<PAGE>
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
Commission file number 0-23271
RICHMOND COUNTY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
06-1498455
(I.R.S. Employer
Identification No.)
1214 Castleton Avenue, Staten Island, New York 10310
(Address of principal executive offices)
Registrant's Telephone number, including area code: (718) 448-2800
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes: X No:
-----
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the shares of registrant's common stock held by
non-affiliates of the Registrant was $563,051,494 as of September 15, 1999.
There were issued and outstanding 31,039,812 common shares of the Registrant's
Common as of September 15, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended June 30, 1999
are incorporated by reference into Part II of this Form 10-K. Portions of the
Proxy Statement for the 1999 Annual Meeting of Shareholders are incorporated by
reference into Part III of this Form 10-K.
- --------------------------------------------------------------------------------
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I
Item 1 Business ........................................................................ 1
Item 2 Properties ...................................................................... 35
Item 3 Legal Proceedings ............................................................... 37
Item 4 Submission of Matters to a Vote of Security Holders ............................. 37
PART II
Item 5 Market for Registrant's Common Stock and Related Stockholder Matters ............ 38
Item 6 Earnings Summary and Selected Financial Data and
Condensed Quarterly Statements of Operations .................................... 38
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations ...................................................................... 38
Item 7a Quantitative and Qualitative Disclosures About Market Risk....................... 39
Item 8 Financial Statements............................................................. 39
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure....................................................................... 39
PART III
Item 10 Directors and Executive Officers of the Registrant .............................. 40
Item 11 Executive Compensation........................................................... 40
Item 12 Security Ownership of Certain Beneficial Owners and Management .................. 40
Item 13 Certain Relationships and Related Transactions .................................. 40
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K ................. 41
SIGNATURES...................................................................................... 43
</TABLE>
<PAGE>
PART I
Item 1. Business
General
Richmond County Financial Corp. (the "Company" or the "Registrant") was
incorporated under Delaware law in September 1997. On February 18, 1998, the
Company acquired Richmond County Savings Bank and subsidiaries (the "Bank"),
Staten Island, New York, as part of the Bank's conversion from the mutual to
stock form of organization (the "Conversion"). On February 18, 1998, the Company
issued an aggregate of 26,423,550 shares of its common stock, par value $0.01
per share, of which 24,466,250 shares were issued in a subscription offering and
1,957,300 shares were issued to the Richmond County Savings Foundation (the
"Foundation"), a charitable foundation established by the Bank. Prior to such
date, the Company had no assets, liabilities or operations. In connection with
the Conversion, the Company raised $234.9 million of net conversion proceeds, of
which $117.4 million was utilized for the acquisition of 100% of the outstanding
stock of the Bank. The Company is a savings and loan holding company and is
subject to regulation by the Office of Thrift Supervision (the "OTS") and the
Securities and Exchange Commission (the "SEC"). At June 30, 1999, the Company
had consolidated total assets of $2.8 billion, deposits of $1.6 billion and
stockholders' equity of $370.2 million. Currently, the Company's activities
consist solely of managing the Bank and investing the portion of net conversion
proceeds retained by the Company. The following discussions address the
operations of the Bank and its subsidiaries.
The Bank is a community-oriented savings bank, which was originally chartered in
the State of New York in 1886. The Bank's principal businesses consist 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 and multifamily 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. 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, borrowings, principal and interest
payments on loans and securities, and proceeds from the sale of loans and
securities.
As a New York State chartered savings bank, the Bank's deposits are insured up
to the applicable limits by the Federal Deposit Insurance Corporation (the
"FDIC"). The Bank is regulated by the Superintendent of Banks of the State of
New York, (the "Superintendent") the New York Banking Board (the "NYBB") and the
New York State Banking Department (the "NYSBD").
The Company's executive offices are located at the administrative offices of the
Bank, 1214 Castleton Avenue, Staten Island, New York 10310. Its telephone number
is (718) 448-2800.
Acquisitions
Bayonne Bancshares, Inc.
At the close of business on March 22, 1999, the Company completed its
acquisition of Bayonne Bancshares, Inc. ("Bayonne"), the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey State chartered savings and
loan association with four full service banking offices located in Bayonne, New
Jersey in a transaction which was accounted for as a purchase. The cost of the
acquisition was approximately $118.5 million for which the Company issued 1.05
shares of its common stock for each outstanding share of Bayonne common stock
for a total of 8,668,615 common shares, of which 3,938,731 shares were issued
from its treasury shares. Options to purchase 683,577 shares of Bayonne common
stock were also converted into options to purchase 717,755 shares of the
Company's common stock. The excess of cost over the fair value of net assets
acquired ("goodwill") in the transaction was $28.8 million, which is being
amortized on a straight line basis over 15 years.
Ironbound Bankcorp, NJ.
At the close of business on March 5, 1999, the Company completed its acquisition
of Ironbound Bankcorp, NJ ("Ironbound"), the holding company of Ironbound Bank,
a New Jersey chartered commercial bank with three full service commercial
banking offices located in the New Jersey counties of Union and Essex, in a
transaction which was accounted for as a purchase. The cost of the acquisition
was approximately $27.7 million. The Company issued 1.463 shares of its common
stock for each outstanding share of Ironbound common stock for a total of
1,458,842 common shares. The goodwill attributable to the transaction was $15.3
million, which is being amortized on a straight line basis over 15 years.
1
<PAGE>
Market Area
The Bank is a community-oriented financial institution offering a variety of
financial services to meet the needs of the communities it serves. The Bank
currently operates 15 banking offices on Staten Island, one banking office in
Brooklyn, eight banking offices in the counties of Essex, Hudson and Union, New
Jersey, and operates a multifamily loan processing center in Jericho, Long
Island.
The Bank's primary deposit gathering area is currently concentrated around the
areas where its full service banking offices are located in the counties of
Essex, Hudson and Union, New Jersey and in the New York boroughs of 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 1998, based on a survey by a nationally-recognized bank
consulting firm, the Bank had 18.6% of total deposits in Staten Island.
The economy of the New York City metropolitan area has historically benefited
from having a large number of corporate headquarters and a diversity of
financial service entities. Additionally, Staten Island has historically
benefited from steady residential growth and an expanding base of service
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 and values of real
estate have increased. In the past several years, the New York City metropolitan
area has benefited 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 conditions in the local economy,
national economy or real estate market in general will not deteriorate in the
future.
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
that 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, 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 approximately 11 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 (the "FRB"), legislative tax policies and governmental budgetary
matters.
2
<PAGE>
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 June 30,
--------------------------------------------------------------------------------------------
1999 1998 1997 1996
---------------------- ----------------------- --------------------- -------------------
Percent Percent Percent Percent
of of of of
Amount Total Amount Total Amount Total Amount Total
-------- ---------- --------- ----------- -------- ----------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
One- to four-family ........... $ 834,528 62.8% $470,385 72.2% $ 394,588 78.4% $325,139 76.3%
Multifamily ................... 290,066 21.8 50,491 7.8 2,705 0.5 1,238 0.3
Commercial real estate ........ 107,280 8.1 55,416 8.5 40,713 8.1 39,892 9.3
Construction and
development ................ 51,044 3.8 31,297 4.8 18,343 3.7 12,812 3.0
Home equity ................... 18,575 1.5 15,379 2.4 16,729 3.3 18,054 4.2
Commercial .................... 14,557 1.1 6,783 1.0 6,662 1.3 6,300 1.5
Consumer and student .......... 11,817 0.9 21,770 3.3 23,589 4.7 22,932 5.4
---------- --------- -------- --------- -------- -------- -------- --------
Gross loans .... $1,327,867 100.0% 651,521 100.0% 503,329 100.0% 426,367 100.0%
========= ========= ======== ========
Less:
Unamortized discounts, net ... 433 (631) (788) (947)
Deferred loan (costs) fees ... (888) 855 (813) (1,354)
Allowance for loan losses .... (13,885) (7,276) (5,470) (4,796)
---------- -------- -------- --------
Total loans, net 1,313,527 644,469 496,258 419,270
Less:
Loans held for sale, net:
One- to four-family ....... -- -- -- 1,155
---------- -------- -------- --------
Loans receivable held for
investment, net ........... $1,313,527 $644,469 $496,258 $418,115
========== ======== ======== ========
<CAPTION>
At June 30,
--------------------
1995
--------------------
Percent
of
Amount Total
-------- ---------
<S> <C> <C>
Real estate loans:
One- to four-family ........... $303,734 76.2%
Multifamily ................... 811 0.2
Commercial real estate ........ 40,037 10.1
Construction and
development ................ 10,487 2.6
Home equity ................... 16,518 4.1
Commercial .................... 5,039 1.3
Consumer and student .......... 21,795 5.5
-------- -------
Gross loans .... 398,421 100.0%
=======
Less:
Unamortized discounts, net ... (1,105)
Deferred loan (costs) fees ... (1,632)
Allowance for loan losses .... (3,275)
--------
Total loans, net 392,409
Less:
Loans held for sale, net:
One- to four-family ....... --
--------
Loans receivable held for
investment, net ........... $392,409
========
</TABLE>
Loan Originations. The Bank originates both adjustable-rate and fixed-rate one-
to four-family mortgage loans, multifamily loans, commercial real estate loans,
construction and development loans, home equity loans, commercial loans,
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 64 mortgage
brokers in connection with one- to four-family loan originations, the Bank
primarily utilizes the services of 41 mortgage brokers operating primarily on
Staten Island and in Brooklyn. During the years ended June 30, 1999 and 1998,
the Bank originated $129.9 million and $74.3 million, respectively, of one- to
four-family loans through mortgage brokers and $120.3 million and $44.1 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. 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.
In addition, the Bank has placed increased emphasis on the origination of
multifamily loans and, in April 1998, established a multifamily lending
department staffed by personnel experienced in the multifamily lending business.
Generally, all loans are originated for investment with certain exceptions for
longer-term fixed-rate one- to four-family mortgage loans. From time to time,
the Bank will retain fixed-rate mortgage loans with terms over 15 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 that conform to underwriting standards
specified by Fannie Mae ("FNMA") and
3
<PAGE>
the Federal Home Loan Mortgage Corporation ("FHLMC") ("conforming loans"). Loans
that do not conform to FNMA or FHLMC standards due to loan amounts ("jumbo
loans") are originated for the Bank's 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 June 30, 1999, the Bank was servicing its own portfolio of $1.3 billion of
loans receivable and $115.8 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 years ended June 30, 1999 and June 30, 1998, the Bank originated
$250.2 million and $118.4 million of fixed-rate and adjustable-rate one- to
four-family loans, respectively, of which $250.2 million and $118.4 million,
respectively, were retained by the Bank. The fixed-rate loans retained by the
Bank consisted primarily of loans with terms of 15 to 30 years. At June 30,
1999, the Bank had no mortgage loans held for sale. The Bank has, in the past,
purchased participations in loans, primarily one- to four-family mortgage loans,
and had approximately $325,000 of participations in loans at June 30, 1999. The
Bank acquired $72.5 million in purchased whole loans as a result of the
acquisition of Bayonne Bancshares, Inc.
The following table sets forth the Bank's loan originations, purchases, sales
and principal repayments for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended June 30,
------------------------------------------------
1999 1998 1997
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Gross loans:
Balance outstanding at beginning of period ...................... $ 651,521 $ 503,329 $ 426,367
---------- ---------- ----------
Loans originated:
One- to four-family ................................. 250,204 118,384 100,487
Multifamily ......................................... 235,213 9,393 1,616
Commercial real estate .............................. 16,134 22,537 4,454
Construction and development ........................ 28,447 22,280 13,444
Home equity ......................................... 6,603 3,567 5,824
Commercial .......................................... 9,848 10,083 3,636
Consumer and student ................................ 2,458 7,024 7,790
---------- ---------- ----------
Total loans originated ..................... 548,907 193,268 137,251
Loans of acquired institutions, net ........ 332,639 -- --
Loans purchased ........................................... 1,500 38,616 910
---------- ---------- ----------
Total loans originated and purchased ....... 883,046 231,884 138,161
---------- ---------- ----------
Less:
Principal repayments ...................................... 113,189 83,120 58,485
Sales of loans ............................................ 15,821 -- 2,004
Mortgage securitization ................................... 77,159 -- --
Transfers to real estate owned ............................ 482 532 673
Principal charged off ..................................... 49 40 37
---------- ---------- ----------
Total loans receivable held for investment at end of period .... $1,327,867 $ 651,521 $ 503,329
========== ========== ==========
</TABLE>
4
<PAGE>
Loan Maturity. The following table shows the contractual maturity of the Bank's
loan portfolio at June 30, 1999. The table does not include prepayments or
scheduled principal amortization. Prepayments and scheduled principal
amortization on mortgage loans totaled $113.2 million, $83.1 million, and $58.5
million for the years ended June 30, 1999, 1998 and 1997, respectively.
<TABLE>
<CAPTION>
At June 30, 1999
-------------------------------------------------------------------------------------
Real Estate Loans
-----------------------------------------------------------------------
One- to Construction
Four- Multi- Commercial and Home
Family Family Real Estate Development Equity Commercial
----------- ----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
Within one year ...................... $ 2,461 $ 711 $ 2,262 $ 34,459 $ 337 $ 5,587
----------- ----------- ----------- ----------- ----------- -----------
After one year:
More than one year to
three years ......... 10,994 2,762 21,819 16,585 449 7,530
More than three years to
five years .......... 10,642 579 7,507 -- 425 949
More than five years to 10
years ............... 143,209 14,039 33,767 -- 5,803 491
More than 10 years to 20
years ............... 248,846 271,975 39,248 -- 9,457 --
More than 20 years ............... 418,376 -- 2,677 -- 2,104 --
----------- ----------- ----------- ----------- ----------- -----------
Total due after June 30,
2000 ................. 832,067 289,355 105,018 16,585 18,238 8,970
----------- ----------- ----------- ----------- ----------- -----------
Total amount due ................. $ 834,528 $ 290,066 $ 107,280 $ 51,044 $ 18,575 $ 14,557
=========== =========== =========== =========== =========== ===========
Less:
Unamortized discounts, net.............................................................................................
Deferred loan costs, net...............................................................................................
Allowance for possible loan losses.....................................................................................
Loans receivable held for investment, net
<CAPTION>
Consumer Total
and Loans
Student Receivable
----------- -----------
<S> <C> <C>
Amounts due:
Within one year ...................... $ 876 $ 46,693
----------- -----------
After one year:
More than one year to
three years ......... 9,375 69,514
More than three years to
five years .......... 291 20,393
More than five years to 10
years ............... 1,156 198,465
More than 10 years to 20
years ............... 115 569,641
More than 20 years ............... 4 423,161
----------- -----------
Total due after June 30,
2000 ................. 10,941 1,281,174
----------- -----------
Total amount due ................. $ 11,817 1,327,867
=========== -----------
Less:
Unamortized discounts, net....................... 433
Deferred loan costs, net......................... (888)
Allowance for possible loan losses............... (13,885)
-----------
Loans receivable held for investment, net $ 1,313,527
===========
</TABLE>
The following table sets forth at June 30, 1999, the dollar amount of gross
loans receivable contractually due after June 30, 2000, and whether such loans
have fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due After June 30, 2000
------------------------------------------------------------
Fixed Adjustable Total
---------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family .................................. $ 517,386 $ 314,681 $ 832,067
Multifamily .......................................... 23,887 265,468 289,355
Commercial real estate ............................... 31,038 73,980 105,018
Construction and development ......................... -- 16,585 16,585
Home equity .......................................... 7,220 11,018 18,238
---------- ---------- ----------
Total real estate loans ........................... 579,531 681,732 1,261,263
Commercial loans ........................................ 1,412 7,558 8,970
Consumer and student loans .............................. 3,339 7,602 10,941
---------- ---------- ----------
Total loans receivable ............................ $ 584,282 $ 696,892 $1,281,174
========== ========== ==========
</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 30 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 June 30, 1999, the Bank's one- to four-family loans totaled $834.5 million,
or 62.8%, of gross loans. Of the one- to four-family loans outstanding at that
date, 63.1% were fixed-rate mortgage loans and 36.9% were adjustable-rate
mortgage
5
<PAGE>
loans. The Bank generally offers fixed-rate mortgage loans with terms of 15 and
30 years. The Bank, from time to time may sell fixed-rate residential mortgage
loans it originates with terms in excess of 15 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 exceeding 15 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 15 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 30 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 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, are intended, in part, to 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 are
expected to reduce the risks associated with adjustable-rate loans but also may
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 homebuyers, 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 have
market rates generally below prevailing fixed-rate mortgages and which allow
below market down payments. At June 30, 1999, $10.2 million, or 0.8% of total
loans, were sponsored by SONYMA.
Multifamily Lending. During fiscal 1998, the Bank increased its origination of
multifamily loans through the establishment of a separate department staffed by
personnel experienced in the multifamily lending business. During fiscal 1999,
the Bank originated $235.2 million, of multifamily loans as compared to
originations of $9.4 million and $1.6 million in fiscal years 1998 and 1997,
respectively. As a result, the Bank had approximately $290.1 million, or 21.8%
of the total loan portfolio invested in multifamily loans. The largest
multifamily loan in the Bank's portfolio at June 30, 1999 was a $13.2 million
loan secured by six individual multifamily apartment dwellings in the Borough of
The Bronx.
Multifamily loans generally involve large principal amounts and a greater degree
of risk than one- to four-family residential mortgage loans. Because payments on
loans secured by multifamily properties are often dependent on the successful
operation or management of the properties, repayment of such loans may be
subject to a greater extent to adverse conditions in the real estate market or
the economy. The Bank seeks to minimize these risks by originating such loans
within market areas where it has knowledge and experience.
In reaching its decision on whether to make a multifamily loan, the Bank
considers the qualifications and financial condition of the borrower, including
credit history, profitability and expertise, as well as the value and condition
of the underlying property. Multifamily loans originated by the Bank require a
debt service coverage ratio of at least 120% and a loan to value ratio of no
more than 75% of the lower of the appraised value or sales price of the
underlying property. Generally, these loans are five year adjustable-rate loans
with a term of 15 years and an amortization schedule not
6
<PAGE>
exceeding 30 years. The Bank's multifamily loans are originated with rates that
are generally fixed for the first five years with a single adjustment on the
fifth anniversary of the loan based upon the average monthly yield on the U.S.
Treasury obligations, adjusted to a constant maturity of five years, plus a
margin of 1.75% to 2.50%.
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 and that are generally located in
the Bank's primary market area. All mixed-use properties are classified as
commercial real estate. At June 30, 1999, the Bank's commercial real estate loan
portfolio totaled approximately $107.3 million, or 8.1%, 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 generally may be made with terms up to
20 years and are generally offered at interest rates that 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 10
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 a debt service coverage ratio (the
ratio of earnings before debt service to debt service) of at least 120%.
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. The largest commercial real
estate loan in the Bank's portfolio at June 30, 1999 was a $4.8 million loan
secured by four ground leases owned by the Bayonne School District.
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, or business operated on such 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. 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 June
30, 1999, the Bank had $51.0 million of construction loans, most of which
related to the construction of one- to four-family properties, of which $19.1
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 usually 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 residences. 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 of up to two years. Construction loans
may be made in amounts up to 75% of the estimated cost of construction, or up to
80% in the case of loans to individuals for the construction of their
residences. With respect to commercial 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 June 30, 1999, the Bank had $19.2 million of
land loans. Such loans are secured by a lien on the property, and limited to 65%
of the appraised value of the secured property on raw land or up to 75% on
developed building lots, and have terms of up to two years, with floating
interest rates based on the prime rate (which is the prime rate as published in
The Wall Street Journal). 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
7
<PAGE>
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. The largest
construction loan in the Bank's portfolio at June 30, 1999, was a $7.3 million
loan for the construction of four story office complex located in the Borough of
Staten Island.
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 June 30, 1999, the Bank's home equity loans and lines of credit totaled
$18.6 million, or 1.4%, of the Bank's gross loans. Fixed-rate, fixed-term home
equity loans and lines of credit are offered in amounts up to 80% of the
appraised value of the property (including the first mortgage). Fixed-rate,
fixed-term home equity loans and lines of credit are offered with terms of up to
10 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 80% of the appraised value of the
property (including the first mortgage) with terms of up to 20 years.
Adjustable-rate loans are indexed to the prime rate (which is the prime rate as
published in The Wall Street Journal).
Commercial Lending. The Bank also originates commercial loans to small and
medium sized businesses operating in the Bank's primary market area. At June 30,
1999, the Bank had $14.6 million of commercial loans, which amounted to 1.1% 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 based upon the value of the
collateral provided to secure the loan. All term loans fully amortize during the
term of such loan. Business lines of credit have terms of up to seven years, if
secured, and up to one year, if unsecured. Secured lines of credit will
generally be made based upon the collateral provided in securing the line.
Interest rates on 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. At
June 30, 1999, there was $445,400 letters of credit outstanding.
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 June 30, 1999, was approximately $700,000. At such
date, the Bank had $11.4 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 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 upon the success of the business itself. Further, any
collateral securing such loans may depreciate over time, may be difficult to
appraise or may fluctuate in value based on the success of the business.
Consumer and Student Lending. The Bank's portfolio of consumer and student loans
consists primarily of student loans, unsecured personal loans and overdraft
lines of credit. As of June 30, 1999, consumer and student loans amounted to
$11.8 million, or 0.9% of the Bank's total loan portfolio, of which $1.4 million
were student loans.
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 are dependent upon the borrower's continuing financial
stability and are more likely to be adversely affected by job loss, divorce,
illness or personal bankruptcy. Finally, the
8
<PAGE>
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 Directors establishes the
lending policies and loan approval limits of the Bank. The Board of Directors
has established an Officer Loan Committee, which is comprised of members of
senior management, including the Chairman and Chief Executive Officer and the
President and Chief Operating Officer of the Bank, whom are also Directors of
the Bank. The Officer Loan Committee has the authority to approve all loans
greater than $100,000, but less than $500,000, with the exception of multifamily
loans. The Officer Loan Committee approves all multifamily loans greater than
$1.5 million but less than $2.0 million. The Board has also established a
Director Loan Committee, comprised of five members of the Board of Directors,
whom are not employees of the Bank, to review and approve all loans in amounts
greater than the Officer Loan Committee approval limits up to the Bank's lending
limit. The Directors Loan 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 Directors. Individual loans over $3 million are to be approved or
denied by the Board of Directors and all aggregate lending relationships with a
single borrower that exceeds $3 million must be reported to the Board of
Directors. In addition, the Board has established lending authority for
individual officers as to its various types of loan products.
The Board of Directors has authorized the following persons to approve loans up
to the amounts indicated: multifamily loans can be approved by two members of
the Multifamily Lending Division, requiring the Multifamily Division Head and
one Vice President of the Multifamily Division for up to $1.5 million;
residential mortgage loans of up to $250,000 and home equity loans of up to
$250,000 can be approved by the Senior Real Estate Officer, construction loans
of up to $250,000 can be approved by the Senior Construction Loan Officer;
commercial mortgages of up to $250,000, secured commercial loans up to $250,000
and unsecured commercial loans and lines of credit up to $100,000 can be
approved by the Senior Commercial Loan Officer. Additionally, individual loans
to one borrower may not exceed $3.0 million and aggregate loans to one borrower
may not exceed $3.0 million for all loans, with the exception of multifamily
loans in which the aggregate loan limit is $12 million, without Board
involvement. Total aggregate loans are also subject to the Bank's regulatory
loans-to-one-borrower limit, which at June 30, 1999, was 15% of total capital.
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 payment of property taxes.
Delinquent Loans, Real Estate Owned and Classified Assets
Management and the Board of Directors perform a monthly review of all delinquent
loans. The Bank's procedures with respect to delinquencies vary, depending upon
the nature of the loan and period of delinquency. The Bank generally requires
that delinquent mortgage loans be reviewed, that a delinquency notice be mailed
no later than the thirtieth day of delinquency and that a late charge be
assessed after 15 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" ("REO") 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
9
<PAGE>
the property and, thereafter, appraisal of the property on an as-needed basis.
At June 30, 1999, the Bank had $6.9 million of nonperforming assets (defined as
non-accruing loans and REO).
At June 30, 1999, the Bank's REO net, consisting of foreclosed assets, totaled
$997,000, which was comprised of five one- to four-family properties and four
mixed use commercial property. 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 foreclosed real estate and periodically
adjust valuation allowance for possible declines in the value of real estate
owned. The Bank is currently offering for sale all REO 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 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
NYSBD, which can order the establishment of additional general or specific loss
allowances. The FDIC, in conjunction with the other federal banking agencies,
recently adopted an 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 $500,000 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. The loan reviewer's
findings are submitted to the Directors Loan Committee, composed of five members
of the Board of Directors. 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
10
<PAGE>
action needed. The findings of the Director's Loan Committee will be reported to
the Board of Directors on an ongoing basis.
At June 30, 1999, the Bank had $2.0 million of assets designated as Substandard,
consisting of 12 loans; there were no loans classified as Doubtful; and $18,000,
consisting of 11 consumer loans classified as Loss. At June 30, 1999, the Bank
had $3.8 million of assets designated as Special Mention, consisting of 65 loans
which were designated Special Mention, due to past loan delinquencies.
The following tables set forth delinquencies in the Bank's loan portfolio as of
the dates indicated:
<TABLE>
<CAPTION>
At June 30, 1999
-----------------------------------------------
60-89 Days 90 Days or More
----------------------- ---------------------
Number Principal Number Principal
--------- ------------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family ....................... 14 $1,201 58 $3,816
Multifamily ............................... -- -- -- --
Commercial real estate .................... 1 639 5 1,461
Construction and development .............. -- -- 1 90
Home equity ............................... 3 96 5 143
Commercial loans .......................... 8 610 8 329
Consumer and student loans ................ 10 40 11 18
------- ------- ------- -------
Total ............................ 36 $2,586 88 $5,857
======= ======= ======= =======
Delinquent loans to total loans(1) ........ 0.19% 0.45%
======= =======
<CAPTION>
At June 30, 1998
-----------------------------------------------
60-89 Days 90 Days or More
----------------------- ---------------------
Number Principal Number Principal
--------- ------------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family ....................... 4 $ 481 24 $3,162
Multifamily ............................... -- -- -- --
Commercial real estate .................... -- -- 5 1,619
Construction and development .............. 4 612 2 606
Home equity ............................... 1 33 1 144
Commercial loans .......................... 3 134 -- --
Consumer and student loans ................ 88 273 1 3
------- ------- ------- -------
Total ............................ 100 $1,533 33 $5,534
======= ======= ======= =======
Delinquent loans to total loans(1) ........ 0.24% 0.85%
======= =======
<CAPTION>
At June 30, 1997
-----------------------------------------------
60-89 Days 90 Days or More
----------------------- ---------------------
Number Principal Number Principal
--------- ------------ -------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
One- to four-family ....................... 3 $ 338 20 $2,306
Multifamily ............................... -- -- -- --
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%
======= =======
</TABLE>
(1) Total loans include loans receivable held-for-investment, plus deferred
loan costs, deferred mortgage interest and unamortized discounts, net.
11
<PAGE>
Non-Performing Assets. The following table sets forth information regarding the
Bank's non-performing assets.
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Non-accrual loans:
One- to four-family .............................. $3,959 $3,306 $1,676 $1,695 $1,590
Multifamily ...................................... -- -- -- -- --
Commercial real estate ........................... 1,461 1,619 876 939 593
Construction and development ..................... 90 606 120 120 108
Commercial ....................................... 329 -- -- -- --
Consumer and student ............................. 18 3 -- -- --
------ ------ ------ ------ ------
Total non-accrual loans ................. 5,857 5,534 2,672 2,754 2,291
Loans contractually past due 90 days or more and
still accruing interest(1) ............................... -- -- 1,205 1,066 704
------ ------ ------ ------ ------
Total non-performing loans ................ 5,857 5,534 3,877 3,820 2,995
Real estate owned ............................................ 997 322 662 612 335
------ ------ ------ ------ ------
Total non-performing assets ............... $6,854 $5,856 $4,539 $4,432 $3,330
====== ====== ====== ====== ======
Allowance for possible loan losses
as a percent of loans(2) ................................ 1.05% 1.12% 1.10% 1.14% 0.83%
Allowance for possible loan losses as a percent of
total non-performing loans(3) ........................... 237.07 131.50 141.09 125.55 109.35
Non-performing loans as a percent of loans(2)(3) ............. 0.45 0.85 0.78 0.91 0.76
Non-performing assets as a percent of total
assets(3) ................................................ 0.25 0.37 0.46 0.48 0.39
</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 90 days
delinquent as to principal and interest unless, in the opinion of
management, collection is probable.
Non-accrual loans totaled $5.9 million as of June 30, 1999, which included 63
one- to four-family loans, with an aggregate balance of $4.0 million and six
commercial real estate loans and construction loans with an aggregate balance of
$1.6 million, of which one loan is a $1.1 million commercial mortgage on a
mixed-use property in 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 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 that 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, 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.
12
<PAGE>
As of June 30, 1999, the Bank's allowance for possible loan losses was $13.9
million, or 1.1% of total loans, and 237.1% of non-performing loans as compared
to $5.5 million, or 1.1% of total loans, and 131.5% of non-performing loans, as
of June 30, 1998. The Bank had total non-performing loans of $5.9 million and
$5.5 million at June 30, 1999 and June 30, 1998, respectively, and
non-performing loans to total loans of 0.4% and 0.9%, respectively. The Bank
will continue to monitor and modify its allowance for possible loan losses as
conditions dictate. The Board of Directors 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 multifamily, commercial real estate, construction and
development or other lending as a percentage of its total loan portfolio. In
addition, the FDIC and NYSBD, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to make additional provisions for estimated loan losses based
upon judgments different from those of management.
The following table sets forth activity in the Bank's allowance for loan losses
for the periods set forth in the table.
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period ............... $ 7,276 $ 5,470 $ 4,796 $ 3,275 $ 3,106
------- ------- ------- ------- -------
Allowance of acquired institutions ........... 4,357 -- -- -- --
Provision for loan losses .................... 2,550 2,200 1,080 1,600 600
Charge-offs:
Real estate loans ..................... 60 110 174 166 384
Commercial real estate ................ 50 142 15 -- 6
Consumer and student loans ............ 235 281 286 186 150
------- ------- ------- ------- -------
Total charge-offs ....... 345 533 475 352 540
Recoveries:
Real estate loans ..................... -- -- 45 97 48
Commercial real estate ................ -- 88 -- 122 --
Consumer and student loans ............ 47 51 24 54 61
------- ------- ------- ------- -------
Total recoveries ........ 47 139 69 273 109
Net charge-offs .............................. 298 394 406 79 431
------- ------- ------- ------- -------
Balance at end of period ..................... $13,885 $ 7,276 $ 5,470 $ 4,796 $ 3,275
======= ======= ======= ======= =======
</TABLE>
13
<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 June 30,
--------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------ ------------------------------------------------
Percent of Percent of
Percent of Loans in Percent of Loans in
Allowance Each Allowance Each
to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans
------------- ----------- ------------- ------------ ------------ --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Real estate(1) ......... $ 6,966 50% 98% $ 3,581 49% 96%
Commercial ............. 230 2 1 156 2 1
Consumer and
student ........... 195 1 1 325 5 3
Unallocated ............ 6,494 47 -- 3,214 44 --
------- ------- ------- ------- ------- -------
Total allowance
for possible
loan losses ....... $13,885 100% 100% $ 7,276 100% 100%
======= ======= ======= ======= ======= =======
<CAPTION>
At June 30,
-----------------------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------------- ---------------------------------- ----------------------------------
Percent of Percent of Percent of
Percent of Loans in Percent of Loans in Percent of Loans in
Allowance Each Allowance Each Allowance Each
to Total Category to to Total Category to to Total Category to
Amount Allowance Total Loans Amount Allowance Total Loans Amount Allowance Total Loans
--------- ----------- ------------- -------- ----------- ------------ -------- ----------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate(1) ....... $2,619 48% 94% $2,173 45% 93% $2,084 64% 93%
Commercial ........... 355 6 1 380 8 3 472 14 1
Consumer and
Student ......... 321 6 5 315 7 4 295 9 6
Unallocated .......... 2,175 40 -- 1,928 40 -- 424 13 --
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance
for possible
loan losses ..... $5,470 100% 100% $4,796 100% 100% $3,275 100% 100%
====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Real estate includes one- to four-family, multifamily, commercial real
estate, construction and development, and home equity loans.
14
<PAGE>
Securities Investment Activities
The investment policy of the Company and the Bank, which is approved by the
Board of Directors, is designed primarily to manage the interest rate
sensitivity of its overall assets and liabilities, to generate a favorable
return without incurring undue interest rate and credit risk, to complement the
Bank's lending activities and to provide and maintain liquidity. In establishing
its investment strategies, the company considers its business and growth
position, the economic environment, its interest rate sensitivity position, the
types of securities to be held and other factors.
While the Board of Directors has final authority and responsibility for the
securities investment portfolio, the Bank has established a Management
Investment Committee comprised of six senior officers, including the Investment
Officer, to supervise the Bank's securities investment program. The Management
Investment Committee meets at least quarterly 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 policies provide
that all investment transactions must be authorized by two senior executive
officers and reported to the Board of Directors on a monthly basis and reviewed
by the Asset/Liability Committee on an ongoing basis.
The Company's current securities investment policy permits investments in
various types of liquid assets, including obligations of the U.S. Treasury and
federal agencies, investment and non-investment grade corporate obligations,
various types of mortgage-backed and mortgage-related securities, including
collateralized mortgage obligations ("CMOs"), corporate equities, commercial
paper and insured certificates of deposit.
The Company currently does not participate in hedging programs, interest rate
swaps, or other activities involving use of off-balance sheet derivative
financial instruments. Similarly, the Company does not invest in
mortgage-related securities, deemed to be "high risk" by the federal banking
regulators.
In November 1995, the Financial Accounting Standards Board ("FASB") issued a
special report, "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities," which allowed institutions
to affect a one-time reclassification of its securities from held to maturity to
available for sale without requiring that all securities held to maturity be
reclassified. As a result, in November 1995, the Bank reclassified $26.0 million
of securities from held to maturity to available for sale. In February 1998, the
Company transferred its entire securities held to maturity portfolio to its
securities available for sale portfolio as part of a balance sheet restructuring
initiative implemented at that time, primarily in connection with a reassessment
by the Company of its asset/liability management strategy. As a result, the
Company did not maintain a portfolio of securities held to maturity, nor a
trading portfolio of securities at June 30, 1998. In connection with the balance
sheet restructuring initiative, approximately $54.7 million of securities
available for sale were sold and a net loss of $144,000 was realized. Management
believes that the flexibility of the available for sale portfolio will assist
the Company in evaluating market opportunities while managing the Bank's
exposure to interest rate risk and asset sensitivity.
As of June 30, 1999, the Company's securities portfolio totaled $1.2 billion, or
42.2% of total assets, with a weighted average life of 8.1 years and was
classified as available for sale.
Mortgage-Backed and Mortgage-Related Securities. The Bank purchases
mortgage-backed and mortgage-related securities in order to: (1) generate
positive interest rate spreads with minimal administrative expense; (2) lower
its credit risk as a result of the guarantees provided by GNMA, FHLMC and FNMA;
(3) utilize these securities as collateral for borrowings; and (4) maintain
sufficient liquidity levels for the Bank. The Bank has primarily invested in
mortgage-backed and mortgage-related securities issued or sponsored by GNMA,
FHLMC and FNMA and private issuers.
The Bank also invests in CMOs issued or sponsored by FNMA and FHLMC, as well as
private issuers. At June 30, 1999, mortgage-backed and mortgage-related
securities totaled $866.8 million, or 31.4% of total assets, with a weighted
average yield of 6.44%. The increase in such securities reflects management's
recent revisions to its investment strategy, placing greater emphasis on
mortgage-backed and mortgage-related securities, the investment of conversion
proceeds and leverage strategy conducted. At June 30, 1999, the Company's CMO
portfolio totaled $359.3 million, or 13.0% of total assets, consisting of $304.4
million of CMOs issued by private issuers and $54.9 million issued by the
government sponsored agencies. The Company policy limits its privately issued
CMOs to non-high risk securities rated "AAA" by two rating agencies, with an
average life of seven years or less and limits the amount of such investment to
40% of total assets. For government sponsored CMOs, the policy limits such
investments to non-high risk securities
15
<PAGE>
that have an average life of 10 years or less. The credit rating of the specific
CMOs owned are monitored on a regular basis. The current investment policy
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 such date, the Company's CMO portfolio had an estimated average
life of 2.1 years and a weighted average yield of 6.51%.
Debt Securities. The Company's investment in debt securities consists primarily
of investments in debt securities issued by government sponsored agencies such
as FNMA, Federal Home Bank Loan ("FHLB") and FHLMC and creditworthy financial
companies. Like the prior year, the Company either sold or allowed to mature its
U. S. government obligations, government sponsored agency debt, corporate and
public utility bonds in conjunction with its asset/liability management
strategy.
U.S. Agency Obligations. At June 30, 1999, the Company's U.S. government agency
securities portfolio totaled $39.3 million, with a weighted average yield of
6.50%. It consists of $11.0 million of callable agency zero-coupon medium term
notes and $28.3 million of primarily short-term callable notes.
Financial Bonds. At June 30, 1999, the financial bond portfolio totaled $198.2
million with a weighted average yield of 7.30%, consisting of $111.7 million
fixed-rate and $86.5 million floating-rate issues. The majority of the issues
are long term and generally issued by investment grade U. S. banks and savings
and loan holding companies. All of the Company's financial bonds are callable by
the respective issuers pursuant to the terms of the bonds, generally after an
initial 10 year holding period. The floating-rate bonds have a weighted average
coupon of 5.83% and reset quarterly, based on the Three Month LIBOR (London
Interbank Offer Rate) Index plus margins ranging from 0.50% to 1.80%. The
current policy of the Company limits the purchases of financial bonds to a
maturity of 30 years or less, a total investment of 10% of total assets, with a
1% limitation for any single issuer.
Equity Securities. At June 30, 1999, the Company's equity securities portfolio
totaled $46.5 million, all of which was classified as available for sale. Such
portfolio consisted of investments of $30.1 million of investments in preferred
stock and $16.4 million of investments in common stock primarily of financial
institutions. The Company's policy limit for its common and preferred stock
investments is 5% and 7.5% respectively, of its total assets. Current policy
permits the purchase of preferred stock rated investment grade. The substantial
majority of the preferred stock holdings are redeemable by issuers after five
years.
