<PAGE>
As filed with the Securities and Exchange Commission on November 25, 1997
Registration No. 333-37009
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO THE
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
RICHMOND COUNTY FINANCIAL CORP.
RICHMOND COUNTY SAVINGS BANK
401(k) SAVINGS PLAN
(exact name of registrant as specified in its charter)
DELAWARE 6036 06-1498455
(state or other jurisdiction of (Primary Standard (IRS Employer
incorporation or organization) Industrial Identification No.)
Classification Code
Number)
1214 Castleton Avenue
Staten Island, New York 10310
(718) 448-2800
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Michael F. Manzulli
President and Chief Executive Officer
Richmond County Savings Bank
Staten Island, New York 10310
(718) 448-2800
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Douglas P. Faucette, Esquire
Lawrence M.F. Spaccasi, Esquire
Marc P. Levy, Esquire
Geoffrey W. Ryan, Esquire
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
(202) 362-0840
Approximate date of commencement of proposed sale to public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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Calculation of Registration Fee
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<TABLE>
<CAPTION>
Proposed Maximum Proposed Maximum Amount of
Title of each Class of Amount to Offering Price Aggregate Offering Registration
Securities to be Registered be Registered Per Share Price(2) Fee
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 26,423,550 $10.00 $264,235,500 (3)
$.01 par value(1) Shares
- -------------------------------------------------------------------------------------------------------
Participation (4) -------- $ 2,863,470 (5)
Interests
=======================================================================================================
</TABLE>
(1) Includes shares of Common Stock to be issued to the Richmond County Savings
Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) Registration fee previously paid with Form S-1 filed on October 2, 1997.
(4) In addition, this registration statement also covers an indeterminate amount
of interests to be offered or sold pursuant to the Richmond County Savings
Bank 401(k) Savings Plan.
(5) The securities of Richmond County Financial Corp. to be purchased by
Richmond County Savings Bank 401(k) Savings Plan are included in the amount
shown for Common Stock. Accordingly, no separate fee is required for the
participation interests. In accordance with Rule 457(h) of the Securities
Act, as amended, the registration fee has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with sales to Participants in the RICHMOND COUNTY
SAVINGS BANK 401(k) Savings Plan]
PROSPECTUS SUPPLEMENT
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RICHMOND COUNTY FINANCIAL CORP.
RICHMOND COUNTY SAVINGS BANK
Participation Interests
RICHMOND COUNTY SAVINGS BANK
401(k) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in The Richmond County Savings Bank 401(k) Savings Plan in
RSI Retirement Trust (the "Plan") of participation interests and shares of
common stock, par value $.01 per share of Richmond County Financial Corp. (the
"Common Stock"), as set forth herein.
In connection with the proposed conversion of Richmond County Savings
Bank (the "Bank") from a mutual savings bank to a stock savings bank (the
"Conversion") the Plan has been amended to permit the investment of Plan assets
in Common Stock of Richmond County Financial Corp. (the "Holding Company"). The
amended Plan will permit Participants to direct the trustee of the Plan (the
"Trustee") to invest in Common Stock with amounts in the Plan attributable to
such Participants. Such investments in Common Stock would be made by means of
the Richmond County Financial Corp. Stock Fund (the "Employer Stock Fund").
Based upon the value of the Plan assets at June 30, 1997, 286,347 shares of
Common Stock could be purchased with Plan assets (assuming a purchase price of
$10.00 per share). This Prospectus Supplement relates to the initial election of
Participants to direct that all or a portion of their accounts be invested in
the Employer Stock Fund in connection with the Conversion and also to elections
by Participants to direct that all or a portion of their accounts be invested in
the Employer Stock Fund after the Conversion.
The prospectus dated ____________________, 1997 of the Holding Company
(the "Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock and the
financial condition, results of operations and business of the Bank. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus and should be
retained for future reference.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1997.
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, OR ANY OTHER STATE OR FEDERAL AGENCY OR ANY STATE SECURITIES
COMMISSION, NOR HAS SUCH COMMISSION OR OTHER AGENCY OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED, NOR ARE THE SHARES OF
COMMON STOCK GUARANTEED BY THE COMPANY OR THE BANK. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of
an offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Bank or the Plan since the date hereof, or
that the information herein contained or incorporated by reference is correct
as of any time subsequent to the date hereof.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
THE OFFERING .................................................... 1
Securities Offered.......................................... 1
Election to Purchase Common Stock in the Conversion......... 1
Value of Participation Interests............................ 1
Method of Directing Transfer................................ 2
Time for Directing Transfer................................. 2
Irrevocability of Transfer Direction........................ 2
Direction to Purchase Common Stock After the Conversion..... 2
Purchase Price of Common Stock.............................. 3
Nature of a Participant's Interest in the Common Stock...... 3
Voting and Tender Rights of Common Stock.................... 3
DESCRIPTION OF THE PLAN.......................................... 4
Introduction................................................ 4
Eligibility and Participation............................... 5
Contributions Under the Plan................................ 5
Limitations on Contributions................................ 6
Investment of Contributions................................. 8
Benefits Under the Plan..................................... 11
Withdrawals and Distributions From the Plan................. 11
Administration of the Plan.................................. 12
Reports to Plan Participants................................ 13
Plan Administrator.......................................... 13
Amendment and Termination................................... 13
Merger, Consolidation or Transfer........................... 14
Federal Income Tax Consequences............................. 14
ERISA and Other Qualification............................... 16
Restrictions on Resale...................................... 16
SEC Reporting and Short-Swing Profit Liability.............. 17
LEGAL OPINIONS................................................... 18
</TABLE>
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan.
Up to 286,347 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only salaried employees
of the Bank (hereinafter referred to as the "Employer") may participate in the
Plan. The Common Stock to be issued hereby is conditioned on the consummation of
the Conversion. A Participant's investment in units in the Employer Stock Fund
in the Conversion is subject to the priority set forth in the Plan of
Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Bank is contained in the
attached Prospectus. The address of the principal executive office of the Bank
is 1214 Castleton Avenue, Staten Island, New York 10310. The Bank's telephone
number is (718) 448-2800.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Bank's Conversion, the Plan has been amended to
permit each Participant to direct that all or part of the funds which represent
his or her beneficial interest in the assets of the Plan may be transferred to
an investment fund that will invest in Common Stock (the Employer Stock Fund)
and, to the extent shares are available to use such funds to purchase Common
Stock issued in connection with the Conversion, and to purchase Common Stock in
the open market. If there is not enough Common Stock in the Conversion to fill
all subscriptions, the Common Stock would be apportioned and the Plan may not
be able to purchase all of the Common Stock requested by the Participants. In
such case, the Trustee will purchase shares in the open market after the
Conversion to fulfill Participants' requests. Such purchases may be at prices
higher than the purchase price in the Conversion. The ability of each
Participant to invest in the Employer Stock Fund in the Conversion pursuant
to directions to transfer all or a portion of their beneficial assets in the
Plan will be based on such Participant's status as an Eligible Account Holder
or Supplemental Eligible Account Holder pursuant to the Plan of Conversion, the
subscription priorities set forth in the Plan of Conversion and the
availability of Common Stock. The Trustee of the Plan will follow the
Participants' directions. Funds not transferred to the Employer Stock Fund
will remain in the other investment funds of the Plan as directed by the
Participant on the attached Enrollment and Investment Application.
VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of June 30, 1997, was
$2,863,477 and each Participant was informed of the value of his or her
beneficial interest in the Plan. This value
1
<PAGE>
represented the past contributions to the Plan by the Employers and the
Participants and any earnings or losses thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a
transfer to the Employer Stock Fund (the "Investment Form"). If a Participant
wishes to transfer all or part (in multiples of not less than 1%) of his or her
beneficial interest in the assets of the Plan to the Employer Stock Fund being
established in connection with the Conversion, he or she should indicate that
decision in Part 2 of the Investment Form. If a Participant does not wish to
make such an election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the
Employer Stock Fund which will purchase Common Stock issued in connection with
the Conversion is ten days prior to (the "Expiration Date") of the Offering. The
Investment Form should be returned to the Bank's Human Resources Department by
_:__ p.m. on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in connection with
the Conversion shall be irrevocable. Participants, however, will be able to
direct the investment of their accounts ("Accounts") after the Conversion under
the Plan as explained below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a
certain percentage (in multiples of not less than 1%) of the net value of such
Participant's interests in the trust find established for the Plan (the "Trust
Fund") be transferred to the Employer Stock Fund and invested in Common Stock,
or to the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred to the Trust Fund to be invested in
accordance with the terms of the Plan. Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed once each
calendar quarter in any plan year by filing a written notice with the plan
administrator at least ten days before the effective date of the change. Special
restrictions apply to transfers directed by those Participants who are officers,
directors and principal shareholders of the Bank who are subject to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, as amended
(the "1934 Act").
2
<PAGE>
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price to be paid by the Trust Fund for such
shares of Common Stock will be the same price as is paid by all persons who
purchase shares of Common Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be
acquired in open market transactions. The prices paid by the Trustee for shares
of Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Transaction fees associated with purchase, sale or transfer of the
Common Stock after the Conversion will be paid by ______.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of shares of Common Stock will not be directly attributable to
the account of any Participant. Earnings, e.g., gains and losses, are allocated
to the Account of a Participant based on units in the Employer Stock Fund held
by the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights
attributable to all Common Stock held by the Trust Fund as directed by
Participants with interests in the Employer Stock Fund. With respect to each
matter as to which holders of Common Stock have a right to vote, each
Participant will be allocated a number of voting instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund. The number
of shares of Common Stock held in the Employer Stock Fund that are voted in the
affirmative and negative on each matter shall be proportionate to the number of
voting instruction rights exercised in the affirmative and negative,
respectively. In the event of a tender offer for Common Stock, the Plan provides
that each Participant will be allotted a number of tender instruction rights
reflecting such Participant's proportionate interest in the Employer Stock Fund.
The percentage of shares of Common Stock held in the Employer Stock Fund that
will be tendered will be the same as the percentage of the total number of
tender instruction rights that are exercised in favor of tendering. The
remaining shares of Common Stock held in the Employer Stock Fund will not be
tendered. The Plan makes provision for Participants to exercise their voting
instruction rights and tender instruction rights on a confidential basis.
3
<PAGE>
DESCRIPTION OF THE PLAN
I. INTRODUCTION
The Plan was established effective January 1, 1992 as Richmond County
Savings Bank 401(k) Savings Plan in the Retirement System for Savings
Institutions. The Plan is a cash or deferred arrangement established in
accordance with the requirements under Section 401(a) and Section 401(k) of the
Internal Revenue Code of 1986 (the "Code"). The Plan will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for a determination that
the Plan, as amended and restated, is qualified under Section 401(a) of the
Code, and that its related trust(s) are qualified under Section 501(a) of the
Code.
The Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Bank
will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON WITHDRAWALS
MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS OF WHETHER
SUCH A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE BANK OR AFTER
TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries
------------------------------
of certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available to
all employees by filing a request with the Plan Administrator, Dorothy
Episcopia, Richmond County Savings Bank, 207 Taylor Street, Staten Island, New
York 10310. The Plan Administrator's telephone number is (718) 448-2800. Each
employee is urged to read carefully the full text of the Plan.
4
<PAGE>
II. ELIGIBILITY AND PARTICIPATION
Any salaried employee of the Employer is eligible to participate in the
Plan as soon as the employee reaches age 21 and completes one year of service
with the Employer. In order to commence participation, an employee must submit
an enrollment form at least 10 days in advance of the date he desires to enter
the Plan. Employees compensated on an hourly, daily, commission, fee or retainer
basis, leased employees (within the meaning of Section 414(n) of the Code) and
employees covered by a collective bargaining agreement which does not expressly
provide for their coverage under the Plan, are not eligible to participate in
the Plan.
As of June 30, 1997, there were approximately 201 employees eligible to
participate in the Plan, and 192 employees had elected to participate in the
Plan.
III. CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Subject to certain limitations on
-------------------------
contributions, each Participant in the Plan is permitted to elect to reduce such
Participant's Compensation (as defined below) pursuant to a "Compensation
Reduction Agreement" by an amount not less than 2% and not more than 9% and have
that amount contributed to the Plan on such Participant's behalf. Such amounts
are credited to the Participant's "Basic Contribution Account." See "Section IV
Limitations on Contributions" below. For purposes of the Plan, "Compensation"
means the base compensation receivable by an Employee from the Employer for the
calendar year prior to any reductions pursuant to the Compensation Reduction
Agreement. Compensation includes salary, Basic Contributions, wages, overtime
and wage continuation payments to an employee who is absent due to an illness or
disability of a short-term nature. "Compensation" does not include commissions,
expense allowances, severance pay, fees, bonuses, incentive payments,
contributions other than Basic Contributions made to the Plan and contributions
made by the Employer to any other pension, insurance welfare or other employee
benefit plan. As of January 1, 1997, the annual compensation of each Participant
taken into account under the Plan is limited to $160,000 (adjusted for increases
in the cost of living as permitted by the Code). Generally, a Participant may
elect to modify the amount contributed to the Plan under such participant's
Compensation Reduction Agreement not more often than once in any calendar
quarter by providing notice to the Plan Administrator at least 10 days before
commencement of the first day of the payroll period for which the modification
is to become effective. However, special restrictions apply to persons subject
to Section 16 of the 1934 Act. Basic Contributions are transferred by the
Employer to the Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a Compensation Reduction Agreement or have matching
contributions made on his behalf for a period of twelve (12) months after the
receipt of the hardship distribution.
5
<PAGE>
Employer Contributions. The Employer contributes to the Plan for each
----------------------
Plan Year 50% of the Participant's Basic Contributions, up to a 6% of the
Participant's Compensation for the Plan Year. Such amounts are credited to the
Participant's "Matching Contribution Account." After the Conversion, at the
discretion of the Bank, the Employer contributions may be credited to the
Participant's Account in Richmond County Savings Bank Employee Stock Ownership
Plan. At its discretion, the Employer may make an additional contribution to the
Plan as of the end of the Plan Year in an amount determined by the Employer for
the purpose of ensuring that the Plan complies with Section 401(k) of the Code.
Such amounts are credited to Participants' "Special Contribution Accounts" based
on each Participant's compensation. Special Contributions may be made only to
the accounts of non-highly compensated employees.
IV. LIMITATIONS ON CONTRIBUTIONS
Limitations on Annual Additions and Benefits. Pursuant to the
--------------------------------------------
requirements of the Code, the Plan provides that the amount of contributions
allocated to each Participant's Basic Contribution Account and Matching
Contribution Account during any Plan Year may not exceed the lesser of 25% of
the Participant's (s)415 Compensation for the Plan Year or $30,000 (adjusted for
increases in the cost of living as permitted by the Code). A Participant's
(s)415 Compensation is a Participant's Compensation, excluding any Employer
contribution to the Plan or to any other plan of deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions shall be limited to the extent necessary to prevent the limitations
set forth in the Code for all of the qualified defined benefit plans and defined
contribution plans maintained by the Bank from being exceeded. To the extent
that these limitations would be exceeded by reason of excess annual additions
with respect to a Participant, such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to
reduce the Employer's contributions for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not
---
covered by the Plan at the end of the Limitation Year, the excess amount will be
held unallocated in a suspense account which will then be applied to reduce
future Employer contributions for all remaining Participants in the next
Limitation Year, and each succeeding Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not participate in the allocation of investment gains
and losses.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
---------------------------------------
Compensation under a Compensation Reduction Agreement of a Participant (when
aggregated with any elective deferrals of the Participant under a simplified
employee pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted
for increases in the cost of living as permitted by the Code (the limitation
for 1997 is $9,500). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are
6
<PAGE>
made. In addition, any such excess deferral will again be subject to federal
income tax when distributed by the Plan to the Participant, unless the excess
deferral (together with any income allocable thereto) is distributed to the
Participant not later than the first April 15th following the close of the
taxable year in which the excess deferral is made. Any income on the excess
deferral that is distributed not later than such date shall be treated, for
federal income tax purposes, as earned and received by the Participant in the
taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of Deferred Compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of Deferred Compensation credited to the Basic Contribution Account of
such eligible employee by such eligible employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (i) 125%
of the actual deferral percentage of all other eligible employees, or (ii) the
lesser of (x) 200% of the actual deferral percentage of all other eligible
employees, or (y) the actual deferral percentage of all other eligible employees
plus two percentage points. In addition, the actual contribution percentage for
such Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Matching Contribution
Account and Special Contribution Account of such eligible employee by such
eligible employee's compensation for the Plan Year) of the Highly Compensated
Employees may not exceed the greater of (i) 125% of the actual contribution
percentage of all other eligible employees, or (ii) the lesser of (x) 200% of
the actual contribution percentage of all other eligible employees, or (y) the
actual contribution percentage of all other eligible employees plus two
percentage points.
In general, a Highly Compensated Employee includes any employee who, (1)
was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so such year. The dollar amounts in the foregoing
sentence are for 1997. Such amounts are adjusted annually to reflect increases
in the cost of living.
In addition, the compensation of an employee who is a family member of a
5% owner, or one of the ten most highly compensated employees during the
relevant period is aggregated with that of the Highly Compensated Employee. All
such family members are treated as a single employee with respect to the
application of the limitations on Highly Compensated Employees.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Employer
7
<PAGE>
will be subject to a 10% excise tax on any excess contributions unless such
excess contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2-1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a
---------------------------
Top-Heavy Plan (as defined below), then (i) the Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan maintained by the Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance
of the Accounts of Participants who are Key Employees (as defined below) exceeds
60% of the aggregate balance of the Accounts of all Participants. Key Employees
generally include any employee who, at any time during the Plan Year or any of
the four preceding Plan Years, is (1) an officer of the Bank having annual
compensation in excess of $60,000 who is in an administrative or policy-making
capacity, (2) one of the ten employees having annual compensation in excess of
$30,000 and owning, directly or indirectly, the largest interests in the Bank,
(3) a 5% owner of the Bank, (i.e., owns directly or indirectly more than 5% of
the stock of the Bank, or stock possessing more than 5% of the total combined
voting power of all stock of the Bank) or (4) a 1% owner of the Bank having
annual compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1997.
V. INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held
in the Plan Trust (the "Trust") which is administered by the Trustee appointed
by the Bank's Board of Trustees.
Prior to [insert date of Prospectus here], the Accounts of a Participant
held in the Trust have been invested by the Trustee at the direction of the
Participant in the following funds:
a. Core Equity Fund;
b. Emerging Growth Equity Fund;
c. Value Equity Fund;
d. Actively Managed Bond Fund;
e. Intermediate - Term Bond Fund;
f. Short-Term Investment Fund; and
g. International Fund.
The Plan, as amended effective _______, 1997, now provides that in
addition to the Funds specified above, a Participant who is employed by the Bank
may direct the Trustee to invest all or a portion of his Basic Contribution
Account and Rollover Account in the Employer Stock Fund.
8
<PAGE>
Participants in the Plan may direct the Trustee to invest all or a
portion of his Basic Contribution Account, Matching Contribution Account,
Rollover Account and Special Contribution Account in the Employer Stock Fund.
Once in any calendar quarter a Participant may elect (in increments of
1%), to have both past and future contributions and additions to the
Participant's Basic Contribution Account and Rollover Account invested either in
the Employer Stock Fund or among such other Funds. Participants may also elect
to have past contributions to their Matching Contribution Accounts invested in
either the Employer Stock Fund or among such other Funds. Participants Matching
Contribution Accounts may be invested in Employer Stock under the proposed terms
of The Richmond County Savings Bank Employee Stock Ownership Plan being
implemented by the Bank. These elections will be effective on the effective date
of the Participant's written notice to the plan administrator, provided such
notice is filed with the administrator at least 10 days before it is to become
effective. Any amounts credited to a Participant's Account for which investment
directions are not given will be invested in the Short-Term Investment Fund in
accordance with the terms of the Plan. Because investment allocations only are
required to be made in increments of 1%, Participants can invest their Accounts
in each of the 8 available investment funds. Diversification with respect to the
investment of a Participant's Account may be achieved through the 8 investment
options available to Participants and the opportunity for Participants to make
investment designations up to four times each year.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The amount of the loan is obtained from the
Investment Accounts in which the Borrower's accounts are invested on a pro-rata
basis according to the terms of the Plan. The balance of a Participant's loan
account represents the unpaid principal and interest (if any) of such
participant's loan from the Plan. Repayments of principal and payments of
interest on loans are invested by the Trustee in the same manner as if the
repayment were a contribution.
The Participants interest in the Employer Stock Fund consists of units
whose value is related to a pro rata portion of the net asset value ("NAV") of
the Employer Stock Fund. The NAV is determined daily and all realized and
unrealized gains, dividends, and expenses are used to calculate the NAV. For
purposes of such valuation, all assets of the Trust are valued at their fair
market value.
9
<PAGE>
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the seven Funds specified above. The annual percentage return on
these funds for the prior three years was:
1996 1995 1994
--------------------
a. Core Equity Fund 21.53% 40.17% 1.31%
b. Emerging Growth Equity Fund 27.09 42.83 3.53
c. Value Equity Fund 25.90 33.96 (1.14)
d. Actively Managed Bond Fund 3.15 17.70 (4.21)
e. Intermediate-Term Bond Fund 4.02 13.99 (2.54)
f. Short-Term Investment Fund 4.70 5.39 3.40
g. International Equity Fund 10.86 12.46 0.77
B. The Employer Stock Fund.
-----------------------
The Employer Stock Fund will consist of investments in Common Stock made
on and after the effective date of the Conversion. Each Participant's
proportionate undivided beneficial interest in the Employer Stock Fund is
measured by units. Each day a unit value will be calculated by determining the
market value of the Common Stock actually held and adding to that any cash held
by the Trustee. This total will be divided by the number of units outstanding to
determine the unit value of the Employer Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will
be determined before the dividend is distributed. The Trustee may use the
dividend to purchase additional shares of Common Stock, thereby increasing the
total value of the Employer Stock Fund, and the value of each unit. The Board of
Directors of the Holding Company may consider a policy of paying cash dividends
on the Common Stock in the future; however, no decision as to the amount or
timing of cash dividends, if any, has been made. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund to purchase
shares of Common Stock of the Bank. It is expected that all purchases will be
made at prevailing market prices. Under certain circumstances, the Trustee may
be required to limit the daily volume of shares purchased. Pending investment in
Common Stock, assets held in the Employer Stock Fund will be placed in bank
deposits and other short-term investments.
Any brokerage commissions, transfer fees and other expenses incurred in
the sale and purchase of Common Stock for the Employer Stock Fund will be paid
out of a cash account managed by the trustee. Therefore, although Participants'
accounts will not be directly adjusted for such fees, the market value of their
accounts will be reduced.
10
<PAGE>
As of the date of this Prospectus Supplement, none of the shares of
Common Stock have been issued or are outstanding and there is no established
market for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund. Performance will be dependent upon a
number of factors, including the financial condition and profitability of the
Holding Company and the Bank and market conditions for the Common Stock
generally. See "Market for the Common Stock" in the Prospectus.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS
IN INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
VI. BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Basic Contribution Account and the earnings thereon under the
Plan. A Participant vests in his Matching Contribution Account under the Plan
according to the following schedule:
Period of Service Vested Percentage
----------------- -----------------
less than 2 years 0%
2 years 20
3 years 40
4 years 60
5 years 80
6 years or more 100
For purposes of vesting, years of service from age 18 are counted.
VII. WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
Withdrawals Prior to Termination of Employment. Subject to the hardship
----------------------------------------------
distribution rules under the Plan, a Participant may withdraw all or a portion
of his (i) Basic Contribution Account, (ii) Rollover Contribution Account and
(iii) the vested interest in his Matching Contribution Account. The hardship
distribution requirements ensure that Participants have a true financial need
before a withdrawal may be made.
A Participant may make a withdrawal from his Basic Contribution Account,
Rollover Contribution Account, and Matching Contribution Account after he turns
59-1/2. A Participant after attaining age 59-1/2 may withdraw contributions to
his Basic Contribution Account, contributions to his Rollover Contribution
Account or the vested portion of his Matching Contribution Account at any time.
However, such withdrawals may not be made more often than two times during any
Plan Year.
11
<PAGE>
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement
age. At the request of the Participant, the distribution may include an in
kind distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the Employer
Stock Fund. Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
Participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event later than the April 1 following the calendar year in which the
Participant attains age 70-1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the
Participant elects to receive an earlier distribution.
Distribution upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations
order (as defined in the Code), benefits payable under the Plan shall not be
subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance, charge, garnishment, execution, or levy of any kind,
either voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights
to benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan
for purposes of Section 402 of ERISA.
12
<PAGE>
Trustees. The Trustee is appointed by the Board of Trustees of the Bank
--------
to serve at its pleasure. The current Trustee of the Plan is the RSI Retirement
Trust. However, an additional Trustee is being appointed to hold funds invested
in the Employer Stock Fund.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The
Trustee is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Plan Administrator will furnish to each Participant a statement at
least quarterly showing (i) the balance in the Participant's Account as of the
end of that period, (ii) the amount of contributions allocated to such
participant's Account for that period, and (iii) the adjustments to such
participant's Account to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
Pursuant to the terms of the Plan, the Plan is administered by one or
more persons who are appointed by and who serve at the pleasure of the Bank.
Currently, the Plan Administrator is Dorothy Episcopia, Vice President and Human
Resources Officer of the Bank. The address and telephone number of the Plan
Administrator is c/o 207 Taylor Street, Staten Island, New York 10310; (718)
448-2800. The Plan Administrator is responsible for the administration of the
Plan, interpretation of the provisions of the Plan, prescribing procedures for
filing applications for benefits, preparation and distribution of information
explaining the Plan, maintenance of Plan records, books of account and all other
data necessary for the proper administration of the Plan, and preparation and
filing of all returns and reports relating to the Plan which are required to be
filed with the U.S. Department of Labor and the IRS, and for all disclosures
required to be made to Participants, Beneficiaries and others under Sections 104
and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Bank to continue the Plan indefinitely.
Nevertheless, the Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the
Plan, each employee affected by such termination shall have a fully vested
interest in his Accounts. The Bank reserves the right to make, from time to
time, any amendment or amendments to the Plan which do not cause any part of
the Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of Participants or their beneficiaries; provided, however, that the
Bank may make any amendment it determines necessary or desirable, with or
without retroactive effect, to comply with ERISA.
13
<PAGE>
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust assets to another plan, the Plan requires
that each Participant would (if either the Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation or
transfer which is equal to or greater than the benefit he would have been
entitled to receive immediately before the merger, consolidation or transfer (if
the Plan had then terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) Participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The Bank
expects to timely adopt any amendments to the Plan that may be necessary to
maintain the qualified status of the Plan under the Code. Following such an
amendment, the Bank will submit the Plan to the IRS for a determination that the
Plan, as amended, continues to qualify under Sections 401(a) and 501(a) of the
Code and that it continues to satisfy the requirements for a qualified cash or
deferred arrangement under Section 401(k) of the Code. Should the Plan receive
from the IRS an adverse determination letter regarding its tax exempt status,
all participants would generally recognize income equal to their vested interest
in the Plan, the participants would not be permitted to transfer amounts
distributed from the Plan to an IRA or to another qualified retirement plan, and
the Bank may be denied certain deductions taken with respect to the Plan.
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation
14
<PAGE>
from service, or after the Participant attains age 59-1/2; and (iii) consists of
the balance to the credit of the Participant under this Plan and all other
profit sharing plans, if any, maintained by the Bank. The portion of any Lump
Sum Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes (the "total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plans maintained by the Bank which is included in such
distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or
in any other profit-sharing plan maintained by the Bank (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's
participation in this Plan or any other profit-sharing plan maintained by the
Employers), may elect to have the ordinary income portion of such Lump Sum
Distribution taxed according to a special averaging rule ("five-year
averaging"). The election of the special averaging rules may apply only to one
Lump Sum Distribution received by the Participant or beneficiary, provided such
amount is received on or after the Participant turns 59-1/2 and the recipient
elects to have any other Lump Sum Distribution from a qualified plan received
in the same taxable year taxed under the special averaging rule. Under a
special grandfather rule, individuals who turned 50 by 1986 may elect to have
their Lump Sum Distribution taxed under either the five-year averaging rule or
under the prior law ten-year averaging rule. Such individuals also may elect
to have that portion of the Lump Sum Distribution attributable to the
participant's pre-1974 participation in the Plan taxed at a flat 20% rate as
gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum
----------------------------------------------
Distribution includes Common Stock, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Stock, i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the Participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of such
Common Stock, to the extent of the amount of net unrealized appreciation at the
time of distribution, will be considered long-term capital gain regardless of
the holding period of such Common Stock. Any gain on a subsequent sale or other
taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term capital gain or long-term capital gain depending upon the length of
the holding period of the Common Stock. The recipient of a distribution may
elect to include the amount of any net unrealized appreciation in the total
taxable amount of such distribution to the extent allowed by the regulations to
be issued by the IRS.
15
<PAGE>
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
-----------------------------------------------------------------------
or to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- ------------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an individual retirement account("IRA") without regard to
whether the distribution is a Lump Sum Distribution or a Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to an mandatory federal withholding tax equal to
20% of the taxable distribution. An "eligible rollover distribution" means any
amount distributed from the Plan except: (1) a distribution that is (a) one of a
series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lines of the Participant and his or her designated beneficiary, or (b) for a
specified period of ten years or more; (2) any amount that is required to be
distributed under the minimum distribution rules; and (3) any other
distributions excepted under applicable federal law. The tax law change
described above did not modify the special tax treatment of Lump Sum
Distributions, that are not rolled over or transferred i.e., forward averaging,
capital gains tax treatment and the nonrecognition of net unrealized
appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of ERISA and
will be submitted to the IRS for a determination that it is qualified under
Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX
ASPECTS OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT
INTENDED TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Bank as the term "affiliate" is used in Rules
144 and 405 under the Securities Act of 1933, as amended (the "Securities Act")
(e.g., directors, officers and substantial shareholders of the Bank) may reoffer
or resell such shares only pursuant to a registration statement filed under the
Securities Act assuming the availability thereof, pursuant to Rule 144 or some
other exemption of the registration requirements of the Securities Act Any
person who may be an "affiliate" of the Bank may wish to consult with counsel
before transferring any Common Stock owned by him. In addition, Participants are
advised to consult with counsel as to the applicability of Section 16 of the
1934 Act which may restrict the sale of Common Stock where acquired under the
Plan, or other sales of Common Stock.
16
<PAGE>
Persons who are not deemed to be "affiliates" of the Bank at the time of
resale will be free to resell any shares of Common Stock to them under the
Plan, either publicly or privately, without regard to the Registration and
Prospectus delivery requirements of the Securities Act or compliance with the
restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of the Bank is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control,
with the Bank. Normally, a director, principal officer or major shareholder of
a corporation may be deemed to be an "affiliate" of that corporation. A person
who may be deemed an "affiliate" of the Bank at the time of a proposed resale
will be permitted to make public resales of the Bank's Common Stock only
pursuant to a "reoffer" Prospectus or in accordance with the restrictions and
conditions contained in Rule 144 under the Securities Act or some other
exemption from registration, and will not be permitted to use this Prospectus
in connection with any such resale. In general, the amount of the Bank's
Common Stock which any such affiliate may publicly resell pursuant to Rule 144
in any three-month period may not exceed the greater of one percent of the
Bank's Common Stock then outstanding or the average weekly trading volume
reported on the National Association of Securities Dealers Automated Quotation
System during the four calendar weeks prior to the sale. Such sales may be
made only through brokers without solicitation and only at a time when the Bank
is current in filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements
on officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as purchases,
sales, gifts and participation in savings and retirement plans must be reported
periodically, either on a Form 4 within ten days after the end of the month in
which a change occurs, or annually on a Form 5 within 45 days after the close of
the Bank's fiscal year. Participation in the Employer Stock Fund of the Plan by
officers, directors and persons beneficially owning more than ten percent of
Common Stock of the Holding Company must be reported to the SEC annually on a
Form 5 by such individuals. At ____________, 1997, _____% of the Plan assets
were allocated to executive officers.
In addition to the reporting requirements described above, Section 16(b)
of the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
The SEC has adopted rules that provide exemption from the profit
recovery provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally
17
<PAGE>
involve restrictions upon the timing of elections to acquire or dispose of
employer securities for the accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Muldoon, Murphy & Faucette, Washington, D.C., which firm acted as special
counsel for the Bank in connection with the Bank's Conversion from a mutual
savings bank to a stock based organization.
18
<PAGE>
RICHMOND COUNTY SAVINGS BANK
401(K) SAVINGS PLAN IN RSI RETIREMENT TRUST
Investment Form
Name of Plan Participant:
-----------------------------------
Social Security Number:
-----------------------------------
1. INSTRUCTIONS. In connection with the proposed Conversion of
------------
Richmond County Savings Bank from a mutual savings bank to a stock based
organization (the "Conversion"), Richmond County Savings Bank 401(k) Savings
Plan in RSI Retirement Trust ("Plan") has been amended to permit participants to
direct their current account balances for their Basic Contribution Account,
Company Contribution Account and Rollover Account into a new fund: the Employer
Stock Fund. The percentage of a participant's account transferred at the
direction of the participant into the Employer Stock Fund will be used to
purchase shares of common stock of Richmond County Financial Corp. (the "Common
Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (__________________, 1997.) A representative for the Plan
Administrator will retain a copy of this form and return a copy to you. If you
need any assistance in completing this form, please contact Dorothy Episcopia at
(718) 448-2800, extension 291. If you do not complete and return this form to
the Plan Administrator by ______________, the funds credited to your accounts
under the Plan will continue to be invested in accordance with your prior
investment direction, or in accordance with the terms of the Plan if no
investment direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to direct
the Trustee to invest the following percentage (in multiples of not less than
1%) of my Basic Contribution Account, Company Contribution Account and Rollover
Account in the Employer Stock Fund:
a. Core Equity Fund ____%
b. Emerging Growth Fund ____%
c. Value Equity Fund ____%
d. Actively Managed Bond Fund ____%
e. Intermediate - Term Investment Fund ____%
f. Short-Term Investment Fund ____%
g. International Equity Fund ____%
NOTE: The total percentage of directed investments, above, may not exceed 100%.
3. PURCHASER INFORMATION. The ability of participants in the Plan to purchase
Common Stock in the Conversion and to direct their current account balances into
the Employer Stock Fund is based upon the participants status as an Eligible
Account Holder and/or Supplemental Eligible Account Holder and/or Other Member.
Please indicate your status.
a. [_] Eligible Account Holder - Check here if you were a depositor
with $50.00 or more on deposit with Richmond County Savings Bank
as of June 30, 1996.
b. [_] Supplemental Eligible Account Holder - Check here if you were
a depositor with $50.00 or more on deposit with Richmond County
Savings Bank as of September 30, 1997, but are not an Eligible
Account Holder.
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
- ----------------------------- -----------------
Signature of Participant Date
19
<PAGE>
- -------------------------------------------------------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received by
the Plan Administrator and will become effective on the date noted below.
- ----------------------------- -----------------
By:______________ Date
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY
ARE NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR BANK.
THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF
THE PRINCIPAL INVESTED.
20
<PAGE>
Financial Statements
and Supplemental Schedules
Richmond County Savings Bank
401(k) Savings Plan
in RSI Retirement Trust
Years ended December 31, 1996 and 1995
with Report of Independent Auditors
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Financial Statements
and Supplemental Schedules
Years ended December 31, 1996 and 1995
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.......................................... F-1
Financial Statements
Statement of Net Assets Available for Plan Benefits
with Fund Information.................................................. F-2
Statement of Changes in Net Assets Available for Plan Benefits
with Fund Information.................................................. F-3
Notes to Financial Statements........................................... F-5
Supplemental Schedules
Assets Held for Investment.............................................. F-13
Reportable Transactions................................................. F-14
</TABLE>
A schedule of party-in-interest transactions has not been presented because
there were no party-in-interest transactions which are prohibited by ERISA
Section 406 and for which there are no statutory or administrative
exemptions.
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
The Board of Trustees
Richmond County Savings Bank
We have audited the accompanying statements of net assets available for Plan
benefits with fund information of the Richmond County Savings Bank 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") as of December 31, 1996 and
1995, and the related statements of changes in net assets available for Plan
benefits with fund information for the years then ended. These financial
statements are the responsibility of the Plan's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for Plan benefits at December
31, 1996 and 1995, and the changes in its net assets available for Plan benefits
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedules of assets
held for investment as of December 31, 1996 and reportable transactions for the
year then ended are presented for purposes of complying with the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974, and are not a required part of the
financial statements. The Fund Information in the statement of net assets
available for Plan benefits with fund information and the statement of changes
in net assets available for Plan benefits with fund information is presented for
purposes of additional analysis rather than to present the net assets available
for Plan benefits with fund information and changes in net assets available for
Plan benefits of each fund. The supplemental schedules and Fund Information have
been subjected to the auditing procedures applied in our audits of the financial
statements and, in our opinion, are fairly stated in all material respects in
relation to the financial statements taken as a whole.
/s/ Ernst & Young LLP
July 14, 1997
F-1
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Net Assets Available for Plan Benefits with Fund Information
<TABLE>
<CAPTION>
Emerging Actively
Core Growth Value Short-Term Intermediate- Managed International
Equity Equity Equity Investment Term Bond Bond Equity
Fund Fund Fund Fund Fund Fund Fund Loans Total
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996:
Investments, at fair
value (Note 4) $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $ -- $2,459,653
Loans receivable from
participants -- -- -- -- -- -- -- 79,839 79,839
------------------------------------------------------------------------------------------------------
Net assets available
for Plan benefits $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $79,839 $2,539,492
======================================================================================================
December 31, 1995:
Investments, at fair
value (Note 4) $ 651,533 $284,997 $238,678 $304,269 $ 67,040 $139,201 $ -- $ -- $1,685,718
Loans receivable from
participants -- -- -- -- -- -- -- 47,360 47,360
------------------------------------------------------------------------------------------------------
Net assets available
for Plan benefits $ 651,533 $284,997 $238,678 $304,269 $ 67,040 $139,201 $ -- $47,360 $1,733,078
======================================================================================================
</TABLE>
See accompanying notes.
F-2
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information
Year ended December 31, 1996
<TABLE>
<CAPTION>
Emerging Actively
Core Growth Value Short-Term Intermediate- Managed International
Equity Equity Equity Investment Term Bond Bond Equity
Fund Fund Fund Fund Fund Fund Fund Loans Total
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Additions
Employee contributions $ 154,864 $ 80,434 $ 63,749 $ 38,066 $ 15,517 $ 29,269 $ 1,751 $ -- $ 383,650
Employee rollover
contributions -- -- -- 17,718 -- -- -- -- 17,718
Employer contributions 56,449 29,255 22,704 14,597 5,792 10,720 598 -- 140,115
Interest on loans -- -- -- -- -- -- -- 5,501 5,501
Net realized and
unrealized appreciation
in fair value of
investments 168,055 85,663 72,808 12,804 3,557 4,523 446 -- 347,856
--------------------------------------------------------------------------------------------------------
Total additions 379,368 195,352 159,261 83,185 24,866 44,512 2,795 5,501 894,840
Benefits distributed (24,658) (13,881) (11,640) (7,512) (10,117) (20,618) -- -- (88,426)
Transfers between funds 12,337 (13,460) (20,163) (67,484) 64,510 (13,205) 10,487 26,978 --
--------------------------------------------------------------------------------------------------------
Increase in net assets
available for Plan
benefits 367,047 168,011 127,458 8,189 79,259 10,689 13,282 32,479 806,414
Net assets available for
Plan benefits,
beginning of year 651,533 284,997 238,678 304,269 67,040 139,201 -- 47,360 1,733,078
--------------------------------------------------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $1,018,580 $453,008 $366,136 $312,458 $146,299 $149,890 $13,282 $79,839 $2,539,492
========================================================================================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Statement of Changes in Net Assets Available for Plan Benefits with Fund
Information
Year ended December 31, 1995
<TABLE>
<CAPTION>
Core Emerging Value Short-Term Intermediate-
Equity Growth Equity Equity Investment Term Bond
Fund Fund Fund Fund Fund
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Additions
Employee contributions $105,639 $ 49,404 $ 46,108 $ 39,893 $ 14,204
Employee rollover
contributions - 531 531 3,185 -
Employer contributions 47,951 22,299 20,855 18,351 6,540
Interest on loans - - - - -
Net realized and
unrealized appreciation
in fair value of
investments 167,454 76,917 55,294 12,540 7,146
--------------------------------------------------------------------------------
Total additions 321,044 149,151 122,788 73,969 27,890
Benefits distributed (23,106) (11,770) (10,481) (11,497) (2,118)
Transfers between funds 4,346 (28,258) (26,448) 58,075 (5,398)
--------------------------------------------------------------------------------
Increase in net assets
available for Plan
benefits 302,284 109,123 85,859 120,547 20,374
Net assets available for
Plan benefits,
beginning of year 349,249 175,874 152,819 183,722 46,666
--------------------------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $651,533 $ 284,997 $ 238,678 $ 304,269 $ 67,040
================================================================================
<CAPTION>
Actively International
Managed Equity
Bond Fund Fund Loans Total
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Additions
Employee contributions $ 28,210 $ - $ - $ 283,458
Employee rollover
contributions - - - 4,247
Employer contributions 13,001 - - 128,997
Interest on loans - - 3,237 3,237
Net realized and
unrealized appreciation
in fair value of
investments 18,268 - - 337,619
-------------------------------------------------------------
Total additions 59,479 - 3,237 757,558
Benefits distributed (4,296) - (1,335) (64,603)
Transfers between funds (9,744) - 7,427 -
-------------------------------------------------------------
Increase in net assets
available for Plan
benefits 45,439 - 9,329 692,955
Net assets available for
Plan benefits,
beginning of year 93,762 - 38,031 1,040,123
-------------------------------------------------------------
Net assets available for
Plan benefits, end of
year $ 139,201 $ - $47,360 $1,733,078
=============================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements
December 31, 1996
1. Description of the Plan
The following brief description of the Richmond County Savings Bank 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") provides only general
information. Participants should refer to the Plan document for more complete
information.
General
The Plan is a defined contribution plan covering all eligible employees of
Richmond County Savings Bank (the "Bank"). The Plan was created on January 1,
1992, as subsequently amended through August 30, 1995, and is administered by
RSI Retirement Trust (the "Trust"). The Trust is a multiple employer trust,
subject to the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA"), that provides retirement benefits for the employees of savings
banks and their allied organizations. The assets of all participating member
organizations are held in this common trust and are collectively invested and
reinvested by the Trust in its capacity as Trustee.
Eligibility
Any full time, salaried employee who reaches the age of 21 who is not covered by
a collective bargaining agreement shall be eligible to participate as of the
first day of any payroll period of any calendar month following one year of
employment.
Contributions
Employee contributions are made in accordance with salary deduction agreements
pursuant to Internal Revenue Code Section 401(k). Subject to certain limitations
set forth in the Plan document, the amount of contributions authorized by
eligible employees prior to August 30, 1995 shall not be less than 2% nor
greater than 6% of an employee's base salary (limited to $9,240). Effective
August 30, 1995, eligible employees may contribute up to 9% of their base salary
(limited to $9,500). The Bank makes matching contributions in an amount equal to
50% of an employee's contributions up to 6%.
F-5
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
New employees joining the Bank may be eligible to deposit any distributions from
a previous employer's tax-qualified defined contribution plan as set forth in
the Plan document and continue to defer income taxes on that distribution. These
rollover contributions can be made even if the employee is not yet eligible to
join the Plan.
Prior to May 24, 1995, participants in the Plan could invest their voluntary
contributions, rollover contributions and the Bank's matching contributions in
multiples of 25% in accordance with any one of the available investment options.
Those who first elect to participate or, if applicable, make a rollover
contribution on or after May 24, 1995 may direct that their contributions be
made to specific investment accounts in multiples of 1%. Investment direction
changes and transfers among the various Plan investment options are limited to
once each calendar quarter, but any participant in the Plan on May 24, 1995 may
redirect his investment one additional time if it is done within 60 days of May
24, 1995. The Plan utilizes the following RSI Retirement Trust investment funds:
Core Equity Fund--The Core Equity Fund is an equity based securities fund.
Investments are made primarily in common stocks of a broadly diversified
group of large, high quality, competitively strong companies that in the view
of the investment manager exhibit sustainable growth and dividend earnings.
It offers investors the potential for long-term capital appreciation, with
income as a secondary goal. The Core Equity Fund is managed by Retirement
System Investors, Inc.
Emerging Growth Equity Fund--The Emerging Growth Equity Fund is an aggressive
growth equity fund that seeks capital appreciation by investing in rapidly
growing emerging companies that, in the view of the investment manager, have
higher than average potential for earnings growth. The Emerging Growth Equity
Fund is managed by The Putnam Advisory Company, Inc. and Friess Associates,
Inc.
F-6
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Value Equity Fund--The Value Equity Fund is a growth and income equity based
securities fund that seeks capital appreciation over the longer term. It
invests in financially strong companies with medium to large market
capitalizations. (In the view of the investment manager, these companies are
currently out of favor with investors but have had good earnings growth
records in the past and offer prospects for significant earnings and dividend
growth. In the view of the investment manager, these stocks are currently
undervalued and selling below their potential value.) The Value Equity Fund
is managed by Retirement System Investors, Inc.
Intermediate-Term Bond Fund--The Intermediate-Term Bond Fund invests in a
high quality, diversified portfolio of debt securities that mature within ten
years, or have expected average lives of ten years or less. At least 65% of
the investments in this fund are in U.S. Government or U.S. Government Agency
issues which have the highest credit rating. At the time of purchase, at
least 75% of the holdings must have a quality rating of "AA" or better, with
a minimum quality rating of "A" for other holdings. This investment fund's
goal is to achieve income and price appreciation. The Intermediate-Term Bond
Fund is managed by Retirement System Investors, Inc.
Actively Managed Bond Fund--The Actively Managed Bond Fund invests in high
quality fixed-income securities (bonds and other debt securities), with
maturities that could range from three months to 30 years. The fund's
investment managers frequently adjust the maturity structure of the portfolio
to respond to perceived changes in the relative attractiveness of the
fixed-income market. At the time of purchase, at least 75% of the investments
in this fund must have a rating of "AA" or better, with a minimum rating of
"A" for other holdings, and at least 65% of the investments must be in U.S.
Government or U.S. Government Agency issues. The fund seeks to achieve both
income and price appreciation. The Actively Managed Bond Fund is managed by
Retirement System Investors, Inc.
Short-Term Investment Fund--The Short-Term Investment Fund invests in high
quality cash equivalent types of securities normally maturing in one year or
less. While the fund may invest in U.S. Government instruments with
maturities up to two years, the maximum average maturity of the fund's
holdings will not exceed one year. This investment fund offers substantial
liquidity and capital preservation. The Short-Term Investment Fund is managed
by Retirement System Investors, Inc.
F-7
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
International Equity Fund--The International Equity Fund seeks capital
appreciation and income by investing in stocks of companies headquartered in
foreign countries. Each selection is based on companies whose current prices,
in the view of the investment manager, do not reflect the true earnings
potential and, therefore, are selling at "undervalued" prices. Investments in
foreign markets with unacceptable political or economic risks are avoided.
Holdings are concentrated in the larger markets of Europe, Australia and the
Far East. In addition, the portfolio manager will invest in emerging markets,
as opportunities arise. The International Equity Fund is managed by Morgan
Grenfell Investment Services Limited.
Loans/Hardship Withdrawals
Upon application of any participant, the Bank may direct the Trustee of the Plan
to make a loan from the participant's employee contribution account, vested
matching contribution account and rollover contribution account. All loans are
limited to the lesser of 50% of the participant's accounts or $50,000 and bear
interest at a fixed rate of prime plus 1% (rounded to the nearest 1/4% of 1%)
determined at the time of borrowing and fixed for the life of the loan. Further
restrictions on the principal amount and term of loans do exist and are
discussed in the Plan document.
In addition, participants may obtain withdrawals based on immediate financial
needs as outlined in the Plan document.
Participant's Accounts
Separate accounts are maintained for each participant to accumulate values
resulting from Bank, employee and rollover contributions. Participant's accounts
are credited with contributions made on their behalf in accordance with employee
salary deduction arrangements, the Bank's matching contributions and Plan
earnings. Plan earnings and losses are allocated based on account balances and
investment options which the participant chooses.
F-8
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Vesting
Participants are fully vested in their accrued benefits in all accounts other
than their employer matching accounts at all times and such accrued benefits are
nonforfeitable at all times. Employer matching contributions become vested and
nonforfeitable as follows:
<TABLE>
<CAPTION>
Number of Years of Service as Defined % Vested and
in the Plan Document Nonforfeitable
------------------------------------- ---------------------------
<S> <C>
Less than 2 years 0%
2 years but less than 3 years 20
3 years but less than 4 years 40
4 years but less than 5 years 60
5 years but less than 6 years 80
6 or more years 100
</TABLE>
For participants hired prior to January 1, 1994, their vesting period commences
on date of enrollment in the Plan, regardless of prior periods of service at the
Bank. For employees hired on or subsequent to January 1, 1994, their vesting
period begins upon date of hire, provided the employee has attained the age of
18.
A participant, upon leaving the Bank prior to achieving two years of employment,
forfeits the value of all matching contributions and earnings on those
contributions made by the employer. The forfeited amount is deducted from the
amount due from the Bank for the employer contribution in the following quarter.
Payment of Benefits
Upon retirement, a participant may elect to receive their vested account balance
either in a lump-sum amount or in monthly, quarterly, semi-annual or annual
installments.
F-9
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
1. Description of the Plan (continued)
Administrative Expenses
All administrative expenses of the Plan are paid by the Bank, except expenses
directly related to the managing of each fund (such as investment management
fees, commissions and other transaction costs) which are charged against the
assets of the total applicable fund to which such expenses directly relate.
2. Summary of Accounting Policies
Basis of Accounting and Presentation
The financial statements have been prepared on the accrual basis of accounting.
Valuation
Investments consist of unit shares of funds offered by RSI Retirement Trust, a
registered investment company. Valuation of these shares by the Trust is based
on the underlying value of the net assets of each fund.
Except for debt securities with remaining maturities of 60 days or less which
are valued at book value, investments within each fund for which markets are
available are valued at their last available quote.
Investment transactions within each fund are recorded on a trade date basis.
Dividend income is recognized on the ex-dividend date or when the dividend
information is known; interest income, including, where applicable, amortization
of discount and premium on investments and zero coupon bonds, is recognized on
the accrual basis.
F-10
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
2. Summary of Accounting Policies (continued)
Risks and Uncertainties
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
The Plan sponsor believes that the estimates utilized in preparing its financial
statements are reasonable and prudent. Actual results could differ from these
estimates.
3. Plan Termination
Although it has not expressed any intent to do so, the Bank has the right under
the Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of a Plan termination,
participants become 100% vested in all matching contributions.
4. Investments
Investments in the Plan as of December 31, 1996 and 1995 are:
<TABLE>
<CAPTION>
1996 1995
-------------------------- ---------------------------
Units Fair Value Units Fair Value
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
Core Equity Fund 16,866 $1,018,580 13,111 $ 651,533
Emerging Growth Equity Fund 6,701 453,008 5,358 284,997
Value Equity Fund 8,349 366,136 6,852 238,678
Short-Term Investment Fund 15,256 312,458 15,555 304,269
Intermediate-Term Bond Fund 4,876 146,299 2,324 67,040
Actively Managed Bond Fund 4,719 149,890 4,520 139,201
International Equity Fund 289 13,282 - -
-------------- ---------------
Total $2,459,653 $1,685,718
============== ===============
</TABLE>
Net realized and unrealized appreciation on the above investment funds was
$347,856 and $337,619 for the years ended December 31, 1996 and 1995,
respectively.
F-11
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Notes to Financial Statements (continued)
5. Income Tax Status
The Plan obtained its latest determination letter on December 13, 1995, in which
the Internal Revenue Service stated that the Plan, as amended through March 10,
1994, was in compliance with the applicable requirements of the Internal Revenue
Code. Management is not aware of any cause of action, series of events or
amendments that might adversely affect the qualified status of the Plan.
F-12
<PAGE>
Supplemental Schedules
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Assets Held for Investment
December 31, 1996
<TABLE>
<CAPTION>
Number of Units Fair
Held Value Cost
-----------------------------------------------
<S> <C> <C> <C>
Units in RSI Retirement Trust Series
Pooled Investment Funds:
Core Equity Fund 16,866 $1,018,580 $ 689,045
Emerging Growth Equity Fund 6,701 453,008 284,354
Value Equity Fund 8,349 366,136 250,047
Short-Term Investment Fund 15,256 312,458 285,966
Intermediate-Term Bond Fund 4,876 146,299 136,599
Actively Managed Bond Fund 4,719 149,890 130,182
International Equity Fund 289 13,282 12,836
------------------------------
2,459,653 1,789,029
Loans to participants 79,839 79,839
------------------------------
Total $2,539,492 $1,868,868
==============================
</TABLE>
F-13
<PAGE>
Richmond County Savings Bank
401(k) Savings Plan in RSI Retirement Trust
Reportable Transactions
Year ended December 31, 1996
<TABLE>
<CAPTION>
Purchases Sales
------------------------- ------------------------------
Number of Purchase Number of
Transactions Price Transactions Proceeds
------------ ---------- --------------- -----------
<S> <C> <C> <C> <C>
Core Equity Fund 89 $289,050 41 $ 82,037
Emerging Growth Equity Fund 85 139,906 40 57,816
Value Equity Fund 83 102,283 38 47,940
Short-Term Investment Fund 82 101,068 33 103,563
Intermediate-Term Bond Fund 83 95,022 33 19,427
</TABLE>
F-14
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
RICHMOND COUNTY FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR RICHMOND COUNTY SAVINGS BANK)
__________ SHARES OF COMMON STOCK
Richmond County Financial Corp. (the "Company"), a Delaware corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $_____, of its common
stock, $0.01 par value (the "Common Stock"), to be issued upon the conversion of
Richmond County Savings Bank, Staten Island, New York (the "Bank") from a New
York chartered mutual savings bank to a New York chartered stock savings bank
and the issuance of the Bank's outstanding capital stock to the Company pursuant
to a plan of conversion (the "Plan of Conversion"). The remaining __________
shares of the Common Stock have been subscribed for in subscription and
community offerings (the "Subscription and Community Offerings") by the Bank's
holders of deposit accounts with the Bank with a balance of $100 or more as of
June 30, 1996, by the Richmond County Savings Bank Employee Stock Ownership
Plan, a tax-qualified employee benefit plan, and related trust (the "ESOP"), by
holders of deposit accounts with a balance of $100 or more as of September 30,
1997, and then by certain members of the general public. See "The Conversion -
General." Contained herein is the Prospectus in the form used in the
Subscription and Community Offerings. The purchase price for all shares
purchased in the Syndicated Community Offering will be the same as the price
paid by subscribers in the Subscription and Community Offerings (the "Purchase
Price"). The Purchase Price of $10.00 per share is the amount to be paid for
each share at the time a purchase order is submitted. See the cover page of the
Prospectus and the table below for information as to the method by which the
range within which the number of shares offered may vary and the method of
subscribing for shares of the Common Stock. For a discussion of certain factors
that should be considered by each prospective investor, see "Risk Factors" on
pages ___ through ___.
Funds submitted to the Bank with purchase orders will earn interest at the
Bank's passbook rate of interest from the date of receipt until completion or
termination of the Conversion. The Syndicated Community Offering will expire no
later than _______________, 1998, unless extended by the Bank and the Company
with the approval of the Superintendent of Banks of the State of New York and
the Federal Deposit Insurance Corporation, if necessary. Such extensions may
not go beyond _______________, 1999. If an extension of time has been granted,
all subscribers will be notified of such extension, and of their rights to
confirm their subscriptions, or to modify or rescind their subscriptions and
have their funds returned promptly with interest, and of the time period within
which the subscriber must notify the Bank of his intention to confirm, modify or
rescind his subscription. If an affirmative response to any resolicitation is
not received by the Bank and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the
<PAGE>
ESOP, which may purchase up to 8% of the total number of shares of Common Stock
issued in the Conversion, no person, together with associates of and persons
acting in concert with such person, may purchase in the Community Offering and
the Syndicated Community Offering more than $250,000 of the aggregate value of
Common Stock offered in the Conversion. See "Plan of Conversion - Limitations on
Common Stock Purchases." The Company reserves the right, in its absolute
discretion, to accept or reject, in whole or in part, any or all subscriptions
in the Syndicated Community Offering.
The Company and the Bank have engaged Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") to assist them in the sale of the Common Stock in the
Syndicated Community Offering. It is anticipated that Sandler O'Neill will use
the services of other registered broker-dealers ("Selected Dealers") and that
fees to Sandler O'Neill and such Selected Dealers will be an amount not to
exceed 7.0% of the aggregate Purchase Price of the shares sold in the Syndicated
Community Offering. Neither Sandler O'Neill nor any Selected Dealer shall have
any obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
[The Company has applied to the National Association of Securities Dealers
("NASD") to have its Common Stock quoted on the Nasdaq National Market under the
symbol "____."] Prior to this Offering, there has not been a public market for
the Common Stock, and there can be no assurance that an active and liquid
trading market for the Common Stock will develop. The absence or discontinuance
of a market may have an adverse impact on both the price and liquidity of the
stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK, THE
NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT, THE FEDERAL
DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER
AGENCY, NOR HAS SUCH COMMISSION, BOARD, DEPARTMENT, CORPORATION OR ANY STATE
SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
=======================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- -------------------------------------------------------------------------------------------------------
Total Minimum(5) $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total Maximum,
As Adjusted(6) $ $ $ $
=======================================================================================================
</TABLE>
- -----------------
(1) Consists of a pro rata allocation of estimated expenses of the Bank and the
Company in connection with the Conversion (other than estimated fees to be
paid to Sandler O'Neill for services in connection with the Subscription and
Community Offerings) and estimated compensation of Sandler O'Neill and
Selected Dealers in connection with the sale of the remaining shares in the
Syndicated Community Offering which fees are estimated to be $__________ and
$__________ at the minimum and the maximum of the estimated price range and
may be deemed to be underwriting fees. The information under "Pro Forma
Data" in the Prospectus was based on the assumptions stated therein, which
may differ from the estimates used for this table. See "The Conversion -
Marketing and Underwriting Arrangements" for a more detailed discussion of
fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Bank in exchange for all of the
capital stock of the Bank to be issued in connection with the Conversion.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $10.00 per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $_____
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Estimated Price Range of up to 15% to reflect changes in
market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Rights and Limitations on Common Stock Purchases."
SANDLER O'NEILL & PARTNERS, L.P.
_________________________________
The date of this Prospectus Supplement is _______________, 1997.
3
<PAGE>
PROSPECTUS
RICHMOND COUNTY FINANCIAL CORP.
(Proposed Holding Company for Richmond County Savings Bank)
21,275,000 Shares of Common Stock
Richmond County Financial Corp. (the "Company"), a Delaware corporation, is
offering up to 21,275,000 shares of its common stock, par value $.01 per share
(the "Common Stock"), in connection with the conversion of Richmond County
Savings Bank (the "Bank") from a New York State chartered mutual savings bank to
a New York State chartered stock savings bank and the issuance of the Bank's
capital stock to the Company pursuant to the Bank's plan of conversion (the
"Plan" or "Plan of Conversion"). The simultaneous conversion of the Bank to
stock form, the issuance of the Bank's capital stock to the Company and the
offer and sale of the Common Stock by the Company are herein referred to as the
"Conversion." In certain circumstances, the Company may increase the amount of
Common Stock offered hereby up to 24,466,250 shares. See Footnote 4 to the
table below.
(continued on following page)
---------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGES 13 THROUGH 23.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK,
THE NEW YORK STATE BANKING BOARD, THE NEW YORK STATE BANKING DEPARTMENT, THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY STATE SECURITIES COMMISSION, OR ANY
OTHER AGENCY, NOR HAS SUCH COMMISSION, BOARD, DEPARTMENT, CORPORATION OR ANY
STATE SECURITIES COMMISSION OR OTHER AGENCY PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT DEPOSIT ACCOUNTS AND ARE
NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND OR THE SAVINGS ASSOCIATION
INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR THE BANK. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF THE
PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
Estimated Underwriting
Commissions and Other Fees Estimated Net
Subscription Price (1) and Expenses(2) Proceeds(3)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share $ 10.00 $ 0.33 $ 9.67
- --------------------------------------------------------------------------------------------------------
Midpoint Per Share $ 10.00 $ 0.31 $ 9.69
- --------------------------------------------------------------------------------------------------------
Maximum Per Share $ 10.00 $ 0.29 $ 9.71
- --------------------------------------------------------------------------------------------------------
Total Minimum(1) $157,250,000 $5,216,600 $152,033,400
- --------------------------------------------------------------------------------------------------------
Total Midpoint(1) $185,000,000 $5,660,300 $179,339,700
- --------------------------------------------------------------------------------------------------------
Total Maximum (1) $212,750,000 $6,103,900 $206,646,100
- --------------------------------------------------------------------------------------------------------
Total Maximum as
adjusted(4) $244,662,500 $6,614,200 $238,048,300
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by Keller &
Company, Inc. ("Keller") dated September 12, 1997, as updated as of October
31, 1997, which states that the estimated pro forma market value of the
Common Stock being offered for sale in the Conversion ranged from
$157,250,000 to $212,750,000 with a midpoint of $185,000,000 taking into
account the contribution to the Richmond County Savings Foundation (the
"Foundation") of an amount of Common Stock equal to 8% of the Common Stock
sold in the Conversion (the "Valuation Range"). The independent appraisal of
Keller is based upon estimates and projections that are subject to change
and the valuation must not be construed as a recommendation as to the
advisability of purchasing the Common Stock nor an assurance that a
purchaser of Common Stock will thereafter be able to sell the Common Stock
at the Purchase Price. Based on the Valuation Range, the Board of Directors
of the Company and the Board of Trustees of the Bank established an
estimated price range of the Common Stock being offered for sale in the
Conversion within the Valuation Range of $157.3 million to $212.8 million
(the "Estimated Price Range") or between 15,725,000 and 21,275,000 shares of
Common Stock issued at the $10.00 per share price (the "Purchase Price") to
be paid for each share of Common Stock subscribed for or purchased in the
Offering. See "The Conversion - Stock Pricing."
(2) Consists of the estimated costs to the Bank and the Company arising from the
Conversion, including estimated fixed expenses of approximately $2.8
million, and marketing fees to be paid to Sandler O'Neill & Partners, L.P.
("Sandler O'Neill") estimated to be between $2.5 million and $3.3 million at
the minimum and maximum of the Estimated Price Range, respectively. See "The
Conversion - Marketing and Underwriting Arrangements." The actual fees and
expenses may vary from the estimates. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold in the offerings and other factors. Includes
the purchase of shares of Common Stock by the Richmond County Savings Bank
Employee Stock Ownership Plan and related trust (the "ESOP") which is
intended to be funded by a loan to the ESOP from the Company or from a third
party, which will be deducted from the Company's stockholders' equity. See
"Use of Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the Common
Stock which may be offered at the Purchase Price, without resolicitation of
subscribers or any right of cancellation, due to regulatory considerations,
changes in market or general financial and economic conditions. See "Pro
Forma Data" and "The Conversion - Stock Pricing." For a discussion of the
distribution and allocation of the additional shares, if any, see "The
Conversion - Subscription Offering and Subscription Rights," "- Community
Offering" and "- Limitations on Common Stock Purchases."
_______________________
Sandler O'Neill & Partners, L.P.
_______________________
The date of this Prospectus is ______, 1997.
<PAGE>
(continued from previous page)
Non-transferable rights to subscribe for the Common Stock in a Subscription
Offering (the "Subscription Offering") have been granted in the following order
of priority to: 1) the Bank's Eligible Account Holders (defined as holders of
deposit accounts totalling $100 or more as of June 30, 1996); (2) the Company's
and Bank's tax-qualified employee benefit plans (collectively, the "Employee
Plans"), consisting of the ESOP which intends to subscribe for up to 8% of the
Common Stock issued in connection with the Conversion (including shares issued
to the Richmond County Savings Foundation); and (3) the Bank's Supplemental
Eligible Account Holders (defined as holders of deposit accounts totalling $100
or more as of September 30, 1997). Subscription rights are non-transferable.
Persons found to be transferring subscription rights will be subject to
forfeiture of such rights and possible further sanctions and penalties imposed
by the New York Banking Department (the "NYBD"). Upon completion of the
Subscription Offering, and subject to the other limitations described herein,
the Company will offer any shares of Common Stock not subscribed for in the
Subscription Offering for sale in a community offering to certain members of the
general public (the "Community Offering"). See "The Conversion-Community
Offering." It is anticipated that shares not subscribed for in the Subscription
Offering and Community Offering, if any, will be offered to certain members of
the general public in a syndicated community offering (the "Syndicated Community
Offering") (the Subscription Offering, Community Offering and the Syndicated
Community Offering are referred to collectively as the "Offerings").
Except for the ESOP, no Eligible Account Holder or Supplemental Eligible
Account Holder may, in their respective capacities as such, purchase in the
Subscription Offering more than $250,000 of Common Stock; no person, together
with associates and persons acting in concert with such person, may purchase in
the Community Offering and Syndicated Community Offering more than $250,000 of
Common Stock; and no person, together with associates of and persons acting in
concert with such person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1.0% of the total number of shares of Common
Stock offered in the Conversion; provided, however, such purchase limitations
may be increased and the amount that may be subscribed for may be increased or
decreased at the sole discretion of the Bank and Company without further
approval of subscribers or the Bank's eligible voting depositors. The minimum
purchase is 25 shares. See "The Conversion - Subscription Offering and
Subscription Rights," "- Community Offering" and "- Limitations on Common Stock
Purchases."
Pursuant to the Plan, the Company intends to establish the Foundation, a
charitable foundation, in connection with the Conversion. The Plan provides that
the Bank and the Company will create and fund the Foundation with shares of
Common Stock contributed by the Company from authorized but unissued shares in
an amount equal to 8% of the number of shares of Common Stock sold in the
Conversion. The Foundation will be dedicated to charitable purposes within the
Bank's local community. For a discussion of the Foundation and its effects on
the Conversion, see "Risk Factors - Effects of the Establishment of the
Foundation," "Pro Forma Data" and "The Conversion - Establishment of Charitable
Foundation."
The Bank has engaged Sandler O'Neill to consult with and advise the Company
and the Bank in the Offerings and Sandler O'Neill has agreed to use its best
efforts to assist the Company with the solicitation of subscriptions and
purchase orders for shares of Common Stock in the Offerings. Sandler O'Neill is
not obligated to take or purchase any shares of Common Stock in the Offerings.
The Bank and the Company will pay a fee to Sandler O'Neill which will be based
on the aggregate Purchase Price of the Common Stock sold in the Offerings. The
Company and the Bank have agreed to indemnify Sandler O'Neill against certain
liabilities arising under the Securities Act of 1933, as amended (the
"Securities Act"). See "The Conversion - Marketing and Underwriting
Arrangements."
The Subscription Offering will terminate at __________, New York time, on
__________, 1997 (the "Expiration Date") unless extended by the Bank and the
Company, with the approval of the Superintendent of Banks of the State of New
York (the "Superintendent") and the Federal Deposit Insurance Corporation (the
"FDIC"), if necessary. The Community Offering, and/or any Syndicated Community
Offering must be completed within 45 days after the close of the Subscription
Offering, or _____, 1998, unless extended by the Bank and the Company with the
approval of the Superintendent and the FDIC, if necessary. Orders submitted are
irrevocable until the completion of the Conversion; provided, that if the
Conversion is not completed within the 45 day period referred to above, unless
such period has been extended with the consent of the Superintendent and FDIC,
if necessary, all subscribers will have their funds returned promptly with
interest, and all withdrawal authorizations will be cancelled. Such extensions
may not go beyond _________, 1999. See "The Conversion - Procedure for
Purchasing Shares in Subscription Offering."
The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RCBK." Prior to this offering there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop, or that
resales of the Common Stock can be made at or above the Purchase Price. To the
extent an active and liquid trading market does not develop, the liquidity and
market value of the Common Stock may be adversely affected. See "Risk Factors -
Absence of Market for Common Stock" and "Market for the Common Stock."
Explanatory Note: This Prospectus contains certain forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995, which statements consist of estimates with respect to the financial
condition, results of operations and business of the Company and the Bank.
Prospective investors are cautioned that such forward looking statements are not
guarantees of future performance and are subject to various factors which could
cause actual results to differ materially from these estimates. These factors
include changes in general, economic and market conditions, and the development
of an adverse interest rate environment that adversely affects the interest rate
spread or other income anticipated from the Company's and the Bank's operations
and investments. See "Risk Factors" for a discussion of other factors that
might cause actual results to differ from such estimates.
2
<PAGE>
[MAP GOES HERE]
3
<PAGE>
SUMMARY OF THE CONVERSION AND THE OFFERINGS
The following summary of the Conversion and the Offerings is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
Risk Factors..................... A purchase of the Common Stock involves a
substantial degree of risk. Eligible
Account Holders, Supplemental Eligible
Account Holders and other prospective
investors should carefully consider the
matters set forth under "Risk Factors."
The shares of Common Stock offered hereby
are not insured or guaranteed by the FDIC
or any other government agency and are
not guaranteed by the Company or the
Bank.
Richmond County Financial Corp... The Company is a Delaware corporation
organized at the direction of the Bank to
become a savings and loan holding company
and purchase all of the Bank's capital
stock to be issued upon its conversion
from mutual form to stock form. To date,
the Company has not engaged in any
business. Its executive office is located
at 1214 Castleton Avenue, Staten Island,
New York 10310 and its telephone number
is (718) 448-2800.
Richmond County Savings Bank..... The Bank is a New York State chartered
mutual savings bank. At August 31, 1997,
the Bank had total assets of $1.01
billion, total deposits of $882.9 million
and net worth of $102.8 million and
operated thirteen full service offices.
The Bank's executive office is located at
1214 Castleton Avenue, Staten Island, New
York 10310 and its telephone number at
that location is (718) 448-2800.
The Bank's current operating strategy
consists primarily of:
. investing primarily in one- to four-
family, and to a lesser extent,
commercial real estate, construction
and development, commercial and other
loans and in investment-grade
securities;
. attempting to increase its position
as a lender to businesses operating
in its primary market area, as well
as other areas of the New York City
metropolitan area by offering its
commercial loan and deposit products
to small and medium-sized businesses;
. increasing the yield and estimated
average life of its securities
investments by emphasizing the
purchase of government agency and
privately issued mortgage-backed and
mortgage-related securities with
estimated average lives of three to
five years and de-emphasizing its
investment in U.S. Treasury
obligations and corporate and other
debt securities;
. maintaining a low cost of funds by
attracting and retaining core
deposits by providing enhanced
customer service;
. attempting to attract new deposit
customers by competitively pricing
certificate of deposit products and
offering a greater variety of terms
of such certificates;
. developing wholesale borrowing
sources such as Federal Home Loan
Bank ("FHLB") advances, reverse
repurchase agreements and brokered
certificates of deposit as another
means of funding asset growth; and
. managing its interest rate risk by
originating or purchasing adjustable
rate loans and generally selling
fixed-rate loans with maturities of
more than 15 years.
4
<PAGE>
The Conversion and
Reasons for Conversion.......... The Board of Trustees of the Bank has
adopted and subsequently amended a Plan
of Conversion pursuant to which the Bank
intends to convert to a New York State
chartered stock savings bank and issue
all of its stock to the Company. The
Company is offering shares of its Common
Stock in the Offerings in connection with
the Bank's Conversion. Management
believes the Conversion offers a number
of advantages, including: (i) providing a
larger capital base on which to operate;
(ii) providing enhanced future access to
capital markets; (iii) providing enhanced
ability to diversify into other financial
services related activities; and (iv)
providing enhanced ability to increase
its presence in the communities it serves
and to geographically expand its
operations and market area through
marketing and business development, the
acquisition or establishment of branch
offices or the acquisition of other
financial institutions. The Conversion
and the Offerings are subject to approval
by the Superintendent and non-objection
by the FDIC, and approval of voting
depositors at the Bank as of September
30, 1997, with aggregate balances of $100
or more ("Voting Depositors") at a
special meeting to be held on __________,
1997 (the "Special Meeting"). The
Superintendent issued an approval letter
on _______, 1997 and the FDIC issued a
notice of intent not to object to the
Conversion on _______, 1997. See "The
Conversion-General."
The Richmond County Savings
Foundation...................... The Bank's Plan of Conversion provides
for the establishment of a charitable
foundation in connection with the
Conversion. The Foundation, which will be
incorporated under Delaware law as a non-
stock corporation, will be funded
concurrent with the sale of Common Stock
of the Company with a contribution by the
Company equal to 8% of the Common Stock
sold in the Conversion. The authority for
the affairs of the Foundation will be
vested in the Board of Directors of the
Foundation, which will initially be
comprised of the members of the Bank's
Board of Trustees or the Company's Board
of Directors. See "The Conversion -
Establishment of Charitable Foundation."
Terms of the Offering............ The shares of Common Stock to be sold in
connection with the Conversion are being
offered at a fixed price of $10.00 per
share in the Subscription Offering
pursuant to subscription rights in the
following order of priority to: (i)
Eligible Account Holders; (ii) the ESOP;
and (iii) Supplemental Eligible Account
Holders. Upon completion of the
Subscription Offering, any shares of
Common Stock not subscribed for in the
Subscription Offering will be offered in
the Community Offering at $10.00 per
share to certain members of the general
public. Subscription rights will expire
if not exercised by _______, New York
Time, on __________, 1997, unless
extended by the Bank and the Company,
with the approval of the Superintendent
and the FDIC, if necessary. See "The
Conversion - Subscription Offering and
Subscription Rights" and " - Community
Offering."
5
<PAGE>
Procedure for Ordering Shares
and Prospectus Delivery......... Forms to order Common Stock offered in
the Subscription Offering and the
Community Offering will only be
distributed with or preceded by a
Prospectus. Any person receiving a stock
order and certification form who desires
to subscribe for shares must do so prior
to the Expiration Date by delivering to
the Bank a properly executed stock order
and certification form together with full
payment. Once tendered, subscription
orders cannot be revoked or modified
without the consent of the Company and
Bank. To ensure that each purchaser
receives a prospectus at least 48 hours
prior to the Expiration Date in
accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, as
amended (the "Exchange Act"), no
prospectus will be mailed any later than
five days prior to the Expiration Date or
hand delivered any later than two days
prior to such date. The Company and Bank
are not obligated to accept subscriptions
not submitted on an original stock order
form. See "The Conversion - Procedure for
Purchasing Shares in Subscription
Offering."
Form of Payment for Shares....... Payment for subscriptions may be made:
(i) in cash (if delivered in person);
(ii) by check or money order; or (iii) by
authorization of withdrawal from deposit
accounts maintained at the Bank. Orders
for Common Stock submitted by subscribers
in the Subscription Offering which
aggregate $50,000 or more must be paid by
official bank or certified check or by
withdrawal authorization from a deposit
account at the Bank. No wire transfers
will be accepted. See "The Conversion -
Procedure for Purchasing Shares in
Subscription Offering."
Nontransferability of
Subscription Rights............. The subscription rights of Eligible
Account Holders, Supplemental Eligible
Account Holders and the Employee Plans,
including the ESOP, are nontransferable.
Certificates representing shares of
Common Stock purchased in the
Subscription Offering must be registered
in the name of the Eligible Account
Holder or Supplemental Eligible Account
Holder, as the case may be. Joint stock
registration will be allowed only if the
qualifying deposit account is so
registered. See "The Conversion -
Restrictions on Transfer of Subscription
Rights and Shares."
Purchase Limitations............. No Eligible Account Holder or
Supplemental Eligible Account Holder may
purchase in the Subscription Offering
more than $250,000 of Common Stock. No
person, together with associates or
persons acting in concert with such
person, may purchase in the Community
Offering and the Syndicated Community
Offering more than $250,000 of Common
Stock. No person, together with
associates or persons acting in concert
with such person, may purchase in the
aggregate more than 1% of the Common
Stock offered (the "overall maximum
purchase limitation"). However, the ESOP
may purchase up to 10% of the Common
Stock issued, including shares issued to
the Foundation. It is anticipated that
the ESOP will subscribe to purchase 8% of
the Common Stock issued, including shares
issued to the Foundation. The minimum
purchase is 25 shares of Common Stock. At
any time during the Conversion and
without approval of the Bank's Voting
Depositors or a resolicitation of
subscribers, the Bank and the Company
may, in their sole discretion, decrease
the maximum purchase limitation below
$250,000 of Common Stock; however, such
amount may not be reduced to less than
0.10% of the Common Stock offered.
Additionally, at any time during the
Conversion, the Bank and the Company may,
in their sole discretion, increase the
maximum purchase limitation in the
Subscription and Community Offerings to
an amount in excess of $250,000 up to a
maximum of 5% of the shares to be issued
in the Conversion. Similarly, the 1.0%
overall maximum purchase limitation may
be increased up to 5% of the total shares
of Common Stock offered in the
Conversion.
6
<PAGE>
Securities Offered and Purchase
Price.......................... The Company is offering between
15,725,000 and 21,275,000 shares of
Common Stock at a Purchase Price of
$10.00 per share. The maximum of the
Estimated Price Range may be increased by
up to 15% and the maximum number of
shares of Common Stock to be offered may
be increased up to 24,466,250 shares due
to regulatory considerations and changes
in market or general financial or
economic conditions. See "The Conversion
- Stock Pricing" and "- Number of Shares
to be Issued."
Appraisal........................ The Purchase Price per share has been
fixed at $10.00. The total number of
shares to be issued in the Conversion is
based upon an independent appraisal
prepared by Keller, dated as of September
12, 1997, and updated as of October 31,
1997, which states that the estimated pro
forma market value of the Common Stock
offered ranged from $157,250,000 to
$212,750,000. The final aggregate value
will be determined at the time of closing
of the Offerings and is subject to change
due to changing market conditions and
other factors. See "The Conversion -
Stock Pricing."
Use of Proceeds.................. The Company will use 50% of the net
proceeds of the Offerings to purchase all
of the outstanding common stock of the
Bank to be issued in the Conversion. A
portion of net proceeds retained by the
Company will be used for general business
purposes, including a loan by the Company
directly to the ESOP to enable the ESOP
to purchase up to 8% of the Common Stock
issued in the Conversion, including
shares issued to the Foundation. In the
event that the ESOP is unable to purchase
8% of the Common Stock in the
Subscription Offering, it is anticipated
that the ESOP will purchase an amount of
shares in open market transactions
sufficient to fund the ESOP with 8% of
the Common Stock issued in the
Conversion. In the alternative, the ESOP
may be funded with such amount of stock
through the issuance of authorized but
unissued shares after the Conversion. The
Company intends to initially invest the
remaining net proceeds primarily in
mortgage-backed and mortgage-related
securities and investment grade debt and
equity securities. The Bank intends to
utilize net proceeds for general business
purposes, including investments in loans
and securities as well as for the
possible expansion of its facilities and
operations through marketing, business
development, or acquisitions of other
financial institutions, branch offices or
other financial services companies,
although the Company and the Bank have no
current arrangements, understandings or
agreements regarding any such
transactions, other than a lease on a
public accommodation office to be opened
on Staten Island in 1998 and plans to
open new branch offices on Staten Island.
See "Use of Proceeds."
Dividend Policy.................. Upon Conversion, the Board of Directors
of the Company will have the authority to
declare dividends on the Common Stock,
subject to statutory and regulatory
requirements. In the future, the Board of
Directors of the Company may consider a
policy of paying cash dividends on the
Common Stock. However, no decision has
been made with respect to the payment of
such dividends, if any. See "Dividend
Policy."
7
<PAGE>
Benefits of the Conversion to
Management..................... Among the benefits to the Bank and the
Company anticipated from the Conversion
is the ability to attract and retain
personnel through the use of stock
options and other stock related benefit
programs. Subsequent to the Conversion,
the Company intends to adopt a Stock
Program (as defined herein) and a Stock
Option Plan (as defined herein) for the
benefit of directors, officers and
employees. If such benefit plans are
adopted within one year after the
Conversion, such plans will be subject to
stockholder approval at a meeting of
stockholders which may not be held
earlier than six months after the
Conversion. The Company intends to adopt
a stock benefit plan which would provide
for the granting of Common Stock to
officers, directors and employees of the
Bank and Company, at no cost to the
recipient, in an amount equal to 4% of
the Common Stock issued in the
Conversion, including shares issued to
the Foundation (the "Stock Program"). The
Company also intends to adopt a stock
option plan which would provide the
Company with the ability to grant options
to officers, directors and employees of
the Bank and Company to purchase Common
Stock equal to 10% of the number of
shares of Common Stock issued in the
Conversion, including shares issued to
the Foundation (the "Stock Option Plan").
Further, qualified personnel may be able
to participate in other employee benefit
plans adopted in connection with the
Conversion, including the Supplemental
Executive Retirement Plan and the
Management Supplemental Executive
Retirement Plan. Additionally, certain
officers of the Company and the Bank will
be provided with employment agreements or
change in control agreements which
provide such officers with employment
rights and/or payments upon their
termination of service following a change
in control of the Company or the Bank.
For a further description of the Stock
Program and Stock Option Plan, see "Risk
Factors - Stock Based Benefits to
Management, Employment Contracts and
Change in Control Payments" and
"Management of the Bank -Benefit Plans."
See also "Management of the Bank -
Subscriptions of Executive Officers,
Directors and Trustees," "The Conversion
- Establishment of Charitable Foundation"
and "Restrictions on Acquisition of the
Company and the Bank - Restrictions in
the Company's Certificate of
Incorporation and Bylaws."
Voting Control of Officers
and Directors.................. Trustees, Directors and executive
officers of the Bank and the Company
expect to purchase approximately 1.5% or
1.1% of shares of Common Stock
outstanding, based upon the minimum and
the maximum of the Estimated Price Range,
including shares issued to the
Foundation, respectively. Additionally,
assuming the implementation of the ESOP,
Stock Program and Stock Option Plan,
directors, executive officers and
employees have the potential to control
the voting of approximately 21.4% or
21.0% of the Common Stock at the minimum
and the maximum of the Estimated Price
Range, including shares issued to the
Foundation, respectively. Additionally,
the Foundation will hold Common Stock in
an amount equal to 8% of the Common Stock
sold in the Conversion, which shares
of Common Stock will be voted in the same
ratio as all other shares voted. See "The
Conversion -Establishment of Charitable
Foundation," "Management of the Bank-
Subscriptions of Executive Officers,
Directors and Trustees," and
"Restrictions on Acquisition of the
Company and the Bank -Restrictions in the
Company's Certificate of Incorporation
and Bylaws."
8
<PAGE>
Expiration Date for the
Subscription Offering.......... The Expiration Date for the Subscription
Offering is ________ New York Time on
_______________, 1997 unless extended by
the Bank and the Company, with the
approval of the Superintendent and the
FDIC, if necessary. See "The Conversion -
Subscription Offering and Subscription
Rights."
Market for the Common Stock...... As a mutual institution, the Bank has
never issued capital stock and,
consequently, there is no existing market
for the Common Stock. The Company has
applied to have its Common Stock quoted
on the Nasdaq National Market under the
symbol "RCBK," subject to the completion
of the Conversion and compliance with
certain conditions, including the
presence of at least three registered and
active market makers. See "Market for the
Common Stock."
No Board Recommendations......... The Bank's Board of Trustees and the
Company's Board of Directors are not
making any recommendations to depositors
or other potential investors regarding
whether such persons should purchase the
Common Stock. An investment in the Common
Stock must be made pursuant to each
investor's evaluation of his or her best
interests.
Conversion Center................ If you have any questions regarding
Conversion, call the Conversion Center at
(___) ________.
9
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF THE BANK
Set forth below are selected consolidated financial and other data of the
Bank. These financial data are derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements of the Bank and Notes
thereto presented elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At
August 31, At June 30,
------------ ----------------------------------------------------------------
1997(1) 1997 1996 1995 1994 1993
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Selected Financial Condition Data: (In thousands)
Total assets........................... $1,006,064 $993,370 $914,483 $851,751 $825,663 $779,728
Loans receivable, net(2)............... 513,403 496,258 419,270 392,409 355,850 355,281
Debt and equity securities(3):
Available-for-sale.................. 21,546 19,706 21,659 607 -- --
Held-to-maturity.................... 195,345 205,201 307,700 287,879 328,779 331,840
Mortgage-backed and mortgage
related securities, net(3):
Available-for-sale.................. 57,024 27,398 1,394 1,683 -- --
Held-to-maturity.................... 163,116 185,122 80,284 92,404 74,961 44,422
Intangible assets(4)................... 1,474 1,527 1,802 2,115 2,428 2,715
Deposits............................... 882,886 884,531 817,928 764,062 748,638 713,906
Net worth.............................. 102,832 100,865 89,901 81,166 73,550 63,407
</TABLE>
<TABLE>
<CAPTION>
For the
Two Months
Ended
August 31, For the Year Ended June 30,
--------------------- ----------------------------------------------------
1997(1) 1996(1) 1997 1996 1995 1994 1993
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Selected Operating Data: (In thousands)
Interest income................. $11,785 $10,566 $65,781 $59,063 $54,321 $51,608 $53,003
Interest expense................ 5,120 4,358 27,707 26,254 22,456 20,207 22,280
------- ------- ------- ------- ------- ------- -------
Net interest income
before provision for
loan losses................. 6,665 6,208 38,074 32,809 31,865 31,401 30,723
Provision for loan losses....... 300 266 1,080 1,600 600 859 2,331
------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for loan losses... 6,365 5,942 36,994 31,209 31,265 30,542 28,392
------- ------- ------- ------- ------- ------- -------
Non-interest income............. 560 517 2,861 2,827 2,659 2,961 3,153
Non-interest expense............ 3,470 3,296 19,667 18,503 18,139 17,287 16,555
------- ------- ------- ------- ------- ------- -------
Income before income taxes
and cumulative effect of
changes in accounting
principles.................. 3,455 3,163 20,188 15,533 15,785 16,216 14,990
Provision for income taxes...... 1,662 1,474 9,463 6,803 6,919 7,305 7,300
------- ------- ------- ------- ------- ------- -------
Cumulative effect of changes
in accounting principles(5). -- -- -- -- (1,316) 1,232 --
------- ------- ------- ------- ------- ------- -------
Net income...................... $ 1,793 $ 1,689 $10,725 $ 8,730 $ 7,550 $10,143 $ 7,690
======= ======= ======= ======= ======= ======= =======
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
At or For
the Two Months
Ended At or For the Year Ended
August 31, June 30,
------------------------ ------------------------
1997(1) 1996(1) 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Selected Financial Ratios and
Other Data(6):
Performance Ratios:
Return on average assets........................ 1.08% 1.11% 1.13% 0.99%
Return on average net worth..................... 10.54 11.16 11.25 10.25
Average net worth to
average assets.............................. 10.22 9.92 10.07 9.70
Net worth to total assets
at end of period............................ 10.22 9.99 10.15 9.83
Net interest rate spread(7)..................... 3.59 3.82 3.68 3.53
Net interest margin(8).......................... 4.21 4.32 4.24 4.01
Average interest-earning assets
to average interest-bearing
liabilities................................. 119.18 116.59 118.32 115.19
Total non-interest expense
to average assets(9)........................ 1.90 1.96 1.99 2.07
Efficiency ratio(10)............................ 43.70 44.36 46.08 51.04
Net interest income to
operating expenses.......................... 192.07 188.35 193.59 177.32
Regulatory Capital Ratios(11):
Leverage capital................................ 10.10% 9.83% 10.02% 9.70%
Total risk-based capital........................ 19.70 19.53 19.71 19.22
Tier I capital.................................. 18.77 18.69 18.79 18.33
Asset Quality Ratios and Data:
Total non-performing loans(12).................. $ 5,572 $ 3,343 $ 3,877 $ 3,820
Real estate owned, net.......................... 885 518 662 612
Total non-performing assets(13)................. 6,457 3,861 4,539 4,432
Non-performing loans as a
percent of loans, net(12)................... 1.09% 0.75% 0.78% 0.91%
Non-performing assets as a percent
of total assets(13)......................... 0.64 0.42 0.46 0.48
Allowance for loan losses
as a percent of loans receivable, net(2).... 1.11 1.12 1.10 1.14
Allowance for loan losses as a percent of
total non-performing loans(2)(12).............. 101.99 149.42 141.00 125.55
Other Data:
Number of full service customer
facilities.................................... 13 13 13 13
<CAPTION>
At or For the Year Ended
June 30,
--------------------------------
1995 1994 1993
------- ------- -------
(dollars in thousands)
<S> <C> <C> <C>
Selected Financial Ratios and
Other Data(6):
Performance Ratios:
Return on average assets........................ 0.91% 1.27% 1.11%
Return on average net worth..................... 9.80 14.97 13.00
Average net worth to
average assets.............................. 9.29 8.50 8.52
Net worth to total assets
at end of period............................ 9.53 8.91 8.13
Net interest rate spread(7)..................... 3.66 3.85 3.99
Net interest margin(8).......................... 4.06 4.16 4.31
Average interest-earning assets
to average interest-bearing
liabilities................................. 113.96 111.64 110.32
Total non-interest expense
to average assets(9)........................ 2.15 2.13 2.34
Efficiency ratio(10)............................ 51.63 49.40 47.95
Net interest income to
operating expenses.......................... 175.67 181.65 185.58
Regulatory Capital Ratios(11):
Leverage capital................................ 9.25% 8.60% 7.77%
Total risk-based capital........................ 18.33 16.23 15.28
Tier I capital.................................. 17.92 15.71 14.52
Asset Quality Ratios and Data:
Total non-performing loans(12).................. $ 2,995 $ 5,389 $ 5,375
Real estate owned, net.......................... 335 441 2,336
Total non-performing assets(13)................. 3,330 5,830 7,711
Non-performing loans as a
percent of loans, net(12)................... 0.76% 1.51% 1.51%
Non-performing assets as a percent
of total assets(13)......................... 0.39 0.71 0.99
Allowance for loan losses
as a percent of loans receivable, net(2).... 0.83 0.87 0.77
Allowance for loan losses as a percent of
total non-performing loans(2)(12).............. 109.35 57.64 50.88
Other Data:
Number of full service customer
facilities.................................... 13 13 13
</TABLE>
(footnotes on next page)
11
<PAGE>
- -----------------
(1) The data presented at August 31, 1997 and for the two months ended August
31, 1997 and 1996 were derived from unaudited consolidated financial
statements and reflect, in the opinion of management, all adjustments
(consisting only of normal recurring adjustments) which are necessary to
present fairly the results for such interim periods. Interim results at and
for the two months ended August 31, 1997 are not necessarily indicative of
the results that may be expected for the year ended June 30, 1998. All
operating results presented for the selected ratios and other data for two
month periods ended August 31, 1997 and 1996 are presented on an annualized
basis.
(2) Loans receivable, net, consist of gross loans receivable less unamortized
discounts, deferred loan fees and the allowance for loan losses. The
allowance for loan losses at August 31, 1997, June 30, 1997, 1996, 1995,
1994 and 1993 was $5.7 million, $5.5 million, $4.8 million, $3.3 million,
$3.1 million and $2.7 million, respectively. Loans receivable, net, at June
30, 1996, includes $1.2 million of loans held for sale.
(3) The Bank adopted Statement of Financial Accounting Standards ("SFAS") No.
115 ("SFAS No. 115"), "Accounting for Certain Investments in Debt and
Equity Securities," as of July 1, 1994, and reclassified securities having
a market value of $26 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.
(4) Represents a premium on core deposits acquired which amounted to $3.2
million and which is being amortized on a straight line basis over a ten
year period.
(5) Cumulative effect of changes in accounting principles reflects a charge,
net of tax, of $1.3 million for the year ended June 30, 1995, resulting
from the adoption of SFAS No. 106 ("SFAS No. 106"), "Employer's Accounting
For Post-Retirement Benefits Other than Pensions," and a credit to earnings
of $1.2 million for the year ended June 30, 1994, resulting from the
adoption of SFAS No. 109 ("SFAS No. 109"), "Accounting for Income Taxes."
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Cumulative Effect of Changes in Accounting
Principles."
(6) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average monthly balances during the indicated periods and are annualized
where appropriate.
(7) 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.
(8) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(9) Total non-interest expense excludes the effect of amortization of goodwill
and the one-time special assessment of $493,000 to recapitalize the Savings
Association Insurance Fund (the "SAIF"). See "Regulation and Supervision -
Insurance of Deposit Accounts." Including the effects of the amortization
of goodwill and the SAIF special assessment, total non-interest expense to
average assets for the two months ended August 31, 1997 and for the year
ended June 30, 1997 would be 2.08% and 2.08%, respectively.
(10) The efficiency ratio represents the ratio of non-interest expense,
excluding the effect of amortization of goodwill and the SAIF special
assessment, divided by the sum of net interest income and non-interest
income. Including the effects of the amortization of goodwill and the SAIF
special assessment, the efficiency ratio for the two months ended August
31, 1997 and the year ended June 30, 1997 would be 48.03 and 48.04%,
respectively.
(11) For definitions and further information relating to the Bank's regulatory
capital requirements, see "Regulation and Supervision - FDIC Regulations -
Capital Requirements." See "Regulatory Capital Compliance" for the Bank's
pro forma capital levels as a result of the Offerings.
(12) It was the Bank's policy generally to cease accruing interest on all
commercial real estate, construction and commercial loans 90 days or more
past due, on all consumer loans which were 120 days or more past due, and
on all one- to four-family residential mortgage loans which were 180 days
or more past due. Effective July 1, 1997, the Bank revised this policy such
that it does not accrue interest on any loans, including one- to four-
family loans secured by real estate, which are more than ninety days
delinquent as to principal and interest unless, in the opinion of
management, collection is probable. See "Business of the Bank - Delinquent
Loans, Real Estate Owned and Classified Assets." Assuming the revised
policy was in effect, the Bank's total non-accrual loans would have been
$3.9 million, $3.8 million, $3.0 million, $5.4 million and $5.4 million at
June 30, 1997, 1996, 1995, 1994 and 1993, respectively.
(13) Non-performing assets consist of non-performing loans and real estate
owned, net ("REO"). The Bank had no troubled debt restructurings at any of
the dates presented.
12
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
Sensitivity to Changes in Interest Rates
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and securities, and its interest expense
on interest-bearing liabilities, such as its deposits and borrowed funds.
Accordingly, the Bank's results of operations and financial condition are
largely dependent on movements in market interest rates and its ability to
manage its assets and liabilities in response to such movements.
While the Bank emphasizes investment in adjustable-rate or shorter-term
loans, the Bank currently originates and sells fixed-rate one- to four-family
mortgage loans with terms in excess of fifteen years. However, from time to
time, the Bank may retain such loans in its portfolio depending on its interest
rate risk position. At August 31, 1997, 73.8% of the Bank's gross loans had
adjustable interest rates and its fixed-rate mortgage loan portfolio had an
average weighted maturity of 16.75 years. At such date, $37.5 million, or
8.6%, of the Bank's securities had adjustable interest rates and its securities
portfolio had a weighted average life of 2.9 years. At August 31, 1997, the
Bank had $213.6 million of certificates of deposit with maturities of less than
one year and $29.4 million of certificates of deposit over $100,000 ("jumbo
certificates of deposit"). Such jumbo certificates of deposit tend to be less
stable sources of funding as compared to money market, savings, retail
checking/negotiable order of withdrawal ("NOW") accounts and commercial checking
accounts (collectively, "core deposits") and, at August 31, 1997, represented
3.7% of the Bank's interest-bearing liabilities. As a result, the Bank's total
interest-earning assets repricing or maturing within one year or less exceeded
its interest-bearing liabilities maturing or repricing in one year or less by
$12.6 million, representing a one-year interest sensitivity gap as a percentage
of total assets of 1.26%. Therefore, the yield on interest-earning assets of the
Bank may adjust to changes in interest rates faster than the cost of the Bank's
interest-bearing liabilities and the Bank's net income may be adversely affected
during periods of declining interest rates.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Bank's securities and other interest-
earning assets. At August 31, 1997, $399.5 million, or 91.4%, of the Bank's
securities had fixed interest rates. Generally, the value of fixed-rate
interest-earning assets fluctuates inversely with changes in interest rates. As
a result, increases in interest rates could result in decreases in the market
value of fixed-rate interest-earning assets which could adversely affect the
Bank's results of operations if sold. In the case of interest-earning assets
classified as available-for-sale, such increases in interest rates could
adversely affect the Bank's net worth.
Increases in market interest rates also can affect the type (fixed-rate or
adjustable-rate) and amount of loans originated by the Bank and the average life
of loans and securities, which can adversely impact the yields earned on the
Bank's loan and securities portfolio. In periods of decreasing interest rates,
the average life of loans held by the Bank may be shortened to the extent
increased prepayment activity occurs during such periods which, in turn, may
result in the Bank investing funds from such prepayments in lower yielding
assets. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management of Interest Rate Risk." In addition,
increases in interest rates would result in interest rates on the Bank's
adjustable-rate loans increasing, thereby resulting in increased loan payment
amounts by the borrowers which, in turn, may result in higher delinquencies on
such loans.
13
<PAGE>
Potential Low Return on Equity Following the Conversion
At August 31, 1997, the Bank's ratio of net worth to assets was 10.2%. The
Company's equity position will be significantly increased as a result of the
Conversion. On a pro forma basis as of August 31, 1997, assuming the sale of
Common Stock at the midpoint of the Estimated Price Range, the Company's ratio
of equity to assets would exceed 26.0%. The Company's ability to deploy this
new capital through investments in interest-earning assets, such as loans and
securities, which bear rates of return comparable to its current investments,
will be significantly affected by industry competition for such investments.
