 31, 1993 176,385
Net income for year ended December 31, 1994 19,422
Effect of change in accounting for securities
available-for-sale at January 1, 1994 - net
unrealized gain, net of tax 2,625
Change in net unrealized gain in available-for-
sale securities, net of tax for the year ended
December 31, 1994 (5,361)
-------
Balance at December 31, 1994 193,071
Net income for year ended December 31, 1995 18,718
Net unrealized gain on securities transferred from
held-to-maturity to available-for-sale, net of tax 5,484
Change in net unrealized gain in available-for-sale
securities, net of tax for the year ended
December 31, 1995 9,145
-------
Balance at December 31, 1995 226,418
Net income for the five months ended May 31, 1996
(unaudited) 8,391
Change in net unrealized gain in available-for-
sale securities, net of tax for the period ended
May 31, 1996 (unaudited) (12,565)
-------
Balance at May 31, 1996 (unaudited) $ 222,244
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows
Five months ended May 31, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from operating activities:
Net income $ 8,391 7,574 18,718 19,422 24,143
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of changes in
accounting principles - - - - (5,983)
Provision for possible loan losses 300 250 600 600 6,860
Provision for possible losses on real
estate owned 150 - - - 1,200
Originated mortgage servicing rights, net of
amortization (322) - (246) - -
Amortization of excess of cost over fair
value of net assets acquired 196 51 266 122 92
Depreciation and amortization 488 501 1,327 1,066 854
Accretion of discounts, net of
amortization of premiums (439) 632 962 2,076 556
Proceeds from sales of loans held for sale,
net of originations and purchases 2,699 - 6,307 - -
(Gains) losses on sales of loans (1,599) (455) (1,827) 289 (33)
Net losses (gains) on securities 257 758 811 1,181 (3,123)
Net gains on sales of real estate owned (9) (496) (1,113) (822) (34)
Deferred income taxes 227 (232) 578 (732) (2,095)
Changes in assets and liabilities (net of
effects from the purchase of assets and
liabilities of RMBI):
(Increase) decrease in accrued
interest receivable (318) 537 2,452 (1,109) 2,554
(Increase) decrease in other assets (738) (886) (167) (339) 243
(Increase) decrease in accrued
dividends and interest on deposits 4,194 4,114 394 176 (191)
Increase (decrease) in accrued taxes
payable 1,330 2,208 (798) (1,302) 2,511
Increase (decrease) in accrued
expense and other liabilities 1,425 1,107 7,004 1,272 (263)
Net increase in unearned income 148 371 187 1,734 -
Other, net (12) (128) (131) 22 83
------- ------- ------- ------- -------
Net cash provided by
operating activities 16,368 15,906 35,324 23,656 27,374
======= ======= ======= ======= =======
</TABLE>
(Continued)
F-5
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from investing activities:
Purchase of assets and liabilities of RMBI $ - - (12,220) - -
Proceeds from sales and redemptions of debt and
equity securities held-to-maturity 52,393 54,883 278,779 90,604 163,763
Proceeds from sales and repayments of mortgage-backed
and mortgage related securities held-to-maturity 75,905 23,138 92,207 100,381 223,002
Purchases of mortgage-backed and mortgage related
securities held-to-maturity - (60,878) (240,702) (109,433) (246,373)
Purchases of debt and equity securities
held-to-maturity - (88,018) (176,308) (24,807) (213,300)
Proceeds from sales and repayments of debt, equity,
mortgage-backed and mortgage related securities
available-for-sale 31,837 9,567 171,397 5,164 -
Purchases of debt, equity, mortgage-backed and
mortgage related securities available-for-sale (305,423) (48,370) (225,523) (91,470) -
Loan originations and purchases, net of principal
repayments (37,480) (19,888) (80,698) (92,665) 9,904
Proceeds from sales of loans 4,322 19,382 28,008 15,408 15,798
Purchases of banking house and equipment, net (2,685) (992) (1,708) (3,460) (2,848)
Proceeds from sales of real estate owned 825 2,342 5,580 5,371 1,174
--------- --------- --------- --------- ---------
Net cash used in investing activities (180,306) (108,834) (161,188) (104,907) (48,880)
--------- --------- --------- --------- ---------
</TABLE>
(Continued)
F-6
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Cash flows from financing activities:
(Decrease) increase in demand deposit, money
market, and savings accounts $ (15,806) (111,364) (116,306) (50,992) 26,006
Increase (decrease) in certificates of deposit 122,101 153,679 232,338 128,945 (18,984)
Increase in borrowed funds 67,951 40,700 1,647 - -
(Decrease) increase in mortgagors' escrow and
security deposits (1,590) (1,439) 629 (838) (2,164)
------- ------- -------- ------- -------
Net cash provided by financing activities 172,656 81,576 118,308 77,115 4,858
------- ------- -------- ------- -------
Net increase (decrease) in cash and cash equivalents 8,718 (11,352) (7,556) (4,136) (16,648)
Cash and cash equivalents at beginning of period 19,703 27,259 27,259 31,395 48,043
------- ------- -------- ------- -------
Cash and cash equivalents at end of period $ 28,421 15,907 19,703 27,259 31,395
======= ======= ======== ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest on deposits and borrowed funds $ 22,934 18,624 58,904 40,177 39,889
======= ======= ======== ======= =======
Income taxes $ 2,371 1,958 8,888 11,428 10,586
======= ======= ======== ======= =======
Non-cash investing activities:
Additions to real estate owned, net $ 276 1,797 6,964 5,119 2,016
======= ======= ======== ======= =======
Transfer of securities from held-to-maturity
to available-for-sale $ - - 648,705 66,483 -
======= ======= ======== ======= =======
</TABLE>
(Continued)
F-7
<PAGE>
THE ROSLYN SAVINGS BANK
Consolidated Statements of Cash Flows, Continued
(In thousands)
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------------
1996 1995 1995 1994 1993
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
(unaudited)
Fair value of assets acquired from RMBI:
Loans held for sale $ 22,571
Mortgage servicing rights 8,051
Excess of cost over fair value of net assets acquired 3,469
Other assets 628
-------
34,719
-------
Liabilities assumed from RMBI:
Borrowed funds 22,061
Other 438
-------
22,499
-------
Cash paid in acquisition $ 12,220
=======
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies and Related Matters
--------------------------------------------------------------
The following is a summary of significant accounting policies:
The Roslyn Savings Bank and its wholly-owned subsidiaries (the Bank) primary
business activities include attracting deposits from the general public and
originating residential property loans (one-to-four family home mortgage,
cooperative apartment and multi-family property loans). The Bank also
makes commercial real estate loans and consumer loans. The Bank is subject
to competition from other financial institutions. Deposits at the Bank are
insured up to applicable limits by the Bank Insurance Fund (BIF) of the
Federal Deposit Insurance Corporation (FDIC). The Bank is a New York State
chartered savings bank and is subject to comprehensive regulation,
examination and supervision by the New York State Banking Department and
the FDIC.
(a) Principles of Consolidation and Basis of Financial Statement Presentation
-------------------------------------------------------------------------
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles (GAAP) and include the accounts of
the Bank and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Historically, the Bank has been required to issue audited financial
statements to meet regulatory requirements. As more fully discussed in
note 18, the Bank plans to convert from a mutual to capital stock form of
ownership. As a stock institution and as a result of the public offering
of the stock of the holding company intended to be formed by the Bank, the
Bank will be subject to the financial reporting requirements of the
Securities Exchange Act of 1934, as amended. Accordingly, in connection
with the conversion, the Bank performed a comprehensive review of its
accounting policies and practices, and made a determination that certain of
such policies and practices should be changed to adopt preferable
accounting practices. The accompanying consolidated financial statements
have been prepared to reflect such preferred accounting policies, which are
referred to in the paragraphs below and relate principally to the timing of
loan loss provisions and the accounting for premiums paid on certain
callable preferred stock.
On August 1, 1995, The Roslyn Savings Bank acquired, through a wholly-owned
subsidiary now known as Residential First, Inc. (RFI), certain assets and
liabilities, including the loan origination business and the $623 million
loan servicing portfolio (the acquisition), of Residential Mortgage
Banking, Inc. (RMBI), a mortgage banking firm which operated in New York
and New Jersey. RFI has entered into a sub-servicing agreement with another
mortgage banking firm to provide for the servicing of loans.
The acquisition was funded by The Roslyn Savings Bank, and was accounted for
under the purchase method of accounting; accordingly, the purchase price
was allocated to the assets and liabilities acquired based on their
estimated fair values as of August 1, 1995, including $8.1 million relating
to the value of the loan servicing portfolio acquired. The consideration
paid exceeded the estimated fair value of the net assets acquired by $3.5
million. This amount was recorded as goodwill and is being amortized over
10 years.
(Continued)
F-9
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
A substantial portion of the Bank's loans are secured by real estate in the
New York Metropolitan area. Accordingly, the ultimate collectibility of
such loan portfolio is susceptible to changes in market conditions in the
New York Metropolitan area.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the consolidated financial statements and
results of operations for the periods then ended. Actual results could
differ from those estimates. Material estimates that are particularly
susceptible to change in the near-term relate to the determination of the
allowance for possible loan losses. In connection with the determination
of the allowance for possible loan losses, management obtains independent
appraisals for significant properties.
Management believes that the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans,
future additions to the allowance may be necessary based on unanticipated
changes in economic conditions, particularly in the New York Metropolitan
area. In addition, the New York State Banking Department and the FDIC, as
an integral part of their examination process, periodically review the
Bank's allowance for possible loan losses. Such agencies may require the
Bank to recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Certain reclassifications have been made to prior periods amounts to conform
to the current period presentation.
(b) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand, amounts due from banks and federal funds, which are generally sold
for one to three day periods.
