<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999 Commission File No. 0-23271
RICHMOND COUNTY FINANCIAL CORP.
(Exact name of Registrant as specified in its charter)
Delaware 06-1498455
(State of Incorporation) (I.R.S. Employer Identification Number)
1214 Castleton Avenue
Staten Island, New York 10310
(Address of principal executive offices) (Zip Code)
718-448-2800
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practicable date.
As of May 12, 1999, there were 32,142,634 shares of the common stock
outstanding.
<PAGE>
FORM 10-Q
RICHMOND COUNTY FINANCIAL CORP.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements (Unaudited)
Consolidated Statements of Financial Condition
at March 31, 1999 and June 30, 1998.................................. 3
Consolidated Statements of Operations
for the three and nine months ended March 31, 1999 and 1998.......... 4
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended March 31, 1999 and 1998.................... 5
Consolidated Statements of Cash Flows
for the nine months ended March 31, 1999 and 1998.................... 6
Notes to Unaudited Consolidated Financial Statements................. 7
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations..................... 11
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.. 23
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings............................................ 24
ITEM 2. Changes in Securities and Use of Proceeds.................... 24
ITEM 3. Defaults Upon Senior Securities.............................. 24
ITEM 4. Submission of Matters to a Vote of Security Holders.......... 24
ITEM 5. Other Information............................................ 24
ITEM 6. Exhibits and Reports on Form 8-K............................. 24
Exhibit Index........................................................ 26
Signature Page....................................................... 27
</TABLE>
================================================================================
Statements contained in this Form 10-Q which are not historical facts are
forward-looking statements, as that term is defined in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements are subject to
risk and uncertainties which could cause actual results to differ materially
from those projected. Such risks and uncertainties include potential changes in
interest rates, competitive factors in the financial services industry, general
economic conditions, the effect of new legislation and other risks detailed in
documents filed by the Company with the Securities and Exchange Commission from
time to time.
================================================================================
2
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RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
March 31, June 30,
1999 1998
------------------- ---------------
(Unaudited)
Assets
<S> <C> <C>
Cash and due from banks $ 52,895 $ 31,884
Federal funds sold 88,050 26,000
Securities available for sale:
Investment securities 303,438 238,890
Mortgage-backed and mortgage-related securities 804,268 604,304
Loans receivable:
Real estate loans 1,226,979 623,293
Other loans 22,699 28,452
Less allowance for loan losses (13,411) (7,276)
---------- ----------
Total loans receivable, net 1,236,267 644,469
Federal Home Loan Bank stock 38,388 15,550
Banking premises and equipment, net 26,257 13,094
Accrued interest receivable 16,674 9,827
Other real estate owned 772 322
Net deferred tax assets 12,881 8,708
Goodwill 44,097 -
Other assets 14,655 2,796
---------- ----------
Total assets $2,638,642 $1,595,844
========== ==========
Liabilities and Stockholders' Equity
Demand deposits $ 201,634 $ 121,646
Savings, N.O.W. & Money market accounts 749,160 503,814
Certificates of deposit 612,097 325,348
---------- ----------
Total deposits 1,562,891 950,808
Borrowings 656,832 306,000
Accrued expenses & other liabilities 25,666 10,441
---------- ----------
Total liabilities 2,245,389 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 March 31, 1999 and
June 30, 1998, respectively 327 264