The Company currently anticipates that it will take time to prudently deploy
such capital. As a result, the Company's return on equity initially is expected
to be below its historical return on equity and may be below peer group
institutions after the Conversion. Additionally, due to the implementation of
stock-based benefit plans such as the ESOP, Stock Program and Stock Option Plan,
the Company's compensation expense will be increased, thereby adversely
affecting its net income and return on equity.
Increased Lending Risks Associated with Commercial Real Estate, Multi-Family,
Construction and Development and Commercial Lending
At August 31, 1997, the Bank's commercial real estate, multi-family,
construction and development and commercial loan portfolios totaled $74.7
million, or 14.3% of gross loans and 7.8% of total interest-earning assets. At
that date, commercial real estate loans totaled $42.9 million, or 8.2% of gross
loans, construction and development loans totalled $19.7 million, or 3.8% of
gross loans, commercial loans totaled $9.3 million, or 1.8% of gross loans, and
multi-family loans totaled $2.7 million, or 0.5% of gross loans. Additionally
at such date, the Bank had $27.0 million of outstanding commitments to fund such
loans.
Although the Bank's level of commercial real estate, multi-family,
construction and development and commercial lending historically has been
relatively modest in comparison to its one- to four-family residential lending,
the Bank is attempting to increase its emphasis on such types of loans.
Commercial real estate and multi-family loans are generally viewed as exposing
the lender to a greater risk of loss than one- to four-family residential loans,
as their repayment is dependent, in large part, on sufficient income from the
property to cover operating expenses and debt service and such loans generally
involve larger loan balances. Economic events and government regulations, which
are outside the control of the borrower or lender, could impact the value of the
security for the loan or the future cash flow of the affected properties.
Additionally, although commercial real estate and multi-family property values
have stabilized in recent periods, the decline in property values experienced in
the Bank's primary market area in the late 1980s and early 1990s was more
pronounced with respect to commercial real estate and multi-family properties
than one- to four-family residential properties. Construction and development
financing is also generally considered to involve a higher degree of credit risk
than long-term financing on improved, owner-occupied real estate as the risk of
loss on such loans is dependent largely upon the accuracy of the initial
estimate of the property's value at completion of construction compared to the
estimated cost (including interest) of construction. If the estimate of value
proves to be inaccurate, the property securing the loan, when completed, may
have a value which is insufficient to assure full repayment of the loan.
The Bank also makes secured and unsecured commercial loans. Unsecured
commercial loans are generally considered to involve a higher degree of risk
than secured commercial loans and real estate lending, due to the absence of
collateral securing the loan. Secured commercial loans are generally secured by
real estate, equipment, leases, inventory and accounts receivable. As of August
31, 1997, approximately 65.0% of the Bank's commercial loans were secured by
real estate and 5.0% were secured by other forms of collateral. With respect to
commercial loans secured by collateral other than
14
<PAGE>
real estate, the value of the collateral securing the loans may not be as easy
to ascertain as compared to real property, and such collateral may depreciate
over time and may not be as readily saleable as compared to real property. Both
secured and unsecured commercial loans are often substantially dependent upon
the success of the borrower's business. Accordingly, commercial loans involve a
greater degree of risk than a one- to four-family mortgage loan and other types
of mortgage loans. See "Business of the Bank - Lending Activities."
In the event the Bank were to further increase its investments in
commercial real estate, multi-family, construction and development and
commercial lending, management may determine to make additional or increased
provisions for loan losses which would adversely affect the Bank's net income.
Effects of the Establishment of the Foundation
Pursuant to the Plan, the Bank and the Company intend to voluntarily
establish the Foundation in connection with the Conversion. The Foundation will
be incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. The contribution of
Common Stock to the Foundation will be dilutive to the ownership and voting
interests of stockholders and will have an adverse impact on the reported
earnings of the Company in fiscal 1998, the fiscal year in which the Foundation
will be funded.
Dilution of Stockholders' Interests. The Company proposes to fund the
Foundation with Common Stock of the Company in an amount equal to 8% of the
Common Stock to be sold in the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
1,258,000, 1,480,000 and 1,702,000 shares, with a value of $12.6 million, $14.8
million and $17.0 million, respectively, based on the Purchase Price of $10.00
per share. Assuming the sale of Common Stock at the maximum of the Estimated
Price Range, upon completion of the Conversion and establishment of the
Foundation, the Company will have 22,977,000 shares issued and outstanding, of
which the Foundation will own 1,702,000 shares, or 7.4%. As a result, persons
purchasing shares of Common Stock in the Conversion will have their ownership
and voting interests in the Company diluted by 7.4%, as compared to completing
the Conversion without the Foundation. See "Pro Forma Data."
Impact on Earnings. The contribution of Common Stock to the Foundation
will have an adverse impact on the Company's earnings in the year in which the
contribution is made. The Company will recognize the full expense in the amount
of the contribution of Common Stock to the Foundation in the quarter in which it
occurs, which is expected to be the third quarter of fiscal 1998. The amount of
the contribution will range from $12.6 million to $17.0 million, based on the
minimum and maximum of the Estimated Price Range. The contribution expense will
be partially offset by the tax benefit related to the expense. The Company and
the Bank have been advised by their independent tax advisors that the
contribution to the Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income. Assuming a
contribution of $17.0 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $9.4
million (based upon a 45% tax rate). If the Foundation had been established at
June 30, 1997, the Bank would have reported net income of $1.7 million for the
year ended June 30, 1997 rather than reporting net income of $10.7 million for
the year ended June 30, 1997. Management cannot predict earnings for fiscal
1998, but expects that the establishment and funding of the Foundation will have
an adverse impact on the Company's earnings for the quarter in which the
Foundation is funded. In addition to the contribution to the Foundation, the
Bank expects in the future to continue making ordinary charitable contributions
within its community but the Company and the Bank do not currently anticipate
making additional contributions to the Foundation within the first five years
following the initial contribution.
15
<PAGE>
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Internal
Revenue Code of 1986, as amended (the "Code"), and would be classified as a
private foundation. The Foundation will submit a request to the Internal
Revenue Service (the "IRS") to be recognized as an exempt organization. The
Company and the Bank have received an opinion of their independent tax advisors
that the Foundation would qualify as a Section 501(c)(3) exempt organization
under the Code, except that such opinion does not consider the impact of the
regulatory condition agreed to by the Foundation that Common Stock issued to the
Foundation be voted in the same ratio as all shares of the Company's Common
Stock voted on all proposals considered by stockholders of the Company;
provided, however, the NYBD and the FDIC may waive this voting restriction under
certain circumstances, such as the loss of the tax exempt status of the
Foundation, but may impose certain additional conditions as part of granting
such waiver. There can be no assurances that the NYBD or the FDIC will grant a
waiver, unconditional or otherwise, of the voting restriction. See "The
Conversion - Establishment of Foundation -Regulatory Conditions Imposed on the
Foundation." The independent tax advisors' opinion further provides that there
is substantial authority for the position that the Company's contribution of its
own stock to the Foundation would not constitute an act of self-dealing, and
that the Company would be entitled to a deduction in the amount of the fair
market value of the stock at the time of the contribution less the nominal par
value that the Foundation is required to pay to the Company for such stock,
subject to an annual limitation based on 10% of the Company's annual taxable
income. The Company, however, would be able to carry forward any unused portion
of the deduction for five years following the contribution. Thus, while the
Company would have received a charitable contribution deduction of approximately
$2.1 million in 1997 (based upon the sale of stock at the maximum of the
Estimated Price Range, a contribution of $17.0 million of Common Stock and the
Bank's pre-tax income for 1997), the Company is permitted under the Code to
carryover the excess contribution in the five following years. Assuming the sale
of Common Stock at the midpoint of the Estimated Price Range, the Company
estimates that substantially all of the deduction should be deductible over the
six-year period. Although the Company and the Bank have received an opinion of
their independent tax advisors that the Company will be entitled to the
deduction for the charitable contribution, there can be no assurances that the
IRS will recognize the Foundation as a Section 501(c)(3) exempt organization or
that the deduction will be permitted. In such event, the Company's tax benefit
related to the Foundation would have to be fully expensed, resulting in a
further reduction in earnings in the year in which the IRS makes such a
determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by Keller in determining the estimated pro forma market value
of the Common Stock of the Company. The aggregate price of the shares of Common
Stock being offered in the Subscription and Community Offerings is based upon
the independent appraisal conducted by Keller of the estimated pro forma market
value of the Common Stock of the Company. The pro forma aggregate price of the
Common Stock being offered for sale in the Conversion is currently estimated to
be between $157.3 million and $212.8 million, with a midpoint of $185.0 million.
The pro forma price to book ratio and the pro forma price to earnings ratio, at
and for the two months ended August 31, 1997, are 75.44% and 13.08x,
respectively, at the midpoint of the Estimated Price Range. In the event that
the Conversion did not include the Foundation, Keller has estimated that the
estimated pro forma market value of the Common Stock would be $217.2 million at
the midpoint based on a pro forma price to book ratio and the pro forma price to
earnings ratio at 75.48% and 13.48x, respectively. The amount of Common Stock
being offered for sale in the Conversion at the midpoint of the Estimated Price
Range is approximately $32.2 million less than the estimated amount of Common
Stock that would be offered in the Conversion without the Foundation based on
the estimate provided by Keller. Accordingly, certain account holders of the
Bank who subscribe to purchase Common
16
<PAGE>
Stock in the Subscription Offering may receive fewer shares depending on the
size of a depositor's stock order and the amount of his or her qualifying
deposits in the Bank and the overall level of subscriptions. See "Comparison of
Valuation and Pro Forma Information with No Foundation." This estimate by Keller
was prepared solely for purposes of providing Eligible Account Holders and
subscribers with information with which to make an informed decision on the
Conversion.
The decrease in the amount of Common Stock being offered as a result of the
contribution of Common Stock to the Foundation will not have a significant
effect on the Company or the Bank's capital position. The Bank's regulatory
capital is significantly in excess of its regulatory capital requirements and
will further exceed such requirements following the Conversion. The Bank's
leverage and risk-based capital ratios at August 31, 1997 were 10.10% and
19.70%, respectively. Assuming the sale of shares at the midpoint of the
Estimated Price Range, the Bank's pro forma leverage and risk-based capital
ratios at August 31, 1997 would be 15.65% and 29.96%, respectively. On a
consolidated basis, the Company's pro forma stockholders' equity would be $264.9
million, or approximately 22.67% of pro forma consolidated assets, assuming the
sale of shares at the midpoint of the Estimated Price Range, and pro forma
stockholders' equity per share and pro forma net earnings per share would be
$13.26 and $0.13, respectively. If the Foundation was not being established in
the Conversion, based on the Keller estimate, the Company's pro forma
stockholders' equity would be approximately $287.8 million, or approximately
24.16% of pro forma consolidated assets at the midpoint of the estimate, and pro
forma stockholder's equity per share and pro forma net earnings per share would
be $13.25 and $0.12, respectively. See "Comparison of Valuation and Pro Forma
Information with No Foundation."
Potential Anti-Takeover Effect. Upon completion of the Conversion, the
Foundation will own 7.4% of the total outstanding shares of the Company's Common
Stock. Such shares will be owned solely by the Foundation, however, pursuant to
a condition imposed by the NYBD and FDIC, the shares of Common Stock held by the
Foundation must be voted in the same ratio as all other voted shares of the
Company's Common Stock on all proposals considered by the stockholders of the
Company. As such, the Company does not believe the Foundation will have an anti-
takeover effect on the Company. However, in the event that the NYBD and the FDIC
were to waive this voting restriction and did not impose additional restrictions
on the Foundation with regard to the voting of the Common Stock, the
Foundation's Board of Directors would exercise sole voting power over such
shares. See "The Conversion - Establishment of the Foundation -Regulatory
Conditions Imposed on the Foundation." As the Foundation's Board of Directors
will be comprised initially of the members of the Board of Trustees of the Bank
or Directors of the Company, in the event the NYBD and the FDIC waived the
voting restriction and did not impose additional restrictions on the Foundation
with regard to the Common Stock, management of the Company and the Bank may
benefit to the extent that the Board of Directors of the Foundation determines
to vote the shares of Common Stock held by the Foundation in favor of proposals
supported by the Company and the Bank. Furthermore, in such an event, when the
Foundation's shares are combined with shares purchased directly by officers and
directors of the Company, shares held by the Stock Program trust, and shares
held by the ESOP trust, the aggregate of such shares could exceed 20% of the
Company's outstanding Common Stock, which could enable management to defeat
stockholder proposals requiring 80% approval. Consequently, such potential
voting control might preclude takeover attempts that certain stockholders deem
to be in their best interest, and might tend to perpetuate management. However,
since the ESOP shares are allocated to all eligible employees of the Bank, and
any unallocated shares will be voted by an independent trustee, and because the
Stock Program must first be approved by stockholders no sooner than six months
following completion of the Conversion, and awards under such proposed plans may
be granted to employees other than executive officers, directors and trustees,
management of the Company does not expect to have voting control of all shares
covered by the ESOP and other stock-based benefit plans. See
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"- Provisions Which May Discourage Takeover Attempts - Voting Control of
Officers and Trustees." Moreover, as the Foundation sells its shares of Common
Stock over time, its ownership interest and voting power in the Company is
expected to decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock form
is innovative and has, to the Bank's knowledge, been done in a limited number of
instances. As such, the Foundation is subject to the Superintendent's approval
of the Conversion and the FDIC's nonobjection to the Conversion and may also be
subject to potential challenges notwithstanding that the Board of Directors of
the Company and the Board of Trustees of the Bank have carefully considered the
various factors involved in the establishment of the Foundation in reaching
their determination to establish the Foundation as part of the Conversion. See
"The Conversion - Establishment of Charitable Foundation - Purpose of the
Foundation." If challenges were to be instituted seeking to require the Bank to
eliminate establishment of the Foundation in connection with the Conversion, no
assurances can be made that the resolution of such challenges would not result
in a delay in the consummation of the Conversion or that any objecting persons
would not be ultimately successful in obtaining such removal or other relief
against the Company or the Bank. Additionally, if the Company and the Bank are
forced to eliminate the Foundation, the Company may be required to resolicit
subscribers in the Offerings.
Highly Competitive Industry and Geographic Area
The Bank faces significant competition in its primary market area both in
attracting deposits and in originating loans. The Bank had a lending market
share of approximately 7.2% in the Borough of Staten Island for 1996. The Bank's
share of deposits in the Borough of Staten Island amounted to approximately
14.2% in June of 1996, according to a survey by a nationally-recognized bank
consulting firm. While the Bank's primary market area generally consists of the
Borough of Staten Island and the area surrounding its branch office in the
Borough of Brooklyn, the Bank may, in the future, expand its market area to
include other areas of the New York City metropolitan area. The New York City
metropolitan area is a highly competitive market for financial services. The
Bank faces direct competition from a significant number of financial
institutions operating in its market area, many with a state-wide or regional
presence, and, in some cases, a national presence. This competition arises from
commercial banks, savings banks, mortgage banking companies, credit unions and
other providers of financial services, many of which are significantly larger
than the Bank and, therefore, have greater financial and marketing resources
than those of the Bank. There are eleven depository institutions with retail
operations located in the Borough of Staten Island. See "Business of the Bank -
Market Area."
Weakness in Local Economy
During the late 1980s to the early 1990s, the New York City metropolitan
area experienced reduced employment as a result of layoffs in the financial
services industry, corporate relocations and the general decline of the local,
regional and national economies. Additionally, during that period the area
experienced a general weakening of real estate values and a decline in home
sales and construction. While Staten Island's significant concentration of
government employees somewhat mitigated the impact of the recession, the
financial services industry historically also has been a significant source of
employment in the Bank's primary market area. As a result, loan delinquencies
increased and the underlying values of properties securing non-performing loans
made by lending institutions generally declined resulting in substantial losses
to some institutions. In 1993, however, the economy of the Bank's primary
market area began to stabilize as demonstrated by improved employment and
economic indicators. Since such time, residential real estate values in the
Bank's primary market have stabilized and recently have begun to improve.
However, commercial real estate values, which previously experienced the
greatest declines during the late 1980s and
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early 1990s, have only recently begun to stabilize and have not improved as
much as residential real estate and generally remain below the values
experienced in the late 1980s. See "Business of the Bank - Market Area."
Although the current national and local economic conditions have
significantly improved since the early 1990s, there can be no assurances that
conditions in the local economy, national economy, or real estate market in
general will not deteriorate and adversely affect the financial condition and
results of operations of the Bank. Based on information available to management
at this time, management believes the current allowance for loan losses is
adequate; however, many factors may require additions to the allowance for loan
losses in future periods above those reasonably anticipated. Future adjustments
to the allowance also may be necessary if economic or other conditions differ
substantially from those underlying the assumptions used in making such
estimates. See "Business of the Bank--Allowance for Loan Losses."
Provisions Which May Discourage Takeover Attempts
Provisions in the Company's and the Bank's Governing Instruments. Certain
provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Bank's Restated
Organization Certificate and Bylaws, as well as certain federal and state
regulations, assist the Company in maintaining its status as an independent
publicly owned corporation. These provisions provide for, among other things,
supermajority voting, staggered boards of directors, noncumulative voting for
directors, limits on the calling of special meetings of shareholders, limits on
the ability to vote Common Stock in excess of 10% of outstanding shares, and
certain uniform price provisions for certain business combinations. The New
York State Banking Board ("NYBB") regulations prohibit, for a period of one year
following the date of conversion, offers to acquire or the acquisition of
beneficial ownership of more than 10% of the outstanding stock of the Bank. The
Bank's Restated Organization Certificate also prohibits, for three years, the
acquisition, directly or indirectly, of the beneficial ownership of more than
10% of the Bank's equity securities. Any person, or group acting in concert,
violating this restriction may not vote the Bank's or Company's securities in
excess of 10%. These provisions in the Bank's and the Company's governing
instruments may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Board of
Directors, and thus, generally may serve to perpetuate current management. See
"Restrictions on Acquisitions of the Company and the Bank."
Voting Control of Officers and Trustees. Trustees, directors and executive
officers of the Bank and the Company expect to purchase approximately 1.5% or
1.1% of the shares of Common Stock to be issued in the Conversion, including
shares issued to the Foundation, based upon the minimum and the maximum of the
Estimated Price Range, respectively, exclusive of shares that may be
attributable to directors and officers through the Stock Program, the Stock
Option Plan and the ESOP, which may give directors, trustees, executive officers
and employees the potential to control the voting of an additional 20.0% of the
Company's Common Stock on a fully diluted basis at the maximum of the Estimated
Price Range. In addition, the Foundation will be funded with a contribution by
the Company equal to 8% of the Common Stock sold in the Conversion. However,
pursuant to voting restrictions imposed by the NYBD and FDIC, such Common Stock
must be voted in the same ratio as all other voted shares of Common Stock. In
the event an unconditional waiver was granted by the NYBD and FDIC, such shares
would be voted as determined by the Board of Directors of the Foundation which
will initially be comprised of the Trustees or Directors of the Bank or Company.
The Board of Directors of the Foundation will, in the future, consider
appointing members of the Board of the Foundation who are members of the Bank's
local community and who are not officers, directors or employees of the Bank or
Company. Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See "Restrictions on Acquisition of the
Company and the Bank -
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Restrictions in the Company's Certificate of Incorporation and Bylaws" and "The
Conversion - Establishment of Charitable Foundation."
Absence of Market For Common Stock
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for its Common Stock at this
time. The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "RCBK." A public trading market having the
desirable characteristics of depth, liquidity and orderliness depends upon the
existence of willing buyers and sellers at any given time, the presence of which
is dependent upon the individual decisions of buyers and sellers over which
neither the Company nor any market maker has control. Accordingly, there can be
no assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. In the event a liquid market for the Common Stock does not
develop or market makers for the Common Stock discontinue their activities, such
occurrences may have an adverse impact on the liquidity of the Common Stock and
the market value of the Common Stock.
Increased Costs Associated with Stock-Based Benefits to Management, Employment
Contracts and Change in Control Payments
Stock Program. The Company intends to adopt the Stock Program which would
provide stock grants of Common Stock to trustees and directors and selected
officers and employees of the Company and Bank and intends to seek stockholder
approval of such plan at a meeting of stockholders following the Conversion,
which may be held no earlier than six months after completion of the Conversion.
The shares granted under the Stock Program will be awarded at no cost to the
recipients. The Company expects to fund the Stock Program with Common Stock in
an amount equal to 4% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation, or 679,320 shares and
919,080 shares at the minimum and maximum of the Estimated Price Range,
respectively. These shares will be provided to the Stock Program either through
open market purchases by a trust established for the Stock Program or from
authorized but unissued Common Stock. See "- Possible Dilutive Effect of Stock
Program and Stock Option Plan."
Although no specific award determinations have been made, the Company
anticipates that it will provide awards under the Stock Program to the trustees,
directors and selected officers and employees of the Company and Bank to the
extent permitted by applicable regulations. Current NYBB and FDIC regulations
provide that, to the extent any non-tax qualified stock or stock option plan is
implemented within one year after conversion, no individual may receive more
than 25% of the shares of any such stock-based benefit plan and non-employee
directors or trustees may not receive more than 5% individually, or 30% in the
aggregate, of the shares awarded under any such plan. Under the terms of the
Stock Program, an independent trustee will vote unallocated shares in the same
proportion as it receives instructions from recipients with respect to allocated
shares which have not been earned and distributed. Recipients will vote
allocated shares. The plan trustee will not vote allocated shares which have not
been distributed if it does not receive instructions from the recipient. The
specific terms of the Stock Program intended to be adopted and the amounts of
awards thereunder have not yet been determined by the Board of Directors, and
any such determination will include consideration of various factors, including
but not limited to, the financial condition of the Company, current and past
performance of plan participants and tax and securities laws and regulations.
The stock-based benefits provided under the Stock Program and Stock Option Plan,
discussed below, may be provided under separate plans established for officers
and employees and non-employee trustees and directors or such benefits may be
provided for under a single master stock-based benefit plan adopted by the
Company which would incorporate the benefits and features of the separate plans
(the "Master Stock-Based
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Benefit Plan"). Additionally, the granting or vesting of awards under such
benefit plans may be conditioned upon the achievement of individual or company-
wide performance goals, including the achievement by the Company or the Bank of
specified levels of net income or returns on equity or assets. The
implementation of the Stock Program will likely result in increased compensation
expenses to the Company and may have a dilutive effect on existing stockholders.
See "-Possible Dilutive Effect of Stock Program and Stock Option Plan" and
"Management of the Bank - Benefit Plans - Stock Program."
Stock Option Plan. The Company also intends to adopt a stock-based benefit
plan which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and trustees and directors of the Company and Bank and
intends to seek stockholder approval of such plan at a meeting of stockholders
following the Conversion, which may be held no earlier than six months after
completion of the Conversion. Although no specific determinations have been
made, the Company expects that directors and selected officers and employees of
the Company and Bank will be granted options to purchase Common Stock in an
amount equal to 10% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation (or 1,698,300 shares and
2,297,700 shares at the minimum and maximum of the Estimated Price Range,
respectively). It is currently intended that the exercise price of all Stock
Options will be at least equal to the fair market value of the underlying Common
Stock on the date of grant. Stock Options will permit such trustees, directors,
officers and employees to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. The specific
terms of the Stock Option Plan intended to be adopted and amounts and awards
thereunder have not yet been determined by the Board and any such determination
will include consideration of various factors, including but not limited to, the
financial condition of the Company, current and past performance of award
recipients and tax and securities laws and regulations. The Stock Options
discussed above may be provided under a single stock option plan, may be granted
under separate plans for officers and employees and non-employee directors or
may be provided for under the Master Stock-Based Benefit Plan which would
incorporate the features and benefits of the Stock Option Plan and the Stock
Program, and benefits awarded thereunder may be conditioned upon the achievement
of individual or company-wide performance goals, including the achievement by
the Company or the Bank of specified levels of net income or returns on equity
or assets. The implementation of such Stock Option Plan may have a dilutive
effect upon existing stockholders of the Company to the extent option exercises
are satisfied with authorized but unissued shares and will likely result in
increased compensation expenses to the Company. See "- Possible Dilutive Effect
of Stock Program and Stock Option" and "Management of the Bank - Benefit Plans -
Stock Option Plan."
Change In Control Provisions. The Company and the Bank intend to enter
into employment or change in control agreements with certain officers of the
Bank and Company which will provide for benefits and cash payments in the event
of their termination following a change in control of the Company or the Bank.
These provisions may have the effect of increasing the cost of acquiring the
Company or the Bank, thereby discouraging future attempts to take over the
Company or the Bank. Additionally, the Bank intends to adopt the Stock Program,
Stock Option Plan and employee severance compensation plan, which similarly
provides a cash payment and benefits to eligible employees upon such employees'
termination following a change in control of the Company or the Bank, which also
may have the effect of increasing the cost of acquiring the Company or the Bank.
Based on current salaries, cash payments to be paid in the event of a change in
control pursuant to the terms of the employment agreements, change in control
agreements and the employee severance compensation plan would be approximately
$8.4 million. However, the actual amount to be paid in the event of a change in
control of the Company or the Bank cannot be estimated at this time because the
actual amount is based on the average salary of the employee and other factors
existing at the time of the change in control. See "Restrictions on Acquisition
of the Company and the Bank - Restrictions in the Company's Certificate of
Incorporation and Bylaws," "Management of the Bank - Employment Agreements," "-
Change in Control
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Agreements," "- Employee Severance Compensation Plan," "- Benefit Plans - Stock
Option Plan" and "- Benefit Plans - Stock Program."
Possible Dilutive Effect of Stock Program and Stock Option Plan
Following the Conversion, the Stock Program will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation, either through open market purchases
or the issuance of authorized but unissued shares of Common Stock from the
Company. If the Stock Program is funded by the issuance of authorized but
unissued shares, the voting interests of existing shareholders will be diluted
by 3.8%. Also following the Conversion, the Company intends to implement the
Stock Option Plan which will provide trustees, directors and selected officers
and employees of the Company and the Bank with Stock Options to purchase
authorized but unissued shares in an amount equal to 10% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. If all of
the Stock Options intended to be granted were to be exercised using authorized
but unissued Common Stock and if the Stock Program were funded with authorized
but unissued shares, the voting interests of existing stockholders would be
diluted by 12.3%.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Bank has received an opinion of Keller that subscription rights granted
to Eligible Account Holders and Supplemental Eligible Account Holders have no
value. However, this opinion is not binding on the IRS. If the subscription
rights granted to Eligible Account Holders or Supplemental Eligible Account
Holders are deemed to have an ascertainable value, such recipients could be
taxed upon receipt or exercise of such subscription rights. Additionally, the
Bank could recognize a gain for tax purposes on such distribution. Whether
subscription rights are considered to have ascertainable value is an inherently
factual determination. See "The Conversion - Effects of Conversion" and "- Tax
Aspects."
Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription Offering. In the event that the Estimated Price Range is so
increased, it is expected that the Company will sell up to 24,466,250 shares of
Common Stock at the Purchase Price for an aggregate purchase price of up to
$244,662,500 which, when aggregated with the shares contributed to the
Foundation will result in the issuance of up to 26,423,500 shares. An increase
in the number of shares issued will decrease a subscriber's pro forma net
earnings per share and stockholders' equity per share and will increase the
Company's pro forma consolidated stockholders' equity and net earnings. Such an
increase will also increase the Purchase Price as a percentage of pro forma
stockholders' equity per share and net earnings per share.
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<PAGE>
Potential Delays of Consummation of the Conversion
Orders submitted in the Offerings are irrevocable. The Company and the
Bank expect to complete the Conversion within the time periods indicated in this
Prospectus. Nevertheless, it is possible that several factors, including, but
not limited to, a delay in receiving regulatory approval of the final updated
appraisal prepared by Keller, a delay in processing orders in the event the
Offerings are oversubscribed or a delay caused by regulatory or legal challenges
to the establishment and funding of the Foundation or other actions taken in
connection with the Conversion could significantly delay the completion of the
Conversion. Subscribers will have no access to subscription funds and/or shares
of Common Stock until the Conversion is completed or terminated. In the event
the Conversion is terminated, subscribers will be refunded their subscription
funds, together with interest at a rate equal to the Bank's interest rate paid
on passbook accounts, or will have their withdrawal authorization terminated.
See "The Conversion."
RICHMOND COUNTY FINANCIAL CORP.
Richmond County Financial Corp. is a Delaware corporation recently
organized at the direction of the Board of Trustees of the Bank for the purpose
of acquiring all of the capital stock of the Bank to be issued in the
Conversion. The Company has received approval from the Office of Thrift
Supervision ("OTS") to become a savings and loan holding company and, upon
completion of the Conversion, will be subject to regulation by the OTS. See "The
Conversion -General" and "Regulation and Supervision - Holding Company
Regulation." Upon consummation of the Conversion, the Company will have no
significant assets other than all of the shares of the Bank's capital stock
acquired in the Conversion and an amount equal to 50% of the net proceeds of the
Conversion, including the loan to the ESOP, and will have no significant
liabilities. The Company intends to use a portion of the net proceeds it retains
to loan to the ESOP funds to enable the ESOP to purchase up to 8% of the stock
issued in connection with the Conversion, including shares issued to the
Foundation. The remaining net proceeds will be used for general business
activities, including the funding of the Stock Program and Stock Option Plan.
Initially, net proceeds are expected to be invested by the Company in primarily
mortgage-backed and mortgage-related securities and investment-grade debt and
equity securities. See "Use of Proceeds."
Concurrent with the organization of the Company, the Company has hired a
President and Chief Operating Officer and a Chief Financial Officer and
Secretary, both of whom were not previously employed by the Bank but who have
significant experience in the financial services industry. The management of
the Company is set forth under "Management of the Company." Initially, the
Company will neither own nor lease any property, but will instead use the
premises, equipment and furniture of the Bank. At the present time, the Company
does not intend to employ any persons other than the current officers of the
Company but will utilize the support staff of the Bank from time to time.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities and to
expand its geographical presence through existing or newly formed subsidiaries
(which subsidiaries could be financial institutions), or through acquisitions of
or mergers with other financial institutions and financial services related
companies. Other than a lease on a public accommodation office to be opened
on Staten Island in 1998 and plans to open three branch offices on Staten
Island, there are no current arrangements, understandings or agreements,
regarding any such opportunities. The Company will be in a position after the
Conversion, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion
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opportunities that may arise. The initial activities of the Company are
anticipated to be funded by the net proceeds to be retained by the Company,
income thereon and through dividends from the Bank.
The Company's executive office is located at the administrative offices of
the Bank, 1214 Castleton Avenue, Staten Island, New York 10310. Its telephone
number is (718) 448-2800.
RICHMOND COUNTY SAVINGS BANK
The Bank was organized in 1886 as a New York State chartered mutual savings
bank. The Bank has long-standing ties to Staten Island with over 111 years of
continuous service to the residents and businesses of Staten Island and has
served the area around its office in Brooklyn for over 20 years. The Bank's
deposit accounts are insured to the maximum allowable amount by the Bank
Insurance Fund ("BIF") and SAIF as administered by the FDIC. Including the
Bank's principal office, which is located in the Borough of Staten Island the
Bank services its customers from twelve full service banking facilities located
in the Borough of Staten Island, and one full service banking facility located
in the Borough of Brooklyn. The Bank intends to open one public accommodation
office in Staten Island during 1998 and also is considering opening three
full-service branches. With the exception of plans to open a new public
accommodation office and three branch offices on Staten Island, there are no
current arrangements, understandings or agreements, written or oral, regarding
such new offices, and no assurances can be made that such offices will be
opened. At August 31, 1997, the Bank had total assets of $1.01 billion, total
deposits of $882.9 million, net worth of $102.8 million and had a leverage
capital ratio of 10.10% and a total risk-based capital ratio of 19.70%. See
"Regulation and Supervision,FDIC Regulations,Capital Requirements."
The Bank is a community-oriented savings institution whose businesses
primarily consist of accepting deposits from customers in its primary market
area consisting of the Borough of Staten Island and the area around its branch
office in the Borough of Brooklyn and investing those funds in mortgage loans
secured by one- to four-family residences and commercial properties and
construction and development and commercial loans, home equity, student and
consumer loans and in mortgage-backed and mortgage-related securities and debt
and equity securities. See "Business of the Bank - Lending Activities."
As of June, 1996, based on a survey by a nationally-recognized bank
consulting firm, the Bank had 14.2% of total deposits in Staten Island, and for
1996, the Bank had a lending market share of approximately 7.2% on Staten
Island, placing the Bank among the leaders in both loans originated and deposits
in Staten Island. The Bank's operating strategy emphasizes customer service,
security and convenience, and the Bank attributes the loyalty of its customer
base to its commitment to maintaining customer satisfaction. The Bank attempts
to set itself apart from its larger competitors by providing the type of
personalized service not generally available from larger banks while offering a
greater variety of products and services than is typically available from
smaller, local depository institutions.
At August 31, 1997, the Bank's gross loan portfolio totaled $520.6 million,
or 51.7% of total assets, of which $411.7 million were one- to four-family
loans, $2.7 million were multi-family loans, $42.9 million were commercial real
estate loans, $19.7 million were construction and development loans, $9.3
million were commercial loans, $11.1 million were home equity loans and $23.2
million were student and consumer loans. The Bank originates mortgage loans
generally secured by properties located in the Bank's primary market area. See
"Business of the Bank - Lending Activities."
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The Bank's securities investment activities primarily consist of
investments in mortgage-backed and mortgage-related securities and various
investment-grade debt and equity securities. At August 31, 1997, the Bank's
securities portfolio totalled $437.0 million, or 43.4% of total assets, of which
$78.6 million was categorized as available-for-sale and $358.5 million was
classified as held-to-maturity. At August 31, 1997, the Bank's mortgage-backed
and mortgage-related securities portfolio totaled $220.1 million, or 21.9% of
total assets, of which $57.0 million was classified as available-for-sale and
$163.1 million was classified as held-to-maturity, and consisted of mortgage-
backed securities guaranteed or issued by Governmental-sponsored and federal
agencies such as the Government National Mortgage Association ("GNMA"), Fannie
Mae ("FNMA") and Freddie Mac ("FHLMC") and collateralized mortgaged obligations
("CMOs") issued by FNMA, FHLMC and private issuers. At August 31, 1997, the
Bank's debt securities portfolio totaled $195.3 million, or 19.4% of total
assets, all of which were classified as held to maturity. The Bank's debt
securities generally consist of United States Government securities, obligations
of FNMA, FHLMC and the FHLB, obligations of corporate issuers, public utility
bonds and bonds issued by New York State. At August 31, 1997, the Bank's equity
securities portfolio totaled $21.5 million, or 2.1% of total assets, all of
which was classified as available-for-sale. See "Business of the Bank -
Securities Investment Activities."
At August 31, 1997, the Bank's deposit accounts totaled $882.9 million, or
97.7% of total liabilities, of which $577.5 million, or 65.4%, were comprised of
core deposits. In addition to core deposits, the Bank had $305.4 million of
certificate accounts, or 33.8% of total liabilities, of which $213.6 million
were certificates of deposit with maturities of one year or less and $29.4
million were jumbo certificates of deposit.
The Bank's executive office is located at 1214 Castleton Avenue, Staten
Island, New York 10310. Its telephone number at that location is (718) 448-
2800.
RICHMOND COUNTY SAVINGS FOUNDATION
In furtherance of the Bank's commitment to the communities it serves, the
Bank's Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will create the Richmond County Savings Foundation, which will
be incorporated under Delaware law as a non-stock corporation. The Foundation
will be funded with shares of Common Stock contributed by the Company, as
further described below. The purpose of the Foundation is to provide funding to
support charitable causes and community development activities. The Company and
the Bank believe that the funding of the Foundation with Common Stock of the
Company is a means of establishing a common bond between the Bank and its
community and thereby enables the Bank's community to share in the potential
growth and success of the Company over the long term. While the Bank has made
charitable contributions in the past, the Bank has not previously formed a
charitable foundation nor has it made contributions to charitable organizations
of the magnitude of the contribution that will be made to the Foundation in the
Conversion. By further enhancing the Bank's visibility and reputation in its
local community, the Bank believes that the Foundation will enhance the long-
term value of the Bank's community banking franchise. See "The Conversion -
Establishment of Charitable Foundation - Structure of the Foundation."
The members of the Foundation will be the Board of Directors of the
Foundation. The authority for the affairs of the Foundation will be vested in
the Board of Directors of the Foundation, which will initially be comprised of
the Board of Trustees of the Bank or the Board of Directors of the Company, who
will receive no fees for serving on the Foundation's Board of Directors. The
Board of Directors of the Foundation may be expanded in the future to include
25
<PAGE>
certain members of the community. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. The Directors of the Foundation
will be responsible for directing the activities of the Foundation, including
the management of the Common Stock held by the Foundation. However,
establishment of the Foundation is subject to certain regulatory conditions,
including a requirement that the Common Stock of the Company held by the
Foundation be voted in the same ratio as all other shares of the Company's
Common Stock on all proposals considered by stockholders of the Company. See
"The Conversion - Establishment of the Charitable Foundation - Regulatory
Conditions Imposed on the Foundation."
The Company proposes to fund the Foundation by contributing to the
Foundation immediately following the Conversion a number of shares of authorized
but unissued Common Stock equal to 8% of the Common Stock sold in the Offerings,
or 1,258,000, 1,480,000 and 1,702,000 shares at the minimum, midpoint and
maximum, respectively, of the Estimated Price Range. Such contribution, once
made, will not be recoverable by the Company or the Bank. Assuming the sale of
shares at the maximum of the Estimated Price Range and the issuance of shares to
the Foundation, the Company will have 22,977,000 shares issued and outstanding,
of which the Foundation will own 1,702,000 shares, or 7.4%. Due to the issuance
of additional shares of Common Stock to the Foundation, persons purchasing
shares in the Conversion will have their ownership and voting interests in the
Company diluted by 7.4%. See "Pro Forma Data." The establishment of the
Foundation was taken into account in determining the estimated pro forma market
value of the Common Stock. In the event the Conversion did not include the
Foundation, Keller has estimated that the pro forma market value of the Common
Stock would be $217.2 million at the midpoint of the Estimated Price Range
rather than $199.8 million. See "Risk Factors - Effects of the Establishment of
the Foundation - Comparison of Valuation and Other Factors Assuming the
Foundation is Not Established as Part of the Conversion" and "Pro Forma Data."
The Foundation will receive working capital from any dividends that may be
paid on the Company's Common Stock in the future and, subject to applicable
state and federal laws, loans collateralized by shares of Common Stock and from
the proceeds from sales of shares of Common Stock held by the Foundation.
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, offset in part by a
corresponding tax benefit, during the quarter in which the contribution is made,
which is expected to be the third quarter of fiscal 1998. Such expense will
reduce earnings and have a material impact on the Company's earnings for the
fiscal year in which it is made. While management cannot predict earnings for
fiscal 1998, it expects that the establishment and funding of the Foundation
will have an adverse impact on the Company's earnings for the year in which it
is made. Assuming a contribution of $17.0 million in Common Stock in fiscal
1998, based on the maximum of the Estimated Price Range and assuming a tax rate
of 45%, the Company estimates a net tax effected expense of $9.4 million. If
the Foundation had been established at June 30, 1997, the Bank would have
recorded net income of $1.7 million, rather than recording net income of $10.7
million for the year ended June 30, 1997, based on an assumed tax rate of 47%.
In addition to the contribution of Common Stock by the Company to the
Foundation, the Bank expects in the future to continue making ordinary
charitable contributions within its community. The Bank does not anticipate
making future charitable contributions to the Foundation during the first five
years following the initial contribution to the Foundation. For further
discussion of the Foundation and its impact on purchasers in the Conversion, see
"Risk Factors - Effects of the Establishment
26
<PAGE>
of the Charitable Foundation," "Pro Forma Data" and "The Conversion -
Establishment of the Charitable Foundation."
The establishment and funding of a charitable foundation as part of a
conversion of a mutual savings institution to stock form is innovative and has
only been done in a limited number of instances. As such, the establishment of
the Foundation in connection with the Conversion and the Superintendent's
approval and FDIC's non-objection to the Plan of Conversion may be subject to
potential challenges which could result in delays in the Conversion. See "Risk
Factors - Effects of the Establishment of the Foundation - Potential
Challenges."
27
<PAGE>
At August 31, 1997, the Bank exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the
FDIC capital standards as of August 31, 1997, on an historical and pro forma
basis assuming that the indicated number of shares were sold as of such date and
receipt by the Bank of 50% of the net proceeds. For purposes of the table below,
the amount expected to be borrowed by the ESOP and the cost of the Company's
Common Stock expected to be acquired by the Stock Program are deducted from pro
forma regulatory capital.
<TABLE>
<CAPTION>
Pro Forma at August 31, 1997 Based
Upon the Sale at $10.00 Per Share
-----------------------------------------------
15,725,000 Shares 18,500,000 Shares
(Minimum of the (Midpoint of the
Historical at Estimated Estimated
August 31, 1997 Price Range) Price Range)
------------------------- ----------------------- ----------------------
Percent Percent Percent
of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2)
------------ ------------ ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)................ $102,832 10.22% $158,470 14.93% $168,526 15.72%
======== ===== ======== ===== ======== =====
Leverage Capital:
Capital Level(4).......... $100,911 10.10% $156,549 14.85% $166,605 15.65%
Requirement(5)............ 39,954 4.00 42,180 4.00 42,582 4.00
-------- ----- -------- ----- -------- -----
Excess.................... $ 60,957 6.10% $114,369 10.85% $124,023 11.65%
======== ==== ======== ===== ======== =====
Tier I Capital:
Capital Level(4).......... $100,911 18.77% $156,549 27.60% $166,605 29.10%
Requirement............... 21,500 4.00 22,689 4.00 22,904 4.00
-------- ----- -------- ----- -------- -----
Excess.................... $ 79,411 14.77% $133,860 23.60% $143,701 25.10%
======== ===== ======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)....... $105,881 19.70% $161,519 28.48% $171,575 29.96%
Requirement............... 42,999 8.00 45,377 8.00 45,807 8.00
-------- ----- -------- ----- -------- -----
Excess.................... $ 62,882 11.70% $116,142 20.48% $125,768 21.96%
======== ===== ======== ===== ======== =====
<CAPTION>
Pro Forma at August 31, 1997 Based Upon
the Sale at $10.00 Per Share
--------------------------------------------------
24,466,250 Shares
21,275,000 Shares (15% Above Maximum
(Maximum of the of the
Estimated Estimated
Price Range) Price Range)(1)
------------------------ ------------------------
Percent Percent
of of
Amount Assets(2) Amount Assets(2)
----------- ------------ ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP Capital(3)................ $178,585 16.51% $190,148 17.39%
======== ===== ======== =====
Leverage Capital:
Capital Level(4).......... $176,664 16.44% $188,227 17.33%
Requirement(5)............ 42,984 4.00 43,447 4.00
-------- ----- -------- -----
Excess.................... $133,680 12.44% $144,780 13.33%
======== ===== ======== =====
Tier I Capital:
Capital Level(4).......... $176,664 30.57% $188,227 32.22%
Requirement............... 23,118 4.00 23,366 4.00
-------- ----- -------- -----
Excess.................... $153,546 26.57% $164,861 28.22%
======== ===== ======== =====
Risk-Based Capital:
Capital Level(4)(6)....... $181,634 31.43% $193,197 33.07%
Requirement............... 46,237 8.00 46,731 8.00
-------- ----- -------- -----
Excess.................... $135,397 23.43% $146,466 25.07%
======== ===== ======== =====
</TABLE>
- --------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offering.
(2) Leverage capital levels are shown as a percentage of average assets.
Risk-based capital levels are calculated on the basis of a percentage of
risk-weighted assets.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Bank of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Estimated Price Range. These levels also assume funding by
the Bank of the Stock Program equal to 4% of the Common Stock issued and
repayment of the Company's loan to the ESOP to enable the ESOP to purchase
8% of the Common Stock issued, including shares issued to the Foundation,
valued at the minimum, midpoint and maximum of the Estimated Price Range.
See "Management of the Bank - Benefit Plans" for a discussion of the Stock
Program and ESOP. With respect to the Stock Program, such amounts are
assumed to be $5.7 million, $6.7 million, $7.7 million and $8.8 million at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated
Price Range, respectively. With respect to the ESOP loan, such amounts are
assumed to be $13.6 million, $16.0 million, $18.4 million and $21.1
million, at the minimum, midpoint, maximum, and maximum, as adjusted, of
the Estimated Price Range respectively.
(5) The current leverage capital requirement for savings banks is 3% of total
adjusted assets for savings banks that receive the highest supervisory
rating for safety and soundness and that are not experiencing or
anticipating significant growth. The current leverage capital ratio
applicable to all other savings banks is 4% to 5%. See "Regulation and
Supervision - FDIC Regulations - Capital Requirements." The Company will
not be subject to regulatory capital requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting
equal to the actual risk weighting of the Bank's assets as of August 31,
1997.
28
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $152.0
million and $206.6 million (or $238.0 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable
to utilize any of the net proceeds of the Offerings until the consummation of
the Conversion.
The Company will purchase all of the outstanding capital stock of the Bank
to be issued upon Conversion in exchange for 50% of the net proceeds of the
Offerings. Based on net proceeds of $152.0 million to $206.6 million, the
Company expects to utilize between $76.0 million and $103.3 million of net
proceeds to purchase the common stock of the Bank. Such portion of net proceeds
received by the Bank from the Company will be added to the Bank's general funds
which the Bank currently intends to utilize for general corporate purposes,
including investment in loans and securities. The Bank may also use such funds
for the expansion of its facilities, and to expand its operations in its primary
market area and other areas within the New York City metropolitan area through
marketing and business development, acquisitions of other financial
institutions, branch offices or other financial services companies. To the
extent that the Stock Program or Stock Option Plan, which the Company or the
Bank intend to adopt subsequent to the Conversion, are not funded with
authorized but unissued common stock of the Company, the Company or the Bank may
use net proceeds from the Conversion to fund the purchase of stock to be awarded
under such plans. See "Risk Factors - Increased Costs Associated with Stock-
Based Benefits to Management, Employment Contracts and Change in Control
Payments" and "Management of the Bank - Benefit Plans - Stock Option Plan" and
"- Stock Program."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $152.0 million to $206.6
million will be between $76.0 million and $103.3 million) to make a loan
directly to the ESOP to enable the ESOP to purchase in the Conversion, or in the
open market to the extent Common Stock is not available to fill the ESOP's
subscription in the Conversion, 8% of the Common Stock issued in connection with
the Conversion, including shares issued to the Foundation. Based upon the sale
of 15,725,000 shares or 21,275,000 shares at the minimum and maximum of the
Estimated Price Range, and the issuance of shares to the Foundation, the amount
of the loan to the ESOP would be $13.6 million or $18.4 million, respectively
(or $21.1 million if the Estimated Price Range is increased by 15%), with a term
of 20 years at the prevailing prime rate of interest, which currently is 8.50%.
The Company and the Bank may alternatively choose to fund the ESOP's stock
purchases through a loan by a third party financial institution. See
"Management of the Bank - Benefit Plans - ESOP." The remaining net proceeds
retained by the Company will initially be invested in mortgage-backed and
mortgage-related securities and investment-grade debt and equity securities.
The net proceeds retained by the Company may also be used to support future
geographic and operational expansion through increased marketing and business
development efforts, branch acquisitions, the establishment of branch offices
and the acquisition of savings associations and commercial banks or their
assets, including those located within the Bank's market area or diversification
into other banking related businesses. The Company and the Bank have no current
arrangements, understandings or agreements regarding any such transactions with
the exception of the Banks' plans to open a public accommodation office in 1998
and plans to open three new branch offices on Staten Island. The Company, upon
consummation of the Conversion, will be a unitary savings and loan holding
company, which under existing laws would not be restricted as to the types of
business activities in which it may engage. See "Regulation
29
<PAGE>
and Supervision - Holding Company Regulation" for a description of certain
regulations applicable to the Company.
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the Superintendent or NYBD, the
Company, pursuant to NYBB regulations, may not repurchase any Common Stock in
the first year after conversion and, during the next two following years, may
only repurchase up to 5% of its outstanding capital stock during each twelve-
month period. Further, the Company may not repurchase any of its Common Stock
if the repurchases would cause the Bank to become "undercapitalized" within the
meaning of the FDIC prompt corrective action regulation. See "Regulation and
Supervision - Prompt Corrective Regulatory Action." In addition, the FDIC
prohibits an insured mutual state savings bank which has converted to the stock
form of ownership from repurchasing its capital stock within one year following
the date of its conversion to stock form, except that stock repurchases of no
greater than 5% of a bank's outstanding capital stock may be repurchased during
this one-year period where compelling and valid business reasons are established
to the satisfaction of the FDIC.
Based upon facts and circumstances following the Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but
not be limited to: (i) market and economic factors such as the price at which
the stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion and in excess of the per share book value. To the extent that the
Company repurchases stock at market prices in excess of the per share book
value, such repurchases may have a dilutive effect upon the interests of
existing stockholders. Any stock repurchases will be subject to the
determination of the Board of Directors that both the Company and the Bank will
be capitalized in excess of all applicable regulatory requirements after any
such repurchases and that such capital will be adequate, taking into account,
among other things, the level of non-performing and other risk assets, the
Company's and the Bank's current and projected results of operations and
asset/liability structure, the economic environment, tax and other
considerations. See "The Conversion - Certain Restrictions on Purchase or
Transfer of Shares After Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. Following the Conversion, the Board of Directors
intends to consider a policy of paying cash dividends on the Common Stock.
However, no decision has been made as to the amount or timing of such dividends,
if any.
The Bank will not be permitted to pay dividends on its common stock or
repurchase shares of its common stock if its stockholders' equity would be
reduced below the amount required for the liquidation account. See "The
Conversion - Liquidation Rights" for a discussion of the liquidation account to
be established in connection with the Conversion. Under New York State Banking
Law, dividends may be declared and paid only out of the net profits of the Bank.
The approval of the Superintendent is required if the total of all dividends
declared in any calendar year will exceed net profits for that year plus the
retained net profits of the preceding two years, less any required transfer to
surplus or a fund for the retirement of any
30
<PAGE>
preferred stock. In addition, no dividends may be declared, credited or paid if
the effect thereof would cause the Bank's capital to be reduced below the amount
required by the Superintendent or the FDIC. See "Regulation and Supervision." As
of August 31, 1997, the Bank had $61.0 million available for the payment of
dividends without prior approval of the Superintendent. Subsequent to the
Conversion, the availability of the Bank's funds for the payment of dividends
may also be limited by the liquidation account. See "The Conversion -
Liquidation Rights." Dividends or any repurchase by the Bank of its stock in
excess of the Bank's current and accumulated earnings could result in the
realization by the Bank of taxable income. See "Federal and State Taxation -
Federal Taxation."
Unlike the Bank, the Company is not subject to the restrictions imposed by
the New York State Banking Law on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by the Company and
earnings thereon. The Company is subject, however, to the requirements of
Delaware law, which generally limit dividends to an amount equal to the excess
of the net assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital, or if there is no such excess, to its
net profits for the current and/or immediately preceding fiscal year.
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
applied to have its Common Stock quoted on the Nasdaq National Market under the
symbol "RCBK" subject to the completion of the Conversion and compliance with
certain conditions including the presence of at least three registered and
active market makers. The Company will seek to encourage and assist at least
three market makers to make a market in its Common Stock. Making a market
involves maintaining bid and ask quotations and being able, as principal, to
effect transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. Sandler O'Neill has
advised the Company that it intends to make a market in the Common Stock
following the completion of the Conversion, but it is under no obligation to do
so. There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its quotation on the Nasdaq
National Market or that an active and liquid trading market will develop or, if
developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Conversion. See "Risk
Factors - Absence of Market for Common Stock."
31
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
August 31, 1997, and the pro forma consolidated capitalization of the Company
after giving effect to the Conversion, including the issuance of shares to the
Foundation, based upon the sale of the number of shares indicated in the table
and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per Share
-----------------------------------------------------------------
24,466,250
15,725,000 18,500,000 21,275,000 Shares
Shares Shares Shares (15% above
(Minimum of (Midpoint of (Maximum of Maximum of
Bank Estimated Estimated Estimated Estimated
Historical Price Range) Price Range) Price Range) Price Range)(1)
---------- ------------ ------------ ------------ ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Total deposits(2)........................... $882,886 $882,886 $882,886 $882,886 $882,886
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value,
5,000,000 shares authorized;
none to be issued....................... $ -- $ -- $ -- $ -- $ --
Common Stock, $.01 par value,
75,000,000 shares authorized;
shares to be issued as reflected........ -- 170 200 230 264
Additional paid-in capital(3)............. -- 164,444 193,940 223,436 257,358
Net worth(4).............................. 102,348 102,348 102,348 102,348 102,348
Less:
Expense of contributions to
Foundation............................. -- 12,580 14,800 17,020 19,573
Plus:
Tax effect of contribution
to Foundation(5)....................... -- 5,661 6,660 7,659 8,808
Net unrealized gain on
securities available-for-sale,
net of taxes............................ 484 484 484 484 484
Less:
Common Stock acquired by the
ESOP(6)................................. -- 13,586 15,984 18,382 21,139
Common Stock acquired by the
Stock Program(7)........................ -- 6,793 7,992 9,191 10,570
-------- -------- -------- -------- --------
Total stockholders' equity.................. $102,832 $240,147 $264,856 $289,565 $317,980
======== ======== ======== ======== ========
</TABLE>
- ----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation at a value of $10.00 per
share. No effect has been given to the issuance of additional shares of
Common Stock pursuant to the Company's Stock Option Plan intended to be
adopted by the Company and presented for approval of stockholders at a
meeting of stockholders following the Conversion. The Stock Option Plan
would provide the grant of Stock Options to purchase an amount of Common
Stock equal to 10% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation. See "Management of the Bank -
Benefit Plans - Stock Option Plan." Additional paid-in capital has been
adjusted to reflect the issuance of additional shares of Common Stock to the
Foundation at the Purchase Price.
(4) The net worth of the Bank will be substantially restricted after the
Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 45% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable income,
subject to the ability of the Company to carry forward any unused portion of
the deduction for five years following the year in which the contribution is
made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP and
the funds used to acquire the ESOP shares will be borrowed from the Company.
The Common Stock acquired by the ESOP is reflected as a reduction of
stockholders' equity. See "Management of the Bank - Benefit Plans - ESOP"
and "- Benefit Plans -Stock Program."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion, including shares issued to
the Foundation, is purchased by the Stock Program through open market
purchases. The Common Stock purchased by the Stock Program is reflected as
a reduction of stockholders' equity. See "Risk Factors - Possible Dilutive
Effect of Stock Program and Stock Option Plan," Footnote 2 to the tables
under "Pro Forma Data" and "Management of the Bank - Benefit Plans - Stock
Program."
32
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $152.0 million and $206.6 million based upon
the following assumptions: (i) $3.0 million will be sold to executive officers,
Trustees, Directors and employees of the Bank and Company, the ESOP will
purchase 8% of the Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, and the remaining shares will be sold
in the Subscription Offering; (ii) Sandler O'Neill will receive a fee equal to
1.75% of the aggregate Purchase Price of the shares sold in the Subscription
Offering, except that no fee will be paid with respect to shares purchased by
the Employee Plans, including the ESOP, officers, employees, Trustees and
Directors of the Bank and Company and members of their immediate families; (iii)
the Company will issue to the Foundation an amount of Common Stock equal to 8%
of the Common Stock sold in the Conversion from authorized but unissued shares;
and (iv) Conversion expenses, excluding the marketing fees paid to Sandler
O'Neill, will be approximately $2.8 million. Actual Conversion expenses may
vary from those estimated.
Pro forma consolidated net income of the Company for the two months ended
August 31, 1997 and for the year ended June 30, 1997 has been calculated as if
the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.45% (the one year U.S. Treasury bill
rate as of June 30, 1997). The tables do not reflect the effect of withdrawals
from deposit accounts for the purchase of Common Stock. The pro forma after-tax
yield for the Company and the Bank is assumed to be 3.0% for the two months
ended August 31, 1997 (based on an assumed tax rate of 45.0%) and 3.0% for the
year ended June 30, 1997 (based on an assumed tax rate of 45.0%). Historical
and pro forma per share amounts have been calculated by dividing historical and
pro forma amounts by the indicated number of shares of Common Stock, as adjusted
to give effect to the purchase of shares by the ESOP and the effect of the
issuance of shares to the Foundation. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
As discussed under "Use of Proceeds," the Company will retain 50% of the net
Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following tables summarize historical data of the Bank and pro forma
data of the Company at or for the two months ended August 31, 1997 and at or for
the year ended June 30, 1997, based on the assumptions set forth above and in
the tables and should not be used as a basis for projections of market value of
the Common Stock following the Conversion. The tables below give effect to the
Stock Program, which is expected to be adopted by the Company following the
Conversion and presented to stockholders for approval at a meeting of
stockholders. See Footnote 2 to the tables and "Management of the Bank -
Benefit Plans - Stock Program." No effect has been given in the tables to the
possible issuance of additional shares reserved for future issuance pursuant to
the Stock Option Plan to be adopted by the Board of Directors of the Company and
presented to stockholders for approval at a meeting of stockholders, nor does
book value as presented give any effect to the liquidation account to be
established for the benefit of Eligible Account Holders or, in the event of
liquidation of the Bank, to the tax effect of the bad debt reserve and other
factors. See Footnote 3 to the tables below, "The Conversion - Liquidation
Rights" and "Management of the Bank - Benefit Plans - Stock Option Plan." The
following tables give effect to the issuance of authorized but unissued shares
of the Company's Common Stock to the Foundation concurrently with the completion
of the Conversion. The Valuation Range, as set forth herein and in the tables
below, takes into account the dilutive impact of the issuance of shares to the
Foundation.
33
<PAGE>
<TABLE>
<CAPTION>
At or For the Two Months Ended August 31, 1997
-----------------------------------------------------------------------
15,725,000 18,500,000 21,275,000
Shares Sold at Shares Sold at Shares Sold at
$10.00 Per Share $10.00 Per Share $10.00 Per Share
(Minimum (Midpoint (Maximum of
of Estimated Price of Estimated Price Estimated Price
Range) Range) Range)
------------------- ------------------- -------------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C>
Gross proceeds............................. $ 157,250 $ 185,000 $ 212,750
Plus: Shares acquired by Richmond County
Savings Foundation (equal to 8% of
stock sold in Conversion)........... 12,580 14,800 17,020
----------- ----------- -----------
Pro forma market capitalization............ $ 169,830 $ 199,800 $ 229,770
=========== =========== ===========
Gross proceeds............................. $ 157,250 $ 185,000 $ 212,750
Less: Offering expenses and
commissions...................... (5,216) (5,660) (6,103)
----------- ----------- -----------
Estimated net proceeds..................... 152,034 179,340 206,647
Less: Common Stock purchased
by ESOP.......................... (13,586) (15,984) (18,381)
Common Stock purchased by
Stock Program..................... (6,793) (7,992) (9,190)
----------- ----------- -----------
Estimated net proceeds, as adjusted..... $ 131,655 $ 155,364 $ 179,076
=========== =========== ===========
Net income(1):
Historical............................. $ 1,793 $ 1,793 $ 1,793
Pro forma income on net proceeds,
as adjusted......................... 653 771 890
Pro forma ESOP adjustment(2)........... (62) (73) (84)
Pro forma Stock Program
adjustment(3)....................... (125) (147) (169)
----------- ----------- -----------
Pro forma net income............... $ 2,259 $ 2,344 $ 2,430
=========== =========== ===========
Per share net income(1):
Historical............................. $ 0.12 $ 0.10 $ 0.09
Pro forma income on net proceeds,
as adjusted......................... 0.04 0.04 0.04
Pro forma ESOP adjustment(2)........... (0.01) (0.01) (0.01)
Pro forma Stock Program
adjustment(3)....................... (0.01) (0.01) (0.01)
----------- ----------- -----------
Pro forma net income per share..... $ 0.14 $ 0.13 $ 0.12
=========== =========== ===========
Stockholders' equity:
Historical.............................. $ 102,832 $ 102,832 $ 102,832
Estimated net proceeds.................. 152,033 179,340 206,646
Plus: Tax benefit of Foundation........ 5,661 6,660 7,659
Less: Common Stock acquired
by ESOP(2).................... (13,586) (15,984) (18,382)
Common Stock acquired
by Stock Program(3)........... (6,793) (7,992) (9,191)
----------- ----------- -----------
Pro forma stockholders'
equity(3)(4)(5)................... $ 240,147 $ 264,856 $ 289,565
=========== =========== ===========
Stockholders' equity per share(6):
Historical.............................. $ 6.06 $ 5.15 $ 4.48
Estimated net proceeds.................. 8.95 8.98 9.00
Plus: Tax benefit of Foundation........ 0.33 0.33 0.33
Less: Common Stock acquired
by ESOP(2)..................... (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Program(3)............... (0.40) (0.40) (0.40)
----------- ----------- -----------
Pro forma stockholders' equity
per share(3)(4)(5)................ $ 14.14 $ 13.26 $ 12.60
=========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share............................... 70.72% 75.44% 79.35%
Offering price to pro forma net
earnings per share(7)................... 11.54x 13.08x 14.51x
<CAPTION>
At or For the Two Months
Ended August 31, 1997
------------------------
24,466,250
Shares Sold at
$10.00 Per Share (15%
above Maximum of
Estimated Price
Range)(7)
------------------------
(In Thousands, Except Per Share Amounts)
<S> <C>
Gross proceeds............................. $ 244,662
Plus: Shares acquired by Richmond County
Savings Foundation (equal to 8% of
stock sold in Conversion)........... 19,573
-----------
Pro forma market capitalization............ $ 264,235
===========
Gross proceeds............................. $ 244,662
Less: Offering expenses and
commissions...................... (6,614)
-----------
Estimated net proceeds..................... 238,048
Less: Common Stock purchased
by ESOP.......................... (21,138)
Common Stock purchased by
Stock Program.................... (10,569)
-----------
Estimated net proceeds, as adjusted.... $ 206,341
===========
Net income(1):
Historical............................. $ 1,793
Pro forma income on net proceeds,
as adjusted......................... 1,026
Pro forma ESOP adjustment(2)........... (97)
Pro forma Stock Program
adjustment(3)....................... (194)
-----------
Pro forma net income............... $ 2,528
===========
Per share net income(1):
Historical............................. $ 0.07
Pro forma income on net proceeds,
as adjusted......................... 0.04
Pro forma ESOP adjustment(2)........... (0.01)
Pro forma Stock Program
adjustment(3)....................... (0.01)
-----------
Pro forma net income per share..... $ 0.10
===========
Stockholders' equity:
Historical.............................. $ 102,832
Estimated net proceeds.................. 238,048
Plus: Tax benefit of Foundation........ 8,808
Less: Common Stock acquired
by ESOP(2).................... (21,139)
Common Stock acquired
by Stock Program(3)........... (10,570)
-----------
Pro forma stockholders'
equity(3)(4)(5)..................... $ 317,980
===========
Stockholders' equity per share(6):
Historical............................. $ 3.89
Estimated net proceeds................. 9.01
Plus: Tax benefit of Foundation....... 0.33
Less: Common Stock acquired
by ESOP(2).................. (0.80)
Common Stock acquired by
Stock Program(3)............ (0.40)
-----------
Pro forma stockholders' equity
per share(3)(4)(5)............. $ 12.03
===========
Offering price as a percentage of
pro forma stockholders' equity
per share................................. 83.10%
Offering price to pro forma net
earnings per share(7)..................... 16.04x
</TABLE>
(See footnotes on next page)
34
<PAGE>
- --------------
(1) Does not give effect to the non-recurring expense that will be recognized
in fiscal 1998 as a result of the establishment of the Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $6.9 million, $8.1
million, $9.4 million and $10.8 million at the minimum, midpoint, maximum
and maximum as adjusted, of the Estimated Price Range, respectively.
Assuming the contribution to the Foundation was expensed during the two
months ended August 31, 1997, pro forma net earnings per share would be
$(.30), $(.32), $(.33) and $(.34), at the minimum, midpoint, maximum and
maximum as adjusted, respectively. Per share net income data is based on
15,635,682, 18,394,920, 21,154,158 and 24,327,282 shares outstanding which
represents shares sold in the Conversion, shares contributed to the
Foundation and shares to be allocated or distributed under the ESOP and
Stock Program for the period presented. Does give effect to capital
expenditures relating to the opening of a public accommodation office and
branch renovations.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based upon
twenty equal annual installments of principal, with an assumed interest
rate at 8.5%. The pro forma net earnings assumes: (i) that the Bank's
contribution to the ESOP is equivalent to the debt service requirement for
the two months ended August 31, 1997, and was made at the end of the
period; (ii) that 11,322, 13,320, 15,318 and 17,616 shares at the minimum,
midpoint, maximum and 15% above the maximum of the range, respectively,
were committed to be released during the two months ended August 31, 1997
at an average fair value of $10.00 per share in accordance with Statement
of Position ("SOP") 93-6; and (iii) only the ESOP shares committed to be
released were considered outstanding for purposes of the net earnings per
share calculations. See "Management of the Bank - Benefit Plans - ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program is approved by stockholders, the Stock
Program intends to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 679,320, 799,200, 919,080 and 1,056,942
shares of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, either through open
market purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.14, $0.12, $0.11 and $0.10 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders' equity per share would be $13.98, $13.13, $12.50 and $11.96
at the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the Stock Program will be equal to the Purchase
Price. See "Management of the Bank - Benefit Plans - Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of stockholders. If the Stock Option
Plan is approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 1,698,300, 1,998,000, 2,297,700 and 2,642,355 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plan. The issuance
of Common Stock pursuant to the exercise of Stock Options under the Stock
Option Plan will result in the dilution of existing stockholders'
interests. Assuming all options were exercised at the end of the period at
an exercise price of $10.00 per share, the pro forma net earnings per share
would be $0.14, $0.12, $0.11 and $0.10, respectively, and the pro forma
stockholders' equity per share would be $13.76, $12.96, $12.37 and $11.85,
respectively. See "Management of the Bank - Benefit Plans - Stock Option
Plan."
(5) The net worth of the Bank will continue to be substantially restricted
after the Conversion. See "Dividend Policy," "The Conversion - Liquidation
Rights" and "Regulation and Supervision - New York State Law."
(6) Stockholders' equity per share data is based upon 16,983,000, 19,980,000,
22,977,000 and 26,423,500 shares outstanding representing shares sold in
the conversion, shares contributed to the Foundation and shares purchased
by the ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription Offering.
35
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1997
-------------------------------------------------------------------------------------
15,725,000 24,466,250
Shares Sold 18,500,000 21,275,000 Shares Sold at
at $10.00 Shares Sold at Shares Sold at $10.00 Per Share
Per Share $10.00 Per $10.00 Per (15% above
(Minimum Share Share Maximum of
of Estimated (Midpoint (Maximum of Estimated
Price of Estimated Estimated Price
Range) Price Range) Price Range) Range)(7)
--------------- ---------------- ---------------- -----------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 157,250 $ 185,000 $ 212,750 $ 244,662
Plus: Shares acquired by Richmond County
Savings Foundation (equal to 8% of
stock sold in Conversion)........... 12,580 14,800 17,020 19,573
----------- ----------- ----------- -----------
Pro forma market capitalization............ $ 169,830 $ 199,800 $ 229,770 $ 264,235
=========== =========== =========== ===========
Gross proceeds............................. $ 157,250 $ 185,000 $ 212,750 $ 244,662
Less: Offering expenses and
commissions...................... (5,216) (5,660) (6,103) (6,614)
----------- ----------- ----------- -----------
Estimated net proceeds..................... 152,034 179,340 206,647 238,048
Less: Common Stock purchased
by ESOP.......................... (13,586) (15,984) (18,381) (21,138)
Common Stock purchased by
Stock Program.................... (6,793) (7,992) (9,190) (10,569)
----------- ----------- ----------- -----------
Estimated net proceeds, as adjusted...... $ 131,655 $ 155,364 $ 179,076 $ 206,341
=========== =========== =========== ===========
Net income(1):
Historical............................... $ 10,725 $ 10,725 $ 10,725 $ 10,725
Pro forma income on net proceeds,
as adjusted......................... 3,916 4,627 5,337 6,155
Pro forma ESOP adjustment(2)............. (373) (439) (505) (581)
Pro forma Stock Program
adjustment(3)....................... (747) (879) (1,011) (1,162)
----------- ----------- ----------- -----------
Pro forma net income.............. $ 13,521 $ 14,034 $ 14,546 $ 15,137
=========== =========== =========== ===========
Per share net income(1):
Historical............................... $ 0.68 $ 0.58 $ 0.51 $ 0.44
Pro forma income on net proceeds,
as adjusted......................... 0.25 0.25 0.25 0.25
Pro forma ESOP adjustment(2)............. (0.02) (0.02) (0.02) (0.02)
Pro forma Stock Program
adjustment(3)....................... (0.05) (0.05) (0.05) (0.05)
----------- ----------- ----------- -----------
Pro forma net income per share.... $ 0.86 $ 0.76 $ 0.69 $ 0.62
=========== =========== =========== ===========
Stockholders' equity:
Historical............................... $ 100,865 $ 100,865 $ 100,865 $ 100,865
Estimated net proceeds................... 152,033 179,339 206,646 238,048
Plus: Tax benefit of Foundation......... 5,661 6,660 7,659 8,808
Less: Common Stock acquired
by ESOP(2)...................... (13,586) (15,984) (18,381) (21,138)
Common Stock acquired
by Stock Program(3)............. (6,793) (7,992) (9,190) (10,569)
----------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(4)(5).................... $ 238,180 $ 262,888 $ 287,599 $ 316,013
=========== =========== =========== ===========
Stockholders' equity per share(6):
Historical................................ $ 5.94 $ 5.05 $ 4.39 $ 3.82
Estimated net proceeds.................... 8.95 8.97 8.99 9.00
Plus: Tax benefit of Foundation.......... 0.33 0.33 0.33 0.33
Less: Common Stock acquired
by ESOP(2)........................ (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Program(3).................. (0.40) (0.40) (0.40) (0.40)
----------- ----------- ----------- -----------
Pro forma stockholders' equity
per share(3)(4)(5).................. $ 14.02 $ 13.16 $ 12.51 $ 11.96
=========== =========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share................................ 71.30% 76.00% 79.89% 83.62%
Offering price to pro forma net
earnings per share(7).................... 11.61x 13.16x 14.60x 16.13x
</TABLE>
(See footnotes on next page)
36
<PAGE>
- ----------------------
(1) Does not give effect to the non-recurring expense that will be recognized in
fiscal 1998 as a result of the establishment of the Foundation. The Company
will recognize an after-tax expense for the amount of the contribution to
the Foundation which is expected to be $6.9 million, $8.1 million, $9.4
million and $10.8 million at the minimum, midpoint, maximum and maximum as
adjusted, of the Estimated Price Range, respectively. Assuming the
contribution to the Foundation was expensed during the year ended June 30,
1997, pro forma net earnings per share would be $0.42, $0.32, $0.24 and
$0.18, at the minimum, midpoint, maximum and maximum as adjusted,
respectively. Per share net income data is based on 15,692,292, 18,461,520,
21,230,748 and 24,415,360 shares outstanding which represents shares sold in
the Conversion, shares contributed to the Foundation and shares to be
allocated or distributed under the ESOP and Stock Program for the period
presented. Does give effect to capital expenditures relating to the
opening of a public accommodation office and branch renovations.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Bank intends to make annual contributions to the
ESOP in an amount at least equal to the principal and interest requirement
of the debt. The Bank's total annual payment of the ESOP debt is based upon
twenty equal annual installments of principal, with an assumed interest rate
at 8.5%. The pro forma net earnings assumes: (i) that the Bank's
contribution to the ESOP is equivalent to the debt service requirement for
the year ended June 30, 1997, and was made at the end of the period; (ii)
that 67,932, 79,920, 91,908 and 105,694 shares at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively, were committed
to be released during the year ended June 30, 1997 at an average fair value
of $10.00 per share in accordance with Statement of Position ("SOP") 93-6;
and (iii) only the ESOP shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations. See
"Management of the Bank - Benefit Plans - ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program is approved by stockholders, the Stock
Program intends to acquire an amount of Common Stock equal to 4% of the
shares of Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, or 679,320, 799,200, 919,080 and 1,056,942
shares of Common Stock at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Price Range, respectively, either through open
market purchases, if permissible, or from authorized but unissued shares of
Common Stock or treasury stock of the Company, if any. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting interests
of existing stockholders by approximately 3.8% and pro forma net earnings
per share would be $0.84, $0.74, $0.67 and $0.61 at the minimum, midpoint,
maximum and 15% above the maximum of the range, respectively and pro forma
stockholders' equity per share would be $13.87, $13.04, $12.42 and $11.88 at
the minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that the actual purchase price of
the shares granted under the Stock Program will be equal to the Purchase
Price. See "Management of the Bank - Benefit Plans - Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the Stock
Option Plan for approval at a meeting of stockholders. If the Stock Option
Plan is approved by stockholders, an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to
the Foundation, or 1,698,300, 1,998,000, 2,297,700 and 2,642,355 shares at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Price Range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the Stock Option Plan. The issuance
of Common Stock pursuant to the exercise of Stock Options under the Stock
Option Plan will result in the dilution of existing stockholders' interests.
Assuming all options were exercised at the end of the period at an exercise
price of $10.00 per share, the pro forma net earnings per share would be
$0.81, $0.72, $0.65 and $0.59, respectively, and the pro forma stockholders'
equity per share would be $13.66, $12.87, $12.29 and $11.78, respectively.
See "Management of the Bank - Benefit Plans - Stock Option Plan."
(5) The net worth of the Bank will continue to be substantially restricted after
the Conversion. See "Dividend Policy," "The Conversion - Liquidation
Rights" and "Regulation and Supervision - New York State Law."
(6) Stockholders' equity per share data is based upon 16,983,000, 19,980,000,
22,977,000 and 26,423,500 shares outstanding representing shares sold in the
conversion, shares contributed to the Foundation and shares purchased by the
ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription Offering.
37
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of
the Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $217.2 million, at the
midpoint, which is approximately $17.4 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is included.
The pro forma price to book ratio and pro forma price to earnings ratio would be
75.44% and 13.08%, respectively, with the Foundation and 75.48% and 13.48%,
respectively, without the Foundation, assuming the midpoint of the Estimated
Price Range. Further, assuming the midpoint of the Estimated Price Range, pro
forma consolidated net earnings for the two months ended August 31, 1997 would
be $2.3 million with the Foundation and $2.5 million without the Foundation,
assuming the midpoint of the Estimated Price Range. In this regard, pro forma
stockholders' equity per share and pro forma net income per share for the two
months ended August 31, 1997 would be $13.25 and $0.12, respectively, at the
midpoint of the estimate, assuming no Foundation, and $13.26 and $0.13,
respectively, with the Foundation. There is no assurance that in the event the
Foundation was not formed that the appraisal prepared at that time would have
concluded that the pro forma market value of the Company would be the same as
that estimated herein. Any appraisal prepared at that time would be based on the
facts and circumstances existing at that time, including, among other things,
market and economic conditions.
For comparative purposes only, set forth below are certain pricing
ratios and financial data and ratios, at the minimum, midpoint, maximum and
maximum, as adjusted, of the Estimated Price Range, assuming the Conversion was
completed at August 31, 1997.
<TABLE>
<CAPTION>
At the Minimum At the Midpoint
------------------------------ -------------------------------
With No With No
Foundation Foundation Foundation Foundation
--------------- ------------- --------------- --------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Estimated offering amount........................... $ 157,250 $ 184,620 $ 185,000 $ 217,200
Pro forma market capitalization..................... 169,830 184,620 199,800 217,200
Total assets........................................ 1,143,379 1,162,855 1,168,088 1,191,001
Total liabilities................................... 903,232 903,232 903,232 903,232
Pro forma stockholders' equity...................... 240,147 259,623 264,856 287,769
Pro forma consolidated net earnings................. 2,259 2,368 2,344 2,473
Pro forma stockholders' equity per share............ 14.14 14.06 13.26 13.25
Pro forma consolidated net earnings per share....... 0.14 0.14 0.13 0.12
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share.... 70.72% 71.11% 75.44% 75.48%
Offering price to pro forma
net earnings per share.................. 11.54x 11.96x 13.08x 13.48x
Offering price to assets................... 14.85% 15.88% 17.10% 18.24%
Pro Forma Financial Ratios:
Return on assets (annualized).............. 1.19% 1.22% 1.20% 1.25%
Return on stockholders' equity (annualized) 5.64 5.47 5.31 5.16
Stockholders' equity to assets............. 21.00 22.33 22.67 24.16
<CAPTION>
At the Maximum,
At the Maximum as Adjusted
------------------------------- --------------------------------
With No With No
Foundation Foundation Foundation Foundation
--------------- -------------- --------------- ---------------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Estimated offering amount........................... $ 212,750 $ 249,780 $ 244,663 $ 287,247
Pro forma market capitalization..................... 229,770 249,780 264,236 287,247
Total assets........................................ 1,192,797 1,219,146 1,221,212 1,251,514
Total liabilities................................... 903,232 903,232 903,232 903,232
Pro forma stockholders' equity...................... 289,565 315,914 317,980 348,282
Pro forma consolidated net earnings................. 2,430 2,578 2,528 2,698
Pro forma stockholders' equity per share............ 12.60 12.65 12.03 12.12
Pro forma consolidated net earnings per share....... 0.11 0.11 0.10 0.10
Pro Forma Pricing Ratios:
Offering price as a percentage of pro
forma stockholders' equity per share.... 79.35% 79.07% 83.10% 82.48%
Offering price to pro forma
net earnings per share.................. 14.51x 14.87x 16.04x 16.34x
Offering price to assets................... 19.26% 20.49% 21.64% 22.95%
Pro Forma Financial Ratios:
Return on assets (annualized).............. 1.22% 1.27% 1.24% 1.29%
Return on stockholders' equity (annualized) 5.03 4.90 4.77 4.65
Stockholders' equity to assets............. 24.28 25.91 26.04 27.83
</TABLE>
38
<PAGE>
RICHMOND COUNTY SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank for each of
the years in the three-year period ended June 30, 1997 have been audited by
Ernst & Young LLP, independent certified public accountants, whose report
thereon appears elsewhere in this Prospectus. Such report includes an
explanatory paragraph relating to a change in accounting principles. With
respect to information for the two months ended August 31, 1997 and 1996, which
is unaudited, in the opinion of management, all adjustments necessary for a fair
presentation of such interim periods have been included and are of a normal
recurring nature. Results for the two months ended August 31, 1997 are not
necessarily indicative of the results that may be expected for the year ended
June 30, 1998. These statements should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
For the
Two Months Ended For the Year
August 31, Ended June 30,
------------------------- -----------------------------------------------
1997 1996 1997 1996 1995
-------------- ---------- --------------- ------------- ----------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans................................... $6,822 $6,025 $ 38,068 $ 33,807 $ 31,492
Debt and equity securities.............. 2,125 3,312 16,754 17,873 16,673
Mortgage-backed and mortgage
related securities..................... 2,563 929 9,588 5,402 5,076
Federal funds sold...................... 66 214 961 1,570 879
Other................................... 209 86 410 411 201
------ ------ ------- ------ ------
Total interest income................ 11,785 10,566 65,781 59,063 54,321
------ ------ ------- ------ ------
Interest expense:
Deposits................................ 5,088 4,358 27,707 26,254 22,456
Securities sold under repurchase
agreements............................. 32 -- -- -- --
------ ------ ------- ------ ------
Total interest expense............... 5,120 4,358 27,707 26,254 22,456
------ ------ ------- ------ ------
Net interest income....................... 6,665 6,208 38,074 32,809 31,865
Provision for loan losses................. 300 266 1,080 1,600 600
------ ------ ------- ------ ------
Net interest income after provision
for loan losses......................... 6,365 5,942 36,994 31,209 31,265
------ ------ ------- ------ ------
Non-interest income:
Fee income.............................. 560 520 2,962 2,717 2,550
Net (loss) gain on sales of securities
and loans.............................. -- (3) (107) 42 (12)
Other................................... -- -- 6 68 121
------ ------ ------- ------ ------
Total non-interest income............ 560 517 2,861 2,827 2,659
------ ------ ------- ------ ------
Non-interest expense:
Salaries and employee benefits.......... 1,683 1,730 9,850 9,261 8,753
Occupancy costs......................... 537 514 3,063 3,029 2,660
Computer service fees................... 497 352 2,166 1,873 1,190
Advertising............................. 146 84 817 634 487
Amortization of deposit premium......... 52 52 313 313 313
FDIC insurance premiums................. 25 38 624 251 1,679
Other................................... 530 526 2,834 3,142 3,057
------ ------ ------- ------ ------
Total non-interest expense........... 3,470 3,296 19,667 18,503 18,139
Income before income taxes................ 3,455 3,163 20,188 15,533 15,785
Provision for income taxes................ 1,662 1,474 9,463 6,803 6,919
------ ------ ------- ------ ------
Income before cumulative effect of change
in accounting principle................. 1,793 1,689 10,725 8,730 8,866
------ ------ ------- ------ ------
Cumulative effect of change in accounting
principle............................... -- -- -- -- (1,316)
------ ------ ------- ------ ------
Net income................................ $1,793 $1,689 $10,725 $8,730 $7,550
====== ====== ======= ====== ======
</TABLE>
(See accompanying notes to the consolidated financial statements)
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has only recently been formed and, accordingly, has no results
of operations. The Bank's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and securities portfolios and its cost of funds, consisting of the interest paid
on deposits. The Bank's non-interest expense principally consists of
compensation and benefits, occupancy costs, federal deposit insurance premiums
and other expenses. Results of operations are also significantly affected by
general economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities. See
"Regulation and Supervision" for a discussion of the regulatory changes
resulting from the recapitalization of the SAIF and the Federal Deposit
Insurance Corporation Improvement Act of 1991 ("FDICIA") and the impact of such
changes on the Bank. Future changes in applicable law, regulations or
government policies may materially impact the Bank.
Management Strategy
The Bank's operating strategy emphasizes customer service and convenience,
and the Bank attributes the loyalty of its customer base to its commitment to
maintaining customer satisfaction. The Bank attempts to set itself apart from
its larger competitors by providing the type of personalized service not
generally available from larger banks while offering a greater variety of
products and services than is typically available from smaller, local depository
institutions.
The Bank's historical operating strategy has concentrated on maintaining
profitability and asset quality by primarily investing in one- to four-family
mortgage loans and in U.S. Government and agency debt securities, as well as
debt and equity securities of corporate issuers. In the last few years, the
Bank began to pursue a strategy, in conjunction with its traditional thrift
lending and securities investment strategy, of focusing on small and medium-
sized retail businesses as both lending and deposit customers by emphasizing the
origination of commercial real estate, construction and commercial loans, as
well as increasing the marketing of its business checking accounts and other
business-related services. In this regard, during 1996 and 1997, the Bank hired
additional lending personnel who have commercial real estate and commercial
lending experience in the Bank's primary market area. In addition, the Bank is
increasing the merchant services it provides, such as merchant credit card
processing, letters of credit, sweep accounts and increased night depository
services. The Bank intends to continue this strategy, maintaining its
traditional focus of investing in residential mortgage loans and soliciting
deposits from individuals in its primary market area, while strengthening the
Bank's position as a provider of loans and financial services to the local
business community.
The Bank's current operating strategy consists primarily of: (i) investing
primarily in one- to four-family, and to a lesser extent, commercial real
estate, construction and development, commercial and other loans and in
investment-grade securities; (ii) attempting to increase its position as a
lender to businesses operating in its primary market area, as well as other
areas within the New York City metropolitan area by offering its commercial loan
and deposit products to small and medium-sized businesses; (iii) increasing the
yield and estimated average life of its securities investments by emphasizing
the purchase of government agency and privately issued mortgage-backed and
mortgage-related securities with estimated average lives of three to five years
and de-emphasizing its investment in U.S. Treasury obligations and corporate and
other debt securities; (iv) maintaining a low cost of funds by attracting and
retaining core deposits by providing enhanced customer service; (v) attempting
to attract new deposit customers by competitively pricing certificate of deposit
products and offering a greater variety of durations of such
40
<PAGE>
certificates; (vi) developing wholesale borrowing sources such as FHLB advances,
reverse repurchase agreements and brokered certificates of deposit as another
means of funding asset growth; and (vii) managing its interest rate risk by
originating or purchasing adjustable rate loans and generally selling fixed-rate
loans with maturities of more than 15 years. The Bank has recently begun to
place a greater level of emphasis on the utilization of borrowed funds to fund
asset growth. In this regard, at October 31, 1997, the Bank had total borrowings
of $60.4 million, all of which were in the form of reverse repurchase
agreements. The Bank may continue to increase such emphasis which may result in
an increase in the Bank's average cost of funds.
Management of Interest Rate Risk
The principal objective of the Bank's interest rate risk management is to
evaluate the interest rate risk inherent in certain balance sheet accounts,
determine the level of risk appropriate given the Bank's business strategy,
operating environment, capital and liquidity requirements and performance
objectives, and manage the risk consistent with the Board of Trustees' approved
guidelines. Through such management, the Bank seeks to reduce the vulnerability
of its operations to changes in interest rates. The Bank's Board of Trustees
reviews the Bank's interest rate risk position at least quarterly. The Bank's
Asset/Liability Committee is comprised of the Bank's senior management under the
direction of the Board of Trustees, with senior management responsible for
reviewing with the Board of Trustees its activities and strategies, the effect
of those strategies on the Bank's net interest margin, the market value of the
portfolio and the effect that changes in the interest rates will have on the
Bank's portfolio and the Bank's exposure limits. In addition, the Bank has
established an Interest Rate Risk Management Committee, a subcommittee of the
Asset/Liability Committee, which is charged with developing an interest rate
forecast for the Bank, establishing and maintaining a measurement system and
providing management reports, and formulating and recommending strategies to the
Asset/Liability Committee. The Interest Rate Risk Management Committee meets at
least monthly, and reports monthly to the Asset/Liability Committee and the
Board of Trustees. See "Risk Factors -Changes in Interest Rates."
In recent years, the Bank has utilized the following strategies to manage
interest rate risk: (1) emphasizing the origination and retention of fixed-rate
mortgage loans having terms to maturity of not more than fifteen years,
adjustable-rate loans and consumer loans consisting primarily of home equity
loans and lines of credit; (2) selling substantially all fixed-rate mortgage
loans with terms of more than fifteen years without recourse and on a servicing
retained basis; and (3) investing in short term and, to a lesser extent,
adjustable rate securities which may generally bear lower yields as compared to
longer term investments, but which better position the Bank for increases in
market interest rates. The Bank currently does not participate in hedging
programs, interest rate swaps or other activities involving the use of off-
balance sheet derivative financial instruments.
Over the past year, the Bank has begun to emphasize investment in mortgage-
backed and mortgage-related securities with estimated average lives of three to
five years and to de-emphasize investment in U.S. Treasury securities, corporate
and other debt securities. As a result, at August 31, 1997, mortgage-backed and
mortgage-related securities and debt securities totaled 50.4% and 44.7%, of
total securities, respectively, as compared to 19.9% and 79.7%, respectively, at
June 30, 1996. The weighted average life of the Bank's securities portfolio
increased to 2.9 years at August 31, 1997 from 2.4 years at June 30, 1996. This
strategy has been accomplished primarily by reinvesting maturing U.S. Treasury
obligations and other debt securities in mortgage-backed and mortgage-related
securities, primarily government agency and privately issued CMOs. This
strategy has, in part, resulted in the increase in the average yield of the
Bank's securities portfolio. It has also resulted in a slight increase in the
weighted average life of such portfolio which could increase the Bank's
41
<PAGE>
exposure to interest rate risk in a period of rising interest rates. In pursuing
this strategy, the Bank considered the relative stability of its core deposits.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest rate
sensitive" and by monitoring a bank's interest rate sensitivity "gap." An asset
or liability is said to be interest rate sensitive within a specific time period
if it will mature or reprice within that time period. The interest rate
sensitivity gap is defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time period and the
amount of interest-bearing liabilities maturing or repricing within that same
time period. 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. At August 31,
1997, the Bank's one-year gap position, the difference between the amount of
interest-earning assets maturing or repricing within one year and interest-
bearing liabilities maturing or repricing within one year, was $12.6 million
representing a one-year interest sensitivity gap as a percentage of total assets
of 1.26%. Accordingly, during a period of rising interest rates, the Bank,
having a positive gap position, would be in a better position to invest in
higher yielding assets which, consequently, may result in the yield on its
assets increasing at a pace more closely matching the increase in the cost of
its interest-bearing liabilities than if it had a negative gap. During a period
of falling interest rates, an institution with a positive gap would tend to have
its assets repricing at a faster rate than one with a negative gap which,
consequently, may tend to restrain the growth of its net interest income or
result in a decrease in interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at August 31, 1997, which are
anticipated by the Bank, based upon certain assumptions, to reprice or mature in
each of the future time periods shown (the "GAP Table"). Except as stated
below, the amount of assets and liabilities shown which reprice or mature during
a particular period were determined in accordance with the earlier of term to
repricing or the contractual maturity of the asset or liability. The table sets
forth an approximation of the projected repricing of assets and liabilities at
August 31, 1997, on the basis of contractual maturities, anticipated
prepayments, and scheduled rate adjustments within a three month period and
subsequent selected time intervals. For loans on residential properties,
adjustable-rate loans, and fixed-rate loans, prepayment rates were assumed to
range from 6% to 18% annually. Mortgage-backed and mortgage-related securities
were assumed to prepay at rates between 8% and 30% annually. Savings and NOW
accounts were assumed to decay at 10%, 5%, 5%, 40%, 20%, 20% and 0%, and money
market savings accounts were assumed to decay at 25%, 15%, 10%, 50%, 0%, 0% and
0%, for the periods of three months or less, three to six months, six to 12
months, one to three years, three to five years, five to ten years and more than
ten years, respectively. These assumptions are generally based on the FDIC's
deposit decay guidelines and the Bank's historical experience. Prepayment and
deposit decay rates can have a significant impact on the Bank's estimated gap.
While the Bank believes such assumptions to be reasonable, there can be no
assurance that assumed prepayment rates and decay rates will approximate actual
future loan prepayment and deposit withdrawal activity. See "Business of the
Bank - Lending Activities," "- Securities Investment Activities" and "- Sources
of Funds."
42
<PAGE>
<TABLE>
<CAPTION>
At August 31, 1997
-----------------------------------------------------------------------------------------
3 More than More than More than 1 More than More than
Months 3 Months to 6 Months to Year to 3 Years to 5 Years to
or Less 6 Months 1 Year 3 Years 5 Years 10 Years
------------- ------------- --------------- --------------- -------------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Debt and equity securities(2)......... $ 34,154 $ 18,011 $ 39,361 $ 84,888 $ 26,141 $ 7,590
Mortgage-backed and
mortgage-related securities(2)..... 28,351 19,927 39,788 61,082 39,341 22,537
Real estate loans, net(3)(4)(5)....... 43,387 33,319 52,968 177,494 78,276 87,729
Commercial loans(3)(5)................ 9,282 -- -- -- -- --
Consumer loans/installment loans(4)... 18,083 201 406 1,668 666 1,653
Other interest-earning assets......... 5,994 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total interest-earning assets..... $139,725 $ 71,458 $132,523 $325,132 $144,424 $119,509
======== ======== ======== ======== ======== ========
Interest-bearing liabilities:
Money market savings accounts......... 9,772 5,863 3,909 19,544 -- --
NOW accounts.......................... 1,720 860 860 6,879 3,439 3,439
Savings accounts...................... 43,040 21,520 21,520 172,158 86,079 86,079
Certificates of deposit............... 86,599 43,652 83,328 69,646 19,425 2,763
Securities sold under repurchase
agreements........................... 8,434 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total interest-bearing
liabilities...................... 149,565 71,895 109,617 268,227 108,943 92,281
-------- -------- -------- -------- -------- --------
Interest sensitivity gap(6)........... $( 9,840) $ (437) $ 22,906 $ 56,906 $ 35,481 $ 27,228
======== ======== ======== ======== ======== ========
Cumulative interest sensitivity gap... $( 9,840) $(10,277) $ 12,630 $ 69,535 $105,016 $132,244
======== ======== ======== ======== ======== ========
Cumulative interest sensitivity gap as
a percentage of total assets........ (0.98)% (1.02)% 1.26 6.91% 10.44% 13.14%
Cumulative interest sensitivity gap as
a percentage of total interest-
earning assets...................... (1.02) (1.07) 1.31 7.22 10.90 13.72
Cumulative net interest-earning
assets as a percentage of cumulative
interest-bearing liabilities........ 93.42 95.36 103.81 110.60 114.83 116.52
<CAPTION>
----------------------------------
More than
10 Years Total
------------------- --------------
(Dollars in thousands)
<S> <C> <C>
Interest-earning assets(1):
Debt and equity securities(2)......... $ 6,746 $216,891
Mortgage-backed and
mortgage-related securities(2)..... 9,114 270,140
Real estate loans, net(3)(4)(5)....... 14,973 488,146
Commercial loans(3)(5)................ -- 9,282
Consumer loans/installment loans(5)... -- 23,151
Other interest earning assets......... -- --
-------- --------
Total interest-earning assets..... $ 30,833 $963,604
======== ========
Interest-bearing liabilities:
Money market savings accounts......... -- 39,087
NOW accounts.......................... -- 17,197
Savings accounts...................... -- 430,396
Certificates of deposit............... -- 305,413
Securities sold under repurchase
agreements........................... -- 8,434
-------- --------
Total interest-bearing
liabilities...................... -- 800,527
-------- --------
Interest sensitivity gap(6)........... $ 30,833
========
Cumulative interest sensitivity gap... $163,077
========
Cumulative interest sensitivity gap as
a percentage of total assets........ 16.21%
Cumulative interest sensitivity gap as
a percentage of total interest-
earning assets...................... 16.92
Cumulative net interest-earning
assets as a percentage of cumulative
interest-bearing liabilities........ 120.37
</TABLE>
- ---------------
(1) Interest-earning assets are included in the period in which the balances are
expected to be redeployed and/or repriced as a result of anticipated
prepayments, scheduled rate adjustments, and contractual maturities.
(2) Debt and equity and mortgage-backed and mortgage-related securities are
shown excluding the market value adjustment of $194,096 before tax, from the
implementation of SFAS No. 115. Equity securities primarily consist of
callable preferred stock, the maturities of which have been assumed to be
the date on which they are initially callable.
(3) For purposes of the gap analysis, real estate loans, commercial loans and
consumer/installment loans are shown excluding adjustments for allowance for
loan losses and unearned fees of $6,474, $227 and $475, respectively.
(4) Loans held for sale are included in the 3 months or less category.
(5) For purposes of the gap analysis, non-performing loans are not included.
(6) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
43
<PAGE>
Certain shortcomings are inherent in the method of analysis presented in
the GAP Table. For example, although certain assets and liabilities may have
similar maturities or periods to repricing, they may react in different degrees
to changes in market interest rates. Also, the interest rates on certain types
of assets and liabilities may fluctuate in advance of changes in market interest
rates, while interest rates on other types may lag behind changes in market
rates. Additionally, certain assets, such as adjustable-rate loans, have
features which restrict changes in interest rates both on a short-term basis and
over the life of the asset. Further, in the event of changes in interest rates,
prepayment and early withdrawal levels would likely deviate significantly from
those assumed in calculating the table. Finally, the ability of many borrowers
to service their adjustable-rate loans may decrease in the event of an interest
rate increase.
Net Portfolio Value. The Bank's interest rate sensitivity is also
monitored by management through the use of a Net Portfolio Value Model which
generates estimates of the change in the Bank's net portfolio value ("NPV") over
a range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. The NPV ratio,
under any interest rate scenario, is defined as the NPV in that scenario divided
by the market value of assets in the same scenario. The model assumes estimated
loan prepayment rates, reinvestment rates and deposit decay rates similar to the
assumptions utilized for the GAP Table. The Sensitivity Measure is the decline
in the NPV ratio, in basis points, caused by a 2% increase or decrease in rates,
whichever produces a larger decline. The higher an institution's Sensitivity
Ratio, the greater its exposure to interest rate risk is considered to be. The
following NPV Table sets forth the Bank's NPV as of August 31, 1997.
<TABLE>
<CAPTION>
NPV as % of
Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ---------------------------------------- --------------------
In Basis Points % NPV %
(Rate Shock) Amount $ Change Change Ratio Change
---------------- ------------ ---------- -------- --------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
400 $ 92,856 $(56,635) (37.89)% 10.11% (31.77)%
300 106,875 (42,616) (28.51) 11.36 (23.32)
200 121,652 (27,839) (18.62) 12.62 (14.81)
100 136,022 (13,469) (9.01) 13.79 (6.96)
Static 149,491 -- -- 14.82 --
(100) 158,705 9,214 6.16 15.46 4.29
(200) 165,992 16,501 11.04 15.91 7.36
(300) 173,807 24,316 16.27 16.39 10.60
(400) 183,289 33,798 22.61 16.98 14.59
</TABLE>
As of August 31, 1997, the Bank's NPV was $149.5 million, or 14.82% of the
market value of assets. Following a 200 basis point increase in interest rates,
the Bank's "post shock" NPV was $121.7 million, or 12.62% of the market value of
assets. The change in the NPV ratio or the Bank's Sensitivity Measure was
negative 2.20%.
