<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
0-28886
Commission File Number
ROSLYN BANCORP, INC.
-------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 11-3333218
------------------------------- ------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
1400 Old Northern Boulevard, Roslyn, New York 11576
----------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(516) 621-6000
----------------------------------------------------------
(Registrant's telephone number, including area code)
None
----------------------------------------------------------
Securities registered pursuant to Section 12(b) of the Act
Common Stock, $.01 par value
----------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
As of March 22, 1999 the aggregate market value of the voting stock held by non-
affiliates of the registrant was $1,355,869,113. This figure is based on the
closing price on the NASDAQ National Market for a share of the registrant's
common stock on March 22, 1999 which was $17.625 as reported in the Wall Street
Journal on March 23, 1999.
The Registrant had 76,928,744 shares of Common Stock outstanding as of March 22,
1999.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Stockholders for the year ended December 31,
1998 are incorporated by reference into Part II of this Form 10-K.
Portions of the Proxy Statement for the 1999 Annual Meeting of Stockholders are
incorporated by reference into Part III of this Form 10-K.
2
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
No.
-----
<S> <C>
PART I
Item 1. Business........................................................................... 4
Item 2. Properties......................................................................... 54
Item 3. Legal Proceedings.................................................................. 59
Item 4. Submission of Matters to a Vote of Security Holders................................ 59
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters............. 59
Item 6. Selected Financial Data............................................................ 59
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................................. 59
Item 7A. Quantitative and Qualitative Disclosures about Market Risk......................... 59
Item 8. Financial Statements and Supplementary Data........................................ 59
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................................... 59
PART III
Item 10. Directors and Executive Officers of the Company.................................... 60
Item 11. Executive Compensation............................................................. 60
Item 12. Security Ownership of Certain Beneficial Owners and Management..................... 60
Item 13. Certain Relationships and Related Transactions..................................... 60
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................... 60
SIGNATURES..................................................................................... 63
</TABLE>
3
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PART I
ITEM 1. BUSINESS.
- -----------------
GENERAL
Roslyn Bancorp, Inc. (also referred to as the Company or Registrant) was
incorporated under Delaware law on July 26, 1996. On January 10, 1997, the
Registrant acquired The Roslyn Savings Bank and subsidiaries (the Bank), Roslyn,
New York, as part of the Bank's conversion from the mutual to stock form of
organization (the Conversion). On January 10, 1997, Roslyn Bancorp, Inc. issued
an aggregate of 43,642,459 shares of its common stock, par value $0.01 per share
(Common Stock), of which 42,371,359 shares were issued in a subscription
offering and 1,271,100 shares were issued to The Roslyn Savings Foundation (the
Foundation), a charitable foundation established by the Bank. Prior to such
date, the Company had no assets, liabilities or operations. In connection with
the Conversion, the Company raised $410.7 million of net conversion proceeds, of
which $205.3 million was utilized for the acquisition of 100% of the outstanding
stock of the Bank. The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision (OTS) and the
Securities and Exchange Commission (SEC). At December 31, 1998, the Company had
consolidated total assets of $3.74 billion, deposits of $2.07 billion and
stockholders' equity of $598.9 million. Currently, the Company's activities
consist solely of managing the Bank and investing the portion of net conversion
proceeds retained by the Company. The following discussion addresses the
operations of the Bank and its subsidiaries.
The Bank is a community-oriented stock 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 Residential Mortgage
Banking, Inc. (RMBI), including its loan servicing portfolio, through its wholly
owned mortgage banking subsidiary, Roslyn National Mortgage Corp.
(RNMC)(formerly Residential First, Inc. (RFI)). The Bank's principal business
consists of the acceptance of retail deposits from the general public in the
areas 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, and 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, second mortgage, consumer and student loans. It is
the Bank's policy to generally sell, on a servicing retained basis, most longer-
term fixed-rate and adjustable-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 fixed-
rate loans of up to 15 years plus loans in excess of 15 years which have
interest rates of 8% or greater. The Bank's revenues are derived principally
from the interest income generated by its investment securities, mortgage,
consumer and commercial loans and from gains on loan sales and loan servicing
fees. The Bank's primary sources of funds are deposits, borrowings, principal
and interest payments on loans and securities, and proceeds from the sale of
loans and securities.
The Bank's mortgage banking subsidiary, RNMC, 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 RNMC's mortgage origination offices located in New York, New Jersey,
Connecticut, Tennessee, Delaware, Pennsylvania, Virginia and Maryland. In
addition, RNMC has established correspondent relationships with other lenders
from whom RNMC will purchase loans. Currently, all of the Bank's origination of
one- to four-family loans is conducted through RNMC, which originates loans on
behalf of the Bank as well as for various other investors and financial
institutions.
In addition to RNMC, the Bank maintains various subsidiaries, which were
incorporated in New York to either (a) 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 (b) operate as a real estate
investment trust (REIT) or (c) offer annuity and life insurance products. The
Bank also offers savings bank life insurance through its Savings Bank Life
Insurance (SBLI) department.
4
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As a New York State-chartered stock savings bank, the Bank's deposits are
insured up to the applicable limits by the Federal Deposit Insurance Corporation
(FDIC). The Bank is regulated by the Superintendent of Banks of the State of
New York, the New York Banking Board and the New York State Banking Department
(NYSBD).
On February 16, 1999, a merger between T R Financial Corp., a Delaware
company and the Company was completed with the Company as the surviving
corporation. The transaction will be treated as a tax-free reorganization and
accounted for using the pooling-of-interests method of accounting. As part of
this merger, on February 16, 1999, TR Financial Corp's. wholly owned subsidiary,
Roosevelt Savings Bank, a New York State-chartered stock savings bank, was
merged into the Bank. The combined bank retained the Roslyn name, and has $7.8
billion in assets, more than $4.2 billion in deposits and 25 full-service
banking locations in Kings, Queens, Nassau and Suffolk Counties on Long Island,
New York.
Pursuant to the merger agreement, each share of T R Financial Corp. common
stock was converted into the Company's stock at a fixed exchange ratio of 2.05.
As a result, 17,347,768 shares of T R Financial Corp. common stock were
exchanged for 35,528,785 shares of Roslyn common stock and a total of 1,746,876
T R Financial Stock Options were converted into options to purchase a maximum of
3,581,096 shares of the Company's common stock at an exercise price ranging from
$2.20 to $17.32 depending on the exercise price of the underlying T R Financial
stock option. Additionally under the agreement, five former officers and
directors of T R Financial Corp. have joined the Boards of Directors of the
Company and the Bank.
The Company's executive offices are located at 1400 Old Northern Boulevard,
Roslyn, New York 11576. The telephone number is (516) 621-6000.
MARKET AREA AND COMPETITION
The Bank is a community-oriented financial institution offering a variety
of financial services to meet the needs of the communities it serves. As of
December 31, 1998, the Bank operated ten full service banking offices in Nassau
and Suffolk Counties. 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
RNMC in August 1995, the Bank's primary lending area with regards to one- to
four-family loans was broadened to include the areas surrounding RNMC's mortgage
origination offices.
The New York City metropolitan area has historically benefited from having
a large number of corporate headquarters and a diversity of financial service
entities. Additionally, the Counties of Nassau and Suffolk have historically
benefited from a large developed suburban market, well educated employment base
and a diversity of industrial, service and high technology businesses. During
the late 1980's and early 1990's, 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.
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
5
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a highly competitive market. 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, mortgage brokers, credit unions and other providers of financial
services, many of which are significantly larger than the Bank and, therefore,
have greater financial and marketing resources than those of the Bank.
LENDING ACTIVITIES
Loan Portfolio Composition. The types of loans that the Bank may originate
are subject to federal and state laws and regulations. The 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.
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 December 31, 1998, the Bank's gross loan
portfolio including loans held for sale and loans held for investment totaled
$1.30 billion, of which $835.4 million were one- to four-family residential
mortgage loans, or 64.21% of total gross loans, and $273.0 million were
commercial real estate loans, or 20.99% of total gross loans. At such date, the
remainder of the loan portfolio consisted of $49.6 million of multi-family
loans, or 3.81% of total gross loans; $83.4 million of construction and
development loans, or 6.41% of total gross loans; $47.8 million of home equity
and second mortgage loans, or 3.68% of total gross loans; $10.4 million of
consumer loans, primarily consisting of private banking, passbook, modernization
and personal secured and unsecured loans, or 0.80% of total gross loans; and
$1.3 million of student loans, or 0.10% of total gross loans. Included in first
mortgage loans secured by one- to four-family residences is approximately $228.1
million of purchased loans.
6
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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 gross loan portfolios at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
1998 1997 1996
------------------------ ------------------------ ------------------------
Percent Percent Percent
of of of
Amount Total Amount Total Amount Total
----------- --------- ----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate loans:
One-to four-family $ 835,364 64.21% $ 633,957 63.28% $ 263,373 49.83%
Multi-family 49,576 3.81 44,006 4.39 46,576 8.81
Commercial real estate 273,017 20.99 248,607 24.82 168,797 31.94
Construction
and development 83,433 6.41 52,269 5.22 37,459 7.09
Home equity
and second mortgage 47,832 3.68 16,974 1.69 9,506 1.80
Consumer (1) 10,402 0.80 4,686 0.47 1,241 0.23
Student 1,285 0.10 1,296 0.13 1,576 0.30
----------- --------- ----------- --------- ----------- ---------
Gross loans 1,300,909 100.00% 1,001,795 100.00% 528,528 100.00%
========= ========== ==========
Less:
Unamortized discounts,
net 3,911 5,974 701
Deferred loan (costs)/fees (719) 1,522 917
Deferred
mortgage interest 685 696 566
Allowance for
possible loan losses 24,779 24,029 23,320
----------- ---------- --------
Total loans, net 1,272,253 969,574 503,024
Less:
Loans held-for-sale, net:
One- to four-family 79,991 13,987 12,558
Student 1,285 1,296 1,576
----------- ---------- --------
Loan receivable held
for investment, net $ 1,190,977 $ 954,291 $488,890
=========== ========== ========
<CAPTION>
At December 31,
--------------------------------------------------------
1995 1994
------------------------ ------------------------
Percent Percent
of of
Amount Total Amount Total
----------- --------- ----------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One-to four-family $ 197,357 48.41% $ 153,203 41.52%
Multi-family 36,353 8.92 18,617 5.05
Commercial real estate 124,976 30.65 114,317 30.98
Construction
and development 41,611 10.21 56,163 15.22
Home equity
and second mortgage 3,672 0.90 4,346 1.18
Consumer (1) 1,760 0.43 1,680 0.46
Student 1,959 0.48 20,626 5.59
----------- --------- ----------- ---------
Gross loans 407,688 100.00% 368,952 100.00%
========= =========
Less:
Unamortized discounts,
net 763 978
Deferred loan (costs)/fees 666 611
Deferred
mortgage interest 493 145
Allowance for
possible loan losses 23,350 25,127
----------- -----------
Total loans, net 382,416 342,091
Less:
Loans held-for-sale, net:
One- to four-family 15,278 -
Student 1,873 -
----------- -----------
Loan receivable held
for investment, net $ 365,265 $ 342,091
=========== ===========
</TABLE>
(1) Consumer loans originated consist of private banking, personal secured,
personal unsecured, modernization and passbook loans. Private banking,
personal secured and personal unsecured loans were originated beginning
during the year ended December 31, 1997. The amounts shown prior to
December 31, 1997 do not include the aforementioned loan products.
7
<PAGE>
Loan Originations. Prior to the establishment of its mortgage banking
subsidiary, RNMC, in August 1995, all of the Bank's loan origination activity
was conducted directly by the Bank's loan personnel at its 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, second mortgage, consumer and
student loans, since the establishment of RNMC in August 1995, all one- to four-
family loan origination activity has been conducted through RNMC. RNMC's
commissioned loan officers operate in the Bank's full-service banking offices as
well as through RNMC's mortgage origination offices.
All loans originated by the Bank, or by RNMC 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, multi-family loans, commercial real estate loans, home equity and second
mortgage loans, construction and development loans, consumer loans and student
loans. Commencing in 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. In 1998, the Bank emphasized the sale of one- to four-
family loans to the secondary market. In 1995, the Bank began to phase out its
direct student loan originations (except for its direct lending program with the
Student Loan Marketing Association (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 RNMC'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.
During 1998, the Bank purchased in bulk, $7.8 million of residential whole
loans from unaffiliated originators. The Bank discontinued its loan purchase
program during early 1998 since the Bank's mortgage Company's loan production
reached an appropriate level to meet the Bank's portfolio needs. It is not
anticipated that the Company will resume this program in the near future.
Previously, it was the Company's strategy to leverage the Bank's balance sheet
due to the large capital base resulting from the Company's January 1997 public
offering. It simultaneously represented an effort to increase the Company's
loan to deposit and loan to asset ratios.
Loan Sales, Servicing and Mortgage Banking Activities. Prior to the
establishment of RNMC, 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 RNMC with the
exception of the servicing of one- to four-family loans originated by the Bank
prior to the establishment of RNMC, which continued to be serviced by the Bank
through June 30, 1998 and thereafter are being serviced directly by a third
party provider (Cenlar) on behalf of the Bank. RNMC was formed in conjunction
with the Bank's August 1995 acquisition of certain assets and liabilities,
including the loan servicing portfolio, RMBI, a mortgage banking firm then
operating in the New York Counties of Nassau, Suffolk, Queens and Albany and the
New Jersey Counties of Morris and Monmouth. RNMC's activities are directed by
its executive officers, with such activities being overseen by the Bank.
RNMC originates one- to four-family loans through commissioned loan
personnel and through referrals from real estate brokers, builders, developers
and other sources. RNMC also utilizes a network of approved mortgage brokers
and loan correspondents to originate mortgage loans. As a mortgage banking
company, RNMC 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. RNMC also originates loans for sale directly to the Federal
National Mortgage Association (FNMA) and the Federal Home Loan Mortgage
Corporation (FHLMC) based upon loan terms and underwriting criteria provided to
RNMC by such agencies. RNMC delivers loan products to investors in the form of
8
<PAGE>
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. RNMC's one- to four-family loan production is not dedicated to the
Bank as RNMC 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 RNMC's other investors for the purchase of
one- to four-family loans on the basis of rates and terms. Based upon an
ongoing best execution analysis, RNMC sells loans on a servicing retained or a
servicing released basis. The Bank may revise its policy as to the types of
loans it will originate for investment through RNMC based upon an analysis of
the current and anticipated market interest rates and other market conditions.
It is currently the policy of the Bank to retain for its portfolio investment
certain adjustable-rate one- to four-family loans and fixed-rate one- to four-
family mortgage loans with terms of up to fifteen years plus loans in excess of
fifteen years which have interest rates of 8% or more originated by RNMC. For
the year ended December 31, 1998, RNMC originated $1.03 billion of loans of
which $363.4 million were purchased by the Bank for its loan portfolio. RNMC
currently does not offer commercial real estate, multi-family, construction and
development, home equity, second mortgage or consumer loans.
The primary funding source for the loans originated by RNMC is provided by
the Bank through a $190.0 million revolving line of credit. The borrowings on
the line of credit are immediately paid down by RNMC upon the sale of loans. At
December 31, 1998, $150,000 of RNMC'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.
RNMC's mortgage banking revenues generally consist of loan origination
fees, interest income earned 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.
Between the time RNMC issues loan commitments and the time such loans, or
the securities into which the loans are converted, are sold, RNMC is exposed to
movements in the market price due to changes in market interest rates. RNMC
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, RNMC
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 RNMC 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 RNMC to losses. If RNMC is not
able to deliver the mortgage loans or mortgage-backed securities during the
appropriate delivery period called for by the forward sale commitment, RNMC 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. While
the aforementioned activity is managed continually, there can be no assurance
that RNMC will be successful in its efforts to eliminate the risk of interest
rate fluctuation between the time of the loans origination or purchase
commitments are issued and the ultimate sale of the loans.
Currently, the Bank services all of its commercial real estate,
construction and development, multi-family, home equity, second mortgage,
consumer and student loans. All one- to four-family loans originated by the bank
for its portfolio prior to its establishment of RNMC on August 1, 1995 are
serviced by a third party service provider on behalf of the Bank, the same third
party service provider services all loans RNMC 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,
9
<PAGE>
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 $623.0 million of
loans sold by RMBI. At December 31, 1998, RNMC's loan servicing portfolio,
totaled $1.51 billion, primarily consisting of conforming fixed-rate loans.
Excluding RNMC, the Bank's loan servicing portfolio totaled $521.7 million as of
December 31, 1998 and primarily consisted of one-to four-family, commercial real
estate and construction and development loans. 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.
During 1998 RNMC and the Bank utilized a third party subservicer, Cenlar, to
service all loans. Cenlar receives an annual flat fee per loan and any ancillary
fee income and RNMC recognizes servicing fee income in excess of servicing fees
paid to Cenlar and retains the use of the escrow balances. During the year ended
December 31, 1998, the Bank, through RNMC, sold without recourse, approximately
$343.2 million of whole loans with loan servicing retained.
10
<PAGE>
The following table set forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated and includes RNMC's loan
originations on behalf of the Bank.
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Gross loans (1):
Balance outstanding at beginning of year $ 1,001,795 $ 528,528 $ 407,688
----------- ----------- -----------
Loans originated:
One- to four-family 1,033,825 320,465 299,292
Multi-family 7,000 7,000 14,000
Commercial real estate 59,014 83,775 59,555
Construction and development 101,873 75,271 42,540
Home equity and second mortgage 43,130 12,078 8,943
Consumer and student (2) 12,998 9,846 3,958
----------- ----------- -----------
Total loans originated 1,257,840 508,435 428,288
Loans purchased 7,778 303,363 12,734
----------- ----------- -----------
Total loans originated and
purchased 1,265,618 811,798 441,022
----------- ----------- -----------
Less:
Principal repayments 284,690 126,127 95,069
Sales of loans 681,677 212,231 221,989
Transfers to real estate owned 137 82 997
Principal charged-off - 91 2,127
----------- ----------- -----------
Total loans 1,300,909 1,001,795 528,528
Less: Loans held-for-sale, net 81,276 15,283 14,134
----------- ----------- -----------
Loans receivable held for investment at end
of year $ 1,219,633 $ 986,512 $ 514,394
=========== =========== ===========
</TABLE>
(1) Gross loans includes loans receivable held for investment and loans held-
for-sale.
(2) Consumer loans originated consist of private banking, personal secured,
personal unsecured, modernization and passbook loans. Private banking,
personal secured and personal unsecured loans were originated beginning
during the year ended December 31, 1997. The amounts shown prior to
December 31, 1997 do not include the aforementioned loan products.
11
<PAGE>
The following table shows the maturity of the Bank's loan portfolio at December
31, 1998. Loans held-for-sale are included in the within one year maturity
category. The table does not include prepayments or scheduled principal
amortization. Prepayments and scheduled principal amortization on loans totaled
$284.7 million, for the year ended December 31, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
---------------------------------------------------------------------------
Real Estate Loans
---------------------------------------------------------------------------
Home
One- to Commercial Construction Equity and
Four- Multi- Real and Second
Family Family Estate Development Mortgage
---------- ---------- ------------ -------------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year $ 82,033 $ 432 $ 9,655 $ 25,824 $ 866
---------- -------- -------- -------- ---------
After one year:
More than one year to three years 891 - 10,850 50,642 1,220
More than three years to five years 6,556 - 17,044 6,967 4,105
More than five years to 10 years 24,198 44,831 195,512 - 7,179
More than 10 years to 20 years 312,794 4,313 39,626 - 2,604
More than 20 years 408,892 - 330 - 31,858
---------- -------- -------- --------- ---------
Total due after December 31, 1999 753,331 49,144 263,362 57,609 46,966
---------- -------- -------- --------- ---------
Total amount due $ 835,364 $ 49,576 $ 273,017 $ 83,433 $ 47,832
========== ======== ========= ========= =========
Less:
Unamortized (premiums),net
Deferred loan fees, net
Deferred mortgage (expense)
Allowance for possible loan losses
Total loans, net
Less: Loans held-for-sale, net
Loans receivable held for
investment, net
<CAPTION>
At December 31, 1998
------------------------------------
Total
Loans
Consumer Student Receivable
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Amounts due:
Within one year $ 8,750 $ 1,285 $ 128,845
---------- ---------- ----------
After one year:
More than one year to three years 373 - 63,976
More than three years to five years 1,068 - 35,740
More than five years to 10 years 211 - 271,931
More than 10 years to 20 years - - 359,337
More than 20 years - - 441,080
---------- ---------- ----------
Total due after December 31, 1999 1,652 - 1,172,064
---------- ---------- ----------
Total amount due $ 10,402 $ 1,285 $1,300,909
========== ==========
Less:
Unamortized discounts, net 3,911
Deferred loan (costs), net (719)
Deferred mortgage interest 685
Allowance for possible loan losses 24,779
----------
Total loans, net 1,272,253
Less: Loans held-for-sale, net (81,276)
----------
Loans receivable held for
investment, net $1,190,977
==========
</TABLE>
12
<PAGE>
The following table sets forth at December 31, 1998, the dollar amount of
gross loans receivable contractually due after December 31, 1999, and whether
such loans have fixed or adjustable interest rates.
<TABLE>
<CAPTION>
Due After December 31, 1999
-------------------------------------------
Fixed Adjustable Total
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family $ 506,054 $ 247,277 $ 753,331
Multi-family 31,053 18,091 49,144
Commercial real estate 141,799 121,563 263,362
Construction and development - 57,609 57,609
Home equity and second mortgage 13,905 33,061 46,966
----------- ----------- -----------
Total real estate loans 692,811 477,601 1,170,412
Consumer and student loans (1) 1,652 - 1,652
----------- ----------- -----------
$ 694,463 $ 477,601 $ 1,172,064
=========== =========== ===========
</TABLE>
______________
(1) Includes private banking, personal secured, personal unsecured,
modernization and passbook loans.
One- to Four-Family Loans. The Bank, through RNMC, currently offers both
fixed-rate and adjustable-rate mortgage loans secured by one- to four-family
residences with maturities up to forty years located in the Bank's primary
market area, as well as in the New York, New Jersey, Connecticut, Delaware,
Tennessee, Pennsylvania, Virginia and Maryland areas in which RNMC operates
mortgage origination offices. One- to four-family mortgage loan originations are
generally obtained from RNMC's loan representatives operating in the Bank's
branch offices and RNMC's mortgage origination offices, and through their
contacts with the local real estate industry and through direct consumer
advertising. Additionally, from time to time the Bank may purchase residential
one- to four-family loans in the secondary market. All loans purchased in the
secondary market are quality control reviewed for adherence to the Bank's
underwriting standards.
At December 31, 1998, the Bank's one- to four-family loans totaled
$835.4 million, or 64.21% gross loans. Of the one- to four-family loans
outstanding at that date, 62.22% were fixed-rate loans and 37.78% were
adjustable-rate mortgage loans. The Bank, through RNMC, offers fixed-rate
mortgage loans with terms of ten, fifteen, twenty and thirty years. The Bank,
through RNMC, currently offers a number of adjustable-rate mortgage loans with
terms of up to forty 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-rate 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 a 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 fixed-rate loans with interest rates based upon the then-current
market rates plus a varying margin.
13
<PAGE>
The volume and type of adjustable-rate mortgage loans originated by RNMC on
behalf of the Bank have been affected by such market factors as interest rates,
competition, consumer preferences and the availability of funds. The
origination of adjustable-rate residential mortgage loans, as opposed 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, and 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 RNMC, generally
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 Senior Lending Officer and
reviewed by the Board of Directors. 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,
RNMC 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.
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 December 31,
1998, the Bank's multi-family loan portfolio was $49.6 million, or 3.81% of
total 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. Additionally, 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 amortization periods of up
to 30 years. The Bank's adjustable-rate multi-family loans are originated with
rates that are generally fixed for the first five years with a single adjustment
on the fifth anniversary of the loan based upon the average monthly yield on
U.S. Treasury obligations, adjusted to a constant maturity of five years, plus a
margin of 1.50% to 2.50%. Ten year fixed-rates based on similar spreads are
also available. The Bank offers multi-family loans with terms of up to ten
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%. The Bank also requires an appraisal on the property conducted
by
14
<PAGE>
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.
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 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.
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 December 31, 1998, was $10 million per
project and an aggregate of $30 million in loans outstanding per borrower. The
Bank will make exceptions to this policy provided full board approval for the
loan is obtained. 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 December 31, 1998 the Bank's commercial real estate loan portfolio totaled
approximately $273.0 million, or 20.99% of gross loans.
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 which permanent financing has been
secured. At December 31, 1998, the Bank had $84.4 million of construction loan
commitments for 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 generally on a monthly basis in increments as
construction progresses and as inspections by the Bank's supervising engineer
warrant.
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 and therefore, the personal guarantee of the borrower
during the construction stage is required. Risk of loss on a construction loan
is
15
<PAGE>
dependent largely upon the accuracy of the initial estimate of the property's
value at completion of construction 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. Standard fixed rate, fixed term home equity loans are
offered in amounts of up to 80% of the appraised value of the property
(including the first mortgage) with a maximum loan amount of $100,000. Standard
adjustable rate home equity lines-of-credit are offered in either, a) amounts up
to 80% of the appraised value of the property (including the first mortgage)
with a maximum line amount of $100,000, or, b) amounts up to 70% of the
appraised value of the property (including the first mortgage) on lines greater
than $100,000, to a maximum line of $250,000.
The Bank also offers home equity loans and lines-of-credit for individuals
whose loan-to-value ratios or expense ratios exceed that used for the standard
product. The alternative loan-to-value product offers loans or lines-of-credit
up to 90% of the property value (including the first mortgage) to a maximum of
$100,000. The alternative income product offers loans or line-of-credit up to a
maximum of 65% of the property value (including the first mortgage) up to a
maximum of $100,000. The alternative loan products carry an interest rate
greater than that offered on the standard products.
Consumer and Student Lending. The Bank's portfolio of consumer and
student loans primarily consists of private banking, secured and unsecured
personal loans, and home improvement loans. Private banking entails offering a
wide array of deposit and loan products that are customized to meet the needs of
a specific client base, principally composed of entrepreneurs, professionals and
senior corporate executives. Private banking can be either fixed or adjustable
rate, secured or unsecured and typically have a maturity of one year or less, or
are payable on demand. Unsecured personal loans are offered with a maximum term
of 5 years and maximum amount of $15,000. Secured personal loans are
collateralized with deposits from any federally insured financial institution.
Secured personal loans have a maximum term of 5 years and a maximum amount of
$50,000. Home improvement loans are offered to homeowners for the purpose of
modernization and maintenance of owner-occupied properties for terms up to 5
years and to a maximum loan amount of $20,000. The Bank offers both subsidized
and unsubsidized student loans through a forward purchasing and servicing
agreement with the Student Loan Marketing Association (Sallie Mae).
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies and loan approval limits of the Bank. The Board of
Directors has established an Executive Committee, comprised of rotating members
of the Board of Directors, to review and approve loans in amounts greater than
management's approval limits. The Board of Directors has authorized the
following persons to approve loans up to the amounts indicated: commercial real
estate loans of up to $1.0 million 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, construction loans and loan
participations in excess of $1.0 million require the approval of the Executive
Committee of the Board of Directors; when these loans exceed $5.0 million, they
require the approval of the Board of Directors. Home equity loans, lines of
credit, personal loans, and home improvement loans are approved by a Consumer
Loan Officer up to a defined maximum amount established by the Board of
Directors. Loan amounts greater than the defined maximum amount must be
countersigned by the Senior Consumer
16
<PAGE>
Lending Officer. Residential loan approval authority limits have been
established by RNMC's Management and approved by its Board of Directors. These
limits require approval by senior personnel for loans that carry greater risks
based upon underwriting criteria.
With respect to all loans originated by RNMC 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 of Directors annually approves the 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 $5.0 million and by the Board of
Directors for loans of $5.0 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 Directors 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, that a delinquency notice be mailed no later than the 16th day of
delinquency and a late charge assessed after 15 days. The Bank's subservicer,
Cenlar, 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 (REO) and is
recorded at the lower of the unpaid principal balance or fair value less
estimated 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, appraise the property on an as-needed basis.
At December 31, 1998, the Bank's real estate owned, net, consisted of
foreclosed assets totaling $532,000 and was held directly by the Bank and 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, was comprised of one- to four-family properties with an aggregate
carrying value of $203,000 and commercial real estate properties with an
aggregate carrying value of $828,000. 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 uncollectible 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 December 31, 1998 totaled $499,000, or
48.4% 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.
17
<PAGE>
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.
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 designated as "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 NYSBD, 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 inter-agency 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 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 reviews to the Board of Directors.
At December 31, 1998, the Bank had $6.5 million of loans designated as
Substandard, consisting of 48 commercial real estate and one- to
18
<PAGE>
four-family loans, and no loans classified as Doubtful or Loss. At December 31,
1998, the Bank had $20.4 million of assets designated as Special Mention,
consisting of 27 commercial real estate and one- to four-family loans, which
were designated due to past loan delinquencies.
19
<PAGE>
The following table sets forth delinquencies in the Bank's loan
portfolio as of the dates indicated:
<TABLE>
At December 31, 1998
------------------------------------------------------------
60-89 Days 90 Days or More
---------------------------- ----------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to four-family 9 $ 776 28 $ 3,639
Multi-family - - - -
Commercial real estate - - 2 1,020
Construction and development - - - -
Home equity and second mortgage - - 1 3
Consumer (1) 2 9 3 25
Student loans - - - -
------------ ------------ ------------ ------------
Total 11 $ 785 34 $ 4,687
============ ============ ============ ============
Deliquent loans to total loans (2) 0.06% 0.39%
============ ============
<CAPTION>
At December 31, 1997
------------------------------------------------------------
60-89 Days 90 Days or More
---------------------------- ----------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to four-family 8 $ 1,045 23 $ 2,437
Multi-family - - - -
Commercial real estate 3 448 4 2,060
Construction and development - - - -
Home equity and second mortgage - - 1 3
Consumer (1) - - 1 19
Student loans - - - -
------------ ------------ ------------ ------------
Total 11 $ 1,493 29 $ 4,519
============ ============ ============ ============
Deliquent loans to total loans (2) 0.15% 0.46%
============ ============
<CAPTION>
At December 31, 1996
------------------------------------------------------------
60-89 Days 90 Days or More
---------------------------- ----------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One-to four-family 6 $ 475 21 $ 1,853
Multi-family - - - -
Commercial real estate - - 8 4,004
Construction and development - - 1 602
Home equity and second mortgage - - - -
Consumer (1) 1 5 1 8
Student loans - - - -
------------ ------------ ------------ ------------
Total 7 $ 480 31 $ 6,467
============ ============ ============ ============
Deliquent loans to total loans (2) 0.09% 1.26%
============ ============
</TABLE>
___________________
(1) Consumer loans consist of private banking, personal secured, personal
unsecured, modernization and passbook loans. Private banking, personal
secured and personal unsecured loans were originated beginning during the
year ended December 31, 1997. The amounts shown prior to December 31, 1997
do not include the aforementioned loan products.
(2) Total loans includes loans receivable held for investment, less deferred
loan fees, deferred mortgage interest and unamortized discounts, net.
20
<PAGE>
Non-Accrual and Past-Due Loans. The following table sets forth information
regarding non-accrual loans and REO.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ---------- ----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1):
One- to four-family $ 4,351 $ 3,676 $ 2,764 $ 2,965 $ 4,708
Multi-family - - - - 263
Commercial real estate 1,403 2,723 5,374 8,650 16,519
Construction and development - - 602 150 2,900
Home equity 62 62 - - -
Consumer (2) 25 19 - - -
---------- ---------- ---------- ----------- -----------
Total non-accrual loans 5,841 6,480 8,740 11,765 24,390
Loans contractually past due 90 days or
more, other than non-accruing 271 - - 408 665
---------- ---------- ---------- ---------- ---------
Total non-performing loans 6,112 6,480 8,740 12,173 25,055
Real estate owned, net (3) 532 157 1,698 6,047 3,359
---------- ---------- ---------- ---------- ---------
Total non-performing assets $ 6,644 $ 6,637 $ 10,438 $ 18,220 $ 28,414
========= ========== ========== ========== =========
Allowance for possible loan losses as a
percent of total loans (4) 2.04% 2.46% 4.55% 6.01% 6.84%
Allowance for possible loan losses as a
percent of total non-performing loans (4)
(5) 405.42% 370.82% 266.82% 191.82% 100.28%
Non-performing loans as a percent of total
loans (4) (5) 0.50% 0.66% 1.71% 3.13% 6.82%
Non-performing assets as a percent of total
assets (6) (7) 0.18% 0.18% 0.29% 1.14% 1.98%
</TABLE>
(1) Includes restructured loans which are less than 90 days past due but which
have not yet complied with the terms of their restructuring agreement for a
satisfactory period of time.
(2) Includes private banking, personal secured, personal unsecured,
modernization and passbook loans. Private banking, personal secured and
personal unsecured loans were originated beginning during the year ended
December 31, 1997. The amounts shown prior to December 31, 1997 do not
include the aforementioned loan products.
(3) REO balances are shown net of related loss allowances.
(4) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses which at December 31, 1998, 1997, 1996,
1995 and 1994 was $24.8 million, $24.0 million, $23.3 million, $23.4 million
and $25.1 million, respectively.
(5) 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.
(6) Non-performing assets consist of non-performing loans and REO.
(7) Total assets at December 31, 1996 includes $1.36 billion of proceeds held in
escrow by the Bank on behalf of depositors and other individuals who
submitted funds in anticipation of the Bank's conversion to stock form and
the concurrent issuance of Roslyn Bancorp, Inc. common stock.
21
<PAGE>
The principal balance of non-accrual loans approximated $5.8 million,
$6.5 million and $8.7 million at December 31, 1998, 1997 and 1996, respectively.
Interest income that would have been recorded if the loans had been performing
in accordance with their original terms aggregated approximately $577,000,
$630,000 and $720,000 during the years ended December 31, 1998, 1997 and 1996.
Actual intrest income recorded on loans previously on non-accrual was
$1.2 million, $271,000 and $370,000 for the years ended December 31, 1998, 1997
and 1996, respectively.
The principal balance of restructured loans that have not complied with the
terms of their restructuring agreement for a satisfactory period of time
(normally six months) was $909,000, $280,000 and $1.6 million at December 31,
1998, 1997 and 1996, respectively. Interest income that would have been
recorded if the loans had been performing in accordance with their original
terms aggregated approximately $76,000, $30,000 and $172,000 during the years
ended December 31, 1998, 1997 and 1996, respectively. Interest income recorded
for restructured loans amounted to $433,000, $235,000 and $118,000 for the years
ended December 31, 1998, 1997 and 1996, respectively. Additionally,
restructured loans totaling $4.1 million, $1.4 million and $2.3 million have
complied with the terms of the restructuring agreement for a satisfactory period
and were returned to the performing loan portfolio during the years ended
December 31, 1998, 1997 and 1996, respectively.
Allowance for Possible Loan Losses
The Company's formalized process for assessing the adequacy of the
allowance for loan losses, and the resultant need, if any, for periodic
provisions to the allowance charged to income, entails both individual loan
analyses and loan pool analyses. The individual loan analyses are periodically
performed on individually significant loans or when otherwise deemed necessary,
and primarily encompasses multi-family, commercial real estate and construction
and development loans. The result of these individual analyses is the
allocation of the overall allowance to specific allowances for individual loans,
both loans considered impaired and non-impaired.
The loan pool analyses are performed on the balance of the portfolio,
primarily the one-to-four family residential and consumer loans. The pools
consist of aggregations of homogeneous loans having similar credit risk
characteristics. Examples of pools defined by the Company for this purpose are
Company-originated, fixed-rate residential loans; Company-originated,
adjustable-rate residential loans; purchased, fixed-rate residential loans;
outside-serviced residential loans; residential second mortgage loans;
participations in conventional first mortgages; residential construction loans;
commercial construction loans, etc. For each such defined pool, there is a set
of sub-pools based upon delinquency status: current, 30-59 days, 60-89 days,
90-119 days and 120+ days (the latter three sub-pools are considered to be
"classified" by the Company). For each sub-pool, the Company has developed a
range of allowance necessary to adequately provide for probable losses inherent
in that pool of loans. These ranges are based upon a number of factors
including the risk characteristics of the pool, actual loss and migration
experience, expected loss and migration experience considering current economic
conditions, industry norms, and the relative seasoning of the pool. The ranges
of allowance developed by the Company are applied to the outstanding principal
balance of the loans in each sub-pool; as a result, further specific and general
allocations of the overall allowance are made (the allocations for the
classified sub-pools are considered specific and the allocations for the non-
classified sub-pools are considered general).
The Company's overall allowance also contains an unallocated amount which
is supplemental to the results of the aforementioned process and takes into
consideration known and expected trends that are likely to affect the
creditworthiness of the loan portfolio as a whole, national and local economic
22
<PAGE>
conditions, unemployment conditions in the local lending area and the timeliness
of court foreclosure proceedings in the Company's local and other lending areas.
During the period from 1995 to 1998, the Company's loan portfolio has
undergone a dramatic change which, together with changes in non-performing
loans, have directly impacted the allowance for loan losses. At December 31,
1995, $197.4 million, or 48.41%, of the gross loan portfolio was in one-to four-
family residential first mortgage loans and $206.6 million, or 50.67% was in
relatively riskier multi-family, commercial real estate, construction and
development, and home equity and second mortgage loans. At that date, there
were $12.2 million of non-performing loans, of which $8.7 million were
commercial real estate loans. The allowance for loan losses as a percent of
loans was 6.01% which may be considered high by industry norms if compared to a
primarily residential loan portfolio, but not considered high in the context of
the Company's loan portfolio mix.
At December 31, 1996, December 31, 1997 and December 31, 1998, the loan
portfolio showed significant growth in all sectors, and changes in the mix. At
those dates, one-to four-family residential first mortgage loans were $263.4
million, $634.0 million and $835.4 million, respectively, or 49.83%, 63.28% and
64.21%, respectively, of the gross loan portfolio. The aforementioned relatively
riskier loans aggregated $262.3 million, $361.9 million and $453.9 million,
respectively, at those dates, or 49.64%, 36.12%, and 34.89% respectively, of the
gross loan portfolio. Non-performing loans at those dates were $8.7 million,
$6.5 million and $6.1 million, respectively (including $5.4 million, $2.7
million and $1.4 million, respectively, of commercial real estate loans). The
allowance for loan losses as a percent of loans was 4.55%, 2.46% and 2.04%,
respectively, at those dates.
The quantitative information cited in the two previous paragraphs indicates
a trend over this time horizon of 1) a dramatic increase in absolute dollars,
and significant increase in relative dollars, in the relatively less risky one-
to four-family residential first mortgage loans, 2) a steady increase in
absolute dollars, and significant decrease in relative dollars, in the
relatively riskier loans (as previously defined), and 3) a decrease in absolute
dollars in non-performing loans. The application of the Company's formalized
process for assessing the adequacy of the allowance for loan losses to the loan
portfolio undergoing the changes cited during this time horizon has resulted in
a relatively flat absolute dollar level of the allowance for loan losses and a
steady decrease in the ratio of the allowance for loans losses to total loans.
Management continues to believe the Company's reported allowance for loans
losses is both appropriate in the circumstances and adequate to provide for
estimated probable losses inherent in the loan portfolio.
As of December 31, 1998, the Bank's allowance for possible loan losses was
$24.8 million, or 2.04% of total loans and 405.42% of non-performing loans, as
compared to $24.0 million, or 2.46% of total loans and 370.82% of non-performing
loans, as of December 31, 1997. The Bank had total non-performing loans of $6.1
million and $6.5 million at December 31, 1998 and 1997, respectively, and non-
performing loans to total loans of 0.50% and 0.66%, respectively. The Bank will
continue to monitor and modify its allowance for possible loan losses as
conditions dictate. 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 assurance 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
23
<PAGE>
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 NYSBD 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 make additional provisions
for estimated possible loan losses based upon judgments that may differ from
those of management.
24
<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 Year Ended December 31,
----------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 24,029 $ 23,320 $ 23,350 $ 25,127 $ 24,502
-------- -------- -------- -------- --------
Provision for possible loan losses 750 600 2,000 600 600
Charge-offs:
Real estate loans:
One- to four-family - - 19 14 -
Commercial real estate - 83 1,589 2,385 59
Construction and development - - 519 111 112
Consumer and student loans - 8 - - -
-------- -------- -------- -------- --------
Total charge-offs - 91 2,127 2,510 171
-------- -------- -------- -------- --------
Recoveries:
Real estate loans:
One- to four-family - - 3 40 107
Commercial real estate - 200 94 92 89
Construction and development - - - 1 -
-------- -------- -------- -------- --------
Total recoveries - 200 97 133 196
-------- -------- -------- -------- --------
Net recoveries (charge-offs) - 109 (2,030) (2,377) 25
-------- -------- -------- -------- --------
Balance at end of year $ 24,779 $ 24,029 $ 23,320 $ 23,350 $ 25,127
======== ======== ======== ======== ========
Ratio of net recoveries/(charge-offs)
to average loans outstanding
during the year -% 0.02% (0.47)% (0.66)% 0.01%
======== ======== ======== ======== ========
</TABLE>
25
<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
(including loans held for sale) in each of the categories listed at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------
1998 1997
---------------------------------- --------------------------------
Percent of Percent of
Percent Loans in Loans in
of Each Percent of Each
Allowance Category Allowance Category
To Total to Total To Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ---------- ------------ ----------- -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 7,162 28.90% 64.21 % $ 6,970 29.01% 63.28 %
Multi-family 1,487 6.00 3.81 1,770 7.37 4.39
Commercial real estate 7,732 31.20 20.99 8,003 33.30 24.82
Construction and development 5,791 23.37 6.41 3,553 14.79 5.22
Home equity/second mortgage 396 1.60 3.68 137 0.57 1.69
Consumer and student 294 1.19 0.90 103 0.43 0.60
Unallocated 1,917 7.74 -- 3,493 14.53 --
---------- ---------- ------------ ----------- -------- --------
Total allowance for
possible loan losses $ 24,779 100.00% 100.00 % $ 24,029 100.00% 100.00 %
========== ========== ============ =========== ======== ========
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------
1996 1995
---------------------------------------- ----------------------------------------
Percent Percent
of of
Loans in Loans in
Percent of Each Percent of Each
Allowance Category Allowance Category
To Total to Total To Total to Total
Amount Allowance Loans Amount Allowance Loans
--------- ----------- ----------- --------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family $ 2,580 11.06 % 49.83 % $ 2,176 9.32 % 48.41 %
Multi-family 2,960 12.69 8.81 3,036 13.00 8.92
Commercial real estate 7,474 32.05 31.94 7,185 30.77 30.65
Construction and development 4,664 20.00 7.09 3,872 16.58 10.21
Home equity/second mortgage 47 0.20 1.80 35 0.15 0.90
Consumer and student 35 0.15 0.53 34 0.15 0.91
Unallocated 5,560 23.85 - 7,012 30.03 -
--------- ----------- ----------- --------- ----------- -----------
Total allowance for
possible loan losses $ 23,320 100.00 % 100.00 % $ 23,350 100.00 % 100.00 %
========= =========== =========== ========= =========== ===========
<CAPTION>
At December 31,
-----------------------------------------
1994
-----------------------------------------
Percent of
Loans in
Percent of Each
Allowance Category
To Total to Total
Amount Allowance Loans
--------- ----------- ------------
(Dollars In thousands)
<S> <C> <C> <C>
One- to four-family $ 2,677 10.65 % 41.52 %
Multi-family 2,824 11.24 5.05
Commercial real estate 7,523 29.94 30.98
Construction and development 4,426 17.61 15.22
Home equity/second mortgage 31 0.13 1.18
Consumer and student 35 0.14 6.05
Unallocated 7,611 30.29 -
--------- ----------- ------------
Total allowance for
possible loan losses $25,127 100.00 % 100.00 %
========= =========== ============
</TABLE>
26
<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 that 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.
Securities Investment Activities
The Board of Directors 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 Directors has
established an Investment Committee comprised of three Directors and the
Investment Officer to supervise the Bank's securities investment program. The
Bank's Investment Committee meets periodically and evaluates all investment
activities for safety and soundness, evaluates the investment policy and its
objectives for the next period and submits a report to the Board of Directors.
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 periodically
reviewed by the Investment Committee and reported to the Board of Directors on a
monthly basis.
At December 31, 1998, the Bank's current policies generally limit
securities investments to U.S. Government and agency securities, municipal
bonds, 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,
Government National Mortgage Association (GNMA) and privately-issued
Collateralized Mortgage Obligations (CMOs). The Bank's current securities
investment strategy is to de-emphasize its investment in U.S. Government
obligations, corporate debt and municipal bonds and to emphasize the purchase of
mortgage-backed and mortgage related securities, preferred stock and trust
preferreds 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 December 31, 1998, the Company had $2.30 billion in securities,
consisting primarily of U.S. Government and agency obligations, mortgage-backed
and mortgage related securities, municipal and corporate obligations, trust
preferreds, and preferred and common stocks, as compared with $2.55 billion at
December 31, 1997. Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS No.
115), requires the Company to designate its securities as held-to-maturity,
available-for-sale or trading depending on the Company's intent regarding its
investments. Upon the purchase of an investment security, the Bank and the
Holding Company (Roslyn Bancorp, Inc. on an unconsolidated basis) will make a
determination as to the classification of
27
<PAGE>
the security. However, the Bank and the Holding Company currently do not
purchase securities with the intention of trading such securities, nor does the
Bank or the Holding Company maintain trading portfolios. As of December 31,
1998, $2.24 billion of the Company's securities portfolio, or 59.8% of total
assets, was classified as available-for-sale, with an average life of the
portfolio of 2.72 years. At such date, $68.8 million of the Company's securities
portfolio, or 1.8% of total assets, was classified as held-to-maturity, with a
market value of $69.2 million and an average life of the portfolio of 0.77
years. Since December 1995, the Company has designated 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 private issuers, GNMA and
FHLMC. The Bank also invests in CMOs issued or sponsored by FNMA, FHLMC, as well
as private issuers. At December 31, 1998, mortgage-backed and mortgage related
securities totaled $1.69 billion, or 45.2% of total assets, and 46.5% of total
interest-earning assets, of which $1.62 billion was classified as
available-for-sale and $68.1 million was classified as held-to-maturity. At
December 31, 1998, 21.1% of the mortgage-backed and mortgage related securities
were adjustable-rate and 78.9% were fixed-rate. The mortgage-backed and mortgage
related securities portfolio had coupon rates ranging from 5.0% to 12.5% and had
a weighted average yield of 6.47% at December 31, 1998. The estimated fair value
of the Bank's mortgage-backed and mortgage related securities held-to-maturity
at December 31, 1998, was $68.4 million.