(c) Debt, Equity, Mortgage-Backed and Mortgage Related Securities
-------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards No. (SFAS)
115, "Accounting for Certain Investments in Debt and Equity Securities",
which the Bank adopted effective January 1, 1994, the Bank is required to
report debt, readily-marketable equity, mortgage-backed and mortgage
related securities in one of the following categories: (i) "held-to-
maturity" (management has a positive intent and ability to hold to
maturity) which are to be reported at amortized cost adjusted, in the case
of debt securities, for the amortization of premiums and accretion of
discounts; (ii) "trading" (held for current resale) which are to be
reported at fair value, with unrealized gains and losses included in
earnings; and (iii) "available-for-sale" (all other debt, equity, mortgage-
backed and mortgage related securities) which are to be reported at fair
value, with unrealized gains and losses reported net of tax as a separate
component of retained earnings. The Bank classified all of its holdings of
debt, readily-marketable equity, mortgage-backed and mortgage related
securities at January 1, 1994 as either "held-to-maturity" or "available-
for-sale"; thereafter, at the time of new securities purchases, a
determination is made as to the appropriate classification.
(Continued)
F-10
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
In November 1995, the Financial Accounting Standards Board (FASB) issued an
implementation guide for SFAS 115. The implementation allowed an
opportunity from mid-November 1995 to December 31, 1995 for banks to
reclassify securities in the "held-to-maturity" portfolio to the
"available-for-sale" portfolio without tainting the remainder of the
portfolio. In connection with this opportunity the Bank reclassified
$415.3 million of debt securities and $233.4 million of mortgage-backed and
mortgage related securities previously classified as "held-to-maturity" to
securities "available-for-sale".
Premiums and discounts on debt, mortgage-backed and mortgage related
securities are amortized to expense and accreted to income over the
estimated life of the respective security using the interest method.
Premiums paid on certain callable preferred stock are amortized to expense
over the period to the call date. Gains and losses on the sales of
securities are recognized on realization.
(d) Real Estate and Other Loans
---------------------------
Loans receivable are stated at unpaid principal balances, including negative
escrow, less unearned discounts, deferred mortgage interest and net
deferred loan origination fees.
Purchased loans are recorded at cost. Related premiums or discounts on
mortgages and other loans purchased are amortized to expense or accreted to
income using the interest method over the estimated life of the loans.
Loans held for sale are carried at the aggregate lower of cost or market
value as determined by outstanding commitments from investors or current
investor yield requirements calculated on an aggregate loan basis.
The Bank places loans, including impaired loans, on non-accrual status when
they become past due 90 days. All interest previously accrued and not
collected is reversed against interest income, and income is subsequently
recognized only to the extent cash is received until, in management's
judgment, a return to accrual status is warranted. Loans are generally
returned to accrual status when principal and interest payments are
current, full collectibility of principal and interest is reasonably
assured and a consistent record of performance, generally six months, has
been demonstrated.
On January 1, 1995, the Bank adopted SFAS 114. "Accounting by Creditors for
Impairment of a Loan: and the amendment thereof, SFAS 118, "Accounting by
Creditors for Impairment of a Loan-Income Recognition and Disclosure".
These statements require that impaired loans that are within their scope be
measured based on the present value of expected future cash flows
discounted at the loan's observable market price, or the fair value of the
collateral if the loan is collateral dependent. The amount by which the
recorded investment of an impaired loan exceeds the measurement value is
recognized by creating a valuation allowance within the allowance for
possible loan losses. SFAS 114 generally does not apply to those smaller-
balance homogeneous loans that are collectively evaluated for impairment,
which for the Bank, include one-to four-family first mortgage loans,
student loans and consumer,loans, other than those modified in a troubled
debt restructuring ("TDR"). The implementation of SFAS 114 and SFAS 118 did
not materially affect the Bank's consolidated financial statements.
In accordance with SFAS 114, the Bank considers a loan impaired when,
based upon current information and events, it is possible that it will be
unable to collect all amounts due, both principal and interest, by the Bank
within the scope of SFAS 114 are limited to loans modified in a TDR and
commercial and multi-family first mortgage loans. The measurement value of
the Bank's impaired loans was based on fair value of the underlying
collateral. The Bank identifies and measures impaired loans in conjunction
with its review of the adequacy of its allowance for possible loan losses.
Specific factors utilized in the identification of impaired loans include,
but not limited to, delinquency status, loan-to-value ratio, the condition
of the underlying collateral, credit history and debt coverage.
Cash receipts on non-accrual loans, including impaired loans, are applied to
principal and interest in accordance with the contractual terms of the
loan unless full payment of principal is not expected, in which case both
principal and interest payments received are applied as a reduction of the
carrying value of the loan.
In May 1995, SFAS 122, "Accounting for Mortgage Servicing Rights" was issued.
SFAS 122 is effective for fiscal years beginning after December 15, 1995,
with earlier adoption permitted. The statement amends SFAS 65, "Accounting
for Certain Mortgage Banking Activities", to require that a mortgage
banking enterprise recognize as separate assets rights to service mortgage
loans for others,
(Continued)
F-11
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
however acquired. For mortgage servicing rights that are created through
the origination of mortgage loans, and where the loans are subsequently
sold or securitized with servicing rights retained, the statement requires
that the total cost of the mortgage loans should be allocated to the
mortgage servicing rights and the loans based on their relative fair
values. The statement also requires the assessment of capitalized mortgage
servicing rights for impairment to be based on the current fair value of
those rights and recognized through a valuation allowance. The Bank
adopted SFAS 122 effective January 1, 1995, the impact of which was not
material to its financial statements.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights (MSRs) are
amortized as a reduction to loan service fee income using the interest
method over the estimated remaining life of the underlying mortgage loans.
MSR assets are carried at fair value and impairment, if any, is recognized
through a valuation allowance.
(e) Allowance for Possible Loan Losses
----------------------------------
The allowance for possible loan losses is based on a periodic analysis of the
loan portfolio and reflects an amount which, in management's judgment, is
adequate to provide for possible loan losses in the existing portfolio. In
evaluating the portfolio, management takes into consideration numerous
factors such as the Bank's loan growth, prior loss experience, present and
potential risks of the loan portfolio and current economic conditions.
Provisions for possible losses on loans are charged to operations. Loans,
including impaired loans, are charged off against the allowance for
possible loan losses when the collectibility of loan principal is unlikely.
Recoveries of loans previously charged off are credited to the allowance.
(f) Commitment and Loan Origination Fees
------------------------------------
The Bank defers certain loan origination and commitment fees net of certain
origination costs and amortizes them as an adjustment of the loan's yield
over the term of the related loan using the interest method.
(g) Banking House and Equipment
---------------------------
Land is carried at cost and buildings are carried at cost, less allowance for
depreciation computed on the straight-line method over a twenty-five to
fifty year period. Leasehold improvements are stated at cost, less
accumulated amortization. Amortization is computed on the straight-line
method over the terms of the respective lease or the life of the
improvement, whichever is shorter. Furniture, fixtures and equipment are
stated at cost, less accumulated depreciation. Depreciation is computed on
the straight-line method on the estimated service lives over a three to ten
year period.
(h) Real Estate Owned
-----------------
Real estate acquired through foreclosure or deed-in-lieu of foreclosure, are
reported at the lower of cost or fair value at the acquisition date, and
subsequently at the lower of its new cost or fair value less estimated
selling costs. Cost represents the unpaid loan balance at the acquisition
date plus expenses, when appropriate, incurred to bring the property to a
salable condition. The Bank maintains an allowance for subsequent declines
in estimated fair value less estimated selling costs. Certain costs
relating to holding the properties, and gains or losses resulting from the
disposition of properties are recognized in the current period's
operations.
(Continued)
F-12
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(i) Surplus Fund
------------
As required under State of New York Banking Law, if the retained earnings of
the Bank is less than ten percent of deposits at the close of any
accounting period, ten percent of net income during the year, as defined,
is credited to surplus. During the years ended December 31, 1995, 1994,
and 1993 and the five months ended May 31, 1996 and 1995, no amount was
required to be credited to surplus.
(j) Income Taxes
------------
The Bank adopted SFAS 109, " Accounting for Income Taxes effective January 1,
1993. Under the asset and liability method of SFAS 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. To the extent that
current available evidence about the future raises doubt about the
realization of a deferred tax asset, a valuation allowance must be
established. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. The
cumulative effect of adopting SFAS 109 as of January 1, 1993 is included in
the 1993 consolidated statement of income.
(k) Summary of Retirement Benefits Accounting
-----------------------------------------
The Bank's retirement plan is noncontributory and covers substantially all
eligible employees. The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Bank's policy is
to accrue for all pension costs and to fund the maximum amount allowable
for tax purposes. Actuarial gains and losses that arise from changes in
assumptions concerning future events, used in estimating pension costs, are
amortized over a period that reflects the long-range nature of pension
expense. The Bank adopted SFAS 106 (SFAS 106), "Employers' Accounting for
Post-Retirement Benefits Other Than Pensions", on January 1, 1993. This
statement established accounting standards for postretirement benefits
other than pensions (hereinafter referred to as post-retirement benefits).
This statement focuses principally on health care benefits, although it
applies to all forms of postretirement benefits other than pensions. SFAS
106 changed the Bank's practice of accounting for postretirement benefits
on a cash basis by requiring accrual of the cost of providing those
benefits to an employee, and the employee's beneficiaries and covered
dependents, during the years that the employee renders the necessary
service. The cumulative effect of adopting SFAS 106 as of January 1, 1993,
based on the Bank's option to recognize all of the transition obligation in
the year of adoption, is included in the 1993 consolidated statement of
income, net of related tax effect.
(l) Employers' Accounting for Postemployment Benefits
-------------------------------------------------
In November 1992, the FASB issued SFAS 112, "Employers' Accounting for
Postemployment Benefits". SFAS 112 focuses principally on postemployment
benefits for employers who provide benefits to former or inactive employees
after employment but before retirement. Postemployment benefits are all
types of benefits provided to former or inactive employees, their
beneficiaries and
(Continued)
F-13
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
covered dependents. This statement requires employers to recognize the
obligation to provide postemployment benefits in accordance with SFAS
43, "Accounting for Compensated Absences", if the obligation is
attributable to employees' service already rendered, employees' rights
to those benefits accumulate or vest, payment of the benefits is
probable, and the amount of the benefits can be reasonably estimated. If
those four conditions are not met, the employer should account for
postemployment benefits when it is probable that a liability has been
incurred and the amount can be reasonably estimated in accordance with
SFAS 5, "Accounting for Contingencies". If an obligation for
postemployment benefits is not accrued in accordance with SFAS 5 or SFAS
43 only because the amount cannot be reasonably estimated, the financial
statements shall disclose that fact.