16
<PAGE>
The following table sets forth the composition of the Company's debt and equity
and mortgage-backed and mortgage-related securities portfolios in dollar amounts
and percentages at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------- --------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
----------- --------- --------- --------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Debt securities:
Corporate bonds ....................... $ -- --% $ 5,213 0.62% $ 68,483 15.66%
U.S. Government obligations ........... 300 0.03 8,989 1.07 52,757 12.06
Agency securities ..................... 39,312 3.37 24,675 2.93 39,457 9.02
Public utilities ...................... -- -- 14,385 1.70 36,489 8.34
Municipal bonds ....................... 1,572 0.14 1,182 0.14 1,149 0.26
Other debt obligations (1) ............ 1,763 0.15 2,249 0.27 6,866 1.57
Asset backed notes .................... 9,963 0.86 9,988 1.18 -- --
Financial bonds ....................... 198,246 17.02 115,863 13.74 -- --
---------- ------ ---------- ------ ---------- ------
Total debt securities .............. 251,156 21.57 182,544 21.65 205,201 46.91
---------- ------ ---------- ------ ---------- ------
Equity securities:
Preferred stock ....................... 30,097 2.59 28,448 3.37 14,158 3.24
Common stock .......................... 16,358 1.40 27,056 3.21 3,814 0.87
Mutual funds .......................... -- -- 842 0.10 1,734 0.40
---------- ------ ---------- ------ ---------- ------
Total equity securities ............ 46,455 3.99 56,346 6.68 19,706 4.51
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage-related securities:
FHLMC pass-through .................... 161,472 13.86 97,362 11.55 82,237 18.80
GNMA pass-through ..................... 159,247 13.68 185,023 21.94 11,824 2.70
FNMA pass-through ..................... 97,055 8.33 76,451 9.07 -- --
Private issuer pass-through ........... 89,734 7.71 18,208 2.16 3,276 0.75
Agency CMOs ........................... 54,922 4.72 39,125 4.64 36,934 8.44
Private issuer CMOs ................... 304,414 26.14 188,135 22.31 78,249 17.89
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage-
related securities ............ 866,844 74.44 604,304 71.67 212,520 48.58
---------- ------ ---------- ------ ---------- ------
Total securities ................... $1,164,455 100.00% $ 843,194 100.00% $ 437,427 100.00%
========== ====== ========== ====== ========== ======
Debt and equity securities available for sale .. $ 297,611 25.56% $ 238,890 28.33% $ 19,706 4.51%
Debt and equity securities held to maturity .... -- -- -- -- 205,201 46.91
---------- ------ ---------- ------ ---------- ------
Total debt and equity securities ... 297,611 25.56 238,890 28.33 224,907 51.42
---------- ------ ---------- ------ ---------- ------
Mortgage-backed and mortgage-related
securities available for sale ............ 866,844 74.44 604,304 71.67 27,398 6.26
Mortgage-backed and mortgage-related
securities held to maturity .............. -- -- -- -- 185,122 42.32
---------- ------ ---------- ------ ---------- ------
Total mortgage-backed and mortgage-
related securities ............ 866,844 74.44 604,304 71.67 212,520 48.58
---------- ------ ---------- ------ ---------- ------
Total securities ................... $1,164,455 100.00% $ 843,194 100.00% $ 437,427 100.00%
========== ====== ========== ====== ========== ======
</TABLE>
(1) Consists of Railroad, Foreign and Other Bonds.
17
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth the Company's securities activities for the periods indicated:
For the Year
Ended June 30,
-----------------------------------------------------
1999 1998 1997
----------- ----------- -----------
(In thousands)
<S> <C> <C> <C>
Beginning balance ............................................... $ 843,194 $ 437,427 $ 411,037
----------- ----------- -----------
Add:
Debt and equity securities purchased held to maturity ........... -- -- 17,611
Debt and equity securities purchased available for sale ......... 96,028 173,260 17,678
Mortgage-backed and mortgage-related securities
purchased held to maturity .......................... -- -- 133,668
Mortgage-backed and mortgage-related securities
purchased available for sale ........................ 384,631 608,059 26,478
Securitization .................................................. 77,159 -- --
Investments of acquired institutions, net ....................... 233,150 -- --
Change in net unrealized gain on
available for sale securities ....................... (34,671) 6,179 450
Less:
Maturities and redemptions debt and equity securities
held to maturity .................................... -- 55,972 127,005
Sales and redemptions of debt and equity securities
available for sale .................................. 107,141 108,936 11,938
Maturities and redemptions of mortgage-backed and
mortgage-related securities held to maturity ........ -- 29,237 3,609
Principal repayments on mortgage-backed and
mortgage-related securities held to maturity ........ -- 31,987 25,315
Sales and redemptions of mortgage-backed and
mortgage-related securities available for sale ...... 63,931 69,074 --
Principal repayments on mortgage-backed and
mortgage-related securities available for sale ...... 264,460 86,073 479
Realized (gains) losses on sales of mortgage-backed and
mortgage-related securities ......................... (272) 287 --
Realized (gains) losses on debt and equity securities ........... (2,800) (317) 110
Amortization of investment premiums, net accretion
of discount ......................................... 2,576 482 1,039
----------- ----------- -----------
Ending balance .................................................. $ 1,164,455 $ 843,194 $ 437,427
=========== =========== ===========
</TABLE>
18
<PAGE>
The following table sets forth certain information regarding the amortized cost
and market values of the Company's debt and equity and mortgage-backed and
mortgage-related securities, at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
----------------------------------------------------------------------------
1999 1998 1997
------------------------ ------------------------ ---------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
----------- ---------- ----------- ----------- ----------- --------
(In thousands)
<S> <C> <C> <C>
Debt securities held to maturity:
U.S. Government obligations .................... $ -- $ -- $ -- $ -- $ 52,757 $ 52,815
Agency securities .............................. -- -- -- -- 39,457 39,522
Municipal bonds ................................ -- -- -- -- 1,149 1,198
Corporate bonds ................................ -- -- -- -- 104,972 104,930
Other debt obligations.......................... -- -- -- -- 6,866 6,897
---------- ---------- ---------- --------- ----------- --------
Total debt securities held to maturity .. -- -- -- -- 205,201 205,362
---------- ---------- ---------- ---------- ----------- --------
Debt securities available for sale:
U.S. Government obligations .................... 300 300 8,960 8,989 -- --
Agency securities .............................. 41,564 39,312 24,484 24,675 -- --
Municipal bonds ................................ 1,575 1,572 1,119 1,182 -- --
Corporate bonds ................................ -- -- 19,425 19,598 -- --
Other debt obligations (1) ..................... 1,762 1,763 2,218 2,249 -- --
Asset backed notes ............................. 9,981 9,963 9,954 9,988 -- --
Financial bonds ................................ 204,447 198,246 114,153 115,863 -- --
---------- ----------- ---------- ---------- --------- --------
Total debt securities available for sale .. 259,629 251,156 180,313 182,544 -- --
---------- ----------- ---------- ---------- --------- --------
Equity securities available for sale:
Mutual funds ................................... -- -- 605 842 1,629 1,734
Preferred stock ................................ 29,687 30,097 27,146 28,448 14,027 14,158
Common stock ................................... 16,218 16,358 24,786 27,056 3,578 3,814
---------- ---------- ---------- ---------- ---------- --------
Total equity securities available for sale 45,905 46,455 52,537 56,346 19,234 19,706
---------- ---------- ---------- ---------- ---------- --------
Mortgage-backed and mortgage-related securities:
Held to maturity:
FHLMC pass-through ............................. -- -- -- -- 82,237 83,584
Private issuer pass-through .................... -- -- -- -- 3,276 3,281
Agency CMOs .................................... -- -- -- -- 32,248 32,336
Private issuer CMOs ............................ -- -- -- -- 67,361 67,392
---------- ---------- ---------- ---------- ---------- --------
Total mortgage-backed and mortgage-related
securities held to maturity ........... -- -- -- -- 185,122 186,593
---------- ---------- ---------- ---------- ---------- --------
Available for sale:
FHLMC pass-through ............................. 166,129 161,472 96,970 97,362 11,710 11,824
GNMA pass-through .............................. 162,446 159,247 185,098 185,023 -- --
FNMA pass-through .............................. 98,465 97,055 76,616 76,451 -- --
Private issuer pass-through .................... 92,664 89,734 18,143 18,208 -- --
Agency CMOs .................................... 55,849 54,922 39,165 39,125 4,693 4,686
Private issuer CMOs ............................ 311,274 304,414 187,587 188,135 10,881 10,888
---------- ---------- ---------- ---------- ---------- --------
Total mortgage-backed and mortgage-related
securities available for sale ......... 886,827 866,844 603,579 604,304 27,284 27,398
Net unrealized (loss) gain on
available for sale securities .................. (27,906) -- 6,765 -- 586 --
---------- ---------- ---------- ---------- ---------- --------
Total securities .................................. $1,164,455 $1,164,455 $ 843,194 $ 843,194 $ 437,427 $ 439,059
========== ========== ========== ========== ========== ==========
</TABLE>
(1) Consists of Railroad, Foreign and Other Bonds.
19
<PAGE>
The table below sets forth certain information regarding the carrying value,
weighted average yields and contractual maturities of the Company's securities
portfolio as of June 30, 1999.
<TABLE>
<CAPTION>
At June 30, 1999
--------------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years More than Ten Years
----------------- ------------------ ------------------ --------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
------- ------- -------- ---------- --------- -------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Available for sale:
Debt securities:
Municipal bonds ............... $ 277 3.17% $ 957 3.32% $ 338 4.08% $ -- --%
U.S. Government obligations ... 300 4.78 -- -- -- -- -- --
Agency securities ............. 500 5.49 16,696 6.05 9,600 6.63 12,516 7.02
Other debt obligations ........ -- -- 1,763 6.84 -- -- -- --
Asset backed notes ............ -- -- -- -- 9,963 7.00 -- --
Financial bonds ............... -- -- 1,403 6.41 6,652 8.82 190,191 7.25
---------- ---------- ---------- ----------
Total debt securities
available for sale ............... 1,077 4.70 20,819 6.02 26,553 7.28 202,707 7.24
---------- ---------- ---------- ----------
Mortgage-backed and
mortgage-related securities:
FHLMC pass-through ............ -- -- 5,701 6.94 -- -- 155,771 6.18
GNMA pass-through ............. -- -- -- -- -- -- 159,247 6.73
FNMA pass-through ............. -- -- 5,518 5.40 27,410 6.15 64,127 6.34
Private issuer pass-through ... -- -- -- -- 2,301 7.27 87,433 6.26
Agency CMOs ................... -- -- -- -- -- -- 54,922 6.54
Private issuer CMOs ........... -- -- -- -- -- -- 304,414 6.50
---------- ---------- ---------- ----------
Total mortgage-backed and
mortgage-related securities
available for sale ............... -- -- 11,219 6.18 29,711 6.24 825,914 6.45
---------- ---------- ---------- ----------
Equity securities:
Preferred stock .............. -- -- 4,500 5.09 12,451 6.20 13,146 6.19
Common stock ................. -- -- -- -- -- -- 16,358 2.85
---------- ---------- ---------- ----------
Total equity securities ............ -- -- 4,500 5.09 12,451 6.20 29,504 4.34
---------- ---------- ---------- ----------
Total securities
available for sale ............... $ 1,077 4.70 $ 36,538 5.95 $ 68,715 6.63 $1,058,125 6.54
========== ========== ========== ==========
</TABLE>
At June 30, 1999
------------------------------
Total
-----------------------------
Weighted
Carrying Average
Value Yield
---------- ---------------
Available for sale:
Debt securities:
Municipal bonds ............... $ 1,572 3.46%
U.S. Government obligations ... 300 4.78
Agency securities ............. 39,312 6.49
Other debt obligations ........ 1,763 6.84
Asset backed notes ............ 9,963 7.00
Financial bonds ............... 198,246 7.30
----------
Total debt securities
available for sale ............... 251,156 7.13
----------
Mortgage-backed and
mortgage-related securities:
FHLMC pass-through ............ 161,472 6.21
GNMA pass-through ............. 159,247 6.73
FNMA pass-through ............. 97,055 6.23
Private issuer pass-through ... 89,734 6.28
Agency CMOs ................... 54,922 6.54
Private issuer CMOs ........... 304,414 6.50
----------
Total mortgage-backed and
mortgage-related securities
available for sale ............... 866,844 6.44
----------
Equity securities:
Preferred stock .............. 30,097 6.03
Common stock ................. 16,358 2.85
----------
Total equity securities ............ 46,455 4.91
----------
Total securities
available for sale ............... $1,164,455 6.53
==========
Sources of Funds
General. Deposits, repayments and prepayments of loans and securities, proceeds
from sales of loans and securities, proceeds from maturing securities and cash
flows from operations are the primary sources of the Bank's funds for use in
lending, investing and for other general purposes. The Bank also utilizes
borrowed funds, primarily FHLB advances and reverse-repurchase agreements, to
fund its operations.
Deposits. The Bank offers a variety of deposit accounts with a range of interest
rates and terms. The Bank's deposit accounts consist of savings, 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 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 June 30, 1999, the Bank's deposits totaled $1.6 billion, of which 89.6% were
interest-bearing deposits. For year ended June 30, 1999, the average balance of
core deposits totaled $722.2 million, or 63.7% of total average deposits. At
June 30, 1999, the Bank had a total of $598.5 million in certificates of
deposit, of which $453.0 million had maturities of less than one year. For the
year ended June 30, 1998, the average balance of core deposits represented
approximately 66.0% of total deposits and certificate accounts represented
34.0%, as compared to core deposits representing 63.7% of total deposits and
certificate accounts representing 36.3% of deposits for year ended June 30,
1999. 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.
20
<PAGE>
The flow of deposits is influenced significantly by general economic conditions,
changes inmoney 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.
The following table presents the deposit activity of the Bank for the periods
indicated:
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------------
1999 1998 1997
----------- ----------- ------------
(In thousands)
<S> <C> <C> <C>
Net deposits .................................................. $108,989 $ 34,168 $ 38,896
Deposits of acquired institutions, net ........................ 523,742 -- --
Interest credited on deposit accounts ......................... 35,931 30,822 27,707
-------- -------- --------
Total increase in deposit accounts ............................ $668,662 $ 64,990 $ 66,603
======== ======== ========
</TABLE>
At June 30, 1999, the Bank had outstanding $80.3 million in certificate of
deposit accounts in amounts of $100,000 or more, maturing as follows:
Weighted
Maturity Period Amount Average Rate
- ---------------------------------- ---------- ------------
(Dollars in thousands)
Three months or less ............. $23,926 5.25%
Over three through six months .... 18,463 4.87
Over six through 12 months ....... 17,971 5.13
Over 12 months ................... 19,942 5.62
-------
Total ............................ $80,302 5.23
=======
21
<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 ended June 30,
1998 and 1997 presented utilize average month-end balances. The period ended
June 30, 1999, utilized daily average balances.
<TABLE>
<CAPTION>
For the Year Ended June 30,
--------------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------------
Percent Percent
of Total Weighted of Total Weighted
Average Average Average Average Average Average
Balance Deposits Rate Balance Deposits Rate
---------- --------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Money market accounts ...... $ 42,973 3.79% 3.22% $ 39,075 4.23% 3.46%
Savings accounts ........... 510,476 45.00 2.48 445,057 48.19 2.73
NOW accounts ............... 35,004 3.08 1.70 19,089 2.07 2.34
Non-interest-bearing
accounts ................ 133,707 11.79 -- 106,189 11.50 --
---------- ------ -------- ------
Total ................ 722,160 63.66 2.03 609,410 65.99 2.29
---------- ------ -------- ------
Certificates of deposit:
Less than six months ....... 43,366 3.82 4.37 21,096 2.28 4.42
Over six through
12 months ............... 84,035 7.41 4.87 57,081 6.18 5.09
Over 12 through
24 months ............... 172,659 15.23 5.14 152,047 16.47 5.59
Over 24 months ............. 58,647 5.17 5.89 51,293 5.55 5.81
Certificates over
$100,000 ................ 53,459 4.71 5.28 32,589 3.53 5.46
---------- ------ -------- ------
Total certificates
of deposit .............. 412,166 36.34 5.17 314,106 34.01 5.44
---------- ------ -------- ------
Total average deposits .. $1,134,326 100.00% 3.17 $923,516 100.00% 3.36
========== ======= ======== ======
</TABLE>
For the Year Ended June 30,
--------------------------------------------
1997
--------------------------------------------
Percent
of Total Weighted
Average Average Average
Balance Deposits Rate
-------------- ------------ ------------
Money market accounts ...... $ 37,552 4.48% 3.48%
Savings accounts ........... 432,162 51.61 2.74
NOW accounts ............... 15,652 1.87 2.36
Non-interest-bearing
accounts ................ 78,483 9.37 --
-------- -------
Total ................ 563,849 67.33 2.40
-------- -------
Certificates of deposit:
Less than six months ....... 30,437 3.64 4.38
Over six through
12 months ............... 46,188 5.52 4.90
Over 12 through
24 months ............... 121,109 14.46 5.33
Over 24 months ............. 52,787 6.30 5.75
Certificates over
$100,000 ................ 23,025 2.75 5.32
-------- -------
Total certificates
of deposit .............. 273,546 32.67 5.23
-------- -------
Total average deposits .. $837,395 100.00% 3.33
======== =======
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from June 30, 1999
---------------------------------------------------------------------------------------------------
Less than One to Two to Three to Four to Five years
One Year Two years Three years Four years Five years or more
---------- ---------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
---------------------------------------------------------------------------------------------------
Certificates of deposit:
0 to 4.00% .......... $ 8,645 $ 176 $ 90 $ 32 $ 1 $ 10
4.01 to 5.00% ....... 305,245 58,310 4,878 59 2,934 1,028
5.01 to 6.00% ....... 123,536 40,084 8,504 9,532 10,670 5,866
6.01 to 7.00% ....... 3,243 294 3,711 765 -- 127
7.01 to 8.00% ....... 6,331 576 3,823 -- -- --
-------- -------- -------- ---------- -------- --------
Total ............. $447,000 $ 99,440 $ 21,006 $ 10,388 $ 13,605 $ 7,031
======== ======== ======== ========== ======== ========
</TABLE>
At June 30,
----------------------------------------------
1999 1998 1997
---------- ---------- ---------
-----------------------------------------------
Certificates of deposit:
0 to 4.00% ..................... $ 8,954 $ 4,871 $ 3,369
4.01 to 5.00% .................. 372,454 42,512 75,534
5.01 to 6.00% .................. 198,192 266,741 205,325
6.01 to 7.00% .................. 8,140 6,950 9,553
7.01 to 8.00% .................. 10,730 4,274 4,285
-------- -------- --------
Total ........................ $598,470 $325,348 $298,066
======== ======== ========
22
<PAGE>
Borrowed Funds. During fiscal year 1999, the Bank continued to leverage its
capital by utilizing borrowings as an additional source of funds for asset
growth. At June 30, 1999, the Bank had total borrowings of $757.8 million, which
consisted of repurchase agreements with established brokerage firms and advances
with the FHLB of New York. These borrowings are collateralized primarily by the
Bank's mortgage-backed securities. The Bank had $306.0 million in borrowings at
June 30, 1998 and no borrowings at June 30, 1997.
The Bank may continue to utilize borrowings in fiscal year 2000, which may
result in an increase in the Bank's overall cost of funds. The Bank's current
strategy is to invest such borrowed funds primarily in mortgage-backed and
mortgage-related securities. This strategy is intended to incrementally increase
net interest income, although it may have the effect of incrementally decreasing
net interest rate spread. 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 years ended
June 30, 1999 and 1998, $80,000 and $68,000, or 0.7% and 2.0%, 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 years ended June 30, 1999 and 1998, the Bank received
$51,000 and $47,000, or 0.4% 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. This is
currently the only business activity conducted by RCSB. The assets of RCSB
totaled $797,202 at June 30, 1999.
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 June 30, 1999, were
$4,021.
Richmond County Capital Corp. Richmond County Capital Corp. ("RCCC"), a wholly
owned subsidiary of the Richmond Investment Corporation, and was incorporated in
the State of New York on February 27, 1998, for the purpose of establishing a
Real Estate Investment Trust ("REIT"). On April 5, 1999, the Bank exchanged its
ownership in RCCC for full ownership in Richmond Investment Corp. Total assets
of RCCC as of June 30, 1999 were $284 million.
Richmond Investment Corporation. Richmond Investment Corporation ("RIC"), a
wholly owned subsidiary of the Bank, was incorporated in the State of Delaware
on March 19, 1999, as the holding company for RCCC. On April 5, 1999, the Bank
transferred its ownership of RCCC to RIC. In return, the Bank received full
ownership of RIC. As of June 30, 1999, the assets of RIC totaled $50,000.
RCBK Mortgage Corp. RCBK Mortgage Corp., a wholly owned subsidiary of the Bank,
was incorporated in New York State on July 9, 1998, and is licensed to conduct
business in the states of New Jersey and Pennsylvania. Total assets of RCBK
Mortgage Corp. as of June 30, 1999 were $42.3 million.
Bayonne Service Corp. Bayonne Service Corp. ("BSC"), a wholly owned subsidiary
of the Bank, was incorporated in the state of New Jersey on November 11, 1982.
The Bank assumed ownership of BSC with the acquisition of First Savings Bank of
New Jersey, SLA on March 22, 1999. The BSC offers brokerage services in the City
of Bayonne, New Jersey.
Bayonne Old Mill Service Corp. Bayonne Old Mill Service Corp. ("BOMSC"), a
wholly owned subsidiary of the Bank, incorporated on April 4, 1988, in the State
of New Jersey. BOMSC was a subsidiary of First Savings Bank of New
23
<PAGE>
Jersey, SLA and the Bank assumed ownership when it acquired First Savings Bank
of New Jersey, SLA on March 22, 1999. It is currently inactive.
Final Bayonne Service Corp. Final Bayonne Service Corp. ("FBSC"), a wholly owned
subsidiary of the Bank was incorporated in New Jersey on January 1, 1992. The
Bank assumed ownership of FBSC when it acquired First Savings Bank of New
Jersey, SLA on March 22, 1999. It is currently inactive.
Pacific Urban Renewal Corp. Pacific Urban Renewal Corp. ("PURC"), a wholly owned
subsidiary of the Bank was incorporated on February 2, 1988, in the State of New
Jersey. PURC owns a commercial rental property and is qualified to do business
under the provisions of the Urban Renewal Corporation and Association Law of New
Jersey. It was a wholly owned subsidiary of Ironbound Bank and the Bank assumed
ownership when it acquired Ironbound Bank on March 5, 1999.
Ironbound Investment Company. Ironbound Investment Company ("IIC"), is a wholly
owned subsidiary of the Bank and was incorporated in New Jersey on April 1,
1996. The Bank assumed ownership of IIC when it acquired Ironbound Bank on March
5, 1999. IIC holds various investment securities and as of June 30, 1999, its
assets totaled $29 million.
Personnel
As of June 30, 1999, the Bank had 434 full-time employees and 158 part-time
employees. The employees are not represented by a collective bargaining
agreement and the Bank considers its relationship with its employees to be good.
REGULATION AND SUPERVISION
General
The Company, as a savings and loan holding company, is required to file certain
reports and otherwise comply with the rules and regulations of the OTS under the
Home Owner's Loan Act, as amended ("HOLA").
The Bank is a New York State chartered stock savings bank and its deposit
accounts are insured up to applicable limits by the FDIC under the Bank
Insurance Fund ("BIF"). The Bank is subject to extensive regulation by the
Superintendent, the NYBB, the NYSBD, as its chartering agency, and by the FDIC,
as the deposit insurer. The Bank must file reports with the NYSBD and the FDIC
concerning its activities and financial condition, in addition to obtaining
regulatory approvals prior to entering into certain transactions, such as
establishing branches and mergers with, or acquisitions of, other depository
institutions. There are periodic examinations by the NYSBD and the FDIC to
assess the Bank's compliance with various regulatory requirements and financial
condition. This regulation and supervision establishes a framework of activities
in which a savings bank can engage and is intended primarily for the protection
of the insurance fund and depositors. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such regulation, whether by
the NYSBD, the FDIC or through legislation, could have a material adverse impact
on the Company and the Bank and their operations and stockholders. The Company
is also required to file certain reports with, and otherwise comply with the
rules and regulations, of the OTS, the NYSBD and the SEC under the federal
securities laws. Certain of the regulatory requirements applicable to the Bank
and to the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings banks and their
holding companies set forth in this Form 10-K does not purport to be a complete
description of such statutes and regulations and their effect upon the Bank and
the Company.
New York State Law
The Bank derives its lending, investment and other authority primarily from the
applicable provisions of New York State Banking Law and the regulations of the
NYBB, as limited by FDIC regulations. 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,
24
<PAGE>
certain types of corporate equity securities and certain other assets. Under the
statutory authority for investing in equity securities, a savings bank may
directly invest up to 7.5% of its assets in certain corporate stock and may also
invest up to 7.5% of its assets in certain mutual fund securities. Investment in
the stock of a single corporation is limited to the lesser of 2% of the
outstanding stock of such corporation or 1% of the savings bank's assets, except
as set forth below. Such equity securities must meet certain tests of financial
performance. A savings bank's lending powers are not subject to percentage of
asset limitations, although there are limits applicable to single borrowers. A
savings bank may also, pursuant to the "leeway" authority, make investments, not
otherwise 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 NYBB.
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 ("FDICIA") and the FDIC regulations issued pursuant
thereto.
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 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 Directors 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
25
<PAGE>
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) and deferred tax assets.
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 at
least 4%. 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 June 30, 1999:
GAAP Capital to Total Assets ...................................... 12.03%
Total Capital to Risk-Weighted Assets ............................. 19.84%
Tier I Leverage Ratio ............................................. 10.96%
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
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. Most recently, the agencies have adopted guidelines regarding Year
2000 computer compliance. 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, ("FDIC Act").
Real Estate Lending Standards. The FDIC and the other federal banking agencies
have adopted regulations that prescribe standards for extensions of credit that
(1) are secured by real estate or (2) 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
26
<PAGE>
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, is required to provide the
OTS with 30 days prior written notice before declaring any dividend. The
Conversion also restricts the Bank's ability to pay a dividend, if payment of
the dividend would impair the liquidation account established in connection with
the Conversion.
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
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 adopted revisions to its regulations governing the
procedures for institutions seeking approval to engage in such activities or
investments. These revisions, 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 I capital, as specified by the FDIC's regulations, or the maximum
amount permitted by New York State Banking Law, whichever is less. Such
grandfathering authority is subject to termination upon the FDIC's determination
that such investments pose a safety and soundness risk to the Bank, or in the
event the Bank converts its charter or undergoes a change in control. As of June
30, 1999, the Bank had $38.6 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%.
27
<PAGE>
"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 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
nonbanking 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 Federal Reserve Board 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 of, 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.
28
<PAGE>
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 equity to total
assets that is equal to or 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: (1) insolvency (whereby the assets of
the savings bank are less than its liabilities to depositors and others); (2)
substantial dissipation of assets or earnings through violations of law or
unsafe or unsound practices; (3) existence of an unsafe or unsound condition to
transact business; (4) 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 (5) 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 Savings Association Insurance Fund
("SAIF") deposits currently range from zero basis points to 27 basis points, and
the FDIC has determined to retain such range of assessment rates for the first
half of 1999. 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, such as 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 $46.5 million or less (subject to adjustment by the Federal Reserve
Board) the reserve requirement is 3%; and for accounts greater than $46.5
million, the reserve requirement is $1.395 million plus 10% (subject to
adjustment by the Federal Reserve Board between 8% and 14%) against that portion
of total transaction accounts in excess of $46.5 million. The first $4.9 million
of otherwise reservable balances (subject to adjustments by the Federal Reserve
Board) are exempted from the reserve requirements. The Bank is in compliance
with the foregoing requirements. Because required reserves must be maintained in
the form of either vault cash, a non-interest-bearing account at a Federal
Reserve Bank or a pass-through account as defined by the Federal Reserve Board,
the effect of this reserve requirement is to reduce the Bank's interest-earning
assets. 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
29
<PAGE>
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 NYSBD. 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 NYSBD has adopted,
effective December 3, 1997, new regulations to implement the NYCRA. The NYSBD
replaced its process-focused regulations with performance-focused regulations
that are intended to parallel current CRA regulations of federal banking
agencies and to promote consistency in CRA evaluations by considering more
objective criteria. The new regulations require a biennial assessment of a
bank's compliance with the NYCRA, utilizing a four-tiered rating system, and
require the NYSBD to make available to the public such rating and a written
summary of the results. The Bank's latest NYCRA rating received from the NYSBD
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 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 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 made such election and received
approval from the OTS to become a savings and loan holding company. The Company
is regulated as a non-diversified unitary savings and loan holding company,
within the meaning of the HOLA. As such, the Company registered with the OTS and
is subject to OTS regulations, examinations, supervision and reporting
requirements. In addition, the OTS has enforcement authority over the Company
and its non-savings 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 is
required to notify the OTS at least 30 days before declaring any dividend to the
Company.
As a unitary savings and loan holding company, the Company generally is not
restricted under existing laws as to the types of business activities in which
it may engage. Upon any non-supervisory acquisition by the Company of another
savings
30
<PAGE>
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. Legislation under
consideration in Congress would impose restrictions on the activities of unitary
savings and loan holding companies subject to grandfathering of existing unitary
savings and loan 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: (1) interstate supervisory acquisitions by savings
and loan holding companies, and (2) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions. The states vary in the extent to which
they permit interstate savings and loan holding company acquisitions.
In order to elect and continue to be regulated as a savings and loan holding
company by the OTS (rather than as a bank holding company by the Federal Reserve
Board), the Bank must continue to qualify as a QTL. In order to qualify as a
QTL, the Bank must maintain compliance with a Qualified Thrift Lender Test ("QTL
Test"). Under the QTL Test, a savings institution is required to maintain at
least 65% of its "portfolio assets" (total assets less: (1) specified liquid
assets up to 20% of total assets; (2) intangibles, including goodwill; and (3)
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 nine 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 June 30, 1999, the Bank maintained in
excess of 74.27% of its portfolio assets in qualified thrift investments. The
Bank also met the QTL Test in each of the prior 12 months. Recent legislation
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 (the "Code").
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 NYSBD 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
31
<PAGE>
and other bank holding companies and limitations regarding loans obtained from
its subsidiaries. Although the Company is not a bank holding company for
purposes of New York State law, any future acquisition of ownership, control, or
the power to vote 10% or more of the voting stock of another New York banking
institution or bank holding company would cause it to become such.
Interstate Banking and Branching
The Company, as a savings and loan holding company, is limited under HOLA with
respect to its acquisition of a savings association located in a state other
than New York. In general, a savings and loan holding company may not acquire an
additional savings association subsidiary that is located in a state other than
the home state of its first savings association subsidiary, unless such an
interstate acquisition is permitted by the statutes of such other state. Many
states permit such interstate acquisitions if the statutes of the home state of
the acquiring savings and loan holding company satisfy various reciprocity
conditions. New York is one of a number of states that permit, subject to the
reciprocity conditions of the New York Banking Law, out-of-state bank and
savings and loan holding companies to acquire New York savings associations.
In contrast, bank holding companies are generally authorized to acquire banking
subsidiaries in more than one state, irrespective of any state law restrictions
on such acquisitions. The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 ("Interstate Banking Act"), which was enacted on
September 29, 1994, permits approval under the BHC Act of the acquisition of a
bank located outside of the holding company's home state, regardless of whether
the acquisition is permitted under the law of the state of the acquired bank.
The Federal Reserve Board may not approve an acquisition under the BHC Act that
would result in the acquiring holding company controlling more than 10% of the
deposits in the United States or more than 30% of the deposits in any particular
state.
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
permitted 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 Bank has exercised the branching authority provided by the Interstate
Banking Act to acquire institutions in New Jersey and establish branches at the
offices of the acquired institutions. The Interstate Banking Act provides that
the laws of the host state, i.e., New Jersey, regarding community reinvestment,
consumer protection, fair lending and establishing interstate branches apply to
any branch in the host state to the same extend that such laws could apply to a
branch of an out of state national bank. The laws of the home state, i.e., New
York, apply to the extent host state law is inapplicable.
Federal Securities Laws
The Company's Common Stock is registered with the SEC under section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements under the Exchange Act.
The registration, under the Securities Act of 1933, as amended (the "Securities
Act"), of shares of the Common Stock that were issued in the Bank's Conversion
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 (1) 1% of the outstanding shares of the
Company or (2) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
32
<PAGE>
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 years ended December 31, 1993, 1994 and 1995.
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 (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 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" 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,
33
<PAGE>
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 (1) 9% of the Bank's "entire net income" allocable to New York State
during the taxable year, or (2) 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 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. 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. 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. Through December 31, 1998, the Bank did a substantial portion of its
business within this District and is subject to this surcharge. For the tax year
ended December 31, 1998, 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.
New Jersey State Taxation. For New Jersey tax purposes, there is imposed upon
every savings institution for the privilege of doing business within the state
an excise tax at the rate of 3% upon its net income. Net income means total
income derived from all New Jersey sources, and the amount of net income is
presumed to be equal to the taxable income, before net operating loss deduction
and special deductions, which are reported for the purpose of computing Federal
income tax. However, "net income" shall exclude 100% of dividends which were
included in computing such taxable income which were paid to the Company by one
or more qualified subsidiaries owned by it.
The Company may be required to file a New Jersey income tax return if it
derives income from sources within New Jersey. For New Jersey tax purposes, the
Company would be taxed at a rate equal to 7.25% of its entire net income
allocable to New Jersey if such entire net income is less than $100,000 or 9.00%
if entire net income allocable to New Jersey is $100,000 or greater. For this
purpose, "entire net income" means total net income from all sources and shall
be deemed to equal in amount to the taxable income, before net operating loss
deduction and special deductions, which the taxpayer is required to report to
the United States Treasury Department for the purpose of computing its Federal
Income Tax. However, "entire net income" shall exclude 100% of dividends which
were included in computing such taxable income which were paid to the Company by
one or more qualified subsidiaries owned by it.
34
<PAGE>
Item 2. Properties
Properties
The Bank currently conducts its business through 23 full-service banking
offices. The following table sets forth the Bank's offices as of June 30, 1999.
<TABLE>
<CAPTION>
Original Net Book Value
Year of Property or
Leased Leased Date of Leasehold
or or Lease Improvements at
Location Owned Acquired Expiration June 30, 1999
- ------------------------------------------ --------------- ------------------- ------------------ ----------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Administrative/Home Office:
West New Brighton Office (1):
1214 Castleton Avenue
Staten Island, NY 10310.................. Owned 1916 - $1,439
Branch Offices:
Port Richmond Office:
282 Port Richmond Avenue
Staten Island, NY 10302................... Owned 1951 - 106
Great Kills Office:
3879 Amboy Road
Staten Island, NY 10308................... Owned 1975 - 1,382
Annadale Office:
820 Annadale Road
Staten Island, NY 10312................... Owned 1967 - 318
Bull's Head Office (2):
1460 Richmond Avenue
Staten Island, NY 10314................... Owned 1971 - 733
Dongan Hills Office:
1833 Hylan Boulevard
Staten Island, NY 10305................... Owned 1974 - 1,167
New Springville Office:
2555 Richmond Avenue
Staten Island, NY 10134................... Leased 1976 2005 308
Woodrow Plaza Office:
645-100 Rossville Avenue
Staten Island, NY 10309................... Leased 1983 2013 321
Tottenville Office:
179 Main Street
Staten Island, NY 10307................... Owned 1988 - 345
Westerleigh Office:
832 Jewett Avenue
Staten Island, NY 10314................... Owned 1992 - 651
Eltingville Office (3):
4523 Amboy Road
Staten Island, NY 10312................... Owned 1992 - 2,438
Grasmere Office (4):
1100 Hylan Boulevard
Staten Island, NY 10305................... Leased 1992 2005 402
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
Original Net Book Value
Year of Property or
Leased Leased Date of Leasehold
or or Lease Improvements at
Location Owned Acquired Expiration June 30, 1999
- -------------------------------------------- --------------- ------------------- ------------------ --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Brooklyn Office:
132 Avenue U
Brooklyn, NY 11223.......................... Leased 1977 1997(5) $ 301(6)
New Dorp Office:
2595 Hylan Boulevard
Staten Island, NY 10306..................... Leased 1998 2013 1,873
Sunnyside Office:
1270 Clove Road
Staten Island, NY 10301..................... Leased 1998 2013 446
Jericho Office:
100 Jericho Quadrangle, Suite 334
Jericho, NY 11753........................... Leased 1998 2005 -
Pacific Street Office:
36 Pacific Street
Newark, NJ 07105............................ Owned 1999 - 1,194
Ferry Street Office:
120-122 Ferry Street
Newark, NJ 07105........................... Leased 1999 2000 1,265
Elizabeth Office:
715 Elizabeth Street
Elizabeth, NJ 07201........................ Owned 1999 - 466
26th Street Office:
568 Broadway
Bayonne, NJ 07002.......................... Owned 1999 - 366
6th Street Office:
171-173 Broadway
Bayonne, NJ 07002.......................... Owned 1999 - $ 1,153
20th Street Office:
441 Broadway
Bayonne, NJ 07002.......................... Owned 1999 - 816
46th Street Office:
949 Broadway
Bayonne, NJ 07002.......................... Owned 1999 - 1,235
Financial Center:
447 Broadway
Bayonne, NJ 07002.......................... Owned 1999 - 680
Public Accommodation Offices:
Brooklyn Public Accommodation Office:
81 Avenue U
Brooklyn, NY 11223.......................... Leased 1980 1999 -
Staten Island Public Accommodation Office:
1445 Richmond Avenue
Staten Island, NY 10314.................... Leased 1998 2013 -
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Original Net Book Value
Year of Property or
Leased Leased Date of Leasehold
or or Lease Improvements at
Location Owned Acquired Expiration June 30, 1999
- -------------------------------------------- --------------- ------------------- ------------------ --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Other Properties:
Garwood:
Undeveloped Building Lot
358 North Avenue
Garwood, NJ 07027 .......................... Owned 1999 - $475
Second Street Building Site:
42-62 Avenue C
35 West 2nd Street
Bayonne, NJ 07002.......................... Owned 1999 - 606
</TABLE>
(1) Certain portions of the Bank's administrative operations are located at
properties not included in the table.
(2) Includes the Staten Island Public Accomadation Office.
(3) The Eltingville office includes the Bank's lending center.
(4) The Bank owns the parking area of the Grasmere Office and it leases the
Grasmere Office building.
(5) Includes the Brooklyn Public Accommodation Office.
(6) The Bank has the option to extend the lease on the Brooklyn office for two
five-year periods.
Item 3. Legal Proceedings
The Company is not involved in any pending legal proceedings, other than routine
legal proceedings occurring in the ordinary course of business, which, in the
aggregate, involve amounts which are believed by management to be immaterial to
the financial condition and results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
37
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
- ------- MATTERS
Richmond County Financial Corp. became a publicly traded company on February 18,
1998. The Company's common stock is traded on the Nasdaq National Market under
the symbol "RCBK." Information regarding the market for the Company's common
equity and related stockholder matters appears in the 1999 Annual Report to
Shareholders under the caption "Market Price of Common Stock" and is
incorporated herein by reference.
As of September 15, 1999, the Company had 31,039,812 shares of common stock
outstanding and entitled to vote and approximately 9,705 shareholders of
record, not including persons or entities holding stock in nominee or street
name through brokers or banks.
ITEM 6. EARNINGS SUMMARY AND SELECTED FINANCIAL DATA
- -------
That section of the Company's Annual Report to Shareholders for the fiscal year
ended June 30, 1999 entitled "Selected Consolidated Financial and Other Data of
the Company," pages 13 through 14, is incorporated herein by reference.
This section of the Company's Annual Report to Shareholders for the fiscal year
ended June 30, 1999 entitled "Selected Quarterly Financial Data," page 55, is
incorporated herein by reference. Richmond County Financial Corp. became a
public company on February 18, 1998. Richmond County Financial Corp. Common
Stock is traded on The Nasdaq National Market under the symbol "RCBK."