Additional paid-in-capital 330,767 254,307
Retained earnings-substantially restricted 115,704 103,760
Unallocated common stock held by
Employee Stock Ownership Plan ("ESOP") (32,410) (33,706)
Unearned compensation MRP Stock (17,701) -
Comprehensive income:
Unrealized (loss) gain on securities available for sale, net of tax (3,434) 3,970
---------- ----------
Total stockholders' equity 393,253 328,595
---------- ----------
Total liabilities and stockholders' equity $2,638,642 $1,595,844
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ------------------------------
(Unaudited) (Unaudited)
1999 1998 1999 1998
--------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 17,638 $ 11,142 $47,399 $ 32,249
Debt and equity securities 4,246 3,050 12,781 9,942
Mortgage-backed and mortgage-related securities 8,844 6,487 26,923 14,827
Federal funds sold and interest-earning bank
balances 260 3,296 689 3,622
--------- -------- ------- ----------
Total interest income 30,988 23,975 87,792 60,640
--------- -------- ------- ----------
Interest expense:
Deposits 7,769 8,788 23,641 23,948
Borrowed funds 6,654 1,385 17,012 2,175
--------- -------- ------- ----------
Total interest expense 14,423 10,173 40,653 26,123
--------- -------- ------- ----------
Net interest income 16,565 13,802 47,139 34,517
Provision for loan losses 600 600 1,950 1,500
--------- -------- ------- ----------
Net interest income after provision for loan
losses 15,965 13,202 45,189 33,017
--------- -------- ------- ----------
Non-interest income:
Fee income 1,332 956 3,355 2,600
Net gain (loss) on sale of securities and loans 81 (53) 2,604 20
Other 100 34 110 37
--------- -------- ------- ----------
Total non-interest income 1,513 937 6,069 2,657
--------- -------- ------- ----------
Non-interest expense:
Salaries and employee benefits 5,197 3,509 14,168 8,841
Occupancy costs 985 867 2,616 2,320
Computer service fees 959 672 2,599 2,054
Advertising 354 237 1,195 829
FDIC insurance premiums 54 38 131 115
Contribution to Richmond County Savings Foundation - 19,558 - 19,558
Other 1,063 1,557 3,178 3,071
--------- -------- ------- ----------
Total general and administrative 8,612 26,438 23,887 36,788
Amortization of goodwill and other intangibles 195 78 352 235
--------- -------- ------- ----------
Total non-interest expense 8,807 26,516 24,239 37,023
--------- -------- ------- ----------
Income (loss) before income taxes 8,671 (12,377) 27,019 (1,349)
Provision (benefit) for income taxes 3,291 (5,766) 10,265 (402)
--------- -------- ------- ----------
Net income (loss) $ 5,380 $ (6,611) $16,754 $ (947)
========= ======== ======= ==========
Earnings (loss) per share:
(since Conversion for fiscal 1998)
Basic $ 0.24 $ (0.39) $ 0.72 $ (0.39)
Diluted $ 0.24 $ (0.39) $ 0.72 $ (0.39)
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
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RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Retained Accumulated
Additional Earnings- Other Unallocated Unallocated Treasury
Common Paid-in- Substantially Comprehensive Common Stock MRP Stock,
Stock Capital Restricted Income Held By ESOP Shares At Cost Total
------ ---------- ------------- ------------- ------------ ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance At June 30, 1998 $ 264 $254,307 $103,760 $ 3,970 $ (33,706) $ - $ - $328,595
Comprehensive income:
Net income - - 16,754 - - - - 16,754
Other comprehensive income,
net of tax - - - - - - - -
Net unrealized loss on
certain securities, net
of tax - - - (7,404) - - - (7,404)
--------
Comprehensive income 9,350
--------
Purchase of MRP shares - - - - - (16,118) - (16,118)
Allocation from shares
purchased with loan to ESOP - (67) - - 1,296 - - 1,229
Amortization of MRP shares - - - - - 1,237 - 1,237
Common stock repurchased
(3,474,106 shares) - - - - - - (56,647) (56,647)
Issuance of common stock
for Ironbound Bankcorp 14 25,851 - - - - - 25,865
Issuance of common stock
for Bayonne Bancshares 49 50,676 - - - (2,820) 56,647 104,552
Cash dividends paid on
common stock - - (4,810) - - - - (4,810)