The Bank adopted SFAS 112 on January 1, 1994. The impact of the Bank's
adoption of SFAS 112 was minimal because the majority of the Bank's
benefits do not vest or accumulate or are not attributable to past
service.
(m) Recently Adopted Accounting Pronouncements
------------------------------------------
In March 1995, the FASB issued SFAS 121, "Accounting for the Impairment of
Long-Lived Assets to be Disposed Of". SFAS 121 is effective for fiscal
years beginning after December 15, 1995 and establishes accounting
standards for impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used
and for long-lived assets and certain identifiable intangibles to be
disposed of. This statement requires that long-lived assets and certain
identifiable intangibles, to be held and used by an entity, be reviewed
for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. In performing
the review for recoverability, the entity should estimate the future
cash flows expected to result from the use of the asset and its eventual
disposition. If the sum of the expected future cash flows is less than
the carrying amount of the asset, an impairment loss should be
recognized. This statement requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of
carrying amount or fair value less cost to sell. The Bank adopted SFAS
121 on January 1, 1996 Adoption of this statement did not have a
material effect on the Bank's consolidated financial statements.
(2) Debt and Equity Securities
--------------------------
Investments in debt and equity securities at May 31, 1996 are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ---- ---- ----------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
State, county and municipal $ 1,930 156 - 2,086
======= ======= ======= =======
</TABLE>
(Continued)
F-14
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ---- ---- ----------
(In thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
Debt securities:
United States Government-
direct and guaranteed $185,658 3,245 (56) 188,847
United States Government
agencies 88,556 - (1,700) 86,856
Public utility 2,745 25 - 2,770
Other 14,409 295 (26) 14,678
-------- ------ ------ ----------
Total debt securities
available-for-sale $291,368 3,565 (1,782) 293,151
======== ====== ====== ==========
Equity securities:
Common 258 4,700 - 4,958
Preferred 133,188 1,996 (1,972) 133,212
Other 602 9 - 611
-------- ------ ------ -------
Total debt securities
available-for-sale $134,048 6,705 (1,972) 138,781
======== ====== ====== ==========
$ 431,932
=========
Investments in debt and equity securities at December 31, 1995 are summarized as follows:
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---- ------ ------ ----------
(In thousands)
Held-to-maturity:
Debt securities:
State, county and
municipal $ 1,930 221 - 2,151
======== ====== ======= ========
Available-for-sale:
Debt securities:
United States Government -
direct and guaranteed 195,701 8,925 - 204,626
United States Government
agencies 34,764 6 (26) 34,744
Public utility 2,742 57 - 2,799
Other 17,838 557 (11) 18,384
-------- ------ ------ ----------
Total debt securities
available-for-sale $251,045 9,545 (37) 260,553
======== ====== ====== ==========
</TABLE>
(Continued)
F-15
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
--------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Equity securities:
Common $ 257 4,753 - 5,010
Preferred 111,896 3,096 (1,226) 113,766
Other 2 - - 2
------- ------ ------ --------
Total equity securities
available-for-sale $ 112,155 7,849 (1,226) 118,778
======= ====== ====== =======
$379,331
=======
</TABLE>
Investments in debt and equity securities at December 31, 1994 are summarized
as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized unrealized unrealized Estimated
cost gain loss fair value
---------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
United States Government -
direct and guaranteed $ 333,234 144 (7,215) 326,163
United States Government
agencies 34,996 - (1,457) 33,539
State, county and
municipal 2,715 153 (1) 2,867
Public utility 16,032 22 (758) 15,296
Foreign 3,547 - (57) 3,490
Other 75,680 184 (2,521) 73,343
------- ------ ------- --------
Total debt securities
held-to-maturity $ 466,204 503 (12,009) $454,698
======= ====== ======= ========
Available-for-sale:
Equity securities:
Common $ 580 2,817 3,397
Preferred 92,634 460 (6,789) 86,305
Institutional Investors
Mutual Fund, Inc. 137 - (52) 85
------ ------ ------- --------
Total equity securities
available-for-sale $93,351 3,277 (6,841) $ 89,787
====== ====== ====== ========
</TABLE>
U.S. Government direct and guaranteed obligations pledged as collateral were
$-0-, $-0- and $15.0 million at May 31, 1996 and December 31, 1995 and
1994, respectively.
(Continued)
F-16
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Sales of investments in debt and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ----- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Proceeds from sales:
Equity securities $12,180 687 11,077 5,164 10,693
Debt securities - 19,970 172,099 46,062 75,012
Gross gains:
Equity securities 7 88 189 6 1,660
Debt securities - 8 159 102 1,682
Gross losses:
Equity securities 329 74 685 41 26
Debt securities - 36 231 13 8
</TABLE>
During the five month periods ended May 31, 1996 and 1995, and the years
ended December 31, 1995 and 1994, sales of investments in debt securities
were from both the "held-to-maturity" and "available-for-sale" portfolios
and the sales of investments in equity securities were from the "available-
for-sale" portfolio. Investments in debt securities sold from the "held-
to-maturity" portfolio were either called or sold within 90 days of the
maturity date.
The Bank wrote-off its investment in Nationar, a failed bank service
institution, in the amount of $376,000 and $561,000 for the five months
ended May 31, 1995 and the year ended December 31, 1995, respectively. In
addition, the Bank amortized premiums relating to its investments in
certain callable preferred stocks in the amounts of $292,000 and $453,000
for the five months ended May 31, 1996 and 1995, respectively, and $1.2
million, $1.2 million, and $185,000 for the years ended December 31, 1995,
1994 and 1993, respectively. Included in the gross losses realized on
sales of equity securities is $329,000 and $611,000 for the five months
ended May 31, 1996,and the year ended December 31, 1995, respectively,
which had been previously charged to income as a result of the
aforementioned premium amortization.
The maturities of the investments in debt securities at May 31, 1996 are as
follows:
<TABLE>
<CAPTION>
Available-for-sale
--------------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C> <C>
Within 1 year $ 33,735 33,975
After 1 year through 5 years 176,688 178,992
After 5 years through 10 years 80,945 80,184
--------- ---------
$ 291,368 293,151
========= ========
</TABLE>
(Continued)
F-17
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C>
After 1 year through 5 years $ 1,860 2,006
After 5 years through 10 years 70 80
------- ----------
$ 1,930 2,086
======= ==========
</TABLE>
The maturities of the investments in debt securities at December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
<S> <C> <C>
Within 1 year $ 24,539 24,797
After 1 year through 5 years 179,007 184,405
After 5 years through 10 years 47,499 51,351
-------- -------
$251,045 260,553
======== =======
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
After 1 year through 5 years $ 1,630 1,802
After 5 years through 10 years 300 349
-------- -------
$ 1,930 2,151
======== =======
The maturities of the investments in debt securities at December 31, 1994 are
as follows:
Available-for-sale
-----------------------
Amortized Estimated
Maturity cost fair value
-------- ---- ----------
(In thousands)
Within 1 year $ 88,839 88,267
After 1 year through 5 years 305,120 295,918
After 5 years through 10 years 71,440 69,706
Over 10 years 805 807
-------- -------
$466,204 454,698
======== =======
</TABLE>
(Continued)
F-18
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Included in available-for-sale securities at May 31, 1996 and December 31,
1995 and in held-to-maturity securities at December 31, 1994 are callable
step up notes which were issued by U.S. Government agencies. The amortized
cost and estimated fair values of these notes aggregated $15.0 million and
$14.6 million, respectively, at May 31, 1996, $14.9 million and $14.9
million, respectively, at December 31, 1995 and $35.0 million and $33.5
million, respectively, at December 31, 1994. These notes represent general
U.S. Government agency obligations that provide for annual fixed rate step
ups of interest and are callable at par after one year and in six month
intervals thereafter. The weighted average rate of the notes was 6.00%,
5.54% and 5.55% at May 31, 1996 and December 31, 1995 and 1994,
respectively.
(3) Mortgage-Backed and Mortgage Related Securities
-----------------------------------------------
Included in the Bank's available-for-sale and held-to-maturity securities
portfolios are mortgage-backed and mortgage related securities which,
except for collateralized mortgage obligations (CMOs), represent
participating interests in pools of first mortgage loans.
Mortgage-backed and mortgage related securities at May 31, 1996 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Whole loan private collateralized
mortgage obligations, net $312,233 1,395 (4,560) 309,068
======= ======= ======= =======
Available-for-sale:
GNMA pass through securities, net 20,978 1,857 - 22,835
FNMA pass through securities, net 7,197 - (271) 6,926
FHLMC pass through securities, net 146,761 - (4,900) 141,861
GNMA adjustable rate mortgage
pass through securities, net 118,473 527 (451) 118,549
Agency collateralized mortgage
obligations, net 167,328 488 (3,519) 164,297
Whole loan private
collateralized mortgage
obligations, net 66,351 25 (1,445) 64,931
------- ------- ------- -------
Mortgage-backed and mortgage
related securities
available-for-sale, net $527,088 2,897 (10,586) 519,399
======= ======= ======= =======
</TABLE>
(Continued)
F-19
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Mortgage-backed and mortgage related securities at December 31, 1995 are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Whole loan private collateralized
mortgage obligations, net $347,213 3,513 (1,927) 348,799
======== ====== ====== =======
Available-for-sale:
GNMA pass through securities, net 23,090 2,393 - 25,483
FNMA pass through securities, net 27,689 - (390) 27,299
FHLMC pass through
securities, net 116,100 766 (599) 116,267
GNMA adjustable rate mortgage
pass through securities, net 86,876 1,257 - 88,133
Agency collateralized mortgage
obligations, net 155,100 1,796 (593) 156,303
-------- ------ ------ -------
Mortgage-backed and mortgage
related securities available-for-
sale, net $408,855 6,212 (1,582) 413,485
======== ====== ====== =======
</TABLE>
Mortgage-backed and mortgage related securities at December 31, 1994, are
summarized as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
---- ---- ---- -----
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
GNMA pass through
securities, net $ 28,319 916 (192) 29,043
FNMA pass through
securities, net 31,491 61 (2,954) 28,598
FHLMC pass through
securities, net 57,288 - (5,121) 52,167
Collateralized mortgage
obligations, net:
Agency 114,145 2,812 (2,829) 114,128
Whole loan private 180,098 3,180 (12,744) 170,534
-------- ----- ------- -------
Mortgage-backed and mortgage
related securities held-to-
maturity, net $411,341 6,969 (23,840) 394,470
======== ===== ======= =======
</TABLE>
(Continued)
F-20
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gain loss value
--------- ---------- ----------- --------
(In thousands)
<S> <C> <C> <C>
Available-for-sale:
GNMA adjustable rate mortgage
pass through securities, net $ 8,103 - (237) 7,866
FNMA adjustable rate mortgage
pass through securities, net 14,471 - (382) 14,089
FHLMC adjustable rate mortgage
pass through securities, net 29,351 - (595) 28,756
------ ------- ------ ------
Mortgage-backed and mortgage related
securities available-for-sale, net $51,925 - (1,214) 50,711
====== ======= ====== ======
</TABLE>
Sales of investments in mortgage-backed and mortgage related securities are
summarized as follows:
<TABLE>
<CAPTION>
Five months Year ended
ended May 31, December 31,
------------- ------------
1996 1995 1995
---- ----- ------
(In thousands)
<S> <C> <C> <C>
Proceeds from sales $19,657 8,880 48,463
Gross gains 46 85 904
Gross losses 18 - -
</TABLE>
During the five month periods ended May 31, 1996 and 1995, and the year ended
December 31, 1995, sales of mortgage-backed and mortgage related securities
were from the "available-for-sale" portfolio. There were no sales of mortgage-
backed and mortgage related securities during the years ended December 31,
1994 and 1993.