At December 31, 1998, the Bank's CMO portfolio totaled $1.30 billion,
or 34.7% of total assets and 35.7% of total interest-earning assets, consisting
of $743.7 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 $552.6
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 December 31, 1998,
$1.23 billion of the Bank's CMO portfolio was classified as available-for-sale
and $68.1 million was classified as held-to-maturity, with a market value of
$68.4 million. At such date, the Bank's CMO portfolio had an average estimated
life of 2.26 years and a weighted average yield of 6.53%.
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 December 31, 1998, the
Bank's U.S. Government securities portfolio totaled $47.9 million, all of which
was classified as available-for-sale. Such portfolio
28
<PAGE>
primarily consists of short- to medium-term (maturities of one to five years)
securities. The Bank's current investment practice, however, is to de-emphasize
its investments in such instruments. At December 31, 1998, the Bank's agency
securities portfolio totaled $115.4 million, all of which was classified as
available-for-sale and consisted of callable debentures. The Bank's callable
agency debentures generally are callable at par after one year and in six month
intervals thereafter. 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 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 has de-emphasized investments in corporate debt
obligations during 1998. As of December 31, 1998, the Bank had no corporate bond
holdings.
Municipal Bonds. The Bank's municipal bond portfolio, which at December
31, 1998 totaled $715,000, had an estimated fair market value of $755,000. 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
December 31, 1998, the average life of the portfolio was approximately 1.45
years and the portfolio had a weighted average coupon rate of 7.95%. Interest
earned on municipal bonds is exempt from federal, state and local income taxes.
The Bank's current policy is to de-emphasize its investment in municipal bonds.
Equity Securities. At December 31, 1998, the Bank's equity securities
portfolio totaled $96.8 million, all of which was classified as
available-for-sale. The Company on an unconsolidated basis also has an equity
securities portfolio totaling $353.2 million, all of which was classified as
available-for-sale at December 31, 1998. The Company's equity securities
portfolio consisted of trust preferred, common, and preferred stock. The
majority of the Company'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 December 31, 1998, the Company had $35.5 million of
preferred stock eligible for redemption on or before December 31, 1999. The
Company benefits from its investment in common and preferred stocks due to a tax
deduction the Company receives with regards to dividends paid by corporate
issuers on equity securities held by other corporate entities such as the
Company.
Included in the Bank's equity securities at December 31, 1998 was a
$16.2 million investment in two common stock mutual funds. The Bank's policy
limit for its common and preferred stock investments is 5% and 7.5%,
respectively of its total assets and allows for the purchase of common and
preferred stock with a 1% limitation on the purchase of any single issuer. At
December 31, 1998, the Bank's policies permit the purchase of preferred stock
rated "Baa" or better, with a 1% limitation on the purchase of preferred stock
of any single issuer.
29
<PAGE>
The Company's investment policy was modified in 1998 to include capital
notes/trust preferreds issued primarily by financial institutions. These
securities represent secondary capital and rank subordinate and junior in right
of payment to all indebtedness of the issuing company. These higher yielding
securities generally are non-rated or rated below investment grade. In order to
offset the higher degree of risk, management will focus primarily on, but not
limited to, securities issued by New York metropolitan area institutions. At
December 31, 1998, the Company had $144.7 million of trust preferreds.
30
<PAGE>
The following table sets forth the composition of the Company'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 December 31,
---------------------------------------------------------------------
1998 1997
------------------------------ -----------------------------
Percent Percent
Amount of Total Amount of Total
------------- ------------ ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Debt securities:
U.S. Government obligations $ 47,882 2.08 % $ 77,975 3.05 %
Agency securities 115,397 5.01 125,481 4.92
Municipal bonds 715 0.03 1,930 .08
Corporate obligations - - 5,385 .21
------------- ------------ ------------- ------------
Total debt securities 163,994 7.12 210,771 8.26
------------- ------------ ------------- ------------
Equity securities:
Preferred and common stock and other 305,254 13.25 285,352 11.18
Trust preferreds 144,727 6.28 - -
------------- ------------ ------------- ------------
Total equity securities 449,981 19.53 285,352 11.18
------------- ------------ ------------- ------------
Mortgage-backed and mortgage related securities:
FHLMC - - 253,153 9.91
GNMA 391,757 17.00 464,971 18.21
FNMA 2,001 0.09 - -
CMOs 1,296,336 56.26 1,338,702 52.44
------------- ------------ ------------- ------------
Total mortgage-backed and mortgage related
securities 1,690,094 73.35 2,056,826 80.56
------------- ------------ ------------- ------------
Total securities $ 2,304,069 100.00 % $ 2,552,949 100.00 %
============= ============ ============= ============
Debt and equity securities available-for-sale $ 613,260 26.62 % $ 494,193 19.36 %
Debt securities held-to-maturity 715 0.03 1,930 .08
------------- ------------ ------------- ------------
Total debt and equity securities 613,975 26.65 496,123 19.44
------------- ------------ ------------- ------------
Mortgage-backed and mortgage related
securities available-for-sale 1,622,023 70.40 1,856,633 72.72
Mortgage-backed and mortgage related
securities held-to-maturity 68,071 2.95 200,193 7.84
------------- ------------ ------------- ------------
Total mortgage-backed and mortgage
related securities 1,690,094 73.35 2,056,826 80.56
------------- ------------ ------------- ------------
Total securities $ 2,304,069 100.00 % $ 2,552,949 100.00 %
============= ============ ============= ============
<CAPTION>
At December 31,
------------------------------
1996
------------------------------
Percent
Amount of Total
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Debt securities:
U.S. Government obligations $ 179,259 9.31 %
Agency securities 124,377 6.46
Municipal bonds 1,930 .10
Corporate obligations 14,398 .75
------------- ------------
Total debt securities 319,964 16.62
------------- ------------
Equity securities:
Preferred and common stock and other 168,862 8.78
Trust preferreds - -
------------- ------------
Total equity securities 168,862 8.78
------------- ------------
Mortgage-backed and mortgage related securities:
FHLMC 220,264 11.44
GNMA 292,936 15.22
FNMA 6,263 .32
CMOs 916,580 47.62
------------- ------------
Total mortgage-backed and mortgage related
securities 1,436,043 74.60
------------- ------------
Total securities $ 1,924,869 100.00 %
============= ============
Debt and equity securities available-for-sale $ 486,896 25.30 %
Debt securities held-to-maturity 1,930 .10
------------- ------------
Total debt and equity securities 488,826 25.40
------------- ------------
Mortgage-backed and mortgage related
securities available-for-sale 1,159,411 60.23
Mortgage-backed and mortgage related
securities held-to-maturity 276,632 14.37
------------- ------------
Total mortgage-backed and mortgage
related securities 1,436,043 74.60
------------- ------------
Total securities $ 1,924,869 100.00 %
============= ============
</TABLE>
31
<PAGE>
The following table sets forth the Company's securities activities for
the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996
----------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Beginning balance $ 2,552,949 $ 1,924,869 $ 1,141,959
----------------- ---------------- ----------------
Debt securities purchased - available-for-sale 111,015 123,329 201,226
Equity securities purchased - available-for-sale 375,916 155,220 80,012
Mortgage-backed and mortgage related securities
purchased - available-for-sale 1,444,982 1,250,235 925,159
Less:
Sale of debt securities - available-for-sale 25,434 79,864 -
Sale of equity securities - available-for-sale 152,224 17,855 35,758
Sale of mortgage-backed and mortgage related securities
available-for-sale 34,304 37,794 89,400
Principal repayments on mortgage-backed
and mortgage related securities 1,158,596 353,430 164,630
Maturities of debt securities 798,335 451,693 137,453
Realized gains (losses) on sales of mortgage-backed
and mortgage related securities 645 784 (873)
Realized gains on debt and equity securities 6,530 1,973 69
Amortization of premium on callable preferred stock (786) (805) (705)
Accretion of discount on other securities 13,453 5,343 1,242
Change in net unrealized gain on available-for-sale
securities (31,742) 32,637 4,021
----------------- ---------------- ----------------
Ending balance $ 2,304,069 $ 2,552,949 $ 1,924,869
================= ================ ================
</TABLE>
32
<PAGE>
The following table sets forth certain information regarding the amortized cost
and estimated fair value of the Company's debt and equity and mortgage-backed
and mortgage related securities at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- --------------------------
Estimated Estimated Estimated
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt and equity securities:
Debt securities held-to-maturity:
State, County and
Municipal bonds $ 715 $ 755 $ 1,930 $ 2,026 $ 1,930 $ 2,067
------------ ------------ ------------ ------------ ------------ ------------
Debt securities available-for-sale:
U.S. Government obligations 45,333 47,882 75,499 77,975 175,440 179,259
Agency securities 114,849 115,397 125,097 125,481 124,709 124,377
Corporate obligations - - 5,365 5,385 14,207 14,398
------------ ------------ ------------ ------------ ------------ ------------
Total debt securities
available-for-sale 160,182 163,279 205,961 208,841 314,356 318,034
------------ ------------ ------------ ------------ ------------ ------------
Equity securities
available-for-sale:
Preferred and common stock
and other 285,208 305,254 253,584 285,352 155,772 168,862
Trust preferred 147,131 144,727 - - - -
------------ ------------ ------------ ------------ ------------ ------------
Total debt and equity
securities 593,236 614,015 461,475 496,219 472,058 488,963
------------ ------------ ------------ ------------ ------------ ------------
Mortgage-backed and mortgage related
securities:
Held-to-maturity:
CMOs 68,071 68,416 200,193 200,445 276,632 276,046
------------ ------------ ------------ ------------ ------------ ------------
Available-for-sale:
FHLMC - - 250,206 253,153 220,800 220,264
GNMA 386,436 391,757 456,328 464,971 287,538 292,936
FNMA 2,004 2,001 - - 6,443 6,263
CMO's 1,228,644 1,228,265 1,127,327 1,138,509 636,615 639,948
------------ ------------ ------------ ------------ ------------ ------------
Total mortgage-backed and
mortgage related securities
available-for-sale 1,617,084 1,622,023 1,833,861 1,856,633 1,151,396 1,159,411
------------ ------------ ------------ ------------ ------------ ------------
Total mortgage-backed and
mortgage related securities 1,685,155 1,690,439 2,034,054 2,057,078 1,428,028 1,435,457
------------ ------------ ------------ ------------ ------------ ------------
Net unrealized gain on securities
available-for-sale 25,678 - 57,420 - 24,783 -
------------ ------------ ------------ ------------ ------------ ------------
Total securities amortized
cost/estimated fair value $ 2,304,069 $ 2,304,454 $2,552,949 $2,553,297 $1,924,869 $1,924,420
============ ============ ============ ============ ============ ============
</TABLE>
33
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Company's
securities portfolio as of December 31, 1998.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
More than One More than Five Years
One Year or Less Year to Five Years to Ten Years
---------------------- ---------------------- ------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
-------- ---------- --------- --------- ---------- ---------
(Dollars in thousands)
<S> <S> <C> <C> <C> <C> <C>
Held-to-maturity:
State, County and
Municipal bonds $ 415 8.17 % $ 300 7.59 % $ - - %
Mortgage-backed and
mortgage related securities - - 117 6.50 6,209 6.78
-------- --------- ----------
Total held-to-maturity 415 8.17 417 7.28 6,209 6.78
-------- --------- ----------
Available-for-sale:
Mortgage-backed and
mortgage related securities:
GNMA - - 355 9.47 1,751 9.80
FNMA - - - - - -
CMOs 674 7.50 2,646 8.06 12,197 7.10
-------- --------- ----------
Total mortgage-backed
and mortgage related
securities 674 7.50 3,001 8.23 13,948 7.44
-------- --------- ----------
Debt securities:
U.S. Government
obligations 5,030 6.91 42,852 7.46 - -
Agency securities - - - - - -
-------- --------- ----------
Total debt securities 5,030 6.91 42,852 7.46 - -
-------- --------- ----------
Equity securities (1):
Preferred and common
stock and other - - - - - -
Trust preferreds - - - - - -
-------- --------- ----------
Total equity
securities - - - - - -
-------- --------- ----------
Total available-for-sale 5,704 6.98 45,853 7.51 13,948 7.44
-------- --------- ----------
Total securities $ 6,119 $ 46,270 $ 20,157
======== ========= ==========
<CAPTION>
----------------------------------------------------------
More than Ten Years Total
------------------------ -------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
---------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Municipal bonds $ - - % $ 715 7.93 %
Mortgage-backed and
mortgage related securities 61,745 6.86 68,071 6.85
---------- ----------
Total held-to-maturity 61,745 6.86 68,786 6.86
---------- ----------
Available-for-sale:
Mortgage-backed and
mortgage related securities:
GNMA 389,651 6.23 391,757 6.25
FNMA 2,001 6.45 2,001 6.45
CMOs 1,212,748 6.72 1,228,265 6.73
---------- ----------
Total mortgage-backed
and mortgage related
securities 1,604,400 6.60 1,622,023 6.61
---------- ----------
Debt securities:
U.S. Government
obligations - - 47,882 7.40
Agency securities 115,397 7.13 115,397 7.13
---------- ----------
Total debt securities 115,397 7.13 163,279 7.21
---------- ----------
Equity securities (1):
Preferred and common
stock and other 305,254 5.22 305,254 5.22
Trust preferreds 144,727 8.24 144,727 8.24
---------- ----------
Total equity
securities 449,981 6.19 449,981 6.19
---------- ----------
Total available-for-sale 2,169,778 6.54 2,235,283 6.57
---------- ----------
Total securities $ 2,231,523 $ 2,304,069
========== ==========
</TABLE>
(1) As equity securities have no maturities, they are classified in the more
than ten year category.
34
<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. The Bank
also 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. At December 31, 1998, the Bank's deposit accounts
consisted of savings (including school savings and club accounts), Super NOW and
NOW accounts, checking accounts, money market accounts and certificates of
deposit. The Bank offers certificates of deposit 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, the Bank added
commercial checking accounts for small to moderately-sized commercial
businesses, a payroll account service with direct deposit features, as well as a
low-cost checking account service for low-income customers. Additionally, during
1998 the Bank introduced its Charter Money Market account, and several new
certificates of deposit products which further expanded the Bank's deposits.
At December 31, 1998, the Bank's deposits totaled $2.07 billion. For
the year ended December 31, 1998, the average balance of core deposits (savings,
Super NOW and NOW, money market and non-interest-bearing checking accounts)
totaled $694.2 million, or 34.05% of total average deposits. At December 31,
1998, the Bank had a total of $1.34 billion in certificates of deposit, of which
$1.02 billion had maturities of one year or less. For the year ended December
31, 1998, the average balance of certificate of deposit accounts represented
65.95% of total average deposits. 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, 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 these accounts
during the year. For each of the years ended December 31, 1998 and 1997, the
Bank paid a special interest payment of 15% and 25%, respectively of interest
paid on savings and NOW accounts, which totaled $970,000 and $2.3 million,
respectively. The Bank has made no decision as to the amount of such special
interest payment or whether such special interest payments will continue after
1998. 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 entered into several relationships with
a nationally recognized retail brokerage firm to accept deposits sold by such
brokerage firm. Dependent on market conditions, the Bank will periodically use
such brokered deposits primarily to fund asset growth and manage interest rate
risk. The Bank's policies limit the amount of
35
<PAGE>
brokered deposits which the Bank may have at any time to 25% of total retail
deposits. At December 31, 1998, the Bank had $129.7 million in brokered
deposits.
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------------
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Net deposits (withdrawals) $ 34,961 $ (99,293) $ 560,178
Interest credited on deposit accounts 93,625 86,003 66,412
----------- ----------- -----------
Total increase (decrease) in deposit accounts $ 128,586 $ (13,290) $ 626,590
=========== =========== ===========
</TABLE>
At December 31, 1998, the Bank had outstanding $229.1 million in
certificate of deposit accounts in amounts of $100,000 or more, maturing as
follows:
<TABLE>
<CAPTION>
Weighted
Maturity Period Amount Average Rate
- -------------------------------------------- ------------ --------------
(Dollars in thousands)
<S> <C> <C>
Three months or less $ 80,348 5.21%
Over three through six months 49,682 5.32
Over six through 12 months 66,683 5.32
Over 12 months 32,393 6.06
------------ --------------
Total $ 229,106 5.39%
============ ==============
</TABLE>
36
<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. Average balances for the periods
presented utilize average daily balances.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------------------
1998 1997
-------------------------------------- --------------------------------------
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 $ 67,915 3.33 % 3.30 % $ 52,916 2.90 % 2.70 %
Savings accounts (1) 503,354 24.69 2.92 445,716 24.47 3.04
Super NOW and NOW accounts (2) 87,304 4.28 3.21 78,974 4.34 3.60
Non-interest-bearing accounts 35,600 1.75 - 30,644 1.68 -
---------- --------- ---------- --------
Total 694,173 34.05 2.84 608,250 33.39 2.93
---------- --------- ---------- --------
Total certificates of deposit 1,344,776 65.95 5.70 1,213,478 66.61 5.77
---------- --------- ---------- --------
Total average deposits $ 2,038,949 100.00 % 4.73 $1,821,728 100.00 % 4.82
========== ========= ========== ========
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1996
--------------------------------------
Percent
of Total Weighted
Average Average Average
Balance Deposits Rate
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Money market accounts $ 64,046 4.18 % 2.89 %
Savings accounts (1) 480,171 31.37 3.08
Super NOW and NOW accounts (2) 45,990 3.00 2.96
Non-interest-bearing accounts 29,248 1.91 -
---------- ----------
Total 619,455 40.46 2.91
---------- ----------
Total certificates of deposit 911,216 59.54 5.63
---------- ----------
Total average deposits $1,530,671 100.00 % 4.53
========== ==========
</TABLE>
(1) Includes special interest payment made by the Bank on such accounts for
the years ended December 31, 1998, 1997 and 1996, which resulted in an
increased cost of such accounts of 18 basis points, 48 basis points, and
59 basis points, respectively.
(2) Includes special interest payment made by the Bank on the NOW accounts for
the years ended December 31, 1998, 1997 and 1996, which resulted in an
increased cost of such accounts of 8 basis points, 18 basis points and 35
basis points, respectively.
37
<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 December 31, 1998
------------------------------------------------------------------------------------------------
Greater Greater
Greater Greater Than Than
One Than Than Three to Four to Greater
Year One to Two Two to Four Five Than
or Less Years Three Year Years Years Five Years
----------- ------------ ------------ ------------ ------------ ------------
Certificates of deposit: (In thousands)
<S> <C> <C> <C> <C> <C> <C>
0 to 3.00% $ - $ - $ - $ - $ - $ -
3.01 to 4.00% - - - - - -
4.01 to 5.00% 461,931 37,408 32 - 75 -
5.01 to 6.00% 440,852 87,808 19,926 19,217 17,019 9,555
6.01 to 7.00% 112,408 19,304 53,840 24,732 4,337 16,307
7.01 to 8.00% 34 3,786 1,425 180 7 780
Over 8.01% 2,525 7,055 1,372 30 - 41
----------- ------------ ------------ ------------ ------------ ------------
Total $ 1,017,750 $ 155,361 $ 76,595 $ 44,159 $ 21,438 $ 26,683
=========== ============ ============ ============ ============ ============
<CAPTION>
At December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
Certificates of deposit: (In thousands)
<S> <C> <C> <C>
0 to 3.00% $ - $ - $ 223
3.01 to 4.00% - - 61
4.01 to 5.00% 499,446 24,214 10,000
5.01 to 6.00% 594,377 855,534 819,414
6.01 to 7.00% 230,928 405,297 278,741
7.01 to 8.00% 6,212 6,021 6,677
Over 8.01% 11,023 12,206 12,937
Total ------------- ------------- -------------
$ 1,341,986 $ 1,303,272 $ 1,128,053
============= ============= =============
</TABLE>
38
<PAGE>
Borrowed Funds. The Bank's primary source of borrowings consists of
reverse-repurchase agreements entered into with nationally recognized securities
brokerage firms. At December 31, 1998, the Bank had $959.3 million of
reverse-repurchase agreements outstanding. 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. At December 31, 1998, 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 mortgage-backed securities. 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. The Bank averaged approximately $1.03 billion pursuant to such
reverse-repurchase agreements during the year ended December 31, 1998. At
December 31, 1998, $150,000 of RNMC'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 Years Ended December 31,
---------------------------------------
1998 1997 1996
------------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
FNMA warehouse line of credit:
Average balance outstanding $ 2,556 $ 1,128 $ 2,248
Maximum amount outstanding at any month
end during the year 9,027 3,945 3,239
Balance outstanding at end of year 150 1,332 1,829
Weighted average interest rate during the year 5.60% 6.56% 6.62%
Weighted average interest rate at end of year 6.05 6.70 6.87
Reverse-repurchase agreements:
Average balance outstanding $ 1,031,254 $ 629,224 $ 100,159
Maximum amount outstanding at any month end
during the year 1,141,847 995,861 212,296
Balance outstanding at end of year 959,319 965,119 -
Weighted average interest rate during the year 5.90% 5.90% 5.58%
Weighted average interest rate at end of year 5.62 6.05 -
Total borrowed funds:
Average balance outstanding $ 1,033,810 $ 630,352 $ 102,407
Maximum amount outstanding at any month end
during the year 1,141,847 997,288 215,310
Balance outstanding at end of year 959,469 966,451 1,829
Weighted average interest rate during the year 5.90% 5.91% 5.66%
Weighted average interest rate at end of year 5.62 6.05 6.87
</TABLE>
39
<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
Roslyn National Mortgage Corp. RNMC 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. RNMC was formed in connection
with the Bank's acquisition of certain assets and liabilities of Residential
Mortgage Banking, Inc. (RMBI). It is a mortgage banking entity currently
operating in New York, New Jersey, Connecticut, Tennessee, Delaware,
Pennsylvania, Virginia, Maryland and Tennessee. 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 RNMC as goodwill and is
being amortized on a straight line basis over a ten year period. RNMC is
operated under the direction of its executive officers who are overseen by
RNMC's Board of Directors, which consists of certain members of the Board of
Directors of the Company.
Roslyn Capital Corp. Roslyn Capital Corp. (RCC) is a subsidiary of the
Bank, organized by the Bank on April 1, 1997 for the purpose of engaging in a
REIT. On that date, the Bank transferred one- to four-family residential
mortgage loans, commercial real estate loans and mortgage-backed securities
totaling $707.0 million, net, which included certain associated assets and
liabilities, to RCC. In return, the Bank received shares of common and preferred
stock of RCC. The subsidiary will promote greater retained earnings for the Bank
and thereby serve to strengthen the Bank's capital position from an operational
standpoint.
RSB Agency, Inc. RSB Agency, Inc., a wholly owned subsidiary of the Bank
incorporated in 1983, previously engaged in the sale of life insurance and
collects commissions for previously-issued life insurance policies. RSB Agency,
Inc. is currently active in the sale of annuities, mutual fund and life
insurance products.
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. In addition, BSR 1400 Corp. holds Bank facilities and
leases thereon. Residential Mortgage Banking, Inc. was established to preserve
the name thereof for future use. Old Northern Co. Ltd. currently is an inactive
subsidiary. In addition, following the acquisition of Roosevelt Savings Bank,
the Bank has acquired a variety of subsidiaries relating to the operations of
Roosevelt Savings Bank which are presently being merged into the Banks
subsidiaries as operating subsidiaries of the Bank.
Personnel
As of December 31, 1998, the Bank had 510 full-time employees and 97
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank and RNMC considers its relationship with its
employees to be good.
40
<PAGE>
REGULATION AND SUPERVISION
General
The Company, as a savings and loan holding company, is required to file
certain reports with, and otherwise comply with the rules and regulations of,
the OTS.
The Bank is a New York State chartered stock 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 NYSBD,
as its chartering agency, and by the FDIC, as the deposit insurer. The Bank must
file reports with the NYSBD 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 NYSBD 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 NYSBD, the FDIC or through
legislation, could have a material adverse impact on the Company and the Bank
and their operations and stockholders. The Company is also required to file
certain reports with and otherwise comply with the rules and regulations of the
OTS, the NYSBD and of the SEC under the federal securities laws. Certain of the
regulatory requirements applicable to the Bank and to the Company are referred
to below or elsewhere herein. The description of statutory provisions and
regulations applicable to savings banks and their holding companies set forth in
this Form 10-K does not purport to be a complete description of such statutes
and regulations and their effect on the Bank and the Company.
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 NYSBD, as limited by FDIC regulations. The laws and regulations
established the types of lending and investments in which the Bank may engage.
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.
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
41
<PAGE>
the NYSBD 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 NYSBD 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
NYSBD against the Bank or any of its Directors or officers. The Superintendent
also may take possession of a banking organization under specified statutory
criteria.
Assessments. Savings banks are required to pay assessments to the NYSBD to
fund operations. Assessments paid by the Bank for the fiscal year ended December
31, 1998 totaled $69,000.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital
guidelines to which the Bank is subject. 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 stockholders' equity, 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 at least 8%, of which
at least 4% must be Tier I capital.
In addition, the FDIC regulations prescribe a minimum Tier I leverage
ratio (Tier I capital to adjusted total assets as specified in the regulations)
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.
The following is a summary of the Bank's regulatory capital at December
31, 1998:
GAAP Capital to Total Assets 12.06 %
Total Capital to Risk-Weighted Assets 24.38 %
Tier I Leverage Ratio 11.52 %
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. 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.
Standards for Safety and Soundness. The federal banking agencies have
adopted final regulations and Interagency Guidelines Establishing Standards for
Safety and Soundness (Guidelines) to implement 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 capital becomes impaired. 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.
42
<PAGE>
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.
Investments and Activities
The activities of all state-chartered financial institutions, including
savings banks and their subsidiaries, have generally been limited by federal law
to those activities of the type and in the amount authorized for national banks,
notwithstanding state law. Applicable 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 have been 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 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 December 31,
1998, the Bank had $305.3 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, the severity of which depends upon the degree
of under capitalization.
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
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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
Transactions between depository institutions and their affiliates are
governed by federal law. 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. Generally, the extent to which the savings bank
or its subsidiaries may engage in "covered transactions" with any one affiliate
is limited to an amount equal to 10% of such savings bank's capital stock and
surplus. There is 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. Federal law 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 non-affiliated parties.
Federal law also restricts a savings bank with respect to loans to
directors, executive officers, and principal stockholders. Loans to directors,
executive officers and stockholders who control, directly or indirectly, more
than 10% 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.
Loans above certain amounts to directors, executive officers, and stockholders
who control more than 10% 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. Loans to directors, executive officers and
principal stockholders must be made on terms substantially the same as offered
in comparable transactions to other persons. Recent legislation created an
exception for loans made pursuant to a benefit or compensation program that is
widely available to all employees of the institution and does not give
preference to insiders over other employees. Federal law 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.
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
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reporting period ending seven months before the assessment period, consisting of
(i) well capitalized, (ii) adequately capitalized or (iii) 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 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. On September 30, 1996, the President signed into law the
Deposit Insurance Funds Act of 1996 (the Funds Act) which, among other things,
imposed a special one-time assessment on Savings Association Insurance Fund
member institutions to recapitalize SAIF. The Funds Act also spreads the
obligations for payment of the Financing Corporation (FICO) bonds across all
SAIF and BIF members. As of January 1, 1997, BIF deposits were assessed a FICO
payment of 1.3 basis points, while SAIF deposits will pay an estimated 6.4 basis
points on the FICO bonds. Full pro rata sharing of the FICO payments between BIF
and SAIF are merged. The Bank's insurance premiums resulted in a refund of
$300,000 during fiscal 1998.
Under the FDI Act, insurance of an institution's 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 Super NOW, NOW and regular checking accounts). For 1998, the Federal
Reserve Board regulations required that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $46.5 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $46.5
million, the reserve requirement is $1.4 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 $46.5 million. The first $4.4 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.
Holding Company Regulation
The Company is regulated as a non-diversified unitary savings and loan
holding company within the meaning of the federal law. As such, the Company has
registered 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.
Additionally, 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 is 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 is
not 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
Home Owners' Loan Act (HOLA) limits the activities of a multiple savings and
loan holding company and its non-insured institution subsidiaries
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primarily to activities permissible for bank holding companies under Section
4(c)(8) of the Bank Holding Company Act, as amended, 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 multiple savings and loan holding companies. Recently proposed
legislation would treat all unitary savings and loan holding companies as bank
holding companies and would, subject to a narrow grandfather clause, limit the
activities of such companies to those permissible for bank holding companies
controlling commercial banks.
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 for the Company to 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 qualified thrift
lender. In order to qualify as a qualified thrift lender, the Bank must maintain
compliance with a Qualified Thrift Lender Test. Under the qualified thrift
lender test, a savings institution is required to qualify as a "domestic
building loan association" within the meaning of the Internal Revenue Code or
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 mortgage related securities)
in at least nine months out of each twelve month period. A holding company of an
institution that fails the 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. For the year ended December
31, 1998, the Bank maintained in excess of 94.45% of its portfolio assets in
qualified thrift investments. The Bank met all of the requirements relating to
the QTL Test for the year ended December 31, 1998.
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 purposes of the New York State
Banking Law, is defined generally to include any person, company or trust that
directly or indirectly owns, controls or holds with power to vote 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 is not deemed to be a bank holding
company for the purposes of the New York State Banking Law. The prior approval
of the NYSBD is required before any action is taken that causes any company to
become a bank holding company; any bank holding company acquires direct or
indirect ownership or control of more than 5% of the voting stock of a banking
institution; or acquires a banking institution by merger or purchase of assets.
Although the Company is not currently a bank holding company for purposes of New
York State law, 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.
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Federal Securities Laws
The Company's common stock is registered with the SEC under Section
12(g) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements under the Exchange Act.
The registration under the Securities Act of 1933, as amended (the
Securities Act) of shares of the common stock that were issued in the Bank's
conversion from mutual to stock form 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.
Year 2000 Compliance
The "Year 2000 Problem", as it is generally referred to, concerns the inability
of certain computer hardware and software systems and associated applications to
correctly recognize and process dates beyond December 31, 1999. Many computer
programs were developed using only six digits to define the date field in their
programs. Computer programs used by the Company, its suppliers or outside
service providers that have date-sensitive software may recognize "00" as the
year 1900, rather than the year 2000. Due to the nature of financial
information, calculations that rely on the integrity of the date field for the
correct processing of information could be significantly misstated, if
corrective action is not timely taken.
State of Readiness
The Company has implemented a detailed Year 2000 Plan, according to the
guidelines of the Federal Financial Institutions Examination Council, to
evaluate the Year 2000 compliance of its computer systems and the equipment
which supports the operation of the Company. As a New York State-chartered
savings institution, the Bank is subject to review by both the NYSBD and the
FDIC. The FDIC has completed two Tier II Year 2000 examinations of the Bank's
remediation progress.
Beginning in 1997, the Company initiated formal communications with all of its
service providers, vendors, major fund providers, major borrowers and companies
with which it has material investments, to determine the extent to which it may
be vulnerable to the inability of those parties to remediate their own Year 2000
issues. The Company's vendor relationships cover a wide range of services which
may or may not be subject to a contractual agreement. Where a contractual
relationship exists between the Company and a provider of services, and the
Company suffers harm to its operations due to a failure on the part of the
vendor to provide the service, whether due to Year 2000 or some other issue, the
vendor would be subject to a breach of contract suit. In order to minimize the
risk of material loss or disruption of the Company's business due to an issue
involving date sensitive processing, the Company has not only required of all of
these vendors their written assurances that they are proactively addressing Year
2000 issues within their operations, but the Company is also requesting and
taking advantage of opportunities to test and verify these claims.
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for data processing generally. The Company
utilizes a combination of in-house and service bureau applications, with the
bulk of customer account processing being handled by leading national vendors of
data processing services for financial institutions. The Company has received
written assurances that
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these service providers have completed their internal remediation of programs,
and have substantially completed the remediation of issues related to
interdependencies with other parties. The Company will participate both directly
and indirectly in the testing of these servicers and other third party
dependencies commencing in November, 1998, and continuing through the end of the
second quarter of 1999.
The Company does not anticipate that there will be any significant or material
condition which will impact these service providers in their ability to deliver
accurate data processing services before, during and after the transition to the
new millennium, therefore no formal contingency plans exist at this time.
However, results of system tests conducted by the Company and by other users of
this service provider will be carefully monitored to ensure that all issues have
been identified and successfully remediated.
In addition to its outsourced systems, the Company relies on in-house, computer
based financial accounting and mortgage origination systems. The Company has
recently installed a new general ledger and financial accounting system, and
anticipates upgrading the mortgage origination system by mid 1999. The new
systems have been certified by their respective vendors to be Year 2000
compliant. Language to that effect was included in the service contracts
executed with the system vendors. Both of these revisions were planned around
the business needs of the Company, not the ability or inability of the installed
software to accommodate Year 2000 processing. Nevertheless, these mission
critical system replacements are Year 2000 compliant.
The balance of the Company's internal processing is supported by PC based
systems, using industry standard software to run non-mission critical
applications. Any software program or application which was not supported by the
vendor, or which required an update to achieve Year 2000 capability, has been
identified for replacement or upgrade. Equipment which contains embedded chips
or microprocessors has also been tested and scheduled for upgrade or replacement
where necessary. All such system enhancements are expected to be completed by
the end of the first quarter of 1999. The cost to remediate these systems is
immaterial, and is being expensed in the period in which it occurs.
The Company believes it has developed an effective plan to address the Year 2000
problem and that, based on the available information, its Year 2000 transition
will not have a material effect on its business, operations or financial
results. However, the Company has no control over the progress of third parties
in addressing their own Year 2000 issues. If the necessary changes are not
effected or are not completed in a timely manner, or if unanticipated problems
arise, there may be a material impact on the Company's financial condition and
results of operations.
Cost to Address the Company's Year 2000 Issues
The Company's costs to achieve Year 2000 compliance are not expected to have a
material financial impact on the Company. The Company's expenses related to Year
2000 issues for 1998 was $60,000 and anticipates the expenses for 1999 to be
approximately $80,000. The Company intends to fund such costs from its current
operations. However, as stated above, there can be no assurance that all such
costs have been identified, or that there may not be some unforeseen cost which
may have a material adverse effect on the Company's financial condition and
results of operations.
Risks of Year 2000 Issues
To date, the Company has not identified any system which presents a material
risk of failing to be Year 2000 compliant in a timely manner, or for which a
suitable alternative cannot be implemented. However, as the Company progresses
with its Year 2000 transition, systems or equipment may be identified which
present a material risk of business interruption. Such disruption may include
the inability to process customer account transactions, including deposits,
withdrawals, loan payments and disbursements; the inability to reconcile and
record daily activity; the inability to process loan applications or to track
delinquencies; the inability to generate checks or to clear funds. In addition,
if any of the Company's major borrowers should fail to achieve Year 2000
compliance, and should they experience a disruption of
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their own businesses, their ability to meet their obligations to the Company may
be seriously impaired. To mitigate credit risk in the case of large borrowers,
the Company currently includes a clause relating to the borrower's Year 2000
awareness and preparedness in its loan commitment documents. In addition, 100%
of all borrowers whose loans exceed $500,000 have been contacted to survey their
Year 2000 readiness in order to anticipate any potential exposure. The dollar
value of loans for which borrowers were surveyed equates to 70% of the permanent
and construction loan portfolio.
To the extent that the risks posed by the Year 2000 problem are pervasive in
data processing and telecommunication services worldwide, or to the extent that
disruption of a power utility prevents the Company from gaining access to its
systems, the Company cannot predict with certainty that it will remain
materially unaffected by issues related to the Year 2000 problem, which are
beyond the Company's control.
Contingency Plans
The Company is in the process of developing two types of contingency plans. The
Remediation Plans will identify components of mission critical applications
which are judged, at some point prior to December 31, 1999, to be at risk of
failure to achieve complete renovation, validation and implementation. Business
Interruption Plans will ensure that the Company has sufficiently planned for
unanticipated system failures at critical production dates before, on and after
January 1, 2000.
Remediation Plan: The Company expects to complete its Year 2000 transition and
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to have thoroughly tested its systems prior to any date of potential disruption.
However, the Company is developing Year 2000 remediation plans for mission
critical systems which are not already identified as compliant. If the results
of testing of the Company's systems are not satisfactory, contingency plans will
be invoked within sufficient time to assure successful implementation of a
compliant alternative.
Business Interruption Plans: These plans would be invoked if unanticipated Year
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2000 problems disrupt production, similar to Disaster Recovery Plans.
Essentially, they require that resources are planned for deployment to ensure
that such an interruption does not threaten the viability of the Company. The
Company will modify its current Business Resumption Plan to specifically address
the special circumstances of a disruption due to a Year 2000 related component
failure.
The discussion above contains certain forward-looking statements. Actual results
may differ materially from the Company's expectations due to the nature and
uncertainty of circumstances surrounding the Year 2000 problem. The Company may
fail to identify systems that are not Year 2000 compliant, or the Company or
other parties may fail to meet the dates and goals set above. If so, the extent
and nature of efforts to then address those contingencies, to repair or replace
the affected systems, the Company's ability to obtain qualified personnel,
consultants or other resources and the success of those efforts cannot be stated
with any degree of certainty.
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FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company, the Bank and their subsidiaries (excluding Roslyn
Capital Corporation) 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 Company. The Bank was last audited by the
Internal Revenue Service for the year ended December 31, 1991 which resulted in
no change to taxable income.
Bad Debt Reserves. Prior to the enactment of The Small Business Job
Protection Act of 1996 (the 1996 Act) on August 20, 1996, for federal income tax
purposes, thrift institutions which met certain definitional tests primarily
relating to their assets (the 60% Test) and the nature of their business, were
permitted to establish tax reserves for bad debts and to make annual additions
thereto, which additions could, within certain specified limitations, be
deducted in arriving at taxable income. The Bank's deduction for bad debts with
respect to non-qualifying loans could be computed using an amount based on a six
year moving average of the Bank's actual loss experience (the Experience
Method). The Bank's deduction with respect to "qualifying loans", which are
generally loans secured by certain interest in real property, could be computed
using the Experience Method or a percentage equal to 8% of the Bank's taxable
income (the PTI Method), computed with certain modifications and without regard
to this deduction and reduced by the amount of the any permitted deduction for
bad debts on non-qualifying loans. Additions to the tax bad debt reserve under
the PTI method were subject to an overall limitation. The allowable deduction
under the PTI Method was limited to the excess of 12% of withdrawable accounts
of depositors at the end of the year over the sum of the Bank's surplus,
undivided profits and reserves at the beginning of the year. Use of the PTI
Method had the effect of reducing the marginal rate of federal tax on the Bank's
income to 32.2%, exclusive of any minimum tax, as compared to the maximum
corporate federal income tax rate of 35%.
The 1996 Act. Under the 1996 Act, for tax years beginning after
December 31, 1995, the PTI Method was repealed. Additionally, "large banks"
(i.e., one with assets having an adjusted basis of more than $500 million),
which includes the Bank, are no longer permitted to make additions to its tax
bad debt reserve, can only deduct bad debts as they occur and is required to
recapture (i.e., include in its taxable 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 (or a lesser amount if the
Bank's loan portfolio decreased since December 31, 1987). For tax years
beginning in 1996 and 1997, the recapture requirement is suspended if the
principal amount of residential mortgages originated by the Bank during the year
was not less than the average of the principal amount of loans made during the
six preceding taxable years. As of December 31, 1995, the Bank's tax bad debt
reserve was equal to the balance of such reserve as of December 31, 1987.
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 the amount of such
reserves) will be included in the Bank's income. Non-dividend distributions
include distributions in excess of the Bank's current and accumulated earnings
and profits, as calculated for federal income tax purposes, distributions in
redemption of stock, and distributions in partial or complete liquidation.
Dividends paid out of the Bank's current or accumulated earnings and profits
will not be so included in the Bank's income.
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The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if 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 included in income for federal income tax purposes, assuming
a 35% federal corporate income tax rate. See "Regulation and Supervision" for
limits on the payment of dividends by the Bank. The Bank does not intend to pay
dividends that would result in a recapture of any portion of its tax bad debt
reserves.
Corporate Alternative Minimum Tax. In addition to the regular income tax,
the Code imposes a alternative minimum tax (AMT) in an amount equal to 20% of
alternative minimum taxable income (AMTI) to the extent the AMT exceeds the
regular tax. AMTI regular taxable income as modified by certain adjustments and
tax preference items. AMTI includes an amount equal to 75% of the excess of
adjusted current earnings over AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). Only 90% of AMTI
can be offset by net operating loss carryforwards. The AMT is available as a
credit against future regular income tax. The AMT credit can be carried forward
indefinitely. The Bank does not expect to be subject to the AMT.
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. A 70% dividends received deduction generally
applies with respect to dividends received from corporations that are not
members such affiliated group, except that an 80% dividends received deduction
applies if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend.
State and Local Taxation
New York State 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. The Bank, the Company and their
subsidiaries (excluding Roslyn Capital Corporation) file a combined return.
The Company, the Bank and their subsidiaries do business within the
Metropolitan Transportation Business Tax District (the District) which is
comprised of the counties of New York, Bronx, Kings, Queens, Richmond, Dutchess,
Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester. A tax surcharge is
imposed on banking corporations doing business within the District and has been
applied since 1982. For the tax year ended December 31, 1998, the surcharge
rate was 17%.
The Bank was last audited by the State of New York for the three-year
period ended December 31, 1995, which resulted in adjustments which were
immaterial to the Bank's financial statements.
Bad Debt Reserves: For purposes of computing its New York State entire net
income, the Bank is permitted a deduction for an addition to the reserve for
losses on qualifying real property loans. The allowable deduction is the same as
for federal income tax purposes, prior to the 1996 Act, except that the
percentage allowable under the PTI Method was 32% instead of 8%. The New York
State tax law was amended in August 1996 to prevent the recapture of tax bad
debt reserves that would otherwise occur as a result of the enactment of the
1996 Act. 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
tax bad debt reserves for such distributions. Also, the New York tax bad debt
reserve is subject to recapture in the event that the Bank fails to meet the 60%
Test, which it presently satisfies. Although there can be
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no assurance that the Bank will satisfy the 60% Test in the future, management
believes that this level of qualifying assets can be maintained by the Bank.
Each year the Bank reviews the most favorable method to calculate the deduction
attributable to an addition to the tax bad debt reserve.
Delaware Taxation: The Company, as a Delaware holding company not earning
income in Delaware, is exempted from the corporate income tax. However, the
Company is required to file an annual report with and pay an annual franchise
tax based on authorized shares to the State of Delaware.
Roslyn National Mortgage Corporation: RNMC is subject to tax in the
various states in which it operates. RNMC is also subject to tax in New York
City.
EXECUTIVE OFFICERS OF THE REGISTRANT AND THE BANK
The name, age, position, term of office as officer and period during which
he or she has served as an officer is provided below for each executive officer
of the Registrant and the Bank. All executive officers of the Registrant are
also executive officers of the Bank.
Joseph L. Mancino, Vice Chairman of the Board, President and Chief
Executive Officer and a Director of the Registrant, Chairman of the Board,
President and Chief Executive Officer of the Bank, joined the Bank in 1960, and
became Chairman of the Board, President and Chief Executive Officer of the Bank
in 1992 and of the Registrant in 1997. In connection with the Registrant's
acquisition of T R Financial Corp. in 1999, Mr. Mancino became Vice Chairman of
the Registrant. Mr. Mancino is 61 years of age.
John M. Tsimbinos, Chairman of the Board of the Registrant and Vice
Chairman of the Board of the Bank, joined the Bank in 1999 in connection with
the Registrant's acquisition of T R Financial Corp. Mr. Tsimbinos is 62 years of
age.
John R. Bransfield, Jr., Senior Executive Vice President and Chief
Operating Officer, joined the Bank in 1993 as a Senior Vice
President and Senior Lending Officer, became a Director in 1998, and became
Senior Executive Vice President and Chief Operating Officer in 1999. Mr.
Bransfield is 57 years of age.
Nancy C. MacKenzie, Executive Vice President and Chief Information Officer
of the Bank, joined the Bank in 1976, became Chief Information Officer in 1995,
and became Executive Vice President and Chief Information Officer in 1999. Ms.
MacKenzie is 45 years of age.
Daniel L. Murphy, Executive Vice President and Retail Banking Officer of
the Bank, joined the Bank in 1978, and became Executive Vice President and
Retail Banking Officer in 1999. Mr. Murphy is 39 years of age.
Michael P. Puorro, Executive Vice President and Chief Financial Officer,
joined the Bank in 1992 and became Executive Vice President and Chief Financial
Officer in 1999. Mr. Puorro is 39 years of age.
John L. Klag, Executive Vice President and Investment Officer of the Bank,
joined the Bank in 1993 and became Executive Vice President and Investment
Officer in 1999. Mr. Klag is 41 years of age.
A. Gordon Nutt, Executive Vice President and Special Transition Officer and
Director, joined the Bank in 1999 in connection with the Registrant's
acquisition of T R Financial Corp. Mr. Nutt is 65 years of age.
Kevin T. Dunne, Senior Vice President and Senior Consumer Lending Officer
of the Bank, joined the Bank in 1974 and became Senior Vice President and Senior
Consumer Lending Officer in 1999. Mr. Dunne is 43 years of age.
Ralph E. Caccipuoti, Senior Vice President and Retail Operations Officer of
the Bank, joined the Bank in 1975 and became Senior Vice President and Retail
Operations Officer in 1999. Mr. Caccipuoti is 43 years of age.
52
<PAGE>
John F. Coffey, Senior Vice President and Senior Commercial Lending Officer
of the Bank, joined the Bank in 1996, and became Senior Vice President and
Commercial Lending Officer in 1999. Mr. Coffey is 52 years of age.
William A. Walter, Senior Vice President and Assistant Chief Financial
Officer of the Bank, joined the Bank in 1996, and became Senior Vice President
and Assistant Chief Financial Officer in 1999. Mr. Walter is 34 years of age.
Walter G. Mullins, Senior Vice President and Marketing Officer of the Bank,
joined the Bank in 1999 in connection with the Registrant's acquisition of T R
Financial Corp. Mr. Mullins is 53 years of age.
Gerard L. Treglia, Senior Vice President and Retail Systems Officer of the
Bank joined the Bank in 1999 in connection with the Registrant's acquisition of
T R Financial Corp. Mr. Treglia is 49 years of age.
53
<PAGE>
Item 2. Properties.