As is the case with the GAP Table, certain shortcomings are inherent in the
methodology used in the above interest rate risk measurements. Modeling changes
in NPV require the making of certain assumptions which may or may not reflect
the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the NPV Table presented assumes that the
composition of the Bank's interest sensitive assets and liabilities existing at
the beginning of a period remains constant over the period being measured and
also assumes that a particular change in interest rates is reflected uniformly
across the yield curve regardless of the duration to maturity or repricing of
specific assets and liabilities. Also, the model
44
<PAGE>
does not take into account the Bank's business or strategic plans. Accordingly,
although the NPV Table provides an indication of the Bank's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on the Bank's net interest income and will differ from actual
results.
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 on the relative amounts of interest-earning assets and interest-bearing
liabilities and the interest rate earned or paid on them.
45
<PAGE>
Average Balance Sheet. The following tables set forth certain information
relating to the Bank at August 31, 1997 and for the two months ended August 31,
1997 and 1996, and for the years ended June 30, 1997, 1996 and 1995. The
average yields and costs are derived by dividing income or expense by the
average balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown and reflect annualized yields and costs.
Average balances are derived from average monthly balances. The yields and costs
include fees which are considered adjustments to yields.
<TABLE>
<CAPTION>
For the Two Months Ended
August 31,
--------------------------------------
At August 31, 1997 1997
------------------------ --------------------------------------
Average Average
Yield/ Average Yield/
Balance Cost Balance Interest Cost
----------- ------------ ------------- ------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
Debt and equity securities............... $ 216,891 6.37% $220,705 $ 2,299 6.25%
Mortgage-backed and mortgage
related securities, net................ 220,140 6.99 216,613 2,563 7.10
Real estate loans, net(2)(3)............. 481,672 7.80 474,831 6,330 8.00
Commercial loans, net(2)................. 9,055 8.08 7,706 122 9.50
Consumer and student loans............... 22,676 9.79 22,754 370 9.76
Other interest-earning assets............ 5,994 9.71 8,326 101 7.28
---------- -------- -------
Total interest-earning assets......... 956,428 7.39 950,935 11,785 7.44
----- ------- ------
Non-interest-earning assets............... 49,636 47,923
---------- --------
Total assets.......................... $1,006,064 $998,858
========== ========
Liabilities and Net Worth:
Interest-bearing liabilities:
Money market savings accounts............ $ 39,087 3.43 $ 38,438 225 3.51
Savings accounts......................... 430,396 2.78 434,100 2,053 2.84
NOW accounts............................. 17,197 2.35 17,471 73 2.51
Certificates of deposit.................. 305,413 5.40 302,239 2,737 5.43
---------- -------- -------
Total deposits........................ 792,093 3.82 792,248 5,088 3.85
Securities sold under repurchase
agreements............................. 8,434 5.51 5,633 32 3.41
---------- -------- -------
Total interest-bearing liabilities.... 800,527 3.83 797,881 5,120 3.85
------ ------- ------
Non-interest-bearing liabilities.......... 102,705 98,933
---------- --------
Total liabilities..................... 903,232 896,814
Total net worth........................... 102,832 102,044
---------- --------
Total liabilities and net worth....... $1,006,064 $998,858
========== ========
Net interest income/interest rate
spread(4).............................. 3.56% $ 6,665 3.59%
====== ======= ======
Net interest margin as a percentage of
interest-earning assets(5)............. 4.21%
======
Ratio of interest-earning assets to
interest-bearing liabilities............ 119.47% 119.18%
====== ======
<CAPTION>
For the Two Months Ended
August 31,
---------------------------------------------------------------
1996
---------------------------------------------------------------
Average
Average Yield/
Balance Interest Cost
-------------- ---------------- --------------------
(Dollars in thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets(1):
Debt and equity securities............... $325,556 $ 3,324 6.13%
Mortgage-backed and mortgage
related securities, net................ 83,080 929 6.71
Real estate loans, net(2)(3)............. 402,186 5,576 8.32
Commercial loans, net(2)................. 5,558 92 9.93
Consumer and student loans............... 22,663 357 9.45
Other interest-earning assets............ 23,395 288 7.39
-------- -------
Total interest-earning assets......... 862,438 10,566 7.35
------- ------
Non-interest-earning assets............... 52,849
--------
Total assets.......................... $915,287
========
Liabilities and Net Worth:
Interest-bearing liabilities:
Money market savings accounts............ $ 35,269 203 3.45
Savings accounts......................... 433,190 1,868 2.59
NOW accounts............................. 14,699 65 2.65
Certificates of deposit.................. 256,533 2,222 5.20
-------- ------- ------
Total deposits........................ 739,691 4,358 3.53
Securities sold under repurchase
agreement.............................. -- -- --
-------- ------- ------
Total interest-bearing liabilities.... 739,691 4,358 3.53
------- ------
Non-interest-bearing liabilities.......... 84,766
--------
Total liabilities..................... 824,457
Total net worth........................... 90,830
--------
Total liabilities and net worth....... $915,287
========
Net interest income/interest rate
spread(4).............................. $ 6,208 3.82%
======= ======
Net interest margin as a percentage of
interest-earning assets(5)............. 4.32%
======
Ratio of interest-earning assets to
interest-bearing liabilities............ 116.59%
======
</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 loan losses and includes loans held for sale
and non-performing loans.
(3) Real estate loans, net includes one- to four-family, multi-family,
commercial real estate, construction and development and home equity loans.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
46
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended June 30,
-------------------------------------------------------------------------
1997 1996
------------------------------------ -----------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------ ------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
Debt and equity securities........... $271,721 $16,754 6.17% $304,133 $17,873 5.88%
Mortgage-backed and mortgage-related
securities, net..................... 142,330 9,588 6.74% 84,270 5,402 6.41%
Real estate loans, net(2)(3)......... 436,887 35,165 8.05% 374,055 30,902 8.26%
Commercial loans, net(2)............. 6,358 617 9.70% 5,915 620 10.48%
Consumer and student loans........... 23,145 2,286 9.88% 22,396 2,285 10.20%
Other interest-earning assets........ 17,505 1,371 7.83% 33,667 1,981 5.88%
-------- ------- -------- -------
Total interest-earning assets..... 897,946 65,781 7.33% 824,436 59,063 7.16%
------- ------ ------- ------
Non-interest-earning assets........... 48,554 53,852
-------- --------
Total assets...................... $946,500 $878,288
======== ========
Liabilities and Net Worth:
Interest-bearing liabilities:
Money market savings accounts........ $ 37,552 $ 1,308 3.48% $ 28,430 $ 987 3.47%
Savings accounts..................... 432,162 11,813 2.73% 430,500 11,841 2.75%
NOW accounts......................... 15,652 370 2.36% 14,602 354 2.42%
Certificates of deposit.............. 273,546 14,206 5.19% 242,197 12,826 5.30%
-------- ------- -------- -------
Total interest-bearing liabilities 758,912 27,697 3.65% 715,729 26,008 3.63%
------- ------ ------- ------
Non-interest-bearing liabilities...... 92,254 77,372
-------- --------
Total liabilities................. 851,166 793,101
Total net worth....................... 95,334 85,187
-------- --------
Total liabilities and net worth... $946,500 $878,288
======== ========
Net interest income/interest rate
spread(4)............................ $38,084 3.68% $33,055 3.53%
Net interest margin as a percentage ======= ====== ======= ======
of interest-earning assets(5)........ 4.24% 4.01%
====== ======
Ratio of interest-earning assets to
interest-bearing liabilities......... 118.32% 115.19%
====== ======
<CAPTION>
For the Year Ended June 30,
-------------------------------------------
1995
-------------------------------------------
Average
Average Yield/
Balance Interest Cost
------------- ---------------- ------------
<S> <C> <C> <C>
Assets:
Interest-earning assets(1):
Debt and equity securities...................................... $301,204 $ 16,673 5.54%
Mortgage-backed and mortgage-related securities, net............ 89,535 5,076 5.67%
Real estate loans, net(2)(3).................................... 352,417 28,843 8.18%
Commercial loans, net(2)........................................ 5,114 486 9.50%
Consumer and student loans...................................... 20,670 2,163 10.46%
Other interest-earning assets................................... 17,059 1,080 6.33%
-------- -------
Total interest-earning assets................................ 785,999 54,321 6.91%
------- ------
Non-interest-earning assets...................................... 42,826
--------
Total assets................................................. $828,825
========
Liabilities and Net Worth:
Interest-bearing liabilities:
Money market savings accounts................................... $ 25,058 $ 735 2.93%
Savings accounts................................................ 462,720 12,647 2.73%
NOW accounts.................................................... 13,724 365 2.66%
Certificates of deposit......................................... 188,212 8,656 4.60%
-------- -------
Total interest-bearing liabilities........................... 689,714 22,403 3.25%
------- ------
Non-interest-bearing liabilities................................. 62,109
--------
Total liabilities............................................ 751,823
Total net worth.................................................. 77,002
--------
Total liabilities and net worth.............................. $828,825
========
Net interest income/interest rate
spread(4)....................................................... $31,918 3.66%
Net interest margin as a percentage ======= ======
of interest-earning assets(5)................................... 4.06%
======
Ratio of interest-earning assets to
interest-bearing liabilities.................................... 113.96%
======
</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 loan losses and includes loans
held for sale and non-performing loans.
(3) Real estate loans, net includes one- to four-family, multi-family,
commercial real estate, construction and development and home equity loans.
(4) Net interest rate spread represents the difference between the yield on
interest-earning assets and the cost of interest-bearing liabilities.
(5) Net interest margin represents net interest income divided by average
interest-earning assets.
47
<PAGE>
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Bank's interest income and
interest expense during the periods indicated. Information is provided in each
category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated proportionately to the changes due to volume and the changes due
to rate.
<TABLE>
<CAPTION>
Two Months Ended Year Ended
August 31, 1997 June 30, 1997
Compared to Compared to
Two Months Ended Year Ended
August 31, 1996 June 30, 1996
----------------------------------- ------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------------ ------------------------
Volume Rate Net Volume Rate Net
----------- ----------- --------- ------------ ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Debt and equity securities................. $(1,089) $ 64 $(1,025) $(1,971) $ 852 $(1,119)
Mortgage-backed and mortgage
related securities, net.................. 1,581 53 1,634 3,895 291 4,186
Real estate loans, net..................... 998 (244) 754 5,068 (805) 4,263
Commercial loans........................... 34 (4) 30 43 (46) (3)
Consumer and student loans................. 1 12 13 74 (73) 1
Other interest-earning assets............. (182) (5) (187) (1,137) 527 (610)
------ ------- ------ ------- ------ -------
Total interest-earning assets........... 1,343 (124) 1,219 5,972 746 6,718
------ ------- ------ ------- ------ -------
Interest-bearing liabilities:
Money market savings accounts............. 18 4 22 318 3 321
Savings accounts.......................... 4 181 185 50 (78) (28)
NOW accounts.............................. 11 (3) 8 25 (9) 16
Certificates of deposit................... 409 106 515 1,648 (268) 1,380
Securities sold under repurchase
agreements............................. 32 -- 32 -- -- --
------ ------- ------ ------- ------ -------
Total interest-bearing
liabilities........................... 474 288 762 2,041 (352) 1,689
------ ------- ------ ------- ------ -------
Net change in net interest income.......... $ 869 $ (412) $ 457 $ 3,931 $1,098 $ 5,029
======= ======= ======= ======= ====== =======
<CAPTION>
Year Ended
June 30, 1996
Compared to
Year Ended
June 30, 1995
---------------------------------
Increase (Decrease)
Due to
-------------------------
Volume Rate Net
----------- -------- -------
(In thousands)
<S> <C> <C> <C>
Interest-earning assets(1):
Debt and equity securities............... $ 164 $1,036 $1,200
Mortgage-backed and mortgage
related securities, net................ (311) 637 326
Real estate loans, net................... 1,776 283 2,059
Commercial loans......................... 81 53 134
Consumer and student loans............... 177 (55) 122
Other interest-earning assets........... 983 (82) 901
------ ------ ------
Total interest-earning assets......... 2,870 1,872 4,742
------ ------ ------
Interest-bearing liabilities:
Money market savings accounts........... 107 145 252
Savings accounts........................ (897) 91 (806)
NOW accounts............................ 23 (34) (11)
Certificates of deposit................. 2,725 1,445 4,170
Securities sold under repurchase
agreements........................... -- -- --
------ ------ ------
Total interest-bearing
liabilities......................... 1,958 1,647 3,605
------ ------ ------
Net change in net interest income........ $ 912 $ 225 $1,137
====== ====== ======
</TABLE>
- -----------------
(1) Includes assets available-for-sale.
48
<PAGE>
Comparison of Financial Condition at August 31, 1997 and June 30, 1997
Total assets increased by $12.7 million, or 1.3%, from $993.3 million at
June 30, 1997 to $1.01 billion at August 31, 1997. The growth in assets is
primarily attributable to a $17.1 million, or 3.5%, increase in loans
receivable, net, partially offset by a $4.0 million decrease in federal funds
sold. The increase in loans receivable, net, from $496.3 million at June 30,
1997 to $513.4 million at August 31, 1997, was primarily due to originations of
one- to four-family loans. The increase in total assets was funded primarily
through borrowings in the form of short-term repurchase agreements, which
increased to $8.4 million at August 31, 1997 as compared to no borrowings at
June 30, 1997, and, to a lesser degree, increases in accrued and other
liabilities and escrow accounts.
During the two month period ended August 31, 1997, the Bank designated all
purchases of investment securities, mortgage-backed and mortgage-related
securities as available for sale. As a result, the Bank's portfolio of
securities held to maturity decreased $31.9 million, or 8.2%, to $358.5 million
at August 31, 1997 from $390.3 million at June 30, 1997, reflecting the impact
of maturities, redemptions, and principal collected. In addition, the Bank's
portfolio of securities available for sale increased $31.5 million, or 66.8%,
from $47.1 million at June 30, 1997 to $78.6 million at August 31, 1997. The
percentage of securities designated as available-for-sale, as a percentage of
the total securities portfolio, increased from 10.8% at June 30, 1997 to 18.0%
at August 31, 1997. Management expects the proportion of securities available-
for-sale as a percentage of total securities to continue to increase in future
periods.
During 1996, the Bank began to restructure its securities portfolio in an
attempt to increase the yield and the expected average maturity of such
portfolio while continuing to monitor its interest rate risk position. The Bank
began to reinvest funds from its maturing U.S. Treasury obligations and
corporate debt into private and government agency mortgage-backed and mortgage-
related securities with estimated average lives of three to five years. This
pattern continued during the two month period ended August 31, 1997, as debt and
equity securities decreased by $8.0 million, or 3.6%, from $224.9 million at
June 30, 1997 to $216.9 million at August 31, 1997, while mortgage-backed and
mortgage-related securities increased by $7.6 million, or 3.6%, from $212.5
million at June 30, 1997 to $220.1 million at August 31, 1997. Substantially all
of the increase in mortgage-backed and mortgage-related securities was due to
the purchase of CMOs.
Total deposits at August 31, 1997 were relatively unchanged, aggregating
$882.9 million, compared to $884.5 million at June 30, 1997. An increase of
$7.3 million, or 2.5%, in certificates of deposit from $298.1 million at
June 30, 1997 to $305.4 million at August 31, 1997, was offset by a $9.0 million
decrease in the Bank's core deposits, which totalled $577.5 million at
August 31, 1997, as compared with $586.5 million at June 30, 1997. The
increase in certificates of deposit was primarily attributable to competitive
pricing and increased marketing of such deposit products.
Net worth increased by $1.9 million, or 1.9%, from $100.9 million at
June 30, 1997 to $102.8 million at August 31, 1997. The Bank's ratio of net
worth to total assets remained constant at 10.2%.
Comparison of Financial Condition at June 30, 1997 and June 30, 1996
Total assets increased by $78.9 million, or 8.6%, from $914.5 million at
June 30, 1996 to $993.4 million at June 30, 1997. The growth in assets is
primarily attributable to a $77.0 million, or 18.4%, increase in loans
receivable, net, and a $26.4 million, or 6.4%, increase in the securities
portfolio. The increase in loans receivable, net, from $419.3 million at
June 30, 1996 to $496.3 million at June 30, 1997, was primarily due to increased
originations of one- to four-family loans. Originations of one- to four-family
loans increased from $53.9 million in fiscal 1996 to $100.5 million in fiscal
1997 due to the introduction of the
49
<PAGE>
Bank's use of mortgage brokers, increased marketing of its loan products and the
expansion of its loan products. The increase in loans was funded primarily
through deposit inflows, primarily in certificate of deposit accounts which
increased by $44.1 million, or 17.4%, and a $14.8 million, or 19.0%, increase in
non-interest-bearing checking accounts.
In connection with the restructuring of its securities portfolio, the Bank
began to reinvest funds from its maturing U.S. Treasury obligations and
corporate debt securities into private and government agency mortgage-backed and
mortgage-related securities with estimated average lives of three to five years.
As a result, at June 30, 1997, debt and equity securities totaled $224.9
million, a decrease of $104.5 million, or 31.7%, compared to $329.4 million at
June 30, 1996, while mortgage-backed and mortgage-related securities increased
by $130.8 million, or 160.2%, from $81.7 million at June 30, 1996 to $212.5
million at June 30, 1997. Substantially all of the increase in mortgage-backed
and mortgage-related securities was due to the purchase of CMOs.
Total deposits at June 30, 1997 were $884.5 million, an increase of
$66.6 million, or 8.1%, compared to $817.9 million at June 30, 1996. The
increase was primarily due to an increase of $44.1 million, or 17.4%, in
certificates of deposit from $253.9 million at June 30, 1996 to $298.1 million
at June 30, 1997. The increase in certificates of deposit was primarily
attributable to competitive pricing and increased marketing of such deposit
products. The growth in deposits was also attributable to an increase in
non-interest bearing checking accounts and money market accounts which
increased by $18.7 million, or 16.7%, due to the Bank's increased marketing
efforts on business deposit accounts. The Bank's core deposit accounts, which
totalled $564.0 million at June 30, 1996, increased by $22.5 million during
fiscal 1997.
Net worth increased by $11.0 million, or 12.2%, from $89.9 million at
June 30, 1996 to $100.9 million at June 30, 1997, resulting in the Bank's
ratio of net worth to total assets increasing from 9.8% at June 30, 1996 to
10.2% at June 30, 1997.
Comparison of Operating Results For the Two Months Ended August 31, 1997 and
August 31, 1996
General. Net income for the two month period ended August 31, 1997, as
compared to the two month period ended August 31, 1996, increased by $104,000,
or 6.2%, from $1.7 million to $1.8 million, respectively. The increase was
primarily due to an increase in net interest income, reflecting increases in
both the average balance of interest-earning assets and improvements in net
interest margin, offset by increases in non-interest expenses, including
computer service fees and advertising.
Interest Income. The Bank reported interest income of $11.8 million for the
two month period ended August 31, 1997, representing an increase of $1.2 million
as compared to the same period in 1996. The increase in interest income was
primarily attributable to an overall increase of $88.5 million in the average
balance of interest-earning assets and a 9 basis point increase in the average
yield on interest-earning assets. The increase in the average balance of
interest-earning assets was mainly attributable to a $72.6 million increase in
the average balance of real estate loans, principally in the one- to four-family
loan category. The increase in the average interest rate on interest-earning
assets, which increased from 7.35% to 7.44%, was primarily due to the
reallocation of interest-earning assets from lower-yielding U.S. Government
securities to higher-yielding mortgage-backed and mortgage-related securities.
This increase in the average yield was partially offset by a 32 basis point
decline in the yield on real estate loans, net due primarily to the prepayments
of higher yielding loans. Interest income on mortgage-backed and mortgage-
related securities increased $1.6 million, or 175.9%, from $929,000 for the two
month period ended August 31, 1996, to $2.6 million for the two month period
ended August 31, 1997. This increase was primarily due to an increase in the
average balance of mortgage-backed and mortgage-related
50
<PAGE>
securities of $133.5 million, resulting from the restructuring of the securities
portfolio and the investment of excess funds not utilized for loan demand in
mortgage-backed and mortgage-related securities. The yield on the mortgage-
backed and mortgage-related securities increased by 39 basis points due to the
higher rate environment for new purchases and the repricing of adjustable rate
securities purchased in prior periods. Interest income on debt and equity
securities decreased $1.0 million, or 30.8%, due to management's restructuring
of its securities portfolio resulting in a $104.9 million decrease in the
average balance of such securities offset in part by the increased yield on such
securities.
Interest income on real estate loans increased by $754,000, from $5.6
million for the two month period ended August 31, 1996 to $6.3 million for the
two month period ended August 31, 1997. The increase in interest income on real
estate loans was a result of growth in average balance of one- to four-family
loans outstanding partially offset by a 32 basis point decrease in the average
yield on loans. The decrease in average yield on loans was primarily due to the
increased loan repayments on higher yielding loans. The increase in the average
balance of loans was primarily due to an increase in one- to four-family loans,
resulting primarily from the Bank's continued emphasis on such loans.
Interest Expense. Interest expense increased $762,000, or 17.5%, from $4.4
million for the two month period ended August 31, 1996, to $5.1 million for the
two month period ended August 31, 1997. The increase reflects a $58.2 million
increase in the average balance of interest-bearing liabilities, primarily
attributable to an increase in the average balance of certificates of deposits
and money market savings accounts resulting from the Bank's strategy of
attracting more certificates of deposits through additional certificate of
deposit products, competitive pricing of such products, and related marketing of
commercial deposit accounts. As a result, the average cost of the Bank's
interest-bearing liabilities increased from 3.53% for the two month period ended
August 31, 1996 to 3.85% for the two month period ended August 31, 1997.
Provision for Loan Losses. The Bank's provision for loan losses was
$300,000 for the two month period ended August 31, 1997, compared to $266,000
for the two month period ended August 31, 1996. The August 1997 provision was
based on management's evaluation of its loan portfolio and real estate market
conditions. In particular, management considered the continued growth in the
portfolio, as well as the increase in its non-performing loans. The growth in
non-performing loans is due primarily to the addition of a $1.1 million
commercial mortgage on a mixed-use property on Staten Island, New York. As of
August 31, 1997, the loan was five months in arrears, totaling $105,000 in
payments. The loan is secured by the property which was last appraised in
December 1996 for $1.4 million. The Bank's non-performing loans as a percentage
of total loans increased to 1.09% as of August 31, 1997 as compared to 0.75% at
August 31, 1996 primarily as a result of the property described above. At August
31, 1997, the Bank's allowance for loan losses as a percentage of loans
receivable, net, was 1.11%, as compared to 1.12% at August 31, 1996. To the
extent the Bank increases its investment in commercial real estate, commercial
and other loans, which entail higher risk than one- to four-family loans, the
Bank may decide to increase its allowance for loan losses through additional
loan loss provisions which may adversely affect net income. See "Risk Factors --
Increased Leveling Risks Associated with Commercial Real Estate, Multi-Family,
Construction and Development and Commercial Lending" and "Business of the Bank
- -- Delinquent Loans, Real Estate Owned and Classified Assets" and "Allowance for
Loan Losses."
Non-Interest Income. Non-interest income is comprised of fee income and
profits from the sale of securities and loans. Total non-interest income for the
two month period ended August 31, 1997, increased $43,000, or 8.3%, to $560,000.
Fee income increased $40,000, or 7.7%, from $520,000 for the two month period
ended August 31, 1996, to $560,000 for the two month period ended August 31,
1997, due to an increase in the Bank's deposit accounts.
51
<PAGE>
Non-Interest Expense. Non-interest expense increased by $174,000, or 5.3%,
from $3.3 million for the two month period ended August 31, 1996, to $3.5
million for the two month period ended August 31, 1997, primarily due to an
increase in computer-related services, check processing charges and advertising
expenses. The computer service and check processing charges increased by
$145,000, primarily as a result of increased check processing fees.
Advertising expenses increased $62,000, primarily as a result of the Bank's
additional marketing of its loan and deposit products. The Bank expects that
compensation and employee benefits expense may increase after the Conversion,
primarily as a result of the adoption of various employee benefit plans and
compensation adjustments contemplated in connection with the Conversion. See
"Management of the Bank -- Benefit Plans." In addition, the Bank expects non-
interest expense to increase in future periods as a result of the Bank's
intention to open a public accommodation office during 1998. The Bank is also
considering opening three new full-service branches, although no assurance can
be made in this regard. If the Bank were to open two new branches, non-interest
expenses would be expected to increase further in future periods. See "Business
of the Bank -- Properties."
Income taxes. Total income tax expense was $1.7 million for the two month
period ended August 31, 1997, compared to $1.5 million for the two month period
ended August 31, 1996. The increase was due primarily to an increase in pre-tax
income for August 1997. The effective tax rate was 48.1% for August 1997, as
compared to 46.6% for August 1996.
Comparison of Operating Results For the Years Ended June 30, 1997 and June 30,
1996.
General. Net income for fiscal 1997 increased by $2.0 million, or 22.8%,
from $8.7 million for fiscal 1996 to $10.7 million for fiscal 1997. The
increase was due primarily to an increase in net interest income which resulted
from an increase in the average balance of interest-earning assets and a higher
weighted average yield on its securities portfolio, offset, in part, by
increases in non-interest expenses, including the one-time SAIF special
assessment and increased compensation and advertising costs.
Interest Income. Interest income amounted to $65.8 million for fiscal
1997, representing an increase of $6.7 million from fiscal 1996. The increase
was the result of a $73.5 million increase in average interest-earning assets
and a 17 basis point increase in the yield on interest-earning assets. The
increase in average interest-earning assets was primarily due to an increase in
one- to four-family loans due to the introduction of the Bank's use of mortgage
brokers and increased marketing efforts. The increase in the average interest
rate on interest-earning assets, which increased from 7.16% to 7.33%, was
primarily due to the reallocation of interest-earning assets from lower-yielding
U.S. Government securities to higher-yielding mortgage-backed and mortgage-
related securities. This was partially offset by a 21 basis point decline in
the yield on real estate loans, net, due primarily to the repricing of
adjustable rate loans in a lower interest rate environment. Interest income on
mortgage-backed and mortgage-related securities increased $4.2 million, or
77.0%, from $5.4 million for fiscal 1996 to $9.6 million for fiscal 1997. This
increase was primarily due to an increase in the average balance of mortgage-
backed and mortgage-related securities of $58.1 million, which resulted from the
restructuring of the securities portfolio and the investment of excess funds not
utilized for loan demand in mortgage-backed and mortgage-related securities.
The yield on the mortgage-backed and mortgage-related securities portfolio
increased by 33 basis points due to the higher rate environment for new
purchases and the repricing of adjustable-rate securities purchased in prior
periods. Interest income on debt and equity securities decreased $1.1 million,
or 6.3%, due to management's restructuring of its securities
52
<PAGE>
portfolio resulting in a $32.4 million decrease in the average balance of such
securities offset in part by the increased yield on such securities. See
"--Management of Interest Rate Risk."
Interest income on loans increased $4.3 million, from $33.8 million for
fiscal 1996 to $38.1 million for fiscal 1997. The increase in interest income
on loans was a result of growth in the average balance of one- to four- family
loans outstanding partially offset by a 24 basis point decrease in the average
yield on loans, which occurred due to a repricing of adjustable rate loans in a
lower interest rate environment. The increase in the average balance of loans
was primarily due to an increase in residential one- to four-family loans,
resulting primarily from the investment of funds resulting from the growth in
deposits.
Interest Expense. Interest expense increased $1.4 million, or 5.3%, from
$26.3 million for fiscal 1996 to $27.7 million for fiscal 1997. This increase
reflects a $43.2 million increase in the average balance of interest-bearing
liabilities. The increase in average interest-bearing liabilities was
primarily attributable to an increase in the average balance of certificates of
deposits and money market savings accounts, which increased as a result of the
Bank's strategy of attracting more certificates of deposits through additional
certificate of deposit products, competitive pricing of such products, and
related marketing of commercial deposit accounts. The average cost of the
Bank's interest-bearing liabilities remained relatively stable at 3.65% for
fiscal 1997 as compared to 3.63% for fiscal 1996.
Provision for Loan Losses. The Bank's provision for loan losses was
$1.1 million for fiscal 1997 compared to $1.6 million for fiscal 1996. The 1997
provision was based on management's evaluation of its loan portfolio and real
estate market conditions. In particular, management considered the continued
growth in the portfolio, as well as the decrease in its non-performing loans.
The Bank's non-performing loans as a percentage of total loans improved from
0.91% at June 30, 1996 to 0.78% at June 30, 1997. At June 30, 1997, the Bank's
allowance for loan losses as a percentage of total non-performing loans was
141.1%, compared to 125.5% at June 30, 1996. At June 30, 1997, the Bank's
allowance for loan losses as a percentage of loans receivable, net, was 1.10%,
as compared to 1.14% at June 30, 1996. To the extent the Bank increases its
investment in commercial real estate, commercial and other loans which entail
higher risk than one- to four-family loans, the Bank may determine to increase
its allowance for loan losses through additional loan loss provisions which may
adversely affect net income. See "Risk Factors - Increased Lending Risks
Associated with Commercial Real Estate, Multi-Family, Construction and
Development and Commercial Lending" and "Business of the Bank - Delinquent
Loans, Real Estate Owned and Classified Assets" and "- Allowance for Loan
Losses."
Non-Interest Income. Non-interest income is composed of fee income and
profits from the sale of securities and loans. Total non-interest income for
fiscal 1997 increased $34,000, or 1.2%, to $2.9 million. Fee income increased
$245,000, or 9.0%, from $2.7 million for fiscal 1996 to $3.0 million for fiscal
1997 due to an increase in the Bank's deposit accounts. Net gains/losses on
sales of securities and loans changed from a net gain of $42,000 for fiscal 1996
to a net loss of $107,000 for fiscal 1997, primarily as a result of the Bank's
sale of lower-yielding U.S. Treasury and corporate obligations.
Non-Interest Expense. Non-interest expense increased by $1.2 million, or
6.5%, from $18.5 million for fiscal 1996 to $19.7 million for fiscal 1997,
primarily due to the one-time SAIF special assessment and an increase in
compensation and employee benefits. Compensation and employee benefits
increased by $589,000, or 6.4%, from $9.3 million for
53
<PAGE>
fiscal 1996 to $9.9 million for fiscal 1997, primarily as a result of the
retention of new personnel in various areas of the Bank's operations and normal
salary increases. Deposit insurance premiums increased $373,000, or 148.6%, from
$251,000 for fiscal 1996 to $624,000 for fiscal 1997, due to the increase in
average deposits from $715.7 million for fiscal 1996 to $758.9 million for
fiscal 1997. In addition, the Bank paid a one-time special assessment to the
SAIF of $493,000 in October 1996 based on the amount of SAIF-insured deposits
the Bank maintains. Advertising and promotion expense increased $183,000, or
28.9%, from $634,000 for fiscal 1996 to $817,000 for fiscal 1997, primarily as a
result of the Bank's special anniversary promotion throughout October 1996 and
additional marketing of the Bank's loan and deposit products. The Bank expects
that compensation and employee benefits expense may increase after the
Conversion, primarily as a result of the adoption of various employee benefit
plans and compensation adjustments contemplated in connection with the
Conversion. See "Management of the Bank--Benefit Plans." In addition, the Bank
expects non-interest expense to increase in future periods as a result of the
Bank's intention to open a public accommodation office during 1998. The Bank is
also considering opening two new full-service branches in 1998, although no
assurances can be made in this regard. If the Bank were to open two new
branches, non-interest expenses would be expected to increase further in future
periods. See "Business of the Bank -- Properties."
Income Taxes. Total income tax expense was $9.5 million for fiscal 1997
compared to $6.8 million for fiscal 1996. The increase was due primarily to an
increase in pre-tax income for 1997. The effective tax rate was 47.0% for
fiscal 1997 as compared to 43.9% for fiscal 1996.
Comparison of Operating Results for the Years Ended June 30, 1996 and June 30,
1995.
General. Net income for fiscal 1996 was $8.7 million, compared to $7.6
million for fiscal 1995. The increase was the result of a $1.3 million charge
in fiscal 1995, due to a change in accounting principles from the Bank's
adoption of SFAS No. 106. Excluding the effect of SFAS No. 106, net income
decreased from $8.9 million for fiscal 1995 to $8.7 million for fiscal 1996, due
in part to higher non-interest expenses and a higher provision for loan losses,
partially offset by a decrease in FDIC insurance premiums and an increase in net
interest income.
Interest Income. Total income from interest-earning assets increased from
$54.3 million for fiscal 1995 to $59.1 million for fiscal 1996, primarily due to
an increase of $38.4 million in the average balance of interest-earning assets
and a 25 basis point increase in the yield on interest-earning assets. The
average balance of interest-earning assets increased due in part to a
$21.6 million, or 6.1%, increase in the average balance of real estate loans. As
a result, interest income on the Bank's real estate loan portfolio increased
$2.1 million, or 7.3%, from $28.8 million for fiscal 1995 to $30.9 million for
fiscal 1996 due to the increase in the average balance of such loans and an
increase in the average yield from 8.18% for fiscal 1995 to 8.26% for fiscal
1996. Interest income on consumer and student loans also increased from
$2.2 million for fiscal 1995 to $2.3 million for fiscal 1996, as a result of an
increase of $1.7 million in the average balance of such loans which was offset,
in part, by a decrease in the average yield of such loans from 10.50% for fiscal
1995 to 10.21% for fiscal 1996.
Interest income from debt and equity securities increased $1.2 million, or
7.2%, from $16.7 million for fiscal 1995 to $17.9 million for fiscal 1996, as a
result of the increase in the average balance of such securities as well as a
29 basis point increase in the average
54
<PAGE>
yield on such securities. Interest income on mortgage-backed and mortgage-
related securities also increased by $326,000, or 6.4%, from $5.1 million for
fiscal 1995 to $5.4 million for fiscal 1996, due to a 74 basis point increase in
the average yield on such securities, which was partially offset by a
$5.3 million decrease in the average balance of such securities.
Interest Expense. Interest expense for fiscal 1996 was $26.3 million, as
compared to $22.5 million for fiscal 1995, an increase of $3.8 million, or
17.0%. The increase is primarily due to a $26.0 million increase in average
interest-bearing deposits and a 38 basis point increase in the average cost of
interest-bearing deposits. The increase in average interest-bearing deposits
was primarily attributable to an increase in the average balance of certificates
of deposits due to competitive pricing and increased marketing of such deposit
products. As a result, the average rate paid on certificate accounts increased
from 4.58% for fiscal 1995 to 5.29% for fiscal 1996.
Provision for Loan Losses. The Bank's provision for loan losses was
$1.6 million for fiscal 1996 as compared with $600,000 for fiscal 1995. The
increase in the provision was due primarily to management's assessment of its
loan portfolio, the growth in the portfolio and the level of non-performing
loans. In particular, non-performing loans increased from $2.8 million at
June 30, 1995 to $3.6 million at June 30, 1996. The increase in non-performing
loans was attributable to a $447,000 increase in non-performing commercial real
estate loans. At June 30, 1995, the Bank's allowance for loan losses to total
non-performing loans and total loans was 109.3% and 0.83%, respectively, as
compared to 125.5% and 1.14%, respectively, at June 30, 1996. See "Risk
Factors - Increased Lending Risks Associated with Commercial Real Estate, Multi-
Family, Construction and Development and Commercial Lending" and "Business of
the Bank -Delinquent Loans, Real Estate Owned and Classified Assets" and
"- Allowance for Loan Losses."
Non-Interest Income. Non-interest income increased by $168,000, or 6.3%,
from $2.7 million for fiscal 1995 to $2.8 million for fiscal 1996. The increase
was primarily due to the increase in fee income of $167,000, or 6.5%, from
$2.6 million for fiscal 1995 to $2.7 million for fiscal 1996, which increase is
primarily attributable to the increase in deposits.
Non-Interest Expense. Non-interest expense increased slightly by $364,000,
or 2.0%, from $18.1 million for fiscal 1995 to $18.5 million for fiscal 1996.
This increase is primarily a result of an increase in non-interest expenses of
$768,000, or 20.8%, from $4.8 million for fiscal 1995 to $5.7 million for fiscal
1996, as a result of an increase in compensation and employee benefits of
$508,000, from $8.8 million for 1995 to $9.3 million for 1996, as a result of
normal salary increases. Non-interest expense was also impacted by a $369,000,
or 13.9%, increase in occupancy costs from $2.7 million for fiscal 1995 to
$3.0 million for fiscal 1996, due to the Bank instituting a repair and
renovation program for the branch offices, as well as a $683,000, or 57.4%,
increase in computer service fees from $1.2 million for fiscal 1995 to
$1.9 million for fiscal 1996, as a result of the installation of a new computer
network and equipment at all branch locations and the change in payment method
for check processing charges. These items were offset by a reduction in FDIC
deposit insurance premiums, from $1.7 million for fiscal 1995 to $251,000 for
fiscal 1996 due to a reduction in the assessment rate imposed by the FDIC. See
"Regulation and Supervision - Insurance of Deposit Accounts."
Income Taxes. The provision for income taxes decreased by $116,000, or
1.7%, from $6.9 million for fiscal 1995 to $6.8 million for fiscal 1996,
primarily as
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<PAGE>
a result of the decrease in income before income taxes. The effective tax rate
was 43.8% for fiscal 1996 and fiscal 1995.
Cumulative Effect of Changes in Accounting Principles
In December 1990, the FASB issued SFAS No. 106. SFAS No. 106 focuses
principally on post-retirement health care benefits and significantly changed
the previous practice of accounting for post-retirement benefits on a cash basis
to requiring accrual during the years that the employee renders the necessary
service, of the expected cost of providing those benefits to an employee and the
employee's beneficiaries and covered dependents. SFAS No. 106 became effective
for fiscal years beginning after December 15, 1992, and adoption was required on
a prospective basis. The Bank adopted SFAS No. 106 effective July 1, 1994,
which resulted in a charge, net of tax, of $1.3 million.
Liquidity And Capital Resources
The Bank's primary sources of funds are deposits, proceeds from the
principal and interest payments on loans, mortgage-backed and mortgage-related
and debt and equity securities, and to a significantly lesser extent, proceeds
from the sale of fixed-rate mortgage loans to the secondary market. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit outflows, mortgage prepayments and mortgage loan sales
are greatly influenced by general interest rates, economic conditions and
competition.
The primary investing activities of the Bank are the origination of
primarily residential one-to four-family and, to a lesser extent, commercial
real estate, construction and development, multi-family and other loans and the
purchase of mortgage-backed and mortgage-related and debt and equity securities.
During the two month period ended August 31, 1997 and the years ended June 30,
1997, 1996, and 1995, the Bank's loan originations totaled $26.3 million, $137.2
million, $94.3 million and $78.9 million, respectively. Purchases of mortgage-
backed, mortgage-related and debt and equity securities totaled $31.6 million,
$195.4 million, $166.5 million, and $121.9 million for the two month period
ended August 31, 1997 and the years ended June 30, 1997, 1996, and 1995,
respectively. These activities were funded primarily by deposit growth and
principal repayments and prepayments on loans, mortgage-backed and mortgage-
related securities and debt and equity securities. Loan sales provided
additional liquidity to the Bank, totaling $2.0 million, $10.0 million and $1.6
million for the years ended June 30, 1997, 1996 and 1995, respectively. There
were no loan sales for the two month period ended August 31, 1997. The Bank
experienced a net decrease in total deposits of $1.6 million for the two months
ended August 31, 1997 and a net increase in total deposits of $66.6 million,
$53.9 million and $15.4 million for the years ended June 30, 1997, 1996, and
1995, respectively. Deposit flows are affected by the level of interest rates,
the interest rates and products offered by local competitors and the Bank and
other factors.
The Bank closely monitors its liquidity position on a daily basis. Excess
short-term liquidity is invested in overnight federal funds sold. On a longer-
term basis, the Bank maintains a strategy of investing in various lending
products as described in greater detail under "Business of the Bank -- Lending
Activities." In the event the Bank should require funds beyond its ability to
generate them internally, additional sources of funds are available through the
Bank's $10.0 million line of credit and through reverse repurchase agreements.
In addition, the Bank's application to become a member of the FHLB system was
approved on October 24, 1997. FHLB membership will provide the Bank with access
to FHLB advances. See "Business of the Bank -- Sources of Funds -- Borrowed
Funds." At August 31, 1997, the Bank had $8.4 million of outstanding reverse
repurchase agreements. The Bank has recently begun to place a greater level of
emphasis on the utilization of borrowed funds to fund asset growth. In this
regard, at October 31, 1997, the Bank had total borrowings of $60.4 million, all
of which were in the form of reverse repurchase agreements. The Bank may
continue to increase such emphasis which may result in an increase in the Bank's
average cost of funds.
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Loan commitments totaled $39.8 million at August 31, 1997, comprised of
$9.8 million in one- to four-family loan commitments, $2.5 million in commercial
real estate loan commitments, $10.3 million in construction loan commitments,
$7.2 million in commercial loan commitments and $7.0 million in home equity loan
commitments. Management of the Bank anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificates of deposit
which are scheduled to mature in less than one year from August 31, 1997 totaled
$213.6 million. Based upon past experience and the Bank's current pricing
strategy, management believes that a significant portion of such deposits will
remain with the Bank.
At August 31, 1997, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $100.9 million, or 10.10% of
adjusted assets, which is above the required level of $40.0 million, or 4.0% of
adjusted assets and risk-based capital of $105.9 million, or 19.70% of adjusted
assets, which is above the required level of $43.0 million, or 8.0%. See
"Regulatory Capital Compliance."
The Bank's most liquid assets are cash and interest-bearing demand
accounts. The levels of these assets are dependent on the Bank's operating,
financing, lending and investing activities during any given period. At
August 31, 1997, cash and interest-bearing demand accounts totaled
$25.9 million, or 2.6% of total assets.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollar amounts
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Bank are monetary in nature. As a result,
interest rates have a greater impact on the Bank's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
In November 1993, the AICPA issued SOP 93-6 ("SOP 93-6"), "Employers'
Accounting for Employee Stock Ownership Plans," which is effective for years
beginning after December 15, 1993. SOP 93-6 requires the application of its
guidance for shares acquired by ESOPs after December 31, 1992 but not yet
committed to be released as of the beginning of the year SOP 93-6 is adopted.
SOP 93-6 changes the measure of compensation expense recorded by employers for
leveraged ESOPs from the cost of ESOP shares to the fair value of ESOP shares.
The Company has adopted an ESOP in connection with the Conversion, which is
expected to purchase 8% of the Common Stock issued in the Conversion, including
shares issued to the Foundation. Under SOP 93-6, the Company will recognize
compensation cost equal to the fair value of the ESOP shares during the periods
in which they become committed to be released. To the extent that the fair
value of the Company's ESOP shares differ from the cost of such shares, this
differential will be charged or credited to equity. Employers with internally
leveraged ESOPs such as the Company will not report the loan receivable from the
ESOP as an asset and will not report the ESOP debt from the employer as a
liability. However, the effects of SOP 93-6 on future operating results cannot
be determined at this time.
In November 1995, the FASB issued SFAS No. 123, "Accounting for Stock Based
Compensation" ("SFAS No. 123"). This statement establishes financial accounting
standards for stock-based employee compensation plans. SFAS No. 123 permits the
Bank to choose either a new fair value based method or the
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<PAGE>
current Accounting Principles Board ("APB") Opinion 25 intrinsic value based
method of accounting for its stock-based compensation arrangements. SFAS No. 123
requires pro forma disclosures of net earnings and earnings per share computed
as if the fair value based method had been applied in financial statements of
companies that continue to follow current practice in accounting for such
arrangements under APB Opinion 25. SFAS No. 123 applies to all stock-based
employee compensation plans in which an employer grants shares of its stock or
other equity instruments to employees except for employee stock ownership plans.
SFAS No. 123 also applies to plans in which the employer incurs liabilities to
employees in amounts based on the price of the employer's stock, (e.g., stock
option plans, stock purchase plans, restricted stock plans, and stock
appreciation rights). The statement also specifies the accounting for
transactions in which a company issues stock options or other equity instruments
for services provided by nonemployees or to acquire goods or services from
outside suppliers or vendors. The recognition provisions of SFAS No. 123 for
companies choosing to adopt the new fair value based method of accounting for
stock-based compensation arrangements may be adopted immediately and will apply
to all transactions entered into in fiscal years that begin after December 15,
1995, however disclosure of the pro forma net earnings and earnings per share,
as if the fair value method of accounting for stock-based compensation had been
elected, is required for all awards granted in fiscal years beginning after
December 31, 1994. Any effect that this statement will have on the Bank will be
applicable upon the consummation of the Conversion.
In June 1996 the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS
No. 125"). This Statement provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of liabilities
based on consistent application of a financial-components approach that focuses
on control. It distinguishes transfers of financial assets that are sales from
transfers that are secured borrowings. Under the financial-components approach,
after a transfer of financial assets, an entity recognizes all financial and
servicing assets it controls and liabilities it has incurred and derecognizes
financial assets it no longer controls and liabilities that have been
extinguished. The financial-components approach focuses on the assets and
liabilities that exist after the transfer. Many of these assets and liabilities
are components of financial assets that existed prior to the transfer. If a
transfer does not meet the criteria for a sale, the transfer is accounted for as
a secured borrowing with pledge of collateral. The Statement is effective for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and should be applied prospectively. Earlier
or retroactive application of this Statement is not permitted. Management has
determined that this Statement will not have a material impact on the Company's
consolidated financial statements.
In February 1997, the FASB released SFAS No. 128, "Earnings Per Share"
("SFAS No. 128"). SFAS No. 128 establishes standards for computing and
presenting earnings per share ("EPS") and applies to entities with publicly held
common stock or potential common stock. SFAS No. 128 simplifies the standards
for computing earnings per share previously found in APB Opinion No. 15,
"Earnings Per Share," and makes them comparable to international EPS standards.
It replaces the presentation of primary EPS with a presentation of basic EPS.
It also requires dual presentation of basic and diluted EPS on the face of the
numerator and denominator of the diluted EPS computation. Basic EPS excludes
dilution and 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. Diluted EPS is computed similarly to fully diluted EPS
pursuant to APB Opinion No. 15. SFAS No. 128 is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods; earlier application is not permitted.
In March 1997, the FASB issued SFAS No. 129, "Disclosure of Information
About Capital Structure" ("SFAS No. 129). SFAS No. 129 continues the existing
requirements to disclose the pertinent rights and privileges of all securities
other than ordinary common stock but expands the number of companies
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<PAGE>
subject to portions of its requirements. Specifically, the Statement requires
all entities to provide the capital structure disclosures previously required by
APB Opinion No. 15. Companies that were exempt from the provisions of APB
Opinion No. 15 will now need to make those disclosures.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of
other comprehensive income by their nature in a financial statement and (b)
display the accumulated balance of other comprehensive income separately from
net worth and additional paid-in capital in the equity section of a statement of
financial position. SFAS No. 130 is effective for fiscal years beginning after
December 15, 1997. Reclassification of financial statements for earlier periods
provided for comparative purposes is required. Management is in the process of
determining the impact, if any, this statement will have on the Bank.
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of
an Enterprise and Related Information." SFAS No. 131 requires disclosures for
each segment that are similar to those required under current standards with the
addition of quarterly disclosure requirements and a finer partitioning of
geographic disclosures. It requires limited segment data on a quarterly basis.
It also requires geographic data by country, as opposed to broader geographic
regions as permitted under current standards. SFAS No. 131 is effective for
fiscal year beginning after December 15, 1997 with earlier application
permitted.
BUSINESS OF THE COMPANY
General
The Company was incorporated in September 1997 at the direction of the
Board of Trustees of the Bank for the purpose of becoming a holding company to
acquire all of the outstanding capital stock of the Bank issued in the
Conversion. Upon consummation of the Conversion, it is anticipated that the
Bank will become a wholly-owned subsidiary of the Company. Upon the
consummation of the Conversion, the Company will be a savings and loan holding
company regulated by the OTS. See "Regulation and Supervision - Holding Company
Regulation."
The Company is currently not an operating company. Following the
Conversion, in addition to directing, planning and coordinating the business
activities of the Bank, the Company will initially invest net proceeds it
retains primarily in mortgage-backed and mortgage-related securities and
investment-grade debt and equity securities. In addition, the Company intends
to fund the loan to the ESOP to enable the ESOP to subscribe for 8% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation; however, a third party lender may be utilized to lend funds
to the ESOP. See "Use of Proceeds." In the future, the Company may expand its
operations in the Bank's primary market area or other areas surrounding the New
York City metropolitan area by marketing and business development, acquiring or
organizing other operating subsidiaries, including other financial institutions
and financial services companies. Other than a lease on a public accommodation
office to be opened on Staten Island in 1998 and plans to open three new branch
offices on Staten Island, there are no current agreements or understandings
for an expansion of the Company's operations. Initially, the Company will
neither own nor
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<PAGE>
lease any property from any third party, but will instead use the premises,
equipment and furniture of the Bank.
In October 1997, the Company retained two officers to serve as the
President and Chief Operating Officer and a Chief Financial Officer and
Secretary, both of whom were not previously employed by the Bank but who have
significant experience in the financial services industry. See "Management of
the Company." At the present time, the Company does not intend to employ any
persons other than its current officers as well as certain officers of the Bank,
who will not be separately provided cash compensation by the Company. The
Company may utilize the support staff of the Bank from time to time, if needed.
Additional employees will be hired as appropriate to the extent the Company
expands its business in the future.
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BUSINESS OF THE BANK
General
The Bank is a community-oriented mutual savings bank which was
originally chartered by the State of New York in 1886. 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 one- to four-family residential mortgage loans and, to a lesser
extent, commercial real estate, construction and development, commercial, home
equity, consumer and student loans and in mortgage-backed and mortgage-related
securities and various debt and equity securities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management
Strategy." The Bank's revenues are derived principally from the interest on its
mortgage, commercial and consumer loans and securities. The Bank's primary
sources of funds are deposits, principal and interest payments on loans and
securities, and proceeds from the sale of loans and securities. To a lesser
extent, the Bank utilizes borrowed funds to fund its operations. The Bank's
application for membership in the FHLB system was approved on October 24, 1997.
FHLB membership will provide another source of borrowed funds.
Market Area
The Bank has been, and intends to continue to be, a community-oriented
financial institution offering a variety of financial services to meet the needs
of the communities it serves. The Bank currently operates twelve full service
banking offices in the Borough of Staten Island, and one full service banking
office in the Borough of Brooklyn. Additionally, the Bank intends to open a
public accommodation office in 1998 and is considering opening three
full-service branches. With the exception of such plans, there are no current
arrangements, understandings or agreements, written or oral, regarding such
offices, and no assurances can be made that such offices will be opened.
The Bank's primary deposit gathering area is currently concentrated
around the areas where its full service banking offices are located in Staten
Island and Brooklyn which the Bank generally considers to be its primary market
area. The Bank's primary lending area has also historically been concentrated in
Staten Island and, to a lesser extent, in the area around its office in
Brooklyn. As of June 1996, based on a survey by a nationally-recognized bank
consulting firm, the Bank had 14.2% of total deposits in Staten Island, and for
1996, the Bank had a lending market share of approximately 7.2% in Staten
Island, placing the Bank among the leaders in both loans originated and deposits
in Staten Island. The Bank and Company may, in the future, consider expanding
the market area served by the Bank and Company to other areas in the New York
City metropolitan area including northern New Jersey, Connecticut and upstate
New York.
The economy of the New York City metropolitan area has historically
benefitted from having a large number of corporate headquarters and a diversity
of financial service entities. Additionally, Staten Island has historically
benefitted from steady residential growth and an expanding base of industrial,
service and high technology businesses. During the late 1980s and early 1990s,
however, due in part to the effects of a prolonged period of weakness in the
national economy, the decline in the regional economy, layoffs in the financial
services industry and corporate relocations, the New York City metropolitan area
experienced reduced levels of employment. 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. Staten Island, due to its location and
its relatively large population of government employees, was somewhat insulated
from the economic decline of the late 1980s and early 1990s. Since 1993, the
prices and values of real estate have stabilized and, in certain areas, the
prices
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<PAGE>
and values of real estate have increased. In the last several years, the New
York City metropolitan area has benefitted from the resurgence and growth in
employment and profitability experienced by national securities and investment
banking firms, many of which are domiciled in the Borough of Manhattan, as well
as the growth and profitability of other financial services companies, such as
money center banks. However, there can be no assurances that such decline could
not reoccur. See "Risk Factors - Weakness in Local Economy."
Competition
The Bank faces significant competition both in making loans and in
attracting deposits. The New York City metropolitan area has a high density of
financial institutions, many of which are branches of significantly larger
institutions which have greater financial resources than the Bank, and all of
which are competitors of the Bank to varying degrees. The Bank's competition for
loans comes principally from savings banks, commercial banks, savings and loan
associations, mortgage banking companies, credit unions and insurance companies
and other financial service companies. Its most direct competition for deposits
has historically come from savings and loan associations, savings banks,
commercial banks and credit unions. The Bank faces additional competition for
deposits from non-depository competitors such as the mutual fund industry,
securities and brokerage firms and insurance companies. There are eleven
depository institutions with operations in the Borough of Staten Island.
Competition may also increase as a result of the lifting of restrictions on the
interstate operations of financial institutions.
Lending Activities
Loan Portfolio Composition. The types of loans that the Bank may
originate are subject to federal and state law and regulations. Interest rates
charged by the Bank on loans are affected principally by the demand for such
loans, the supply of money available for lending purposes and the rates offered
by its competitors. These factors are, in turn, affected by general and economic
conditions, monetary policies of the federal government, including the Federal
Reserve Board, legislative tax policies and governmental budgetary matters.
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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 portfolios at the dates indicated.
<TABLE>
<CAPTION>
At August 31, At June 30,
------------------ ---------------------------------------------
1997 1997 1996
------------------ --------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- ---------- --------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Real estate loans:
One- to four-family.........$411,714 79.1% $394,588 78.4% $325,139 76.3%
Multi-family................ 2,708 0.5 2,705 0.5 1,238 0.3
Commercial real estate...... 42,937 8.2 40,713 8.1 39,892 9.3
Construction and
development................ 19,731 3.8 18,343 3.7 12,812 3.0
Home equity................. 11,056 2.1 16,729 3.3 18,054 4.2
Commercial.................... 9,282 1.8 6,662 1.3 6,300 1.5
Consumer and student.......... 23,151 4.4 23,589 4.7 22,932 5.4
------- ------ ------- ------ ------- ------
Gross loans............... 520,579 100.0% 503,329 100.0% 426,367 100.0%
===== ===== =====
Less:
Unamortized discounts, net.. (763) (788) (947)
Deferred loan fees.......... (730) (813) (1,354)
Allowance for loan losses... (5,683) (5,470) (4,796)
----- ----- -----
Total loans, net....... 513,403 496,258 419,270
Less:
Loans held for sale, net:
One- to four-family....... -- -- 1,155
----- ----- -----
Loans receivable held for
investment, net..............$513,403 $496,258 $418,115
======== ======== ========
Fair value....................$520,634 $502,957 $430,652
======== ======== ========
<CAPTION>
At June 30,
-----------------------------------------------------------------
1995 1994 1993
------------------ --------------------- ----------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
-------- ---------- --------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Real estate loans:
One- to four-family.........$303,734 76.2% $273,063 75.5% $274,136 76.0%
Multi-family................ 811 0.2 920 0.3 936 0.2
Commercial real estate...... 40,037 10.1 39,220 10.8 35,949 10.0
Construction and
development................ 10,487 2.6 6,677 1.9 6,011 1.7
Home equity................. 16,518 4.1 16,775 4.6 20,430 5.7
Commercial.................... 5,039 1.3 5,426 1.5 4,282 1.2
Consumer and student.......... 21,795 5.5 19,663 5.4 18,957 5.2
------ --- ------ --- ------ ---
Gross loans............... 398,421 100.0% 361,744 100.0% 360,701 100.0%
===== ===== =====
Less:
Unamortized discounts, net.. (1,105) (1,263) (1,420)
Deferred loan fees.......... (1,632) (1,525) (1,265)
Allowance for loan losses... (3,275) (3,106) (2,735)
----- ----- -----
Total loans, net....... 392,409 355,850 355,281
Less:
Loans held for sale, net:
One- to four-family....... -- -- --
----- ----- -----
Loans receivable held
for investment, net.... $392,409 $355,850 $355,281
======== ======== ========
Fair value.................... $392,678 $358,956 $343,983
======== ======== ========
</TABLE>
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Loan Originations. The Bank originates both adjustable-rate and
fixed-rate one- to four-family mortgage loans, commercial real estate loans,
construction and development loans, home equity loans, commercial loans and
consumer loans and student loans. The Bank's one- to four-family mortgage
lending activities are conducted primarily through the utilization of mortgage
brokers and by the Bank's loan personnel generally operating in the Bank's loan
center. Although the Bank has authorized the use of approximately 100 mortgage
brokers in connection with one- to four-family loan originations, the Bank
primarily utilizes the services of seven mortgage brokers operating primarily on
Staten Island and in Brooklyn. During the two month period ended August 31, 1997
and the year ended June 30, 1997, the Bank originated $12.8 million and $73.9
million, respectively, of one- to four-family loans through mortgage brokers and
$4.9 million and $26.6 million, respectively, of such loans through Bank
personnel. Recently, the Bank began offering through brokers its fully processed
loan program, which is a zero point loan that is originated and processed by the
broker. The Bank pays mortgage brokers a processing fee for a fully processed
loan. All loans are underwritten by the Bank pursuant to the Bank's loan
underwriting policies and procedures.
Recently, the Bank has placed increased emphasis on the origination of
commercial real estate, construction and development and commercial loans as
part of its efforts to broaden the services it provides to the Staten Island
business community. In this regard, the Bank has recently hired commercial
lending personnel with experience in the Bank's primary market area and may add
additional personnel as needed. In addition, the Bank has increased its
marketing efforts with respect to commercial real estate, construction and
development and commercial lending by making its existing business customers
aware of the expanded products and services available to businesses. See "Risk
Factors--Increased Lending Risks Associated With Commercial Real Estate,
Multi-Family, Construction and Development and Commercial Lending." The Bank's
ability to originate loans is dependent upon customer demand, demand for
fixed-rate or adjustable-rate loans and expected future levels of interest
rates.
Generally, all loans are originated for investment with the exception
of longer-term fixed-rate one- to four-family mortgage loans. It is currently
the general policy of the Bank to sell substantially all of the one- to
four-family fixed-rate mortgage loans with maturities over fifteen years that it
originates and to retain all adjustable-rate one- to four-family mortgage loans
which it originates. However, from time to time, the Bank may retain fixed-rate
mortgage loans with terms over fifteen years depending on the asset quality and
the interest rate risk position of the Bank. The one- to four-family loan
products currently originated for sale by the Bank include a variety of mortgage
loans which conform to the underwriting standards specified by FNMA and FHLMC
("conforming loans"). Loans which do not conform to FNMA or FHLMC standards due
to loan amounts ("jumbo loans") are originated for the portfolio. With the
exception of customary provisions relating to breaches of representations and
warranties, sales of loans are made without recourse to the Bank in the event of
default by the borrower. The Bank generally retains the servicing rights on the
mortgage loans sold to FHLMC.
At August 31, 1997, the Bank was servicing its portfolio of $520.6
million of loans receivable and $49.4 million of loans for others, primarily
consisting of conforming fixed-rate loans sold by the Bank. 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 the two month period ended August 31, 1997 and 1996, the Bank
originated $17.7 million and $29.6 million of fixed-rate and adjustable-rate
one- to four-family loans, respectively, the majority of which were retained by
the Bank. During the years ended June 30, 1997 and June 30, 1996, the Bank
originated $100.5 million and $54.0 million of fixed-rate and adjustable-rate
one- to four-family loans, respectively,
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of which $98.5 million and $43.9 million, respectively, were retained by the
Bank. The fixed-rate loans retained by the Bank consisted primarily of loans
with terms of 15 years or less. The Bank recognizes, at the time of sale, the
cash gain or loss on the sale of the loans based on the difference between the
net cash proceeds received and the carrying value of the loans sold. At August
31, 1997, the Bank had no mortgage loans held for sale. The Bank has, in the
past, from time to time, purchased participations in loans, primarily one- to
four-family mortgage loans, and had $1.3 million of participations in loans at
August 31, 1997.
The following tables set forth the Bank's loan originations, purchases,
sales and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the Two Months
Ended August 31, For the Year Ended June 30,
----------------------- ---------------------------------
1997 1996 1997 1996 1995
----------- ---------- ---------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Gross loans(1):
Balance outstanding at beginning of period........ $503,329 $426,367 $426,367 $398,421 $361,744
-------- -------- -------- -------- --------
Loans originated:
One- to four-family........................... 17,681 29,562 100,487 53,957 53,355
Multi-family.................................. -- -- 1,616 540 --
Commercial real estate........................ 1,964 -- 4,454 6,408 5,805
Construction and development.................. 3,312 2,383 13,444 9,080 7,520
Home equity................................... 765 1,121 5,824 6,049 2,581
Commercial.................................... 1,119 1,379 3,636 11,280 2,449
Consumer and student.......................... 1,456 1,581 7,790 7,011 7,143
------ ------ ------- ------ ------
Total loans originated...................... 26,297 36,026 137,251 94,325 78,853
Loans purchased................................. -- 910 910 -- --
------ ------ ------- ------ ------
Total loans originated and
purchased.................................. 26,297 36,936 138,161 94,325 78,853
------ ------ ------- ------ ------
Less:
Principal repayments............................ 8,824 15,025 58,485 55,799 39,803
Sales of loans.................................. -- 761 2,004 9,972 1,609
Transfers to real estate owned.................. 223 55 673 608 764
Principal charged off........................... -- -- 37 -- --
------- ------- ------- ------- -------
Total loans................................. 520,579 447,462 503,329 426,367 398,421
Less:
Loans held for sale, net........................ -- -- -- 1,155 --
------ ------ ------- ------ ------
Loans receivable held for investment
at end of period............................... $520,579 $447,462 $503,329 $425,212 $398,421
======== ======== ======== ======== ========
</TABLE>
- --------------------
(1) Gross loans includes loans receivable held for investment and loans held
for sale.
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Loan Maturity. The following table shows the contractual maturity of
the Bank's loan portfolio at August 31, 1997. The table does not include
prepayments or scheduled principal amortization. Prepayments and scheduled
principal amortization on mortgage loans totalled $8.8 million, $58.5 million,
$55.8 million and $39.8 million for the two months ended August 31, 1997 and for
the years ended June 30, 1997, 1996 and 1995, respectively.
<TABLE>
<CAPTION>
At August 31, 1997
-----------------------------------------------------------------
Real Estate Loans
-----------------------------------------------------------------
One- to Construction
Four- Multi- Commercial and Home
Family Family Real Estate Development Equity
------------ ----------- ------------- -------------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Amounts due:
Within one year............................... $ 355 $ -- $ 277 $18,300 $ --
-------- ------ ------- ------- -------
After one year:
More than one year to three years.......... 1,658 77 298 1,431 --
More than three years to five years........ 6,201 -- 1,172 -- 30
More than five years to 10 years........... 26,764 535 14,665 -- --
More than 10 years to 20 years............. 73,560 2,096 24,418 -- 8,251
More than 20 years......................... 303,176 -- 2,107 -- 2,775
-------- ------ ------- ------- -------
Total due after August 31, 1998............ 411,359 2,708 42,660 1,431 11,056
-------- ------ ------- ------- -------
Total amount due........................... $411,714 $2,708 $42,937 $19,731 $11,056
======== ====== ======= ======= =======
Less:
Unamortized discounts, net................................................................................................
Deferred loan fees, net...................................................................................................
Allowance for possible loan losses........................................................................................
Loans receivable held for investment, net.........................................................................................
<CAPTION>
At August 31, 1997
----------------------------------------
Total
Consumer Loans
Commercial and Student Receivable
----------- ------------- ------------
(In thousands)
<S> <C> <C> <C>
Amounts due:
Within one year............................... $5,502 $ 876 $ 25,310
------ ------- --------
After one year:
More than one year to three years.......... 2,691 6,389 12,544
More than three years to five years........ 747 2,079 10,229
More than five years to 10 years........... 75 6,681 48,720
More than 10 years to 20 years............. 267 7,036 115,628
More than 20 years......................... -- 90 308,148
------ ------- --------
Total due after August 31, 1998............ 3,780 22,275 495,269
------ ------- --------
Total amount due........................... $9,282 $23,151 $520,579
====== ======= ========
Less:
Unamortized discounts, net............................................. 763
Deferred loan fees, net................................................ 730
Allowance for possible loan losses..................................... 5,683
--------
Loans receivable held for investment, net...................................... $513,403
========
</TABLE>
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<PAGE>
The following table sets forth at August 31, 1997, the dollar amount of
gross loans receivable contractually due after August 31, 1998, and whether such
loans have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After August 31, 1998
---------------------------------------------------------
Fixed Adjustable Total
---------------- ----------------- ------------------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family................... $113,455 $297,904 $411,359
Multi-family.......................... 238 2,470 2,708
Commercial real estate................ 3,844 38,816 42,660
Construction and development.......... -- 1,431 1,431
Home equity........................... 8,019 3,037 11,056
------- ------- -------
Total real estate loans............. 125,556 343,658 469,214
Commercial loans.......................... -- 3,780 3,780
Consumer and student loans................ 9,540 12,735 22,275
------- ------- -------
Total loans receivable.............. $135,096 $360,173 $495,269
======== ======== ========
</TABLE>
One- to Four-Family Loans. The Bank currently offers both fixed-rate
and adjustable-rate mortgage loans secured by one- to four-family residences
located in the Bank's primary market area, primarily with maturities of up to
thirty years. One- to four-family mortgage loan originations are obtained
through the use of mortgage brokers, the Bank's loan center, existing or past
customers, advertising, and referrals from real estate brokers and attorneys.
At August 31, 1997, the Bank's one- to four-family loans totalled
$411.7 million, or 79.1%, of gross loans. Of the one- to four-family loans
outstanding at that date, 29.1% were fixed-rate mortgage loans and 70.9% were
adjustable-rate mortgage loans. The Bank offers fixed-rate mortgage loans with
terms of fifteen and thirty years. The Bank sells substantially all fixed-rate
residential mortgage loans it originates with terms in excess of fifteen years,
except for non-conforming loans, to FHLMC, and retains the servicing on all
loans sold, although the Bank may retain fixed-rate mortgage loans with terms of
in excess of fifteen years, depending on the asset quality and the interest rate
risk position of the Bank. The Bank generally retains for its portfolio
shorter-term, fixed rate loans with maturities of fifteen years or less and all
adjustable-rate one- to four-family loans.
The Bank currently offers a number of adjustable-rate mortgage loans
with terms of up to thirty years and interest rates which adjust annually from
the outset of the loan or which adjust annually after a one, three, five or
seven year initial fixed period. Forty-year terms are available on certain
adjustable-rate loans. The interest rates for the Bank's adjustable-rate
mortgage loans are indexed to the one or three year U.S. Treasury Securities
Index. Interest rate adjustments on loans are limited to a 2% periodic
adjustment cap (2.5% on five-year adjustable-rate loans) and a maximum
adjustment of 6% over the life of the loan. Certain
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<PAGE>
of the Bank's adjustable-rate mortgage loans can be converted to a fixed-rate
loan with interest rates based upon the then-current market rates plus a varying
margin.
The volume and type of adjustable-rate mortgage loans originated by the
Bank have been affected by such market factors as the level of interest rates,
competition, consumer preferences and the availability of funds. The origination
of adjustable-rate residential mortgage loans, as opposed to fixed-rate
residential mortgage loans, helps reduce the Bank's exposure to increases in
interest rates. However, adjustable-rate loans generally pose credit risks not
inherent in fixed-rate loans, primarily because as interest rates rise, the
underlying payments of the borrower rise, thereby increasing the potential for
default. Periodic and lifetime caps on interest rate increases help to reduce
the risks associated with adjustable-rate loans but also limit the interest rate
sensitivity thereof.
One- to four-family residential mortgage loans are generally
underwritten according to FNMA or FHLMC guidelines. The Bank currently
originates one- to four-family residential mortgage loans in amounts up to 80%
of the lower of the appraised value or the selling price of the property
securing the loan and up to 97% of the appraised value or selling price if
private mortgage insurance is obtained. Mortgage loans originated by the Bank
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, the Bank participates in residential mortgage programs and products
sponsored by the State of New York Mortgage Association ("SONYMA"). The SONYMA
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. At August 31, 1997, $9.0 million, or 1.7% of total
loans, were sponsored by SONYMA.
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. All mixed-use properties are classified as
commercial real estate. At August 31, 1997, the Bank's commercial real estate
loan portfolio totalled approximately $42.9 million or 8.2% of total loans. 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 price of the property, subject to the Bank's current regulatory
loans-to-one-borrower limit. These loans may be made with terms up to twenty
years and are generally offered at interest rates which adjust every one, three
or five years, utilizing the corresponding U.S. Treasury Securities Index as a
base. The Bank also offers fixed rate commercial real estate loans with ten year
terms. In reaching its decision on whether to make a commercial real estate
loan, the Bank considers the net operating income of the property and the
borrower's expertise, credit history and profitability. In addition, the Bank
considers the business activities and present and past uses of the properties in
evaluating potential environmental issues and, where such consideration
indicates a need, a more detailed investigation by a qualified environmental
expert is conducted. The Bank has generally required that the properties
securing commercial real estate loans have debt service coverage ratios (the
ratio of earnings before debt service to debt service) of at least 1.2x.
Exceptions to this ratio are considered on an individual basis and must be
approved by the appropriate lending authority. Generally, all commercial real
estate loans made to corporations, partnerships and other business entities
require personal guarantees by the principals; however, exceptions may be made
for existing customers of the Bank, with approval of the Board of Trustees. The
largest commercial real estate loan in the Bank's portfolio at August 31, 1997,
was a $2.8 million loan secured by a nursing home located on Staten Island.
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<PAGE>
Loans secured by commercial real estate properties generally involve
larger principal amounts and a greater degree of risk than one- to four-family
residential mortgage loans. Because payments on loans secured by commercial real
estate properties are often dependent on successful operation or management of
the properties, repayment of such loans may be affected by adverse conditions in
the real estate market or the economy. The Bank seeks to minimize these risks
through its underwriting standards, which require such loans to be qualified on
the basis of the property's income and debt service coverage ratio. See "Risk
Factors--Increased Lending Risks Associated With Commercial Real Estate,
Multi-Family, Construction and Development and Commercial Lending." As part of
the operating strategy, the Bank intends to continue to emphasize its commercial
real estate lending activities in its primary market area depending on the
demand for such loans and commercial real estate market conditions.
Construction and Development Lending. The Bank originates construction
and development loans for the development of commercial and residential property
located in its primary market area, and may originate construction and
development loans outside its primary market area to existing customers. At
August 31, 1997, the Bank had $30.0 million of construction loans, most of which
related to the construction of one- to four-family properties; $19.7 million of
these loans were outstanding at that date. The Bank originates 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 loans are offered primarily to experienced local developers
operating in the Bank's primary market area and, to a lesser extent, to
individuals for the construction of their residence. The majority of the Bank's
construction loans are originated primarily to finance the construction of one-
to four-family, owner-occupied residential real estate, and commercial real
estate properties located in the Bank's primary market area. Construction loans
are generally offered with terms up to two years. Construction loans may be made
in amounts up to 70% of the estimated cost of construction, or up to 80% in the
case of loans to individuals for the construction of their residence. With
respect to construction loans, the Bank generally requires borrowers with whom
the Bank does not have experience 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 periodically in increments as construction
progresses and as inspections by the Bank's lending officers warrant.
The Bank originates land loans to local developers for the purpose of
holding or developing the land for sale. At August 31, 1997, the Bank had $3.6
million of land loans. Such loans are secured by a lien on the property, are
limited to 65% of the appraised value of the secured property on raw land and up
to 75% on developed building lots, and have a term of up to two years, with a
floating interest rate based on the prime rate (which is the prime rate as
published in The Wall Street Journal and The New York Times). The principal of
the loan is reduced as lots are sold and released. The Bank's land loans are
generally secured by property in its primary market area; however, the Bank may
originate land loans outside its primary market area to existing customers. In
addition, the Bank generally originates such loans to developers with whom it
has established relationships and obtains personal guarantees.
Construction and development financing is generally considered to
involve a higher degree of credit risk than long-term financing on improved,
owner-occupied real estate. Risk of loss on a construction loan is dependent
largely upon the accuracy of the initial estimate of the property's value at
completion of construction or development compared to the estimated cost
(including interest) of construction and other assumptions, including the
estimated time to sell residential properties. If the estimate of value proves
to be inaccurate, the Bank may be confronted with a project, when completed,
having a value which is insufficient to assure full repayment. See "Risk
Factors--Increased Lending Risks Associated with Commercial Real Estate,
Multi-Family, Construction and Development and Commercial Lending." The largest
construction loan in the Bank's portfolio at August 31, 1997 was a $845,000 loan
for the construction of a one-family residential unit in the Borough of Staten
Island.
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<PAGE>
Home Equity Lending. The Bank offers fixed-rate, fixed-term home equity
loans and lines of credit and adjustable-rate home equity loans in its primary
market area. At August 31, 1997, the Bank's home equity loans and lines of
credit totalled $11.1 million, or 2.1%, of the Bank's gross loans. Fixed-rate,
fixed-term home equity loans and lines of credit are offered in amounts up to
75% (80% if the Bank holds the first mortgage) of the appraised value of the
property (including the first mortgage) with a maximum loan amount of $250,000.
Fixed-rate, fixed-term home equity loans and lines of credit are offered with
terms up to ten years, with interest-only payments during the first five years
and repayment of principal and interest during the final five years.
Adjustable-rate home equity loans are offered in amounts up to 75% (80% if the
Bank holds the first mortgage) of the appraised value of the property (including
the first mortgage) with terms of up to twenty years with a maximum amount of
$75,000. Adjustable-rate loans are indexed to the prime rate (which is the prime
rate as published in The Wall Street Journal and The New York Times).
Commercial Lending. The Bank also originates commercial loans to small
and medium sized businesses operating in the Bank's primary market area. At
August 31, 1997, the Bank had $9.3 million of commercial loans which amounted to
1.8% of the Bank's total loans receivable. Although such loans are sometimes
secured by equipment, leases, inventory and accounts receivable, in the case of
the Bank, the majority of its commercial loans are secured by real estate. Term
loans are generally offered with adjustable rates of interest and terms of up to
five years. Secured commercial loans will be made in an amount up to 90% of the
value of the property securing the loan. All term loans fully amortize during
the term of such loan. Business lines of credit have terms of up to five years
if secured and two years if unsecured. Secured lines of credit will be made in
amounts up to 90% of the value of the property securing the line. Business lines
of credit adjust on a daily basis and are indexed to the prime rate.
The Bank also issues both secured and unsecured letters of credit to
business customers of the Bank. Secured letters of credit will be issued in
amounts up to 100% of the value of the collateral securing the letter of credit.
Acceptable collateral includes an assigned deposit account with the Bank, real
estate or marketable securities. Letters of credit have a maximum term of two
years.
In making commercial loans, the Bank considers primarily the financial
resources of the borrower, the borrower's ability to repay the loan out of net
operating income, the Bank's lending history with the borrower and the value of
any collateral. Generally, if the borrower is a corporation, partnership or
other business entity, personal guarantees by the principals are required.
However, personal guarantees may not be required on such loans depending on the
creditworthiness of the borrower and other mitigating circumstances. The Bank's
largest commercial loan at August 31, 1997 was $1.6 million. At such date, the
Bank had $2.6 million of unadvanced commercial lines of credit.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial loans may be substantially dependent on the success of the business
itself. Further, any collateral securing such loans may depreciate over time,
may be difficult to appraise and may fluctuate in value based on the success of
the business. See "Risk Factors--Increased Lending Risks Associated with
Commercial Real Estate, Multi-Family, Construction and Development and
Commercial Lending."
Consumer and Student Lending. The Bank's portfolio of consumer and
student loans primarily consists of student loans, unsecured personal loans and
overdraft lines of credit. As of August 31, 1997, consumer and student loans
amounted to $23.2 million, or 4.4% of the Bank's total loan
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<PAGE>
portfolio, of which $15.0 million were student loans. The Bank offers student
loans through the Federal Family Education Loan Program, a federal program
governed by the New York State Higher Education Services Corporation
("NYSHESC"). The Bank offers both subsidized and unsubsidized Federal Stafford
Loans and Federal Parent Loans. NYSHESC is responsible for the final approval of
and guarantees all student loans made by the Bank. The terms and rates of the
loans are set by NYSHESC. The Bank is permitted to charge an origination fee,
currently 3.0% of the loan amount, which fee is subject to change by the
NYSHESC.
Consumer loans may entail a greater degree of credit risk than do
residential mortgage loans, particularly in the case of consumer loans that are
unsecured. Consumer loan collections on these loans are dependent on the
borrower's continuing financial stability and, therefore, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Finally, the application of various federal and state laws, including federal
and state bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans in the event of a default.
Loan Approval Procedures and Authority. The Board of Trustees
establishes the lending policies and loan approval limits of the Bank. The Board
of Trustees has established the Residential/Commercial/Construction Lending
Committee which is comprised of five members of the Board of Trustees. The
Committee discusses and approves all loans and lines of credit in amounts
greater than management has authority to approve, within the Committee's
designated authority as established from time to time by the Board of Trustees.
Loans which exceed the Committee's authority are approved or denied by the Board
of Trustees.
The Board of Trustees has authorized the following persons to approve
loans up to the amounts indicated: residential mortgage loans of up to $500,000
and home equity loans of up to $250,000 can be approved by two members of the
Residential/Commercial/Construction Lending Committee, plus the senior retail
loan officer and another loan officer; secured or unsecured commercial loans of
up to $25,000 can be approved by either the senior commercial loan officer, the
commercial loan officer or a vice president within the Business division;
secured or unsecured commercial loans up to $100,000 can be approved by any two
of the senior commercial loan officer, the commercial loan officer or a vice
president with the Business division; secured or unsecured commercial loans up
to $500,000 can be approved by two members of the
Residential/Commercial/Construction Lending Committee and any two of the senior
commercial loan officer, the commercial loan officer or a vice president within
the business division; and commercial real estate and construction and
development loans up to $500,000 can be approved by two members of the
Residential/Commercial/Construction Lending Committee and any two of the senior
commercial loan officer, the commercial loan officer, a vice president or
assistant secretary in the Business division. Any loans above the authorized
limits must be approved by the respective committee, if in an amount of up to
$500,000 ($100,000 for unsecured commercial loans), or by the Board of Trustees.
Individual loans to one borrower may not exceed $4.0 million and aggregate loans
to one borrower may not exceed $5.0 million, without Board approval. Total
aggregate loans are also subject to the Bank's regulatory loans-to-one-borrower
limit, which at August 31, 1997 was $10 million. See "Regulation and
Supervision--New York State Law."
With respect to all loans originated by the Bank, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by an independent credit
agency. If necessary, additional financial information may be required. An
appraisal of real estate intended to secure a proposed loan generally is
required to be performed by appraisers approved by the Bank. For proposed
mortgage loans, the Board annually approves independent appraisers used by the
Bank and approves the Bank's appraisal policy. The Bank's policy is to obtain
title and hazard insurance on all mortgage loans and the Bank may require
borrowers to make payments to a mortgage escrow account for the
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<PAGE>
payment of property taxes. Any exceptions to the Bank's underwriting policies
must be noted on an underwriting analysis sheet and presented to the Senior Loan
Officer for approval.
Delinquent Loans, Real Estate Owned and Classified Assets
Management and the Board of Trustees perform a monthly review of all
delinquent loans. The Bank's procedures with respect to delinquencies vary
depending on the nature of the loan and period of delinquency. The Bank
generally requires that delinquent mortgage loans be reviewed and that a
delinquency notice be mailed no later than the thirtieth day of delinquency and
a late charge be assessed after fifteen days. 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. Mortgage loans which
are more than 45 days delinquent are referred to the Bank's attorneys for
collection. If the loan becomes 75 days delinquent, the Bank's attorneys are
instructed to commence foreclosure proceedings.
It was the Bank's policy to discontinue accruing interest on all
commercial real estate, construction and commercial loans which were past due 90
days, on all consumer loans which were past due 120 days, and on all one- to
four-family residential mortgage loans which were past due 180 days, or when in
the opinion of management such suspension was warranted. Effective July 1, 1997,
the Bank revised this policy such that it does not accrue interest on any loans,
including one- to four-family loans secured by real estate, which are more than
90 days delinquent unless, in the opinion of management, collection is probable.
Property acquired by the Bank as a result of foreclosure on a mortgage loan is
classified as "real estate owned" and is recorded at the lower of the unpaid
principal balance or fair value less costs to sell at the date of acquisition
and thereafter. For loans in excess of $25,000, fair value must be substantiated
by an appraisal of the property and, thereafter, appraisal of the property on an
as-needed basis. At August 31, 1997, the Bank had $6.5 million of nonperforming
assets (defined as non-accruing loans and REO).
At August 31, 1997, the Bank's real estate owned, net, consisting of
foreclosed assets totalled $885,000, which at such date was comprised of nine
one- to four-family properties and one vacant commercial lot. Bank personnel
generally conduct periodic external inspections on all properties securing loans
in foreclosure and generally conduct external appraisals on all properties prior
to taking ownership of the property. Based upon such inspections and appraisals,
the Bank will charge off any loan principal it deems appropriate at such time.
Bank personnel conduct monthly reviews of its foreclosed real estate and
periodically adjust its valuation allowance for possible declines in the value
of real estate owned. The Bank had no allowance for possible losses on real
estate owned at August 31, 1997. The Bank is currently offering for sale all
real estate owned as a result of foreclosure through brokers and through its own
personnel. The Bank's policies generally permit the financing of the sale of its
foreclosed real estate on substantially the same terms applicable to its other
real estate mortgage loans.
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
72
<PAGE>
establishment of a specific loss reserve, is not warranted. Assets which do
not currently expose the insured institution to a sufficient degree of risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for possible loan losses in an amount deemed prudent by
management unless the loss of principal appears to be remote. General valuation
allowances represent loss allowances which have been established to recognize
the inherent risk associated with lending activities, but which, unlike specific
allowances, have not been allocated to particular problem assets. When an
insured institution classifies one or more assets, or portions thereof, as Loss,
it is required either to establish a specific allowance for losses equal to 100%
of the amount of the assets so classified or to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
FDIC and NYBD, which can order the establishment of additional general or
specific loss allowances. The FDIC, in conjunction with the other federal
banking agencies, recently adopted an interagency policy statement on the
allowance for loan and lease losses. The policy statement provides guidance for
financial institutions on both the responsibilities of management for the
assessment and establishment of adequate allowances and guidance for banking
agency examiners to use in determining the adequacy of general valuation
guidelines. Generally, the policy statement recommends that institutions have
effective systems and controls to identify, monitor and address asset quality
problems; that management has analyzed all significant factors that affect the
collectibility of the portfolio in a reasonable manner; and that management has
established acceptable allowance evaluation processes that meet the objectives
set forth in the policy statement. While the Bank believes that it has
established an adequate allowance for possible loan losses, there can be no
assurance that regulators, in reviewing the Bank's loan portfolio, will not
request the Bank to materially increase at that time its allowance for possible
loan losses, thereby negatively affecting the Bank's financial condition and
earnings at that time. Although management believes that adequate specific and
general loan loss allowances have been established, actual losses are dependent
upon future events and, as such, further additions to the level of specific and
general loan loss allowances may become necessary.
All residential real estate loans with loan balances in excess of
$500,000 are reviewed annually. Commercial real estate and construction loans
with a balance in excess of $400,000 are also reviewed annually. Additionally,
loans with balances of $1.0 million or more will be reviewed semi-annually, if
conditions warrant. Loan reviews are performed by the Loan Reviewer, a person
not directly involved in the lending or loan administration process. Each loan
reviewed is submitted to the Loan Review Committee, composed of the Loan
Reviewer, Senior Real Estate and Commercial Loan Officer, the foreclosure
officer and certain members of the Board of Trustees. Meetings are held on a
quarterly or on an as-needed basis. Upon review, the Committee will classify the
loan and comment as to any corrective action needed. The Senior Real Estate Loan
Officer will report to the Board of Trustees the findings of the Loan Review
Committee on an on-going basis. A report summarizing the results of loan reviews
is submitted to the Board on a quarterly basis, or as meetings occur.
At August 31, 1997, the Bank had $3.2 million of assets designated by
the Bank as Substandard, consisting of sixteen loans, no assets classified by
the Bank as Doubtful, and no assets classified by the Bank as Loss,
respectively. At August 31, 1997, the Bank had $1.9 million of assets designated
by the Bank as Special Mention, consisting of twenty-five loans which were
designated Special Mention due to past loan delinquencies.
73
<PAGE>
The following table sets forth delinquencies in the Bank's loan
portfolio as of the dates indicated:
<TABLE>
<CAPTION>
At August 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.............. -- $ -- 24 $2,300
Multi-family..................... -- -- -- --
Commercial real estate........... -- -- 8 2,342
Construction and development..... -- -- 2 219
Home equity...................... -- -- 1 31
Commercial loans................. 3 117 3 134
Consumer and student loans....... 67 159 175 546
-- --- --- ---
Total............................ 70 $276 213 $5,572
== ==== === ======
Delinquent loans to
total loans(1)................. 0.05% 1.07%
==== ====
<CAPTION>
At June 30, 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.............. 3 $ 338 20 $2,306
Multi-family..................... -- -- -- --
Commercial real estate........... 1 1,102 6 876
Construction and development..... 1 100 3 341
Home equity...................... -- -- 1 30
Commercial loans................. 1 18 -- --
Consumer and student loans....... 67 213 89 324
-- --- -- ---
Total............................ 73 $1,771 119 $3,877
== ====== === ======
Delinquent loans to
total loans(1)................. 0.35% 0.77%
==== ====
<CAPTION>
At June 30, 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.............. 7 $ 901 16 $1,837
Multi-family..................... -- -- -- --
Commercial real estate........... -- -- 4 939
Construction and development..... 1 385 7 687
Home equity...................... -- -- 4 94
Commercial loans................. 1 118 -- --
Consumer and student loans....... 25 71 77 263
-- -- -- ---
Total............................ 34 $1,475 108 $3,820
== ====== === ======
Delinquent loans to total
loans(1)......................... 0.35% 0.91%
==== ====
<CAPTION>
At June 30, 1995
-----------------------------------------------------------
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.............. 2 $ 276 18 $1,736
Multi-family..................... -- -- -- --
Commercial real estate........... -- -- 4 593
Construction and development..... 2 1,202 3 423
Home equity...................... 2 87 2 43
Commercial loans................. 1 30 -- --
Consumer and student loans....... 34 88 64 200
-- -- -- ---
Total............................ 41 $1,683 91 $2,995
== ====== == ======
Delinquent loans to total
loans(1)......................... 0.42% 0.76%
==== ====
</TABLE>
- --------------------
(1) Total loans includes loans receivable held-for-investment, less deferred
loan fees, deferred mortgage interest and unamortized discounts, net.
74
<PAGE>
Non-Performing Assets. The following table sets forth information regarding the
Bank's nonperforming assets.
<TABLE>
<CAPTION>
At
August 31, At June 30,
---------- ---------------------------------------------------------------
1997 1997 1996 1995 1994 1993
---------- --------- ----------- ------------ --------- ---------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family...................... $2,331 $1,676 $1,695 $1,590 $1,862 $1,554
Multi-family............................. - - - - - -
Commercial real estate................... 2,342 876 939 593 1,747 1,702
Construction and development............. 219 120 120 108 215 538
Commercial............................... 134 - - - - 100
Consumer and student..................... 546 - - - 52 -
----- ----- ----- ----- ----- -----
Total non-accrual loans.............. 5,572 2,672 2,754 2,291 3,876 3,894
Loans contractually past due 90 days
or more and still accruing interest(1)...... - 1,205 1,066 704 1,513 1,481
----- ----- ----- ----- ----- -----
Total non-performing loans........... 5,572 3,877 3,820 2,995 5,389 5,375
Real estate owned............................. 885 662 612 335 441 2,336
----- ----- ----- ----- ----- -----
Total non-performing assets.......... $6,457 $4,539 $4,432 $3,330 $5,830 $7,711
====== ====== ====== ====== ====== ======
Allowance for possible
loan losses as a percent of loans(2)..... 1.11% 1.10% 1.14% 0.83% 0.87% 0.77%
Allowance for possible
loan losses as a percent
of total non-performing loans(3)......... 102.00 141.09 125.55 109.35 57.64 50.88
Non-performing loans
as a percent of loans(2)(3).............. 1.09 0.78 0.91 0.76 1.51 1.51
Non-performing assets
as a percent of total assets(3).......... 0.64 0.46 0.48 0.39 0.71 0.99
</TABLE>
- --------------------
(1) Includes consumer and student loans.
(2) Loans include loans receivable held for investment, net, excluding the
allowance for possible loan losses.
(3) It was the Bank's policy to generally cease accruing interest on all
commercial real estate, construction and commercial loans 90 days or more
past due, on all consumer loans which were 120 days or more past due, and on
all one- to four-family residential mortgage loans which were 180 days or
more past due. Effective July 1, 1997, the Bank revised this policy such
that it does not accrue interest on any loans, including one- to four-family
loans secured by real estate, which are more than ninety days delinquent as
to principal and interest unless, in the opinion of management, collection
is probable. See "Business of the Bank -Delinquent Loans, Real Estate Owned
and Classified Assets."
75
<PAGE>
Non-accrual loans totalled $5.6 million as of August 31, 1997, which
included twenty-four one- to four-family loans, with an aggregate balance of
$2.3 million and ten commercial real estate loans and construction loans with an
aggregate balance of $2.6 million, of which one loan is a $1.1 million
commercial mortgage on a mixed-use property on Staten Island, New York. Non-
accrual loans do not include student loans delinquent 90 days or more as the
Bank does not classify such loans as non-accrual because delinquent principal
and interest on guaranteed student loans is guaranteed by the U.S.
government.
Allowance for Loan Losses
The allowance for possible loan losses is maintained through provisions
for possible loan losses based on management's on-going evaluation of the risks
inherent in its loan portfolio in consideration of the trends in its loan
portfolio, the national and regional economies and the real estate market in the
Bank's primary lending area. The allowance for possible loan losses is
maintained at an amount management considers adequate to cover estimated losses
in its loan portfolio which are deemed probable and estimable based on
information currently known to management. The Bank's loan loss allowance
determinations also incorporate factors and analyses which consider the
potential principal loss associated with the loan, costs of acquiring the
property securing the loan through foreclosure or deed in lieu thereof, the
periods of time involved with the acquisition and sale of such property, and
costs and expenses associated with maintaining and holding the property until
sale and the costs associated with the Bank's inability to utilize funds for
other income producing activities during the estimated holding period of the
property.
As of August 31, 1997, the Bank's allowance for possible loan losses was
$5.7 million, or 1.1%, of total loans and 102.0% of non-performing loans as
compared to $5.5 million, or 1.1% of total loans and 141.1% of non-performing
loans as of June 30, 1997. The Bank had total non-performing loans of $5.5
million and $3.9 million at August 31, 1997 and June 30, 1997, respectively, and
non-performing loans to total loans of 1.09% and 0.78%, respectively. The Bank
will continue to monitor and modify its allowance for possible loan losses as
conditions dictate. The Board of Trustees reviews the adequacy of the allowance
for possible loan losses quarterly. While management believes that, based on
information currently available, the Bank's allowance for possible loan losses
is sufficient to cover losses inherent in its loan portfolio at this time, no
assurances can be given that the Bank's level of allowance for loan losses will
be sufficient to cover future loan losses incurred by the Bank or that future
adjustments to the allowance for 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 loan
losses. Management may in the future increase its level of loan loss allowance
as a percentage of total loans and non-performing loans in the event it
increases the level of multi-family, commercial real estate, construction and
development or other lending as a percentage of its total loan portfolio. In
addition, the FDIC and NYBD as an integral part of their examination process
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additional provisions for estimated loan losses based
upon judgments different from those of management.
76
<PAGE>
The following table sets forth activity in the Bank's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
At or For
the Two
Months Ended
August 31, At or For the Year Ended June 30,
--------------- ------------------------------------------------------------
1997 1997 1996 1995 1994 1993
--------------- ------------ ---------- --------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period....... $5,470 $4,796 $3,275 $3,106 $2,735 $2,843
Provision for loan losses............ 300 1,080 1,600 600 859 2,331
Charge-offs:
Real estate loans................. 40 174 166 384 565 2,255
Commercial real estate............ 4 15 -- 6 118 17
Consumer and student loans........ 59 286 186 150 133 242
--- --- --- --- --- -----
Total charge-offs............. 103 475 352 540 816 2,514
Recoveries:
Real estate loans................. -- 45 97 48 241 23
Commercial real estate............ 12 -- 122 -- -- --
Consumer and student loans........ 4 24 54 61 87 52
--- --- --- --- --- -----
Total recoveries.............. 16 69 273 109 328 75
Net charge-offs (recoveries)......... 87 406 79 431 488 2,439
--- --- --- --- --- -----
Balance at end of period............. $5,683 $5,470 $4,796 $3,275 $3,106 $2,735
====== ====== ====== ====== ====== ======
</TABLE>
77
<PAGE>
The following tables set forth the Bank's percent of allowance for loan
losses to total allowance and the percent of loans to total loans in each of the
categories listed at the dates indicated.
<TABLE>
<CAPTION>
At August 31, At June 30,
------------------------------------ ----------------------------------------------------------------------
1997 1997 1996
------------------------------------ ------------------------------------ ---------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Percent of Each Percent of Each Percent of Each
Allowance Category to Allowance Category to Allowance Category to
to Total Total to Total Total to Total Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
---------- ------------- ----------- --------- -------------- ----------- -------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate(1)... $2,956 52% 94% $2,619 48% 94% $2,173 45% 93%
Commercial....... 148 3 2 355 6 1 380 8 3
Consumer and
student......... 353 6 4 321 6 5 315 7 5
Unallocated...... 2,226 39 - 2,175 40 - 1,928 40 -
---- -- --- ----- -- --- ----- -- ---
Total allowance
for possible
loan losses..... $5,683 100.0% 100.0% $5,470 100.0% 100.0% $4,796 100.0% 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At June 30,
-----------------------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------------ ------------------------------------ ---------------------------------
Percent of Percent of Percent of
Loans in Loans in Loans in
Percent of Each Percent of Each Percent of Each
Allowance Category to Allowance Category to Allowance Category to
to Total Total to Total Total to Total Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
---------- ------------- ----------- --------- -------------- ----------- -------- ------------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate(1)... $2,084 64% 93% $1,892 61% 93% $1,814 66% 94%
Commercial....... 472 14 1 427 14 2 542 20 1
Consumer and
student......... 295 9 6 255 8 5 238 9 5
Unallocated...... 424 13 - 532 17 - 141 5 -
---- -- --- ----- -- --- ----- -- ---
Total allowance
for possible
loan losses..... $3,275 100.0% 100.0% $3,106 100.0% 100.0% $2,735 100.0% 100.0%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
- --------------------
(1) Real estate includes one- to four-family, commercial real estate,
construction and development and home equity loans.
78
<PAGE>
Securities Investment Activities
The Board of Trustees sets the securities investment policy of the
Bank. The Bank considers the ability of an investment to provide earnings
consistent with factors of quality, maturity, marketability and risk
diversification. While the Board of Trustees has final authority and
responsibility for the securities investment portfolio, the Bank has established
a Management Investment Committee comprised of eight officers including the
Investment Officer to supervise the Bank's securities investment program. The
Chief Executive Officer is an ex-officio member thereof. The Management
Investment Committee reports to the Asset/Liability Committee. The Management
Investment Committee meets monthly and evaluates all investment activities for
safety and soundness, adherence to the Bank's investment policy, and assurance
that authority levels are maintained. The Bank's Investment Officer is
responsible for making securities investment portfolio decisions in accordance
with the Bank's policies. While the Investment Officer has the authority to
conduct trades within specific guidelines established by the Bank's investment
policy, all transactions are reviewed by the Asset/Liability Committee on an
ongoing basis and reported to the Board of Trustees on a monthly basis.
The Bank's current policies generally permit securities investments in
various types of assets, including U.S. Government and agency securities,
investment-grade corporate debt obligations, various types of mortgage-backed
and mortgage-related securities, including CMOs, insured certificates of
deposits and corporate equities. In addition, the Bank's policies permit
investments in short-term commercial paper and various municipal and other bonds
and obligations. The Bank's current securities investment strategy is to
deemphasize its investment in U.S. government obligations, corporate debt and
municipal bonds and to emphasize the purchase of mortgage-backed and
mortgage-related securities and equities in order to increase its overall
investment securities yield while remaining in short-and medium-term investments
for purposes of interest rate risk management.
The Bank currently does not participate in hedging programs, interest
rate swaps, or other activities involving use of off-balance sheet derivative
financial instruments. Similarly, the Bank does not invest in mortgage-related
securities which are deemed to be "high risk" by the federal banking regulators
or purchase bonds which are not rated investment grade.
At August 31, 1997, the Bank had $437.0 million in securities,
consisting primarily of U.S. Government and agency obligations, mortgage-backed
and mortgage-related securities, municipal, public utility and corporate
obligations and preferred and common stocks. SFAS No. 115 requires the Bank to
designate its securities as held-to-maturity, available for sale or trading
depending on the Bank's intent regarding its investments. The Bank does not
currently maintain a trading portfolio of securities. In accordance with the
Special Report of the FASB regarding SFAS No. 115, in November 1995, the Bank
reclassified $26 million of securities from held to maturity to
available-for-sale. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Comparison of Financial Condition at June
30, 1997 and June 30, 1996." As of August 31, 1997, $78.6 million of the Bank's
securities portfolio, or 7.8% of total assets was classified as
available-for-sale, with a weighted average life of the portfolio of 6.4 years.