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at May 31, 1996 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
----------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 60,808 57,848
After 5 years through 10 years 40,963 40,236
Over 10 years 425,317 421,315
-------- -------
$527,088 519,399
======== =======
</TABLE>
(Continued)
F-21
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 9,515 9,293
After 5 years through 10 years 28,433 28,333
Over 10 years 274,285 271,442
-------- -------
$312,233 309,068
======== =======
</TABLE>
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 74,338 73,459
After 5 years through 10 years 38,589 39,429
Over 10 years 295,928 300,597
-------- -------
$408,855 413,485
======== =======
</TABLE>
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 59,702 59,092
After 5 years through 10 years 46,785 46,797
Over 10 years 240,726 242,910
-------- -------
$347,213 348,799
======== =======
</TABLE>
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
Available-for-sale
---------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
Over 10 years $ 51,925 50,711
====== ======
</TABLE>
(Continued)
F-22
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Available-for-sale
--------------------
Amortized Estimated
Maturity cost fair value
-------- --------- ----------
(In thousands)
<S> <C> <C>
After 1 year through 5 years $ 45,939 42,172
After 5 years through 10 years 167,847 161,199
Over 10 years 197,555 191,099
-------- -------
$411,341 394,470
======== =======
</TABLE>
Expected maturities differ from contractual obligations since borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties. Generally, the aging of mortgage-backed and mortgage
related securities is based on their weighted average maturities.
(4) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net
----------------------------------------------------------------------
Loans held-for-sale, net are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996 Dec. 31, 1995
------------ -------------
(In thousands)
<S> <C> <C>
One-to-four family loans $13,310 15,278
Student loans 955 1,873
------- ------
Total loans held for sale, net $14,265 17,151
======= ======
</TABLE>
There were no loans held for sale at December 31, 1994.
RFI originates most fixed rate loans for immediate sale to the Federal
National Mortgage Association (FNMA) or other investors. Generally, the
sale of such loans is arranged at the time the loan application is
received through commitments.
In addition, student loans are sold to the Student Loan Mortgage Association
generally before repayment begins during the grace period of the loan.
During the five month periods ended May 31, 1996 and 1995, and the years
ended December 31, 1995, 1994 and 1993, the Bank sold approximately $2.7
million, $18.8 million, $21.7 million, $49,000 and $192,000,
respectively, of student loans, recording aggregate net gains of $28,000,
$455,000, $496,000, $0 and $0, respectively.
(Continued)
F-23
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Loans receivable held for investment, net are summarized as follows:
<TABLE>
<CAPTION>
May 31, December 31,
------------
1996 1995 1994
----------- ------------- --------
(In thousands)
<S> <C> <C> <C>
Real estate loans, net:
One-to four-family $199,735 182,079 153,203
Multi-family 33,320 36,353 18,617
Home equity and second mortgage 4,690 3,672 4,346
Commercial real estate 153,592 124,976 114,317
Construction and development 31,046 41,611 56,163
-------- ------- -------
Total real estate loans 422,383 388,691 346,646
-------- ------- -------
Less:
Deferred income (1,301) (1,256) (1,123)
Net deferred loan origination fees (769) (666) (611)
-------- ------- -------
Total real estate loans, net 420,313 386,769 344,912
-------- ------- -------
Other loans:
Consumer loans 1,483 1,760 1,680
Student -- 86 20,626
-------- ------- -------
Total other loans 1,483 1,846 22,306
-------- ------- -------
Less allowance for possible loan
losses (22,312) (23,350) (25,127)
-------- ------- -------
Loans receivable held for
investment, net $399,484 365,265 342,091
======== ======= =======
</TABLE>
The principal balance of non-accrual loans and loans where the terms have
been restructured due to a deterioration in the ability of the borrower to
service the outstanding debt approximated $11.8 million, $11.8 million and
$24.4 million at May 31, 1996 and December 31, 1995 and 1994, respectively.
Interest income that would have been recorded if the loans had been
performing in accordance with their original terms aggregated approximately
$426,000, $773,000, $1.5 million, $1.9 million and $1.8 million during the
five month periods ended May 31, 1996 and 1995, and the years ended
December 31, 1995, 1994 and 1993, respectively.
(Continued)
F-24
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Loans in arrears three months or more were as follows:
<TABLE>
<CAPTION>
Amount % of loans
-------- -----------
(In thousands)
<S> <C> <C>
May 31, 1996 $ 9,137 2.17%
======= ====
December 31, 1995 $ 8,766 2.26%
======= ====
December 31, 1994 $19,856 5.41%
======= ====
</TABLE>
The Bank has entered into various agreements to service loans for others. At
May 31, 1996 and December 31, 1995 and 1994, 6,499 loans, 6,039 loans and
361 loans, respectively, with a total balance of $762.7 million, $704.8
million and $37.1 million, respectively, were being serviced for others.
The Bank has not retained a participation in these loans.
The right to service loans for others is generally obtained by either the
sale of loans with servicing retained, the open market purchase of mortgage
servicing rights or the creation of mortgage servicing rights pursuant to
SFAS 122 (collectively referred to as mortgage servicing rights ("MSRs")).
During the five month periods ended May 31, 1996 and May 31, 1995, and the
years ended December 31, 1995, 1994 and 1993, the Bank sold without
recourse approximately $72.2 million, $1.4 million, $70.4 million, $15.9
million and $17.6 million, respectively, of whole loans with servicing
retained. Servicing fee income of $828,000, $51,000, $888,000, $115,000 and
$27,000 is included in loan servicing and fee income, net in the
accompanying consolidated statements of income for the five months ended
May 31, 1996 and 1995, and the years ended December 31, 1995, 1994 and
1993, respectively.
In connection with the 1995 acquisition of certain assets and liabilities of
RMBI, the Bank recorded MSRs with a fair value of $8.1 million. No
servicing rights were purchased prior thereto. In addition, effective
January 1, 1995, the Bank adopted SFAS 122. SFAS 122 provides for the
capitalization of MSRs when mortgage loans are originated and subsequently
sold or securitized where the right to service the loans is retained.
Accordingly, pursuant to the adoption of SFAS 122, the Bank recorded MSRs
in the amount of $690,000 during 1995. The Bank did not record any MSRs
during the five months ended May 31, 1995. During the five months ended
May 31, 1996, the Bank recorded MSRs in the amount of $878,000.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. Mortgage servicing rights are
amortized as a reduction to loan servicing and fee income on the interest
method over the estimated remaining life of the underlying mortgage loans.
MSR assets are carried at fair value and impairment, if any, is recognized
through a valuation allowance. For the five months ended May 31, 1996 and
the year ended December 31, 1995, no impairment existed in the MSRs and as
a result, there was no valuation allowance required. See note 15 for risk
characteristics and assumptions used to estimate fair value.
(Continued)
F-25
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
MSR activity is summarized as follows:
<TABLE>
<CAPTION>
Five months
ended Year ended
May 31, 1996 Dec. 31, 1995
------------- --------------
(In thousands)
<S> <C> <C>
Balance at beginning of period $ 8,297 -
Acquired in the acquisition - 8,051
Originated mortgage servicing
rights 878 690
Less:
Amortization (556) (444)
------- ------
Balance at end of period $ 8,619 8,297
======= ======
</TABLE>
(5) Allowance for Possible Loan Losses
----------------------------------
Impaired loans and related allowances for possible loan losses have been
identified and calculated in accordance with the provisions of SFAS 114.
The total allowance for possible loan losses has been determined in
accordance with the provisions of SFAS 5, "Accounting for
Contingencies". As such, the Bank has provided amounts for anticipated
losses that exceed the immediately identified losses associated with
loans that have been deemed impaired. Provisions have been made and
established accordingly, based upon experience and expectations, for
losses associated with the general population of loans, specific
industry and loan types, including residential and consumer loans which
are not subject to the provisions of SFAS 114.
The following table summarizes information regarding the Bank's impaired
loans at May 31, 1996 and December 31, 1995:
<TABLE>
<CAPTION>
May 31, 1996
---------------------------------------
<S> <C> <C> <C>
Related
allowance
Recorded for possible Net
investment loan losses investment
---------- ----------- -----------
(In thousands)
Nonresidential loans:
Without a related
allowance $ 5,165 - 5,165
------- ------- ------
Total impaired loans $ 5,165 - 5,165
======= ======= ======
</TABLE>
(Continued)
F-26
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
<S> <C> <C>
Related
allowance
Recorded for possible Net
investment loan losses investment
---------- ------------ -----------
(In thousands)
Nonresidential loans:
With a related allowance $2,320 828 1,492
Without a related allowance 2,332 - 2,332
----- ----- -----
Total impaired loans $4,652 828 3,824
====== ===== =====
</TABLE>
The Bank's average recorded investment in impaired loans for the five months
ended May 31, 1996 and 1995 and the year ended December 31, 1995 was $5.5
million, $1.2 million, and $5.1 million, respectively. Interest income
recognized on impaired loans, which was not materially different from cash-
basis interest income, amounted to $84,000, $196,000 and $378,000 for the
five months ended May 31, 1996 and 1995 and the year ended December 31,
1995.