- -------------------
The Bank currently conducts its business through 25 full service banking
offices which includes 15 branches acquired pursuant to the Company's
acquisition of T R Financial Corp. and the Bank's contemporaneous merger with
Roosevelt Savings Bank on February 16, 1999. In addition, RNMC, the Bank's
mortgage banking subsidiary, conducts its business through the Bank's banking
offices as well as fourteen mortgage origination offices. The following table
sets forth the Bank's and RNMC's offices as of December 31, 1998.
<TABLE>
<CAPTION>
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
- ---------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Administrative/Main Office: Owned 1932 Not Applicable
Roslyn Office:
1400 Old Northern Boulevard
Roslyn, NY 11576
Branch Offices:
Bayshore Leased 1999 2009
(Office opens June 1, 1999)
130-145 East Main Street
Bayshore, NY 11706
Bayside (1) Owned 1969 Not Applicable
224-04 Union Turnpike
Bayside, NY 11364
Bellmore Owned 1972 Not Applicable
2641 Merrick Road
Bellmore, NY 11710
2790 Sunrise Highway (1) Leased 1980 2010
Bellmore, NY 11710
Bellerose (1) Owned 1975 Not Applicable
247-53 Jamaica Avenue
Bellerose, NY 11426
Brooklyn (1) Owned 1920 Not Applicable
1024 Gates Avenue
Brooklyn, NY 11221
2925 Avenue U (1) Owned 1955 Not Applicable
Brooklyn, NY 11229
Dix Hills (1) Leased 1995 2002
699 Old Country Road
Dix Hills, NY 11746
East Northport Owned 1992 Not Applicable
580 Larkfield Road
East Northport, NY 11731
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
- ---------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Farmingdale Owned 1968 Not Applicable
14 Conklin Street
Farmingdale, NY 11735
Garden City (1) Owned 1976 Not Applicable
1122 Franklin Avenue
Garden City, NY 11530
108-110 Seventh Street (1) Leased 1995 2025
Garden City, NY 11530
Hewlett (1) Owned 1996 Not Applicable
1280 Broadway
Hewlett, NY 11557
Howard Beach (1) (2) Owned 1965 Not Applicable
156-02 Cross Bay Boulevard
Howard Beach, NY 11414
Lawrence Leased 1996 2003
333 Central Avenue
Lawrence, NY 11559
Little Neck (1) Leased 1971 2017
254-09 Horace Harding Expressway
Little Neck, NY 11362
Massapequa (3) Leased 1996 2004
6199 Sunrise Highway /Owned
Massapequa, NY 11758
Massapequa Park (1) Owned 1961 Not Applicable
4848 Merrick Road
Massapequa Park, NY 11762
New Hyde Park (1) Owned 1975 Not Applicable
1114 Jericho Turnpike
New Hyde Park, NY 11040
North Babylon (1) Owned 1991 Not Applicable
1501 Deer Park Avenue
North Babylon, NY 11703
1520 Deer Park Avenue (1) Owned 1994 Not Applicable
North Babylon, NY 11703
Oceanside Owned 1998 Not Applicable
3140 Long Beach Road
Oceanside, NY 11572
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
- ---------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Smithtown Leased 1998 2008
719 Smithtown Bypass
Smithtown, NY 11787
West Hempstead Owned 1965 Not Applicable
50 Hempstead Turnpike
West Hempstead, NY 11552
Woodbury (4) Leased 1976 2009
8081 Jericho Turnpike
Woodbury, NY 11797
Administrative Office: Owned 1996 Not Applicable
Port Washington Office:
2 Seaview Boulevard
Port Washington, NY 11050
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
- ---------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
RNMC Origination Offices:
Hauppauge - Main Office Leased 1986 2002
350 Motor Parkway, Suite 410
Hauppauge, NY 11788
Brentwood (Office opens Leased 1999 1999
June 1, 1999)
5115 Maryland Way
Brentwood, TN 37027
Cherry Hill Leased 1998 1999
Executive Quarters
1930 E. Marlton Pike
Suite Q26
Cherry Hill, NJ 08003
Clark Leased 1998 2003
Garden State Executive Plaza
77 Brant Avenue
Clark, NJ 07066
Columbia Leased 1999 2004
6996 Columbia Gateway Drive
Suite 102
Columbia, MD 21045
Fairfield Leased 1998 2003
111 Beach Road
Fairfield, CT 06430
Melville Leased 1999 2010
48 South Service Road
Melville, NY 11747
Parsippany Leased 1998 2003
400 Lanidex Plaza
Suite 4203
Parsippany, NJ 07054
Patchogue Leased 1998 1999
57 E. Main Street
Patchogue, NY 11772
Richboro Leased 1998 2000
130 Almshouse Road
Suite 200A
Richboro, PA 18954
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
Original
Leased Year
or Leased or Date of Lease
Location Owned Acquired Expiration
- ---------------------------- ----------- ------------- -------------------
<S> <C> <C> <C>
Syracuse (5) Leased 1997 2000
251 Salina Meadow Parkway
Suite 250
Syracuse, NY 13212
Vienna Leased 1999 2004
1604 Springhill Road
Suite 110
Vienna, VA 22182
West Hartford Leased 1996 2000
15 North Main Street
West Hartford, CT 06107
Wilmington Leased 1998 2002
5301 Limestone Road
Suite 104
Wilmington, DE 19808
Whitestone Leased 1998 2003
17-20 Whitestone Expressway
Suite 400
Whitestone, NY 11357
Woodhaven Leased 1998 2000
95-04 Jamaica Avenue
Woodhaven, NY 11421
</TABLE>
______________________________
(1) The Bank acquired these former offices of Roosevelt Savings Bank on
February 16, 1999.
(2) Includes a leased accommodation facility adjacent to the branch office.
The lease on such facility expires December 2011.
(3) The Bank owns the building but leases the minority portion of the land. The
Bank has the option to renew the lease upon expiration for two
additional consecutive terms of 33 years each.
(4) 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
additional consecutive terms of 20 years each.
(5) Vacant as of September 1997.
58
<PAGE>
Item 3. Legal Proceedings.
- --------------------------
The Company is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the Company's financial condition or results of operation.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------------------------------------------------------------
On December 22, 1998, the Company held a special meeting of stockholders to
approve and adopt the Agreement and Plan of Merger, dated as of May 25, 1998, by
and between Roslyn Bancorp, Inc. and T R Financial Corp. pursuant to which,
among other things, T R Financial Corp. merged with and into Roslyn Bancorp,
Inc. the number of votes counted at the meeting was:
For Against Abstain
-------------- ------------- -----------
23,185,207 4,722,808 365,865
PART II
Item 5. Market for the Company's Common Equity and Related Stockholder Matters.
- --------------------------------------------------------------------------------
Information regarding the market for the Company's common equity and
related stockholder matters appears in the 1998 Annual Report to Stockholders
under the caption "Market Price of Common Stock" and is incorporated herein by
this reference. The following schedule summarizes the dividend payment ratio
(dividends declared/net income per share) for the periods indicated:
December 31,
-------------------------
1998 1997 1996
----- ----- -----
27.57% 21.69% N/A
Item 6. Selected Financial Data.
- --------------------------------
Information regarding selected financial data appears on page one of the
1998 Annual Report under the caption "Selected Consolidated Financial and Other
Data of the Company" and is incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- --------------------------------------------------------------------------------
of Operations.
- --------------
Information regarding management's discussion and analysis of financial
condition and results of operations appears on pages four through 23 of the 1998
Annual Report under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and is incorporated herein by
this reference.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
- --------------------------------------------------------------------
The information contained in the section captioned "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management of
Interest Rate Risk and Gap Analysis" in the 1998 Annual Report is incorporated
herein by this reference.
Item 8. Financial Statements and Supplementary Data.
- -----------------------------------------------------
Information regarding the financial statements and the Independent
Auditors' Report appears on pages 24 through 67 of the 1998 Annual Report and is
incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure.
- ---------------------
None.
59
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company.
- -----------------------------------------------------------
Information regarding the directors and executive officers of the Company
is incorporated herein by reference to the Company's Proxy Statement for the
Annual Meeting of Stockholders to be held on May 19, 1999 under the caption
"Information with Respect to the Nominees, Continuing Directors, and Certain
Executive Officers of the Company". Pursuant to General Instruction G(3) to the
Form 10-K, the Company's Proxy Statement for the Annual Meeting of Stockholders
to be held on May 19, 1999 will be filed with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K.
Item 11. Executive Compensation.
- ---------------------------------
Information regarding executive compensation is incorporated herein by
reference to the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held beginning on May 19, 1999 under the caption "Executive
Compensation", not including the report of the personnel committee and the stock
performance graph. Pursuant to General Instruction G(3) to the Form 10-K, the
Company's Proxy Statement for the Annual Meeting of the Stockholders to be held
on May 19, 1999 will be filed with the Commission not later than 120 days
after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
- ------------------------------------------------------------------------
The Company knows of no single person or group that is the beneficial owner
of more than 5% of the Company's common stock.
Information regarding security ownership of management is incorporated
herein by reference to the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 1999 under the caption "Information with
Respect to the Nominees, Continuing Directors and Named Executive Officers of
the Company". Pursuant to General Instruction G(3) to the Form 10-K, the
Company's Proxy Statement for the Annual Meeting of Stockholders to be held on
May 19, 1999 will be filed with the Commission not later than 120 days after the
end of the fiscal year covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions.
- --------------------------------------------------------
Information regarding certain relationships and related transactions is
incorporated herein by reference to the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on May 19, 1999 under the caption
"Transactions With Certain Related Persons". Pursuant to Genral Instruction G(3)
to the Form 10-K, the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on May 19, 1999 will be filed with the Commission not
later than 120 days after the end of the fiscal year covered by this Form 10-K.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
1. Financial Statements
The following consolidated financial statements are included in the
Company's Annual Report to Stockholders for the fiscal year ended
December 31, 1998 and are incorporated herein by this reference:
- Consolidated Statements of Financial Condition as of December 31, 1998
and 1997
- Consolidated Statements of Income for the Years Ended December 31,
1998, 1997 and 1996
- Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996
- Notes to Consolidated Financial Statements
60
<PAGE>
- Independent Auditors' Report
- Selected Quarterly Financial Data (Unaudited) for the Years Ended
December 31, 1998 and 1997
The remaining information appearing in the Annual Report to Stockholders
is not deemed to be filed as part of this report, except as expressly
provided herein.
(a) 2. Financial Statement Schedules
Financial Statement Schedules have been omitted because they are not
applicable or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 1998
The Company filed an 8-K on December 31, 1998 to report that it did not
intend to increase the stock exchange ratio for its acquisition of T R
Financial Corp. Two press releases, dated December 28, and December 30,
1998 announcing the Company's intentions were filed by exhibit.
(c) Exhibits Required by Securities and Exchange Commission Regulation S-K
Exhibit
Number
- ------
2.1 Agreement and Plan of Merger, dated as of May 25, 1998, by and between
Roslyn Bancorp, Inc. and T R Financial Corp./1/
2.2 First Amendment, dated as of January 23, 1999, to the Agreement and Plan
of Merger, dated as of May 25, 1998, by and between Roslyn Bancorp, Inc.
and T R Financial Corp./2/
3.1 Certificate of Incorporation of Roslyn Bancorp, Inc./3/
3.2 Amended and Restated Bylaws of Roslyn Bancorp, Inc.
3.3 Second Amended and Restated Bylaws of Roslyn Bancorp, Inc.
4.0 Form of Stock Certificate of Roslyn Bancorp, Inc./3/
10.1 Employment Agreement between Roslyn Bancorp, Inc. and Joseph L. Mancino
10.2 Employment Agreement between Roslyn Savings Bank and Joseph L. Mancino
10.3 Employment Agreement between Roslyn Bancorp, Inc. and John R. Bransfield,
Jr.
10.4 Employment Agreement between Roslyn Savings Bank and John R. Bransfield,
Jr.
10.5 Employment Agreement between Roslyn Bancorp, Inc. and Michael P. Puorro
10.6 Employment Agreement between Roslyn Savings Bank and Michael P. Puorro
10.7 Employment Agreement between Roslyn Savings Bank and John L. Klag
10.8 Employment Agreement between Roslyn Savings Bank and Nancy MacKenzie
10.9 Employment Agreement between Roslyn Savings Bank and Daniel L. Murphy
10.10 Employment Agreement between Roslyn Bancorp, Inc. and R. Patrick Quinn
10.11 Employment Agreement between Roslyn Savings Bank and R. Patrick Quinn
10.12 Employment Agreement between Roslyn Bancorp, Inc. and John M. Tsimbinos
10.13 Employment Agreement between Roslyn Bancorp, Inc. and A. Gordon Nutt
10.14 Employment Agreement between Roslyn Savings Bank and A. Gordon Nutt
10.15 The Roslyn Savings Bank Management Supplemental Retirement Plan/3/
10.16 Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan/4/
10.17 Supplemental Executive Retirement Plan of Roosevelt Savings Bank, as
amended and restated as of March 16, 1993/5/
10.18 First Amendment to the Supplemental Executive Retirement Plan of
Roosevelt Savings Bank, as amended and restated./6/
10.19 T R Financial Corp. 1993 Incentive Stock Option Plan, amended and
restated as of January 23, 1997./3/
11.0 Statement re: Computation of Per Share Earnings
13.0 1998 Annual Report to Shareholders
21.0 Subsidiary information is incorporated by reference to "Part I -
Subsidiary Activities"
23.0 Consent of KPMG LLP
27.0 Financial Data Schedule
_______________
61
<PAGE>
1. Incorporated by reference into this document from the Registration Statement
on Form S-4, and any amendments thereto, Registration No. 333-67369, filed
with the Securities and Exchange Commission on November 16, 1998.
2. Incorporated by reference into this document from the Form 8-K, and any
amendments thereto, Commission File No. 0-28886, filed with the Securities
and Exchange Commission on February 18, 1999.
3. Incorporated by reference into this document from the Exhibits filed with
the Registration Statement on Form S-1, and any amendments thereto,
Registration Statement No. 333-10471, filed with the Securities and Exchange
Commission on August 20, 1996.
4. Incorporated by reference into this document from the Appendix to the Proxy
Statement for the Annual Meeting of Shareholders held on July 22, 1997,
filed with the Securities and Exchange Commission on June 6, 1997.
5. Incorporated by reference into this document from the Exhibits to T R
Financial Corp.'s Annual Report on Form 10-K for fiscal year 1993,
Commission File No. 0-21386, filed with the Securities and Exchange
Commission on March 30, 1994.
6. Incorporated by reference into this document from the Exhibits to T R
Financial Corp.'s Annual Report on Form 10-K for fiscal year 1995,
Commission File No. 0-21386, filed with the Securities and Exchange
Commission on March 27, 1996 and as amended as of March 29, 1996.
7. Incorporated by reference to the Exhibits to T R Financial Corp.'s
definitive Proxy Statement for its 1997 Annual Meeting of Stockholders,
Commission File No. 0-21386, filed with the Securities and Exchange
Commission on March 19, 1997.
62
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Roslyn Bancorp, Inc.
------------------------------------------
(Registrant)
/s/ Joseph L. Mancino March 31, 1999
------------------------------------------ --------------
Joseph L. Mancino, Vice Chairman of the
Board, President & Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- -----
<S> <C> <C>
/s/ Joseph L. Mancino Vice Chairman of the Board, President, March 31, 1999
- ------------------------------ & Chief Executive Officer --------------
Joseph L. Mancino
/s/ John M. Tsimbinos Chairman of the Board March 31, 1999
- ------------------------------ --------------
John M. Tsimbinos
/s/ John R. Bransfield Director and Vice President March 31, 1999
- ------------------------------ --------------
John R. Bransfield
/s/ Michael P. Puorro Treasurer & Chief Financial Officer March 31, 1999
- ------------------------------ --------------
Michael P. Puorro
/s/ A. Gordon Nutt Director, Executive Vice President March 31, 1999
- ------------------------------ & Special Transition Officer --------------
A. Gordon Nutt
/s/ Thomas J. Calabrese, Jr. Director March 31, 1999
- ------------------------------ --------------
Thomas J. Calabrese, Jr.
/s/ Maureen E. Clancy Director March 31, 1999
- ------------------------------ --------------
Maureen E. Clancy
/s/ Thomas A. Doherty Director March 31, 1999
- ------------------------------ --------------
Thomas A. Doherty
/s/ Robert G. Freese Director March 31, 1999
- ------------------------------ --------------
Robert G. Freese
/s/ Leonard Genovese Director March 31, 1999
- ------------------------------ --------------
Leonard Genovese
</TABLE>
63
<PAGE>
SIGNATURES (Continued)
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- -----
<S> <C> <C>
/s/ Dr. Edwin W. Martin, Jr. Director March 31, 1999
- ---------------------------------- --------------
Dr. Edwin W. Martin, Jr.
/s/ Victor C. McCuaig Director March 31, 1999
- ---------------------------------- --------------
Victor C. McCuaig
/s/ John P. Nicholson Director March 31, 1999
- ---------------------------------- --------------
John P. Nicholson
/s/ James E. Swiggett Director March 31, 1999
- ---------------------------------- --------------
James E. Swiggett
/s/ Spiros J. Voutsinas Director March 31, 1999
- ---------------------------------- --------------
Spiros J. Voutsinas
/s/ Richard C. Webel Director March 31, 1999
- ---------------------------------- --------------
Richard C. Webel
</TABLE>
64
<PAGE>
EXHIBIT 3.2
ROSLYN BANCORP, INC.
AMENDED AND RESTATED BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by
<PAGE>
law. Where a separate vote by a class or classes is required, a majority of the
shares of such class or classes present in person or represented by proxy (after
giving effect to the provisions of Article FOURTH of the Corporation's
Certificate of Incorporation) shall constitute a quorum entitled to take action
with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting or
the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the absence
of such a person, the Chairman of the Board of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set
2
<PAGE>
forth as to each matter such stockholder proposes to bring before the annual
meeting: (i) a brief description of the business desired to be brought before
the annual meeting and the reasons for conducting such business at the annual
meeting; (ii) the name and address, as they appear on the Corporation's books,
of the stockholder proposing such business; (iii) the class and number of shares
of the Corporation's capital stock that are beneficially owned by such
stockholder; and (iv) any material interest of such stockholder in such
business. Notwithstanding anything in these Bylaws to the contrary, no business
shall be brought before or conducted at an annual meeting except in accordance
with the provisions of this Section 6(b). The Officer of the Corporation or
other person presiding over the annual meeting shall, if the facts so warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section 6(b) and,
if he should so determine, he shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall not
be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the provisions
of this Section 6(c). The Officer of the Corporation or other person presiding
at the meeting shall, if the facts so warrant, determine that a nomination was
not made in accordance with such provisions and, if he or she shall so
determine, he or she shall so declare to the meeting and the defective
nomination shall be disregarded.
3
<PAGE>
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
4
<PAGE>
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be ten.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
Except for the initial members of the Board of Directors as of the effective
date of these Bylaws, no person shall be eligible for initial election as a
Director who is 68 years of age or more. No person may be elected, appointed,
nominated or otherwise serve as a Director of the Corporation after December 31
of the year in which such person attains the age of 75. Vacancies on the Board
of Directors created by operation of this provision may be filled in accordance
with these Bylaws.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
5
<PAGE>
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------- -------------------
6
<PAGE>
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
7
<PAGE>
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings. The quorum requirements for each such committee shall
be a majority of the members of such committee unless otherwise determined by
the Board of Directors by a majority vote of the Board of Directors which such
quorum determined by a majority of the Board may be one-third of such members
and all matters considered by such committees shall be determined by a majority
vote of the members present. Action may be taken by any committee without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
8
<PAGE>
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in general executive
capacity and unless the Board has designated another person, when present, shall
preside at all meetings of the stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board or which are delegated to him or
her by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
9
<PAGE>
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have the
responsibility for maintaining the financial records of the Corporation. He or
she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
10
<PAGE>
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such
11
<PAGE>
notice is received, if hand delivered, or dispatched, if delivered through the
mails or by telegram or mailgram or other courier, shall be the time of the
giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be done
or not be done a specified number of days prior to an event or that an act be
done during a period of a specified
12
<PAGE>
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be included.
Section 6. Adoption of Regulations.
---------- ------------------------
The Board of Directors may, except as otherwise required by law, adopt from
time to time regulations, not inconsistent with these Bylaws, for the management
of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
13
<PAGE>
The above Bylaws are effective as of May 11, 1998, the date of incorporation
of Roslyn Bancorp, Inc.
/s/ Mary M. Ehrich
----------------------------------
Mary M. Ehrich
Secretary
14
<PAGE>
EXHIBIT 3.3
ROSLYN BANCORP, INC.
SECOND AMENDED AND RESTATED BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum
<PAGE>
for all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (after giving effect to the provisions of Article FOURTH of
the Corporation's Certificate of Incorporation) shall constitute a quorum
entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting or
the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the absence
of such a person, the Chairman of the Board of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting
2
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is given or made to stockholders, notice by the stockholder to be timely must be
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth as
to each matter such stockholder proposes to bring before the annual meeting: (i)
a brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business. Notwithstanding
anything in these Bylaws to the contrary, no business shall be brought before or
conducted at an annual meeting except in accordance with the provisions of this
Section 6(b). The Officer of the Corporation or other person presiding over the
annual meeting shall, if the facts so warrant, determine and declare to the
meeting that business was not properly brought before the meeting in accordance
with the provisions of this Section 6(b) and, if he should so determine, he
shall so declare to the meeting and any such business so determined to be not
properly brought before the meeting shall not be transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the
3
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Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the provisions of this Section 6(c). The Officer of the
Corporation or other person presiding at the meeting shall, if the facts so
warrant, determine that a nomination was not made in accordance with such
provisions and, if he or she shall so determine, he or she shall so declare to
the meeting and the defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting
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is to be held, which place shall be specified in the notice of the meeting, or
if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be
fifteen. The Board of Directors shall annually elect a Chairman of the Board
from among its members who shall, when present, preside at its meetings.
Except for the initial members of the Board of Directors as of the effective
date of these Bylaws, no person shall be eligible for initial election as a
Director who is 68 years of age or more. No person may be elected, appointed,
nominated or otherwise serve as a Director of the Corporation after December 31
of the year in which such person attains the age of 75. Vacancies on the Board
of Directors created by operation of this provision may be filled in accordance
with these Bylaws.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
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Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
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Section 7. Conduct of Business.
--------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for these committees and any others provided for herein,
elect a Director or Directors to serve as the member or members, designating, if
it desires, other Directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his or her place, the member or members of the committee present at
the meeting and not disqualified from voting, whether or not he or she or they
constitute a quorum, may by unanimous vote appoint another member of the Board
of Directors to act at the meeting in the place of the absent or disqualified
member.
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Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings. The quorum requirements for each such committee shall
be a majority of the members of such committee unless otherwise determined by
the Board of Directors by a majority vote of the Board of Directors which such
quorum determined by a majority of the Board may be one-third of such members
and all matters considered by such committees shall be determined by a majority
vote of the members present. Action may be taken by any committee without a
meeting if all members thereof consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
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(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in general executive
capacity and unless the Board has designated another person, when present, shall
preside at all meetings of the stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board or which are delegated to him or
her by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the offices of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President shall have power to
sign all stock certificates, contracts and other instruments of the Corporation
which are authorized and shall have general supervision of all of the other
Officers (other than the Chairman of the Board), employees and agents of the
Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or
9
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the President. Subject to the direction of the Board of Directors, the Secretary
shall have the power to sign all stock certificates.
10
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Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have the
responsibility for maintaining the financial records of the Corporation. He or
she shall make such disbursements of the funds of the Corporation as are
authorized and shall render from time to time an account of all such
transactions and of the financial condition of the Corporation. The Treasurer
shall also perform such other duties as the Board of Directors may from time to
time prescribe. Subject to the direction of the Board of Directors, the
Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these Bylaws,
an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
11
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Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or
12
<PAGE>
other courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
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The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be done
or not be done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
Section 6. Adoption of Regulations.
---------- ------------------------
The Board of Directors may, except as otherwise required by law, adopt from
time to time regulations, not inconsistent with these Bylaws, for the management
of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
14
<PAGE>
The above Second Amended and Restated Bylaws are effective as of February
16, 1999.
/s/ R. Patrick Quinn
----------------------------------------
R. Patrick Quinn
Secretary
15
<PAGE>
Exhibit 10.1
ROSLYN BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT, originally entered into on January 10, 1997, is amended and
restated in its entirety effective March 22, 1999, by and between Roslyn
Bancorp, Inc. (the "Holding Company"), a corporation organized under the laws of
Delaware, with its principal administrative office at 1400 Old Northern
Boulevard, Roslyn, New York, and Joseph L. Mancino ("Executive"). Any reference
to "the Bank" herein shall mean Roslyn Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis in accordance with the terms of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Executive Officer of the Holding Company. Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of any subsidiary of the Holding Company. Failure to reelect Executive as
President and Chief Executive Officer of the Holding Company, failure to reelect
Executive as President and Chief Executive Officer of the Bank, or failure to
nominate or reelect Executive to the Board of Directors of the Holding Company
or the Bank, any without the consent of Executive, shall constitute a breach of
this Agreement.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of the
date this Agreement, as amended and restated. Commencing on the date of the
execution of this Agreement, as amended and restated, the term of this Agreement
shall be extended for one day each day so that a constant sixty (60) calendar
month term shall remain in effect, until such time as the Board of Directors of
the Holding Company (the "Board") or Executive elects not to extend the term of
the Agreement by giving written notice to the other party in accordance with
Section 8 of this Agreement, in which case the term of this Agreement shall be
fixed and shall end on the fifth anniversary of the date of such written notice.
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(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Holding Company and the Bank and participation
in community and civic organizations; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
the Board's judgment, will not present any conflict of interest with the Holding
Company, or materially affect the performance of Executive's duties pursuant to
this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE HOLDING COMPANY.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1. The Holding Company shall pay Executive as compensation a salary
of not less than $572,000 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any employee benefit
plan or deferred compensation arrangement maintained by the Bank or the Holding
Company. Such Base Salary shall be payable bi-weekly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a committee
designated by the Board, and the Board may increase Executive's Base Salary at
any time. The increased Base Salary shall become the new "Base Salary" for
purposes of this Agreement. In addition to the Base Salary provided in this
Section 3(a), the Holding Company shall also provide Executive at no cost to
Executive with all such other benefits as are provided uniformly to permanent
full-time employees of the Holding Company and the Bank.
(b) The Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Holding Company will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive will be entitled to participate in
or receive benefits under any employee benefit plans, whether tax-qualified or
otherwise, including, but not limited to, retirement plans, supplemental
retirement plans, pension plans, profit-sharing plans, health-and-accident plan,
medical coverage or any other employee benefit plan or arrangement made
available by the Holding
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Company now or in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements. Executive will be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company in which Executive is eligible to
participate. Nothing paid to Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other expenses incurred by Executive in performing his obligations
under this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Holding Company
will provide to Executive for each calendar year during the term of this
Agreement and for the remaining term of this Agreement after a termination of
employment following an Event of Termination as defined in Section 4 of this
Agreement, no later than 90 days after the close of the calendar year to which
such payment pertains ("Benefit Year"), a "Benefit Equity Payment" in addition
to the contributions actually made (or benefits actually accrued) with respect
to such year to any tax-qualified or non-tax-qualified compensation or benefit
plan, arrangement, policy or program funded or sponsored by the Holding Company
or the Bank, including but not limited to those of the following types:
deferred compensation, retirement, defined benefit pension, defined contribution
pension, supplemental executive retirement, profit sharing, stock option or
stock bonus award, life insurance, health, medical, dental, disability,
incentive compensation or bonus plan, perquisites, or other fringe benefits
("Benefit Plans") made on his behalf or otherwise accrued as consideration for
his services described in Section 1 of this Agreement. The Benefit Equity
Payment shall be an amount calculated by an actuary accountant or other licensed
professional to equal the amount of the contributions (or other benefits) which
would have been made or accrued for Executive for such year pursuant to all
Benefit Plans as consideration for his services described in Section 1 of this
Agreement but were not made or accrued because (i) any of the Benefit Plans were
terminated or not funded, or (ii) the Executive was no longer employed or will
not be employed by the Holding Company or Bank.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Holding Company of Executive's full-time employment hereunder
for any reason other than, Retirement, as defined in Section 6 hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Holding Company's employ, upon any (A) notice to Executive
by the Holding Company of non-renewal of the term of this Agreement, (B) failure
to elect or reelect or to appoint or reappoint Executive as President and Chief
Executive Officer of the Holding Company, failure to elect or reelect or to
appoint or reappoint
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Executive as President and Chief Executive Officer of the Bank, or, failure to
nominate or reelect Executive to the Board of Directors of the Holding Company
or Bank, unless Executive consents to any such event (C) a material change in
Executive's function, duties, or responsibilities, which change would cause
Executive's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Section 1, above,
(and any such material change shall be deemed a continuing breach of this
Agreement), (D) a relocation of Executive's principal place of employment by
more than twenty-five (25) miles from its location at the effective date of this
Agreement, or a material reduction in the benefits and perquisites available to
Executive to which Executive does not consent or for which Executive is not or
will not be provided the economic benefit pursuant to Section 3(b) hereof, (E)
liquidation or dissolution of the Bank or the Holding Company, or (F) breach of
this Agreement by the Holding Company. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
a reasonable period of time not to exceed, except in case of a continuing
breach, four calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be: (i) the amount of the
remaining payments and benefits that Executive would have earned if he had
continued his employment with the Holding Company or the Bank during the
remaining unexpired term of this Agreement, based on the Executive's Base Salary
and benefits provided at the Date of Termination, as set out in Sections 3(a),
(b) and (d) hereof, as the case may be, and the amount still due the Executive
under any paragraph of Section 3 for service through the Date of Termination.
At the election of Executive, which election is to be made within thirty (30)
days of the Date of Termination, such payments shall be made in a lump sum or
paid monthly during the remaining term of the agreement following Executive's
termination. In the event that no election is made, payment to Executive will
be made in a lump sum. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Bank or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Holding Company on Executive's behalf to the
extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or the Bank continues to offer
any life, medical, health, disability or dental insurance plan or arrangement in
which Executive participates in on the last day of his employment (each being a
"Welfare Plan"), after an Event of Termination (as herein defined), Executive
and his dependents shall continue participating in such Welfare Plans, subject
to the same premium contributions on the part of Executive as were required
immediately prior to the Event of Termination until the earlier of (i) his death
(ii) his employment by another employer other than one of which he is the
majority owner or (iii) the end of the remaining term of
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this Agreement. If the Holding Company or Bank does not offer the Welfare Plans
after the Event of Termination, then the Holding Company shall provide Executive
with a payment equal to the actuarial value of the provision of such benefit for
the period which runs until the earlier of (i) his death; (ii) his employment by
another employer other than one of which he is the majority owner; or (iii) the
end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with respect
to the Bank, and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Holding
Company, as in effect on the date of this Agreement; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
Subsidiaries, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs or is effectuated in which the Bank or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are
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exchanged for or converted into cash or property or securities not issued by the
Bank or the Holding Company shall be distributed, or (E) a tender offer is made
for 20% or more of the voting securities of the Bank or Holding Company then
outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principals place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, or Termination for Cause; provided,
however, that such payments shall be reduced by any payment made under Section 4
of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Holding Company
shall pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: (1) the payments due for the
remaining term of the Agreement or (2) five (5) times Executive's average annual
compensation for the three (3) preceding taxable years. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension and profit sharing plan contributions or
benefits (whether or not taxable), severance payments, retirement benefits,
director or committee fees and fringe benefits paid or to be paid to Executive
or paid for Executive's benefit during any such year. At the election of
Executive, which election is to be made prior to or within thirty (30) days of
the Date of Termination on or following a Change in Control, such payment may be
made in a lump sum (without discount for early payment) on or immediately
following the Date of Termination (which may be the date a Change in Control
occurs) or paid in equal monthly installments during the sixty (60) months
following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the sixty (60)
months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Bank or the Holding
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Holding Company on Executive's behalf to the extent such benefits
are not otherwise paid to Executive under a separate provision of this
Agreement.
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(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Bank or Holding Company for Executive and any of his
dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of sixty (60) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Holding Company or Bank to such item for a price equal to the then
fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or the Bank to (or for the benefit of)
Executive pursuant to this Agreement or otherwise, the Holding Company shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
--------------------------------------
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 2;
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FI = the highest marginal rate of federal income, employment, and other
taxes (other than taxes imposed under Section 4999 of the Code)
applicable to Executive for the taxable year in question; and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for the
taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount"), the Holding
Company must pay to the Executive, in order to put the Executive (or the Holding
Company, as the case may be) in the same position as the Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(j) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its
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expense over all legal and accounting matters pertaining to such federal tax
treatment (except to the extent necessary or appropriate for Executive to
resolve any such proceeding with respect to any matter unrelated to amounts paid
or payable pursuant to this contract) and Executive shall cooperate fully with
the Holding Company in any such proceeding. Executive shall cooperate fully with
the Holding Company in any such proceeding. Executive shall not enter into any
compromise or settlement or otherwise prejudice any rights the Holding Company
may have in connection therewith without prior consent to the Holding Company.
6. TERMINATION UPON RETIREMENT.
Termination of Executive based on "Retirement" shall mean termination in
accordance with the Holding Company's or Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Holding
Company or the Bank and other plans to which Executive is a party or a
participant.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Bank or the Holding
Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. The Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination
for Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Bank, the Holding Company or any subsidiary
or affiliate thereof, vest. At the Date of Termination, such stock options and
related limited rights and any such unvested awards shall become null and void
and shall not be exercisable by or delivered to Executive at any time subsequent
to such Termination for Cause.
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8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding
Company will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
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10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom
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such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Holding Company
from pursuing any other remedies available to the Holding Company for such
breach or threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 13
hereof.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated March 22, 1999,
between Executive and the Bank, such compensation payments and benefits paid by
the Bank will be subtracted from any amount due simultaneously to Executive
under similar provisions of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by
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written instrument of the party charged with such waiver or estoppel. No such
written waiver shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or condition for
the future as to any act other than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
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20. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Holding Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, and shall indemnify,
hold harmless and defend Executive (and his heirs, executors and administrators)
to the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Holding Company (whether or not he continues
to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 25th day of
March, 1999.
ATTEST: ROSLYN BANCORP, INC.
/s/ R. Patrick Quinn By: /s/ John R. Bransfield, Jr.
- ------------------------ -----------------------------
R. Patrick Quinn John R. Bransfield, Jr.
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ R. Patrick Quinn /s/ Joseph L. Mancino
- ------------------------ --------------------------------
Joseph L. Mancino
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Exhibit 10.2
ROSLYN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT, originally entered into on January 10, 1997, is amended and
restated in its entirety effective March 22, 1999, by and between Roslyn Savings
Bank (the "Institution"), a state-chartered savings institution, with its
principal administrative office at 1400 Old Northern Boulevard, Roslyn, New
York, Roslyn Bancorp, Inc. (the "Holding Company"), a corporation organized
under the laws of the state of Delaware and the holding company of the
Institution, and Joseph L. Mancino ("Executive").
WHEREAS, the Institution wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Institution on a full-time basis in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Executive Officer of the Institution. Executive shall render
administrative and management services to the Institution such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer and director
of the Institution. Failure to reelect Executive as President and Chief
Executive Officer of the Institution, failure to reelect Executive as President
and Chief Executive Officer of the Institution, or failure to nominate or
reelect Executive to the Board of Directors of the Institution, without the
consent of Executive, shall constitute a breach of this Agreement.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of the
date this Agreement, as amended and restated. Commencing on the date of the
execution of this Agreement, as amended and restated, the term of this Agreement
shall be extended for one day each day so that a constant sixty (60) calendar
month term shall remain in effect, until such time as the Board of Directors of
the Institution (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the fifth anniversary of the date of such written notice.
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(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Institution and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Institution, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE INSTITUTION.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Institution in exchange for the duties described in
Section 1. The Institution shall pay Executive as compensation a salary of not
less than $572,000 per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any employee benefit plan or
deferred compensation arrangement maintained by the Institution or the Holding
Company. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a committee designated
by the Board, and the Board may increase Executive's Base Salary at any time.
The increased Base Salary shall become the new "Base Salary" for purposes of
this Agreement. In addition to the Base Salary provided in this Section 3(a),
the Institution shall also provide Executive, at no cost to Executive, with all
such other benefits as are provided uniformly to permanent full-time employees
of the Institution or the Holding Company.
(b) The Institution will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, and the Institution will not, without Executive's prior
written consent, make any changes in such plans, arrangements or perquisites
which would adversely affect Executive's rights or benefits thereunder, without
separately providing for an arrangement that ensures Executive receives or will
receive the economic value that Executive would otherwise lose as a result of
such adverse affect. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, medical coverage
or any other employee benefit plan or arrangement
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made available by the Institution now or in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan or arrangement of the Institution in which Executive is eligible to
participate. Nothing paid to Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other expenses incurred by Executive in performing his obligations under
this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Institution will
provide to Executive for each calendar year during the term of this Agreement
and for the remaining term of this Agreement after a termination of employment
following an Event of Termination as defined in Section 4 of this Agreement, no
later than 90 days after the close of the calendar year to which such payment
pertains ("Benefit Year"), a "Benefit Equity Payment" in addition to the
contributions actually made (or benefits actually accrued) with respect to such
year to any tax-qualified or non-tax-qualified compensation or benefit plan,
arrangement, policy or program funded or sponsored by the Institution or the
Holding Company, including but not limited to those of the following types:
deferred compensation, retirement, defined benefit pension, defined contribution
pension, supplemental executive retirement, profit sharing, stock option or
stock bonus award, life insurance, health, medical, dental, disability,
incentive compensation or bonus plan, perquisites, or other fringe benefits
("Benefit Plans") made on his behalf or otherwise accrued as consideration for
his services described in Section 1 of this Agreement. The Benefit Equity
Payment shall be an amount calculated by an actuary accountant or other licensed
professional to equal the amount of the contributions (or other benefits) which
would have been made or accrued for Executive for such year pursuant to all
Benefit Plans as consideration for his services described in Section 1 of this
Agreement but were not made or accrued because (i) any of the Benefit Plans were
terminated or not funded, or (ii) the Executive was no longer employed or will
not be employed by the Institution or the Holding Company.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution of Executive's full-time employment hereunder for
any reason other than, Retirement, as defined in Section 6 hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Institution's employ, upon any (A) notice to Executive by
the Institution of non-renewal of the term of this
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Agreement, (B) failure to elect or reelect or to appoint or reappoint Executive
as President and Chief Executive Officer, or failure to nominate or reelect
Executive to the Board of Directors of the Institution, unless Executive
consents to any such event (C) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, (and any such material change
shall be deemed a continuing breach of this Agreement), (D) a relocation of
Executive's principal place of employment by more than twenty-five (25) miles
from its location at the effective date of this Agreement, or a material
reduction in the benefits and perquisites available to Executive to which
Executive does not consent or for which Executive is not or will not be provided
the economic benefit pursuant to Section 3(b) hereof, (E) liquidation or
dissolution of the Institution or the Holding Company, or (F) breach of this
Agreement by the Institution. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than sixty (60) days prior written notice given within a reasonable period
of time not to exceed, except in case of a continuing breach, four calendar
months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be: (i) the amount of the
remaining payments and benefits that Executive would have earned if he had
continued his employment with the Institution or Holding Company during the
remaining unexpired term of this Agreement, based on the Executive's Base Salary
and benefits provided at the Date of Termination, as set out in Sections 3(a),
(b) and (d) hereof, as the case may be, and the amount still due the Executive
under any paragraph of Section 3 for service through the Date of Termination.
At the election of Executive, which election is to be made within thirty (30)
days of the Date of Termination, such payments shall be made in a lump sum or
paid monthly during the remaining term of the agreement following Executive's
termination. In the event that no election is made, payment to Executive will
be made in a lump sum. Such payments shall not be reduced in the event
Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Institution or
the Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Institution or the Holding Company continues to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in
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such Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Institution or the Holding Company does not offer the
Welfare Plans after the Event of Termination, then the Institution shall provide
Executive with a payment equal to the actuarial value of the provision of such
benefit for the period which runs until the earlier of (i) his death; (ii) his
employment by another employer other than one of which he is the majority owner;
or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or the Holding Company shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Change in Bank Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a),
with respect to the Institution, and the Rules and Regulations promulgated by
the Office of Thrift Supervision ("OTS") (or its predecessor agency), with
respect to the Holding Company, as in effect on the date of this Agreement; or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (A) any "person" (as the term is used in Sections 13(d)
and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 20% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (B),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction
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occurs or is effectuated in which the Institution or Holding Company is not the
resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution with one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, or Termination for Cause; provided,
however, that such payments shall be reduced by any payment made under Section 4
of this agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Institution shall
pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: (1) the payments due for the
remaining term of the Agreement or (2) five (5) times Executive's average annual
compensation for the three (3) preceding taxable years. In determining
Executive's average annual compensation, annual compensation shall include Base
Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, pension and profit sharing plan contributions or
benefits (whether or not taxable), severance payments, retirement benefits,
director or committee fees and fringe benefits paid or to be paid to Executive
or paid for Executive's benefit during any such year. At the election of
Executive, which election is to be made prior to or within thirty (30) days of
the Date of Termination on or following a Change in Control, such payment may be
made in a lump sum (without discount for early payment) on or immediately
following the Date of Termination (which may be the date a Change in Control
occurs) or paid in equal monthly installments during the sixty (60) months
following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the sixty (60)
months following Executive's termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive
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benefits due him under or contributed by the Institution or the Holding Company
on his behalf pursuant to any retirement, incentive, profit sharing, bonus,
performance, disability or other employee benefit plan maintained by the
Institution or the Holding Company on Executive's behalf to the extent such
benefits are not otherwise paid to Executive under a separate provision of this
Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Institution will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Institution or Holding Company for Executive and any
of his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of sixty (60) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Institution shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Institution or the Holding Company to such item for a price equal to
the then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Institution or the Holding Company (or for the benefit
of) Executive pursuant to this Agreement or otherwise, the Institution shall pay
to the Executive an amount determined under the following formula:
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An amount equal to: (E x P) + X
WHERE:
X = E x P
--------------------------------
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 2;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Institution is required to withhold such tax, (ii)
the date the tax is required to be paid by Executive, or (iii) at the time of
the Change in Control. It is the intention of the parties that the Institution
provide Executive with a full tax gross-up under the provisions of this Section,
so that on a net after-tax basis, the result to Executive shall be the same as
if the excise tax under Section 4999 (or any successor provisions) of the Code
had not been imposed. The tax gross-up may be adjusted if alternative minimum
tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to the Executive, in order to put the Executive (or the Institution, as
the case may be) in the same position as the Executive (or the Holding Company,
as the case may be) would have been if the amount determined as "P" above had
been equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, the independent accountants shall take into account any
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and all taxes (including any penalties and interest) paid by or for Executive or
refunded to Executive or for Executive's benefit. As soon as practicable after
the Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Institution as described above. The Institution
shall indemnify and hold Executive harmless from any and all losses, costs and
expenses (including without limitation, reasonable attorney's fees, interest,
fines and penalties) which Executive incurs as a result of so reporting such
information. Executive shall promptly notify the Institution in writing
whenever the Executive receives notice of the institution of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Institution
shall assume control at its expense over all legal and accounting matters
pertaining to such federal tax treatment (except to the extent necessary or
appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Institution in any such proceeding.
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Institution may have in connection therewith without
prior consent to the Institution.
6. TERMINATION UPON RETIREMENT.
Termination of Executive based on "Retirement" shall mean termination in
accordance with the Institution's retirement policy or in accordance with any
retirement arrangement established with Executive's consent with respect to him.
Upon termination of Executive upon Retirement, Executive shall be entitled to
all benefits under any retirement plan of the Institution and other plans to
which Executive is a party or a participant.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: (1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or (2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to
have been terminated for Cause
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unless and until there shall have been delivered to him a Notice of Termination
which shall include a copy of a resolution duly adopted by the affirmative vote
of not less than three-fourths of the members of the Board at a meeting of the
Board called and held for that purpose (after reasonable notice to Executive and
an opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
8 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Institution, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination, such stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Institution
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not
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limited to, Base Salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Institution and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the
Institution from pursuing any other remedies available to the Institution for
such breach or threatened breach, including the recovery of damages from
Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of
his employment, disclose any knowledge of the past, present, planned or
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considered business activities of the Institution thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever unless
expressly authorized by the Board of Directors or required by law.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Institution.
Further, Executive may disclose information regarding the business activities of
the Institution to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Institution will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Institution or from rendering any services
to any person, firm, corporation, other entity to whom such knowledge, in whole
or in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Institution from pursuing any other
remedies available to the Institution for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Institution are not timely paid or provided by the Institution, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement amended and restated as of
March 22, 1999, between Executive and the Holding Company, such compensation
payments and benefits paid by the Holding Company will be subtracted from any
amounts due simultaneously to Executive under similar provisions of this
Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. (S)1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
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18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York,
unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify, hold
harmless and defend Executive (and his heirs, executors and administrators) to
the fullest extent permitted under New York law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Institution (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to
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perform the Institution's obligations under this Agreement, in the same manner
and to the same extent that the Institution would be required to perform if no
such succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Savings Bank and Roslyn Bancorp, Inc. have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the 25th day of March, 1999.
ATTEST: ROSLYN SAVINGS BANK
/s/ R. Patrick Quinn BY: /s/ John R. Bransfield, Jr.
- -------------------------- ---------------------------
R. Patrick Quinn John R. Bransfield, Jr.
Secretary For the Board of Directors
[SEAL]
ATTEST: ROSLYN BANCORP, INC.
(Guarantor)
/s/ R. Patrick Quinn BY: /s/ John R. Bransfield, Jr.
- -------------------------- ---------------------------
R. Patrick Quinn John R. Bransfield, Jr.
Secretary For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ R. Patrick Quinn /s/ Joseph L. Mancino
- -------------------------- ---------------------------
Joseph L. Mancino
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Exhibit 10.3
Mr. Bransfield's Employment Agreement is the same as the Employment
Agreement in Exhibit 10.1, which is incorporated herein by reference except as
to: (i) the name of the signatory, which is John R. Bransfield, Jr.; (ii) the
signatory for the Company, which is Joseph L. Mancino; (iii) the position in
Section 1, which is Senior Executive Vice President; and (iv) the amount of the
base salary in Section 3(a), which is $280,000.