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------- OF OPERATIONS
That section of the Company's Annual Report to shareholders for the fiscal year
ended June 30, 1999 entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," pages 15 through 30, is incorporated
herein by reference.
38
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------
That section of the Company's Annual Report to Shareholders for the fiscal year
ended June 30, 1999 entitled "Asset and Liability Management and the Management
of Interest Rate Risk," pages 25 through 27, is incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS
- -------
Those sections of the Company's Annual Report to Shareholders for the fiscal
year ended June 30, 1999 entitled "Report of Independent Auditors," page 56,
"Consolidated Statements of Financial Condition," page 31, "Consolidated
Statements of Operation, page 32, "Consolidated Statements of changes in
Stockholders' Equity," page 33, "Consolidated Statements of Cash Flows," pages
34 through 35, "Notes to Consolidated Financial Statements," pages 36 through
55, inclusive, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- FINANCIAL DISCLOSURE
None
39
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Company
EXECUTIVE OFFICERS OF THE REGISTRANT AND THE BANK
Information regarding the directors and executive officers of the Company is
incorporated herein by reference to the Company's Proxy Statement for the Annual
Meeting of Shareholders to be held on October 28, 1999 under the caption
"Information with Respect to the Nominees, Continuing Directors, and Certain
Executive Officers of the Company." Pursuant to General Instruction G(3) to the
Form 10-K, the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held on October 28, 1999 will be filed with the Commission not later than
120 days after the end of the fiscal year covered by this Form 10-K.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than 10% of any registered class of the
Company's equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission. Executive officers,
directors and greater than 10% shareholders are required by regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it has received, as
provided to the Company by the above referenced persons, the Company believes
that, during the fiscal year ended June 30, 1999, all filing requirements
applicable to its reporting officers, directors and greater than 10%
shareholders were properly and timely complied with.
Item 11. Executive Compensation
Information regarding executive compensation appears on page 14 of the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on October 28,
1999, under the caption "Executive Compensation" and is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information regarding security ownership of certain beneficial owners appears on
page 4 of the Company's Proxy Statement for the Annual Meeting of Shareholders
to be held October 28, 1999, under the caption "Security Ownership of Certain
Beneficial Owners" and is incorporated herein by this reference.
Information regarding security ownership of management appears on pages 6
through 7 of the Company's Proxy Statement for the Annual Meeting of
Shareholders to be held October 28, 1999, under the caption "Information with
Respect to the Nominees, Continuing Directors and Named Executive Officers of
the Company" and is incorporated herein by this reference.
Item 13. Certain Relationships and Related Transactions
Information regarding certain relationships and related transactions appears on
page 19 of the Company's Proxy Statement for the Annual Meeting of Stockholders
to be held on October 28, 1999 under the caption "Transactions With Certain
Related Persons" and is incorporated by this reference.
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements:
See "Part II - Item 8. Financial Statements"
EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------
(a) Exhibits
--------
2.1 Plan of Conversion (including the Restated Organization
Certificate and Stock Bylaws of Richmond County Savings Bank).*
2.2 Agreement and Plan of Merger, dated as of July 17, 1998, by and
between Richmond County Financial Corp. and Ironbound Bankcorp,
NJ.**
2.3 Agreement and Plan of Merger, amended and restated as of October 14,
1998, by and between Richmond County Financial Corp. and Bayonne
Bancshares, Inc.****
3.1 Certificate of Incorporation of Richmond County Financial Corp.*
3.2 Bylaws of Richmond County Financial Corp.*
10.1 Form of Richmond County Savings Bank Employee Stock Ownership Plan
and Trust.*
10.2 Form of ESOP Loan Commitment Letter and ESOP Loan Documents.*
10.3 Employment Agreement between Richmond County Financial Corp. and
Michael F. Manzulli (As Amended and Restated).
10.4 Employment Agreement between Richmond County Savings Bank and
Michael F. Manzulli.*
10.5 Employment Agreement between Richmond County Financial Corp. and
Anthony E. Burke (As Amended and Restated).
10.6 Employment Agreement between Richmond County Savings Bank and
Anthony E. Burke.
10.7 Employment Agreement between Richmond County Financial Corp. and
Thomas R. Cangemi (As Amended and Restated).
10.8 Employment Agreement between Richmond County Savings Bank and Thomas
R. Cangemi.
10.9 Employment Agreement between Richmond County Savings Bank and
Michael J. Gagliardi.***
10.10 Employment Agreement between Richmond County Savings Bank and Thomas
R. Lupo.***
10.11 Employment Agreement between Richmond County Savings Bank and
Michael A. Nilan.***
10.12 Form of Change in Control Agreement between Richmond County Savings
Bank and certain executive officers.*
10.13 Form of Proposed Richmond County Savings Bank Employee Severance
Compensation Plan.*
10.14 Richmond County Financial Corp. Supplemental Executive Retirement
Plan (As Amended and Restated).
10.15 Richmond County Financial Corp. 1998 Stock-Based Incentive Plan.****
11.0 Statement re: Computation of Per Share Earnings.
13.0 1999 Annual Report to Shareholders.
21.0 Subsidiaries Information included in Part I.
23.0 Consent of Independent Auditors.
27.0 Financial Data Schedule (EDGAR version only).
* Incorporated by reference from the Form S-1 (Registration No. 333-
37009), as amended, filed on October 2,1997.
** Incorporated by reference from the Form 8-K (File No. 0-23271),
filed with the SEC on July 27,1998.
*** Incorporated by reference from the Form 10-Q (File No. 0-23271),
filed with the SEC on May 17,1999.
**** Incorporated by reference from the Form 8-K (File No. 0-23271),
filed with the SEC on October 16,1998.
***** Incorporated by reference from the DEF 14A (File No. 0-23271),
filed with the SEC on August 28,1998.
(b) Reports on Form 8-K
-------------------
i. The Company filed a report on Form 8-K with the SEC (File No.
0-23271) on March 8, 1999, which report announced that the
Company had consummated its acquisition of Ironbound Bankcorp, NJ
as well as to announce the consummation of the merger of
Ironbound Bank with and into Richmond County Savings Bank.
ii. The Company filed a report on Form 8-K with the SEC (File No.
0-23271) on March 24, 1999, which report announced that the
Company had consummated its acquisition of Bayonne Bancshares,
Inc. as well as to announce the consummation of the merger of
First Savings Bank of New Jersey with and into Richmond County
Savings Bank.
41
<PAGE>
iii. The Company filed a report on Form 8-K with the SEC (File No.
0-23271) on April 15, 1999, to report that the Company had issued
a press release reporting the pending introduction of Internet
banking services by its wholly-owned subsidiary, Richmond County
Savings Bank.
iv. The Company filed a report on Form 8-K/A with the SEC (File No.
0-23271) on June 8, 1999, which report supplemented the
information contained in the Form 8-K the Company filed with the
SEC on March 24, 1999.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RICHMOND COUNTY FINANCIAL CORP.
-------------------------------
(Registrant)
/s/ Michael F. Manzulli Date: September 28, 1999
------------------------------- -------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities indicated on September 28, 1999.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------ ---------- --------
<S> <C> <C>
/s/ Michael F. Manzulli Chairman of the Board, Chief September 28, 1999
- -------------------------------- Executive Officer and Director ------------------
Michael F. Manzulli
/s/ Anthony E. Burke President, Chief Operating Officer September 28, 1999
- -------------------------------- and Director ------------------
Anthony E. Burke
/s/ Thomas R. Cangemi Senior Vice President, Chief September 28, 1999
- -------------------------------- Financial Officer, and Treasurer ------------------
Thomas R. Cangemi
/s/ Godfrey H. Carstens, Jr. Director September 28, 1999
- -------------------------------- ------------------
Godfrey H. Carstens, Jr.
/s/ Robert S. Farrell Director September 28, 1999
- -------------------------------- ------------------
Robert S. Farrell
/s/ William C. Frederick Director September 28, 1999
- -------------------------------- ------------------
William C. Frederick, M.D.
/s/ James L. Kelley Director September 28, 1999
- -------------------------------- ------------------
James L. Kelley
/s/ Patrick F. X. Nilan Director September 28, 1999
- -------------------------------- ------------------
Patrick F. X. Nilan
/s/ T. Ronald Quinlan, Jr. Director September 28, 1999
- -------------------------------- ------------------
T. Ronald Quinlan, Jr.
/s/ Maurice K. Shaw Director September 28, 1999
- -------------------------------- ------------------
Maurice K. Shaw
</TABLE>
43
<PAGE>
EXHIBIT 10.3
RICHMOND COUNTY FINANCIAL CORP.
EMPLOYMENT AGREEMENT
(As Amended and Restated)
This AGREEMENT ("Agreement"), originally entered into on February 17, 1998,
is amended and restated in its entirety, effective as of September 21, 1999, by
and between Richmond County Financial Corp. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
1214 Castleton Avenue, Staten Island, New York 10310, and Michael F. Manzulli
("Executive"). Any reference to "Institution" herein shall mean Richmond County
Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Chairman of the Board and Chief Executive Officer of the Holding
Company. Executive shall render administrative and management services to the
Holding Company such as are customarily performed by persons in a similar
executive capacity. During said period, Executive also agrees to serve, if
appointed or elected, as the case may be, as an officer and director of any
subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of this
Agreement, as amended and restated. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day, so that a constant sixty (60) calendar month term shall remain in effect,
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 8 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the fifth
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and other
reasonable leaves of
<PAGE>
absence, Executive shall devote substantially all his business time, attention,
skill, and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Holding Company and its direct or indirect subsidiaries, including the
Institution, ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary, either
Executive or the Holding may terminate Executive's employment with the Holding
Company at any time during the term of this Agreement, subject to the terms and
conditions of this Agreement.
(d) Under no circumstance shall Executive perform as part of his duties as
Chairman of the Board and Chief Executive Officer of the Holding Company, in any
respect, directly or indirectly, during the pendency of any temporary or
permanent suspension from the Institution or upon termination of employment with
the Institution, any duties or responsibilities formerly performed at the
Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive, as
compensation, a salary of not less than $456,346 ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
employee benefit plan or deferred compensation arrangement maintained by the
Holding Company or its Subsidiaries. Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; on or about the 30/th/ day of each June. Such review shall
be conducted by the Board or by a committee designated by the Board. The
committee or the Board may increase Executive's Base Salary at any time. Any
increase in Base Salary shall become the new "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided for in this Section 3(a),
the Holding Company shall also provide Executive, at no premium cost to
Executive, with all such other benefits as provided uniformly to permanent full-
time employees of the Holding Company and its Subsidiaries.
(b) In addition to the Base Salary provided for in paragraph (a) of this
Section 3, the Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, as amended and restated, and the Holding Company will not,
without
2
<PAGE>
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder, without separately providing for an arrangement that ensures
Executive receives or will receive the economic value that Executive would
otherwise lose as a result of such adverse affect. Without limiting the
generality of the foregoing provisions of this Subsection (b), Executive shall
be entitled to participate in or receive benefits under any employee benefit
plans, whether tax-qualified or otherwise, including, but not limited to,
retirement plans, supplemental retirement plans, pension plans, profit-sharing
plans, employee stock ownership plans, stock or option plans, health-and-
accident plans, medical coverage or any other employee benefit plan or
arrangement made available by the Holding Company and its Subsidiaries in the
future to its senior executives and key management employees, subject to and on
a basis consistent with the terms, conditions and overall administration of such
plans and arrangements (including designation by the Board of eligibility to
participate, if applicable). Executive shall also be entitled to incentive
compensation and bonuses as provided in any plan or arrangement of the Holding
Company or its Subsidiaries in which Executive is eligible to participate.
Nothing paid to Executive under any such plans or arrangements will be deemed to
be in lieu of other compensation to which Executive is entitled under this
Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation and benefits provided for by paragraph (b) of
this Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable expenses incurred by Executive in performing his obligations under
this Agreement, as mutually agreed to by the Board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Holding Company
will provide to Executive for each calendar year during the term of this
Agreement and for the remaining term of this Agreement after a termination of
employment following an Event of Termination, as defined in Section 4 of this
Agreement, a "Benefit Equity Payment." The Benefit Equity Payment shall be paid
no later than 90 days after the close of the calendar year to which such payment
pertains ("Benefit Year"), and shall be in addition to any contributions
actually made (or benefits actually accrued) with respect to such Benefit Year
to any tax-qualified or non-tax-qualified compensation or benefit plan,
arrangement, policy or program funded or sponsored by the Holding Company or its
Subsidiaries, including but not limited to those of the following types:
deferred compensation, retirement, defined benefit pension, defined contribution
retirement, supplemental executive retirement, stock option or stock bonus
award, life insurance, health, medical, dental, disability, incentive
compensation or bonus plan, perquisites, or other fringe benefits ("Benefit
Plans"). The Benefit Equity Payment, which shall be calculated by an actuary,
accountant or other licensed professional, shall equal the amount of the
contributions (or other benefits) which would have been made or accrued for
Executive for the Benefit Year pursuant to all Benefit Plans as consideration
for his services described in Section 1 of this Agreement, but which were not
made or accrued because (i) the Benefit Plan(s) were terminated or not funded,
or (ii) Executive was no longer employed or will not be employed by the Holding
Company or its Subsidiaries.
3
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination
by the Holding Company of Executive's full-time employment hereunder for any
reason other than Retirement (as defined in paragraph (f) of this Section 4); or
(ii) Executive's resignation from the Holding Company's employ, upon, any (A)
notice to Executive by the Holding Company of non-renewal of the term of this
Agreement, (B) failure to elect or reelect or to appoint or reappoint Executive
as Chairman of the Board and Chief Executive Officer or failure to renominate
Executive as a director of the Institution or Holding Company to the extent
Executive was previously serving as a director (unless Executive so consents),
(C) material change in Executive's function, duties, or responsibilities with
the Holding Company or its Subsidiaries, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1 of this Agreement,
(unless Executive so consents), (D) relocation of Executive's principal place of
employment by more than 25 miles from its location at the effective date of the
Agreement (unless Executive so consents), (E) reduction in the benefits,
arrangements and perquisites being provided to Executive pursuant to Section 3
of this Agreement, to which Executive does not consent or for which Executive is
not or will not be provided the economic benefit pursuant to Section 3(b) of
this Agreement, (F) liquidation or dissolution of the Holding Company or the
Institution, or (G) breach of this Agreement by the Holding Company. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E), (F) or
(G), above, Executive shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within six full calendar months after the event giving rise
to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be: (i)
the amount of the remaining payments and benefits that Executive would have
earned if he had continued his employment with the Holding Company during the
remaining unexpired term of this Agreement, based on Executive's Base Salary and
benefits provided at the Date of Termination, as set forth in Sections 3(a), (b)
and (d) of this Agreement, as the case may be, and the amount still due
Executive under any paragraph of Section 3 for service rendered through the Date
of Termination. At the election of Executive, which election is to be made
within thirty (30) days of the Date of Termination, such payments shall be made
in a lump sum (without discount for early payment) or paid monthly during the
remaining term of the agreement following Executive's termination. In the event
that no election is made, payment to Executive will be made in a lump sum. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
4
<PAGE>
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Holding Company
or its Subsidiaries on his behalf pursuant to any retirement, incentive, profit
sharing, employee stock ownership, bonus, performance, disability or other
employee benefit plan maintained by the Holding Company or its Subsidiaries to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or its Subsidiaries continue to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans after the Event of Termination, then the Holding Company shall
provide Executive with a payment equal to the actuarial value of the provision
of such benefit for the period which runs until the earlier of (i) his death;
(ii) his employment by another employer other than one of which he is the
majority owner; or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
(f) Termination of Executive based on "Retirement" shall mean termination
in accordance with the Holding Company's or the Institution's retirement policy
or in accordance with any retirement arrangement established with Executive's
consent with respect to him. Upon termination of Executive upon Retirement,
Executive shall be entitled to all benefits under any retirement plan of the
Holding Company or its Subsidiaries and other plans to which Executive is a
party or a participant in accordance with the terms of the plan or arrangement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. Section 303.4(a),
with respect to the Institution, and the
5
<PAGE>
Rules and Regulations promulgated by the Office of Thrift Supervision ("OTS")
(or its predecessor agency), with respect to the Holding Company, as in effect
on the date of this Agreement; or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity, or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(b) If any of the events described in Section 5(a) of this Agreement
constituting a Change in Control have occurred or the Board has determined that
a Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d), (e), (f), and (g) of this Section 5 upon his
termination of employment on or after the date the Change in Control occurs at
any time during the term of this Agreement due to (i) Executive's dismissal,
(ii) Executive's voluntary resignation for any reason on or within the sixty
(60) day period immediately following the date a Change in Control has occurred,
or (iii) Executive's resignation following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than
twenty-five (25) miles from its location immediately prior to the Change in
Control, unless such termination is because of his death or Termination for
Cause (as defined in Section 7 of this Agreement).
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or
6
<PAGE>
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the greater of: (i) the payments due for the
remaining term of the Agreement; or (ii) five (5) times Executive's annual
compensation for the most recently completed year. In determining Executive's
annual compensation, annual compensation shall include Base Salary and any other
taxable income, including but not limited to amounts related to the granting,
vesting or exercise of restricted stock or stock option awards, commissions,
bonuses, severance payments, retirement benefits, director or committee fees and
fringe benefits paid or to be paid to Executive or paid for Executive's benefit
during any such year, as well as pension, profit sharing plan, employee stock
ownership and other retirement contributions or benefits (whether or not
taxable) made or accrued on behalf of Executive for such year. At the election
of Executive, which election is to be made prior to or within thirty (30) days
of the Date of Termination on or following a Change in Control, such payment may
be made in a lump sum (without discount for early payment) on or immediately
following the Date of Termination (which may be the date a change in Control
occurs) or paid in equal monthly installments during the sixty (60) months
following Executive's termination. In the event that no election is made,
payment to Executive will be made on a monthly basis during the remaining sixty
(60) month term of the Agreement. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, Executive will be entitled to receive benefits due
him under or contributed by the Holding Company or its Subsidiaries on his
behalf pursuant to any retirement, incentive, profit sharing, employee stock
ownership, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Holding Company or its Subsidiaries for Executive and
any of his dependents covered under such plans prior to the Change in Control.
Such coverage and payments shall cease upon the expiration of sixty (60) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to Executive, Executive will have the option to purchase all rights then held by
the
7
<PAGE>
Holding Company or its Subsidiaries to such item for a price equal to the then
fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable, as
determined for the payment of an excise tax under Section 4999 of the Code (or
any successor provision thereto), with respect to any payment in the nature of
the compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company shall pay to Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question
(including any effective increase in Executive's tax rate
attributable to the disallowance of any deduction); and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question (including any effective increase in
Executive's tax rate attributable to the disallowance of any
deduction).
8
<PAGE>
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The tax gross-up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment"), then the Holding Company's
independent accountants shall determine the amount (the "Adjustment Amount"),
the Holding Company must pay to Executive, in order to put Executive (or the
Holding Company, as the case may be) in the same position as Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(c) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of reporting
such information. Executive shall promptly notify the Holding Company in
writing whenever Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
9
<PAGE>
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such stock
options and related limited rights and any such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding
10
<PAGE>
Executive's termination exists, the "Date of Termination" shall be determined in
accordance with Section 8(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding
Company will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and
11
<PAGE>
property in the event of Executive's breach of this Subsection 10(a) agree that
in the event of any such breach by Executive, the Holding Company or its
Subsidiaries, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. Executive represents and admits that in the
event of the termination of his employment pursuant to Section 7 hereof,
Executive's experience and capabilities are such that Executive can obtain
employment in a business engaged in other lines and/or of a different nature
than the Holding Company or its Subsidiaries, and that the enforcement of a
remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Holding
Company will be entitled to an injunction restraining Executive from disclosing,
in whole or in part, the knowledge of the past, present, planned or considered
business activities of the Holding Company or its Subsidiaries or from rendering
any services to any person, firm, corporation, or other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Holding Company
from pursuing any other remedies available to the Holding Company for such
breach or threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under an the employment agreement in effect between
Executive and the Institution, such compensation
12
<PAGE>
payments and benefits paid by the Institution will be subtracted from any amount
due simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Institution Agreement shall be
allocated in proportion to the level of activity and the time expended on such
activities by Executive as determined by the Holding Company and the Institution
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
13
<PAGE>
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regard to
principles of conflict of laws of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of: (1)
all legal fees incurred by Executive in resolving such dispute or controversy,
and (2) any back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
14
<PAGE>
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
15
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Richmond County Financial Corp. has caused this
Agreement, as amended and restated, to be executed and its seal to be affixed
hereunto by its duly authorized officer and its directors, and Executive has
signed this Agreement, on the 21st day of September, 1999.
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ------------------------------ ----------------------------------------
Anthony E. Burke
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo By: /s/ Michael F. Manzulli
- ------------------------------ ----------------------------------------
Michael F. Manzulli
<PAGE>
EXHIBIT 10.5
RICHMOND COUNTY FINANCIAL CORP.
EMPLOYMENT AGREEMENT
(As Amended and Restated)
This AGREEMENT ("Agreement"), originally entered into on February 17, 1998,
is amended and restated in its entirety, effective as of September 21, 1999, by
and between Richmond County Financial Corp. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
1214 Castleton Avenue, Staten Island, New York 10310, and Anthony E. Burke
("Executive"). Any reference to "Institution" herein shall mean Richmond County
Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Operating Officer of the Holding Company.
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if appointed or
elected, as the case may be, as an officer and director of any subsidiary of the
Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of this
Agreement, as amended and restated. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day, so that a constant sixty (60) calendar month term shall remain in effect,
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 8 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the fifth
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and other
reasonable leaves of
<PAGE>
absence, Executive shall devote substantially all his business time, attention,
skill, and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Holding Company and its direct or indirect subsidiaries, including the
Institution, ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary, either
Executive or the Holding may terminate Executive's employment with the Holding
Company at any time during the term of this Agreement, subject to the terms and
conditions of this Agreement.
(d) Under no circumstance shall Executive perform as part of his duties as
President and Chief Operating Officer of the Holding Company, in any respect,
directly or indirectly, during the pendency of any temporary or permanent
suspension from the Institution or upon termination of employment with the
Institution, any duties or responsibilities formerly performed at the
Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive, as
compensation, a salary of not less than $319,423 ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
employee benefit plan or deferred compensation arrangement maintained by the
Holding Company or its Subsidiaries. Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; on or about the 30/th/ day of each June. Such review shall
be conducted by the Board or by a committee designated by the Board. The
committee or the Board may increase Executive's Base Salary at any time. Any
increase in Base Salary shall become the new "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided for in this Section 3(a),
the Holding Company shall also provide Executive, at no premium cost to
Executive, with all such other benefits as provided uniformly to permanent full-
time employees of the Holding Company and its Subsidiaries.
(b) In addition to the Base Salary provided for in paragraph (a) of this
Section 3, the Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, as amended and restated, and the Holding Company will not,
without
2
<PAGE>
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder, without separately providing for an arrangement that ensures
Executive receives or will receive the economic value that Executive would
otherwise lose as a result of such adverse affect except in the case of any
change to the tax-qualified defined benefit pension plan sponsored by the
Institution. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive shall be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, employee stock ownership plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company and its
Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements (including designation by
the Board of eligibility to participate, if applicable). Executive shall also be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate. Nothing paid to Executive under any such plans or
arrangements will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation and benefits provided for by paragraph (b) of
this Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable expenses incurred by Executive in performing his obligations under
this Agreement, as mutually agreed to by the Board and Executive.
(d) Except as otherwise provided in this Section 3(d), the Holding Company
will provide to Executive for each calendar year during the term of this
Agreement and for the remaining term of this Agreement after a termination of
employment following an Event of Termination, as defined in Section 4 of this
Agreement, a "Benefit Equity Payment." The Benefit Equity Payment shall be paid
no later than 90 days after the close of the calendar year to which such payment
pertains ("Benefit Year"), and shall be in addition to any contributions
actually made (or benefits actually accrued) with respect to such Benefit Year
to any tax-qualified or non-tax-qualified compensation or benefit plan,
arrangement, policy or program funded or sponsored by the Holding Company or its
Subsidiaries, including but not limited to those of the following types:
deferred compensation, retirement, defined contribution retirement, supplemental
executive retirement, stock option or stock bonus award, life insurance, health,
medical, dental, disability, incentive compensation or bonus plan, perquisites,
or other fringe benefits ("Benefit Plans"). The Benefit Equity Payment, which
shall be calculated by an actuary, accountant or other licensed professional,
shall equal the amount of the contributions (or other benefits) which would have
been made or accrued for Executive for the Benefit Year pursuant to all Benefit
Plans as consideration for his services described in Section 1 of this
Agreement, but which were not made or accrued because (i) the Benefit Plan(s)
were terminated or not funded, or (ii) Executive was no longer employed or will
not be employed by the Holding Company or its
3
<PAGE>
Subsidiaries. Notwithstanding the foregoing, no Benefit Equity Payment shall be
made for Executive with respect to the tax-qualified defined benefit pension
plan sponsored by the Institution.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination
by the Holding Company of Executive's full-time employment hereunder for any
reason other than Retirement (as defined in paragraph (f) of this Section 4); or
(ii) Executive's resignation from the Holding Company's employ, upon, any (A)
notice to Executive by the Holding Company of non-renewal of the term of this
Agreement, (B) failure to elect or reelect or to appoint or reappoint Executive
as President and Chief Operating Officer or failure to renominate Executive as a
director of the Institution or Holding Company to the extent Executive was
previously serving as a director (unless Executive so consents), (C) material
change in Executive's function, duties, or responsibilities with the Holding
Company or its Subsidiaries, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1 of this Agreement, (unless Executive
so consents), (D) relocation of Executive's principal place of employment by
more than 25 miles from its location at the effective date of the Agreement
(unless Executive so consents), (E) reduction in the benefits, arrangements and
perquisites being provided to Executive pursuant to Section 3 of this Agreement,
to which Executive does not consent or for which Executive is not or will not be
provided the economic benefit pursuant to Section 3(b) of this Agreement, (F)
liquidation or dissolution of the Holding Company or the Institution, or (G)
breach of this Agreement by the Holding Company. Upon the occurrence of any
event described in clauses (A), (B), (C), (D), (E), (F) or (G), above, Executive
shall have the right to elect to terminate his employment under this Agreement
by resignation upon not less than sixty (60) days prior written notice given
within six full calendar months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be: (i)
the amount of the remaining payments and benefits that Executive would have
earned if he had continued his employment with the Holding Company during the
remaining unexpired term of this Agreement, based on Executive's Base Salary and
benefits provided at the Date of Termination, as set forth in Sections 3(a), (b)
and (d) of this Agreement, as the case may be, and the amount still due
Executive under any paragraph of Section 3 for service rendered through the Date
of Termination. At the election of Executive, which election is to be made
within thirty (30) days of the Date of Termination, such payments shall be made
in a lump sum (without discount for early payment) or paid monthly during the
remaining term of the agreement following Executive's termination. In the event
that no election
4
<PAGE>
is made, payment to Executive will be made in a lump sum. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Holding Company
or its Subsidiaries on his behalf pursuant to any retirement, incentive, profit
sharing, employee stock ownership, bonus, performance, disability or other
employee benefit plan maintained by the Holding Company or its Subsidiaries to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or its Subsidiaries continue to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans after the Event of Termination, then the Holding Company shall
provide Executive with a payment equal to the actuarial value of the provision
of such benefit for the period which runs until the earlier of (i) his death;
(ii) his employment by another employer other than one of which he is the
majority owner; or (iii) the end of the remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
(f) Termination of Executive based on "Retirement" shall mean termination
in accordance with the Holding Company's or the Institution's retirement policy
or in accordance with any retirement arrangement established with Executive's
consent with respect to him. Upon termination of Executive upon Retirement,
Executive shall be entitled to all benefits under any retirement plan of the
Holding Company or its Subsidiaries and other plans to which Executive is a
party or a participant in accordance with the terms of the plan or arrangement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii)
5
<PAGE>
results in a Change in Control of the Bank or the Holding Company within the
meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity, or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(b) If any of the events described in Section 5(a) of this Agreement
constituting a Change in Control have occurred or the Board has determined that
a Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d), (e), (f), and (g) of this Section 5 upon his
termination of employment on or after the date the Change in Control occurs at
any time during the term of this Agreement due to (i) Executive's dismissal,
(ii) Executive's voluntary resignation for any reason on or within the sixty
(60) day period immediately following the date a Change in Control has occurred,
or (iii) Executive's resignation following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than
twenty-five (25) miles from its location immediately prior to the Change in
Control, unless such termination is because of his death or Termination for
Cause (as defined in Section 7 of this Agreement).
6
<PAGE>
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) five (5)
times Executive's annual compensation for the most recently completed year. In
determining Executive's annual compensation, annual compensation shall include
Base Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, severance payments, retirement benefits, director
or committee fees and fringe benefits paid or to be paid to Executive or paid
for Executive's benefit during any such year, as well as pension, profit sharing
plan, employee stock ownership and other retirement contributions or benefits
(whether or not taxable) made or accrued on behalf of Executive for such year.
At the election of Executive, which election is to be made prior to or within
thirty (30) days of the Date of Termination on or following a Change in Control,
such payment may be made in a lump sum (without discount for early payment) on
or immediately following the Date of Termination (which may be the date a change
in Control occurs) or paid in equal monthly installments during the sixty (60)
months following Executive's termination. In the event that no election is
made, payment to Executive will be made on a monthly basis during the remaining
sixty (60) month term of the Agreement. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, Executive will be entitled to receive benefits due
him under or contributed by the Holding Company or its Subsidiaries on his
behalf pursuant to any retirement, incentive, profit sharing, employee stock
ownership, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Holding Company or its Subsidiaries for Executive and
any of his dependents covered under such plans prior to the Change in Control.
Such coverage and payments shall cease upon the expiration of sixty (60) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent
7
<PAGE>
that any item referred to in this paragraph will at the end of the term of this
Agreement, no longer be available to Executive, Executive will have the option
to purchase all rights then held by the Holding Company or its Subsidiaries to
such item for a price equal to the then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable, as
determined for the payment of an excise tax under Section 4999 of the Code (or
any successor provision thereto), with respect to any payment in the nature of
the compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company shall pay to Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
WHERE:
X = E x P
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question
(including any effective increase in Executive's tax rate
attributable to the disallowance of any deduction); and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in
8
<PAGE>
question (including any effective increase in Executive's tax rate
attributable to the disallowance of any deduction).
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The tax gross-up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment"), then the Holding Company's
independent accountants shall determine the amount (the "Adjustment Amount"),
the Holding Company must pay to Executive, in order to put Executive (or the
Holding Company, as the case may be) in the same position as Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment. In
determining the Adjustment Amount, the independent accountants shall take into
account any and all taxes (including any penalties and interest) paid by or for
Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(c) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of reporting
such information. Executive shall promptly notify the Holding Company in
writing whenever Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
9
<PAGE>
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have the right to
receive compensation or other benefits for any period after Termination for
Cause. During the period beginning on the date of the Notice of Termination for
Cause pursuant to Section 8 hereof through the Date of Termination, stock
options and related limited rights granted to Executive under any stock option
plan shall not be exercisable nor shall any unvested awards granted to Executive
under any stock benefit plan of the Institution, the Holding Company or any
subsidiary or affiliate thereof, vest. At the Date of Termination, such stock
options and related limited rights and any such unvested awards shall become
null and void and shall not be exercisable by or delivered to Executive at any
time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
10
<PAGE>
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding Executive's termination exists,
the "Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding
Company will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or
11
<PAGE>
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Holding Company or its Subsidiaries.
The parties hereto, recognizing that irreparable injury will result to the
Holding Company or its Subsidiaries, its business and property in the event of
Executive's breach of this Subsection 10(a) agree that in the event of any such
breach by Executive, the Holding Company or its Subsidiaries, will be entitled,
in addition to any other remedies and damages available, to an injunction to
restrain the violation hereof by Executive, Executive's partners, agents,
servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 hereof, Executive's experience and
capabilities are such that Executive can obtain employment in a business engaged
in other lines and/or of a different nature than the Holding Company or its
Subsidiaries, and that the enforcement of a remedy by way of injunction will not
prevent Executive from earning a livelihood. Nothing herein will be construed as
prohibiting the Holding Company or its Subsidiaries from pursuing any other
remedies available to the Holding Company or its Subsidiaries for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by Executive of the provisions of this Section, the Holding
Company will be entitled to an injunction restraining Executive from disclosing,
in whole or in part, the knowledge of the past, present, planned or considered
business activities of the Holding Company or its Subsidiaries or from rendering
any services to any person, firm, corporation, or other entity to whom such
knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the Holding Company
from pursuing any other remedies available to the Holding Company for such
breach or threatened breach, including the recovery of damages from Executive.
12
<PAGE>
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under an the employment agreement in effect between
Executive and the Institution, such compensation payments and benefits paid by
the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall
13
<PAGE>
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future as to any act other
than that specifically waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regard to
principles of conflict of laws of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of: (1)
all legal fees incurred by Executive in resolving such dispute or controversy,
and (2) any back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
14
<PAGE>
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
15
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Richmond County Financial Corp. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 21st day of September, 1999.
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
/s/ Diane L. DeLillo By: /s/ Michael F. Manzulli
- --------------------------------- ----------------------------------
Michael F. Manzulli
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- --------------------------------- ----------------------------------
Anthony E. Burke
16
<PAGE>
EXHIBIT 10.6
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of September 21, 1999, by
and among Richmond County Savings Bank (the "Institution"), a state chartered
savings institution, with its principal administrative office at 1214 Castleton
Avenue, Staten Island, New York, 10310, Richmond County Financial Corp., a
corporation organized under the laws of the State of Delaware, the holding
company for the Institution (the "Holding Company"), and Anthony E. Burke
("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
President and Chief Operating Officer of the Institution. Executive shall
render administrative and management services to the Institution such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the effective date of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the disinterested members of
the board of directors of the Institution ("Board") or Executive elects not to
extend the term of this Agreement by giving written notice in accordance with
Section 8 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence,
<PAGE>
Executive shall devote substantially all his business time, attention, skill,
and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Institution and participation in community and civic organizations;
provided, however, that, with the approval of the Board, as evidenced by a
resolution of such Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in such Board's judgment, will not
present any conflict of interest with the Institution, or materially affect the
performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Institution may be terminated by the Institution or the Executive
during the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of
$319,423 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or non-qualified plan
maintained by the Institution. Such Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by the Board or
by a Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Institution shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as are provided uniformly to full-time employees of the Institution.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Institution will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Institution employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Institution in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive compensation and
bonuses as provided in any plan or arrangement of the Institution in which
Executive is eligible to participate. Nothing paid to the Executive under any
such plan or
-2-
<PAGE>
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any of the following:
(A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as President and Chief Operating Officer or
failure to nominate or re-nominate Executive as a Director of the Institution or
Holding Company to the extent Executive was serving as a Director as of the
effective date of this Agreement, (B) a material change in Executive's function,
duties, or responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the position and
attributes thereof described in Section 1, above, unless consented to by
Executive, (C) a reduction in the benefits and perquisites to the Executive from
those being provided as of the effective date of this Agreement, unless
consented to by the Executive, or (D) a liquidation or dissolution of the
Institution or Holding Company, or (E) breach of this Agreement by the
Institution. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), or (E), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions or payments that would have
been made on Executive's behalf to any employee benefit plans of the Institution
or the Holding Company or for any benefit or perquisite which would have been
provided to Executive during the remaining term of this Agreement based on
contributions or payments made (on an annualized basis) at the Date of
Termination; provided, however, that any payments pursuant to this subsection
-------- -------
and subsection 4(c) below shall
-3-
<PAGE>
not, in the aggregate, exceed three times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Institution or such lesser number of years in the event that
Executive shall have been employed by the Institution for less than five years.
In the event the Institution is not in compliance with its minimum capital
requirements or if such payments pursuant to this subsection (b) would cause the
Institution's capital to be reduced below its minimum regulatory capital
requirements, such payments shall be deferred until such time as the Institution
or successor thereto is in capital compliance. At the election of the Executive,
which election is to be made prior to an Event of Termination, such payments
shall be made (a) in a lump sum as of the Executive's Date of Termination, (b)
on a bi-weekly basis in approximately equal installments during the remaining
term of the Agreement or (c) on an annual basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall not
be reduced in the event the Executive obtains other employment following
termination of employment.
(c) Upon the occurrence of an Event of Termination, the Institution will
cause to be continued life, medical, dental and long-term or other disability
coverage substantially identical to the coverage maintained by the Institution
or the Holding Company for Executive prior to his termination at no premium cost
to the Executive, except to the extent such coverage may be changed in its
application to all Institution or Holding Company employees. Such coverage
shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors
-4-
<PAGE>
comprising the Incumbent Board, or whose nomination for election by the Holding
Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction occurs
in which the Institution or Holding Company is not the resulting entity, or (D)
a proxy statement has been distributed soliciting proxies from stockholders of
the Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Institution
or the Holding Company, or (E) a tender offer is made for 20% or more of the
voting securities of the Stock Institution or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (i) the payments due for the remaining term of the Agreement;
or (ii) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five (5) years. Such average annual
compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Institution;
provided, however, that any payment under this provision and subsection 5(d)
- -------- -------
below shall not exceed three (3) times the Executive's average annual
compensation. In the event the Institution is not in compliance with its
minimum capital requirements or if such payments would cause the Institution's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Institution or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to a Change in Control, such payment shall be
-5-
<PAGE>
made: (a) in a lump sum as of the Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments over a period of thirty-six
(36) months following the Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution will cause to be continued life, medical, dental and long-term
or other disability coverage substantially identical to the coverage maintained
by the Institution for Executive prior to his severance at no premium cost to
the Executive, except to the extent that such coverage may be changed in its
application for all Institution employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which shall include a copy of a resolution duly
adopted by the affirmative vote of not less than a majority of the members of
the Board at a meeting of the Board called and held for that purpose
-6-
<PAGE>
(after reasonable notice to Executive and an opportunity for him, together with
counsel, to be heard before the Board), finding that in the good faith opinion
of the Board, Executive was guilty of conduct justifying Termination for Cause
and specifying the particulars thereof in detail. Executive shall not have the
right to receive compensation or other benefits for any period after the Date of
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and any unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this Section are in addition to all other amounts due under this Agreement and
shall not be offset against or reduce any other amounts due under this
Agreement.
-7-
<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of
-8-
<PAGE>
banking, financial and/or economic principles, concepts or ideas which are not
solely and exclusively derived from the business plans and activities of the
Holding Company. Further, Executive may disclose information regarding the
business activities of the Bank or Holding Company to the Superintendent of
Banks of the State of New York, the New York Banking Department, OTS and the
Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal regulatory
request. In the event of a breach or threatened breach by the Executive of the
provisions of this Section, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or its Subsidiaries or from rendering any services to any
person, firm, corporation, other entity to whom such knowledge, in whole or in
part, has been disclosed or is threatened to be disclosed. Nothing herein will
be construed as prohibiting the Holding Company from pursuing any other remedies
available to the Holding Company for such breach or threatened breach, including
the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Institution are not timely paid or provided by the Institution, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective as of February
17, 1998, and amended and restated as of September 21, 1999, between Executive
and the Holding Company, such compensation payments and benefits paid by the
Holding Company will be subtracted from any amounts due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Holding Company Agreement shall be allocated in proportion to
the services rendered and time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
-9-
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
-10-
<PAGE>
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regard to
principles of conflict of laws of this state.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Institution then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
-11-
<PAGE>
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Richmond County Savings Bank and Richmond County
Financial Corp. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the 21st day of September, 1999.