The following is a summary of the activity in the allowance for possible loan
losses account:
<TABLE>
<CAPTION>
Five months
ended May
31, Years ended December 31,
----------------------- ------------------------
1996 1995 1995 1994 1993
----------- ---------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period $23,350 25,127 25,127 24,502 23,187
Provisions for loan losses 300 250 600 600 6,860
Charge-offs (1,340) (1,300) (2,510) (171) (5,545)
Recoveries 2 49 133 196 -
------- ------ ------ ------ ------
Balance at end of period $22,312 24,126 23,350 25,127 24,502
======= ====== ====== ====== ======
</TABLE>
(Continued)
F-27
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(6) Banking House and Equipment
---------------------------
A summary of banking house and equipment at cost, net of accumulated
depreciation and amortization, and land at cost is as follows:
<TABLE>
<CAPTION>
May 31, December 31,
-------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Land $ 2,558 1,957 1,957
Banking house 12,036 10,232 9,290
Furniture, fixtures and
equipment 5,108 4,835 5,425
------- ------ ------
19,702 17,024 16,672
Accumulated depreciation
and amortization (5,078) (4,601) (5,025)
------- ------ ------
$ 14,624 12,423 11,647
======= ====== ======
</TABLE>
(7) Accrued Interest Receivable
---------------------------
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
May 31, December 31,
---------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans $ 2,740 2,426 2,345
Mortgage-backed and
mortgage related securities 4,737 4,250 2,395
Debt and equity securities 4,404 4,887 9,248
------- ------ ------
Total accrued interest
receivable $11,881 11,563 13,988
======= ====== ======
</TABLE>
(8) Excess of Cost Over Fair Value of Net Assets Acquired
-----------------------------------------------------
The main component of excess of cost over fair value of net assets acquired
("goodwill") represents the excess of purchase price over fair value of net
assets acquired from RMBI. This goodwill is being amortized on a straight-
line basis over ten years. RFI will assess the recoverability of this
intangible asset by determining whether the amortization of the goodwill
over its remaining life can be recovered through future operating cash
flows of RFI. The unamortized balance of goodwill relating to the purchase
of RMBI was $3.2 million and $3.3 million as of May 31, 1996 and December
31, 1995, respectively.
In 1992, the Bank purchased certain assets and assumed the deposit
liabilities of the Riverhead Savings Bank's East Northport, New York
branch. The acquisition was accounted for under the purchase method and,
accordingly, all of the acquired assets and assumed liabilities were
adjusted to and recorded at their fair market value. The excess of
acquisition costs over the fair market value of net assets acquired
("goodwill") was $855,000 which is being amortized on a straight-line basis
over seven years. The unamortized balance of the goodwill as of May 31,
1996 and December 31, 1995 and 1994 was $468,000, $519,000 and $642,000,
respectively.
(Continued)
F-28
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(9) Real Estate Owned, Net
----------------------
Real estate owned, at the lower of its cost or fair value minus estimated
costs to sell, was as follows:
<TABLE>
<CAPTION>
May 31, December 31,
----------------
1996 1995 1994
------ ------ ------
(In thousands)
<S> <C> <C> <C>
One-to four-family real estate
properties $ 814 527 349
Commercial/building properties 5,664 6,570 4,519
Allowance for possible losses on
real estate owned (1,112) (1,050) (1,509)
------- ------ ------
$ 5,366 6,047 3,359
======= ====== ======
</TABLE>
The following is a summary of the activity in the allowance for possible
losses on real estate owned account:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---------- ------------ -------- ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning
of period $1,050 1,509 1,509 1,882 700
Provisions for losses 150 -- -- -- 1,200
Charge-offs (101) (59) (459) (415) (18)
Recoveries 13 -- 42 --
------ ------ ------ ------ ------
Balance at end of period $1,112 1,450 1,050 1,509 1,882
====== ====== ====== ====== ======
</TABLE>
(10) Deposits
---------
Savings and time deposit account balances (excluding demand deposit
accounts) are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996
---------------------
Weighted
Type of account average rate Amount
--------------- ------------ ------
(In thousands)
<S> <C> <C>
Savings accounts 2.58% $437,273
Certificates of deposit 5.52 871,876
Money market accounts 2.97 61,411
--------
$1,370,560
=========
</TABLE>
(Continued)
F-29
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
--------------------
Weighted
Type of account average rate Amount
---------------- ------------ --------
(In thousands)
<S> <C> <C>
Savings accounts 2.57% $ 455,511
Certificates of deposit 5.83 749,775
Money market accounts 2.97 64,426
----------
$1,269,712
==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
--------------------
Weighted
Type of account average rate Amount
---------------- ------------ --------
(In thousands)
<S> <C> <C>
Savings accounts 2.57% $ 566,648
Certificate of deposit 5.18 517,437
Money market accounts 2.97 77,359
----------
$1,161,444
==========
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
May 31, 1996
------------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ -------- -------
<S> <C> <C> <C>
1 year or less 5.38% $ 688,244 78.94%
Greater than 1 year through 2 years 5.72 61,525 7.06
Greater than 2 years through 3 years 5.62 27,478 3.15
Greater than 3 years through 4 years 6.75 56,788 6.51
Greater than 4 years through 5 years 6.55 25,940 2.97
Over 5 years 6.53 11,901 1.37
---------- -------
$ 871,876 100.00%
======= =======
</TABLE>
(Continued)
F-30
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1995
----------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ ------ -------
<S> <C> <C> <C>
1 year or less 5.72% $ 574,724 76.65%
Greater than 1 year through 2 years 6.04 60,397 8.06
Greater than 2 years through 3 years 5.75 26,412 3.52
Greater than 3 years through 4 years 6.47 53,812 7.18
Greater than 4 years through 5 years 7.06 21,725 2.90
Over 5 years 6.80 12,705 1.69
--------- ------
$ 749,775 100.00%
========= =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
----------------------------------
(In thousands)
Weighted
average rate Amount Percent
------------ ------ -------
<S> <C> <C> <C>
1 year or less 4.50% $ 314,556 60.79%
Greater than 1 year through 2 years 6.31 86,183 16.65
Greater than 2 years through 3 years 5.87 20,340 3.93
Greater than 3 years through 4 years 5.70 22,860 4.42
Greater than 4 years through 5 years 6.45 51,937 10.04
Over 5 years 7.17 21,561 4.17
--------- -------
$ 517,437 100.00%
========= =======
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $140.7 million,
$114.2 million and $74.3 million at May 31, 1996 and at December 31, 1995 and
1994, respectively.
Demand deposits are summarized as follows:
<TABLE>
<CAPTION>
May 31, 1996 December 31, 1995 December 31, 1994
----------------------- ----------------------- -----------------------
Type of Weighted Weighted Weighted
account average rate Amount average rate Amount average rate Amount
------- ------------ ------ ------------ ------ ------------ ------
(In thousands) (In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
Personal - $ 33,926 - $ 30,781 - $ 22,661
NOW 2.24% 37,359 2.05% 35,057 2.05% 35,413
-------- -------- --------
$ 71,285 $ 65,838 $ 58,074
======== ======== ========
</TABLE>
The FDIC insures deposits of account holders up to $100,000 per insured
depositor. To provide for this insurance, the Bank must pay a risk-based
annual assessment which considers the financial
(Continued)
F-31
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
soundness of the institution and capitalization level (note 17). At
December 31, 1995, the Bank was assessed at the FDIC's lowest assessment
level, as a well capitalized institution. During the third quarter of 1995,
the FDIC announced that the BIF was recapitalized as of May 31, 1995, and
issued refunds of deposit insurance overpayments from June 1 through
September 30, 1995. For 1996, it is expected that the Bank will pay $2,000
in FDIC insurance premiums, the statutory minimum, provided that the fund
remains at its targeted capital level.
Interest expense on deposit balances is summarized as follows:
<TABLE>
<CAPTION>
Five months Years ended
ended May 31, December 31,
------------- ------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Savings accounts $ 6,418 6,773 16,154 18,664 20,442
Money market accounts 768 872 2,007 2,025 2,241
Certificates of deposit 19,012 14,393 39,583 19,664 16,833
------- ------ ------ ------ ------
$ 26,198 22,038 57,744 40,353 39,516
======= ====== ====== ====== ======
</TABLE>
(11) Borrowed Funds and Repurchase Agreements
----------------------------------------
From time to time, the Bank enters into sales of securities under
agreements to repurchase (reverse-repurchase agreements). Fixed-coupon
reverse-repurchase agreements are treated as financing transactions, and
the obligations to repurchase are reflected as a liability in the
consolidated statements of financial condition. The dollar amount of
securities underlying the agreements remains in the asset account.
At May 31, 1996, the Bank has $67.1 million in reverse repurchase
agreements with a weighted-average interest rate of 5.36% and a weighted-
average maturity of 51 days.
Reverse repurchase agreements averaged approximately $37.5 million and
$26.3 million for the five months ended May 31, 1996 and 1995,
respectively, and $22.3 million, $-0-, and $5.5 millionduring the years
ended December 31, 1995, 1994, and 1993, respectively. The maximum amount
outstanding at the end of any month was $68.4 million and $40.7 million
for the five months ended May 31, 1996 and 1995, and $40.9 million, $-0-,
and $40.0 million for the years ended December 31, 1995, 1994, and 1993,
respectively.
There were no reverse repurchase agreements outstanding at December 31,
1995 or 1994.
At May 31, 1996 and December 31, 1995, $2.5 million and $1.6 million,
respectively of the mortgage loans held for sale were pledged to secure
notes payable to the FNMA under a warehouse line of credit known as the
FNMA "As Soon As Pooled Plus Program". The notes are repaid as the
related mortgage loans are sold or collected.
(Continued)
F-32
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(12) Income Taxes
------------
As discussed in note 1, the Bank adopted SFAS 109 as of January 1, 1993.