At such date, $358.5 million of the Bank's securities portfolio, or 35.6% of
total assets, was classified as held-to-maturity, with a market value of $360.4
million and a weighted average life of the portfolio of 2.2 years.
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 and (ii)
improve its credit risk as a result of the guarantees provided by FHLMC, FNMA,
and GNMA. The Bank has primarily invested in mortgage-backed securities issued
or sponsored by FNMA, FHLMC and GNMA and private issuers. The Bank also invests
in mortgage-related securities, primarily
79
<PAGE>
CMOs, issued or sponsored by FNMA and FHLMC as well as private issuers. At
August 31, 1997, mortgage-backed and mortgage-related securities totalled $220.1
million, or 21.9% of total assets and 23.0% of total interest earning assets of
which $57.0 million was classified as available-for-sale and $163.1 million was
classified as held-to-maturity as compared to $81.7 million, or 9.9% of total
interest earning assets at June 30, 1996. The increase in such securities
reflects management's recent revision to its securities investment strategy
whereby it has decreased its emphasis on debt securities by investing funds from
maturing debt securities into mortgage-backed and mortgage-related securities.
At August 31, 1997, 17.1% of the mortgage-backed and mortgage-related securities
were adjustable-rate and 82.9% were fixed-rate. The mortgage-backed and
mortgage-related securities portfolio had coupon rates ranging from 5% to 11%
and had a weighted average yield of 7.18% at August 31, 1997. The estimated fair
value of the Bank's mortgage-backed securities available-for-sale at August 31,
1997, was $57.0 million, which is $195,000 greater than the amortized cost of
$56.8 million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Bank focuses its investments on mortgage-backed securities backed
by single-family mortgages. The issuers of such securities (generally U.S.
Government agencies and government sponsored enterprises, including FNMA, FHLMC
and GNMA) pool and resell the participation interests in the form of securities
to investors such as the Bank and guarantee the payment of principal and
interest to investors. Mortgage-backed securities generally yield less than the
loans that underlie such securities because of the cost of payment guarantees
and credit enhancements. In addition, mortgage-backed securities are usually
more liquid than individual mortgage loans and may be used to collateralize
certain liabilities and obligations of the Bank. Investments in mortgage-backed
securities involve a risk that actual prepayments will be greater than estimated
prepayments over the life of the security, which may require adjustments to the
amortization of any premium or accretion of any discount relating to such
instruments thereby impacting the net yield on such securities. There is also
reinvestment risk associated with the cash flows from such securities or in the
event such securities are redeemed by the issuer. In addition, the market value
of such securities may be adversely affected by changes in interest rates. The
Bank estimates prepayments for its mortgage-backed securities at purchase to
ensure that prepayment assumptions are reasonable considering the underlying
collateral for the mortgage-backed securities at issue and current mortgage
interest rates and to determine the yield and estimated maturity of its
mortgage-backed security portfolio. Of the Bank's $220.1 million mortgage-backed
securities portfolio at August 31, 1997, $33.9 million with a weighted average
yield of 6.02% had contractual maturities within five years and $186.3 million
with a weighted average yield of 7.39% had contractual maturities over five
years. However, the actual maturity of a mortgage-backed security may be less
than its stated maturity due to prepayments of the underlying mortgages.
Prepayments that are faster than anticipated may shorten the estimated life of
the security and may result in a loss of any premiums paid and thereby reduce
the net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances, the Bank may be subject to reinvestment risk because,
to the extent that the Bank's mortgage-backed securities prepay faster than
anticipated, the Bank may not be able to reinvest the proceeds of such
repayments and prepayments at a comparable rate.
CMOs are a type of debt security issued by a special purpose entity
that aggregates pools of mortgages and mortgage-backed securities and creates
different classes of CMO securities with varying maturities and amortization
schedules as well as a residual interest with each class possessing different
risk
80
<PAGE>
characteristics. The cash flows from the underlying collateral is generally
divided into "tranches" or classes whereby tranches have descending priorities
with respect to the distribution of principal and interest repayment of the
underlying mortgages and mortgage-backed securities as opposed to pass through
mortgage-backed securities where cash flows are distributed pro rata to all
security holders. In contrast to mortgage-backed securities from which cash flow
is received (and hence, prepayment risk is shared) pro rata by all securities
holders, the cash flow from the mortgages or mortgage-backed securities
underlying CMOs is paid in accordance with a predetermined priority to investors
holding various tranches of such securities or obligations. A particular tranche
of CMOs may therefore carry prepayment risk that differs from that of both the
underlying collateral and other tranches. Accordingly, CMOs attempt to moderate
reinvestment risk associated with conventional mortgage-backed securities
resulting from unexpected prepayment activity. Investments in CMOs involve a
risk that actual prepayments will differ from those estimated in pricing the
security, which may result in adjustments to the net yield on such securities.
Additionally, the market value of such securities may be adversely affected by
changes in the market interest rates. Management believes these securities may
represent attractive alternatives relative to other investments due to the wide
variety of maturity, repayment and interest rate options available.
At August 31, 1997, the Bank's CMO portfolio totalled $122.2 million,
or 12.1%, of total assets and 12.8% of total interest earning assets, consisting
of $83.2 million of CMOs issued by private issuers such as PNC Mortgage
Corporation, Prudential Home Mortgage Securities, Inc., and GE Capital Mortgage
Services, Inc. and $38.9 million issued by government sponsored agencies such as
FNMA and FHLMC. Prior to purchasing CMOs, each CMO is tested for Federal
Financial Institutions Examination Counsel ("FFIEC") qualification as 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 ten years
or less. The Bank also limits the amount of such investments to 15% of the
Bank's assets and 5% of the Bank's assets for any individual issuer of privately
issued CMOs. 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 $10 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 August 31, 1997, $25.0
million of the Bank's CMO portfolio was classified as available-for-sale and
$97.1 million was classified as held-to-maturity with a market value of $97.3
million. At such date, the Bank's CMO portfolio had an estimated average life of
2.9 years and an weighted average yield of 7.33%.
Debt and Equity 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, FHLB and FHLMC.
The Bank also invests in debt securities issued by industrial and financial
companies and obligations of municipalities and public utilities. During 1997,
the Bank revised its investment strategy whereby it has decreased its emphasis
on investment in debt securities and has emphasized its investment in
mortgage-backed and mortgage-related securities. The Bank's current policy is to
allow such securities to mature.
U.S. Government and Agency Obligations. At August 31, 1997, the Bank's
--------------------------------------
U.S. Government securities portfolio totalled $47.8 million, all of which were
classified as held-to-maturity. Such portfolio primarily consists of short- to
medium-term (maturities of one to five years) securities. At August 31, 1997,
the Bank's agency securities portfolio totalled $39.5 million, all of which was
classified as held-to-maturity and consisted of agency callable debentures. The
Bank's callable agency debentures generally are callable on either a quarterly
or semi-annual basis following a holding period of
81
<PAGE>
three to six months. The current policy of the Bank limits the purchase of
agency debt obligations to a maturity of twenty years or less and limits such
purchases to $10 million per transaction.
Corporate Bonds. The Bank's corporate bond portfolio, which at August
---------------
31, 1997 totalled $64.7 million, all of which is classified as held-to-maturity,
was composed primarily of short- and medium-term, fixed-rate investment grade
corporate issues. At August 31, 1997, the portfolio had a weighted average
maturity of approximately 1 year and a weighted average coupon rate of 7.0%. The
Bank's policy limits investments in corporate bonds to bonds rated "A" or higher
and to a total investment of 25% of the Bank's assets, with a 1% limitation of a
single issuer.
Public Utility Bonds. The Bank's public utility bond portfolio, which
--------------------
at August 31, 1997 totalled $35.5 million, all of which are classified as
held-to-maturity, generally consists of bonds issued by electric and gas
utilities and telephone companies. All of the Bank's public utility bonds are
rated "A" or higher. The Bank's policies limit investments in gas and electric
utility bonds and telephone company bonds to 10% of total assets, each, and
limit investment in obligations of any one issuer to 1% of assets. At August 31,
1997, the weighted average maturity of the portfolio was approximately 1.9 years
and the portfolio had a weighted average coupon rate of 6.50%.
Municipal Bonds. The Bank's municipal bond portfolio, which at August
---------------
31, 1997 was comprised of bonds issued by New York State agencies which totalled
$1.1 million, had an estimated fair value of $1.2 million. All of such
securities were classified as held-to-maturity and were comprised of revenue
bonds. All of the Bank's municipal bonds are currently rated "A" or better. At
such date the weighted average maturity of the portfolio was approximately 11.1
years and the portfolio had a weighted average coupon rate of 6.10%. Interest
earned on municipal bonds is exempt from federal, state and local income taxes.
Equity Securities. At August 31, 1997, the Bank's equity securities
-----------------
portfolio totalled $21.5 million all of which were classified as
available-for-sale. Such portfolio consisted of a $1.8 million investment in
mutual funds, and $14.4 million in preferred stock issued by corporate issuers
and $5.4 million of common stock. The Bank benefits from its investment in
common and preferred stocks due to a tax deduction the Bank receives with regard
to dividends paid by corporate issuers on equity securities held by other
corporate entities such as the Bank. Accordingly, on a tax equivalent basis, the
yield on the Bank's equity portfolio was 6.85%. The Bank's policy limit for its
common and preferred stock investments is 5% of its total assets with a 0.5%
limitation on the purchase of any single issuer, with the exception of
government agency preferred stock, which limit is 5% per issuer. The Bank's
current policies permit the purchase of preferred stock rated "AA" or better.
The substantial majority of the Bank's preferred stock is redeemable by issuers
after five years. The Bank has retained an independent third party to advise it
on its common stock portfolio. The independent third party does not have
discretionary authority to purchase or sell common stock on behalf of the Bank.
See "Regulation and Supervision--FDIC Regulations."
82
<PAGE>
The following table sets forth the composition of the Bank's debt and
equity and mortgage-backed and mortgage-related securities portfolios in dollar
amounts and in percentages at the dates indicated:
<TABLE>
<CAPTION>
At August 31, At June 30,
---------------------- ---------------------------------------------------------
1997 1997 1996 1995
---------------------- ----------------- ----------------- -------------------
Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total
---------- --------- -------- -------- -------- -------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities:
Corporate bonds......................... $64,655 14.79% $68,483 15.66% $110,714 26.94% $108,334 28.32%
U.S. Government obligations............. 47,761 10.93 52,757 12.06 120,045 29.21 152,783 39.94
Agency securities....................... 39,460 9.03 39,457 9.02 49,472 12.03 -- --
Public utilities........................ 35,494 8.12 36,489 8.34 39,257 9.55 13,237 3.46
Municipal bonds......................... 1,149 0.26 1,149 0.26 1,188 0.28 1,199 0.31
Other debt obligations(1)............... 6,826 1.56 6,866 1.57 6,976 1.70 12,326 3.22
-------- ------ -------- ------ -------- ------ -------- ------
Total debt securities................ 195,345 44.70 205,201 46.91 327,652 79.71 287,879 75.25
-------- ------ -------- ------ -------- ------ -------- ------
Equity securities:
Preferred stock......................... 14,439 3.30 14,158 3.24 24 0.01 34 0.01
Common stock............................ 5,351 1.22 3,814 0.87 156 0.04 149 0.04
Mutual funds............................ 1,756 0.40 1,734 0.40 1,527 0.37 424 0.11
-------- ------ -------- ------ -------- ------ -------- ------
Total equity securities.............. 21,546 4.93 19,706 4.51 1,707 0.42 607 0.16
-------- ------ -------- ------ -------- ------ -------- ------
Mortgage-backed and mortgage
related securities:
FHLMC................................... 83,033 19.00 82,237 18.80 80,284 19.53 92,404 24.15
GNMA.................................... 11,815 2.70 11,824 2.70 1,394 0.34 1,683 0.44
Private issuer.......................... 3,137 0.72 3,276 0.75 -- -- -- --
Agency CMOs............................. 38,910 8.90 36,934 8.44 -- -- -- --
Private issuer CMOs..................... 83,245 19.05 78,249 17.89 -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed and
mortgage-related securities......... 220,140 50.37 212,520 48.58 81,678 19.87 94,087 24.59
-------- ------ -------- ------ -------- ------ -------- ------
Total securities................ $437,031 100.00% $437,427 100.00% $411,037 100.00% $382,573 100.00%
======== ====== ======== ====== ======== ====== ======== ======
Debt and equity securities
available-for-sale...................... $21,546 4.93% $ 19,706 4.51% $ 21,659 5.27% $ 607 0.16%
Debt and equity securities
held-to-maturity........................ 195,345 44.70 205,201 46.91 307,700 74.86 287,879 75.25
-------- ------ -------- ------ -------- ------ -------- ------
Total debt and equity securities..... 216,891 49.63 224,907 51.42 329,359 80.13 288,486 75.41
-------- ------ -------- ------ -------- ------ -------- ------
Mortgage-backed and mortgage-related
securities available-for-sale........... 57,024 13.05 27,398 6.26 1,394 0.34 1,683 0.44
Mortgage-backed and mortgage-related
securities held-to-maturity............. 163,116 37.32 185,122 42.32 80,284 19.53 92,404 24.15
-------- ------ -------- ------ -------- ------ -------- ------
Total mortgage-backed and mortgage
related securities..................... 220,140 50.37 212,520 48.58 81,678 19.87 94,087 24.59
-------- ------ -------- ------ -------- ------ -------- ------
Total securities..................... $437,031 100.00% $437,427 100.00% $411,037 100.00% $382,573 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
- ------------------
(1) Consists of railroad, foreign and other bonds.
83
<PAGE>
The following table sets forth the Bank's securities activities for the
periods indicated:
<TABLE>
<CAPTION>
For the Two Months For the Year
Ended August 31, Ended June 30,
-------------------------- ----------------------------------------
1997 1996 1997 1996 1995
------------ ------------ ------------ ------------ ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance...................................... $437,427 $411,037 $411,037 $382,573 $403,740
-------- -------- -------- -------- --------
Debt and equity securities purchased -
held-to-maturity..................................... -- 13,024 17,611 150,256 90,365
Debt and equity securities purchased -
available-for-sale................................... 1,592 -- 17,678 1,064 2,273
Mortgage-backed and mortgage-related
securities purchased - held-to-maturity.............. -- 4,941 133,668 15,197 29,218
Mortgage-backed and mortgage-related
securities purchased - available-for-sale............ 29,962 -- 26,478 -- --
Less:
Sale of debt and equity securities -
available-for-sale................................... -- 4,000 11,938 10 2,132
Sale of mortgage-backed and mortgage-
related securities - available-for-sale.............. -- -- -- 5,940 --
Principal repayments on mortgage-backed and
mortgage-related securities - held-to-maturity....... 5,220 3,689 25,315 21,305 9,757
Principal repayments on mortgage-backed and
mortgage-related securities - available for
sale................................................. 453 -- 479 410 505
Maturities of debt securities.......................... 9,776 15,125 127,005 107,658 125,877
Maturities of mortgage-backed and
mortgage-related securities.......................... 16,800 -- 3,609 -- --
Realized (gains) losses received on sales
of mortgage-backed and mortgage
related securities................................... -- -- -- (19) --
Realized and unrealized (gains) losses
on debt and equity securities........................ -- -- 110 (9) 125
Accretion of discount/Amortization of
(premium)............................................ 28 280 1,039 2,769 4,753
Change in net unrealized (gains) losses
on available-for-sale securities..................... (327) 17 (450) (11) (126)
======== ======== ======== ======== ========
Ending balance......................................... $437,031 $405,891 $437,427 $411,037 $382,573
======== ======== ======== ======== ========
</TABLE>
84
<PAGE>
The following table sets forth certain information regarding the
amortized cost and market values of the Bank's debt and equity and
mortgage-backed and mortgage-related securities, at the dates indicated:
<TABLE>
<CAPTION>
At August 31, At June 30,
-------------------- ----------------------------------------------------------------------
1997 1997 1996 1995
-------------------- ---------------------- ---------------------- ----------------------
Amortized Market Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value Cost Value
---------- --------- ----------- --------- ---------- ---------- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt securities held-to-maturity:
U.S. Government obligations......... $47,761 $47,881 $52,757 $ 52,815 $100,093 $ 99,897 $152,783 $152,590
Agency securities................... 39,460 39,574 39,457 39,522 49,472 49,076 -- --
Municipal bonds..................... 1,149 1,205 1,149 1,198 1,188 1,212 1,199 1,226
Corporate bonds..................... 100,149 100,220 104,972 104,930 149,970 149,431 121,571 121,709
Other debt obligations.............. 6,826 6,864 6,866 6,897 6,977 6,993 12,326 12,229
-------- -------- -------- -------- -------- -------- -------- --------
Total debt securities held-to-
maturity.......................... 195,345 195,744 205,201 205,362 307,700 306,609 287,879 287,754
-------- -------- -------- -------- -------- -------- -------- --------
Debt securities available-for-sale:
U.S. Government obligations......... -- -- -- -- 19,967 19,952 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total debt securities available-
for-sale.......................... -- -- -- -- 19,967 19,952 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Equity securities available-for-sale:
Mutual funds........................ 1,641 1,756 1,629 1,734 1,521 1,527 457 424
Preferred stock..................... 14,026 14,439 14,027 14,158 27 24 36 34
Common stock........................ 5,159 5,351 3,578 3,814 109 156 109 149
-------- -------- -------- -------- -------- -------- -------- --------
Total equity securities
available-for-sale............... 20,826 21,546 19,234 19,706 1,657 1,707 602 607
-------- -------- -------- -------- -------- -------- -------- --------
Mortgage-backed and mortgage-related
securities:
Held-to-maturity:
FHLMC............................... 62,868 64,257 82,237 83,584 80,284 80,631 92,404 92,589
Private issuer...................... 3,137 3,150 3,276 3,281 -- -- -- --
Agency CMOs......................... 31,590 31,675 32,248 32,336 -- -- -- --
Private Issuer CMOs................. 65,521 65,596 67,361 67,392 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed and
mortgage-related securities
held-to-maturity...................... 163,116 164,678 185,122 186,593 80,284 80,631 92,404 92,589
-------- -------- -------- -------- -------- -------- -------- --------
Available-for-sale:
GNMA................................ 11,696 11,815 11,710 11,824 1,292 1,394 1,562 1,683
FHLMC............................... 20,170 20,165 -- -- -- -- -- --
Agency CMOs......................... 7,340 7,320 4,693 4,686 -- -- -- --
Private issuer CMOs................. 17,624 17,724 10,881 10,888 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total mortgage-backed
and mortgage-related
securities available-for-sale.... 56,830 57,024 27,284 27,398 1,292 1,394 1,562 1,683
-------- -------- -------- -------- -------- -------- -------- --------
Net unrealized (losses) gains
on available-for-sale securities...... 914 -- 586 -- 137 -- 126 --
-------- -------- -------- -------- -------- -------- -------- --------
Total securities....................... $437,031 $438,992 $437,427 $439,059 $411,037 $410,293 $382,573 $382,632
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
85
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Bank's
securities portfolio as of August 31, 1997.
<TABLE>
<CAPTION>
At August 31, 1997
------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years
---------------------- ------------------------ -------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
--------- ---------- ---------- ---------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Held-to-maturity:
Debt securities:
Municipal bonds................... $ -- --% $ 100 6.20% $ 490 6.47%
U.S. Government obligations....... 19,380 6.62 28,381 6.05 -- --
Agency securities................. -- -- 38,462 6.42 998 7.09
Public utilities.................. 15,348 6.35 18,441 6.57 1,105 6.48
Industrial bonds.................. 41,464 6.44 23,191 6.15 -- --
Other debt obligations............ 4,581 5.70 2,245 7.15 -- --
------- -------- ------
Total debt securities held-
to-maturity................... 80,773 6.42 110,820 6.36 2,593 6.75
------- -------- ------
Mortgage-backed and mortgage
related securities:
FHLMC............................. 3,962 5.72 29,895 6.06 -- --
Private issuer.................... -- -- -- -- -- --
Agency CMOs....................... -- -- -- -- -- --
Private issuer CMOs............... -- -- -- -- -- --
------- -------- ------
Total mortgage-backed and
mortgage-related securities
held-to-maturity.............. 3,962 5.72 29,895 6.06 -- --
------- -------- ------
Total securities held-to-maturity. 84,735 6.39 140,715 6.30 2,593 6.75
------- -------- ------
Available-for-sale:
Mortgage-backed and mortgage-related
securities:
FHLMC............................. -- -- -- -- -- --
GNMA.............................. -- -- -- -- 36 8.34
Agency CMOs....................... -- -- -- -- -- --
Private issuer CMOs............... -- -- -- -- -- --
------- -------- ------
Total mortgage-backed and
mortgage-related securities
available-for-sale............ -- -- -- -- 36 8.34
------- -------- ------
Equity securities:
Mutual Funds...................... -- -- -- -- -- --
Preferred stock................... -- -- -- -- -- --
Common stock...................... -- -- -- -- -- --
Total equity securities........ -- -- -- -- -- --
------- -------- ------
Total securities available-
for-sale...................... -- -- -- -- 36 8.34
------- -------- ------
Total Securities........................ $84,735 6.39% $140,715 6.30% $2,629 6.77%
======= ======== ======
<CAPTION>
At August 31, 1997
------------------------------------------------------
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:
Debt securities:
Municipal bonds................... $ 559 5.76% $ 1,149 6.10%
U.S. Government obligations....... -- -- 47,761 6.28
Agency securities................. -- -- 39,460 6.44
Public utilities.................. 600 7.32 35,494 6.48
Industrial bonds.................. -- -- 64,655 6.34
Other debt obligations............ -- -- 6,826 6.17
-------- --------
Total debt securities held-
to-maturity................... 1,159 6.56 195,345 6.39
-------- --------
Mortgage-backed and mortgage
related securities:
FHLMC............................. 29,011 7.63 62,868 6.76
Private issuer.................... 3,137 7.27 3,137 7.27
Agency CMOs....................... 31,590 7.62 31,590 7.62
Private issuer CMOs............... 65,521 7.22 65,521 7.22
-------- --------
Total mortgage-backed and
mortgage-related securities
held-to-maturity.............. 129,259 7.41 163,116 7.12
-------- --------
Total securities held-to-maturity. 130,418 7.40 358,461 6.72
-------- --------
Available-for-sale:
Mortgage-backed and mortgage-related
securities:
FHLMC............................. 20,165 7.45 20,165 7.45
GNMA.............................. 11,779 7.35 11,815 7.35
Agency CMOs....................... 7,320 7.19 7,320 7.19
Private issuer CMOs............... 17,724 7.28 17,724 7.28
-------- --------
Total mortgage-backed and
mortgage-related securities
available-for-sale............ 56,988 7.34 57,024 7.34
--------
Equity securities:
Mutual Funds...................... -- -- 1,756 4.04
Preferred stock................... -- -- 14,439 6.20
Common stock...................... -- -- 5,351 1.65
--------
Total equity securities........ -- -- 21,546 4.89
-------- --------
Total securities available-
for-sale....................... 56,988 7.34 78,570 6.67
-------- --------
Total Securities........................ $187,406 7.38% $437,031 6.71%
======== ========
</TABLE>
86
<PAGE>
Sources of Funds
General. Deposits, repayments and prepayments of loans and securities,
proceeds from sales of loans and securities, and proceeds from maturing
securities and cash flows from operations are the primary sources of the Bank's
funds for use in lending, investing and for other general purposes. To a lesser
extent, the Bank utilizes borrowed funds to fund its operations. The Bank's
application for membership in the FHLB system was approved on October 24, 1997.
FHLB membership will provide another source of borrowed funds.
Deposits. The Bank offers a variety of deposit accounts with a range of
interest rates and terms. The Bank's deposit accounts consist of savings, retail
checking/NOW accounts, commercial checking accounts, money market accounts, club
accounts and certificates of deposit accounts. The Bank offers jumbo certificate
of deposit accounts and also offers Individual Retirement Accounts ("IRAs") and
other qualified plan accounts. While jumbo certificate accounts 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.
At August 31, 1997, the Bank's deposits totalled $882.9 million, of
which 89.7% were interest-bearing deposits. For the two month period ended
August 31, 1997, the average balance of core deposits totalled $574.6 million,
or 65.5% of total average deposits. At August 31, 1997, the Bank had a total of
$305.4 million in certificates of deposit, of which $213.6 million had
maturities of less than one year. For the year ended June 30, 1996, the average
balance of core deposits represented approximately 69.0% of total deposits and
certificate accounts represented 31.0%, as compared to core deposits
representing 65.5% of total deposits and certificate accounts representing 34.5%
of deposits for the two month period ended August 31, 1997. See "Risk Factors -
Sensitivity to Increases in Interest Rates." Although the Bank has a significant
portion of its deposits in savings accounts, management monitors activity on the
Bank's savings accounts and, based on historical experience and the Bank's
current pricing strategy, believes it will continue to retain a large portion of
such accounts. The Bank is not limited with respect to the rates it may offer on
deposit products.
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 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 affect the Bank's ability to attract and retain deposits.
The Bank uses traditional means of advertising its deposit products, including
television and print media and generally does not solicit deposits from outside
its market area. While the Bank has historically not accepted brokered deposits,
the Bank is currently in the process of establishing relationships with deposit
brokers and may, in the future, utilize brokered deposits as a funding source,
depending on market conditions.
87
<PAGE>
The following table presents the deposit activity of the Bank for the
periods indicated.
<TABLE>
<CAPTION>
For the Two Months
Ended August 31, For the Year Ended June 30,
------------------------- ---------------------------------------
1997 1996 1997 1996 1995
------------ ----------- ----------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net deposits (withdrawals)...................... $(4,614) $(3,632) $ 38,896 $ 27,612 $ (7,032)
Interest credited on deposit accounts........... 2,969 2,425 27,707 26,254 22,456
------- ------- -------- -------- --------
Total (decrease) increase in deposit accounts... $(1,645) $(1,207) $ 66,603 $ 53,866 $ 15,424
======= ======= ======== ======== ========
</TABLE>
At August 31, 1997, the Bank had outstanding $29.4 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............................ $8,198 5.25%
Over three through six months................... 3,579 5.16
Over six through 12 months...................... 7,862 5.40
Over 12 months.................................. 9,751 6.01
-----
Total........................................... $29,390 5.53
=======
</TABLE>
88
<PAGE>
The following table sets forth the distribution of the Bank's average
deposit accounts for the periods indicated and the weighted average interest
rates on each category of deposits presented. Averages for the periods presented
utilize average month-end balances.
<TABLE>
<CAPTION>
For the Two Months Ended
August 31,
-------------------------------------------------------
1997 1996
--------------------------- ---------------------------
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............... $38,438 4.36% 3.51% $35,269 4.32% 3.45%
Savings accounts.................... 434,147 49.21 2.84 433,185 53.07 2.59
NOW accounts........................ 17,471 1.98 2.51 14,699 1.80 2.65
Non-interest-bearing accounts....... 89,889 10.19 -- 76,532 9.38 --
-------- ------ -------- ------
Total............................. 579,945 65.74 2.43 559,685 68.57 2.29
-------- ------ -------- ------
Certificates of deposit:
Less than six months.............. 23,410 2.65 4.48 36,359 4.45 4.47
Over six through 12 months........ 60,215 6.83 5.14 40,938 5.02 4.78
Over 12 through 24 months......... 142,147 16.11 5.48 103,564 12.69 5.20
Over 24 months.................... 47,822 5.42 5.76 55,318 6.78 5.73
Certificates over $100,000........ 28,645 3.25 5.46 20,354 2.49 5.25
-------- ------ -------- ------
Total certificates of deposit.. 302,239 34.26 5.38 256,533 31.43 5.18
-------- ------ -------- ------
Total average deposits......... $882,184 100.00% 3.44 $816,218 100.00% 3.19
======== ====== ======== ======
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------------------------------------------
1997 1996 1995
--------------------------- ----------------------------------- -------------------
Percent Percent Percent
of Total Weighted of Total Weighted of Total
Average Average Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate Balance Deposits
-------- --------- -------- ----------- ------------ ----------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Money market accounts................ $37,552 4.48% 3.48% $ 28,430 3.64% 3.47% $ 25,058 3.37%
Savings accounts..................... 432,162 51.61 2.74 430,500 55.09 2.75 462,720 62.15
NOW accounts......................... 15,652 1.87 2.36 14,602 1.87 2.42 13,724 1.84
Non-interest-bearing accounts........ 78,483 9.37 -- 65,670 8.40 -- 54,864 7.37
-------- ------ -------- ------ -------- ------
Total.............................. 563,849 67.33 2.40 539,202 69.00 2.44 556,366 74.73
-------- ------ -------- ------ -------- ------
Certificates of deposit:
Less than six months............... 30,437 3.64 4.38 30,360 3.89 4.55 33,593 4.51
Over six through 12 months......... 46,188 5.52 4.90 39,924 5.11 4.91 35,013 4.70
Over 12 through 24 months.......... 121,109 14.46 5.33 100,840 12.91 5.49 56,846 7.63
Over 24 months..................... 52,787 6.30 5.75 54,496 6.97 5.66 52,649 7.07
Certificates over $100,000......... 23,025 2.75 5.32 16,577 2.12 5.39 10,111 1.36
-------- ------ -------- ------ -------- ------
Total certificates of deposit... 273,546 32.67 5.23 242,197 31.00 5.31 188,212 25.27
-------- ------ -------- ------ -------- ------
Total average deposits.......... $837,395 100.00% 3.33 $781,399 100.00% 3.33 $744,578 100.00%
======== ====== ======== ====== ======== ======
-----------
1995
-----------
Weighted
Average
Rate
-----------
<C>
Money market accounts................ 2.93%
Savings accounts..................... 2.74
NOW accounts......................... 2.66
Non-interest-bearing accounts........ --
Total.............................. 2.48
Certificates of deposit:
Less than six months............... 3.52
Over six through 12 months......... 3.94
Over 12 through 24 months.......... 5.10
Over 24 months..................... 5.30
Certificates over $100,000......... 4.73
Total certificates of deposit... 4.64
Total average deposits.......... 3.03
</TABLE>
<PAGE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
At
Period to Maturity from August 31, 1997 August 31,
---------------------------------------------------------------------------------- --------------
Less than One to Two to Three to Four to Five years
One Year Two years Three years Four years Five years or more 1997
------------ ----------- -------------- ------------ ------------ -------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Certificates of deposit:
0 to 4.00%............... $ 3,071 $ 5 $ -- $ 91 $ 18 $ -- $ 3,185
4.01 to 5.00%............ 53,232 6,141 -- -- 10 -- 59,383
5.01 to 6.00%............ 155,521 54,837 6,135 4,207 6,313 2,758 229,771
6.01 to 7.00%............ 1,755 494 1,860 245 4,444 -- 8,798
7.01 to 8.00%............ -- -- 174 393 3,709 -- 4,276
Over 8.00%............... -- -- -- -- -- -- --
Total........... $213,579 $61,477 $8,169 $4,936 $14,494 $2,758 $305,413
======== ======= ====== ====== ======= ====== ========
Fair Value................................................................................................. $262,582
========
<CAPTION>
At June 30,
----------------------------------
1997 1996 1995
---------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Certificates of deposit:
0 to 4.00%.............. $ 3,369 $ 2,972 $ 2,085
4.01 to 5.00%........... 75,534 155,120 78,134
5.01 to 6.00%........... 205,325 63,573 87,760
6.01 to 7.00%........... 9,553 28,167 58,495
7.01 to 8.00%........... 4,285 4,095 --
Over 8.00%.............. -- -- --
-------- -------- --------
Total.......... $298,066 $253,927 $226,474
======== ======== ========
$251,893 $206,138 $229,373
Fair Value.............. ======== ======== ========
</TABLE>
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<PAGE>
Borrowed Funds. The Bank has historically not utilized borrowings as a
source of funding and has primarily depended on retail deposits to provide
funding. At August 31, 1997, the Bank had $8.4 million of borrowings, all of
which were in the form of reverse repurchase agreements. The Bank has recently
begun to place a greater level of emphasis on the utilization of borrowed funds
to fund asset growth. In this regard, at October 31, 1997, the Bank had total
borrowings of $60.4 million all of which were in the form of reverse repurchase
agreements. Also, the Bank currently maintains a $10.0 million line of credit
with a regional financial institution and has the ability to obtain funding
through the use of additional reverse repurchase agreements entered into with a
nationally recognized investment banking firm. The reverse purchase agreements
would generally be collateralized by U.S. Treasury obligations or other liquid
securities. In order to provide the Bank with an additional source of funding,
the Bank received approval to become a member of the FHLB on October 24, 1997.
The Bank may utilize advances from the FHLB from time-to-time as an alternative
to retail deposits to fund its operations in the future. FHLB advances may also
be used to acquire certain other assets as may be deemed appropriate for
investment purposes. These advances would be collateralized primarily by certain
of the Bank's mortgage loans and mortgage-backed securities. See "Regulation and
Supervision--Federal Home Loan Bank System." Such advances are made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. The maximum amount that the FHLB will advance to member
institutions fluctuates from time-to-time in accordance with the policies of the
OTS and the FHLB.
Other Activities
In addition to its traditional lending and deposit products, the Bank
also offers certain merchant banking services. These include providing credit
card deposit accounts to local merchants. The Bank receives a processing fee
from the customer for each credit card transaction processed. The Bank also
receives monthly income from terminal and printer sales and rentals. For the two
month period ended August 31, 1997 and for the year ended June 30, 1997, $11,000
and $65,000, or 1.9% and 2.2%, respectively, of total fee income, was
attributable to credit card processing fees. In addition, the Bank has endorsed
and promotes a credit card through a national affinity credit card bank. Under
the program, the affinity credit card bank receives and underwrites all credit
card applications. The Bank receives royalty payments based on new accounts and
renewal accounts, as well as a portion of finance charges assessed. For the two
month period ended August 31, 1997 and for the year ended June 30, 1997, the
Bank received $10,000 and $42,000, or 1.8% and 1.4%, respectively, of total fee
income, through the affinity credit card program.
Subsidiary Activities
RCSB Corp. RCSB Corp. ("RCSB"), a wholly-owned subsidiary of the Bank
incorporated in the State of New York in 1976, was formed to purchase three
branch buildings from the Bank, which are leased back to the Bank and which is
currently the only business activity conducted by RCSB. See "--Properties." The
assets of RCSB totalled $812,000 at August 31, 1997.
Richmond Enterprises, Inc. Richmond Enterprises, Inc., a wholly-owned
subsidiary of the Bank incorporated in the State of New York in 1983, previously
was a partner in a joint-venture real estate development project with a local
developer. The development was completed in 1986, and Richmond Enterprises, Inc.
has been inactive since that date. Its total assets as of August 31, 1997 were
$4,000.
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Properties
The Bank currently conducts its business through thirteen full service
banking offices. The following table sets forth the Bank's offices as of August
31, 1997. The table does not include the public accommodation office the Bank
intends to open in 1998, nor does it include the three full service branch
office facilities the Bank is considering establishing. With the exception of
the lease for the public accommodation office, there are no current agreements,
understandings or arrangements, oral or written, with respect to such offices,
and no assurances can be given that such offices will be opened.
<TABLE>
<CAPTION>
Original Net Book Value Total
Year of Property or Deposits at
Leased Leased Date of Leasehold Branch
or or Lease Improvements at Office at
Location Owned Acquired Expiration August 31, 1997 August 31, 1997
- ---------------------------------- ----------- -------------- ------------- ----------------- -----------------
Administrative/Home Office: (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
West New Brighton Office (1): Owned 1916 -- $577 $57,485
1214 Castleton Avenue
Staten Island, NY 10310
Branch Offices:
Port Richmond Office (2): Leased 1976 2001 117 61,515
282 Port Richmond Avenue
Staten Island, NY 10302
Great Kills Office: Owned 1975 -- 671 88,730
3879 Amboy Road
Staten Island, NY 10308
Annadale Office (2): Leased 1976 2001 364 64,511
820 Annadale Road
Staten Island, NY 10312
Bull's Head Office (2): Leased 1976 2001 324 63,530
1460 Richmond Avenue
Staten Island, NY 10314
Dongan Hills Office: Owned 1974 -- 531 71,596
1833 Hylan Boulevard
Staten Island, NY 10305
New Springville Office: Leased 1976 2005 330 115,339
2555 Richmond Avenue
Staten Island, NY 10134
Woodrow Plaza Office: Leased 1983 2013 189 55,597
645-100 Rossville Avenue
Staten Island, NY 10309
Tottenville Office: Owned 1988 -- 272 25,222
179 Main Street
Staten Island, NY 10307
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Original Net Book Value Total
Year of Property or Deposits at
Leased Leased Date of Leasehold Branch
or or Lease Improvements at Office at
Location Owned Acquired Expiration August 31, 1997 August 31, 1997
- ---------------------------------- ----------- -------------- ------------- ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Westerleigh Office: Owned 1992 -- $ 400 $56,272
832 Jewett Avenue
Staten Island, NY 10314
Eltingville Office (3): Owned 1992 -- 1333 77,958
4523 Amboy Road
Staten Island, NY 10312
Grasmere Office: Leased 1992 2005 120 51,993
1100 Hylan Boulevard
Staten Island, NY 10305
Brooklyn Office: Leased 1977 1997(4) 340(5) 93,138
132 Avenue U
Brooklyn, NY 11223
Public Accommodation Office:
Brooklyn Public Leased 1980 1999 -- --
Accommodation Office
81 Avenue U
Brooklyn, NY 11223
</TABLE>
- ---------------------------
(1) Certain portions of the Bank's administrative operations are located at
properties not included in the table.
(2) Property is owned by RCSB Corp.
(3) Eltingville office includes the Bank's lending center.
(4) The Bank has the option to extend the lease on the Brooklyn office for two
five-year periods.
(5) Together with Brooklyn Public Accommodation Office.
Legal Proceedings
The Bank is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business which, in
the aggregate, involve amounts which are believed by management to be immaterial
to the financial condition and results of operations of the Bank.
Personnel
As of August 31, 1997, the Bank had 244 full-time employees and 117
part-time employees. The employees are not represented by a collective
bargaining unit and the Bank considers its relationship with its employees to be
good. See "Management of the Bank - Benefit Plans" for a description of certain
compensation and benefit programs offered to the Bank's employees.
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Year 2000 Issues
Many existing computer programs use only two digits to identify a year
in the date field. These programs were designed without considering the impact
of the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
Company primarily utilizes a third party vendor and such vendor's proprietary
software to process its electronic data. The third party data processor vendor
is in the process of modifying, upgrading or replacing its computer software
applications and systems as necessary to accommodate the "year 2000" dating
changes necessary to permit correct recording of year dates for 2000 and later
years. The Vendor also has engaged a consultant to review its year 2000 issues
and has begun to implement a year 2000 compliance program. The Company does not
expect that the cost of its year 2000 compliance program will be material to its
financial condition or results of operations and believes that it will be able
to satisfy such compliance program by the end of 1998 without any material
disruption in its operations. The Company does not currently have any
information concerning the compliance status of its suppliers and customers. In
the event that any of the Company's significant suppliers do not successfully
and timely achieve year 2000 compliance, the Company's business or operations
could be adversely affected.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Bank will report their income on a
consolidated basis, using a calendar year and the accrual method of accounting
and will be subject to federal income taxation in the same manner as other
corporations with some exceptions, including particularly the Bank's treatment
of its reserve for bad debts discussed below. The following discussion of tax
matters is intended only as a summary and does not purport to be a comprehensive
description of the tax rules applicable to the Bank or the Company. The Bank had
been audited by the IRS for the year ended December 31, 1992 resulting in a
refund of $27,000. The Bank was also audited by the State of New York for the
three-year period ended December 31, 1993, resulting in an assessment of tax
plus interest in the amount of $4,000.
Bad Debt Reserves. The Small Business Job Protection Act of 1996 (the
"1996 Act"), which was enacted on August 20, 1996, made significant changes to
provisions of the Code relating to a savings institution's use of bad debt
reserves for federal income tax purposes and requires such institutions to
recapture (i.e. take into income) certain portions of their accumulated bad debt
reserves. The effect of the 1996 Act on the Bank is discussed below. Prior to
the enactment of the 1996 Act, the Bank was permitted to establish tax reserves
for bad debts and to make annual additions thereto, which additions, within
specified formula limits, were deducted in arriving at the Bank's taxable
income. The Bank's deduction with respect to "qualifying loans," which are
generally loans secured by certain interests in real property, could be computed
using an amount based on a six-year moving average of the Bank's actual loss
experience (the "Experience Method"), or a percentage equal to 8% of the Bank's
taxable income (the "PTI Method"), computed without regard to this deduction and
with additional modifications and reduced by the amount of any permitted
addition to the non-qualifying reserve. The Bank's deduction with respect to
non-qualifying loans was required to be computed under the Experience Method.
The 1996 Act. Under the 1996 Act, for its current and future taxable
years, the Bank is not permitted to make additions to its tax bad debt reserves.
In addition, the Bank is required to recapture (i.e. take into income) over a
six year period the excess of the balance of its tax bad debt reserves as of
December 31, 1995 over the balance of such reserves as of December 31, 1987. As
of December 31, 1995, $2.5 million of the Bank's bad debt reserve was subject to
recapture for which deferred taxes have been provided.
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
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<PAGE>
(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. The term "Non-
dividend distributions" is defined as distributions in excess of the Bank's
current and accumulated earnings and profits, as calculated for federal income
tax purposes, distributions in redemption of stock, and distributions in partial
or complete liquidation. Dividends paid out of the Bank's current or accumulated
earnings and profits will not cause this pre-1988 reserve to be included in the
Bank's income.
The amount of additional taxable income created from a non-dividend
distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a non-dividend distribution to the Company,
approximately one and one-half times the amount of such distribution (but not in
excess of the amount of such reserves) would be includable in income for federal
income tax purposes, assuming a 35% federal corporate income tax rate. See
"Regulation and Supervision" and "Dividend Policy" for limits on the payment of
dividends by the Bank. The Bank does not intend to pay dividends that would
result in a recapture of any portion of its tax bad debt reserves.
Corporate Alternative Minimum Tax. The Code imposes a tax on
alternative minimum taxable income ("AMTI") at a rate of 20%. Only 90% of AMTI
can be offset by net operating loss carryforwards. The adjustment to AMTI based
on book income will be an amount equal to 75% of the amount by which a
corporation's adjusted current earnings exceeds its AMTI (determined without
regard to this adjustment and prior to reduction for net operating losses).
Certain payments of AMTI may be used as credits against regular tax liabilities
in future years. For tax years prior to the 1996 tax year, the excess of the bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, for
taxable years beginning after December 31, 1986 and before January 1, 1996, an
environmental tax of .12% of the excess of AMTI (with certain modifications)
over $2 million, is imposed on corporations, including the Bank, whether or not
an Alternative Minimum Tax ("AMT") is paid. The Bank has not been subject to the
AMT, and no such amounts have been accrued for carryover.
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. The corporate dividends received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Company and the Bank will not file a consolidated tax return,
except that if the Company and the Bank own more than 20% of the stock of a
corporation distributing a dividend, then 80% of any dividends received may be
excluded.
State and Local Taxation
New York State and New York City Taxation. The Bank is subject to the
New York State Franchise Tax on Banking Corporations in an annual amount equal
to the greater of (i) 9% of the Bank's "entire net income" allocable to New York
State during the taxable year, or (ii) the applicable alternative minimum tax.
The alternative minimum tax is generally the greatest of (a) .01% of the average
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 is also subject
to New York City Corporation Tax which is imposed using SMTI or alternative
taxable income method. For purposes of computing its entire net income, the Bank
is permitted a deduction for an addition to the reserve for losses on qualifying
real property loans. For New York State and City purposes, the
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<PAGE>
applicable percentage to calculate bad debt deduction under the percentage of
taxable income method is 32%. The New York State and New York City tax laws were
recently amended to prevent the recapture of tax bad debt reserves that would
otherwise occur as a result of the enactment of the 1996 Act for both New York
State and City tax purposes. See "- Federal Taxation - Bad Debt Reserves."
However, the New York bad debt reserve is subject to recapture for "non-dividend
distributions" in a manner similar to the recapture of the federal bad debt
reserves for such distributions. See "- Federal Taxation - Distributions". Also,
the New York bad debt reserve is subject to recapture in the event that the Bank
fails to satisfy certain definitional tests relating to its assets and the
nature of its business. The Bank's deduction with respect to non-qualifying
loans must be computed under the experience method which is based on the Bank's
actual charge-offs.
A Temporary Metropolitan Transportation Business Tax Surcharge on
banking corporations doing business in the metropolitan district has been
applied since 1982. The Bank does all of its business within this District and
is subject to this surcharge. For the tax year ended December 31, 1997, the
surcharge rate is 17% of the New York State Franchise Tax liability.
Delaware State Taxation. As a Delaware holding company not earning
income in Delaware, the Company is exempted from Delaware Corporate income tax
but is required to file an annual report with and pay an annual franchise tax to
the State of Delaware.
REGULATION AND SUPERVISION
General
The Bank is a New York State chartered mutual savings bank and its
deposit accounts are insured up to applicable limits by the FDIC under the BIF.
The Bank is subject to extensive regulation by the Superintendent, the NYBB, the
NYBD, as its chartering agency, and by the FDIC, as the deposit insurer. The
Bank must file reports with the NYBD and the FDIC concerning its activities and
financial condition, in addition to obtaining regulatory approvals prior to
entering into certain transactions such as establishing branches and mergers
with, or acquisitions of, other depository institutions. There are periodic
examinations by the NYBD and the FDIC to assess the Bank's compliance with
various regulatory requirements and financial condition. This regulation and
supervision establishes a framework of activities in which a savings bank can
engage and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such regulation, whether by the NYBD, the
FDIC or through legislation, could have a material adverse impact on the Company
and the Bank and their operations and stockholders. The Company will also be
required to file certain reports with, and otherwise comply with the rules and
regulations, of the OTS, the NYBD and of the Securities and Exchange Commission
("SEC") under the federal securities laws. Certain of the regulatory
requirements applicable to the Bank and to the Holding Company are referred to
below or elsewhere herein.
New York State Law
The Bank derives its lending, investment and other authority primarily
from the applicable provisions of New York State Banking Law and the regulations
of the NYBB, as limited by FDIC regulations. See "- Investment Activities."
Under these laws and regulations, savings banks, including the Bank, may invest
in real estate mortgages, consumer and commercial loans, certain types of debt
securities, including certain corporate debt securities and obligations of
federal, state and local governments and agencies, certain types
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<PAGE>
of corporate equity securities and certain other assets. Under the statutory
authority for investing in equity securities, a savings bank may directly invest
up to 7.5% of its assets in certain corporate stock and may also invest up to
7.5% of its assets in certain mutual fund securities. Investment in the stock of
a single corporation is limited to the lesser of 2% of the outstanding stock of
such corporation or 1% of the savings bank's assets, except as set forth below.
Such equity securities must meet certain tests of financial performance. A
savings bank's lending powers are not subject to percentage of asset
limitations, although there are limits applicable to single borrowers. A savings
bank may also, pursuant to the "leeway" authority, make investments not
otherwise authorized under the New York State Banking Law. This authority
permits investments not otherwise authorized of up to 1% of the savings bank's
assets in any single investment, subject to certain restrictions and to an
aggregate limit for all such investments of up to 5% of assets. Additionally, in
lieu of investing in such securities in accordance with and reliance upon the
specific investment authority set forth in the New York State Banking Law,
savings banks are authorized to elect to invest under a "prudent person"
standard in a wider range of debt and equity securities as compared to the types
of investments permissible under such specific investment authority. However, in
the event a savings bank elects to utilize the "prudent person" standard, it
will be unable to avail itself of the other provisions of the New York State
Banking Law and regulations which set forth specific investment authority. A New
York State chartered stock savings bank may also exercise trust powers upon
approval of the New York State Banking Board.
New York State chartered savings banks may also invest in subsidiaries
under their service corporation investment power. A savings bank may use this
power to invest in corporations that engage in various activities authorized for
savings banks, plus any additional activities which may be authorized by the
NYBB. Investment by a savings bank in the stock, capital notes and debentures of
its service corporations is limited to 3% of the bank's assets, and such
investments, together with the bank's loans to its service corporations, may not
exceed 10% of the savings bank's assets.
The exercise by an FDIC-insured savings bank of the lending and
investment powers of a savings bank under the New York State Banking Law is
limited by FDIC regulations and other federal law and regulations. In
particular, the applicable provisions of New York State Banking Law and
regulations governing the investment authority and activities of an FDIC insured
state-chartered savings bank have been effectively limited by the Federal
Deposit Insurance Corporation Improvement Act of 1991 and the FDIC regulations
issued pursuant thereto. See "- Investment Activities."
With certain limited exceptions, a New York State chartered savings
bank may not make loans or extend unsecured credit for commercial, corporate or
business purposes (including lease financing) to a single borrower, the
aggregate amount of which would be in excess of 15% of the bank's net worth. The
Bank currently complies with all applicable loans-to-one-borrower limitations.
Under New York State Banking Law, a New York State chartered stock
savings bank may declare and pay dividends out of its net profits, unless there
is an impairment of capital, but approval of the Superintendent is required if
the total of all dividends declared in a calendar year would exceed the total of
its net profits for that year combined with its retained net profits of the
preceding two years, subject to certain adjustments.
Under the New York State Banking Law, the Superintendent may issue an
order to a New York State chartered banking institution to appear and explain an
apparent violation of law, to discontinue unauthorized or unsafe practices and
to keep prescribed books and accounts. Upon a finding by the NYBB 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
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<PAGE>
by the NYBB 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 NYBB against the Bank or any of its
Trustees or officers. The Superintendent also may take possession of a banking
organization under specified statutory criteria.
FDIC Regulations
Capital Requirements. The FDIC has adopted risk-based capital
guidelines to which the Bank is subject. The guidelines establish a systematic
analytical framework that makes regulatory capital requirements more sensitive
to differences in risk profiles among banking organizations. The Bank is
required to maintain certain levels of regulatory capital in relation to
regulatory risk-weighted assets. The ratio of such regulatory capital to
regulatory risk-weighted assets is referred to as the Bank's "risk-based capital
ratio." Risk-based capital ratios are determined by allocating assets and
specified off-balance sheet items to four risk-weighted categories ranging from
0% to 100%, with higher levels of capital being required for the categories
perceived as representing greater risk.
These guidelines divide a savings bank's capital into two tiers. The
first tier ("Tier I") includes common equity, retained earnings, certain
non-cumulative perpetual preferred stock (excluding auction rate issues) and
minority interests in equity accounts of consolidated subsidiaries, less
goodwill and other intangible assets (except mortgage servicing rights and
purchased credit card relationships subject to certain limitations).
Supplementary ("Tier II") capital includes, among other items, cumulative
perpetual and long-term limited-life preferred stock, mandatory convertible
securities, certain hybrid capital instruments, term subordinated debt and the
allowance for loan and lease losses, subject to certain limitations, less
required deductions. Savings banks are required to maintain a total risk-based
capital ratio of 8%, of which at least 4% must be Tier I capital.
In addition, the FDIC has established regulations prescribing a minimum
Tier I leverage ratio (Tier I capital to adjusted total assets as specified in
the regulations). These regulations provide for a minimum Tier I leverage ratio
of 3% for banks that meet certain specified criteria, including that they have
the highest examination rating and are not experiencing or anticipating
significant growth. All other banks are required to maintain a Tier I leverage
ratio of 3% plus an additional cushion of at least 100 to 200 basis points. The
federal banking agencies, including the FDIC, have proposed a uniform minimum
Tier 1 leverage ratio of 4% for all but the highest rated banks. The FDIC may,
however, set higher leverage and risk-based capital requirements on individual
institutions when particular circumstances warrant. Savings banks experiencing
or anticipating significant growth are expected to maintain capital ratios,
including tangible capital positions, well above the minimum levels.
The following is a summary of the Bank's regulatory capital at August
31, 1997:
<TABLE>
<CAPTION>
<S> <C>
GAAP Capital to Total Assets........................... 10.22%
Total Capital to Risk-Weighted Assets.................. 19.70%
Tier I Leverage Ratio.................................. 10.10%
</TABLE>
In August 1995, the FDIC, along with the other federal banking
agencies, adopted a regulation providing that the agencies will take account of
the exposure of a bank's capital and economic value to changes in interest rate
risk in assessing a bank's capital adequacy. According to the agencies,
applicable considerations include the quality of the bank's interest rate risk
management process, the overall financial condition of the bank and the level of
other risks at the bank for which capital is needed. Institutions with
significant interest rate risk may be required to hold additional capital. The
agencies also have issued a joint policy statement providing guidance on
interest rate risk management, including a discussion of the critical factors
affecting the agencies' evaluation of interest rate risk in connection with
capital adequacy. The
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<PAGE>
agencies have determined not to proceed with a previously issued proposal to
develop a supervisory framework for measuring interest rate risk and an explicit
capital component for interest rate risk.
Standards for Safety and Soundness. Federal law requires each federal
banking agency to prescribe for depository institutions under its jurisdiction
standards relating to, among other things, internal controls; information
systems and audit systems; loan documentation; credit underwriting; interest
rate risk exposure; asset growth; compensation; fees and benefits; and such
other operational and managerial standards as the agency deems appropriate. The
federal banking agencies adopted final regulations and Interagency Guidelines
Establishing Standards for Safety and Soundness (the "Guidelines") to implement
these safety and soundness standards. The Guidelines set forth the safety and
soundness standards that the federal banking agencies use to identify and
address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings and compensation; fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the Federal Deposit
Insurance Act, as amended, ("FDI Act"). The final regulation establishes
deadlines for the submission and review of such safety and soundness compliance
plans.
Real Estate Lending Standards. The FDIC and the other federal banking
agencies have adopted regulations that prescribe standards for extensions of
credit that (i) are secured by real estate or (ii) are made for the purpose of
financing the construction or improvements on real estate. The FDIC regulations
require each institution to establish and maintain written internal real estate
lending standards that are consistent with safe and sound banking practices and
appropriate to the size of the institution and the nature and scope of its real
estate lending activities. The standards also must be consistent with
accompanying FDIC guidelines, which include loan-to-value limitations for the
different types of real estate loans. Institutions are also permitted to make a
limited amount of loans that do not conform to the proposed loan-to-value
limitations so long as such exceptions are reviewed and justified appropriately.
The guidelines also list a number of lending situations in which exceptions to
the loan-to-value standard are justified.
Dividend Limitations. The FDIC has authority to use its enforcement
powers to prohibit a savings bank from paying dividends if, in its opinion, the
payment of dividends would constitute an unsafe or unsound practice. Federal law
prohibits the payment of dividends by a bank that will result in the bank
failing to meet applicable capital requirements on a pro forma basis.
Additionally, the Bank, as a subsidiary of a savings and loan holding company,
will be required to provide the OTS with 30 days prior written notice before
declaring any dividend. The Plan of Conversion also restricts the Bank's payment
of dividends in the event the dividend would impair the liquidation account
established in connection with the Conversion. The Bank is also subject to
dividend declaration restrictions imposed by New York law. See "- New York State
Law" and "Dividend Policy."
Investment Activities
Since the enactment of FDICIA, all state-chartered financial
institutions, including savings banks and their subsidiaries, have generally
been limited to activities as principal and equity investments of the type and
in the amount authorized for national banks, notwithstanding state law. FDICIA
and the FDIC regulations thereunder permit certain exceptions to these
limitations. For example, certain state chartered banks, such as the Bank, may,
with FDIC approval, continue to exercise state authority to invest in common or
preferred stocks listed on a national securities exchange or the Nasdaq National
Market 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
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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.
The FDIC has recently proposed revisions to its regulations governing the
procedures for institutions seeking approval to engage in such activities or
investments. These proposed revisions would, among other things, streamline
certain application procedures for healthy banks and impose certain quantitative
and qualitative restrictions on a bank's dealings with its subsidiaries engaged
in activities not permitted for national bank subsidiaries. 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, other than a mutual to stock conversion, or
undergoes a change in control. As of August 31, 1997, the Bank had $19.8 million
of securities which were subject to such grandfathering authority.
Prompt Corrective Regulatory Action
Federal law requires, among other things, that federal bank regulatory
authorities take "prompt corrective action" with respect to banks that do not
meet minimum capital requirements. For these purposes, the law establishes five
capital categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized.
The FDIC has adopted regulations to implement the prompt corrective
action legislation. Among other things, the regulations define the relevant
capital measures for the five capital categories. An institution is deemed to be
"well capitalized" if it has a total risk-based capital ratio of 10% or greater,
a Tier I risk-based capital ratio of 6% or greater, and a leverage ratio of 5%
or greater, and is not subject to a regulatory order, agreement or directive to
meet and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital ratio of
4% or greater, and generally a leverage ratio of 4% or greater. An institution
is deemed to be "undercapitalized" if it has a total risk-based capital ratio of
less than 8%, a Tier I risk-based capital ratio of less than 4%, or generally a
leverage ratio of less than 4%. An institution is deemed to be "significantly
undercapitalized" if it has a total risk-based capital ratio of less than 6%, a
Tier I risk-based capital ratio of less than 3%, or a leverage ratio of less
than 3%. An institution is deemed to be "critically undercapitalized" if it has
a ratio of tangible equity (as defined in the regulations) to total assets that
is equal to or less than 2%.
"Undercapitalized" banks are subject to growth, capital distribution
(including dividend) and other limitations and are required to submit a capital
restoration plan. A bank's compliance with such plan is required to be
guaranteed by any company that controls the undercapitalized institutions in an
amount equal to the lesser of 5.0% of the bank's total assets when deemed
undercapitalized or the amount necessary to achieve the status of adequately
capitalized. If an "undercapitalized" bank fails to submit an acceptable plan,
it is treated as if it is "significantly undercapitalized." "Significantly
undercapitalized" banks are subject to one or more of a number of additional
restrictions, including but not limited to an order by the FDIC to sell
sufficient voting stock to become adequately capitalized, requirements to reduce
total assets and cease receipt of deposits from correspondent banks or dismiss
directors or officers, and restrictions on interest rates paid on deposits,
compensation of executive officers and capital distributions by the parent
holding company. "Critically undercapitalized" institutions also may not,
beginning 60 days after becoming "critically undercapitalized," make any payment
of principal or interest on certain subordinated debt or extend credit
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for a highly leveraged transaction or enter into any material transaction
outside the ordinary course of business. In addition, "critically
undercapitalized" institutions are subject to appointment of a receiver or
conservator. Generally, subject to a narrow exception, the appointment of a
receiver or conservator is required for a "critically undercapitalized"
institution within 270 days after it obtains such status.
Transactions with Affiliates
Under current federal law, transactions between depository institutions
and their affiliates are governed by Sections 23A and 23B of the Federal Reserve
Act. An affiliate of a savings bank is any company or entity that controls, is
controlled by, or is under common control with the savings bank, other than a
non-banking subsidiary of the bank. In a holding company context, at a minimum,
the parent holding company of a savings bank and any companies which are
controlled by such parent holding company are affiliates of the savings bank.
The FRB has proposed regulations that would treat as an affiliate any subsidiary
of a savings bank that engages in activities not permissible for the parent
savings bank to engage in directly. Generally, Section 23A limits the extent to
which the savings bank or its subsidiaries may engage in "covered transactions"
with any one affiliate to an amount equal to 10% of such savings bank's capital
stock and surplus, and contains an aggregate limit on all such transactions with
all affiliates to an amount equal to 20% of such capital stock and surplus. The
term "covered transaction" includes the making of loans or other extensions of
credit to an affiliate; the purchase of assets from an affiliate, the purchase
of, or an investment in, the securities of an affiliate; the acceptance of
securities of an affiliate as collateral for a loan or extension of credit to
any person; or issuance of a guarantee, acceptance, or letter of credit on
behalf of an affiliate. Section 23A also establishes specific collateral
requirements for loans or extensions of credit to, or guarantees, acceptances on
letters of credit issued on behalf of an affiliate. Section 23B requires that
covered transactions and a broad list of other specified transactions be on
terms substantially the same, or no less favorable, to the savings bank or its
subsidiary as similar transactions with nonaffiliates.
Further, Section 22(h) of the Federal Reserve Act restricts a savings
bank with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings bank, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings bank's total capital and surplus.
Section 22(h) also prohibits loans above amounts prescribed by the appropriate
federal banking agency to directors, executive officers, and shareholders who
control 10% or more of voting securities of a stock savings bank, and their
respective related interests, unless such loan is approved in advance by a
majority of the board of directors of the savings bank. Any "interested"
director may not participate in the voting. The loan amount (which includes all
other outstanding loans to such person) as to which such prior board of director
approval is required, is the greater of $25,000 or 5% of capital and surplus or
any loans over $500,000. Further, pursuant to Section 22(h), loans to directors,
executive officers and principal shareholders must be made on terms
substantially the same as offered in comparable transactions to other persons
except for extensions of credit made pursuant to a benefit or compensation
program that is widely available to the institution's employees and does not
give preference to insiders over other employees. Section 22(g) of the Federal
Reserve Act places additional limitations on loans to executive officers.
Enforcement
The FDIC has extensive enforcement authority over insured savings
banks, including the Bank. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue cease and desist
orders and to remove directors and officers. In general, these enforcement
actions may be initiated in response to violations of laws and regulations and
to unsafe or unsound practices.
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The FDIC has authority under federal law to appoint a conservator or
receiver for an insured savings bank under certain circumstances. The FDIC is
required, with certain exceptions, to appoint a receiver or conservator for an
insured state savings bank if that savings bank was "critically
undercapitalized" on average during the calendar quarter beginning 270 days
after the date on which the savings bank became "critically undercapitalized."
For this purpose, "critically undercapitalized" means having a ratio of tangible
capital to total assets of less than 2%. See "- Prompt Corrective Regulatory
Action." The FDIC may also appoint a conservator or receiver for a state savings
bank on the basis of the institution's financial condition or upon the
occurrence of certain events, including: (i) insolvency (whereby the assets of
the savings bank are less than its liabilities to depositors and others); (ii)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (iii) existence of an unsafe or unsound condition
to transact business; (iv) likelihood that the savings bank will be unable to
meet the demands of its depositors or to pay its obligations in the normal
course of business; and (v) insufficient capital, or the incurring or likely
incurring of losses that will deplete substantially all of the institution's
capital with no reasonable prospect of replenishment of capital without federal
assistance.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and additional 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 for BIF and SAIF deposits currently range
from 0 basis points to 27 basis points, and the FDIC has determined to retain
such range of assessment rates for the first half of 1998. The FDIC is
authorized to raise the assessment rates in certain circumstances including to
maintain or achieve the designated reserve ratio of 1.25%, which requirement the
BIF and the SAIF currently meet. The FDIC has exercised its authority to raise
rates in the past and may raise insurance premiums in the future. If such action
is taken by the FDIC, it could have an adverse effect on the earnings of the
Bank. In addition, recent legislation requires BIF-insured institutions like the
Bank to assist in the payment of Financing Corporation bonds.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound practices,
is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
Division. The management of the Bank does not know of any practice, condition or
violation that might lead to termination of deposit insurance.
Federal Reserve System
The Federal Reserve Board regulations require depository institutions
to maintain non-interest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). The Federal Reserve Board
regulations generally require that reserves be maintained against aggregate
transaction accounts as follows: for that portion of transaction accounts
aggregating $49.3 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $49.3
million, the reserve requirement is $1.5 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 $49.3 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
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requirements. Because required reserves must be maintained in the form of either
vault cash, a non-interest-bearing account at a Federal Reserve Bank or a pass-
through account as defined by the Federal Reserve Board, the effect of this
reserve requirement is to reduce the Bank's interest-earning assets. FHLB System
members are also authorized to borrow from the Federal Reserve "discount
window," but Federal Reserve Board regulations require institutions to exhaust
all FHLB sources before borrowing from a Federal Reserve Bank.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by FDIC regulations, a savings bank has a continuing and
affirmative obligation consistent with its safe and sound operation to help meet
the credit needs of its entire community, including low and moderate income
neighborhoods. The CRA does not establish specific lending requirements or
programs for financial institutions nor does it limit an institution's
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the CRA. The CRA
requires the FDIC, in connection with its examination of a savings institution,
to assess the institution's record of meeting the credit needs of its community
and to take such record into account in its evaluation of certain applications
by such institution. The FIRREA amended the CRA to require, effective July 1,
1990, public disclosure of an institution's CRA rating and requires the FDIC to
provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system, which replaced the five-tiered numerical
rating system. The Bank's latest CRA rating received from the FDIC was
"Satisfactory."
New York State Regulation. The Bank is also subject to provisions of
the New York State Banking Law which impose continuing and affirmative
obligations upon banking institutions organized in New York State to serve the
credit needs of its local community ("NYCRA"), which are substantially similar
to those imposed by the CRA. Pursuant to the NYCRA, a bank must file copies
of all federal CRA reports with the NYBD. The NYCRA also requires the
Superintendent to consider a bank's NYCRA rating when reviewing a bank's
application to engage in certain transactions, including mergers, asset
purchases and the establishment of branch offices or automated teller machines,
and provides that such assessment may serve as a basis for the denial of any
such application. The NYBD has adopted, effective December 3, 1997, new
regulations to implement the NYCRA. The NYBD replaced its process-focused
regulations with performance-focused regulations that are intended to parallel
current CRA regulations of the federal banking agencies and to promote
consistency in CRA evaluations by considering more objective criteria. The new
regulations require a biennual assessment of a bank's compliance with the NYCRA,
utilizing a four-tiered rating system and require the NYBD to make available to
the public such rating and a written summary at the assessment results. The
Bank's latest NYCRA rating received from the NYBD was "Satisfactory."
Federal Home Loan Bank System
On October 24, 1997, the Bank became a member of the FHLB System, which
consists of 12 regional FHLBs. The FHLB provides a central credit facility
primarily for member institutions. The Bank, as a member of the FHLB, is
required to acquire and hold shares of capital stock in the FHLB in an amount at
least equal to 1% of the aggregate principal amount of its unpaid residential
mortgage loans and similar obligations at the beginning of each year, or 1/20 of
its advances (borrowings) from the FHLB, whichever is greater. FHLB advances
must be secured by specified types of collateral and all long-term advances may
only be obtained for the purpose of providing funds for residential housing
finance.
The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. If dividends were reduced, the Bank's net interest
income will likely also be
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reduced. Further, there can be no assurance that the impact of recent or future
legislation on the FHLBs will not also cause a decrease in the value of the FHLB
stock that will be held by the Bank.
Holding Company Regulation
Federal law allows a state savings bank that qualifies as a "qualified
thrift lender" ("QTL"), discussed below, to elect to be treated as a savings
association for purposes of the savings and loan holding company provisions of
the Home Owners' Loan Act, as amended ("HOLA"). Such election would result in
its holding company being regulated as a savings and loan holding company by the
OTS rather than as a bank holding company by the Federal Reserve Board. The Bank
has made such election and has received approval from the OTS to become a
savings and loan holding company. The Company will be regulated as a non-
diversified unitary savings and loan holding company within the meaning of the
HOLA. As such, the Company will be required to register with the OTS and will be
subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS will have enforcement authority over the
Company and its non-savings institution subsidiaries. Among other things, this
authority permits the OTS to restrict or prohibit activities that are determined
to be a serious risk to the subsidiary savings institution. Additionally, the
Bank will be required to notify the OTS at least 30 days before declaring any
dividend to the Company.
As a unitary savings and loan holding company, the Company generally
will not be restricted under existing laws as to the types of business
activities in which it may engage. Upon any non-supervisory acquisition by the
Company of another savings association as a separate subsidiary, the Company
would become a multiple savings and loan holding company and would be subject to
extensive limitations on the types of business activities in which it could
engage. The HOLA limits the activities of a multiple savings and loan holding
company and its non-insured institution subsidiaries primarily to activities
permissible for bank holding companies under Section 4(c)(8) of the Bank Holding
Company Act, as amended ("BHC Act"), subject to the prior approval of the OTS,
and to other activities authorized by OTS regulations. Multiple savings and loan
holding companies are prohibited from acquiring or retaining, with certain
exceptions, more than 5% of a non-subsidiary holding company, or a
non-subsidiary company engaged in activities other than those permitted by the
HOLA. Recently proposed legislation would treat all savings and loan holding
companies as bank holding companies and would limit the activities of such
companies to those permissible for bank holding companies.
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.
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In order to elect and continue to be regulated as a savings and loan
holding company by the OTS (rather than as a bank holding company by the Federal
Reserve Board), the Bank must continue to qualify as a QTL. In order to qualify
as a QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test
("QTL Test"). Under the QTL Test, a savings institution is required to maintain
at least 65% of its "portfolio assets" (total assets less: (i) specified liquid
assets up to 20% of total assets; (ii) intangibles, including goodwill; and
(iii) the value of property used to conduct business) in certain "qualified
thrift investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and related securities) in at least 9 months
out of each 12 month period. A holding company of a savings institution that
fails the QTL test must either convert to a bank holding company and thereby
become subject to the regulation and supervision of the Federal Reserve Board or
operate under certain restrictions. As of August 31, 1997, the Bank maintained
in excess of 80.5% its portfolio assets in qualified thrift investments. The
Bank also met the QTL test in each of the prior 12 months and, therefore, met
the QTL test. Recent legislative amendments have broadened the scope of
"qualified thrift investments" that go toward meeting the QTL test to fully
include credit card loans, student loans and small business loans. A savings
association may also satisfy the QTL test by qualifying as a "domestic building
and loan association" as defined in the Internal Revenue Code of 1986.
New York State Holding Company Regulation. In addition to the federal
holding company regulations, a bank holding company organized or doing business
in New York State may be also subject to regulation under the New York State
Banking Law. The term "bank holding company," for the purposes of the New York
State Banking Law, is defined generally to include any person, company or trust
that directly or indirectly either controls the election of a majority of the
directors or owns, controls or holds with power to vote more than 10% of the
voting stock of a bank holding company or, if the company is a banking
institution, another banking institution, or 10% or more of the voting stock of
each of two or more banking institutions, including commercial banks and state
savings banks and savings and loan associations organized in stock form. In
general, a holding company controlling, directly or indirectly, only one banking
institution will not be deemed to be a bank holding company for the purposes of
the New York State Banking Law. Under New York State Banking Law, the prior
approval of the NYBD is required before: (1) any action is taken that causes any
company to become a bank holding company; (2) any action is taken that causes
any banking institution to become or to be merged or consolidated with a
subsidiary of a bank holding company; (3) any bank holding company acquires
direct or indirect ownership or control of more than 5% of the voting stock of a
banking institution; (4) any bank holding company or subsidiary thereof acquires
all or substantially all of the assets of a banking institution; or (5) any
action is taken that causes any bank holding company to merge or consolidate
with another bank holding company. Additionally, certain restrictions apply to
New York State bank holding companies regarding the acquisition of banking
institutions which have been chartered five years or less and are located in
smaller communities. Officers, directors and employees of New York State bank
holding companies are subject to limitations regarding their affiliation with
securities underwriting or brokerage firms and other bank holding companies and
limitations regarding loans obtained from its subsidiaries. Although the Company
will not be a bank holding company for purposes of New York State law upon the
Effective Date of the Conversion, any future acquisition of ownership, control,
or the power to vote 10% or more of the voting stock of another New York banking
institution or bank holding company would cause it to become such. The Company
has no current plan or arrangement to acquire ownership or control, directly
or indirectly, of 10% or more of the voting stock of another banking
institution.
Interstate Banking and Branching
The Company, as a savings and loan holding company, will be limited
under HOLA with respect to its acquisition of a savings association located in a
state other than New York. In general, a savings and loan holding company may
not acquire an additional savings association subsidiary that is located in a
state other than the home state of its first savings association subsidiary
unless such an interstate acquisition is permitted
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by the statutes of such other state. Many states permit such interstate
acquisitions if the statutes of the home state of the acquiring savings and loan
holding company satisfy various reciprocity conditions. New York is one of a
number of states that permit, subject to the reciprocity conditions of the New
York Banking Law, out-of-state bank and savings and loan holding companies to
acquire New York savings associations.
In contrast, bank holding companies are generally authorized to acquire
banking subsidiaries in more than one state irrespective of any state law
restrictions on such acquisitions. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted
on September 29, 1994, permits approval under the BHC Act of the acquisition of
a bank located outside of the holding company's home state regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
In the past, branching across state lines was not generally available
to a state bank such as the Bank. Out-of-state branches of savings banks are
authorized under the New York Banking Law, but similar authority does not exist
generally under the laws of most other states. The Interstate Banking Act
permitted, beginning June 1, 1997, the responsible federal banking agencies to
approve merger transactions between banks located in different states,
regardless of whether the merger would be prohibited under the law of the two
states. The Interstate Banking Act also permitted a state to "opt in" to the
provisions of the Interstate Banking Act prior to June 1, 1997, and permit a
state to "opt out" of the provisions of the Interstate Banking Act by adopting
appropriate legislation before that date. Accordingly, the Interstate Banking
Act, beginning June 1, 1997, permitted a bank, such as the Bank, to acquire
branches in a state other than New York unless the other state had opted out of
the Interstate Banking Act. The Interstate Banking Act also authorizes de novo
-- ----
branching into another state if the host state enacts a law expressly permitting
out of state banks to establish such branches within its borders.
The Interstate Banking Act may facilitate the further consolidation of
the banking industry. The effect of the Interstate Banking Act on the Bank, if
any, is likely to occur as banking institutions, state legislators, and bank
regulators respond to the new federal regulatory structure. The states will have
to establish appropriate corporate law, tax and regulatory structures to adjust
to the growth of new interstate banks.
Federal Securities Laws
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then be
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock
to be issued in the Conversion does not cover the resale of such shares. Shares
of the Common Stock purchased by persons who are not affiliates of the Company
may be resold without registration. Shares purchased by an affiliate of the
Company will be subject to the resale restrictions of Rule 144 under the
Securities Act. If the Company meets the current public information requirements
of Rule 144 under the Securities Act, each affiliate of the Company who complies
with the other conditions of Rule 144 (including those that require the
affiliate's sale to be aggregated with those of certain other persons) would be
able to sell in the public market, without registration, a number of shares not
to exceed, in any three-month period, the greater of (i) 1% of the outstanding
shares of the Company or (ii) the average weekly volume of trading in such
shares during the
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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.
MANAGEMENT OF THE COMPANY
Directors of the Company
The Board of Directors of the Company is divided into three classes,
each of which contains one-third of the Board. The directors shall be elected by
the stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. James L. Kelley, T. Ronald Quinlan, Jr. and Anthony E. Burke, has a term
of office expiring at the first annual meeting of stockholders, a second class,
consisting of Messrs. William C. Frederick and Maurice K. Shaw, has a term
expiring at the second annual meeting of stockholders and a third class,
consisting of Messrs. Michael F. Manzulli, Godfrey H. Carstens, Jr. and Robert
S. Farrell, has a term of office expiring at the third annual meeting of
stockholders. The biographical information of each Director, except Messrs.
Manzulli and Burke, is set forth under "Management of the Bank - Trustees of the
Bank."
Compensation of the Directors of the Company
Outside directors of the Company will receive an annual retainer of
$15,000. No additional fees will be paid for Board or committee meetings
attended.
Executive Officers of the Company
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names.
<TABLE>
<CAPTION>
Position(s) Held
Name Age(1) With the Company
- ---- --- ----------------
<S> <C> <C>
Michael F. Manzulli 56 Chairman of the Board and Chief Executive Officer
Anthony E. Burke 50 President and Chief Operating Officer
Thomas R. Cangemi 29 Chief Financial Officer and Secretary
Andrew M. Sisock 44 Vice President and Accounting Officer
</TABLE>
- ----------------
(1) As of August 31, 1997.
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Biographical Information
Michael F. Manzulli is Chairman of the Board of Directors and Chief
Executive Officer of the Company and Trustee, President and Chief Executive
Officer of the Bank. Mr. Manzulli has served as a Trustee of the Bank since
1990, and was named President and Chief Executive Officer in June of 1992. Mr.
Manzulli is currently the managing partner of the law firm of Lahr, Dillon,
Manzulli, Kelley & Penett, P.C.
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Mr. Manzulli is also the Chairman of the Staten Island Partnership, Inc., and
serves on the Board of Directors of the Staten Island Economic Development
Corp., St. Elizabeth Ann Nursing Home, the Staten Island Historical Society and
Notre Dame Academy. He is also a member of the Advisory Board of the Salvation
Army - Staten Island. Mr. Manzulli holds a B.S. from Niagara University and a
Bachelor of Law degree from St. John's University School of Law.
Anthony E. Burke. Effective October 20, 1997, Mr. Burke became the
President and Chief Operating Officer of the Company. Prior to joining the
Company, Mr. Burke was a partner for thirteen years with the financial services
industry group of Ernst & Young LLP, where he worked for twenty-five years. Mr.
Burke has represented community banks (including the Bank), international banks,
mortgage banks and real estate ventures, and also has extensive experience in
the mergers and acquisitions area. Mr. Burke is a C.P.A., and is a member of the
American Institute of Certified Public Accountants. He has a B.S. in economics
from St. John's University and an M.B.A. in accounting and finance from the
Columbia University Graduate School of Business.
Thomas R. Cangemi. Effective October 27, 1997, Mr. Cangemi became the
Chief Financial Officer and Secretary of the Company. From December 1996 until
joining the Company, Mr. Cangemi was Senior Vice President, Chief Financial
Officer and Corporate Secretary of a New York-based commercial bank. From
January 1996 until December 1996, he was Director of Corporate SEC Reporting for
an electronics corporation in Boca Raton, Florida. Prior to January 1996, Mr.
Cangemi was Vice President and Chief Financial Officer of a publicly-held
savings and loan holding company and its subsidiary federal savings bank located
in the New York area. Before 1993, Mr. Cangemi was a member of the SEC
Professional Practice Group of KPMG Peat Marwick. Mr. Cangemi holds a B.B.A.
from the School of Professional Accountancy at Dowling College, and is a C.P.A.
and a member of the American Institute of Certified Public Accountants.
Andrew M. Sisock joined the Bank in 1975, and served as Vice President and
Comptroller until 1993, when he was named Senior Vice President and Financial
Comptroller; he was appointed Senior Vice President and Senior Financial Officer
in 1996. Mr. Sisock is also the Vice President - Accounting Officer of the
Company and a Director and Treasurer of both RCSB Corp. and Richmond
Enterprises, Inc. His primary areas of responsibility are overseeing financial
and regulatory reporting, investment policy, interest rate risk policy and
internal controls. Mr. Sisock has a B.S. in Business Administration from
Pennsylvania State University and an M.B.A. in Finance from St. John's
University. Mr. Sisock is a graduate of the National School of Finance and
Management at Fairfield University.
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MANAGEMENT OF THE BANK
Trustees of the Bank
The Directors of the Company are also Trustees of the Bank, with the
exception of Mr. Burke. Upon consummation of the Conversion, the current
Trustees of the Bank will become Directors of the stock chartered Bank. The
following table sets forth certain information regarding the Board of Trustees
of the Bank.
<TABLE>
<CAPTION>
Position(s) Held Term
Name Age(1) With the Bank Expires
---- --- ------------- -------
<S> <C> <C> <C>
Godfrey H. Carstens, Jr. 69 Trustee 2000
Robert S. Farrell 71 Trustee 2000
William C. Frederick, M.D. 69 Trustee 1999
James L. Kelley 55 Trustee 1998
Michael F. Manzulli 56 President, Chief Executive 2000
Office and Trustee
T. Ronald Quinlan, Jr. 70 Trustee 1998
Maurice K. Shaw 58 Trustee 1999
</TABLE>
- -------------------
(1) As of August 31, 1997.
Executive Officers of the Bank Who Are Not Trustees
The following table sets forth certain information regarding the
executive officers of the Bank with the exception of Messrs. Manzulli and Sisock
whose background is discussed under "Management of the Company - Biographical
Information."
<TABLE>
<CAPTION>
Position(s) Held
Name Age(1) With the Bank
---- --- -------------
<S> <C> <C>
John M. McKenna 61 Executive Vice President
Stephen G.C. Campbell 54 Senior Vice President and Senior Auditor
Peter J. Esposito 54 Senior Vice President - Commercial Lending
Charles F. Hermann, III 54 Senior Vice President - Special Services
Andrew M. Sisock 44 Senior Vice President and Senior Financial Officer
Nelson C. Sundback 56 Senior Vice President - Information Systems/Operations
Robert J. O'Rourke 60 Vice President - Lending
John J. Amodio 55 Director of Commercial Banking Services
</TABLE>
- ---------------------
(1) As of August 31, 1997.
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<PAGE>
The executive officers of the Bank are elected annually and will hold
office in the converted Bank until the annual meeting of the Board of Directors
of the Bank held immediately after the first annual meeting of stockholders of
the Bank subsequent to Conversion, and until their successors are elected and
qualified or until death, resignation, retirement or removal by the Board of
Directors. Officers are re-elected by the Board of Directors annually.
Biographical Information
Trustees of the Bank
Godfrey H. Carstens, Jr. has served as a Trustee of the Bank since 1973. He is
the owner and president of Carstens Electrical Supply Co., an electrical supply
company located in Staten Island, New York. He is also a member of the Board of
Trustees of Staten Island University Hospital, and of the West Brighton Civic
Association.
Robert S. Farrell has served as a Trustee of the Bank since 1973. He has been
president of H.S. Farrell, Inc., a lumber, millwork and building materials
supply company located in Staten Island, New York, since 1986, and has held
other positions with the firm for over fifty years. He is also a member of the
Board of the Northfield Local Development Corp., and of the Port Richmond Board
of Trade.
William C. Frederick, M.D. has served as a Trustee of the Bank since 1980. Dr.
Frederick is a surgeon in Staten Island and is affiliated with St. Vincent's
Hospital, Staten Island University Hospital and Bayley Seton Hospital.
James L. Kelley has served as a Trustee of the Bank since January 1997. Mr.
Kelley is a partner of the law firm of Lahr, Dillon, Manzulli, Kelley & Penett,
P.C., which serves as general counsel to the Bank. Mr. Kelley holds a B.S. from
St. Peter's College, New Jersey, and a Bachelor of Law degree from St. John's
University School of Law.
T. Ronald Quinlan, Jr. has served as a Trustee since 1978. Mr. Quinlan retired
in 1993 as owner and President of Quinlan Fuel Service, a fuel oil company
located in Staten Island, New York. He is a member of the West Brighton and
Lighthouse Civic Associations.
Maurice K. Shaw has served as a Trustee since 1979. He is Senior Vice President
in charge of corporate affairs of Brooklyn Union Gas Co., where he has been
employed since 1960. Mr. Shaw is a member of the Board of Directors of the
Staten Island Partnership, Inc., the Staten Island Economic Development Corp.
and the Staten Island Chamber of Commerce.
Executive Officers of the Bank Who Are Not Trustees
John M. McKenna joined the Bank in 1992 as Executive Vice President. Mr. McKenna
also serves as a Director and President of RCSB Corp. and Richmond Enterprises,
Inc. Mr. McKenna's primary responsibilities include overseeing the general
operations of the Bank, including finance, information systems, deposits and
facilities. Mr. McKenna has a B.S. from the City University of New York.
Stephen G.C. Campbell joined the Bank in 1980 as assistant vice president and
branch manager and has served in numerous managerial positions. He served as
Senior Vice President and Senior Loan Officer from December 1991 until May of
1997, when he was named Senior Vice President and Senior Auditor. He is
responsible for the administration and management of the Auditing Department.
Mr. Campbell attended
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<PAGE>
Pace College and Rutgers University and is a graduate of the National School of
Finance and Management at Fairfield University.
Peter J. Esposito joined the Bank in 1975 as Real Estate Appraiser and
Inspector. From 1975 to 1979, he served as Assistant Secretary and Senior Real
Estate Appraiser. He was named Assistant Vice President of the Mortgage and
Servicing Department in 1985, and was promoted to the position of Vice President
in Charge of Commercial Real Estate and Construction Lending in 1992. In 1996,
he was appointed Senior Vice President of the aforementioned department, and was
simultaneously named head of the Business Services Division. Mr. Esposito holds
a professional designation as Senior Residential Appraiser with the Appraisal
Institute, formerly the Society of Real Estate Appraisers. He is a graduate of
the Realtor's Institute, Ithaca College. Mr. Esposito is also a licensed
insurance broker and possesses related experience in the construction and real
estate development fields. He currently serves on the Boards of Trustees of both
the South Shore Rotary and the Staten Island chapter of the Leukemia Society and
is involved with numerous charitable organizations.
Charles F. Hermann, III joined the Bank in 1968 and has served the Bank in
various positions. He was appointed Senior Vice President in December 1985 and
currently serves as Senior Vice President - Special Services. He is responsible
for the management of the Insurance and Security Departments of the Bank. Mr.
Hermann is also a Vice President and Director of RCSB Corp. and Richmond
Enterprises, Inc. He is a graduate of the American Institute of Banking and
attended St. John's University.
Nelson C. Sundback joined the Bank in 1968 and has served in numerous managerial
positions. He was named Senior Vice President -- Information Systems/Operations
in November 1993. His primary areas of responsibility include the management and
supervision of the Bank's Operations, Pension, Insurance, ATM and Network
Computer Departments. Mr. Sundback is also Secretary of RCSB Corp. and Richmond
Enterprises, Inc. Mr. Sundback attended St. John's University and the College of
Staten Island. Mr. Sundback is a graduate of the National School of Finance and
Management at Fairfield University and the American Institute of Banking.
John J. Amodio joined the Bank in April 1997 as Director of Commercial Banking
Services. From 1973 to 1980 Mr. Amodio was Senior Vice President, and from 1982
to 1991 was President and Chief Executive Officer of a Staten Island-based
commercial bank. Prior to joining the Bank, he was President of Amodio &
Associates, Ltd., a management consulting organization, from 1991 to 1995, and
was President of TAM Restaurant Group, Inc., a restaurant, catering and
concessions management firm, from 1995 until 1997. Mr. Amodio's primary
responsibility is to direct the development of the Bank's commercial banking
services. Mr. Amodio is a former director and president of the NYS Society of
Certified Public Accountants, Staten Island Chapter, Chairman of the Board of
Meals on Wheels of Staten Island, and is the Chairman of the Staten Island
Rotary Foundation. Mr. Amodio has a B.B.A. in Accounting from Iona College and
is a C.P.A. He is also a graduate of the Commercial Bank Management Program at
Columbia University.
Robert J. O'Rourke joined the Bank in 1996 as Vice President -- Lending. Prior
to joining the Bank, he was President of Robert O'Rourke Inc. Real Estate, a
firm he formed in 1992 which specialized in analysis, appraisal and coordinating
assignments of metropolitan New York area properties for financing and
certiorari purposes. Mr. O'Rourke has over eighteen years of financial
institution experience, the majority as a Senior and Executive Vice President in
charge of the mortgage and real estate department of a New York-based savings
bank. He is an MAI designated member of the Appraisal Institute and a Certified
General Appraiser in New York and New Jersey. He is a licensed real estate
broker in New York and is a member of the New York and Staten Island Real Estate
Boards. Mr. O'Rourke is a member of the Friendly Sons of St. Patrick-New York
and is a board member of the Staten Island Botanical Gardens. Mr. O'Rourke is
primarily
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<PAGE>
responsible for overseeing the residential mortgage and consumer lending
departments of the Bank. Mr. O'Rourke has a B.A. from Fordham University and is
a graduate of the National School of Savings Banking, Fairfield University.
Meetings and Committees of the Boards of the Bank and the Company
The Board of Trustees meets monthly and may have additional special
meetings as may be called by the President or at the written request of three
trustees. During the fiscal year ended June 30, 1997, the Board held twelve
meetings. There are currently eight committees of the Board of Trustees
consisting of the Executive/Finance Committee, the Examining/Audit Committee,
the Residential/Commercial/Construction Committee, the Loan Review Committee,
the Personnel Committee, the Insurance Committee, the By-Laws Committee and the
Buildings & Grounds Committee. Subsequent to the Conversion, the Board of
Trustees may consider and make revisions to the current structure of its
committees.
The Board of Trustees of the Bank has established the following
committees:
The Executive/Finance Committee consists of the entire Board of
Trustees. The purpose of this Committee is to exercise the authority of the
Board of Trustees with respect to matters requiring action between meetings of
the Board of Trustees. Any actions by this Committee requires subsequent
ratification by the Board of Trustees at the next regular meeting. The Committee
meets at least four times per year as well as on an as needed basis.
The Examining/Audit Committee consists of Messrs. Farrell, Frederick,
Quinlan, Shaw and DeForest (Emeritus). The Bank's internal auditor and
compliance officer report to this committee. The duty of this committee is to
examine the records and affairs of the Bank in conformity with the Banking Laws
of the State of New York applying to examinations and the Federal laws and
regulations relating to bank independent audit committees, and to determine the
Bank's true financial condition and its safety and soundness. It inquires into
the policies of management for the purpose of determining whether such policies
are sound and consistent with the requirements of the law and inquires into and
reviews management's responsibility for the Bank's compliance with safety and
soundness laws and regulations, and management's responsibility for the Bank's
system of internal controls, and into such other matters as are necessary to
enable the Trustees to determine whether adequate protection is afforded
depositors and reviews management reports and the reports of the Bank's
independent public accountant. The committee generally meets on a bimonthly
basis and met five times in fiscal 1997.
The Residential/Commercial/Construction Committee consists of Messrs.
Carstens, Farrell, Frederick, Quinlan and Shaw. This committee is responsible
for reviewing and approving mortgage loans, home equity loans, commercial real
estate, construction, and commercial loans in amounts within its designated
authority. The committee generally meets bi-monthly, depending on loan volume,
and met 21 times in fiscal 1997.
The Loan Review Committee consists of Messrs. Carstens, Farrell,
Frederick, Quinlan and Shaw. This committee reviews the workout solutions of
problem loans, and approves the classification of assets and the establishment
of adequate valuation allowances. This committee meets at least semi-annually
and met three times in fiscal 1997.
The Personnel Committee consists of Messrs. Carstens, Farrell,
Frederick and Shaw. This committee is responsible for all matters regarding
compensation and fringe benefits. The committee meets at least semi-annually and
met three times in fiscal 1997.
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<PAGE>
The Insurance Committee consists of Messrs. Carstens, Frederick, Kelley
and Shaw. This committee is responsible for ensuring that adequate insurance
coverage is in place for the Bank's assets and trustees, officers and employees.
The committee meets at least semi-annually and met twice in fiscal 1997.
The Bylaws Committee consists of Messrs. Frederick, Kelley and Quinlan,
and is responsible for reviewing and proposing revisions to the By-Laws of the
Bank, as necessary. The committee meets on an as-needed basis and did not meet
in fiscal 1997.
The Buildings and Grounds Committee consists of Messrs. Carstens,
Farrell, Kelley and Quinlan. This committee is responsible for supervising the
maintenance and upkeep of the Bank's physical plant. This committee meets on an
as-needed basis and did not meet in fiscal 1997.
Additionally, the Bank has a number of other management committees
including the Asset/Liability Committee, the Interest Rate Risk Committee, the
Internal Control Committee, the Risk Management Committee, the Investment
Committee and the Compliance Committee.
The Board of Directors of the Company has established the following
committees: the Audit Committee consisting of Messrs. Farrell, Frederick,
Quinlan and Shaw; the Pricing Committee consisting of the entire Board of
Directors; and the Compensation Committee consisting of Messrs. Carstens,
Farrell, Frederick and Shaw.
Compensation of Trustees
Outside trustees of the Bank receive fees of $1,200 per Board meeting
attended and $650 per Committee meeting attended. Effective January 1, 1998,
outside trustees of the Bank will receive fees of $1,400 per Board meeting
attended and $850 per Committee meeting attended.
Trustees Emeritus
The Bank maintains a Board of Trustees Emeritus which currently
consists of three former Trustees of the Bank. Pursuant to the Bank's bylaws,
Trustees are automatically retired on December 31 of the year they reach age 75
and any Trustee who retires because of such age limitation is eligible to be
elected as a Trustee Emeritus. Trustees Emeritus have no vote and receive the
same meeting fees as Trustees of the Bank.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Bank as well as certain other compensation paid or
accrued for services rendered in all capacities during the fiscal year ended
June 30, 1997, to the Chief Executive Officer and the other executive officer of
the Bank who received salary and bonus in excess of $100,000 ("Named Executive
Officers").
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------
Annual Compensation(1)
------------------------------------
Other
Annual
Name and Principal Compensation
Positions Year Salary Bonus($) ($)(2)
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael F. Manzulli 1997 $324,416 - -
President and Chief Executive
Officer
John M. McKenna 1997 $128,308 $6,500 -
Executive Vice President and
Chief Operating Officer
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Long-Term Compensation
-------------------------------------------------
Awards Payouts
-------------------------------------------------
Securities
Restricted Underlying LTIP All Other
Name and Principal Stock Awards Options/SARs Payouts Compensation
Positions ($)(3) (#)(4) ($)(5) ($)(6)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Michael F. Manzulli - - - $26,980
President and Chief Executive
Officer
John M. McKenna - - - $ 3,102
Executive Vice President and
Chief Operating Officer
</TABLE>
- -------------------------
(1) Under Annual Compensation, the column titled "Salary" includes salary
deferred by the Named Executive Officer under the Bank's 401(k) Plan and the
column titled "Bonus" consists of board approved discretionary bonus as well
as attendance bonuses, loan referral bonuses and recruitment bonuses.
(2) For 1997, there were no (a) perquisites over the lesser of $50,000 or 10% of
the individual's total salary and bonus for the year; (b) payments of above-
market preferential earnings on deferred compensation; (c) payments of
earnings with respect to long-term incentive plans prior to settlement or
maturation; (d) tax payment reimbursements; or (e) preferential discounts on
stock. For 1997, the Bank had no restricted stock or stock related plans in
existence.
(3) Does not include awards pursuant to the Stock Program, which may be granted
in conjunction with a meeting of shareholders of the Company, subject to
regulatory and shareholder approval, as such awards were not earned, vested
or granted in fiscal 1997. For a discussion of the terms of the Stock
Program which is intended to be adopted by the Company, see "- Benefit
Plans - Stock Program." For 1997, the Bank had no stock plans in existence.
(4) No stock options or SARs were earned or granted in 1997. For a discussion of
the Stock Option Plan which is intended to be adopted by the Company, see
"Benefit Plans - Stock Option Plan."
(5) For 1997, there were no payouts or awards under any long-term incentive
plan.
(6) Other compensation includes other benefits such as the Bank's matching
contribution under the Bank's 401(k) Plan, amounts contributed by the Bank
pursuant to the Bank's Supplemental Executive Retirement Plan, and
automobile allowance.
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<PAGE>
Report of Independent Compensation Consultant
Pursuant to the NYBB regulations governing the Conversion, the Bank
must obtain the opinion of an independent compensation consultant as to whether
or not the total compensation for the executive officers, directors or trustees
of the Bank, viewed as a whole and on an individual basis, is reasonable and
proper in comparison to the compensation provided to executive officers,
directors or trustees of similar publicly-traded financial institutions. The
Bank has obtained an opinion from William M. Mercer, Incorporated, which
provides that, based upon published professional survey data of similarly
situated publicly-traded financial institutions operating in the relevant
markets as of November 18, 1997, with respect to the total cash compensation
(base salary and annual incentive) for executive officers and total compensation
for trustees of the Bank, such compensation, viewed as a whole and on an
individual basis, is reasonable and proper in comparison to the compensation
provided to similarly situated publicly-traded financial institutions, and that,
with respect to the amount of shares of Common Stock to be reserved under the
ESOP, the Stock Program and Stock Option Plan, as a whole, such amounts reserved
for granting are reasonable in comparison to similar publicly-traded financial
institutions.
Employment Agreements
Upon the Conversion, the Bank intends to enter into employment
agreements with Mr. Manzulli and four other officers of the Bank (individually,
the "Executive") and the Company intends to enter into employment agreements
with Mr. Manzulli and two other officers of the Company (collectively, the
"Employment Agreements"). The Employment Agreements are intended to ensure that
the Bank and the Company will be able to maintain a stable and competent
management base after the Conversion. The continued success of the Bank and the
Company depends to a significant degree on the skills and competence of the
above referenced officers.
The Employment Agreements provide for either three-year or two-year
terms for each Executive. The terms of the Employment Agreements shall be
extended on a daily basis unless written notice of non-renewal is given by the
Board of Directors. The Employment Agreements provide that the Executive's base
salary will be reviewed annually. The base salary which will be effective for
such Employment Agreement for Mr. Manzulli will be $420,000. In addition to the
base salary, the Employment Agreements provide for, among other things,
participation in stock benefits plans and other fringe benefits applicable to
executive personnel. The agreements provide for termination by the Bank or the
Company for cause, as defined in the Employment Agreements, at any time. In the
event the Bank or the Company chooses to terminate the Executive's employment
for reasons other than for cause, or in the event of the Executive's resignation
from the Bank and the Company upon: (i) failure to re-elect the Executive to his
current offices; (ii) a material change in the Executive's functions, duties or
responsibilities; (iii) a reduction in the benefits and perquisites being
provided to the Executive under the Employment Agreement; (iv) liquidation or
dissolution of the Bank or the Company; or (v) a breach of the agreement by the
Bank or the Company, the Executive or, in the event of death, his beneficiary
would be entitled to receive an amount equal to the remaining base salary
payments due to the Executive for the remaining term of the Employment Agreement
and the contributions that would have been made on the Executive's behalf to any
employee benefit plans of the Bank and the Company during the remaining term of
the agreement. The Bank and the Company would also continue and pay for the
Executive's life, health, dental and disability coverage for the remaining term
of the Agreement. Upon any termination of the Executive, the Executive is
subject to a one year non-competition agreement.