------ -------- ----------- ---------- ---------- -------- -------- --------
Balance At March 31, 1999 $ 327 $330,767 $115,704 $(3,434) $(32,410) $(17,701) $ - $393,253
------ -------- ----------- ---------- ---------- -------- -------- --------
Balance At June 30, 1997 $ - $ - $100,555 $ 310 $ - $ - $ - $100,865
Comprehensive income:
Net loss - - (947) - - - - (947)
Net unrealized gain on
certain securities, net
of tax - - - 2,416 - - - 2,416
--------
Comprehensive income 1,469
--------
Issuance of 24,466,250
shares of $.01 par value
common stock 245 - - - - - - 245
Issuance of 1,957,300
shares of $.01 par value
common stock to the RC
Savings Foundation 19 - - - - - - 19
Issuance of 24,466,250
shares of common stock
in initial public
offering at $10.00 per
share, net of conversion
related expenses - 234,644 - - - - - 234,644
Issuance of 1,957,300
shares of common stock
at $10.00 per share to
the RC Savings Foundation - 19,553 - - - - - 19,553
Open market purchase of
the Company's common stock
by ESOP trustee - - - - (34,571) - - (34,571)
Allocation from shares
purchased with loan to
ESOP - 25 - - 433 - - 458
------ -------- ----------- ---------- ---------- -------- -------- --------
Balance At March 31, 1998 $ 264 $254,222 $ 99,608 $ 2,726 $(34,138) $ - $ - $322,682
------ -------- ----------- ---------- ---------- -------- -------- --------
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
5
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
For the
Nine Months Ended
March 31,
--------------------------------
(Unaudited)
1999 1998
------------- -------------
<S> <C> <C>
Net cash provided by operating activities $ 15,288 $ 12,687
Cash flows from investing activities:
Increase in loans receivable, net (357,457) (44,230)
Loans purchased (1,500) (21,907)
Loans sold 15,300 -
Investment securities held to maturity:
Maturities and redemptions - 61,193
Investment securities available for sale:
Sales and redemptions 72,771 53,995
Purchases (67,816) (132,701)
Mortgage-backed and mortgage-related securities held to maturity:
Maturities - 43,556
Principal collected - 31,987
Mortgage-backed and mortgage-related securities available for sale:
Calls and redemptions 34,726 90,976
Principal collected 199,663 30,524
Purchases (202,888) (535,598)
Purchases of Federal Home Loan Bank of New York stock (11,990) (10,000)
Net addition to banking premises and equipment (3,559) (1,123)
Proceed from sales of other real estate owned 134 571
Cash and cash equivalents acquired in Ironbound Bankcorp acquisition, net 40,434 -
Cash and cash equivalents acquired in Bayonne Bancshares acquisition, net 124,413 -
--------- ---------
Net cash used in investing activities (157,769) (432,757)
Cash flows from financing activities:
Net increase in deposits 84,117 45,383
Increase in borrowings from the Federal Home Loan Bank 219,000 200,000
Net proceeds of common stock issuance - 234,908
Loan to ESOP for open market purchases of common stock - (34,571)
Cash dividends paid on common stock (4,810) -
Purchase of MRP - 1998 shares (16,118) -
Purchase of treasury shares (56,647) -
--------- ---------
Net cash provided by financing activities 225,542 445,720
--------- ---------
Net increase in cash and cash equivalents 83,061 25,650
Cash and cash equivalents at beginning of period 57,884 32,543
--------- ---------
Cash and cash equivalents at end of period $ 140,945 $ 58,193
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest on deposits and borrowed funds $ 39,058 $ 25,044
Income taxes 8,125 4,294
Non-cash investing activities:
Additions to other real estate owned, net $ 90 $ 611
Securitization of mortgage loans 78,495 -
Net (decrease) increase in unrealized gains on available for sale securities (12,824) 4,058
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
6
<PAGE>
RICHMOND COUNTY FINANCIAL CORP. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements include the
accounts of Richmond County Financial Corp. (the "Company"), its direct wholly-
owned subsidiary, Richmond County Savings Bank (the "Bank"), and the
subsidiaries of the Bank.