ATTEST: RICHMOND COUNTY SAVINGS BANK
/s/ Diane L. DeLillo /s/ Michael F. Manzulli
- --------------------------- By: -------------------------------------------
Michael F. Manzulli
For The Entire Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
/s/ Diane L. DeLillo /s/ Michael F. Manzulli
- --------------------------- By: -------------------------------------------
Michael F. Manzulli
For The Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo /s/ Anthony E. Burke
- --------------------------- -------------------------------------------
Anthony E. Burke
<PAGE>
EXHIBIT 10.7
RICHMOND COUNTY FINANCIAL CORP.
EMPLOYMENT AGREEMENT
(As Amended and Restated)
This AGREEMENT ("Agreement"), originally entered into on February 17, 1998,
is amended and restated in its entirety, effective as of September 21, 1999, by
and between Richmond County Financial Corp. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal offices at
1214 Castleton Avenue, Staten Island, New York 10310, and Thomas R. Cangemi
("Executive"). Any reference to "Institution" herein shall mean Richmond County
Savings Bank or any successor thereto.
WHEREAS, the Holding Company wishes to continue to assure itself of the
services of Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue to serve in the employ of the
Holding Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as Senior Vice President and Chief Financial Officer of the Holding
Company. Executive shall render administrative and management services to the
Holding Company such as are customarily performed by persons in a similar
executive capacity. During said period, Executive also agrees to serve, if
appointed or elected, as the case may be, as an officer and director of any
subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of sixty (60) full calendar months from the effective date of this
Agreement, as amended and restated. Commencing on the date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day, so that a constant sixty (60) calendar month term shall remain in effect,
until such time as the board of directors of the Holding Company (the "Board")
or Executive elects not to extend the term of the Agreement by giving written
notice to the other party in accordance with Section 8 of this Agreement, in
which case the term of this Agreement shall be fixed and shall end on the fifth
anniversary of the date of such written notice.
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and other
reasonable leaves of
<PAGE>
absence, Executive shall devote substantially all his business time, attention,
skill, and efforts to the faithful performance of his duties hereunder including
activities and services related to the organization, operation and management of
the Holding Company and its direct or indirect subsidiaries, including the
Institution, ("Subsidiaries") and participation in community and civic
organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything in this Agreement to the contrary, either
Executive or the Holding may terminate Executive's employment with the Holding
Company at any time during the term of this Agreement, subject to the terms and
conditions of this Agreement.
(d) Under no circumstance shall Executive perform as part of his duties as
Senior Vice President and Chief Financial Officer of the Holding Company, in any
respect, directly or indirectly, during the pendency of any temporary or
permanent suspension from the Institution or upon termination of employment with
the Institution, any duties or responsibilities formerly performed at the
Institution.
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute
consideration paid by the Holding Company in exchange for the duties described
in Section 1 of this Agreement. The Holding Company shall pay Executive, as
compensation, a salary of not less than $167,308 ("Base Salary"). Base Salary
shall include any amounts of compensation deferred by Executive under any
employee benefit plan or deferred compensation arrangement maintained by the
Holding Company or its Subsidiaries. Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; on or about the 30/th/ day of each June. Such review shall
be conducted by the Board or by a committee designated by the Board. The
committee or the Board may increase Executive's Base Salary at any time. Any
increase in Base Salary shall become the new "Base Salary" for purposes of this
Agreement. In addition to the Base Salary provided for in this Section 3(a),
the Holding Company shall also provide Executive, at no premium cost to
Executive, with all such other benefits as provided uniformly to permanent full-
time employees of the Holding Company and its Subsidiaries.
(b) In addition to the Base Salary provided for in paragraph (a) of this
Section 3, the Holding Company will provide Executive with the opportunity to
participate in employee benefit plans, arrangements and perquisites
substantially equivalent to those in which Executive was participating or
otherwise deriving a benefit from immediately prior to the beginning of the term
of this Agreement, as amended and restated, and the Holding Company will not,
without
2
<PAGE>
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder, without separately providing for an arrangement that ensures
Executive receives or will receive the economic value that Executive would
otherwise lose as a result of such adverse affect except in the case of any
change to the tax-qualified defined benefit pension plan sponsored by the
Institution. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive shall be entitled to participate in or receive
benefits under any employee benefit plans, whether tax-qualified or otherwise,
including, but not limited to, retirement plans, supplemental retirement plans,
pension plans, profit-sharing plans, employee stock ownership plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Holding Company and its
Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions and
overall administration of such plans and arrangements (including designation by
the Board of eligibility to participate, if applicable). Executive shall also be
entitled to incentive compensation and bonuses as provided in any plan or
arrangement of the Holding Company or its Subsidiaries in which Executive is
eligible to participate. Nothing paid to Executive under any such plans or
arrangements will be deemed to be in lieu of other compensation to which
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation and benefits provided for by paragraph (b) of
this Section 3, the Holding Company shall pay or reimburse Executive for all
reasonable expenses incurred by Executive in performing his obligations under
this Agreement, as mutually agreed to by the Board and Executive.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during Executive's term of employment under this Agreement, the provisions of
this Section 4 shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any of the following: (i) the termination
by the Holding Company of Executive's full-time employment hereunder for any
reason other than Retirement (as defined in paragraph (f) of this Section 4); or
(ii) Executive's resignation from the Holding Company's employ, upon, any (A)
notice to Executive by the Holding Company of non-renewal of the term of this
Agreement, (B) failure to elect or reelect or to appoint or reappoint Executive
as Senior Vice President and Chief Financial Officer or failure to renominate
Executive as a director of the Institution or Holding Company to the extent
Executive was previously serving as a director (unless Executive so consents),
(C) material change in Executive's function, duties, or responsibilities with
the Holding Company or its Subsidiaries, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1 of this Agreement,
(unless Executive so consents), (D) relocation of Executive's principal place of
employment by more than 25 miles from its location at the effective date of the
Agreement (unless Executive so consents), (E) reduction in the benefits,
arrangements and perquisites being
3
<PAGE>
provided to Executive pursuant to Section 3 of this Agreement, to which
Executive does not consent or for which Executive is not or will not be provided
the economic benefit pursuant to Section 3(b) of this Agreement, (F) liquidation
or dissolution of the Holding Company or the Institution, or (G) breach of this
Agreement by the Holding Company. Upon the occurrence of any event described in
clauses (A), (B), (C), (D), (E), (F) or (G), above, Executive shall have the
right to elect to terminate his employment under this Agreement by resignation
upon not less than sixty (60) days prior written notice given within six full
calendar months after the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8 of this Agreement, the Holding Company
shall be obligated to pay Executive, or, in the event of Executive's subsequent
death, his beneficiary or beneficiaries, or his estate, as the case may be: (i)
the amount of the remaining payments and benefits that Executive would have
earned if he had continued his employment with the Holding Company during the
remaining unexpired term of this Agreement, based on Executive's Base Salary and
benefits provided at the Date of Termination, as set forth in Sections 3(a), (b)
and (d) of this Agreement, as the case may be, and the amount still due
Executive under any paragraph of Section 3 for service rendered through the Date
of Termination. At the election of Executive, which election is to be made
within thirty (30) days of the Date of Termination, such payments shall be made
in a lump sum (without discount for early payment) or paid monthly during the
remaining term of the agreement following Executive's termination. In the event
that no election is made, payment to Executive will be made in a lump sum. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(c) Upon the occurrence of an Event of Termination, Executive will be
entitled to receive benefits due him under or contributed by the Holding Company
or its Subsidiaries on his behalf pursuant to any retirement, incentive, profit
sharing, employee stock ownership, bonus, performance, disability or other
employee benefit plan maintained by the Holding Company or its Subsidiaries to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(d) To the extent that the Holding Company or its Subsidiaries continue to
offer any life, medical, health, disability or dental insurance plan or
arrangement in which Executive participates in on the last day of his employment
(each being a "Welfare Plan"), after an Event of Termination (as herein
defined), Executive and his dependents shall continue participating in such
Welfare Plans, subject to the same premium contributions on the part of
Executive as were required immediately prior to the Event of Termination until
the earlier of (i) his death (ii) his employment by another employer other than
one of which he is the majority owner or (iii) the end of the remaining term of
this Agreement. If the Holding Company or its Subsidiaries does not offer the
Welfare Plans after the Event of Termination, then the Holding Company shall
provide Executive with a payment equal to the actuarial value of the provision
of such benefit for the period which runs until the earlier of (i) his death;
(ii) his employment by another employer
4
<PAGE>
other than one of which he is the majority owner; or (iii) the end of the
remaining term of this Agreement.
(e) In the event that Executive is receiving monthly payments pursuant to
Section 4(b) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether, the
balance of the amount payable under the Agreement at that time shall be paid in
a lump sum or on a pro rata basis. Such election shall be irrevocable for the
year for which such election is made.
(f) Termination of Executive based on "Retirement" shall mean termination
in accordance with the Holding Company's or the Institution's retirement policy
or in accordance with any retirement arrangement established with Executive's
consent with respect to him. Upon termination of Executive upon Retirement,
Executive shall be entitled to all benefits under any retirement plan of the
Holding Company or its Subsidiaries and other plans to which Executive is a
party or a participant in accordance with the terms of the plan or arrangement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Change in Bank Control Act and the Rules and Regulations promulgated by the
Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R. (S) 303.4(a), with
respect to the Institution, and the Rules and Regulations promulgated by the
Office of Thrift Supervision ("OTS") (or its predecessor agency), with respect
to the Holding Company, as in effect on the date of this Agreement; or (iii)
without limitation such a Change in Control shall be deemed to have occurred at
such time as (A) any "person" (as the term is used in Sections 13(d) and 14(d)
of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of voting securities of
the Institution or the Holding Company representing 20% or more of the
Institution's or the Holding Company's outstanding voting securities or right to
acquire such securities except for any voting securities of the Institution
purchased by the Holding Company and any voting securities purchased by any
employee benefit plan of the Holding Company or its Subsidiaries, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Company's stockholders
was approved by a Nominating Committee solely composed of members which are
Incumbent Board members, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board, or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Institution or the Holding Company or similar transaction occurs
or is effectuated in which the
5
<PAGE>
Institution or Holding Company is not the resulting entity, or (D) a proxy
statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Institution with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to such plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Institution or
the Holding Company shall be distributed, or (E) a tender offer is made for 20%
or more of the voting securities of the Institution or Holding Company then
outstanding.
(b) If any of the events described in Section 5(a) of this Agreement
constituting a Change in Control have occurred or the Board has determined that
a Change in Control has occurred, Executive shall be entitled to the benefits
provided in paragraphs (c), (d), (e), (f), and (g) of this Section 5 upon his
termination of employment on or after the date the Change in Control occurs at
any time during the term of this Agreement due to (i) Executive's dismissal,
(ii) Executive's voluntary resignation for any reason on or within the sixty
(60) day period immediately following the date a Change in Control has occurred,
or (iii) Executive's resignation following any demotion, loss of title, office
or significant authority or responsibility, reduction in the annual compensation
or benefits or relocation of his principal place of employment by more than
twenty-five (25) miles from its location immediately prior to the Change in
Control, unless such termination is because of his death or Termination for
Cause (as defined in Section 7 of this Agreement).
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Holding Company shall pay Executive, or in the event of his subsequent death,
his beneficiary or beneficiaries, or his estate, as the case may be, as
severance pay or liquidated damages, or both, a sum equal to the greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) five (5)
times Executive's annual compensation for the most recently completed year. In
determining Executive's annual compensation, annual compensation shall include
Base Salary and any other taxable income, including but not limited to amounts
related to the granting, vesting or exercise of restricted stock or stock option
awards, commissions, bonuses, severance payments, retirement benefits, director
or committee fees and fringe benefits paid or to be paid to Executive or paid
for Executive's benefit during any such year, as well as pension, profit sharing
plan, employee stock ownership and other retirement contributions or benefits
(whether or not taxable) made or accrued on behalf of Executive for such year.
At the election of Executive, which election is to be made prior to or within
thirty (30) days of the Date of Termination on or following a Change in Control,
such payment may be made in a lump sum (without discount for early payment) on
or immediately following the Date of Termination (which may be the date a change
in Control occurs) or paid in equal monthly installments during the sixty (60)
months following Executive's termination. In the event that no election is
made, payment to Executive will be made on a monthly basis during the remaining
sixty (60) month term of the Agreement. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
6
<PAGE>
(d) Upon the occurrence of a Change in Control followed by Executive's
termination of employment, Executive will be entitled to receive benefits due
him under or contributed by the Holding Company or its Subsidiaries on his
behalf pursuant to any retirement, incentive, profit sharing, employee stock
ownership, bonus, performance, disability or other employee benefit plan
maintained by the Institution or the Holding Company on Executive's behalf to
the extent such benefits are not otherwise paid to Executive under a separate
provision of this Agreement.
(e) Upon the occurrence of a Change in Control and Executive's termination
of employment in connection therewith, the Holding Company will cause to be
continued life, medical and disability coverage substantially identical to the
coverage maintained by the Holding Company or its Subsidiaries for Executive and
any of his dependents covered under such plans prior to the Change in Control.
Such coverage and payments shall cease upon the expiration of sixty (60) full
calendar months following the Date of Termination. In the event Executive's
participation in any such plan or program is barred, the Holding Company shall
arrange to provide Executive and his dependents with benefits substantially
similar as those of which Executive and his dependents would otherwise have been
entitled to receive under such plans and programs from which their continued
participation is barred or provide their economic equivalent.
(f) The use or provision of any membership, license, automobile use, or
other perquisites shall be continued during the remaining term of the Agreement
on the same financial terms and obligations as were in place immediately prior
to the Change in Control. To the extent that any item referred to in this
paragraph will at the end of the term of this Agreement, no longer be available
to Executive, Executive will have the option to purchase all rights then held by
the Holding Company or its Subsidiaries to such item for a price equal to the
then fair market value of the item.
(g) In the event that Executive is receiving monthly payments pursuant to
Section 5(c) hereof, on an annual basis, thereafter, between the dates of
January 1 and January 31 of each year, Executive shall elect whether the balance
of the amount payable under the Agreement at that time shall be paid in a lump
sum or on a pro rata basis pursuant to such section. Such election shall be
irrevocable for the year for which such election is made.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the preceding provisions of Section 5 of this
Agreement, for any taxable year in which Executive shall be liable, as
determined for the payment of an excise tax under Section 4999 of the Code (or
any successor provision thereto), with respect to any payment in the nature of
the compensation made by the Holding Company or its Subsidiaries to (or for the
benefit of) Executive pursuant to this Agreement or otherwise, the Holding
Company shall pay to Executive an amount determined under the following formula:
An amount equal to: (E x P) + X
7
<PAGE>
WHERE:
X = E x P
1 - [(FI x (1 - SLI)) + SLI + E]
E = the rate at which the excise tax is assessed under Section 4999
of the Code;
P = the amount with respect to which such excise tax is assessed,
determined without regard to this Section 6;
FI = the highest marginal rate of federal income, employment, and
other taxes (other than taxes imposed under Section 4999 of the
Code) applicable to Executive for the taxable year in question
(including any effective increase in Executive's tax rate
attributable to the disallowance of any deduction); and
SLI = the sum of the highest marginal rates of income and payroll tax
applicable to Executive under applicable state and local laws for
the taxable year in question (including any effective increase in
Executive's tax rate attributable to the disallowance of any
deduction).
With respect to any payment in the nature of compensation that is made to (or
for the benefit of) Executive under the terms of this Section or otherwise and
on which an excise tax under Section 4999 of the Code will be assessed, the
payment determined under this Section 6 shall be made to Executive on the
earliest of (i) the date the Holding Company is required to withhold such tax,
(ii) the date the tax is required to be paid by Executive, or (iii) at the time
of the Change in Control. It is the intention of the parties that the Holding
Company provide Executive with a full tax gross-up under the provisions of this
Section 6, so that on a net after-tax basis, the result to Executive shall be
the same as if the excise tax under Section 4999 (or any successor provisions)
of the Code had not been imposed. The tax gross-up may be adjusted if
alternative minimum tax rules are applicable to Executive.
(b) Notwithstanding the foregoing, if it shall subsequently be determined
in a final judicial determination or a final administrative settlement to which
Executive is a party that the excess parachute payment as defined in Section
4999 of the Code, reduced as described above, is more than the amount determined
as "P", above (such greater amount being hereafter referred to as the
"Determinative Excess Parachute Payment"), then the Holding Company's
independent accountants shall determine the amount (the "Adjustment Amount"),
the Holding Company must pay to Executive, in order to put Executive (or the
Holding Company, as the case may be) in the same position as Executive (or the
Holding Company, as the case may be) would have been if the amount determined as
"P" above had been equal to the Determinative Excess Parachute Payment.
8
<PAGE>
In determining the Adjustment Amount, the independent accountants shall take
into account any and all taxes (including any penalties and interest) paid by or
for Executive or refunded to Executive or for Executive's benefit. As soon as
practicable after the Adjustment Amount has been so determined, the Holding
Company shall pay the Adjustment Amount to Executive.
(c) In each calendar year that Executive receives payments or benefits
under this Agreement, Executive shall report on his state and federal income tax
returns such information as is consistent with the determination made by the
independent accountants of the Holding Company as described above. The Holding
Company shall indemnify and hold Executive harmless from any and all losses,
costs and expenses (including without limitation, reasonable attorney's fees,
interest, fines and penalties) which Executive incurs as a result of reporting
such information. Executive shall promptly notify the Holding Company in
writing whenever Executive receives notice of the Bank of a judicial or
administrative proceeding, formal or informal, in which the federal tax
treatment under Section 4999 of the Code of any amount paid or payable under
this Supplemental Agreement is being reviewed or is in dispute. The Holding
Company shall assume control at its expense over all legal and accounting
matters pertaining to such federal tax treatment (except to the extent necessary
or appropriate for Executive to resolve any such proceeding with respect to any
matter unrelated to amounts paid or payable pursuant to this contract) and
Executive shall cooperate fully with the Holding Company in any such proceeding.
Executive shall not enter into any compromise or settlement or otherwise
prejudice any rights the Holding Company may have in connection therewith
without prior consent to the Holding Company.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Bank or its affiliates.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-fourths of the members of the Board
at a meeting of the Board called and held for that purpose (after reasonable
notice to Executive and an opportunity for him, together with counsel, to be
heard before the Board), finding that in the good faith opinion of the Board,
Executive was guilty of conduct justifying Termination for Cause and specifying
the particulars thereof in detail. Executive shall not have
9
<PAGE>
the right to receive compensation or other benefits for any period after
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 8 hereof through the Date of
Termination, stock options and related limited rights granted to Executive under
any stock option plan shall not be exercisable nor shall any unvested awards
granted to Executive under any stock benefit plan of the Institution, the
Holding Company or any subsidiary or affiliate thereof, vest. At the Date of
Termination, such stock options and related limited rights and any such unvested
awards shall become null and void and shall not be exercisable by or delivered
to Executive at any time subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a written
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of Executive's employment under the
provision so indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding Executive's termination exists,
the "Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by Executive in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and; provided, further, that the Date of Termination shall be extended by a
notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, the Holding
Company will continue to pay Executive his full compensation in effect when the
notice giving rise to the dispute was given (including, but not limited to, Base
Salary) and continue him as a participant in all compensation, benefit and
insurance plans in which he was participating when the notice of dispute was
given, until the dispute is finally resolved in accordance with this Agreement.
Amounts paid under this Section are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other amounts due
under this Agreement.
10
<PAGE>
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which Executive's normal business office is located and
the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of
11
<PAGE>
banking, financial and/or economic principles, concepts or ideas which are not
solely and exclusively derived from the business plans and activities of the
Holding Company. Further, Executive may disclose information regarding the
business activities of the Bank or Holding Company to the Superintendent of
Banks of the State of New York, the New York Banking Department, OTS and the
Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal regulatory
request. In the event of a breach or threatened breach by Executive of the
provisions of this Section, the Holding Company will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
Holding Company or its Subsidiaries or from rendering any services to any
person, firm, corporation, or other entity to whom such knowledge, in whole or
in part, has been disclosed or is threatened to be disclosed. Nothing herein
will be construed as prohibiting the Holding Company from pursuing any other
remedies available to the Holding Company for such breach or threatened breach,
including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under an the employment agreement in effect between
Executive and the Institution, such compensation payments and benefits paid by
the Institution will be subtracted from any amount due simultaneously to
Executive under similar provisions of this Agreement. Payments pursuant to this
Agreement and the Institution Agreement shall be allocated in proportion to the
level of activity and the time expended on such activities by Executive as
determined by the Holding Company and the Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by
12
<PAGE>
operation of law, and any attempt, voluntary or involuntary, to affect any such
action shall be null, void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regard to
principles of conflict of laws of this state.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Association then in effect. Judgment may
13
<PAGE>
be entered on the arbitrator's award in any court having jurisdiction; provided,
however, that Executive shall be entitled to seek specific performance of his
right to be paid until the Date of Termination during the pendency of any
dispute or controversy arising under or in connection with this Agreement.
19. PAYMENT OF COSTS AND LEGAL FEES AND REINSTATEMENT OF BENEFITS.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of: (1)
all legal fees incurred by Executive in resolving such dispute or controversy,
and (2) any back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
20. INDEMNIFICATION.
The Holding Company shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the Holding
Company (whether or not he continues to be a director or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
14
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Richmond County Financial Corp. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 21st day of September, 1999.
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
/s/ Diane L. DeLillo By:/s/ Michael F. Manzulli
- ------------------------------- -----------------------------------
Michael F. Manzulli
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo By:/s/ Thomas R. Cangemi
- ------------------------------- -----------------------------------
Thomas R. Cangemi
15
<PAGE>
EXHIBIT 10.8
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of September 21, 1999, by
and among Richmond County Savings Bank (the "Institution"), a state chartered
savings institution, with its principal administrative office at 1214 Castleton
Avenue, Staten Island, New York, 10310, Richmond County Financial Corp., a
corporation organized under the laws of the State of Delaware, the holding
company for the Institution (the "Holding Company"), and Thomas R. Cangemi
("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Senior Vice President and Chief Financial Officer of the Institution. Executive
shall render administrative and management services to the Institution such as
are customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Institution.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under this Agreement shall be
deemed to have commenced as of the date first above written and shall continue
for a period of thirty-six (36) full calendar months thereafter. Commencing on
the effective date of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the disinterested members of
the board of directors of the Institution ("Board") or Executive elects not to
extend the term of this Agreement by giving written notice in accordance with
Section 8 of this Agreement. The Board will review the Agreement and
Executive's performance annually for purposes of determining whether to extend
the Agreement and the rationale and results thereof shall be included in the
minutes of the Board's meeting. The Board shall give notice to the Executive as
soon as possible after such review as to whether the Agreement is to be
extended.
<PAGE>
(b) During the period of Executive's employment hereunder, except for
periods of absence occasioned by illness, reasonable vacation periods, and
reasonable leaves of absence, Executive shall devote substantially all his
business time, attention, skill, and efforts to the faithful performance of his
duties hereunder including activities and services related to the organization,
operation and management of the Institution and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in such Board's judgment,
will not present any conflict of interest with the Institution, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Institution may be terminated by the Institution or the Executive
during the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Institution shall pay Executive as compensation a salary of
$167,308 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or non-qualified plan
maintained by the Institution. Such Base Salary shall be payable bi-weekly.
During the period of this Agreement, Executive's Base Salary shall be reviewed
at least annually; the first such review will be made no later than one year
from the date of this Agreement. Such review shall be conducted by the Board or
by a Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Institution shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as are provided uniformly to full-time employees of the Institution.
(b) The Executive shall be entitled to participate in any employee benefit
plans, arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Institution will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Institution employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans, including, but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, stock or
option plans, health-and-accident plans, medical coverage or any other employee
benefit plan or arrangement made available by the Institution in the future to
its senior executives and key management employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans
and arrangements. Executive shall be entitled to incentive
-2-
<PAGE>
compensation and bonuses as provided in any plan or arrangement of the
Institution in which Executive is eligible to participate. Nothing paid to the
Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the Executive's term of employment under this Agreement, the provisions
of this Section shall apply. As used in this Agreement, an "Event of
Termination" shall mean and include any one or more of the following: (i) the
termination by the Institution or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Institution's employ upon any of the following:
(A) unless consented to by the Executive, failure to elect or reelect or to
appoint or reappoint Executive as Senior Vice President and Chief Financial
Officer or failure to nominate or re-nominate Executive as a Director of the
Institution or Holding Company to the extent Executive was serving as a Director
as of the effective date of this Agreement, (B) a material change in Executive's
function, duties, or responsibilities, which change would cause Executive's
position to become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above, unless consented
to by Executive, (C) a reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, or (D) a liquidation or dissolution of the
Institution or Holding Company, or (E) breach of this Agreement by the
Institution. Upon the occurrence of any event described in clauses (A), (B),
(C), (D), or (E), above, Executive shall have the right to elect to terminate
his employment under this Agreement by resignation upon not less than sixty (60)
days prior written notice given within six full months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Institution shall be obligated to pay
Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions or payments that would have
been made on Executive's behalf to any employee benefit plans of the Institution
or the Holding Company or for any benefit or perquisite which would have been
provided to Executive during the remaining term of this Agreement
-3-
<PAGE>
based on contributions or payments made (on an annualized basis) at the Date of
Termination; provided, however, that any payments pursuant to this subsection
-------- -------
and subsection 4(c) below shall not, in the aggregate, exceed three times
Executive's average annual compensation for the five most recent taxable years
that Executive has been employed by the Institution or such lesser number of
years in the event that Executive shall have been employed by the Institution
for less than five years. In the event the Institution is not in compliance
with its minimum capital requirements or if such payments pursuant to this
subsection (b) would cause the Institution's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred until
such time as the Institution or successor thereto is in capital compliance. At
the election of the Executive, which election is to be made prior to an Event of
Termination, such payments shall be made (a) in a lump sum as of the Executive's
Date of Termination, (b) on a bi-weekly basis in approximately equal
installments during the remaining term of the Agreement or (c) on an annual
basis in approximately equal installments during the remaining term of the
Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Institution will
cause to be continued life, medical, dental and long-term or other disability
coverage substantially identical to the coverage maintained by the Institution
or the Holding Company for Executive prior to his termination at no premium cost
to the Executive, except to the extent such coverage may be changed in its
application to all Institution or Holding Company employees. Such coverage
shall cease upon the expiration of the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Institution or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Institution or the Holding Company within
the meaning of the Change in Bank Control Act and the Rules and Regulations
promulgated by the Federal Deposit Insurance Corporation ("FDIC") at 12 C.F.R.
(S) 303.4(a), with respect to the Institution, and the Rules and Regulations
promulgated by the Office of Thrift Supervision ("OTS") (or its predecessor
agency), with respect to the Holding Company, as in effect on the date of this
Agreement; or (iii) without limitation such a Change in Control shall be deemed
to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Institution or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to
-4-
<PAGE>
constitute at least a majority thereof, provided that any person becoming a
director subsequent to the date hereof whose election was approved by a vote of
at least three-quarters of the directors comprising the Incumbent Board, or
whose nomination for election by the Holding Company's stockholders was approved
by the same Nominating Committee serving under an Incumbent Board, shall be, for
purposes of this clause (B), considered as though he were a member of the
Incumbent Board, or (C) a plan of reorganization, merger, consolidation, sale of
all or substantially all the assets of the Institution or the Holding Company or
similar transaction occurs in which the Institution or Holding Company is not
the resulting entity, or (D) a proxy statement has been distributed soliciting
proxies from stockholders of the Holding Company, by someone other than the
current management of the Holding Company, seeking stockholder approval of a
plan of reorganization, merger or consolidation of the Holding Company or
Institution or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company, or (E) a tender
offer is made for 20% or more of the voting securities of the Stock Institution
or Holding Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any demotion, loss of title, office or significant
authority or responsibility, material reduction in annual compensation or
benefits or relocation of his principal place of employment by more than 25
miles from its location immediately prior to the Change in Control, unless such
termination is because of his death, disability, retirement or termination for
Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (i) the payments due for the remaining term of the Agreement;
or (ii) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five (5) years. Such average annual
compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Institution;
provided, however, that any payment under this provision and subsection 5(d)
- -------- -------
below shall not exceed three (3) times the Executive's average annual
compensation. In the event the Institution is not in compliance with its
minimum capital requirements or if such payments would cause the Institution's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such
-5-
<PAGE>
time as the Institution or successor thereto is in capital compliance. At the
election of the Executive, which election is to be made prior to a Change in
Control, such payment shall be made: (a) in a lump sum as of the Executive's
Date of Termination, (b) on a bi-weekly basis in approximately equal
installments over a period of thirty-six (36) months following the Executive's
termination, or (c) on an annual basis in approximately equal installments over
a period of thirty-six (36) months following the Executive's termination. Such
payments shall not be reduced in the event Executive obtains other employment
following termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Institution will cause to be continued life, medical, dental and long-term
or other disability coverage substantially identical to the coverage maintained
by the Institution for Executive prior to his severance at no premium cost to
the Executive, except to the extent that such coverage may be changed in its
application for all Institution employees on a non-discriminatory basis. Such
coverage and payments shall cease upon the expiration of thirty-six (36) months
following the Date of Termination.
6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of: 1)
Executive's personal dishonesty, willful misconduct, breach of fiduciary duty
involving personal profit, intentional failure to perform stated duties, willful
violation of any law, rule, regulation (other than traffic violations or similar
offenses), final cease and desist order or material breach of any provision of
this Agreement which results in a material loss to the Institution or the
Holding Company, or 2) Executive's conviction of a crime or act involving moral
turpitude or a final judgement rendered against Executive based upon actions of
Executive which involve moral turpitude. For the purposes of this Section 7, no
act, or the failure to act, on Executive's part shall be "willful" unless done,
or omitted to be done, not in good faith and without reasonable belief that the
action or omission was in the best interests of the Institution or its
affiliates. Notwithstanding the foregoing, Executive shall not be deemed to have
been Terminated for Cause unless and until there shall have been delivered to
him a Notice of Termination which
-6-
<PAGE>
shall include a copy of a resolution duly adopted by the affirmative vote of not
less than a majority of the members of the Board at a meeting of the Board
called and held for that purpose (after reasonable notice to Executive and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, Executive was guilty of
conduct justifying Termination for Cause and specifying the particulars thereof
in detail. Executive shall not have the right to receive compensation or other
benefits for any period after the Date of Termination for Cause. During the
period beginning on the date of the Notice of Termination for Cause pursuant to
Section 8 hereof through the Date of Termination for Cause, stock options and
related limited rights granted to Executive under any stock option plan shall
not be exercisable nor shall any unvested awards granted to Executive under any
stock benefit plan of the Institution, the Holding Company or any subsidiary or
affiliate thereof, vest. At the Date of Termination for Cause, such stock
options and related limited rights and any unvested awards shall become null and
void and shall not be exercisable by or delivered to Executive at any time
subsequent to such Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Institution or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 8(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: 1) the resolution of the dispute
in accordance with this Agreement or 2) the expiration of the remaining term of
this Agreement as determined as of the Date of Termination. Amounts paid under
this
-7-
<PAGE>
Section are in addition to all other amounts due under this Agreement and shall
not be offset against or reduce any other amounts due under this Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and counties, Executive shall not work for or advise, consult
or otherwise serve with, directly or indirectly, any entity whose business
materially competes with the depository, lending or other business activities of
the Holding Company or its Subsidiaries. The parties hereto, recognizing that
irreparable injury will result to the Holding Company or its Subsidiaries, its
business and property in the event of Executive's breach of this Subsection
10(a) agree that in the event of any such breach by Executive, the Holding
Company or its Subsidiaries, will be entitled, in addition to any other remedies
and damages available, to an injunction to restrain the violation hereof by
Executive, Executive's partners, agents, servants, employees and all persons
acting for or under the direction of Executive. Executive represents and admits
that in the event of the termination of his employment pursuant to Section 7
hereof, Executive's experience and capabilities are such that Executive can
obtain employment in a business engaged in other lines and/or of a different
nature than the Holding Company or its Subsidiaries, and that the enforcement of
a remedy by way of injunction will not prevent Executive from earning a
livelihood. Nothing herein will be construed as prohibiting the Holding Company
or its Subsidiaries from pursuing any other remedies available to the Holding
Company or its Subsidiaries for such breach or threatened breach, including the
recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
-8-
<PAGE>
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. Further, Executive
may disclose information regarding the business activities of the Bank or
Holding Company to the Superintendent of Banks of the State of New York, the New
York Banking Department, OTS and the Federal Deposit Insurance Corporation
("FDIC") pursuant to a formal regulatory request. In the event of a breach or
threatened breach by the Executive of the provisions of this Section, the
Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Institution. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Institution are not timely paid or provided by the Institution, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement effective as of February
17, 1998, between Executive and the Holding Company, such compensation payments
and benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Institution
on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
-9-
<PAGE>
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) Any payments made to Executive pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any rules and regulations promulgated thereunder, including 12
C.F.R. Part 359.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
-10-
<PAGE>
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regard to
principles of conflict of laws of this state.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Institution, in accordance with the rules of
the American Arbitration Institution then in effect. Judgment may be entered on
the arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
20. PAYMENT OF COSTS AND LEGAL FEES.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of: (1) all legal fees incurred by Executive in resolving such dispute or
controversy, and (2) any back-pay, including salary, bonuses and any other cash
compensation, fringe benefits and any compensation and benefits due Executive
under this Agreement.
21. INDEMNIFICATION.
(a) The Institution shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Delaware law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Institution (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
-11-
<PAGE>
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
SIGNATURES
IN WITNESS WHEREOF, Richmond County Savings Bank and Richmond County
Financial Corp. have caused this Agreement to be executed and their seals to be
affixed hereunto by their duly authorized officers and directors, and Executive
has signed this Agreement, on the 21st day of September, 1999.
ATTEST: RICHMOND COUNTY SAVINGS BANK
/s/ Diane L. DeLillo /s/ Michael F. Manzulli
- -------------------- By: -----------------------
Michael F. Manzulli
For The Entire Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
/s/ Diane L. DeLillo /s/ Michael F. Manzulli
- -------------------- By: -----------------------
Michael F. Manzulli
For The Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo /s/ Thomas R. Cangemi
- -------------------- ----------------------
Thomas R.Cangemi
-12-
<PAGE>
EXHIBIT 10.14
RICHMOND COUNTY FINANCIAL CORP.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(As Amended and Restated Effective January 1, 1998)
<PAGE>
Richmond County Financial Corp.
Supplemental Executive Retirement Plan
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Article I - Introduction.................................................1
Article II - Definitions.................................................1
Article III - Eligibility and Participation..............................5
Article IV - Benefits....................................................5
Article V - Accounts.....................................................9
Article VI - Supplemental Benefit Payments..............................11
Article VII - Claims Procedures.........................................13
Article VIII - Amendment and Termination................................15
Article IX - General Provisions.........................................15
</TABLE>
i
<PAGE>
Article I
Introduction
Section 1.01 Purpose, Design and Intent.
--------------------------
(a) The purpose of the Richmond County Financial Corp. Supplemental Executive
Retirement Plan (the "Plan") is to assist Richmond County Financial Corp.
(the "Company") and its Affiliates (as defined in Section 2.01(a) of the
Plan), including Richmond County Savings Bank, in retaining the services of
key employees until their retirement, to induce such employees to use their
best efforts to enhance the business of the Company and its Affiliates, and
to provide certain supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is designed, in large part, to
provide certain key employees with retirement benefits that would have been
payable under the various tax-qualified retirement plans sponsored by the
Company and/or its Affiliates but for the limitations placed on the
benefits and contributions under such plans by the provisions of the
Internal Revenue Code of 1986, as amended.
(c) This Plan constitutes an amendment, restatement, and consolidation of two
existing plan documents known as the Richmond County Savings Bank
Supplemental Executive Retirement Plan and the Richmond County Savings Bank
Management Supplemental Executive Retirement Plan. The Effective Date of
this Plan, as amended and restated, is January 1, 1998.
Article II
Definitions
Section 2.01 Definitions. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or Beneficiary, as the case may be, and, except as otherwise
provided, or unless the context otherwise requires, the capitalized terms shall
have the following meanings:
(a) "Affiliate" means any corporation, trade or business, which, at the time of
reference, is together with the Company, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Company under Section 414(o) of the Code;
provided, however, that, where the context so requires, the term "Affiliate"
shall be construed to give full effect to the provisions of Sections 409(l)(4)
and 415(h) of the Code.
1
<PAGE>
(b) "Applicable Limitations" means any of the following:
(i) the maximum limitation on annual benefits payable by a tax-
qualified defined benefit plan under Section 415(b) of the Code;
(ii) the maximum limitations on annual additions to a tax-qualified
defined contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the aggregate projected annual benefits
payable under all tax-qualified defined benefit plans and the
annual additions under all tax-qualified defined contribution
plans under Section 415(e) of the Code;
(iv) the maximum limitation on the annual amount of compensation that
may, under Section 401(a)(17) of the Code, be taken into account
in determining contributions to and benefits under tax-qualified
plans;
(v) the maximum limitation on employee elective deferrals as a result
of the application of the discrimination standards under Section
401(k)(3) of the Code; and.
(vi) the maximum limitation on matching contributions as a result of
the application of the nondiscrimination test under Section
401(m)(2) of the Code.
(c) "Bank" means Richmond County Savings Bank, and its successors.
(d) "Basic Retirement Plan" means the Retirement Plan of Richmond County Savings
Bank in RSI Retirement Trust, as amended from time to time.
(e) "Basic Savings Plan" means the Richmond County Savings Bank 401(k) Savings
Plan in RSI Trust, as amended from time to time.
(f) "Board of Directors" means the Board of Directors of the Company.
(g) "Change in Control" means an event of a nature that: (i) would be required
to be reported in response to Item 1(a) of the current report on Form 8-K, as in
effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in
Control of the Bank or the Company within the meaning of the Change in Bank
Control Act and the Rules and Regulations promulgated by the Federal Deposit
Insurance Corporation ("FDIC") at 12 C.F.R. (S)303.4(a) with respect to the Bank
and the Board of Governors of the Federal Reserve System ("FRB") at 12 C.F.R.
(S)225.41(b) with respect to the Company, as in effect on the date hereof; or
(iii) results in a transaction requiring prior FRB approval under the Bank
Holding Company Act of 1956 and the regulations promulgated thereunder by the
FRB at 12 C.F.R. (S)225.11, as in effect on the date hereof except for the
Company's acquisition of the Bank; or (iv) without
2
<PAGE>
limitation such a Change in Control shall be deemed to have occurred at such
time as (A) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Bank or
the Company representing 20% or more of the Bank's or the Company's outstanding
securities except for any securities of the Bank purchased by the Company in
connection with the conversion of the Bank to the stock form and any securities
purchased by any tax qualified employee benefit plan of the Bank; or (B)
individuals who constitute the Board of Directors on the date hereof (the
"Incumbent Board") cease for any reason to constitute at least a majority
thereof, provided that any person becoming a director subsequent to the date
hereof whose election was approved by a vote of at least three-quarters of the
directors comprising the Incumbent Board, or whose nomination for election by
the Company's stockholders was approved by the same Nominating Committee serving
under an Incumbent Board, shall be, for purposes of this clause (B), considered
as though he were a member of the Incumbent Board; or (C) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction occurs in which the
Bank or Company is not the resulting entity; or (D) solicitations of
shareholders of the Company, by someone other than the current management of the
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Company or Bank or similar transaction with one or more
corporations as a result of which the outstanding shares of the class of
securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Bank or the
Company shall be distributed; or (E) a tender offer is made for 20% or more of
the voting securities of the Bank or the Company.