Under the Employment Agreements, if voluntary or involuntary
termination follows a change in control of the Bank or the Company, the
Executive or, in the event of the Executive's death, his beneficiary, would be
entitled to a severance payment equal to the greater of: (i) the payments due
for the remaining
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<PAGE>
terms of the agreement; or (ii) three times the average of the five preceding
taxable years' annual compensation. The Bank and the Company would also continue
the Executive's life, health, and disability coverage for thirty-six months.
Notwithstanding that both the Bank and Company Employment Agreements provide for
a severance payment in the event of a change in control, the Executive would
only be entitled to receive a severance payment under one agreement.
Payments to the Executive under the Bank's Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Bank. Payment under the Company's Employment Agreement would be made by the
Company. All reasonable costs and legal fees paid or incurred by the Executive
pursuant to any dispute or question of interpretation relating to the Employment
Agreements shall be paid by the Bank or Company, respectively, if the Executive
is successful on the merits pursuant to a legal judgment, arbitration or
settlement. The Employment Agreements also provide that the Bank and Company
shall indemnify the Executive to the fullest extent allowable under New York and
Delaware law, respectively. In the event of a change in control of the Bank or
the Company, the total amount of payments due under the Agreements, based solely
on cash compensation paid to the officers who will receive Employment Agreements
over the past five fiscal years and excluding any benefits under any employee
benefit plan which may be payable, would be approximately $3.0 million.
Change in Control Agreements
Upon Conversion, the Bank intends to enter into two-year Change in
Control Agreements (the "CIC Agreements") with Mr. McKenna and four other
officers, none of whom will be covered by employment contracts. Commencing on
the first anniversary date and continuing on each anniversary thereafter, the
Bank CIC Agreements may be renewed by the Board of Directors of the Bank for an
additional year. The Bank's CIC Agreements will provide that in the event
voluntary or involuntary termination follows a change in control of the Company
or the Bank, the officer would be entitled to receive a severance payment equal
to two times the officer's average annual compensation for the five most recent
taxable years. The Bank would also continue and pay for the officer's life,
health and disability coverage for twenty-four months following termination. In
the event of a change in control of the Company or the Bank, the total payments
that would be due under the CIC Agreements, based solely on the current annual
compensation paid to the officers covered by the CIC Agreements and excluding
any benefits under any employee benefit plan which may be payable, would be
approximately $800,000.
Employee Severance Compensation Plan
The Bank's Board of Directors intends to, upon Conversion, establish
the Richmond County Savings Bank Employee Severance Compensation Plan
("Severance Plan") which will provide eligible employees with severance pay
benefits in the event of a change in control of the Bank or the Company
following Conversion. Management personnel with Employment Agreements or CIC
Agreements are not eligible to participate in the Severance Plan. Generally,
employees are eligible to participate in the Severance Plan if they have
completed at least one year of service with the Bank. The Severance Plan vests
in each participant a contractual right to the benefits such participant is
entitled to thereunder. Under the Severance Plan, in the event of a change in
control of the Bank or the Company, eligible employees who are terminated from
or terminate their employment within one year (for reasons specified under the
Severance Plan), will be entitled to receive a severance payment. If the
participant, whose employment has terminated, has completed at least one year of
service, the participant will be entitled to a cash severance payment equal to
one-twelfth of annual compensation for each year of service up to a maximum of
199% of annual compensation. Such payments may tend to discourage takeover
attempts by increasing costs to be incurred by the Bank in the event of a
takeover. In the event the provisions of the Severance Plan are triggered, the
total amount of payments that would be due thereunder, based solely upon current
salary levels, would be approximately $4.6
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<PAGE>
million. However, it is management's belief that substantially all of the Bank's
employees would be retained in their current positions in the event of a change
in control, and that any amount payable under the Severance Plan would be
considerably less than the total amount that could possibly be paid under the
Severance Plan.
Benefit Plans
Retirement Plan. The Bank sponsors a defined benefit pension plan known
as The Retirement Plan of Richmond County Savings Bank in RSI Retirement Trust
("Retirement Plan"). The Retirement Plan is intended to satisfy the tax
qualification requirements of Section 401(a) of the Code.
Employees generally become eligible to participate in the Retirement
Plan upon their attainment of age 21 and the completion of one year of
eligibility service. The plan defines a year of eligibility service as a
12-month period, coinciding with the employee's anniversary during which an
employee completes 1,000 hours of service. The Retirement Plan excludes from
becoming eligible to participate employees (i) paid on an hourly-rate or
contract basis, (ii) regularly employed outside the Bank's own offices in
connection with the operation and maintenance of building and other property
acquired through foreclosure or deed, or (iii) leased employees.
The Retirement Plan provides for a normal retirement benefit to
participants upon retirement at or after the later of (i) attainment of age 65
or (ii) the fifth anniversary of initial participation in the plan. The annual
normal retirement benefit for a participant under the Retirement Plan equals the
sum of (i) 1.67% of the "Average Annual Earnings" (as defined in the plan)
multiplied by the participant's "Credited Service" (as defined by the plan) (up
to a maximum of 35 years); plus (ii) 0.23% of the participant's Average Annual
Earnings, which exceed the participant's "Covered Compensation" (as defined by
the plan) multiplied by the participant's credited service (up to maximum of 35
years); plus (iii) 1% of the participant's Average Annual Earnings, multiplied
by the participant's Credited Service which exceeds 35 years.
A participant may also become eligible to receive an early retirement
benefit upon the completion of at least ten consecutive years of "Vested
Service" (as defined in the plan) with the Bank and (i) attainment of age 60, or
(ii) completion of 30 years of vested service, or (iii) at the time the sum of
the participant's age and Vested Service equals or exceeds 85. Early retirement
benefits are generally calculated in the same manner as a participant's normal
retirement benefits but may be actuarially reduced if paid prior to the
participant's "Normal Retirement Date" (as defined by the plan). Participants
generally become vested in their benefits under the Retirement Plan upon
completing at least five years of Vested Service.
The plan generally pays benefits in the form of a straight life annuity
with respect to unmarried participants and in the form of a 50% qualified joint
and survivor annuity (with the spouse as designated beneficiary) for married
participants. Other forms of benefit payments, including a lump sum, are
available under the Retirement Plan.
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The following table sets forth the estimated annual benefits payable
under the Retirement Plan upon a participant's retirement at age 65 for the year
ended June 30, 1997, expressed in the form of a straight life annuity, and any
related amounts payable under the Supplemental Executive Retirement Restoration
Plan (see description below). Covered compensation under the Retirement Plan
basically includes the base salary for participants, and does not consider any
cash bonus amounts. The benefits listed in the table below for the Retirement
Plan and Supplemental Executive Retirement Restoration Plan are not subject to a
deduction for social security benefits or any other offset amount.
<TABLE>
<CAPTION>
Years of Service
Final Average --------------------------------------------------------------------------
Compensation 15 20 25 30 35 40
---------------- --------- ---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$50,000 $13,215 $17,820 $22,025 $26,430 $30,835 $33,335
100,000 27,485 36,820 45,775 54,930 64,085 69,085
150,000 41,715 55,620 69,525 83,430 97,335 104,835
200,000 55,965 74,620 93,275 111,930 130,585 140,585
250,000 70,215 93,820 117,025 140,430 163,835 176,335
300,000 84,486 112,620 140,775 188,930 197,085 212,085
350,000 98,716 131,620 184,525 197,430 230,335 247,835
400,000 112,985 150,830 188,275 225,930 263,335 283,585
450,000 127,215 169,620 212,025 254,430 296,835 319,335
500,000 141,485 188,620 236,775 282,930 330,085 355,085
550,000 155,715 207,820 259,525 311,430 363,335 390,835
</TABLE>
The approximate years of service, as of June 30, 1997, for the named
executive officers are as follows:
<TABLE>
<CAPTION>
Years of Service
----------------
<S> <C>
John M. McKenna......................................... 5
Michael F. Manzulli..................................... 5
</TABLE>
401(k) Plan. The Bank also sponsors the Richmond County Savings Bank
401(k) Savings Plan ("401(k) Plan"), a tax-qualified profit sharing and salary
reduction plan under Sections 401(a) and 401(k) of the Code. Generally,
employees other than (i) employees compensated on an hourly, daily, commission,
fee or retainer basis or (ii) leased employees become eligible to participate in
the 401(k) Plan upon the attainment of age 21 and the completion of one year of
service (i.e., 12 months of service). Under the 401(k) Plan, participants may
make salary reduction contributions equal to 2% to 9% of their compensation or
the legally permissible limit (currently $9,500). The Bank matches 50% of the
first 6% of compensation deferred by a participant.
Participants are always 100% vested in their salary reduction
contributions. Participants become 20% vested in Bank matching contributions
after the completion of two years of service with the Bank. Participants' vested
interest in Bank matching contribution increase by 20% for each additional year
of service completed, so that after the completion of 6 years of service,
participants are 100% vested in Bank
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matching contributions. A participant who terminates employment due to death,
disability, or retirement immediately becomes fully vested in the Bank's
matching contributions credited to his or her account regardless of the
participant's years of service. A participant's vested portion of his or her
401(k) Plan account is distributable from the 401(k) Plan upon the termination
of the participant's employment, death, disability or retirement. In addition, a
participant may be eligible for hardship withdrawals and loans under the 401(k)
Plan. Any distribution made to a participant prior to the participant's
attainment of age 59 1/2 is subject to a 10% excise tax in addition to federal
income taxes. The Board of Directors may at any time discontinue the Bank's
contributions to employee accounts. For the years ended June 30, 1997, 1996 and
1995, the Bank's matching contributions to the 401(k) Plan were $136,000,
$133,000 and $118,000, respectively.
The 401(k) Plan permits participants to direct the investment of their
401(k) plan account into various investment alternatives. The investment
accounts are valued daily and participants are provided with information
regarding the market value of the participant's investments and all
contributions made on his or her behalf on at least a quarterly basis. In
connection with the Conversion, the Bank intends to amend the 401(k) Plan to
permit participants to invest in an "Employer Stock Fund" as one of the
investment alternatives. The Employer Stock Fund will be invested primarily in
shares of Common Stock. The trustee may follow the voting directions of 401(k)
Plan participants investing in the Employer Stock Fund; provided that the
trustee determines such voting is consistent with its fiduciary duties. However,
the trustee is not required to follow the voting directions of the 401(k) Plan
participants with respect to Common Stock held in the Employer Stock Fund.
ESOP. In connection with the Conversion, the Bank also intends to
implement an employee stock ownership plan. An ESOP is a tax-qualified
retirement plan designed to invest primarily in employer securities. The Bank
will make contributions to the ESOP on behalf of all ESOP participants. The ESOP
will provide eligible employees with the opportunity to receive a Bank-funded
retirement benefit based primarily on the value of the Common Stock. All
eligible employees of the Bank and its affiliates, including the Company, as of
the effective date of the Conversion, will be eligible to participate in the
ESOP. Subsequently, all eligible employees of the Bank and its affiliates,
including the Company, will be eligible to participate in the ESOP upon the
attainment of age 21 and the completion of one year of service with the
Bank.
The Bank expects the ESOP to purchase 8.0% of the Common Stock issued
in connection with the Conversion, including the issuance of shares to the
Foundation. As part of the Conversion and in order to fund the ESOP's purchase
of the Common Stock issued in the Conversion, the ESOP intends to borrow funds
from the Company equal to 100% of the aggregate purchase price of the Common
Stock. Alternatively, the Company and Bank may choose to fund the ESOP's
purchase of stock through a loan from a third-party financial institution. The
Common Stock purchased by the ESOP with the loan proceeds will serve as
collateral for the loan, as described below. The term of the ESOP loan will be
20 years and the trustee will repay the loan principally from the Company's or
the Bank's contributions to the ESOP. Additionally, any dividends that may be
paid on unallocated stock held by the ESOP will also be used to repay the ESOP
loan. Subject to receipt of any necessary regulatory approvals or opinions, the
Bank may make additional contributions to the ESOP for repayment of the loan or
to reimburse the Company for contributions made by it. The interest rate for the
loan is expected to be at or near the prime rate.
Shares of Common Stock purchased by the ESOP with the loan proceeds
will initially be pledged as collateral for the loan and will be held in a
suspense account until released for allocation among participants as the loan is
repaid. The trustee will release the pledged shares annually from the suspense
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<PAGE>
account in an amount proportional to the repayment of the ESOP loan for each
plan year. The released shares will then be allocated to the accounts of ESOP
participants based on each participant's compensation relative to all
participants' compensation. Participants will vest in their ESOP account at a
rate of 20% annually commencing after the completion of 2 years of service, with
100% vesting upon the completion of 6 years of service. Participants will also
become fully vested in their accounts if their service terminates due to death,
retirement, disability, or upon the occurrence of a change in control. The ESOP
may reallocate forfeitures among remaining participants, in the same proportion
as contributions. Benefits under the ESOP will become payable upon death,
retirement, or separation from service. The annual contributions to the ESOP are
not fixed, so benefits payable under the ESOP cannot be estimated.
In connection with the establishment of the ESOP, the Board of
Directors will appoint a Committee of the Board of Directors and officers of the
Bank to administer the ESOP (the "ESOP Committee"). The Bank anticipates that
this Committee will appoint an unrelated trustee for the ESOP and the 401(k)
Plan Employer Stock Fund prior to the Conversion. The ESOP Committee may
instruct the trustee regarding investment of funds contributed to the ESOP and
the 401(k) Plan Employee Stock Fund. The ESOP trustee, subject to its fiduciary
duties, must vote all allocated shares held in the ESOP in accordance with the
instructions of the participating employees. Subject to its fiduciary duties
under the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
the trustee will vote unallocated shares and allocated shares for which
participants provide no instructions in a manner calculated to most accurately
reflect the instructions it has received from participants regarding the
allocated stock for which it has received instructions.
Supplemental Executive Retirement Plan. The Bank also maintains a
non-qualified deferral compensation plan, known as the Richmond County Savings
Bank Supplemental Executive Retirement Plan (the "SERP"). The SERP provides
certain employees with supplemental retirement income from the Bank when such
amounts cannot be paid from the tax-qualified Retirement Plan or 401(k) Plan.
Participants in the SERP receive a benefit equal to the amount they would have
received under the Retirement Plan and the 401(k) Plan, but for reductions in
such benefits imposed by operation of Sections 401(a)(17), 401(m), 401(k)(3),
402(g) and 415 of the Code. The Bank will amend the SERP to provide participants
with supplemental benefits intended to make up for reductions imposed on the
ESOP by operation of Sections 401(a), 401(m) and/or 415 of the Code. The SERP is
an unfunded plan, providing participants only with a contractual right to obtain
the benefits provided thereunder from the general assets of the Bank. Currently,
only Mr. Manzulli is eligible to participate in the SERP.
Management Supplemental Executive Retirement Plan. The Bank intends to
implement a non-qualified Management Supplemental Executive Retirement Plan
("MSERP") to provide certain officers and highly compensated employees of the
Bank and its affiliates, including the Company, with additional retirement
benefits. The MSERP benefit is intended to make up benefits lost under the ESOP
allocation procedures to participants who retire prior to the complete repayment
of the ESOP loan. At the retirement of a participant, the benefits under the
MSERP are determined by first: (i) projecting the number of shares that would
have been allocated to the participant under the ESOP if they had been employed
throughout the period of the ESOP loan (measured from the participant's first
date of ESOP participation); and (ii) first, reducing the number determined by
(i) above by the number of shares actually allocated to the Participant's
account under the ESOP; and second, by multiplying the number of shares that
represent the difference between such figures by the average fair market value
of the Common Stock over the preceding five years. Benefits under the 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 vested portion of the MSERP
Participant's benefits are payable upon the retirement of the Participant upon
or after the attainment of age 65 or in accordance with the requirements of
early retirement under the Retirement Plan.
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The Bank will amend the existing irrevocable grantor's trust
("grantor's trust") established in connection with the SERP to hold the assets
of the MSERP. This trust will be funded with contributions from the Bank for
the purpose of providing the benefits promised under the terms of the MSERP. The
grantor's trust may hold a variety of assets including the Common Stock, other
securities, insurance contracts and cash. The MSERP participants have only the
rights of unsecured creditors with respect to the trust's assets, and will not
recognize income with respect to benefits provided by the MSERP until such
benefits are received by the participants. The assets of the grantor's trust are
considered part of the general assets of the Bank and are subject to the claims
of the Bank's creditors in the event of the Bank's insolvency. Earnings on the
trust's assets are taxable to the Bank.
Stock Option Plan. Following the Conversion, the Board of Directors of
the Company intends to adopt a stock-based benefit plan which would provide for
the granting of options to purchase Common Stock to certain individuals.
Currently, the Company anticipates granting stock options under a single
stock-based incentive plan which will combine the features of the Stock Program
and the Stock Option Plan (the "Master Stock-based Benefit Plan") covering
full-time employees and outside directors of the Company and its affiliates.
However, it is possible that the Company may establish separate option plans
solely for outside directors. At a meeting of stockholders of the Company
following the Conversion, which under applicable NYBB regulations may not be
held earlier than six months after the completion of the Conversion, the Board
of Directors intends to present the Stock Option Plan, or the Master Stock-based
Benefit Plan of which it is a part, to stockholders for approval. The Company
anticipates reserving an amount equal to 10% of the shares of Common Stock
issued in the Conversion, including shares issued to the Foundation (or
2,297,700 shares based upon the issuance of 22,977,000 shares), for issuance
under the Stock Option Plan, or the Master Stock-based Benefit Plan of which it
is a part. If the Company implements an option plan within one year following
completion of the Conversion, NYBB regulations provide that no individual
officer or employee of the Bank may receive more than 25% of the options granted
under the plan and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the options granted under the plan.
NYBB and FDIC regulations also provide that the exercise price of any options
granted under any such plan must equal or exceed the market price of the Common
Stock as of the date of grant. Additionally, OTS regulations, as applied by the
FDIC, provide that with respect to any stock option plan adopted within one year
after conversion, the vesting or exercisability of any options granted under
such a plan may not be accelerated except upon death or disability.
The Company intends to design the stock option benefits provided under
the Stock Option Plan to attract and retain qualified personnel in key
positions, provide officers and key employees with a proprietary interest in the
Company as an incentive to contribute to the success of the Company and reward
key employees for outstanding performance. The Company may condition the
granting or vesting of stock options on the achievement of individual or
Company-wide performance goals, including the achievement by the Company or the
Bank of specified levels of net income, asset growth, return on equity or other
specific financial performance goals. The Company anticipates that the Stock
Option Plan will provide for the grant of: (i) options for employees to purchase
the Company's Common Stock intended to qualify as incentive stock options under
Section 422 of the Code ("Incentive Stock Options"); (ii) options for all
participants that do not qualify as incentive stock options ("Non-Statutory
Stock Options"); and (iii) Limited Option Rights (discussed below) which
participants may exercise only upon a change in control of the Bank or the
Company. Unless sooner terminated, the Stock Option Plan will be in effect for a
period of ten years from the earlier of adoption by the Board of Directors or
approval by the Company's stockholders. Subject to shareholder approval, the
Company intends to grant options with Limited Option Rights at an exercise price
equal to the fair market value of the underlying Common Stock on the date of
grant. Subject to any applicable NYBB and FDIC regulations, upon exercise of
"Limited Option Rights" in the event of a change in control, the employee will
be entitled to receive a lump sum cash payment equal to the difference between
the exercise price of any unexercised option, whether exercisable or
unexercisable at such time, and the fair market value of the shares of common
stock subject to the option on the date of exercise of the right in lieu of
purchasing the stock underlying the option. The Company anticipates that all
options granted contemporaneously with stockholder approval of the Stock Option
Plan will qualify as Incentive Stock Options to the extent permitted under
Section 422 of the Code. A change in control would be defined in the plan
document and would generally occur when a person or group of persons acting in
concert acquires beneficial ownership of 20% or more of any class of equity
security of the Company or the Bank or in the event of a tender or exchange
offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Bank or contested election
of directors which resulted in the replacement of a majority of the Board of
Directors by persons not nominated by the directors in office prior to the
contested election.
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A committee of the Board of Directors will administer the Stock Option
Plan and will determine which officers and employees may receive options and
Limited Rights, whether such options will qualify as Incentive Stock Options,
the number of shares subject to each option, the exercise price of each option,
the manner of exercise of the options and the time when such options become
exercisable.
If the Company adopts the Stock Option Plan in the form described
above, an employee will realize taxable income upon grant or exercise of any
Incentive Stock Option, provided that the employee does not dispose of the
shares received through the exercise of such option for at least one year after
the date the employee receives the stock in connection with the option exercise
and two years after the date of grant of the option (a "disqualifying
disposition"). The Company may not take a compensation expense deduction with
respect to the grant or exercise of Incentive Stock Options, unless the employee
disposes of the shares in a disqualifying disposition. In the case of a
Non-Statutory Stock Option and in the case of a disqualifying disposition of an
Incentive Stock Option, an employee will be deemed to receive ordinary income
upon exercise of the stock option in an amount equal to the amount by which the
fair market value of the Common Stock on the date of exercise exceeds the
exercise price of the option. The amount of taxable income realized by an
optionee upon the exercise of a Non-Statutory Stock Option or due to a
disqualifying disposition of shares acquired through the exercise of an
Incentive Stock Option are a deductible expense for tax purposes by the Company.
Upon the exercise of a Limited Option Right, the option holder realizes taxable
income equal to the amount paid to him or her upon exercise of the right and the
Company receives a deduction equal to that same amount.
Stock options under an option plan adopted by the Company would become
vested and exercisable in the manner specified by the committee responsible for
administering the plan, subject to applicable NYBB and FDIC regulations. The
Company anticipates options granted in connection with the Stock Option Plan
will remain exercisable for at least three months following the date on which
the employee ceases to perform services for the Bank or the Company, except that
in the event of death or disability, in which cases options accelerate and
become fully vested and remain exercisable for up to one year thereafter, or
such longer period as determined by the Company. However, any Incentive Stock
Options exercised more than three months following the date the employee ceases
to perform services as an employee, other than termination due to death or
disability, would be treated for tax purposes as a Non-Statutory Stock Option.
The Company also anticipates that in the event of retirement, if the optionee
continues to perform services as a Director, Director Emeritus or consultant on
behalf of the Bank, the Company or an affiliate, unvested options would continue
to vest in accordance with their original vesting schedule until the optionee
ceases to serve as a Director, Director Emeritus or consultant. If the Stock
Option Plan is adopted in the form described above, the Company, if requested by
the optionee, could elect, in exchange for vested options, to pay the optionee,
or beneficiary in the event of death, the amount by which the fair market value
of the Common Stock exceeds the exercise price of the options on the date of the
employee's termination of employment.
All options granted to outside directors under an option plan must, by
law, be Non-Statutory Stock Options and would vest and become exercisable in a
manner specified by the committee, subject to applicable NYBB and FDIC
regulations, and would expire upon the earlier of ten years following the date
of grant or one year following the date the optionee ceases to be a Director,
Director Emeritus or consultant. In the event of the death or disability of a
participant, all previously granted options would immediately vest and become
fully exercisable.
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Stock Program. Following the Conversion, the Company intends to
establish the Stock Program which would provide for the grant of awards of
Common Stock and Limited Stock Rights to officers, directors and employees of
the Company and its affiliates including the Bank, at no cost to the recipient,
as a method of providing officers, employees and non-employee directors of the
Bank and Company with a proprietary interest in the Company in a manner designed
to encourage such persons to remain with the Bank. The benefits under the Stock
Program may be provided for under either a separate plan for officers and
employees and a separate plan for outside directors or under the Master Stock-
based Benefit Plan which would combine the features of the Stock Program with
the Stock Option Plan. The Company intends to present the Stock Program or the
plan of which they are a part, for stockholder approval at a meeting of
stockholders, which pursuant to applicable NYBB regulations, may be held no
earlier than six months after the completion of the Conversion.
The Bank or Company expects to contribute funds to the Stock Program to
enable such plan or a trust established for such plan, to acquire, in the
aggregate, an amount equal to 4% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 919,080 shares based
upon the issuance of 22,977,000 shares). The Company will acquire these shares
through open market purchases, if permitted, or from authorized but unissued
shares. Although no specific award determinations have been made, the Company
anticipates that it will provide stock awards to the directors and employees of
the Company or Bank or their affiliates to the extent permitted by applicable
regulations. Shares of Common Stock granted pursuant to the Stock Program will
be awarded at no cost to the recipients. NYBB regulations provide that, to the
extent the Company implements the Stock Program within one year after the
Conversion, no individual employee may receive more than 25% of the shares of
any plan and non-employee directors may not receive more than 5% of any plan
individually or 30% in the aggregate for all directors. Additionally, OTS
regulations, as applied by the FDIC, provide that with respect to any stock
option plan adopted within one year after conversion, the vesting or the
exercisability of any options granted under such a plan may not be accelerated
except upon death or disability.
A committee of the Board of Directors will administer the Stock Program
or the plan of which they are a part. Stock awards will not be transferable or
assignable. The Board intends to appoint an independent fiduciary to serve as
trustee of a trust established pursuant to the Stock Program. The Company may
make allocations and grants to officers and employees under the Stock Program in
the form of non performance-based grants and/or performance-based grants. The
Company may make the granting or vesting of stock awards under the Stock Program
conditioned upon the achievement of individual or Company-wide performance
goals, including the Company's or Bank's achievement of specified levels of net
income, return on assets, return on equity or other specified financial
performance goals and will be subject to applicable NYBB and FDIC regulations,
if any.
In the event of death, awards of Common Stock will become 100% vested.
In the event of disability, grants would be 100% vested upon termination of
employment of an officer or employee, or upon termination of service as a
director. In the event of retirement, if the participant continues to perform
services as a Director, Director Emeritus or consultant on behalf of the Bank,
the Company or an affiliate or, in the case of a retiring Director, Director
Emeritus, or as a consulting director, unvested grants will continue to vest in
accordance with their original vesting schedule until the recipient ceases to
perform such services at which time any unvested grants would lapse.
Limited Stock Rights would be exercisable by participants only upon a
change in control of the Company or Bank as described in the Plan. Subject to
any applicable NYBB or FDIC regulations, upon the exercise of a Limited Stock
Right, the recipient will be entitled to receive a cash payment equal to the
fair market value of all unvested stock awards in exchange for any rights to
such unvested stock awards.
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A change in control is expected to be defined in the plan document to
generally occur when a person or group of persons acting in concert acquires
beneficial ownership of 20% or more of a class of equity securities of the
Company or the Bank or in the event of a tender or exchange offer, merger or
other form of business combination, sale of all or substantially all of the
assets of the Company or the Bank or contested election of directors which
results in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
When shares become vested in accordance with the stock programs
described above, the participants will recognize taxable income equal to the
fair market value of the Common Stock at that time. The Company may take a
deduction equal to that amount for the year in which it becomes taxable to the
individual. When shares become vested and are actually distributed in accordance
with the Stock Program, the participants also receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of grants
may direct the voting of the shares awarded to them. Shares not subject to
grants and shares allocated subject to the achievement of performance goals will
be voted by the trustee of the Stock Program, or the plan of which they are a
part, in accordance to the directions provided by individuals with respect to
shares subject to grants. Vested shares will be distributed to recipients as
soon as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired by
the Stock Program after the Conversion, the interests of existing shareholders
would be diluted. See "Pro Forma Data."
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Bank's policies do not permit the Bank to make loans to any of its
Trustees. Two of the Bank's Trustees have loans with the Bank that predate their
becoming Trustees. Federal regulations require that all loans or extensions of
credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features. In
addition, loans made to a director or executive officer in excess of the greater
of $25,000 or 5% of the Bank's capital and surplus (up to a maximum of $500,000)
must be approved in advance by a majority of the disinterested members of the
Board of Trustees.
The Bank currently makes loans to its executive officers on the same
terms and conditions offered to the general public. The Bank's policy provides
that all loans made by the Bank to its executive officers be made in the
ordinary course of business, on substantially the same terms, including
collateral, as those prevailing at the time for comparable transactions, with
other persons and may not involve more than the normal risk of collectability or
present other unfavorable features. In addition, the law firm of Lahr, Dillon,
Manzulli, Kelley & Penett, P.C. has a mortgage loan with the Bank. Such loan was
made by the Bank in the ordinary course of business, with no favorable terms and
did not involve more than the normal risk of collectability or present
unfavorable features. During fiscal 1997, the law firm of Lahr, Dillon,
Manzulli, Kelley & Penett, P.C. provided legal representation to the Bank for
which it was paid approximately $139,000 for legal fees and related services.
Mr. Manzulli and Mr. Kelley are partners with the firm.
The Company intends that all transactions between the Company and its
executive officers, directors, holders of 10% or more of the shares of any class
of its Common Stock and affiliates thereof, will contain terms no less favorable
to the Company than could have been obtained by it in arms-length negotiations
with unaffiliated persons and will be approved by a majority of independent
outside directors of the Company not having any interest in the transaction.
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SUBSCRIPTIONS BY EXECUTIVE OFFICERS, DIRECTORS AND TRUSTEES
The following table sets forth the number of shares of Common Stock
that the executive officers, Trustees and Directors, and their associates,
propose to purchase, assuming shares of Common Stock are issued at the minimum
and maximum of the Estimated Price Range (including shares issued to the
Foundation) and that sufficient shares will be available to satisfy their
subscriptions. The table also sets forth the total expected beneficial ownership
of Common Stock as to all Trustees, Directors and executive officers as a group.
<TABLE>
<CAPTION>
AT THE MINIMUM AT THE MAXIMUM
OF THE ESTIMATED OF THE ESTIMATED PRICE
PRICE RANGE(1) RANGE(1)
-------------------------- ---------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- --------------------------------------------- ------------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Anthony E. Burke $250,000 25,000 0.15% 25,000 0.11%
Godfrey H. Carstens, Jr. 250,000 25,000 0.15 25,000 0.11
Robert S. Farrell 150,000 15,000 0.09 15,000 0.07
William C. Frederick, M.D. 250,000 25,000 0.15 25,000 0.11
James L. Kelley (2) 250,000 25,000 0.15 25,000 0.11
Michael F. Manzulli (2) 250,000 25,000 0.15 25,000 0.11
T. Ronald Quinlan, Jr. 100,000 10,000 0.06 10,000 0.04
Maurice K. Shaw 200,000 20,000 0.12 20,000 0.09
John M. McKenna 100,000 10,000 0.06 10,000 0.04
Thomas R. Cangemi 250,000 25,000 0.15 25,000 0.11
Stephen G.C. Campbell 75,000 7,500 0.04 5,000 0.03
Peter J. Esposito 75,000 7,500 0.04 7,500 0.03
Charles F. Hermann, III 125,000 12,500 0.07 12,500 0.05
Andrew M. Sisock 100,000 10,000 0.06 10,000 0.04
Nelson C. Sundback 100,000 10,000 0.06 10,000 0.04
Robert J. O'Rourke 75,000 7,500 0.04 7,500 0.03
-------- ------ ---- ------ ----
All Directors and Executive Officers as a
group (17 persons)........................... $2,600,000 260,000 1.53% 260,000 1.13%
========== ======= ===== ======= =====
</TABLE>
- ----------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
orders by the ESOP. Intended purchases by the ESOP are expected to be 8.0%
of the shares issued in the Conversion, including shares issued to the
Foundation. Also does not include Common Stock sold, Common Stock which may
be awarded under the Stock Program to be adopted equal to 4% of the Common
Stock issued in the Conversion, including shares issued to the Foundation,
and Common Stock which may be purchased pursuant to options which may be
granted under the Stock Option Plan equal to 10% of the number of shares of
Common Stock issued in the Conversion, including shares issued to the
Foundation.
(2) Does not include proposed subscriptions of $250,000 for a retirement plan
trust, the trustees of which include Messrs. Kelley and Manzulli. Including
such subscriptions, the total amount of subscriptions of trustees,
directors, executive officers and their associates would be $2.9 million.
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THE CONVERSION
THE SUPERINTENDENT OF BANKS OF THE STATE OF NEW YORK HAS APPROVED THE
PLAN OF CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S ELIGIBLE ACCOUNT
HOLDERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL
DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY
THE SUPERINTENDENT.
General
On July 31, 1997, the Bank's Board of Trustees adopted the Plan of
Conversion pursuant to which the Bank will be converted from a New York State
chartered mutual savings bank to a New York State chartered stock savings bank
which was amended by the Board on November 20, 1997. It is currently intended
that all of the capital stock of the Bank will be held by the Company, which is
incorporated under Delaware law. The Plan has been approved by the
Superintendent and the Bank has received a notice of intent not to object to the
Plan from the FDIC, subject to, among other things, approval of the Plan by the
Bank's Voting Depositors (defined in the Plan as a depositor holding one or more
deposit accounts with the Bank with an aggregate balance of $100 or more as of
the close of business on the Voting Record Date, which has been fixed by the
Bank's Board of Trustees as September 30, 1997). A special meeting of Voting
Depositors has been called for this purpose to be held on _______, 1997.
The Company has received approval from the OTS to become a
savings and loan holding company and to acquire all of the common stock of the
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Bank to be issued in the Conversion. The
Conversion will be effected only upon completion of the sale of all of the
shares of Common Stock of the Company or all of the common stock of the Bank, if
the holding company form of organization is not utilized, to be issued in the
Conversion.
The Plan provides that the Board of Trustees of the Bank, at any time
prior to the issuance of the Common Stock and for any reason, may decide not to
use the holding company form of organization in implementing the Conversion.
Such reasons may include possible delays resulting from overlapping regulatory
processing, or policies or conditions, which could adversely affect the Bank's
or the Company's ability to consummate the Conversion and transact its business
after the Conversion as contemplated herein and in accordance with the Bank's
operating policies. In the event that such a decision is made, the Bank will
withdraw the Company's registration statement from the SEC and will take all
steps necessary to complete the Conversion without the Company, including filing
any necessary documents with the Superintendent, FDIC, and any other appropriate
regulatory authority. In such event, and provided there is no regulatory action,
directive or other consideration upon which basis the Bank determines not to
complete the Conversion, if permitted by the Superintendent, the Bank will issue
and sell the common stock of the Bank and subscribers will be notified of the
elimination of the Company and resolicited (i.e., be permitted to affirm their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
funds will be promptly refunded with interest, or be permitted to modify or
rescind their subscriptions) and notified of the time period within which the
subscriber must affirmatively notify the Bank of his intention to affirm, modify
or rescind his subscription. The following description of the Plan assumes that
a holding company form of organization will be used in the Conversion. In the
event that a holding company form of organization is not used, all other
pertinent terms of the Plan as described below will apply to the conversion of
the Bank from the mutual to stock form of organization and the sale of the
Bank's common stock.
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The Plan provides generally that (i) the Bank will convert from a
mutual savings bank to a capital stock savings bank and (ii) the Company will
offer Common Stock for sale in the Subscription Offering to Eligible Account
Holders, the ESOP, and Supplemental Eligible Account Holders. Upon completion of
the Subscription Offering, the Company will offer any shares of Common Stock not
subscribed for in the Subscription Offering in the Community Offering to certain
members of the general public, subject to the other limitations described
herein. It is anticipated that all shares not subscribed for in the Subscription
and Community Offerings will be offered for sale by the Company to the general
public in a Syndicated Community Offering. The Bank and Company have the right
to accept or reject, in whole or in part, any orders to purchase shares of the
Common Stock received in the Community Offering or Syndicated Community
Offering, provided that such rejection is not in contravention of any law or
regulation.
The aggregate price of the shares of Common Stock to be sold in the
Conversion will be determined based upon an independent appraisal prepared by
Keller & Company, Inc. of the estimated pro forma market value of the Common
Stock giving effect to the Conversion. All shares of Common Stock to be issued
and sold in the Conversion will be sold at the same price. Keller's independent
appraisal will be updated and the final price of the shares will be determined
at the completion of the Subscription Offering, if all shares are subscribed
for, or at the completion of the Community and/or the Syndicated Community
Offering. The independent appraisal has been performed by Keller, a consulting
firm experienced in the valuation and appraisal of savings institutions. See "-
Stock Pricing" for a determination of the estimated pro forma market value of
the Common Stock.
The following is a brief summary of material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available upon written request from the Bank and is
available for inspection at each branch office of the Bank and at the office of
the Superintendent. The Plan is also filed as an Exhibit to the Registration
Statement of which this Prospectus is a part, copies of which may be obtained
from the SEC. See "Additional Information."
Establishment of Charitable Foundation
General. In furtherance of the Bank's commitment to its local
community, the Plan of Conversion provides for the establishment of a charitable
foundation in connection with the Conversion. The Plan provides that the Bank
and the Company will establish the Foundation, which will be incorporated under
Delaware law as a non-stock corporation, and will fund the Foundation with
Common Stock of the Company, as further described below. The Company and the
Bank believe that the funding of the Foundation with Common Stock of the Company
is a means of establishing a common bond between the Bank and its community and
thereby enables the Bank's community to share in the potential growth and
success of the Company over the long term. By further enhancing the Bank's
visibility and reputation in its local community, the Bank believes that the
Foundation will enhance the long-term value of the Bank's community banking
franchise. The Foundation will be dedicated to charitable purposes within the
Bank's local community, including community development activities.
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable causes and community development activities. In
recent years, the Bank has emphasized community lending and community
development activities within the Bank's local community. The Bank received a
satisfactory CRA rating in its last CRA examination. The Foundation is being
formed as a complement to the Bank's existing community activities, not as a
replacement for such activities. The Bank intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Bank's sole corporate purpose. The
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in ways that are not presently available to the Bank. Since the Bank has a
Satisfactory record of serving its community under the CRA and already engages
in community
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development activities, the Bank believes that the Foundation will enable the
Company and the Bank to assist their local community in areas beyond community
development and lending. The Bank believes the establishment of the Foundation
will enhance its current activities under the CRA. In this regard, the Board of
Trustees believes the establishment of a charitable foundation is consistent
with the Bank's commitment to community service. The Board further believes that
the funding of the Foundation with Common Stock of the Company is a means of
enabling the Bank's community to share in the potential growth and success of
the Company long after completion of the Conversion. The Foundation will
accomplish that goal by providing for continued ties between the Foundation and
Bank, thereby forming a partnership with the Bank's community. The establishment
of the Foundation will also enable the Company and the Bank to develop a unified
charitable donation strategy and will centralize the responsibility for
administration and allocation of corporate charitable funds. Charitable
foundations have been formed by other financial institutions for this purpose,
among others. The Bank, however, does not expect the contribution to the
Foundation to take the place of the Bank's traditional community lending and
charitable activities.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. Pursuant to the Foundation's Bylaws,
the Foundation's Board of Directors initially will be comprised of eight
members, all of whom are existing Trustees of the Bank or Directors of the
Company; provided, however, in the future, the Board of Directors of the
Foundation will consider expanding the Foundation Board to include one or more
members of the community who are not officers, Directors or employees of the
Company or Bank . A Nominating Committee of the Board, which is to be comprised
of a minimum of three members of the board, will nominate individuals eligible
for election to the board of directors. The members of the Foundation, who are
comprised of its Board members, will elect the Directors at the annual meeting
of the Foundation from those nominated by the Nominating Committee. Directors
will be divided into three classes with each class appointed for three-year
terms. The certificate of incorporation of the Foundation provides that the
corporation is organized exclusively for charitable purposes, including
community development, as set forth in Section 501(c)(3) of the Code. The
Foundation's certificate of incorporation further provides that no part of the
net earnings of the Foundation will inure to the benefit of, or be distributable
to, its directors, officers or members.
The authority for the affairs of the Foundation will be vested in the
Board of Directors of the Foundation. The Directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the purposes for which
the Foundation was established. Although no formal policy governing Foundation
grants exists at this time, the Foundation's Board of Directors will adopt such
a policy upon establishment of the Foundation. As directors of a nonprofit
corporation, directors of the Foundation will at all times be bound by their
fiduciary duty to advance the Foundation's charitable goals, to protect the
assets of the Foundation and to act in a manner consistent with the charitable
purpose for which the Foundation is established. The Directors of the Foundation
will also be responsible for directing the activities of the Foundation,
including the management of the Common Stock of the Company held by the
Foundation.
The Foundation's place of business will be located at the Company's
administrative offices and initially the Foundation is expected to have no
employees but will utilize the members of the staff of the Company or the Bank.
The Board of Directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation.
The Company intends to capitalize the Foundation concurrent with the
sale of Common Stock of the Company in an amount equal to 8.0% of the total
amount of Common Stock to be sold in connection with the Conversion concurrent
with the sale of Common Stock in the Offerings. At the minimum, midpoint and
maximum of the Estimated Price Range, the contribution to the Foundation would
equal 1,258,000, 1,480,000 and 1,702,000 shares, which would have a market value
of $12.6 million, $14.8 million, and $17.0 million, respectively, assuming the
Purchase Price of $10.00 per share. The Company and the Bank determined to fund
the Foundation with Common Stock rather than cash because it desired to form a
bond with its community in a manner that would allow the community to share in
the potential growth and success of the Company and
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the Bank over the long term. The funding of the Foundation with stock also
provides the Foundation with a potentially larger endowment than if the Company
contributed cash to the Foundation since, as a shareholder, the Foundation will
share in the potential growth and success of the Company. As such, the
contribution of stock to the Foundation has the potential to provide a self-
sustaining funding mechanism which reduces the amount of cash that the Company,
if it were not making the stock donation, would have to contribute to the
Foundation in future years in order to maintain a level amount of charitable
grants and donations.
The Foundation will receive working capital from any dividends that may
be paid on the Company's Common Stock in the future, and subject to applicable
federal and state laws, loans collateralized by the Common Stock or from the
proceeds of the sale of any of the Common Stock in the open market from time to
time as may be permitted to provide the Foundation with additional liquidity. As
a private foundation under Section 501(c)(3) of the Code, the Foundation will be
required to distribute annually in grants or donations, a minimum of 5% of the
average fair market value of its net investment assets. One of the conditions
imposed on the gift of Common Stock by the Company is that the amount of Common
Stock that may be sold by the Foundation in any one year shall not exceed 5% of
the average market value of the assets held by the Foundation, except where the
Board of Directors of the Foundation determines that the failure to sell an
amount of common stock greater than such amount would result in a long-term
reduction of the value of the Foundation's assets and as such would jeopardize
the Foundation's capacity to carry out its charitable purposes. Upon completion
of the Conversion and the contribution of shares to the Foundation immediately
following the Conversion, the Company would have 16,983,000, 19,980,000 and
22,977,000 shares issued and outstanding at the minimum, midpoint and maximum of
the Estimated Price Range. Because the Company will have an increased number of
shares outstanding, the voting and ownership interests of shareholders in the
Company's common stock would be diluted by 7.4%, as compared to their interests
in the Company if the Foundation was not established. For additional discussion
of the dilutive effect, see "Pro Forma Data."
Tax Considerations. The Company and the Bank have been advised by their
independent tax advisors that an organization created for the above purposes
would qualify as a Section 501(c)(3) exempt organization under the Code, and
would likely be classified as a private foundation. The Foundation will submit a
request to the IRS to be recognized as an exempt organization. As long as the
Foundation files its application for tax-exempt status within 15 months from the
date of its organization, and provided the IRS approves the application, the
effective date of the Foundation's status as a Section 501(c)(3) organization
will be the date of its organization. The Company's independent accountants,
however, have not rendered any advice on the regulatory condition to the
contribution agreed to by the Foundation which requires that all shares of
Common Stock of the Company held by the Foundation must be voted in the same
ratio as all other shares of Common Stock of the Company voted on all proposals
considered by stockholders of the Company. The NYBD and the FDIC may waive this
voting restriction under certain circumstances, such as the loss of the tax-
exempt status of the Foundation, but may impose certain additional conditions as
part of granting such waiver. There can be no assurances that the NYBD or the
FDIC will grant a waiver at the voting restriction. See "--Regulatory Conditions
Imposed on the Foundation."
Under Delaware law, the Company is authorized by statute to make
charitable contributions and case law has recognized the benefits of such
contributions to a Delaware corporation. In this regard, Delaware case law
provides that a charitable gift must be within reasonable limits as to amount
and purpose to be valid. Under the Code, the Company may deduct up to 10% of its
taxable income in any one year and any contributions made by the Company in
excess of the deductible amount may be carried forward and deducted in the
Company's five succeeding taxable years, subject, in each such year, to the 10%
of taxable income limitation. The Company and the Bank believe that the
Conversion presents a unique opportunity to establish and fund a charitable
foundation given the substantial amount of additional capital being raised in
the
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Conversion. In making such a determination, the Company and the Bank considered
the dilutive impact of the contribution of Common Stock to the Foundation on the
amount of Common Stock available to be offered for sale in the Conversion. Based
on such consideration, the Company and Bank believe that the contribution to the
Foundation in excess of the 10% annual limitation is justified given the Bank's
capital position and its earnings, the substantial additional capital being
raised in the Conversion and the potential benefits of the Foundation to the
Bank's community. In this regard, assuming the sale of the Common Stock at the
midpoint of the Estimated Price Range, the Company would have pro forma
consolidated capital of $289.6 million or 24.28% of pro forma consolidated
assets and the Bank's pro forma leverage and risk-based capital ratios would be
15.65% and 29.96%, respectively. See "Regulatory Capital Compliance,"
"Capitalization," and "Comparison of Valuation and Pro Forma Information with No
Foundation." Thus, the amount of the contribution will not adversely impact the
financial condition of the Company and the Bank and the Company and the Bank
therefore believe that the amount of the charitable contribution is reasonable
given the Company's and the Bank's pro forma capital positions. As such, the
Company and the Bank believe that the contribution does not raise safety and
soundness concerns.
The Company and the Bank have received an opinion of their independent
tax advisors that the Company's contribution of its own stock to the Foundation
would not constitute an act of self-dealing, and that the Company will be
entitled to a deduction in the amount of the fair market value of the stock at
the time of the contribution, subject to a limitation based on 10% of the
Company's annual taxable income. As discussed above, the Company, however, would
be able to carry forward any unused portion of the deduction for five years
following the contribution. If the Foundation would have been established in
fiscal 1997, the Company would have received a charitable contribution deduction
of approximately $2.1 million (based on the Bank's pre-tax income for fiscal
1997, an assumed tax rate of 47% and a contribution of Common Stock equal to
$17.0 million). The Company is permitted under the Code to carry over the excess
contribution over the five year period following the contribution to the
Foundation. Assuming the close of the Offerings at the midpoint of the Estimated
Price Range, the Company estimates that all of the deduction should be
deductible over the six-year period. Neither the Company nor the Bank expect to
make any further contributions to the Foundation within the first five years
following the initial contribution. After that time, the Company and the Bank
may consider future contributions to the Foundation. Any such decisions would be
based on an assessment of, among other factors, the financial condition of the
Company and the Bank at that time, the interests of shareholders and depositors
of the Company and the Bank, and the financial condition and operations of the
Foundation.
Although the Company and the Bank have received an opinion of their
independent tax advisors that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's tax benefit related to the
contribution to the Foundation would be expensed without tax benefit, resulting
in a reduction in earnings in the year in which the IRS makes such a
determination. See "Risk Factors - Establishment of Charitable Foundation."
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant. The Foundation will also be required to file an
annual report with the Charities Bureau of the Office of the Attorney General of
the State of New York.
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Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following condition to be agreed to by the
Foundation in writing as a condition to receiving the Superintendent's approval
of and the FDIC's non-objection to the Bank's Conversion: (i) the Foundation
will be subject to examination by the NYBD and the FDIC; (ii) the Foundation
must comply with supervisory directives imposed by the NYBD and the FDIC; (iii)
the Foundation will operate in accordance with written policies adopted by the
Foundation's board of directors, including a conflict of interest policy
acceptable to the NYBD; (iv) the Foundation shall not engage in self-dealing and
shall comply with all laws necessary to maintain its tax-exempt status under the
Code; (v) no part of the net earnings of the Foundation shall inure to the
benefit of, or be distributable to, the Foundation's directors, officers or
other private persons except for the payment of reasonable compensation for
services rendered and certain distributions consistent with the proper corporate
purposes; (vi) the Foundation may not participate in any political campaigns;
(vii) the Foundation is prohibited from engaging in any activity which would
cause it to be subject to excise taxes or which would jeopardize its status as a
private foundation under Section 501(c)(3) of the Code; and (viii) any shares of
Common Stock of the Company held by the Foundation must be voted in the same
ratio as all other shares of Common Stock of the Company voted on all proposals
considered by stockholders of the Company; provided, however, the NYBD and the
FDIC may waive this voting restriction under certain circumstances, such as the
loss at the tax-exempt status of the Foundation, but may impose additional
conditions as part of granting of such waiver. There can be no assurances that
the NYBD or the FDIC would grant a waiver, unconditional or otherwise, of the
voting restriction. If the voting restriction is waived or becomes
unenforceable, the NYBD and the FDIC may either impose a condition that provides
a certain portion of the members of the Foundation's board of directors shall be
persons who are not directors, officers or employees of the Company, the Bank or
any affiliate or impose such other conditions relating to control of the
Foundation's Common Stock as is determined by the NYBD to be appropriate at the
time.
Purposes of Conversion
The Bank, as a New York State chartered mutual savings bank, does not
have stockholders and has no authority to issue capital stock. By converting to
the capital stock form of organization, the Bank will be structured in the form
used by commercial banks, most business entities and a growing number of savings
institutions. The Conversion will be important to the future growth and
performance of the Bank by providing a larger capital base on which the Bank may
operate, enhanced future access to capital markets, enhanced ability to
diversify into other financial services related activities and enhanced ability
to render services to the public.
The holding company form of organization would provide additional
flexibility to diversify the Bank's business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock financial institutions, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Company will be in a position after the Conversion,
subject to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise. While there are benefits
associated with the holding company form of organization, such form of
organization may involve additional costs associated with its maintenance and
regulation as a savings and loan company, such as additional administrative
expenses, taxes and regulatory filings or examination fees.
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The potential impact of Conversion upon the Bank's capital base is
significant. At August 31, 1997, the Bank had Tier I Leverage capital of $100.9
million, or 10.10% of total assets. Assuming that $155.4 million of net proceeds
are realized from the sale of Common Stock (see "Pro Forma Data" for the basis
of this assumption) and assuming that 50% of the net proceeds are used by the
Company to purchase the capital stock of the Bank, the Bank's Tier I Leverage
capital would increase to $166.6 million, resulting in a pro forma leverage
capital ratio of 15.65% giving effect to the Conversion. In the event that the
holding company form of organization is not utilized and all the net proceeds,
at the midpoint of the Estimated Price Range, are retained by the Bank, the
Bank's core capital would increase to $256.3 million, resulting in a pro forma
leverage capital ratio of 22.2% at August 31, 1997. The investment of the net
proceeds from the sale of the Common Stock will provide the Bank with additional
income to further increase its capital position.
After completion of the Conversion, the unissued Common Stock and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions and applicable regulatory
approvals, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions. At
the present time, the Company has no plans with respect to additional offerings
of securities, other than the issuance of additional shares upon exercise of
stock options under the Stock Option Plan or the possible issuance of authorized
but unissued shares to the Stock Program. Following the Conversion, the Company
will also be able to use stock-based benefit plans to attract and retain
executive and other personnel for itself and its subsidiaries. See "Management
of the Bank - Executive Compensation."
Effects of Conversion
General. Each depositor in a mutual savings bank has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. Any depositor who opens a deposit
account obtains a pro rata ownership interest in the net worth of the
institution without any additional payment beyond the amount of the deposit. A
depositor who reduces or closes his account receives a portion or all of the
balance in the account but nothing for his ownership interest in the net worth
of the institution, which is lost to the extent that the balance in the account
is reduced.
Consequently, mutual savings bank depositors normally have no way to
realize the value of their ownership interest, which may have realizable value
only in the unlikely event that the mutual savings bank is liquidated. In such
event, the depositors of record at that time, as owners, would have a claim to
share pro rata in any residual surplus and reserves after other claims,
including claims of depositors to the amounts of their deposits, are paid.
When a mutual savings bank converts to stock form, depositors lose all
rights to the net worth of the mutual savings bank, except to the extent
depositors have rights to claim a pro rata share of funds representing the
liquidation account established in connection with the Conversion. Additionally,
permanent nonwithdrawable capital stock is created and offered to depositors
which represents the ownership of the institution's net worth, subject to
certain claims of Eligible Account Holders and Supplemental Eligible Account
Holder with respect to amounts representing the liquidation account. THE COMMON
STOCK IS SEPARATE AND APART FROM DEPOSIT ACCOUNTS AND CANNOT BE AND IS NOT
INSURED BY THE FDIC OR ANY OTHER GOVERNMENTAL AGENCY. Certificates are issued to
evidence ownership of the permanent stock. The stock certificates are
transferable, and therefore the stock may be sold or traded if a purchaser is
available with no effect on any deposit account the seller may hold in the
institution.
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No assets of the Company or the Bank will be distributed in connection
with the Conversion other than pursuant to the payment of expenses incurred in
connection therewith.
Continuity. While the Conversion is being accomplished, the normal
business of the Bank of accepting deposits and making loans will continue
without interruption. The Bank will continue to be subject to regulation by the
Superintendent and the FDIC. After Conversion, the Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The Trustees of the Bank at the time of Conversion will serve as
Directors of the Bank after the Conversion. With the exception of Mr. Burke,
Directors of the Company will consist of the same individuals who will serve on
the Board of Directors of the Bank. All officers of the Bank at the time of
Conversion will retain their positions after the Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of Conversion will automatically continue as a depositor after the
Conversion, and each deposit account will remain the same with respect to
deposit balance, interest rate and other terms. Each such account will be
insured by the FDIC to the same extent as before the Conversion. Depositors will
continue to hold their existing passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as it was contractually fixed prior to the Conversion.
Effect on Voting Rights of Depositors. In its current mutual form,
voting rights and control of the Bank are vested exclusively in the Board of
Trustees. After the Conversion, direction of the Bank will be under the control
of the Board of Directors of the Bank. The Company, as the holder of all of the
outstanding common stock of the Bank, will have exclusive voting rights with
respect to any matters concerning the Bank requiring stockholder approval,
including the election of Directors of the Bank.
After the Conversion, subject to the rights of the holders of preferred
stock that may be issued in the future, the holders of the Common Stock will
have exclusive voting rights with respect to any matters concerning the Company.
Each holder of Common Stock will, subject to the restrictions and limitations
set forth in the Company's Certificate of Incorporation discussed below, be
entitled to vote on any matters to be considered by the Company's stockholders,
including the election of directors of the Company.
Tax Effects. The Bank has received an opinion of counsel with regard to
federal income taxation which indicates that the adoption and implementation of
the Plan of Conversion set forth herein will not be taxable for Federal income
tax purposes to the Bank or its Eligible Account Holders or the Company, subject
to the limitations and qualifications in such opinion. The Bank has also
received an opinion from Ernst & Young LLP that, with respect to New York State
banking and franchise taxes, sales and use taxes, stock transfer taxes and real
property transfer gains taxes, the Conversion will not result in a tax
liability, and, with respect to New York State real estate transfer gains taxes,
a position may be taken that the Conversion is tax free. The opinion of Ernst &
Young LLP does provide that the Company will be required to pay a New York State
license fee as a foreign corporation equal to 1/20% of the apportioned par value
of the Common Stock issued by the Company, subject to the limitations and
qualifications contained in such opinions. See "- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings bank were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would have a claim to receive such remaining assets, pro
rata, based upon the deposit balances in their deposit accounts immediately
prior to liquidation. In the unlikely event that the Bank were to liquidate
after Conversion, all claims of creditors (including those of depositors, to the
extent
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of their deposit balances) would also be paid first, followed by distribution of
the "liquidation account," if any, to certain depositors (as described in "-
Liquidation Rights," below), with any assets remaining thereafter distributed to
the Company as the holder of the Bank's capital stock.
Stock Pricing
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Common Stock,
as determined on the basis of an independent appraisal. The Bank and the Company
have retained Keller to make such appraisal. For its services in making such
appraisal, Keller will receive a fee of $31,000, including fees related to the
preparation of a business plan for the Company and Bank, and will be reimbursed
for certain of its expenses in an amount not to exceed $1,000. The Bank and the
Company have agreed to indemnify Keller and its employees and affiliates against
certain losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as the independent appraiser,
except where Keller's liability results from its negligence or willful
misconduct.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the Bank,
including liquidity, capitalization, asset composition, funding mix, amount of
intangible assets owned, and level of interest rate risk; the economic,
demographic and competitive aspects of the Bank's existing marketing area; the
quality and depth of the Bank's management; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other savings
institutions; the aggregate size of the offering of the Common Stock; the impact
of Conversion on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; the trading market for securities
of comparable institutions and general conditions in the market for such
securities; and recent regulatory matters. In particular, the appraisal
considered the Bank's financial condition and projected and historical operating
results, including income and expense trends, asset size, loan portfolio
composition, non-performing loans and assets, interest rate sensitivity
position, capital position, and yields on assets and costs of liabilities in
comparison to other publicly-traded thrifts with assets greater than or equal to
$200 million and less than or equal to $2.0 billion located in the State of New
York, the states contiguous to New York plus the States of Delaware and
Maryland. The Board of Trustees of the Bank and Board of Directors of the
Company have reviewed the appraisal of Keller in determining the reasonableness
and adequacy of such appraisal consistent with NYBB and FDIC regulations and
have reviewed the methodology and reasonableness of assumptions utilized by
Keller in the preparation of such appraisal and established the Estimated Price
in a manner consistent with this appraisal.
On the basis of the foregoing, Keller has advised the Company and the
Bank that, in its opinion dated as of September 12, 1997, as updated as of
October 31, 1997, the estimated pro forma market value of the Common Stock being
sold in connection with the Conversion ranged from a minimum of $157.3 million
to a maximum of $212.8 million (the "Valuation Price Range") with a midpoint of
$185.0 million. The Board of Trustees established the Estimated Price Range of
$157.3 million to $212.8 million within the Valuation Price Range based on the
issuance of 15,725,000 to 21,275,000 shares at the Purchase Price of $10.00 per
share. The Estimated Price Range may be amended with the approval of the
Superintendent and FDIC, if required, if necessitated by subsequent developments
in the financial condition of the Company or the Bank or market conditions
generally.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS
A RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING SUCH SHARES OF
COMMON STOCK. KELLER DID NOT INDEPENDENTLY VERIFY THE CONSOLIDATED FINANCIAL
STATEMENTS AND OTHER INFORMATION PROVIDED BY THE BANK, NOR DID KELLER VALUE
INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE BANK. THE APPRAISAL CONSIDERS THE
BANK AS A GOING CONCERN AND SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE
LIQUIDATION VALUE OF
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THE BANK. MOREOVER, BECAUSE SUCH APPRAISAL IS NECESSARILY BASED UPON ESTIMATES
AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO CHANGE FROM
TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING SUCH SHARES IN
THE CONVERSION WILL THEREAFTER BE ABLE TO SELL SUCH SHARES AT PRICES AT OR ABOVE
THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION OF THE PRO FORMA
MARKET VALUE THEREOF. The appraisal of Keller may be inspected by any Eligible
Account Holder or Supplemental Eligible Account Holder at the Bank's main office
located at 1214 Castleton Avenue, Staten Island, New York, during regular
business hours of the Bank. Copies of the appraisal may also be requested by
Eligible Account Holders or Supplemental Eligible Account Holders; provided,
however, that such Eligible Account Holders or Supplemental Eligible Account
Holders shall be responsible for all costs associated with the copying and
transmittal of such appraisal.
Following commencement of the Subscription Offering, the maximum of the
Estimated Price Range may be increased up to 15% and the number of shares of
Common Stock being sold in the Conversion may be increased to 24,466,250 shares
due to regulatory considerations, or changes in the market and general financial
and economic conditions, without the resolicitation of subscribers. See "-
Limitations on Common Stock Purchases" as to the method of distribution and
allocation of additional shares that may be issued in the event of an increase
in the Estimated Price Range to fill unfilled orders in the Subscription
Offering.
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, Keller confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, would cause Keller to conclude
that the value of the Common Stock at the price so determined is incompatible
with its estimate of the pro forma market value of the Common Stock at the
conclusion of the Subscription Offering.
If the pro forma market value of the Common Stock is either more than
15% above the maximum of the Estimated Price Range or less than the minimum of
the Estimated Price Range, the Bank and the Company, after consulting with the
Superintendent and FDIC, may terminate the Plan and return all funds promptly
with interest at the Bank's passbook rate of interest on payments made by check,
bank draft or money order, extend or hold a new Subscription and/or Community
Offering, establish a new Estimated Price Range, commence a resolicitation of
subscribers or take such other actions as permitted by the Superintendent and
FDIC in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation following the conclusion of the Subscription Offering would not
exceed 45 days unless such resolicitation period is further extended by the
Superintendent and FDIC, if necessary.
If all shares of Common Stock are not sold through the Subscription
Offering or Community Offering, then the Bank and the Company expect to offer
the remaining shares in a Syndicated Community Offering which would occur as
soon as practicable following the close of the Community Offering. All shares of
Common Stock will be sold at the same price per share in the Syndicated
Community Offering as in the Subscription and Community Offerings. See
"--Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, Keller confirms to the Bank, Company, Superintendent and FDIC
that, to the best of its knowledge, nothing of a material nature has occurred
which, taking into account all relevant factors, including those which would be
involved in a cancellation of the Syndicated Community Offering, would cause
Keller to conclude that the aggregate value of the Common Stock at the Purchase
Price is incompatible with its estimate of the pro
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forma market value of the Common Stock of the Company at the time of the
Syndicated Community Offering. Any change which would result in an aggregate
purchase price which is below or more than 15% above the Estimated Price Range
would be subject to Superintendent and FDIC approval. If such confirmation is
not received, the Bank may extend the Conversion, extend, reopen or commence new
Subscription Offering, Community Offering or Syndicated Community Offering,
establish a new Estimated Price Range and commence a resolicitation of all
subscribers with the approval of the Superintendent and FDIC or take such other
actions as permitted by the Superintendent and FDIC in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Bank determine to
continue the Conversion, subscribers will be resolicited (i.e., be permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to decrease or cancel their
subscriptions). Any change in the Estimated Price Range must be approved by the
Superintendent and FDIC. A resolicitation, if any, following the conclusion of
the Subscription Offering would not exceed 45 days unless such resolication
period is further extended by the Superintendent and FDIC, if necessary. If such
resolicitation is not effected, the Bank will return all funds promptly with
interest at the Bank's passbook rate of interest on payments made by check, bank
draft or money order.
Copies of the appraisal report of Keller including any amendments
thereto, and the detailed memorandum of the appraiser setting forth the method
and assumptions for such appraisal are available for inspection at the main
office of the Bank and the other locations specified under "Additional
Information."
Number of Shares to be Issued
Depending upon market or financial conditions following the
commencement of the Subscription and/or Community Offerings, the total number of
shares to be sold in the Conversion may be increased or decreased without a
resolicitation of subscribers, provided that the product of the total number of
shares times the price per share is not below the minimum of the Estimated Price
Range or more than 15% above the maximum of the Estimated Price Range. Based on
a fixed purchase price of $10.00 per share and Keller's estimate of the pro
forma market value of the Common Stock ranging from a minimum of $157.3 million
to a maximum, as increased by 15%, of $244.7 million, the number of shares of
Common Stock expected to be issued is between a minimum of 15,725,000 shares and
a maximum, as adjusted by 15%, of 24,466,250 shares. The actual number of shares
issued between this range will depend on a number of factors and shall be
determined by the Bank and Company subject to Superintendent and FDIC approval,
if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Bank after consultation with
the Superintendent and FDIC, purchasers will be resolicited (i.e., permitted to
continue their orders, in which case they will need to affirmatively reconfirm
their subscriptions prior to the expiration of the resolicitation offering or
their subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the Superintendent and FDIC. If the number of shares issued in the
Conversion is increased due to an increase of up to 15% in the Estimated Price
Range to reflect changes in market or financial conditions, persons who
subscribed for the maximum number of shares will not be given the opportunity to
subscribe for an adjusted maximum number of shares. See "- Limitations on Common
Stock Purchases."
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An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
The number of shares to be issued and outstanding as a result of the
sale of Common Stock in the Conversion will be increased by a number of shares
equal to 8.0% of the Common Stock issued in the Conversion to fund the
Foundation. Assuming the sale of shares in the Offerings at the maximum of the
Estimated Price Range, the Company will issue 1,702,000 shares of its Common
Stock from authorized but unissued shares to the Foundation immediately
following the completion of the Conversion. In that event, the Company will have
total shares of Common Stock outstanding of 22,977,000 shares. Of that amount,
the Foundation will own 7.4%. Funding the Foundation with authorized but
unissued shares will have the effect of diluting the ownership and voting
interests of persons purchasing shares in the Conversion by 7.4% since a greater
number of shares will be outstanding upon completion of the Conversion than
would be if the Foundation were not established. See "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts with the Bank who had a balance of $100 or more as of June 30,
1996; (2) the Employee Plans, including the ESOP; (3) holders of deposit
accounts with a balance of $100 or more as of September 30, 1997. All
subscriptions received will be subject to the availability of Common Stock after
satisfaction of all subscriptions of all persons having prior rights in the
Subscription Offering and to the maximum and minimum purchase limitations set
forth in the Plan of Conversion and as described below under "- Limitations on
Common Stock Purchases."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of: 1)
the amount permitted to be purchased in the Community Offering, currently
$250,000 of Common Stock; 2)one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or 3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Bank with a balance of $100 or more as of June 30,
1996) and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility Record Date. All of
such subscription rights amounts are subject to the overall maximum purchase
limitation. See "- Limitations on Common Stock Purchases." Subscription rights
received by officers and trustees of the Bank and their associates based on
increased deposits in the Bank in the one-year period preceding June 30, 1996
will be subordinated to all other subscription rights of Eligible Account
Holders.
In the event that Eligible Account Holders exercise subscription rights
for a number of shares of Common Stock in excess of the total number of such
shares eligible for subscription, the shares of Common Stock will be allocated
so as to permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his total allocation equal to the lesser of 100 shares
or the number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Eligible Account Holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Eligible Account Holders whose subscriptions remain unfilled,
provided however, that no fractional shares shall be issued. If the
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amount so allocated exceeds the amount subscribed for by any one or more
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Eligible Account Holders whose subscriptions are still
not fully satisfied on the same principle until all available shares have been
allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his or her stock order form all accounts in which such Eligible Account
Holder has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed.
Priority 2: ESOP. To the extent that there are sufficient shares
remaining after satisfaction of the subscriptions by Eligible Account Holders,
the ESOP, will receive, without payment therefor, second priority,
nontransferable subscription rights to purchase, in the aggregate, up to 10% of
Common Stock issued in the Conversion, including any increase in the number of
shares of Common Stock to be issued in the Conversion after the date hereof as a
result of an increase of up to 15% in the maximum of the Estimated Price Range.
The ESOP intends to purchase 8.0% of the shares to be issued in connection with
the Conversion, including shares issued to the Foundation, or 1,358,640 shares
and 1,838,160 shares, based on the issuance of 16,983,000 shares and 22,977,000
shares, respectively. Subscriptions by the ESOP will not be aggregated with
shares of Common Stock purchased directly by or which are otherwise attributable
to any other participants in the Subscription and Community Offerings, including
subscriptions of any of the Bank's trustees, officers, employees or associates
thereof. See "Management of the Bank - Benefit Plans - ESOP." In the event that
the ESOP is unable to purchase 8.0% of the Common Stock in the Subscription
Offering, it is anticipated that the ESOP will be funded with an amount of
shares purchased in open market transactions sufficient to increase its
ownership to 8.0% of the Common Stock issued in the Conversion. In the
alternative the ESOP may be funded through authorized but unissued shares after
the Conversion.
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after the satisfaction of subscriptions by
Eligible Account Holders and the Employee Plans, each Supplemental Eligible
Account Holder will receive, without payment therefor, as third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of: 1) the amount permitted to be purchased in the
Community Offering, currently $250,000 of Common Stock; 2) one tenth of one
percent (.10%) of the total offering of shares of Common Stock; or 3)fifteen
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the Supplemental Eligible
Account Holder's Qualifying Deposit and the denominator is the total amount of
Qualifying Deposits of all Supplemental Eligible Account Holders, in each case
on the Supplemental Eligibility Record Date. All of such subscription rights
amount are subject to the overall maximum purchase limitation. See "-
Limitations on Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Common Stock in excess of the
total number of shares eligible for subscription after the satisfaction of
subscriptions by Eligible Account Holders and the Employee Plans, the shares of
Common Stock will be allocated so as to permit each subscribing Supplemental
Eligible Account Holder, to the extent possible, to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares subscribed for. Thereafter, unallocated shares will be
allocated among the remaining subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled in the proportion that the amounts of their
respective eligible deposits bear to the total amount of eligible deposits of
all remaining Supplemental Eligible Account Holders whose subscriptions remain
unfilled, provided that no fractional shares shall be issued. If the amount so
allocated exceeds the amount subscribed for by any one or more Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
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To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his or her stock order form all accounts in which
such Supplemental Eligible Account Holder has an ownership interest. Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed. The subscription rights received by Eligible Account Holders
will be applied in partial satisfaction of the subscription rights to be
received as a Supplemental Eligible Account Holder.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on the Expiration Date ( _________________, 1997) at ____,
New York time, unless extended for up to 45 days by the Bank and Company or such
additional periods with the approval of the Superintendent and FDIC, if
required. Subscription rights which have not been exercised prior to the
Expiration Date will become void. The Bank will not execute orders until all
shares of Common Stock have been subscribed for or otherwise sold. If all shares
have not been subscribed for or sold within 45 days after the Expiration Date,
unless such period is extended with the approval of the Superintendent and FDIC,
all funds delivered to the Bank pursuant to the Subscription Offering will be
returned promptly to the subscribers with interest and all withdrawal
authorizations will be canceled. If an extension beyond the 45 day period
following the Expiration Date is granted, the Bank will notify subscribers of
the extension of time and of any rights of subscribers to modify or rescind
their subscriptions and have their funds returned promptly with interest, and of
the time period within which subscribers must affirmatively notify the Bank of
their intention to confirm, modify, or rescind their subscription. If an
affirmative response to any resolicitation is not received by the Company from a
subscriber, such order will be rescinded and all subscription funds will be
promptly returned with interest. Such extensions may not go beyond
_______________, 1999.
The Plan of Conversion provides that the Company complete the sale of
the Common Stock within 45 days after the close of the Subscription Offering. In
the event that the Company is unable to complete the sale of Common Stock and
effect the Conversion within the 45-day time period, one or more extensions,
with each such extension up to 60 days, may be granted but such extensions may
not go beyond __________, 1999 unless waived by the Superintendent and FDIC, if
necessary. If an extension is granted, each subscriber will have the right to
affirm, increase, decrease or rescind the subscription at any time prior to 20
days before the end of the extension period. No assurance can be given that an
extension would be granted if requested. If an extension is granted, the Company
will notify subscribers of such extension and of any rights of subscribers to
modify or rescind their subscriptions.
Community Offering
Upon completion of the Subscription Offering, to the extent that shares
remain available for purchase after satisfaction of all subscriptions of
Eligible Account Holders, the ESOP and Supplemental Eligible Account Holders,
the Company and the Bank have determined to offer shares pursuant to the Plan to
certain members of the general public. The Plan provides that with regard to
shares offered in the Community Offering, the Bank and Company may establish
relative preferences, priorities and allocations of shares among persons,
including institutional investors, subscribing for shares. The Bank and the
Company have made no decisions on such preference at this time and will make
such determination upon a review of subscriptions received in connection with
the Community Offering. Such persons, together with associates of and persons
acting in concert with such persons, may purchase up to $250,000 of Common
Stock, subject to the maximum overall purchase limitation and exclusive of
shares issued pursuant to an increase in the Estimated Price Range by up to 15%.
See "- Limitations on Common Stock Purchases." This amount may be increased to
up to a maximum of 5% of the Common Stock issued or decreased to less than
$250,000 at the sole discretion of the Company and the Bank. THE OPPORTUNITY TO
SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY OFFERING CATEGORY IS
SUBJECT TO THE RIGHT OF THE BANK AND THE COMPANY, IN ITS SOLE DISCRETION, TO
ACCEPT OR REJECT ANY SUCH ORDERS, IN WHOLE OR IN PART, EITHER AT THE TIME OF
RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING THE EXPIRATION DATE,
PROVIDED THAT SUCH REJECTION IS NOT IN CONTRAVENTION OF ANY LAW OR REGULATION.
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Subject to the foregoing, if the amount of stock remaining is
insufficient to fill the orders of preferred subscribers after completion of the
Subscription Offering and Community Offering and the filling of
institutional investor orders, such stock will be allocated first to each
preferred subscriber whose order is accepted by the Bank, in an amount equal to
the lesser of 100 shares or the number of shares subscribed for by each such
preferred subscriber, if possible. Thereafter, unallocated shares will be
allocated among the preferred subscribers whose order remains unsatisfied on a
100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated. If there are any shares remaining, shares
will be allocated to other persons of the general public who purchase in the
Community Offering applying the same allocation described above for preferred
subscribers.
Residents of Foreign Countries and Certain States
The Company and the Bank will make reasonable efforts to comply with
the securities laws of all states in the United States in which persons entitled
to subscribe for stock pursuant to the Plan reside. The Plan provides that the
Bank and the Company are not required to offer stock in the Subscription
Offering to any person who resides in a foreign country.
Marketing and Underwriting Arrangements
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the offering of the Common Stock, and
Sandler O'Neill has agreed to assist the Bank and the Company in its
solicitation of subscriptions and purchase orders for shares of Common Stock in
the Offerings. Sandler O'Neill will receive a fee equal to 1.75% of the
aggregate Purchase Price of all shares sold in the Subscription Offering or
Community Offering, excluding in each case shares purchased by trustees,
directors, officers and employees of the Bank or Company and any immediate
family member thereof and the Employee Plans, including the ESOP, for which
Sandler O'Neill will not receive a fee. In the event that a selected dealers
agreement is entered into in connection with a Syndicated Community Offering,
the Company and Bank will pay a fee (to be negotiated at such time under such
agreement) to such selected dealers, any sponsoring dealers fees, and a
management fee to Sandler O'Neill of 1.5% for shares sold by a NASD member firm
pursuant to a selected dealers agreement; provided, however, that the aggregate
fees payable to Sandler O'Neill for Common Stock sold by them pursuant to such a
selected dealers agreement shall not exceed 1.75% of the aggregate Purchase
Price and provided, further, however, that the aggregate fees payable to Sandler
O'Neill and the selected dealers will not exceed 7% of the aggregate purchase
price of the Common Stock sold by selected dealers. Fees to Sandler O'Neill and
to any other broker-dealer may be deemed to be underwriting fees, and Sandler
O'Neill and such broker-dealers may be deemed to be underwriters. Sandler
O'Neill will also be reimbursed for its reasonable out-of-pocket expenses,
including legal fees, in an amount not to exceed $200,000. Notwithstanding the
foregoing, in the event the Offerings are not consummated or Sandler O'Neill
ceases, under certain circumstances after the subscription solicitation
activities are commenced, to provide assistance to the Company, Sandler O'Neill
will be reimbursed for its reasonable out-of-pocket expenses as described above.
The Company and the Bank have agreed to indemnify Sandler O'Neill for reasonable
costs and expenses in connection with certain claims or liabilities, including
certain liabilities under the Securities Act. Sandler O'Neill has received
advances towards its marketing and financial advisory service fees totaling
$50,000. Total marketing fees to Sandler O'Neill are expected to be $2.5 million
and $3.3 million at the minimum and the maximum of the Estimated Price Range,
respectively. See "Pro Forma Data" for the assumptions used to arrive at these
estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
Conversion and will receive a fee for these services of $65,000, plus
reimbursement of reasonable out-of-pocket expenses.
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Directors, Trustees and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Questions of
prospective purchasers will be directed to executive officers or registered
representatives. Other employees of the Bank may participate in the Offering in
ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit offers to
purchase Common Stock or provide advice regarding the purchase of Common Stock.
The Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Common
Stock will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, Trustees, directors and employees to participate in the sale of Common
Stock. No officer, Trustee, director or employee of the Company or the Bank will
be compensated in connection with his participation by the payment of
commissions or other remuneration based either directly or indirectly on the
transactions in the Common Stock.
Sandler O'Neill has not prepared any report or opinion constituting
recommendations or advice to the Bank or the Company. In addition, Sandler
O'Neill has expressed no opinion as to the prices at which the Common Stock to
be issued in the Offerings may trade. Furthermore, Sandler O'Neill has not
verified the accuracy or completeness of the information contained in the
Prospectus.
Procedure for Purchasing Shares in Subscription Offering
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Offering, an executed stock order form and
certification form with the required payment for each share subscribed for, or
with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the stock order
form), must be received by the Bank at any of its offices by _____, New York
time, on the Expiration Date, with respect to the Subscription Offering, or by
the date set for the termination of the Community Offering, which date shall be
within 45 days after the close of the Subscription Offering, or ______, 1997,
unless extended by the Bank and the Company with the approval of the
Superintendent and the FDIC, if necessary. Stock order forms which are not
received by such time or are executed defectively or are received without full
payment (or appropriate withdrawal instructions) are not required to be
accepted. Certificates representing shares of Common Stock purchased in the
Subscription Offering must be ordered and registered in the name of the Eligible
Account or Supplemental Eligible Account Holders, as the case may be. Joint
stock registration will be allowed only if the qualifying deposit account is so
registered. In addition, the Bank and Company are not obligated to accept orders
submitted on photocopied or facsimilied stock order forms and will not accept
stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company and Bank shall have the right, each
in their sole discretion, to permit institutional investors to submit
irrevocable orders together with a legally binding commitment for payment and to
thereafter pay for the shares of Common Stock for which they subscribe in the
Community Offering at any time prior to 48 hours before the completion of the
Conversion. The Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed stock order form may not be
modified, amended or rescinded without the consent of the Bank unless the
Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
In order to ensure that Eligible Account Holders and Supplemental
Eligible Account Holders are properly identified as to their stock purchase
priorities, depositors as of the Eligibility Record Date (June 30, 1996) and/or
the Supplemental Eligibility Record Date (September 30, 1997) must list all
accounts on the stock order form giving all names in each account and the
account number.
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Payment for subscriptions may be made (i) in cash if delivered in
person at any branch office of the Bank, (ii) by check, bank draft or money
order, or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or more must be paid by official
bank or certified check or by withdrawal authorization from a deposit account at
the Bank. No wire transfers will be accepted. Interest will be paid on payments
made by cash, check, bank draft or money order at the Bank's passbook rate of
interest from the date payment is received until the completion or termination
of the Conversion. If payment is made by authorization of withdrawal from
deposit accounts, the funds authorized to be withdrawn from a deposit account
will continue to accrue interest at the contractual rates until completion or
termination of the Conversion, but a hold will be placed on such funds, thereby
making them unavailable to the depositor until completion or termination of the
Conversion.
If a subscriber authorizes the Bank to withdraw the amount of the
purchase price from his deposit account, the Bank will do so as of the effective
date of the Conversion. The Bank will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization, the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Bank's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription Offering, if all
shares are sold, or upon consummation of the Community Offering or the
Syndicated Community Offering, if shares remain to be sold in such offerings;
provided, that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Company
to lend to the ESOP, at such time, the aggregate Purchase Price of the shares
for which it subscribed.
Owners of self-directed IRAs and other Qualified Plan accounts, such as
Keogh accounts, may use the assets of such IRAs and other Qualified Plan
accounts, to purchase shares of Common Stock in the Offerings, provided that
such IRAs or other Qualified Plan accounts are not maintained at the Bank.
Persons with self-directed IRAs or Qualified Plan accounts maintained at the
Bank must have their accounts transferred to an unaffiliated institution or
broker to purchase shares of Common Stock in the Offerings. In addition, the
provisions of ERISA and IRS regulations require that officers, directors and ten
percent shareholders who use self-directed IRA or Qualified Plan account funds
to purchase shares of Common Stock in the Offerings, make such purchases for the
exclusive benefit of the IRAs or Qualified Plan accounts.
Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the address specified in properly completed stock order
forms, as soon as practicable following consummation of the sale of all shares
of Common Stock. Any certificates returned as undeliverable will be disposed of
in accordance with applicable law.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the NYBB regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders, from transferring
or entering into any agreement or understanding to transfer the legal or
beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Such rights may be
exercised only by the person to whom they are granted and only for his or her
account. Each person exercising such subscription rights will be required to
certify that he or she is purchasing shares solely for his or her own account
and that he or she has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or
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making an announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of Common Stock prior to the completion of the
Conversion.
THE BANK AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
SYNDICATED COMMUNITY OFFERING
As a final step in the Conversion, the Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Sandler O'Neill acting as agent of the Company to
assist the Company and the Bank in the sale of the Common Stock. THE COMPANY AND
THE BANK HAVE THE RIGHT TO REJECT ORDERS IN WHOLE OR IN PART IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING, PROVIDED THAT SUCH REJECTION IS
NOT IN CONTRAVENTION OF ANY LAW OR REGULATION. Neither Sandler O'Neill nor any
registered broker-dealer shall have any obligation to take or purchase any
shares of the Common Stock in the Syndicated Community Offering, however,
Sandler O'Neill has agreed to use its best efforts in the sale of shares in the
Syndicated Community Offering.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "- Stock Pricing." Subject
to the overall maximum purchase limitation, no person, together with any
associate or group of persons acting in concert, will be permitted to subscribe
in the Syndicated Community Offering for more than $250,000 of Common Stock;
provided, however, that shares of Common Stock purchased in the Community
Offering by any persons, together with associates of or persons acting in
concert with such persons, will be aggregated with purchases in the Syndicated
Community Offering and be subject to an overall maximum purchase limitation of
1.0% of the shares offered, exclusive of an increase in shares issued pursuant
to an increase in the Estimated Price Range by up to 15%.
Payments made in the form of a check, bank draft, money order or in
cash will earn interest at the Bank's passbook rate of interest from the date
such payment is actually received by the Bank until completion or termination of
the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community Offering, a
purchaser may pay for his shares with funds held by or deposited with a selected
dealer. If an order form is executed and forwarded to the selected dealer or if
the selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Bank for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
Although purchasers' funds are not required to be in their accounts with
selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
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Certificates representing shares of Common Stock purchased, together
with any refund due, will be mailed to purchasers at the address specified in
the order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration Date, unless extended by the Company with the approval
of the Superintendent and FDIC, if necessary. Such extensions may not be beyond
_______________, 1999. See "- Stock Pricing" above for a discussion of rights of
subscribers, if any, in the event an extension is granted.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in
the Subscription Offering up to the greater of: 1) the amount
permitted to be purchased in the Community Offering, currently
$250,000 of Common Stock; 2) one-tenth of one percent (.10%)
of the total offering of shares of Common Stock; or 3) fifteen
times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Common
Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit
(defined by the Plan as any deposit account in the Bank with a
balance of $100 or more as of June 30, 1996) and the
denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders, in each case on the Eligibility
Record Date, subject to the overall maximum purchase
limitation described in (7) below;
(3) The Employee Plans, including the ESOP, are permitted to
purchase, in the aggregate, up to 10% of the shares of Common
Stock issued in the Conversion, including shares issued in the
event of an increase in the Estimated Price Range of 15%, and
the ESOP intends to purchase 8.0% of the shares of Common
Stock issued in connection with the Conversion, including
shares issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for
and purchase in the Subscription Offering up to the greater
of: 1) the amount permitted to be purchased in the Community
Offering, currently $250,000 of Common Stock; 2) one tenth of
one percent (.10%) of the total offering of shares of Common
Stock; or 3) fifteen times the product (rounded down to the
next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Supplemental Eligible Account
Holder's Qualifying Deposit and the denominator is the total
amount of Qualifying Deposits of all Supplemental Eligible
Account Holders, in each case on the Supplemental Eligibility
Record Date, subject to the overall maximum purchase
limitation described in (7) below;
(5) Persons purchasing shares of Common Stock in the Community
Offering, together with associates of and groups of persons
acting in concert with such persons, may purchase in the
Community Offering up to $250,000 of Common Stock, subject to
the overall maximum purchase limitation described in (7)
below;
(6) Persons purchasing shares of Common Stock in the Syndicated
Community Offering, together with associates of or persons
acting in concert with such persons, may purchase
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in the Syndicated Community Offering up to $250,000 of Common
Stock subject to the overall maximum purchase limitation
described in (7) below and, provided further, that shares of
Common Stock purchased in the Community Offering by any
persons, together with associates of and persons acting in
concert with such persons, will be aggregated with purchases
in the Syndicated Community Offering in applying the $250,000
purchase limitation;
(7) Eligible Account Holders and Supplemental Eligible Account
Holders may purchase stock in the Community Offering and
Syndicated Community Offering, subject to the purchase
limitations described in (5) and (6) above, provided that,
except for the ESOP, the overall maximum number of shares of
Common Stock subscribed for or purchased in all categories of
the Conversion by any person, together with associates of or
groups of persons acting in concert with such persons, shall
not exceed 1.0% of the shares of Common Stock offered in the
Conversion and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range
of up to 15%; and
(8) No more than 25% of the total number of shares issued in the
Conversion may be purchased by Trustees, Directors and
officers of the Bank or Company and their associates in the
aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of Voting
Depositors of the Bank or subscribers for Common Stock, both the individual
amount permitted to be subscribed for and the overall maximum purchase
limitation may be increased to up to a maximum of 5% of the Common Stock to be
issued at the sole discretion of the Company and the Bank. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Bank may be, given the opportunity to
increase their subscriptions up to the then applicable limit.
The overall maximum purchase limitation may not be reduced to less than
1.0%, and the individual amount permitted to be subscribed for may not be
reduced by the Bank to less than .10% without the further approval of Voting
Depositors or resolicitation of subscribers. An Eligible Account Holder or
Supplemental Eligible Account Holder may not purchase individually in the
Subscription Offering the overall maximum purchase limit of 1.0% of the shares
offered, but may make such purchase, together with associates of and persons
acting in concert with such person, by also purchasing in other available
categories of the Conversion, subject to availability of shares and the maximum
overall purchase limit for purchases in the Conversion.
The term "associate" of a person is defined to mean: (i) any
corporation (other than the Bank or a majority-owned subsidiary of the Bank) of
which such person is an officer, partner or 10% stockholder; (ii) any trust or
other estate in which such person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity; provided, however, such
term shall not include any employee stock benefit plan of the Bank in which such
person has a substantial beneficial interest or serves as a trustee or in a
similar fiduciary capacity; and (iii) any relative or spouse of such person, or
any relative of such spouse, who either has the same home as such person or who
is a trustee or officer of the Bank. Trustees are not treated as associates of
each other solely because of their Board membership. For a further discussion of
limitations on purchases of a converting institution's stock at the time of
Conversion and subsequent to Conversion, see "Management of the Bank -
Subscriptions by Executive Officers, Directors and Trustees," "- Certain
Restrictions on Purchase or Transfer of Shares After Conversion" and
"Restrictions on Acquisition of the Company and the Bank."
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Liquidation Rights
In the unlikely event of a complete liquidation of the Bank in its
present mutual form, each depositor would have a claim to receive their pro rata
share of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). To the extent there are remaining assets, a depositor would
have a claim to receive a pro rata share of any such remaining assets in the
same proportion as the value of such depositor's deposit accounts to the total
value of all deposit accounts in the Bank at the time of liquidation. After the
Conversion, each depositor, in the event of a complete liquidation, would have a
claim as a creditor of the same general priority as the claims of all other
general creditors of the Bank. However, except as described below, their claim
would be solely in the amount of the balance in their deposit account plus
accrued interest. Such depositor would not have an interest in the value or
assets of the Bank above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Bank as of the date of its latest balance sheet
contained in the final Prospectus used in connection with the Conversion. Such
liquidation account will not be reflected as an asset or liability on the
Company's or the Bank's financial statements subsequent to the Conversion. Each
Eligible Account Holder and Supplemental Eligible Account Holder, if he was to
continue to maintain his deposit account at the Bank, would, on a complete
liquidation of the Bank, have a claim to an interest in the liquidation account
after payment of all creditors prior to any payment to the stockholders of the
Bank. Each Eligible Account Holder and Supplemental Eligible Account Holder
would have an initial interest in such liquidation account for each deposit
account, demand account, NOW account, money market deposit account, and
certificate of deposit account, with a balance of $100 or more held in the Bank
on June 30, 1996 and September 30, 1997, respectively. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a claim to a pro rata
interest in the total liquidation account based on the proportion that the
balance of his Qualifying Deposits on the Eligibility Record Date or
Supplemental Eligibility Record Date, respectively, bore to the balance of all
Qualifying Deposits of all Eligible Account Holders and Supplemental Eligible
Account Holders in the Bank.
If, however, at the close of business on the last day of any period for
which the Bank or Company has prepared audited financial statements subsequent
to the effective date of the Conversion ("annual closing date"), the amount of
the Qualifying Deposit of an Eligible Account Holder and Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then such person's interest in the liquidation account relating to
such Deposit Account would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
is withdrawn or closed. For purposes of the liquidation account, time deposit
accounts shall be deemed to be closed upon maturity regardless of any renewal
thereof. In addition, no interest in the liquidation account would ever be
increased despite any subsequent increase in the related Qualifying Deposit. Any
assets remaining after the above liquidation rights of Eligible Account Holders
are satisfied would be distributed to the Company as the sole stockholder of the
Bank.
Tax Aspects
Consummation of the Conversion is expressly conditioned upon the
receipt by the Bank of either a favorable ruling from the IRS or an opinion of
counsel with respect to federal income taxation, and an opinion of its
independent auditors with respect to certain New York state taxation, to the
effect that the Conversion will not be a taxable transaction to the Company, the
Bank, Eligible Account Holders or
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Supplemental Eligible Account Holders, except as noted below. The federal and
New York tax consequences will remain unchanged in the event that a holding
company form of organization is not utilized.
No private ruling has been requested from the IRS with respect to the
proposed Conversion. Instead, the Bank has received an opinion of its counsel,
Muldoon, Murphy & Faucette, which has been filed with the SEC as an exhibit to
the Company's Registration Statement to the effect that for federal income tax
purposes, among other matters: (i) the Bank's change in form from mutual to
stock ownership will constitute a reorganization under section 368(a)(1)(F) of
the Code and neither the Bank nor the Company will recognize any gain or loss as
a result of the Conversion; (ii) no gain or loss will be recognized to the Bank
or the Company upon the purchase of the Bank's capital stock by the Company or
to the Company upon the purchase of its Common Stock in the Conversion; (iii) no
gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the issuance to them of deposit accounts in the
Bank in its stock form plus their interests in the liquidation account in
exchange for their deposit accounts in the Bank; (iv) the tax basis of the
depositors' deposit accounts in the Bank immediately after the Conversion will
be the same as the basis of their deposit accounts immediately prior to the
Conversion; (v) the tax basis of each Eligible Account Holder's and Supplemental
Eligible Account Holder's interest in the liquidation account will be zero; (vi)
no gain or loss will be recognized by Eligible Account Holders or Supplemental
Eligible Account Holders upon the distribution to them of nontransferable
subscription rights to purchase shares of the Common Stock, provided that the
amount to be paid for the Common Stock is equal to the fair market value of such
stock; and (vii) the tax basis to the stockholders of the Common Stock of the
Company purchased in the Conversion will be the amount paid therefor and the
holding period for the shares of Common Stock purchased by such persons will
begin on the date on which their subscription rights are exercised. Ernst &
Young LLP has opined, subject to the limitations and qualifications in its
opinion, that: the Conversion will not be a taxable transaction for the purposes
of the New York State banking franchise taxes, sales and use taxes, stock
transfer taxes, and real property transfer gains taxes; a position may be taken
that the Conversion will likely not be a taxable transaction for purposes of the
New York State real estate transfer taxes; and the Company, as a foreign
corporation, will be subject to a license fee at a rate of 1/20% of the
apportioned par value of the Common Stock issued. Certain portions of both the
federal and the state and local tax opinions are based upon the opinion of
Keller that subscription rights issued in connection with the Conversion will
have no value.
In the opinion of Keller, which opinion is not binding on the IRS, the
subscription rights do not have any value, based on the fact that such rights
are acquired by the recipients without cost, are nontransferable and of short
duration, and afford the recipients the right only to purchase the Common Stock
at a price equal to its estimated fair market value, which will be the same
price as the Purchase Price for the unsubscribed shares of Common Stock. If the
subscription rights granted to Eligible Account Holders or Supplemental Eligible
Account Holders are deemed to have an ascertainable value, such recipients could
be taxed either on the receipt or exercise of such subscription rights.
Unlike private rulings, an opinion of counsel is not binding on the IRS
and the IRS could disagree with conclusions reached therein. In the event of
such disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Certain Restrictions on Purchase or Transfer of Shares After Conversion
All shares of Common Stock purchased in connection with the Conversion
by a Director, Trustee or an executive officer of the Bank or Company will be
subject to a restriction that the shares not be sold for a period of one year
following the Conversion, except in the event of the death of such Director,
Trustee or executive officer. Each certificate for such restricted shares will
bear a legend giving notice of this restriction on transfer, and instructions
will be issued to the effect that any transfer within such time period of any
certificate or record ownership of such shares other than as provided above is a
violation of such restriction. Any shares of Common Stock issued at a later date
as a stock dividend, stock split, or otherwise,
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with respect to such restricted stock will be subject to the restriction that
they may not be sold for a period of one year following the Conversion. The
Directors, Trustees and executive officers of the Bank or Company will also be
subject to the insider trading rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
Trustees, Directors, executive officers (or any person who was an executive
officer or Trustee of the Bank after adoption of the Plan of Conversion) and
their associates during the three-year period following Conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the Superintendent. This restriction does not apply,
however, to the purchase of Common Stock pursuant to the Stock Program or Stock
Option Plan.
Interpretation, Amendment and Termination
All interpretations of the Plan by the Board of the Bank will be final,
subject to the authority of the Superintendent and FDIC. The Plan provides that,
if deemed necessary or desirable by the Board of Trustees of the Bank, the Plan
may be substantively amended prior to the solicitation of proxies from Eligible
Account Holders by a vote of the Board of Trustees; amendment of the Plan
thereafter requires the approval of the Superintendent and FDIC. The Plan will
terminate if the sale of all shares of stock being offered pursuant to the Plan
is not completed prior to 24 months after the date of the approval of the Plan
by the Superintendent unless a longer time period is permitted by governing laws
and regulations. The Plan may be terminated by a vote of the Board of Trustees
of the Bank at any time prior to the Special Meeting, and thereafter by such a
vote with the approval of the Superintendent and FDIC.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE BANK
General
The Bank's Plan of Conversion provides for the Conversion of the Bank
from the mutual to the stock form of organization and in connection therewith, a
Restated Organization Certificate and Bylaws to be adopted by Eligible Account
Holders of the Bank. The Plan also provides for the concurrent formation of a
holding company. See "The Conversion - General." Certain provisions in the
Company's Certificate of Incorporation and Bylaws and in its management
remuneration provided for in the Conversion, together with provisions of
Delaware corporate law, may have anti-takeover effects. In addition, the Bank's
Restated Organization Certificate and Bylaws and management remuneration
provided for in the Conversion may have anti-takeover effects as described
below. Finally, regulatory restrictions may make it difficult for persons or
companies to acquire control of either the Company or the Bank.
Restrictions in the Company's Certificate of Incorporation and Bylaws
A number of provisions of the Company's Certificate of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have the
effect of discouraging a future takeover attempt which is not approved by the
Board of Directors but which individual Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult. The following description
of certain of the provisions of the Certificate of Incorporation and Bylaws of
the Company is necessarily general and reference should be made in each case to
such Certificate of
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Incorporation and Bylaws, which are incorporated herein by reference. See
"Additional Information" as to how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares held in excess of the Limit. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules and Regulations promulgated pursuant to the
Exchange Act, and includes shares beneficially owned by such person or any of
his affiliates (as defined in the Certificate of Incorporation), shares which
such person or his affiliates have the right to acquire pursuant to any
agreement, arrangement or understanding or upon the exercise of conversion
rights, exchange rights, warrants or options or otherwise and shares as to which
such person and his affiliates have sole or shared voting or investment power,
but shall not include shares that are subject to a publicly solicited revocable
proxy and that are not otherwise deemed to be beneficially owned by such person
and his affiliates. No Director or officer (or any affiliate thereof) of the
Company shall, solely by reason of any or all of such Directors or officers
acting in their capacities as such, be deemed to beneficially own any shares
beneficially owned by any other Director or officer (or affiliate thereof) nor
will the ESOP or any similar plan of the Company or the Bank or any trustee with
respect thereto (solely by reason of such trustee's capacity) be deemed to
beneficially own any shares held under any such plan. The Certificate of
Incorporation of the Company further provides that the provisions limiting
voting rights may only be amended upon the vote of the holders of at least 80%
of the voting power of all then outstanding shares of capital stock entitled to
vote thereon (after giving effect to the provision limiting voting rights).
Board of Directors. The Board of Directors of the Company is divided
into three classes, each of which shall contain approximately one-third of the
whole number of the members of the Board. Each class shall serve a staggered
term, with approximately one-third of the total number of Directors being
elected each year. The Company's Certificate of Incorporation and Bylaws provide
that the size of the Board shall be determined by a majority of the Whole Board
of Directors. The Certificate of Incorporation and the Bylaws provide that any
vacancy occurring in the Board, including a vacancy created by an increase in
the number of Directors or resulting from death, resignation, retirement,
disqualification, removal from office or other cause, shall be filled for the
remainder of the unexpired term exclusively by a majority vote of the Directors
then in office. The classified Board is intended to provide for continuity of
the Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the
Company. Directors may be removed by the shareholders only for cause by the
affirmative vote of the holders of at least 80% of the voting power of all then
outstanding shares of capital stock entitled to vote thereon.