The cumulative effect of this change in accounting for income taxes of
$7,526,000 was determined as of January 1, 1993 and is reported in the
consolidated statement of income for the year ended December 31, 1993.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
May 31, 1996, December 31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
May 31, December 31,
------- --------------
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Deferred tax assets:
Mortgages and other loans receivable,
primarily due to allowances for loss
and deferred loan fees $ 9,101 9,579 10,568
Real estate owned, primarily due to
allowance for loss 873 809 812
Postretirement benefits 1,262 1,261 1,266
Non-accrual loan interest 778 671 1,006
Employee bonus and fringe benefits 3,036 2,685 2,318
Unrealized loss on available-for-sale
securities 501 - 2,041
Callable preferred stock 931 807 578
Amortization of purchased mortgage
servicing rights 162 77 -
Mark to market on mortgage loans
held for sale 135 138 -
Other 510 569 308
------- ------ ------
Total gross deferred
tax assets 17,289 16,596 18,897
Deferred tax liabilities:
Unrealized gain on available-for-sale
securities - (8,869) -
Originated mortgage servicing rights (715) (303) -
Other (63) (56) (41)
------- ------ ------
Total gross deferred tax
liabilities (778) (9,228) (41)
------- ------ ------
Net deferred tax asset $16,511 7,368 18,856
======= ====== ======
</TABLE>
(Continued)
F-33
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Provisions for income taxes are comprised of the following amounts:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(In thousands)
Current:
Federal $2,190 3,129 5,771 7,744 9,539
State and local 1,237 979 2,161 3,006 3,142
------ ----- ------ ------ ------
3,427 4,108 7,932 10,750 12,681
------ ------ ----- ------ ------
Deferred:
Federal 167 (170) 406 (620) (1,667)
State and local 60 (62) 172 (112) (428)
------ ----- ------ ------ ------
227 (232) 578 (732) (2,095)
------ ------ ----- ------ ------
$ 3,654 3,876 8,510 10,018 10,586
====== ===== ====== ====== ======
</TABLE>
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 35% to income before income tax expense and
cumulative effect of changes in accounting as a result of the following:
<TABLE>
<CAPTION>
Five months
ended May 31, Years ended December 31,
------------- ------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Expected income tax
expense at statutory
Federal tax rate $4,216 4,008 9,530 10,304 10,061
State and local taxes, net
of Federal income tax
benefit 908 690 1,743 1,882 1,765
Dividend received
deduction (826) (585) (1,992) (1,690) (906)
Tax exempt income -- (30) (70) (77) (92)
Reversal of prior year taxes (600) (310) (750) (400) --
Tax rate change -- -- -- -- (286)
Other, net (44) 103 49 (1) 44
----- ----- ------ ------ ------
Total income
tax expense 3,654 3,876 8,510 10,018 10,586
====== ===== ====== ====== ======
</TABLE>
The Bank's retained earnings includes approximately $10.3 million at May 31,
1996 and December 31, 1995 and 1994 which has been segregated for Federal
income tax purposes as a bad debt reserve and for which no provision for
Federal income tax has been made. The use of this amount for purposes
other than to absorb losses on loans may result in taxable income for
Federal income taxes at the then current tax rate. Under the Internal
Revenue Code, the Bank is allowed a special bad debt deduction for
additions to tax bad debt reserves established for the purpose of absorbing
losses. For tax years beginning after January 1, 1987, the allowable
deduction is calculated utilizing either an experience method or by
applying the statutory rate of 8% of taxable income.
(Continued)
F-34
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
(13) Employee Benefit Plans
----------------------
Pension Plan - The Bank's noncontributory pension plan with The RSI
Retirement Trust covers substantially all employees.
The following table depicts the components of pension expense for the years
ended December 31, 1995, 1994 and 1993 projected by RSI:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Service cost $ 384 391 347
Interest cost 822 740 797
Expected return on assets (2,044) (9) (788)
Amortization of unrecognized transition
asset (115) (115) (115)
Amortization of unrecognized loss - 35 -
Amortization of unrecognized past service
liability 5 22 3
Deferred investment loss 1,233 (758) -
----- ---- ----
Net periodic pension expense $ 285 306 244
======= ==== ====
</TABLE>
The following table sets forth the Bank's defined benefit plan funded status
at September 30, 1995 and 1994 (the latest valuation dates) as determined
by the plan's actuary:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Actuarial present value of (In thousands)
benefit obligations:
Accumulated benefit
obligation, including vested
benefits of $9,057 and $8,281
in 1995 and 1994, respectively $ 9,502 8,761
======= ======
Projected benefit
obligation for services rendered to
September 30, 1995 and 1994 (11,302) (10,432)
Market value of plan assets at September
30, 1995 and 1994 11,670 9,969
------- -------
Plan assets greater (less) than projected
benefit obligation 368 (463)
Unrecognized net transition asset
being amortized over 10.40 years (165) (280)
Unrecognized net loss 311 950
Unrecognized past service liability 35 13
-------- -------
Prepaid pension
expense $ 549 220
======= =======
Assumed rate of return on assets 8.00% 8.00%
======= =======
Assumed rate of compensation increase 5.50% 6.00%
======= =======
Assumed discount rate 7.50% 8.25%
======= =======
</TABLE>
(Continued)
F-35
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
The projected benefit obligation represents the obligation to plan members
for services already rendered and then increases that obligation for future
compensation levels.
Supplemental Plan - The former chief executive officer is also covered by a
supplemental executive retirement plan with The RSI Retirement Trust. The
actuarial present value of the accumulated benefit obligation at December
31, 1995 and 1994 was $659,000 and $704,000 respectively. Included in the
employee benefit expense for the years ended December 31, 1995, 1994 and
1993 was $55,000, $39,000 and $39,000, respectively, related to this
obligation.
Benefit Restoration Plan - The plan provides benefits for any highly
compensated employee whose benefits are restricted under the Bank's defined
benefit and defined contribution plans. The actuarial present value of the
accumulated benefit obligation at December 31, 1995 and 1994 was $268,000
and $68,000, respectively. Included in employee benefit expense for the
years ended December 31, 1995, 1994 and 1993 was $168,000, $71,000 and
$13,000, respectively, related to this obligation.
401(k) Plan - The Bank also has a defined contribution and thrift savings
plan under Section 401(k) of the Internal Revenue Code. All regular, full-
time employees are eligible for voluntary participation after one or more
years of continuous service. The Plan is effectuated through a trust
established by the Bank. Under this plan, the Bank will make contributions
of 6% of the participant's base pay, provided that the participant
contributes at least 6% of their base pay. The Bank has contributed
$255,000, $220,000 and $207,000 for the years ended December 31, 1995, 1994
and 1993, respectively.
(14) Postemployment Health Care and Life Insurance Benefits
------------------------------------------------------
The Bank currently provides health care and life insurance benefits for
retirees and their eligible dependents. The coverage provided depends
upon the date they retired.
The cost of the Bank's postretirement health care and life insurance
benefits is recognized in the financial statements during the employee's
active working career.
The cumulative effect of adopting SFAS 106, effective January 1, 1993,
resulted in the recording of an actuarially determined accrued benefit
obligation as of January 1, 1993 of $2,693,000, a $1,150,000 deferred tax
asset, and a related charge to earnings of $1,543,000, (which was net of
the income tax benefit).
The status of the plan, which is unfunded, at December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
(In thousands)
Accumulated postretirement benefit
obligation $3,135 2,808
Unrecognized net (loss) gain (64) 155
------ -----
Accrued postretirement benefit cost
recognized in the accompanying
consolidated statements of
financial condition $3,071 2,963
====== =====
</TABLE>
(Continued)
F-36
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
Net periodic postretirement benefit cost included in salaries and employee
benefits in the accompanying consolidated statements of income for the
years ended December 31, 1995, 1994 and 1993 is comprised of the following
components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
(In thousands)
Service cost-benefits earned during the year $ 40 49 39
Interest cost on accumulated postretirement
benefit obligation 228 190 214
---- ---- ----
Net periodic postretirement benefit cost $ 268 239 253
==== ==== ====
</TABLE>
For measurement purposes, a 14% annual rate of increase in the per capita
cost of covered benefits (health care cost trend rate) was assumed for
1995; with the rate assumed to gradually decrease to 5.5% by the year
2000 and remain at that level thereafter. This rate assumption has a
significant effect on the estimate of the accumulated postretirement
benefit obligation and aggregate service and interest cost components of
net periodic postretirement benefit cost. A 1% point increase in the
health care cost trend rate would increase the accumulated postretirement
benefit obligation by 11.3% as of December 31, 1995 while the aggregate
of the service and interest cost components of net periodic
postretirement benefit cost for the year ended December 31, 1995 would
increase 14.8%. The discount rate used in determining the accumulated
postretirement benefit obligation was 7.5% and 7.0%, respectively, at
December 31, 1995 and 1994.
(15) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
SFAS 107, "Disclosures About Fair Value of Financial Instruments", requires
the Bank to disclose the fair value of its on-and off-balance sheet
financial instruments. A financial instrument is defined in SFAS 107 as
cash, evidence of an ownership interest in an entity or a contract that
creates a contractual obligation or right to deliver or receive cash or
another financial instrument from a second entity on potentially
favorable or unfavorable terms. SFAS 107 defines the fair value of a
financial instrument as the amount at which the instrument could be
exchanged in a current transaction between willing parties, other than in
a forced or liquidation sale.