(h) "Code" means the Internal Revenue Code of 1986, as amended.
(i) "Committee" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(j) "Common Stock" means the common stock of the Company.
(k) "Company" means Richmond County Financial Corp., and its successors.
(l) "Eligible Individual" means any Employee of the Company or an Affiliate who
participates in the ESOP, the Basic Retirement Plan, or the Basic Savings Plan,
as the case may be, and whom the Board of Directors determines is one of a
"select group of management or highly compensated employees," as such phrase is
used for purposes of Sections 101, 201, and 301 of ERISA.
(m) "Employee" means any person employed by the Company or an Affiliate.
(n) "Employer" means the Company or its Affiliate that employs the Employee.
(o) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
-3-
<PAGE>
(p) "ESOP" means the Richmond County Savings Bank Employee Stock Ownership Plan,
as amended from time to time.
(q) "ESOP Acquisition Loan" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
(r) "ESOP Restoration Benefit" means the benefit credited to a Participant's
ESOP Restoration Benefit Account pursuant to Section 4.02 of the Plan.
(s) "ESOP Restoration Benefit Account" means the account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
ESOP Restoration Benefit.
(t) "ESOP Valuation Date" means any day as of which the investment experience of
the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(u) "Effective Date" means January 1, 1998.
(v) "Participant" means an Eligible Individual who is entitled to benefits under
the Plan.
(w) "Pension Restoration Benefit Account" means an account established by an
Employer, pursuant to Section 5.03 of the Plan, with respect to a Participant's
Pension Restoration Benefit.
(x) "Pension Restoration Benefit" means the benefit credited to a Participant
pursuant to Section 4.04 of the Plan.
(y) "Plan" means this Richmond County Financial Corp. Supplemental Executive
Retirement Plan.
(z) "Retirement" means, except as provided for in Sections 4.02(c) and 4.03(c)
of the Plan, termination of employment at any time following the satisfaction
the requirements for early or normal retirement under either the ESOP, the Basic
Retirement Plan, or the Basic Savings Plan, as appropriate.
(aa) "Supplemental ESOP Account" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(bb) "Supplemental ESOP Benefit" means the benefit credited to a Participant's
Supplemental ESOP Account pursuant to Section 4.01 of the Plan.
(cc) "Supplemental Retirement Income Benefit" means the benefit earned by a
Participant pursuant to Section 4.03 of the Plan.
(dd) "Supplemental Savings Account" means an account established by an Employer,
pursuant to Section 5.05 of the Plan, with respect to a Participant's
Supplemental Savings Benefit.
-4-
<PAGE>
(ee) "Supplemental Savings Benefit" means the benefit credited to a
Participant's Supplemental Savings Account pursuant to Section 4.05 of the Plan.
Article III
Participation
Section 3.01 Participation.
-------------
(a) An Eligible Individual shall become a Participant in the Plan upon
designation as such by the Board of Directors. An Eligible Individual whom
the Board of Directors designates as a Participant in the Plan shall
commence participation as of the date established by the Board of
Directors. The Board of Directors shall establish an Eligible Individual's
date of participation at the same time it designates the Eligible
Individual as a Participant in the Plan.
(b) The Board of Directors may designate an Eligible Individual as a
Participant with respect to any or all supplemental benefits provided for
under Article IV of the Plan.
Article IV
Benefits
Section 4.01 Supplemental ESOP Benefit.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit a
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan, together with any forfeitures,
earnings or dividends, that would otherwise be allocated to the accounts of
the Participant under the ESOP for the applicable plan year if the
provisions of the ESOP were administered without regard to any of the
Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and/or the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan, together with any forfeitures,
earnings or dividends, that are actually allocated to the accounts of the
Participant under the ESOP for that particular plan year after giving effect
to any reduction of such benefits required by, or as the result of, the
limitations imposed by any of the Applicable Limitations.
-5-
<PAGE>
Section 4.02 ESOP Restoration Benefit.
------------------------
(a) Upon a Participant's Retirement from the Employer, the Employer shall credit
to the Participant's ESOP Restoration Account an ESOP Restoration Benefit
equal to (i) less (ii), the result of which is multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition Loans)
that would have been allocated or credited for the benefit of the
Participant under the ESOP and/or Section 4.01 of this Plan, as the
case may be, had the Participant continued in the employ of the
Employer through the first ESOP Valuation Date following the last
scheduled payment of principal and interest on all ESOP Acquisition
Loans outstanding at the time of the Participant's Retirement; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition Loans)
and allocated for the benefit of the Participant under the ESOP as of
the first ESOP Valuation Date following the Participant's Retirement;
and
(iii) Equals the higher of the closing price of the Common Stock as of:
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
(B) The last day of the Participant's employment with the Employer.
(b) For purposes of clause (i) of subsection (a) of this Section 4.02, the total
number of shares of Common Stock that would have been allocated or credited
for the benefit of the Participant shall be determined by multiplying the
sum of (i) and (ii) by (iii), where:
(i) equals the average of the total shares of Common Stock acquired with
the proceeds of an ESOP Acquisition Loan and allocated for the benefit
of the Participant under the ESOP as of three most recent ESOP
Valuation Dates preceding the Participant's Retirement (or lesser
number if the Participant has not participated in the ESOP for three
full years);
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent plan
years of the ESOP (such that the three recent plan years coincide with
the three most recent ESOP Valuation Dates referred to in (b)(i)
above); and
-6-
<PAGE>
(iii) equals the total number of scheduled annual payments remaining on the
ESOP Acquisition Loans as of the Participant's Retirement.
(c) In the event of a Change in Control:
(i) A Participant's Retirement shall be deemed to have occurred as of the
effective date of the Change in Control, as determined by the Board of
Directors, regardless of whether the Participant continues in the
employ of the Employer following the Change in Control; provided,
however, that if the Participant continues to benefit under the ESOP
following the effective date of the Change in Control, his benefit
determined under this Plan as of the effective date of the Change in
Control shall be reduced by benefits allocated or credited to
following the effective date (which relate to an Acquisition Loan) in
a manner consistent with the provisions of Sections 4.02(a)(i) and
(ii) of the Plan; and
(ii) The determination of fair market value of the Common Stock shall be
made as the effective date of the Change in Control.
Section 4.03 Supplemental Pension Benefit.
----------------------------
(a) The Supplemental Retirement Income Benefit payable to an Participant in the
form of a life annuity, commencing on his Normal, Early or Postponed
Retirement Date, as the case may be, shall be equal to the difference
between (i) and (ii), where:
(i) Equals the monthly amount of Basic Retirement Plan retirement income
payable upon the Normal, Early or Postponed Retirement Date, as the
case may be, to which the Participant would have been entitled under
the Basic Retirement Plan, if such benefit were calculated under the
Basic Retirement Plan without giving effect to the limitations and
restrictions imposed by the Applicable Limitations;
(ii) the monthly amount of Basic Retirement Plan retirement income payable
upon the Normal, Early or Postponed Retirement Date, as the case may
be, actually payable to the Participant under the Basic Retirement
Plan, after the limitations and restrictions imposed by the Applicable
Limitations; provided, however, that in determining the Code Section
415(e) combined limitation defined contribution plan fraction, if
applicable, for purposes of this clause (ii), the "sum of the annual
additions" numerator of such fraction shall be calculated by ignoring
pre-tax (basic) or post-tax participant contributions to the
Employer's defined contribution plans, during any year, that did not
result in an Employer matching contribution.
(b) With respect to eligible Participants who terminate their employment other
than on a Retirement Date specified in subsection (c) of this Section 4.03,
the supplemental vested Retirement Income Benefit payable in the form of a
life annuity, commencing on the date the
-7-
<PAGE>
Participant is eligible for a vested retirement benefit under the Basic
Retirement Plan, shall be equal to the difference between (i) and (ii),
where:
(i) equals the monthly amount of Basic Retirement Plan vested retirement
income payable upon termination of service to which the Participant
would have been entitled under the Basic Retirement Plan, if such
benefit were calculated under the Basic Retirement Plan without giving
effect to the limitations and restrictions imposed by the Applicable
Limitations; and
(ii) equals the monthly amount of Basic Retirement Plan vested retirement
income payable upon termination of service actually payable to the
Participant under the Basic Retirement Plan, after the limitations and
restrictions imposed by the Applicable Limitations; provided however,
that in determining the Code Section 415(e) combined limitation
defined contribution plan fraction, if applicable, for purposes of
this clause (ii), the "sum of the annual additions" numerator of such
fraction shall be calculated by ignoring pre-tax (basic) or post-tax
participant contributions to the Employer's defined contribution
plans, during any year, which did not result in an Employer matching
contribution.
(c) For purposes of this Section 4.03, a Participant's Retirement Date shall be
his date of actual retirement, which may be his or her Normal, Early or
Postponed Retirement Date, whichever is applicable pursuant to the following
clauses of this subsection (c).
(i) A Participant's Normal Retirement Age shall be the 65th anniversary of
his birth. Such Participant's Normal Retirement Date shall be the date
coinciding with Normal Retirement Date under the Basic Retirement
Plan.
(ii) A Participant may retire on an Early Retirement Date, which shall be
the date coinciding with the initial distribution of an early
retirement benefit under the Basic Retirement Plan.
(iii) If a Participant continues in the employment of the Employer beyond
Normal Retirement Date, the date coinciding with postponed retirement
under the Basic Retirement Plan shall be the Participant's Postponed
Retirement Date.
Section 4.04 Pension Restoration Benefit.
---------------------------
In the event the Basic Retirement Plan is either frozen or terminated, the
Employer shall provide the Participant with Pension Restoration Benefit as of
the time the Basic Retirement Plan is frozen or terminated. The Pension
Restoration Benefit shall be a single lump sum benefit equal to the estimated
additional actuarial benefit the Participant would have accrued under the Basic
Retirement Plan through his Normal Retirement Date under the Basic Retirement
Plan had the plan not been frozen or terminated. The amount of the Pension
Restoration Benefit provided under this Section
-8-
<PAGE>
4.04 shall be calculated by the actuary for the Basic Retirement Plan and listed
on Exhibit A to the Plan. The Employer shall credit the Participant's Pension
Restoration Benefit to a Pension Restoration Benefit Account pursuant to Section
5.03 of the Plan.
Section 4.05 Supplemental Savings Benefit.
----------------------------
A Participant's Supplemental Savings Benefit under the Plan shall be equal to
the excess of (a) over (b), where:
(a) equals the matching contributions that would otherwise be allocated to an
account of the Participant under the Basic Savings Plan for a particular
year if the Participant were deferring the maximum amount permissible under
the Savings Plan (either by operation or by the terms of the plan) and the
provisions of the Basic Savings Plan were administered without regard to any
of the Applicable Limitations; and
(b) is the matching contributions made by the Employer that are actually
allocated to an account of the Participant under the provisions of the Basic
Savings Plan for that particular year after giving effect to any reduction
of such allocation required by any of the Applicable Limitations.
The Employer shall credit the Participant's Supplemental Savings Benefit to a
Supplemental Savings Benefit Account pursuant to Section 5.04 of the Plan.
Article V
Accounts
Section 5.01 Supplemental ESOP Benefit Account.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Employer shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the Applicable Limitations.
Shares of Common Stock shall be valued under this Plan in the same manner as
under the ESOP. Cash and other (non-stock) contributions credited to a
Participant's Supplemental ESOP Account shall be credited annually with interest
at a rate equal to the investment rate of return provided to the Participant's
non-stock accounts under the ESOP.
Section 5.02 Employee Stock Ownership Plan Restoration Account.
-------------------------------------------------
The Employer shall establish, as a memorandum account on its books, an ESOP
Restoration Benefit Account. Upon a Participant's Retirement or in the event of
a Change in Control, the Committee
-9-
<PAGE>
shall credit to the Participant's ESOP Restoration Benefit Account the amount of
benefits determined under Section 4.02 of the Plan. The Committee shall credit
the account with an amount equal to the appropriate number of shares of Common
Stock or other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the Participant's Retirement or
the occurrence of the Change in Control. Shares of Common Stock shall be valued
under this Plan in the same manner as under the ESOP. Cash and other (non-stock)
contributions credited to a Participant's ESOP Restoration Benefit Account shall
be credited annually with interest at a rate equal to the investment rate of
return provided to the Participant's non-stock accounts under the ESOP.
Section 5.03 Pension Restoration Benefit.
---------------------------
At the time a Participant becomes entitled to a Pension Restoration Benefit
pursuant to Section 4.04 of the Plan, the Employer shall establish, as a
memorandum account on its books, a Pension Restoration Benefit Account to which
the Employer shall credit the benefit. The Committee shall then establish one
or more hypothetical investment vehicles under this Plan (which the Committee
may change at its discretion). The Participant shall direct the Committee as to
the allocation of his Pension Restoration Benefit to one or more of the
hypothetical investment vehicles authorized under the Plan. The Participant may
direct the Committee to change the allocation of his hypothetical investment on
a monthly basis with any notification made to the Committee by the 15/th/ day of
the month becoming effective as of the first day of the next month. The
Committee may restrict allocations or reallocations by Participants into or out
of specific investment vehicles or specify the minimum amounts that may be
allocated or reallocated by Participants; provided, however, that such
allocations or reallocations shall be made in accordance with all applicable
securities laws and regulations. Each month, the Participant's Pension
Restoration Account shall be adjusted upwards or downwards to reflect the gain
or loss of the allocation of the Participant's Pension Restoration Account in
the various hypothetical investment vehicles.
Section 5.04 Supplemental Savings Account.
----------------------------
For each Participant who is credited with a benefit pursuant to Section 4.05 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental Savings Account. Each year the Employer will credit to the
Participant's Supplemental Savings Account the amount of benefits determined
under Section 4.05 of the Plan. Contributions credited to a Participant's
Supplemental Savings Account shall be credited monthly with interest at a rate
equal to the investment rate of return provided to the Participant's matching
contribution account under the Basic Savings Plan.
-10-
<PAGE>
Article VI
Supplemental Benefit Payments
Section 6.01 Payment of Supplemental ESOP Benefit.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or, in the event of the Participant's death, to his beneficiary, in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
Section 6.02 Payment of Employee Stock Ownership Plan Restoration Benefit.
------------------------------------------------------------
(a) A Participant's ESOP Restoration Benefit shall be paid to the Participant
or, in the event of the Participant's death, to his beneficiary, in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the ESOP
Restoration Benefit credited to him under this Plan.
Section 6.03 Payment of Supplemental Pension Benefit.
---------------------------------------
(a) A Participant's Supplemental Retirement Income Benefit shall be paid to the
Participant in the same form, and at the same time as his benefits are paid
under the Basic Retirement Plan.
(b) Upon the death of a Participant who has not terminated from employment prior
to his Retirement Date as defined in Section 4.03(c) of the Plan, or a
Participant who retires on a Retirement Date as defined in Section 4.03(c)
of the Plan and dies prior to the complete distribution of his retirement
benefits under the Basic Retirement Plan, the Participant's Supplemental
Retirement Income Benefit shall be payable as follows:
(i) If a Basic Retirement Plan preretirement survivor annuity or post
retirement survivor annuity, as the case may be, is payable to a
Participant's surviving spouse or eligible children, if applicable, a
supplemental preretirement survivor annuity or post retirement survivor
annuity, as the case may be, shall be payable to the surviving spouse or
eligible children, if applicable, under the Plan ("Supplemental
Surviving Spouse Benefit"). The monthly amount of the Supplemental
Surviving Spouse Benefit preretirement survivor annuity or post
retirement survivor annuity, as the case may be, payable to a surviving
spouse or eligible children, if applicable, shall be equal to the
difference between (A) and (B), where:
-11-
<PAGE>
(A) Equals the monthly amount of Basic Retirement Plan preretirement
survivor annuity or post retirement survivor annuity, as the case
may be, to which the surviving spouse or eligible children, if
applicable, would have been entitled under the Basic Retirement
Plan, if such benefit were calculated under the Basic Retirement
Plan without giving effect to the Applicable Limitations; and
(B) Equals the monthly amount of Basic Retirement Plan preretirement
survivor annuity or post retirement survivor annuity, as the case
may be, actually payable to the surviving spouse or eligible
children, if applicable, under the Basic Retirement Plan, after
imposition of the Applicable Limitations.
(ii) The supplemental preretirement survivor annuity or post retirement
survivor annuity shall be payable over the lifetime of the surviving
spouse, or to eligible children to the extent provided in the Basic
Retirement Plan, in monthly installments commencing on the same date as
payment of the Basic Retirement Plan preretirement survivor annuity or
post retirement survivor annuity, as the case may be, and shall
terminate on the date of the last payment of the Basic Retirement Plan
preretirement survivor annuity or post retirement survivor annuity, as
the case may be.
(c) A Participant shall have a non-forfeitable right to his Supplemental
Retirement Income Benefit under this Plan in the same percentage as he has
to his benefits under the Basic Retirement Plan at the time the benefits
become distributable to him under the Basic Retirement Plan.
Section 6.04 Payment of Pension Restoration Benefit.
--------------------------------------
(a) A Participant's Pension Restoration Benefit shall be paid to the Participant
or, in the event of the Participant's death, to his beneficiary, in a single
lump sum or in a series of annual installments not to exceed ten (elected by
the Participant at least one year prior to the commencement of the payment
of benefits) commencing at the same time his Supplemental Savings Benefit is
paid to him pursuant to Section 6.05 of the Plan.
(b) A Participant shall always have a fully non-forfeitable right to the Pension
Restoration Benefit credited to him under this Plan.
Section 6.05 Payment of Supplemental Savings Benefit.
---------------------------------------
(a) A Participant's Supplemental Savings Benefit shall be paid to the
Participant or, in the event of the Participant's death, to his beneficiary,
in the same form, and at the same time as his benefits are paid under the
Basic Savings Plan.
-12-
<PAGE>
(b) A Participant shall have a non-forfeitable right to his Supplemental Savings
Benefit under this Plan in the same percentage as he has to his benefits
under the Basic Savings Plan at the time the benefits become distributable
to him under the Basic Savings Plan.
Section 6.06 Alternative Payment of Benefits
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the ESOP
Restoration Benefit and/or the Supplemental Pension Benefit and/or the Pension
Restoration Benefit and/or the Supplemental Savings Benefit to which he is
entitled, and the survivor benefit to which his beneficiary under the Basic
Retirement Plan may be entitled under Section 4.03 be paid commencing at a
different time, over a different period, in a different form, or to different
persons, than the benefit to which he or his beneficiary may be entitled under
the ESOP, the Basic Retirement Plan, or the Basic Savings Plan, as the case may
be; provided, however, that in the event of any difference with respect to his
Supplemental Pension Benefit, the benefit actually paid under this Section 6.06
shall be the actuarial equivalent (as determined based applicable tables,
factors, and assumption set forth in the Basic Retirement Plan) of the benefit
that would be paid in accordance with the provisions of Section 6.03 of the
Plan.
Section 6.07 Hardships
---------
Notwithstanding the foregoing, the Committee may, at its sole discretion, allow
for the early payment of a Participant's Supplemental ESOP Benefit and/or
Pension Restoration Benefit and/or Supplemental Savings Account in the event of
an "unforeseeable emergency" or in the event of the death or disability of the
Participant. An "unforeseeable emergency" means an unanticipated emergency
caused by an event beyond the control of the Participant that would result in
severe financial hardship if the distribution were not permitted. Such
distributions shall be limited to the amount necessary to sufficiently address
the financial hardship. Any distributions under this provision, shall be
consistent with the Code and any applicable regulations.
Article VII
Claims Procedures
Section 7.01 Claims Reviewer.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
-13-
<PAGE>
Section 7.02 Claims Procedure.
----------------
(a) An initial claim for benefits under the Plan must be made by the Participant
or his or her beneficiary or beneficiaries in accordance with the terms of
this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant, unless
special circumstances require the extension of such 90-day period. If such
extension is necessary, the Claims Reviewer shall provide the Participant or
the Participant's beneficiary or beneficiaries with written notification of
such extension before the expiration of the initial 90-day period. Such
notice shall specify the reason or reasons for the extension and the date by
which a final decision can be expected. In no event shall such extension
exceed a period of ninety (90) days from the end of the initial 90-day
period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's claim,
the claimant may have a full and fair review of the claim by the Committee
upon written request submitted by the claimant or the claimant's duly
authorized representative and received by the Committee within sixty (60)
days after the claimant receives written notification that the claimant's
claim has been denied. In connection with such review, the claimant or the
claimant's duly authorized representative shall be entitled to review
pertinent documents and submit the claimant's views as to the issues, in
writing. The Committee shall act to deny or accept the claim within sixty
(60) days after receipt of the claimant's written request for review unless
special circumstances require the extension of such 60-day period. If such
extension is necessary, the Committee shall provide the claimant with
written notification of such extension before the expiration of such initial
60-day period. In all events, the Committee shall act to deny or accept the
claim within 120 days of the receipt of the claimant's written request for
review. The action of the Committee shall be in the form of a written
notice to the claimant and its contents shall include all of the
requirements for action on the original claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
-14-
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, Richmond County Financial Corp. has caused this
Agreement to be executed and its seal to be affixed hereunto by its duly
authorized officer and its directors, and Executive has signed this Agreement,
on the 21st day of September, 1999.
----
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
/s/ Diane L. DeLillo By: /s/ Michael F. Manzulli
- ------------------------------- -----------------------------------
Michael F. Manzulli
For the Entire Board of Directors
[SEAL]
WITNESS: EXECUTIVE
/s/ Diane L. DeLillo By: /s/ Thomas R. Cangemi
- ------------------------------- -----------------------------------
Thomas R. Cangemi
15
<PAGE>
Section 9.02 Committee as Plan Administrator.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Company or Affiliate, as they may
deem appropriate. The Committee shall be entitled to rely on all tables,
valuations, certificates, opinions, data and reports furnished by any
actuary, accountant, controller, counsel or other person employed or
retained by the Company with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
Section 9.03 Expenses.
--------
Expenses of administration of the Plan shall be paid by the Company or an
Affiliate.
Section 9.04 Statements.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
Section 9.05 Rights of Participants and Beneficiaries.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive whatever
benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in any
trust which may be established in connection with the Plan or assets of the
Company or an Affiliate will be sufficient to pay any benefit hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as creating
any contract of employment or service between the Company or an Affiliate
and any Participant or other individual. The Plan shall not affect the
right of the Company or an Affiliate to deal with any Participants in
employment or service respects, including their hiring, discharge,
compensation, and conditions of employment or other service.
Section 9.06 Incompetent Individuals.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a
-16-
<PAGE>
conservator or other person legally charged with that Participant's or
beneficiary's care is appointed. Except as otherwise provided herein, when the
Committee determines that such Participant or beneficiary is unable to manage
his or her financial affairs, the Committee may pay such Participant's or
beneficiary's benefits to such conservator, person legally charged with such
Participant's or beneficiary's care, or institution then contributing toward or
providing for the care and maintenance of such Participant or beneficiary. Any
such payment shall constitute a complete discharge of any liability of the
Company or an Affiliate and the Plan for such Participant or beneficiary.
Section 9.07 Sale, Merger, or Consolidation of the Company.
---------------------------------------------
The Plan shall be continued after a sale of assets of the Company or the Bank,
or a merger or consolidation of the Company or the Bank into or with another
corporation or entity until all benefits have been paid pursuant to the Plan.
Additionally, upon a merger, consolidation or other Change in Control any
amounts credited to Participant's accounts under the Plan shall be placed in a
grantor trust to the extent not already in such a trust. Any legal fees
incurred by a Participant in determining benefits to which he is entitled under
the Plan following a sale, merger, consolidation, or other Change in Control of
the Company or the Bank shall be paid by the resulting or succeeding entity.
Section 9.08 Location of Participants.
------------------------
Each Participant shall keep the Company informed of his or her current address
and the current address of his or her designated beneficiary or beneficiaries.
The Company shall not be obligated to search for any person. If such person is
not located within three (3) years after the date on which payment of the
Participant's benefits payable under this Plan may first be made, payment may be
made as though the Participant or his or her beneficiary had died at the end of
such three-year period.
Section 9.09 Liability of the Company and its Affiliates.
-------------------------------------------
Notwithstanding any provision herein to the contrary, neither the Company nor
any individual acting as an employee or agent of the Company shall be liable to
any Participant, former Participant, beneficiary, or any other person for any
claim, loss, liability or expense incurred in connection with the Plan, unless
attributable to fraud or willful misconduct on the part of the Company or any
such employee or agent of the Company.
Section 9.10 Governing Law.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of New York.
-17-
<PAGE>
Richmond County Financial Corp. has adopted this SERP, to be executed by a
designee of the Board and duly attested, on this the 21st day of September,
1999.
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
/s/ Diane L. DeLillo /s/ Robert S. Farrell
- -------------------- -----------------------------------------
For the Entire Board of Directors
-18-
<PAGE>
================================================================================
EXHIBIT 11
RICHMOND COUNTY FINANCIAL CORP.
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Share and Per Share Amounts)
The following table is the reconciliation of basic and diluted EPS as required
under SFAS 128 at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
For the
Twelve Months Ended
June 30,
-----------------------------------
1999 1998(1)
------------- -------------
<S> <C> <C>
Net income (loss) $ 26,644 $ (3,988)
============= =============
Weighted average common shares outstanding 24,807,859 24,328,143
Common stock equivalents due to dilutive effect of stock options - -
------------- -------------
Total weighted average common shares and equivalents 24,807,859 24,328,143
============= =============
Basic earnings (loss) per common and common share equivalents $ 1.07 $ (0.16)
============= =============
Total weighted average common shares and equivalents outstanding 24,807,859 24,328,143
Additional dilutive shares using ending period market value versus average
market value for the period when utilizing the treasury
stock method regarding stock options (131,114) -
------------- -------------
Total shares for dilutive earnings per share 24,676,745 24,328,143
============= =============
Diluted earnings (loss) per common share equivalents $ 1.07 $ (0.16)
============= =============
</TABLE>
(1) Per share amounts are calculated since conversion on February 18, 1998.
<PAGE>
Richmond County Financial Corp. and Subsidiary
Selected Consolidated Financial and Other Data of the Company
(In thousands)
Set forth below are selected consolidated financial and other
data of the Company. This financial data is derived in part from, and should be
read in conjunction with, the Company's Consolidated Financial Statements and
Related Notes.
<TABLE>
<CAPTION>
At June 30,
- ----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Consolidated Financial Condition Data:
Total assets............................................. $2,760,095 $1,595,844 $993,370 $914,483 $851,751
Federal funds sold....................................... 28,105 26,000 6,000 20,000 18,000
Debt and equity securities, net(1):
Available for sale................................... 297,611 238,890 19,706 21,659 607
Held to maturity..................................... -- -- 205,201 307,700 287,879
Mortgage-backed and mortgage-related
securities, net(1):
Available for sale................................... 866,844 604,304 27,398 1,394 1,683
Held to maturity..................................... -- -- 185,122 80,284 92,404
Loans receivable, net(2)................................. 1,313,527 644,469 496,258 419,270 392,409
Goodwill................................................. 43,382 -- -- -- --
Deposits................................................. 1,619,470 950,808 885,818 819,216 766,231
Borrowings............................................... 757,832 306,000 -- -- --
Stockholders' equity..................................... 370,211 328,595 100,865 89,901 81,166
Selected Operating Data:
Interest income.......................................... $ 132,574 $ 86,754 $ 65,781 $ 59,063 $ 54,321
Interest expense......................................... 62,231 37,512 27,707 26,254 22,456
----------------------------------------------------------
Net interest income
before provision for possible loan losses............ 70,343 49,242 38,074 32,809 31,865
Provision for possible loan losses....................... 2,550 2,200 1,080 1,600 600
----------------------------------------------------------
Net interest income after provision
for possible loan losses............................. 67,793 47,042 36,994 31,209 31,265
----------------------------------------------------------
Non-interest income...................................... 11,389 3,601 2,861 2,827 2,659
Non-interest expense(3).................................. 36,360 44,046 19,667 18,503 18,139
----------------------------------------------------------
Income before income taxes and cumulative
effect of changes in accounting principles............. 42,822 6,597 20,188 15,533 15,785
Provision for income taxes............................... 16,178 2,071 9,463 6,803 6,919
----------------------------------------------------------
Income before cumulative effect of changes
in accounting principles............................... 26,644 4,526 10,725 8,730 8,866
Cumulative effect of changes
in accounting principles(4)............................ -- -- -- -- (1,316)
----------------------------------------------------------
Net income............................................... $ 26,644 $ 4,526 $ 10,725 $ 8,730 $ 7,550
==========================================================
Basic and diluted gain (loss) per share
since Conversion(5).................................... $ 1.07 $ (0.16) N/A N/A N/A
==========================================================
</TABLE>
(footnotes on next page)
Page 13
<PAGE>
<TABLE>
<CAPTION>
Richmond County Financial Corp. and Subsidiary
Selected Consolidated Financial and Other Data of the Company (continued)
(Dollars in thousands)
At or For the Year Ended
- -----------------------------------------------------------------------------------------------------------------------------------
June 30,
----------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selected Consolidated Financial Ratios and Other Data(6):
Performance Ratios(7):
Return on average assets............................... 1.36% 1.26% 1.13% 0.99% 0.91%
Return on average stockholders' equity................. 8.30 8.36 11.25 10.25 9.80
Average stockholders' equity to average assets......... 16.35 15.05 10.07 9.70 9.29
Stockholders' equity to total assets at end of period.. 13.41 20.59 10.15 9.83 9.53
Net interest rate spread(8)............................ 2.88 3.29 3.64 3.48 3.66
Net interest margin(9)................................. 3.73 4.10 4.22 3.96 4.06
Average interest-earning assets
to average interest-bearing liabilities.............. 125.73 126.04 118.94 114.99 113.96
Total non-interest expense to average assets(10)....... 1.79 1.93 1.99 2.07 2.15
Net interest income to operating expenses.............. 193.46 201.09 193.59 177.32 175.67
Efficiency ratio(11)................................... 43.09 45.75 46.08 51.04 51.63
Asset Quality Ratios:
Non-performing loans as a percent of loans, net........ 0.45% 0.85% 0.78% 0.91% 0.76%
Non-performing assets as a percent of total assets..... 0.25 0.37 0.46 0.48 0.39
Allowance for loan losses
as a percent of loans receivable, net................ 1.05 1.12 1.10 1.14 0.83
Allowance for loan losses as a percent of
total non-performing loans........................... 237.07 131.50 141.09 125.55 109.35
Regulatory Capital Ratios and Other Data:
Leverage capital....................................... 10.96% 12.81% 9.54% 9.65% 9.25%
Total risk-based capital............................... 19.84 24.81 18.91 19.20 18.33
Tier I capital......................................... 18.90 23.87 17.98 18.33 17.92
Number of full service customer facilities........... 24 13 13 13 13
</TABLE>
(1) 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. In February 1998,
the Company transferred its entire securities held to maturity portfolio to
its securities available for sale portfolio as part of a balance sheet
restructuring initiative implemented at that time, primarily in connection
with a reassessment by the Company of its asset/liability management
strategy.
(2) Loans receivable, net, consist of gross loans receivable, plus unamortized
premiums, less unamortized discounts, plus deferred loan costs, less
deferred loan fees and the allowance for loan losses. The allowance for loan
losses at June 30, 1999, 1998, 1997, 1996, and 1995 was $13.9 million, $7.3
million, $5.5 million, $4.8 million and $3.3 million, respectively.
(3) Includes the one-time non-recurring charge of $19.6 million ($11.2 million,
net of tax) for funding of the Foundation at time of Conversion.
(4) Cumulative effect of changes in accounting principles reflects a charge, net
of tax, of $1.3 million for fiscal 1995, resulting from the adoption of SFAS
No. 106 ("SFAS No. 106"), "Employer's Accounting For Post-Retirement
Benefits Other than Pensions."
(5) Proforma earnings per share for fiscal 1998, calculated as if the Bank had
converted to stock form as of July 1, 1997, was $0.19.
(6) Asset Quality Ratios and Regulatory Capital Ratios are end of period ratios.
With the exception of end of period ratios and fiscal 1999 and 1998, which
is based on daily average balances, all ratios are based upon average
balances during the indicated period. Averages for the periods ended fiscal
1997, 1996, and 1995, utilize average month-end balances.
(7) All performance ratios for the year ended June 30, 1998, exclude the one-
time non-recurring charge of $19.6 million ($11.2 million net of tax) for
the funding of RCS Foundation at time of conversion.
(8) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(9) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(10) Total non-interest expense excludes the effect of amortization of goodwill.
The 1997 ratio excludes the one-time special assessment of $493,000 to
recapitalize the Savings Association Insurance Fund (the "SAIF"). Including
the effects of the amortization of goodwill and funding of the RCS
Foundation, total non-interest expense to average assets for the year ended
June 30, 1998 would be 3.52%.
(11) 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
contribution to the RCS Foundation, the efficiency ratio for the year ended
June 30, 1998 would be 83.35%.
Page 14
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
Richmond County Financial Corp. (the "Company") was incorporated in
September 1997, and is the holding company for Richmond County Savings Bank
and its subsidiaries (the "Bank"). On July 31, 1997, the Board of Trustees
of the Bank unanimously adopted a Plan of Conversion, whereby the Bank
would convert from a New York State chartered mutual bank to a New York
State chartered stock institution with the concurrent formation of the
Company (the "Conversion").
The Conversion was completed on February 18, 1998, with the issuance
by the Company of 24,466,250 shares of common stock, at a price of $10.00
per share, in an initial public offering. The Company received gross
proceeds from the Conversion of $244.7 million, before the reduction from
gross proceeds of $9.8 million for estimated conversion related expenses.
The Company used $117.4 million, or 50% of the net proceeds, to purchase
all of the outstanding stock of the Bank.
Concurrent with the completion of the Conversion, an additional
1,957,300 shares of authorized but unissued shares of common stock were
contributed by the Company to the Richmond County Savings Foundation (the
"Foundation"), a private foundation dedicated to charitable purposes within
the communities the Bank serves. The Company recorded a one-time charge of
$19.6 million, the full amount of the contribution made to the Foundation,
and a corresponding deferred tax benefit of $8.4 million, in the third
quarter ended March 31,1998. The contribution to the Foundation is expected
to be fully tax deductible, subject to an annual limitation based upon the
Company's annual taxable income.
Additionally, in connection with the Conversion, the Bank implemented
the Employee Stock Ownership Plan ("ESOP"), a tax-qualified plan designed
to invest primarily in the Company's common stock. Subsequent to the
Conversion, the ESOP purchased, through a $34.6 million loan from the
Company, 8%, or 2,113,884 shares of common stock in the open market.
The Company's results of operations depend primarily on its net
interest income, which is the difference between interest income on
interest-earning assets, which principally consist of loans,
mortgage-backed and mortgage-related securities and investment securities,
and interest expense on interest-bearing liabilities, which principally
consist of deposits and borrowings. Net interest income is determined by an
institution's interest rate spread (i.e., the difference between yields
earned on its interest-earning assets and the rates paid on its interest-
bearing liabilities) and the relative amount of interest-earning assets to
interest-bearing liabilities. Results of operations are also affected by
the Company's provision for possible loan losses, the level of its non-
interest income, including service fees and related income. The Company's
non-interest expense principally consists of compensation and benefits,
occupancy and equipment expense, advertising expense, federal deposit
insurance premiums and other expenses. Results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in interest rates, governmental policies and actions
by regulatory authorities.
The Company had no operations prior to February 18, 1998, and,
accordingly, the results of operations prior to that date reflect only
those of the Bank.
- --------------------------------------------------------------------------------
Acquisitions
Bayonne Bancshares, Inc.
At the close of business on March 22, 1999, the Company completed its
acquisition of Bayonne Bancshares, Inc. ("Bayonne"), the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey State chartered savings
and loan association with four full service banking offices located in
Bayonne, New Jersey in a transaction which was accounted for as a purchase.
The cost of the acquisition was approximately $118.5 million for which the
Company issued 1.05 shares of its common stock for each outstanding share
of Bayonne common stock for a total of 8,668,615 common shares 3,938,731
shares were issued from its treasury shares. Options to purchase 683,577
shares of Bayonne common stock were also converted into options to purchase
717,755 shares of the Company's common stock. The excess of cost over the
fair value of net assets acquired ("goodwill") in the transaction was $28.8
million, which is being amortized on a straight line basis over 15 years.
Ironbound Bankcorp, NJ
At the close of business on March 5, 1999, the Company completed its
acquisition of Ironbound Bankcorp, NJ ("Ironbound"), the holding company of
Ironbound Bank, a New Jersey chartered commercial bank with three full
service commercial banking offices located in the New Jersey counties of
Union and Essex, in a transaction which was accounted for as a purchase.
The cost of the acquisition was approximately $27.7 million. The Company
issued 1.463 shares of its common stock for each outstanding share of
Ironbound common stock for a total of 1,458,842 common shares. The goodwill
attributable to the transaction was $15.3 million, which is being amortized
on a straight line basis over 15 years.
Page 15
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
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, as well as its
proactive involvement in the communities that it serves. 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 past few years, the Bank has pursued 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, the Bank hired additional lending personnel who have commercial
real estate and commercial lending experience in the Bank's primary market
area. The Bank has placed increased emphasis on the origination of
multifamily loans and in April 1998, the Bank established a multifamily
lending department, staffed by personnel experienced in the multifamily
lending business. 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: (1)
investing primarily in one- to four-family, multifamily and to a lesser
extent, commercial real estate, construction and development, commercial
and other loans and in investment-grade securities; (2) 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 metropolitan area,
by offering its commercial loan and deposit products to small and medium-
sized businesses; (3) 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 seven years and de- emphasizing its
investment in U.S. Treasury obligations and corporate and other debt
securities; (4) maintaining a low cost of funds by attracting and retaining
core deposits by providing enhanced customer service; (5) attempting to
attract new deposit customers by competitively pricing certificate of
deposit products and offering a greater variety of durations of such
certificates; (6) developing wholesale borrowing sources, such as Federal
Home Loan Bank ("FHLB") advances, repurchase agreements and brokered
certificates of deposit, as additional means of funding asset growth; and
(7) managing its interest rate risk by originating or purchasing
adjustable-rate loans and from time to time, 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 June 30, 1999, the Bank had total
borrowings of $757.8 million, of which $663.8 million were in the form of
FHLB advances and $94.0 million were in the form of repurchase agreements.
The Bank had borrowings of $306.0 million at June 30, 1998. The Bank may
continue to increase such emphasis, which may result in an increase in the
Bank's average cost of funds.
- --------------------------------------------------------------------------------
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 rates earned or paid on
them.
Page 16
<PAGE>
Average Balance Sheet. The following table sets forth certain information
relating to the Company for the years ended June 30, 1999, 1998 and 1997.
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 daily average balances,
with the exception of fiscal 1997, which is based on average monthly
balances. The yields and costs include fees, which are considered
adjustments to yields.