In the absence of these provisions, the vote of the holders of a
majority of the shares could remove the entire Board, with or without cause, and
replace it with persons of such holders choice.
Cumulative Voting, Special Meetings and Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be called
only by a resolution adopted by a majority of the Whole Board of Directors of
the Company. The Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
taken only at an annual or special meeting and prohibits stockholder action by
written consent in lieu of a meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 75 million shares of Common Stock and 5 million shares of preferred
stock. The shares of Common Stock and preferred stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee stock options. However, these additional authorized
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shares may also be used by the Board of Directors consistent with its fiduciary
duty to deter future attempts to gain control of the Company. The Board of
Directors also has sole authority to determine the terms of any one or more
series of preferred stock, including voting rights, conversion rates, and
liquidation preferences. As a result of the ability to fix voting rights for a
series of preferred stock, the Board has the power to the extent consistent with
its fiduciary duty to issue a series of preferred stock to persons friendly to
management in order to attempt to block a post-tender offer merger or other
transaction by which a third party seeks control, and thereby assist management
to retain its position. The Company's Board currently has no plans for the
issuance of additional shares, other than the issuance of shares in the
Conversion, including shares contributed to the Foundation, and the issuance of
additional shares upon exercise of stock options.
Stockholder Vote Required to Approve Business Combinations with
Interested Stockholders. The Certificate of Incorporation requires the approval
of the holders of at least 80% of the Company's outstanding shares of voting
stock entitled to vote thereon to approve certain "Business Combinations" with
an "Interested Stockholder," each as defined therein, and related transactions.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of all or substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of only a majority of the outstanding shares of Common Stock of the
Company and any other affected class of stock. Under the Certificate of
Incorporation, the approval of the holders of at least 80% of the shares of
capital stock entitled to vote thereon is required for any business combination
involving an Interested Stockholder (as defined below) except (i) in cases where
the proposed transaction has been approved by a majority of those members of the
Company's Board of Directors who are unaffiliated with the Interested
Stockholder and were Directors prior to the time when the Interested Stockholder
became an Interested Stockholder or (ii) if the proposed transaction meets
certain conditions set forth therein which are designed to afford the
stockholders a fair price in consideration for their shares. In each such case,
where stockholder approval is required, the approval of only a majority of the
outstanding shares of voting stock is sufficient. The term "Interested
Stockholder" is defined to include, among others, any individual, a group acting
in concert, corporation, partnership, association or other entity (other than
the Company or its subsidiary) who or which is the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of voting stock of the
Company. This provision of the Certificate of Incorporation applies to any
"Business Combination," which is defined to include: (i) any merger or
consolidation of the Company or any of its subsidiaries with any Interested
Stockholder or Affiliate (as defined in the Certificate of Incorporation) of an
Interested Stockholder or any corporation which is, or after such merger or
consolidation would be, an Affiliate of an Interested Stockholder; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition to or
with any Interested Stockholder or Affiliate of 25% or more of the assets of the
Company or combined assets of the Company and its subsidiary; (iii) the issuance
or transfer to any Interested Stockholder or its Affiliate by the Company (or
any subsidiary) of any securities of the Company (or any subsidiary) in exchange
for any cash, securities or other property the value of which equals or exceeds
25% of the fair market value of the Common Stock of the Company; (iv) the
adoption of any plan for the liquidation or dissolution of the Company proposed
by or on behalf of any Interested Stockholder or Affiliate thereof; and (v) any
reclassification of securities, recapitalization, merger or consolidation of the
Company with any of its subsidiaries which has the effect of increasing the
proportionate share of Common Stock or any class of equity or convertible
securities of the Company or subsidiary owned directly or indirectly, by an
Interested Stockholder or Affiliate thereof. The Trustees and executive officers
of the Bank are purchasing in the aggregate approximately 1.1% of the shares of
the Common Stock based on the maximum of the Estimated Price Range, including
shares issued to the Foundation. In addition, the ESOP intends to purchase 8.0%
of the Common Stock issued in connection with the Conversion, including shares
issued to the Foundation. Additionally, the Company expects to acquire 4% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation, on behalf of the Stock Program and expects to grant options
to issue an amount equal to 10% of the Common Stock issued in connection with
the Conversion, including shares issued to the Foundation, under the Stock
Option Plan to directors and executive officers. As a result, Directors,
executive officers and employees have the potential to control the voting of
approximately 21.0% of the Company's Common Stock on a fully diluted
basis at the
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maximum of the Estimated Price Range, thereby enabling them to prevent the
approval of the transactions requiring the approval of at least 80% of the
Company's outstanding shares of voting stock described herein above.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein), to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company and the stockholders of the Company, give due
consideration to all relevant factors, including, without limitation, those
factors that directors of any subsidiary (including the Bank) may consider in
evaluating any action that may result in a change or potential change of control
of such subsidiary, and the social and economic effects of acceptance of such
offer on: the Company's present and future customers and employees and those of
its subsidiaries (including the Bank); the communities in which the Company and
the Bank operate or are located; the ability of the Company to fulfill its
corporate objectives as a bank holding company; and the ability of the Bank to
fulfill the objectives of a stock savings bank under applicable statutes and
regulations. By having these standards in the Certificate of Incorporation of
the Company, the Board of Directors may be in a stronger position to oppose such
a transaction if the Board concludes that the transaction would not be in the
best interest of the Company, even if the price offered is significantly greater
than the then market price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock, provided, however, that an affirmative vote of the holders of at
least 80% of the outstanding voting stock entitled to vote (after giving effect
to the provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
Directors, Director and officer indemnification by the Company and amendment of
the Company's Bylaws and Certificate of Incorporation. The Company's Bylaws may
be amended by a majority of the Whole Board of Directors, or by a vote of the
holders of at least 80% (after giving effect to the provision limiting voting
rights) of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at an annual stockholder meeting to give at
least 90 days' advance notice to the Secretary of the Company. The notice
provision requires a stockholder who desires to raise new business to provide
certain information to the Company concerning the nature of the new business,
the stockholder and the stockholder's interest in the business matter.
Similarly, a stockholder wishing to nominate any person for election as a
Director must provide the Company with certain information concerning the
nominee and the proposing stockholder.
Anti-Takeover Effects of the Company's Certificate of Incorporation and Bylaws
and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. Certain
provisions of the Stock Option Plan and Stock Program provide for accelerated
benefits to participants in the event of a change in control of the Company or
the Bank or a tender or exchange offer for their stock. See "Management of the
Bank - Benefit Plans - Stock Option Plan," and "- Benefit Plans - Stock
Program." The Company and the Bank have also entered into agreements with key
officers and intends to establish the Severance Compensation Plan which will
provide such officers and
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eligible employees with additional payments and benefits on the officer's
termination in connection with a change in control of the Company or the Bank.
See "Management of the Bank - Employment Agreements," "- Change in Control
Agreements" and "- Employee Severance Compensation Plan." The foregoing
provisions and limitations may make it more difficult for companies or persons
to acquire control of the Bank. Additionally, the provisions could deter offers
to acquire the outstanding shares of the Company which might be viewed by
stockholders to be in their best interests.
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation and Bylaws are in the best interest of the Company
and its stockholders. An unsolicited non-negotiated takeover proposal can
seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of the Company and its stockholders to encourage potential acquirors
to negotiate directly with management and that these provisions will encourage
such negotiations and discourage non-negotiated takeover attempts.
Delaware Corporate Law
The State of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein)
who owns 15% or more of the outstanding voting stock of a Delaware corporation
(an "Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such "Person" became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the board of directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, excluding, for purposes of
determining the number of shares outstanding, shares owned by the corporation's
directors who are also officers and certain employee stock plans; (iii) any
business combination with an Interested Stockholder that is approved by the
board of directors and by a two-thirds vote of the outstanding voting stock not
owned by the Interested Stockholder; and (iv) certain business combinations that
are proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the board of directors. A corporation may exempt itself from the requirements of
the statute by adopting an amendment to its certificate of incorporation or
bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Restrictions in the Bank's Restated Organization Certificate and New Bylaws
Although the Board of Trustees of the Bank is not aware of any effort
that might be made to obtain control of the Bank after Conversion, the Board of
Trustees believes that it is appropriate to adopt certain provisions permitted
by General Regulations of the NYBB to protect the interests of the converted
Bank and its stockholders from any hostile takeover. Such provisions may,
indirectly, inhibit a change in control of the Company, as the Bank's sole
stockholder. See "Risk Factors - Anti-Takeover Provisions Which May Discourage
Takeover Attempts."
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The Bank's Restated Organization Certificate will contain a provision
whereby the acquisition of beneficial ownership of more than 10% of the issued
and outstanding shares of any class of equity securities of the Bank by any
person (i.e., any individual, corporation, group acting in concert, trust,
partnership, joint stock company or similar organization), either directly or
through an affiliate thereof, will be prohibited for a period of three years
following the date of completion of the Conversion. Any stock in excess of 10%
acquired in violation of the charter provision will not be counted as
outstanding for voting purposes. This limitation shall not apply to any
transaction in which the Bank forms a holding company without a change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter or appraisal rights. In the event that
holders of revocable proxies for more than 10% of the shares of the Common Stock
of the Company seek, among other things, to elect one-third or more of the
Company's Board of Directors, to cause the Company's stockholders to approve the
acquisition or corporate reorganization of the Company or to exert a continuing
influence on a material aspect of the business operations of the Company, which
actions could indirectly result in a change in control of the Bank, the Board of
Directors of the Bank will be able to assert this provision of the Bank's
Restated Organization Certificate against such holders. Although the Board of
Directors of the Bank is not currently able to determine when and if it would
assert this provision of the Bank's Restated Organization Certificate, the Board
of Directors, in exercising its fiduciary duty, may assert this provision if it
were deemed to be in the best interests of the Bank, the Company and its
stockholders. It is unclear, however, whether this provision, if asserted, would
be successful against such persons in a proxy contest which could result in a
change in control of the Bank indirectly through a change in control of the
Company.
In addition, stockholders will not be permitted to call a special
meeting of stockholders or to cumulate their votes in the election of Directors.
Furthermore, the Bank's Restated Organization Certificate and Bylaws provide for
the election of three classes of directors to staggered terms. The staggered
terms of the Board of Directors could have an anti-takeover effect by making it
more difficult for a majority of shares to force an immediate change in the
Board of Directors since only one-third of the Board is elected each year. The
purpose of these provisions is to assure stability and continuity of management
of the Bank in the years immediately following the Conversion.
Finally, the Restated Organization Certificate provides for the
issuance of shares of preferred stock on such terms, including conversion and
voting rights, as may be determined by the Bank's Board of Directors without
stockholder approval. Although the Bank has no arrangements, understandings or
plans at the present time for the issuance or use of the shares of undesignated
preferred stock (the "Preferred Stock") proposed to be authorized, the Board of
Trustees believes that the availability of such shares will provide the Bank
with increased flexibility in structuring possible future financings and
acquisitions and in meeting other corporate needs which may arise. In the event
of a proposed merger, tender offer or other attempt to gain control of the Bank
of which management does not approve, it might be possible for the Board of
Directors to authorize the issuance of one or more series of Preferred Stock
with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Trustees does
not intend to issue any Preferred Stock except on terms which the Board deems to
be in the best interest of the Bank and its then existing stockholders.
Regulatory Restrictions
New York State Banking Board Conversion Regulations. NYBB regulations
prohibit any person, prior to the completion of the Conversion, from
transferring, or from entering into any agreement or understanding to transfer,
to the account of another, legal or beneficial ownership of the subscription
rights issued under the Plan or the Common Stock to be issued upon their
exercise. NYBB regulations also prohibit any person, prior to the completion of
the Conversion, from offering, or making an announcement of an offer or intent
to make an offer, to purchase such subscription rights or Common Stock. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
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For one year following the Conversion, NYBB regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except with the prior approval of the
Superintendent.
OTS Regulations. In addition, any proposal to acquire 10% of any class
of equity security of the Company generally would be subject to approval by the
OTS under the Change in Bank Control Act (the "CBCA") and the HOLA. The OTS
requires all persons seeking control of a savings institution, either directly
or indirectly through its holding company, to obtain regulatory approval prior
to offering to obtain control. Federal law generally provides that no "person,"
acting directly or indirectly or through or in concert with one or more other
persons, may acquire directly or indirectly "control," as that term is defined
in OTS regulations, of an OTS-regulated savings and loan holding company without
giving at least 60 days' written notice to the OTS and providing the OTS an
opportunity to disapprove the proposed acquisition. Such acquisitions of control
may be disapproved if it is determined, among other things, that (i) the
acquisition would substantially lessen competition; (ii) the financial condition
of the acquiring person might jeopardize the financial stability of the savings
institution or prejudice the interests of its depositors; or (iii) the
competency, experience or integrity of the acquiring person or the proposed
management personnel indicates that it would not be in the interest of the
depositors or the public to permit the acquisition of control by such person.
Such change in control restrictions on the acquisition of holding company stock
are not limited to a set time period but will apply for as long as the
CBCA is in effect. Persons holding revocable or irrevocable proxies may
be deemed to be beneficial owners of such securities under OTS regulations and
therefore prohibited from voting all or the portion of such proxies in excess of
the 10% aggregate beneficial ownership limit. Such regulatory restrictions may
prevent or inhibit proxy contests for control of the Company or the Bank which
have not received prior regulatory approval. Acquisitions of control of a
savings bank are subject to the approval of the FDIC under the CBCA. However,
transactions involving the Company for which OTS approval must be sought under
HOLA are exempted from this requirement.
New York State Bank Holding Company Regulation. Under New York Banking
Law, the prior approval of the NYBD is required before: (1) any action is taken
that causes any company to become a bank holding company; (2) any action is
taken that causes any banking institution to become or to be merged or
consolidated with a subsidiary of a bank holding company; (3) any bank holding
company acquires direct or indirect ownership or control of more than 5% of the
voting stock of a banking institution; (4) any bank holding company or
subsidiary thereof acquires all or substantially all of the assets of a banking
institution; or (5) any action is taken that causes any bank holding company to
merge or consolidate with another bank holding company. See "Regulation and
Supervision - Holding Company Regulation - New York State Holding Company
Regulation." Accordingly, the prior approval of the NYBB would be required
before any bank holding company, as defined in the banking law, could acquire 5%
of more of the common stock of the Company.
New York State Change in Control Regulation. Prior approval of the NYBB
is also required before any action is taken that causes any company to acquire
direct or indirect control of a banking institution. Control is presumed to
exist if any company directly or indirectly owns, controls or holds with power
to vote 10% or more of the voting stock of a banking institution or of any
company that owns, controls or holds with power to vote 10% or more of the
voting stock of a banking institution. Accordingly, prior approval of the NYBB
would be required before any company could acquire 10% or more of the Common
Stock of the Company.
Federal Reserve Board Regulations. In the event the Bank does not
qualify to be a QTL and does not elect to be treated as a "savings association"
under Section 10 of HOLA, attempts to acquire control of the Bank become subject
to regulations of the Federal Reserve Board under the CBCA.
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DESCRIPTION OF CAPITAL STOCK
OF THE COMPANY
General
The Company is authorized to issue 75 million shares of Common Stock
having a par value of $.01 per share and 5 million shares of preferred stock
having a par value of $.01 per share (the "Preferred Stock"). Based on the sale
of Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock in an amount equal to 8% of the Common Stock sold in the
Conversion to the Foundation, the Company currently expects to issue up to
26,423,550 shares of Common Stock (based on the maximum of the Estimated Price
Range, as adjusted by 15%) and no shares of Preferred Stock in the Conversion.
Except for shares issued in connection with the Conversion, the Company
presently does not have plans to issue Common Stock. Each share of the Company's
Common Stock will have the same relative rights as, and will be identical in all
respects with, each other share of Common Stock. Upon payment of the Actual
Purchase Price for the Common Stock, in accordance with the Plan of Conversion,
all such stock will be duly authorized, fully paid and nonassessable.
The Common Stock of the Company will represent nonwithdrawable capital,
will not be an account of an insurable type, and will not be insured by the
FDIC.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." The holders of Common Stock of the Company will be entitled to
receive and share equally in such dividends as may be declared by the Board of
Directors of the Company out of funds legally available therefor. If the Company
issues Preferred Stock, the holders thereof may have a priority over the holders
of the Common Stock with respect to dividends.
Voting Rights. Upon the Conversion, the holders of Common Stock of the
Company will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or as are otherwise presented to them by
the Board of Directors. Except as discussed in "Restrictions on Acquisition of
the Company and the Bank," each holder of Common Stock will be entitled to one
vote per share. Stockholders will not have any right to cumulate votes in the
election of Directors. If the Company issues Preferred Stock, holders of the
Preferred Stock may also possess voting rights. Certain matters require an 80%
stockholder vote (after giving effect to the provision limiting voting rights).
See "Restrictions on Acquisition of the Company and the Bank."
As a New York State mutual savings bank, corporate powers and control
of the Bank are vested in its Board of Trustees, who elect the officers of the
Bank and who fill any vacancies on the Board of Trustees as it exists upon
Conversion. Subsequent to Conversion, voting rights will be vested exclusively
in the owners of the shares of capital stock of the Bank, which will be the
Company, and voted at the direction of the Company's Board of Directors.
Consequently, the holders of the Common Stock will not have direct control of
the Bank.
Liquidation. In the event of any liquidation, dissolution or winding up
of the Bank, the Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders (see "The Conversion - Liquidation Rights"),
all assets of the Bank available for distribution. In the event of
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liquidation, dissolution or winding up of the Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all of its debts and liabilities, all of the assets of the Company available for
distribution. If Preferred Stock is issued, the holders thereof may have a
priority over the holders of the Common Stock in the event of liquidation or
dissolution.
Preemptive Rights; Redemption. Holders of the Common Stock of the
Company will not be entitled to preemptive rights with respect to any shares
which may be issued. The Common Stock is not subject to redemption.
Indemnification and Limit on Liability. The Company's Certificate of
Incorporation contains provisions which limit the liability of directors,
officers and employees of the Company and indemnify such individuals. Such
provisions provide that each person who was or is made a party or is threatened
to be made a party to or is otherwise involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he or she is or was a director or officer of the Company shall
be indemnified and held harmless by the Company to the fullest extent authorized
by the Delaware General Corporation Law against all expense, liability and loss
reasonably incurred. Under certain circumstances, the right to indemnification
shall include the right to be paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition. In addition,
a Director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages except for liability for any breach of the
duty of loyalty, for acts or omissions not in good faith or which involve
intentional misconduct or knowing violation of the law, under Section 174 of the
Delaware General Corporation, or for any transaction from which the Director
derived an improper personal benefit.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such designations,
powers, preferences and rights as the Board of Directors may from time to time
determine. The Board of Directors can, without stockholder approval, issue
Preferred Stock with voting, dividend, liquidation and conversion rights which
could dilute the voting strength of the holders of the Common Stock and may
assist management in impeding an unfriendly takeover or attempted change in
control. The Company presently does not have plans to issue Preferred Stock.
DESCRIPTION OF CAPITAL STOCK OF THE BANK
General
In the event the holding company form of organization is not utilized
in connection with the Conversion, the Bank may offer shares of its common stock
in connection with the Conversion. The following is a discussion of the capital
stock of the Bank.
The Restated Organization Certificate of the Bank, to be effective upon
the Conversion, authorizes the issuance of capital stock consisting of 75
million shares of common stock, par value $0.01 per share, and 5 million shares
of preferred stock, par value $0.01 per share, which preferred stock may be
issued in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of common stock
of the Bank will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. After the Conversion, the Board
of Directors will be authorized to approve the issuance of common stock up to
the amount authorized by the Restated Organization Certificate without the
approval of the Bank's stockholders. Assuming that the holding company form of
organization is utilized, all of the issued and outstanding common stock of the
Bank will be held by the Company as the Bank's sole stockholder. THE CAPITAL
STOCK OF THE BANK WILL REPRESENT NON-WITHDRAWABLE CAPITAL, WILL NOT BE AN
ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE FDIC.
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Common Stock
Dividends. The holders of the Bank's common stock will be entitled to
receive and to share equally in such dividends as may be declared by the Board
of Directors of the Bank out of funds legally available therefor. See "Dividend
Policy" for certain restrictions on the payment of dividends and "Federal and
State Taxation - Federal Taxation" for a discussion of the consequences of the
payment of cash dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the
Bank's common stock will possess exclusive voting rights in the Bank. Each
holder of shares of common stock will be entitled to one vote for each share
held. Shareholders shall not be entitled to cumulate their votes for the
election of directors. See "Restrictions on Acquisition of the Company and the
Bank - Anti-Takeover Effects of the Company's Certificate of Incorporation and
Bylaws and Management Remuneration Adopted in Conversion."
Liquidation. In the event of any liquidation, dissolution, or winding
up of the Bank, the holders of common stock will be entitled to receive, after
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon), and distribution of the balance in the special
liquidation account to Eligible Account Holders, all assets of the Bank
available for distribution in cash or in kind. If additional preferred stock is
issued subsequent to the Conversion, the holders thereof may also have priority
over the holders of common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the Bank
will not be entitled to preemptive rights with respect to any shares of the Bank
which may be issued. Upon receipt by the Bank of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Registrar and
Transfer Company.
EXPERTS
The consolidated financial statements of the Bank and its subsidiaries
as of June 30, 1997 and 1996, and for each of the years in the three-year period
ended June 30, 1997, have been included herein in reliance upon the report of
Ernst & Young LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. Such report includes an explanatory paragraph relating to a change in
accounting principles.
William M. Mercer, Incorporated has consented to the publication herein
of the summary of its opinion relating to compensation matters.
Keller & Company, Inc. has consented to the publication herein of the
summary of its report to the Bank and Company setting forth its opinion as to
the estimated pro forma market value of the Common Stock upon Conversion and its
opinion with respect to subscription rights.
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LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Conversion will be passed upon for the Bank and Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Bank and
Company. The federal income tax consequences of Richmond County Savings
Foundation will be passed upon for the Bank and the Company by Ernst & Young
LLP, independent certified public accountants. Muldoon, Murphy & Faucette will
rely as to certain matters of Delaware law on the opinion of Morris, Nichols,
Arsht & Tunnell. New York State and New York City income tax consequences will
be passed upon by Ernst & Young LLP. Certain legal matters will be passed upon
for Sandler O'Neill by Thacher Proffitt & Wood, New York, N.Y.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by Eligible Account
Holders and Supplemental Eligible Account Holders at the offices of the Bank
during normal business hours. This Prospectus contains a description of the
material terms and features of all material contracts, reports or exhibits to
the registration statement required to be described; however, the statements
contained in this Prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Bank has filed an application for approval of conversion with the
Superintendent and the FDIC. Pursuant to the rules and regulations of the
Superintendent, this Prospectus omits certain information contained in that
application. The application may be examined at the principal office of the
Superintendent, Two Rector Street, New York, New York 10006.
The Company has filed with the Office of Thrift Supervision an
Application to Form a Holding Company. This Prospectus omits certain information
contained in such Application. Such Application may be inspected at the offices
of the OTS, 1700 G Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by Directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Bank amends the Plan to eliminate the concurrent formation of
the Company as part of the Conversion, the Bank will register its stock with the
Federal Deposit Insurance Corporation under Section 12(g) of the Exchange Act
and, upon such registration, the Bank and the holders of its stock will become
subject to the same obligations and restrictions.
A copy of the Certificate of Incorporation and the Bylaws of the
Company and the Restated Organization Certificate and Bylaws of the Bank are
available without charge from the Bank. See
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"Restrictions on Acquisition of the Company and the Bank," "Description of
Capital Stock of the Company" and "Description of Capital Stock of the Bank."
The Bank's principal office is located at 1214 Castleton Avenue, Staten Island,
New York and its telephone number is (718) 448-2800.
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RICHMOND COUNTY SAVINGS BANK
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
---------------
<S> <C>
Report of Independent Auditors................................................................ F-2
Consolidated Statements of Financial Condition
as of August 31, 1997 (unaudited) and June 30, 1997 and 1996.................................. F-3
Consolidated Statements of Income for the Two Months
Ended August 31, 1997 and 1996 (unaudited) and for the Years Ended
June 30, 1997, 1996 and 1995.................................................................. 39
Consolidated Statements of Changes in Net Worth for the Two Months Ended
August 31, 1997 and 1996 (unaudited) and for the Years Ended June 30, 1997, 1996
and 1995...................................................................................... F-4
Consolidated Statements of Cash Flows for the Two Months Ended August 31, 1997
and 1996 (unaudited) and for the Years Ended June 30, 1997, 1996 and
1995.......................................................................................... F-5 to F-6
Notes to Consolidated Financial Statements.................................................... F-7 to F-31
</TABLE>
All schedules are omitted because they are not required or applicable,
or the required information is shown in the financial statements or notes
thereto.
The financial statements of Richmond County Financial Corp. have been
omitted because Richmond County Financial Corp. has not yet issued any stock,
has no assets and no liabilities, and has not conducted any business other than
of an organizational nature.
F-1
<PAGE>
[LETTERHEAD APPEARS HERE]
Report of Independent Auditors
The Board of Trustees
Richmond County Savings Bank
We have audited the accompanying consolidated statements of financial condition
of Richmond County Savings Bank (the "Bank") as of June 30, 1997 and 1996, and
the related consolidated statements of income, changes in net worth and cash
flows for each of the three years in the period ended June 30, 1997. These
financial statements are the responsibility of the Bank's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Bank at June
30, 1997 and 1996, and the consolidated results of its operations and its cash
flows for each of the three years in the period ended June 30, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 9 to the financial statements, the Bank adopted, as of July
1, 1994, Statement of Financial Accounting Standards ("SFAS") No. 106,
"Employer's Accounting for Postretirement Benefits Other Than Pensions."
/s/Ernst & Young LLP
August 22, 1997
F-2
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
August 31 June 30
1997 1997 1996
-------------------------------------
<S> <C> <C> <C>
(Unaudited)
(In Thousands)
Assets
Cash and due from banks $ 25,897 $ 26,543 $ 29,272
Federal funds sold 2,000 6,000 20,000
Receivable from broker -- -- 7,531
Securities held to maturity:
Investment securities 195,345 205,201 307,700
Mortgage-backed and mortgage related
securities 163,116 185,122 80,284
Securities available for sale:
Investment securities 21,546 19,706 21,659
Mortgage-backed and mortgage related
securities 57,024 27,398 1,394
Loans receivable:
Real estate mortgage loans 486,834 471,601 394,957
Other loans 32,252 30,127 29,109
Less allowance for loan losses (5,683) (5,470) (4,796)
-------------------------------------
Total loans receivable, net 513,403 496,258 419,270
Banking premises and equipment, net 11,970 12,058 11,568
Accrued interest receivable 8,696 8,268 9,212
Other real estate owned 885 662 612
Net deferred tax assets 3,036 2,942 2,978
Other assets 3,146 3,212 3,003
-------------------------------------
Total assets $1,006,064 $993,370 $914,483
=====================================
Liabilities and net worth
Liabilities:
Deposits $ 882,886 $884,531 $817,928
Escrow accounts 2,567 1,287 1,288
Accrued and other liabilities 9,345 6,687 5,366
Securities sold under repurchase agreements 8,434 -- --
-------------------------------------
Total liabilities 903,232 892,505 824,582
Net worth 102,832 100,865 89,901
-------------------------------------
Total liabilities and net worth $1,006,064 $993,370 $914,483
=====================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Changes in Net Worth
<TABLE>
<CAPTION>
Net Unrealized
Gain on
Securities
Surplus Undivided Available
Fund Profits for Sale Total
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance--June 30, 1994 $15,538 $58,012 $ -- $ 73,550
Unrealized net gain, net of
applicable income taxes,
upon adoption of SFAS 115 -- -- 64 64
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 3 3
Net income for the year ended
June 30, 1995 755 6,795 -- 7,550
----------------------------------------------------
Balance--June 30, 1995 16,293 64,807 67 81,167
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 4 4
Net income for the year ended
June 30, 1996 -- 8,730 -- 8,730
----------------------------------------------------
Balance--June 30, 1996 16,293 73,537 71 89,901
Change in unrealized holding
gains and losses, net of
applicable income taxes -- -- 239 239
Net income for the year ended
June 30, 1997 -- 10,725 -- 10,725
----------------------------------------------------
Balance--June 30, 1997 16,293 84,262 310 100,865
Change in unrealized holding
gains and losses, net of
applicable income taxes
(unaudited) -- -- 174 174
Net income for the two months
ended August 31, 1997
(unaudited) -- 1,793 -- 1,793
----------------------------------------------------
Balance--August 31, 1997 $16,293 $86,055 $484 $102,832
====================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
----------------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income $ 1,793 $ 1,689 $ 10,725 $ 8,730 $ 7,550
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation of bank premises and equipment 165 145 928 750 549
Amortization of deposit premium 52 52 313 313 313
Amortization of deferred fees (110) (95) (479) (580) (570)
Amortization of investment premiums/discounts 28 280 1,039 2,769 4,753
Provision for loan losses 300 266 1,080 1,600 600
Earned discounts on loans purchased -- 26 (158) (158) (158)
Net realized losses (gains) on sales of
securities and loans -- 4 107 (42) 12
Decrease (increase) in receivable from broker -- -- 7,531 (7,531) --
Decrease (increase) in net deferred tax assets (94) 127 36 (450) (1,251)
(Increase) decrease in accrued interest
receivable (428) 298 944 (575) 455
Increase in accrued and other liabilities 2,658 2,481 1,321 1,013 2,396
(Increase) decrease in other assets (362) (939) (782) 8,387 (8,238)
----------------------------------------------------------------
Net cash provided by operating activities 4,002 4,282 22,605 14,226 6,411
Cash flows from investing activities
Increase in loans receivable, net (17,335) (20,265) (76,519) (27,948) (36,210)
Loan purchases -- (944) (910) -- --
Investment securities held to maturity:
Maturities and redemptions 9,776 15,125 127,005 107,658 125,877
Purchases -- (13,024) (17,611) (150,256) (90,365)
Investment securities available for sale:
Sales and redemptions -- 4,000 11,938 10 2,132
Purchases (1,592) -- (17,678) (1,064) (2,273)
Mortgage-backed and mortgage related securities
held to maturity:
Maturities 16,800 -- 3,609 -- --
Principal collected 5,220 3,689 25,315 21,305 9,757
Purchases -- (4,941) (133,668) (15,197) (29,218)
Mortgage-backed and mortgage related securities
available for sale:
Sales and redemptions -- -- -- 5,940 --
Principal collected 453 28 479 410 505
Purchases (29,962) -- (26,478) -- --
Net additions to banking premises and equipment (77) (152) (1,418) (1,897) (2,095)
----------------------------------------------------------------
Net cash used in investing activities (16,717) (16,484) (105,936) (61,039) (21,890)
</TABLE>
F-5
<PAGE>
Richmond County Savings Bank
Consolidated Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
--------------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Cash flows from financing activities
Increase (decrease) in escrow accounts $ 1,280 $ (1,212) $ (1) $ (881) $ 591
Net (decrease) increase in deposits (1,645) 1,258 66,603 53,866 15,425
Increase in securities sold under
repurchase agreements 8,434 -- -- -- --
--------------------------------------------------------------
Net cash provided by financing activities 8,069 46 66,602 52,985 16,016
--------------------------------------------------------------
Net (decrease) increase in cash and
cash equivalents (4,646) (12,156) (16,729) 6,172 537
Cash and cash equivalents at
beginning of period 32,543 49,272 49,272 43,100 42,563
--------------------------------------------------------------
Cash and cash equivalents at
end of period $27,897 $ 37,116 $ 32,543 $49,272 $43,100
==============================================================
Income taxes paid $ -- $ -- $ 8,733 $ 7,080 $ 6,423
==============================================================
Interest paid on deposits $ 5,120 $ 4,362 $ 27,707 $26,254 $22,426
==============================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
1. General
Richmond County Savings Bank (the "Bank") is a New York State chartered mutual
savings bank. The Bank operates twelve branches in the borough of Staten Island
and one branch in the borough of Brooklyn, in the City of New York. The Bank
originates secured residential and commercial real estate loans (primarily
residential) and provides other financial services to customers primarily within
this region. The Bank's primary revenues are derived from these banking
activities and its portfolios of investment and mortgage-backed and mortgage
related securities. The Bank is subject to regulation by the Federal Deposit
Insurance Corporation and the New York State Banking Department.
2. Summary of Significant Accounting Policies
The following is a description of the significant accounting policies followed
by the Bank and its wholly-owned subsidiaries. The policies conform to generally
accepted accounting principles and to general practice within the banking
industry:
Basis of Presentation: The consolidated financial statements of the Bank
include the accounts of the Bank and its wholly-owned subsidiaries, RCSB
Corporation and Richmond Enterprises, Inc. All significant intercompany
balances and transactions between the Bank and its subsidiaries have been
eliminated. Certain prior year balances have been reclassified to conform with
current year presentation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and revenues and expenses during the reporting period. Actual
results could differ from the estimates.
Securities Held to Maturity: Investment securities and mortgage-backed and
mortgage related securities for which the Bank has the positive intent and
ability to hold to maturity are stated at cost, adjusted for amortization of
premiums and discounts which are recognized as adjustments to interest income
over the life of the security so as to provide a level yield.
F-7
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
2. Summary of Significant Accounting Policies (continued)
Securities Available for Sale: Investment securities and mortgage-backed and
mortgage related securities not classified as trading nor as held to maturity
are classified as available for sale and are carried at fair value.
Unrealized gains or losses on securities available for sale are included as a
separate component of net worth, net of applicable income taxes. Gains and
losses on the disposition of securities available for sale are recognized
using the specific identification method.
Loans Receivable: Loans receivable are stated at unpaid principal balances,
less unearned discounts and net deferred origination and commitment fees.
Loan origination and commitment fees and certain direct costs incurred in
connection with loan originations are deferred and amortized to income over
the life of the related loans as an adjustment to yield. Loans held for sale
are stated at the lower of cost or market value.
The Bank does not accrue interest on loans which are more than ninety days
delinquent as to principal or interest unless, in the opinion of management,
collection is probable, with the exception of single-family-home loans
secured by real estate, where accrual is discontinued after six months. Any
accrued but unpaid interest previously recorded on these loans is reversed
against current period interest income. Effective July 1, 1997, the Bank
revised this policy such that it does not accrue interest on any loans,
including single-family loans secured by real estate, which are more than
ninety days delinquent as to principal or interest unless, in the opinion of
management, collection is probable. The effect of this change in policy was
immaterial.
Effective July 1, 1995, the Bank adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan--Income Recognition and Disclosures."
SFAS No. 114 does not apply to large groups of smaller balance homogeneous
loans, including in the case of the Bank, one-to-four family mortgage loans,
home equity loans, consumer and student loans. The impact of adoption on the
Bank's financial position and results of operations was immaterial.
Allowance for Loan Losses: The allowance for loan losses is based on
management's periodic review and evaluation of the loan portfolio and the
potential for loss in light of the current composition of the loan portfolio,
current and prospective economic conditions, and other relevant factors.
F-8
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
2. Summary of Significant Accounting Policies (continued)
Assessing the adequacy of the allowance for loan losses is inherently
subjective as it requires making material estimates, including the amount and
timing of future cash flows expected to be received on impaired loans, that
may be susceptible to significant change. In the opinion of management, the
allowance, when taken as a whole, is adequate to absorb estimated loan losses
inherent in the Bank's entire portfolio.
Other Real Estate Owned: Other real estate owned, consisting of properties
acquired through foreclosure, is carried at the lower of carrying amount or
fair value less cost to sell.
Banking Premises and Equipment: Banking premises and equipment are recorded
at cost. Depreciation and amortization are provided for in amounts sufficient
to relate the cost of depreciable assets to operations over their estimated
service lives (3 to 20 years) on a straight-line basis. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter.
Expenditures for improvements and major renewals are capitalized, while the
cost of ordinary maintenance, repairs and minor improvements is charged to
operations.
Income Taxes: The Bank uses the liability method to account for income taxes.
Under this method, deferred tax assets and liabilities are determined based
on differences between financial reporting and tax bases of assets and
liabilities and are measured at currently enacted income tax rates applicable
to the period in which they are expected to be realized or settled. As
changes in tax laws or rates are enacted, deferred tax assets and liabilities
are adjusted through the provision for income taxes.
Statutory Transfers to Surplus: In accordance with the provisions of New York
State Banking Law and Banking Board regulations, 10% of net income (excluding
that of subsidiaries) is credited to surplus until such time as total net
worth is at least equal to 10% of the amount due to depositors.
Consolidated Statement of Cash Flows: For purposes of the consolidated
statement of cash flows, the Bank defines cash and cash equivalents as cash
and due from banks, federal funds sold and time deposits with original
maturities of three months or less.
F-9
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
3. Securities Held to Maturity
The amortized cost of investment securities, net of premiums and discounts, and
mortgage-backed and mortgage related securities held to maturity and their
related estimated fair values at August 31, 1997 and June 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
August 31, 1997
---------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies $ 87,221 $ 234 $ -- $ 87,455
Corporate and other debt obligations 108,124 194 (29) 108,289
---------------------------------------------------
$195,345 $ 428 $ (29) $195,744
===================================================
Mortgage-backed and mortgage related
securities:
Federal Home Loan Mortgage
Corporation Pass-Through Certificates $ 62,868 $1,419 $ (30) $ 64,257
Private Issuer Pass-Through Certificates 3,137 13 -- 3,150
Federal Home Loan Mortgage Corporation
Real Estate Mortgage Investment Conduits 31,590 85 -- 31,675
Private Issuer Real Estate Mortgage
Investment Conduits 65,521 75 -- 65,596
---------------------------------------------------
$163,116 $1,592 $ (30) $164,678
===================================================
</TABLE>
F-10
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
3. Securities Held to Maturity (continued)
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Investment securities:
U.S. Government and agencies $ 92,215 $ 394 $ (272) $ 92,337
Corporate and other debt obligations 112,986 443 (404) 113,025
----------------------------------------------------
$205,201 $ 837 $ (676) $205,362
====================================================
Mortgage-backed and mortgage related
securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates $ 82,237 $1,534 $ (187) $ 83,584
Private Issuer Pass-Through Certificates 3,276 5 3,281
Federal Home Loan Mortgage Corporation
Real Estate Mortgage Investment Conduits 32,248 130 (42) 32,336
Private Issuer Real Estate Mortgage
Investment Conduits 67,361 179 (148) 67,392
----------------------------------------------------
$185,122 $1,848 $ (377) $186,593
====================================================
<CAPTION>
June 30, 1996
----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------------------------------------------------
<S> <C> <C> <C> <C>
(In Thousands)
Investment securities:
U.S. Government and agencies $149,565 $ 385 $ (977) $148,973
Corporate and other debt obligations 158,135 570 (1,069) 157,636
----------------------------------------------------
$307,700 $ 955 $(2,046) $306,609
====================================================
Mortgage-backed and mortgage related
securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates $ 80,284 $ 993 $ (646) $ 80,631
====================================================
</TABLE>
F-11
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
3. Securities Held to Maturity (continued)
The amortized cost and estimated fair value of investment and mortgage-backed
and mortgage related securities held-to-maturity by contractual maturity are as
follows:
<TABLE>
<CAPTION>
August 31, 1997
-----------------------------------------------------------
Mortgage-Backed and Mortgage
Investment Securities Related Securities
-----------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
-----------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C>
Year ended August 31:
1998 $ 80,727 $ 80,961 $ 3,962 $ 3,955
1999-2002 110,866 111,016 32,036 32,013
2003-2008 2,693 2,693 -- --
2009 and thereafter 1,059 1,074 127,118 128,710
-----------------------------------------------------------
$195,345 $195,744 $163,116 $164,678
===========================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
----------------------------------------------------------
Mortgage-Backed and Mortgage
Investment Securities Related Securities
----------------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Year ended June 30:
1998 $ 85,115 $ 85,365 $ 2,197 $ 2,198
1999-2002 116,333 116,255 32,871 32,792
2003-2008 2,693 2,679 -- --
2009 and thereafter 1,060 1,063 150,054 151,603
----------------------------------------------------------
$205,201 $205,362 $185,122 $186,593
==========================================================
</TABLE>
F-12
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
3. Securities Held to Maturity (continued)
Proceeds from maturities and redemptions of securities held to maturity are
summarized as follows:
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
----------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Proceeds $26,576 $15,125 $130,614 $107,658 $125,877
Gross gains -- -- 5 9 1
Gross losses -- 4 129 1 1
</TABLE>
On November 15, 1995, the Financial Accounting Standards Board issued a Special
Report, "A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities." In accordance with provisions in
that Special Report, the Bank chose to reclassify securities from held-to-
maturity to available for sale. At the date of the transfer, the amortized cost
of those securities was $25,981,369 and the unrealized gain on those securities
was $94,287, net of tax, which was included in net worth.
4. Securities Available for Sale
The amortized cost of investment securities, net of premiums and discounts, and
mortgage-backed and mortgage related securities available for sale and their
related estimated fair values at August 31, 1997 and June 30, 1997 and 1996 are
summarized as follows:
<TABLE>
<CAPTION>
August 31, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C>
Marketable equity securities:
Preferred $14,026 $414 $(1) $14,439
Common 5,159 192 -- 5,351
Mutual Funds 1,641 115 -- 1,756
------------------------------------------------
$20,826 $721 $(1) $21,546
================================================
</TABLE>
F-13
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
4. Securities Available for Sale (continued)
<TABLE>
<CAPTION>
August 31, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C>
Mortgage-backed and mortgage related
securities:
Government National Mortgage Association
Pass-through Certificate $11,696 $119 $ -- $11,815
Federal Home Loan Mortgage
Corporation Pass-Through Certificate 20,170 -- (5) 20,165
Federal Home Loan Mortgage Corporation
Real Estate Mortgage Investment Conduits 7,340 -- (20) 7,320
Private Issuer Real Estate Mortgage
Investment Conduits 17,624 100 -- 17,724
------------------------------------------------
$56,830 $219 $(25) $57,024
================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, 1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Marketable equity securities:
Preferred $14,027 $132 $ (1) $14,158
Common 3,578 305 (69) 3,814
Mutual Funds 1,629 105 -- 1,734
------------------------------------------------
$19,234 $542 $(70) $19,706
================================================
Mortgage-backed and mortgage related
securities:
Government National Mortgage Association
Pass-Through Certificates $11,710 $151 $(37) $11,824
Federal Home Loan Mortgage Corporation Real
Estate Mortgage Investment Conduits 4,693 -- (7) 4,686
Private Issuer Real Estate Mortgage
Investment Conduits 10,881 19 (12) 10,888
------------------------------------------------
$27,284 $170 $(56) $27,398
================================================
</TABLE>
F-14
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
4. Securities Available for Sale (continued)
<TABLE>
<CAPTION>
June 30, 1996
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Marketable equity securities:
Preferred $ 27 $ -- $ (2) $ 25
Common 109 81 (34) 156
Mutual funds 1,521 7 (2) 1,526
------------------------------------------------
1,657 88 (38) 1,707
Debt securities:
U.S. Government and agencies 19,967 44 (59) 19,952
------------------------------------------------
$21,624 $132 $(97) $21,659
================================================
Mortgage-backed and mortgage
related securities:
Government National Mortgage Association
Pass-Through Certificates $ 1,292 $102 $ -- $ 1,394
================================================
</TABLE>
The amortized cost and estimated fair value of mortgage-backed and mortgage
related securities by contractual maturity at August 31, 1997 and June 30, 1997
are as follows:
<TABLE>
<CAPTION>
August 31, 1997
-----------------------
Amortized Estimated
Cost Fair Value
-----------------------
(Unaudited)
(In Thousands)
<S> <C> <C>
Years ended August 31:
1998 $ -- $ --
1999-2002
2003-2008 34 36
2009 and thereafter 56,796 56,988
-----------------------
$56,830 $57,024
=======================
</TABLE>
F-15
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
4. Securities Available for Sale (continued)
<TABLE>
<CAPTION>
June 30, 1997
-----------------------
Amortized Estimated
Cost Fair Value
-----------------------
(In Thousands)
<S> <C> <C>
Years ended June 30:
1998 $ -- $ --
1999-2002 1 1
2003-2008 34 35
2009 and thereafter 27,249 27,362
-----------------------
$27,284 $27,398
=======================
</TABLE>
Proceeds from sales and redemptions of securities available for sale are
summarized as follows:
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
-----------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Proceeds $ -- $4,000 $11,938 $5,950 $2,132
Gross gains -- -- 40 19 --
Gross losses -- -- 24 -- 20
</TABLE>
F-16
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
5. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
August 31 June 30
1997 1997 1996
----------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
One-to-four family mortgage loans $411,714 $394,588 $325,139
Multi-family mortgage loans 2,708 2,705 1,238
Commercial real estate mortgage loans 42,937 40,713 39,892
Construction and development loans,
principally residential 19,731 18,343 12,812
Home equity loans 11,056 16,729 18,054
----------------------------------
488,146 473,078 397,135
Less unearned discounts and net deferred
origination and commitment fees (1,312) (1,477) (2,178)
----------------------------------
Total real estate mortgage loans 486,834 471,601 394,957
Consumer and student loans 23,151 23,589 22,932
Commercial loans 9,282 6,662 6,300
----------------------------------
32,433 30,251 29,232
Less unearned discounts and net deferred
origination and commitment fees (181) (124) (123)
----------------------------------
Total other loans 32,252 30,127 29,109
Less allowance for loan losses (5,683) (5,470) (4,796)
----------------------------------
Total loans receivable, net $513,403 $496,258 $419,270
==================================
</TABLE>
Included in real estate mortgage loans are $1,269,814, $1,345,843 and $1,851,300
of mortgages serviced by third parties as of August 31, 1997 and June 30, 1997
and 1996, respectively, and $0, $0 and $1,155,282 of loans held for sale as of
August 31, 1997 and June 30, 1997 and 1996, respectively.
F-17
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
5. Loans Receivable (continued)
The Bank sells real estate mortgage loans to the Federal Home Loan Mortgage
Corporation ("FHLMC"), the Federal National Mortgage Association ("FNMA") and
the State of New York Mortgage Association ("SONYMA"). These loans are then
serviced by the Bank under agreements which specify a servicing fee based on a
percentage of the outstanding principal balances. The FHLMC, FNMA and SONYMA
loan servicing portfolios totaled $39,835,693, $568,973 and $8,974,397 at August
31, 1997, and $40,672,907, $570,309 and $8,875,350 at June 30, 1997 and
$41,801,765, $576,210 and $7,157,689 at June 30, 1996, respectively, and are not
included in the consolidated financial statements.
Real estate mortgage loans on nonaccrual status totaled $4,891,855, $2,673,574,
$2,756,510 and $2,291,417 at August 31, 1997 and June 30, 1997, 1996 and 1995,
respectively. If interest on the nonaccrual loans had been accrued, such income
would have been $71,673, $276,092, $225,506 and $113,664, respectively.
A summary of the changes in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
(In Thousands)
Balance at beginning of year $5,470 $4,796 $4,796 $3,275 $3,106
Provision charged to operations 300 266 1,080 1,600 600
Charge offs, net of recoveries (87) (67) (406) (79) (431)
--------------------------------------------------------
Balance at end of year $5,683 $4,995 $5,470 $4,796 $3,275
========================================================
</TABLE>
F-18
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
6. Banking Premises and Equipment
Banking premises and equipment consist of the following:
<TABLE>
<CAPTION>
August 31 June 30
1997 1997 1996
----------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
Land $ 2,850 $ 2,850 $ 2,850
Banking houses and improvements 6,742 6,742 6,140
Leasehold improvements 2,821 2,847 2,635
Furniture, fixtures and equipment 3,906 3,835 3,517
Automobiles 40 40 51
----------------------------------
16,359 16,314 15,193
Less accumulated depreciation and amortization (4,389) (4,256) (3,625)
----------------------------------
$11,970 $12,058 $11,568
==================================
</TABLE>
7. Deposits
At August 31, 1997, June 30, 1997 and 1996, deposits consist of the following:
<TABLE>
<CAPTION>
August 31 Average June 30 Average June 30 Average
1997 Rate 1997 Rate 1996 Rate
------------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificates of deposit $305,413 5.40% $298,066 5.37% $253,927 5.16%
Savings 430,396 2.78 437,694 2.78 436,669 2.78
Money market demand accounts 39,087 3.48 37,782 3.45 33,988 3.45
Noninterest-bearing demand deposits 90,793 -- 92,959 -- 78,113 --
NOW accounts 17,197 2.35 18,030 2.26 15,231 2.24
----------- ----------- -----------
$882,886 $884,531 $817,928
=========== =========== ===========
</TABLE>
F-19
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
7. Deposits (continued)
Contractual maturities of certificates of deposit accounts are as follows:
<TABLE>
<CAPTION>
August 31, 1997
----------------------------------------------
Certificates
of $100,000 All Other Total
or More Certificates Certificates
----------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
Year ending August 31:
1998 $19,862 $193,717 $213,579
1999 5,662 55,815 61,477
2000 351 7,818 8,169
2001 734 4,202 4,936
2002 and thereafter 2,781 14,471 17,252
----------------------------------------------
$29,390 $276,023 $305,413
==============================================
<CAPTION>
June 30, 1997
----------------------------------------------
Certificates
of $100,000 All Other Total
or More Certificates Certificates
----------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Year ending June 30:
1998 $17,551 $191,526 $209,077
1999 5,837 53,741 59,578
2000 200 6,529 6,729
2001 792 4,237 5,029
2002 and thereafter 3,061 14,592 17,653
----------------------------------------------
$27,441 $270,625 $298,066
==============================================
</TABLE>
F-20
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
8. Income Taxes
Significant components of the Bank's deferred tax assets and liabilities are as
follows:
<TABLE>
<CAPTION>
August 31 June 30
1997 1997 1996
-----------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C>
Deferred tax assets:
Allowance for loan losses $2,676 $2,576 $2,259
Deferred loan fees 292 338 604
Book over tax amortization 270 262 213
Non-accrual interest income 403 370 257
Postretirement benefits 1,677 1,660 1,547
Capital loss carryforward -- -- 14
-----------------------------
Gross deferred tax assets 5,318 5,206 4,894
Deferred tax liabilities:
Tax bad debt reserves 1,159 1,159 1,159
Tax over book depreciation 428 426 369
Prepaid pension expense 265 402 277
Discount accretion -- 1 47
Securities available for sale 430 276 64
-----------------------------
Gross deferred tax liabilities 2,282 2,264 1,916
-----------------------------
Net deferred tax assets $3,036 $2,942 $2,978
=============================
</TABLE>
In view of the Bank's current and projected future earnings trend, management
believes that it is more likely than not that the entire net deferred tax assets
will be utilized. Accordingly, no valuation allowance was deemed necessary for
the net deferred tax assets at August 31, 1997 and June 30, 1997 and 1996.
F-21
<PAGE>
Richmond County Savings Bank
Notes to Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
8. Income Taxes (continued)
Significant components of the provision (benefit) for income taxes attributable
to continuing operations are as follows:
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
--------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Unaudited)
(In Thousands)
Current:
Federal $1,079 $ 955 $6,278 $4,526 $4,815
State and local 604 550 3,361 2,732 2,191
----------------------------------------------------------
1,683 1,505 9,639 7,258 7,006
Deferred:
Federal (16) (23) (106) (275) (54)
State and local (5) (8) (70) (180) (33)
----------------------------------------------------------
(21) (31) (176) (455) (87)
----------------------------------------------------------
$1,662 $1,474 $9,463 $6,803 $6,919
==========================================================
</TABLE>
The table below presents a reconciliation between the reported tax provision and
the tax provision computed by applying the statutory federal income tax rate
(35% for the two months ended August 31, 1997 and 1996 and for the years ended
June 30, 1997, 1996 and 1995) to income before provision for income taxes:
<TABLE>
<CAPTION>
Two Months ended August 31 Year ended June 30
1997 1996 1997 1996 1995
------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal income tax provision
at statutory rates $1,209 $1,154 $7,066 $5,437 $5,525
Increase (reduction) in tax
resulting from:
State and local income
taxes, net of federal
income tax effect 368 351 2,139 1,659 1,402
Other 85 (31) 258 (293) (8)
------------------------------------------------------
$1,662 $1,474 $9,463 $6,803 $6,919
======================================================
</TABLE>
F-22
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
8. INCOME TAXES (CONTINUED)
For federal income tax purposes, prior to 1996, if certain definitional tests
and other conditions were met, the Bank was allowed a special bad debt deduction
in determining its taxable income. The deduction was based on either specified
experience formulas or a percentage of taxable income. Federal tax legislation
enacted during 1996 repealed the special bad debt deduction provisions. As a
result, a large thrift institution such as the Bank is required to use the
specific charge-off method in computing its federal bad debt deduction for tax
years beginning after December 31, 1995. However, New York State enacted
legislation which, among other things, would permit a large thrift institution
such as the Bank to continue to use the bad debt reserve method for both New
York State and New York City tax purposes.
The 1996 federal tax legislation also provided that a large thrift institution
such as the Bank is required to recapture the excess of its tax bad debt
reserves at December 31, 1995 over the balance of such reserves as of December
31, 1987 (the "base year"), whether the additions were made under the percentage
of the taxable income method or the experience method. The Bank will be required
to recapture its excess bad debt reserves, for which deferred taxes have been
recognized, over a six-year period on a straight-line basis beginning in
calendar year 1998. The base year reserve will remain subject to recapture in
the case of certain excess distributions to and redemptions of shareholders or
if the Bank ceases to be a bank. The New York State legislation provides that
the recapture of excess bad debt reserves is not required for either New York
State or New York City tax purposes.
At August 31, 1997 and June 30, 1997, the base year bad debt reserve for federal
income tax purposes was approximately $9.6 million, for which deferred taxes are
not required to be recognized. Bad debt reserves maintained for New York State
and New York City tax purposes as of August 31, 1997 and June 30, 1997, for
which deferred taxes are not required to be recognized, amounted to
approximately $34 million. Accordingly, deferred tax liabilities of
approximately $7.2 million have not been recognized as of August 31, 1997 and
June 30, 1997.
F-23
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
9. EMPLOYEE BENEFIT PLANS
DEFINED BENEFIT PLAN
The Bank, through its participation in the RSI Retirement Trust, contributes to
a pension plan covering substantially all of its employees. The pension plan
benefit formula is based upon years of service and average compensation over the
final years of service. The Bank's policy is to make quarterly contributions to
the plan equal to the amount necessary to satisfy the funding requirements of
ERISA. Plan assets are principally invested in pooled investment funds in the
RSI Retirement Trust, which is a registered investment company.
The following table sets forth the funded status of the Bank's defined benefit
plan for the years ended June 30, 1997 and 1996 in accordance with Statement of
Financial Accounting Standards No. 87, "Employers' Accounting for Pensions":
<TABLE>
<CAPTION>
1997 1996
----------------------------------
(In Thousands)
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 6,640 $ 6,120
Nonvested benefits 266 735
----------------------------------
Accumulated benefit obligation $ 6,906 $ 6,855
==================================
Plan assets at fair value $10,852 $ 9,766
Projected benefit obligation (8,569) (8,379)
----------------------------------
Plan assets in excess of projected benefit obligation 2,283 1,387
Unrecognized (gain) (1,619) (687)
Unrecognized transition (asset) (76) (111)
Unrecognized past service liability (25) (27)
Prepaid pension asset included in other assets $ 563 $ 562
==================================
</TABLE>
The expected long-term rate of return on plan assets for plan years 1997 and
1996 was 8.00%. The rate of increase in future compensation levels was 6.00% and
5.50% for plan years 1997 and 1996, respectively. The weighted-average discount
rate was 8.00% and 7.50% for plan years 1997 and 1996, respectively.
F-24
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
Pension expense for the years ended June 30, 1997, 1996 and 1995 includes the
following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Service cost $ 478 $ 453 $ 362
Interest cost 671 614 584
Actual return on plan assets (854) (773) (616)
Net amortization and deferrals (94) (38) (38)
-------------------------------------------------
Net pension expense $ 201 $ 256 $ 292
=================================================
</TABLE>
DEFINED CONTRIBUTION PLAN
The Bank also provides a 401(k) Savings Plan open to salaried employees meeting
certain eligibility requirements. Participants contribute 2% to 9% of pre-tax
compensation. The Bank makes matching contributions in an amount equal to 50% of
an employee's contributions, up to 6%. Participants may invest in any or all of
six investment funds, which are managed by the 401(k) Plan's trustee, RSI
Retirement Trust.
POSTRETIREMENT BENEFIT PLAN
The Bank provides postretirement medical and life insurance benefits for
eligible retired employees.
Effective July 1, 1994, the Bank adopted SFAS No. 106, "Employer's Accounting
for Postretirement Benefits Other Than Pensions." The Bank uses actuarial-basis
accrual accounting for all employer provided postretirement benefits other than
pensions. This requires the recognition of a transition obligation for the
difference between the accumulated postretirement benefit obligation and the
liability currently recognized on the statement of financial condition. Upon
adoption of SFAS No. 106, the Bank immediately recognized its entire net
transition obligation by recording a charge of $2,489,000 ($1,315,950 on an
after-tax basis) as the cumulative effect of this change in accounting
principle.
F-25
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status and amounts recognized in the
Bank's consolidated statements of financial condition at June 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-----------------------------------
(In Thousands)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $(1,025) $ (894)
Fully eligible active plan participants (300) (207)
Other active plan participants (1,471) (1,545)
Unrecognized net actuarial gain (498) (434)
-----------------------------------
Accrued postretirement benefit cost included in
accrued and other liabilities $(3,294) $(3,080)
===================================
</TABLE>
The Bank's postretirement benefits expense for the years ended June 30, 1997,
1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------
(In Thousands)
<S> <C> <C> <C>
Interest cost $ 201 $ 190 $ 205
Service cost 120 120 140
Amortization (20) (16)
$ 301 $ 294 $ 345
====================================================
</TABLE>
The weighted-average annual assumed rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) is 12.5% for the initial
year and is assumed to decrease gradually to 6% in 2003 with 1.0% annual
decreases thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the assumed
health care cost trend rates by one percentage point in each year would increase
the accumulated postretirement benefit obligation at June 30, 1997 by $327,000
(11.7%). The increase in the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 would be $44,000
(12.1%).
F-26
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted-average discount rate at June 30, 1997 and 1996 was 8%. The rate of
increase in future compensation levels at June 30, 1997 and 1996 was 5.5%.
10. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Bank conducts a portion of its banking operations in leased facilities under
noncancellable operating leases expiring at various periods through 2002. These
leases contain renewal options and certain of the leases provide for increases
based upon various escalation clauses. Rent expense was $29,683, $28,638,
$353,642, $339,656 and $324,152 for the two months ended August 31, 1997 and
1996 and the years ended June 30, 1997, 1996 and 1995, respectively.
The future minimum lease payments under such operating leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
------------------
(In Thousands)
<S> <C>
Years ended August 31:
1998 $ 362
1999 366
2000 362
2001 358
2002 and thereafter 2,604
------------------
$4,052
==================
</TABLE>
LITIGATION
The Bank is a defendant in legal actions arising in the ordinary course of
business. Management believes that these actions are without merit or that the
ultimate liability, if any, resulting from such actions will not materially
affect the Bank's consolidated financial position.
F-27
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
LOAN COMMITMENTS
There were outstanding commitments to make loans (primarily fixed rate
residential) at August 31, 1997 and June 30, 1997 and 1996 of $39,829,659,
$49,373,635 and $54,522,128, respectively. Loan commitments have credit risk
essentially the same as that involved in extending loans to customers and are
subject to the Bank's normal credit policy. These commitments are not reflected
in the accompanying consolidated statements of financial condition. Management
expects that all loan originations will be funded from existing liquidity and
normal monthly cash flow.
LINES OF CREDIT
At August 31, 1997 and June 30, 1997 and 1996, the Bank had available lines of
credits with other financial institutions aggregating $10,000,000, $10,000,000
and $20,000,000, respectively. As of August 31, 1997 and June 30, 1997 and 1996,
no amounts were outstanding under these lines of credit.
11. REGULATORY REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth below) of
total and Tier I capital to risk-weighted assets, and Tier I capital to average
assets (all as defined in the regulations). Management believes, as of August
31, 1997 and June 30, 1997, that the Bank meets all capital adequacy
requirements to which it is subject.
F-28
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
11. REGULATORY REQUIREMENTS (CONTINUED)
Based on its regulatory capital ratios at August 31, 1997 and June 30, 1997, the
Bank is categorized as "well capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well capitalized" the Bank must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. The Bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
TO BE WELL CAPITALIZED
FOR CAPITAL ADEQUACY UNDER PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
-------------------- ---------------------- ------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
As of August 31, 1997:
(Unaudited)
Total Capital
(to Risk Weighed Assets) $105,881 19.70% $42,999 >8.00% $53,749 >10.00%
Tier I Capital
(to Risk Weighed Assets) 100,911 18.77 21,500 >4.00 32,249 >6.00
Tier I Capital
(to Average Assets) 100,911 10.10 39,954 >4.00 49,943 >5.00
As of June 30, 1997:
Total Capital
(to Risk Weighed Assets) 103,910 19.71 42,181 >8.00 52,726 >10.00
Tier I Capital
(to Risk Weighed Assets) 99,063 18.79 21,090 >4.00 31,635 >6.00
Tier I Capital
(to Average Assets) 99,063 10.02 39,562 >4.00 49,452 >5.00
As of June 30, 1996:
Total Capital
(to Risk Weighed Assets) 92,194 19.20 38,414 >8.00 48,017 >10.00
Tier I Capital
(to Risk Weighed Assets) 88,029 18.33 19,207 >4.00 28,810 >6.00
Tier I Capital
(to Average Assets) 88,029 9.65 36,483 >4.00 45,604 >5.00
</TABLE>
F-29
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
12. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate that
value. Quoted market prices, when available, are used as the measure of fair
value. In cases where quoted market prices are not available, fair values are
based on present value estimates or other valuation techniques. These derived
fair values are significantly affected by assumptions used, principally the
timing of future cash flows and the discount rate.
Because assumptions are inherently subjective in nature, the estimated fair
values cannot be substantiated by comparison to independent market quotes and in
many cases, the estimated fair values would not necessarily be realized in an
immediate sale or settlement of the instrument. The disclosure requirements of
SFAS No. 107 exclude certain financial instruments and all nonfinancial
instruments. Accordingly, the aggregate fair value amounts presented do not
represent management's estimation of the underlying value of the Bank.
The carrying values and estimated fair values of the Bank's material financial
instruments as of June 30, 1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
AUGUST 31, 1997 JUNE 30, 1997 JUNE 30, 1996
------------------------------------------------------------
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
------------------------------------------------------------
(Unaudited)
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL ASSETS
Cash and due from banks $ 25,897 $ 25,897 $ 26,543 $ 26,543 $ 29,272 $ 29,272
Federal funds sold 2,000 2,000 6,000 6,000 20,000 20,000
Receivable from broker -- -- -- -- 7,531 7,531
Securities held to maturity:
Investment securities 195,345 195,743 205,201 205,362 307,700 306,609
Mortgage-backed and mortgage
related securities 163,116 164,677 185,122 186,593 80,284 80,631
Securities available for sale:
Investment securities 21,546 21,546 19,706 19,706 21,659 21,659
Mortgage-backed and mortgage
related securities 57,024 57,024 27,398 27,398 1,394 1,394
Real estate mortgage loans
receivable 486,834 488,416 471,601 472,868 394,957 401,330
Other loans receivable 32,252 32,218 30,127 30,089 29,109 29,322
FINANCIAL LIABILITIES
Deposits 882,886 840,055 884,531 838,358 817,928 770,139
</TABLE>
F-30
<PAGE>
Richmond County Savings Bank
Notes To Consolidated Financial Statements (continued)
August 31, 1997 and 1996 (Unaudited) and
June 30, 1997, 1996 and 1995
12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Bank in estimating the
fair values of financial instruments:
Cash and Due from Banks, Federal Funds Sold and Receivable from Broker:
Carrying amounts approximate fair value since these instruments are either
payable on demand or have short-term maturities.
Securities Held to Maturity and Securities Available for Sale: The estimated
fair values of securities held to maturity and securities available for sale
are based on independent dealer quotations and quoted market prices.
Real Estate Mortgage Loans and Other Loans Receivable: The estimated fair
values of real estate mortgage loans and other loans receivable are based on
discounted cash flow calculations that apply interest rates currently being
offered by the Bank for loans with similar remaining maturities to a schedule
of aggregated expected monthly maturities.
Deposits: The estimated fair values of deposits are based on discounted cash
flow calculations that apply interest rates currently being offered by the Bank
for deposits with similar remaining maturities to a schedule of aggregated
expected monthly maturities.
13. SUBSEQUENT EVENTS
On July 31, 1997, the Board of Trustees of the Bank unanimously adopted a plan
of Conversion (the "Plan of Conversion") whereby the Bank would convert from a
New York State chartered mutual bank to a New York State chartered stock
institution and offer shares of common stock in a subscription and community
offering. As part of the conversion, newly authorized shares of a new stock
holding company will be offered to the Bank's depositors and employee benefit
plans in accordance with applicable state and federal regulations. The amount
and pricing of the proposed stock offering will be based upon an independent
appraisal of the Bank.
The Plan of Conversion must be approved by eligible depositors as of June 30,
1996 as well as the New York State Banking Department. In addition, the FDIC
must issue a Letter of Non-objection with respect to the Plan of Conversion.
F-31
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Richmond County Financial Corp., Richmond County Savings Bank or
Sandler O'Neill & Partners, L.P. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation in such jurisdiction. Neither the delivery of this Prospectus
nor any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of Richmond County Financial Corp. or
Richmond County Savings Bank since any of the dates as of which information is
furnished herein or since the date hereof.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary of the Conversion and the Offerings.....................
Selected Consolidated Financial and Other
Data of the Bank..............................................
Risk Factors....................................................
Richmond County Financial Corp..................................
Richmond County Savings Bank....................................
Richmond County Savings Foundation..............................
Regulatory Capital Compliance...................................
Use of Proceeds.................................................
Dividend Policy.................................................
Market for the Common Stock.....................................
Capitalization..................................................
Pro Forma Data..................................................
Consolidated Statements of Income...............................
Management's Discussion and.....................................
Analysis of Financial Condition
and Results of Operations.....................................
Business of the Bank............................................
Federal and State Taxation......................................
Regulation and Supervision......................................
Management of the Company.......................................
Management of the Bank..........................................
The Conversion..................................................
Restrictions on Acquisition of the
Company and the Bank.........................................
Description of Capital Stock of the Company.....................
Transfer Agent and Registrar....................................
Experts.........................................................
Legal and Tax Opinions..........................................
Additional Information..........................................
Index to Financial Statements...................................
</TABLE>
-----------------------------
Until ____, 1997 or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, may be required to deliver a
Prospectus. This is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
================================================================================
================================================================================
21,275,000 Shares
[LOGO]
RICHMOND COUNTY
FINANCIAL CORP.
(Proposed Holding Company for
Richmond County Savings Bank)
COMMON STOCK
(par value $0.01 per share)
----------
PROSPECTUS
----------
Sandler O'Neill & Partners, L.P.
_______________ ___, 1997
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
<TABLE>
<S> <C>
SEC filing fee(1).......................................... $ 80,072
NYBD filing fee............................................ 5,000
OTS filing fee............................................. 2,000
NASD filing fee............................................ 5,000
Nasdaq National Market fee(1).............................. 50,000
Printing, postage and mailing.............................. 740,000
Legal fees and expenses (including underwriter's
counsel................................................... 850,000
Accounting fees and expenses............................... 400,000
Appraisers' fees and expenses (including
business plan)............................................ 67,000
Marketing fees, selling commissions, and
underwriter's expenses.................................... 2,905,000
Proxy solicitation fees and expenses....................... 35,000
Conversion agent fees and expenses......................... 65,000
Transfer agent fees and expenses........................... 20,000
Certificate printing....................................... 15,000
Telephone, temporary help and other equipment.............. 400,000
Blue Sky fees and expenses................................. 10,000
Miscellaneous.............................................. 75,000
----------
TOTAL $5,679,072
==========
</TABLE>
- --------------------
(1) Actual expenses based upon the registration of 26,423,550 shares at $10.00
per share. All other expenses are estimated.
Item 14. Indemnification of Directors and Officers.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter I of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding (or part thereof) initiated by such indemnitee only
if such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
<PAGE>
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the Corporation
shall be entitled to recover such expenses upon a final adjudication that, the
indemnitee has not met any applicable standard for indemnification set forth in
the Delaware General Corporation Law. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the burden of proving that the indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
Article TENTH, or otherwise shall be on the Corporation.
D. The rights to indemnification and to the advancement of expenses conferred in
this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statue, the Corporation's Certificate of
Incorporation, Bylaws, agreement, vote of stockholders of Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself and
any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of the Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
ELEVENTH:
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the
<PAGE>
Corporation or its stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) under
Section 174 of the Delaware General Corporation Law; or (iv) for any transaction
from which the Director derived an improper personal benefit. If the Delaware
General Corporation Law is amended to authorize corporate action further
eliminating or limiting the personal liability of Directors, then the liability
of a Director of the Corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
Item 15. Recent Sales of Unregistered Securities
None.
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
<TABLE>
<CAPTION>
(a) List of Exhibits (filed herewith unless otherwise noted)
<C> <S>
1.1 Engagement Letter between Richmond County Savings Bank and Sandler
O'Neill & Partners, L.P.*
1.2 Draft Form of Agency Agreement
2.1 Amended Plan of Conversion (including the Restated Organization
Certificate and Stock Bylaws of Richmond County Savings Bank)
3.1 Certificate of Incorporation of Richmond County Financial Corp.*
3.2 Bylaws of Richmond County Financial Corp.*
3.3 Restated Organization Certificate and Stock Bylaws of Richmond County
Savings Bank (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Richmond County Financial Corp.*
5.0 Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Opinion of Ernst & Young re: State Tax Matters
10.1 Form of Richmond County Savings Bank Employee Stock Ownership Plan and
Trust*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents*
10.3 Form of Proposed Employment Agreement between Richmond County Savings
Bank and certain executive officers*
10.4 Form of Proposed Employment Agreement between Richmond County Financial
Corp. and certain executive officers*
10.5 Form of Proposed Change in Control Agreement between Richmond County
Savings Bank and certain executive officers*
10.6 Form of Proposed Richmond County Savings Bank Employee Severance
Compensation Plan*
10.7 Form of Proposed Management Supplemental Executive Retirement Plan*
23.1 Consent of Ernst & Young LLP
23.2 Consent of Muldoon, Murphy & Faucette*
23.3 Consent of Morris, Nichols, Arsht & Tunnell*
23.4 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
23.5 Consent of William M. Mercer, Incorporated*
24.1 Powers of Attorney*
27.0 Financial Data Schedule
99.1-a Appraisal Report of Keller & Company, Inc., dated September 12, 1997 (P)
99.1-b Updated Appraisal Report of Keller & Company, Inc., dated
October 31, 1997 (P)
99.2 Draft of Richmond County Savings Foundation Gift Instrument
</TABLE>
- ------------------------
* Previously filed
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the Borough of Staten
Island, State of New York, on November 25, 1997.
Richmond County Financial Corp.
By: /s/ Michael F. Manzulli
-------------------------------
Michael F. Manzulli
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ Michael F. Manzulli Chairman of the Board and November 25, 1997
- ------------------------------ Chief Executive Officer
Michael F. Manzulli (principal executive
officer)
/s/ Thomas R. Cangemi Chief Financial Officer and November 25, 1997
- ------------------------------ Secretary (principal financial
Thomas R. Cangemi officer)
* Vice President and Accounting
- ------------------------------ Officer (principal accounting
Andrew M. Sisock officer)
* Director
- ------------------------------
Anthony E. Burke
* Director
- ------------------------------
Godfrey H. Carstens, Jr.
* Director
- ------------------------------
Robert S. Farrell
* Director
- ------------------------------
William C. Frederick, M.D.
* Director
- ------------------------------
James L. Kelley
* Director
- ------------------------------
T. Ronald Quinlan, Jr.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
* Director
- ------------------------------
Maurice K. Shaw
</TABLE>
* Pursuant to the Power of Attorney filed on October 2, 1997, as Exhibit
24.1 to the S-1 Registration Statement of Richmond County Financial Corp.
<PAGE>
Exhibit 1.2
21,275,000 Shares
(subject to increase up to 24,466,250 shares
in the event of an oversubscription)
Richmond County Financial Corp.
(a Delaware corporation)
Common Stock
(par value $0.01 per share)
AGENCY AGREEMENT
November __, 1997
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Ladies and Gentlemen:
Richmond County Financial Corp., a Delaware corporation (the "Company"),
and Richmond County Savings Bank, a New York State chartered savings bank (the
"Bank"), hereby confirm their agreement with Sandler O'Neill & Partners, L.P.
("Sandler O'Neill" or the "Agent") with respect to the offer and sale by the
Company of 21,275,000 shares (subject to increase up to 24,466,250 shares in the
event of an oversubscription) of the Company's Common Stock, par value $0.01 per
share (the "Common Stock"). The shares of Common Stock to be sold by the
Company in the Offering (as hereinafter defined) are hereinafter called the
"Securities." In addition, as described herein, the Company expects to
contribute shares of Common Stock in an amount equal to 8% of the shares of
Common Stock sold in the Offerings (as hereinafter defined) to the Richmond
County Savings Foundation (the "Foundation"), such shares hereinafter being
referred to as the "Foundation Shares."
The Securities are being offered for sale and the Foundation Shares are
being contributed in accordance with the plan of conversion (the "Plan") adopted
by the Board of Trustees of the Bank pursuant to which the Bank intends to
convert from a New York State chartered mutual savings bank to a New York State
chartered stock savings bank and issue all of its stock to the Company.
Pursuant to the Plan, the Company is offering to certain of the Bank's
<PAGE>
depositors and to the Bank's tax qualified employee benefit plans (the "Employee
Plans"), including The Richmond County Savings Bank Employee Stock Ownership
Plan (the "ESOP"), rights to subscribe for the Securities in a subscription
offering (the "Subscription Offering"). To the extent Securities are not
subscribed for in the Subscription Offering, such Securities may be offered to
certain members of the general public in a direct community offering (the
"Community Offering" and, together with the Subscription Offering, as each may
be extended or reopened from time to time, the "Subscription/Community
Offering") [to be commenced concurrently with the Subscription Offering.] It is
currently anticipated by the Company and the Bank that any Securities not
subscribed for in the Subscription/Community Offering will be offered, subject
to Section 2 hereof, in a syndicated community offering (the "Syndicated
Community Offering"). The Subscription/Community Offering and the Syndicated
Community Offering are hereinafter referred to, collectively, as the
"Offerings," and the conversion of the Bank from mutual to stock form, the
acquisition of all of the outstanding capital stock of the Bank by the Company
and the Offerings are hereinafter referred to, collectively, as the
"Conversion." It is acknowledged that the number of Securities to be sold in
the Offerings may be increased or decreased as described in the Prospectus (as
hereinafter defined). If the number of Securities is increased or decreased in
accordance with the Plan, the term "Securities" shall mean such greater or
lesser number, where applicable.
In connection with the Conversion and pursuant to the terms of the Plan as
described in the Prospectus, the Company has established the Foundation.
Immediately following the consummation of the Conversion, [subject to the
approval of the establishment of the Foundation by the depositors of the Bank]
and subject to compliance with certain conditions as may be imposed by
regulatory authorities, the Company will contribute newly issued shares of
Common Stock in an amount equal to 8% of the Securities sold in the Offering, or
between 1,258,000 and 1,702,000 shares of Common Stock (subject to increase in
certain circumstances to 1,957,300 shares).
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-37009) including a
prospectus for the registration of the Securities and the Foundation Shares
under the Securities Act of 1933, as amended (the "1933 Act"), has filed such
amendments thereto, if any, and such amended prospectuses as may have been
required to the date hereof by the Commission in order to declare such
registration statement effective, and will file such additional amendments
thereto and such amended prospectuses and prospectus supplements as may
hereafter be required. Such registration statement (as amended to date, if
applicable, and as from time to time amended or supplemented hereafter) and the
prospectus constituting a part thereof (including, in each case, all documents
incorporated or deemed to be incorporated by reference therein, and the
information, if any, deemed to be part thereof pursuant to the rules and
regulations of the Commission under the 1933 Act, as from time to time amended
or supplemented pursuant to the 1933 Act or otherwise (the "1933 Act
Regulations")), are hereinafter referred to as the "Registration Statement" and
the "Prospectus," respectively, except that if any revised prospectus shall be
used by the Company in connection with the Subscription/Community Offering or
the Syndicated Community Offering which differs from the Prospectus on file with
the Commission at the time the Registration Statement becomes effective (whether
or not such revised prospectus is required to be filed by the
2
<PAGE>
Company pursuant to Rule 424(b) of the 1933 Act Regulations), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Agent for such use.
Concurrently with the execution of this Agreement, the Company is
delivering to the Agent copies of the Prospectus to be used in the
Subscription/Community Offering. Such Prospectus contains information with
respect to the Bank, the Company and the Common Stock.
Section 1. Representations and Warranties.
(a) The Company and the Bank jointly and severally represent and
warrant to the Agent as of the date hereof as follows:
(i) The Registration Statement has been declared effective by
the Commission, no stop order has been issued with respect
thereto and no proceedings therefor have been initiated
or, to the knowledge of the Company and the Bank,
threatened by the Commission. At the time the Registration
Statement became effective and at the Closing Time
referred to in Section 2 hereof, the Registration
Statement complied and will comply in all material
respects with the requirements of the 1933 Act and the
1933 Act Regulations and did not and will not contain an
untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary
to make the statements therein not misleading. The
Prospectus at the date hereof does not, and at the Closing
Time referred to in Section 2 hereof will not, include an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that
the representations and warranties in this subsection
shall not apply to statements in or omissions from the
Prospectus made in reliance upon and in conformity with
information with respect to the Agent furnished to the
Company in writing by the Agent expressly for use in the
Prospectus (the "Agent Information," which the Company and
the Bank acknowledge appears only in the first two
paragraphs and the last paragraph of the section captioned
"The Conversion--Marketing and Underwriting Arrangements"
of the Prospectus).
(ii) The Company has filed with the Office of Thrift
Supervision, Department of the Treasury (the "OTS") the
Company's application for approval of its acquisition of
the Bank (the "Holding Company Application") on Form H-
(e)1-S promulgated under the savings and loan holding
company provisions of the Home Owners' Loan Act, as
amended ("HOLA") and the regulations promulgated
thereunder. The Company has received written notice from
the OTS of its approval of the acquisition of the Bank,
such approval remains in full force and effect and no
order has been issued by the OTS suspending or revoking
such approval and no proceedings therefor have been
initiated or, to the knowledge of the Company or the Bank,
threatened
3
<PAGE>
by the OTS. At the date of such approval and the Closing
Time, the Holding Company Application complied in all
material respects with the applicable provisions of HOLA
and the regulations promulgated thereunder.
(iii) Pursuant to the General Regulations of the Banking Board
of the State of New York and the rules and regulations of
the Federal Deposit Insurance Corporation (the "FDIC")
governing the conversion of New York State chartered
mutual savings banks to stock form (the "Conversion
Regulations"), the Bank has filed with the Superintendent
of Banks of the State of New York (the "Superintendent")
an application for conversion on Form 86-AC, and filed
with the FDIC a Notice of Conversion, including the Form
86-AC, and has filed such amendments thereto and
supplementary materials as may have been required to the
date hereof (such application, as amended to date, if
applicable, and as from time to time amended or
supplemented hereafter, is hereinafter referred to as the
"Conversion Application"), including copies of the Bank's
Proxy Statement, to be dated _______________, 1997,
relating to the Conversion (the "Proxy Statement"), and
the Prospectus. The Superintendent has, by order dated
_____________, 1997, approved the Conversion Application,
such order remains in full force and effect and no order
has been issued by the Superintendent suspending or
revoking such order and no proceedings therefor have been
initiated or, to the knowledge of the Company or the Bank,
threatened by the Superintendent. The FDIC has, by letter
dated _______________, 1997, issued a letter of intent not
to object to the Conversion, such letter remains in full
force and effect and no letter or order has been issued by
the FDIC suspending or revoking such letter and no
proceedings therefor have been initiated or, to the
knowledge of the Company or the Bank, threatened by the
FDIC. At the date of such approval by the Superintendent,
at the date of the FDIC letter of intent not to object and
at the Closing Time referred to in Section 2, the
Conversion Application complied and will comply in all
material respects with the applicable provisions of the
Conversion Regulations.
(iv) At the time of their use, the Proxy Statement and any
other proxy solicitation materials will comply in all
material respects with the applicable provisions of the
Conversion Regulations and will not contain an untrue
statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made,
not misleading. The Company and the Bank will promptly
file the Prospectus and any supplemental sales literature
with the Commission, the Superintendent and the FDIC. The
Prospectus and all supplemental sales literature, as of
the date the Registration Statement became effective and
at the Closing Time referred to in Section 2, complied and
will comply in all material respects with the applicable
requirements of the Conversion Regulations and, at or
prior to the time of their first use,
4
<PAGE>
will have received all required authorizations of the
Superintendent and the FDIC for use in final form.
(v) Neither the Commission, the Superintendent, nor the FDIC
has, by order or otherwise, prevented or suspended the use
of the Prospectus or any supplemental sales literature
authorized by the Company or the Bank for use in
connection with the Offerings.
(vi) At the Closing Time referred to in Section 2, the Company
and the Bank will have completed the conditions precedent
to the Conversion and the establishment of the Foundation
in accordance with the Plan, the applicable Conversion
Regulations and all other applicable laws, regulations,
decisions and orders, including all material terms,
conditions and requirements precedent to the Conversion
imposed upon the Company or the Bank by the OTS, the
Superintendent, the FDIC or any other regulatory
authority, other than those which the regulatory authority
permits to be completed after the Conversion.
(vii) Keller & Company, which prepared the valuation of the Bank
as part of the Conversion, satisfies all requirements for
an appraiser set forth in the Conversion Regulations and
any interpretations or guidelines issued by the
Superintendent and the FDIC with respect thereto; and
William M. Mercer, Incorporated, which prepared the
opinion filed as Exhibit 9(f) of the Conversion
Application as required by the Conversion Regulations,
satisfies all requirements for an "independent executive
compensation expert" within the meaning of the Conversion
Regulations.
(viii) The accountants who certified the financial statements and
supporting schedules of the Bank included in the
Registration Statement have advised the Company and the
Bank that they are independent public accountants within
the meaning of the Code of Ethics of the American
Institute of Certified Public Accountants; and such
accountants are, with respect to the Company, the Bank and
each subsidiary of the Bank, independent certified public
accountants as required by the 1933 Act and the 1933 Act
Regulations.
(ix) The only subsidiaries of the Bank are RCSB Corp. and
Richmond Enterprises, Inc.(the "Subsidiaries").
(x) The consolidated financial statements and the related
notes thereto included in the Registration Statement and
the Prospectus present fairly the consolidated financial
position of the Bank and the Subsidiaries as at the dates
indicated and the results of operations, retained earnings
and cash flows for the periods specified and comply as to
form in all material respects with the applicable
accounting requirements of the 1933 Act
5
<PAGE>
Regulations and the Conversion Regulations; except as
otherwise stated in the Registration Statement, said
financial statements have been prepared in conformity with
generally accepted accounting principles applied on a
consistent basis; and the supporting schedules and tables
included in the Registration Statement present fairly the
information required to be stated therein.
(xi) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus,
except as otherwise stated therein (A) there has been no
material adverse change in the financial condition,
results of operations or business of the Company, the Bank
and the Subsidiaries, taken as a whole, whether or not
arising in the ordinary course of business, and (B) except
for transactions specifically referred to or contemplated
in the Prospectus, there have been no transactions entered
into by the Company, the Bank or the Subsidiaries, other
than those in the ordinary course of business, which are
material with respect to the Company, the Bank and the
Subsidiaries, taken as a whole.
(xii) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws
of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus and to
enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing
in the State of New York and in each other jurisdiction in
which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of
business, except where the failure to so qualify would not
have a material adverse effect on the financial condition,
results of operations or business of the Company, the Bank
and the Subsidiaries, taken as a whole.
(xiii) Upon consummation of the Conversion and the contribution
of the Foundation Shares as described in the Prospectus,
the authorized, issued and outstanding capital stock of
the Company will be within the range as set forth in the
Prospectus under "Capitalization" (except for subsequent
issuances, if any, pursuant to reservations, agreements or
employee benefit plans referred to in the Prospectus); no
shares of Common Stock have been or will be issued and
outstanding prior to the Closing Time referred to in
Section 2; at the time of Conversion, the Securities will
have been duly authorized for issuance and, when issued
and delivered by the Company pursuant to the Plan against
payment of the consideration calculated as set forth in
the Plan and stated on the cover page of the Prospectus,
will be duly and validly issued and fully paid and non-
assessable; the terms and provisions of the Common Stock
and the capital stock of the Company conform to all
statements relating thereto contained in the Prospectus;
the
6
<PAGE>
certificates representing the shares of Common Stock will
conform with the requirements of applicable laws and
regulations; and the issuance of the Securities is not
subject to preemptive or other similar rights.
(xiv) The Bank, as of the date hereof, is a New York State
chartered savings bank in mutual form and upon
consummation of the Conversion will be a New York State
chartered savings bank in stock form, in both instances
with full corporate power and authority to own, lease and
operate its properties and to conduct its business as
described in the Prospectus; the Company, the Bank and the
Subsidiaries have obtained all licenses, permits and other
governmental authorizations currently required for the
conduct of their respective businesses or required for the
conduct of their respective businesses as contemplated by
the Holding Company Application and the Conversion
Application, except where the failure to obtain such
licenses, permits or other governmental authorizations
would not have a material adverse effect on the financial
condition, results of operations or business of the
Company, the Bank or the Subsidiaries, taken as a whole;
all such licenses, permits and other governmental
authorizations are in full force and effect, and the
Company, the Bank and the Subsidiaries are in all material
respects in compliance therewith; neither the Company, the
Bank nor the Subsidiaries has received notice of any
proceeding or action relating to the revocation or
modification of any such license, permit or other
governmental authorization which, singly or in the
aggregate, if the subject of an unfavorable decision,
ruling or finding, might have a material adverse effect on
the financial condition, results of operations or business
of the Company, the Bank and the Subsidiaries, taken as a
whole; and the Bank is in good standing under the laws of
the State of New York and is qualified as a foreign
corporation in any jurisdiction in which the failure to so
qualify would have a material adverse effect on the
financial condition, results of operations or business of
the Company, the Bank and the Subsidiaries, taken as a
whole.
(xv) The deposit accounts of the Bank are insured by the FDIC
up to the applicable limits and, upon consummation of the
Conversion, the liquidation account for the benefit of
eligible account holders will be duly established in
accordance with the requirements of the Conversion
Regulations. The Bank is a "qualified thrift lender"
within the meaning of 12 U.S.C. (S) 1467a(m).
(xvi) Upon consummation of the Conversion, the authorized
capital stock of the Bank will be 75,000,000 shares of
common stock, par value $0.01 per share (the "Bank Common
Stock"), and 5,000,000 shares of preferred stock, par
value $0.01 per share (the "Bank Preferred Stock"), and
the issued and outstanding capital stock of the Bank will
be [1,000] shares of Bank Common Stock; no shares of Bank
Common Stock or Bank Preferred
7
<PAGE>
Stock have been or will be issued and outstanding prior to
the Closing Time referred to in Section 2; the shares of
Bank Common Stock to be issued to the Company will have
been duly authorized for issuance and, when issued and
delivered by the Bank pursuant to the Plan against payment
of the consideration calculated as set forth in the Plan
and as described in the Prospectus, will be duly and
validly issued and fully paid and nonassessable, and all
such Bank Common Stock will be owned beneficially and of
record by the Company free and clear of any security
interest, mortgage, pledge, lien, encumbrance or legal or
equitable claim; the terms and provisions of the Bank
Common Stock and the Bank Preferred Stock conform to all
statements relating thereto contained in the Prospectus,
and the certificates representing the shares of Bank
Common Stock will conform with the requirements of
applicable laws and regulations; and the issuance of the
Bank Common Stock is not subject to preemptive or similar
rights.
(xvii) The Foundation has been duly incorporated and is validly
existing as a non-stock corporation in good standing under
the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to
conduct its business as described in the Prospectus; the
Foundation will not be a savings and loan holding company
within the meaning of 12 C.F.R. Section 574.2(q) as a
result of the issuance of shares of Common Stock to it in
accordance with the terms of the Plan and in the amounts
as described in the Prospectus; no approvals are required
to establish the Foundation and to contribute the shares
of Common Stock thereto as described in the Prospectus
other than those imposed by the Superintendent and the
FDIC; except as specifically disclosed in the Prospectus
and the Proxy Statement, there are no agreements and/or
understandings, written or oral, between the Company
and/or the Bank and the Foundation with respect to the
control, directly or indirectly, over the voting and the
acquisition or disposition of the Foundation Shares; at
the time of the Conversion, the Foundation Shares will
have been duly authorized for issuance and, when issued
and contributed by the Company pursuant to the Plan, will
be duly and validly issued and fully paid and non-
assessable; and the issuance of the Foundation Shares is
not subject to preemptive or similar rights.
(xviii) Each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has full
corporate power and authority to own, lease and operate
its properties and to conduct its business as described in
the Registration Statement and Prospectus is duly
qualified to transact business and is in good standing in
each jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of property
or the conduct of business, except where the failure to so
qualify would not have a material adverse effect on the
financial condition, results of operations or
8
<PAGE>
business of the Company, the Bank and the Subsidiaries,
taken as a whole; the activities of the Subsidiaries are
permitted to subsidiaries of a New York State chartered
savings bank by the rules, regulations, resolutions and
practices of the Superintendent and the FDIC; all of the
issued and outstanding capital stock of the Subsidiaries
has been duly authorized and validly issued, is fully paid
and nonassessable and is owned by the Bank directly, free
and clear of any security interest, mortgage, pledge,
lien, encumbrance or legal or equitable claim.
(xix) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated
herein have been duly authorized by all necessary
corporate action of the Company and the Bank, and this
Agreement has been duly executed and delivered by, and is
the valid and binding agreement of, the Company and the
Bank, enforceable in accordance with its terms, except as
may be limited by bankruptcy, insolvency or other laws
affecting the enforceability of the rights of creditors
generally and judicial limitations on the right of
specific performance and except as the enforceability of
indemnification and contribution provisions may be limited
by applicable securities laws.
(xx) The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated
herein do not and will not conflict with or constitute a
breach of, or default under, or result in the creation or
imposition of any lien, charge or encumbrance upon any
property or assets of the Company, the Bank or the
Subsidiaries pursuant to, any contract, indenture,
mortgage, loan agreement, note, lease or other instrument
to which the Company, the Bank and the Subsidiaries is a
party or by which it or any of them may be bound, or to
which any of the property or assets of the Company, the
Bank or the Subsidiaries is subject, except for such
defaults that would not, individually or in the aggregate,
have a material adverse effect on the financial condition,
results of operations or business of the Company, the Bank
and the Subsidiaries, taken as whole, nor will such action
result in any violation of the provisions of the
certificate of incorporation, organization certificate,
articles of incorporation or charter, as the case may be,
or bylaws of the Company, the Bank or any of the
Subsidiaries or any applicable law, regulation or
administrative or court decree.
(xxi) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus
and prior to the Closing Time, except as otherwise may be
specifically described or contemplated therein, none of
the Company, the Bank or the Subsidiaries will have (A)
issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money,
except borrowings in the ordinary course of business from
the same or similar sources indicated in the Prospectus,
or (B) entered
9
<PAGE>
into any transaction or series of transactions which is
material in light of the business of the Company, the Bank
and the Subsidiaries, taken as a whole, excluding the
origination, purchase and sale of loans or the purchase or
sale of investment securities or mortgaged-backed
securities in the ordinary course of business.
(xxii) No approval of any regulatory or supervisory or other
public authority is required in connection with the
execution and delivery of this Agreement or the issuance
of the Securities and the Foundation Shares (except for
the declaration of effectiveness of any required post
effective amendment to the Registration Statement by the
Commission, approval thereof by the Superintendent and
non-objection by the FDIC), which has not been obtained
and a copy of which has been delivered to the Agent,
except for the issuance of the restated organization
certificate by the Superintendent and as may be required
under the securities laws of various jurisdictions.
(xxiii) Neither the Company, the Bank nor any of the Subsidiaries
is in violation of its certificate of incorporation,
restated organization certificate, articles of
incorporation, charter or bylaws, as the case may be (and
the Bank will not be in violation of its restated
organization certificate or bylaws in stock form upon
consummation of the Conversion); neither the Company, the
Bank nor any of the Subsidiaries is in default (nor has
any event occurred which, with notice or lapse of time, or
both, would constitute a default) in the performance or
observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which
the Company, the Bank or the Subsidiaries is a party or by
which it or any of them may be bound, or to which any of
the property or assets of the Company, the Bank or the
Subsidiaries is subject, except for such defaults that
would not, individually or in the aggregate, have a
material adverse effect on the financial condition,
results of operations or business of the Company, the Bank
and the Subsidiaries, taken as a whole; and there are no
contracts or documents of the Company, the Bank or any of
the Subsidiaries which are required to be filed as
exhibits to the Registration Statement or the Conversion
Application which have not been so filed.
(xxiv) No labor dispute with the employees of the Company, the
Bank or any of the Subsidiaries exists or, to the
knowledge of the Company or the Bank, is threatened; and
the Company and the Bank are not aware of any existing or
threatened labor disturbance by the employees of any of
their principal suppliers or contractors which might be
expected to result in any material adverse change in the
financial condition, results of operations or business of
the Company, the Bank and the Subsidiaries, taken as a
whole.
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<PAGE>
(xxv) Each of the Company, the Bank and the Subsidiaries has
good and marketable title to all properties and assets for
which ownership is material to its business and to those
properties and assets described in the Prospectus as owned
by it, free and clear of all liens, charges, encumbrances
or restrictions, except such as are described in the
Prospectus or are not material in relation to the business
of the Company, the Bank and the Subsidiaries, taken as a
whole; and all of the leases and subleases material to the
business of the Company, the Bank and the Subsidiaries,
taken as a whole, under which the Company, the Bank or any
of the Subsidiaries holds properties, including those
described in the Prospectus, are the legal, valid and
binding agreements of the Company, the Bank or the
Subsidiaries, enforceable in accordance with their terms.
(xxvi) Neither the Company, the Bank nor any of the Subsidiaries
is in violation of any directive from the OTS, the
Superintendent or the FDIC to make any material change in
the method of conducting its business; the Bank and the
Subsidiaries have conducted and are conducting their
businesses so as to comply with all applicable statutes,
regulations and administrative and court decrees
(including, without limitation, all regulations,
decisions, directives and orders of the Superintendent and
the FDIC).
(xxvii) There is no action, suit or proceeding before or by any
court or governmental agency or body, domestic or foreign,
now pending, or, to the knowledge of the Company or the
Bank, threatened, against or affecting the Company, the
Bank or any of the Subsidiaries which is required to be
disclosed in the Registration Statement (other than as
disclosed therein), or which might result in any material
adverse change in the financial condition, results of
operations or business of the Company, the Bank and the
Subsidiaries, taken as a whole, or which might materially
and adversely affect the properties or assets thereof, or
which might materially and adversely affect performance
under this Agreement or the consummation of the
Conversion; all pending legal or governmental proceedings
to which the Company, the Bank or any of the Subsidiaries
is a party or of which any of their respective properties
or assets is the subject which are not described in the
Registration Statement, including ordinary routine
litigation incidental to the business, are, considered in
the aggregate, not material; and there are no contracts or
documents of the Company, the Bank or any of the
Subsidiaries which are required to be filed as exhibits to
the Registration Statement or the Conversion Application
which have not been so filed.
(xxviii) The Bank has obtained opinions of its counsel, Muldoon,
Murphy & Faucette, with respect to the legality of the
Securities to be issued and the Foundation Shares to be
issued and the federal income tax consequences of the
Conversion, copies of which are filed as exhibits to the
Registration
11
<PAGE>
Statement; all material aspects of the aforesaid opinions
are accurately summarized in the Prospectus; the facts and
representations upon which such opinions are based are
truthful, accurate and complete in all material respects,
and neither the Bank nor the Company has taken or will
take any action inconsistent therewith.
(xxix) The Bank has obtained an opinion of Ernst & Young, LLP,
with respect to certain New York State tax consequences of
the Conversion (relating to banking franchise tax, sales
or use tax, license fee on foreign corporations, stock
transfer tax, real property transfer gains tax and real
estate transfer tax) and the opinion of Ernst & Young, LLP
with respect to the federal income tax consequences of the
Foundation, copies of which are filed as exhibits to the
Registration Statement; all material aspects of the
aforesaid opinions are accurately summarized in the
Prospectus; the facts and representations upon which such
opinions are based are truthful, accurate and complete in
all material respects, and neither the Bank nor the
Company has taken or will take any action inconsistent
therewith which would in any way affect the aforesaid
opinions.
(xxx) The Company is not required to be registered under the
Investment Company Act of 1940, as amended.