The unaudited consolidated financial statements included herein reflect all
normal recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of the results for the interim periods presented. The
results of operations for the three and nine months ended March 31, 1999 are not
necessarily indicative of the results of operations that may be expected for the
entire fiscal year. Certain information and note disclosures normally included
in the financial statements, prepared in accordance with generally accepted
accounting principles, have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. The unaudited
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
1998 Annual Report on Form 10-K.
2. Earnings Per Share
------------------
Basic earnings per common share is calculated by dividing net income by the
weighted average number of shares of common stock outstanding. Diluted earnings
per common share is calculated using the same method as basic earnings per
common share, but reflects the potential dilution of common stock equivalents.
In accordance with the provisions of the American Institute of Certified Public
Accountants ("AICPA") Statement of Position 93-6, "Employers Accounting for
Employee Stock Option Plans", ESOP shares that have not been allocated to
participants' accounts or are not committed to be released for allocation, are
not considered outstanding for the earnings per share calculations. Basic and
diluted weighted average common shares outstanding were 22,515,575 and
22,357,633 shares, respectively, for the third quarter of fiscal 1999. For the
nine months ended March 31, 1999, basic and diluted weighted average common
shares outstanding were 23,431,027 and 23,238,784 shares, respectively.
3. 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.
7
<PAGE>
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 the third quarter ended March 31,1998. The
contribution to the Foundation will be fully tax deductible, subject to an
annual limitation based upon the Company's annual taxable income.
4. Employee Stock Ownership Plan
-----------------------------
In connection with the Conversion, the Bank implemented the ESOP, a tax-
qualified plan designed to invest primarily in the Company's common stock. The
ESOP will provide eligible employees with the opportunity to receive a Bank-
funded retirement benefit based primarily on the value of the Company's 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 will be 20
years and will be primarily repaid with contributions from the Bank to the ESOP.
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
estimated number of shares to be allocated by the ESOP multiplied by the average
fair value of the underlying shares during the period. For the three and nine
months ended March 31, 1999, compensation expense attributable to the ESOP was
$414,000 and $1.2 million, respectively.
5. Stock-Based Incentive Plans
---------------------------
At the annual meeting of the shareholders held on September 29, 1998, the
shareholders approved the 1998 Stock-Based Incentive Plan ("Incentive Plan")
authorizing the granting of options to purchase common stock of the Company
("Options") and awards of shares of common stock ("Stock Awards") and certain
related rights (collectively referred to as "Awards"). Subject to certain
adjustments to prevent dilution of Awards to participants, the maximum number of
shares reserved for Awards under the Incentive Plan is 3,699,297 shares,
consisting of 2,642,355 shares reserved for Options, which will primarily vest
over a five year period and which must be exercised no more than 10 years from
the date of grant and 1,056,942 shares reserved for Stock Awards, which will
primarily vest over a five year period. All employees and outside Directors of
the Company and its affiliates, including the Bank, are eligible to receive
Awards under the Incentive Plan. The Incentive Plan is administered by a
committee (the "Committee") consisting of members of the Company who are not
employees of the Company or its affiliates.
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 1,053,554 shares were awarded to
outside directors and employees of the
8
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Company, at the fair value of $14.25 per share on the date of grant. For the
nine month period ended March 31, 1999, compensation expense attributable to the
Incentive Plan was approximately $1.2 million.
Options granted under the Incentive 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. On October 20, 1998, the Committee issued
options of 2,602,385 shares, at the fair value of $14.25 per share on the date
of grant. The granting of these options did not affect the Company's
consolidated results of operations for the nine months ended March 31, 1999 or
the Company's consolidated statement of financial condition at March 31, 1999.
6. Comprehensive Income
--------------------
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
("SFAS No. 130"). SFAS No. 130 establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains, and
losses) in a full set of general-purpose financial statements. SFAS No. 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from net worth
and additional paid-in capital in the equity section of a statement of financial
condition. The Company adopted SFAS No. 130 in the first quarter of fiscal 1999.