<PAGE>
Exhibit 10.4
Mr. Bransfield's Employment Agreement is the same as the Employment
Agreement in Exhibit 10.2, which is incorporated herein by reference except as
to: (i) the name of the signatory, which is John R. Bransfield, Jr.; (ii) the
position in Section 1, which is Senior Executive Vice President and Chief
Operating Officer; (iii) the signatory for the Company, which is Joseph L.
Mancino; (iv) the guarantor for the Company, which is Joseph L. Mancino; and (v)
the amount of the base salary in Section 3(a), which is $280,000.
<PAGE>
Exhibit 10.5
Mr. Puorro's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.1, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Michael P. Puorro; (ii) the signatory for the
Company, which is Joseph L. Mancino; (iii) the position in Section 1, which is
Treasurer and Chief Financial Officer; and (iv) the amount of the base salary in
Section 3(a), which is $197,000.
<PAGE>
Exhibit 10.6
Mr. Puorro's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.2, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Michael P. Puorro; (ii) the position in Section
1, which is Executive Vice President and Chief Financial Officer; (iii) the
signatory for the Company, which is Joseph L. Mancino; (iv) the guarantor for
the Company, which is Joseph L. Mancino; and (v) the amount of the base salary
in Section 3(a), which is $197,000.
<PAGE>
Exhibit 10.7
Mr. Klag's Employment Agreement is the same as the Employment Agreement in
Exhibit 10.2, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is John L. Klag; (ii) the position in Section 1,
which is Executive Vice President and Investment Officer; (iii) the signatory
for the Company, which is Joseph L. Mancino; (iv) the guarantor for the Company,
which is Joseph L. Mancino; and (v) the amount of the base salary in Section
3(a), which is $187,000.
<PAGE>
Exhibit 10.8
Ms. MacKenzie's Employment Agreement is the same as the Employment
Agreement in Exhibit 10.2, which is incorporated herein by reference except as
to: (i) the name of the signatory, which is Nancy MacKenzie; (ii) the position
in Section 1, which is Executive Vice President and Chief Information Officer;
(iii) the signatory for the Company, which is Joseph L. Mancino; (iv) the
guarantor for the Company, which is Joseph L. Mancino; and (v) the amount of the
base salary in Section 3(a), which is $173,000
<PAGE>
Exhibit 10.9
Mr. Murphy's Employment Agreement is the same as the Employment Agreement
in Exhibit 10.2, which is incorporated herein by reference except as to: (i) the
name of the signatory, which is Daniel L. Murphy; (ii) the position in Section
1, which is Executive Vice President and Retail Banking Officer; (iii) the
signatory for the Company, which is Joseph L. Mancino; (iv) the guarantor for
the Company, which is Joseph L. Mancino; and (v) the amount of the base salary
in Section 3(a), which is $180,000.
<PAGE>
Exhibit 10.10
ROSLYN BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT, is entered into effective January 18, 1999, by and between
Roslyn Bancorp, Inc. (the "Holding Company"), a corporation organized under the
laws of Delaware, with its principal administrative office at 1400 Old Northern
Boulevard, Roslyn, New York, and R. Patrick Quinn ("Executive"). Any reference
to the "Bank" herein shall mean Roslyn Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Holding Company
on a full-time basis in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
General Counsel and Corporate Secretary of the Holding Company. Executive shall
render administrative and management services to the Holding Company such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer of any
subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months from the effective date of
the date this Agreement. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the disinterested
members of the board of directors of the Holding Company ("Board") may extend
the Agreement an additional year such that the remaining term of the Agreement
shall be three (3) years unless the Executive elects not to extend the term of
this Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement and the
rationale and results thereof shall be included in the minutes of the Board's
meeting. The Board shall give notice to the Executive as soon as possible after
such review as to whether the Agreement is to be extended.
<PAGE>
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the Holding Company and the Bank and participation
in community and civic organizations; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
the Board's judgment, will not present any conflict of interest with the Holding
Company, or materially affect the performance of Executive's duties pursuant to
this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE HOLDING COMPANY.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1. The Holding Company shall pay Executive as compensation a salary
of not less than $150,000 per year ("Base Salary"). Base Salary shall include
any amounts of compensation deferred by Executive under any employee benefit
plan or deferred compensation arrangement maintained by the Holding Company or
the Bank. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a committee designated
by the Board, and the Board may increase Executive's Base Salary at any time.
The increased Base Salary shall become the new "Base Salary" for purposes of
this Agreement. In addition to the Base Salary provided in this Section 3(a),
the Holding Company shall also provide Executive at no cost to Executive with
all such other benefits as are provided uniformly to permanent full-time
employees of the Holding Company and the Bank.
(b) The Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, medical coverage
or any other employee benefit plan or arrangement made available by the Holding
Company now or in the future to its full-time employees, subject to and on a
basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive will be entitled to incentive compensation
and bonuses as provided in any plan or arrangement of the Holding Company in
which Executive is eligible to participate. Nothing paid to Executive under any
such plan or arrangement will be deemed to be in lieu of other compensation to
which Executive is entitled under this Agreement.
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(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other expenses incurred by Executive in performing his obligations
under this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Holding Company of Executive's full-time employment hereunder for any reason
other than, Retirement, as defined in Section 6 hereof, or Termination for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon any (A) notice to Executive by the Holding
Company of non-renewal of the term of this Agreement, (B) failure to elect or
reelect or to appoint or reappoint Executive as General Counsel and Corporate
Secretary of the Holding Company, unless Executive consents to such event (C) a
material change in Executive's function, duties, or responsibilities, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, (and any such material change shall be deemed a continuing
breach of this Agreement), (D) a relocation of Executive's principal place of
employment by more than twenty-five (25) miles from its location at the
effective date of this Agreement, or a material reduction in the benefits and
perquisites available to Executive to which Executive does not consent, unless
such reduction generally affects all full-time employees of the Holding Company,
(E) liquidation or dissolution of the Bank or the Holding Company, or (F) breach
of this Agreement by the Holding Company. Upon the occurrence of any event
described in clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have
the right to elect to terminate his employment under this Agreement by
resignation upon not less than sixty (60) days prior written notice given within
a reasonable period of time not to exceed, except in case of a continuing
breach, four calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be: (i) the amount of the
remaining payments and benefits that Executive would have earned if he had
continued his employment with the Holding Company during the remaining unexpired
term of this Agreement, based on the Executive's Base Salary and benefits
provided at the Date of Termination, as set out in Sections 3(a), (b) and (c)
hereof, as the case may be, and the amount still due the Executive under any
paragraph of Section 3 for service through the Date of Termination; provided,
however, that unless otherwise specifically provided in a separate agreement or
similar
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document, the vesting or exercisability of any restricted stock awards or stock
options granted to Executive shall not accelerate upon the occurrence of an
Event of Termination. At the election of Executive, which election is to be
made within thirty (30) days of the Date of Termination, such payments shall be
made in a lump sum or paid monthly during the remaining term of the agreement
following Executive's termination. In the event that no election is made,
payment to Executive will be made in a lump sum. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Bank or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Bank or the Holding Company on Executive's behalf to the
extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or the Bank continues to offer
any life, medical, health, disability or dental insurance plan or arrangement in
which Executive participates in on the last day of his employment (each being a
"Welfare Plan"), after an Event of Termination (as herein defined), Executive
and his dependents shall continue participating in such Welfare Plans, subject
to the same premium contributions on the part of Executive as were required
immediately prior to the Event of Termination until the earlier of (i) his death
(ii) his employment by another employer other than one of which he is the
majority owner or (iii) the end of the remaining term of this Agreement. If the
Holding Company or Bank does not offer the Welfare Plans after the Event of
Termination, then the Holding Company shall provide Executive with a payment
equal to the actuarial value of the provision of such benefit for the period
which runs until the earlier of (i) his death (ii) his employment by another
employer other than one of which he is the majority owner or (iii) the end of
the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Bank shall mean an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Holding Company within the meaning of the Change in
Bank Control Act and the Rules and Regulations promulgated by the Federal
Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with respect
to the Bank, and the Rules and Regulations promulgated by the Office of Thrift
Supervision ("OTS") (or its predecessor agency), with respect to the Holding
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Company, as in effect on the date of this Agreement; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as (A)
any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of voting securities of the Bank or the
Holding Company representing 20% or more of the Bank's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Bank purchased by the Holding Company and any voting
securities purchased by any employee benefit plan of the Holding Company or its
Subsidiaries, or (B) individuals who constitute the Board on the date hereof
(the "Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Holding Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Bank or the Holding Company or similar
transaction occurs or is effectuated in which the Bank or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or Bank
with one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Bank or the
Holding Company shall be distributed, or (E) a tender offer is made for 20% or
more of the voting securities of the Bank or Holding Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principals place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause; provided, however,
that such payments shall be reduced by any payment made under Section 4 of this
agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Holding Company
shall pay Executive, or in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: 1) the payments due for the
remaining term of the Agreement or 2) three (3) times Executive's average annual
compensation
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for the three (3) preceding taxable years. In determining Executive's average
annual compensation, annual compensation shall include Base Salary and any other
taxable income, including but not limited to amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, pension and profit sharing plan contributions or benefits (whether or
not taxable), severance payments, retirement benefits, director or committee
fees and fringe benefits paid or to be paid to Executive or paid for Executive's
benefit during any such year. At the election of Executive, which election is to
be made prior to or within thirty (30) days of the Date of Termination on or
following a Change in Control, such payment may be made in a lump sum (without
discount for early payment) on or immediately following the Date of Termination
(which may be the date a Change in Control occurs) or paid in equal monthly
installments during the thirty-six (36) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly basis during the thirty-six (36) months following Executive's
termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Bank or the Holding
Company on his behalf pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
Bank or the Holding Company on Executive's behalf to the extent such benefits
are not otherwise paid to Executive under a separate provision of this
Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Bank or Holding Company for Executive and any of his
dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change In Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Holding Company or Bank to such item for a price equal to the then
fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
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(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Holding Company or the Bank to (or for the benefit of)
Executive pursuant to this Agreement or otherwise, the Holding Company shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
--------------------------------
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 2;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question;
and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section, so that on a net after-tax basis, the result to Executive shall be the
same as if the excise tax under Section 4999 (or any successor provisions) of
the Code had not been imposed. The tax gross-up may be adjusted if alternative
minimum tax rules are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as
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the "Determinative Excess Parachute Payment") then the Holding Company's
independent accountants shall determine the amount (the "Adjustment Amount") the
Holding Company must pay to the Executive, in order to put the Executive (or the
Holding Company, as the case may be) in the same position as the Executive (or
the Holding Company, as the case may be) would have been if the amount
determined as "P" above had been equal to the Determinative Excess Parachute
Payment. In determining the Adjustment Amount, the independent accountants shall
take into account any and all taxes (including any penalties and interest) paid
by or for Executive or refunded to Executive or for Executive's benefit. As soon
as practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of so
reporting such information. Executive shall promptly notify the Holding Company
in writing whenever the Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
6. TERMINATION UPON RETIREMENT.
Termination of Executive based on "Retirement" shall mean termination in
accordance with the Holding Company's or Bank's retirement policy or in
accordance with any retirement arrangement established with Executive's consent
with respect to him. Upon termination of Executive upon Retirement, Executive
shall be entitled to all benefits under any retirement plan of the Holding
Company or the Bank and other plans to which Executive is a party or a
participant.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Bank or the Holding
Company, or 2) Executive's
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conviction of a crime or act involving moral turpitude or a final judgement
rendered against Executive based upon actions of Executive which involve moral
turpitude. For the purposes of this Section, no act, or the failure to act, on
Executive's part shall be "willful" unless done, or omitted to be done, not in
good faith and without reasonable belief that the action or omission was in the
best interests of the Bank or its affiliates. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and until
there shall have been delivered to him a Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than three-fourths of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. The Executive shall not have the right to receive compensation or
other benefits for any period after Termination for Cause. During the period
beginning on the date of the Notice of Termination for Cause pursuant to Section
8 hereof through the Date of Termination, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Bank, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been
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perfected) and; provided, further, that the Date of Termination shall be
extended by a notice of dispute only if such notice is given in good faith and
the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute, the
Holding Company will continue to pay Executive his full compensation in effect
when the notice giving rise to the dispute was given (including, but not limited
to, Base Salary) and continue him as a participant in all compensation, benefit
and insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
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Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 13
hereof.
(b) Notwithstanding any provision herein to the contrary, to the extent
that compensation payments and benefits, as provided by this Agreement, are paid
to or received by Executive under the Employment Agreement dated January 18,
1999, between Executive and the Bank, such compensation payments and benefits
paid by the Bank will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement
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shall be interpreted to mean that Executive is subject to receiving fewer
benefits than those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
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18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Bank, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Holding Company shall provide Executive (including his
heirs, executors and administrators) with coverage under a standard directors'
and officers' liability insurance policy at its expense, and shall indemnify,
hold harmless and defend Executive (and his heirs, executors and administrators)
to the fullest extent permitted under Delaware law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Holding Company (whether or not he continues
to be a director or officer at the time of incurring such expenses or
liabilities), such expenses and liabilities to include, but not be limited to,
judgments, court costs and attorneys' fees and the cost of reasonable
settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank or the Holding Company,
expressly and unconditionally to assume and agree to perform the Holding
Company's obligations under this Agreement, in the same manner and to the same
extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 25th day of
March, 1999.
ATTEST: ROSLYN BANCORP, INC.
/s/ R. Patrick Quinn BY: /s/ Joseph L. Mancino
- ---------------------------- ------------------------------
Joseph L. Mancino
For the Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Denise Sterzel /s/ R. Patrick Quinn
- ---------------------------- ------------------------------
R. Patrick Quinn
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Exhibit 10.11
ROSLYN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT, is entered into effective January 18, 1999, by and between
Roslyn Savings Bank (the "Institution"), a state-chartered savings institution,
with its principal administrative office at 1400 Old Northern Boulevard, Roslyn,
New York, Roslyn Bancorp, Inc. (the "Holding Company"), a corporation organized
under the laws of the state of Delaware and the holding company of the
Institution, and R. Patrick Quinn ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution on
a full-time basis in accordance with the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. CONSIDERATION PROVIDED BY THE EXECUTIVE.
During the period of his employment hereunder, Executive agrees to serve as
General Counsel and Corporate Secretary of the Institution. Executive shall
render administrative and management services to the Institution such as are
customarily performed by persons in a similar executive capacity. During said
period, Executive also agrees to serve, if elected, as an officer of the
Institution.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months from the effective date of
the date this Agreement. Commencing on the first anniversary date of this
Agreement, and continuing on each anniversary thereafter, the disinterested
members of the board of directors of the Institution ("Board") may extend the
Agreement an additional year such that the remaining term of the Agreement shall
be three (3) years unless the Executive elects not to extend the term of this
Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board will review the Agreement and Executive's performance
annually for purposes of determining whether to extend the Agreement and the
rationale and results thereof shall be included in the minutes of the Board's
meeting. The Board shall give notice to the Executive as soon as possible after
such review as to whether the Agreement is to be extended.
(b) During the period of his employment hereunder, except for periods of
absence
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occasioned by illness, reasonable vacation periods, and reasonable leaves of
absence, Executive shall devote substantially all his business time, attention,
skill, and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Institution and participation in community and civic organizations;
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in the Board's judgment, will not present
any conflict of interest with the Institution, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Institution may be terminated by the Institution or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement.
3. CONSIDERATION PROVIDED BY THE INSTITUTION.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Institution in exchange for the duties described in
Section 1. The Institution shall pay Executive as compensation a salary of not
less than $150,000 per year ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any employee benefit plan or
deferred compensation arrangement maintained by the Institution or the Holding
Company. Such Base Salary shall be payable bi-weekly. During the period of this
Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by the Board or a committee designated
by the Board, and the Board may increase Executive's Base Salary at any time.
The increased Base Salary shall become the new "Base Salary" for purposes of
this Agreement. In addition to the Base Salary provided in this Section 3(a),
the Institution shall also provide Executive at no cost to Executive with all
such other benefits as are provided uniformly to permanent full-time employees
of the Institution or the Holding Company.
(b) The Institution will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement. Without limiting the generality of the foregoing provisions
of this Subsection (b), Executive will be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, health-and-accident plan, medical coverage
or any other employee benefit plan or arrangement made available by the
Institution now or in the future to full-time employees, subject to and on a
basis consistent with the terms, conditions and overall administration of such
plans and arrangements. Executive will be entitled to incentive compensation and
bonuses as provided in any plan or arrangement of the Institution in which
Executive is eligible to participate. Nothing paid to Executive under any such
plan or arrangement will be deemed to be in lieu of other
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compensation to which Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other expenses incurred by Executive in performing his obligations under
this Agreement, including expenses associated with membership in clubs or
organizations, as mutually agreed to between the Board and Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution of Executive's full-time employment hereunder for
any reason other than, Retirement, as defined in Section 6 hereof, or
Termination for Cause, as defined in Section 7 hereof; (ii) Executive's
resignation from the Institution's employ, upon any (A) notice to Executive by
the Institution of non-renewal of the term of this Agreement, (B) failure to
elect or reelect or to appoint or reappoint Executive as General Counsel and
Corporate Secretary of the Institution, unless Executive consents to any such
event (C) a material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to become one of
lesser responsibility, importance, or scope from the position and attributes
thereof described in Section 1, above, (and any such material change shall be
deemed a continuing breach of this Agreement), (D) a relocation of Executive's
principal place of employment by more than twenty-five (25) miles from its
location at the effective date of this Agreement, or a material reduction in the
benefits and perquisites available to Executive to which Executive does not
consent, unless such reduction generally affects all full-time employees of the
Institution, (E) liquidation or dissolution of the Institution or the Holding
Company, or (F) breach of this Agreement by the Institution. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than sixty (60) days prior written
notice given within a reasonable period of time not to exceed, except in case of
a continuing breach, four calendar months after the event giving rise to said
right to elect.
(b) Upon the occurrence of an Event of Termination on the Date of
Termination as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be: (i) the amount of the
remaining payments and benefits that Executive would have earned if he had
continued his employment with the Institution during the remaining unexpired
term of this Agreement, based on the Executive's Base Salary and benefits
provided at the Date of Termination, as set out in Sections 3(a), (b) and (c)
hereof, as the case may be, and the amount still due the Executive under any
paragraph of Section 3 for service through the Date of Termination; provided,
however, that unless otherwise specifically provided in a separate agreement or
similar document, the vesting or exercisability of any restricted stock awards
or
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stock options granted to Executives shall not accelerate upon the occurrence of
an Event of Termination. At the election of Executive, which election is to be
made within thirty (30) days of the Date of Termination, such payments shall be
made in a lump sum or paid monthly during the remaining term of the agreement
following Executive's termination. In the event that no election is made,
payment to Executive will be made in a lump sum. Such payments shall not be
reduced in the event Executive obtains other employment following termination of
employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Institution or
the Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Institution or the Holding Company continues to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Institution or the Holding Company does not offer the
Welfare Plans after the Event of Termination, then the Institution shall provide
Executive with a payment equal to the actuarial value of the provision of such
benefit for the period which runs until the earlier of (i) his death (ii) his
employment by another employer other than one of which he is the majority owner
or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or the Holding Company shall mean an event of a nature that: (i)
would be required to be reported in response to Item 1(a) of the current report
on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Change in Bank Control Act and the Rules and Regulations promulgated by
the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a),
with respect to the Institution,
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and the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), with respect to the Holding Company, as in
effect on the date of this Agreement; or (iii) without limitation such a Change
in Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by a Nominating Committee
solely composed of members which are Incumbent Board members, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity, or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board has determined that a Change in
Control has occurred, Executive shall be entitled to the benefits provided in
paragraphs (c), (d), (e), (f) and (g) of this Section 5 upon his termination of
employment on or after the date the Change in Control occurs at any time during
the term of this Agreement due to (1) Executive's dismissal; (2) Executive's
voluntary resignation for any reason on or within the sixty (60) day period
immediately following the date a Change in Control has occurred; or (3)
Executive's resignation following any demotion, loss of title, office or
significant authority or responsibility, reduction in annual compensation or
benefits or relocation of his principals place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause; provided, however,
that such payments shall be reduced by any payment made under Section 4 of this
agreement.
(c) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, as provided in Section 5(b), the Institution shall
pay Executive, or in the event of
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his subsequent death, his beneficiary or beneficiaries, or his estate, as the
case may be, as severance pay or liquidated damages, or both, a sum equal to the
greater of: 1) the payments due for the remaining term of the Agreement or 2)
three (3) times Executive's average annual compensation for the three (3)
preceding taxable years. In determining Executive's average annual compensation,
annual compensation shall include Base Salary and any other taxable income,
including but not limited to amounts related to the granting, vesting or
exercise of restricted stock or stock option awards, commissions, bonuses,
pension and profit sharing plan contributions or benefits (whether or not
taxable), severance payments, retirement benefits, director or committee fees
and fringe benefits paid or to be paid to Executive or paid for Executive's
benefit during any such year. At the election of Executive, which election is to
be made prior to or within thirty (30) days of the Date of Termination on or
following a Change in Control, such payment may be made in a lump sum (without
discount for early payment) on or immediately following the Date of Termination
(which may be the date a Change in Control occurs) or paid in equal monthly
installments during the thirty-six (36) months following Executive's
termination. In the event that no election is made, payment to Executive will be
made on a monthly basis during the thirty-six (36) months following Executive's
termination.
(d) Upon the occurrence of a Change in Control, Executive will be entitled
to receive benefits due him under or contributed by the Institution or the
Holding Company on his behalf pursuant to any retirement, incentive, profit
sharing, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Institution will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Institution or Holding Company for Executive and any
of his dependents covered under such plans prior to the Change in Control. Such
coverage and payments shall cease upon the expiration of thirty-six (36) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Institution shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to the Executive, the Executive will have the option to purchase all rights then
held by the Institution or the Holding Company to such item for a price equal to
the then fair market value of the item.
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(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
(h) Notwithstanding the preceding paragraphs of this Section 5, for any
taxable year in which the Executive shall be liable, as determined for the
payment of an excise tax under Section 4999 of the Code (or any successor
provision thereto), with respect to any payment in the nature of the
compensation made by the Institution or the Holding Company (or for the benefit
of) Executive pursuant to this Agreement or otherwise, the Institution shall pay
to the Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
--------------------------------
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 2;
FI = (other than taxes imposed under Section 4999 of the Code)
applicable to the highest marginal rate of federal income,
employment, and other taxes Executive for the taxable year in
question; and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question.
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 5 shall be made to Executive on the
earliest of (i) the date the Institution is required to withhold such tax, (ii)
the date the tax is required to be paid by Executive, or (iii) at the time of
the Change in Control. It is the intention of the parties that the Institution
provide Executive with a full tax gross-up under the provisions of this Section,
so that on a net after-tax basis, the result to Executive shall be the same as
if the excise tax under Section 4999 (or any successor provisions) of the Code
had not
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been imposed. The tax gross-up may be adjusted if alternative minimum tax rules
are applicable to Executive.
(i) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to the Executive, in order to put the Executive (or the Institution, as
the case may be) in the same position as the Executive (or the Holding Company,
as the case may be) would have been if the amount determined as "P" above had
been equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, the independent accountants shall take into account any and
all taxes (including any penalties and interest) paid by or for Executive or
refunded to Executive or for Executive's benefit. As soon as practicable after
the Adjustment Amount has been so determined, the Holding Company shall pay the
Adjustment Amount to Executive.
(k) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Institution as described above. The Institution
shall indemnify and hold Executive harmless from any and all losses, costs and
expenses (including without limitation, reasonable attorney's fees, interest,
fines and penalties) which Executive incurs as a result of so reporting such
information. Executive shall promptly notify the Institution in writing
whenever the Executive receives notice of the institution of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Institution
shall assume control at its expense over all legal and accounting matters
pertaining to such federal tax treatment (except to the extent necessary or
appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Institution in any such proceeding.
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Institution may have in connection therewith without
prior consent to the Institution.
6. TERMINATION UPON RETIREMENT.
Termination of Executive based on "Retirement" shall mean termination in
accordance with the Institution's retirement policy or in accordance with any
retirement arrangement established with Executive's consent with respect to him.
Upon termination of Executive upon Retirement, Executive shall be entitled to
all benefits under any retirement plan of the Institution and other plans to
which Executive is a party or a participant.
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7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the Notice
of Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, stock options and related limited rights granted to Executive under
any stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Institution, the
Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
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(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Institution
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Institution has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive.
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Executive represents and admits that in the event of the termination of his
employment pursuant to Section 7 hereof, Executive's experience and capabilities
are such that Executive can obtain employment in a business engaged in other
lines and/or of a different nature than the Institution and that the enforcement
of a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Institution from
pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution as it
may exist from time to time, is a valuable, special and unique asset of the
business of the Institution. Executive will not, during or after the term of
his employment, disclose any knowledge of the past, present, planned or
considered business activities of the Institution thereof to any person, firm,
corporation, or other entity for any reason or purpose whatsoever unless
expressly authorized by the Board of Directors or required by law.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Institution.
Further, Executive may disclose information regarding the business activities of
the Institution to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Institution will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Institution or from rendering any services
to any person, firm, corporation, other entity to whom such knowledge, in whole
or in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Institution from pursuing any other
remedies available to the Institution for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Institution are not timely paid or provided by the Institution, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated as of January 18,
1999, between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall
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be allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Institution
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. (S)1828(k) and any
rules and regulations promulgated thereunder, including 12 C.F.R. Part 359.
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16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York,
unless otherwise specified herein.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
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21. INDEMNIFICATION.
During the term of this Agreement and for an additional period of seven
years thereafter, the Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense, and shall indemnify, hold
harmless and defend Executive (and his heirs, executors and administrators) to
the fullest extent permitted under New York law against all expenses and
liabilities reasonably incurred by him in connection with or arising out of any
action, suit or proceeding in which he may be involved by reason of his having
been a director or officer of the Institution (whether or not he continues to be
a director or officer at the time of incurring such expenses or liabilities),
such expenses and liabilities to include, but not be limited to, judgments,
court costs and attorneys' fees and the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
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Exhibit 10.12
ROSLYN BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 16, 1999, by
and between Roslyn Bancorp, Inc. (the "Company"), a corporation organized under
the laws of Delaware, with its principal offices at 1400 Old Northern Boulevard,
Roslyn, New York, and John M. Tsimbinos ("Executive"). Any reference to
"Institution" herein shall mean The Roslyn Savings Bank or any successor
thereto.
WHEREAS, the Company wishes to assure itself of the services of Executive
for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Company on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as the Chairman of the Board of the Company and Vice Chairman of the
Institution. The Executive shall render administrative and management services
to the Company and the Institution such as are customarily performed by persons
in a similar executive officer capacity. During said period, Executive also
agrees to serve as a director of the Company and the Institution and, if
elected, as an officer and director of any subsidiary of the Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
through the period ending on the last day of the month in which he attains age
65, that is, June 30, 2002.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantial time,
attention, skill and efforts to the performance of his duties hereunder
including activities and services related to the organization, operation and
management of the Company and its direct or indirect subsidiaries
("Subsidiaries") and participation in community and civic organizations;
provided, however, that, with the approval of the Board of Directors of the
- -------- -------
Company, as evidenced by a resolution of such Board, from time to time,
Executive may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the
Company or its Subsidiaries, or materially affect the performance of Executive's
duties pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Company may be terminated by the Company or Executive during
the term of this Agreement, subject to the terms and conditions of this
Agreement. However, Executive shall not perform, in any respect, directly or
indirectly, during the pendency of his temporary or permanent suspension or
termination from the Institution, duties and responsibilities formerly performed
at the
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Institution as part of his duties and responsibilities as Chairman of the Board
of the Company and Vice Chairman of the Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to an annual rate of salary from the
Company or its Subsidiaries equal to the greater of (i) $500,000 per year or
(ii) if higher, the annual rate of salary payable by the Company and its
Subsidiaries to the second highest paid officer or employee taking into account
all forms of cash compensation ("Base Salary"). Base Salary shall include any
amounts of compensation deferred by Executive under any qualified or unqualified
plan maintained by the Company and its Subsidiaries. Such Base Salary shall be
payable bi-weekly. During the period of this Agreement, Executive's Base Salary
shall be reviewed at least annually; the first such review will be made no later
than one year from the date of this Agreement. Such review shall be conducted
by the Board or by a Committee of the Board delegated such responsibility by the
Board. The Committee or the Board may increase Executive's Base Salary. Any
increase in Base Salary shall become the "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided in this Section 3(a), the
Company shall also provide Executive, at no premium cost to Executive, with all
such other benefits as provided uniformly to permanent full-time employees of
the Company and its Subsidiaries.
(b) In exchange for the Executive's agreement not to compete with the
Company or the Institution set forth in Section 10(a) hereof, the Executive
shall, in addition to the Base Salary provided for by paragraph (a) of this
Section 3, be entitled to additional compensation during the term of this
Agreement at an annual rate equal to $175,000. Such noncompete compensation
shall be payable bi-weekly.
(c) Executive shall be entitled to participate in or receive benefits
under any employee benefit plans, including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans, stock
or option plans, health-and-accident plans, medical coverage or any other
employee benefit plan or arrangement made available by the Company and its
Subsidiaries at present or in the future to its senior executives and key
management employees, subject to and on a basis consistent with the terms,
conditions and overall administration of such plans and arrangements. Executive
shall be entitled to incentive compensation and bonuses as provided in any plan
or arrangement of the Company and its Subsidiaries in which Executive is
eligible to participate. Subject to the provisions of Section 3(e) of this
Agreement, nothing paid to the Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which the Executive is entitled
under this Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the noncompete compensation provided for by paragraph (b) of this
Section 3 and other compensation provided for by paragraph (c) of this Section
3, the Company shall pay or reimburse Executive for all reasonable travel and
other reasonable expenses incurred in the performance of Executive's obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
(e) The total aggregate present value of the compensation and benefits
provided to the Executive by the Company and its Subsidiaries under Subsections
(a), (b), (c) and (e) of this Section 3 shall not be less than or greater than
$1,000,000 per year (approximately prorated for any applicable portion of a
calendar year) (the "Limit"). To the extent that the compensation provided for
in Subsections (a), (b), (c) and (e) of this Section 3 each year during the term
of this Agreement does not at least equal the Limit, the Company or its
Subsidiaries shall provide the Executive with
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grants of stock options, option-related awards or awards of the Company's common
stock under The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan or other
plan or arrangement, valued using a generally accepted valuation methodology
(such as market value for common stock grants and Black-Scholes or alternative
option pricing methods) acceptable to the Company and the Executive, or cash
payments under incentive or other plans, such that the estimated aggregate
present value of the compensation provided to the Executive by the Company and
its Subsidiaries under Subsections (a), (b), (c) and (e) of this Section 3 shall
equal the Limit.
(f) In addition to any pension benefits to which the Executive shall be
entitled (i) under any tax-qualified defined benefit plan of the Company, the
Institution or any of their respective subsidiaries or affiliates, or any
predecessor of any of them ("Retirement Plan") and (ii) under any supplemental
executive retirement or other defined benefit plan or other excess benefit plan
within the meaning of section 3(36) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") and under any plan to provide deferred income
for a select group of management or highly compensated employees of the Company,
the Institution or any of their respective subsidiaries or affiliates, or any
predecessor of any of them (collectively, "SERP"), the Company and the
Institution shall provide an additional supplemental pension benefit under this
Agreement equal to the difference between (A) the pension benefits that the
Executive would have been entitled to under the Retirement Plan and SERP if his
Base Salary under this Agreement were $675,000 (instead of the Base Salary set
forth in Section 3(a) as it may be adjusted from time to time) and (B) the
pension benefits that the Executive is actually entitled to under the Retirement
Plan and SERP. The intent of this Section 3(f) is to permit the Executive to
continue to accrue additional pension benefits under the Retirement Plan and
SERP on and following the date of this Agreement, determined as if his
compensation under such Retirement Plan and SERP were based upon the prior
sentence. For purposes of interpretation, attached hereto as Exhibit A are
computations prepared by the Retirement System Group Inc. which set forth the
Executive's accrued monthly pension benefits as of the dates indicated under the
Retirement Plan and SERP of T R Financial Corp. and Roosevelt Savings Bank. The
supplemental pension benefits provided for in this Section 3(f) shall be paid in
the same form and at the same time and subject to the same terms and conditions,
and to the same beneficiaries, as the pension benefits provided to the Executive
under the Retirement Plan and/or the SERP, as the case may be. Notwithstanding
the foregoing, the Executive and the Company may mutually agree that such
supplemental pension benefit be paid in a different form or commencing at a
different time. The Board may, in its discretion, consider adjusting the
supplemental pension benefits provided for in this Section 3(f) in the event of
increases in the Executive's Base Salary.
(g) Executive's principal place of employment shall be at the Company's
executive offices at the address first above written, or at such other location
in New York City or in Nassau or Suffolk County at which the Company shall
maintain its principal executive offices, or at such other location as the Board
and Executive may mutually agree upon. The Company shall provide Executive, at
his principal place of employment, with a private office, stenographic services
and other support services and facilities suitable to his position with the
Company and necessary or appropriate in connection with the performance of his
assigned duties under this Agreement. The Company shall provide Executive with
an automobile suitable to the position of Chairman of the Company and Vice
Chairman of the Institution, in accordance with the prior practices of T R
Financial Corp. and Roosevelt Savings Bank, and such automobile may be used by
Executive in carrying out his duties under the Agreement, including commuting
between his residence and his principal place of employment, and other personal
use. The Company shall reimburse Executive for his ordinary and necessary
business expenses, including, without limitation, fees for memberships in such
clubs and organizations as Executive and the Board shall mutually agree are
necessary and appropriate for business purposes, and travel and entertainment
expenses, incurred in connection
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with the performance of his duties under this Agreement, upon presentation to
the Company of an itemized account of such expenses in such form as the Company
may reasonably require.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination by
the Company of Executive's full-time employment hereunder for any reason other
than termination governed by Section 5(a) hereof, or for Cause, as defined in
Section 7 hereof; (ii) Executive's resignation from the Company's employ, upon,
any (A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as Chairman of the Board of the Company and Vice
Chairman of the Institution or failure to nominate or renominate Executive as a
Director of the Institution or the Company as of the date of this Agreement, (B)
a material change in Executive's function, duties, or responsibilities with the
Company or its Subsidiaries, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, unless consented to by the
Executive, (C) a relocation of Executive's principal place of employment by more
than 25 miles from its location at the effective date of this Agreement, unless
consented to by the Executive, (D) a reduction in the benefits and perquisites
to the Executive from those being provided as of the effective date of this
Agreement, unless consented to by the Executive, (E) a liquidation or
dissolution of the Company or the Institution, or (F) breach of this Agreement
by the Company. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), (E) or (F), above, Executive shall have the right to elect to
terminate his employment under this Agreement by resignation upon not less than
sixty (60) days prior written notice given within six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Company shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of: (i)
the amount (subject to the Limit) of the remaining payments that the Executive
would have earned if he had continued his employment with the Institution during
the remaining term of this Agreement at the Executive's Base Salary at the Date
of Termination; (ii) (subject to the Limit) the amount equal to the annual
contributions or payments that would have been made on Executive's behalf to any
employee benefit plans of the Institution or the Company during the remaining
term of this Agreement based on contributions or payments made (on an annualized
basis) at the Date of Termination and (iii) the amount (subject to the Limit) of
the noncompete compensation that would have been payable during the remaining
term of this Agreement based on contributions or payments made (on an annualized
basis) at the Date of Termination. At the election of the Executive, which
election is to be made prior to an Event of Termination, such payment shall be
made: (a) in a lump sum as of the Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments during the remaining term of
the Agreement, or (c) on an annual basis in approximately equal installments
during the remaining term of the Agreement. Such payments shall not be reduced
in the event the Executive obtains other employment following termination of
employment.
5. CHANGE IN CONTROL.
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(a) For purposes of this Agreement, a "Change in Control" of the Company
shall be deemed to have occurred at such time as (A) any "person" (as the term
is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended ("Exchange Act")) is or becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities
of the Institution or the Company representing 25% or more of the Institution's
or the Company's outstanding voting securities or right to acquire such
securities except for any voting securities of the Institution purchased by the
Company and any voting securities purchased by any employee benefit plan of the
Company or its Subsidiaries, or (B) individuals who constitute the Board on the
date hereof (the "Incumbent Board") cease for any reason to constitute at least
a majority thereof, provided that any person becoming a director subsequent to
the date hereof whose election was approved by a vote of at least three-quarters
of the directors comprising the Incumbent Board, or whose nomination for
election by the Company's stockholders was approved by a Nominating Committee
solely composed of members which are Incumbent Board members, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Company or similar transaction (a
"Transaction") occurs or is effectuated, other than a Transaction following
which: (i) more than 50% of the equity ownership interests of the entity
resulting from such Transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such Transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than 50% of the outstanding equity ownerships interests in
the Company; and (ii) more than 50% of the securities entitled to vote generally
in the election of directors of the entity resulting from such Transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such Transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) more than 50% of the securities
entitled to vote generally in the election of directors of the Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, reduction in the annual compensation or material
reduction in benefits or relocation of his principal place of employment by more
than 25 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to the greater of: (i) the
payments due for the remaining term of the Agreement, including the amount of
the noncompete compensation that would have been payable during the remaining
term of this Agreement; or (ii) three (3) times Executive's annual compensation
for the most recently completed year. Such annual compensation shall include
Base Salary, commissions, bonuses, contributions or accruals on behalf of
Executive to any pension and profit sharing plan, any benefits to be paid or
received under any stock-based benefit plan, severance payments, directors or
committee fees and fringe benefits paid or to be paid to the Executive during
such years. At the election of the Executive, which election is to be made
prior to a Change in Control, such payment shall be made: (a) in a lump sum, (b)
on a bi-weekly basis in approximately equal installments over a period of
thirty-six (36) months following the Executive's termination, or (c) on an
annual basis in approximately equal installments over a period of thirty-six
(36) months following the Executive's
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termination. Such payments shall not be reduced in the event Executive obtains
other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical, dental and long-term or
other disability coverage substantially equivalent to the coverage maintained by
the Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Company shall
determine if an excess parachute payment (as defined in Section 4999 of the
Internal Revenue Code of 1986, as amended, and any successor provision thereto,
(the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment". As soon as practicable after a Change in Control,
the Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Company shall pay Executive,
subject to applicable withholding requirements under applicable state or federal
law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
(2) such additional amount (tax allowance) as may be necessary to
compensate Executive for the payment by Executive of state and federal
income and excise taxes on the payment provided under Clause (1) and
on any payments under this Clause (2). In computing such tax
allowance, the payment to be made under Clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
Tax Rate
GUP = -----------
1- Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
the Executive in the year in which the payment under Clause (1) is
made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Company
must pay to the Executive in order to put the Executive in the same position as
the Executive would have been if the Initial Excess Parachute Payment had been
equal to the Determinative Excess Parachute Payment. In determining the
Adjustment Amount, independent accountants of the Company shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or
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for Executive's benefit. As soon as practicable after the Adjustment Amount has
been so determined, the Company shall pay the Adjustment Amount to Executive. In
no event however, shall Executive make any payment under this paragraph to the
Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Company, or 2) Executive's conviction of a felony. For the purposes of this
Section, no act, or the failure to act, on Executive's part shall be "willful"
unless done, or omitted to be done, not in good faith and without reasonable
belief that the action or omission was in the best interests of the Bank or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than three-fourths of the members of
the Board at a meeting of the Board called and held for that purpose (after
reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. The Executive shall not have
the right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, any unvested stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Company or any subsidiary or affiliate thereof, vest. At the
Date of Termination, any such unvested stock options and related limited rights
and any such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Company or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of
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competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected) and; provided, further, that the Date of
Termination shall be extended by a notice of dispute only if such notice is
given in good faith and the party giving such notice pursues the resolution of
such dispute with reasonable diligence. Notwithstanding the pendency of any such
dispute, the Company will continue to pay Executive his full compensation in
effect when the notice giving rise to the dispute was given (including, but not
limited to, Base Salary) and continue him as a participant in all compensation,
benefit and insurance plans in which he was participating when the notice of
dispute was given, until the dispute is finally resolved in accordance with this
Agreement. Amounts paid under this Section are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Company. Executive shall, upon reasonable
notice, furnish such information and assistance to the Company as may reasonably
be required by the Company in connection with any litigation in which it or any
of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Company or its
Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Company or its Subsidiaries, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Company or its
Subsidiaries, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Executive represents and admits that in the
event of the termination of his employment pursuant to Section 7 hereof,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Company or its Subsidiaries, and that the enforcement of a remedy by
way of injunction will not prevent Executive from earning a livelihood. Nothing
herein will be construed as prohibiting the Company or its Subsidiaries from
pursuing any other remedies available to the Company or its Subsidiaries for
such breach or threatened breach, including the recovery of damages from
Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Company and its
Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Company and its Subsidiaries. Executive
will not, during or after the term of his employment, disclose any knowledge of
the past, present, planned or considered business activities of the Company and
its Subsidiaries thereof to any
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person, firm, corporation, or other entity for any reason or purpose whatsoever
unless expressly authorized by the Board of Directors or required by law.
Notwithstanding the foregoing, Executive may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the Company.
Further, Executive may disclose information regarding the business activities of
the Bank or Company to the Superintendent of Banks of the State of New York, the
New York Banking Department, OTS, the Federal Deposit Insurance Corporation
("FDIC") or other appropriate bank regulator pursuant to a formal regulatory
request. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Company will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Company or its
Subsidiaries or from rendering any services to any person, firm, corporation,
other entity to whom such knowledge, in whole or in part, has been disclosed or
is threatened to be disclosed. Nothing herein will be construed as prohibiting
the Company from pursuing any other remedies available to the Company for such
breach or threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, payments
pursuant to this Agreement shall be allocated in proportion to the level of
activity and the time expended on such activities by the Executive as determined
by the Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Company or any
predecessor of the Company and Executive, except that this Agreement shall not
affect or operate to reduce any benefit, compensation, tax indemnification or
other provision inuring to the benefit of the Executive under the Employment
Agreements dated as of January 23, 1997 between the Executive and T R Financial
Corp. and Roosevelt Savings Bank, respectively ("Prior Agreements"). Such Prior
Agreements shall continue in full force and effect except to the extent of the
payments made to the executive as of the closing of the merger of T R Financial
Corp. with Roslyn Bancorp, Inc., which transaction closed on the date of this
Agreement. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
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(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of New York,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, in accordance with the
rules of the American Arbitration Association then in effect. Judgment may be
entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
20. INDEMNIFICATION.
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The Company shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Company
(whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE COMPANY.
The Company shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Company,
expressly and unconditionally to assume and agree to perform the Company's
obligations under this Agreement, in the same manner and to the same extent that
the Company would be required to perform if no such succession or assignment had
taken place.
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
its directors, and Executive has signed this Agreement, on the 16th day of
February, 1999.
ATTEST: ROSLYN BANCORP, INC.
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
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R. Patrick Quinn Joseph L. Mancino
Secretary For the Board of Directors
[SEAL]
WITNESS:
/s/ A. Gordon Nutt By: /s/ John M. Tsimbinos
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A. Gordon Nutt John M. Tsimbinos
Executive
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Exhibit 10.13
ROSLYN BANCORP, INC.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 16, 1999, by
and between Roslyn Bancorp, Inc. (the "Holding Company"), with its principal
administrative offices at 1400 Old Northern Boulevard, Roslyn, New York, 11576,
and A. Gordon Nutt ("Executive"). Any reference to "Institution" herein shall
mean The Roslyn Savings Bank.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Holding Company
on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Executive Vice President and Special Transition Officer of the Holding Company.
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons situated in a similar
executive capacity.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall
commence as of the date first above written (the effective date of this
Agreement) and shall continue for a period of twelve (12) full calendar months
thereafter. Effective as of the first anniversary of the date of this Agreement
and each anniversary date thereafter, the board of directors of the Holding
Company (the "Board") may extend the term of this Agreement for an additional
twelve (12) month period, unless Executive elects not to extend the term of the
Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board shall give notice to Executive as to whether the Agreement
is to be extended no later than sixty (60) days prior to any anniversary date of
this Agreement. If the Board does not provide Executive with notice of an intent
to renew this Agreement at least sixty (60) days prior to an applicable
anniversary date of the Agreement, the Agreement shall automatically expire as
of that anniversary date, unless the Board and Executive subsequently agree
otherwise.
(b) During the period of Executive's employment under this Agreement,
except for periods of absence occasioned by illness, reasonable vacation
periods, and reasonable leaves of absence, Executive shall devote substantial
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
<PAGE>
operation and management of the Holding Company and its direct or indirect
subsidiaries ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
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evidenced by a resolution of the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, the Holding Company or
Executive may terminate Executive's employment with the Holding Company at any
time during the term of this Agreement, subject to the terms and conditions of
this Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Holding Company shall pay Executive as compensation for the
performance of his duties under this Agreement an annual salary of not less than
$200,000 ("Base Salary"). Base Salary shall include any amounts of compensation
deferred by Executive under any employee benefit plan or arrangement maintained
by the Holding Company or its Subsidiaries. Such Base Salary shall be payable on
a bi-weekly basis in accordance with the payroll practices of the Holding
Company. The Board or a committee designated by the Board may increase
Executive's Base Salary at any time. Any increase in Base Salary shall become
the new "Base Salary" for purposes of this Agreement. In addition to the Base
Salary provided in this Section 3(a), Executive shall be eligible to participate
in, at no premium cost to Executive, all such other benefits as are uniformly
made available to full-time employees of the Holding Company.
(b) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable travel expenses (in accordance with the Holding Company's travel
policy, as amended from time to time) and other reasonable expenses incurred by
Executive in performing his obligations under this Agreement.