(Continued)
F-37
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
The following table represents the carrying amounts and fair values of the
Bank's financial instruments:
<TABLE>
<CAPTION>
May 31, 1996
------------
Carrying Estimated
<S> <C> amount fair value
-------- ----------
(In thousands)
Cash and cash equivalents $ 28,421 28,421
Debt and equity securities, net:
Held-to-maturity 1,930 2,086
Available-for-sale 431,932 431,932
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 312,233 309,068
Available-for-sale 519,399 519,399
Loans held for sale, net 14,265 15,511
Loans receivable held for investment, net 399,484 397,313
Mortgage servicing rights, net 8,619 8,918
Certificates of deposits (CD's) 871,876 872,767
Deposits, excluding CD's 569,969 569,969
Borrowed funds 69,598 69,598
December 31, 1995
-------------------
Carrying Estimated
amount fair value
------- ----------
(In thousands)
Cash and cash equivalents $ 19,703 19,703
Debt and equity securities, net:
Held-to-maturity 1,930 2,151
Available-for-sale 379,331 379,331
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 347,213 348,779
Available-for-sale 413,485 413,485
Loans held for sale, net 17,151 17,607
Loans receivable held for investment, net 365,265 363,280
Mortgage servicing rights, net 8,297 8,355
Certificates of deposits (CD's) 749,775 755,841
Deposits, excluding CD's 585,775 585,775
Borrowed funds 1,647 1,647
</TABLE>
F-38
(Continued)
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31, 1994
--------------------
Carrying Estimated
amount fair value
-------- ----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents $ 27,259 27,259
Debt and equity securities, net:
Held-to-maturity 466,204 454,698
Available-for-sale 89,787 89,787
Mortgage-backed and mortgage
related securities, net:
Held-to-maturity 411,341 394,470
Available-for-sale 50,711 50,711
Loans receivable held for investment, net 342,091 334,089
Certificates of deposits (CD's) 517,437 509,649
Deposits, excluding CD's 702,081 702,081
</TABLE>
The carrying amounts in the table are included in the consolidated statements
of condition under the indicated captions.
The following summarizes the major methods and assumptions used in estimating
the fair values of the financial instruments:
Cash and Cash Equivalents - The carrying amounts for cash and cash
equivalents approximate fair value as they mature in 30 days or less and do
not present unanticipated credit concerns.
Securities -The fair values of securities are estimated based on bid
quotations received from securities dealers or from prices obtained from
firms specializing in providing securities pricing services.
Loans held for sale, net - Fair value is estimated based on current prices
established in the secondary market or, for those loans committed to be
sold, based upon the price established in the commitment.
Loans receivable held for investment, net - Fair values are estimated for
portfolios of loans with similar financial characteristics. Loans are
segregated by type, such as commercial real estate and residential
mortgage. Each loan category is further segmented into fixed and
adjustable rate interest terms and by performing and non-performing
categories. For performing residential mortgage loans, fair values are
estimated by discounting contractual cash flows through the estimated
maturity using discount rates and prepayment estimates based on secondary
market sources adjusted to reflect differences in servicing and credit
costs. The estimated fair value of remaining performing loans is
calculated by discounting scheduled cash flows using estimated market
discount rates that reflect the credit and interest rate risk inherent in
the loan. Fair values for non-performing real estate loans are based on
recent appraisals.
Mortgage servicing rights, net - Mortgage servicing rights are valued based
upon the Bank's stratification of the mortgage servicing portfolio.
Stratification is based upon the predominate risk characteristics of the
underlying loans, including but not limited to, interest rates, loan type,
the frequency of interest rate adjustments in the case of ARM loans, etc.
Each strata is then discounted to reflect the present
(Continued)
F-39
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
value of the future cash flows utilizing current market assumptions
regarding discount rates, prepayment speeds, delinquency rates, etc.
Deposit Liabilities - All deposits, except savings investment certificates,
are subject to rate changes at any time, and therefore are considered to be
carried at estimated fair value. The fair value of savings investment
certificates was estimated by computing the present value of contractual
future cash flows for each certificate. The present value rate utilized
was the rate offered by the Bank at each date presented on certificates
with an initial maturity equal to the remaining term to maturity of the
existing certificates.
Borrowed Funds - Borrowed funds have maturities or terms to repricing not
exceeding 30 days. Therefore, the carrying amount is a reasonable estimate
of fair value.
Limitations - SFAS 107 requires disclosures of the estimated fair value of
financial instruments. Fair value estimates are made at a specific point
in time, based on relevant market information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Bank's entire holdings
of a particular financial instrument nor the resultant tax ramifications or
transaction costs. Because no market exists for a significant portion of
the Bank's financial instruments, fair value estimates are based on
judgments regarding current economic conditions, risk characteristics of
various financial instruments, and other factors. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and-off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. For example, the Bank has a mortgage servicing
department that contributes fee income annually. The mortgage servicing
department is not considered a financial instrument, and as such its value
has not been incorporated into the fair value estimates. Other significant
assets of the Bank that are not considered financial assets include banking
house and equipment and deferred tax assets. In addition, the tax
ramifications related to the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered.
Commitments - 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 and commitments to sell
loans at specified prices, fair value also considers the difference between
current levels of interest rates and the committed rates.
Accrued Interest Receivable/Payable - The fair value of the accrued interest
receivable and payable balances are estimated to be their book value.
(16) Commitments and Contingencies
-----------------------------
In the normal course of the Bank's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in the
consolidated statements of condition. In the opinion of management, the
financial position of the Bank will not be affected materially as a result
of such commitments and contingent liabilities.
(Continued)
F-40
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements, Continued
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
In the normal course of business, there are various outstanding legal
proceedings. In the opinion of management, after consultation with legal
counsel, the financial position, results of operations and liquidity of
the Bank will not be affected materially by the outcome of such legal
proceedings.
At May 31, 1996 and December 31, 1995, respectively, there were outstanding
loan commitments by the Bank to advance approximately $162.2 million and
$81.8 million for mortgage loans substantially all of which were fixed
rate commercial and residential real estate loans. Lease commitments are
not significant.
At May 31, 1996 and December 31, 1995, the Bank had no available lines of
credit with banks and other institutions.
In the normal course of its mortgage banking activities, the Bank enters
into both optional and mandatory commitments to sell packages of mortgage
loans that it originates. The Bank commits to sell the loans at specified
prices in a future period generally ranging from 30 to 120 days from date
of commitment either directly to the FNMA and to other agencies or via
pass-through certificates guaranteed by these agencies. Market risk is
associated with these financial instruments which results from movements
in interest rates and is reflected by gains or losses on the sale of the
mortgage loan packages determined by the difference between the price of
the packaged loans and the price guaranteed in the commitment.
The Bank had unfilled mandatory delivery commitments with investors
totaling approximately $57.6 million and $35.4 million and optional
delivery commitments of approximately $2 million and $2 million at May
31, 1996 and December 31, 1995, respectively.
(17) Retained Earnings
-----------------
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
established a capital based supervisory system of Prompt Corrective
Action (PCA) for all insured depository institutions. The regulations
adopted pursuant to FDICIA and effective December 19, 1992, established
capital categories that determine the degree of supervisory PCA to which
a depository institution could be subjected. The categories consist of
"well capitalized", "adequately capitalized", "undercapitalized",
"significantly undercapitalized" and "critically undercapitalized." An
institution is deemed to be "well capitalized" if (a) its risk-based
capital ratio is 10% or greater, (b) its Tier 1 risk-based capital ratio
is 6% or greater, and (c) its leverage ratio is 5% or greater. At May 31,
1996, the Bank is "well capitalized."
When an insured depository institution's capital ratios fall below the
"well capitalized" level it becomes subject to a series of increasingly
restrictive supervisory actions, to the point where a conservator or
receiver must be designated for a "critically undercapitalized"
institution unless certain certifications are made by the appropriate
regulatory agencies. An institution is deemed to be "critically
undercapitalized" if its ratio of Tier 1 capital to total assets is 2% or
less.
(18) Conversion to Capital Stock Form of Ownership
---------------------------------------------
On May 29, 1996, the Board of Trustees of the Bank adopted a Plan of
Conversion (Plan), which was subsequently amended on July 30, 1996, to
convert from a state chartered mutual savings bank to a state chartered
capital stock savings bank with the concurrent formation of a holding
company, Roslyn Bancorp, Inc. (Company), subject to the approval by
regulatory authorities and depositors of
(Continued)
F-41
<PAGE>
THE ROSLYN SAVINGS BANK
Notes to Consolidated Financial Statements
May 31, 1996 and 1995 (unaudited) and
December 31, 1995, 1994 and 1993
the Bank. The conversion is expected to be accomplished through amendment
of the Bank's state charter and the sale of the holding company's common
stock in an amount equal to the consolidated pro forma market value of the
holding company and the Bank after giving effect to the conversion. A
subscription offering of the shares of common stock will be offered
initially to employee benefit plans of the Bank, depositors, trustees,
officers and employees of the Bank, and to certain other eligible
subscribers. Any shares of common stock not sold in the offering are
expected to be sold to the underwriters for resale to the general public.
At the time of conversion, the Bank will establish a liquidation account in
an amount equal to its capital as of the date of the latest consolidated
statement of financial condition appearing in the final prospectus. The
liquidation account will be maintained for the benefit of eligible account
holders who continue to maintain their accounts at the Bank after the
conversion. The liquidation account will be reduced annually to the extent
that eligible account holders have reduced their qualifying deposits as of
each anniversary date. Subsequent increases will not restore an eligible
account holder's interest in the liquidation account. In the event of a
complete liquidation, each eligible account holder will be entitled to
receive balances for accounts then held.
Subsequent to the conversion, the Bank may not declare or pay cash dividends
on or repurchase any of its shares of common stock if the effect thereof
would cause stockholder's equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in conversion. If the conversion is not completed, all costs will be
charged as expense. As of May 31,1996, no conversion costs have been
incurred.
Pursuant to the Plan, as amended, the holding company intends to establish a
Charitable Foundation in connection with the conversion. The Plan provides
that the Bank and the Company will create the Foundation immediately
following the conversion by contributing Company common stock in an amount
equal to 3.0% of the total amount of common stock to be issued in the
conversion. The Foundation is being formed as a complement to the Bank's
existing community activities and will be dedicated to community activities
and the promotion of charitable causes.
The Foundation will submit a request to the Internal Revenue Service to be
recognized as a tax-exempt organization and would likely be classified as a
private foundation. A contribution of common stock to the Foundation by
the Company would be tax deductible, subject to an annual limitation based
on 10% of the Company's annual taxable income. The Company, however, would
be able to carry forward any unused portion of the deduction for five years
following the contribution. Upon funding the Foundation, the Company will
recognize an expense in the full amount of the contribution, offset in part
by the corresponding tax benefit, during the quarter in which the
contribution is made.
F-42
<PAGE>
================================================================================
No dealer, salesman or any other persons has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Roslyn Bancorp, Inc., the Bank or the Agents. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of Roslyn Bancorp,
Inc. or the Bank since any of the dates as of which information is furnished
herein or since the date hereof.