All comparative financial statements provided for earlier periods have been
restated to reflect application of the provisions. As the requirements of SFAS
No. 130 are solely disclosure related, its implementation had no affect on the
Company's consolidated financial condition or results of operations.
7. Acquisitions
------------
Acquisition of 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 the right to purchase 717,755 shares of Richmond
County 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.
Acquisition of 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
9
<PAGE>
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 excess of
cost over the fair value of net assets acquired in the transaction ("goodwill")
was $15.3 million which is being amortized on a straight line basis over 15
years.
8. Recent Developments
-------------------
On April 22, 1999, the Company announced that its Board of Directors declared a
quarterly cash dividend of nine cents ($0.09) per common share. The dividend is
payable on May 25, 1999 to shareholders of record as of May 10, 1999.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Richmond County Financial Corp. is a savings and loan holding company regulated
by the Office of Thrift Supervision. The primary operating subsidiary of
Richmond County Financial Corp. is Richmond County Savings Bank (the "Bank"), a
New York State chartered stock savings bank. While the following discussion of
financial condition and results of operations includes the collective results of
Richmond County Financial Corp. and the Bank (collectively the "Company"), this
discussion reflects principally the Bank's activities as the Company currently
does not engage in any significant business activities other than the management
of the Bank and the investment of net proceeds from the Bank's mutual to stock
conversion, which occurred on February 18, 1998 (the "Conversion").
Acquisition of 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. 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 the right to purchase 717,755 shares of Richmond County
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.
Acquisition of 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 of which 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 in the transaction was $15.3 million,
which is being amortized on a straight line basis over 15 years.
Financial Condition
Total assets increased by $1.0 billion, or 65.3%, from $1.6 billion at June 30,
1998 to $2.6 billion at March 31, 1999. The increase in overall assets was
primarily due to the completion of the Bayonne and Ironbound acquisitions with
and into the Bank. 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 $264.0 million, or 40.1%.
The increase in loan growth, exclusive of funding sources
11
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received from the two closed acquisitions, were primarily funded by an increase
of $219.0 million in advances received from the Federal Home Loan Bank ("FHLB")
and a net increase in overall deposits of $84.1 million.
Mortgage-backed and mortgage-related securities increased by $200.0 million, or
33.1%, from $604.3 million at June 30, 1998 to $804.3 million at March 31, 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
$78.5 million loan securitization. During the third quarter of fiscal 1999, the
Bank securitized approximately $78.5 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 March 31, 1999 totaled $303.4 million, an increase of
$64.5 million, or 27.0%, 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.
The Bank continues to experience increased loan growth, and for the nine months
ended March 31, 1999, exclusive of the two recently completed acquisitions,
gross loans receivable increased by $344.2 million, or 52.8% on an non-
annualized basis, to $917.5 million, compared to $651.7 million at June 30,
1998. The substantial increase in gross loans was due primarily to originations
of $430.3 million generated during the nine months ended March 31, 1999, offset
by the securitization of $78.5 million of one- to four- family fixed rate
mortgage loans, amortization and prepayments of $73.5 million and the sale of
$12.3 million of student loans. Loan originations for the nine month period
ended March 31, 1999 were primarily comprised of multifamily and one- to four-
family mortgage loans. Multifamily mortgage loan originations for the nine
months ended March 31, 1999 totaled $184.1 million, bringing the total
multifamily loan portfolio to $238.7 million, or 19.1% of gross loans at March
31, 1999. Total one- to four- family loan production for the nine months ended
March 31, 1999 was $200.3 million.