(c) Executive shall be entitled to participate in or receive benefits under
any employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company, the
Institution and their respective subsidiaries and affiliates at present or in
the future to its senior executives and key management employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements and, with respect to employee benefit plans not
generally available to all employees of the Holding Company or the Institution,
upon designation by the Board. Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company, the Institution and their respective subsidiaries in which Executive is
eligible to participate. Nothing paid to Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
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(d) In addition to any pension benefits to which Executive shall be
entitled (i) under any tax-qualified defined benefit plan of the Holding
Company, the Institution or any of their respective subsidiaries or affiliates,
or any predecessor of any of them ("Retirement Plan") and (ii) under any
supplemental executive retirement or other defined benefit plan or other excess
benefit plan within the meaning of section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and under any plan to provide
deferred income for a select group of management or highly compensated employees
of the Holding Company, the Institution or any of their respective subsidiaries
of affiliates, or any predecessor of any of them (collectively, "SERP"), the
Holding Company and the Institution shall provide an additional supplemental
pension benefit under this Agreement equal to the difference between (A) the
pension benefits that Executive would have been entitled to under the Retirement
Plan and SERP if his Base Salary under this Agreement were $285,000 (instead of
$200,000) plus any increases in such Base Salary subsequent to the date of this
Agreement (any such increases being effective as of the date such increases take
effect) and (B) the pension benefits that Executive is actually entitled to
under the Retirement Plan and SERP. The intent of this Section 3(d) is to permit
Executive to continue to accrue additional pension benefits under the Retirement
Plan and SERP on and following the date of this Agreement, determined as if his
compensation under such Retirement Plan and SERP were based upon the prior
sentence. For purposes of interpretation, attached hereto as Exhibit A are
computations prepared by the Retirement System Group Inc. which set forth
Executive's accrued monthly pension benefits as of the dates indicated under the
Retirement Plan and SERP of T R Financial Corp. and Roosevelt Savings Bank. The
supplemental pension benefits provided for in this Section 3(d) shall be paid in
the same form and at the same time and subject to the same terms and conditions,
and to the same beneficiaries, as the pension benefits provided to Executive
under the Retirement Plan and/or the SERP, as the case may be. Notwithstanding
the foregoing, Executive and the Holding Company may mutually agree that such
supplemental pension benefit be paid in a different form or commencing at a
different time.
(e) Executive's principal place of employment shall be at the Holding
Company's executive offices at the address first above written, or at such other
location in New York City or in Nassau or Suffolk County at which the Holding
Company shall maintain its principal executive offices, or at such other
location as the Board and Executive may mutually agree upon. The Holding Company
shall provide Executive, at his principal place of employment, with a private
office, stenographic services and other support services and facilities suitable
to his position with the Holding Company and necessary or appropriate in
connection with the performance of his assigned duties under this Agreement. The
Holding Company shall provide Executive with an automobile suitable to the
position of Executive Vice President and Special Transition Officer of the
Holding Company, in accordance with the prior practices of T R Financial Corp.
and Roosevelt Savings Bank, and such automobile may be used by Executive in
carrying out his duties under the Agreement, including commuting between his
residence and his principal place of employment, and other personal use. The
Holding Company shall reimburse Executive for his ordinary and necessary
business expenses, including, without limitation, fees for memberships in such
clubs and organizations as Executive and the Board shall mutually agree are
necessary and appropriate for business purposes, and travel and entertainment
expenses, incurred in connection with the performance of his duties under this
Agreement, upon presentation to the Holding Company of an itemized account of
such expenses in such form as the Holding Company may reasonably require.
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4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Holding Company of Executive's employment hereunder for any reason other
than a Termination for Cause, as provided for in Section 7 hereof ; or (ii)
Executive's resignation upon: (A) a failure to appoint or reappoint Executive as
Executive Vice President and Special Transition Officer or failure to nominate
or re-nominate Executive as a director of the board of directors of the
Institution or Holding Company (unless Executive so consents), (B) a material
change in Executive's function, duties, or responsibilities with the Holding
Company, the Institution and their respective subsidiaries and affiliates, which
change would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1 above, unless consented to by Executive; (C) a relocation of
Executive's principal place of employment by more than 25 miles from its
location at the effective date of this Agreement (unless Executive so consents)
at any time during the term of this Agreement, (D) a reduction in the benefits
and perquisites from those made available to Executive as of the effective date
of this Agreement, unless such reduction also adversely affects other full-time
employees of the Holding Company or its Subsidiaries, (E) a liquidation or
dissolution of the Institution or Holding Company, or (F) a breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E) or (F), above, Executive shall have the right to
elect to terminate his employment under this Agreement by resignation upon not
less than fifteen (15) days prior written notice given within six full months
after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of his subsequent death,
Executive's beneficiary or beneficiaries, or his estate, as the case may be, an
amount equal to the sum of: (i) the amount of the remaining payments Executive
would have earned under this Agreement if he had continued his employment with
the Holding Company throughout the remaining term of this Agreement at his Base
Salary at the Date of Termination and (ii) the annual contributions or payments
the Holding Company would have made on Executive's behalf to any employee
benefit plans of the Holding Company or the Institution or for any perquisite
which the Holding Company or the Institution would have provided to Executive
during the remaining term of this Agreement based on contributions or payments
made (on an annualized basis) at the Date of Termination. At the election of
Executive, which election is to be made prior to a Date of Termination, such
amount shall be payable (a) in a lump sum as of Executive's Date of Termination
or (b) on a bi-weekly basis in approximately equal installments during the
remaining term of the Agreement. Such payments shall not be reduced in the event
Executive obtains other employment following Executive's termination of
employment with the Holding Company.
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(c) Subject to Section 12 hereof, upon the occurrence of Executive's
termination from employment with the Holding Company in connection with an Event
of Termination, the Holding Company will cause to be continued for Executive
life, medical and dental coverage substantially identical to the coverage
maintained by the Institution or the Holding Company for Executive prior to his
termination, at no premium cost to Executive, except to the extent such coverage
may be changed in its application to other full-time employees of the
Institution or the Holding Company. Such coverage shall cease upon the
expiration of the then remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended ("Exchange Act")) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 25% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Holding Company or similar transaction (a "Transaction") occurs or
is effectuated, other than a Transaction following which: (i) more than 50% of
the equity ownership interests of the entity resulting from such Transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such Transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) more than 50% of the outstanding
equity ownership interests in the Holding Company, and (ii) more than 50% of the
securities entitled to vote generally in the election of directors of the entity
resulting from such Transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such Transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than 50% of the securities entitled to vote generally in the
election of directors of the Holding Company.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or
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responsibility, reduction in the annual compensation or material reduction in
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death or Termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of: (i)
the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's annual compensation for the most recently completed year. Such
annual compensation shall include Base Salary, commissions, bonuses,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, any benefits to be paid or received under any stock-based benefit
plan, severance payments (other than severance payments received in connection
with the acquisition of T R Financial Corp. and Roosevelt Savings Bank),
directors or committee fees and fringe benefits paid or to be paid to Executive
during such years. At the election of Executive, which election is to be made
prior to a Change in Control, such payment shall be made: (a) in a lump sum, (b)
on a bi-weekly basis in approximately equal installments over a period of
thirty-six (36) months following Executive's termination, or (c) on an annual
basis in approximately equal installments over a period of thirty-six (36)
months following Executive's termination. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company will cause to be continued life, medical, dental and long-term
or other disability coverage substantially equivalent to the coverage maintained
by the Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of thirty-
six (36) months following the Change in Control.
6. CHANGE IN CONTROL-RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Holding Company
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment." As soon as practicable after a Change in Control, the
Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Holding Company shall pay
Executive, subject to applicable withholding requirements under applicable state
or federal law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
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(2) such additional amount (tax allowance) as may be necessary to
compensation Executive for the payment by Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this clause (2). In computing such tax
allowance, the payment to be made under clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
GUP = Tax Rate
--------------
1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
Executive in the year in which the payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Holding Company's independent
accountants shall determine the amount (the "Adjustment Amount") the Holding
Company must pay to Executive in order to put Executive in the same position as
Executive would have been if the Initial Excess Parachute Payment had been equal
to the Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Holding Company shall take into account
any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive. In no event, however,
shall Executive make any payment under this paragraph to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Holding Company or its
Subsidiaries. Notwithstanding the foregoing, Executive shall not be deemed to
have been Terminated for Cause unless and until there shall have
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been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
Executive shall not have the right to receive compensation or other benefits for
any period after the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, any unvested stock options and
related rights granted to Executive under any stock option plan shall not be
exercisable nor shall any unvested awards granted to Executive under any stock
benefit plan of the Institution, the Holding Company or any subsidiary or
affiliate thereof, vest. At the Date of Termination for Cause, any such unvested
stock options and related rights and any unvested awards shall become null and
void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive during
the term of this Agreement shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than fifteen (15) days from the date such Notice of Termination is given) ;
provided, however, that if a dispute regarding Executive's termination exists,
the "Date of Termination shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding Company
will continue to pay Executive his full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance
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with this Agreement. Amounts paid under this Section are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party. Notwithstanding any other provision of this Agreement to the
contrary, in the event of the termination of Executive's employment with the
Holding Company or the termination of this Agreement, Section 12 of this
Agreement shall continue in full force and effect.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
this Agreement, Executive agrees not to compete with the Holding Company or its
Subsidiaries for a period of six (6) months following such termination in any
city, town or county in which the Holding Company or any of its Subsidiaries has
an office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Holding Company or its Subsidiaries.
The parties hereto, recognizing that irreparable injury will result to the
Holding Company or its Subsidiaries, its business and property in the event of
Executive's breach of this Subsection 8(a), agree that in the event of any such
breach by Executive, the Holding Company or its Subsidiaries, will be entitled,
in addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company or
its Subsidiaries, as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company or its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company
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or its Subsidiaries to any person, firm, corporation, or other entity for any
reason or purpose whatsoever nor will Executive recruit any employee of the
Holding Company or its Subsidiaries for any such person, firm, corporation or
other entity during the same period. Notwithstanding the foregoing, except as
provided for in Section 8(a) of this Agreement, Executive may disclose any
knowledge of banking, financial and/or economic principles, concepts or ideas
which, in the Board's reasonable opinion, are not solely and exclusively derived
from the business plans and activities of the Holding Company or its
Subsidiaries. Further, Executive may disclose information regarding the business
activities of the Institution or the Holding Company to the Superintendent of
Banks of the State of New York, the New York Banking Department, the Office of
Thrift Supervision , the Federal Deposit Insurance Corporation or other
appropriate bank regulator pursuant to a formal regulatory request, provided
Executive promptly notifies the Holding Company of such request. In the event of
a breach or threatened breach by Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries, or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company or its
Subsidiaries for such breach or threatened breach, including the recovery of
damages from Executive.
11. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Holding Company
or any entity acquired by the Institution or the Holding Company and Executive ,
except that this Agreement shall not affect or operate to reduce any benefit,
compensation, tax indemnification or other provision inuring to benefit of
Executive, or Executive's family or beneficiaries, under the Employment
Agreements dated as of January 23, 1997 between Executive and T R Financial
Corp. and Roosevelt Savings Bank, respectively ("Prior Agreements"). Such Prior
Agreements shall continue in full force and effect except to the extent of the
payments made to Executive as of the closing of the merger of T R Financial
Corp. with Roslyn Bancorp, Inc. which transaction closed on the date of this
Agreement. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
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13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of New York.
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18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Holding Company or the Institution, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that Executive shall be entitled to seek
specific performance of his right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES.
(a) In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
(b) In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Holding Company,
whether by judgement, arbitration or settlement, the Holding Company shall be
entitled to the payment of all legal fees incurred by the Holding Company in
resolving such dispute or controversy.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the
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same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
[Remainder of Page Intentionally Left Blank]
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SIGNATURES
IN WITNESS WHEREOF, Roslyn Bancorp, Inc. has caused this Agreement to be
executed and its seal to be affixed hereunto by its duly authorized officer and
directors, and Executive has signed this Agreement, on the 16th day of February,
1999.
ATTEST: ROSLYN BANCORP, INC.
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
- -------------------------- --------------------------------------
R. Patrick Quinn Joseph L. Mancino
Secretary For the Board of Directors
[SEAL]
WITNESS:
/s/ John M. Tsimbinos /s/ A. Gordon Nutt
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John M. Tsimbinos A. Gordon Nutt
Executive
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Exhibit 10.14
THE ROSLYN SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of February 16, 1999, by
and among The Roslyn Savings Bank (the "Institution"), a state chartered savings
institution, with its principal administrative office at 1400 Old Northern
Boulevard, Roslyn, New York, 11576, Roslyn Bancorp, Inc., a corporation
organized under the laws of the State of Delaware, the holding company for the
Institution (the "Holding Company"), and A. Gordon Nutt ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Executive Vice President and Special Transition Officer of the Institution.
Executive shall render administrative and management services to the Institution
such as are customarily performed by persons situated in a similar executive
capacity.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall
commence as of the date first above written (the effective date of this
Agreement) and shall continue for a period of twelve (12) full calendar months
thereafter. Effective as of the first anniversary of the date of this Agreement
and each anniversary date thereafter, the board of directors of the Institution
(the "Board") may extend the term of this Agreement for an additional twelve
(12) month period, unless Executive elects not to extend the term of the
Agreement by giving written notice in accordance with Section 8 of this
Agreement. The Board shall give notice to Executive as to whether the Agreement
is to be extended no later than sixty (60) days prior to any anniversary date of
this Agreement. If the Board does not provide Executive with notice of an
intent to renew this Agreement at least sixty (60) days prior to an applicable
anniversary date of the Agreement, the Agreement shall automatically expire as
of that anniversary date, unless the Board and Executive subsequently agree
otherwise.
<PAGE>
(b) During the period of Executive's employment under this Agreement,
except for periods of absence occasioned by illness, reasonable vacation
periods, and reasonable leaves of absence, Executive shall devote substantial
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder, including activities and services related to the organization,
operation and management of the Institution and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
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evidenced by a resolution of the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Institution or its
affiliates, including the Holding Company, or materially affect the performance
of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, the Institution or
Executive may terminate Executive's employment with the Institution at any time
during the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation for the performance
of his duties under this Agreement an annual salary of not less than $200,000
("Base Salary"). Base Salary shall include any amounts of compensation deferred
by Executive under any employee benefit plan or arrangement maintained by the
Institution or the Holding Company. Such Base Salary shall be payable on a bi-
weekly basis in accordance with the payroll practices of the Institution. The
Board or a committee designated by the Board may increase Executive's Base
Salary at any time. Any increase in Base Salary shall become the new "Base
Salary" for purposes of this Agreement. In addition to the Base Salary provided
in this Section 3(a), Executive shall be eligible to participate in, at no
premium cost to Executive, all such other benefits as are uniformly made
available to full-time employees of the Institution.
(b) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Institution shall pay or reimburse Executive for all reasonable
travel expenses (in accordance with the Institution's travel policy, as amended
from time to time) and other reasonable expenses incurred by Executive in
performing his obligations under this Agreement.
(c) Executive shall be entitled to participate in or receive benefits under
any employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company, the
Institution and their respective subsidiaries and affiliates at present or in
the future to its senior executives and key management employees, subject to and
on a basis consistent with the terms, conditions and overall administration of
such plans and arrangements and, with respect to employee benefit plans not
generally available to all employees of the Holding Company or the Institution,
upon designation by the Board. Executive shall be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company, the Institution and their respective subsidiaries in which Executive is
eligible to participate. Nothing paid to Executive under any such plan or
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arrangement will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(d) In addition to any pension benefits to which Executive shall be
entitled (i) under any tax-qualified defined benefit plan of the Holding
Company, the Institution or any of their respective subsidiaries or affiliates,
or any predecessor of any of them ("Retirement Plan") and (ii) under any
supplemental executive retirement or other defined benefit plan or other excess
benefit plan within the meaning of section 3(36) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") and under any plan to provide
deferred income for a select group of management or highly compensated employees
of the Holding Company, the Institution or any of their respective subsidiaries
of affiliates, or any predecessor of any of them (collectively, "SERP"), the
Holding Company and the Institution shall provide an additional supplemental
pension benefit under this Agreement equal to the difference between (A) the
pension benefits that Executive would have been entitled to under the Retirement
Plan and SERP if his Base Salary under this Agreement were $285,000 (instead of
$200,000) plus any increases in such Base Salary subsequent to the date of this
Agreement (any such increases being effective as of the date such increases take
effect) and (B) the pension benefits that Executive is actually entitled to
under the Retirement Plan and SERP. The intent of this Section 3(d) is to
permit Executive to continue to accrue additional pension benefits under the
Retirement Plan and SERP on and following the date of this Agreement, determined
as if his compensation under such Retirement Plan and SERP were based upon the
prior sentence. For purposes of interpretation, attached hereto as Exhibit A
are computations prepared by the Retirement System Group Inc. which set forth
Executive's accrued monthly pension benefits as of the dates indicated under the
Retirement Plan and SERP of T R Financial Corp. and Roosevelt Savings Bank. The
supplemental pension benefits provided for in this Section 3(d) shall be paid in
the same form and at the same time and subject to the same terms and conditions,
and to the same beneficiaries, as the pension benefits provided to Executive
under the Retirement Plan and/or the SERP, as the case may be. Notwithstanding
the foregoing, Executive and the Institution may mutually agree that such
supplemental pension benefit be paid in a different form or commencing at a
different time.
(e) Executive's principal place of employment shall be at the Institution's
executive offices at the address first above written, or at such other location
in New York City or in Nassau or Suffolk County at which the Institution shall
maintain its principal executive offices, or at such other location as the Board
and Executive may mutually agree upon. The Institution shall provide Executive,
at his principal place of employment, with a private office, stenographic
services and other support services and facilities suitable to his position with
the Institution and necessary or appropriate in connection with the performance
of his assigned duties under this Agreement. The Institution shall provide
Executive with an automobile suitable to the position of Executive Vice
President and Special Transition Officer of the Institution, in accordance with
the prior practices of T R Financial Corp. and Roosevelt Savings Bank, and such
automobile may be used by Executive in carrying out his duties under the
Agreement, including commuting between his residence and his principal place of
employment, and other personal use. The Institution shall reimburse Executive
for his ordinary and necessary business expenses, including, without limitation,
fees for memberships in such clubs and organizations as Executive and the Board
shall mutually agree are necessary and appropriate for business purposes, and
travel and entertainment expenses, incurred
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in connection with the performance of his duties under this Agreement, upon
presentation to the Institution of an itemized account of such expenses in such
form as the Institution may reasonably require.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the Institution of Executive's employment hereunder for any reason other than a
Termination for Cause, as provided for in Section 7 hereof ; or (ii) Executive's
resignation upon: (A) a failure to appoint or reappoint Executive as Executive
Vice President and Special Transition Officer or failure to nominate or re-
nominate Executive as a director of the board of directors of the Institution or
Holding Company (unless Executive so consents) at any time during the term of
this Agreement, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company, the Institution and their respective
subsidiaries and affiliates, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1 above, unless consented to by
Executive; (C) a relocation of Executive's principal place of employment by more
than 25 miles from its location at the effective date of this Agreement (unless
Executive so consents), (D) a reduction in the benefits and perquisites from
those made available to Executive as of the effective date of this Agreement,
unless such reduction adversely also affects other full-time employees of the
Institution, (E) a liquidation or dissolution of the Institution or Holding
Company, or (F) a breach of this Agreement by the Institution. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon not less than fifteen (15) days prior written
notice given within six full months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Institution shall be
obligated to pay Executive, or, in the event of his subsequent death,
Executive's beneficiary or beneficiaries, or his estate, as the case may be, an
amount equal to the sum of: (i) the amount of the remaining payments Executive
would have earned under this Agreement if he had continued his employment with
the Institution throughout the remaining term of this Agreement at his Base
Salary at the Date of Termination and (ii) the annual contributions or payments
the Institution would have made on Executive's behalf to any employee benefit
plans of the Institution or for any perquisite which the Institution would have
provided to Executive during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination. In the event the Institution is not in compliance with its minimum
capital requirements or if such payments pursuant to this subsection (b) would
cause the Institution's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Institution or successor thereto is in capital compliance. At the election of
Executive, which election is to be made prior to a Date of Termination, such
amount shall be payable (a) in a lump sum as of Executive's Date of Termination
or (b) on a bi-weekly basis in approximately equal installments during the
remaining
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term of the Agreement. Such payments shall not be reduced in the event Executive
obtains other employment following Executive's termination of employment with
the Institution.
(c) Subject to Section 12 hereof, upon the occurrence of Executive's
termination from employment with the Institution in connection with an Event of
Termination, the Institution will cause to be continued for Executive life,
medical or dental coverage substantially identical to the coverage maintained by
the Institution or the Holding Company for Executive prior to his termination,
at no premium cost to Executive, except to the extent such coverage may be
changed in its application to other full-time employees of the Institution or
the Holding Company. Such coverage shall cease upon the expiration of the then
remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution shall be deemed to have occurred at such time as (A) any "person"
(as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act
of 1934, as amended ("Exchange Act")) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Institution or the Holding Company representing 25% or more of
the Institution's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Institution purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by a Nominating Committee solely composed of members
which are Incumbent Board members, shall be, for purposes of this clause (b),
considered as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or similar transaction (a "Transaction") occurs or is
effectuated, other than a Transaction following which: (i) more than 50% of the
equity ownership interests of the entity resulting from such Transaction are
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) in substantially the same relative proportions by persons who,
immediately prior to such Transaction, beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) more than 50% of the outstanding
equity ownership interests in the Institution, and (ii) more than 50% of the
securities entitled to vote generally in the election of directors of the entity
resulting from such Transaction are beneficially owned (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) in substantially the same
relative proportions by persons who, immediately prior to such Transaction,
beneficially owned (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) more than 50% of the securities entitled to vote generally in the
election of directors of the Institution.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d), of this Section 5
upon his subsequent termination of employment
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at any time during the term of this Agreement due to (i) Executive's dismissal,
or (ii) Executive's voluntary resignation following any demotion, loss of title,
office or significant authority or responsibility, reduction in the annual
compensation or material reduction in benefits or relocation of his principal
place of employment by more than 25 miles from its location immediately prior to
the change in control, unless such termination is because of his death or
termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, as severance
pay or liquidated damages, or both, a sum equal to the greater of: (i) the
payments due for the remaining term of the Agreement; or (ii) three (3) times
Executive's annual compensation for the most recently completed year. Such
annual compensation shall include Base Salary, commissions, bonuses,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, any benefits to be paid or received under any stock-based benefit
plan, severance payments (other than severance payments received in connection
with the acquisition of T R Financial Corp. and Roosevelt Savings Bank),
directors or committee fees and fringe benefits paid or to be paid to Executive
during such years. At the election of Executive, which election is to be made
prior to a Change in Control, such payment shall be made: (a) in a lump sum, (b)
on a bi-weekly basis in approximately equal installments over a period of
thirty-six (36) months following Executive's termination, or (c) on an annual
basis in approximately equal installments over a period of thirty-six (36)
months following Executive's termination. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution will cause to be continued life, medical, dental and long-term or
other disability coverage substantially equivalent to the coverage maintained by
the Institution for Executive at no premium cost to Executive prior to his
severance. Such coverage and payments shall cease upon the expiration of
thirty-six (36) months following the Change in Control.
6. CHANGE IN CONTROL-RELATED PROVISIONS.
In each calendar year that Executive is entitled to receive payments or
benefits under the provisions of this Employment Agreement, the Institution
shall determine if an excess parachute payment (as defined in Section 4999 of
the Internal Revenue Code of 1986, as amended, and any successor provision
thereto, (the "Code")) exists. Such determination shall be made after taking any
reductions permitted pursuant to Section 280G of the Code and the regulations
thereunder. Any amount determined to be an excess parachute payment after taking
into account such reductions shall be hereafter referred to as the "Initial
Excess Parachute Payment." As soon as practicable after a Change in Control, the
Initial Excess Parachute Payment shall be determined. Upon the Date of
Termination following a Change in Control, the Institution shall pay Executive,
subject to applicable withholding requirements under applicable state or federal
law, an amount equal to:
(1) twenty (20) percent of the Initial Excess Parachute Payment (or such
other amount equal to the tax imposed under Section 4999 of the Code);
and
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(2) such additional amount (tax allowance) as may be necessary to
compensation Executive for the payment by Executive of state and
federal income and excise taxes on the payment provided under clause
(1) and on any payments under this clause (2). In computing such tax
allowance, the payment to be made under clause (1) shall be multiplied
by the "gross up percentage" ("GUP"). The GUP shall be determined as
follows:
GUP = Tax Rate
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1 - Tax Rate
The "Tax Rate" for purposes of computing the GUP shall be the sum of
the highest marginal federal and state income and employment-related
tax rates, including any applicable excise tax rates, applicable to
Executive in the year in which the payment under Clause (1) is made.
(3) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the Initial Excess
Parachute Payment (such different amount being hereafter referred to as the
"Determinative Excess Parachute Payment") then the Institution's independent
accountants shall determine the amount (the "Adjustment Amount") the Institution
must pay to Executive in order to put Executive in the same position as
Executive would have been if the Initial Excess Parachute Payment had been equal
to the Determinative Excess Parachute Payment. In determining the Adjustment
Amount, independent accountants of the Institution shall take into account any
and all taxes (including any penalties and interest) paid by or for Executive or
refunded to Executive or for Executive's benefit. As soon as practicable after
the Adjustment Amount has been so determined, the Institution shall pay the
Adjustment Amount to Executive. In no event, however, shall Executive make any
payment under this paragraph to the Institution.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the
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affirmative vote of not less than a majority of the members of the Board at a
meeting of the Board called and held for that purpose (after reasonable notice
to Executive and an opportunity for him, together with counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to receive
compensation or other benefits for any period after the Date of Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination for Cause,
any unvested stock options and related rights granted to Executive under any
stock option plan shall not be exercisable nor shall any unvested awards granted
to Executive under any stock benefit plan of the Institution, the Holding
Company or any subsidiary or affiliate thereof, vest. At the Date of Termination
for Cause, any such unvested stock options and related rights and any unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive during the
term of this Agreement shall be communicated by Notice of Termination to the
other party hereto. For purposes of this Agreement, a "Notice of Termination"
shall mean a written notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in reasonable detail
the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than fifteen (15) days from the date such Notice of Termination is given) ;
provided, however, that if a dispute regarding Executive's termination exists,
the "Date of Termination shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this
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<PAGE>
Agreement. Amounts paid under this Section are in addition to all other amounts
due under this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
Notwithstanding any other provision of this Agreement to the contrary, in the
event of the termination of Executive's employment with the Institution or the
termination of this Agreement, Section 12 of this Agreement shall continue in
full force and effect.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
this Agreement, Executive agrees not to compete with the Institution for a
period of six (6) months following such termination in any city, town or county
in which the Institution has an office or has filed an application for
regulatory approval to establish an office, determined as of the effective date
of such termination, except as agreed to pursuant to a resolution duly adopted
by the Board. Executive agrees that during such period and within said cities,
towns and counties, Executive shall not work for or advise, consult or otherwise
serve with, directly or indirectly, any entity whose business materially
competes with the depository, lending or other business activities of the
Institution or its affiliates, including the Holding Company. The parties
hereto, recognizing that irreparable injury will result to the Institution, its
business and property in the event of Executive's breach of this Subsection
8(a), agree that in the event of any such breach by Executive, the Institution,
will be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Institution from
pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Institution and its
affiliates, as it may exist from time to time, is a valuable, special and unique
asset of the business of the Institution. Executive will not, during or after
the term of his employment, disclose any knowledge of the past, present, planned
or considered business activities of the Institution or affiliates thereof to
any person, firm, corporation, or other entity for any reason or purpose
whatsoever nor will Executive recruit any employee of the Institution for any
such person, firm, corporation or other entity during the same period.
Notwithstanding the foregoing, except as provided for in Section 8(a) of this
Agreement, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which, in the Board's reasonable opinion,
are not solely and exclusively derived from the business
-9-
<PAGE>
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, the Office of Thrift Supervision , the Federal Deposit Insurance
Corporation , or other appropriate bank regulator pursuant to a formal
regulatory request, provided Executive promptly notifies the Institution of such
request. In the event of a breach or threatened breach by Executive of the
provisions of this Section, the Institution will be entitled to an injunction
restraining Executive from disclosing, in whole or in part, the knowledge of the
past, present, planned or considered business activities of the Institution or
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Institution from pursuing any other remedies available to the
Institution for such breach or threatened breach, including the recovery of
damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Institution. The Holding Company,
however, unconditionally guarantees payment and provision of all amounts and
benefits due hereunder to Executive and, if such amounts and benefits due from
the Institution are not timely paid or provided by the Institution, such amounts
and benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that compensation payments and benefits, as provided by this Agreement, are to
or received by Executive under the Employment Agreement dated February 16, 1999,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties
hereto and supersedes any prior employment agreement between the Institution or
any entity acquired by the Institution or the Holding Company and Executive ,
except that this Agreement shall not affect or operate to reduce any benefit,
compensation, tax indemnification or other provision inuring to benefit of
Executive, or Executive's family or beneficiaries, under the Employment
Agreements dated as of January 23, 1997 between Executive and T R Financial
Corp. and Roosevelt Savings Bank, respectively ("Prior Agreements"). Such Prior
Agreements shall continue in full force and effect except to the extent of the
payments made to Executive as of the closing of the merger of T R Financial
Corp. with Roslyn Bancorp, Inc. which transaction closed on the date of this
Agreement. No provision of this Agreement shall be interpreted to mean that
Executive is subject to receiving fewer benefits than those available to him
without reference to this Agreement.
-10-
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
-11-
<PAGE>
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this
Agreement shall be governed by the laws of the State of New York.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
(a) In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
(b) In the event any dispute or controversy arising under or in connection
with Executive's termination is resolved in favor of the Institution, whether by
judgement, arbitration or settlement, the Institution shall be entitled to the
payment of all legal fees incurred by the Institution in resolving such dispute
or controversy.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under New York law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Institution (whether or not he continues to be a director or
officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
-12-
<PAGE>
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
[Remainder of Page Intentionally Left Blank]
-13-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, The Roslyn Savings Bank and Roslyn Bancorp, Inc. have
caused this Agreement to be executed and their seals to be affixed hereunto by
their duly authorized officers and directors, and Executive has signed this
Agreement, on the 16th day of February, 1999.
ATTEST: THE ROSLYN SAVINGS BANK
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
- --------------------------- ---------------------------------
R. Patrick Quinn Joseph L. Mancino
Secretary For The Board of Directors
[SEAL]
ATTEST: ROSLYN BANCORP, INC.
(Guarantor)
/s/ R. Patrick Quinn By: /s/ Joseph L. Mancino
- -------------------- --------------------------------
R. Patrick Quinn Joseph L. Mancino
Secretary For the Board of Directors
[SEAL]
WITNESS:
s/ John M. Tsimbinos /s/ A. Gordon Nutt
- -------------------------------- -------------------------------
John M. Tsimbinos A. Gordon Nutt
Executive
-14-
<PAGE>
Exhibit 11
Roslyn Bancorp, Inc.
Statement re: Computation of Per Share Earnings
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
---------------------
<S> <C>
Net income $ 52,404
---------------------
Weighted average common shares outstanding 38,436,760
---------------------
Basic earnings per common share $ 1.36
=====================
Weighted average common shares outstanding 38,436,760
---------------------
Potential common stock due to dilutive effect of stock options 6,178
---------------------
Total shares for diluted earnings per share 38,442,938
---------------------
Diluted earnings per common share $ 1.36
=====================
</TABLE>
<PAGE>
Exhibit 13
Selected Consolidated Financial and Other Data of the Company
The selected consolidated financial and other data of the Company set forth
below is derived in part from, and should be read in conjunction with, the
Consolidated Financial Statements of the Company and Notes thereto presented
elsewhere in this Annual Report.
<TABLE>
<CAPTION>
At December 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
(Dollars in thousands)
Selected Financial Condition
Data:
<S> <C> <C> <C> <C> <C>
Total assets $3,735,032 $3,601,079 $3,617,953 $1,598,270 $1,438,337
Money market investments 38,000 - 1,114,240 10,000 25,000
Debt securities, net (1):
Held-to-maturity 715 1,930 1,930 1,930 466,204
Available-for-sale 163,279 208,841 318,034 260,553 -
Equity securities (1):
Available-for-sale 449,981 285,352 168,862 118,778 89,787
Mortgage-backed and mortgage
related
securities, net (1):
Held-to-maturity 68,071 200,193 276,632 347,213 411,341
Available-for-sale 1,622,023 1,856,633 1,159,411 413,485 50,711
Loans held-for-sale, net 81,276 15,283 14,134 17,151 -
Loans receivable held for
investment, net (2) 1,190,977 954,291 488,890 365,265 342,091
Deposits 2,070,831 1,942,245 1,955,535 1,328,945 1,219,481
Roslyn Bancorp, Inc.
non-depository
stock subscriptions - - 1,356,911 - -
Borrowed funds 959,469 966,451 1,829 1,647 -
Stockholders' equity (3) 598,898 628,335 249,349 226,413 193,066
<CAPTION>
For the Years Ended
December 31, 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share amounts)
Selected Operating Data:
<S> <C> <C> <C> <C> <C>
Interest income $258,917 $224,964 $140,473 $109,737 $ 93,282
Interest expense 157,335 126,414 78,759 59,298 40,353
- ---------------------------------------------------------------------------------------------------------------------
Net interest income before
provision for
possible loan losses 101,582 98,550 61,714 50,439 52,929
Provision for possible
loan losses 750 600 2,000 600 600
- ---------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for
possible loan losses 100,832 97,950 59,714 49,839 52,329
Non-interest income (4) 19,322 9,248 5,192 5,903 3,283
Non-interest expense (4)(5) 44,721 57,735 34,834 28,514 26,172
- ---------------------------------------------------------------------------------------------------------------------
Income before provision
for income taxes 75,433 49,463 30,072 27,228 29,440
Provision for income taxes 23,029 16,073 9,438 8,510 10,018
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 52,404 $ 33,390 $ 20,634 $ 18,718 $ 19,422
- ---------------------------------------------------------------------------------------------------------------------
Basic and diluted earnings
per share $ 1.36 $ 0.83 N/A N/A N/A
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued on next page)
1
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial and Other Data of the Company
(Continued)
At December 31, 1998 1997 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------
Selected Financial Ratios and Other Data (6):
<S> <C> <C> <C> <C> <C>
Performance Ratios (7):
Return on average assets 1.40% 1.29% 1.03% 1.21% 1.39%
Return on average stockholders' equity 8.75 6.57 (15) 8.97 8.82 10.27
Average stockholders' equity to average
assets 16.04 19.22 11.45 13.69 13.56
Stockholders' equity to total assets at
year end 16.03 17.45 6.89 14.17 13.42
Net interest rate spread (8) 1.91 2.20 2.69 2.71 3.45
Net interest margin (9) 2.78 3.20 3.19 3.37 3.93
Average interest-earning assets to average
interest-bearing liabilities 120.29 124.39 112.29 116.55 116.11
Operating expenses to average assets (4) 1.18 1.41 1.71 1.82 1.87
Net interest income to operating
expenses (4) 229.56 221.19 179.58 178.56 203.18
Efficiency ratio (4) (10) 39.15 42.33 50.30 51.23 46.52
Cash Basis Performance Ratios (11):
Return on average assets 1.65% 1.65% 1.05% 1.22% 1.40%
Return on average stockholders' equity 10.26 8.42 (16) 9.17 8.94 10.33
Operating expenses to average assets (4) 0.95 1.23 1.71 1.82 1.87
Net interest income to operating
expense (4) 285.04 253.17 179.58 178.56 203.18
Efficiency ratio (4) (10) 31.53 36.98 50.30 51.23 46.52
Regulatory Capital Ratios (Bank only):
Leverage capital 11.52% 12.32% 8.70% 13.19% 13.57%
Total risk-based capital 24.38 27.60 19.75 29.79 27.01
Asset Quality Ratios and Data:
Total non-performing loans (12) $ 6,112 $ 6,480 $ 8,740 $ 12,173 $ 25,055
Real estate owned, net 532 157 1,698 6,047 3,359
Total non-performing assets (13) 6,644 6,637 10,438 18,220 28,414
Non-performing loans as a percent of
loans (12) (14) 0.50% 0.66% 1.71% 3.13% 6.82%
Non-performing assets as a percent of
total assets (13) 0.18 0.18 0.29 1.14 1.98
Allowance for possible loan losses as a
percent of loans (2) (14) 2.04 2.46 4.55 6.01 6.84
Allowance for possible loan losses as a
percent of total non-performing
loans (2) (12) 405.42 370.82 266.82 191.82 100.28
Other Data:
Number of full service customer
facilities 10 8 8 6 6
Number of mortgage origination offices 14 11 8 6 -
</TABLE>
(footnotes on next page)
2
<PAGE>
(1) The Bank adopted Statement of Financial Accounting Standards (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 Financial Accounting
Standards Board (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.
(2) All loans receivable held for investment are presented net of the Bank's
allowance for possible loan losses which at December 31, 1998, 1997, 1996,
1995, and 1994 were $24.8 million, $24.0 million, $23.3 million, $23.4
million and $25.1 million, respectively.
(3) The amounts prior to December 31, 1997 represent retained earnings only.
(4) Certain reclassifications were made to the 1997, 1996, 1995 and 1994
amounts to conform to the 1998 presentation.
(5) Included in 1997 is a $12.7 million charitable contribution to The Roslyn
Savings Foundation and a $4.6 million pre-tax charge for a settlement
agreement, including professional fees related thereto, with the New York
State Banking Department regarding certain loan and origination fee
practices by the Bank's mortgage banking subsidiary.
(6) Asset Quality and Regulatory Capital Ratios are end of year ratios. With
the exception of end of year ratios, all ratios are based on average
monthly balances during the indicated year.
(7) All performance ratios for the year ended December 31, 1997 exclude the
$7.4 million after-tax effect of the shares contributed to The Roslyn
Savings Foundation concurrent with the conversion.
(8) 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.
(9) 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.
(10) 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, adjusted by securities gains or losses, net real
estate operations activity and servicing impairment provisions.
(11) Excluding non-cash charges related to the establishment of The Roslyn
Savings Foundation, goodwill amortization and amortization relating to
certain employee stock benefit plans.
(12) 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.
(13) Non-performing assets consist of non-performing loans and real estate
owned, net.
(14) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(15) The ratio shown assumes that the conversion was completed on January 1,
1997. The actual return on average stockholders' equity based on the
January 10, 1997 conversion date was 6.70%.
(16) The ratio shown assumes that the conversion was completed on January 1,
1997. The actual cash basis return on average stockholders' equity based on
the January 10, 1997 conversion date was 8.59%.
3
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
- --------------------------------------------------------------------------
Operations
- ----------
General
Roslyn Bancorp, Inc. (the Company) was incorporated on July 26, 1996, and is the
holding company for The Roslyn Savings Bank and its subsidiaries (the Bank). On
May 29, 1996, the then Board of Trustees of the Bank adopted a Plan of
Conversion, which was subsequently amended on July 30, 1996 and September 30,
1996, to convert the Bank from a New York State chartered mutual savings bank to
a New York State chartered stock savings bank with the concurrent formation of a
holding company (the Conversion). The Conversion was completed on January 10,
1997, with the issuance by the Company of 42,371,359 shares of its common stock
in a public offering which resulted in $410.7 million of net proceeds, of which
$205.3 million was utilized to acquire all of the outstanding stock of the Bank.
Concurrent with the close of the stock offering, an additional 1,271,100 shares
of authorized but unissued shares of common stock were donated by the Company to
The Roslyn Savings Foundation (the Foundation), a private foundation dedicated
to charitable purposes within the Bank's local communities. The Company
recognized a one-time charge of $12.7 million, the full amount of the
contribution made to the Foundation, in the first quarter of 1997. The
contribution to the Foundation is fully tax deductible, subject to an annual
limitation based upon the Company's annual taxable income.
Additionally, in connection with the Conversion, the Bank established an
Employee Stock Ownership Plan (the ESOP). The ESOP purchased, primarily through
a $53.8 million loan from the Company and an initial $1.0 million contribution
from the Bank, approximately 8% of the outstanding shares of common stock, or
3,491,397 shares, on the open market.
On February 16, 1999, a merger between T R Financial Corp., a Delaware company,
and the Company was completed with the Company as the surviving corporation.
The transaction will be treated as a tax-free reorganization and accounted for
using the pooling-of-interests method of accounting. As part of this merger, on
February 16, 1999, T R Financial Corp.'s wholly-owned subsidiary, Roosevelt
Savings Bank, a New York State chartered stock savings bank, was merged into the
Bank. The combined bank retained the Roslyn name, and has $7.8 billion in
assets, more than $4.2 billion in deposits and 25 full-service banking locations
in Kings, Queens, Nassau and Suffolk Counties on Long Island, New York.
Pursuant to the merger agreement, each share of T R Financial Corp. common stock
was converted into the Company's stock at a fixed exchange ratio of 2.05. As a
result, 17,347,768 shares of T R Financial Corp. common stock were exchanged for
35,528,785 shares of the Company's common stock and a total of 1,746,876 T R
Financial Options were converted into options to purchase a maximum of 3,581,096
shares of the Company's common stock at exercise prices ranging from $2.20 to
$17.32 depending on the exercise price of the underlying T R Financial Stock
Option. Additionally under the agreement, five former officers and directors of
T R Financial Corp. have joined the Boards of Directors of the Company and the
Bank. (See Note 2 to Consolidated Financial Statements).
The Company conducts business primarily through its ownership of the Bank and
its subsidiaries. The Bank operates its 25 full service banking locations in
Kings, Queens, Nassau and Suffolk Counties on Long Island and fourteen mortgage
origination offices of Roslyn National Mortgage Corp. (RNMC), a wholly-owned
subsidiary of the Bank, in New York, New Jersey, Connecticut, Tennessee,
Delaware, Pennsylvania, Virginia and Maryland. On August 1, 1995, the Bank
acquired through RNMC (formerly Residential First, Inc. (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
4
<PAGE>
periods subsequent to July 31, 1995 reflects the consolidated operations of the
Bank and its subsidiaries, inclusive of its mortgage banking subsidiary.
The Company's results of operations are dependent primarily on net interest
income, which is the difference between the income earned on its loan and
security portfolios and its cost of funds, consisting of the interest paid on
deposits and borrowings. Results of operations are also affected by the
Company's provision for possible loan losses, real estate operations expense,
security and loan sale activities and loan servicing activities. The Company'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.
The Company had no operations prior to January 10, 1997 and, accordingly, the
results of operations prior to that date reflect only those of the Bank.
At the annual shareholder meeting on July 22, 1997, the shareholders approved
The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive Plan (Incentive Plan or
SBIP). The Incentive Plan authorizes the granting of options to purchase common
stock, option-related awards and awards of common stock (collectively, Awards).
Subject to certain adjustments to prevent dilution of Awards to participants,
the maximum number of shares reserved for Awards denominated in common stock
under the Incentive Plan is 6,108,444 shares. The maximum number of shares
reserved for purchase pursuant to the exercise of options and option-related
Awards which may be granted under the Incentive Plan is 4,364,246 shares, and
will primarily vest over a five year period and which must be exercised no more
than ten years from the date of grant. The maximum number of the shares reserved
for the award of shares of common stock is 1,744,198 shares, and will primarily
vest over a five year period. All officers, other employees and outside
directors of the Company and its affiliates, including the Bank and its
subsidiaries, are eligible to receive Awards under the Incentive Plan. The
Incentive Plan is administered by a committee of non-employee directors of the
Company. Authorized but unissued shares, or shares previously issued and
reacquired by the Company, may be used to satisfy the Awards under the Incentive
Plan. See Note 14 of Notes to Consolidated Financial Statements for information
regarding awards made under the Incentive Plan.
On February 17, 1998, the Company announced a settlement with the New York State
Banking Department (NYSBD) regarding certain practices relating to origination
and loan fees (overage fees) paid by certain borrowers of RFI. Under the terms
of the settlement agreement, the Company established a $3.0 million fund to
provide compensation to certain borrowers who allegedly paid an overage fee for
their RFI mortgage loans. Any money remaining in the fund will go to further
the Company's community development initiatives. The charge for the settlement,
and the costs related thereto, were fully accrued at December 31, 1997 by the
Company and totaled $4.7 million. The expense is included in non-interest
expense in the Company's statement of income for the year ended December 31,
1997. In the settlement agreement, the Company denies that RFI had engaged in
any unfair overage practices. The Company agreed to accept the conditions of
the settlement because it believed that the cost of contesting the allegations
in the courts would have been in excess of the settlement amount.
Management Strategy
In recent years, the Bank's operating strategy concentrated on maintaining
profitability by primarily investing in mortgage loans and mortgage-backed and
mortgage related securities. Since 1993, the Bank has decreased its emphasis on
investments in U.S. Government securities and increased its emphasis on building
its mortgage-backed and mortgage related securities and loan portfolios. The
increase in the loan portfolio relates to the restructuring of the lending
department, hiring experienced commercial real estate loan personnel and
revising its underwriting policies and procedures. More recently, the Bank has
increased its emphasis on mortgage banking activities and developed a resource
for generating one- to four-family loans for its own portfolio and for sale into
the secondary market. The Company's current operating strategy consists
primarily of: (i) building its loan
5
<PAGE>
portfolio by retaining a portion of one- to four-family loans originated 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;
(ii) 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; (iii) increasing fee income and
building its loan servicing portfolio through its mortgage banking operations
which sells, generally on a servicing retained basis, most longer-term fixed-
rate and adjustable-rate one- to four-family mortgage loans originated; (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.
Management of Interest Rate Risk
The principal objectives of the Company's interest rate risk management are to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Company's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Directors' approved
guidelines. Through such management, the Company seeks to reduce the
vulnerability of its operations to changes in interest rates. The Company's
Board of Directors reviews the Company's interest rate risk position on a
monthly basis. The Company's Board of Directors has established an
Asset/Liability Committee comprised of the Company's senior management under the
direction of the Board of Directors. Senior management is responsible for
reviewing with the Board of Directors its activities and strategies, the effect
of those strategies on the Company's net interest margin, the market value of
the portfolio of investments and loans and the effect that changes in interest
rates will have on the Company's portfolio and exposure limits.
In recent years, the Company 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 to the secondary market without recourse and on a servicing
retained basis; 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 Company for increases in
market interest rates. In recent years, the Company 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 December 31, 1998, totaled $1.02 billion, or 34.21%, 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 an institution'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 December 31, 1998, the Company's one-year gap position was
negative 0.38%. 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
6
<PAGE>
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 Company's
existing liquidity position and its ability to sell securities from its
available-for-sale portfolio, management of the Company 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 Company's interest rate margin and corresponding operating results.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at December 31, 1998, which are
anticipated by the Company, 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
December 31, 1998, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a one year period and
subsequent annual time intervals. Prepayment assumptions ranging from 8.28% to
50.22% per year were applied to the real estate loan portfolio, dependent upon
the loan type and coupon. Mortgage-backed and mortgage related securities were
assumed to prepay at rates between 9.42% and 50.52% annually. Savings accounts
were assumed to decay at 21.10%, 5.00%, 5.00%, 5.00%, 5.00% and 58.90%, Super
NOW and NOW accounts and money market accounts were assumed to decay at 20.00%,
5.00%, 5.00%, 5.00%, 5.00% and 60.00%, for the periods of up to one year, one to
two years, two to three years, three to four years, four to five years, and over
five years, respectively. Prepayment and deposit decay rates can have a
significant impact on the Company's estimated gap. While the Company 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.