<TABLE>
<CAPTION>
For the Year Ended June 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets(1):
Debt and equity securities. $ 276,097 $ 19,040 6.90% $ 230,067 $14,645 6.37% $271,721 $16,754 6.17%
Mortgage-backed and
mortgage-
related securities, net.. 629,703 39,914 6.34 350,398 23,622 6.74 142,330 9,588 6.74
Real estate loans,
net(2)(3)................. 923,750 69,336 7.51 522,136 41,562 7.96 441,221 35,165 7.97
Commercial loans, net(2)... 16,919 1,968 11.63 7,030 717 10.20 6,490 617 9.51
Consumer and student loans. 9,152 927 10.13 22,770 2,096 9.21 23,388 2,286 9.77
Other interest-earning
assets.................... 29,000 1,389 4.79 69,577 4,112 5.91 17,505 1,371 7.83
-------------------- -------------------- -----------------
Total interest-
earning assets....... 1,884,621 132,574 7.03 1,201,978 86,754 7.22 902,655 65,781 7.29
----------------- ---------------- ----------------
Non-interest-earning assets.. 78,088 48,284 43,845
---------- ---------- --------
Total assets........... $1,962,709 $1,250,262 $946,500
---------- ---------- --------
Liabilities and Stockholders'
Equity:
Interest-bearing liabilities:
Money market savings
accounts.................. $ 42,973 $ 1,384 3.22% $ 39,075 $ 1,353 3.46% $ 37,552 $ 1,308 3.48%
Savings accounts........... 510,476 12,636 2.48 445,057 12,146 2.73 432,162 11,823 2.74
NOW accounts............... 35,004 596 1.70 19,089 446 2.34 15,652 370 2.36
Certificates of deposit.... 412,166 21,315 5.17 314,106 16,894 5.38 273,546 14,206 5.19
-------------------- -------------------- ------------------
Total deposits......... 1,000,619 35,931 3.59 817,327 30,839 3.77 758,912 27,707 3.65
-------- -------- --------
Borrowed funds............. 498,311 26,300 5.59 103,424 5,778 5.59 -- -- --
Non-depository stock
subscriptions............ -- -- -- 32,914 895 2.72 -- -- --
-------------------- -------------------- ------------------
Total interest-bearing
liabilities.......... 1,498,930 62,231 4.15 953,665 37,512 3.93 758,912 27,707 3.65
----------------- ---------------- ----------------
Non-interest-bearing
liabilities.............. 142,801 108,412 92,254
--------- ---------- --------
Total liabilities...... 1,641,731 1,062,077 851,166
Stockholders' equity..... 320,978 188,185 95,334
--------- ---------- --------
Total liabilities and
stockholders' equity. $1,962,709 $1,250,262 $946,500
========= ========== ========
Net interest
income/interest
rate spread(4)........ $ 70,343 2.88% $49,242 3.29% $38,074 3.64%
================= ================ ================
Net interest margin(5)... 3.73% 4.10% 4.22%
====== ====== ======
Ratio of interest-earning
assets to interest-
bearing liabilities.... 125.73% 126.04% 118.94%
====== ====== ======
</TABLE>
(1) Includes related assets available for sale and unamortized discounts
and premiums.
(2) Amount is net of deferred loan costs and fees, deferred mortgage
interest, unamortized discounts net and includes loans held for sale
and non-performing loans.
(3) Real estate loans, net includes one- to four-family, multifamily,
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.
Page 17
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's
interest income and interest expense during the periods indicated.
Information is provided in each category with respect to: (1) changes
attributable to changes in volume (changes in volume multiplied by prior
rate); (2) changes attributable to changes in rate (changes in rate
multiplied by prior volume); and (3) the net change. The changes
attributable to the combined impact of volume and rate have been allocated
proportionately to the changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1999 June 30, 1998
Compared to Compared to
Year Ended Year Ended
June 30, 1998 June 30, 1997
- ----------------------------------------------------------------------------------------------------------------
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:
Debt and equity securities............ $ 2,930 $ 1,465 $ 4,395 $(2,568) $ 459 $(2,109)
Mortgage-backed securities and
mortgage-related securities, net.... 18,829 (2,537) 16,292 14,016 18 14,034
Real estate loans, net................ 31,968 (4,194) 27,774 6,449 (52) 6,397
Commercial loans, net................. 1,009 242 1,251 51 49 100
Consumer and student loans............ (1,254) 85 (1,169) (60) (130) (190)
Other interest-earning assets......... (2,398) (325) (2,723) 4,078 (1,337) 2,741
----------------------------------------------------------------------
Total interest-earning assets....... 51,084 (5,264) 45,820 21,966 (993) 20,973
----------------------------------------------------------------------
Interest-bearing liabilities:
Money market savings accounts......... 135 (104) 31 53 (8) 45
Savings accounts...................... 1,785 (1,295) 490 353 (30) 323
NOW accounts.......................... 372 (222) 150 81 (5) 76
Certificates of deposit............... 5,274 (853) 4,421 2,106 582 2,688
Borrowings............................ 27,839 (7,317) 20,522 5,778 -- 5,778
Non-depository stock subscriptions.... (895) -- (895) 895 -- 895
----------------------------------------------------------------------
Total interest-bearing liabilities.. 34,510 (9,791) 24,719 9,266 539 9,805
----------------------------------------------------------------------
Net change in net interest income....... $16,574 $ 4,527 $21,101 $12,700 $(1,532) $11,168
======================================================================
</TABLE>
- --------------------------------------------------------------------------------
Changes in Financial Condition
Total assets increased by $1.2 billion, or 73.0%, from $1.6 billion at
June 30, 1998 to $2.8 billion at June 30, 1999. The increase in overall
assets was primarily due to the completion of the Bayonne and Ironbound
acquisitions. As of the acquisition dates, Bayonne and Ironbound had total
assets of approximately $650.2 million and $115.2 million, total deposits
of $426.6 million and $102.3 million and total equity of $83.1 million and
$12.4 million, respectively. In addition to the asset growth via
acquisitions, the Bank experienced an overall increase in net loans of
$336.5 million, or 52.2%. The increase in loan growth, exclusive of funding
sources received from the two acquisitions, were primarily funded by an
increase of $320.0 million in borrowings and a net increase in overall
deposits of $139.7 million.
Mortgage-backed and mortgage-related securities increased by $262.5
million, or 43.4%, from $604.3 million at June 30, 1998 to $866.8 million
at June 30, 1999. The increase in mortgage-backed and mortgage-related
securities was primarily the result of $152.8 million of mortgage-backed
and mortgage-related securities acquired through the Bayonne and Ironbound
acquisitions and the completion of a $77.2 million loan securitization.
During fiscal 1999, the Bank securitized approximately $77.2 million of
originated 30-year fixed rate one- to four-family mortgage loans in
exchange for a like amount of FHLMC pass-through securities, retaining the
securities and the related servicing rights.
Investment securities at June 30, 1999 totaled $297.6 million, an
increase of $58.7 million, or 24.6%, compared to $238.9 million at June 30,
1998. The increase in investment securities was primarily the result of
$84.2 million of investment securities acquired through the Bayonne and
Ironbound acquisitions.
Page 18
<PAGE>
The Bank continues to experience loan growth, and for the fiscal year
ended June 30, 1999 gross loans receivable increased by $675.7 million to
$1.3 billion, compared to $651.7 million at June 30, 1998. The substantial
increase in gross loans was due primarily to originations of $550.4
million generated during the fiscal year ended June 30, 1999 and $333.2
million of loans acquired through the recently completed acquisitions,
offset by the securitization of $77.2 million of one- to four-family fixed
rate mortgage loans, amortization and prepayments of $113.2 million and
the sale of $13.8 million of student loans. During the third quarter of
fiscal 1999, the Bank securitized $77.2 million of originated 30-year
fixed rate one- to four-family mortgage loans in exchange for a like
amount of FHLMC pass-through securities, classified these securities into
the Bank's securities portfolio and retained the related servicing rights.
Loan originations for the fiscal year ended June 30, 1999 were primarily
comprised of multifamily and one- to four-family mortgage loans.
Multifamily mortgage loan originations for the fiscal year ended June 30,
1999 totaled $235.2 million, bringing the total multifamily loan portfolio
to $290.1 million, or 21.8% of gross loans at June 30, 1999. Total one- to
four-family loan production for the fiscal year ended June 30, 1999 was
$250.2 million.
Total liabilities at June 30, 1999 were $2.4 billion, an increase of
$1.1 billion, or 88.6%, from $1.3 billion at June 30, 1998. Total deposits
increased by $668.7 million, or 70.3%, from $950.8 million at June 30, 1998
to $1.6 billion at June 30, 1999. The Bank's "core" deposits increased by
$395.5 million, or 63.2%, at June 30, 1999 to $1.0 billion, from $625.5
million at June 30, 1998. The increase in the Bank's "core" deposits was
primarily attributable to a $340.6 million increase in savings, N.O.W. &
Money market accounts and a $56.0 million increase in demand deposits. The
Bank also experienced an increase of $273.1 million, or 83.9%, in
certificates of deposit from $325.3 million at June 30, 1998 to $598.5
million at June 30, 1999. The increase in overall deposits were primarily
the result of $528.9 million of deposits acquired through the Bayonne and
Ironbound acquisitions, the opening of two full-service banking facilities
on Staten Island and an increase in certificates of deposit which was
primarily attributable to increased marketing of such deposit products.
Additionally, the Bank continues to place a greater level of emphasis
on the utilization of borrowed funds to fund asset growth. Moreover,
borrowed funds increased $131.8 million as a result of the Bayonne
acquisition. In this regard, at June 30, 1999, the Bank had total
borrowings of $757.8 million, of which $663.8 million were in the form of
advances from the FHLB and $94.0 million in the form of repurchase
agreements. The Bank had borrowings of $306.0 million at June 30, 1998. The
Bank may increase its levels of borrowed funds, which may result in an
increase in the Bank's overall cost of funds. The Bank's current strategy
is to invest such borrowed funds primarily in mortgage-backed and
mortgage-related securities. This strategy is intended to incrementally
increase net interest income, although it may have the effect of
incrementally decreasing net interest rate spread.
Total stockholders' equity increased by $41.6 million to $370.2
million at June 30, 1999 from $328.6 million at June 30, 1998. The overall
increase was primarily due to the stock purchase acquisitions of Bayonne
and Ironbound, where the Company issued 8,668,615 shares and 1,458,842
shares, respectively, of which 3,938,731 shares were reissued from the
Company's treasury. In addition, stockholders' equity was further increased
by the earnings reported for the fiscal year ended June 30, 1999 of $26.6
million and the amortization of unallocated and unearned shares of common
stock held by the Company's stock-related benefit plans. These increases
were partially offset by $18.9 million as a result of the issuance of stock
awards under the recently adopted Stock-Based Incentive Plan ("MRP"), the
repurchase of 1,074,295 shares of the Company's common stock, year to date
cash dividends paid of $7.6 million and a $20.2 million decrease in the
fair value on securities available for sale, net of tax.
- --------------------------------------------------------------------------------
Non-Performing Assets
Non-performing loans totaled $5.9 million, or 0.5% of total loans, net
at June 30, 1999, as compared to $5.5 million, or 0.8% of total loans, at
June 30, 1998. At June 30, 1999, the Bank's real estate owned net,
consisted of foreclosed assets totaling $997,000, which at such date was
comprised of five one- to four-family properties and four commercial real
estate properties.
At June 30, 1999, the Bank had $2.0 million of assets designated as
"Substandard", consisting of 12 loans, no assets classified as "Doubtful"
and $18,000 of assets classified as "Loss", consisting of 11 consumer
loans. At June 30, 1999, the Bank had $3.8 million of assets designated
"Special Mention", consisting of 65 loans, which were designated "Special
Mention" due to past loan delinquencies.
Non-accrual loans totaled $5.9 million as of June 30, 1999, which
primarily included 64 one- to four-family loans, with an aggregate balance
of $4.0 million, five non-residential loans totaling $1.5 million of which
one loan is a $1.1 million commercial mortgage on a mixed-use property in
Staten Island, New York and 19 other loans totaling $347,000. The
commercial mortgage loan is secured by the property and was last appraised
in December 1996 for $1.4 million.
Page 19
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
For the fiscal year ended June 30, 1999, the Company's loan loss
provision was $2.6 million as compared to $2.2 million for the prior
year's period. The Company's allowance for loan losses totaled $13.9
million at June 30, 1999 and $7.3 million at June 30, 1998. The allowance
for loan losses to non-performing loans and to total loans at June 30,
1999 and 1998 were 237.1% and 1.1%, respectively, and 131.5% and 1.1%,
respectively. The Company continues to increase its overall loan loss
reserves after analyzing non-performing loans as well as the need to
increase its general valuation allowances due to the increase in lending
of all loan products. Management believes the allowance for loan losses at
June 30, 1999 is adequate and sufficient reserves are presently maintained
to cover potential losses. For the fiscal years ended June 30, 1999 and
1998, the Company experienced net charge-offs of $298,900 and $394,000,
respectively.
- --------------------------------------------------------------------------------
Comparison of Operating Results For the Years Ended June 30, 1999 and June 30,
1998
General. The Company reported net income for the fiscal year ended June
30, 1999 of $26.6 million, or diluted earnings per share of $1.07, an
increase of $22.1 million as compared to the $4.5 million reported in
fiscal 1998. Core earnings for the fiscal year ended June 30, 1999
increased 58.7% to a record $23.3 million, or core diluted earnings per
share of $0.94, as compared to $14.7 million reported for the comparable
prior fiscal year period. Core earnings for fiscal 1999 excludes net gains
on sales of securities and loans of $3.6 million and a $2.0 million
curtailment gain on the freezing of the Bank's defined benefit pension
plan. Core earnings for fiscal 1998 excludes the impact of a non-recurring
contribution relating to the funding of the Foundation of $19.6 million
($11.2 million after tax) and net gains on sales of securities and loans
of $163,000 for the fiscal year ended June 30, 1998. Net loss per share
since the conversion to a public company on February 18, 1998 to June 30,
1998 was $0.16.
The Foundation was established and funded as part of the Conversion to
a New York State chartered stock savings bank. At the close of the
Conversion, the Company funded the Foundation with a contribution of
1,957,300 shares of common stock resulting in a one-time, non-recurring
charge of $19.6 million ($11.2 million after tax). The Foundation is
dedicated to charitable purposes in the communities served by Richmond
County Savings Bank.
Interest Income. The Company reported total interest income of $132.6
million for the fiscal year ended June 30, 1999, representing an increase
of $45.8 million, or 52.8%, as compared to the same period in 1998. The
increase in interest income was attributable primarily to the growth in
average interest-earning assets of $682.6 million, offset in part by a 19
basis point decrease in the average yield on interest-earning assets. The
overall increase in the level of interest-earning assets was primarily the
result of an increase in borrowed funds to fund growth in the mortgage loan
and securities portfolios, utilizing the net conversion proceeds, assets
acquired from Bayonne and Ironbound and significant deposit inflows
experienced throughout fiscal 1999.
Interest income on loans increased $27.9 million, or 62.8%, to $72.2
million for the fiscal year ended June 30, 1999, as compared to the $44.4
million reported for the comparable period in 1998. This increase was the
result of growth in the average balance of real estate loans outstanding,
due primarily to increased originations of multifamily and one- to four-
family real estate loans and loans acquired through the recently completed
acquisitions, offset in part by a decrease in the average yield on the
overall loan portfolio to 7.60% for the fiscal year ended June 30, 1999, as
compared to 8.04% for the same period in fiscal 1998.
Interest income on debt and equity securities increased $4.4 million, or
30.0%, from $14.6 million for the fiscal year ended June 30, 1998, to
$19.0 million for the same period in fiscal 1999. This increase is mainly
attributable to the growth in the average balance of debt and equity
securities, primarily investments in financial bonds and FHLB stock, as
well as a 53 basis point increase in the average yield on the debt and
equity portfolio.
Interest income on mortgage-backed and mortgage-related securities
increased $16.3 million, or 69.0%, from $23.6 million for the fiscal year
ended June 30, 1998, to $39.9 million for the fiscal year ended June 30,
1999. This increase was due primarily to an increase in the average balance
of mortgage-backed and mortgage-related securities of $279.3 million,
resulting from the investment of net conversion proceeds, the investment of
borrowed funds and mortgage-backed and mortgage related securities acquired
through the recently completed acquisitions. The increase was offset in
part by a decrease in the average yield on the mortgage-backed and
mortgage-related securities portfolio to 6.34% for the fiscal year ended
June 30, 1999, as compared to 6.74% for the same period in fiscal 1998.
Page 20
<PAGE>
Interest Expense. Interest expense increased $24.7 million, or 65.9%, from
$37.5 million for the fiscal year ended June 30, 1998, to $62.2 million for
the fiscal year ended June 30, 1999. Interest expense on deposits increased
$4.2 million, or 13.2%, from $31.7 million for the fiscal year ended June
30, 1998, to $35.9 million for the fiscal year ended June 30, 1999. The
increase reflects a $150.4 million increase in the average balance of
interest-bearing deposits, primarily attributable to a $98.1 million
increase in the average balance of certificates of deposit and a $32.5
million increase in the average balance of savings deposit accounts. This
increase can mainly be attributable to the opening of two full-service
banking facilities and one public accommodation office on Staten Island and
deposits acquired through the recently completed acquisitions. In addition,
the Bank's strategy over the past several years has been to attract more
certificates of deposit through additional certificate of deposit products
and related marketing of commercial deposit accounts. Furthermore, in
fiscal 1998, the Bank realized a one time $895,000 expense relating to
interest paid on non-depository stock subscription funds received in
connection with the Conversion.
Interest expense on borrowed funds for the fiscal year ended June 30,
1999 was $26.3 million, an increase of $20.5 million as compared to the
$5.8 million reported in fiscal 1998. The Bank continues to place a greater
level of emphasis on the utilization of borrowed funds to fund asset growth
and to leverage the Bank's capital position to improve returns on equity.
For the fiscal year ended June 30, 1999, the Bank had $757.8 million of
borrowings outstanding, an increase of $451.8 million, or 147.7%, as
compared to the $306.0 million of borrowings outstanding as of June 30,
1998. The Bank may continue to increase such emphasis on borrowed funds,
which may result in an increase in the Bank's overall cost of funds. The
Bank's current strategy is to invest such borrowed funds primarily in
mortgage-backed and mortgage-related securities. This strategy is intended
to incrementally increase net interest income, although it may have the
effect of incrementally decreasing net interest rate spread. Consequently,
the average cost of the Bank's interest-bearing liabilities increased from
3.93% for the fiscal year ended June 30, 1998, to 4.15% for the fiscal year
ended June 30, 1999.
Provision for Loan Losses. The Bank's provision for loan losses was $2.6
million for the fiscal year ended June 30, 1999, as compared to $2.2
million reported in fiscal 1998. The provision for fiscal 1999 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, the introduction of new lending products by the Bank and the
seasoning of such new products, as well as the level of its non-performing
loans. Management believes, based upon information currently available,
that its allowance for loan losses is adequate to cover future loan losses.
To the extent the Bank increases its investment in multifamily loans,
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. In addition, if general economic
conditions and real estate values within the Bank's primary lending area
decline, the level of non-performing loans may increase, resulting in
larger provisions for loan losses which, in turn, would also adversely
affect net income.
Non-Interest Income. Exclusive of net gains and losses from the sales of
securities and loans and a $2.0 million curtailment gain on the freezing of
the Bank's pension plan, total non-interest income for the fiscal year
ended June 30, 1999 was $5.8 million, as compared to the $3.4 million
reported for the same period in fiscal 1998. The increased level of
non-interest income is primarily due to fee income generated from the
Bayonne and Ironbound acquisitions and an overall increase in deposit fee
income, ATM fee income and fee income generated from the sale of annuities
and mutual funds. Additionally, in the fourth quarter of fiscal 1999 the
Bank purchased a Bank Owned Life Insurance Policy ("BOLI"), which accounted
for approximately $253,000 of other income. Net gains on the sale of
securities and loans for fiscal 1999 was $3.6 million, which were primarily
due to net gains of $3.1 million from the sale of equity and investment
securities, and $444,000 of net gains realized from the sale of the Bank's
student loan portfolio.
Non-Interest Expense. Non-interest expense totaled $36.4 million for the
fiscal year ended June 30, 1999, an increase of $11.9 million, as compared
to the $24.5 million, excluding the charitable contribution, reported for
the fiscal year ended June 30, 1998. The increased level of non-interest
expense was mainly attributable to increased compensation expense, goodwill
amortization and other expenses associated with the Bayonne and Ironbound
acquisitions, as well as increases in compensation and employee benefits,
including senior management additions, compensation costs associated with
the establishment of the Bank's new Multifamily Lending Department, the
addition of the ESOP and the MRP. In addition, the Bank expects
non-interest expense to increase in future periods as a result of the
Bank's opening of a public accommodation office and the opening of two new
full-service branches in Staten Island and the expected opening of a
full-service branch in Union, New Jersey in fiscal 2000.
Page 21
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
Income taxes. The Company's effective consolidated tax rate for the fiscal
year ended June 30, 1999, was 37.8% as compared to 31.4% reported for the
comparable period in 1998. The fiscal year ended June 30, 1998 rate
includes the effect of funding the Foundation. Excluding the effect of the
Foundation, the Company's effective tax rate was 40.5%. The reduction of
the Company's effective tax rate is primarily due to the Bank's utilization
of various tax- planning strategies.
- --------------------------------------------------------------------------------
Comparison of Operating Results For the Years Ended June 30, 1998 and June 30,
1997
General. The Company reported net income of $4.5 million for the fiscal
year ended June 30, 1998, as compared to the $10.7 million reported in
fiscal 1997. Pro forma earnings per share for the fiscal year ended June
30, 1998, calculated as if the Bank had converted to stock form as of July
1, 1997, was $0.19. Historical loss per share for the fiscal year ended
June 30, 1998 since the Conversion, was $0.16. Per share amounts are not
applicable to the 1997 results, due to the fact that the Bank was a mutual
institution prior to the Conversion.
The results of operations for the fiscal year ended June 30, 1998,
reflect a non-recurring contribution relating to the funding of the
Foundation. Excluding the effect of this contribution, net income was $15.7
million for the fiscal year ended June 30, 1998, an increase of $5.0
million, or 46.7% from the $10.7 million reported for the fiscal year ended
June 30, 1997. At the close of the Conversion, the Company funded the
Foundation with a contribution of 1,957,300 shares of common stock,
resulting in a one-time, non-recurring charge of $19.6 million ($11.2
million after tax). The Foundation is dedicated to charitable purposes in
the communities served by the Bank.
Interest Income. The Company reported total interest income of $86.8
million for the fiscal year ended June 30, 1998, representing an increase
of $21.0 million, or 31.9%, as compared to the same period in 1997. The
increase in interest income was attributable primarily to the growth in
average interest-earning assets of $299.3 million, offset in part by a
seven basis point decrease in the average yield on interest-earning assets.
The overall increase in the level of interest-earning assets was primarily
the result of utilizing the net conversion proceeds and an increase in
borrowed funds to fund growth in the mortgage loan and securities
portfolios. Interest income was also positively affected by non-depository
stock subscriptions received as a result of the Conversion, which were
invested primarily in overnight funds prior to its completion. The
substantial liquidity position was maintained due to the offering of
Company's common stock and the return of approximately $236.9 million in
non-depository stock subscription funds.
Interest income on loans increased $6.3 million, or 16.6%, to $44.4
million for the fiscal year ended June 30, 1998, as compared to the $38.1
million reported for the comparable period in 1997. This increase was the
result of growth in the average balance of real estate loans outstanding,
due primarily to increased originations of one- to four-family, commercial
real estate loans and the purchase of $38.6 million of multifamily loans.
The average yield on the overall loan portfolio remained relatively
constant at 8.04% for the fiscal year ended June 30, 1998, as compared to
8.08% for the same period in fiscal 1997.
Interest income on debt and equity securities decreased $2.1 million,
or 12.6%, from $16.8 million for the fiscal year ended June 30, 1997, to
$14.6 million for the same period in fiscal 1998. This decrease is
attributable primarily to management's recent restructuring of its
securities portfolio, resulting in a $41.7 million decrease in the average
balance of such securities, offset in part by a 20 basis point increase in
the average yield.
Interest income on mortgage-backed and mortgage-related securities
increased $14.0 million, or 146.4%, from $9.6 million for the fiscal year
ended June 30, 1997, to $23.6 million for the fiscal year ended June 30,
1998. This increase was due primarily to an increase in the average balance
of mortgage-backed and mortgage-related securities of $208.1 million,
resulting from the restructuring of the securities portfolio, the
investment of net conversion proceeds and the investment of borrowed funds.
The increase in such securities reflects management's recent revision of
its securities investment strategy, whereby it has decreased its emphasis
on debt securities by investing funds from the maturity and sale of debt
securities, as well as proceeds from the Conversion and borrowed funds into
mortgage-backed and mortgage-related securities. The yield on the
mortgage-backed and mortgage-related securities remained constant at 6.74%
for the fiscal years ended June 30, 1998 and 1997.
Page 22
<PAGE>
Interest Expense. Interest expense increased $9.8 million, or 35.4%, from
$27.7 million for the fiscal year ended June 30, 1997, to $37.5 million for
the fiscal year ended June 30, 1998. Interest expense on deposits increased
$4.0 million, or 14.5%, from $27.7 million for the fiscal year ended June
30, 1997, to $31.7 million for the fiscal year ended June 30, 1998. The
increase reflects a $91.3 million increase in the average balance of
interest-bearing deposits, primarily attributable to a $40.6 million
increase in the average balance of certificates of deposit and a $45.8
million increase in the average balance of savings deposit accounts. This
increase is attributable to the Bank's strategy of attracting more
certificates of deposit through additional certificate of deposit products
and related marketing of commercial deposit accounts. Additionally, the
Bank realized a one time $895,000 expense relating to interest paid on
non-depository stock subscription funds received in connection with the
Conversion.
Interest expense on borrowed funds was $5.8 million for the fiscal
year ended June 30, 1998. The Bank continues to place a greater level of
emphasis on the utilization of borrowed funds to fund asset growth and to
leverage the Bank's capital position to improve returns on equity. For the
fiscal year ended June 30, 1997, the Bank had no borrowings outstanding.
The Bank may continue to increase such emphasis on borrowed funds, which
may result in an increase in the Bank's overall cost of funds. The Bank's
current strategy is to invest such borrowed funds primarily in mortgage-
backed and mortgage-related securities. This strategy is intended to
incrementally increase net interest income, although it may have the effect
of incrementally decreasing net interest rate spread. Consequently, the
average cost of the Bank's interest-bearing liabilities increased from
3.65% for the fiscal year ended June 30, 1997, to 3.93% for the fiscal year
ended June 30, 1998.
Provision for Loan Losses. The Bank's provision for loan losses was $2.2
million for the fiscal year ended June 30, 1998, as compared to $1.1
million reported in fiscal 1997. The provision for fiscal 1998 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.
Management believes, based upon information currently available, that its
allowance for loan losses is adequate to cover future loan losses. To the
extent the Bank increases its investment in multifamily loans, 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. In addition, if general economic conditions and real
estate values within the Bank's primary lending area decline, the level of
non-performing loans may increase, resulting in larger provisions for loan
losses which, in turn, would also adversely affect net income.
Non-Interest Income. Non-interest income is comprised primarily of fee
income and gains and losses from the sale of securities and loans.
Exclusive of net securities gains and losses, non-interest income for the
fiscal year ended June 30, 1998, increased $470,000, or 15.8%, to $3.4
million. The increased level of non-interest income is due primarily to an
overall increase in deposit fee income. Net gain on sales of securities and
loans for the fiscal year ended June 30, 1998, was $163,000, as compared to
net losses on the sale of securities and loans of $107,000 in fiscal 1997.
Non-Interest Expense. Non-interest expense, excluding the contribution to
the Foundation, totaled $24.5 million for the fiscal year ended June 30,
1998, an increase of $4.8 million, or 24.5%, as compared to $19.7 million
reported for the same period in fiscal 1997. The increased level of non-
interest expense was attributable primarily to increases in compensation
and employee benefits, including senior management additions, compensation
costs associated with the establishment of the Bank's new Multifamily
Lending Division, the addition of the ESOP and increased professional fees.
The Bank incurred additional professional fees associated with the
formation of Richmond County Capital Corporation, a subsidiary of the Bank
formed for the purpose of establishing a real estate investment trust. The
Bank expects that compensation and employee benefits expense may continue
to increase, primarily as a result of the adoption of various employee
benefit plans, compensation adjustments adopted in connection with the
Conversion and the establishment of the Bank's new Multifamily Lending
Division. 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 and the opening of two new full-service branches in
fiscal 1999.
Income taxes. The Company's effective consolidated tax rate for the fiscal
year ended June 30, 1998, was 31.4% as compared to 46.9% reported for the
comparable period in 1997. The fiscal year ended June 30, 1998 rate
includes the effect of funding the Foundation. Excluding the effect of the
Foundation, the Company's effective tax rate was 40.5%.
Page 23
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
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 investment 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, multifamily and, to a lesser
extent, commercial real estate, construction and development and other
loans and the purchase of mortgage-backed and mortgage-related and
investment securities. For the fiscal year periods ended June 30, 1999 and
1998, the Bank's loan originations totaled $550.4 million and $193.3
million, respectively. Purchases of mortgage-backed, mortgage-related and
investment securities totaled $480.7 million and $781.3 million for the
fiscal year periods ended June 30, 1999 and 1998, respectively. These
activities were funded primarily by deposit growth and principal repayments
and prepayments on loans, mortgage-backed and mortgage-related securities
and investment securities, borrowed funds from the FHLB and repurchase
agreements, and the net proceeds received from the Conversion. As of June
30, 1999, the Bank experienced a net increase in total deposits of $668.7
million, or 70.3%, from $950.8 million at June 30, 1998. 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. In
the event the Bank should require funds beyond its ability to generate them
internally, additional sources of funds are available through repurchase
agreements and advances from the FHLB. 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 June 30, 1999, the Bank had total
borrowings of $757.8 million, of which $663.8 million were in the form of
advances from the FHLB and approximately $94.0 million were in the form of
repurchase agreements. The Bank may continue to increase such emphasis,
which may result in an increase in the Bank's average cost of funds.
Loan commitments totaled $134.4 million at June 30, 1999, were
comprised of $44.3 million in one- to four-family loan commitments, $21.8
million in multifamily loan commitments, $8.3 million in commercial real
estate loan commitments, $22.9 million in construction loan commitments,
$15.1 million in commercial loan commitments, $18.4 million in home equity
loan commitments and $3.6 million in other loan commitments. In addition,
management estimates increases in the level of loan commitments due to the
Bank's Multifamily Lending Division established in the fourth quarter of
fiscal 1998. 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 June 30, 1999, totaled $453.0 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 June 30, 1999, the Bank exceeded all of its regulatory capital
requirements with a leverage capital level of $285.4 million, or 11.0% of
adjusted assets, which is above the required level of $122.6 million, or
4.0% of adjusted assets and risk-based capital of $299.7 million, or 19.8%
of adjusted assets, which is above the required level of $126.3 million,
or 8.0%.
The Company's most liquid assets are cash, due from banks and federal
funds sold. The levels of these assets are dependent on the Bank's
operating, financing, lending and investing activities during any given
period. At June 30, 1999, cash and due from banks and federal funds sold
totaled $73.5 million, or 2.7% of total assets.
Page 24
<PAGE>
- --------------------------------------------------------------------------------
Asset and Liability Management and the Management of Interest Rate Risk
General
The principal objective of the Company'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 Company's
business strategy, operating environment, capital and liquidity
requirements and performance objectives, and manage the risk consistent
with the Board of Directors' approved guidelines. Through such management,
the Company seeks to reduce the vulnerability of its operations to changes
in interest rates. The Company's Board of Directors reviews the Company's
interest rate risk position at least quarterly. The Company's
Asset/Liability Committee is comprised of the Company's senior management,
under the direction of the Board of Directors, with senior management
responsible for reviewing, with the Board of Directors, its activities and
strategies, the effect of those strategies on the Company's net interest
margin, the market value of the portfolio and the effect that changes in
the interest rates will have on the Company's portfolio and the Company's
exposure limits.
Discussion of Market Risk
As a financial institution, the Company's primary component of market
risk is interest rate volatility. Fluctuations in interest rates will
ultimately impact both the level of income and expense recorded on a large
portion of the Company's assets and liabilities, and the market value of
all interest-earning assets, other than those which possess a short term to
maturity. All significant interest rate risk management procedures are
performed at the Company level. Based upon the Company's nature of
operations, the Company is not subject to foreign currency exchange or
commodity price risk. The Company's real estate loan portfolio,
concentrated primarily within the New York metropolitan area, is subject to
risks associated with the local economy. The Company does not own any
trading assets.
In recent years, the Company has utilized the following strategies to
manage interest rate risk: (1) emphasizing the origination and retention of
fixed-rate mortgage loans having terms to maturity of not more than 15
years, adjustable-rate loans and consumer loans consisting primarily of
home equity loans and lines of credit; (2) selling from time to time,
fixed-rate mortgage loans with terms of more than 15 years without recourse
and on a servicing retained basis; and (3) investing in fixed rate
mortgage-backed and mortgage-related securities with estimated average
lives of three to seven years. In pursuing the above, the Company
considered the relative stability of its core deposits. The actual duration
of mortgage loans and mortgage-backed securities can be significantly
impacted by changes in mortgage prepayment and market interest rates.
Mortgage prepayment rates will vary due to a number of factors, including
the regional economy in the area where the underlying mortgages were
originated, seasonal factors, demographic variables and the assumability of
the underlying mortgages. However, the largest determinants of prepayment
rates are prevailing interest rates and related mortgage refinancing
opportunities, as was the case over the last fiscal year. Management
monitors interest rate sensitivity so that adjustments in the asset and
liability mix, when deemed appropriate, can be made on a timely basis. The
Company currently does not participate in hedging programs, interest rate
swaps or other activities involving the use of off-balance sheet derivative
financial instruments.
Gap Analysis. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest
rate sensitive" and by monitoring a bank's interest rate sensitivity "gap."
An asset or liability is said to be interest rate sensitive within a
specific time period if it will mature or reprice within that time period.
The interest rate sensitivity gap is defined as the difference between the
amount of interest-earning assets maturing or repricing within a specific
time period and the amount of interest-bearing liabilities maturing or
repricing within that same time period. At June 30, 1999, the Company's
one-year gap position was negative 1.9%. A gap is considered positive when
the amount of interest rate sensitive assets exceeds the amount of interest
rate sensitive liabilities. A gap is considered negative when the amount of
interest rate sensitive liabilities exceeds the amount of interest rate
sensitive assets. Accordingly, during a period of rising interest rates,
the Company, 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.
Page 25
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at June 30, 1999, which are
anticipated by the Company, based upon certain assumptions, to reprice or
mature in each of the future time periods shown (the "GAP Table"). Except
as stated below, the amount of assets and liabilities shown which reprice
or mature during a particular period were determined in accordance with the
earlier of term to repricing or the contractual maturity of the asset or
liability. The table sets forth an approximation of the projected repricing
of assets and liabilities at June 30, 1999, on the basis of contractual
maturities, anticipated prepayments, and scheduled rate adjustments within
a three month period and subsequent selected time intervals. For loans on
residential properties, adjustable-rate loans, and fixed-rate loans,
prepayment rates were assumed to range from 8% to 22% annually.
Mortgage-backed and mortgage-related securities were assumed to prepay at
rates based on their respective previous three month prepayment experience.
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 twelve 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 Company's estimated gap. While the Company
believes such assumptions to be reasonable, there can be no assurance that
assumed prepayment rates and decay rates will approximate actual future
loan prepayment and deposit withdrawal activity.
<TABLE>
<CAPTION>
At June 30, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
3 More than More than More than More than More than
Months 3 Months to 6 Months to 1 Year to 3 Years to 5 Years to More than
or Less 6 Months 1 Year 3 Years 5 Years 10 Years 10 Years Total
---------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets(1):
Debt and equity
securities(2)............... $ 94,352 $ 8,702 $ 13,001 $ 26,056 $ 21,294 $134,206 $ -- $ 297,611
Mortgage-backed and
mortgage-related
securities(2).............. 40,361 38,170 80,767 221,106 147,106 195,083 144,251 866,844
Real estate loans, net(3)(4). 117,595 111,864 180,690 359,589 203,539 213,816 114,483 1,301,576
Other loans(4)............... 1,939 1,495 3,029 16,905 1,240 1,647 119 26,374
Other interest-earning
assets...................... 54,415 -- -- -- -- -- -- 54,415
FHLB stock................... -- -- -- -- -- -- 38,388 38,388
---------------------------------------------------------------------------------------------------
Total interest-earning
assets..................... $308,662 $ 160,231 $277,487 $ 623,656 $ 373,179 $544,752 $297,241 $2,585,208
===================================================================================================
Interest-bearing liabilities:
Money market savings
accounts.................... $ 12,478 $ 7,487 $ 4,990 $ 24,956 $ -- $ -- $ -- $ 49,911
NOW accounts................. 7,592 3,795 3,796 30,369 15,184 15,184 -- 75,920
Savings accounts............. 71,663 35,832 35,832 286,653 143,327 143,327 -- 716,634
Certificates of deposit...... 160,369 142,277 144,354 120,446 23,993 7,031 -- 598,470
Borrowings................... 114,000 25,000 30,000 262,000 326,832 -- -- 757,832
---------------------------------------------------------------------------------------------------
Total interest-bearing
liabilities................ $366,102 $ 214,391 $218,972 $ 724,424 $ 509,336 $165,542 $ -- $2,198,767
-------------------------------------------------------------------------------------- ==========
Interest sensitivity gap(5)... $(57,440) $ (54,160) $ 58,515 $(100,768) $(136,157) $379,210 $297,241
======================================================================================
Cumulative interest
sensitivity gap.............. $(57,440) $(111,600) $(53,085) $(153,853) $(290,010) $ 89,200 $386,441
======================================================================================
Cumulative interest
sensitivity gap
as a percentage of total
assets...................... (2.08)% (4.04)% (1.92)% (5.57)% (10.51)% 3.23% 14.00%
Cumulative interest
sensitivity gap
as a percentage of total
interest-earning assets...... (2.22)% (4.32)% (2.05)% (5.95)% (11.22)% 3.45% 14.94%
Cumulative net
interest-earning
assets as a percentage of
cumulative interest-
bearing liabilities.......... 84.31% 80.77% 93.36% 89.90% 85.74% 104.06% 117.58%
</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 at carrying value. Equity securities include 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 $13.9 million and $1.2 million,
respectively.
(4) For purposes of the gap analysis, non-performing loans are not included.
(5) Interest sensitivity gap represents the difference between net interest-
earning assets and interest-bearing liabilities.
Page 26
<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 Company's interest rate sensitivity is also
monitored by management through the use of a model, which generates
estimates of the change in the Company's net portfolio value ("NPV") over a
range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities, and off-balance sheet contracts. The NPV
ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. The
model assumes estimated loan prepayment rates, reinvestment rates and
deposit decay rates similar to the assumptions utilized for the GAP Table.
The following NPV Table sets forth the Company's NPV as of June 30, 1999.