Total liabilities at March 31, 1999 were $2.2 billion, an increase of $978.1
million, or 77.2%, from $1.3 billion at June 30, 1998. Total deposits increased
by $612.1 million, or 64.4%, from $950.8 million at June 30, 1998 to $1.6
billion at March 31, 1999. The Bank's "core" deposits increased by $325.3
million, or 52.0%, at March 31, 1999 to $950.8 million, from $625.5 million at
June 30, 1998. The increase in the Bank's "core" deposits was primarily
attributable to a $245.3 million increase in savings, N.O.W. & Money market
accounts and an $80.0 million increase in demand deposits. The Bank also
experienced an increase of $286.7 million, or 88.1%, in certificates of deposit
from $325.3 million at June 30, 1998 to $612.1 million at March 31, 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 March 31, 1999, the Bank had total borrowings of $656.8 million, of which
$640 million were in the form of advances from the FHLB and $16.8 million were
in the form of reverse repurchase agreements. The Bank had borrowings of $306.0
million at June 30,
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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 $64.7 million to $393.3 million at March
31, 1999 from $328.6 million at June 30, 1998. The overall increase was
primarily due to the stock purchase acquisitions of Bayonne and Ironbound,
whereas 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 nine months ended March 31, 1999 of $16.8 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 $17.7 million as
a result of the issuance of grants under the recently adopted Management
Recognition and Retention Plans ("MRP"), year to date cash dividends paid of
$4.8 million and a $7.4 million decrease in net unrealized gain on securities
available-for-sale, net of tax.
Non-performing Assets
Non-performing loans totaled $6.7 million, or 0.6% of total loans at March 31,
1999, as compared to $5.5 million, or 0.9% of total loans, at June 30, 1998. At
March 31, 1999, the Bank's real estate owned net, consisted of foreclosed assets
totaling $772,000, which at such date was comprised of seven one- to four-
family properties and one vacant commercial lot.
At March 31, 1999, the Bank had $2.0 million of assets designated as
"Substandard", consisting of 14 loans, no assets classified as "Doubtful", and
no assets classified as "Loss", respectively. At March 31, 1999, the Bank had
$4.6 million of assets designated "Special Mention", consisting of 49 loans,
which were designated "Special Mention" due to past loan delinquencies.
Non-accrual loans totaled $6.7 million as of March 31, 1999, which primarily
included 48 one- to four-family loans, with an aggregate balance of $4.7
million, 4 non-residential loans totaling $1.4 million of which one loan is a
$1.1 million commercial mortgage on a mixed-use property in Staten Island, New
York and 26 other loans totaling $600,000. The commercial mortgage loan is
secured by the property and was last appraised in December 1996 for $1.4
million.
For the nine months ended March 31, 1999, the Company's loan loss provision was
$2.0 million as compared to $1.5 million for the prior year's period. The
Company's allowance for loan losses totaled $13.4 million at March 31, 1999 and
$7.3 million at June 30, 1998, which represents a ratio of allowance for loan
losses to non-performing loans and to total loans of 199.0% and 1.1%,
respectively, and 134.6% 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 March 31, 1999 is adequate and sufficient reserves are presently
maintained to cover potential losses. For the quarter and nine months ended
March 31, 1999, the Company experienced net charge-offs of $30,000 and $140,000,
respectively.
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Comparison of Operating Results for the Three Months Ended March 31, 1999 and
1998
General.
The Company reported net income of $5.4 million, or diluted earnings per share
of $0.24 for the third quarter ended March 31, 1999, an increase of $12.0
million from the $(6.6) million net loss reported for the same period last year,
a period in which the Bank converted to a stock institution. Core earnings for
the quarter ended March 31, 1999 increased 17.4% to a record $5.4 million, or
core diluted earnings per share of $0.24, compared to $4.6 million reported in
the third quarter of fiscal 1998.
Core earnings excludes the impact of a non-recurring contribution relating to
the funding of the Foundation for the three months ended March 31, 1998 of $19.6
million ($11.2 million after tax) and net gains on sales of securities and loans
of $81,000 for the quarter ended March 31, 1999. Net loss per share since the
conversion to a public company on February 18, 1998 (the "Conversion") to March
31, 1998 was $0.39.