7
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1998
------------------------------------------------------------------------------------------
One Two Three Four Over
Up to to Two to Three to Four to Five Five
One Year Years Years Years Years Years Total
------------ ----------- ----------- ----------- ------------ ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold $ 38,000 $ - $ - $ - $ - $ - $ 38,000
Debt and equity
securities, net (2) 160,704 10,567 83,618 17,595 - 341,491 613,975
Mortgage-backed and
mortgage related
securities, net (2) 908,823 283,018 144,540 97,620 58,521 197,572 1,690,094
Real estate loans,
net (3) (4) 369,353 103,373 232,962 125,556 103,920 344,366 1,279,530
Consumer and student
loans (4) 9,761 379 379 316 21 534 11,390
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total interest-
earning assets 1,486,641 397,337 461,499 241,087 162,462 883,963 3,632,989
------------ ----------- ----------- ----------- ----------- ----------- -----------
Interest-bearing
liabilities:
Money market accounts 21,627 5,407 5,407 5,407 5,406 64,880 108,134
Savings accounts 100,629 23,808 23,808 23,808 23,808 280,937 476,798
Super NOW and NOW
accounts 17,595 4,399 4,399 4,399 4,399 52,784 87,975
Certificates of deposit 1,017,750 155,361 76,595 44,159 21,438 26,683 1,341,986
Borrowed funds 343,169 175,000 230,000 121,300 90,000 - 959,469
------------ ----------- ----------- ----------- ----------- ----------- -----------
Total interest-
bearing liabilities 1,500,770 363,975 340,209 199,073 145,051 425,284 2,974,362
------------ ----------- ----------- ----------- ----------- ----------- -----------
Interest sensitivity
gap (5) $ (14,129) $ 33,362 $ 121,290 $ 42,014 $ 17,411 $ 458,679 $ 658,627
============ =========== =========== =========== =========== =========== ===========
Cumulative interest
sensitivity gap $ (14,129) $ 19,233 $ 140,523 $ 182,537 $ 199,948 $ 658,627
============ =========== =========== =========== =========== ===========
Cumulative interest
sensitivity gap as a
percentage of total
assets (0.38)% 0.51% 3.76% 4.89% 5.35% 17.63%
Cumulative net interest-
earning assets as a
percentage of cumulative
interest-bearing
liabilities 99.06% 101.03% 106.37% 107.59% 107.84% 122.14%
</TABLE>
(1) Interest-earning assets are included in the period in which the balances
are expected to be re-deployed 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 at their respective carrying values. Equity securities includes
callable preferred stock, the maturities of which have been assumed to be
the date on which they are initially callable.
(3) For the purpose of the gap analysis, the allowance for possible loan
losses and non-performing loans have been excluded.
(4) Loans held-for-sale, net are included in the "Up to One Year" category.
(5) Interest sensitivity gap represents the difference between net
interest-earning assets and interest-bearing liabilities.
8
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in the
foregoing table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may 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 mortgage (ARM)
loans, have features which limit adjustments to interest rates on a short-term
basis and over the life of the asset. Further, in the event of a change in
interest rates, prepayment and early withdrawal levels may deviate significantly
from those assumed in calculating the table. Finally, the ability of borrowers
to service their ARM loans may decrease in the event of an interest rate
increase. The table reflects the estimates of management as to periods to
repricing at particular points in time. Among the factors considered,
management monitors both current trends and its historical repricing experience
with respect to particular or similar products. For example, the Bank has a
number of deposit accounts, including passbook savings, Super NOW and NOW
accounts and money market accounts which, subject to certain regulatory
exceptions, may be withdrawn at any time. The Bank, based upon its historical
experience, assumes that while all customers in these account categories could
withdraw their funds on any given day, they will not do so, even if market
interest rates were to change. As a result, different assumptions may be used
at different points in time.
The Company's interest rate sensitivity is also monitored by management through
the use of a model which internally generates estimates of the change in net
portfolio value (NPV) over a range of interest rate change 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. For purposes of the NPV table, prepayment assumptions similar to
those used in the Gap Table were used, reinvestment rates were those in effect
for similar products currently being offered and rates on core deposits were
modified to reflect recent trends. The following table sets forth the Company's
NPV as of December 31, 1998, as calculated by the Company.
<TABLE>
<CAPTION>
Change in NVP as % of Portfolio
Interest Rates Net Portfolio Value Value of Assets
in Basis Points ------------------------------- ------------------------
(Rate Shock) Amount $ Change % Change NPV Ratio % Change (1)
- --------------- ------ -------- --------- --------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
300 $ 514,395 $ (228,954) (30.80)% 15.15% 10.05%
200 607,319 (136,030) (18.30) 17.18 6.35
100 694,723 (48,626) (6.54) 18.92 2.71
Static 743,349 - - 19.70 -
(100) 752,180 8,831 1.19 19.58 (1.78)
(200) 755,992 12,643 1.70 19.34 (3.56)
(300) 762,859 19,510 2.62 19.15 (5.55)
</TABLE>
(1) Based on the portfolio value of the Company's assets assuming no change in
interest rates.
As in 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 model presented assumes that the
composition of the Company'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 measurements and
net interest income models provide an indication of the Company's interest rate
risk exposure at a particular point in
9
<PAGE>
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 Company's net
interest income and will differ from actual results.
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 depends
upon the volume of interest-earning assets and interest-bearing liabilities and
the interest rates earned or paid on them.
The following table sets forth certain information regarding the
Company's consolidated statements of financial condition and its consolidated
statements of income for the years indicated, and reflects the average yield on
interest-earning assets and average cost of interest-bearing liabilities for the
years indicated. Such yields and costs are derived by dividing income or
expense, by the average balance of interest-earning assets or interest-bearing
liabilities, respectively. Average balances are derived from daily balances and
include non-performing loans. The yields and costs include fees which are
considered adjustments to yields.
10
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------------------------------------------------------
1998 1997
---------------------------------------- ---------------------------------------
Average Average Average Average
Balance Interest Yield/Cost Balance Interest Yield/Cost
---------- ---------- ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets (1):
Federal funds sold, repurchase
agreements and short-term deposits $ 30,199 $ 1,617 5.35% $ 75,718 $ 4,190 5.53%
Debt and equity securities, net 601,711 37,019 6.15 510,842 33,153 6.49
Mortgage-backed and
mortgage related securities, net 1,836,128 124,314 6.77 1,772,744 126,148 7.12
Real estate loans, net (2) 1,177,213 95,219 8.09 714,294 61,091 8.55
Consumer and student loans 8,034 748 9.31 4,229 382 9.03
----------- ---------- ----------- ------------
Total interest-earning assets 3,653,285 258,917 7.09 3,077,827 224,964 7.31
---------- ------------
Non-interest-earning assets 80,899 83,605
----------- -----------
Total assets $ 3,734,184 $ 3,161,432
=========== ===========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Money market accounts $ 67,915 2,243 3.30 $ 52,916 1,427 2.70
Savings accounts (3) (4) 503,354 14,679 2.92 445,716 13,545 3.04
Super NOW and NOW accounts (4) (5) 87,304 2,804 3.21 78,974 2,841 3.60
Certificates of deposit 1,344,776 76,602 5.70 1,213,478 69,982 5.77
----------- ---------- ----------- ------------
Total deposits 2,003,349 96,328 4.81 1,791,084 87,795 4.90
Borrowed funds 1,033,810 61,007 5.90 630,352 37,278 5.91
Non-depository stock subscriptions - - - 52,903 1,341 2.53
----------- ---------- ----------- ------------
Total interest-bearing liabilities 3,037,159 157,335 5.18 2,474,339 126,414 5.11
---------- ------------
Non-interest-bearing liabilities 97,970 79,319
----------- -----------
Total liabilities 3,135,129 2,553,658
Stockholders' equity 599,055 607,774
----------- -----------
Total liabilities and stockholders'
equity $ 3,734,184 $ 3,161,432
=========== ===========
Net interest income/interest
rate spread (6) $ 101,582 1.91% $ 98,550 2.20%
========== ======= ============ ========
Net interest margin (7) 2.78% 3.20%
======= ========
Ratio of interest-earning assets to
interest-bearing liabilities 120.29% 124.39%
======= ========
<CAPTION>
For the Years Ended December 31,
------------------------------------------
1996
------------------------------------------
Average Average
Balance Interest Yield/Cost
---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets (1):
Federal funds sold, repurchase
agreements and short-term deposits $ 151,160 $ 7,960 5.27%
Debt and equity securities, net 453,051 31,087 6.86
Mortgage-backed and
mortgage related securities, net 901,575 62,432 6.92
Real estate loans, net (2) 424,356 38,644 9.11
Consumer and student loans 4,244 350 8.25
---------- -----------
Total interest-earning assets 1,934,386 140,473 7.26
-----------
Non-interest-earning assets 75,372
----------
Total assets $2,009,758
==========
Liabilities and Stockholders' Equity:
Interest-bearing liabilities:
Deposits:
Money market accounts $ 64,046 1,854 2.89
Savings accounts (3) (4) 480,171 14,812 3.08
Super NOW and NOW accounts (4) (5) 45,990 1,361 2.96
Certificates of deposit 911,216 51,305 5.63
---------- -----------
Total deposits 1,501,423 69,332 4.62
Borrowed funds 102,408 5,794 5.66
Non-depository stock subscriptions 118,884 3,633 3.06
---------- -----------
Total interest-bearing liabilities 1,722,715 78,759 4.57
-----------
Non-interest-bearing liabilities 56,906
----------
Total liabilities 1,779,621
Stockholders' equity 230,137
----------
Total liabilities and stockholders'
equity $2,009,758
==========
Net interest income/interest $ 61,714 2.69%
rate spread (6) =========== ==========
Net interest margin (7) 3.19%
==========
Ratio of interest-earning assets to
interest-bearing liabilities 112.29%
==========
</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, net and non-performing loans.
(3) Savings accounts include mortgagors' escrow deposits.
(4) The average cost of savings and Super NOW and NOW accounts above reflect
the payment of a special interest payment of approximately 15% for the
year ended December 31, 1998 and 25% for the years ended December 31, 1997
and 1996, of interest paid on savings and NOW accounts. Such payments
resulted in additional cost on savings accounts of 18 basis points, 48
basis points and 59 basis points for the years ended December 31, 1998,
1997 and 1996, respectively, and additional cost on NOW accounts of 8
basis points, 18 basis points and 35 basis points for the years ended
December 31, 1998, 1997 and 1996, respectively.
(5) The Super NOW account product was originated during the year ended
December 31, 1997. The amounts shown for the year ended December 31, 1996
include NOW accounts only.
(6) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(7) Net interest margin represents net interest income divided by average
interest-earning assets.
11
<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 Company's interest income and interest expense
during the periods indicated. Information is provided in each category with
respect to: (i) changes attributable to changes in volume (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>
Year Ended December 31, 1998 Year Ended December 31, 1997
Compared to Compared to
Year Ended December 31, 1997 Year Ended December 31, 1996
--------------------------------------- ------------------------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- ---------------------------
Volume Rate Net Volume Rate Net
----------- ----------- ----------- ----------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets (1):
Federal funds sold, repurchase
agreements and short-term
deposits $ (2,441) $ (132) $ (2,573) $ (4,146) $ 376 $ (3,770)
Debt and equity securities, net 5,464 (1,598) 3,866 3,808 (1,742) 2,066
Mortgage-backed and mortgage
related securities, net 5,122 (6,956) (1,834) 61,866 1,850 63,716
Real estate loans, net 37,247 (3,119) 34,128 24,954 (2,507) 22,447
Consumer and student loans 354 12 366 (1) 33 32
----------- ----------- ---------- ----------- ------------ -----------
Total interest-earning assets 45,746 (11,793) 33,953 86,481 (1,990) 84,491
----------- ----------- ---------- ----------- ------------ -----------
Interest-bearing liabilities:
Money market accounts 455 361 816 (310) (117) (427)
Savings accounts (2) 1,649 (515) 1,134 (1,073) (194) (1,267)
Super NOW and NOW accounts 2,273 (2,310) (37) 1,137 343 1,480
Certificates of deposit 7,467 (847) 6,620 17,374 1,303 18,677
Non-depository stock subscriptions (1,341) - (1,341) (2,292) - (2,292)
Borrowed funds 23,809 (80) 23,729 31,217 267 31,484
----------- ----------- ---------- ----------- ------------ -----------
Total interest-bearing
liabilities 34,312 (3,391) 30,921 46,053 1,602 47,655
----------- ----------- ---------- ----------- ------------ -----------
Net change in net interest income $ 11,434 $ (8,402) $ 3,032 $ 40,428 $ (3,592) $ 36,836
=========== =========== ========== =========== ============ ===========
</TABLE>
(1) Includes assets available-for-sale.
(2) Includes mortgagors' escrow deposits.
12
<PAGE>
Comparison of Financial Condition For the Years Ended December 31, 1998 and
December 31, 1997
General
Total assets at December 31, 1998 were $3.74 billion, an increase of $134.0
million from $3.60 billion at December 31, 1997. The increase in total assets
is primarily due to increases in debt and equity securities available-for-sale
and real estate loan portfolios, offset by decreases in the mortgage-backed and
mortgage related securities available-for-sale and held-to-maturity portfolios.
Mortgage-backed and mortgage related securities available-for-sale, net
decreased by $234.6 million, or 12.6%, from $1.86 billion at December 31, 1997
to $1.62 billion at December 31, 1998. Debt and equity securities available-for-
sale, net at December 31, 1998 totaled $613.3 million, an increase of $119.1
million, or 24.1%, compared to $494.2 million at December 31, 1997. Total
securities held-to-maturity, net decreased $133.3 million, or 66.0%, to $68.8
million at December 31, 1998 from $202.1 million at December 31, 1997. These
changes in the securities portfolios reflect the effects of securities
purchases, securities repayments and maturities, and in the case of the
available-for-sale securities portfolio, the effects of securities sales and
changes in the estimated fair values of the securities. At December 31, 1998,
the securities available-for-sale portfolio had net unrealized gains of $25.7
million as compared to $ 57.4 million at December 31, 1997.
Real estate loans held for investment, net at December 31, 1998 were $1.21
billion, an increase of $231.7 million, or 23.8%, from $973.6 million at
December 31, 1997, primarily due to the origination of $1.24 billion in
commercial real estate, construction and development, home equity and one- to
four-family residential real estate loans and from the purchase of $7.8 million
of one- to four-family residential real estate loans.
Real estate owned, net at December 31, 1998 was $532,000, an increase of
$375,000, from $157,000 at December 31, 1997. The increase is due primarily to
management's assessment of the allowance for declines in the carrying values of
real estate owned properties.
Funding for the Company's asset growth was generated through a combination of
borrowings, cash flows and recent deposit growth. Since December 31, 1997,
total deposits increased by $128.6 million, or 6.6%, to $2.07 billion at
December 31, 1998, primarily due to growth in core deposit products. Borrowed
funds decreased $7.0 million to $959.5 million at December 31, 1998 as compared
to $966.5 million at December 31, 1997. Management has consistently applied its
leveraging strategy to utilize borrowings, primarily in the form of reverse-
repurchase agreements, to fund and sustain asset growth.
Stockholders' equity decreased $29.4 million to $598.9 million at December 31,
1998 from $628.3 million at December 31, 1997. This decrease was principally
due to the repurchase of 2,242,500 shares of the Company's common stock and
dividends declared of $14.4 million during the year ended December 31, 1998, and
a decrease of $18.5 million in net unrealized gains on securities available-for-
sale, net of taxes, to $14.4 million. Offsetting these decreases are the
earnings of $52.4 million for the 1998 year, and the amortization of unallocated
and unearned shares of common stock held by the Company's stock-related benefit
plans of $9.2 million. The Company's stock repurchase program was suspended, in
connection with the acquisition of T R Financial Corp., on May 26, 1998.
Comparison of Operating Results for the Years Ended December 31, 1998 and
December 31, 1997
General
The Company reported net income of $52.4 million for the year ended December 31,
1998, or $1.36 per share, as compared to net income of $33.4 million, or $0.83
per share, for the year ended December 31, 1997. Net income for the year ended
December 31, 1997 included a $7.4 million, after-tax, non-recurring charge
relating to the
13
<PAGE>
funding of the Foundation and a $2.7 million after-tax charge for a settlement
agreement, including professional fees related thereto, with the NYSBD regarding
certain loan and origination fee practices by the Bank's mortgage banking
subsidiary. The Company's net income excluding such charges would have been
$43.4 million, or $1.08 per share, for the year ended December 31, 1997, which
when compared to the net income for the year ended December 31, 1998, increased
by $9.0 million, or 20.7%, from the prior year.
Interest Income
Interest income increased to $258.9 million for the year ended December 31,
1998, an increase of $33.9 million, or 15.1%, from $225.0 million for the prior
year. The increase was attributable to the growth in average interest-earning
assets to $3.65 billion for the year ended December 31, 1998, from $3.08 billion
for the prior year. The increase in average interest-earning assets was
principally attributable to growth of $63.4 million in average mortgage-backed
and mortgage related securities, $462.9 million growth in average real estate
loans, net and $90.9 million growth in average debt and equity securities. These
increases were principally the result of the Company's leveraging strategy.
Interest income on mortgage-backed and mortgage related securities decreased
$1.8 million, from $126.1 million for the year ended December 31, 1997 to $124.3
million for the same period in 1998 principally due to the run-off experienced
relating to the higher yielding securities. This contributed to the decrease in
the average yield on these securities of 35 basis points from 7.12% for the year
ended December 31, 1997 to 6.77% for the year ended December 31, 1998.
Interest income on real estate loans increased $34.1 million, or 55.9%, to $95.2
million for the year ended December 31, 1998, from $61.1 million for the same
period in 1997. The increase was a result of the growth in the average balance
of loans outstanding primarily due to increased originations of one- to four-
family, construction and development, home equity and commercial real estate
loans. Further contributing to the increase in interest income for the year
ended December 31, 1998 compared to the same period in 1997 was a 5.7% decrease
in non-performing loans, from $6.5 million at December 31, 1997 to $6.1 million
at December 31, 1998. The increase was partially offset by a 46 basis point
decrease in the average yield on real estate loans, net from 8.55% for the year
ended December 31, 1997 to 8.09% for the current year, principally due to an
increased concentration of relatively lower yielding one- to four-family
residential real estate loans within the loan portfolio mix.
Interest Expense
Interest expense for the year ended December 31, 1998, was $157.3 million,
compared to $126.4 million for the year ended December 31, 1997, an increase of
$30.9 million, or 24.5%. The increase was related to a $562.8 million, or 22.7%,
increase in the average balance of interest-bearing liabilities from $2.47
billion in 1997 to $3.04 billion in 1998. This increase reflects a $212.3
million increase in the average balance of interest-bearing deposits, partially
offset by a 9 basis point decrease in the average rate paid on total interest-
bearing deposits for the year ended December 31, 1998 compared to the prior
year. The average balance of certificates of deposit increased $131.3 million
due to the offering of competitive rates. As of December 31, 1997, the Company
had $149.8 million of brokered deposits outstanding as compared to $129.7
million as of December 31, 1998. The effect of the higher average deposit
balance primarily resulted in an increase in interest expense on certificates of
deposit of $6.6 million, or 9.5%, from $70.0 million for the year ended December
31, 1997 to $76.6 million for the year ended December 31, 1998.
Interest expense on borrowed funds increased $23.7 million, from $37.3 million
for the year ended December 31, 1997 to $61.0 million for the year ended
December 31, 1998, primarily due to an increase of $403.5 million in the average
balance of borrowed funds, from $630.4 million for the 1997 period to $1.03
billion for the comparable period in 1998. Borrowed funds, principally reverse-
repurchase agreements, have been reinvested in investment securities, real
estate loans, a treasury share repurchase program and residential whole loans as
part of a strategy to leverage the Company's capital position and improve its
return on equity.
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Net Interest Income
Net interest income before provision for possible loan losses was $101.6 million
for the year ended December 31, 1998, an increase of $3.0 million, or 3.1%, from
$98.6 million for the year ended December 31, 1997. The increase in net interest
income before provision for possible loan losses was attributable to the growth
in average interest-earning assets to $3.65 billion for the year ended December
31, 1998 from $3.08 billion for the year ended December 31, 1997. The growth in
interest-earning assets was principally the result of the deployment of the
January 10, 1997 conversion proceeds, deposit growth and the Company's
leveraging strategy which was utilized to increase both the investment
securities and real estate loan portfolios. Interest-bearing liabilities
increased $562.8 million, or 22.7%, to $3.04 billion for the 1998 period from
$2.47 billion for the 1997 period. The substantial growth in average interest-
earning assets enabled the Company to significantly increase net interest income
and offset the negative impact of the flattening of the yield curve and the
inherent margin compression from leveraging. For the year ended December 31,
1998, the Company's net interest margin decreased to 2.78% compared with 3.20%
for the comparable 1997 period, primarily due to a 29 basis point decline in the
net interest spread to 1.91% from 2.20% in 1997. The decline in the net
interest spread was primarily a result of a 46 basis point decrease in the yield
on real estate loans, offset by a 9 basis point decline in total deposit yield.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $750,000 for the year ended
December 31, 1998 as compared to $600,000 for the year ended December 31, 1997.
The provision for possible loan losses for the year ended December 31, 1998
reflects management's qualitative assessment of the loan portfolio, net charge-
offs and collection of delinquent loans. At December 31, 1998 and 1997, the
allowance for possible loan losses amounted to $24.8 million and $24.0 million,
respectively, and the ratio of such allowance to non-performing loans was
405.42% at December 31, 1998 as compared to 370.82% at December 31, 1997.
Management 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 allowance for possible loan losses is sufficient to cover losses
inherent in its loan portfolio at this time, no assurance can be given that the
level of allowance for possible loan losses will be sufficient to cover future
possible loan losses incurred by the Company 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,
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 allowance for possible
loan losses. Such agencies may require the Company to provide additions to the
allowance for possible loan losses based upon judgments different from
management.
Non-Interest Income
Non-interest income increased $10.1 million, or 108.9%, to $19.3 million for the
year ended December 31, 1998 as compared to $9.2 million for the prior year.
The increase was primarily the result of an increase of $4.6 million in mortgage
banking operations, a $4.4 million increase in net gains on sales of securities,
and a $1.0 million increase in real estate operations, net. These increases
were offset by a $516,000 decrease in other non-interest income. The increases
are reflective of management's investment strategy of periodically recognizing
profits from its available-for-sale securities portfolio during favorable market
conditions, increased gains related to the increased sale of loans into the
secondary market and from the increase in the loan servicing portfolio and
related loan fees.
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Non-Interest Expense
Non-interest expense totaled $44.7 million for the year ended December 31, 1998
as compared to $57.7 million for the year ended December 31, 1997, a decrease of
$13.0 million, or 22.5%. The 1997 expense includes the one-time $12.7 million
pre-tax charge associated with funding the Foundation and a $4.7 million charge
related to the settlement of asserted claims. Notwithstanding such one-time
charges, non-interest expense increased $4.4 million.
General and administrative expenses totaled $44.3 million for the year ended
December 31, 1998, as compared to $39.9 million for the comparable period in
1997, an increase of $4.4 million. The increase was primarily attributable to a
$5.5 million increase in compensation and employee benefits, primarily due to
the cost associated with a full year of the stock-based incentive plans, and
additional commissions and compensation costs associated with the increased loan
origination volume. The increase is also related to increases of $503,000 in
occupancy and equipment expenses and $39,000 in advertising and promotion
expenses due to retail and mortgage origination office expansion. Partially
offsetting these increases are a decrease of $574,000 in deposit insurance
premiums and a decrease of $1.1 million in other non-interest expenses,
principally relating to a reduction in professional fee expenses.
Income Taxes
Total income tax expense increased $6.9 million, from $16.1 million recorded
during the year ended December 31, 1997 to $23.0 million during the year ended
December 31, 1998. The effective income tax rates were 30.53% for the 1998 year
as compared to 32.49% for the 1997 year (see Note 13 of Notes to Consolidated
Financial Statements).
The Company's contribution of common stock to the Foundation is tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income.
The Company, however, is able to carry forward any unused portion of the
deduction for five years following the year in which the contribution was made.
Based on the Company's estimate of annual taxable income for the current year
and for the next successive four years (the carry forward period), the Company
recognized a tax benefit of $5.3 million in 1997 on the $12.7 million charitable
donation.
Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996
General
The Company reported net income of $33.4 million for the year ended December 31,
1997, or $0.83 per share, as compared to net income of $20.6 million for the
year ended December 31, 1996. Net income for the year ended December 31, 1997
includes a $7.4 million after-tax non-recurring charge relating to the funding
of the Foundation and a $2.7 million after-tax charge for a settlement
agreement, including professional fees related thereto, with the NYSBD regarding
certain loan and origination fee practices by the Bank's mortgage banking
subsidiary. The Company's net income excluding such charges would have been
$43.4 million, or $1.08 per share, for the year ended December 31, 1997,
representing a $22.8 million, or 110.4%, increase in net income from the prior
year.
Interest Income
Interest income increased to $225.0 million for the year ended December 31,
1997, an increase of $84.5 million, or 60.1%, from $140.5 million for the prior
year. The increase was attributable to the growth in average interest-earning
assets to $3.08 billion for the year ended December 31, 1997, from $1.93 billion
for the prior year. The
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increase in average interest-earning assets was principally attributable to
growth of $871.2 million in average mortgage-backed and mortgage related
securities, $289.9 million growth in average real estate loans, net and $57.8
million growth in average debt and equity securities. These increases were
principally the result of the deployment of the conversion proceeds and the
Company's leveraging strategy. Additionally, the growth was attributable to a
$289.7 million increase in average interest-bearing deposits over the comparable
1996 period. Interest income on mortgage-backed and mortgage related securities
increased $63.7 million, from $62.4 million for the year ended December 31, 1996
to $126.1 million for the same period in 1997 principally due to an increase of
96.6% in the average balance of these securities. Additionally contributing to
the increase was an increase in the average yield on these securities of 20
basis points from 6.92% for the year ended December 31, 1996 to 7.12% for the
year ended December 31, 1997. The yield increases were due to increases in
maturity terms for new purchases and the upward repricing of securities
purchased in prior periods.
Interest income on real estate loans increased $22.5 million, or 58.1%, to $61.1
million for the year ended December 31, 1997, from $38.6 million for the same
period in 1996. The increase was a result of the growth in the average balance
of loans outstanding primarily due to increased originations of one- to four-
family, construction and development, and commercial real estate loans and the
purchase of $303.4 million of one- to four-family residential real estate loans.
Further contributing to the increase in interest income for the year ended
December 31, 1997 compared to the same period in 1996 was a 25.9% decrease in
non-performing loans, from $8.7 million at December 31, 1996 to $6.5 million at
December 31, 1997. The increase was partially offset by a 56 basis point
decrease in the average yield on real estate loans, net from 9.11% for the year
ended December 31, 1996 to 8.55% for the current year, principally due to an
increased concentration of relatively lower yielding one- to four-family
residential real estate loans within the loan portfolio mix.
Interest Expense
Interest expense for the year ended December 31, 1997, was $126.4 million,
compared to $78.8 million for the year ended December 31, 1996, an increase of
$47.6 million, or 60.5%. The increase is related to a $751.6 million, or 43.6%,
increase in the average balance of interest-bearing liabilities from $1.72
billion in 1996 to $2.47 billion in 1997. This increase reflects a $289.7
million increase in the average balance of interest-bearing deposits and a 28
basis point increase in the average rate paid on total interest-bearing deposits
for the year ended December 31, 1997 compared to the prior year due to an
increase in the average balance of relatively higher costing certificates of
deposit. The average balance of certificates of deposit increased due to
management's strategy of funding asset growth by offering competitive rates, and
through the acquisition of $150.0 million of brokered deposits of which $50.0
million was purchased during the year ended December 31, 1997 and $100.0 million
was purchased during the year ended December 31, 1996. As of December 31, 1997,
$149.8 million of brokered deposits remain outstanding. The effect of the higher
average deposit balance primarily resulted in an increase in interest expense on
certificates of deposit of $18.7 million, or 36.4%, from $51.3 million for the
year ended December 31, 1996 to $70.0 million for the year ended December 31,
1997.
Interest expense on borrowed funds increased $31.5 million, from $5.8 million
for the year ended December 31, 1996 to $37.3 million for the year ended
December 31, 1997, primarily due to an increase of $528.0 million in the average
balance of borrowed funds, from $102.4 million for the 1996 period to $630.4
million for the comparable period in 1997. Borrowed funds, principally reverse-
repurchase agreements, have been reinvested in investment securities, real
estate loans and residential whole loans as part of a strategy to leverage the
Company's capital position and improve its return on equity.
Net Interest Income
Net interest income before provision for possible loan losses was $98.6 million
for the year ended December 31, 1997, an increase of $36.9 million, or 59.7%,
from $61.7 million for the year ended December 31, 1996. The increase in net
interest income before provision for possible loan losses was attributable to
the growth in average
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interest-earning assets to $3.08 billion for the year ended December 31, 1997
from $1.93 billion for the year ended December 31, 1996. The growth in interest-
earning assets was principally the result of the deployment of the January 10,
1997 conversion proceeds, deposit growth and the Company's leveraging strategy
which was utilized to increase both the investment securities and real estate
loan portfolios. Interest-bearing liabilities increased $751.6 million, or
43.6%, to $2.47 billion for the 1997 period from $1.72 billion for the 1996
period. The substantial growth in average interest-earning assets enabled the
Company to significantly increase net interest income and offset the negative
impact of the flattening of the yield curve and the inherent margin compression
from leveraging. For the year ended December 31, 1997, the Company's net
interest margin of 3.20% remained consistent with the comparable 1996 period of
3.19%, despite a 49 basis point decline in the net interest spread to 2.20% from
2.69% in 1996. The decline in the net interest spread was primarily a result of
a 56 basis point decrease in real estate loan yields, a 28 basis point increase
in total deposit costs and the Company's increased leverage position.
Provision for Possible Loan Losses
The provision for possible loan losses totaled $600,000 for the year ended
December 31, 1997 as compared to $2.0 million for the year ended December 31,
1996. The provision for possible loan losses for the year ended December 31,
1997 reflects management's qualitative assessment of the loan portfolio, net
charge-offs and collection of deliquent loans. The decrease resulted from
management's assessment of the loan portfolio, the level of the Company's
allowance for possible loan losses and its assessment of the local economy and
market conditions. At December 31, 1997 and 1996, the allowance for possible
loan losses amounted to $24.0 million and $23.3 million, respectively, and the
ratio of such allowance to non-performing loans was 370.82% at December 31, 1997
as compared to 266.82% at December 31, 1996.
Non-Interest Income
Non-interest income increased $4.1 million, or 78.1%, to $9.2 million for the
year ended December 31, 1997 as compared to $5.2 million for the prior year.
The increase was primarily the result of an increase of $3.6 million in gains on
securities, a $417,000 increase in real estate operations, net and a $360,000
increase in fees and service charges, partially offset by a $772,000 decrease in
mortgage banking operations. The increases are reflective of management's
investment strategy of periodically recognizing profits from its available-for-
sale securities portfolio during favorable market conditions. The decrease in
mortgage banking operations includes a decrease in net gains on sales of loans
which was primarily attributable to unfavorable market conditions in the
secondary market during the first nine months of 1997.
Non-Interest Expense
Non-interest expense totaled $57.7 million for the year ended December 31, 1997
as compared to $34.8 million for the year ended December 31, 1996, an increase
of $22.9 million, or 65.7%. Non-interest expense for the 1997 period
principally increased due to an increase in general and administrative expense,
the one-time $12.7 million pre-tax charge associated with funding the
Foundation, and a $4.7 million of pre-tax charges for a settlement agreement
including professional fees related thereto with the NYSBD regarding certain
loan and origination fee practices by the Bank's mortgage banking subsidiary.
General and administrative expense totaled $39.9 million for the year ended
December 31, 1997, as compared to $34.4 million for the comparable period in
1996, an increase of $5.5 million, or 16.0%. The increase was primarily
attributable to an increase in compensation and employee benefits, from $18.4
million for the year ended December 31, 1996 to $24.5 million for the year ended
December 31, 1997. Increases in the current year's compensation and employee
benefits expense, due to the Company's stock-related benefit plans, were offset
in part by actuarial cost reductions relating to the retirement plan and a one-
time return of reserves from a former health insurance trust. The Company does
not anticipate these cost savings to recur in 1998. Additionally,
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general and administrative expenses increased due to an increase in deposit
insurance premiums of $272,000. These increases were offset by decreases in
occupancy and equipment, advertising and promotion and other non-interest
expenses totaling $840,000. To a lesser extent, the increase was also related to
the establishment of additional branch and mortgage origination offices.
Income Taxes
Total income tax expense increased $6.7 million, from $9.4 million recorded
during the year ended December 31, 1996 to $16.1 million during the year ended
December 31, 1997. The effective income tax rates were 32.49% for the 1997 year
as compared to 31.38% for the 1996 year (see Note 13 of Notes to Consolidated
Financial Statements).
The Company's contribution for common stock to the Foundation is tax deductible,
subject to a limitation based on 10% of the Company's annual taxable income.
The Company, however, is able to carry forward any unused portion of the
deduction for five years following the year in which the contribution was made.
Based on the Company's estimate of annual taxable income for the current year
and for the next successive five years (the carry forward period), the Company
recognized a tax benefit of $5.3 million on the $12.7 million charitable
donation.
Liquidity and Capital Resources
The Company'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, borrowed funds, and to a lesser extent, proceeds from the
sale of residential mortgage loans in 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 Company are the origination of both 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 years
ended December 31, 1998 and 1997, the Bank originated and purchased mortgage
loans in the amount of $1.25 billion and $802.0 million, respectively.
Purchases of mortgage-backed and mortgage related and debt and equity securities
available-for-sale totaled $1.93 billion and $1.53 billion during the years
ended December 31, 1998 and 1997, respectively. These activities were funded
primarily by principal repayments on loans and mortgage-backed and mortgage
related securities, deposit growth and by the Company's increased borrowed funds
position during the year ended December 31, 1997. Loan sales provided
additional liquidity to the Company, totaling $679.2 million and $212.2 million
for the years ended December 31, 1998 and 1997, respectively.
The Company closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. In the event
that the Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through the use of
reverse-repurchase agreements. At December 31, 1998, the Company had $959.3
million in reverse-repurchase agreements outstanding, as compared to $965.1
million at December 31, 1997. The aforementioned is primarily attributable to
management's decision to utilize borrowings, primarily in the form of reverse-
repurchase agreements, to fund a significant portion of its asset growth.
At December 31, 1998, the Company had outstanding loan commitments to advance
approximately $325.5 million for mortgage loans, primarily all of which were
fixed-rate commercial and residential real estate loans. Management of the
Company anticipates that it will have sufficient funds available to meet its
current loan commitments. Certificates of deposit that are scheduled to mature
in one year or less from December 31, 1998
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totaled $1.02 billion. Based upon prior experience and the Company's current
pricing strategy, management believes that a significant portion of such
deposits will remain with the Company.
The Company's most liquid assets are cash and cash equivalents, short-term
securities, securities available-for-sale and securities held-to-maturity due
within one year. The levels of these assets are dependent on the Company's
operating, financing, lending, and investment activities during any given
period. At December 31, 1998, the Bank had $76.3 million in cash and cash
equivalents and no short-term repurchase agreements outstanding whereas, at
December 31, 1997 the Bank had $22.4 million in cash and cash equivalents and no
short-term repurchase agreements outstanding.
Tangible stockholders' equity (stockholders' equity less the excess of cost over
fair value of net assets acquired (goodwill)), totaled $596.4 million at
December 31, 1998 as compared to $625.4 million at December 31, 1997. This
decrease reflects the change in the Company's stockholders' equity noted in the
Comparison of Financial Condition section of Management's Discussion and
Analysis of Financial Condition and Results of Operations, and the reduction in
the balance of goodwill. Tangible equity is a critical measure of a company's
ability to repurchase stock, pay dividends and support greater asset and
franchise growth. The Company is subject to various capital requirements which
affect its classification for safety and soundness purposes, as well as for
deposit insurance purposes. These requirements utilize tangible equity as a base
component, not equity, as defined by generally accepted accounting principles
(GAAP). Although reported earnings and return on equity are traditional measures
of a company's performance, management believes that the growth in tangible
equity, or "cash earnings," is also a significant measure of a company's
performance. Cash earnings represent the amount by which tangible equity changes
each period due to operating results. Cash earnings include reported earnings
plus the non-cash charges related to the establishment of the Foundation,
amortization for the allocation of ESOP and SBIP stock as well as the
amortization of goodwill. These items have either been previously charged to
equity, as in the case of ESOP and SBIP charges through contra-equity accounts,
or do not affect tangible equity, such as the market appreciation of allocated
ESOP shares, for which the operating charge is offset by a credit to additional
paid-in-capital, and goodwill amortization for which the related intangible
asset has already been deducted in the calculation of tangible equity.
Management believes that cash earnings and cash returns on average stockholders'
equity reflects the Company's ability to generate tangible capital that can be
leveraged for future growth. For the year ended December 31, 1998, cash earnings
totaled $61.5 million, or $9.1 million more than reported earnings, representing
a cash return on average stockholders' equity of 10.26%. Management also
believes that since cash earnings represent the Company's tangible capital
growth, various other performance measures should also be analyzed utilizing
cash earnings. Additionally, the cash operating expense to average assets and
cash efficiency ratios decreased to 0.95% and 31.53%, respectively, for the year
ended December 31, 1998 from 1.23% and 36.98% for the year ended December 31,
1997.
Impact of Inflation and Changing Prices
The consolidated financial statements have been prepared in accordance with
GAAP, which requires the measurement of financial position and operating results
in terms of historical dollars without considering the changes in the relative
purchasing power of money over time due to inflation. The impact of inflation
is reflected in the increased cost of the Company's operations. Unlike
industrial companies, nearly all of the assets and liabilities of the Company
are monetary in nature. As a result, interest rates have a greater impact on
the Company's performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the price of goods and services.
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Year 2000 Compliance
The "Year 2000 Problem", as it is generally referred to, concerns the inability
of certain computer hardware and software systems and associated applications to
correctly recognize and process dates beyond December 31, 1999. Many computer
programs were developed using only six digits to define the date field in their
programs. Computer programs used by the Company, its suppliers or outside
service providers that have date-sensitive software may recognize "00" as the
year 1900, rather than the year 2000. Due to the nature of financial
information, calculations that rely on the integrity of the date field for the
correct processing of information could be significantly misstated, if
corrective action is not timely taken.
State of Readiness
The Company has implemented a detailed Year 2000 Plan, according to the
guidelines of the Federal Financial Institutions Examination Council, to
evaluate the Year 2000 compliance of its computer systems and the equipment
which supports the operation of the Company. As a New York State chartered
savings institution, the Bank is subject to review by both the NYSBD and the
Federal Deposit Insurance Corporation (FDIC). The FDIC has completed two tier
II Year 2000 examinations of the Bank's remediation progress.
Beginning in 1997, the Company initiated formal communications with all of its
service providers, vendors, major fund providers, major borrowers and companies
with which it has material investments, to determine the extent to which it may
be vulnerable to the inability of those parties to remediate their own Year 2000
issues. The Company's vendor relationships cover a wide range of services which
may or may not be subject to a contractual agreement. Where a contractual
relationship exists between the Company and a provider of services, and the
Company suffers harm to its operations due to a failure on the part of the
vendor to provide the service, whether due to Year 2000 or some other issue, the
vendor would be subject to a breach of contract suit. In order to minimize the
risk of material loss or disruption of the Company's business due to an issue
involving date sensitive processing, the Company has not only required of all of
these vendors their written assurances that they are proactively addressing Year
2000 issues within their operations, but the Company is also requesting and
taking advantage of opportunities to test and verify these claims.
Like many financial institutions, the Company relies upon computers for the
daily conduct of its business and for data processing generally. The Company
utilizes a combination of in-house and service bureau applications, with the
bulk of customer account processing being handled by leading national vendors of
data processing services for financial institutions. The Company has received
written assurances that these service providers have completed their internal
remediation of programs, and have substantially completed the remediation of
issues related to interdependencies with other parties. The Company will
participate both directly and indirectly in the testing of these servicers and
other third party dependencies which commenced in November 1998, and will
continue through the end of the second quarter of 1999.
The Company does not anticipate that there will be any significant or material
condition which will impact these service providers in their ability to deliver
accurate data processing services before, during and after the transition to the
new millennium, therefore no formal contingency plans exist at this time.
However, results of system tests conducted by the Company and by other users of
this service providers will be carefully monitored to ensure that all issues
have been identified and successfully remediated.
In addition to its outsourced systems, the Company relies on in-house, computer
based financial accounting and mortgage origination systems. The Company has
recently installed a new general ledger and financial accounting system, and
anticipates upgrading the mortgage origination system by mid 1999. The new
systems have been certified by their respective vendors to be Year 2000
compliant. Language to that effect was included in the service contracts
executed with the system vendors. Both of these revisions were planned around
the business
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needs of the Company, not the ability or inability of the installed software to
accommodate Year 2000 processing. Nevertheless, these mission critical system
replacements are Year 2000 compliant.
The balance of the Company's internal processing is supported by PC based
systems, using industry standard software to run non-mission critical
applications. Any software program or application which was not supported by the
vendor, or which required an update to achieve Year 2000 capability, has been
identified for replacement or upgrade. Equipment which contains embedded chips
or microprocessors has also been tested and scheduled for upgrade or replacement
where necessary. All such system enhancements are expected to be completed by
the end of the first quarter of 1999. The cost to remediate these systems is
immaterial, and is being expensed in the period in which it occurs.
The Company believes it has developed an effective plan to address the Year 2000
problem and that, based on the available information, its Year 2000 transition
will not have a material effect on its business, operations or financial
results. However, the Company has no control over the progress of third parties
in addressing their own Year 2000 issues. If the necessary changes are not
effected or are not completed in a timely manner, or if unanticipated problems
arise, there may be a material impact on the Company's financial condition and
results of operations.
Cost to Address the Company's Year 2000 Issues
The Company's costs to achieve Year 2000 compliance are not expected to have a
material financial impact on the Company. The Company's expenses related to Year
2000 issues for 1998 were $60,000 and anticipates the expenses for 1999 to be
approximately $80,000. The Company intends to fund such costs from its current
operations. However, as stated above, there can be no assurance that all such
costs have been identified, or that there may not be some unforeseen cost which
may have a material adverse effect on the Company's financial condition and
results of operations.
Risks of Year 2000 Issues
To date, the Company has not identified any system which presents a material
risk of failing to be Year 2000 compliant in a timely manner, or for which a
suitable alternative cannot be implemented. However, as the Company progresses
with its Year 2000 transition, systems or equipment may be identified which
present a material risk of business interruption. Such disruption may include
the inability to process customer account transactions, including deposits,
withdrawals, loan payments and disbursements; the inability to reconcile and
record daily activity; the inability to process loan applications or to track
delinquencies; the inability to generate checks or to clear funds. In addition,
if any of the Company's major borrowers should fail to achieve Year 2000
compliance, and should they experience a disruption of their own businesses,
their ability to meet their obligations to the Company may be seriously
impaired. To mitigate credit risk in the case of large borrowers, the Company
currently includes a clause relating to the borrower's Year 2000 awareness and
preparedness in its loan commitment documents. In addition, 100% of all
borrowers whose loans exceed $500,000 have been contacted to survey their Year
2000 readiness in order to anticipate any potential exposure. The dollar value
of loans for which borrowers were surveyed equates to 70% of the permanent and
construction loan portfolio.
To the extent that the risks posed by the Year 2000 problem are pervasive in
data processing and telecommunication services worldwide, or to the extent that
disruption of a power utility prevents the Company from gaining access to its
systems, the Company cannot predict with certainty that it will remain
materially unaffected by issues related to the Year 2000 problem, which are
beyond the Company's control.
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Contingency Plans
The Company is in the process of developing two types of contingency plans. The
Remediation Plans will identify components of mission critical applications
which are judged, at some point prior to December 31, 1999, to be at risk of
failure to achieve complete renovation, validation and implementation. Business
Interruption Plans will ensure that the Company has sufficiently planned for
unanticipated system failures at critical production dates before, on and after
January 1, 2000.
Remediation Plan: The Company expects to complete its Year 2000 transition and
- ----------------
to have thoroughly tested its systems prior to any date of potential disruption.
However, the Company is developing Year 2000 remediation plans for mission
critical systems which are not already identified as compliant. If the results
of testing of the Company's systems are not satisfactory, contingency plans will
be invoked within sufficient time to assure successful implementation of a
compliant alternative.
Business Interruption Plans: These plans would be invoked if unanticipated Year
- ----------------------------
2000 problems disrupt production, similar to Disaster Recovery Plans.
Essentially, they require that resources are planned for deployment to ensure
that such an interruption does not threaten the viability of the Company. The
Company will modify its current Business Resumption Plan to specifically address
the special circumstances of a disruption due to a Year 2000 related component
failure.
The discussion above contains certain forward-looking statements. Actual
results may differ materially from the Company's expectations due to the nature
and uncertainty of circumstances surrounding the Year 2000 problem. The Company
may fail to identify systems that are not Year 2000 compliant, or the Company or
other parties may fail to meet the dates and goals set above. If so, the extent
and nature of efforts to then address those contingencies, to repair or replace
the affected systems, the Company's ability to obtain qualified personnel,
consultants or other resources and the success of those efforts cannot be stated
with any degree of certainty.
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information, this Annual Report includes certain
forward looking statements based on current management expectations. The
Company's actual results could differ materially from those management
expectations. Factors that could cause future results to vary from current
management expectations include, but are not limited to, general economic
conditions, legislative and regulatory changes, monetary and fiscal policies of
the federal government, changes in tax policies, rates and regulations of
federal, state and local tax authorities, changes in interest rates, deposit
flows, the cost of funds, demand for loan products, demand for financial
services, competition, changes in the quality or composition of the Company's
loan and investment portfolios, changes in accounting principles, policies or
guidelines, and other economic, competitive, governmental and technological
factors affecting the Company's operations, markets, products, services and
prices.
Impact of New Accounting Standards
For discussion regarding the impact of new accounting standards, refer to Note 1
of Notes to Consolidated Financial Statements.