<TABLE>
<CAPTION>
Change in
Interest Rates
In Basis Points NPV as % of Portfolio
(Rate Shock) Net Portfolio Value Value of Assets
--------------------------------------------------------------------------------------------------------------------
% NPV %
Amount $ Change Change Ratio Change(1)
---------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
200................................................. $331,749 $(94,466) (22.2)% 12.92% (16.21)%
100................................................. 393,870 (32,345) (7.6) 14.74 (4.41)
Static.............................................. 426,215 -- -- 15.42 --
(100)............................................... 466,997 40,782 9.6 16.42 6.48
(200)............................................... 451,528 25,313 5.9 15.57 0.97
</TABLE>
(1) Based on the portfolio value of the Company's
assets assuming no change in interest rates.
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 Company's interest sensitive assets and
liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the
duration to maturity or repricing of specific assets and liabilities. Also,
the model does not take into account the Company's business or strategic
plans. Accordingly, although the NPV Table provides an indication of the
Company'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 Company's net
interest income and may differ from actual results.
- --------------------------------------------------------------------------------
Impact of Inflation and Changing Prices
The consolidated financial statements and notes presented herein, have
been prepared in accordance with generally accepted accounting principles
("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.
Page 27
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
The Year 2000 Issue
The "Year 2000" Problem, as it is generally referred to, concerns the
inability of certain computer hardware and software systems and associated
applications to correctly recognize and process dates beyond December 31,
1999. Many computer programs were developed using only six digits to define
the date field in their programs. Computer programs used by the Company,
its suppliers or outside service providers that have date-sensitive
software may recognize "00" as the year 1900, rather than the year 2000.
Due to the nature of financial information, calculations that rely on the
integrity of the date field for the correct processing of information could
be significantly misstated, if corrective action is not timely taken.
State of Readiness
The Company has implemented a detailed Year 2000 Plan, according to
the guidelines of the Federal Financial Institutions Examination Council
("FFIEC"), to evaluate the Year 2000 compliance of its computer systems and
the equipment which supports the operation of the Company. The Company
initiated formal communications with all of its service providers, vendors,
major fund providers, major borrowers and companies with which it has
material investments, to determine the extent to which it may be vulnerable
to the inability of those parties to remediate their own Year 2000 issues.
The Company has received formal communication, indicating assurance of Year
2000 compliance, from 100% of the service providers, vendors, major fund
providers, major borrowers and companies contracted to provide Year 2000
compliance assurances.
The Company's vendor relationships cover a wide range of services
which may or may not be subject to a contractual agreement. Where a
contractual relationship exists between the Company and a provider of
services, and the Company is exposed to potential liability due to a
failure on the part of the vendor to provide the service, whether due to
Year 2000 or some other issue, the vendor would necessarily be subject to a
breach of contract suit. In order to minimize the risk of material loss or
disruption of the Company's business due to an issue involving date
sensitive processing, the Company has required all of these vendors to
provide written assurances that they are proactively addressing Year 2000
issues within their operations. The Company has received written assurances
from all of the 19 vendors that it has contacted for Year 2000 compliance.
A violation of such written assurances may constitute a breach of contract
by such vendor, thereby allowing the Company to institute legal proceedings
against such vendor. The Company can give no assurance as to either the
circumstances under which it would institute such legal proceedings or the
probable degree of success of such action. The Company has participated in
testing all products and services from these vendors. The initial two
phases of testing have been completed as well as, a third testing cycle was
completed in May 1999. A fourth cycle has been made available to test
additional products and services that may be implemented before the end of
calendar 1999.
Like many financial institutions, the Company relies upon computers for
the daily conduct of its business and for data processing generally. The
Company utilizes a combination of in-house and service bureau
applications, with the bulk of customers account processing being handled
by a leading national vendor of data processing services for financial
institutions. The Company has received assurances that this service
provider has completed its internal remediation of programs, and has
substantially completed its remediation of issues related to
interdependencies with other parties. However, these assurances are not
guarantees and may not be enforceable. The vendor has provided the Company
with a Year 2000 compliant version of its system. The Company has
participated with the service provider, in the testing of both direct and
indirect services which commenced in November 1998, which was successfully
completed in the second quarter of 1999.
The Company does not anticipate that there will be any significant or
material condition which will impact this service provider's ability to
deliver accurate data processing services before, during and after the
transition to the new millennium. Further, results of system tests
conducted by the Company and by other users of this service provider will
be carefully monitored to ensure that all issues have been identified and
successfully remediated.
The balance of the Company's internal processing is supported by PC
based systems, using industry standard software to run non-mission critical
applications. Any software program or application which was not supported
by the vendor, or which required an update to achieve Year 2000 capability,
has been identified for replacement or upgrade. Equipment which contains
embedded chips or microprocessors has also been tested and scheduled for
upgrade or replacement where necessary. All such system enhancements are
expected to be completed by September 30, 1999. The cost to remediate these
systems is immaterial, and is being expensed in the period in which it
occurs. It is anticipated that the majority of the related expenses have
been incurred in the Company's fiscal year ended June 30, 1999 operating
results.
page [28]
<PAGE>
The Company believes it has developed an effective plan to address the Year
2000 problem and based on available information and the steps taken to date, its
Year 2000 transition will not have a material effect on its business, operations
or financial results. However, the Company has no control over the progress of
third parties in addressing their own Year 2000 issues. If the necessary changes
are not effected or are not completed in a timely manner, or if unanticipated
problems arise, there may be a material impact on the Company's financial
condition and results of operations.
Cost to Address the Company's Year 2000 Issues
The Company's cost to achieve Year 2000 compliance are not expected to have
a material financial impact on the Company. The Company intends to fund such
costs from its current operations. However, as stated above, there can be no
assurance that all such costs have been identified, or that there may not be
some unforeseen cost which may have a material adverse effect on the Company's
financial condition and results of operations. The Company's 1999 expense
relative to the Year 2000 issue was approximately $120,000 and the Company
anticipates that its future expense will be approximately $120,000.
Risk of Year 2000 Issues
To date, the Company has not identified any system which presents a
material risk of failing to be Year 2000 compliant in a timely manner, or for
which a suitable alternative cannot be implemented. However, as the Company
progresses with its Year 2000 transition, systems or equipment may be identified
which present a material risk of business interruption. Such disruption may
include the inability to process customer accounting transactions, including
deposits, withdrawals, loan payments and disbursements; the inability to
reconcile and record daily activity; the inability to process loan applications
or to track delinquencies; the inability to generate checks or to clear funds.
In addition, if any of the Company's major borrowers should fail to achieve Year
2000 compliance, and should they experience a disruption of their own
businesses, their ability to meet their obligations to the Company may be
seriously impaired.
To mitigate credit risk, the Company has contacted all of its unsecured
commercial borrowers to survey their Year 2000 readiness in order to anticipate
any potential exposure. The Company also surveys all new commercial borrowers
for Year 2000 readiness. The Company has not contacted its largest dollar
deposit customers to determine their readiness for Year 2000 because such
customers comprise a small percentage of the Company's deposit base.
To the extent that the risks posed by the Year 2000 problem are pervasive
in data processing and telecommunication services worldwide, or the extent that
disruption of a power utility prevents the Company from gaining access to its
systems, the Company cannot predict with certainty that it will remain
materially unaffected by issues related to the Year 2000 problem, which are
beyond the Company's control.
Contingency Plans
The Company has a contingency plan in operation as of November 1998 which
it will update as necessary. The plan identifies components of mission critical
applications which are judged, at some point prior to December 31, 1999, to be
at risk of failure to achieve complete renovation, validation and
implementation. The Contingency Plan will ensure that the Company has
sufficiently planned for unanticipated system failures at critical production
dates before, on and after January 1, 2000. The contingency plan was completed
in November 1998.
As part of the Bank's Contingency Plan, it has entered into a contract with
its data service provider to provide Year 2000 Business Continuity Services.
These services include furnishing the Bank with paper and CD ROM copies of all
of the Bank's account and loan balance information in the event the Bank's
computer system is adversely effected by Year 2000 problems.
If the Bank is unable to communicate with its data center, this information
will be able to be accessed through Microsoft Access which will be installed at
every branch and at various other locations. These paper and CDROM copies will
be produced beginning on December 27, 1999 and continue through at least January
10, 2000.
The Company's internal contingency committee meets monthly to monitor the
plan and service providers. The Company expects to complete its Year 2000
testing of all mission critical systems prior to any date of potential
disruption.
The plan would be invoked if unanticipated Year 2000 problems occur in
production, similar to Disaster Recovery Plans. Essentially, it requires that
resources be planned for deployment to ensure that such an interruption does not
threaten the viability of the Company. The Company will modify its current
Disaster Recovery Plan to specifically address the special circumstances of a
disruption due to a Year 2000 related component failure.
The discussion above contains certain forward-looking statements. Actual
results may differ materially from the Company's expectations due to the nature
and uncertainty of circumstances surrounding the Year 2000 problem. The Company
may fail to identify systems that are not Year 2000 compliant, or the Company or
other parties may fail to meet the dates and goals set above. If so, the extent
and nature of efforts to then address those contingencies, to repair or replace
the affected systems, the Company's ability to obtain qualified personnel,
consultants or other resources and the success of those efforts cannot be stated
with any degree to certainty.
page [29]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Management's Discussion and Analysis of Financial Condition and Results of
Operations (continued)
- --------------------------------------------------------------------------------
Current Legislation
Currently, legislation is pending that would broaden the activities in
which bank holding companies and banks may engage, and restructure the
regulation of financial service companies. The legislation would, however,
restrict the activities of unitary savings and loan holding companies,
subject to a grandfather for existing unitary savings and loan holding
companies, such as the Company. The Company is unable to predict whether
legislation will be enacted or the extent to which the legislation would
impact competition or restrict or disrupt its operations.
- --------------------------------------------------------------------------------
Private Securities Litigation Reform Act Safe Harbor Statement
In addition to historical information,this Annual Report includes
certain forward-looking statementsnbased on current management
expectations. The Company's actual results could differ materially from
those management expectations. Factors that could cause future results to
vary from current management expectations include, but are not limited to,
general economic conditions, legislative and regulatory changes, monetary
and fiscal policies of the federal government, changes in tax policies,
rates and regulations of federal, state and local tax authorities, changes
in interest rates, deposit flows, the cost of funds, demand for loan
products, demand for financial services, competition, changes in the
quality or composition of the Company's loan and investment portfolios,
changes in accounting principles, policies or guidelines, and other
economic, competitive, governmental and technological factors affecting the
Company's operations, markets, products, services and prices.
- --------------------------------------------------------------------------------
Impact of New Accounting Standards
For discussion regarding the impact of new accounting standards, refer
to Note 1 of Notes to Consolidated Financial Statements.
page [30]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Consolidated Statements of Financial Condition
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks ................................................................ $ 55,773 $ 31,884
Federal funds sold ..................................................................... 17,775 26,000
Securities available for sale:
Investment securities ................................................................ 297,611 238,890
Mortgage-backed and mortgage-related securities ...................................... 866,844 604,304
Loans receivable:
Real estate loans .................................................................... 1,301,118 623,293
Other loans .......................................................................... 26,294 28,452
Less allowance for loan losses ....................................................... (13,885) (7,276)
------------------------------
Total loans receivable, net ............................................................ 1,313,527 644,469
Federal Home Loan Bank stock ........................................................... 38,388 15,550
Banking premises and equipment, net .................................................... 27,353 13,094
Accrued interest receivable ............................................................ 15,568 9,827
Other real estate owned ................................................................ 997 322
Goodwill ............................................................................... 43,382 --
Other assets ........................................................................... 82,877 11,504
------------------------------
Total assets ......................................................................... $ 2,760,095 $ 1,595,844
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Demand deposits ........................................................................ $ 169,007 $ 121,646
Savings, N.O.W. & Money market accounts ................................................ 842,465 501,906
Certificates of deposit ................................................................ 598,470 325,348
Escrow accounts ........................................................................ 9,528 1,908
------------------------------
Total deposits ....................................................................... 1,619,470 950,808
Securities sold under agreements to repurchase ......................................... 94,000 --
Borrowings ............................................................................. 663,832 306,000
Accrued expenses & other liabilities ................................................... 12,582 10,441
------------------------------
Total liabilities .................................................................... 2,389,884 1,267,249
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued .............. -- --
Common stock, $.01 par value, 75,000,000 shares authorized; 32,737,134
and 26,423,550 shares issued and outstanding, as of June 30, 1999
and June 30, 1998, respectively ...................................................... 327 264
Additional paid-in-capital ............................................................. 330,122 254,307
Retained earnings-substantially restricted ............................................. 122,784 103,760
Unallocated common stock held by ESOP .................................................. (31,978) (33,706)
Unearned compensation MRP stock ........................................................ (16,885) --
Treasury stock, at cost, 1,074,295 shares .............................................. (17,967) --
Accumulated other comprehensive income:
Net unrealized (loss) gain on securities, net of tax ................................ (16,192) 3,970
------------------------------
Total stockholders' equity ........................................................ 370,211 328,595
------------------------------
Total liabilities and stockholders' equity ........................................ $ 2,760,095 $ 1,595,844
------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
page [31]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Consolidated Statements of Operations
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Interest income
Loans ................................................................ $ 72,231 $ 44,375 $ 38,068
Debt and equity securities ........................................... 19,040 14,645 16,754
Mortgage-backed and mortgage-related securities ...................... 39,914 23,622 9,588
Federal funds sold ................................................... 1,277 3,822 961
Other ................................................................ 112 290 410
-----------------------------------------
Total interest income ............................................. 132,574 86,754 65,781
-----------------------------------------
Interest expense
Deposits ............................................................. 35,931 31,734 27,707
Securities sold under repurchase agreements .......................... 686 1,059 --
Borrowed funds ....................................................... 25,614 4,719 --
-----------------------------------------
Total interest expense ............................................ 62,231 37,512 27,707
-----------------------------------------
Net interest income ............................................... 70,343 49,242 38,074
Provision for loan losses .............................................. 2,550 2,200 1,080
-----------------------------------------
Net interest income after provision for loan losses ............... 67,793 47,042 36,994
-----------------------------------------
Non-interest income
Fee income ........................................................... 5,511 3,397 2,962
Net gain (loss) on sales of securities and loans ..................... 3,576 163 (107)
Curtailment gain on pension plan ..................................... 2,021 -- --
Other ................................................................ 281 41 6
-----------------------------------------
Total non-interest income ......................................... 11,389 3,601 2,861
-----------------------------------------
Non-interest expenses
Salaries and employee benefits ....................................... 20,988 12,929 9,850
Occupancy costs ...................................................... 3,867 3,181 3,063
Computer service fees ................................................ 3,598 2,743 2,511
Advertising .......................................................... 1,803 1,135 817
FDIC insurance premiums .............................................. 175 154 624
Contribution to RCS Foundation ....................................... -- 19,558 --
Other ................................................................ 4,785 4,033 2,489
-----------------------------------------
Total general and administrative .................................. 35,216 43,733 19,354
Amortization of goodwill and other intangibles ....................... 1,144 313 313
----------------------------------------
Total non-interest expense ........................................ 36,360 44,046 19,667
-----------------------------------------
Income before income taxes ............................................. 42,822 6,597 20,188
Provision for income taxes ............................................. 16,178 2,071 9,463
-----------------------------------------
Net income ........................................................ $ 26,644 $ 4,526 $ 10,725
=========================================
Earnings (loss) per share:
(since Conversion for fiscal 1998)
Basic ............................................................. $ 1.07 $ (0.16) N/A
Diluted ........................................................... $ 1.07 $ (0.16) N/A
</TABLE>
See accompanying notes to consolidated financial statements.
page [32]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings Other
Common Paid-in Substantially Comprehensive
Stock Capital Restricted Income
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 ..................... $ -- $ -- $ 89,830 $ 71
Comprehensive income:
Net income ................................ -- -- 10,725 --
Other comprehensive income, net of tax:
Net unrealized gain on certain
securities, net of tax .............. -- -- -- 239
Comprehensive income .........................
---------------------------------------------------------------
Balance at June 30, 1997 ..................... $ -- $ -- $ 100,555 $ 310
---------------------------------------------------------------
Comprehensive income:
Net income ................................ -- -- 4,526 --
Other comprehensive income, net of tax:
Net unrealized gain on certain
securities, net of tax ................. -- -- -- 3,660
Comprehensive income .........................
Cash dividends paid on common stock .......... -- -- (1,321) --
Issuance of 24,466,250 shares of common
stock in the initial public offering ..... 245 234,644 -- --
Issuance of 1,957,300 shares of common
stock to the RCS Foundation ............... 19 19,553 -- --
Open market purchase of
common stock by the ESOP .................. -- -- -- --
Allocation of ESOP stock ..................... -- 110 -- --
---------------------------------------------------------------
Balance at June 30, 1998 ..................... $ 264 $ 254,307 $ 103,760 $ 3,970
---------------------------------------------------------------
Comprehensive income:
Net income ................................ -- -- 26,644 --
Other comprehensive income, net of tax:
Net unrealized loss on certain
securities, net of tax ................. -- -- -- (20,162)
Comprehensive income .........................
Cash dividends paid on common stock .......... -- -- (7,620) --
Issuance of stock for Ironbound Bankcorp, NJ
acquisition (1,458,842 shares) ............ 14 25,851 -- --
Issuance of stock for Bayonne Bancshares, Inc.
acquisition (8,668,615 shares) ............ 49 62,059 -- --
Common stock repurchased
(4,604,213 shares) ........................ -- -- -- --
Treasury stock issued for options
exercised (55,817 shares) ................. -- -- -- --
Open market purchases of Bayonne
Bancshares, Inc. common stock
(464,625 shares) .......................... -- -- -- --
Open market purchases of
unearned MRP stock ........................ -- -- -- --
Reissuance of treasury stock ................. -- (12,045) -- --
Allocation of ESOP and MRP stock ............. -- (50) -- --
---------------------------------------------------------------
Balance at June 30, 1999 ..................... $ 327 $ 330,122 $ 122,784 $ (16,192)
===============================================================
<CAPTION>
Unallocated Unearned
Common Common
Stock Held Stock Held Treasury
by ESOP by MRP Stock Total
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at June 30, 1996 ..................... $ -- $ -- $ -- $ 89,901
Comprehensive income:
Net income ................................ -- -- -- 10,725
Other comprehensive income, net of tax:
Net unrealized gain on certain
securities, net of tax .............. -- -- -- 239
-----------
Comprehensive income ......................... 10,964
---------------------------------------------------------------
Balance at June 30, 1997 ..................... $ -- $ -- $ -- $ 100,865
---------------------------------------------------------------
Comprehensive income:
Net income ................................ -- -- -- 4,526
Other comprehensive income, net of tax:
Net unrealized gain on certain
securities, net of tax ................. -- -- -- 3,660
-----------
Comprehensive income ......................... 8,186
-----------
Cash dividends paid on common stock .......... -- -- -- (1,321)
Issuance of 24,466,250 shares of common
stock in the initial public offering ..... -- -- -- 234,889
Issuance of 1,957,300 shares of common
stock to the RCS Foundation ............... -- -- -- 19,572
Open market purchase of
common stock by the ESOP .................. (34,571) -- -- (34,571)
Allocation of ESOP stock ..................... 865 -- -- 975
---------------------------------------------------------------
Balance at June 30, 1998 ..................... $ (33,706) $ -- $ -- $ 328,595
---------------------------------------------------------------
Comprehensive income:
Net income ................................ -- -- -- 26,644
Other comprehensive income, net of tax:
Net unrealized loss on certain
securities, net of tax ................. -- -- -- (20,162)
-----------
Comprehensive income ......................... 6,482
-----------
Cash dividends paid on common stock .......... -- -- -- (7,620)
Issuance of stock for Ironbound Bankcorp, NJ
acquisition (1,458,842 shares) ............ -- -- -- 25,865
Issuance of stock for Bayonne Bancshares, Inc.
acquisition (8,668,615 shares) ............ -- (2,820) 63,103 122,391
Common stock repurchased
(4,604,213 shares) ........................ -- -- (75,529) (75,529)
Treasury stock issued for options
exercised (55,817 shares) ................. -- -- 915 915
Open market purchases of Bayonne
Bancshares, Inc. common stock
(464,625 shares) .......................... -- -- (6,456) (6,456)
Open market purchases of
unearned MRP stock ........................ -- (16,118) -- (16,118)
Reissuance of treasury stock ................. -- -- -- (12,045)
Allocation of ESOP and MRP stock ............. 1,728 2,053 -- 3,731
---------------------------------------------------------------
Balance at June 30, 1999 ..................... $ (31,978) $ (16,885) $ (17,967) $ 370,211
===============================================================
</TABLE>
<TABLE>
<CAPTION>
(1) Disclosure of reclassification amount, net of tax for the fiscal years ended June 30,: 1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Net unrealized (depreciation) appreciation arising during the year .................... $(16,331) $ 6,179 $ 449
Less: Reclassification adjustment for net gain (losses) included in net income......... 3,831 2,519 210
------------------------------------
Net unrealized (loss) gain on certain securities ...................................... $(20,162) $ 3,660 $ 239
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
page [33]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income .............................................................. $ 26,644 $ 4,526 $ 10,725
Adjustments to reconcile net income to net cash provided
by operating activities:
Contribution of the Company's common stock
to the RCS Foundation ............................................. -- 19,553 --
ESOP and MRP expense ................................................ 3,731 975 --
Depreciation ........................................................ 1,314 848 928
Amortization of goodwill ............................................ 831 -- --
Amortization of deposit premium ..................................... 313 313 313
Amortization of deferred fees, net .................................. (311) (446) (479)
Amortization of investment premiums, net accretion of discount ...... 2,576 482 1,039
Provision for loan losses ........................................... 2,550 2,200 1,080
Amortization of loan premiums, net accretion of discount ............ (344) (158) (158)
Net realized (gains) losses on sales of securities and loans ........ (3,514) (30) 103
Net realized (gains) losses on sales of other real estate owned...... (55) (133) 4
Decrease (increase) in receivable from broker ....................... -- -- 7,531
(Increase) decrease in accrued interest receivable .................. (1,182) (1,559) 944
(Decrease) increase in accrued expenses and other liabilities ....... (12,150) 3,754 1,321
Increase in other assets ............................................ (48,532) (5,350) (746)
-----------------------------------------
Net cash (used in)/provided by operating activities ............... (28,129) 24,975 22,605
Cash Flows from Investing Activities:
Increase in loans receivable, net ..................................... (435,520) (114,373) (79,002)
Loan purchases ........................................................ (1,500) (38,616) (910)
Proceeds from sales of loans .......................................... 16,705 -- 2,004
Investment securities held to maturity:
Maturities and redemptions ............................................ -- 55,972 127,005
Purchases ............................................................. -- -- (17,611)
Investment securities available for sale:
Sales and redemptions ................................................. 107,141 108,936 11,938
Purchases ............................................................. (96,028) (173,260) (17,678)
Mortgage-backed and mortgage-related securities held to maturity:
Maturities and redemptions ............................................ -- 29,237 3,609
Principal collected ................................................... -- 31,987 25,315
Purchases ............................................................. -- -- (133,668)
Mortgage-backed and mortgage-related securities available for sale:
Sales and redemptions ................................................. 63,931 69,074 --
Principal collected ................................................... 264,460 86,073 479
Purchases ............................................................. (384,631) (608,059) (26,478)
Purchases of Federal Home Loan Bank of New York stock ................... (11,990) (15,550) --
Net additions to banking premises and equipment ......................... (5,088) (1,884) (1,418)
Proceeds from sales of other real estate owned .......................... 350 823 479
Cash and cash equivalents acquired from
Ironbound Bankcorp, NJ acquisition .................................... 40,226 -- --
Cash and cash equivalents acquired from
Bayonne Bancshares, Inc. acquisition .................................. 124,055 -- --
-----------------------------------------
Net cash used in investing activities ............................. (317,889) (569,640) (105,936)
</TABLE>
page [34]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Consolidated Statements of Cash Flows (continued)
(In thousands)
<TABLE>
<CAPTION>
Years Ended June 30,
-----------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-----------------------------------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Net increase in deposits .............................................. $ 133,076 $ 64,369 $ 66,603
Increase (decrease) in escrow accounts ................................ 7,620 621 (1)
Increase in borrowings funds .......................................... 320,000 306,000 --
Net proceeds of common stock issuance ................................. -- 234,908 --
Loan to ESOP for open market purchase of common stock ................. -- (34,571) --
Purchase of MRP stock ................................................. (16,118) -- --
Purchase of treasury shares ........................................... (75,529) -- --
Net proceeds from issuance of common stock upon exercise
of stock options .................................................... 253 -- --
Cash dividends paid on common stock ................................... (7,620) (1,321) --
-----------------------------------------
Net cash provided by financing activities ......................... 361,682 570,006 66,602
Net increase (decrease) in cash and cash equivalents .................. 15,664 25,341 (16,729)
Cash and cash equivalents at beginning of the year .................... 57,884 32,543 49,272
-----------------------------------------
Cash and cash equivalents at end of the year .......................... $ 73,548 $ 57,884 $ 32,543
=========================================
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Interest on deposits and borrowed funds ............................. $ 59,914 $ 35,609 $ 27,707
Income taxes ........................................................ 16,254 6,949 8,733
Non-cash investing activities:
Transfer of loans to other real estate owned, net ..................... $ 482 $ 350 $ 673
Securitization of mortgage loans to mortgage-backed securities ........ 77,159 -- --
Transfer of securities from held to maturity to available for sale .... -- 273,127 --
Net unrealized (loss) gains on available for sale investments ......... (16,331) 6,179 449
</TABLE>
Supplemental Information to the Consolidated Statements of Cash Flows
Relating to Acquisitions:
Non-cash investing and financing transactions relating to the Ironbound
Bankcorp, NJ and Bayonne Bancshares, Inc. for the year ended June 30, 1999
not reflected in the Consolidated Statements of Cash Flows are listed
below:
<TABLE>
<CAPTION>
Ironbound Bayonne
Bankcorp, NJ Bancshares, Inc.
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fair value of assets acquired, excluding cash and cash equivalents acquired..... $ 74,096 $ 528,372
Liabilities assumed ............................................................ (103,745) (570,344)
Excess of cost over fair value of net assets acquired .......................... 15,288 28,925
Stock consideration ............................................................ (25,865) (111,008)
------------------------------
Cash and cash equivalents acquired ............................................. $ (40,226) $(124,055)
==============================
</TABLE>
See accompanying notes to consolidated financial statements.
page [35]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Significant Accounting Policies and Related Matters
Richmond County Financial Corp. (the "Company") was organized under
Delaware law as the savings and loan holding company for Richmond County
Savings Bank and its subsidiaries (the "Bank") in connection with the
Bank's conversion from a New York State chartered mutual savings bank to a
New York State chartered stock savings bank on February 18, 1998 (the
"Conversion"). See note 2 for a further discussion of the Conversion.
The Company's business consists primarily of the business activities
of the Bank. The Bank, together with its two divisional banks, First
Savings Bank of New Jersey and Ironbound Bank, operates 15 banking offices
on Staten Island, one banking office in Brooklyn, eight banking offices in
the counties of Essex, Hudson, and Union, New Jersey, and a multifamily
loan processing center in Jericho, Long Island. The Bank's activities
include attracting deposits from the general public and originating secured
residential, multifamily and commercial real estate loans. The Bank also
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 competition from other
financial institutions. Deposits at the Bank are insured up to applicable
limits by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is subject to regulation by the FDIC and the
New York State Banking Department.
The following is a description of the significant accounting policies
followed by the Company and its wholly-owned subsidiary. The policies
conform to generally accepted accounting principles and to general practice
within the banking industry:
(a) Principles of Consolidation and Basis of Financial Statement
Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles ("GAAP") and include the
accounts of the Company and its wholly-owned subsidiary. All significant
inter-company balances and transactions have been eliminated in
consolidation.
(b) 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.
(c) Cash and Cash Equivalents
For purposes of reporting cash flows, the Company defines cash and
cash equivalents as cash and due from banks (including restricted cash),
federal funds sold and time deposits with original maturities of three
months or less.
(d) Securities Held to Maturity
Investment securities and mortgage-backed and mortgage-related
securities, for which the Company 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.
<PAGE>
(e) 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 in
accumulated other comprehensive income, as a separate component of
stockholders' equity, net of applicable income taxes. Gains and losses on
the disposition of securities available for sale are recognized using the
specific identification method.
(f) 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 Company does not accrue interest on loans that are more than 90
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 90 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.
page [36]
<PAGE>
(g) 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 economic conditions,
and other relevant factors.
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,
which 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 Company's entire portfolio.
(h) 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.
(i) 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.
(j) Excess of Cost Over Fair Value of Net Assets Acquired
The excess of cost over the fair value of net assets acquired in the
acquisitions of Bayonne Bancshares, Inc. and Ironbound Bankcorp, NJ., is
amortized using the straight line method over fifteen years. The excess of
cost over fair value of net assets acquired ("Goodwill") is evaluated
periodically by the Company for impairment in response to changes in
circumstances or events.
(k) Income Taxes
The Company 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.
(l) Treasury Stock
Repurchases of common stock are recorded as treasury stock at cost.
(m) Earnings Per Share
Basic earnings per share ("EPS") is calculated by dividing net income
by the weighted average number of common shares outstanding. Diluted EPS is
calculated using the same method as basic EPS, but reflects potential
dilution of common stock equivalents. Shares of common stock held by the
Employee Stock Ownership Plan ("ESOP") that have not been allocated to
participants' accounts or are not committed to be released for allocation
and non-vested 1998 Stock-Based Incentive Plan (the "MRP") shares are not
considered to be outstanding for the calculation of basic EPS, however, a
portion of such shares are considered in the calculation of diluted EPS as
common stock equivalents of basic EPS. Basic and diluted weighted average
common shares outstanding were 24,807,859 shares, for the fiscal year ended
June 30, 1999.
For fiscal year ended June 30, 1998, basic EPS is calculated by
dividing net loss since Conversion by the weighted average number of common
shares outstanding. There were no dilutive stock equivalents for the fiscal
year ended June 30, 1998. Since the Conversion on February 18, 1998, basic
and diluted weighted average common shares outstanding was 24,328,143
shares. For fiscal year ended June 30, 1998, net loss since Conversion was
$4.0 million.
(n) Employee Benefits
The Company follows the provisions of the American Institute of
Certified Public Accountants ("AICPA") Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP 93-6"). In
accordance with SOP 93-6, compensation expense is recorded at an amount
equal to the shares committed by the ESOP multiplied by the average fair
value of the Company's common stock during the reporting period. The
difference between the fair value of shares for the period and the cost of
the shares committed by the ESOP is recorded as an adjustment to additional
paid in capital.
page [37]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation" established a fair value-based
method of accounting for stock-based compensation arrangements with
employees, rather than the intrinsic value-based method that is contained
in Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB No. 25"). SFAS No. 123 does not require an entity to
adopt the new fair value-based method for purposes of preparing its basic
financial statements. The Company has chosen to continue to use the APB No.
25 method; however, SFAS No. 123 requires the presentation of pro forma net
income and EPS information in the notes to the financial statements as if
the fair value-based method had been adopted. See Note 10 for the
presentation of this pro forma information.
Effective for the fiscal year ended June 30, 1999, the Company adopted
the provisions of SFAS No. 132, "Employers' Disclosures about Pensions and
Other Postretirement Benefits." SFAS 132 supersedes the disclosure
requirements of SFAS No. 87, "Employers' Accounting for Pensions," and SFAS
No. 106. This standard requires additional information on the changes in
the benefit obligations and plan assets and eliminates certain disclosures
to facilitate the financial analysis of these plans. This standard is
limited to issues of reporting and presentation and does not address
recognition or measurement, therefore, its adoption did not affect the
Company's financial condition or results of operations. All periods
presented have been restated to conform to the new requirements. See Note
10 for the presentation of this information.
(o) Comprehensive Income
The Company adopted SFAS No. 130, "Reporting Comprehensive Income" in
the second quarter of fiscal 1999. All comparative financial statements
provided for earlier periods have been restated to reflect application of
the provisions. Comprehensive income includes net income and all other
changes in equity during a period except those resulting from investments
by owners and distribution to owners. Other comprehensive income includes
revenues, expenses, gains and losses that, under generally accepted
accounting principles, are included in comprehensive income but excluded
from net income. Comprehensive income and accumulated other comprehensive
income are reported net of related income taxes. Accumulated other
comprehensive income consists solely of unrealized gains and losses on
available for sale securities.
(p) Segment Reporting
During fiscal 1999, the Company adopted SFAS No. 131, "Disclosures
about segments of an Enterprise and Related Information." SFAS No. 131
requires public companies to report certain financial information about
significant revenue-producing segments of the business for which such
information is available and utilized by the chief operating decision
maker. Specific information to be reported for individual operating
segments includes a measure of profit and loss, certain revenue and expense
items, and total assets. As a community-oriented financial institution,
substantially all of the Company's operations involve the delivery of loan
and deposit products to customers. Management makes operating decisions and
assesses performance based on an ongoing review of these community banking
operations, which constitute the Company's only operating segment for
financial reporting purposes under SFAS No. 131.
(q) Recently Issued Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 133 standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under SFAS No.
133, entities are required to carry all derivative instruments in the
statement of financial position at fair value. The accounting for changes
in the fair value (i.e. gains or losses) of a derivative instrument depends
on whether it has been designated and qualifies as part of a hedging
relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument
as a hedge of exposures to changes in fair values, cash flows or foreign
currencies.
SFAS No. 133 is effective for fiscal quarters of fiscal years
beginning after June 15, 2000 and does not require restatement of prior
periods. Currently the Company does not have any derivative instruments nor
has it entered into any hedging transactions. Therefore, management of the
Company believes the implementation of SFAS No. 133 will not have an impact
on the Company's consolidated financial statements.
(r) Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
page [38]
<PAGE>
- --------------------------------------------------------------------------------
2. Conversion to Stock Form of Ownership
On July 31, 1997, the Board of Trustees of the Bank unanimously
adopted a Plan of Conversion whereby the Bank would convert from a New York
State chartered mutual bank to a New York State chartered stock institution
with the concurrent formation of a holding company, Richmond County
Financial Corp. (the "Conversion").
The Conversion was completed on February 18, 1998, with the issuance
by the Company of 24,466,250 shares of common stock, at a price of $10.00
per share, in an initial public offering. The Company received gross
proceeds from the Conversion of $244.7 million, before the reduction from
gross proceeds of $9.8 million for estimated conversion related expenses.
The Company used $117.4 million, or 50% of the net proceeds, to purchase
all of the outstanding stock of the Bank.
Concurrent with the completion of the Conversion, an additional
1,957,300 shares of authorized but unissued shares of common stock were
contributed by the Company to the Richmond County Savings Foundation (the
"Foundation"), a private foundation dedicated to charitable purposes within
the Bank's communities that it serves. The Company recorded a one- time
charge of $19.6 million, the full amount of the contribution made to the
Foundation and a corresponding deferred tax benefit of $8.4 million in
fiscal 1998. The contribution to the Foundation will be fully tax
deductible, subject to an annual limitation based upon the Company's annual
taxable income.
In connection with the Conversion, the Bank implemented the ESOP.
Subsequent to the Conversion, the ESOP purchased, through a $34.6 million
loan from the Company, 8%, or 2,113,884 shares of the Company's common
stock in the open market.
The Bank established, in accordance with the requirements of the
Office of Thrift Supervision, a liquidation account for $102.8 million,
equal to its retained earnings as of the date of the latest consolidated
statement of financial condition appearing in the final prospectus. The
liquidation account is maintained for the benefit of eligible
pre-Conversion account holders who continue to maintain their account at
the Bank after the date of Conversion. The liquidation account will be
reduced annually to the extent that eligible account holders have reduced
their qualifying deposits as of each anniversary date. Subsequent increases
will not restore an eligible account holder's interest in the liquidation
account. In the event of a complete liquidation, each eligible account
holder will be entitled, under New York State Law, to receive a
distribution from the liquidation account in an amount equal to their
current adjusted account balances for all such depositors then holding
qualifying deposits in the Bank.
In addition, the Company may not declare or pay cash dividends on or
repurchase any of its shares of common stock if the effect thereof would
cause stockholders' equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
- --------------------------------------------------------------------------------
3. Acquisitions
Bayonne Bancshares, Inc.
At the close of business on March 22, 1999, the Company completed its
acquisition of Bayonne Bancshares, Inc. ("Bayonne"), the holding company of
First Savings Bank of New Jersey, SLA, a New Jersey State chartered savings
and loan association with four full service banking offices located in
Bayonne, New Jersey in a transaction which was accounted for as a purchase.
The cost of the acquisition was approximately $118.5 million of which the
Company issued 1.05 shares of its common stock for each outstanding share
of Bayonne common stock for a total of 8,668,615 common shares of which
3,938,731 shares were issued from its treasury shares. Options to purchase
683,577 shares of Bayonne common stock were also converted into options to
purchase 717,755 shares of the Company's common stock. The goodwill
attributable to the transaction was $28.8 million which is being amortized
on a straight line basis over 15 years.
Ironbound Bankcorp, NJ.
At the close of business on March 5, 1999, the Company completed its
acquisition of Ironbound Bankcorp, NJ ("Ironbound"), the holding company of
Ironbound Bank, a New Jersey chartered commercial bank with three full
service commercial banking offices located in the New Jersey counties of
Union and Essex in a transaction which was accounted for as a purchase. The
cost of the acquisition was approximately $27.7 million. The Company issued
1.463 shares of its common stock for each outstanding share of Ironbound
common stock for a total of 1,458,842 common shares. The goodwill
attributable to the transaction was $15.3 million which is being amortized
on a straight line basis over 15 years.
page [39]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
4. Securities Available for Sale
As part of its efforts to manage the Company's asset/liability
strategy in an environment experiencing above normal repayment risk and
market sensitivity to potential changes in market interest rates, in
February 1998, as part of a balance sheet restructuring initiative, the
Bank transferred its entire held to maturity portfolio to its securities
available for sale portfolio. As a result, at June 30, 1999 and 1998, the
Company had no securities in held to maturity.