(xxxi) All of the loans represented as assets on the most recent
consolidated financial statements or consolidated selected
financial information of the Bank included in the
Prospectus meet or are exempt from all requirements of
federal, state and local law pertaining to lending,
including, without limitation, truth in lending (including
the requirements of Regulations Z and 12 C.F.R. Part 226
and 12 C.F.R. Section 563.99), real estate settlement
procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such
loans, except for violations which, if asserted, would not
result in a material adverse effect on the financial
condition, results of operations or business of the
Company, the Bank and the Subsidiaries, taken as a whole.
(xxxii) With the exception of the Company's intended loan to the
ESOP for the purpose of enabling the ESOP to purchase
shares of Common Stock in an amount up to 8% of the
aggregate of the Foundation Shares and the Common Stock
sold in the Offering, none of the Company, the Bank or any
employee of the Bank has made any payment of funds of the
Company or the Bank as a loan for the purchase of the
Common Stock or made any other payment of funds prohibited
by law and no funds have been set aside to be used for any
payment prohibited by law.
(xxxiii) The Company, the Bank and the Subsidiaries are in
compliance in all material respects with the applicable
financial record keeping and reporting
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<PAGE>
requirements of the Currency and Foreign Transaction
Reporting Act of 1970, as amended, and the rules and
regulations thereunder, and the lending practices of the
Bank are and have been in conformity with the Real Estate
Settlement Procedures Act, as amended, and the rules and
regulations thereunder.
(xxxiv) Neither the Company, the Bank nor the Subsidiaries nor any
properties owned or operated by the Company, the Bank or
the Subsidiaries, is in violation of or liable under any
Environmental Law (as defined below), except for such
violations or liabilities that, individually or in the
aggregate, would not have a material adverse effect on the
financial condition, results of operations or business of
the Company, the Bank and the Subsidiaries, taken as a
whole. There are no actions, suits or proceedings, or
demands, claims, notices or investigations (including,
without limitation, notices, demand letters or requests
for information from any environmental agency) instituted
or pending or, to the knowledge of the Company or the
Bank, threatened relating to the liability of any property
owned or operated by the Company, the Bank or the
Subsidiaries under any Environmental Law. For purposes of
this subsection, the term "Environmental Law" means any
federal, state, local or foreign law, statute, ordinance,
rule, regulation, code, license, permit, authorization,
approval, consent, order, judgment, decree, injunction or
agreement with any regulatory authority relating to (i)
the protection, preservation or restoration of the
environment (including, without limitation, air, water,
vapor, surface water, groundwater, drinking water supply,
surface soil, subsurface soil, plant and animal life or
any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or
disposal of any substance presently listed, defined,
designated or classified as hazardous, toxic, radioactive
or dangerous, or otherwise regulated, whether by type or
by quantity, including any material containing any such
substance as a component.
(xxxv) The Company, the Bank and the Subsidiaries have filed all
federal income and state and local franchise tax returns
required to be filed and have made timely payments of all
taxes shown as due and payable in respect of such returns,
and no deficiency has been asserted with respect thereto
by any taxing authority.
(xxxvi) The Company has received approval, subject to issuance, to
have the Common Stock quoted on the Nasdaq Stock Market
(the "Nasdaq National Market") effective at the Closing
Time referred to in Section 2 hereof.
(xxxvii) The Company has filed a registration statement for the
Common Stock under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act
Registration Statement") and has requested that such
13
<PAGE>
registration statement be effective concurrent with the
effectiveness of the Registration Statement.
(b) Any certificate signed by any officer of the Company or the Bank
and delivered to either of the Agent or counsel for the Agent shall
be deemed a representation and warranty by the Company or the Bank
as to each of the matters covered thereby.
Section 2. Appointment of Sandler O'Neill; Sale and Delivery of the
Securities; Closing.
On the basis of the representations and warranties herein contained
and subject to the terms and conditions herein set forth, the Company hereby
appoints Sandler O'Neill as its Agent to consult with and advise the Company,
and to assist the Company with the solicitation of subscriptions and purchase
orders for Securities, in connection with the Company's sale of the Securities
in the Subscription/Community Offering and the Syndicated Community Offering.
On the basis of the representations and warranties herein contained, and subject
to the terms and conditions herein set forth, Sandler O'Neill accepts such
appointment and agrees to use its best efforts to assist the Company with the
solicitation of subscriptions and purchase orders for Securities in accordance
with this Agreement; provided, however, that the Agent shall not be obligated to
take any action which is inconsistent with any applicable laws, regulations,
decisions or orders. The services to be rendered by Sandler O'Neill pursuant to
this appointment include the following: (i) consulting as to the securities
marketing implications of any aspect of the Plan or related corporate documents;
(ii) reviewing with the Bank's Board of Trustees the independent appraiser's
appraisal of the Common Stock, particularly with regard to aspects of the
appraisal involving the methodology employed; (iii) reviewing all offering
documents, including the Prospectus, stock order forms and related offering
materials (it being understood that the preparation and filing of such documents
are the sole responsibility of the Company and the Bank and their counsel); (iv)
assisting in the design and implementation of a marketing strategy for the
Offerings; (v) assisting in obtaining all requisite regulatory approvals; (vi)
assisting Bank management in preparing for meetings with potential investors and
broker-dealers; and (vii) providing such other general advice and assistance as
may be requested to promote the successful completion of the Offerings.
The appointment of the Agent hereunder shall terminate upon the
earliest to occur of (a) forty-five (45) days after the last day of the
Subscription/Community Offering, unless the Company and the Agent agree in
writing to extend such period and the Superintendent and the FDIC agree to
extend the period of time in which the Securities may be sold, (b) the receipt
and acceptance of subscriptions and purchase orders for all of the Securities or
(c) the completion of the Syndicated Community Offering.
If any of the Securities remain available after the expiration of the
Subscription/Community Offering, at the request of the Company and the Bank,
the Agent will seek to form a syndicate of registered brokers or dealers
("Selected Dealers") to assist in the solicitation of purchase orders of such
Securities on a best efforts basis, subject to the terms and conditions
14
<PAGE>
set forth in a selected dealers' agreement (the "Selected Dealers' Agreement"),
in substantially the form set forth as Exhibit A to this Agreement. The Agent
will endeavor to limit the aggregate fees to be paid by the Company and the Bank
under any such Selected Dealers' Agreement to an amount competitive with gross
underwriting discounts charged at such time for underwritings of comparable
amounts of stock sold at a comparable price per share in a similar market
environment; provided, however, that the aggregate fees payable to the Agent and
Selected Dealers shall not exceed 7% of the aggregate Purchase Price (as defined
in the Prospectus) of the Securities sold by such Selected Dealers. The Agent
will endeavor to distribute the Securities among the Selected Dealers in a
fashion which best meets the distribution objectives of the Company and the Bank
and the requirements of the Plan and applicable law, which may result in
limiting the allocation of stock to certain Selected Dealers. It is understood
that in no event shall the Agent be obligated to act as a Selected Dealer or to
take or purchase any Securities.
In the event the Company is unable to sell at least the Total Minimum
of Securities, as set forth on the cover of the Prospectus, within the period
herein provided, this Agreement shall terminate, and the Company shall refund to
any persons who have subscribed for any of the Securities the full amount which
it may have received from them, together with interest as provided in the
Prospectus, and no party to this Agreement shall have any obligation to the
others hereunder, except for the obligations of the Company and the Bank as set
forth in Sections 4, 6(a) and 7 hereof and the obligations of the Agent as set
forth in Sections 6(b) and 7 hereof. Appropriate arrangements for placing the
funds received from subscriptions for Securities or other offers to purchase
Securities in special interest-bearing accounts with the Bank until all
Securities are sold and paid for were made prior to the commencement of the
Subscription Offering, with provision for refund to the purchasers as set forth
above, or for delivery to the Company if all Securities are sold.
If at least the Total Minimum of Securities, as disclosed on the cover
of the Prospectus, are sold, the Company agrees to issue or have issued the
Securities sold and to release for delivery certificates for such Securities at
the Closing Time against payment therefor by release of funds from the special
interest-bearing accounts referred to above. The closing shall be held at the
offices of Muldoon, Murphy & Faucette, at 10:00 a.m., local time, or at such
other place and time as shall be agreed upon by the parties hereto, on a
business day to be agreed upon by the parties hereto. The Company shall notify
the Agent by telephone, confirmed in writing, when funds shall have been
received for all the Securities. Certificates for Securities shall be delivered
directly to the purchasers thereof in accordance with their directions.
Notwithstanding the foregoing, certificates for Securities purchased through
Selected Dealers shall be made available to the Agent for inspection at least 48
hours prior to the Closing Time at such office as the Agent shall designate.
The hour and date upon which the Company shall release for delivery all of the
Securities, in accordance with the terms hereof, are herein called the "Closing
Time."
The Company will pay any stock issue and transfer taxes which may be
payable with respect to the sale of the Securities.
In addition to reimbursement of the expenses specified in Section 4
hereof, the Agent will receive the following compensation for its services
hereunder:
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<PAGE>
(a) one and three quarters percent (1.75%) of the aggregate Purchase
Price (as defined in the Prospectus) of the Securities sold in the
Subscription Offering and in the Community Offering, excluding in
each case shares purchased by (i) any employee benefit plan of the
Company or the Bank established for the benefit of their respective
directors, officers and employees, (ii) any director, officer or
employee of the Company or the Bank or members of their immediate
families (which term shall mean parents, grandparents, spouse,
siblings, children and grandchildren); and
(b) with respect to any Securities sold by an NASD member firm (other
than Sandler O'Neill) under the Selected Dealers' Agreement in the
Syndicated Community Offering, (i) the sales commission payable to
Selected Dealers under any Selected Dealers' Agreement, (ii) any
sponsoring dealer's fees and (iii) a management fee to Sandler
O'Neill of one and one-half percent (1.5%) of the aggregate
Purchase Price of such Securities sold under such agreement. Any
fees payable to Sandler O'Neill for Securities sold by Sandler
O'Neill under any such agreement shall be limited to an aggregate
of one and three-quarters percent (1.75%) of the aggregate Purchase
Price of such Securities.
If this Agreement is terminated by the Agent in accordance with the
provisions of Section 9(a) hereof or the Conversion is terminated by the Company
or the Bank, no fees shall be payable by the Company or the Bank to Sandler
O'Neill; however, the Bank shall reimburse Sandler O'Neill for its reasonable
out-of-pocket expenses incurred prior to termination, including the reasonable
fees and disbursements of counsel for the Agent, in accordance with the
provisions of Section 4 hereof.
All fees payable to the Agent hereunder shall be payable in
immediately available funds at Closing Time, or upon termination of this
Agreement, as the case may be. In recognition of the long lead times involved
in the conversion process, the Bank agrees to make advance payments to the Agent
in the aggregate amount of $50,000, $25,000 of which was paid upon execution of
the engagement letter, dated July 30, 1997, and the remaining $25,000 of which
shall be payable upon commencement of the Subscription Offering, which shall be
credited against any fees or reimbursement of expenses payable under this
Section.
Section 3. Covenants of the Company and the Bank. The Company and the Bank
covenant with the Agent as follows:
(a) The Company and the Bank will prepare and file such amendments or
supplements to the Registration Statement, the Prospectus, the
Conversion Application and the Proxy Statement as may hereafter be
required by the 1933 Act Regulations or the Conversion Regulations
or as may hereafter be requested by the Agent. Following completion
of the Subscription/Community Offering, in the event of a
Syndicated Community Offering, the Company and the Bank will (i)
promptly prepare and file with the Commission a post-effective
amendment to the Registration Statement relating to the results of
the Subscription/Community Offering, any additional
16
<PAGE>
information with respect to the proposed plan of distribution and
any revised pricing information or (ii) if no such post-effective
amendment is required, will file with, or mail for filing to, the
Commission a prospectus or prospectus supplement containing
information relating to the results of the Subscription/Community
Offering and pricing information pursuant to Rule 424(c) of the
1933 Act Regulations, in either case in a form acceptable to the
Agent. The Company and the Bank will notify the Agent immediately,
and confirm the notice in writing, (i) of the effectiveness of any
post-effective amendment of the Registration Statement, the filing
of any supplement to the Prospectus or the filing of any amendment
to the Conversion Application, (ii) of the receipt of any comments
from the Superintendent, the FDIC, the OTS or the Commission with
respect to the transactions contemplated by this Agreement or the
Plan, (iii) of any request by the Commission, the Superintendent,
the FDIC or the OTS for any amendment to the Registration Statement
or the Conversion Application or the Holding Company Application or
any amendment or supplement to the Prospectus or for additional
information, (iv) of the issuance by the Superintendent or the FDIC
of any order suspending the Offerings or the use of the Prospectus
or the initiation of any proceedings for that purpose, (v) of the
issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, and (vi) of the receipt of any
notice with respect to the suspension of any qualification of the
Securities for offering or sale in any jurisdiction. The Company
and the Bank will make every reasonable effort to prevent the
issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Company and the Bank will give the Agent notice of its
intention to file or prepare any amendment to the Conversion
Application, Holding Company Application or Registration Statement
(including any post-effective amendment) or any amendment or
supplement to the Prospectus (including any revised prospectus
which the Company proposes for use in connection with the
Syndicated Community Offering of the Securities which differs from
the prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such
revised prospectus is required to be filed pursuant to Rule 424(b)
of the 1933 Act Regulations), will furnish the Agent with copies of
any such amendment or supplement a reasonable amount of time prior
to such proposed filing or use, as the case may be, and will not
file any such amendment or supplement or use any such prospectus to
which the Agent or counsel for the Agent may object.
(c) The Company and the Bank will deliver to the Agent as many signed
copies and as many conformed copies of the Conversion Application
and the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or
incorporated by reference therein) as the Agent may reasonably
request, and from time to time such number of copies of the
Prospectus as the Agent may reasonably request.
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<PAGE>
(d) During the period when the Prospectus is required to be delivered,
the Company and the Bank will comply, at their own expense, with
all requirements imposed upon them by the Superintendent and the
FDIC, by the applicable Conversion Regulations, as from time to
time in force, and by the 1933 Act, the 1933 Act Regulations, the
Securities Exchange Act of 1934, as amended (the "1934 Act") and
the rules and regulations of the Commission promulgated thereunder,
including, without limitation, Regulation M, so far as necessary to
permit the continuance of sales or dealing in shares of Common
Stock during such period in accordance with the provisions hereof
and the Prospectus.
(e) If any event or circumstance shall occur as a result of which it is
necessary, in the opinion of counsel for the Agent, to amend or
supplement the Prospectus in order to make the Prospectus not
misleading in the light of the circumstances existing at the time
it is delivered to a purchaser, the Company and the Bank will
forthwith amend or supplement the Prospectus (in form and substance
satisfactory to counsel for the Agent) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement
of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to a purchaser,
not misleading, and the Company and the Bank will furnish to the
Agent a reasonable number of copies of such amendment or
supplement. For the purpose of this subsection, the Company and the
Bank will each furnish such information with respect to itself as
the Agent may from time to time reasonably request.
(f) The Company and the Bank will take all necessary action, in
cooperation with the Agent, to qualify the Securities for offering
and sale under the applicable securities laws of such states of the
United States and other jurisdictions as the Conversion Regulations
may require and as the Agent and the Company have agreed; provided,
however, that neither the Company nor the Bank shall be obligated
to file any general consent to service of process or to qualify as
a foreign corporation in any jurisdiction in which it is not so
qualified. In each jurisdiction in which the Securities have been
so qualified, the Company and the Bank will file such statements
and reports as may be required by the laws of such jurisdiction to
continue such qualification in effect for a period of not less than
one year from the effective date of the Registration Statement.
(g) The Company authorizes Sandler O'Neill and any Selected Dealer to
act as agent of the Company in distributing the Prospectus to
persons entitled to receive subscription rights and other persons
to be offered Securities having record addresses in the states or
jurisdictions set forth in a survey of the securities or "blue sky"
laws of the various jurisdictions in which the Offerings will be
made (the "Blue Sky Survey").
(h) The Company will make generally available to its security holders
as soon as practicable, but not later than 60 days after the close
of the period covered thereby,
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<PAGE>
an earnings statement (in form complying with the provisions of
Rule 158 of the 1933 Act Regulations) covering a twelve-month
period beginning not later than the first day of the Company's
fiscal quarter next following the "effective date" (as defined in
said Rule 158) of the Registration Statement.
(i) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to its
stockholders as soon as practicable after the end of each fiscal
year in such period an annual report (including consolidated
statements of financial condition and consolidated statements of
income, stockholders' equity and cash flows of the Company, the
Bank and the Subsidiaries, certified by independent public
accountants) and, as soon as practicable after the end of each of
the first three quarters of each fiscal year (beginning with the
fiscal quarter ending after the effective date of the Registration
Statement), the Company will make available to its stockholders
consolidated summary financial information of the Company, the Bank
and the Subsidiaries for such quarter in reasonable detail. In
addition, such annual report and quarterly consolidated summary
financial information shall be made public through the issuance of
appropriate press releases at the same time or prior to the time of
the furnishing thereof to stockholders of the Company.
(j) During the period ending on the third anniversary of the expiration
of the fiscal year during which the closing of the transactions
contemplated hereby occurs, the Company will furnish to the Agent
(i) as soon as available, a copy of each report or other document
of the Company furnished generally to stockholders of the Company
or furnished to or filed with the Commission under the 1934 Act or
any national securities exchange or system on which any class of
securities of the Company is listed and (ii) from time to time,
such other information concerning the Company as the Agent may
reasonably request.
(k) Each of the Company and the Bank will use the net proceeds received
by it from the sale of the Securities and the purchase of the
Common Stock by the Company, as the case may be, in the manner
specified in the Prospectus under "Use of Proceeds."
(l) The Company and the Bank will conduct the Conversion (including the
formation and operation of the Foundation) in all material respects
in accordance with the Plan and, to the extent not waived by the
provisions of any order of the Superintendent or the FDIC, the
Conversion Regulations and all other applicable regulations,
decisions and orders thereunder, including all applicable terms,
requirements and conditions precedent to the Conversion imposed
upon the Company or the Bank by the Superintendent, the FDIC or the
OTS.
(m) The Company will maintain the effectiveness of the Exchange Act
Registration Statement for not less than three years. The Company
will file with the Nasdaq
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<PAGE>
Stock Market, Inc. all documents and notices required by the Nasdaq
Stock Market, Inc. of companies that have issued securities that
are traded in the over-the-counter market and quotations for which
are reported by the Nasdaq National Market.
(n) During the period beginning on the date hereof and ending on the
later of the third anniversary of the Closing Time or the date on
which the Agent receives full payment in satisfaction of any claim
for indemnification or contribution to which it may be entitled
pursuant to Sections 6 or 7, respectively, neither the Company nor
the Bank shall, without the prior written consent of the Agent,
which consent shall not be unreasonably withheld, take or permit to
be taken any action that could result in the Bank Common Stock or
Bank Preferred Stock becoming subject to any security interest,
mortgage, pledge, lien or encumbrance; provided, however, that this
covenant shall be null and void if the Board of Governors of the
Federal Reserve System, or any other federal agency having
jurisdiction over the Bank, by regulation, policy statement or
general or specific interpretive release or letter, permits
indemnification of the Agent by the Bank as contemplated by Section
6(a) hereof.
(o) The Company and the Bank will take such actions and furnish such
information as are reasonably requested by the Agent in order for
the Agent to ensure compliance with the National Association of
Securities Dealers, Inc.'s "Interpretation Relating to Free-Riding
and Withholding."
(p) The Company or the Bank will furnish to Sandler O'Neill as early as
practicable prior to the Closing Date, but no later than two (2)
full business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements of the Bank and
the Subsidiaries which have been read by Ernst & Young, LLP, as
part of the procedures referred to in their letters to be furnished
pursuant to subsections (e) and (f) of Section 5 hereof.
(q) The Company and the Bank will comply with the conditions imposed by
or agreed to with the OTS in connection with its approval of the
Holding Company Application and with the Superintendent or the FDIC
in connection with their approval of, or non-objection to, the
Conversion Application including those conditions relating to the
establishment and the operation of the Foundation; the Company and
the Bank shall use their best efforts to ensure that the Foundation
submits within the time frames required by applicable law a request
to the Internal Revenue Service to be recognized as a tax-exempt
organization under Section 501(c)(3) of the Internal Revenue Code
of 1986, as amended (the "Code"); the Company and the Bank will
take no action which will result in the possible loss of the
Foundation's tax-exempt status; and neither the Company nor the
Bank will contribute any additional assets to the Foundation until
such time that such additional contributions will be deductible for
federal and state income tax purposes.
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<PAGE>
(r) During the period ending on the first anniversary of the Closing
Time, the Bank will comply with all applicable law and regulation
necessary for the Bank to continue to be a "qualified thrift
lender" within the meaning of 12 U.S.C. (S) 1467a(m).
(s) Other than in connection with any employee benefit plan or
arrangement described in the Prospectus, the Company will not,
without the prior written consent of the Agent, sell or issue,
contract to sell or otherwise dispose of, any shares of Common
Stock other than the Securities or the Foundation Shares for a
period of 180 days following the Closing Time.
Section 4. Payment of Expenses.
The Company and the Bank jointly and severally agree to pay all
expenses incident to the performance of their obligations under this Agreement,
including, but not limited to, (i) the cost of obtaining all securities and bank
regulatory approvals, (ii) the printing and filing of the Registration Statement
and the Conversion Application as originally filed and of each amendment
thereto, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the purchasers in the Offerings, (iv) the fees and
disbursements of the Company's and the Bank's counsel, accountants, conversion
agent, appraiser and other advisors, (v) the qualification of the Securities
under securities laws in accordance with the provisions of Section 3(f) hereof,
including filing fees and the fees and disbursements of counsel in connection
therewith and in connection with the preparation of the Blue Sky Survey, (vi)
the printing and delivery to the Agent of copies of the Registration Statement
as originally filed and of each amendment thereto and the printing and delivery
of the Prospectus and any amendments or supplements thereto to the purchasers in
the Offerings and the Agent, (vii) the printing and delivery to the Agent of
copies of a Blue Sky Survey, (viii) the fees and expenses incurred in connection
with the listing of the Common Stock on the Nasdaq Stock Market and (ix) the
cost of printing and distribution the offering materials. In the event the Agent
incurs any such fees and expenses on behalf of the Bank or the Company, the Bank
will reimburse the Agent for such fees and expenses whether or not the
Conversion is consummated; provided, however, that the Agent shall not incur any
substantial expenses on behalf of the Bank or the Company pursuant to this
Section without the prior approval of the Bank or the Company.
The Company and the Bank jointly and severally agree to pay certain
expenses incident to the performance of the Agent's obligations under this
Agreement, regardless of whether the Conversion is consummated, including (i)
the filing fees paid or secured by the Agent in connection with all filings with
the National Association of Securities Dealers, Inc., and (ii) all reasonable
out-of-pocket expenses incurred by the Agent relating to the Offerings,
including, without limitation, advertising, promotional, syndication and travel
expenses and fees and expenses of the Agent's counsel. All fees and expenses to
which the Agent is entitled to reimbursement under this paragraph of this
Section 4 shall be due and payable upon receipt by the Company or the Bank of a
written accounting therefor setting forth in reasonable detail the expenses
incurred by the Agent.
21
<PAGE>
Section 5. Conditions of Agent's Obligations.
The Company, the Bank and the Agent agree that the issuance and sale
of the Securities and all obligations of the Agent hereunder are subject to the
accuracy of the representations and warranties of the Company and the Bank
herein contained as of the date hereof and the Closing Time, to the accuracy of
the statements of officers and directors of the Company and the Bank made
pursuant to the provisions hereof, to the performance by the Company and the
Bank of their obligations hereunder and to the following further conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings
therefor initiated or threatened by the Commission, no order
suspending the Offerings or authorization for final use of the
Prospectus shall have been issued or proceedings therefor initiated
or threatened by the Superintendent or the FDIC and no order
suspending the sale of the Securities in any jurisdiction shall
have been issued.
(b) At Closing Time, the Agent shall have received:
(1) The favorable opinion, dated as of Closing Time, of Muldoon,
Murphy & Faucette, special counsel for the Company and the
Bank, in form and substance satisfactory to counsel for the
Agent, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the State of Delaware.
(ii) The Company has full corporate power and authority to
own, lease and operate its properties and to conduct
its business as described in the Registration
Statement and Prospectus and to enter into and perform
its obligations under this Agreement.
(iii) The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the
State of New York and in each other jurisdiction in
which such qualification is required, whether by
reason of the ownership or leasing of property or the
conduct of business, except where the failure to be so
qualified would not have a material adverse effect
upon the financial condition, results of operations or
business of the Company, the Bank and the
Subsidiaries, taken as a whole.
(iv) Upon consummation of the Conversion and the issuance
of Foundation Shares to the Foundation immediately
upon
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<PAGE>
completion thereof, the authorized, issued and
outstanding capital stock of the Company will be
within the range as set forth in the Prospectus under
"Capitalization," and no shares of Common Stock have
been issued and outstanding prior to the Closing Time.
(v) The Securities and the Foundation Shares have been
duly and validly authorized for issuance and sale and,
when issued and delivered by the Company pursuant to
the Plan against payment of the consideration
calculated as set forth in the Plan, or contributed by
the Company pursuant to the Plan in the case of the
Foundation Shares, will be duly and validly issued and
fully paid and non-assessable.
(vi) The issuance of the Securities and the Foundation
Shares is not subject to preemptive or other similar
rights arising by operation of law or, to the best of
such counsel's knowledge, otherwise.
(vii) The Bank has been at all times since the date hereof
and prior to the Closing Time organized, and is
validly existing in good standing under the laws of
the State of New York as a New York State-chartered
savings bank of mutual form, and, at Closing Time, has
become duly organized, validly existing and in good
standing under the laws of the State of New York as a
New York State chartered savings bank of stock form,
in both instances with full corporate power and
authority to own, lease and operate its properties and
to conduct its business as described in the
Registration Statement and the Prospectus; and the
Bank is duly qualified as a foreign corporation in
each jurisdiction in which such qualification is
required, whether by reason of the ownership or
leasing of property or the conduct of business, except
where the failure to so qualify would not have a
material adverse effect upon the financial condition,
results of operations or business of the Bank.
(viii) The deposit accounts of the Bank are insured by the
FDIC up to the applicable limits.
(ix) Each Subsidiary has been duly incorporated and is
validly existing as a corporation in good standing
under the laws of the jurisdiction of its
incorporation, has full corporate power and authority
to own, lease and operate its properties and to
conduct its business as described in the Registration
23
<PAGE>
Statement and the Prospectus and is duly qualified as
a foreign corporation to transact business and is in
good standing in each jurisdiction in which such
qualification is required, whether by reason of the
ownership or leasing of property or the conduct of
business, except where the failure to so qualify would
not have a material adverse effect upon the financial
condition, results of operations or business of the
Company, the Bank and the Subsidiaries, taken as a
whole; the activities of the Subsidiaries as described
in the Prospectus are permitted to subsidiaries of a
savings association holding company and of a New York
State chartered savings bank by the rules,
regulations, resolutions and practices of the OTS and
the Superintendent, as the case may be; all of the
issued and outstanding capital stock of each of the
Subsidiaries has been duly authorized and validly
issued, is fully paid and non-assessable and is owned
by the Bank free and clear of any security interest,
mortgage, pledge, lien, encumbrance or claim.
(x) The Foundation has been duly incorporated and is
validly existing as a non-stock corporation in good
standing under the laws of the State of Delaware with
corporate power and authority to own, lease and
operate its properties and to conduct its business as
described in the Prospectus; the Foundation is not a
savings and loan holding company within the meaning of
12 C.F.R. Section 574.2(q) as a result of the issuance
of shares of Common Stock to it in accordance with the
terms of the Plan and in the amounts as described in
the Prospectus; no approvals are required to establish
the Foundation and to contribute the shares of Common
Stock thereto as described in the Prospectus other
than those set forth in any written notice or order of
approval or non-objection of the Conversion,
Conversion Application or the Holding Company
Application copies of which were provided to the Agent
prior to the Closing Time.
(xi) Upon consummation of the Conversion, all of the issued
and outstanding capital stock of the Bank, when issued
and delivered pursuant to the Plan against payment of
consideration calculated as set forth in the Plan,
will be duly authorized and validly issued and fully
paid and nonassessable, and all such capital stock
will be owned beneficially and of record by the
Company free and clear of
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<PAGE>
any security interest, mortgage, pledge, lien,
encumbrance, claim or equity.
(xii) The OTS has approved the Holding Company Application
and the Superintendent has approved the Conversion
Application and the FDIC has issued a letter of intent
not to object to the Conversion and no action is
pending or, to the best of such counsel's knowledge,
threatened respecting the Holding Company Application
or the Conversion Application (including therewith,
the establishment of the Foundation and the
contribution of shares of Common Stock thereto) or the
acquisition by the Company of all of the Bank's issued
and outstanding capital stock; the Holding Company
Application complies as to form in all material
respects with the applicable requirements of the OTS,
and the Conversion Application complies as to form in
all material respects with the applicable requirements
of the Superintendent and the FDIC, except as
compliance therewith is specifically waived in writing
by the Superintendent or the FDIC, as the case may be,
and include all documents required to be filed as
exhibits thereto and are complete as to form in all
material respects, excluding the Prospectus and any
related marketing materials filed as a part of the
Holding Company Application or the Conversion
Application as to which no opinion need be given; the
Company is duly authorized to become a savings
association holding company and is duly authorized to
own all of the issued and outstanding capital stock of
the Bank to be issued pursuant to the Plan.
(xiii) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby,
including the establishment of the Foundation and the
contribution thereto of the Foundation Shares, (A)
have been duly and validly authorized by all necessary
action on the part of each of the Company and the
Bank, and this Agreement constitutes the legal, valid
and binding agreement of each of the Company and the
Bank, enforceable in accordance with its terms, except
as rights to indemnity and contribution hereunder may
be limited under applicable law (it being understood
that such counsel may avail itself of customary
exceptions concerning the effect of bankruptcy,
insolvency or similar laws and the availability of
equitable remedies), (B) will not conflict with or
constitute a breach of, or default under, and no
default exists
25
<PAGE>
and no event has occurred which, with notice or lapse
of time or both, would constitute a default under, or
result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of
the Company, the Bank or the Subsidiaries pursuant to
any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company,
the Bank or the Subsidiaries is a party or by which
any of them may be bound, or to which any of the
property or assets of the Company, the Bank or the
Subsidiaries is subject that, individually or in the
aggregate, would have a material adverse effect on the
financial condition, results of operations or business
of the Company, the Bank and the Subsidiaries, taken
as a whole, and (C) will not result in any violation
of the provisions of the certificate of incorporation,
organization certificate, articles of incorporation or
charter, as the case may be, or bylaws of the Company,
the Bank or any Subsidiary.
(xiv) The Prospectus has been duly authorized by the
Superintendent and the FDIC for final use pursuant to
the Conversion Regulations, and no action has been
taken or is pending, or, to the best of such counsel's
knowledge, threatened, by the Superintendent or the
FDIC to revoke such authorization.
(xv) The Registration Statement is effective under the 1933
Act, and no stop order suspending the effectiveness of
the Registration Statement has been issued under the
1933 Act or proceedings therefore initiated or, to the
best of such counsel's knowledge, threatened by the
Commission.
(xvi) No further approval, authorization, consent or other
order of any public board or body is required in
connection with the execution and delivery of this
Agreement, the issuance of the Securities and the
Foundation Shares and the consummation of the
Conversion, except as may be required under the
securities or Blue Sky laws of various jurisdictions
as to which no opinion need be rendered.
(xvii) At the time the Registration Statement became
effective, the Registration Statement (except for
financial statements and notes thereto, the appraisal
and schedules and other financial or statistical data
included in the Registration Statement, as to which
counsel need make no statement) complied as to
26
<PAGE>
form in all material respects with the requirements of
the 1933 Act and the 1933 Act Regulations and the
Conversion Regulations.
(xviii) The Common Stock conforms to the description thereof
contained in the Prospectus, and the form of
certificate used to evidence the Common Stock is in
due and proper form and complies with all applicable
statutory requirements.
(xix) There are no legal or governmental proceedings pending
or threatened against or affecting the Company, the
Bank, the Subsidiaries or the Foundation which are
required, individually or in the aggregate, to be
disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and
all pending legal or governmental proceedings to which
the Company, the Bank or the Subsidiaries is a party
or to which any of their property is subject which are
not described in the Registration Statement, including
ordinary routine litigation incidental to the
business, are, considered in the aggregate, not
material.
(xx) The information in the Prospectus under "Risk
Factors--Effects of the Establishment of the
Foundation--Tax Consequences," "--Certain Anti-
Takeover Provisions," and "--Possible Adverse Income
Tax Consequences of the Distribution of Subscription
Rights," "Dividend Policy," "Business of the Bank--
Legal Proceedings," "Federal and State Taxation,"
"Regulation and Supervision," "The Conversion--
Establishment of Charitable Foundation," "--Effects of
Conversion," "--Liquidation Rights," "--Tax Aspects"
and "--Certain Restrictions on Purchase or Transfer of
Shares After Conversion," "Restrictions on Acquisition
of the Company and the Bank," "Description of Capital
Stock of the Company" and "Description of Capital
Stock of the Bank," to the extent that it constitutes
matters of law, summaries of legal matters, documents
or proceedings, or legal conclusions, has been
reviewed by them and is complete and accurate in all
material respects.
(xxi) To the best of such counsel's knowledge, there are no
contracts, indentures, mortgages, loan agreements,
notes, leases or other instruments required to be
described or referred to in the Registration Statement
or to be filed as exhibits thereto other than those
described or referred to
27
<PAGE>
therein or filed as exhibits thereto, and the
descriptions thereof or references thereto are
correct.
(xxii) The Plan has been duly authorized by the Board of
Directors of the Company and the Board of Trustees of
the Bank and the Superintendent's and the FDIC's
approval of the Plan remain in full force and effect;
the Bank's organization certificate has been amended
and restated, effective upon consummation of the
Conversion and the filing of such amended and restated
organization certificate with the Superintendent, to
authorize the issuance of permanent capital stock; to
the best of such counsel's knowledge, the Company and
the Bank have conducted the Conversion and the
establishment and funding of the Foundation in all
material respects in accordance with applicable
requirements of the Conversion Regulations (except as
compliance therewith is specifically waived in writing
by the Superintendent or the FDIC, as the case may
be), the Plan and all other applicable regulations,
decisions and orders thereunder, including all
material applicable terms, conditions, requirements
and conditions precedent to the Conversion imposed
upon the Company or the Bank by the Superintendent or
the FDIC, and no order has been issued by the
Superintendent or the FDIC to suspend the Conversion
or the Offerings, and no action for such purpose has
been instituted or, to the best of such counsel's
knowledge, threatened by the Superintendent or the
FDIC; and, to the best of such counsel's knowledge, no
person has sought to obtain review of the final action
of the Superintendent or the FDIC in approving the
Conversion Application (which includes the Plan which
provides for the establishment of the Foundation) or
of the OTS in approving the Holding Company
Application.
(xxiii) To the best of such counsel's knowledge, the Company,
the Bank and the Subsidiaries have obtained all
licenses, permits and other governmental
authorizations currently required for the conduct of
their respective businesses as described in the
Registration Statement and Prospectus, except for such
licenses, approvals or authorizations the failure of
which to have would not result in a material adverse
change in the financial condition, results of
operations or the business of the Company, the Bank
and the Subsidiaries, taken as a whole, all such
licenses, permits and other governmental
authorizations are in full force and effect, and the
Company,
28
<PAGE>
the Bank and the Subsidiaries are in all material
respects complying therewith.
(xxiv) Neither the Company, the Bank nor any of the
Subsidiaries is in violation of its certificate of
incorporation, organization certificate, articles of
incorporation or charter, as the case may be, or
bylaws (and the Bank will not be in violation of its
organization certificate and bylaws in stock form upon
consummation of the Conversion); and to the best of
such counsel's knowledge, the Company, the Bank and
the Subsidiaries are not in default (nor has any event
occurred which, with notice or lapse of time or both,
would constitute a default) in the performance or
observance of any obligation, agreement, covenant or
condition contained in any contract, indenture,
mortgage, loan agreement, note, lease or other
instrument to which the Company, the Bank or the
Subsidiaries is a party or by which the Company, the
Bank or the Subsidiaries or any of their property may
be bound in any respect that would have a material
adverse effect upon the financial condition, results
of operations or business of the Company, the Bank or
the Subsidiaries, taken as a whole.
(2) The favorable opinion, dated as of Closing Time, of Thacher
Proffitt & Wood, counsel for the Agent, with respect to the
matters set forth in Section 5(b)(1)(i), (iv), (v), (vi)
(solely as to preemptive rights arising by operation of law),
(xvii) and (xviii) and such other matters as the Agent may
reasonably require.
(3) In giving their opinions required by subsections (b)(l) and
(b)(2), respectively, of this Section, Muldoon, Murphy &
Faucette and Thacher Proffitt & Wood shall each additionally
state that nothing has come to their attention that would lead
them to believe that the Registration Statement (except for
financial statements and notes thereto, the appraisal and
schedules and other financial or statistical data included in
the Registration Statement, as to which counsel need make no
statement), at the time it became effective, contained an
untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to
make the statements therein not misleading or that the
Prospectus (except for financial statements and notes thereto,
the appraisal and schedules and other financial or statistical
data included in the Registration Statement, as to which
counsel need make no statement), at the time the Registration
Statement became effective or at Closing Time, included an
untrue statement of a material fact or omitted to state a
29
<PAGE>
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading. In giving their opinions, Muldoon,
Murphy & Faucette and Thacher Proffitt & Wood may state that
they have not independently verified the information with
respect to the Company and the Bank contained in the
Registration Statement, the Prospectus and the Conversion
Application and may rely as to matters of fact on certificates
of officers and directors of the Company and the Bank and
certificates of public officials, and as to matters of
Delaware law upon the opinion of Morris, Nichols, Arsht &
Tunnell and as to certain matters of New York law upon the
opinion of _________________, which opinions shall be in form
and substance satisfactory to the Agent, and Thacher Proffitt
& Wood may also rely as to certain matters on the opinion of
Muldoon, Murphy & Faucette.
(c) At the Closing Time referred to in Section 2, the Company and the
Bank will have completed in all material respects the conditions
precedent to the Conversion in accordance with the Plan, the
applicable Conversion Regulations and all other applicable laws,
regulations, decisions and orders, including all terms, conditions,
requirements and provisions precedent to the Conversion imposed
upon the Company or the Bank by the OTS, the Superintendent, the
FDIC, or any other regulatory authority other than those which the
OTS, the Superintendent or the FDIC permit to be completed after
the Conversion.
(d) At the Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is
given in the Registration Statement and the Prospectus, any
material adverse change in the financial condition, results of
operations or business of the Company, the Bank and the
Subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, and the Agent shall have received a
certificate of the Chief Executive Officer and President of the
Company and of the Bank, and the chief financial or chief
accounting officer of the Company and of the Bank, dated as of
Closing Time, to the effect that (i) there has been no such
material adverse change, (ii) there has been no material
transaction entered into by the Company or the Bank from the latest
statement of financial condition of the Company or the Bank as set
forth in the Registration Statement and the Prospectus other than
transactions referred to or contemplated therein and transactions
in the ordinary course of business, (iii) neither the Company nor
the Bank has received from the OTS, the Superintendent or the FDIC
any direction (oral or written) to make any material change in the
method of conducting its business with which it has not complied
(which direction, if any, shall have been disclosed to the Agent)
or which materially and adversely would affect the financial
condition, results of operations or business of the Company, the
Bank and the Subsidiaries, taken as a whole, (iv) the
representations and warranties in Section 1 hereof are true and
correct with the same force and effect as though expressly
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<PAGE>
made at and as of the Closing Time, (v) the Company and the Bank
have complied with all agreements and satisfied all conditions on
their part to be performed or satisfied at or prior to Closing
Time, (vi) no stop order suspending the effectiveness of the
Registration Statement has been issued and no proceedings for that
purpose have been initiated or threatened by the Commission and
(vii) no order suspending the Offerings or the authorization for
final use of the Prospectus has been issued and no proceedings for
that purpose have been initiated or threatened by the
Superintendent or the FDIC and no person has sought to obtain
regulatory or judicial review of the action of the Superintendent
or the FDIC in approving the Plan in accordance with the Conversion
Regulations, nor has any person sought to obtain regulatory or
judicial review of the action of the OTS in approving the Holding
Company Application.
(e) At the time of the execution of this Agreement, the Agent shall
have received from Ernst & Young, LLP a letter dated such date, in
form and substance satisfactory to the Agent, to the effect that
(i) they are independent certified public accountants with respect
to the Company, the Bank and the Subsidiaries within the meaning of
the Code of Ethics of the American Institute of Certified Public
Accountants, the 1933 Act, the 1933 Act Regulations and the
Conversion Regulations; (ii) it is their opinion that the
consolidated financial statements and supporting schedules included
in the Registration Statement and covered by their opinion therein
comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1933 Act Regulations
and the Conversion Regulations; (iii) based upon limited procedures
as agreed upon by the Agent and Ernst & Young, LLP and set forth in
detail in such letter, nothing has come to their attention which
causes them to believe that (A) the unaudited financial statements
and supporting schedules of the Bank and the Subsidiaries included
in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of
the 1933 Act, the 1933 Act Regulations and the Conversion
Regulations or are not presented in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included
in the Registration Statement and the Prospectus, (B) the unaudited
amounts included under the captions "Selected Consolidated
Financial and Other Data of the Bank" and "Recent Developments" in
the Registration Statement do not agree with the amounts set forth
in the unaudited consolidated financial statements as of and for
the dates and periods presented under such captions or such
unaudited amounts were not determined on a basis substantially
consistent with that used in determining the corresponding amounts
in the audited financial statements included in the Registration
Statement and the Prospectus, (C) at a specified date not more than
five days prior to the date of this Agreement, there has been any
increase in the consolidated long term or short term debt of the
Bank and the Subsidiaries or any decrease in consolidated total
assets, allowance for loan losses, total deposits or retained
earnings of the Bank and the Subsidiaries, in each case as compared
with the amounts shown in the June 30, 1997 balance sheet included
in the Registration Statement or, (D) during the period
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<PAGE>
from June 30, 1997 to a specified date not more than five days
prior to the date of this Agreement, there were any decreases, as
compared with the corresponding period in the preceding year, in
total interest income, net interest income, net interest income
after provision for loan losses, income before income tax expense
or net income of the Bank and the Subsidiaries, except in all
instances for increases or decreases which the Registration
Statement and the Prospectus disclose have occurred or may occur;
and (iv) in addition to the examination referred to in their
opinion and the limited procedures referred to in clause (iii)
above, they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts, percentages
and financial information which are included in the Registration
Statement and Prospectus and which are specified by the Agent and
have found such amounts, percentages and financial information to
be in agreement with the relevant accounting, financial and other
records of the Company, the Bank and the Subsidiaries identified in
such letter.
(f) At Closing Time, the Agent shall have received from Ernst & Young,
LLP a letter, dated as of Closing Time, to the effect that they
reaffirm their statements made in the letter furnished pursuant to
subsection (e) of this Section, except that the specified date
referred to shall be a date not more than five days prior to
Closing Time.
(g) At Closing Time, the Common Stock shall have been approved for
listing on the Nasdaq Stock Market upon notice of issuance.
(h) At Closing Time, the Agent shall have received a letter from Keller
& Company, dated as of the Closing Time, confirming its appraisal.
(i) At Closing Time, counsel for the Agent shall have been furnished
with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities and the Foundation Shares as herein contemplated and
related proceedings, or in order to evidence the accuracy of any of
the representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the
Company in connection with the issuance and sale of the Securities
and the Foundation Shares as herein contemplated shall be
satisfactory in form and substance to the Agent and counsel for the
Agent.
(j) At any time prior to Closing Time, (i) there shall not have
occurred any material adverse change in the financial markets in
the United States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effects of
which, in the judgment of the Agent, are so material and adverse as
to make it impracticable to market the Securities or to enforce
contracts, including subscriptions or orders, for the sale of the
Securities, and (ii) trading generally on either the American Stock
Exchange or the New York Stock Exchange shall not have been
suspended, and minimum or maximum prices for trading shall not have
32
<PAGE>
been fixed, or maximum ranges for prices for securities have been
required, by either of said Exchanges or by order of the Commission
or any other governmental authority, and a banking moratorium shall
not have been declared by either Federal or New York authorities.
Section 6. Indemnification.
(a) The Company and the Bank, jointly and severally, agree to indemnify
and hold harmless the Agent, each person, if any, who controls the
Agent, within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, and its respective partners, directors,
officers, employees and agents as follows:
(i) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, related to or arising
out of the Conversion (including the establishment of the
Foundation and the contribution of the Foundation Shares
thereto by the Company) or any action taken by the Agent
where acting as agent of the Company and the Bank or
otherwise as described in Section 2 hereof;
(ii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, based upon or arising
out of any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any
amendment thereto), or the omission or alleged omission
therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue
statement of a material fact contained in the Proxy Statement
or the Prospectus (or any amendment or supplement thereto) or
the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(iii) from and against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever
described in clauses (i) or (ii) above, if such settlement is
effected with the written consent of the Company or the Bank,
which consent shall not be unreasonably withheld; and
(iv) from and against any and all expense whatsoever, as incurred
(including, subject to Section 6(c) hereof, the fees and
disbursements of counsel chosen by the Agent), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation, proceeding or inquiry by
any governmental agency or body, commenced or threatened, or
any pending
33
<PAGE>
or threatened claim whatsoever described in clauses (i) or
(ii) above, to the extent that any such expense is not paid
under (i), (ii) or (iii) above;
provided, however, that the indemnification provided for in this paragraph (a)
shall not apply to any loss, liability, claim, damage or expense (i) to the
extent arising out of any untrue statement or alleged untrue statement of a
material fact contained in the Prospectus or omission or alleged omission of a
material fact required to be stated therein or necessary to make not misleading
any statements contained in the Prospectus (or any amendment or supplement
thereto) made in reliance upon and in conformity with the Agent Information or
(ii) found in a final judgement by a court of competent jurisdiction to have
resulted primarily from bad faith, willful misconduct or gross negligence of the
Agent seeking indemnification hereunder. Notwithstanding the foregoing, the
indemnification provided for in this paragraph (a) shall not apply to the Bank
to the extent that such indemnification by the Bank in the event that it is
found in a final judgment by a court of competent jurisdiction to constitute an
impermissible covered transaction under Section 23A of the Federal Reserve Act,
as amended.
(b) The Agent agrees to indemnify and hold harmless the Company, the
Bank, their directors and trustees, each of their officers who
signed the Registration Statement and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act against any and all loss,
liability, claim, damage and expense described in the indemnity
contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or alleged untrue statements of a
material fact or omissions or alleged omissions of a material fact,
made in the Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with the Agent Information.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder,
but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability which it may have
otherwise than on account of this indemnity agreement. An
indemnifying party may participate at its own expense in the
defense of any such action. In no event shall the indemnifying
parties be liable for fees and expenses of more than one counsel
(in addition to no more than one local counsel in each separate
jurisdiction in which any action or proceeding is commenced)
separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances.
(d) The Company and the Bank also agree that the Agent shall not have
any liability (whether direct or indirect, in contract or tort or
otherwise) to the Bank, the Company, its security holders or the
Bank's or the Company's creditors relating to or arising out of the
engagement of the Agent pursuant to, or the performance by the
Agent of the services contemplated by, this Agreement, except to
the extent that any loss, claim, damage or liability is found in a
final judgment by a court of
34
<PAGE>
competent jurisdiction to have resulted primarily from the Agent's
bad faith, willful misconduct or gross negligence.
(e) In addition to, and without limiting, the provisions of Section
6(a)(iv) hereof, in the event that the Agent, any person, if any,
who controls the Agent within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act or any of its partners,
directors, officers, employees or agents is requested or required
to appear as a witness or otherwise gives testimony in any action,
proceeding, investigation or inquiry brought by or on behalf of or
against the Company, the Bank, the Agent or any of its respective
affiliates or any participant in the transactions contemplated
hereby in which the Agent or such person or agent is not named as a
defendant or the subject of an investigation or inquiry, the
Company and the Bank jointly and severally agree to reimburse the
Agent for all reasonable and necessary out-of-pocket expenses
incurred by it in connection with preparing or appearing as a
witness or otherwise giving testimony and to compensate the Agent
in an amount to be mutually agreed upon.
Section 7. Contribution.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 hereof
is for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company, the Bank and the Agent
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by said indemnity agreement incurred by the
Company or the Bank and the Agent, as incurred, in such proportions (i) that the
Agent is responsible for that portion represented by the percentage that the
maximum aggregate marketing fees appearing on the cover page of the Prospectus
bears to the maximum aggregate gross proceeds appearing thereon and the Company
and the Bank are jointly and severally responsible for the balance or (ii) if,
but only if, the allocation provided for in clause (i) is for any reason held
unenforceable, in such proportion as is appropriate to reflect not only the
relative benefits to the Company and the Bank on the one hand and the Agent on
the other, as reflected in clause (i), but also the relative fault of the
Company and the Bank on the one hand and the Agent on the other, as well as any
other relevant equitable considerations; provided, however, that no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 7,
each person, if any, who controls the Agent within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Agent, and each director of the Company, each trustee of the
Bank, each officer of the Company who signed the Registration Statement and each
person, if any, who controls the Company or the Bank within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company and the Bank. Notwithstanding anything to
the contrary set forth herein, to the extent permitted by applicable law, in no
event shall the Agent be required to contribute an aggregate amount in excess of
the aggregate marketing fees to which the Agent is entitled and actually paid
pursuant to this Agreement.
35
<PAGE>
Section 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this
Agreement, or contained in certificates of officers of the Company or the Bank
submitted pursuant hereto, shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the Agent or any
controlling person, or by or on behalf of the Company, and shall survive
delivery of the Securities.
Section 9. Termination of Agreement.
(a) The Agent may terminate this Agreement, by notice to the Company,
at any time at or prior to Closing Time (i) if there has been,
since the date of this Agreement or since the respective dates as
of which information is given in the Registration Statement, any
material adverse change in the financial condition, results of
operations or business of the Company or the Bank, or of the
Company, the Bank and the Subsidiaries, taken as a whole, whether
or not arising in the ordinary course of business; (ii) if there
has occurred any material adverse change in the financial markets
in the United States or elsewhere or any outbreak of hostilities or
escalation thereof or other calamity or crisis the effects of
which, in the judgment of the Agent, are so material and adverse as
to make it impracticable to market the Securities or to enforce
contracts, including subscriptions or orders, for the sale of the
Securities; (iii) if trading generally on either the Nasdaq Stock
Market or the New York Stock Exchange has been suspended, or
minimum or maximum prices for trading have been fixed, or maximum
ranges for prices for securities have been required, by either of
said Exchanges or by order of the Commission or any other
governmental authority, or if a banking moratorium has been
declared by either Federal or New York authorities; (iv) if any
condition specified in Section 5 shall not have been fulfilled when
and as required to be fulfilled; (v) if there shall have been such
material adverse change in the condition or prospects of the
Company or the Bank or the prospective market for the Company's
securities as in the Agent's good faith opinion would make it
inadvisable to proceed with the offering, sale or delivery of the
Securities; (vi) if, in the Agent's good faith opinion, the price
for the Securities established by Keller & Company is not
reasonable or equitable under then prevailing market conditions; or
(vii) if the Conversion is not consummated prior to March 31, 1998.
(b) If this Agreement is terminated pursuant to this Section, such
termination shall be without liability of any party to any other
party except that the provisions of Section 4 relating to
reimbursement of expenses and the provisions of Sections 6 and 7
hereof shall survive any termination of this Agreement.
Section 10. Notices.
All notices and other communications hereunder shall be in writing and
shall be deemed to have been duly given if mailed or transmitted by any standard
form of
36
<PAGE>
telecommunication. Notices to the Agent shall be directed to the Agent at Two
World Trade Center, 104th Floor, New York, New York 10048, attention of
Catherine A. Lawton, Principal, with a copy to Robert C. Azarow, Esq., Thacher
Proffitt & Wood at Two World Trade Center, 38th Floor, New York, New York 10048;
notices to the Company and the Bank shall be directed to either of them at 1214
Castleton Avenue, Staten Island, New York 10310, attention of Michael F.
Manzulli, President and Chief Executive Officer, with a copy to Douglas P.
Faucette, Esq., Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W.,
Washington, D.C. 20016.
Section 11. Parties.
This Agreement shall inure to the benefit of and be binding upon the
Agent, the Company and the Bank and their respective successors. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Agent, the Company and the
Bank and their respective successors and the controlling persons and officers
and directors referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the Agent, the Company and the Bank and
their respective successors, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation.
Section 12. Entire Agreement; Amendment.
This Agreement represents the entire understanding of the parties
hereto with reference to the transactions contemplated hereby and supersedes any
and all other oral or written agreements heretofore made, except for the
engagement letter, dated July 30, 1997, by and between the Agent and the Bank,
relating to the Agent's providing conversion agent services and proxy
solicitation services to the Company and the Bank in connection with the
Conversion, which engagement letter shall be governed solely by its terms. No
waiver, amendment or other modification of this Agreement shall be effective
unless in writing and signed by the parties hereto.
Section 13. Governing Law and Time.
This Agreement shall be governed by and construed in accordance with
the laws of the State of New York applicable to agreements made and to be
performed in said State without regard to the conflicts of laws provisions
thereof. Specified times of day refer to Eastern time.
Section 14. Severability.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
37
<PAGE>
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
Section 15. Headings.
Sections headings are not to be considered part of this Agreement, are
for convenience and reference only and are not to be deemed to be full or
accurate descriptions of the contents of any paragraph or subparagraph.
38
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof, whereupon
this instrument, along with all counterparts, will become a binding agreement
between the Agent, the Company and the Bank in accordance with its terms.
Very truly yours,
Richmond County Financial Corp.
By:
---------------------------------------------
Michael F. Manzulli
President and Chief Executive Officer
Richmond County Savings Bank
By:
---------------------------------------------
Michael F. Manzulli
President and Chief Executive Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
Sandler O'Neill & Partners, L.P.
By: Sandler O'Neill & Partners Corp.,
the sole general partner
By:
------------------------------------------
Catherine A. Lawton
Vice President
39
<PAGE>
Exhibit A
---------
Richmond County Financial Corp.
24,466,250 Shares
(Maximum Offered in Conversion)
Common Stock
(Par Value $0.01 Per Share)
SELECTED DEALER'S AGREEMENT
_________, 1997
We have agreed to assist Richmond County Financial Corp. (the
"Company") in connection with the offer and sale of shares (the "Shares") of
Common Stock, par value $0.01 per share, of the Company, to be issued in
connection with the conversion of Richmond County Savings Bank, a New York State
chartered savings bank (the "Bank"), from mutual to stock form. The Company, in
connection with its plan to effect such conversion, offered [24,466,250] Shares
for subscription by certain of the Bank's depositors and the Bank's employee
stock ownership plan in a subscription offering, and certain members of the
general public in a concurrent direct community offering. The Shares which were
not subscribed for pursuant to such subscription and direct community offerings
are being offered to the public in a syndicated community offering (the
"Syndicated Community Offering") in accordance with the rules of the New York
State Banking Department (the "NYBD") and the conversion regulations of the
Federal Deposit Insurance Corporation (the "FDIC"). The Shares, the bases on
which the number of Shares to be issued may change, and certain of the terms on
which they are being offered are more fully described in the enclosed Prospectus
(the "Prospectus").
We are offering to Selected Dealers (of which you are one) the
opportunity to participate in the solicitation of offers to buy the Shares in
the Syndicated Community Offering and we will pay you a fee in the amount of
[one and one-half percent (1.5%)] of the dollar amount of the Shares sold on
behalf of the Company by you. The number of Shares sold by you shall be
determined based on the authorized designation of your firm on the order form or
forms for such Shares accompanying the funds transmitted for payment therefor
(whether in the form of a check payable to the Bank or a withdrawal from an
existing account at the Bank) to the special account established by the Company
for the purpose of holding such funds. It is understood, of course, that payment
of your fee will be made only out of compensation received by us for the Shares
sold on behalf of the Company by you, as evidenced in accordance with the
preceding sentence. The Bank has requested us to invite you to become a
"Sponsoring Dealer," that is, a Selected Dealer who solicits offers which result
in the sale on behalf of the Bank of at least ________ Shares. You may become a
Sponsoring Dealer (subject to your fulfillment of the requirement in the
preceding sentence) by checking the box on the confirmation at the end of this
letter. If you become a Sponsoring Dealer, you shall be entitled to an
additional fee in the amount of ___ percent
<PAGE>
(______%) of the dollar amount of the Shares sold on behalf of the Company by
you as evidenced in the manner set forth above.
Each order form for the purchase of Shares must set forth the
----
identity, address and tax identification number of each person ordering Shares
- -------- ------- ------------------ ------
regardless of whether the Shares will be registered in street name or in the
purchaser's name. Such order form should clearly identify your firm.
As soon as practicable after all the Shares are sold, we will remit to
you, out of our compensation as provided above, the fees to which you are
entitled hereunder, including your Sponsoring Dealer fee.
This offer is made subject to the terms and conditions herein set
forth and is made only to Selected Dealers which are (i) members in good
standing of the National Association of Securities Dealers, Inc. ("NASD") which
agree to comply with all applicable rules of the NASD, including, without
limitation, the NASD's Interpretation With Respect to Free-Riding and
Withholding and Rule 2740 of the NASD's Conduct Rules, or (ii) foreign dealers
not eligible for membership in the NASD which agree (A) not to sell any Shares
within the United States, its territories or possessions or to persons who are
citizens thereof or resident therein and (B) in making other sales to comply
with the above-mentioned NASD Interpretation, Rules 2730, 2740 and 2750 of the
above-mentioned Conduct Rules as if they were NASD members and Rule 2420 of such
Conduct Rules as it applies to non-member brokers or dealers in a foreign
country.
Orders for Shares will be strictly subject to confirmation and we,
acting on behalf of the Company, reserve the right in our absolute discretion to
reject any order in whole or in part, to accept or reject orders in the order of
their receipt or otherwise, and to allot. Neither you nor any other person is
authorized by the Company, the Bank or by us to give any information or make any
representations other than those contained in the Prospectus in connection with
the sale of any of the Shares. No Selected Dealer is authorized to act as agent
for us when soliciting offers to buy the Shares from the public or otherwise. No
Selected Dealer shall engage in any stabilizing (as defined in Rule 10b-7
promulgated under the Securities Exchange Act of 1934) with respect to the
Company's Common Stock during the offering.
We and each Selected Dealer assisting in selling Shares pursuant
hereto agree to comply with the applicable requirements of the Securities
Exchange Act of 1934 and applicable rules and regulations issued by the Federal
Reserve Board and the OTS. In addition, we and each Selected Dealer confirm that
the Securities and Exchange Commission interprets Rule 15c2-8 promulgated under
the Securities Exchange Act of 1934 as requiring that a prospectus be supplied
to each person who is expected to receive a confirmation of sale 48 hours prior
to delivery of such person's order form.
We and each Selected Dealer further agree to the extent that our
customers desire to pay for Shares with funds held by or to be deposited with
us, in accordance with the interpretation of the Securities and Exchange
Commission of Rule 15c2-4 promulgated under the Securities Exchange Act of 1934
either (a) upon receipt of an executed order form or direction to execute
2
<PAGE>
an order form on behalf of a customer to forward the syndicated community
offering price for the Shares ordered on or before 12:00 noon on the business
day following receipt or execution of an order form by us to the Bank for
deposit in a segregated account or (b) to solicit indications of interest in
which event (i) we will subsequently contact any customers indicating interest
to confirm the interest and give instructions to execute and return an order
form or to receive authorization to execute an order form on their behalf, (ii)
we will mail acknowledgments of receipt of orders to each customer confirming
interest on the business day following such confirmation, (iii) we will debit
accounts of such customers on the fifth business day (the "debit date")
following receipt of the confirmation referred to in (i), and (iv) we will
forward completed order forms together with such funds to the Bank on or before
12:00 noon on the next business day following the debit date for deposit in a
segregated account. We acknowledge that if the procedure in (b) is adopted, our
customer's funds are not required to be in their accounts until the debit date.
We and each Selected Dealer further acknowledge that, in order to use the
foregoing "sweep arrangements," we comply with the net capital requirements for
broker/dealers under Rule 15c3-1(a)(1) of the Securities Exchange Act of 1934.
Unless earlier terminated by us, this Agreement shall terminate 45
full business days after the date hereof, but may be extended by us for an
additional period or periods not exceeding 30 full business days in the
aggregate. We may terminate this Agreement or any provisions hereof at any time
by written or telegraphic notice to you. Of course, our obligations hereunder
are subject to the successful completion of the offering, including the sale of
all of the Shares.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem
advisable in respect to all matters pertaining to the offering. We shall be
under no liability to you except for lack of good faith and for obligations
expressly assumed by us in this Agreement.
Upon application to us, we will inform you as to the states in which
we believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky laws of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will
be supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the State of
New York.
3
<PAGE>
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Sandler O'Neill &
Partners, L.P., Two World Trade Center, 104th Floor, New York, New York 10048.
The enclosed duplicate copy will evidence the agreement between us.
Very truly yours,
SANDLER O'NEILL & PARTNERS, L.P.
By:
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4
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EXHIBIT 2.1
AMENDED PLAN OF CONVERSION FOR
RICHMOND COUNTY SAVINGS BANK
(As Amended on November 20, 1997)
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Richmond
County Savings Bank, Staten Island, New York ("INSTITUTION") into a state-
chartered capital stock savings bank under the name Richmond County Savings
Bank. The Board of Trustees of the INSTITUTION currently contemplates that all
of the stock of the INSTITUTION shall be held by a Delaware corporation (the
"Holding Company"). The Board of Trustees has carefully considered the
alternatives available to the INSTITUTION with respect to its corporate
structure and has determined that a mutual to stock conversion as described in
this Plan is in the best interests of the INSTITUTION, its depositors and the
community served by the INSTITUTION. The Board of Trustees believes that the
decline in mutuality is placing mutual savings associations, such as the
INSTITUTION, at a disadvantage to the increasing base of stock thrift and
commercial bank institutions. The restructuring of the INSTITUTION into the
capital stock form of organization will enable the INSTITUTION to expand the
INSTITUTION'S franchise, compete more effectively with commercial banks and
other financial institutions for new business opportunities, and as a stock
institution, to increase its equity capital base and access the capital markets
when needed. The use of the Holding Company, if so utilized, would also provide
greater organizational and operating flexibility. Shares of capital stock of
the INSTITUTION will be sold to the Holding Company and
<PAGE>
the Holding Company will offer the Conversion Stock upon the terms and
conditions set forth herein to the Eligible Account Holders, the Employee Plans
established by the INSTITUTION or Holding Company and the Supplemental Eligible
Account Holders in the respective priorities set forth in this Plan. Any shares
of Conversion Stock not subscribed for by the foregoing classes of persons will
be offered for sale to certain members of the public either directly by the
INSTITUTION and the Holding Company through a Community Offering or a Syndicated
Community Offering or through an underwritten firm commitment public offering or
through a combination thereof. In the event that the INSTITUTION decides not to
utilize the Holding Company in conversion, Conversion Stock of the INSTITUTION,
in lieu of the Holding Company, will be sold as set forth above and in the
respective priorities set forth in this Plan. In addition to the foregoing, the
INSTITUTION and the Holding Company intend to provide employment or severance
agreements to certain management employees and certain other benefits to the
trustees, officers and employees of the INSTITUTION as described in the
Prospectus for the Conversion Stock.
In furtherance of the INSTITUTION's commitment to its community, this Plan
provides for the establishment of a charitable foundation as part of the
Conversion. The charitable foundation is intended to complement the
INSTITUTION's existing community reinvestment activities in a manner that will
allow the INSTITUTION's local community to share in the growth and profitability
of the Holding Company and the INSTITUTION over the long term. Consistent with
the INSTITUTION's goal, the Holding Company intends to donate to the charitable
foundation immediately following the Conversion a number of shares of its
authorized but unissued Common Stock in an amount up to 8% of the common stock
issued in the Conversion.
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This Plan, which has been unanimously approved by the Board of Trustees of
the INSTITUTION present at a duly called meeting of the Board, must also be
approved by the Voting Depositors of the INSTITUTION by the affirmative vote of
at least seventy-five percent (75%) in amount of deposit liabilities of Voting
Depositors represented in person or by proxy at the Special Meeting, and by the
affirmative vote of at least a majority of the amount of votes eligible to be
cast by Voting Depositors at the Special Meeting. The Board of Trustees shall
appoint an independent custodian and tabulator to receive and hold proxies to be
voted at the Special Meeting and count the votes cast in favor of and in
opposition to the Plan. Prior to the submission of this Plan to the Eligible
Account Holders for consideration, the Plan must be approved by the
Superintendent of Banks of the State of New York or his or her designees
("Superintendent") and certain waivers, if necessary, must be granted by the New
York Banking Board and/or Superintendent and the Plan must be not objected to by
the FDIC.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Deposit
--------------
Account in the INSTITUTION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in
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concert with another person or company ("other party") shall also be deemed to
be acting in concert with any person or company who is also acting in concert
with that other party, except that any Tax-Qualified Employee Stock Benefit Plan
or Non-Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting
in concert with any other Tax-Qualified Employee Stock Benefit Plan or Non-Tax-
Qualified Employee Stock Benefit Plan or with its trustee or a person who serves
in a similar capacity solely for the purpose of determining whether stock held
by the trustee and stock held by the plan will be aggregated.
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with any
---------
Person, means (i) any corporation or organization (other than the Holding
Company, the INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of
which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of 10 percent or more of any class of equity securities, (ii)
any trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar fiduciary
capacity except that: (a) for the purposes of Sections 8 and 11 hereof, the
term "Associate" does not include any Non-Tax-Qualified Employee Stock Benefit
Plan or any Tax-Qualified Employee Stock Benefit Plan in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
capacity; and (b) for purposes of aggregating total shares that may be held by
Officers and Directors the term "Associate" does not include any Tax-Qualified
or Non-Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such
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Person or who is a Trustee, Director or Officer of the INSTITUTION or the
Holding Company, if utilized, or any of its parents or subsidiaries.
Banking Law - The term Banking Law shall mean the Banking Law of the State
-----------
of New York.
Banking Board - The term Banking Board means the Banking Board of the State
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of New York.
Community Offering - The term Community Offering means the offering for sale
------------------
to certain members of the general public directly by the INSTITUTION or the
Holding Company, if utilized, of any shares not subscribed for in the
Subscription Offering.
Conversion - The term Conversion shall mean (a) the restatement of the
----------
Bank's Organization Certificate to authorize the issuance of capital stock in
accordance with the Banking Law and the Conversion Regulations and to otherwise
conform to the requirements of a New York stock savings bank and (b) the
issuance of the capital stock of the Bank in accordance with this Plan.
Conversion Regulations - The term Conversion Regulations shall mean Part 86
----------------------
of the General Regulations of the New York Banking Board and the regulations of
the Federal Deposit Insurance Corp., but only to the extent such regulations
conflict with Part 86 of the General Regulations of the New York Banking Board.
Conversion Stock - The term Conversion Stock means the $.01 par value common
----------------
stock offered and issued by the Holding Company or the $.01 par value Common
Stock offered and issued by the INSTITUTION, if the Holding Company form of
organization is not utilized, upon conversion.
Deposit Account - The term Deposit Account means all deposits of the
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INSTITUTION as defined in Section 9019 of the Banking Law of New York, and
includes without limitation, savings,
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time, demand, negotiable orders of withdrawal (NOW), money market and passbook
accounts maintained by the INSTITUTION.
Effective Date - The term Effective Date shall mean the effective date of
--------------
the Conversion and shall be the date of consummation of the Conversion in
accordance with the Conversion Regulations.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the INSTITUTION and is June 30,
1996.
Employees - The term Employees means all Persons who are employed by the
---------
INSTITUTION.
Employee Plans - The term Employee Plans means the Tax-Qualified Employee
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Stock Benefit Plans, including the Employee Stock Ownership Plan ("ESOP"),
approved or ratified by the Board of Trustees of the INSTITUTION or the Board of
Directors of the Holding Company.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Trustees of the
INSTITUTION within which the aggregate amount of Common Stock sold in the
Conversion will fall. The Estimated Price Range will be within the estimated
pro forma market value of the Conversion Stock as determined by the Independent
Appraiser prior to the Subscription Offering and as it may be amended from time
to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized.
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<PAGE>
Shares of common stock of the Holding Company will be issued in the Conversion
to Participants and others in a Subscription, Community, Syndicated Community,
or underwritten firm commitment public offering, or through a combination
thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the INSTITUTION to prepare an appraisal of the pro forma market
value of the Conversion Stock.
Institution - The term INSTITUTION means Richmond County Savings Bank,
-----------
Staten Island, New York.
Maximum Subscription Price - The term Maximum Subscription Price means the
--------------------------
amount per share of Conversion Stock to be paid initially by Participants in the
Subscription Offering and persons in the Community Offering.
Officer - The term Officer means an executive officer of the INSTITUTION
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice President, Vice President in charge of principal business functions,
Secretary and Controller and any Person participating in major policy making
functions of the INSTITUTION.
Order Form - The term Order Form means any form together with attached cover
----------
letter, sent by the INSTITUTION to any Participant or Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Subscription and Community Offerings.
Participants - The term Participants means the Employee Plans, Eligible
------------
Account Holders and Supplemental Eligible Account Holders.
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<PAGE>
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION as it
----
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Prospectus - The term Prospectus shall mean the offering circular or
----------
prospectus utilized to offer Conversion Stock in accordance with the Plan of
Conversion.
Public Offering - The term Public Offering means the underwritten, firm
---------------
commitment offering to the public through one or more underwriters.
Qualifying Deposit - The term Qualifying Deposit means the aggregate of one
------------------
or more Deposit Accounts in the INSTITUTION with an aggregate balance of $100 or
more at the close of business on the Eligibility Record Date or Supplemental
Eligibility Record Date. Deposit Accounts with aggregate total deposit balances
of less than $100 shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the Securities and Exchange Commission.
---
Special Meeting - The term Special Meeting means the special meeting of
---------------
Voting Depositors, and any adjournments thereof, held to consider and vote upon
this Plan.
Subscription Offering - The term Subscription Offering means the offering of
---------------------
Conversion Stock for purchase through Order Forms to Participants.
Subscription Price Range - The term Subscription Price Range is the per
------------------------
share price range established by the INSTITUTION prior to commencement of the
Subscription and Community Offerings, and is based on the valuation of the
Independent Appraiser.
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<PAGE>
Superintendent - The term Superintendent shall mean the Superintendent of
--------------
Banks of the State of New York.
Supplemental Eligibility Record Date - The term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the INSTITUTION. The Supplemental Eligibility Record
Date shall be the last day of the calendar quarter preceding the
Superintendent's approval of the application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except Officers, Trustees and their Associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering means
-----------------------------
the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Syndicated Community Offering Price - The term Syndicated Community Offering
-----------------------------------
price means the per share price submitted with orders for shares of Conversion
Stock in the Syndicated Community Offering.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. For purposes of
Section 9 of this Plan, the INSTITUTION'S profit sharing and/or 401 plan shall
be considered a Tax-Qualified Employee Stock Benefit Plan only to the extent of
the unallocated funds, if any, over which investment authority is vested solely
with the trustee(s) of those plans. The
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<PAGE>
INSTITUTION or Holding Company may make scheduled discretionary contributions to
a Tax-Qualified Employee Stock Benefit Plan provided such contributions do not
cause the INSTITUTION to fail to meet its regulatory capital requirement. A
"Non-Tax-Qualified Employee Stock Benefit Plan" is any defined benefit plan or
defined contribution plan which is not so qualified.
Trustee - The term Trustee shall mean a member of the Board of Trustees of
-------
the INSTITUTION.
Voting Depositor - The term Voting Depositor means a depositor holding one
----------------
or more deposit accounts with the INSTITUTION with an aggregate balance of $100
or more as of the close of business on the Voting Record Date.
Voting Record Date - The term Voting Record Date means September 30, 1997.
------------------
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Trustees of the INSTITUTION, the
Plan shall be submitted together with all other requisite material to the
Superintendent for approval, if necessary, and shall be submitted to the FDIC
with all other requisite material for non-objection. Promptly upon adoption of
the Plan by the Board of Trustees, the INSTITUTION will cause notice of the
adoption of the Plan by the Board of Trustees of the INSTITUTION to be
conspicuously posted at its principal office and at each of its branch offices
and will also cause
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<PAGE>
notice of the adoption of the Plan to be published in a newspaper having general
circulation in each community in which an office of the INSTITUTION is located
and will issue a press release containing the material terms of Conversion.
Following approval by the Superintendent and non-objection by the FDIC and
receipt of all necessary waivers by the Banking Board and/or Superintendent, if
necessary, the Plan will be submitted to a vote of the Voting Depositors at the
Special Meeting called for that purpose. Voting Depositors will be provided with
or be given the opportunity to request a copy of the Plan and the proposed
Restated Organization Certificate and proposed Bylaws. The Special Meeting shall
be held upon written notice given no less than 10 days nor more than 60 days
from the last date on which such Notice is mailed. The notice of the Special
Meeting, proxy card and proxy statement or short-form proxy statement shall be
sent to each Voting Depositor and shall be accompanied by a Prospectus and Order
Form. Separate and readily distinguishable postage-paid envelopes shall be
provided for the return of proxy cards and Order Forms. At the Special Meeting,
each Voting Depositor shall be entitled to cast one vote in person or by proxy
for every one hundred dollars ($100) such Voting Depositor had on deposit with
the Bank as of the Voting Record Date; provided, however, that no Voting
Depositor shall be eligible to cast more than one thousand (1,000) votes.
The Superintendent shall be notified of the results of the Special Meeting
within five days after the conclusion of the Special Meeting by a certificate
signed by the Chief Executive Officer and Secretary of the Bank. The Plan must
be approved by the affirmative vote of at least seventy-five percent (75%)
in amount of deposit liabilities of Voting Depositors
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<PAGE>
represented in person or by proxy at such Special Meeting, and by the
affirmative vote of at least a majority of the amount of votes entitled to be
cast by Voting Depositors at such Special Meeting. In such event, the Bank will
take all other necessary steps to effect the Conversion subject to the terms and
conditions of this Plan. If the Plan is not so approved upon conclusion of the
Special Meeting and any adjournments thereof, the Plan shall terminate, the Bank
will remain in mutual form and all funds submitted in the Subscription Offering
and Community Offering and Syndicated Community Offering will be returned to
subscribers, with interest as provided herein, and all withdrawal authorizations
will be cancelled. The Conversion must be completed within 24 months of the
approval of the Plan by the Superintendent, unless a longer time period is
permitted by governing laws and regulations.
The Board of Trustees of the INSTITUTION intends to take all necessary steps
to form the Holding Company, including the filing of an Application with the
Superintendent and the appropriate regulatory authority which will govern the
activities of the Holding Company. In the event that the Holding Company is
utilized, upon conversion the INSTITUTION will issue its capital stock to the
Holding Company and the Holding Company will issue and sell the Conversion Stock
in accordance with this Plan.
The Board of Trustees of the INSTITUTION may determine for any reason at any
time prior to the issuance of the Conversion Stock not to utilize a holding
company form of organization in the Conversion, in which case, the Holding
Company's Registration Statement will be withdrawn from the SEC, the INSTITUTION
will take all steps necessary to complete the conversion from the mutual to the
stock form of organization, including filing any necessary documents with the
Superintendent, FDIC and any other appropriate regulatory authority
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<PAGE>
and will issue and sell the Conversion Stock in accordance with this Plan. In
such event, any subscriptions or orders received for Conversion Stock of the
Holding Company shall be deemed to be subscriptions or orders for Conversion
Stock of the INSTITUTION and the INSTITUTION shall take such steps as permitted
or required by the Superintendent, FDIC or the SEC. Any references to the
Holding Company in this Plan shall mean the INSTITUTION in the event the Holding
Company is eliminated in Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application with the Superintendent and the
appropriate regulatory authority which will govern the activities of the Holding
Company and a Registration Statement to be filed with the SEC. The INSTITUTION
shall be a wholly-owned subsidiary of the Holding Company unless the Holding
Company is eliminated in the Conversion.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans and Supplemental
Eligible Account Holders in the respective priorities set forth in Sections 8
through 10 of this Plan. The Subscription Offering may be commenced as early as
the mailing of the Proxy Statement for the Special Meeting and must be commenced
in time to complete the Conversion within the time period specified in
Section 3.
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<PAGE>
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 11 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting and, in that event, the Community Offering may also be
commenced prior to the Special Meeting and may commence concurrently with the
Subscription Offering. The offer and sale of Conversion Stock prior to the
Special Meeting shall, however, be conditioned upon approval of the Plan by the
Eligible Account Holders.
If feasible, any shares of Conversion Stock remaining after the Subscription
and Community Offerings, will be sold in a Syndicated Community Offering or
alternatively in a Public Offering, as determined by the Holding Company and the
INSTITUTION, as provided in Section 12 of this Plan in a manner that will
achieve the widest distribution of the Conversion Stock. The sale of all
Conversion Stock subscribed for in the Subscription and Community Offerings will
be consummated simultaneously on the date the sale of Conversion Stock in the
Syndicated Community Offering or Public Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to offer to pay fees on a per share basis to
qualifying brokers, as determined by the INSTITUTION in its sole discretion, who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Trustees
of the INSTITUTION and Board of Directors of the Holding Company, if the holding
company form of organization is utilized, immediately prior to the commencement
of the Subscription and Community Offerings, subject to adjustment thereafter if
necessitated by market or financial conditions, with the approval of the
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<PAGE>
Superintendent and FDIC, if necessary. In particular, the total number of
shares may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offering if the Estimated Price Range is increased
subsequent to the commencement of the Subscription and Community Offering to
reflect changes in market and financial conditions and the Actual Purchase Price
in the aggregate is not more than 15% above the maximum of the Estimated Price
Range.
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price in accordance with the
Conversion Regulations. The aggregate purchase price for all shares of
Conversion Stock shall equal the estimated consolidated pro forma market value
of the Holding Company as of the Effective Date and will not be inconsistent
with the estimated consolidated pro forma market value of the Holding Company
established immediately prior to the commencement of the Subscription and
Community Offerings. The estimated consolidated pro forma market value of the
INSTITUTION or the Holding Company, if utilized, will be determined for such
purpose by the Independent Appraiser in accordance with the Conversion
Regulations. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the average of the minimum and maximum of such
price range. The number of shares of Conversion Stock to be issued and the
purchase price per share may be increased or decreased by the INSTITUTION. In
the event that the aggregate purchase price of the Conversion Stock is below the
minimum of the Estimated Price Range, or materially above the maximum of the
Estimated Price Range, resolicitation of purchasers may be required, provided
that up to a 15% increase above the maximum of the Estimated Price Range will
not be deemed material so as to require a resolicitation. Any such
resolicitation shall be effected in such manner and within such time as the
INSTITUTION
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<PAGE>
shall establish, with the approval of the Superintendent and FDIC,
if required. Up to a 15% increase in the number of shares to be issued which is
supported by an appropriate change in the estimated pro forma market value of
the Holding Company will not be deemed to be material so as to require a
solicitation of subscriptions.
Based upon the independent valuation as updated prior to the commencement of
the Subscription and Community Offerings, the Board of Directors of the Holding
Company, (if a holding company form of organization is utilized) and the Board
of Trustees of the INSTITUTION will fix the Maximum Subscription Price and the
Subscription Price Range. If upon completion of the Subscription and Community
Offerings all of the Conversion Stock is subscribed for, or if because of a
limited number of unsubscribed shares or otherwise a Syndicated Community
Offering or Public Offering cannot be effected, the Actual Purchase Price for
each share of Conversion Stock will be jointly determined by the INSTITUTION and
Holding Company (if a holding company form of organization is utilized) as
follows: (a) the estimated aggregate pro forma market value of the INSTITUTION
or the Holding Company, as the case may be, immediately after conversion as
determined by the Independent Appraiser, expressed in terms of a specific
aggregate dollar amount rather than as a range, upon completion of the
Subscription and Community Offerings or other sale of all of the Conversion
Stock shall be divided by (b) the total number of shares of Conversion Stock to
be issued and sold.
If there is a Syndicated Community Offering or Public Offering of shares of
Conversion Stock not subscribed for in the Subscription and Community Offerings,
the price per share at which the Conversion Stock is sold in such Syndicated
Community Offering or Public Offering shall be not greater than the maximum nor
less than the minimum of the Subscription Price Range on a per share
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<PAGE>
basis as the INSTITUTION may determine subject to approval by the Superintendent
and FDIC, if required. Upon consummation of the sale in the Syndicated Community
Offering or Public Offering of the shares of Conversion Stock unsubscribed for
in the Subscription and Community Offerings, the Syndicated Community Offering
or Public Offering Price will become the Actual Purchase Price paid for all
shares of Conversion Stock in the Subscription, Community and Syndicated
Community or Public Offerings.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company, if utilized, and to the
Superintendent and FDIC, if required that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause the Independent Appraiser to
conclude that the aggregate value of the Conversion Stock at the Actual Purchase
Price is incompatible with its estimate of the aggregate consolidated pro forma
market value of the Holding Company or the INSTITUTION if no Holding Company is
utilized. If such confirmation is not received, the INSTITUTION may cancel the
Subscription and Community Offerings and/or the Syndicated Community Offering,
and/or the Public Offering, extend the Conversion, establish a new Subscription
Price Range and/or Estimated Price Range, extend, reopen or hold new
Subscription and Community Offerings and/or Syndicated Community Offering and/or
Public Offering or take such other action as the Superintendent may permit.
The per share difference, if any, between the Actual Purchase Price and the
Maximum Subscription Price or amount submitted in the Syndicated Community
Offering or Public Offering will be refunded to all Persons who shall have paid
the Maximum Subscription Price or amount
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<PAGE>
submitted in the Syndicated Community Offering or the Public Offering for such
shares, unless such difference is applied to the purchase of additional whole
shares in accordance with the instructions of such Persons.
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, and in the
event that a holding company form of organization is utilized, the Holding
Company will purchase from the INSTITUTION all of the capital stock of the
INSTITUTION to be issued by the INSTITUTION in the conversion in exchange for
the Conversion proceeds that are not to be retained by the Holding Company.
The Holding Company will retain 50% of the proceeds of the Conversion.
Assuming the Holding Company is not eliminated, a lesser percentage may be
acceptable in the judgment of the Board of Trustees. The INSTITUTION believes
that the Conversion proceeds will provide economic strength to the Holding
Company and the INSTITUTION for the future in a highly competitive and regulated
environment and would facilitate the possible expansion through acquisitions of
financial service organizations, possible diversification into other related
businesses and for other business and investment purposes, including the
possible payment of dividends and possible future repurchases of the Conversion
Stock as permitted by the Superintendent or Banking Board regulations. If
during the conversion process the Board of Trustees of the INSTITUTION
determines not to complete the conversion utilizing a holding company form of
organization, capital
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stock of the INSTITUTION will be issued and sold in accordance with the Plan.
The above activities may also be engaged in by the INSTITUTION if the Holding
Company is eliminated.
7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the Holding Company and the INSTITUTION intend to
establish a charitable foundation that will qualify as an exempt organization
under Section 501(c)(3) of the Internal Revenue Code ( the "Foundation") and to
donate to the Foundation from authorized, but unissued, shares of Common Stock
of the Holding Company in an amount up to 8% of the number of shares of Common
Stock sold in the Conversion. The Foundation is being formed in connection with
the Conversion in order to complement the INSTITUTION's existing community
reinvestment activities and to share with the INSTITUTION's local community a
part of the INSTITUTION's financial success as a locally headquartered,
community minded, financial services institution. The funding of the Foundation
with Common Stock of the Holding Company accomplishes this goal as it enables
the community to share in the growth and profitability of the Holding Company
and the INSTITUTION over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and maintain its Section
501(c)(3) qualification, the Foundation may sell, on an annual basis, a limited
portion of the Common Stock contributed to it by the Holding Company.
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The board of directors of the Foundation will be comprised of individuals
who are officers and/or trustees or Directors of the INSTITUTION or the Holding
Company. The board of directors of the Foundation will be responsible for
establishing the polices of the Foundation with respect to grants or donations,
consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion is
subject to the approval of the Superintendent and, if applicable, the FDIC.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment, as a first
priority, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: 1) the amount
permitted to be subscribed for in the Community Offering, which amount, pursuant
to Section 11, currently is $250,000 of the Conversion Stock, but which may be
increased to 5.0% of the Conversion Stock offered or decreased to 0.10% of the
Conversion Stock offered without the further approval of Voting Depositors or
resolicitation of subscribers; 2) one-tenth of one percent (.10%) of the total
offering of shares of Conversion Stock; or 3) fifteen (15) times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Eligible Account Holder and the
denominator is the total amount of Qualifying Depostits of all Eligible Account
Holders on the Eligibility Record Date. Each such subscription right amount
shall be subject to the maximum purchase limitation specified in Section 13A and
the minimum purchase limitation in Section 13C.
B. In the event that Eligible Account Holders exercise Subscription Rights
for a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription,
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the shares of Conversion Stock shall be allocated among the subscribing Eligible
Account Holders so as to permit each subscribing Eligible Account Holder, to the
extent possible, to purchase a number of shares sufficient to make his or her
total allocation of Conversion Stock equal to the lesser of 100 shares or the
number of shares subscribed for by the Eligible Account Holder. Any shares
remaining after that allocation will be allocated among the subscribing Eligible
Account Holders whose subscriptions remain unsatisfied in the proportion that
the amount of the Qualifying Deposit of each remaining Eligible Account Holder
whose subscription remains unsatisfied bears to the total amount of the
Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unsatisfied, provided, however, that no fractional shares
shall be issued. If any shares remain after the above allocations, such shares
shall then be allocated among those remaining Eligible Account Holders whose
subscriptions remain unfilled, on the same principle until all available shares
have been allocated or all subscriptions satisfied.
C. Subscription rights as Eligible Account Holders received by Trustees and
Officers and their Associates which are based on their increased deposits in the
INSTITUTION during the one (1) year period preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
Each Employee Plan purchasing stock shall receive, as second priority after
the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by any such plan, subject to the purchase
limitations set forth in Section 13. If, after the filling of subscriptions of
Eligible Account Holders, a sufficient number of shares of Conversion Stock is
not available to fill
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the subscriptions by any such plan, the subscription by such plan shall be
filled to the maximum extent possible.
The Employee Plans shall not be deemed to be associates or affiliates of or
Persons Acting in Concert with any Director, Trustee or Officer of the Holding
Company or the INSTITUTION.
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority, after the filling of subscriptions of the Eligible Account Holders and
Employee Plans, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: 1) the amount
permitted to be subscribed for in the Community Offering which amount, pursuant
to Section 11, currently is $250,000 of the Conversion Stock, but which may be
increased to 5.0% of the Conversion Stock offered or decreased to less than
0.10% of the Conversion Stock offered without the further approval of Voting
Depositors or resolicitation of subscribers; 2) one-tenth of one percent (.10%)
of the total offering of Conversion Stock; or 3) fifteen (15) times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock to be issued by a fraction of which the numerator
is the amount of the Qualifying Deposit of the Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Each such subscription right shall be subject to the maximum purchase
limitation specified in Section 13A and the minimum purchase limitation
specified in Section 13C.
B. In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for
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subscription, the shares of Conversion Stock shall be allocated among the
subscribing Supplemental Eligible Account Holders so as to permit each
subscribing Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Supplemental Eligible Account Holder. Any shares remaining
after that allocation will be allocated among the remaining subscribing
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied in
the proportion that the amount of the Qualifying Deposit of each remaining
Supplemental Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all remaining
Supplemental Eligible Account Holders whose subscriptions remain unsatisfied
provided, however, that no fractional shares shall be issued. If any shares
remain after the above allocations, such shares shall then be allocated among
those remaining Supplemental Eligible Account Holders whose subscriptions remain
unfilled on the same principle until all available shares have been allocated or
all subscriptions satisfied.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this
Section 10.
11. COMMUNITY OFFERING (FOURTH PRIORITY)
If less than the total number of shares of Conversion Stock to be subscribed
for in the Conversion are sold in the Subscription Offering, it is expected that
shares remaining unsubscribed for will be made available for purchase in the
Community Offering as a fourth priority to certain members of the general
public, which may subscribe together with any Associate or group of persons
Acting in Concert for up to $250,000 of Conversion Stock subject to the maximum
purchase
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limitation specified in Section 13A and the minimum purchase limitation
specified in Section 13C; provided, however, that the amount permitted to be
purchased in the Community Offering may be increased to 5% or decreased to 0.10%
without the further approval of Voting Depositors or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institutions securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. In
offering the unsubscribed for shares to the public in the Community Offering,
the Holding Company and the INSTITUTION may establish the relative preferences,
priorities, purchase limitations and allocation of shares among persons,
including institutional investors, subscribing for shares. The INSTITUTION may
establish all other terms and conditions of such offer. The INSTITUTION shall
make distribution of the Conversion Stock to be sold in the Community Offering
in such a manner as to promote a wide distribution of Conversion Stock. The
INSTITUTION reserves the right to reject any or all orders, in whole or in part,
which are received in the Community Offering, provided any such rejection is not
in contravention of any law or regulation.
The Community Offering must be completed within 45 days after the
completion of the Subscription Offering unless otherwise extended with the
approval of the Superintendent and FDIC, if necessary.
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12. SYNDICATED COMMUNITY OFFERING OR PUBLIC OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings will be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the INSTITUTION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the INSTITUTION to accept or reject in
whole or in part all subscriptions in the Syndicated Community Offering,
provided any such rejection is not in contravention of any law or regulation. In
the Syndicated Community Offering, any person, together with any Associate or
group of persons acting in concert, may purchase up to $250,000 of Conversion
Stock subject to the maximum purchase limitation specified in Section 13A and
the minimum purchase limitation specified in Section C; provided, however, that
this amount may be increased to 5% or decreased to 0.10% without the further
approval of Voting Depositors or resolicitation of subscribers. The shares
purchased by any Person together with any Associate or group of persons acting
in concert pursuant to Section 11 shall be counted toward meeting the maximum
purchase limitation found in this Section. Provided that the Subscription
Offering has commenced, the INSTITUTION may commence the Syndicated Community
Offering at any time after the mailing of the Proxy Statement to be used in
connection with the Special Meeting, provided that the completion of the offer
and sale of the Conversion Stock shall be conditioned upon the approval of this
Plan by Voting Depositors. If the Syndicated Community Offering is not sooner
commenced pursuant to the provisions of the preceding sentence, the Syndicated
Community Offering will be commenced as soon as practicable following the date
upon which the Subscription and Community Offerings terminate.
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Alternatively, if a Syndicated Community Offering is not held, and the
INSTITUTION and the Holding Company determine to continue the Conversion, the
INSTITUTION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment Public Offering. The provisions of Section 13 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the INSTITUTION, which will in no event exceed an amount deemed
to be acceptable by the Superintendent and FDIC, if necessary.
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any residue of shares of Conversion Stock not exceeding one percent of the
aggregate shares issued is not sold in the Subscription and Community Offerings
or in the Syndicated Community or underwritten firm commitment Public Offering,
other arrangements will be made for the disposition of unsubscribed shares by
the INSTITUTION, if possible. Such other purchase arrangements will be subject
to the approval of the Superintendent and FDIC, if necessary.
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13. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be subscribed
for in Sections 8, 9, 10, 11, and 12, the following limitations shall apply to
all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the conversion by any Person or
Participant, together with any Associate or group or persons Acting in Concert,
shall not exceed 1.0% of the Conversion Stock offered, except for the Employee
Plans which may subscribe for up to 10% of the Conversion Stock issued;
provided, however, that Trustees, Directors and Officers of the INSTITUTION and
the Holding Company shall not be deemed to be associates or acting together or
in concert solely as a result of their board membership or employment.
B. The maximum number of shares of Conversion Stock which may be purchased
in all categories in the conversion by Officers, Trustees and Directors of both
the INSTITUTION and the Holding Company in the aggregate shall not exceed 25% of
the total number of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares which
when multiplied by the price per share shall not exceed $500, as determined by
the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8 through 12, inclusive, to any Person or that Person's Associates
would be in excess of the maximum
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number of shares permitted as set forth above, the number of shares of
Conversion Stock allocated to each such person shall be reduced to the lowest
limitation applicable to that Person, and then the number of shares allocated to
each group consisting of a Person and that Person's Associates shall be reduced
so that the aggregate allocation to that Person and his or her Associates
complies with the above maximums, and such maximum number of shares shall be
reallocated among that Person and his or her Associates as they may agree, or in
the absence of an agreement, in proportion to the shares subscribed by each
(after first applying the maximums applicable to each Person, separately).
Depending upon market or financial conditions, the Board of Trustees of the
INSTITUTION and the Board of Directors of the Holding Company, with the approval
of the Superintendent, if necessary, and without further approval of the
depositors, may decrease the maximum purchase limitation applicable to Persons
to 0.10% of the Conversion Stock offered, provided, however, the maximum
purchase limitation applicable to all Persons, together with Associates and
Persons acting in concert in the Subscription Offering may not be decreased
below 1.0% of the Conversion Stock offered. The Board of Trustees of the
INSTITUTION and Board of Directors of the Holding Company with the approval of
the Superintendent, if necessary, and without further approval of Voting
Depositors or resolicitation of subscribers, may decrease the maximum purchase
limitation applicable to Persons together with Associates and Persons Acting in
Concert in the Community or Syndicated Community Offering or Public Offering to
0.10% of the Conversion Stock offered. In addition, the Board of Trustees of the
INSTITUTION and Board of Directors of the Holding Company with the approval of
the Superintendent and FDIC, if necessary, and without further approval of
Voting Depositors, may increase the purchase limitations in this Plan, provided
that the maximum purchase limitations may not be increased in the Subscription
Offering
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or Community Offering to a percentage in excess of 5% of the Conversion Stock
offered. If the INSTITUTION or the Holding Company, as the case may be,
increases the maximum purchase limitations, the INSTITUTION or the Holding
Company, as the case may be, is only required to resolicit Persons who
subscribed for the maximum purchase amount and may, in the sole discretion of
the INSTITUTION or the Holding Company, as the case may be, resolicit certain
other large subscribers. Requests to purchase additional shares of the
Conversion Stock in the event that the purchase limitation is so increased will
be determined by the Board of Directors of the INSTITUTION and the Holding
Company in their sole discretion.
Prior to the Effective Date of the Conversion, no Person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any Subscription Rights or shares of Conversion Stock,
except pursuant to this Plan of Conversion. Each Person purchasing Conversion
Stock in the conversion shall be deemed to confirm that such purchase does not
conflict with the above purchase limitations contained in this Plan.
For a period of three years following the conversion, no Officer, Trustee or
Director (or any person who was an Officer, Trustee or Director at any time
after the date on which the Board of Trustees adopts this Plan) of the
INSTITUTION or the Holding Company or their Associates shall, without the prior
written approval of the Superintendent, purchase or acquire direct or indirect
beneficial ownership of any outstanding shares of common stock of the
INSTITUTION or the Holding Company, as the case may be, except from a broker-
dealer registered with the SEC. This provision shall not apply to the exercise
of any options pursuant to a stock option plan or purchases of common stock of
the INSTITUTION or the Holding Company, as the case may be, made by or held by
any Tax-Qualified Employee Stock Benefit Plan or Non-Tax-Qualified Employee
Stock
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Benefit Plan of the INSTITUTION or the Holding Company (including the Employee
Plans) which may be attributable to any Officer, Director or Trustee.
14. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
INSTITUTION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the INSTITUTION; provided, however, that
if the Employee Plans subscribe for shares during the Subscription Offering,
such plans will not be required to pay for the shares at the time they subscribe
but rather may pay for such shares of Conversion Stock subscribed for by such
plans at the Actual Purchase Price upon consummation of the Conversion, provided
that, in the case of the ESOP there is in force from the time of its
subscription until the consummation of the Conversion, a loan commitment from
the Holding Company or from an unrelated financial institution to lend to the
ESOP, at such time, the aggregated Maximum Subscription Price of the shares for
which it subscribed. The Holding Company or the INSTITUTION may make scheduled
discretionary contributions to an Employee Plan provided such contributions from
the INSTITUTION, if any, do not cause the INSTITUTION to fail to meet its
regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company, if
utilized, shall have the right, in their sole discretion, to permit
institutional investors to submit contractually irrevocable orders in the
Community Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering at any time prior to 48
hours before
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the completion of the Conversion, unless such 48 hour period is waived by the
INSTITUTION and the Holding Company in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash (if
delivered in person), check or money order. Alternatively, subscribers in the
Subscription and Community Offerings may pay for the shares subscribed for by
authorizing the INSTITUTION on the Order Form to make a withdrawal from the
subscriber's Deposit Account at the INSTITUTION in an amount equal to the
purchase price of such shares. Funds for which a withdrawal is authorized will
remain in the subscriber's Deposit Account but may not be used by the subscriber
until the Conversion Stock has been sold or the 45-day period (or such longer
period as may be approved by the Superintendent) following the Subscription and
Community Offering has expired, whichever occurs first. Thereafter, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the purchase price per share.
Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Such authorized withdrawal from a
certificate account shall be without penalty as to premature withdrawal. Any
remaining balance in a Deposit Account will earn interest after such withdrawal
at the rate and manner applicable to such Deposit Account, provided, that if the
authorized withdrawal is from a certificate account, and the remaining balance
does not meet the applicable minimum balance requirement, without penalty, the
remaining balance will earn interest at the same rate and manner as a comparable
balance in a passbook account. Interest will be paid by the INSTITUTION at not
less than the passbook annual rate on payments for Conversion Stock received in
cash or by check. Such interest will be paid from the date payment is received
by the INSTITUTION until consummation or termination of the conversion. If for
any reason the
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conversion is not consummated, all payments made by subscribers in the
Subscription, Community and Syndicated Community Offerings will be refunded to
them with interest. In case of amounts authorized for withdrawal from Deposit
Accounts, refunds will be made by cancelling the authorization for withdrawal.