23
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Financial Condition
December 31, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Assets 1998 1997
------ ------------ ------------
Cash and cash equivalents:
<S> <C> <C>
Cash and cash items $ 3,159 $ 2,516
Due from banks 35,161 19,850
Money market investments 38,000 -
------------ ------------
76,320 22,366
Debt and equity securities, net:
Held-to-maturity (estimated fair
value of $755 and $2,026,
respectively) 715 1,930
Available-for-sale 613,260 494,193
Mortgage-backed and mortgage related
securities, net:
Held-to-maturity (estimated fair
value of $68,416 and $200,445,
respectively) 68,071 200,193
Available-for-sale 1,622,023 1,856,633
------------ ------------
2,304,069 2,552,949
Loans held-for-sale, net 81,276 15,283
Loans receivable held for investment,
net:
Real estate loans, net 1,205,354 973,634
Consumer loans 10,402 4,686
------------ ------------
1,215,756 978,320
Less allowance for possible loan
losses (24,779) (24,029)
------------ ------------
1,190,977 954,291
Banking house and equipment, net 20,237 17,033
Accrued interest receivable 22,352 21,225
Mortgage servicing rights, net 13,537 9,155
Excess of cost over fair value of net
assets acquired 2,449 2,906
Real estate owned, net 532 157
Deferred tax asset, net 4,499 -
Other assets 18,784 5,714
------------ ------------
Total assets $ 3,735,032 $ 3,601,079
============ ============
</TABLE>
(continued on next page)
24
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Financial Condition, Continued
December 31, 1998 and 1997
(In thousands, except share amounts)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1998 1997
------------------------------------ ------------ ------------
<S> <C> <C>
Liabilities:
Deposits:
Savings accounts $ 476,798 $ 468,928
Certificates of deposit 1,341,986 1,303,272
Money market accounts 108,134 49,344
Demand deposit accounts 143,913 120,701
------------ ------------
Total deposits 2,070,831 1,942,245
------------ ------------
Official checks outstanding 11,053 1,199
Borrowed funds:
Reverse-repurchase agreements 959,319 965,119
Other borrowings 150 1,332
Accrued dividends and interest
on deposits 13,219 10,375
Mortgagors' escrow and security
deposits 47,115 20,222
Accrued taxes payable 14,822 9,478
Deferred tax liability, net - 1,742
Accrued expenses and other
liabilities 19,625 21,032
------------ ------------
Total liabilities 3,136,134 2,972,744
------------ ------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $0.01 par
value, 10,000,000 shares
authorized; none issued - -
Common stock, $0.01 par value,
100,000,000 shares authorized;
43,642,459 shares issued;
41,399,959 and 43,642,459
shares outstanding, respectively 436 436
Additional paid-in-capital 424,150 423,411
Retained earnings -
substantially restricted 299,041 261,120
Accumulated other comprehensive
income:
Net unrealized gain on
securities available-
for-sale, net of tax 14,426 32,891
Unallocated common stock held by
Employee Stock Ownership Plan
(ESOP) (50,218) (52,012)
Unearned common stock held by
Stock-Based Incentive Plan
(SBIP) (30,766) (37,511)
Treasury stock, at cost
(2,242,500 shares) (58,171) -
------------ ------------
Total stockholders'
equity 598,898 628,335
------------ ------------
Total liabilities and
stockholders' equity $ 3,735,032 $ 3,601,079
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Federal funds sold and
short-term deposits $ 1,617 $ 4,190 $ 7,960
Debt and equity securities 37,019 33,153 31,087
Mortgage-backed and mortgage
related securities 124,314 126,148 62,432
Real estate loans 95,219 61,091 38,644
Consumer and student loans 748 382 350
---------- ---------- ----------
Total interest income 258,917 224,964 140,473
---------- ---------- ----------
Interest expense:
Deposits 96,328 89,136 72,965
Borrowed funds 61,007 37,278 5,794
---------- ---------- ----------
Total interest expense 157,335 126,414 78,759
---------- ---------- ----------
Net interest income before provision
for possible loan losses 101,582 98,550 61,714
Provision for possible loan losses 750 600 2,000
---------- ---------- ----------
Net interest income after provision
for possible loan losses 100,832 97,950 59,714
---------- ---------- ----------
Non-interest income:
Fees and service charges 2,799 2,286 1,926
Mortgage banking operations 8,126 3,508 4,280
Net gains (losses) on securities 7,175 2,757 (804)
Real estate operations, net 869 (172) (589)
Other non-interest income 353 869 379
---------- ---------- ----------
Total non-interest income 19,322 9,248 5,192
---------- ---------- ----------
Non-interest expense:
General and administrative
expenses:
Compensation and employee
benefits 30,014 24,496 18,418
Occupancy and equipment 4,292 3,789 4,378
Deposit insurance premiums (300) 274 2
Advertising and promotion 2,402 2,363 2,508
Other non-interest expenses 7,842 8,953 9,059
---------- ---------- ----------
Total general and
administrative expenses 44,250 39,875 34,365
Amortization of excess of cost
over fair value of net
assets acquired 471 469 469
Settlement of asserted claims - 4,680 -
Charitable contribution to The
Roslyn Savings Foundation - 12,711 -
---------- ---------- ----------
Total non-interest expense 44,721 57,735 34,834
---------- ---------- ----------
Income before income taxes 75,433 49,463 30,072
Provision for income taxes 23,029 16,073 9,438
---------- ---------- ----------
Net income $ 52,404 $ 33,390 $ 20,634
========== ========== ==========
Basic and diluted earnings per
share $ 1.36 $ 0.83 N/A
========== ========== ==========
Dividends per common share $ 0.375 $ 0.180 N/A
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended December 31, 1998, 1997 and 1996
(In thousands, except share amounts)
<TABLE>
<CAPTION> Unearned
Retained Accumulated Unallocated Common
Additional Earnings- Other Common Stock
Common Paid-in- Substantially Comprehensive Stock Held Held by
Stock Capital Restricted Income by ESOP SBIP
-------- ----------- ------------ -------------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $ - $ - $ 214,520 $ 11,893 $ - $ -
Comprehensive income:
Net income - - 20,634 - - -
Other comprehensive income, net of tax:
Net unrealized gain on certain securities,
net of reclassification adjustment (1) - - - 2,302 - -
Comprehensive income - - - - - -
-------- ----------- ------------ -------------- ------------ ----------
Balance at December 31, 1996 - - 235,154 14,195 - -
-------- ----------- ------------ -------------- ------------ ----------
Comprehensive income:
Net income - - 33,390 - - -
Other comprehensive income, net of tax:
Net unrealized gain on certain securities,
net of reclassification adjustment (1) - - - 18,696 - -
Comprehensive income
Issuance of 42,371,359 shares of common stock in
the initial public offering 423 410,227 - - - -
Issuance of 1,271,100 shares of common stock to
The Roslyn Savings Foundation 13 12,699 - - - -
Open market purchases of common stock - - - - (54,805) (41,374)
Allocation from shares purchased with 1996
contribution - - - - 1,000 -
Allocation from shares purchased with loan to ESOP - 485 - - 1,793 -
Amortization of SBIP stock awards - - (186) - - 3,863
Cash dividends declared on common stock - - (7,238) - - -
-------- ----------- ------------ -------------- ------------ ----------
Balance at December 31, 1997 436 423,411 261,120 32,891 (52,012) (37,511)
-------- ----------- ------------ -------------- ------------ ----------
Comprehensive income:
Net income - - 52,404 - - -
Other comprehensive income, net of tax:
Net unrealized loss on certain securities,
net of reclassification adjustment (1) - - - (18,465) - -
Comprehensive income
Allocation of ESOP stock - 635 - - 1,794 -
Amortization of SBIP stock awards - 104 (67) - - 6,745
Cash dividends declared on common stock - - (14,416) - - -
Common stock acquired, at cost - - - - - -
-------- ----------- ------------ -------------- ------------ ----------
Balance at December 31, 1998 $ 436 $ 424,150 $ 299,041 $ 14,426 $ (50,218) $ (30,766)
======== =========== ============ ============== ============ ==========
<CAPTION>
Treasury
Stock,
at cost Total
---------- ----------
<S> <C> <C>
Balance at December 31, 1995 $ - $226,413
Comprehensive income:
Net income - 20,634
Other comprehensive income, net of tax:
Net unrealized gain on certain securities,
net of reclassification adjustment (1) - 2,302
----------
Comprehensive income - 22,936
---------- ----------
Balance at December 31, 1996 - 249,349
---------- ----------
Comprehensive income:
Net income - 33,390
Other comprehensive income, net of tax:
Net unrealized gain on certain securities,
net of reclassification adjustment (1) - 18,696
----------
Comprehensive income 52,086
----------
Issuance of 42,371,359 shares of common stock in
the initial public offering - 410,650
Issuance of 1,271,100 shares of common stock to
The Roslyn Savings Foundation - 12,712
Open market purchases of common stock - (96,179)
Allocation from shares purchased with 1996
contribution - 1,000
Allocation from shares purchased with loan to ESOP - 2,278
Amortization of SBIP stock awards - 3,677
Cash dividends declared on common stock - (7,238)
---------- ----------
Balance at December 31, 1997 - 628,335
---------- ----------
Comprehensive income:
Net income - 52,404
Other comprehensive income, net of tax:
Net unrealized loss on certain securities,
net of reclassification adjustment (1) - (18,465)
----------
Comprehensive income 33,939
----------
Allocation of ESOP stock - 2,429
Amortization of SBIP stock awards - 6,782
Cash dividends declared on common stock - (14,416)
Common stock acquired, at cost (58,171) (58,171)
========== ==========
Balance at December 31, 1998 $ (58,171) $598,898
========== ==========
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
(1) Disclosure of reclassification amount, net of tax for the years ended:
Net unrealized (depreciation) appreciation arising during the year $ (14,434) $ 20,245 $ 1,850
Less: Reclassification adjustment for net gains (losses) included in net
income 4,031 1,549 (452)
----------- ----------- -----------
Net unrealized (loss) gain on certain securities $ (18,465) $ 18,696 $ 2,302
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income $ 52,404 $ 33,390 $ 20,634
Adjustments to reconcile net
income to net cash
provided by (used in)
operating activities:
Charitable
contribution of
Roslyn Bancorp, Inc.
common stock to The
Roslyn Savings
Foundation - 12,711 -
Provision for
possible loan losses 750 600 2,000
(Recovery of)
provision for
possible losses on
real estate owned (830) - 350
Originated mortgage
servicing rights,
net of amortization and
valuation adjustment (4,382) (460) (398)
Amortization of
excess of cost over
fair value of net
assets acquired 471 469 469
Depreciation and
amortization 1,752 1,533 1,904
Accretion of discounts,
net of amortization of
premiums (13,453) (5,343) (1,242)
Amortization of premium on
callable and trust
preferred stock 786 805 705
ESOP expense 2,204 2,035 1,000
SBIP expense 6,334 3,594 -
Proceeds from sales
of loans held-for-sale,
net of originations and
purchases (56,631) 2,674 6,544
Gains on sales of loans (4,400) (2,489) (3,858)
Net (gains) losses on
securities (7,175) (2,757) 804
Net gains on sales of
real estate owned (186) (155) (121)
Deferred income taxes 7,036 (7,178) 627
Changes in assets and
liabilities:
Increase in accrued (1,127) (2,560) (7,102)
interest receivable
(Increase) decrease
in other assets (13,070) 3,346 (5,978)
Increase in official
checks outstanding 9,854 1,199 -
Increase in accrued
dividends and
interest on deposits 2,844 3,739 5,635
Increase (decrease)
in accrued taxes payable 5,344 (2,707) 3,918
(Decrease) increase
in accrued expenses
and other liabilities (801) 3,603 842
Net (decrease) increase
in unearned income (4,134) 5,925 227
Other, net 569 323 -
---------- -------- ---------
Net cash (used in)
provided by operating
activities (15,841) 52,297 26,960
---------- -------- ---------
Cash flows from investing
activities:
Proceeds from repayments of
mortgage-backed and mortgage
related securities
held-to-maturity 132,466 76,895 71,368
Proceeds from sales and
repayments of debt, equity,
mortgage-backed and
mortgage related securities
available-for-sale 2,036,427 863,732 355,873
</TABLE>
28
<PAGE>
ROSLYN BANCORP, INC.
Consolidated Statements of Cash Flows, Continued
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Cash flows from investing activities:
Purchases of debt, equity,
mortgage-backed and mortgage
related securities
available-for-sale $ (1,931,913) $ (1,528,784) $ (1,206,397)
Loan originations and purchases,
net of principal
repayments (312,070) (473,659) (126,518)
Proceeds from sales of loans held
for investment 73,154 - -
Purchases of banking house and
equipment, net (4,957) (1,331) (6,716)
Proceeds from sales of real estate
owned 778 1,755 5,139
------------- ------------- -------------
Net cash used in investing
activities (6,115) (1,061,392) (907,251)
------------- ------------- -------------
Cash flows from financing activities:
Increase (decrease) in demand
deposit, money market,
and savings accounts 89,872 (188,509) 248,312
Increase in certificates of deposit 38,714 175,219 378,278
(Decrease) increase in borrowed
funds (6,982) 964,622 182
Increase in mortgagors' escrow and
security deposits 26,893 2,497 1,647
Net proceeds of common stock
issuance - 410,650 -
Loan to ESOP for open market
purchase of common stock - (53,805) -
Open market purchase of common
stock for SBIP - (41,374) -
Cash dividends paid on common stock (14,416) (7,238) -
Cost to repurchase common stock (58,171) - -
(Decrease) increase in
non-depository stock subscriptions - (1,356,911) 1,356,911
------------- ------------- -------------
Net cash provided by
(used in) financing activities 75,910 (94,849) 1,985,330
------------- ------------- -------------
Net increase (decrease) in cash and
cash equivalents 53,954 (1,103,944) 1,105,039
Cash and cash equivalents at beginning
of year 22,366 1,126,310 21,271
------------- ------------- -------------
Cash and cash equivalents at end of year $ 76,320 $ 22,366 $ 1,126,310
============= ============= =============
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest on deposits and
borrowed funds $ 154,491 $ 122,675 $ 73,124
============= ============= =============
Income taxes $ 10,564 $ 25,431 $ 4,848
============= ============= =============
Non-cash investing activities:
Additions to real estate
owned, net $ 137 $ 82 $ 997
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
ROSLYN BANCORP, INC.
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
(1) Summary of Significant Accounting Policies and Related Matters
--------------------------------------------------------------
Roslyn Bancorp, Inc. was organized under Delaware law as the savings and loan
holding company for The Roslyn Savings Bank and its subsidiaries (the Bank) in
connection with the Bank's conversion from a New York State chartered mutual
savings bank to a New York State chartered stock savings bank on January 10,
1997. See Note 3 for a further discussion of the conversion. The following is
a summary of significant accounting policies of Roslyn Bancorp, Inc. and its
wholly-owned subsidiary (collectively, the Company).
The Company's business consists primarily of the business activities of the
Bank, which 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. 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 subject to comprehensive
regulation, examination and supervision by the New York State Banking
Department (NYSBD) 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
Company and its wholly-owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation. When necessary,
certain reclassifications have been made to prior year amounts to conform to
the current year presentation.
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.
Management believes that the allowance for possible loan losses is adequate.
In connection with the determination of the allowance for possible loan losses,
management obtains independent appraisals for significant properties. 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 NYSBD 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.
(b) Cash and Cash Equivalents
-------------------------
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and money market investments, which are generally
sold for one to three day periods.
30
<PAGE>
(c) Debt, Equity, Mortgage-Backed and Mortgage Related Securities
-------------------------------------------------------------
In accordance with Statement of Financial Accounting Standards (SFAS) No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," the
Company 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 accumulated other comprehensive income, a
separate component of stockholders' equity. The Company determines the
appropriate classification of each security, as either "trading," "held-to-
maturity" or "available-for-sale," at the time of purchase.
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 against income over the period to the
call date. Gains and losses on the sales of securities are recognized on
realization.
(d) Loans Held-for-Sale and Loans Receivable
----------------------------------------
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
mortgage 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 Company 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.
In accordance with SFAS No. 114, "Accounting by Creditors for Impairment of a
Loan," and the amendment thereof, SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures," the Company
considers a loan impaired when, based upon current information and events, it
is probable that it will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan agreement. Loans
individually reviewed for impairment by the Company within the scope of SFAS
No. 114 are limited to loans modified in a troubled debt restructuring (TDR)
and commercial and multi-family first mortgage loans. SFAS No. 114 generally
does not apply to those smaller-balance homogeneous loans that are collectively
evaluated for impairment, which for the Company, include one- to four-family
first mortgage loans, student loans and consumer loans, other than those
modified in a TDR. The measurement value of the Company's impaired loans is
based on the fair value of the underlying collateral. The Company 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 are not limited to, delinquency
status, loan-to-value ratio, the condition of the underlying collateral, credit
history and debt coverage.
31
<PAGE>
Cash receipts on non-accrual loans, including impaired loans, are generally
applied to principal and interest in accordance with the contractual terms of
the loan. If full payment of principal is not expected, the Company will
either defer the recognition of interest until the loan performs according to
its original terms or apply all of the principal and interest payments received
as a reduction of the carrying value of the loan.
The Company adopted SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities," effective January 1,
1997. 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 component approach that focuses on
control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. The statement requires that a mortgage
banking enterprise recognize as separate assets the rights to service mortgage
loans for others, however acquired. For mortgage servicing rights (MSRs) 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.
Fees earned for servicing loans are reported as income when the related
mortgage loan payments are collected. MSRs are amortized as a reduction to
loan servicing fee income using the interest method over the estimated
remaining life of the underlying mortgage loans. MSRs are carried at fair
value and impairment, if any, is recognized through a valuation allowance.
Income from mortgage banking operations is comprised of the gains or losses
generated from the sale of mortgage loans into the secondary market, including
all fees and mortgage servicing rights related thereto, and servicing fee
income and the amortization of servicing rights relating to servicing loans for
others.
A substantial portion of the Company's loans are secured by real estate in the
New York Metropolitan area. Accordingly, the ultimate collectibility of such a
loan portfolio is susceptible to changes in market conditions in the New York
Metropolitan area.
(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 Company's loan growth, prior loss experience, present and potential
risks of the loan portfolio and current economic conditions. Provisions for
possible loan losses 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 Company 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. When a loan is sold,
the remaining net unamortized fee is taken into income.
32
<PAGE>
(g) Banking House and Equipment
---------------------------
Land is carried at cost and banking houses are carried at cost, less an
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 Company maintains an allowance for subsequent declines in a
property's carrying value. Certain costs relating to holding the properties,
and gains or losses resulting from the disposition of properties are recognized
in current period operations.
(i) Income Taxes
------------
Under the asset and liability method of SFAS No. 109, "Accounting for Income
Taxes," 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.
(j) Summary of Retirement Benefits Accounting
-----------------------------------------
The Company's retirement plan is non-contributory and covers substantially all
eligible employees. The plan conforms to the provisions of the Employee
Retirement Income Security Act of 1974, as amended. The Company'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 Company
accounts for post-retirement benefits pursuant to SFAS No. 106, "Employers'
Accounting for Post-Retirement Benefits Other Than Pensions," whereby the cost
of providing those benefits to an employee, and the employee's beneficiaries
and covered dependents, are accrued during the years that the employee renders
the necessary service.
(k) Stock-Based Compensation
------------------------
In accordance with SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company adheres to Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB 25), in accounting for its stock-based
compensation plans and discloses in the footnotes to the financial statements
pro-forma net income and earnings per share (EPS) information as if the fair
value based method had been adopted.
Deferred compensation for the Stock-Based Incentive Plan (SBIP) awards is
recorded as a reduction of stockholders' equity and is calculated as the cost
of the shares purchased by the Company and contributed to the plan.
Compensation expense is recognized over the vesting period of actual stock
awards based
33
<PAGE>
upon the fair value of the shares at the award date. The excess of the cost
of the shares over the fair value at the award date is treated as an
adjustment of stockholders' equity.
Compensation expense for the Employee Stock Ownership Plan (ESOP) is recorded
at an amount equal to the shares allocated by the ESOP multiplied by the
average fair market value of the shares during the year. The Company
recognizes compensation expense ratably over the year for the ESOP shares to be
allocated each December 31st, based upon the Company's current estimate of the
number of shares expected to be allocated by the ESOP during each calendar
year. The difference between the average fair market value and the cost of
the shares allocated by the ESOP is recorded as an adjustment to additional
paid-in-capital.
(l) Earnings Per Share
------------------
Pursuant to SFAS No. 128, "Earnings Per Share," basic EPS is computed by
dividing income available to common stockholders by the weighted average number
of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. This
statement requires a reconciliation of the numerator and denominator of the two
EPS calculations (see Note 17). The Company has not presented EPS for the
periods prior to 1997 as shares of common stock had not yet been issued.
(m) Treasury Stock
--------------
Common stock shares repurchased are recorded as treasury stock at cost.
(n) Comprehensive Income
--------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which established standards for reporting and displaying of comprehensive
income and its components in a full set of general-purpose financial
statements. The Company adopted the provisions of SFAS No. 130 during the
quarter ended March 31, 1998 to give effect to this pronouncement. Under
existing accounting standards, other comprehensive income is separately
classified into foreign currency items, minimum pension liability adjustments
and unrealized gains and losses on available-for-sale securities. Only the last
of these items, however, is currently applicable to the Company. Comprehensive
income is reported by the Company in the Consolidated Statements of Changes in
Stockholders' Equity.
(o) Operating Segments
------------------
The FASB also issued in June 1997, SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information," which established standards for the way
public business enterprises, selected information about operating segments in
interim reporting. This statement also established standards for related
disclosures about products, services, geographic areas and major customers.
SFAS No. 131 is effective for annual reporting periods beginning after December
15, 1997 and requires interim periods to be presented in the second year of
application. In adopting SFAS No. 131, the Company has determined that, using
the definitions contained in the statement, all of its activities constitute
only one reportable operating segment.
(p) Recently Issued Accounting Pronouncements
-----------------------------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires companies to
record derivatives on the balance sheet as assets or liabilities, measured at
fair value. The accounting for changes in the fair value of a derivative
depends on the intended use of the derivative and its specific designation as
follows:
34
<PAGE>
a. For a derivative designated as hedging the exposure to changes in the fair
value of a recognized asset or liability or a firm commitment (referred to as a
fair value hedge), the gain or loss is recognized in earnings in the period of
change together with the offsetting loss or gain on the hedged item
attributable to the risk being hedged.
b. For a derivative designated as hedging the exposure to variable cash flows
of a forecasted transaction (referred to as a cash flow hedge), the effective
portion of the derivative's gain or loss is initially reported as a component
of other comprehensive income and subsequently reclassified into earnings when
the forecasted transaction affects earnings.
c. For a derivative designated as hedging the foreign currency exposure of a
net investment in a foreign operation, the gain or loss is reported in other
comprehensive income as part of the cumulative translation adjustment. The
accounting for a fair value hedge described above applies to a derivative
designated as a hedge of the foreign currency exposure of an unrecognized firm
commitment or an available-for-sale security.
d. For a derivative not designated as a hedging instrument, the gain or loss
is recognized in earnings in the period of change.
This Statement amends SFAS No. 52, "Foreign Currency Translation," to permit
special accounting for a hedge of a foreign currency forecasted transaction
with a derivative. It supersedes SFAS No. 80, "Accounting for Futures
Contracts," SFAS No. 105, "Disclosure of Information about Financial
Instruments with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk," and SFAS No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments." It amends SFAS
No. 107, "Disclosures about Fair Value of Financial Instruments," to include in
SFAS No. 107 the disclosure provisions about concentrations of credit risk from
SFAS No. 105.
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of this statement should be as of the
beginning of an entity's fiscal quarter; on that date, hedging relationships
must be designated anew and documented pursuant to the provisions of this
statement. The Company has not yet determined the impact of SFAS No. 133 on its
financial statements.
(2) Acquisition of T R Financial Corp.
----------------------------------
On May 25, 1998, the Company entered into an agreement and plan of merger
with T R Financial Corp., the parent company of Roosevelt Savings Bank
(Roosevelt) whereby it would acquire T R Financial Corp. in a stock-for-stock
exchange (Merger). Under the terms of the agreement, each share of T R
Financial Corp. common stock will be converted into the Company's common stock
at a fixed exchange ratio of 2.05. The transaction will be treated as a tax-
free reorganization and accounted for using the pooling-of-interests method of
accounting. At December 31, 1998, included in other assets was $4.1 million of
merger-related expenses incurred which will be expensed upon consummation of
the Merger. Following the receipt of all required regulatory approvals and
certain other customary closing conditions, the transaction closed on February
16, 1999, with the issuance of 35,528,785 shares of the Company common stock.
T R Financial Corp. had (unaudited) total assets of $4.09 billion, deposits of
$2.15 billion, and stockholders' equity of $274.0 million at December 31,
1998. Roosevelt operated 15 branch offices throughout Kings, Queens, Nassau,
and Suffolk counties of New York.
The following table sets forth certain selected condensed financial
information for the Company and T R Financial Corp. on an unaudited pro forma
combined basis as if the Merger had been effective for the years indicated,
and accounted for using the pooling-of-interests method of accounting. The
unaudited pro forma condensed combined selected financial information is
presented for informational purposes
35
<PAGE>
only and is not necessarily indicative of the combined results of operations
that would have occurred if the Merger had been consummated for these years.
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1998 1997 1996
----------- ---------- --------
(Dollars in thousands, except share amounts)
(Unaudited)
<S> <C> <C> <C>
Interest income $ 546,744 $ 480,376 $ 358,877
Interest expense 344,183 290,180 215,929
---------- ---------- ---------
Net interest income 202,561 190,196 142,948
Provision for possible
loan losses 1,500 1,400 3,400
---------- ---------- ---------
Net interest income after
provision for possible
loan losses 201,061 188,796 139,548
---------- ---------- ---------
Non-interest income 36,425 22,183 21,111
Non-interest expense 90,541 103,548 77,897
---------- ---------- ---------
Income before provision
for income taxes 146,945 107,431 82,762
Provision for income taxes 51,402 39,313 31,613
---------- ---------- ---------
Net income $ 95,543 $ 68,118 $ 51,149
========== ========== =========
Basic earnings per common
share $ 1.32 $ 0.92 N/A
========== ========== =========
Diluted earnings per
common share $ 1.29 $ 0.89 N/A
========== ========== =========
</TABLE>
The Company suspended its stock repurchase program on May 26, 1998 in connection
with the acquisition of T R Financial Corp. Prior to that date, the Company had
repurchased 2,242,500 shares in 1998.
(3) Conversion to Stock Form of Ownership
-------------------------------------
On May 29, 1996, the then Board of Trustees of the Bank adopted a Plan of
Conversion, which was subsequently amended on July 30, 1996 and September
30, 1996, to convert the Bank 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., subject to approval by
regulatory authorities and depositors of the Bank.
On January 10, 1997, the Bank completed the conversion and the Company
completed the issuance and sale of 42,371,359 shares of its common stock
(the Conversion), at a price of $10.00 per share, through an initial public
offering (IPO), with the Bank's eligible depositors receiving all of the
shares. The Company also contributed 1,271,100 shares of its common stock,
from authorized but unissued shares, to The Roslyn Savings Foundation (the
Foundation) immediately following the Conversion. The Company received
gross proceeds from the Conversion of $423.7 million, before the reduction
of $13.1 million for estimated IPO related expenses. On the date of the
Conversion, $145.3 million of deposits and $278.4 million of non-depository
stock subscriptions funds were transferred to stockholders' equity, and
$1.08 billion of non-depository stock subscriptions funds were subsequently
returned to subscribers; also subsequent to the Conversion, the ESOP
purchased, through a $53.8 million loan from the Company and the initial
$1.0 million contribution from the Bank, 3,491,397 shares of common stock
on the open market.
The Bank established a liquidation account, as of the date of Conversion,
in the amount of $222.2 million, equal to its retained earnings as of the
date of the latest consolidated statement of financial condition appearing
in the final prospectus. The liquidation account is maintained for the
benefit of eligible pre-Conversion account holders who continue to maintain
their accounts at the Bank after the date of 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. As of December 31, 1998, the balance in the
36
<PAGE>
liquidation account was approximately $79.7 million. In the event of a
complete liquidation, each eligible account holder will be entitled, under
New York State Law, to receive a distribution from the liquidation account
in an amount equal to their current adjusted account balances for all such
depositors then holding qualifying deposits in the Bank.
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 or would reduce the
Bank's capital level below the then aggregate balance required for the
liquidation account. The Company, unlike the Bank, is not subject to the
same restrictions regarding the declaration or payment of dividends to its
shareholders, although the source of the Company's dividends may depend
upon the Bank's ability to pay dividends. The Company is subject to the
requirements of Delaware law, which generally limit dividends to an amount
equal to the excess of its net assets over its stated capital or, if there
is no such excess, to its net profits for the current and/or immediately
preceding fiscal year.
The Company established the Foundation in connection with the Conversion.
The amount of shares the Company contributed to the Foundation was equal to
3.0% of the total amount of its common stock issued in the Conversion. The
Foundation was formed as a complement to the Bank's existing community
activities and is dedicated to community activities and the promotion of
charitable causes.
The Foundation has received approval from the Internal Revenue Service to
be recognized as a tax-exempt organization and is classified as a private
foundation. The contribution of common stock to the Foundation by the
Company will be tax deductible, subject to an annual limitation based on
10% of the Company's annual taxable income. The Company, however, will be
able to carry forward any unused portion of the deduction for a five year
period following the contribution. The Company recognized a $12.7 million
expense for the full amount of the contribution to the Foundation, offset
in part by the $5.3 million corresponding tax benefit, during the first
quarter of 1997.
(4) Debt and Equity Securities
--------------------------
Investments in debt and equity securities, net at December 31, 1998 and
1997 are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
State, county and municipal $ 715 $ 40 $ - $ 755
======== ======= ======== ========
Available-for-sale:
Debt securities:
United States Government -
direct and guaranteed $ 45,333 $ 2,549 $ - $ 47,882
United States Government agencies 114,849 548 - 115,397
-------- ------- -------- --------
Total debt securities
available-for-sale 160,182 3,097 - 163,279
-------- ------- -------- --------
Equity securities:
Preferred and common stock 270,325 30,360 (11,610) 289,075
Trust preferreds 147,131 868 (3,272) 144,727
Other 14,883 1,351 (55) 16,179
-------- ------- -------- --------
Total equity securities available-
for-sale 432,339 32,579 (14,937) 449,981
-------- ------- -------- --------
Total debt and equity securities
available-for-sale $592,521 $35,676 $(14,937) $613,260
======== ======= ======== ========
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gain Loss Value
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
State, county and municipal $ 1,930 $ 96 $ - $ 2,026
======== ======= ===== ========
Available-for-sale:
Debt securities:
United States Government - direct
and guaranteed $ 75,499 $ 2,476 $ - $ 77,975
United State Government agencies 125,097 384 - 125,481
Other 5,365 20 - 5,385
-------- ------- ----- --------
Total debt securities
available-for-sale 205,961 2,880 - 208,841
-------- ------- ----- --------
Equity securities:
Preferred and common stock 243,864 30,560 (171) 274,253
Other 9,720 1,409 (30) 11,099
-------- ------- ----- --------
Total equity securities available-
for-sale 253,584 31,969 (201) 285,352
-------- ------- ----- --------
Total debt and equity securities
available-for-sale $459,545 $34,849 $(201) $494,193
======== ======= ===== ========
</TABLE>
38
<PAGE>
Sales of investments in debt and equity securities are summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Proceeds from sales:
Equity securities $ 202,499 $ 58,312 $ 35,758
Debt securities 166,663 233,759 -
Gross gains:
Equity securities 6,435 1,752 92
Debt securities 426 264 -
Gross losses:
Equity securities 312 43 23
Debt securities 19 - -
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, 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 referred
to as being "sold" from the "held-to-maturity" portfolio were either called
or sold within 90 days of the maturity date.
Interest income on debt and equity securities also includes the amortized
premiums relating to the Company's investments in certain callable preferred
stocks in the amounts of $559,000, $1.2 million and $705,000 for the years
ended December 31, 1998, 1997 and 1996, respectively.
The maturities of the investments in debt securities at December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
At December 31, 1998
------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 4,992 $ 5,030 $415 $428
After 1 year through 5 years 40,341 42,852 300 327
Over 10 years 114,849 115,397 - -
-------- -------- ---- ----
$160,182 $163,279 $715 $755
======== ======== ==== ====
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1997
------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 34,781 $ 35,094 $ 735 $ 751
After 1 year through 5 years 60,893 63,085 1,195 1,275
After 5 years through 10 years 10,640 10,644 - -
Over 10 years 99,647 100,018 - -
-------- -------- ------ ------
$205,961 $208,841 $1,930 $2,026
======== ======== ====== ======
</TABLE>
Included in available-for-sale debt securities at December 31, 1997 are
callable step-up notes which were issued by U.S. Government agencies. The
amortized cost, which approximates fair value, of these notes aggregated $35.0
million at December 31, 1997. 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 these notes was 6.86% at December 31, 1997. At
December 31, 1998, there were no step-up notes.
(5) Mortgage-Backed and Mortgage Related Securities
-----------------------------------------------
Mortgage-backed and mortgage related securities at December 31, 1998 and 1997
are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
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 $ 68,071 $ 430 $ (85) $ 68,416
========== ====== ======= ==========
Available-for-sale:
GNMA pass-through securities, net $ 34,191 $1,036 $ (120) $ 35,107
FNMA pass-through securities, net 2,004 - (3) 2,001
GNMA adjustable rate mortgage
pass-through securities, net 352,245 4,405 - 356,650
Whole loan private collateralized
mortgage obligations, net 674,727 1,508 (576) 675,659
Agency collateralized mortgage
obligations, net 553,917 850 (2,161) 552,606
---------- ------- ------- ----------
Mortgage-backed and mortgage related
securities available-for-sale, net $1,617,084 $7,799 $(2,860) $1,622,023
========== ====== ======= ==========
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
---------------------------------------------------------
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 $ 200,193 $ 990 $ (738) $ 200,445
========== ======= ======= ==========
Available-for-sale:
GNMA pass-through securities, net $ 14,291 $ 1,420 $ - $ 15,711
FHLMC pass-through securities, net 250,206 2,947 - 253,153
GNMA adjustable rate mortgage pass-
through securities, net 442,037 7,223 - 449,260
Whole loan private collateralized
mortgage obligations, net 640,467 5,019 (170) 645,316
Agency collateralized mortgage
obligations, net 486,860 6,452 (119) 493,193
---------- ------- ------- ----------
Mortgage-backed and mortgage related
securities available-for-sale, net $1,833,861 $23,061 $ (289) $1,856,633
========== ======= ======= ==========
</TABLE>
Included in the Company'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.
Sales of investments in mortgage-backed and mortgage related securities are
summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1998 1997 1996
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Proceeds from sales $ 641,020 $ 295,123 $89,400
Gross gains 645 853 50
Gross losses - 69 923
</TABLE>
During the years ended December 31, 1998, 1997 and 1996, sales of mortgage-
backed and mortgage related securities were from the "available-for-sale"
portfolio.
41
<PAGE>
The contractual maturities of the investments in mortgage-backed and mortgage
related securities, net at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
At December 31, 1998
------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 674 $ 674 $ - $ -
After 1 year through 5 years 2,945 3,001 117 117
After 5 years through 10 years 13,750 13,948 6,209 6,229
Over 10 years 1,599,715 1,604,400 61,745 62,070
---------- ---------- ------- -------
$1,617,084 $1,622,023 $68,071 $68,416
========== ========== ======= =======
<CAPTION>
At December 31, 1997
------------------------------------------------
Available-for-Sale Held-to-Maturity
------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- --------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Within 1 year $ 62,089 $ 62,960 $ - $ -
After 1 year through 5 years 1,207 1,242 6,744 6,709
After 5 years through 10 years 18,051 18,515 2,992 2,999
Over 10 years 1,752,514 1,773,916 190,457 190,737
---------- ---------- -------- --------
$1,833,861 $1,856,633 $200,193 $200,445
========== ========== ======== ========
</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.
(6) Loans Held-for-Sale, Net and Loans Receivable Held for Investment, Net
----------------------------------------------------------------------
Loans held-for-sale, net at December 31, 1998 and 1997 are summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
One- to four-family loans, net $ 79,991 $ 13,987
Student loans 1,285 1,296
--------- ---------
Total loans held-for-sale, net $ 81,276 $ 15,283
========= =========
</TABLE>
The Company originates most fixed rate and adjustable 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 investor commitments.
In addition, student loans are sold to the Student Loan Marketing Association
generally during the grace period of the loan, before principal repayment
begins. During the years ended December 31, 1998, 1997 and 1996, the Company
sold approximately $2.5 million, $2.8 million and $3.7 million, respectively,
of student loans, recording aggregate net gains of $41,000, $30,000 and
$38,000, respectively.
42
<PAGE>
Loans receivable held for investment, net at December 31, 1998 and 1997 are
summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Real estate loans, net:
One- to four-family $ 755,373 $ 619,970
Multi-family 49,576 44,006
Home equity and second mortgage 47,832 16,974
Commercial real estate 273,017 248,607
Construction and development 83,433 52,269
------------ ------------
Total real estate loans 1,209,231 981,826
Less:
Net unamortized discount and
deferred income (4,596) (6,670)
Net deferred loan origination
costs (fees) 719 (1,522)
------------ ------------
Total real estate loans, net 1,205,354 973,634
Other loans:
Consumer 10,402 4,686
Less allowance for possible loan
losses (24,779) (24,029)
------------ ------------
Loans receivable held for
investment, net $ 1,190,977 $ 954,291
============ ============
</TABLE>
The principal balance of non-accrual loans approximated $5.8 million, $6.5
million and $8.7 million at December 31, 1998, 1997 and 1996, respectively.
Interest income that would have been recorded if the loans had been performing
in accordance with their original terms aggregated approximately $577,000,
$630,000 and $720,000 during the years ended December 31, 1998, 1997 and 1996,
respectively.
The principal balance of restructured loans, which are included in nonaccrual
loans, that have not complied with the terms of their restructuring agreement
for a satisfactory period of time (normally six months) was $909,000, $280,000
and $1.6 million at December 31, 1998, 1997 and 1996, respectively. Interest
income that would have been recorded if the loans had been performing in
accordance with their original terms aggregated approximately $76,000, $30,000
and $172,000 during the years ended December 31, 1998, 1997 and 1996,
respectively. Interest income recorded for restructured loans amounted to
$433,000, $235,000 and $118,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Additionally, restructured loans totaling $4.1 million, $1.4
million and $2.3 million have complied with the terms of the restructuring
agreement for a satisfactory period and were returned to the performing loan
portfolio during the years ended December 31, 1998, 1997 and 1996, respectively.
43
<PAGE>
Loans in arrears three months or more were as follows at:
<TABLE>
<CAPTION>
Amount % of loans
------ ----------
(Dollars in thousands)
<S> <C> <C>
December 31, 1998 $4,687 0.39%
====== ====
December 31, 1997 $4,519 0.46%
====== ====
December 31, 1996 $6,467 1.26%
====== ====
</TABLE>
The Company has entered into various agreements to service loans for others.
At December 31, 1998 and 1997, 8,011 loans and 7,444 loans, respectively, with
a total balance of $1.03 billion and $866.3 million, respectively, were being
serviced for others. The Company 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 No. 125
(collectively referred to as mortgage servicing rights).
During the years ended December 31, 1998, 1997 and 1996, the Company sold
without recourse approximately $343.2 million, $134.9 million and $152.0
million, respectively, of whole loans with servicing retained. Service fee
income of $3.0 million, $2.5 million and $2.2 million is included, net, in
mortgage banking operation in the accompanying consolidated statements of
income for the years ended December 31, 1998, 1997 and 1996, respectively.
In connection with the 1995 acquisition of certain assets and liabilities of
Residential Mortgage Banking, Inc. (RMBI) (see Note 10), the Company recorded
MSRs with a fair value of $8.1 million. No servicing rights were purchased
prior thereto. In addition, the Company capitalized MSRs in the amount of $6.6
million, $2.3 million and $1.8 million, respectively, during the years ended
December 31, 1998, 1997 and 1996.
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 service fee income on the interest method over the estimated
remaining life of the underlying mortgage loans. MSRs are carried at fair
value and impairment, if any, is recognized through a valuation allowance. For
the years ended December 31, 1998 and 1997, the valuation allowance for
impairment totaled $117,000 and $13,000, respectively. For the year ended
December 31, 1996, no impairment existed in the MSRs and, as a result, no
valuation allowance was required. See Note 16 for risk characteristics and
assumptions used to estimate fair value.
MSR activity for the years ended December 31, 1998, 1997 and 1996 is summarized
as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 9,155 $ 8,695 $ 8,297
Originated mortgage servicing rights 6,613 2,289 1,821
Less:
Amortization (2,114) (1,816) (1,423)
Reserve for impairment (117) (13) -
--------- --------- ---------
Balance at end of year $ 13,537 $ 9,155 $ 8,695
========= ========= =========
</TABLE>
44
<PAGE>
(7) 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 No. 114.
The total allowance for possible loan losses has been determined in accordance
with the provisions of SFAS No. 5. As such, the Company 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 generally subject
to the provisions of SFAS No. 114.
The Company's recorded investment in impaired loans at December 31, 1998 and
1997 was $1.2 million and $2.8 million, respectively. The Company did not
maintain a related allowance for these loans. The Company's average recorded
investment in impaired loans for the years ended December 31, 1998, 1997 and
1996 was $1.6 million, $5.3 million and $5.0 million, respectively. Interest
income recognized on impaired loans, which was not materially different from
cash-basis interest income, amounted to $289,000, $568,000 and $206,000 for the
years ended December 31, 1998, 1997 and 1996, respectively.
The following is a summary of the activity in the allowance for possible loan
losses account:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1998 1997 1996
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year $ 24,029 $ 23,320 $ 23,350
Provisions for loan losses 750 600 2,000
Charge-offs - (91) (2,127)
Recoveries - 200 97
--------- --------- ---------
Balance at end of year $ 24,779 $ 24,029 $ 23,320
========= ========= =========
</TABLE>
(8) Banking House and Equipment
---------------------------
A summary of banking house and equipment at cost, net of accumulated
depreciation and amortization, and land at cost at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Land $ 3,327 $ 3,008
Banking house 14,342 13,545
Furniture, fixtures and equipment 10,038 6,402
--------- ---------
27,707 22,955
Accumulated depreciation and
amortization (7,470) (5,922)
--------- ---------
$ 20,237 $ 17,033
========= =========
</TABLE>
Depreciation and amortization of banking house and equipment of approximately
$1.8 million, $1.5 million and $1.9 million was included in occupancy and
equipment expense for the years ended December 31, 1998, 1997 and 1996,
respectively.
45
<PAGE>
(9) Accrued Interest Receivable
---------------------------
Accrued interest receivable at December 31, 1998 and 1997 is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
(In thousands)
<S> <C> <C>
Loans $ 9,710 $ 6,765
Mortgage-backed and mortgage related securities 9,374 11,867
Debt and equity securities 3,268 2,593
-------------------- ---------------------
$ 22,352 $ 21,225
==================== =====================
</TABLE>
(10) Excess of Cost Over Fair Value of Net Assets Acquired
-----------------------------------------------------
The Bank acquired in 1995, through a wholly-owned subsidiary now known as
Roslyn National Mortgage Corp. (RNMC), certain assets and liabilities,
including the loan origination business and the $623.0 million loan
servicing portfolio (the acquisition), of RMBI, a mortgage banking firm
which operated in New York and New Jersey.
The acquisition was funded by the 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 (goodwill) by
$3.5 million. This amount was recorded as goodwill and is being amortized
over 10 years. The Company 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 RNMC. The unamortized balance of goodwill relating to the RMBI
acquisition was $2.3 million and $2.6 million as of December 31, 1998 and
1997, respectively.
Previously, the Company purchased certain assets and assumed the deposit
liabilities of a bank branch. The acquisition was accounted for under the
purchase method of accounting and, accordingly, all of the acquired assets
and assumed liabilities were adjusted to and recorded at their fair market
value. The goodwill generated from the acquisition amounted to $855,000
and is being amortized on a straight-line basis over seven years. The
unamortized balance of the goodwill as of December 31, 1998 and 1997 was
$153,000 and $275,000, respectively.
In April 1998, RNMC purchased certain assets of a mortgage origination
office. The acquisition was accounted for under the purchase method of
accounting. The goodwill generated from the acquisition amounted to
$15,000 and is being amortized on a straight-line basis over five years.
The unamortized balance of the goodwill as of December 31, 1998 was
$13,000.
(11) Deposits
--------
Savings and time deposit account balances (excluding demand deposit accounts)
are summarized as follows:
46
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1998 At December 31, 1997
-------------------------------- ------------------------------
Weighted Weighted
Average Rate Amount Average Rate Amount
-------------- -------------- -------------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of account:
Savings accounts 2.54% $ 476,798 2.93% $ 468,928
Certificates of deposit 5.35 1,341,986 5.88 1,303,272
Money market accounts 3.69 108,134 2.63 49,344
-------------- --------------
$ 1,926,918 $ 1,821,544
============== ==============
</TABLE>
Scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
At December 31, 1998
------------------------------------------------------------
Weighted
Average Rate Amount Percent
---------------- ------------------ -----------------
(Dollars in thousands)
<S> <C> <C> <C>
1 year or less 5.20% $ 1,017,750 75.84%
Greater than 1 year through 2 years 5.67 155,361 11.58
Greater than 2 years through 3 years 6.10 76,595 5.71
Greater than 3 years through 4 years 6.15 44,159 3.29
Greater than 4 years through 5 years 5.65 21,438 1.60
Over 5 years 6.36 26,683 1.98
------------------- -----------------
$ 1,341,986 100.00%
=================== =================
<CAPTION>
At December 31, 1997
------------------------------------------------------------
Weighted
Average Rate Amount Percent
--------------- ------------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C>
1 year or less 5.62% $ 892,391 68.47%
Greater than 1 year through 2 years 6.14 215,437 16.53
Greater than 2 years through 3 years 6.54 68,465 5.26
Greater than 3 years through 4 years 6.37 61,556 4.72
Greater than 4 years through 5 years 6.33 43,140 3.31
Over 5 years 6.58 22,283 1.71
------------------- ------------------
$ 1,303,272 100.00%
=================== ==================
</TABLE>
Certificates of deposit in excess of $100,000 were approximately $229.1
million and $191.8 million at December 31, 1998 and 1997, respectively.
Additionally, included in certificates of deposit at December 31, 1998 and
1997 were brokered deposits totaling $129.7 million and $149.8 million,
respectively.