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary .............................................................
Selected Consolidated
Financial and Other
Data of the Bank ..................................................
Risk Factors ........................................................
Roslyn Bancorp, Inc. ................................................
The Roslyn Savings Bank .............................................
Regulatory Capital Compliance .......................................
Use of Proceeds .....................................................
Dividend Policy .....................................................
Market for the Common Stock .........................................
Capitalization ......................................................
Pro Forma Data ......................................................
Consolidated Statements of Income ...................................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations ..........................................
Business of the Bank ................................................
Federal and State Taxation ..........................................
Regulation and Supervision ..........................................
Management of the Company ...........................................
Management of the Bank ..............................................
The Conversion ......................................................
Restrictions on Acquisition
of the Company and
the Bank ...........................................................
Description of Capital Stock of
the Company ........................................................
Transfer Agent and Registrar ........................................
Experts .............................................................
Legal and Tax Opinions ..............................................
Additional Information ..............................................
Index to Financial Statements .......................................
</TABLE>
- -------------------------------------------------------------------------------
Until_______, 199_ or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
obligation of dealers to deliver a Prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
===============================================================================
===============================================================================
36,844,660 Shares
ROSLYN BANCORP, INC.
(Proposed Holding Company for
The Roslyn Savings Bank)
COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
_________________________
PROSPECTUS
_________________________
SANDLER O'NEILL & PARTNERS, L.P.
_________, 1996
===============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<S> <C>
SEC filing fee........................................ $151,000
NYBD filing fee....................................... 5,000
OTS filing fee........................................ 2,000
NASD filing fee....................................... 5,000
Nasdaq National Market fee............................ 50,000
Printing, postage and mailing......................... 710,000
Legal fees and expenses (including underwriter's
counsel)............................................. 925,000
Accounting fees and expenses.......................... 250,000
Appraiser's fees and expenses (including
business plan)....................................... 70,000
Marketing fees, selling commissions, and
underwriter's expenses............................... 6,700,000
Proxy solicitation fees and expenses.................. 35,000
Conversion agent fees and expenses.................... 55,000
Transfer agent fees and expenses...................... 20,000
Certificate printing.................................. 15,000
Telephone, temporary help and other equipment......... 50,000
Blue Sky fees and expenses............................ 15,000
Miscellaneous......................................... 46,000
---------
TOTAL $9,104,000
=========
</TABLE>
__________________________
(1) Actual expenses based upon the registration of 43,642,500 shares at $10.00
per share. All other expenses are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorney's fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify
<PAGE>
any such indemnitee in connection with a proceeding (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to a advancement of expenses) it
shall be defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other rights which any
person may have or hereafter acquire under any statute, the Corporation's
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
Disinteresed Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary
or Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the Corporation to the fullest extent of
the provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders; (ii) for acts or omission not in
good faith or which involve intentional misconduct or a knowing violation of
law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be limited
to the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
None.
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
<TABLE>
<CAPTION>
(a) List of Exhibits (filed herewith unless otherwise noted)
<S> <C>
1.1 Engagement Letter between The Roslyn Savings Bank and Sandler O'Neill &
Partners, L.P.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Restated Organization
Certificate and Stock Bylaws of The Roslyn Savings Bank)*
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.*
3.2 Bylaws of Roslyn Bancorp, Inc.*
3.3 Restated Organization Certificate and Stock Bylaws of The Roslyn
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Roslyn Bancorp, Inc.*
5.0 Opinion Of Muldoon, Murphy & Faucette re: legality*
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality*
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters*
8.1 Opinion of O'Reilly, Marsh & Corteselli re: State Tax Matters*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Proposed Employment Agreement between The Roslyn Savings Bank
and certain executive officers*
10.3 Form of Proposed Employment Agreement between Roslyn Bancorp, Inc. and
certain executive officers*
10.4 Form of Proposed Change in Control Agreement between The Roslyn Savings
Bank and certain executive officers.*
10.5 Form of Proposed Change in Control Agreement between Roslyn Bancorp,
Inc. and certain executive officers*
10.6 Form of Proposed The Roslyn Savings Bank Employee Severance Compensation
Plan*
10.7 Form of Proposed Management Supplemental Executive Retirement Plan*
23.1 Consent of KPMG Peat Marwick LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette*
23.3 Consent of Morris, Nichols, Arsht & Tunnell*
23.4 Amended Consent and Subscription Rights Opinion of FinPro, Inc.*
23.5 Consent of O'Reilly, March & Corteselli*
23.6 Consent of William M. Mercer, Incorporated
24.1 Powers of Attorney*
27.0 Amended Financial Data Schedule*
99.1 Amended Appraisal Report of FinPro, Inc. (P)*
99.2 Draft of the Roslyn Savings Bank Foundation Gift Instrument*
</TABLE>
____________________________
*Previously filed
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement.
Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)
(Section 230,424(b) of this chapter) if, in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
The undersigned Registrant hereby undertakes to furnish stock certificates
to or in accordance with the instructions of the respective purchasers of the
Common Stock, so as to make delivery to each purchaser promptly following the
closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Roslyn, State of New
York, on October 9, 1996.
Roslyn Bancorp, Inc.
By: /s/ Joseph L. Mancino
---------------------------------
Joseph L. Mancino
Chairman of the Board, Chief
Executive Officer and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Joseph L. Mancino Chairman of the Board, October 9, 1996
- ------------------------------ Chief Executive Officer
Joseph L. Mancino and President
(principal executive officer)
/s/ Michael P. Puorro Vice President and Chief October 9, 1996
- ------------------------------ Financial Officer
Michael P. Puorro (principal accounting and
financial officer
*
- ------------------------------ Director
Floyd N. York
*
- ------------------------------ Director
Victor C. McCuaig
*
- ------------------------------ Director
John P. Nicholson
*
- ------------------------------ Director
James E. Swiggett
*
- ------------------------------ Director
Robert G. Freese
*
- ------------------------------ Director
Thomas J. Calabrese, Jr.
</TABLE>
<PAGE>
* Director
- -------------------------------
Dr. Edwin W. Martin, Jr.
* Director
- -------------------------------
Richard C. Webel
* Pursuant to the Power of Attorney on August 20, 1996, as Exhibit 24.1 to the
Registration Statement of Form S-1 of Roslyn Bancorp, Inc.
<PAGE>
TABLE OF CONTENTS
LIST OF EXHIBITS (FILED HEREWITH UNLESS OTHERWISE NOTED)
<TABLE>
<S> <C>
1.1 Engagement Letter between The Roslyn Savings Bank and Sandler O'Neill
& Partners, L.P.*
1.2 Draft Form of Agency Agreement*
2.1 Amended Plan of Conversion (including the Restated Organization Certificate
and Stock Bylaws of The Roslyn Savings Bank)*
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc.*
3.2 Bylaws of Roslyn Bancorp, Inc.*
3.3 Restated Organization Certificate and Stock Bylaws of The Roslyn
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Roslyn Bancorp, Inc.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality*
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality*
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters*
8.1 Opinion of O'Reilly, Marsh & Corteselli re: State Tax Matters*
10.1 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.2 Form of Proposed Employment Agreement between The Roslyn Savings Bank
and certain executive officers*
10.3 Form of Proposed Employment Agreement between Roslyn Bancorp, Inc.
and certain executive officers*
10.4 Form of Proposed Change in Control Agreement between The Roslyn
Savings Bank and certain executive officers*
10.5 Form of Proposed Change in Control Agreement between Roslyn Bancorp,
Inc. and certain executive officers*
10.6 Form of Proposed The Roslyn Savings Bank Employee Severance
Compensation Plan*
10.7 Form of Proposed Management Supplemental Executive Retirement Plan*
23.1 Consent of KPMG Peat Marwick LLP as independent auditors
23.2 Consent of Muldoon, Murphy & Faucette*
23.3 Consent of Morris, Nichols, Arsht & Tunnell*
23.4 Amended Consent and Subscription Rights Opinion of FinPro, Inc.*
23.5 Consent of O'Reilly, Marsh & Corteselli*
23.6 Consent of William M. Mercer, Incorporated
24.1 Powers of Attorney*
27.0 Amended Financial Data Schedule*
99.1 Amended Appraisal Report of FinPro, Inc. (P)*
99.2 Draft of The Roslyn Savings Bank Foundation Gift Instrument*
</TABLE>
_____________________________
* Previously filed.
(P)Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
-------------------------------
The Board of Trustees
The Roslyn Savings Bank:
We consent to the use of our report dated March 8, 1996 (relating to the
consolidated financial statements of The Roslyn Savings Bank), and our report
dated September 15, 1995 (relating to the financial statements of The Roslyn
Savings Bank 401(k) Savings Plan), and the references to our firm under the
headings "Experts" and "Consolidated Statements of Income" in the
Amendment No. 2 to the Registration Statement on Form S-1 and related Prospectus
and Prospectus Supplement of Roslyn Bancorp, Inc. Our report relating to the
consolidated financial statements of The Roslyn Savings Bank includes an
explanatory paragraph related to changes in accounting principles.
/s/ KPMG Peat Marwick LLP
Jericho, New York
October 8, 1996
<PAGE>
Exhibit 23.6
CONSENT
We hereby consent to the reference to this firm and our opinions in: the
Registration Statement on Form S-1 filed by Roslyn Bancorp, Inc., Roslyn, New
York, and all amendments thereto; in the Form H-(e)1-S for Roslyn Bancorp, Inc.
and all amendments thereto; in the Application for Conversion on Form 86-AC
filed by The Roslyn Savings Bank (the "Bank"), and all amendments thereto, and
in the Notice and Application for The Roslyn Savings Bank filed with the Federal
Deposit Insurance Corporation and all amendments thereto; and references to our
firm under the heading "Experts," relating to the conversion of the Bank from a
New York chartered mutual savings bank to a New York chartered stock savings
bank, the concurrent issuance of the Bank's outstanding capital stock to Roslyn
Bancorp, Inc., a holding company formed for such purpose, and the offering of
Roslyn Bancorp, Inc.'s common stock.
/s/ William M. Mercer, Incorporated
WILLIAM M. MERCER, INCORPORATED
Philadelphia, Pennsylvania
Dated this 8th day of
October, 1996