The amortized cost of investment securities and mortgage-backed and
mortgage-related securities and their related estimated fair values at June
30, 1999 and 1998, are summarized as follows:
<TABLE>
<CAPTION>
June 30, 1999
------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
---------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies ......................... $ 41,864 $ 2 $ (2,254) $ 39,612
Corporate and other debt obligations ................. 217,765 494 (6,715) 211,544
---------------------------------------------------------------
$ 259,629 $ 496 $ (8,969) $ 251,156
===============================================================
Marketable equity securities:
Preferred ............................................ $ 29,687 $ 433 $ (23) $ 30,097
Common ............................................... 16,218 1,236 (1,096) 16,358
---------------------------------------------------------------
$ 45,905 $ 1,669 $ (1,119) $ 46,455
===============================================================
Mortgage-backed and mortgage-related securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates .......................... $ 166,129 $ 83 $ (4,740) $ 161,472
Government National Mortgage Association
Pass-Through Certificates .......................... 162,446 80 (3,279) 159,247
Private Issuer Pass-Through Certificates ............. 92,664 -- (2,930) 89,734
Federal National Mortgage Association
Pass-Through Certificates ........................... 98,465 5 (1,415) 97,055
Federal National Mortgage Association
Real Estate Mortgage Investment Conduits ........... 55,849 -- (927) 54,922
Private Issuer Real Estate Mortgage
Investment Conduits ................................ 311,274 3 (6,863) 304,414
---------------------------------------------------------------
$ 886,827 $ 171 $ (20,154) $ 866,844
===============================================================
</TABLE>
page [40]
<PAGE>
<TABLE>
<CAPTION>
June 30, 1998
- ------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-----------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Government and agencies ................. $ 33,444 $ 226 $ (6) $ 33,664
Corporate and other debt obligations ......... 146,870 2,069 (59) 148,880
-----------------------------------------------------
$ 180,314 $ 2,295 $ (65) $ 182,544
=====================================================
Marketable equity securities:
Preferred .................................... $ 27,146 $ 1,303 $ (1) $ 28,448
Common ....................................... 24,786 2,861 (591) 27,056
Mutual Funds ................................. 605 237 -- 842
-----------------------------------------------------
$ 52,537 $ 4,401 $ (592) $ 56,346
=====================================================
Mortgage-backed and mortgage-related securities:
Federal Home Loan Mortgage Corporation
Pass-Through Certificates .................. $ 96,970 $ 547 $ (155) $ 97,362
Government National Mortgage Association
Pass-Through Certificates .................. 185,098 307 (382) 185,023
Private Issuer Pass-Through Certificates ..... 18,143 65 -- 18,208
Federal National Mortgage Association
Pass-Through Certificates .................. 76,616 82 (247) 76,451
Federal National Mortgage Association
Real Estate Mortgage Investment Conduits ... 39,165 14 (54) 39,125
Private Issuer Real Estate Mortgage
Investment Conduits ........................ 187,587 584 (36) 188,135
-----------------------------------------------------
$ 603,579 $ 1,599 $ (874) $ 604,304
=====================================================
</TABLE>
The amortized cost and estimated fair values of investment and mortgage-
backed and mortgage-related securities available for sale by contractual
maturity at June 30, 1999 are as follows:
June 30, 1999
- -----------------------------------------------------------------------------
Mortgage-backed and
Investment Securities mortgage-related Securities
--------------------------------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------------------------------------------------
(In thousands)
Year ended June 30:
2000................ $ 800 $ 800 $ -- $ --
2001-2004........... 21,233 21,096 11,234 11,219
2005-2010........... 26,976 26,552 29,872 29,711
2011 and thereafter. 210,620 202,708 845,721 825,914
-------------------------------------------------
$259,629 $251,156 $886,827 $866,844
=================================================
Sales and redemptions of investment securities from the available for sale
portfolio during the years ended June 30, are summarized as follows:
Years Ended June 30,
- ------------------------------------------------------------------------------
1999 1998 1997
----------------------------------
(In thousands)
Proceeds from sales and redemptions...... $171,072 $ 178,010 $ 11,938
Gross gains.............................. 3,424 317 40
Gross losses............................. 352 287 24
page [41]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
5. Loans Receivable
Loans receivable consist of the following:
<TABLE>
<CAPTION>
June 30,
--------------------------------------------------------------------------------------------
1999 1998
----------------------------
(In thousands)
<S> <C> <C>
One- to four-family mortgage loans ........................ $ 834,528 $ 470,385
Multifamily mortgage loans ................................ 290,066 50,491
Commercial real estate mortgage loans ..................... 107,280 55,416
Construction and development loans, principally residential 51,044 31,297
Home equity loans ......................................... 18,575 15,379
----------------------------
1,301,493 622,968
Less unearned discounts/plus premiums, net ................ (375) 325
----------------------------
Total real estate mortgage loans .......................... 1,301,118 623,293
Consumer and student loans ................................ 11,817 21,770
Commercial loans .......................................... 14,557 6,783
----------------------------
26,374 28,553
Less net deferred origination and commitment fees ......... (80) (101)
----------------------------
Total other loans ......................................... 26,294 28,452
Less allowance for loan losses ............................ (13,885) (7,276)
----------------------------
Total loans receivable, net ............................... $ 1,313,527 $ 644,469
============================
</TABLE>
Included in real estate mortgage loans are $19.8 million and $20.8
million of mortgages serviced by third parties as of June 30, 1999 and 1998,
respectively.
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.
At June 30, 1999, 1998 and 1997, the total loans serviced for the above
totaled $115.8 million, $45.3 million, and $50.1 million, respectively, and
are not included in the consolidated financial statements.
Loans on non-accrual status totaled $5.9 million, $5.5 million and
$2.7 million at June 30, 1999, 1998, and 1997, respectively. If interest on
the non-accrual loans had been accrued, such income would have been $0.5
million, $0.5 million and $0.3 million, respectively.
A summary of the changes in the allowance for loan losses for the
years ended June 30, 1999, 1998 and 1997, is as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------
(In thousands)
<S> <C> <C> <C>
Balance at beginning of year .................... $ 7,276 $ 5,470 $ 4,796
Allowance of acquired institutions ............ 4,357 -- --
Provision charged to operations ............... 2,550 2,200 1,080
Charge offs, net of recoveries ................ (298) (394) (406)
-------------------------------------
Balance at end of year .......................... $ 13,885 $ 7,276 $ 5,470
=====================================
</TABLE>
page [42]
<PAGE>
- --------------------------------------------------------------------------------
6. Banking Premises and Equipment
Banking premises and equipment at June 30, 1999 and 1998 consist of the
following:
June 30,
- --------------------------------------------------------------------------------
1999 1998
------------------------
(In thousands)
Land ............................................. $ 5,561 $ 2,850
Banking houses and improvements .................. 13,199 7,059
Leasehold improvements ........................... 7,139 3,117
Furniture, fixtures and equipment ................ 8,129 5,172
------------------------
34,028 18,198
Less accumulated depreciation and amortization ... (6,675) (5,104)
------------------------
$ 27,353 $ 13,094
========================
- --------------------------------------------------------------------------------
7. Deposits
At June 30, 1999 and 1998, deposits consist of the following:
June 30, 1999 June 30, 1998
- --------------------------------------------------------------------------------
Average Average
Amount Rate Amount Rate
---------------------------------------
(In thousands)
Certificates of deposit ............ $ 598,470 5.01% $ 325,348 5.38%
Savings ............................ 716,634 2.38 443,433 2.74
Money market demand accounts ....... 49,911 3.13 38,741 3.47
Non-interest-bearing demand
deposits.......................... 169,007 -- 121,646 --
NOW accounts ....................... 75,920 1.48 19,732 2.26
---------- ----------
$1,609,942 $ 948,900
========== ==========
Contractual maturities of certificates of deposit accounts at June 30, 1999 and
1998 are as follows:
June 30, 1999
- --------------------------------------------------------------------------------
Certificates
of $100,000 All Other Total
or More Certificates Certificates
------------------------------------------
(In thousands)
Year ending June 30:
2000 ......................... $ 60,360 $392,655 $453,015
2001 ......................... 10,173 84,236 94,409
2002 ......................... 3,362 17,640 21,002
2003 ......................... 5,502 18,497 23,999
2004 and thereafter .......... 905 5,140 6,045
----------------------------------------
$ 80,302 $518,168 $598,470
========================================
June 30, 1998
- --------------------------------------------------------------------------------
Year ending June 30:
1999 ......................... $ 23,791 $210,856 $234,647
2000 ......................... 5,474 42,119 47,593
2001 ......................... 2,861 20,446 23,307
2002 ......................... 3,442 9,672 13,114
2003 and thereafter .......... -- 6,687 6,687
----------------------------------------
$ 35,568 $289,780 $325,348
========================================
page [43]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
- --------------------------------------------------------------------------------
8. Borrowings
Borrowings totaled $757.8 million and $306.0 million at June 30, 1999
and 1998, respectively, and consist of the following:
Federal Home Loan Bank of New York Advances
1999 1998
---------------------------------------------------------------------------
Weighted Weighted
Average Average
Amount Interest Rate Amount Interest Rate
------------------------------------------------
Contractual Maturity (In thousands)
1998*................. $ -- --% $ 6,000 6.13%
2001.................. 25,000 5.57 -- --
2003.................. 35,000 5.03 35,000 5.03
2004.................. 22,000 5.32 -- --
2005.................. 30,000 5.45 -- --
2006.................. 65,000 4.77 -- --
2008.................. 475,000 5.22 265,000 5.35
2009.................. 11,832 4.45 -- --
------------------------------------------------
$663,832 5.18% $306,000 5.33%
======== ========
The advances received were all fixed rate under the FHLB of New York
("FHLBNY") convertible advance program, which grants the FHLBNY the option
to call the advance after an initial lock-out period of 1, 2, 3 or 5 years
and quarterly thereafter, until maturity. The convertible advances are
collateralized by mortgage-backed securities with a carrying value of
approximately $677.5 million and $338.6 million, pledges of FHLBNY stock of
$38.4 million and $15.6 million at June 30, 1999 and 1998, respectively,
and a blanket assignment of the Company's unpledged, qualifying mortgage
loans.
*FHLBNY overnight line of credit advance. Rate is based on the Federal
Funds rate at time of takedown plus 12.5 basis points. Principal and
interest is due on the next succeeding business day. The Company has an
available overnight line of credit with the FHLBNY for a maximum of $50.0
million at June 30, 1999.
Repurchase Agreements
The contractual maturities of the outstanding repurchase agreements at
June 30, 1999 were as follows:
1999
- --------------------------------------------------------------------------------
Weighted
Average
Amount Interest Rate
---------------------------
Contractual Maturity (In thousands)
August 1999 ............................ $42,300 4.99%
September 1999 ............................ 36,700 5.12
December 2000* ........................... 15,000 5.90
---------------------------
$94,000 5.19%
=======
The above are collateralized by mortgage-backed securities with a
carrying value of approximately $97.8 million.
*Callable commencing December 2000 and quarterly thereafter, until
maturity.
page [44]
<PAGE>
- --------------------------------------------------------------------------------
9. Income Taxes
Significant components of the Bank's deferred tax assets and liabilities
as of June 30, 1999 and 1998, are as follows:
June 30,
--------------------------------------------------------------------------
1999 1998
------------------------
(In thousands)
Deferred tax assets:
Allowance for loan losses.................. $ 5,245 $ 3,152
Deferred loan fees......................... 339 20
Book over tax amortization................. 289 287
Non-accrual interest income................ 295 471
Postretirement benefits.................... 1,519 1,621
Securities available for sale.............. 12,754 --
RCS Foundation............................. 4,810 7,420
1998 Stock Based Incentive Plans........... 776 --
------------------------
Gross deferred tax assets.............. 26,027 12,971
Deferred tax liabilities:
Tax bad debt reserves...................... 646 754
Tax over book depreciation................. 393 399
Prepaid pension expense.................... 1,010 315
Securities available for sale.............. -- 2,795
------------------------
Gross deferred tax liabilities......... 2,049 4,263
------------------------
Net deferred tax assets................ $23,978 $ 8,708
========================
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 for the years ended
June 30, 1999 and 1998.
Significant components of the provision (benefit) for income taxes
attributable to continuing operations for the years ended June 30, 1999,
1998 and 1997, are as follows:
Year Ended June 30,
---------------------------------------------------------------------------
1999 1998 1997
-----------------------------------
(In thousands)
Current:
Federal .......................... $ 13,329 $ 7,583 $ 6,278
State and local .................. 2,570 2,773 3,361
-----------------------------------
15,899 10,356 9,639
Deferred:
Federal .......................... 220 (5,997) (106)
State and local .................. 59 (2,288) (70)
-----------------------------------
279 (8,285) (176)
-----------------------------------
$ 16,178 $ 2,071 $ 9,463
===================================
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 years ended June 30, 1999, 1998 and 1997) to
income before provision for income taxes:
<TABLE>
<CAPTION>
Year Ended June 30,
---------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------
(In thousands)
<S> <C> <C> <C>
Federal income tax provision at statutory rates ............................. $ 14,988 $ 2,309 $ 7,066
Increase (reduction) in tax resulting from:
State and local income taxes, net of federal income tax effect ............ 1,709 315 2,139
Other ..................................................................... (519) (553) 258
------------------------------------
$ 16,178 $ 2,071 $ 9,463
====================================
</TABLE>
page [45]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (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 June 30, 1999, 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 June 30, 1999, for which deferred
taxes are not required to be recognized, amounted to approximately $47
million. Accordingly, deferred tax liabilities of approximately $9.0
million have not been recognized as of June 30, 1999.
10. Employee Benefit Plans
Defined Benefit Plan
The following table sets forth the change in benefit obligations, the
change in plan assets, the funded status of the plan, and amounts
recognized in the accompanying consolidated financial statements at June
30,
1999 1998
---------------------------------------------------------------------------
(In thousands)
Change in Benefit Obligation:
Benefit Obligation at Beginning of Year............. $10,232 $ 8,569
Service Cost........................................ 525 477
Interest Cost....................................... 677 671
Curtailment......................................... (3,182) --
Benefits Paid....................................... (417) (439)
Actuarial Loss...................................... 3,156 954
------------------
Benefit Obligation at End of Year................... $10,991 $10,232
==================
Change in Plan Assets:
Fair Value of Plan Assets at Beginning
of Year............................................ $12,955 $10,852
Actual Return on Plan Assets........................ 796 2,542
Employer Contributions.............................. -- --
Benefits Paid....................................... (417) (439)
------------------
Fair Value of Plan Assets at End of Year............ $13,334 $12,955
==================
Reconciliation of Funded Status:
Funded Status....................................... $ 2,342 $ 2,723
Unrecognized Actuarial Loss (Gain).................. 4 (2,298)
Unrecognized Prior Service Cost..................... -- (23)
Unrecognized Transition Asset....................... (4) (40)
------------------
Prepaid Benefit Cost................................ $ 2,342 $ 362
==================
page [46]
<PAGE>
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted Average Assumptions as of June 30,
Discount Rate.................................. 5.25% 6.75% 7.75%
Expected Return on Plan Assets................. 8.00% 8.00% 8.00%
Rate of Compensation Increase.................. 5.00% 4.50% 5.50%
Components of Net Periodic Benefit Cost:
Service Cost................................... $ 525 $ 477 $ 427
Interest Cost.................................. 677 671 606
Expected Return on Plan Assets................. (1,021) (854) (770)
Amortization of Prior Service Cost............. (2) (2) (2)
Amortization of Transition Asset............... (36) (36) (36)
Unrecognized Actuarial (Gain).................. (102) (55) (10)
Additional (Gain) Recognized Due to
Curtailment.................................. (2,021) -- --
----------------------------
Net Periodic Benefit (Credit) Cost............. $(1,980) $ 201 $ 215
============================
Based on an evaluation of the pension plan in fiscal 1999, the Bank concluded
that future benefit accruals under the plan would cease, or "freeze" on March
31, 1999. In connection with the freezing of the plan and the plan's measurement
date of April 1, 1999, the Bank recognized a curtailment gain of approximately
$2.0 million as of June 30, 1999.
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%. Cash contributions to the
401(k) Plan by the Bank was $215,996, $157,975 and $137,264 for the years ended
June 30, 1999, 1998 and 1997, respectively.
Employee Stock Ownership Plan
In connection with the Conversion, the Bank implemented an ESOP, a tax-
qualified plan designed to invest primarily in the Company's common stock. The
ESOP provides 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, may participate in the ESOP. Subsequent to
the Conversion, all eligible employees of the Bank and its affiliates, including
the Company, may participate in the ESOP upon the age of 21 and the completion
of one year of service. Subsequent to the Conversion, the ESOP purchased,
through a $34.6 million loan from the Company, 8%, or 2,113,884 shares of common
stock in the open market. The term of the ESOP loan is 20 years and will be
primarily repaid with contributions from the Bank to the ESOP. As of June 30,
1999, the loan from the Company had an outstanding balance of $33.1 million and
an interest rate of 8.50%.
Under the terms of the ESOP, the Bank makes contributions to the ESOP
sufficient to cover all payments of principal and interest as they become due.
Shares purchased with the loan proceeds are held in a suspense account by the
trustee of the Plan for future allocation among participants as the loan is
repaid. Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of compensation as described in
the Plan. The number of shares released to participants will be determined based
upon the percentage of principal and interest payments made during the calendar
year divided by the total remaining principal and interest payments including
the current year's payment. Participants will vest in the shares allocated to
their respective accounts over a period not to exceed 6 years. Any forfeited
shares are allocated to the then remaining participants in the same proportions
as contributions. There were 105,694 shares allocated in fiscal 1999 and no
shares were allocated in fiscal 1998. For the year ended June 30, 1999, 52,847
shares were committed to be released and 1,955,343 shares remain unallocated.
The Company recognizes compensation expense attributable to its ESOP over the
year, based upon the estimated number of ESOP shares to be allocated each
December 31st. The amount of compensation expense recorded is equal to the
estimate of shares to be allocated by the ESOP multiplied by the average fair
value of the underlying shares during the period. For the fiscal year ended June
30, 1999 and 1998, compensation expense attributable to the ESOP was $1.8
million and $975,000, respectively.
The trustee for the ESOP must vote all allocated shares held in the ESOP trust
in accordance with the instructions of the participants. Unallocated shares held
by the ESOP trust are voted by the trustee in a manner calculated to most
accurately reflect the results of the allocated ESOP shares voted, subject to
the requirements of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
page [47]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
Stock-Based Incentive Plans
At the annual shareholders meeting on September 29, 1998 the
shareholders approved the Richmond County Financial Corp. 1998 Stock-Based
Incentive Plan and at the special meeting of shareholders on February 25,
1999 the shareholders approved the ratification of certain amendments to
the Richmond County Financial Corp. 1998 Stock-Based Incentive Plan
(collectively, "Incentive Plan"). The Incentive Plan authorizes the
granting of options to purchase the Company's common stock, option-related
awards and awards of the Company's common stock (collectively, "Awards").
Subject to certain adjustments to prevent dilution of Awards to
participants, the maximum number of shares reserved for Awards denominated
in common stock under the Incentive Plan is 3,699,297 shares. The maximum
number of shares reserved for purchase pursuant to the exercise of options
and option-related Awards which may be granted under the Incentive Plan is
2,642,355 shares, and will primarily vest over a five year period and which
must be exercised no more than 10 years from the date of grant. The maximum
number of the shares reserved for the award of shares of the Company's
common stock is 1,056,942 shares, and will primarily vest over a five year
period. All officers, other employees and outside directors of the Company
and its affiliates, including the Bank and its subsidiaries, are eligible
to receive Awards under the Incentive Plan. The Incentive Plan is
administered by a committee of non-employee directors of the Company (the
"Committee"). Authorized but unissued shares, or shares previously issued
and reacquired by the Company, may be used to satisfy the Awards under the
Incentive Plan. Each option may become fully exercisable and each award may
become fully vested upon the occurrence of a change in control of the
Company, or upon death, disability or retirement of the optionee.
The Company contributed $16.1 million, during the second quarter of
fiscal 1999, to the Incentive Plan to enable the Incentive Plan to purchase
1,056,942 shares of the Company's common stock to be awarded. This
contribution represents deferred compensation which is initially recorded
as a reduction to stockholders' equity and ratably charged to compensation
expense over the vesting period of the awards. The Committee established
October 20, 1998 as the Incentive Plan's effective grant date and 1,054,274
shares were awarded at a price of $14.25 per share to outside directors,
officers and employees of the Bank. During the year ended June 30, 1999,
the Company granted additional stock awards of 7,000 shares, with a price
of $15.25 per share, and 8,000 shares were forfeited. For the year ended
June 30, 1999, compensation expenses attributable to stock awards under the
Incentive Plan was approximately $2.0 million. The Incentive Plan was not
in effect for fiscal 1998.
Options granted under this plan are either non-statutory stock options
or incentive stock options. Each option entitles the holder to purchase one
share of the Company's common stock at an exercise price equal to the fair
market value on the date of grant. There was no compensation expense
attributable to these options as the Company used the intrinsic value based
method of accounting as the exercise price equaled the common stock price
at the grant date. All options expire no later than ten years following the
date of grant.
Bayonne Bancshares, Inc.--Pre-Merger
Bayonne maintained the 1995 and 1998 Stock-Based Compensation Plans,
which consisted of options to purchase Bayonne common stock and stock
awards of Bayonne's common stock ("Restricted Stock"), for its officers,
directors and other key employees. Generally, these plans granted options
to individuals at a price equivalent to the fair market value of the stock
at the date of grant. Options awarded under the plans generally vested over
a five-year period from the date of grant and expired 10 years from the
grant date. The awards of Restricted Stock purchased by Bayonne are held in
trusts by the plan for the benefit of participants pending the vesting of
such shares. Awards of Restricted Stock granted under the plans generally
vest over a five-year period. As a result of the merger, participants under
the 1995 Stock-Based Compensation Plan became fully vested at the merger
date. Under the 1998 Stock-Based Compensation Plan, participants continue
to vest in stock options and stock awards over the vesting periods in
accordance with the terms of the plan. As of June 30, 1999, $2.8 million of
Restricted Stock awarded under the plan is reflected as deferred
compensation in stockholders' equity. Compensation expense recognized under
the plan was $63,000 for the year ended June 30, 1999.
Option transactions for the year ended June 30, 1999 are shown below:
Weighted
Number Average
of Shares Exercise Price
---------------------------------------------------------------------------
Options outstanding at June 30, 1998 -- $ --
Granted........................................ 3,016,305 13.94
Exercised...................................... (55,817) 4.22
Forfeited...................................... (7,000) 14.25
----------
Options outstanding at June 30, 1999........... 2,953,488 14.13
==========
Options exercisable as of June 30, 1999........ 183,563
Weighted average fair value of options granted. $ 3.51
page [48]
<PAGE>
In accordance with SFAS No. 123, the Company used the Black-Scholes option
pricing model with the following weighted average assumptions to value the
options granted for the year ended June 30, 1999 are as follows:
Dividend yield ....................................................... 3.09%
Expected volatility .................................................. 27.50%
Risk-free interest rate .............................................. 4.75%
Expected option lives ................................................ 6 years
On a pro forma basis, had compensation expense for the Company's stock-
based compensation plan been determined based on the fair value at the grant
date for awards made under the plan, consistent with SFAS No. 123, the Company's
net income and earnings per share for the year ended June 30, 1999 are as
follows:
(In thousands, except per share data)
Net income:
As reported ..................................................... $ 26,644
Pro forma ....................................................... 25,487
Basic earnings per share:
As reported ..................................................... $ 1.07
Pro forma ....................................................... 1.03
Diluted earnings per share:
As reported ..................................................... $ 1.07
Pro forma ....................................................... 1.03
The effects of applying SFAS No. 123, for either recognizing or disclosing
compensation cost under such pronouncement, may not be representative of the
effect on reported net income for future periods.
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 $2.5
million ($1.3 million on an after-tax basis) as the cumulative effect of this
change in accounting principle.
Based on an evaluation of the Postretirement Plan in fiscal 1999, the Bank
amended the Plan to reflect the termination of postretirement medical and life
insurance benefits for active employees with less than five years of service as
of April 1, 1999.
page [49]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
The following table sets forth the change in postretirement benefit
obligation and amounts recognized in the Bank's consolidated statements of
financial condition at June 30:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C>
Change in Accumulated Postretirement Benefit Obligation ("APBO"):
Accumulated postretirement benefit obligation at beginning of year ..................... $ 3,293 $ 2,796
Service cost ........................................................................... 194 158
Interest cost .......................................................................... 280 240
Acquisitions ........................................................................... 213 --
Premiums paid, net ..................................................................... (127) (105)
Amendments ............................................................................. (188) (94)
Curtailment gain ....................................................................... (86) --
Actuarial loss ......................................................................... 844 298
-----------------------------
Accumulated postretirement benefit obligation at end of year ........................... $ 4,423 $ 3,293
=============================
Reconciliation of Funded Status:
Accumulated postretirement benefit obligation
Funded status .......................................................................... $(4,423) $(3,293)
Unrecognized prior service cost ........................................................ (217) (85)
Unrecognized net loss (gain) ........................................................... 555 (200)
-----------------------------
(Accrued) postretirement benefit cost .................................................. $(4,085) $(3,578)
=============================
</TABLE>
The Bank's postretirement benefits expense for the years ended June 30:
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
Interest cost ..................................................................... $ 280 $ 240 $ 201
Service cost ...................................................................... 194 158 120
Amortization ...................................................................... (12) (9) (20)
--------------------------------------
$ 462 $ 389 $ 301
======================================
</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 10.5% for
the initial year and is assumed to decrease 1% annually to 6% in 2003. 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 APBO at
June 30, 1999 by $614,000 (13.7%). The increase in the aggregate of the
service and interest cost components of the net periodic postretirement
benefit cost for 1999 would be $70,000 (14.8%). Likewise, decreasing the
assumed health care cost trend rates by one percentage point in each year
would decrease the APBO at June 30, 1999 by $491,000 (11.0%). The decrease
in the aggregate of the service and interest cost components of the net
periodic postretirement benefit cost for 1999 would be $55,000 (11.7%). The
weighted average discount rate used in computing the APBO was 7.0% at June
30, 1999 and 8.0% at June 30, 1998.
page [50]
<PAGE>
- --------------------------------------------------------------------------------
11. Commitments and Contingencies
Lease Commitments
The Bank conducts a portion of its banking operations in leased
facilities under non-cancelable operating leases expiring at various
periods through 2004 and thereafter. These leases contain renewal options
and certain of the leases provide for increases based upon various
escalation clauses. Rent expense was $570,700, $460,300 and $353,600 for
the fiscal year ended June 30, 1999, 1998 and 1997, respectively.
The future minimum lease payments under such operating leases are as
follows:
Amount
---------------------------------------------------------------------------
(In thousands)
Years Ended June 30:
2000.................................................... $ 972
2001.................................................... 927
2002.................................................... 794
2003.................................................... 765
2004 and thereafter..................................... 6,360
------
$9,818
======
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.
Loan Commitments
There were outstanding commitments to make loans at June 30, 1999 and
1998, of $134.4 million and $150.8 million, 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.
- --------------------------------------------------------------------------------
12. 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 June 30, 1999, that the Bank meets all capital adequacy
requirements to which it is subject.
page [51]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
Based on its regulatory capital ratios at June 30, 1999, 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>
Minimum To Be Well
Capitalized Under
Minimum for Capital Prompt Corrective
Actual Adequacy Purposes Active Provisions
---------------------------------------------------------------------------------------------------------
Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
----------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1999:
Total Capital (to Risk Weighted Assets)... $299,650 19.84% $126,272 8.00% $157,841 10.00%
Tier I Capital (to Risk Weighted Assets).. 285,363 18.90 63,136 4.00 94,704 6.00
Tier I Capital (to Average Assets)........ 285,363 10.96 122,614 4.00 153,267 5.00
As of June 30, 1998:
Total Capital (to Risk Weighted Assets)... 192,271 24.81% 62,004 8.00% 77,505 10.00%
Tier I Capital (to Risk Weighted Assets).. 184,995 23.87 31,002 4.00 46,503 6.00
Tier I Capital (to Average Assets)........ 184,995 12.81 57,788 4.00 72,235 5.00
---------------------------------------------------------------------------------------------------------
</TABLE>
13. 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, 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 non-financial instruments. Accordingly, the aggregate
fair value amounts presented do not represent management's estimation of
the underlying value of the Company.
The carrying values and estimated fair values of the Company's material
financial instruments as of June 30, 1999 and 1998, are summarized as
follows:
<TABLE>
<CAPTION>
June 30, 1999 June 30, 1998
--------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------------------------------------------
(In thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from banks................................... $ 45,443 $ 45,443 $ 31,884 $ 31,884
Federal funds sold........................................ 28,105 28,105 26,000 26,000
Securities available for sale:
Investment securities..................................... 297,611 297,611 238,890 238,890
Mortgage-backed and mortgage-related securities 866,844 866,844 604,304 604,304
Real estate mortgage loans receivable........................ 1,301,118 1,275,616 623,293 623,056
Other loans receivable....................................... 26,294 26,236 28,452 28,526
Financial liabilities:
Deposits.................................................. 1,619,470 1,622,941 950,808 939,162
Borrowings................................................ 757,832 737,986 306,000 305,558
</TABLE>
page [52]
<PAGE>
The following methods and assumptions were used by the Company in
estimating the fair values of financial instruments:
Cash and Due from Banks and Federal Funds Sold: Carrying amounts
approximate fair value, since these instruments are either payable on
demand or have short-term maturities.
Securities Available for Sale: The estimated fair values of 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.
Borrowings: The estimated fair value of borrowed funds is based on the
discounted value of contractual cash flows using interest rates currently
in effect for borrowings with similar maturities and collateral
requirements.
- --------------------------------------------------------------------------------
14. Parent-Only Financial Information
The earnings of the Bank are recognized by Richmond County Financial
Corp. (the "Holding Company") using the equity method of accounting.
Accordingly, undistributed earnings of the Bank are recorded as increases
in the Holding Company's investment in the Bank. The following are the
condensed financial statements of the Holding Company as of, and for the
years ended, June 30, 1999 and 1998 (although the Holding Company did not
commence operations until the Conversion on February 18, 1998, the full
year results have been presented).
The Condensed Statement of Financial Condition as of June 30, 1999 and
1998 is as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------------
1999 1998
----------------------
(In thousands)
<S> <C> <C>
Assets:
Cash and cash equivalents ......................... $ 5,645 $ 30,124
Securities available for sale:
Investment securities ............................. 7,887 15,233
Mortgage-backed and mortgage-related securities ... -- 38,885
Investment in subsidiary ............................... 284,180 202,188
ESOP loan receivable ................................... 33,120 34,231
Other assets ........................................... 9,689 8,072
----------------------
Total assets ..................................... $340,521 $328,733
======================
Liabilities and stockholders' equity:
Liabilities ....................................... $ 7,138 $ 138
Total Stockholders' equity ........................ 333,383 328,595
----------------------
Total liabilities and Stockholders' equity ....... $340,521 $328,733
======================
</TABLE>
page [53]
<PAGE>
Richmond County Financial Corp. and Subsidiary
Notes to Consolidated Financial Statements (continued)
The Condensed Statement of Operations for the year ended June 30, 1999 and
1998, is as follows:
<TABLE>
<CAPTION>
June 30,
------------------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------
(In thousands)
<S> <C> <C>
Investment income .............................................................................. $ 2,053 $ 886
Other interest income .......................................................................... 596 745
Interest income - ESOP loan receivable ......................................................... 2,841 1,064
Gain on sale of investments .................................................................... 620 14
------------------------
6,110 2,709
Contribution to the RCS Foundation ............................................................. -- (19,553)
Other expenses ................................................................................. (2,580) (221)
------------------------
Income (loss) before income taxes and equity in undistributed earnings of subsidiary ........... 3,530 (17,065)
Income tax (expense) benefit ................................................................... (1,288) 7,763
------------------------
Income (loss) before equity in undistributed earnings of subsidiary ............................ 2,242 (9,302)
Equity in undistributed earnings of subsidiary ................................................. 24,402 13,828
------------------------
Net income ..................................................................................... $ 26,644 $ 4,526
========================
</TABLE>
The Condensed Statement of Cash Flows for the years ended June 30, 1999 and
1998, is as follows:
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------------------------------------------------------------------------------
1999 1998
--------------------------
(In thousands)
<S> <C> <C>
Operating activities:
Net income ................................................................................... $ 26,644 $ 4,526
Adjustments to reconcile net income to net cash (used in)/provided by operating activities:
Equity in the undistributed earnings of subsidiary ......................................... (24,402) (13,828)
Charitable contribution of common stock .................................................... -- 19,553
MRP expense ................................................................................ 1,991 --
Net realized (gain) on sale of securities available for sale ............................... (620) (14)
Amortization of premium/(discount), on available for sale investments, net ................. 46 18
Increase in accrued interest receivable .................................................... (32) --
Increase in receivable from subsidiary ..................................................... (321) --
Increase in other assets ................................................................... (1,264) (8,072)
Increase in liabilities .................................................................... 6,228 138
--------------------------
Net cash provided by operating activities ................................................ 8,270 2,321
Cash flows from investing activities:
Investment securities available for sale:
Sales and redemptions ...................................................................... 17,583 688
Purchases .................................................................................. (10,351) (15,909)
Mortgage-backed and mortgage-related securities available for sale:
Sales and redemptions ...................................................................... 34,726 --
Principal collected ........................................................................ 4,252 1,563
Purchases .................................................................................. -- (40,451)
Decrease (increase) in bank subsidiary ....................................................... 18,944 (117,444)
Net decrease (increase) in ESOP loan receivable .............................................. 1,111 (34,231)
--------------------------
Net cash provided by/(used in) investing activities ...................................... 66,265 (205,784)
Financing activities:
Net proceeds of common stock issuance ........................................................ -- 234,908
Purchase of MRP shares ....................................................................... (16,118) --
Purchase of treasury shares .................................................................. (75,529) --
Proceeds from options exercised .............................................................. 253 --
Cash dividends paid on common stock .......................................................... (7,620) (1,321)
--------------------------
Net cash (used in)/provided by financing activities ...................................... (99,014) 233,587
Net (decrease) increase in cash and cash equivalents ......................................... (24,479) 30,124
Cash and cash equivalents at beginning of year ............................................... 30,124 --
--------------------------
Cash and cash equivalents at end of year ..................................................... $ 5,645 $ 30,124
==========================
</TABLE>
page [54]
<PAGE>
- --------------------------------------------------------------------------------
15. Selected Quarterly Financial Data (unaudited)
The following table provides a summary of operations by quarter for the
years ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
Fiscal 1999 Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
--------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income ........................................................ $44,782 $30,988 $29,142 $27,662
Interest expense ....................................................... 21,578 14,423 13,631 12,599
-------------------------------------------------------
Net interest income before provision for possible loan losses .......... 23,204 16,565 15,511 15,063
Provision for possible loan losses ..................................... 600 600 600 750
-------------------------------------------------------
Net interest income after provision for possible loan losses .......... 22,604 15,965 14,911 14,313
Non-interest income:
Fee income and other .................................................. 2,327 1,432 1,098 935
Curtailment gain on pension plan ...................................... 2,021 -- -- --
Net gains on sale of loans and securities ............................. 972 81 1,614 909
-------------------------------------------------------
Total non-interest income ............................................. 5,320 1,513 2,712 1,844
Non-interest expense:
General and administrative expenses ................................... 11,329 8,612 7,721 7,554
Amortization of goodwill and other intangibles ........................ 792 195 79 78
-------------------------------------------------------
Total non-interest expense ........................................... 12,121 8,807 7,800 7,632
-------------------------------------------------------
Income before provision for income taxes ............................... 15,803 8,671 9,823 8,525
Provision for income taxes ............................................. 5,913 3,291 3,803 3,171
-------------------------------------------------------
Net income ............................................................. $ 9,890 $ 5,380 $ 6,020 $ 5,354
-------------------------------------------------------
Basic and diluted earnings per share .................................. $ 0.34 $ 0.24 $ 0.27 $ 0.22
-------------------------------------------------------
Dividends declared per common share .................................... $ 0.11 $ 0.09 $ 0.08 $ 0.07
Stock price per common share:
High .................................................................. $ 19.31 $ 16.31 $ 17.13 $ 18.69
Low ................................................................... $ 14.50 $ 14.81 $ 11.31 $ 11.88
Close ................................................................. $ 19.25 $ 14.81 $ 16.06 $ 15.00
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1998 Quarter Ended
- ------------------------------------------------------------------------------------------------------------------------------------
June 30, March 31, December 31, September 30,
-------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income ...................................................... $ 26,114 $ 23,975 $ 18,911 $ 17,754
Interest expense ..................................................... 11,389 10,173 8,354 7,596
-------------------------------------------------------
Net interest income before provision for possible loan losses ........ 14,725 13,802 10,557 10,158
Provision for possible loan losses ................................... 700 600 450 450
-------------------------------------------------------
Net interest income after provision for possible loan losses ........ 14,025 13,202 10,107 9,708
Non-interest income:
Fee income .......................................................... 801 990 825 822
Net gains (losses) on sale of loans and securities .................. 143 (53) 78 (5)
-------------------------------------------------------
Total non-interest income .......................................... 944 937 903 817
Non-interest expense:
General and administrative expenses ................................. 6,945 6,880 5,474 4,876
Amortization of deposit premium ..................................... 78 78 78 79
Charitable contribution to the RCS Foundation ....................... -- 19,558 -- --
-------------------------------------------------------
Total non-interest expense ......................................... 7,023 26,516 5,552 4,955
-------------------------------------------------------
Income (loss) before provision for income taxes ...................... 7,946 (12,377) 5,458 5,570
Provision (benefit) for income taxes ................................. 2,473 (5,766) 2,647 2,717
-------------------------------------------------------
Net income (loss) .................................................... $ 5,473 $ (6,611) $ 2,811 $ 2,853
=======================================================
Basic and diluted earnings (loss) per share since conversion ........ $ 0.23 $ (0.39) N/A N/A
=======================================================
Dividends declared per common share .................................. $ 0.06 $ 0.05 N/A N/A
Stock price per common share:
High ................................................................ $ 19.75 $ 19.63 N/A N/A
Low ................................................................. $ 17.75 $ 15.69 N/A N/A
Close ............................................................... $ 18.69 $ 19.19 N/A N/A
</TABLE>
page [55]
<PAGE>
Report of Independent Auditors
The Board of Directors
Richmond County Financial Corp.
We have audited the accompanying consolidated statements of financial
condition of Richmond County Financial Corp. (the "Company") as of June
30, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years
in the period ended June 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company at June 30, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three
years in the period ended June 30, 1999 in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
August 18, 1999
New York, New York
page [56]
<PAGE>
EXHIBIT 23.0
Consent of Ernst & Young LLP
Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No.333-49233) pertaining to the Richmond County Savings Bank 401(k)
Savings Plan in RSI Retirement Trust (the "Plan") of our report dated August 18,
1999, with respect to the consolidated financial statements of Richmond County
Financial Corp., included in the Form 10-K for the year ended June 30, 1999.
/s/Ernst & Young LLP
New York, New York
September 27,1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-K and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 45,443
<INT-BEARING-DEPOSITS> 10,330
<FED-FUNDS-SOLD> 17,775
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,164,455
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,327,412
<ALLOWANCE> 13,885
<TOTAL-ASSETS> 2,760,095
<DEPOSITS> 1,619,470
<SHORT-TERM> 0
<LIABILITIES-OTHER> 12,582
<LONG-TERM> 0
0
0
<COMMON> 327
<OTHER-SE> 369,884
<TOTAL-LIABILITIES-AND-EQUITY> 2,760,095
<INTEREST-LOAN> 72,231
<INTEREST-INVEST> 58,954
<INTEREST-OTHER> 1,389
<INTEREST-TOTAL> 132,574
<INTEREST-DEPOSIT> 35,931
<INTEREST-EXPENSE> 62,231
<INTEREST-INCOME-NET> 70,343
<LOAN-LOSSES> 2,550
<SECURITIES-GAINS> 3,072
<EXPENSE-OTHER> 36,360
<INCOME-PRETAX> 42,822
<INCOME-PRE-EXTRAORDINARY> 42,822
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,644
<EPS-BASIC> 1.07
<EPS-DILUTED> 1.07
<YIELD-ACTUAL> 7.03
<LOANS-NON> 5,857
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,276
<CHARGE-OFFS> 345
<RECOVERIES> 47
<ALLOWANCE-CLOSE> 13,885
<ALLOWANCE-DOMESTIC> 7,391
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,494
</TABLE>