Demand deposits are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
--------------------------- -----------------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
------------ ------------ ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Type of account:
Personal - $ 55,938 - $ 33,980
Super NOW and NOW 2.59% 87,975 3.54% 86,721
------------ ------------
$ 143,913 $ 120,701
============ ============
</TABLE>
47
<PAGE>
The FDIC insures deposits of account holders up to $100,000 per insured
depositor. To provide for this insurance, the Company must pay a
risk-based annual assessment which considers the financial soundness of
the institution and capitalization level (see Note 19). At December 31,
1998 and 1997, the Company was assessed at the FDIC's lowest assessment
level, as a well capitalized institution. For the years ended December 31,
1998 and 1997, the Company was refunded $300,000 and paid $274,000,
respectively, in FDIC insurance premiums.
Interest expense on deposit balances for the years ended December 31,
1998, 1997 and 1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- ---------------- ----------------
(Dollars in thousands)
<S> <C> <C> <C>
Savings accounts $ 14,679 $ 14,886 $ 18,445
Money market accounts 2,243 1,427 1,854
Super NOW and NOW 2,804 2,841 1,361
Certificates of deposit 76,602 69,982 51,305
--------------- ---------------- ----------------
$ 96,328 $ 89,136 $ 72,965
=============== ================ ================
</TABLE>
Included in interest expense on savings accounts for the years ended
December 31, 1997 and 1996 is $1.3 million and $3.6 million, respectively,
of interest expense on non-depository stock subscriptions.
(12) Borrowed Funds
--------------
Borrowed funds at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- ------------------------
Weighted Weighted
Average Average
Balance Rate Balance Rate
------------ ----------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Reverse-repurchase agreements $ 959,319 5.62% $ 965,119 6.05%
FNMA warehouse line of credit 150 6.05 1,332 6.70
------------ ------------
$ 959,469 $ 966,451
============ ============
</TABLE>
From time to time, the Company 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 financial statements. The dollar amount of securities
underlying the agreements remains in the asset account. The securities
underlying the agreements are delivered to the dealer with whom each
transaction is executed. The dealers, who may sell, loan or otherwise
dispose of such securities to other parties in the normal course of their
business, agree to resell to the Company the same securities at the
maturities of the agreements. The Company retains the right of
substitution of collateral throughout the terms of the agreements.
At December 31, 1998 and 1997, all outstanding reverse-repurchase
agreements had original contractual maturities ranging from 7 days to 5
years. The securities underlying the reverse-repurchase agreements were
secured by available-for-sale U.S. Treasury notes, Government agency notes
and mortgage-backed securities, except as noted below. The following is a
summary of information relating to these reverse-repurchase agreements:
48
<PAGE>
<TABLE>
<CAPTION>
At or For the Years Ended December 31,
--------------------------------------
1998 1997 1996
----------- ---------- -----------
(Dollars in thousands)
<S> <C> <C> <C>
Book value of collateral (including accrued interest):
U.S. Treasury notes $ 5,048 $ 5,030 $ -
Government agency notes 86,325 15,559 -
Mortgage-backed securities:
Available-for-sale 918,992 984,644 -
Held-to-maturity 2,461 15,584 -
Estimated fair value of collateral (including accrued
interest):
U.S. Treasury notes 5,085 5,111 -
Government agency notes 86,584 15,600 -
Mortgage-backed securities:
Available-for-sale 920,837 995,999 -
Held-to-maturity 2,461 15,669 -
Average balance of outstanding agreements
during the year $ 1,031,254 $ 629,224 $ 100,159
============ ========= =========
Maximum balance of outstanding agreements
at any month end during the year $ 1,141,847 $ 995,861 $ 212,296
============ ========= ==========
Average interest rate for the year 5.90% 5.90% 5.58%
============ ========= ==========
</TABLE>
The contractual maturities of the outstanding reverse-repurchase agreements at
December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Balance
--------------------
(In thousands)
<S> <C>
1999 $ 343,019
2000 175,000
2001 230,000
2002 121,300
2003 90,000
--------------------
$ 959,319
====================
</TABLE>
Included in the 1999 maturity category above is $46.6 million, $65.0 million and
$94.3 million of reverse-repurchase agreements with contractual maturities of 26
days, 57 days and 84 days, respectively, which are collateralized by available-
for-sale mortgage-backed securities with a book value (including accrued
interest) of $50.2 million, $69.6 million and $100.5 million, respectively, and
an estimated fair value (including accrued interest) of $50.2 million, $69.6
million and $99.4 million, respectively. All remaining reverse-repurchase
agreements have contractual maturities in excess of 90 days, which are
collateralized by U.S. Treasury notes, government agency notes and mortgage-
backed securities available-for-sale and mortgage-backed securities held-to-
maturity with book values (including accrued interest receivable) of $5.0
million, $86.3 million, $698.7 million and $2.5 million, respectively, and
estimated fair values (including accrued interest receivable) of $5.1 million,
$86.6 million, $701.6 million and $2.5 million, respectively.
At December 31, 1998 and 1997, the Company had $150,000 and $1.3 million,
respectively, of outstanding secured notes payable to FNMA under a warehouse
line of credit. The line of credit is secured by $150,000 and $1.3 million of
mortgage loans held-for-sale as of December 31, 1998 and 1997, respectively. The
outstanding
49
<PAGE>
notes had an interest rate of 6.05% and 6.70%, at December 31, 1998 and 1997,
respectively. The notes are repaid as the related mortgage loans are sold or
collected.
Interest expense on borrowings for the years ended December 31, 1998, 1997 and
1996 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ---------------- ----------------
(In thousands)
<S> <C> <C> <C>
Reverse-repurchase agreements $ 60,864 $ 37,133 $ 5,586
FNMA warehouse line of credit 143 145 208
------------- ---------------- ----------------
$ 61,007 $ 37,278 $ 5,794
============= ================ ================
</TABLE>
(13) Income Taxes
------------
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
------------- ----------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Mortgages and other loans receivable, primarily due to
allowance for loan losses and deferred loan fees $ 10,369 $ 10,209
Real estate owned, primarily due to allowance for losses 243 526
Post-retirement benefits 1,593 1,467
Non-accrual loan interest 602 1,142
Employee bonus and fringe benefits 1,900 2,774
ESOP and SBIP 3,090 1,998
Charitable contributions 623 2,989
Loss carryforward - 380
Correspondent reserve 349 522
Callable preferred stock 198 832
Amortization of purchased mortgage servicing rights 50 551
Depreciation of fixed assets 601 271
Mark to market on mortgage loans held-for-sale 271 179
Other - 378
------------- ----------
Total gross deferred tax assets 19,889 24,218
------------- ----------
Deferred tax liabilities:
Net unrealized gain on available-for-sale securities (11,253) (24,530)
Originated mortgage servicing rights (3,573) (1,430)
Other (564) -
------------- ----------
Total gross deferred tax liabilities (15,390) (25,960)
------------- ----------
Net deferred tax asset (liability) $ 4,499 $ (1,742)
============= ==========
</TABLE>
Management believes that it is more likely than not that the consolidated
results of future operations of the Company will generate sufficient taxable
income to realize the deferred tax assets of the Company. Therefore, a valuation
allowance against the gross deferred tax assets is not considered necessary.
50
<PAGE>
Provisions for income taxes are comprised of the following amounts:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1998 1997 1996
----------- ----------- ----------
(In thousands)
<S> <C> <C> <C>
Current:
Federal $ 14,556 $ 19,168 $ 6,053
State and local 1,437 4,083 2,758
----------- ----------- ----------
15,993 23,251 8,811
----------- ----------- ----------
Deferred:
Federal 5,286 (5,486) 458
State and local 1,750 (1,692) 169
----------- ----------- ----------
7,036 (7,178) 627
----------- ----------- ----------
$ 23,029 $ 16,073 $ 9,438
=========== =========== ==========
</TABLE>
Total provision for income taxes differed from the amounts computed by applying
the U.S. Federal income tax rate of 35% to income before income tax expense as a
result of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
(In thousands)
<S> <C> <C> <C>
Expected income tax expense at statutory Federal tax rate $ 26,402 $ 17,312 $ 10,525
State and local taxes, net of Federal income tax benefit 2,072 1,554 2,049
Dividend received deduction (3,998) (2,956) (2,513)
Tax adjustment for prior year (1,200) - -
Other, net (247) 163 (623)
--------- --------- ---------
$ 23,029 $ 16,073 $ 9,438
========= ========= =========
</TABLE>
The Company's stockholders' equity includes approximately $10.3 million at
December 31, 1998 and 1997, which has been segregated for Federal income tax
purposes as a bad debt reserve. 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 section 593 of the Internal Revenue Code
(the Code), thrift institutions such as the Bank, which met certain definitional
tests, primarily relating to their assets and the nature of their business, were
permitted to establish a tax reserve for bad debts and to make annual additions
thereto, which additions were, within specified limitations, deducted in
arriving at their taxable income. The Bank's deduction with respect to
"qualifying loans," which are generally loans secured by certain interests in
real property, was, prior to January 1, 1996, computed using an amount based on
the Bank's actual loss experience (the Experience Method), or the 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 additions to the non-qualifying reserve. Similar
deductions for additions to the Bank's bad debt reserve were permitted under the
New York State Bank Franchise Tax, however, for purposes of these taxes, the
effective allowable percentage under the PTI Method was 32% rather than 8%.
Under the Small Business Job Protection Act of 1996 (the 1996 Act), which was
enacted in August 1996, section 593 of the Code was amended and the Bank, as a
"large bank" (one with assets having an adjusted basis of more than $500
million), is no longer permitted to make additions to its tax bad debt reserve,
is permitted to deduct bad debts only as they occur and is required to recapture
(that is, take into taxable income) over a multi-year period, beginning with the
Bank's taxable year beginning on January 1, 1996, the excess of the balance of
its bad debt reserves (other than the supplemental reserve) as of December 31,
1995 over the balance of such reserves as of December 31, 1987. At December 31,
1995 the balance of the Bank's federal bad debt reserves equaled the balance of
such amount at December 31, 1987. The New York State tax law has been amended to
prevent a
51
<PAGE>
similar recapture of the Bank's bad debt reserve, and to permit the continued
future use of the bad debt reserve methods, for purposes of determining the
Bank's New York State tax liability, in either case, so long as the Bank
continues to satisfy the New York State definitional test related to its assets
and nature of business, which are similar to the former federal income tax test
described above.
(14) Employee Benefit Plans
----------------------
Pension Plan - The Bank's noncontributory pension plan with the RSI Retirement
Trust covers substantially all full-time employees. In February 1998, the FASB
issued SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." SFAS No. 132, which is effective for fiscal years
beginning after December 15, 1997, standardizes the disclosure requirements for
pensions and other post-retirement benefits to the extent practicable, requires
additional information on changes in the benefit obligations and fair values of
plan assets that will facilitate financial analysis, and eliminates certain
disclosures no longer deemed useful. The disclosures which follow have been
prepared in accordance with SFAS No. 132. As required by SFAS No. 132,
disclosures for prior years have been restated. The following table depicts the
components of the net pension expense for the years ended December 31, 1998,
1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- ---------
(In thousands)
<S> <C> <C> <C>
Service cost $ 896 $ 589 $ 463
Interest cost 1,062 875 845
Actual return on assets (1,332) (997) (1,667)
Amortization of unrecognized transition asset - (50) (115)
Amortization of unrecognized loss - - 11
Amortization of unrecognized past service liability 5 5 5
Deferred investment gain - - 790
-------- ------- ---------
$ 631 $ 422 $ 332
======== ======= =========
</TABLE>
The assumptions used by the Company relating to the plan for the years ended
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
-------- ---------
<S> <C> <C>
Assumed rate of return on assets 8.50% 8.00%
======== =========
Assumed rate of compensation increase 4.50% 5.00%
======== =========
Assumed discount rate 6.50% 7.25%
======== =========
</TABLE>
The following table provides details of the changes in the actuarial present
value of the benefit obligation and fair value of plan assets for the above plan
for each of the years shown and a reconciliation, at the end of each year shown,
of the funded status of the plan with the net amount recognized in the
consolidated statement of financial condition.
52
<PAGE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Change in benefit obligation during the year:
Benefit obligation at beginning of the year $ 14,948 $ 11,801
Service cost 896 588
Interest cost 1,062 874
Actuarial loss 1,411 2,470
Annuity payments (555) (550)
Settlements (29) (235)
-------- --------
Benefit obligation at end of year 17,733 14,948
-------- --------
Change in fair value of plan assets during the year:
Fair value of plan assets at beginning of the year 15,617 13,389
Actual return on plan assets (369) 2,938
Employer contributions 585 75
Annuity payments (555) (550)
Settlements (29) (235)
-------- --------
Fair value of plan assets at the end of the year 15,249 15,617
-------- --------
Funded status at the end of the year (2,484) 669
Unrecognized actuarial loss (gain) 3,061 (49)
Contribution 92 25
Unrecognized past service liability 21 25
-------- --------
Net prepaid pension expense at the end of the year $ 690 $ 670
======== ========
</TABLE>
Supplemental Plan - The former chief executive officer is covered by a
supplemental executive retirement plan with the RSI Retirement Trust. The
actuarial present value of the accumulated benefit obligation at December 31,
1998 and 1997 was $626,000 and $627,000, respectively. Included in the employee
benefit expense for the years ended December 31, 1998, 1997 and 1996 was
$42,000, $47,000 and $45,000, respectively, related to this obligation.
Benefit Restoration Plan - The Benefit Restoration 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, 1998 and 1997 was $1.3
million and $800,000, respectively. Included in employee benefit expense for the
years ended December 31, 1998, 1997 and 1996 was $280,000, $166,000 and
$160,000, respectively, related to this obligation.
401(k) Plan - The Bank 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. The
Bank makes matching contributions of 6% of the participant's eligible
compensation in the form of cash. Commencing on January 10, 1997, eligible
participants in the ESOP were no longer eligible for the 401(k) matching
contribution. The Bank made cash contributions of $80,000, $51,000 and $322,000
for the years ended December 31, 1998, 1997 and 1996, respectively.
Employee Stock Ownership Plan - In connection with the Conversion, the Bank
established an ESOP. The ESOP is a tax qualified retirement plan designed to
invest primarily in the Company's common stock. All full-time employees of the
Bank who have completed one year of service with the Bank are eligible to
participate in the ESOP. The ESOP utilized funds borrowed from the Company
totaling $53.8 million, and a $1.0 million contribution from the Bank made in
1996, to purchase approximately 8%, or 3,491,397 shares, of the Company's common
stock issued in the Conversion. The loan to the ESOP will be primarily repaid
with contributions from the Bank to the ESOP over a period not to exceed 30
years. Under the terms of the ESOP, the Bank makes contributions to the ESOP
sufficient to cover all payments of principal and interest as they become due.
For the years ended December 31, 1998 and 1997, the Bank made contributions of
$3.8 million
53
<PAGE>
and $4.3 million, respectively, to the ESOP. The ESOP utilized the
contributions, along with the dividends received on the unallocated ESOP shares,
which totaled $1.2 million and $617,000, to repay $470,000 and $454,000 of
principal and $4.5 million and $4.4 million of interest on the loan in 1998 and
1997, respectively. At December 31, 1998 and 1997, the loan had an outstanding
balance of $52.9 million and $53.4 million and an interest rate of 7.75% and
8.25%, respectively.
Shares purchased with the loan proceeds are held in a suspense account by the
trustee of the plan for future allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation as described in
the plan. The number of shares released to participants is determined based upon
the percentage of principal and interest payments made during the year divided
by the total remaining principal and interest payments including the current
year's payment. Participants will vest in the shares allocated to their
respective accounts over a period not to exceed 5 years. Any forfeited shares
are allocated to the then remaining participants in the same proportion as
contributions. For the years ended December 31, 1998 and 1997, approximately
292,218 shares and 177,961 shares have been allocated to participants and
3,199,179 shares and 3,313,436 shares remained unallocated, respectively.
Included in the shares allocated to participants during the years ended December
31, 1998 and 1997, were approximately 21,000 shares and 19,934 shares,
respectively, allocated utilizing the matching contribution formula under the
401(k) plan. The Company recognizes compensation expense attributable to the
ESOP ratably over the year based upon the estimated number of ESOP shares to be
allocated each December 31st. For the years ended December 31, 1998, 1997 and
1996, the Company recognized $2.2 million, $2.0 million and $1.0 million,
respectively, as compensation expense.
The trustee for the ESOP must vote all allocated shares held in the ESOP trust
in accordance with the instructions of the participants. Unallocated shares held
by the ESOP trust are voted by the trustee in a manner calculated to most
accurately reflect the results of the allocated ESOP shares voted, subject to
the requirements of the Employee Retirement Income Security Act of 1974, as
amended (ERISA).
Management Supplemental Executive Retirement Plan - The Management Supplemental
Executive Retirement Plan (MSERP) provides benefits to certain officers and
highly compensated employees whose benefits are limited under the ESOP
allocation procedure if they retire prior to the complete repayment of the ESOP
loan. Benefits under the MSERP vest in 20% annual increments over a five year
period commencing as of the date of a participant's participation in the MSERP.
The actuarial present value of the accumulated benefit obligation at December
31, 1998 and 1997 was $1.6 million and $685,000, respectively. The Company
recorded an expense of $148,000 relating to the MSERP for the year ended
December 31, 1998. No expense related to the MSERP was recorded for the year
ended December 31, 1997.
Stock-Based Incentive Plan - At the annual shareholder meeting on July 22, 1997
the shareholders approved The Roslyn Bancorp, Inc. 1997 Stock-Based Incentive
Plan (Incentive Plan). The Incentive Plan authorizes the granting of options to
purchase the Company's common stock, option-related awards and awards of the
Company's common stock (collectively, Awards). Subject to certain adjustments to
prevent dilution of Awards to participants, the maximum number of shares
reserved for Awards denominated in common stock under the Incentive Plan is
6,108,444 shares. The maximum number of shares reserved for purchase pursuant to
the exercise of options and option-related Awards which may be granted under the
Incentive Plan is 4,364,246 shares, and will primarily vest over a five year
period and which must be exercised no more than ten years from the date of
grant. The maximum number of the shares reserved for the award of shares of the
Company's common stock is 1,744,198 shares, and will primarily vest over a five
year period. All officers, other employees and outside directors of the Company
and its affiliates, including the Bank and its subsidiaries, are eligible to
receive Awards under the Incentive Plan. The Incentive Plan is administered by a
committee of non-employee directors of the Company (the Committee). Authorized
but unissued shares, or shares previously issued and reacquired by the Company,
may be used to satisfy the Awards under the Incentive Plan. Each option may
become fully exercisable and each award may become fully vested upon the
occurrence of a change in control of the Company, or upon death, disability or
retirement of the optionee.
54
<PAGE>
The Company contributed $41.4 million, during the third quarter of 1997, to the
Incentive Plan to enable the Incentive Plan to purchase 1,744,198 shares of the
Company's common stock to be awarded. This contribution represents deferred
compensation which is initially recorded as a reduction to stockholders' equity
and ratably charged to compensation expense over the vesting period of the
awards. The Committee established September 2, 1997 as the Incentive Plan's
effective grant date and 1,512,507 shares were awarded at a price of $22.50 per
share to outside directors, officers and employees of the Bank. During the year
ended December 31, 1998, the Company granted additional stock awards of 91,409
shares, with prices ranging from $21.69 to $27.75 per share, and 24,673 shares
were forfeited. During the year ended December 31, 1998, plan participants
vested in 328,377 shares. The total outstanding unvested stock awards amounted
to 1,250,866 shares at December 31, 1998. Upon the achievement of certain
defined performance targets, 99,255 of the aforementioned shares will vest. For
the years ended December 31, 1998 and 1997, compensation expense attributable to
stock awards under the Incentive Plan was approximately $6.4 million and $3.6
million, respectively.
Options granted under this plan are either non-statutory stock options or
incentive stock options. Each option entitles the holder to purchase one share
of the Company's common stock at an exercise price equal to the fair market
value on the date of grant. There was no compensation expense attributable to
these options as the Company used the intrinsic value based method of accounting
as the exercise price equaled the common stock price at the grant date. All
options expire no later than ten years following the date of grant. Option
transactions for the years ended December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
---------------- --------------
<S> <C> <C>
Options outstanding at December 31, 1996 - -
Granted 3,883,388 $ 22.50
Forfeited (3,882) 22.50
----------------
Options outstanding at December 31, 1997 3,879,506 22.50
Granted 496,000 21.93
Forfeited (190,113) 22.44
----------------
Options outstanding at December 31, 1998 4,185,393 22.44
================
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Weighted
Number of Average Options
Exercise Price Shares Life Exercisable
-------------------- ---------------- -------------- ---------------
<S> <C> <C> <C>
$ 15.250 10,000 9.79 -
18.125 25,000 9.98 -
21.688 80,000 9.19 -
22.000 300,000 9.14 -
22.500 3,722,893 8.68 741,979
22.625 23,500 9.43 -
23.000 1,500 9.24 -
27.875 22,500 9.33 -
---------------- ---------------
4,185,393 8.74 741,979
================ ===============
</TABLE>
55
<PAGE>
In accordance with SFAS No. 123, the Company used the Black-Scholes option
pricing model with the following weighted average assumptions to value the
options granted as follows:
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Dividend yield 2.10% 1.74%
Expected volatility 22.50% 22.50%
Risk-free interest rate 4.54% 5.61%
Expected option lives 3.60 years 4 years
</TABLE>
On a pro forma basis, had compensation expense for the Company's stock-based
compensation plan been determined based on the fair value at the grant date for
awards made under the plan, consistent with SFAS No. 123, the Company's net
income and earnings per share for the years ended December 31, 1998 and 1997
would have been reduced as follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
(In thousands, except per share data)
<S> <C> <C>
Net income:
As reported $ 52,404 $ 33,390
Pro forma 47,434 31,906
Basic earnings per share:
As reported $ 1.36 $ 0.83
Pro forma 1.23 0.79
Diluted earnings per share:
As reported $ 1.36 $ 0.83
Pro forma 1.23 0.79
</TABLE>
The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effect on reported net income for future periods.
(15) Post-retirement 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 post-retirement health care and life insurance
benefits is recognized in the consolidated financial statements during the
employee's active working career. The disclosures which follow have been
prepared in accordance with SFAS No. 132. As required by SFAS No. 132,
disclosures for prior years have been restated. Net periodic post-retirement
benefit cost included in compensation and employee benefits in the accompanying
consolidated statements of income for the years ended December 31, 1998, 1997
and 1996 is comprised of the following components:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ -------
(In thousands)
<S> <C> <C> <C>
Service cost-benefits earned during the year $ 123 $ 106 $ 86
Interest cost on accumulated post-retirement benefit obligation 230 232 271
Amortization of unrecognized gain (36) (34) -
Amortization of unrecognized past service liability 50 50 50
------- ------ -------
$ 367 $ 354 $ 407
======= ====== =======
</TABLE>
The assumptions used by the Company relating to the plan for the years ended
December 31, 1998 and 1997 were as follows:
56
<PAGE>
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Assumed ultimate medical trend 5.00% 5.00%
======== ========
Assumed current medical trend 6.50% 7.00%
======== ========
Assumed salary scale for life insurance 4.50% 5.00%
======== ========
Assumed discount rate 6.50% 7.25%
======== ========
</TABLE>
For measurement purposes, the annual rate of increase in the per capita cost of
covered benefits (health care cost trend rates) will have a significant effect
on the estimate of the accumulated post-retirement benefit obligation and the
aggregate service and interest cost components of the net periodic post-
retirement benefit cost. Increasing the annual health care trend rates by 1.0%
in each year would increase both the accumulated post-retirement benefit
obligation by $144,000 and the aggregated related service and interest cost by
$13,000 at December 31, 1998. A 1.0% decrease in the assumed health care trend
rates would decrease both the accumulated post-retirement benefit obligation by
$177,000 and the aggregate related service and interest cost by $15,000 at
December 31, 1998.
The following table provides details of the changes in the benefit obligation
and fair value of plan assets for the above plans for each of the years shown
and a reconciliation, at the end of each year shown, of the funded status of the
plans with the net amount recognized in the consolidated statement of financial
condition.
<TABLE>
<CAPTION>
1998 1997
------------- ------------
(In thousands)
<S> <C> <C>
Change in benefit obligation during the year:
Benefit obligation at beginning of the year $ 3,485 $ 3,693
Service cost 123 106
Interest cost 230 232
Actuarial gain (209) (430)
Premiums/claims paid (105) (116)
Termination benefits 306 -
------------- ------------
Benefit obligation at end of year 3,830 3,485
------------- ------------
Change in fair value of plan assets during the year:
Fair value of plan assets at beginning of the year - -
Employer contributions 105 116
Premiums/claims paid (105) (116)
------------- ------------
Fair value of plan assets at the end of the year - -
------------- ------------
Funded status at the end of the year (3,830) 3,485
Unrecognized actuarial gain (774) 601
Unrecognized past service liability 489 539
------------- ------------
Accrued post-retirement benefit cost at the end of the year $ (4,115) $ (3,547)
============= ============
</TABLE>
(16) Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
the Company to disclose the fair value of its on- and off-balance sheet
financial instruments. A financial instrument is defined in SFAS No. 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 No. 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.
57
<PAGE>
The following table represents the carrying amounts and fair values of the
Company's financial instruments:
<TABLE>
<CAPTION>
At December 31, 1998
---------------------------
Carrying Estimated
Amount Fair Value
----------- --------------
(In thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 76,320 $ 76,320
Debt and equity securities, net:
Held-to-maturity 715 755
Available-for-sale 613,260 613,260
Mortgage-backed and mortgage related securities, net:
Held-to-maturity 68,071 68,416
Available-for-sale 1,622,023 1,622,023
Loans held-for-sale, net 81,276 81,873
Loans receivable held for investment, net 1,190,977 1,226,766
Accrued interest receivable 22,352 22,352
Mortgage servicing rights, net 13,537 13,537
Financial liabilities:
Deposit liabilities:
Certificates of deposit 1,341,986 1,351,888
Deposits, excluding certificates of deposit 728,845 728,845
Borrowed funds 959,469 967,762
Accrued dividends and interest on deposits 13,219 13,219
<CAPTION>
At December 31, 1997
--------------------------
Carrying Estimated
Amount Fair Value
----------- -------------
(In thousands)
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 22,366 $ 22,366
Debt and equity securities, net:
Held-to-maturity 1,930 2,026
Available-for-sale 494,193 494,193
Mortgage-backed and mortgage related securities, net:
Held-to-maturity 200,193 200,445
Available-for-sale 1,856,633 1,856,633
Loans held-for-sale, net 15,283 15,498
Loans receivable held for investment, net 954,291 984,117
Accrued interest receivable 21,225 21,225
Mortgage servicing rights, net 9,155 12,641
Financial liabilities:
Deposit liabilities:
Certificates of deposit 1,303,272 1,312,899
Deposits, excluding certificates of deposit 638,973 638,973
Borrowed funds 966,451 966,029
Accrued dividends and interest on deposits 10,375 10,375
</TABLE>
58
<PAGE>
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 security dealers or from prices obtained from firms specializing
in providing security 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 risks inherent in the loan. Fair values for
non-performing real estate loans are based on recent appraisals.
Accrued interest receivable - The fair value of the accrued interest receivable
- ---------------------------
is estimated to be the book value since it is currently due.
Mortgage servicing rights, net - Mortgage servicing rights are valued based upon
- ------------------------------
the Company'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 rate, loan type and the frequency of
value of interest rate adjustments in the case of adjustable rate mortgage
loans. Each strata is then discounted to reflect the present value of the future
cash flows utilizing current market assumptions regarding discount rates,
prepayment speeds, delinquency rates, and other factors.
Deposit liabilities - All deposits, except certificates of deposit, are subject
- -------------------
to rate changes at any time, and therefore are considered to be carried at
estimated fair value. The fair value of certificates of deposit are estimated by
computing the present value of contractual future cash flows for each
certificate. The present value rate utilized is the rate offered by the Company
at each date presented on certificates with an initial maturity equal to the
remaining term to maturity of the existing certificates.
Borrowed funds - The estimated fair value of borrowed funds is based on the
- --------------
discounted value of contractual cash flows using interest rates currently in
effect for borrowings with similar maturities and collateral requirements.
Accrued dividends and interest on deposits - The fair values of the accrued
- ------------------------------------------
dividends and interest on deposit balances are estimated to be their book value
since they are currently payable.
Limitations - SFAS No. 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
a one-time sale of the Company's entire holdings of a particular financial
instrument nor the resultant tax ramifications or transaction costs. Since no
market exists for a significant portion of the Company'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
59
<PAGE>
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 Company conducts a mortgage servicing
activity that contributes fee income annually. The mortgage servicing activity
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
Company 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. The fair value of commitments
did not result in an unrealized gain or loss at December 31, 1998 and 1997.
(17) Earnings Per Share Reconciliation
---------------------------------
The following table is the reconciliation of basic and diluted EPS as required
under SFAS No. 128 for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998
------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amounts
------------ ------------- ------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C>
Net income $ 52,404
============
Basic EPS:
Income available to common stockholders $ 52,404 38,436,760 $ 1.36
Effect of dilutive securities:
Options - 6,178 -
------------ ------------- ------------
Diluted EPS:
Income available to common stockholders $ 52,404 38,442,938 $ 1.36
============ ============= ============
<CAPTION>
1997
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amounts
------------ -------------- -------------
(In thousands, except share and per share amounts)
<S> <C> <C> <C>
Net income $ 33,390
============
Basic EPS:
Income available to common stockholders $ 33,390 40,159,931 $ 0.83
Effect of dilutive securities:
Options - - -
------------ -------------- -------------
Diluted EPS:
Income available to common stockholders $ 33,390 40,159,931 $ 0.83
============ ============== =============
</TABLE>
60
<PAGE>
(18) Commitments and Contingencies
-----------------------------
In the normal course of the Company's business, there are outstanding various
commitments and contingent liabilities that have not been reflected in the
consolidated statements of financial condition. In the opinion of management,
the financial position of the Company will not be affected materially as a
result of such commitments and contingent liabilities.
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
Company will not be affected materially by the outcome of such legal
proceedings.
On February 17, 1998, the Company announced a settlement with the NYSBD
regarding certain practices relating to origination and loan fees (overage fees)
paid by certain borrowers of its mortgage banking subsidiary. Under terms of the
settlement agreement, the Company established a $3.0 million fund to provide
compensation to certain borrowers who allegedly paid an overage fee for their
mortgage loans obtained from its mortgage banking subsidiary. Any money
remaining in the fund will go to further the Company's community development
initiatives. The charge for the settlement, and the costs related thereto, was
fully accrued at December 31, 1997 by the Company and totaled $4.7 million.
At December 31, 1998 and 1997, respectively, there were outstanding loan
commitments by the Company to advance approximately $325.5 million and $231.5
million for mortgage loans, primarily all of which were fixed rate commercial
and residential real estate loans.
At December 31, 1998 and 1997, the Company had no available lines of credit with
banks or any other institutions, except as noted in Note 12.
In the normal course of its mortgage banking activities, the Company enters into
both optional and mandatory commitments to sell packages of mortgage loans that
it originates. The Company commits to sell the loans at specified prices in a
future period, generally ranging from 30 to 120 days from the date of
commitment, directly to FNMA and 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 Company has unfilled mandatory delivery commitments with investors totaling
approximately $112.3 million and $23.5 million at December 31, 1998 and 1997,
respectively.
The Company's future minimum rental payments required under non-cancelable
operating leases for office space and equipment as of December 31, 1998 are as
follows:
<TABLE>
<CAPTION>
Years Ending December 31, Amounts
---------------------------------- --------------------
(In thousands)
<S> <C>
1999 $ 1,714
2000 1,799
2001 1,768
2002 1,791
2003 1,691
Thereafter 8,069
--------------------
$ 16,832
====================
</TABLE>
Total rent expense for the years ended December 31, 1998, 1997 and 1996 was
$788,000, $512,000 and $492,000, respectively.
61
<PAGE>
(19) Regulatory Capital
------------------
The Company and Bank are subject to various regulatory capital requirements
administered by federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the institutions' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action
(PCA), the institution must meet specific capital guidelines that involve
quantitative measures of the institution's assets, liabilities, and certain off-
balance sheet items as calculated under regulatory accounting practices. The
institution's capital amount and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the institution to maintain minimum amounts and ratios (set forth in the
table) of total and Tier I (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, at December 31, 1998, that the Company and Bank
meet all capital adequacy requirements to which they are subject.
As of December 31, 1998, the most recent notification from the FDIC categorized
the Bank as "well capitalized" under the regulatory framework for PCA. To be
categorized as "well capitalized" the Bank must maintain minimum total risk-
based, Tier I risk-based and Tier I leverage ratios of 10%, 6% and 5%,
respectively. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The actual capital amounts and ratios are presented in the following table for
the years ended:
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------
Bank Company
---------------------- ----------------------
Percent Percent of
Amount of Assets Amount Assets
---------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP capital (to total assets) $ 437,511 12.06% $ 598,898 16.03%
========== ========= ========= ======
Leverage capital (to adjusted average assets):
Actual level $ 416,164 11.52% $ 582,148 15.66%
========== ========= ========= ======
Capital adequacy requirement $ 108,397 3.00% $ 111,537 3.00%
========== ========= ========= ======
Requirement to be well capitalized under
PCA provisions $ 180,662 5.00% N/A N/A
========== ========= ========= ======
Tier I capital (to risk-weighted assets):
Actual level $ 416,164 23.13% $ 582,148 30.47%
========== ========= ========= ======
Capital adequacy requirement $ 71,960 4.00% $ 76,410 4.00%
========== ========= ========= ======
Requirement to be well capitalized under
PCA provisions $ 107,940 6.00% N/A N/A
========== ========= ========= ======
Total capital (to risk-weighted assets):
Actual level $ 438,680 24.38% $ 606,037 31.73%
========== ========= ========= ======
Capital adequacy requirement $ 143,919 8.00% $ 152,820 8.00%
========== ========= ========= ======
Requirement to be well capitalized under
PCA provision $ 179,899 10.00% N/A N/A
========== ========= ========= ======
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
December 31, 1997
-------------------------------------------------------------------
Bank Company
--------------------------- ----------------------------
Percent Percent
of of
Amount Assets Amount Assets
------------ ---------- ------------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP capital (to total assets) $ 407,372 11.31% $ 628,335 17.45%
============= ========== =========== ============
Leverage capital (to adjusted average assets):
Actual Level $ 375,901 12.32% $ 592,538 18.87%
============= ========== =========== ============
Capital adequacy requirement $ 91,558 3.00% $ 94,192 3.00%
============= ========== =========== ============
Requirement to be well capitalized under PCA
provisions $ 152,596 5.00% N/A N/A
============= ========== =========== ============
Tier I capital (to risk-weighted assets):
Actual level $ 375,901 26.34% $ 592,538 37.55%
============= ========== =========== ============
Capital adequacy requirement $ 57,078 4.00% $ 63,121 4.00%
============= ========== =========== ============
Requirement to be well capitalized under PCA
provisions $ 85,617 6.00% N/A N/A
============= ========== =========== ============
Total capital (to risk-weighted assets):
Actual level $ 393,814 27.60% $ 612,317 38.80%
============= ========== =========== ============
Capital adequacy requirement $ 114,157 8.00% $ 126,243 8.00%
============= ========== =========== ============
Requirement to be well capitalized under PCA
provisions $ 142,696 10.00% N/A N/A
============= ========== =========== ============
</TABLE>
(20) Parent-Only Financial Information
---------------------------------
The earnings of the Bank are recognized by Roslyn Bancorp, Inc. (the Holding
Company) using the equity method of accounting. Accordingly, undistributed
earnings of the Bank are recorded as increases in the Holding Company's
investment in the Bank. The following are the condensed financial statements of
the Holding Company as of and for the years ended December 31, 1998 and 1997
(although the Holding Company did not commence operations until the Conversion
on January 10, 1997, the full year results have been presented).
63
<PAGE>
Condensed Statements of Financial Condition
- -------------------------------------------
<TABLE>
<CAPTION>
1998 1997
----------------- ----------------
(In thousands)
<S> <C> <C>
Assets
------
Cash and cash equivalents $ 773 $ 220
Investment in equity securities, net:
Available-for-sale 353,173 153,492
Investment in subsidiary 437,511 407,372
ESOP loan receivable 52,882 53,352
Receivable from subsidiary 33,380 28,237
Deferred tax asset, net 5,318 709
Accrued interest receivable 2,211 -
Other assets 1,691 -
----------------- ----------------
Total assets $ 886,939 $ 643,382
================= ================
Liabilities and Stockholders' Equity
------------------------------------
Accrued interest payable $ 3,763 $ -
Payable to subsidiary 251,456 -
Accrued taxes payable 32,822 15,005
Other liabilities - 42
Total stockholders' equity 598,898 628,335
----------------- ----------------
Total liabilities and stockholders' equity $ 886,939 $ 643,382
================= ================
</TABLE>
Condensed Statements of Income
- ------------------------------
The condensed statements of income for the years ended December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
(In thousands)
<S> <C> <C>
Dividends received from subsidiary $ 14,416 $ 7,856
Interest income - securities 16,890 4,175
Interest income - ESOP loan receivable 4,535 4,439
Gain on sale of securities 3,136 -
Other income 24 -
--------------- ----------------
39,001 16,470
Interest expense - borrowings from subsidiary (15,230) -
Charitable donation - (12,711)
Other operating expenses (603) (228)
--------------- ----------------
Income before income taxes and equity in undistributed
earnings of subsidiary 23,168 3,531
Income tax (expense) benefit (1,263) 2,922
--------------- ----------------
Income before equity in undistributed earnings of subsidiary 21,905 6,453
Equity in undistributed earnings of subsidiary 30,499 26,937
--------------- ----------------
Net income $ 52,404 $ 33,390
=============== ================
</TABLE>
64
<PAGE>
Condensed Statements of Cash Flows
- ----------------------------------
The condensed statements of cash flows for the years ended December 31, 1998 and
1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
Operating activities: (In thousands)
Net income $ 52,404 $ 33,390
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Equity in the undistributed earnings of subsidiary (30,499) (26,937)
Amortization of premiums and discounts, net (737) 303
Charitable contribution of common stock - 12,711
Increase in receivable from subsidiary (5,143) (28,237)
Deferred taxes 3,177 (709)
Increase in other assets (1,691) -
Increase in accrued interest receivable (2,211) -
Net gains on sale of securities (3,136) -
Increase in accrued interest payable 3,763 -
Increase in accrued taxes payable 17,817 15,005
Decrease in other liabilities (42) (3,315)
---------------- ----------------
Net cash provided by operating activities 33,702 2,211
---------------- ----------------
Investing activities:
Purchases of equity securities (367,821) (152,445)
Proceeds from sales and calls of securities available-for-sale 155,333 6,201
Investment in subsidiary - (205,807)
Funding of ESOP loan receivable - (53,806)
Principal payment on ESOP loan receivable 470 454
---------------- ----------------
Net cash used in investing activities (212,018) (405,403)
---------------- ----------------
Financing activities:
Purchase of treasury stock (58,171) -
Net proceeds of common stock issuance - 410,650
Increase in payable to subsidiary 251,456 -
Cash dividends paid on common stock (14,416) (7,238)
---------------- ----------------
Net cash provided by financing activities 178,869 403,412
---------------- ----------------
Net increase in cash and cash equivalents 553 220
Cash and cash equivalents at beginning of year 220 -
---------------- ----------------
Cash and cash equivalents at end of year $ 773 $ 220
================ ================
</TABLE>
(21) Subsequent Events (Unaudited)
-----------------------------
In January 1999, the Company announced a restructuring program that will reduce
compensation related expenses company-wide under an Enhanced Retirement Program
(the Program). Under the Program, approximately ten percent of the Bank's full-
time employees opted for early retirement. Separations under the Program became
effective on January 29, 1999, and were unrelated to the transaction with T R
Financial Corp. A restructuring charge of approximately $5.9 million will be
taken in the first quarter of 1999, to provide for compensation related benefits
granted in connection with the Program. Annual cost savings from the
restructuring, are expected to be approximately $1.6 million, and will commence
immediately with the Program's effective separation date.
65
<PAGE>
(22) Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
The following table is a summary of operations by quarter for the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
12/31/98 9/30/98 6/30/98 3/31/98 12/31/97 9/30/97 6/30/97 3/31/97
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $ 64,587 $ 65,436 $ 64,816 $ 64,078 $ 62,378 $ 59,333 $ 53,203 $ 50,050
Interest expense 38,398 41,167 40,243 37,527 37,795 34,336 28,868 25,415
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Net interest income before
provision for possible
loan losses 26,189 24,269 24,573 26,551 24,583 24,997 24,335 24,635
Provision for possible loan
losses - 150 300 300 150 150 150 150
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Net interest income after
provision for possible
loan losses 26,189 24,119 24,273 26,251 24,433 24,847 24,185 24,485
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Non-interest income:
Fees and service charges 786 871 581 561 469 539 751 527
Mortgage banking
operations 2,121 2,988 1,702 1,315 998 868 748 894
Net gains (losses) on
securities 1,231 2,192 1,087 2,665 1,491 923 (6) 349
Real estate operations,
net 103 216 269 281 (118) (17) (93) 56
Other non-interest income 23 24 55 251 233 36 92 508
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total non-interest
income 4,264 6,291 3,694 5,073 3,073 2,349 1,492 2,334
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Non-interest expense:
General and administrative
expenses 11,862 11,061 10,175 11,152 9,378 9,749 9,753 10,995
Amortization of excess of
cost over fair value of
net assets acquired 118 118 118 117 117 117 117 118
Settlement of asserted
claims - - - - 4,000 680 - -
Charitable contribution
to The Roslyn Savings
Foundation - - - - - - - 12,711
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Total non-interest
expense 11,980 11,179 10,293 11,269 13,495 10,546 9,870 23,824
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Income before provision for
income taxes 18,473 19,231 17,674 20,055 14,011 16,650 15,807 2,995
Provision for income taxes 5,032 5,897 5,371 6,729 4,586 5,616 5,340 531
---------- ---------- ---------- ---------- ---------- ---------- --------- ----------
Net income $ 13,441 $ 13,334 $ 12,303 $ 13,326 $ 9,425 $ 11,034 $ 10,467 $ 2,464
========== ========== ========== ========== ========== ========== ========= ==========
Basic and diluted earnings
per share $ 0.35 $ 0.35 $ 0.32 $ 0.34 $ 0.24 $ 0.28 $ 0.26 $ 0.06
========== ========== ========== ========== ========== ========== ========= =========
</TABLE>
66
<PAGE>
Independent Auditors' Report
The Board of Directors
Roslyn Bancorp, Inc.
We have audited the accompanying consolidated statements of financial condition
of Roslyn Bancorp, Inc. and subsidiary (the Company) as of December 31, 1998 and
1997, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these 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 Company as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ KPMG L.L.P.
Melville, New York
January 26, 1999, except for Note 2
which is as of February 16, 1999.
67
<PAGE>
Market Price of Common Stock
Roslyn Bancorp, Inc. common stock is traded on the NASDAQ national market under
the symbol "RSLN." The following table shows the reported high, low and closing
sales price of the Company's common stock during the periods indicated in 1998
and 1997. The Company's common stock began trading on January 10, 1997.
<TABLE>
<CAPTION>
1998 1997
------------------------------------------ -------------------------------------------
High Low Closing High Low Closing
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
1st Quarter $ 24.5000 $ 20.1562 $ 23.5000 $ 18.6250 $ 15.0000 $ 16.3125
2nd Quarter 30.5000 20.8750 22.3125 22.8750 15.8750 22.8750
3rd Quarter 22.6250 13.7500 16.1250 24.3125 21.4375 22.2500
4th Quarter 21.5000 13.3125 21.5000 24.2500 20.9375 23.2500
</TABLE>
As of February 5, 1999, the Company had approximately 9,384 shareholders of
record, not including the number of persons or entities holding stock in nominee
or street name through various brokers and banks. There were 41,399,959 shares
of common stock outstanding at December 31, 1998.
The following schedule summarizes the cash dividends paid per common share for
1998.
<TABLE>
<CAPTION>
Record Dividend Dividend Paid
Date Payment Date Per Share
- -------------------------- ------------------------ ------------------------
<S> <C> <C>
March 2, 1998 March 12, 1998 $ 0.080
June 2, 1998 June 12, 1998 0.085
September 1, 1998 September 14, 1998 0.100
December 2, 1998 December 14, 1998 0.110
</TABLE>
68
<PAGE>
Exhibit 23
Independent Auditors' Consent
-----------------------------
The Stockholders and the
Board of Directors of
Roslyn Bancorp, Inc.:
We consent to incorporation by reference in the Registration Statement Nos. 333-
41365, 333-72471 and 333-56259 on Forms S-8 of Roslyn Bancorp, Inc. of our
report dated January 26, 1999, except for note 2 which is as of February 16,
1999, relating to the consolidated statements of financial condition of Roslyn
Bancorp, Inc. and subsidiary as of December 31, 1998 and 1997, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1998,
which report is incorporated by reference to the December 31, 1998 Annual Report
on Form 10-K of Roslyn Bancorp, Inc.
/S/ KPMG LLP
----------------------------
Melville, New York
March 30, 1999
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Form 10-K and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 76,320
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 38,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 2,235,283
<INVESTMENTS-CARRYING> 66,786
<INVESTMENTS-MARKET> 69,171
<LOANS> 1,297,032
<ALLOWANCE> (24,779)
<TOTAL-ASSETS> 3,735,032
<DEPOSITS> 2,070,831
<SHORT-TERM> 376,030
<LIABILITIES-OTHER> 2,176,665
<LONG-TERM> 583,439
0
0
<COMMON> 436
<OTHER-SE> 598,462
<TOTAL-LIABILITIES-AND-EQUITY> 3,735,032
<INTEREST-LOAN> 95,967
<INTEREST-INVEST> 161,333
<INTEREST-OTHER> 1,617
<INTEREST-TOTAL> 258,917
<INTEREST-DEPOSIT> 96,328
<INTEREST-EXPENSE> 157,335
<INTEREST-INCOME-NET> 101,582
<LOAN-LOSSES> 750
<SECURITIES-GAINS> 7,175
<EXPENSE-OTHER> 44,721
<INCOME-PRETAX> 75,433
<INCOME-PRE-EXTRAORDINARY> 23,029
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,404
<EPS-PRIMARY> 1.36
<EPS-DILUTED> 1.36
<YIELD-ACTUAL> 7.09
<LOANS-NON> 6,112
<LOANS-PAST> 0
<LOANS-TROUBLED> 909
<LOANS-PROBLEM> 436
<ALLOWANCE-OPEN> 24,029
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 24,779
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 24,779
</TABLE>