The INSTITUTION is prohibited by regulation from knowingly making any loans or
granting any lines of credit for the purchase of stock in the conversion, and
therefore, will not do so.
15. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and INSTITUTION has been declared effective by the Superintendent, FDIC and the
SEC, if the holding company form of organization is utilized, Prospectus and
Order Forms will be distributed to the Employee Plans, all Eligible Account
Holders and Supplemental Eligible Account Holders at their last known addresses
appearing on the records of the INSTITUTION for the purpose of subscribing to
shares of Conversion Stock in the Subscription Offering and will be made
available for use by those Persons entitled to purchase in the Community
Offering.
Each Order Form will be preceded or accompanied by a Prospectus describing
the Holding Company, if utilized, the INSTITUTION, the Conversion Stock and the
Subscription and Community Offerings. Each Order Form will contain, among other
things, the following:
A. A specified date by which all Order Forms must be received by the
INSTITUTION, which date with respect to Eligible Account Holders and
Supplemental Eligible Account Holders shall be not less than five (5) days
following the Special Meeting, unless a shorter period of time is approved by
the Superintendent and FDIC, if necessary, and which date will constitute the
termination of the Subscription Offering.
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B. The purchase price per share for shares of Conversion Stock to be sold
in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of Subscription
Rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus prior to execution of the Order Form;
F. Specifically designated blank spaces for dating and signing the Order
Form;
G. Indicate the consequences of failing to properly complete and return the
Order Form, including a statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Deposit Account
at the INSTITUTION) to the INSTITUTION; and
H. A statement to the effect that the executed Order Form, once received by
the INSTITUTION, may not be modified or amended by the subscriber without the
consent of the INSTITUTION.
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Notwithstanding the above, the INSTITUTION and the Holding Company reserve
the right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
16. UNDELIVERED, DEFECTIVE OR LATE ORDER FORM: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering,
by delivering irrevocable orders together with a legally binding commitment to
pay in cash, check, money order or wire transfer the full amount of the purchase
price prior to 48 hours before the completion of the Conversion, unless waived
by the INSTITUTION, for the shares of Conversion Stock subscribed for (including
cases in which deposit accounts from which withdrawals are authorized are
insufficient to cover the amount of the required payment), or (e) are not mailed
pursuant to a "no mail" order placed in effect by the account holder, the
subscription rights of the person to whom such rights have been granted will
lapse as though such person failed to return the contemplated Order Form within
the time period specified thereon; provided, however, that the INSTITUTION may,
but will not be required to, waive any immaterial irregularity on any Order Form
or require the submission of corrected Order Forms or the remittance of full
payment for subscribed shares by such date as the INSTITUTION may specify. The
interpretation of the INSTITUTION of terms and conditions of the Plan and of the
Order Forms will be final, subject to the authority of the Superintendent and
FDIC.
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17. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased or acquired (either directly or
indirectly) by Trustees, Directors or Officers (as such term is defined in Part
70 of the General Regulations of the New York Banking Board) of the INSTITUTION
or the Holding Company on original issue (or otherwise beneficially owned
immediately after such original issuance) in the conversion shall be subject to
the restriction that, except as provided in Section 17B, below, or as may be
approved by the Superintendent, such shares shall not be sold for a period of
one (l) year following the date of purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 17A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, as the
case may be, which has been approved by the Superintendent; and
(ii) Any disposition of such shares following the death or judicial
declaration of incompetency of such Trustee, Director or Executive
Officer.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
(i) Each certificate representing shares restricted within the meaning
of Section 17A, above, shall bear a legend prominently stamped on
its face giving notice of the restriction;
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(ii) Appropriate instructions shall be issued to the stock transfer agent
for the INSTITUTION or the Holding Company, as the case may be, with
respect to applicable restrictions on transfer of such restricted
stock; and
(iii) Any shares of capital stock of the INSTITUTION or the Holding
Company, as the case may be, issued as a stock dividend, stock
split, or otherwise with respect to any such restricted stock may
not be sold until the restrictions respecting such originally
restricted stock are terminated, and any certificate for such shares
shall bear a legend advising of such restrictions.
18. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION shall
have the exclusive voting rights with respect to the INSTITUTION as specified in
its charter. The holders of the common stock of the Holding Company (if a
holding company form of organization is utilized) shall have the exclusive
voting rights with respect to the Holding Company.
19. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth (determined in accordance with
generally accepted accounting principles) as set forth in the latest statement
of financial condition contained in the proxy statement. The liquidation account
will be maintained by the INSTITUTION for the benefit of the Eligible Account
Holders and Supplemental Eligible Account Holders who continue to maintain their
Deposit Accounts at the INSTITUTION in the event of a complete liquidation of
the Bank following the Conversion. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to each Deposit Account, hold a
related inchoate interest in a portion of the liquidation
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account balance, in relation to each Deposit Account balance at the Eligibility
Record Date or Supplemental Eligibility Record Date, whichever may be
applicable, or to such balance as it may be subsequently reduced, as hereinafter
provided. The initial liquidation account balance shall not be increased, and
shall be subject to downward adjustment to the extent of any downward adjustment
of any subaccount balance of any Eligible Account Holder in accordance with the
Conversion Regulations.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Accounts) each Eligible Account
Holder and Supplmental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his Deposit Account then held, before any
liquidation distribution may be made to any holders of the INSTITUTION's capital
stock. No merger, consolidation, purchase of bulk assets with assumption of
Deposit Accounts and other liabilities, or similar transactions with an FDIC-
insured institution, in which the INSTITUTION is not the surviving institution,
shall be deemed to be a complete liquidation for this purpose. In such
transactions, the liquidation account shall be assumed by the surviving
institution.
The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder or Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and/or
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Supplemental Eligible Account Holders in the INSTITUTION. Such initial
subaccount balance shall not be increased, but shall be subject to downward
adjustment as described below.
If, at the close of business on the last day of any period for which the
INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the effective date of conversion, the deposit
balance in the Deposit Account of an Eligible Account Holder or Supplemental
Eligible Account Holder is less than the lesser of (i) the balance in the
Deposit Account at the close of business on the last day of any period for which
the INSTITUTION or the Holding Company, as the case may be, has prepared audited
financial statements subsequent to the Eligibility Record Date or Supplemental
Eligibility Record Date, or (ii) the amount in such Deposit Account as of the
Eligibility Record Date or Supplemental Eligibility Record Date, the subaccount
balance for such Deposit Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase in the deposit
balance of the related Deposit Account. If any such Deposit Account is closed,
the related subaccount shall be reduced to zero. For purposes of this Section
and the Conversion Regulations, a time account shall be deemed to be closed upon
its maturity date regardless of any renewal thereof. A distribution of each
subaccount balance may be made only in the event of a complete liquidation of
the Bank subsequent to the Conversion and only out of funds available for such
purpose after payment of all creditors.
The Bank shall not be required to set aside funds for the purpose of
establishing the liquidation account, and the creation and maintenance of the
liquidation account shall not operate to restrict the use or application of any
of the net worth accounts of the INSTITUTION, except that the
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INSTITUTION shall not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its net worth to be reduced
below the amount required for the liquidation account.
20. TRANSFER OF DEPOSIT ACCOUNTS AND CONTINUITY OF THE INSTITUTION
Upon conversion, each Deposit Account Holder having a Deposit Account at
the INSTITUTION at the time of conversion will continue to have a Deposit
Account, without payment therefor, in the same amount and subject to the same
terms and conditions (except for voting and liquidation rights) as in effect
prior to the conversion.
After conversion, the INSTITUTION will succeed to all the rights, powers,
franchises, debts, liabilities, interests, duties and obligations of the
INSTITUTION before conversion, including but not limited to all rights and
interests of the INSTITUTION in and to its assets and properties, whether real,
personal or mixed. All of the insured deposits of the INSTITUTION will continue
to be insured by the FDIC to the extent provided by applicable law.
21. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with Conversion Regulations, except with the prior
approval of the Superintendent, no Person or group of Persons acting in concert,
other than the Holding Company (if a holding company form of organization is
utilized), for a period of one year following the Effective Date of the
Conversion, shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of an equity security of the
INSTITUTION.
B. 1. The restated organization certificate of the converted INSTITUTION
contains a provision stipulating that no Person or group of Persons acting in
concert, except the Holding
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Company (if a holding company form of organization is utilized), for a period of
three years following the date of conversion shall directly or indirectly offer
to acquire or acquire the beneficial ownership of more than 10% of any class of
an equity security of the INSTITUTION, without the prior written approval of the
Superintendent. In addition, such Restated Organization Certificate will also
provide that for a period of three years following conversion shares
beneficially owned in violation of the above-described charter provision shall
not be entitled to vote and shall not be voted by any person or counted as
voting stock in connection with any matter submitted to stockholders for a vote.
In addition, special meetings of the stockholders relating to changes in control
or amendment of the charter may only be called by the Board of Directors, and
shareholders shall not be permitted to cumulate their votes for the election of
directors.
B. 2. The Certificate of Incorporation of the Holding Company, if a holding
company form of organization is utilized, will contain a provision stipulating
that in no event shall any record owner of any outstanding shares of the Holding
Company's common stock who beneficially owns in excess of 10% of such
outstanding shares be entitled or permitted to any vote in respect to any shares
held in excess of 10%. In addition, the Certificate of Incorporation and Bylaws
of the Holding Company contain provisions which provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 21.B.1:
(i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
stock company, a trust, an unincorporated organization or similar
company, a syndicate or any other
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<PAGE>
group formed for the purpose of acquiring, holding or disposing
of securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security
for value;
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise;
and
(iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security"
as defined in 15 U.S.C. Section 78c(a)(10).
22. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or repurchase
any of, its capital stock if the effect thereof would cause its regulatory
capital to be reduced below the amount required for the Liquidation Account or
which would not be in compliance with the regulations of the Banking Board or
Superintendent. Otherwise, the INSTITUTION may declare dividends, repurchase its
capital stock, or make capital distributions in accordance with applicable law
and regulations.
23. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended at
any time prior to solicitation of proxies from Eligible Account Holders to vote
on the Plan by the INSTITUTION's Board of Trustees, and at any time thereafter
by such vote of such Board of Trustees with the concurrence of the
Superintendent and FDIC. Amendment of the Plan may be necessary as a result
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of comments from the Superintendent and FDIC. Any amendment to the Plan made
after approval by the Eligible Account Holders with the approval of the
Superintendent and FDIC shall not necessitate further approval by the Eligible
Account Holders unless otherwise required by the Superintendent and FDIC. The
Plan may be terminated by majority vote of the INSTITUTION's Board of Trustees
at any time prior to the Special Meeting to vote on this Plan, and at any time
thereafter with the concurrence of the Superintendent and FDIC.
By adoption of the Plan, the Eligible Account Holders of the INSTITUTION
authorize the Board of Trustees to amend or terminate the Plan under the
circumstances set forth in this Section.
24. ORGANIZATION CERTIFICATE AND BYLAWS
The INSTITUTION shall take all appropriate steps to amend and restate its
Organization Certificate to read in the form of an Organization Certificate for
a New York stock savings bank as specified in the Banking Law and the
regulations of the New York Banking Board and approved by the Board of Trustees
of the INSTITUTION. By their approval of the Plan, the Eligible Account Holders
of the INSTITUTION will thereby approve and adopt such Restated Organization
Certificate. The INSTITUTION shall also take all appropriate steps to adopt
Bylaws legally sufficient for a New York stock savings bank. The name of the
converted INSTITUTION shall be Richmond County Savings Bank.
25. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining an Organization Certificate for a New York stock savings bank for the
INSTITUTION and sale of all Conversion Stock.
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26. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
INSTITUTION or the Holding Company, as the case may be, will register the
securities issued in connection with the conversion pursuant to the Securities
Exchange Act of 1934 and will not deregister such securities for a period of at
least three years thereafter, except that the maintenance of registration for
three years requirement may be fulfilled by any successor to the INSTITUTION or
any holding company of the INSTITUTION. In addition, the INSTITUTION/Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ system.
27. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the securities
laws of all States in the United States in which Persons entitled to subscribe
for shares of Conversion Stock pursuant to the Plan reside. No Person will be
issued subscription rights or be permitted to purchase shares of Conversion
Stock in the Subscription Offering if such Person resides in a foreign country.
28. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses incurred
by it in connection with the conversion shall be reasonable.
29. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of either rulings of the United
States Internal Revenue Service and the New York State taxing
authorities, or opinions of counsel or independent
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auditors, substantially to the effect that the conversion will not
result in any adverse federal or state tax consequences to Eligible
Account Holders or to the INSTITUTION and the Holding Company before
or after the conversion;
(b) The sale of all of the Conversion Stock offered in the conversion;
(c) The completion of the conversion within the time period specified in
Section 3 of this Plan;
(d) Obtaining all necessary regulatory approvals; and
(e) Obtaining the approval of Voting Depositors.
30. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Trustees of the
INSTITUTION shall be final, subject to the authority of the Superintendent and
FDIC.
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EXHIBIT I
RESTATED ORGANIZATION CERTIFICATE
OF
RICHMOND COUNTY SAVINGS BANK
UNDER SECTION 8007 OF
THE BANKING LAW
We, Michael F. Manzulli, being the President and Chief Executive Officer,
and Rosemary Colca, being the Secretary, of RICHMOND COUNTY SAVINGS BANK, in
accordance with Section 8007 of the Banking Law of the State of New York, do
hereby certify as follows:
FIRST, the name of the Corporation is RICHMOND COUNTY SAVINGS BANK.
SECOND, the Corporation was created by an Organization Certificate filed
with the Superintendent of Banks of the State of New York in 1886.
THIRD, the text of the Organization Certificate of RICHMOND COUNTY SAVINGS
BANK is hereby restated in its entirety to read as follows:
Section 1. Corporate Title.
The full corporate title of the institution is RICHMOND COUNTY SAVINGS BANK
("SAVINGS BANK").
Section 2. Office.
The principal office shall be located in Staten Island, New York.
Section 3. Duration.
The duration of the SAVINGS BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the SAVINGS BANK is to pursue any or all of the lawful
objectives of a New York chartered capital stock savings bank and to exercise
all the express, implied, and incidental powers conferred thereby and by all
acts amendatory thereof and supplemental thereto, subject to the Constitution
and laws of New York and the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Superintendent of Banks of the State of New York
(the "Superintendent"), New York State Banking Board ("NYBB") and the New York
State Banking Department ("NYBD").
<PAGE>
Section 5. Capital Stock.
The total number of shares of all classes of the capital stock which the
SAVINGS BANK has authority to issue is eighty million (80,000,000), of which
seventy-five million (75,000,000) shall be common stock, par value $.01 per
share and of which five million (5,000,000) shall be preferred stock, par value
$.01 per share. The shares may be issued from time to time as authorized by the
Board of Directors without further approval of shareholders except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule, or regulation. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the SAVINGS BANK. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted), labor or
services actually performed for the SAVINGS BANK, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the value of such
property, labor, or services, as determined by the Board of Directors of the
SAVINGS BANK, shall be conclusive. Upon payment of such consideration, such
shares shall be deemed to be fully paid and nonassessable. In the case of a
stock dividend, that part of the surplus of the SAVINGS BANK which is
transferred to stated capital upon the issuance of shares as a share dividend
shall be deemed to be the consideration for their issuance.
Except for shares issuable in connection with the conversion of the SAVINGS
BANK from the mutual to the stock form of capitalization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the SAVINGS BANK other than as part of a general public
offering or as qualifying shares to a director, unless their issuance or the
plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, provided,
---------
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the Board of
Directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the SAVINGS BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
SAVINGS BANK if the preferred stock is exchanged for securities of
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such other corporation; provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the NYBD or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving institution in a merger or consolidation
for the SAVINGS BANK, shall not be considered to be such an adverse
change.
A description of the different classes and series (if any) of the SAVINGS
BANK's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class of and series
(if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
-------------
supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder. Shareholders shall not be entitled to cumulate their votes
for election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
SAVINGS BANK, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock
in the distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the SAVINGS BANK available for distribution
remaining after: (i) payment or provision for payment of the SAVINGS
BANK's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class
or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the SAVINGS BANK. Each
share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred Stock. The SAVINGS BANK may provide in supplementary
----------------
sections to this Restated Organization Certificate for one or more
classes of preferred stock, which shall be separately identified. The
shares of any class may be divided into and
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issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the Restated Organization Certificate. All
shares of the same class shall be identical except as to the following
relative rights and preferences, as to which there may be variations
between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the SAVINGS BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the SAVINGS BANK and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the
other shares of the same series.
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The Board of Directors shall have authority to divide, by the adoption
of supplementary Restated Organization Certificate sections, any
authorized class of preferred stock into series, and, within the
limitations set forth in this section and the remainder of this
Restated Organization Certificate, fix and determine the relative
rights and preferences of the shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary Restated Organization Certificate section adopted
by the Board of Directors, the SAVINGS BANK shall file with the
Superintendent a dated copy of that supplementary section of this
Restated Organization Certificate establishing and designating the
series and fixing and determining the relative rights and preferences
thereof.
Section 6. Preemptive Rights.
Holders of the capital stock of the SAVINGS BANK shall not be entitled to
preemptive rights with respect to any shares of the SAVINGS BANK which may be
issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the NYBB's regulations, the SAVINGS BANK
shall establish and maintain a liquidation account for the benefit of its
deposit account holders as of June 30, 1996 ("eligible depositors") and as of
____________, 1997 ("Supplemental eligible depositors"). In the event of a
complete liquidation of the SAVINGS BANK, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each of the
SAVINGS BANK's eligible depositor's and supplemental eligible depositors
inchoate interest in the liquidation account, to the extent it is still in
existence; provided, that an eligible depositor's inchoate interest in the
liquidation account shall not entitle such eligible depositor or such
supplemental eligible depositor to any voting rights at meetings of the SAVINGS
BANK's shareholders.
Section 8. Certain Provisions Applicable for Three Years.
Notwithstanding anything contained in the SAVINGS BANK's Restated
Organization Certificate or bylaws to the contrary, for a period of three years
from the date of consummation of the conversion of the SAVINGS BANK from mutual
to stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
--------------------------------
indirectly acquire the beneficial ownership of more than 10 percent of
any class of any equity security of the SAVINGS BANK. This limitation
shall not apply to a transaction in which the SAVINGS BANK forms a
holding company in conjunction with conversion, or thereafter, if such
formation is without change in the respective beneficial ownership
interests of the SAVINGS BANK's shareholders other than pursuant to
the exercise
5
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of any dissenter and appraisal rights, the purchase of shares by
underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting
shares in connection with any matters submitted to the shareholders
for a vote; provided, however a person shall not be deemed to be the
beneficial owner of shares represented by proxies held by such person
unless such shares are otherwise deemed beneficially owned by such
person.
For the purposes of this Section 8, the following definitions apply:
(i) The term "person" includes an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, any
unincorporated organization or similar company, a syndicate or
any other group formed for the purpose of acquiring, holding or
disposing of the equity securities of the SAVINGS BANK or any
other entity.
(ii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iii) The term "acting in concert" means (a) knowing participation in
a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any
contract, understanding, relationship, agreement or other
arrangement, whether written or otherwise.
Section 9. Call for Special Meetings.
Special meetings of the shareholders for any purpose or purposes, unless
otherwise prescribed by the New York Banking Law or regulations of the NYBB or
NYBD, may be called at any time by the Chairman of the Board of Directors or the
majority of the Whole Board of Directors (the term "Whole Board of Directors"
shall mean the number of authorized directorships, whether or not there exists
any vacancies in any previously authorized directorships).
Section 10. Directors.
The SAVINGS BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the SAVINGS BANK's bylaws, shall
not be less than seven nor more than 30 except when a greater number is approved
by the Superintendent or his delegatees.
6
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Each of the following persons shall be a director of the SAVINGS BANK upon
the effectiveness of this Restated Organization Certificate, for the terms
indicated or until his successor is elected and qualified, and they shall
constitute the initial Board of Directors of the SAVINGS BANK:
Class I with terms to expire at the first annual meeting of stockholders:
James L. Kelley
T. Ronald Quinlan, Jr.
Class II with terms to expire at the annual meeting of stockholders one
year thereafter:
William C. Frederick
Maurice K. Shaw
Class III with terms to expire at the annual meeting two years thereafter:
Godfrey H. Carstens, Jr.
Robert S. Farrell
Michael F. Manzulli
Section 11. Amendment of Restated Organization Certificate.
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this Restated Organization Certificate shall be made,
unless such is first proposed by a majority of the Whole Board of Directors of
the SAVINGS BANK, then preliminarily approved by the Superintendent, which
preliminary approval may be granted by the Superintendent pursuant to
regulations specifying preapproved organization certificate amendments, and
thereafter approved by the affirmative vote of the holders of at least 80
percent of the total votes eligible to be cast at a legal meeting. Any
amendment, addition, alteration, change or repeal so acted upon shall be
effective upon filing with the Superintendent in accordance with the regulatory
procedures.
Section 12. Amendment of Bylaws.
No amendment, addition, alteration, change or repeal of the Bylaws of the
SAVINGS BANK shall be made, unless made in a manner consistent with New York
Banking Law and the Regulations of the NYBB and NYBD and approved by a majority
of the Whole Board of Directors or by the affirmative vote of at least 80% of
the votes eligible to be cast by the shareholders of the SAVINGS BANK at any
legal meeting.
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Section 13. Indemnification
(a) Scope of Indemnification. Except to the extent expressly prohibited
------------------------------
by the New York Banking Law, the SAVINGS BANK shall indemnify each person made,
or threatened to be made, a party to any action or proceeding, whether criminal
or civil, by reason of the fact that such person or such person's testator or
intestate is or was a director or officer of the SAVINGS BANK, or is or was
serving, in any capacity, at the request of the SAVINGS BANK, any other
corporation, or any partnership, joint venture, trust, employee benefit plan or
other enterprise, against judgments, fines, penalties, amounts paid in
settlement and reasonable expenses, including attorneys' fees and expenses,
reasonably incurred in enforcing such person's right to indemnification,
incurred in connection with such action or proceeding, or any appeal therein,
provided that no such indemnification shall be made if a judgment or other final
adjudication adverse to such persons establishes that such person's acts were
committed in bad faith or were the result of active and deliberate dishonesty
and were material to the cause of action so adjudicated, or that such person
personally gained in fact a financial profit or other advantage to which such
person was not legally entitled, and provided that no such indemnification shall
be required with respect to any settlement or other nonadjudicated disposition
of any threatened or pending action or proceeding unless the SAVINGS BANK has
given its prior consent to such settlement or other disposition.
(b) Reimbursement of Expenses. The SAVINGS BANK shall advance or promptly
------------------------------
reimburse upon request any person entitled to indemnification hereunder for all
reasonable expenses, including attorneys' fees and expenses, reasonably
incurred in defending any action or proceeding in advance of the final
disposition thereof upon receipt of an undertaking by or on behalf of such
person to repay such amount if such person is ultimately found not to be
entitled to indemnification or, where indemnification is granted, to the extent
the expenses so advanced or reimbursed exceed the amount to which such person
is entitled; provided, however, that such person shall cooperate in good faith
with any request by the SAVINGS BANK that common counsel be used by the parties
to any action or proceeding who are similarly situated unless to do so would be
inappropriate due to actual or potential differing interest between or among
parties.
(c) Additional Rights. Nothing herein shall limit or affect any right of
----------------------
any director, officer, or other corporate personnel otherwise than hereunder to
indemnification or expenses, including attorneys' fees and expenses, under any
statute, rule, regulation, certificate of incorporation, Bylaws, insurance
policy, contract, or otherwise; without affecting or limiting the rights of any
director, officer or other corporate personnel pursuant to this Section 13, the
SAVINGS BANK is authorized to enter into agreements with any of its directors,
officers or other corporate personnel extending rights to indemnification and
advancement of expenses to the fullest extent permitted by applicable law.
(d) Notice of Amendments or Elimination. Anything in this Restated
----------------------------------------
Organization Certificate to the contrary notwithstanding, no elimination or
amendment of this Section 13 adversely affecting the right of any person to
indemnification or advancement of expenses hereunder shall be effective until
the 60th day following notice to such person of such action, and no elimination
of or amendment to this Section 13 shall deprive any such person's rights
hereunder arising out of alleged or actual occurrences, act or failures to act
prior to such 60th day.
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Any amendments or eliminations made pursuant to this Section 13 are only
effective with regard to acts occurring after such date.
(e) Amendment or Elimination. The SAVINGS BANK shall not, except by
-----------------------------
elimination or amendment of this Section 13 in a manner consistent with the
preceding subsection (d), take any corporate action or enter into any agreement
which prohibits, or otherwise limits the rights of any person to,
indemnification in accordance with the provisions of this Section 13. The
indemnification of any person provided by this Section 13 shall continue after
such person has ceased to be a director or officer of the SAVINGS BANK and
shall inure to the benefit of such person's heirs, executors, administrators
and legal representatives.
(f) Severability of Provisions. In case any provision in this Section 13
-------------------------------
shall be determined at any time to be unenforceable in any respect, the other
provisions of this Section 13 shall not in any way be affected or impaired
thereby, and the affected provision shall be given the fullest possible
enforcement in the circumstances, it being the intention of the SAVINGS BANK to
afford indemnification and advancement of expenses to its directors or
officers, acting in such capacities or in the other capacities mentioned
herein, to the fullest extent permitted by law.
As approved by a majority of the Board of Directors of the SAVINGS BANK on
July 31, 1997 and approved by 75% of the deposit liabilities of voting
depositors of the SAVINGS BANK present in person or by proxy at a meeting of
voting depositors held on _________ __ 1997, to be effective on the date filed
by the Superintendent of Banks of the State of New York in his office.
- -------------------------------------- --------------------------------
Michael F. Manzulli Rosemary Colca
President and Chief Executive Officer Secretary
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EXHIBIT II
BYLAWS OF
RICHMOND COUNTY SAVINGS BANK
ARTICLE I. PRINCIPAL OFFICE
The principal office of Richmond County Savings Bank ("SAVINGS BANK") is
1214 Castleton Avenue, Staten Island, Richmond County, New York.
ARTICLE II. SHAREHOLDERS
Section l. Place of Meetings. All annual and special meetings of
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shareholders shall be held at the principal office of the SAVINGS BANK or at
such other place in the State in which the principal place of business of the
SAVINGS BANK is located as the Board of Directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the SAVINGS
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BANK for the election of Directors and for the transaction of any other business
of the SAVINGS BANK shall be held annually within 120 days after the end of each
calendar year.
Section 3. Special Meetings. Special meetings of the shareholders for
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any purpose or purposes, unless otherwise prescribed by the New York Banking Law
and the regulations of the New York Banking Board ("NYBB") or New York State
Banking Department ("NYBD"), may be called at any time by the Chairman of the
Board of Directors (as set forth in Article V, Section 7, hereinafter referred
to as the "Chairman of the Board") or by a majority of the Whole Board of
Directors. The term "Whole Board of Directors" shall mean the number of
authorized directorships, whether or not there exists any vacancies in any
previously authorized directorships.
Section 4. Conduct of Meetings. The Chairman of the Board shall preside
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at all meetings and in his absence, a person designated by a majority of the
Board shall preside at all meetings. The chairman of any meeting of stockholders
shall determine the order of business and the procedures at the meeting,
including such regulations of the manner of voting and the conduct of discussion
as seem to him in order.
Section 5. Notice of Meetings. Written notice stating the place, day and
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hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the Chairman of
the Board, the secretary, or the Board of Directors calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the SAVINGS BANK as of the record date prescribed in Section
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6 of this Article II, with postage prepaid. When any shareholders' meeting,
either annual or special, is adjourned for 30 days or more, notice of the
adjourned meeting shall be given as in the case of an original meeting. It shall
not be necessary to give any notice of the time and place of any meeting
adjourned for less than 30 days or of the business to be transacted at the
meeting, other than an announcement at the meeting at which such adjournment is
taken.
Section 6. Fixing of Record Date. For the purpose of determining
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shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend,
or in order to make a determination of shareholders for any other proper
purpose, the Board of Directors shall fix in advance a date as the record date
for any such determination of shareholders. Such date in any case shall be not
more than 50 days and, in case of a meeting of shareholders, not fewer than 10
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. When a determination of
shareholders entitled to vote at any meeting of shareholders has been made as
provided in this section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
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shareholders, the officer or agent having charge of the stock transfer books
for shares of the SAVINGS BANK shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the principal office of the SAVINGS BANK.
Such list shall also be produced and kept open at the time and place of the
meeting and shall be subject to the inspection by any shareholder during the
entire time of the meeting. The original stock transfer book shall constitute
prima facie evidence of the shareholders entitled to examine such list or
transfer books or to vote at any meeting of shareholders.
Section 8. Quorum. A majority of the outstanding shares of the SAVINGS
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BANK entitled to vote, represented in person or by proxy, shall constitute a
quorum at a meeting of shareholders. The shareholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to constitute less than a
quorum. If less than a majority of the outstanding shares is represented at a
meeting, a majority of the shares so represented may adjourn the meeting from
time to time without further notice. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The
existence of a quorum at any meeting, or the existence of a duly organized
meeting at which enough shareholders have withdrawn from such meeting to
constitute less than a quorum, however, shall not serve to amend, alter or
modify any provisions in the SAVINGS BANK'S Restated Organization Certificate
or these Bylaws which require the vote of more than a majority of the
outstanding shares entitled to vote at a duly organized meeting.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
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vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such
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direction, as determined by a majority of the Whole Board of Directors. No proxy
shall be valid more than eleven months from the date of its execution except for
a proxy coupled with an interest.
Section l0. Voting of Shares in the Name of Two or More Persons. When
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ownership stands in the name of two or more persons, in the absence of written
directions to the SAVINGS BANK to the contrary, at any meeting of the
shareholders of the SAVINGS BANK any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section ll. Voting of Shares by Certain Holders. Shares standing in the
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name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name, if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the SAVINGS BANK, nor
shares held by another corporation, if a majority of the shares entitled to
vote for the election of directors of such other corporation are held by the
SAVINGS BANK, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Shareholders shall not be entitled to
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cumulate their votes for election of directors.
Section l3. Inspectors of Election. In advance of any meeting of
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shareholders, the Board of Directors may appoint any persons other than
nominees for office as inspectors of election to act at such meeting or any
adjournment. The number of inspectors shall be either one or three. Any such
appointment shall not be altered at the meeting. If inspectors of election are
not so appointed, the Chairman of the Board may, or on the request of a
shareholder present at the meeting shall, make such appointment at the meeting.
If appointed at the meeting, the Chairman of the Board shall determine whether
there shall be one or three inspectors of election. If appointed at the
meeting and
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the Chairman of the Board fails to determine whether there shall be one or three
inspectors of election, the majority of the votes present shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or fails or refuses to act, the vacancy
may be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the Chairman of the Board.
Unless otherwise prescribed by regulations of the NYBB or NYBD, the
duties of such inspectors shall include: determining the number of shares
outstanding and the voting power of each share, the number of shares represented
at the meeting, the existence of a quorum, and the authenticity, validity and
effect of proxies; receiving votes, ballots, or consents; hearing and
determining all challenges and questions in any way arising in connection with
the rights to vote; counting and tabulating all votes or consents; determining
the result; and such acts as may be proper to conduct the election or vote with
fairness to all shareholders.
Section 14. Nominating Committee. The Chairman of the Board, at least 30
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days prior to the date of each annual meeting, shall appoint a nominating
committee of three persons. Such committee shall make nominations for directors
in writing, and deliver to the secretary such written nominations at least 15
days prior to the date of the annual meeting, which nominations shall forthwith
be posted in a prominent place in the home office for the 15 day period prior to
the date of the annual meeting. Provided such committee is appointed and makes
such nominations, no nominations for directors except those made by the
nominating committee shall be voted upon at the annual meeting unless other
nominations by shareholders are made in writing and delivered to the secretary
of the SAVINGS BANK at least 5 days prior to the date of the annual meeting,
which nominations shall forthwith be posted in a prominent place in the home
office of the SAVINGS BANK for the 5 days period prior to the date of the annual
meeting. Ballots bearing the names of all persons nominated by the nominating
committee and shareholders shall be provided for use at the annual meeting.
However, if at any time the Chairman of the Board shall fail to appoint such
nominating committee or the nominating committee shall fail or refuse to act at
least 15 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
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meeting shall be stated in writing and filed with BANK at least 45 days before
the date of the annual meeting, and all business so stated, proposed, and filed
shall be considered at the annual meeting, but no other proposal shall be acted
upon at the annual meeting. Any shareholder may make any other proposal at the
annual meeting and the same may be discussed and considered, but unless stated
in writing and filed with the secretary at least 45 days before the meeting,
such proposal shall be laid over for action at an adjourned, special, or annual
meeting of the shareholders taking place 30 days or more thereafter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors and committees; but in
connection with such reports no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided.
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Section l6. Informal Action by Shareholders. Any action required to be
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taken at a meeting of shareholders, or any other action which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section l. General Powers. The business and affairs of the SAVINGS BANK
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shall be under the direction of its Board of Directors. The Board of Directors
shall annually elect a Chairman from among its members who shall preside at its
regular and special meetings. In the absence or inability of the foregoing
officer to act, at any fully constituted meeting of the Board members, a
temporary chairperson shall be appointed by those present to act as such during
the interim term.
Section 2. Number and Term. The Board of Directors shall consist of
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seven (7) members and shall be divided into three classes as nearly equal in
number as possible. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. One class
shall be elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the Board of Directors
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shall be held once each month without other notice than this bylaw. At least one
meeting shall be held immediately after and at the same place as, the annual
meeting of shareholders, which shall be the annual meeting of the Board. The
Board of Directors may provide, by resolution, the time and place, within the
SAVINGS BANK's normal lending territory, for the holding of additional regular
meetings without other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
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beneficial owner of not less than 100 shares of capital stock of the SAVINGS
BANK unless the SAVINGS BANK is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. The Chairman of the Board, or in the
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absence or disability of the Chairman of the Board, an Executive Vice President
may call special meetings of the Board, and the Secretary of the Board shall
call a meeting upon the written request of five (5) or more of the members of
the Board of Directors. A special meeting may be held at such time and place as
shall be stated in the notice of meeting.
Section 6. Participation in Meetings by Directors. Members of the Board
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of Directors, or any committee thereof, may participate in a meeting of such
Board or Committee by means of conference telephone, or by means of similar
communications equipment by means of which all persons participating in the
meeting can speak and hear each other at the same time and such participation
shall constitute presence in person at such meeting.
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Section 7. Notice. Written notice of any special meeting shall be given
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to each director at least three (3) days prior thereto when delivered personally
or by telephone or telegram, or at least five days prior thereto when delivered
by mail at the address at which the director is most likely to be reached. Such
notice shall be deemed to be delivered when deposited in the mail so addressed,
with postage prepaid if mailed, or when delivered to the telegraph company if
sent by telegram. Any director may waive notice of any meeting by a writing
filed with the secretary. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. The business to be
transacted at, and the purpose of, any special meeting of the Board of Directors
must be specified in the notice of such meeting and no other business shall be
transacted at that time.
Section 8. Quorum. A majority of the number of directors fixed by
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Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 7 of this Article III.
Section 9. Manner of Acting. The act of the majority of the directors
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present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless a greater number is prescribed by the New York Banking Law
or regulations of the NYBB and NYBD, the Restated Organization Certificate or
by these Bylaws.
Section 10. Action Without a Meeting. Any action required or permitted
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to be taken by the Board of Directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 11. Resignation. Any director may resign at any time by sending
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a written notice of such resignation to the home office of the SAVINGS BANK
addressed to the Chairman of the Board. Unless otherwise specified, such
resignation shall take effect upon receipt by the Chairman of the Board. The
absence from regular meetings of the Board of Directors and the meetings of any
committee of the Board of which the director is a member, for six consecutive
months, unless excused by resolution of the Board of Directors, shall
automatically constitute a resignation, effective when such resignation is
accepted by the Board of Directors.
Section 12. Vacancies. All vacancies in the office of Director,
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including newly created Directorships resulting from an increase in the number
of Directors, shall be filled by election of stockholders, except that vacancies
not exceeding one-third of the entire Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors, although less than a
quorum of the Board of Directors, provided that the nomination of a candidate
therefor shall have been made by the Nominating Committee, created as
hereinafter provided in these Bylaws. A director elected to fill a vacancy shall
be elected to serve for the balance of the unexpired term and a Director elected
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to fill a vacancy to be filled by reason of an increase in the number of
directors shall be elected to serve for the balance of the unexpired term of the
class to which such director is elected.
Section l3. Compensation. Directors, as such, may receive compensation
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for their services, including a stated retainer. By resolution of the Board of
Directors, a reasonable fixed sum, and reasonable expenses of attendance, if
any, may be allowed for actual attendance at each regular or special meeting of
the Board of Directors. Members of either standing, special or temporary
committees, as such, may receive compensation for their services, including a
stated retainer, as the Board of Directors may determine. By resolution of the
Board of Directors, a reasonable fixed sum, and reasonable expenses of
attendance, if any, may be allowed for actual attendance at each regular or
special meeting of committees.
Section 14. Presumption of Assent. A director of the SAVINGS BANK who is
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present at a meeting of the Board of Directors at which action on any SAVINGS
BANK matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file a written dissent to such action with the person acting
as the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the SAVINGS BANK within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 15. Removal of Directors. At a meeting of shareholders called
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expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Restated Organization
Certificate or supplemental sections thereto, the provisions of this section
shall apply, in respect to the removal of a director or directors so elected,
to the vote of the holders of the outstanding shares of that class and not to
the vote of the outstanding shares as a whole.
Section 16. Emergency Authority. In the event there shall occur an acute
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emergency resulting from a hostile attack, as defined in Article 7 of the New
York State Defense Emergency Act, which shall be of such severity as to prevent
the conduct and management of the affairs and business of the SAVINGS BANK by
its Directors and officers as otherwise provided in these Bylaws, any three or
more available members of the then incumbent Executive Committee shall
constitute an emergency Board of Directors which shall have the power, subject
to limitations prescribed in Article 7 of the New York State Defense Emergency
Act, by a majority of such persons present, to take any and every action which
may be necessary to meet the exigencies of the acute emergency and to enable the
SAVINGS BANK to conduct its business during such period, including the
relocation elsewhere of any office of the SAVINGS BANK which shall be unable to
function because of the acute emergency. If during the period of acute emergency
there shall be no Executive Committee, or a minimum of three members of the then
incumbent Executive Committee shall not be available, then and in that event
such other available Directors as may be needed to obtain the minimum of three
members shall serve on the emergency Board of Directors.
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During a period of acute emergency resulting from a hostile attack, the
emergency management of the SAVINGS BANK shall be in accordance with the powers
and limitations contained in the existing provisions of Article 7 of the New
York State Defense Emergency Act, and such provisions shall suspend or modify
these Bylaws to the extent of any conflict.
ARTICLE IV. COMMITTEES
Section 1. Enumeration of Committees. The standing committees of the
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Board of Directors shall be an Executive Committee, an Audit Committee, and a
Nominating Committee. The Board of Directors, by vote of a majority of the whole
Board of Directors, may from time to time designate additional committees of the
Board, either temporary or permanent, with such lawfully delegable powers and
duties as it thereby confers not inconsistent with these Bylaws, to serve at the
pleasure of a majority of the Whole 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 ("Alternate Directors") who may replace any absent or disqualified
member at any meeting of the committee; provided however, that the Chairman
shall be a member of, and shall serve as the chairman of the Executive Committee
and he shall be an ex-officio member of all other committees, except the Audit
Committee and any other committee on which he is prohibited from being a member,
by law, the Restated Organization Certificate or these Bylaws. The Board of
Directors, by a resolution adopted by a majority of the Whole Board may
terminate any committee previously established.
Section 2. The Executive Committee. The Executive Committee shall
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consist of the Chairman of the Board and four additional Directors elected
annually by the vote of the majority of the Whole Board.
If any member of the Executive Committee shall be absent from any
meeting of the committee, the Chairman shall designate some other Director,
other than one serving as a salaried officer, to act as a member of the
committee at that meeting. In the event there shall be a vacancy in the office
of Chairman, then and in that event such other additional Director or Directors
as may be needed to obtain the full complement of five members shall be elected
by the Board to serve until the vacancy is filled, or until the next annual
meeting. Any member of the executive committee may be removed at any time with
or without cause by resolution adopted by a majority of the Whole Board of
Directors.
Regular meetings of the Executive Committee may be held without notice
at such times and places as the Executive Committee may fix from time to time by
resolution. Special meetings of the committee may be called by the Chairman or
at any time by any two members of the committee, upon twenty-four hours' notice
by mail, in person, or by telegraph or telephone. The notice of a special
meeting of the committee, however given, shall state the time when and the
place, which shall be within the State of New York, where the meeting is to be
held and the business which is to be presented and no business other than that
stated in the notice shall be transacted at said meeting.
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The Executive Committee may make rules for the regulation of its meetings and
proceedings not inconsistent with these Bylaws.
Four members of the committee, including designees designated to act for
an absent member or members of the committee, shall be necessary for a quorum at
any meeting of the committee. Attendance by Alternate Directors shall constitute
membership on the Committee for determining quorum requirements. Action of the
executive committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present. Any action
required or permitted to be taken by the executive committee at a meeting may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by all of the members of the executive committee.
Except as otherwise provided herein, the Executive Committee, when the
Board of Directors is not in session, shall have and may exercise all of the
authority of the Board of Directors, except to the extent, if any, that such
authority may be limited by resolution adopted by a majority of the Whole Board
of Directors or by the laws of the State of New York. In addition, the Executive
Committee shall not have the authority of the Board of Directors with reference
to: the submission to stockholders of any action that requires stockholders'
authorization under New York law or regulations; the filling of vacancies in the
Board of Directors or in any committee of the Board of Directors; the fixing of
compensation of the Directors for serving on the Board or any committee thereof;
the amendment or repeal of any resolution of the Board of Directors which by its
terms shall not be so amendable or repealable; the taking of any action which is
expressly required by New York law or regulation to be taken at a meeting of the
Board of Directors or by a specified proportion of Directors; the amendment or
repeal of the Restated Organization Certificate or Bylaws of the SAVINGS BANK or
adoption of new Bylaws of the SAVINGS BANK, or recommending to the shareholders
a plan of merger, consolidation, or conversion; the sale, lease or other
disposition of all or substantially all of the property and assets of the
SAVINGS BANK otherwise than in the usual and regular course of its business; a
voluntary dissolution of the SAVINGS BANK; a revocation of any of the foregoing;
or the approval of a transaction in which any member of the executive committee,
directly or indirectly, has any material beneficial interest.
Section 3. The Nominating Committee. The Board of Directors, by
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resolution adopted by a majority of the Whole Board, shall appoint a Nominating
Committee of the Board, consisting of not less than three Board of Directors,
one of whom shall be the Chairman of the Nominating Committee shall have
authority (a) to review any nominations for election to the Board of Directors
made by a stockholder of the SAVINGS BANK and (b) to recommend to the Whole
Board nominees for election to the Board of Directors (i) to replace those
Directors whose terms expire at the annual meeting of stockholders next ensuing
and (ii) to fill vacancies resulting from death, resignation, retirement,
disqualification, removal from office or other cause, or resulting from an
increase in the authorized number of Directors.
Section 4. The Audit Committee. The Audit Committee shall consist of
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four or more Directors, none of whom shall be a salaried officer of the SAVINGS
BANK, who shall be elected
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to said Committee at the annual meeting of the Board of Directors, or in the
case of the filling of a vacancy (such vacancy, in every case to be filled by an
existing non-salaried Director) at any regular or special meeting of the Board.
The Audit Committee shall assist the Board of Directors in fulfilling its
obligation to oversee the appropriateness of accounting policies, and SAVINGS
BANK procedures and controls and shall be charged with the duty of carrying out
the requirements of Section 254 of the New York Banking Law as the same now is
in force or as it may be amended or of any law substituted therefor. In
performing its functions, the Audit Committee shall utilize the expertise of the
SAVINGS BANK's internal Auditing Department under the direction of the SAVINGS
BANK's internal Auditor. The Audit Committee shall hold formal meetings with the
SAVINGS BANK's internal auditors on a quarterly basis.
ARTICLE V. OFFICERS
Section l. Positions. The Board shall elect a Chairman of the Board, who
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shall be the Chief Executive Officer and President, and who shall be a member of
the Board of Directors. The Board shall also elect one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, and
a Secretary, who need not be members of the Board. The offices of Secretary and,
if appointed, Treasurer, may be held by the same person and a Vice President may
also be either a Secretary or a Treasurer. Any offices may be held concurrently
by the same person, except that the Chairman shall hold no additional office
other than as provided in this Section 1. The Board of Directors shall also
appoint the Auditor, who may not hold another office.
The Chairman and the Executive Vice Presidents shall be the Executive
Officers of the SAVINGS BANK.
Section 2. Election and Term of Office. The officers of the SAVINGS BANK
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shall be elected annually at the annual meeting of the Board of Directors or at
the first meeting of the Board of Directors held after each annual meeting of
the shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until a successor has been duly elected and qualified or until the
officer's death, resignation, retirement or removal in the manner hereinafter
provided. Election or appointment of an officer, employee or agent shall not of
itself create contractual rights. The Board of Directors may authorize the
SAVINGS BANK to enter into an employment contract with any officer; but no such
contract shall impair the right of the Board of Directors to remove any officer
at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the Board of Directors
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whenever in its judgment the best interests of the SAVINGS BANK will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
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Section 4. Vacancies. A vacancy in any executive officer position
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because of death, resignation, removal, disqualification or otherwise, may be
filled by the Board of Directors for the unexpired portion of the term. Any
vacancy in any officer position other than a executive officer position may be
filled by the Chief Executive Officer for the unexpired portion of the term,
provided such action by the Chief Executive Officer is ratified by the Board of
Directors.
Section 5. Delegation of Duties. In the absence or disability of an
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officer of the SAVINGS BANK, or for any other reason which may seem sufficient
to the Board, the Board of Directors may delegate his powers and duties to any
other officer or to any Director.
Section 6. Remuneration. The remuneration of the officers shall be fixed
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from time to time by the Board of Directors. The employees of the SAVINGS BANK
shall receive such compensation and allowances as the Board of Directors may
from time to time fix or approve or, within limits or schedules from time to
time fixed or established by the Board as may be determined by the Executive
Committee, the Chairman or a committee of the Board appointed for that purpose.
Section 7. Chairman of the Board of Directors, Chief Executive Officer
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and President. The Chairman of the Board shall be the Chief Executive Officer
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and President of the SAVINGS BANK and, subject to the provisions of these Bylaws
and the resolutions of the Board, shall have the active management, direction
and supervision of the SAVINGS BANK and its officers, its operations, securities
and obligations, and shall have all powers and perform all duties incidental of
his office. He shall preside at all meetings of the Board and the Executive
Committee, appoint all committees not otherwise provided for by law, by these
Bylaws or by action of the Board of Directors and shall be an ex-officio member
of all other committees, except the Audit Committee and committees on which he
is ineligible to serve by law, the Restated Organization Certificate or these
Bylaws. He may perform, or cause to be performed, at any time, any of the
functions or duties of any other officer. He may assign to all other officers,
employees and agents of the SAVINGS BANK, duties in addition to those
specifically described in these Bylaws.
He shall have custody of the common seal and direct the use of it. He
shall have power to sign and execute any and all contracts, papers and legal
documents. He may delegate to counsel and such other officers as are designated
by the Board of Directors, the authority, under the seal of the SAVINGS BANK, to
execute and acknowledge, in the name and on behalf of the SAVINGS BANK, all
contracts, papers and documents incident or related to the business of the
SAVINGS BANK, except where otherwise directed by law or by these Bylaws.
Unless otherwise provided by resolution of the Board of Directors or
these Bylaws, he may fill vacancies on committees and may appoint such other
committees as he may deem necessary or the Board may require. He shall perform
such other duties as the Board of Directors may direct.
The decisions of the Chairman of the Board on any matter, incident to
the business of the SAVINGS BANK, shall be conclusive unless modified by the
Board of Directors.
11
<PAGE>
Section 8. Executive Vice Presidents. The Executive Vice Presidents
-------------------------------------
shall perform such administrative and executive duties as are provided in these
Bylaws, and as may be properly required of them or delegated to them by the
Chairman, or as may from time to time be required by the Board of Directors, and
shall exercise such powers as may from time to time be conferred upon them by
the Board.
In the absence or disability of the Chairman, the Board of Directors may
designate an Executive Vice President to perform the duties and exercise the
powers of such officers.
Section 9. Secretary. The Secretary shall give due notice as in these
---------------------
Bylaws provided of all meetings of the Board of Directors and of the Executive
Committee. He shall attend all meetings of the Board and of said Committee and
shall keep the minutes thereof. If requested so to do he shall attend and keep
the minutes of the meetings of any and all other committees of the Board. He
shall have custody of the corporate records of the SAVINGS BANK and its common
seal; and when properly affixed to any document shall attest said seal. He shall
perform all of the usual duties of the Secretary of a corporation, together with
such duties as may from time to time be properly assigned to him by the Chairman
or the Board of Directors.
Section 10. Senior Vice Presidents and Vice Presidents. The Senior Vice
-------------------------------------------------------
Presidents and the Vice Presidents shall severally perform such duties and shall
exercise such powers as may from time to time be assigned to or conferred upon
them by the Board of Directors, and they shall perform such other duties as may
be assigned to them by the Chairman.
Section 11. Auditor. The Auditor shall, subject to the control and
--------------------
direction of the Board of Directors, have supervision and control of such
program of internal audit as may be approved by the Board or be required by a
body having supervisory or examining authority over the SAVINGS BANK; said
program shall in any case, require periodic review and verification of the
assets of the SAVINGS BANK, the control of items of income and the review of
expenditures. He shall also examine, or cause to be examined, and verify, or
cause to be verified, entries in financial records and shall review, or cause to
be reviewed all reports made to examining, supervisory and taxing authorities
before they are forwarded or filed. The Auditor shall report in writing upon the
foregoing matters to the Chairman at least as often as once in each quarter. The
Auditor also shall transmit directly to the Audit Committee of the Board of
Directors such reports, quarterly or otherwise, as may be necessary for that
Committee to perform its functions. The Auditor shall also prepare or have
prepared and shall submit any and all additional reports required of him at any
time by the Board of Directors or the Chairman.
Section 12. Other Officers. The Chairman of the Board or the Board of
---------------------------
Directors, upon recommendation of the Chairman of the Board, may in their
discretion, from time to time, establish such other offices as it may deem wise
and may elect incumbents thereof and fix their duties and powers not
inconsistent with the provisions of these Bylaws. Such officers, unless the
Board shall by resolution duly adopted otherwise provide, shall hold office
during the pleasure of the Board and the Chairman.
12
<PAGE>
ARTICLE VI. SECURITIES AND INVESTMENTS
Section 1. Loans and Investments. The Board of Directors shall from time
---------------------------------
to time determine and direct to what extent the funds and property of the
SAVINGS BANK shall be invested, and, subject to all applicable provisions of
law, the kind and character of the investments which are to be made and how the
same shall be handled and dealt with. No loans shall be contracted on behalf of
the SAVINGS BANK and no evidence of indebtedness shall be issued in its name
unless authorized by the Board of Directors. Such authority may be general or
confined to specific instances.
Section 2. Care and Custody of Securities. All stocks, bonds and other
-------------------------------------------
securities, including bonds and mortgages, not directed by the Board of
Directors to be held in bearer form, or in the name of a nominee, shall be in
the name of the SAVINGS BANK and, to the extent that the form of the several
securities may permit or as may be permitted or required by law, shall be
registered or recorded in the name of the Bank. All securities including bonds
and mortgages held by the SAVINGS BANK shall be kept in such manner and at such
places as the Board of Directors, having due regard for the safety and
protection thereof, may direct, and all or any part thereof may be lodged or
deposited for safekeeping with such other institutions as the Board may from
time to time approve.
Section 3. Transfers of Securities, Etc. Transfers and assignments of
----------------------------------------
stocks, bonds and other securities standing, issued or registered in the name of
the SAVINGS BANK may be signed by any two of the following officers acting by
virtue of their several offices, to wit: the Chairman, the President, an
Executive Vice President, the Secretary, or may be signed by any one of said
officers together with such other officer or officers, or person or persons, as
the Board of Directors may from time to time authorize or designate.
The Chairman or the President, or in their absence an Executive Vice
President (other than one serving as Mortgage Loan Officer) or the Secretary,
shall execute any and all instruments for the proper transaction of the
business of the SAVINGS BANK relating to its mortgage investments, including
extensions, modifications, alterations, and amendments, assignments and
satisfaction pieces. The Board of Directors may, nevertheless, at any time
authorize and empower other additional officers or employees to do any one or
more of these things.
ARTICLE VII. DEPOSITORIES, CHECKS AND DRAFTS
Section 1. Depositaries and Withdrawals. The Board of Directors may from
----------------------------------------
time to time designate banks, trust companies or similar institutions to be
depositaries of funds of the SAVINGS BANK and may by resolution designate the
officer or officers, or employee or employees, who shall be authorized to sign
the checks, drafts, vouchers or orders of the SAVINGS BANK upon which such
depositaries shall be authorized to pay out the moneys so deposited. Unless and
until the Board shall otherwise provide, such checks, drafts, vouchers or orders
for the payment of deposited funds
13
<PAGE>
shall be signed by any two of the following officers (other than one serving
concurrently as Mortgage Loan Officer or Auditor): the Chairman, the President,
an Executive Vice President, a Senior Vice President, a Vice President, the
Secretary, the Comptroller, an Assistant Vice President, an Assistant Secretary,
an Assistant Comptroller and the Assistant to the President, if the Board of
Directors shall have established the offices of Assistant Vice President,
Assistant Secretary, Assistant Comptroller or Assistant to the Chairman.
Section 2. Depositors' Withdrawals. The Chairman, the President, an
------------------------------------
Executive Vice President or the Secretary shall designate those officers and
employees who shall be authorized to sign or countersign checks drawn upon the
general deposit accounts of the SAVINGS BANK issued in payment of depositor
withdrawals.
The Board of Directors may also adopt such other means of payment of
depositor withdrawals as to it may seem proper and expedient.
ARTICLE VIII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. Certificates for Shares. Certificates representing shares of
-----------------------------------
capital stock of the SAVINGS BANK shall be in such form as shall be determined
by the Board of Directors and approved by the NYBD. Such certificates shall be
signed by the Chairman of the Board or by any other officer of the SAVINGS BANK
authorized by the Board, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signatures of
such officers upon a certificate may be facsimiles if the certificate is
manually signed on behalf of a transfer agent or a registrar, other than the
SAVINGS BANK itself or one of its employees. Each certificate for shares of
capital stock shall be consecutively numbered or otherwise identified. The name
and address of the person to whom the shares are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
SAVINGS BANK. All certificates surrendered to the SAVINGS BANK for transfer
shall be cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
except that in case of a lost or destroyed certificate, a new certificate may be
issued upon such terms and indemnity to the SAVINGS BANK as the Board of
Directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
------------------------------
the SAVINGS BANK shall be made only on its stock transfer books. Authority for
such transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
SAVINGS BANK. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the SAVINGS BANK shall be deemed by the SAVINGS BANK
to be the owner for all purposes.
14
<PAGE>
ARTICLE IX. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the SAVINGS BANK shall be as fixed by the Board of
Directors. The SAVINGS BANK shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the Board of Directors. The appointment of such accountants
shall be subject to annual ratification by the shareholders.
ARTICLE X. DIVIDENDS
Subject to the terms of the SAVINGS BANK's Restated Organization
Certificate and the regulations and orders of the NYBD, the Board of Directors
may, from time to time, declare, and the SAVINGS BANK may pay, dividends on its
outstanding shares of capital stock.
ARTICLE XI. CORPORATE SEAL
The Board of Directors shall provide a SAVINGS BANK seal, which shall be
two concentric circles between which shall be the name of the SAVINGS BANK. The
year of incorporation or an emblem may appear in the center.
ARTICLE XII. SURETY BONDS
Section 1. Surety Bonds and Premiums Thereon. The SAVINGS BANK shall
----------------------------------------------
procure from a responsible surety company approved by the Board of Directors
and shall keep continuously in force and effect a banker's blanket bond of
insurance or a fidelity bond of similar type and character covering all of the
officers and employees of the SAVINGS BANK in such amount as the Board may fix.
The Board may also require that individual officers or employees shall furnish
separate bonds conditioned for the faithful performance of their several
duties. It shall be obligatory upon the officers and employees to furnish to
the SAVINGS BANK and to the surety company involved any and all information
necessary or appropriate to the procurement of any bond or bonds herein
provided for. The SAVINGS BANK may dismiss any officer or employee who shall
fail when asked or who shall refuse to give any and all proper and relevant
information required by the designated surety company or as to whom such surety
company shall decline to give a bond or whom the surety company shall decline
to include in a general bond.
All expenses connected with such bond or bonds and all premiums thereon
shall be borne by the SAVINGS BANK.
ARTICLE XIII. RULES AND REGULATIONS
Management shall adopt rules and regulations not inconsistent with law
for the payment of deposits and interest and, generally, for the transaction and
management of the affairs of the SAVINGS BANK. Such rules and regulations shall
be posted in a conspicuous place in the offices of the SAVINGS BANK and shall be
available to depositors upon request. Such posting shall be taken and held as
actual notice to and be binding upon each depositor and to all persons claiming
any interest in any account. All notices to the SAVINGS BANK from depositors, or
other persons
15
<PAGE>
claiming any interest in any account, shall be not effective unless they are in
writing and signed by the persons giving such notice.
Rules and regulations adopted by management or any amendments thereto
shall be transmitted to the Board of Directors at its next regular monthly
meeting following the adoption of same.
ARTICLE XIV. AMENDMENTS
These Bylaws may be amended in a manner consistent with the New York
Banking Law and regulations of the NYBB and NYBD at any time by a majority vote
of the Whole Board of Directors, or by the affirmative vote of at least 80% of
the votes eligible to be cast by the shareholders of the SAVINGS BANK at any
legal meeting.
The above Bylaws of the SAVINGS BANK are effective as of _________ __,
1997, the date of consummation of the conversion of the SAVINGS BANK from
mutual to stock form.
--------------
Rosemary Colca
Secretary
16
<PAGE>
Exhibit 5.0
[LETTERHEAD OF MULDOON, MURPHY & FAUCETTE]
November 25, 1997
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Re: The Issuance of up to 26,423,500 Shares of Richmond County Financial
Corp. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Richmond County Savings Bank (the "Bank"),
a New York chartered savings bank, from the mutual form of ownership to the
stock form of ownership (the "Conversion"), and the related subscription
offering, community offering and syndicated community offering (the "Offerings")
by Richmond County Financial Corp., a Delaware corporation (the "Company"), of
up to 22,977,000 shares (including shares to be granted to a charitable
foundation to be established by the Company in connection with the Conversion
(the "Foundation")) of its common stock, par value $.01 per share, ("Common
Stock"), (26,423,550 shares if the Estimated Valuation Range is increased up to
15% to reflect changes in market and financial conditions following commencement
of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on September 24, 1997 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission initially on
October 2, 1997 and as amended on November 25, 1997 (the "Registration
Statement"); a consent of the sole incorporator of the Company; resolutions of
the Board of Directors of the Company (the "Board") concerning the organization
of the Company, the Offerings and designation of a Pricing Committee of the
Board, and the form of stock certificate approved by the Board to represent
shares of Common Stock. We have also been furnished a certificate of the
Delaware Secretary of State certifying the Company's good standing as a Delaware
corporation. Capitalized terms used but not defined herein shall have the
meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Trustees
Richmond County Savings Bank
November 25, 1997
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe you are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank's
Employee Stock Ownership Plan (the "ESOP") the funds which the ESOP Trust will
use to purchase shares of Common Stock for which the ESOP Trust subscribes
pursuant to the Offerings and for purposes of rendering the opinion set forth in
paragraph 2 below, we assume that: (a) the Board has duly authorized the loan
to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid corporate purpose;
(c) the Loan will be made at an interest rate and on other terms that are fair
to the Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP Trust to the Company as a result of
the Loan; and (e) the closing for the Loan and for the sale of Common Stock to
the ESOP Trust will be held after the closing for the sale of the other shares
of Common Stock sold in the Offerings and the receipt by the Company of the
proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust and the shares to be granted to the Foundation) will be duly
authorized and, when such shares are sold and paid for in accordance with the
terms set forth in the Prospectus and such resolution of the Pricing Committee,
and certificates representing such shares in the form provided to us are duly
and properly issued, will be validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to
construe and apply the
<PAGE>
Board of Trustees
Richmond County Savings Bank
November 25, 1997
Page 3
provisions of those Articles, subsection C.4 of Article FOURTH,
to the extent that subsection obligates any person to provide to
the Board the information such subsection authorizes the Board to
demand, and the provision of subsection C.7 of Article EIGHTH
empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested
Stockholder, in each case to the extent, if any, that a court
applying Delaware law were to impose equitable limitations upon
such authority; and
(b) Article NINTH of the Certificate of Incorporation, which
authorizes the Board to consider the effect of any offer to
acquire the Company on constituencies other than stockholders in
evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1, Notice of the Application for Conversion, and the
Form 86-AC and to the use of the name of our firm where it appears in the
Registration Statement, Notice of the Application for Conversion, Form 86-AC and
in the Prospectus.
Very truly yours,
/s/ MULDOON, MURPHY & FAUCETTE
Attachment: Opinion of Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 5.1
[Morris, Nichols, Arsht & Tunnell Letterhead]
November 24, 1997
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with (i) the conversion of Richmond County Savings Bank, a New
York chartered mutual savings bank (the "Bank"), from the mutual form of
ownership to stock form of ownership (the "Conversion"), (ii) the subscription
and community offering (the "Offering"), in connection with the Conversion, by
Richmond County Financial Corp., a Delaware corporation (the "Company"), of up
to 21,275,000 shares of its common stock, par value $.01 per share (the "Common
Stock") and (iii) the sale of 1,702,000 shares of Common Stock (the "Foundation
Shares") to Richmond County Savings Foundation, a Delaware corporation (the
"Foundation"), pursuant to the Company's Charitable Gift to Richmond County
Savings Foundation (the "Gift Instrument").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 2
incorporation (the "Company Certificate of Incorporation"), its by-laws, the
Registration Statement filed with the Securities and Exchange Commission in
connection with the Offering (the "Registration Statement"), including the
prospectus constituting a part thereof (the "Prospectus"), a consent of the sole
incorporator of the Company, resolutions of the Board of Directors of the
Company (the "Board") concerning, inter alia, the organization of the Company,
----- ----
the Offering and the designation of a Pricing Committee of the Board (the
"Pricing Committee"), the form of stock certificate approved by the Board to
represent shares of Common Stock, and a draft of the Gift Instrument. We have
also obtained a certificate of the Delaware Secretary of State as to the
Company's good standing as a Delaware corporation. Capitalized terms used but
not defined herein shall have the meanings given them in the Company Certificate
of Incorporation.
We understand that the Company will loan to the Bank's Employee Stock
Ownership Plan (the "ESOP") the funds the ESOP will use to purchase the shares
of Common Stock for which the ESOP has subscribed as part of the Offering. In
this regard, we have assumed, for purposes of rendering the opinion set forth in
paragraph 2 below, that: (a) the Board has duly authorized the loan
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 3
to the ESOP (the "Loan"); (b) the Loan serves a valid corporate purpose; (c) the
Loan will be made at an interest rate and on other terms that are fair to the
Company; (d) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP to the Company as a result of the
Loan; and (e) the closing for the Loan and for the sale of Common Stock to the
ESOP will be held after the closing for the sale of the other shares of Common
Stock sold in the Offering and the receipt by the Company of the proceeds
thereof.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Bank, the Company, the Foundation, the Offering,
or the Conversion, including, without limitation, those applicable to federally
insured or state chartered savings banks or their holding companies.
Based upon and subject to the foregoing, it is our opinion that:
1. The Company has been duly organized and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own,
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 4
lease and operate its property and conduct its business as now conducted as
described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the number of shares of Common Stock to be sold in the Offering, the
Common Stock to be issued in the Offering (including the shares to be issued to
the ESOP) will be duly authorized and, when such shares are sold and paid for in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee, and certificates representing such shares in the form
provided to us are duly and properly issued, will be validly issued, fully paid
and nonassessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Certificate of Incorporation.
3. No approvals of any Delaware governmental agency, bureau,
commission, department or other organization is required to establish the
Foundation and to issue and sell the Foundation
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 5
Shares to the Foundation as described in the Prospectus pursuant to the Gift
Instrument; provided, however, that we express no opinion with respect to
-------- -------
the Delaware Securities Act (6 Del. C. Section 7301 et seq.).
---- -- -- ----
4. Upon the adoption by the Board or the Pricing Committee of
resolutions authorizing the issuance of the Foundation Shares, such shares will
have been duly and validly authorized for issuance and sale, and when issued and
delivered by the Company as provided in the Gift Instrument against payment
therefor, and a certificate representing such shares in the form provided to us
is duly and properly issued, such shares will be duly and validly issued, fully
paid and nonassessable, with no personal liability for the payment of the
Company's debts arising solely by virtue of the ownership thereof; such issuance
and sale will not be in violation of or subject to any preemptive rights
provided for by Delaware law or the Company Certificate of Incorporation.
5. Upon the consummation of the Conversion and the issuance of the
Foundation Shares to the Foundation immediately upon completion of the
Conversion, the issued and outstanding shares of Common Stock will be within the
sum of the ranges described in the cover page of the Prospectus and the section
of the Prospectus entitled "The Conversion - Establishment of the Charitable
Foundation".
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 6
6. The issuance of the shares of Common Stock in the Conversion and
the issuance of the Foundation Shares is not subject to preemptive or other
similar rights arising by operation of Delaware law or, to the best of our
knowledge, based solely on our review of the Prospectus, otherwise.
The following provisions of the Company Certificate of Incorporation
may not be given effect by a court applying Delaware law, but in our opinion the
failure to give effect to such provisions will not affect the duly authorized,
validly issued, fully paid and nonassessable status of the Common Stock:
(a) Subsections C.3 and C.6 of Article FOURTH and Section D of
Article EIGHTH, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection C.4 of Article FOURTH, to the extent
that provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section C.7 of
Article EIGHTH empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested Stockholder,
to the extent, if any, that a court applying Delaware law were to impose
equitable limitations upon the authority of the directors of the Company under
such provisions.
(b) Article NINTH of the Company Certificate of Incorporation, which
purports to permit the Board to consider the
<PAGE>
Muldoon, Murphy & Faucette
November 24, 1997
Page 7
effect of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
Very truly yours,
/s/ Morris, Nichols, Arsht & Tunnell
<PAGE>
Exhibit 8.0
November 25, 1997
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, New York 10310
Board of Directors
Richmond County Financial Corp.
1214 Castleton Avenue
Staten Island, New York 10310
Re: Certain Federal Tax Consequences of the Conversion of Richmond County
Savings Bank from a New York State Chartered Mutual Savings Bank to a
New York State Chartered Stock Savings Bank and the Issuance of Common
Stock of Richmond County Savings Bank to Richmond County Financial
Corp. pursuant to a Plan of Conversion, and the Sale of Richmond
County Financial Corp. Stock (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of Richmond County Savings Bank (the "Bank") from a New
York State chartered mutual savings bank to a New York State chartered stock
savings bank and the issuance of the Bank's capital stock to Richmond County
Financial Corp., a Delaware corporation (the "Company" or the "Holding
Company"), pursuant to the plan of conversion adopted by the Board of Trustees
on July 31, 1997 and as amended by the Board of Trustees on November 20, 1997
(the "Plan of Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Trustees
November 25, 1997
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Company and
the Bank concerning the Company and the Bank as well as the transaction
("Representations"). These Representations are required to be furnished prior
to the execution of this letter and again prior to the closing of the
Conversion. We will rely upon the accuracy of the Representations of the
Company and the Bank and the statements of facts contained in the examined
documents, particularly the Plan of Conversion. We have also assumed the
authenticity of all signatures, the legal capacity of all natural persons and
the conformity to the originals of all documents submitted to us as copies.
Each capitalized term used herein, unless otherwise defined, has the meaning set
forth in the Plan of Conversion. We have assumed that the Conversion will be
consummated strictly in accordance with the terms of the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Company and the Bank are incorporated in this letter as part of the
statement of the facts.
As a mutual savings bank, the Bank has never been authorized to issue
stock. Instead, the proprietary interest in the reserves and undivided profits
of the Bank belong to the deposit account holders of the Bank, hereinafter
sometimes referred to as "depositors." A depositor of the Bank has a right to
share, pro rata, with respect to the withdrawal value of his respective deposit
account in any liquidation proceeds distributed in the event the Bank is ever
liquidated. In addition, a depositor of the Bank is entitled to interest on his
account balance as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Trustees has adopted the Plan of Conversion whereby the Bank will
convert itself into a New York State chartered stock savings bank (the
"Converted Bank"), the stock of which will be held entirely by the Holding
Company. In the event that the Holding Company is utilized, upon Conversion the
Bank will issue its capital stock to the Holding Company and the Holding Company
will issue and sell the Conversion Stock in accordance with the Plan of
Conversion. The aggregate sales price of the Common Stock issued in the
Conversion will be based on an independent appraiser's valuation of the
estimated pro forma market value of the Common Stock of the Converted Bank. The
Conversion and sale of the Common Stock will be subject to approval by the
Superintendent of Banks of the State of New York and the FDIC and the approval
of the Voting Depositors.
ESTABLISHMENT OF LIQUIDATION ACCOUNT. The Bank shall establish at the
time of Conversion a liquidation account in an amount equal to its net worth as
of the latest practicable date prior to Conversion. The liquidation account
will be maintained by the Bank for the benefit of the Eligible Account Holders
and Supplemental Eligible Account Holders who continue to
<PAGE>
Board of Trustees
November 25, 1997
Page 3
maintain their savings account at the bank.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to his savings account, hold a related inchoate interest in a
portion of the liquidation account balance, in relation to his savings account
balance on the Eligibility Record Date or Supplemental Eligibility Record Date,
as applicable, or to such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted subaccount balance for his savings account then held, before any
liquidation distribution may be made to any holders of the Bank's capital stock.
No merger, consolidation, purchase of bulk assets with assumption of savings
accounts and other liabilities, or similar transaction with an FDIC institution,
in which the Bank is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
ESTABLISHMENT OF FOUNDATION. As part of the Conversion, the Company and the
Bank intend to establish a charitable foundation that will qualify as an exempt
organization under Section 501(c)(3) of the Internal Revenue Code (the
"Foundation") and to donate to the Foundation from authorized, but unissued,
shares of Common Stock of the Holding Company in an amount up to 8.0% of the
number of shares of Common Stock sold in the Conversion. The Foundation is
intended to further the Converted Bank's long term commitment to its community.
The Plan of Conversion provides that the Foundation is intended to complement
the Bank's existing community reinvestment activities so as to allow the local
community to share in the growth and profitability of the Holding Company and
the Converted Bank over the long term. In the event that the Foundation does not
receive the prerequisite approval, the Bank may determine to complete the
Conversion without the Foundation.
The Foundation will be dedicated to the promotion of charitable purposes
including community development, grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and to maintain its
Section 501(c)(3) qualification, under the Plan of Conversion, the Foundation
may sell, on an annual basis, a limited portion of the Common Stock contributed
to it by the Holding Company.
* * *
<PAGE>
Board of Trustees
November 25, 1997
Page 4
You have provided the following representations concerning this
transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
constructively received under the Plan of Conversion will, in each
instance, be equal to the fair market value of the withdrawable
deposit accounts (plus the related interest in the residual equity of
the Bank) deemed to be surrendered in exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $100 as
of the Eligibility Record Date or the Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $100 on the Eligibility Record Date will be less than 1%
of the total fair market value of all deposit accounts of the
Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank will own all of the
outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank other than in the
ordinary course of business.
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Bank will be identical to the assets and liabilities of the
Bank immediately prior to the Conversion, plus the net proceeds from
the sale of the Converted Bank's common stock to the Holding Company
and any liability associated with indebtedness incurred by the
Employee Plans in the acquisition of Common Stock by the Employee
Plans.
<PAGE>
Board of Trustees
November 25, 1997
Page 5
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Internal Revenue Code
of 1986, as amended (the "Code").
(i) None of the shares of the Common Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Trustees and employees as compensation by means of the Employee Plans.
Compensation to be paid to such Trustees and depositor-employees will
be commensurate with amounts paid to third parties bargaining at arm's
length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject.
(k) The Bank is not under the jurisdiction of a bankruptcy or similar
court in any Title 11 or similar case within the meaning of section
368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Bank and no other shares of capital stock of the Converted
Bank will be issued and/or outstanding. At the time of the
Conversion, the Converted Bank does not have any plan or intention to
issue additional shares of its stock following the transaction.
Further, no shares of preferred stock of the Converted Bank will be
issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Bank, nor will there be
any securities outstanding which are convertible into the capital
stock of the Converted Bank.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Bank.
(o) The Bank utilizes a reserve for bad debts in accordance with section
<PAGE>
Board of Trustees
November 25, 1997
Page 6
593 and, following the Conversion, to the extent allowed under the
Code, the Converted Bank shall likewise utilize a reserve for bad
debts in accordance with section 593.
(p) The Bank currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Bank to be able to continue to satisfy the test in the future. The
Converted Bank will also satisfy the "qualified thrift lender" tests
set out in sections 301 and 303 of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(r) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription rights to purchase Holding Company
Common Stock will be equal to the fair market value of the stock of
the Holding Company at the time of the completion of the Conversion as
determined by an independent appraisal.
(s) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Bank arise solely by
virtue of the fact that they are account holders in the Bank.
(t) There is no plan or intention for the Converted Bank to be liquidated
or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Bank assumed by the Converted Bank plus the
liabilities, if any, to which the transferred assets are subject were
incurred by the Bank in the ordinary course of its business and are
associated with the assets transferred.
(v) The Bank currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Bank has neither generated nor carried forward a net
operating loss for federal tax purposes in the past ten tax years.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current
<PAGE>
Board of Trustees
November 25, 1997
Page 7
judicial and administrative authority. Any future amendments to the Code or
applicable regulations, or new judicial decisions or administrative
interpretations, any of which could be retroactive in effect, could cause us to
modify our opinion. No opinion is expressed herein with regard to the federal,
state, or city tax consequences of the Conversion under any section of the Code,
or with respect to any aspect of the transaction, except if and to the extent
specifically addressed.
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion (and
taking into consideration the limitations noted throughout this opinion), it is
our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings bank is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Bank from a mutual
savings bank to a stock savings bank is a tax-free reorganization
since it is a mere change in identity, form or place of organization
within the meaning of section 368(a)(1)(F) of the Code (see Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Bank nor the Converted Bank
shall recognize gain or loss as a result of the Conversion. The Bank
and the Converted Bank shall each be "a party to a reorganization"
within the meaning of section 368(b) of the Code.
(2) No gain or loss shall be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (Section 1032(a) of the Code).
(3) The basis of the assets of the Bank in the hands of the Converted Bank
shall be the same as the basis of such assets in the hands of the Bank
immediately prior to the Conversion (Section 362(b) of the Code).
(4) The holding period of the assets of the Bank in the hands of the
Converted Bank shall include the period during which the Bank held the
assets (Section 1223(2) of the Code).
<PAGE>
Board of Trustees
November 25, 1997
Page 8
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Bank on the
issuance to them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
in exchange for their deposit accounts in the Bank or to the other
depositors on the issuance to them of withdrawable deposit accounts
(Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). Eligible Account Holders and Supplemental
Eligible Account Holders will not realize any taxable income as a
result of the exercise by them of the nontransferable subscription
rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other depositors of the Bank will be the same as the basis of
their deposit accounts in the Bank surrendered in exchange therefor
(Section 358(a)(1) of the Code). The basis of the interests in the
liquidation account of the Converted Bank to be received by the
Eligible Account Holders and Supplemental Eligible Account Holders of
the Bank shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113). The basis
of the Holding Company Common Stock to its stockholders will be the
purchase price thereof plus the basis, if any, of nontransferable
subscription rights (Section 1012 of the Code). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The holding
period of the Common Stock purchased pursuant to the exercise of
subscription rights shall commence on the date on which the right to
acquire such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders and Supplemental
<PAGE>
Board of Trustees
November 25, 1997
Page 9
Eligible Account Holders have a fair market value of zero. We understand that
you have received a letter from Keller & Company, Inc. that the subscription
rights do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Bank may be taxable on the distribution of the subscription
rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form 86-AC
and Form S-1 Registration Statement of Holding Company and the Notice of
Application for Conversion filed with the Federal Deposit Insurance Corporation
(the "Notice") and the references to and summary of this opinion in such Form
86-AC, Form S-1 Registration Statement, and Notice.
Sincerely,
/s/ Muldoon, Murphy & Faucette
MULDOON, MURPHY & FAUCETTE
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Exhibit 8.1
November 24, 1997
Boards of Directors
Richmond County Financial Corp.
Richmond County Savings Bank
Board of Trustees
Richmond County Savings Bank
1214 Castleton Avenue
Staten Island, NY 10310
Ladies and Gentlemen:
You have asked for our opinion regarding the New York State bank tax, sales and
compensating use tax, real estate transfer tax, real property transfer gains
tax, stock transfer tax and organization tax consequences and any corresponding
New York City bank tax, sales and use tax and realty transfer tax consequences
of the proposed conversion of Richmond County Savings Bank, a New York State
chartered mutual savings bank, ("the Bank") to a stock form of organization (the
Converted Bank), and the issuance of common stock of the Converted Bank to
Richmond County Financial Corp., a Delaware corporation, ("the Company")
pursuant to the Bank's Plan of Conversion, adopted by the Board of Trustees on
July 31, 1997 and as amended on November 20, 1997 (the "Plan").
We have relied upon the facts presented in the Prospectus which was included as
part of the Registration Statement filed with the Securities and Exchange
Commission, the New York State Banking Department and the Federal Deposit
Insurance Corporation by the Company. We have also relied on the statement of
facts and management representations set forth in the opinion letter prepared by
Muldoon, Murphy & Faucette (hereafter, the "Opinion"). The Prospectus and
Opinion, as well as the representations to be provided by the company and the
bank are incorporated in this letter as part of the statement of the facts. We
have made no independent determinations regarding the above facts and
representations and have relied upon them for purposes of this opinion.
Therefore, any changes to the above facts or representations may affect the
conclusions stated herein.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 2
The following paragraphs outline the relevant facts with respect to the proposed
conversion, which were obtained primarily from the Prospectus and the Opinion
which outlines the Federal tax implications of the proposed conversion. A copy
of the Opinion is attached hereto for reference.
Description of the Transactions:
- -------------------------------
Pursuant to the Plan of Conversion, the Bank will be converted from a New York
State chartered mutual savings bank to a New York State chartered stock savings
bank. It is currently intended that all of the capital stock of the Converted
Bank will be held by the Company.
The Company expects to receive approval from the OTS to become a savings and
loan holding company and to acquire all of the common stock of the Converted
Bank to be issued in the Conversion. The Company plans to retain 50% of the net
proceeds from the sale of the Common Stock and to use the remaining 50% to
purchase all of the common stock of the Converted Bank to be issued in the
Conversion.
The Plan provides that non-transferable rights to subscription for the common
stock of the Company will be granted, in order of priority: (i) to Eligible
Account Holders; (ii) Tax-Qualified Employee Benefit Plans; and (iii)
Supplemental Eligible Account Holders. The Company will offer its shares of
common stock, remaining unsold after the subscription offering, for sale in a
community offering or, if necessary, in a syndicated community offering or
public offering at the discretion of the Company and the Bank. The subscription
offering, the community offering and the syndicated community offering will be
referred to herein as the "Offering".
The Bank will create a "liquidation account" for the benefit of eligible account
holders and supplemental eligible account holders in an amount equal to its net
worth as reported in the latest financial statement reflected in the final
prospectus used for the conversion. Pursuant to the Prospectus, each eligible
account holder and supplemental eligible account holder, if they were to
continue to maintain their deposit accounts at the Bank, would be entitled to
receive a payment for their respective interest in the liquidation account after
payment of all creditors and prior to any payment made to a stockholder upon a
complete liquidation of the Bank. Each eligible account holder and supplemental
eligible account holder will have a claim to a pro rata interest in the total
liquidation account based on the proportion that each of his deposit accounts
bears to the balance of all deposit accounts in the Bank on the Eligibility
Record Date, or Supplemental Eligibility Record Date, as applicable.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 3
It is assumed that, based upon the conclusions presented in the Opinion:
1. The proposed conversion of the Bank from a mutual savings bank to a stock
savings bank qualifies as a tax-free transaction for federal income tax
purposes pursuant to Section 368(a)(1)(F) of the Internal Revenue Code
("IRC"). Neither the Bank nor the Converted Bank shall recognize gain or
loss as a result of the Conversion.
2. No gain or loss will be recognized by the Company on the receipt of cash
from the Offerings in exchange for shares of common stock of the Company
pursuant to Section 1032 of the Internal Revenue Code.
3. No gain or loss will be recognized by the Company on the transfer of the
contributed offering proceeds to the Converted Bank in exchange for common
stock of the Converted Bank pursuant to Section 351 (a) of the Internal
Revenue Code.
4. No gain or loss will be recognized by the Converted Bank on the receipt of
the contributed money from the Company in exchange for common stock of the
Converted Bank pursuant to Section 1032 of the Internal Revenue Code.
New York State Consequences:
- ---------------------------
a. Bank Tax:
For purposes of Article 32 of the New York State Banking Law, Section 1451 of
the Tax Law imposes, annually, a franchise tax on every banking corporation for
the privilege of exercising its franchise or doing business in New York State in
a corporate or organized capacity.
Section 1451(a) of the Tax Law provides that the basic tax is nine percent of
the taxpayer's entire net income, or portion thereof allocated to New York
State, for the taxable year or part thereof.
Entire net income is defined in Section 1453(a) of the Tax Law as "total net
income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income)....which the taxpayer is required
to report to the United States Treasury Department....subject to the
modifications and adjustments hereinafter provided."
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 4
Section 1453(b) through (k) of the Tax Law and Sections 18-2.3, 18-2.4 and 18-
2.5 of the Franchise Tax on Banking Corporations Regulations, promulgated
thereunder, provide for the modifications and adjustments required by Section
1453(a). However, there are no modifications or adjustments applicable to a
transaction where, for federal income tax purposes, steps to a conversion are
treated as exchanges pursuant to Sections 368(a)(1)(F), 351(a), and 1032 of the
Code and will result in no recognition of gain or loss for federal income tax
purposes. Therefore, for purposes of Section 1453 of the Tax Law, such steps or
exchanges would be treated the same as they are treated for federal income tax
purposes.
Accordingly, if the steps to the Conversion described herein are treated as tax-
free exchanges under Sections 368(a)(1)(F), 351(a) and 1032 of the Code, such
exchanges would be tax-free for purposes of computing entire net income under
Section 1453 of Article 32 of the Tax Law.
b. Sales and Compensating Use Tax:
For purposes of Article 28 of the New York Tax Law, Section 1105(a) and Section
1110(a) impose a sales and compensating use tax on the sale or use of tangible
personal property in New York State. Stock and cash are not considered
"tangible personal property" pursuant to Section 1101(b)(6). Thus, the transfer
of the stock of the Converted Bank and the stock of the Company pursuant to the
proposed conversion are not considered a sale or exchange of "tangible personal
property." Accordingly, the proposed conversion would not be subject to any New
York sales or compensating use tax.
c. Real Estate Transfer Tax:
For purposes of Article 31 of the New York Tax Law, Section 1402(a) imposes a
real estate transfer tax on each conveyance of real property or interest therein
when the consideration exceeds five hundred dollars. The tax is imposed at the
rate of two dollars for each of five hundred dollars of consideration or
fractional part thereof.
Section 1401(e) of the Tax Law defines "conveyance" to include a transfer or
acquisition of a "controlling interest" in any entity with an interest in New
York State real property.
A controlling interest is defined in Section 1401(b) as fifty percent or more of
the total combined voting power of all classes of stock of a corporation or
fifty percent or more of the capital, profits or beneficial interest in such
voting stock of such corporation.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 5
The transfer of 100 percent of the Converted Bank's stock by the Converted Bank
and the acquisition of the stock by the Company pursuant to the proposed
conversion will be deemed a transfer of a controlling interest in the Converted
Bank and, thus, potentially subject to the real estate transfer tax.
However, Section 1405(b)6 of the Tax Law provides that "if a transfer of real
property, however effected, consists of a mere change of identity or form of
ownership or organization, where there is no change in beneficial interest," a
total or partial exemption is allowed.
Neither current New York case law nor tax law regulations specifically address
the application of a "mere change" exemption to a conversion of a mutual savings
bank to a stock form of organization with a publicly traded foreign holding
company acquiring the stock of the stock institution.
New York State has stated, in two private letter rulings (dated July 9, 1985 and
February 11, 1987), that the conversion of a mutual savings bank to a stock
institution is exempt from the, since repealed, New York real property transfer
gains tax ("Gains Tax") pursuant to former Section 1443.5 of the Tax Law.
Although the above rulings apply to the Gains Tax, the exemption provision of
the law with respect to the New York State real estate transfer tax was modeled
upon and mirrors the Gains Tax. Accordingly, the New York State real estate
transfer tax implications should be similar to those stated in the above private
letter rulings.
Based upon the above private letter rulings, we believe that there is a more
likely than not position to claim full exemption from the New York State real
estate transfer tax, i.e., we believe that the proposed conversion should be
treated as exempt from the New York State transfer tax as a "mere change of
identity."
d. Real Property Transfer Gains Tax:
The tax on gains derived from certain real property transfers in New York State
was imposed by Article 31-B of the Tax Law.
Article 31-B was repealed by Chapter 309, Section 171 of the Laws of 1996.
Accordingly, transfers of real property or interests in real property, in New
York, executed on or after June 15, 1996, are no longer subject to the real
property transfer gains tax.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 6
e. Stock Transfer Tax:
For purposes of Article 12 of the New York State Stock Transfer Tax, Section 270
of the Tax Law imposes a tax on the sale and transfer of shares of stock on a
transactional basis.
Section 270(1) of the Tax Law and Section 440.1(h) of the Stock Transfer Tax
Regulations, promulgated thereunder, provide that no stock transfer tax will
apply to the original issuance of stock. Accordingly, no tax will be imposed on
the original issuance of stock pursuant to the proposed conversion.
It should be noted that for purposes of the New York State stock transfer tax,
if such tax is applicable to the proposed conversion, any amount of tax paid
would be automatically rebated by the state (Section 280-a(1) of the Tax Law).
Thus, this particular tax should not be a material concern regarding the
conversion.
f. Organization Tax:
New York State Tax Law Article 9, Section 180 imposes an organization tax upon
every stock corporation incorporated under the laws of New York State. However,
this same Section states that state chartered banks are exempt from such tax.
We understand that the Converted Bank will be organized under the laws of New
York State. Therefore, the Converted Bank would be exempt from the organization
tax imposed under Section 180 of the Tax Law.
A similar tax on foreign corporations (i.e. not organized under New York State
laws) is imposed under Section 181 of the above Tax Law. This tax is a license
fee and is imposed on foreign corporations at a rate of one-twentieth of one
percent of the apportioned par value of shares issued and five cents on each
share of capital stock without par value employed within the State by the
foreign corporation. Certain banking corporations are exempt from such tax.
Specifically, banking corporations defined under paragraphs (1) through (8) of
section 1452(a) of Article 32 of the Tax Law are exempt from the above fee.
Paragraph (1) of Section 1452(a) defines a banking corporation as "every
corporation or association organized under the laws of this state which is
authorized to do a banking business, or which is doing a banking business."
The Company will not qualify for the exception since the Company will not be
engaged in a "banking business" pursuant to Section 1452(b) of the Tax Law and
Section 16-2-6 of the Regulations promulgated thereunder.
The fee is a one-time tax which would also be imposed on any additional shares
issued by the Company in the future.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 7
New York City Consequences:
- --------------------------
a. Bank Tax:
For purposes of Title 11, Chapter 6, of the New York City Banking Corporation
Tax Law, Section 11-639 imposes, annually, a tax on every banking corporation
for the privilege of doing business in New York City in a corporate or organized
capacity.
Section 11-643.5 of the Tax Law provides that the basic tax is nine percent of
the taxpayer's entire net income, or portion thereof allocated to New York City,
for the taxable year or part thereof.
Entire net income is defined in Section 11-641(a) of the Tax Law as "total net
income from all sources which shall be the same as the entire taxable income
(but not alternative minimum taxable income)....which the taxpayer is required
to report to the United States Treasury Department....subject to the
modifications and adjustments hereinafter provided."
Section 11-641(b) through (k) of the Tax Law and sections 3.03(b)(3), (4) and
(5) of the Tax on Banking Corporations Regulations, promulgated thereunder,
provide for the modifications and adjustments required by Section 11-641(a).
However, there are no modifications or adjustments applicable to a transaction
where, for federal income tax purposes, steps to a conversion are treated as
exchanges pursuant to Sections 368(a)(1)(F), 351(a) and 1032 of the Code and
will result in no recognition of gain or loss for federal income tax purposes.
Therefore, for purposes of Section 11-641 of the Tax Law, such steps or
exchanges would be treated the same as they are treated for federal income tax
purposes.
Accordingly, if the steps to the Converison described herein are treated as tax-
free exchanges under Sections 368(a)(1)(F), 351(a) and 1032 of the Code, it is
our opinion that such exchanges would be tax-free for purposes of computing
entire net income under Section 11-641 of the New York City Banking Corporation
Tax Law.
b. Sales and Use Tax:
For purposes of Title 11, Chapter 20 of the New York City Sales Tax Law, Section
11-2002 imposes a sales tax on generally the same tangible personal property as
those on which the statewide sales tax is imposed. The proposed conversion
involves the exchange of intangible property (stock). Accordingly, the proposed
conversion is not subject to New York City sales and use tax.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 8
c. Realty Transfer Tax:
For purposes of Title 11, Chapter 21 of the New York City Real Property Transfer
Tax Law, Section 11-2102 imposes a real property transfer tax on the transfer of
real property, or interest therein, located in New York City where consideration
exceeds $25,000.
Section 11-2102(a)(9) provides that the tax is (1) 1% of the consideration for
transfers of certain family houses, residential condominium units, or dwelling
units, where the consideration is $500,000 or less; 1.425% where the
consideration is more than $500,000; (2) 1.425% of the consideration for all
other transfers where the consideration is $500,000 or less; (3) 2.625% of the
consideration for all other transfers where the consideration is more than
$500,000.
Section 11-2101.7 defines a "transfer" as a transfer or issuance of shares of
stock in a corporation.
Section 11-2101.6 defines an "economic interest" to include stock in a
corporation which owns real property.
The definition of a "controlling interest" for New York City realty transfer tax
purposes is the same as that used for New York State real estate transfer tax
purposes pursuant to Section 2101.8.
New York issued a private letter ruling (dated February 21, 1989) which states
that the acquisition of the Converted Bank's stock by the Company in a
conversion, would be a transfer of a controlling economic interest for
consideration and therefore subject to the realty transfer tax.
Accordingly, the transfer of 100 percent of the Converted Bank's stock by the
Converted Bank and the acquisition of the stock by the Company pursuant to the
proposed conversion may be deemed a transfer of a controlling economic interest
in the Converted Bank and, thus, potentially subject to New York City realty
transfer tax.
However, Section 11-2106(b)8 (amended by Ch 170, Laws 1994, effective June 9,
1994) provides an exemption from realty transfer tax where the transfer of a
controlling economic interest consists of a "mere change of identity". This new
law was clearly modeled after New York State section 1405(b)6 of Article 28 of
the Tax Law which provides a "mere change exemption" for real estate transfer
tax.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 9
The 1989 private letter ruling predates the above law change and therefore
renders it obsolete. We believe that there is a more likely than not position
to claim full exemption from the New York City realty transfer tax, i.e. we
believe that the proposed conversion should be treated as exempt from the New
York City realty transfer tax as a "mere change of identity".
Scope of Opinion:
- ----------------
The scope of this opinion is expressly limited to the New York State and City
bank tax, sales and use tax, real estate transfer tax, real property transfer
gains tax, stock transfer tax and organization tax consequences of the
transactions in connection with the facts and based upon the representations and
assumptions stated above. There are no other Articles of the New York State Tax
Law or other Chapters of Title 11 of the New York City Charter and
Administrative Code that would create any material tax consequences as a result
of these transactions. Specifically, but without limitations, our opinion has
not been requested and none is provided, with respect to the tax consequences of
the transactions to any other party involved in the transactions and with
respect to any foreign, state, or local consequence other than the above
specified New York State and City taxes.
Our opinion, as stated above, is based upon our research and analysis of the New
York State and City tax laws and applicable regulations and the opinion of
counsel as to the federal tax consequences, all as of the date of issuance of
this opinion. The foregoing are subject to change, and such change may be
retroactively effective. If so, our views as set forth above may be affected
and may not be relied upon. We have assumed no responsibility to update this
opinion as a result of any such change in law or rulings. Further, any
variation or differences in the facts or representations recited herein, for any
reason, might affect our conclusions, perhaps in an adverse manner, and make
them inapplicable.
This letter represents our views as to the interpretation of existing law and,
accordingly, no assurance can be given that either the New York State Department
of Taxation and Finance or the New York City Department of Finance will agree
with the above analysis.
We hereby consent to the inclusion of this opinion as an exhibit to the Form 86-
AC and Form S-1 Registration Statement of the Company and the Notice of
Application for Conversion filed with the FDIC ("the Notice") and the references
to and summary of this opinion in such Form 86-AC, Form S-1 Registration
Statement, and Notice.
<PAGE>
ERNST & YOUNG LLP
November 24, 1997
Page 10
If you have any questions regarding this opinion, please call Victor Zammit at
(212) 773-2864 or Howard Rabinowitz at (212) 773-2223.
Very truly yours,
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Copy to: Howard Rabinowitz
Robert Schirling
Victor Zammit
<PAGE>
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP
INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Experts" and
"Consolidated Statements of Income" and to the use of our reports dated August
22, 1997 (with respect to the consolidated financial statements of Richmond
County Savings Bank) and dated July 14, 1997 (with respect to the financial
statements of Richmond County Savings Bank 401(k) Savings Plan in RSI Retirement
Trust), included in Amendment No. 1 to the Registration Statement and related
Prospectus of Richmond County Financial Corp. for the registration of up to
26,423,550 shares of common stock, the Application for Conversion on Form 86-AC
and the Notice and Application for Conversion.
/s/ Ernst & Young LLP
New York, New York
November 21, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FORM S-1 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> AUG-31-1997
<CASH> 25,897
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 78,570
<INVESTMENTS-CARRYING> 358,460
<INVESTMENTS-MARKET> 360,421
<LOANS> 520,579
<ALLOWANCE> 5,683
<TOTAL-ASSETS> 1,006,064
<DEPOSITS> 882,886
<SHORT-TERM> 8,434
<LIABILITIES-OTHER> 11,912
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 102,832
<TOTAL-LIABILITIES-AND-EQUITY> 1,006,064
<INTEREST-LOAN> 6,822
<INTEREST-INVEST> 4,688
<INTEREST-OTHER> 275
<INTEREST-TOTAL> 11,785
<INTEREST-DEPOSIT> 5,088
<INTEREST-EXPENSE> 5,120
<INTEREST-INCOME-NET> 6,665
<LOAN-LOSSES> 300
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,470
<INCOME-PRETAX> 3,455
<INCOME-PRE-EXTRAORDINARY> 1,793
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,793
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.39
<LOANS-NON> 5,572
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 5,470
<CHARGE-OFFS> 103
<RECOVERIES> 16
<ALLOWANCE-CLOSE> 5,683
<ALLOWANCE-DOMESTIC> 5,683
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2,226
</TABLE>
<PAGE>
Exhibit 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO RICHMOND COUNTY SAVINGS FOUNDATION
Richmond County Financial Corp., 1214 Castleton Avenue, Staten Island,
New York (the "Company"), desires to make a gift of its common stock, par value
$.01 per share to Richmond County Savings Foundation (the "Foundation"), a
nonprofit corporation organized under the laws of the State of Delaware. The
purpose of the donation is to establish a bond between Richmond County
Financial Corp. and the community in which it and its affiliates operate to
enable the community to share in the potential growth and success of the Company
and its affiliates over the long term. To that end, Richmond County Financial
Corp. now gives, transfers, and delivers to the Foundation ________ shares of
its common stock, par value $.01 per share, or total consideration of $_______,
subject to the following conditions:
1. The Foundation shall use the donation solely for charitable
purposes, including community development, in the communities in which the
Company and its affiliates operate in accordance with the provisions of the
Foundation's Certificate of Incorporation; and
2. Consistent with the Company's intent to form a long-term bond
between the Company and the community, the amount of Common Stock that may be
sold by the Foundation in any one year shall not exceed 5% of the market value
of the assets held by the Foundation, except that this restriction shall not
prohibit the board of directors of the Foundation from selling a greater amount
of Common Stock in any one year if the board of directors of the Foundation
determines that the failure to sell a greater amount of the Common Stock held by
the Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
Dated: ____________ __, 199_ Richmond County Financial Corp.
By:
-----------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