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 the Bank.
Interest Income. The Company reported total interest income of $31.0 million for
the quarter ended March 31, 1999, representing an increase of $7.0 million, or
29.2%, as compared to the same period in 1998. The increase in interest income
was primarily attributable to the growth in average interest-earning assets of
$426.5 million, offset in part, by a 2 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 on loans increased $6.5 million, or 58.3%, to $17.6 million for
the three month period ended March 31, 1999, as compared to the $11.1 million
reported for the comparable period in 1998. This increase was the result of
growth in the average balance of real estate loans outstanding primarily due to
increased originations of multifamily, one- to four- family real estate loans
and commercial real estate loans. The average yield on the overall loan
portfolio decreased 55 basis points from 8.15% for the three months ended March
31, 1998, to 7.60% for the same period in 1999.
Interest income on debt and equity securities increased $1.2 million, or 39.2%,
from $3.1 million for the three months ended March 31, 1998, to $4.2 million for
the same period in 1999.
Interest income on mortgage-backed and mortgage-related securities increased
$2.4 million, or 36.3%, from $6.5 million for the three month period ended March
31, 1998, to $8.8 million for the three month period ended March 31, 1999. This
increase was primarily due to an increase in the average balance of mortgage-
backed and mortgage-related securities of $200.7 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
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revision to its securities investment strategy, whereby it has decreased its
emphasis on debt securities by investing funds from the maturity and sale of
debt securities into mortgage-backed and mortgage-related securities. The yield
on the mortgage-backed and mortgage-related securities decreased by 46 basis
points, due primarily to the lower rate environment for new purchases and the
repricing of adjustable rate securities purchased in prior periods.
Interest Expense. Interest expense increased $4.3 million, or 41.8%, from $10.2
million for the three month period ended March 31, 1998, to $14.4 million for
the three month period ended March 31, 1999. Interest expense on deposits
decreased $1.0 million, or 11.6%, from $8.8 million for the three month period
ended March 31, 1998, to $7.8 million for the three month period ended March 31,
1999. The decrease is a result of a 24 basis point reduction in the average cost
of deposits, offset in part by a $43.0 million increase in the average balance
of interest-bearing deposits, primarily attributable to a $51.4 million increase
in the average balance of certificates of deposit and a $12.9 million decrease
in the average balance of savings deposit accounts. The increase in overall
deposits can mainly be attributable to the Bank's strategy of attracting more
certificates of deposit through additional certificate of deposit products, the
related marketing of commercial deposit accounts and the opening of two full-
service banking facilities in Staten Island during the third quarter of fiscal
1999.
Interest expense on borrowed funds was $6.7 million and $1.4 million for the
quarter ended March 31, 1999 and 1998, respectively. 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.
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. Consequently, the average cost of the Bank's interest-bearing
liabilities increased from 3.91% for the three month period ended March 31,
1998, to 4.11% for the three month period ended March 31, 1999.
Provision for Loan Losses. The Bank's provision for loan losses was $600,000 for
the three month periods ended March 31, 1999 and 1998. The third quarter fiscal
1999 provision was based on management's evaluation of its loan portfolio and
real estate market conditions. In particular, management considered the
continued growth in the portfolio, as well as the overall level of non-
performing loans. Management believes, based upon information currently
available, that its allowance for loan losses is adequate to cover potential
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, non-interest income for the three month period ended March
31, 1999, increased $442,000, or 44.6%, to $1.4 million from $990,000 for the
same period in 1998. The increased level of non-interest income is primarily due
to an overall increase in deposit fee income. In particular, during the second
quarter of fiscal 1999, the Bank instituted a charge to non-Bank customers (i.e.
foreign customers), for the use of the Bank's ATM facilities.
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<PAGE>
Non-Interest Expense. Non-interest expense, excluding the charitable
contribution recognized in fiscal 1998, for the third quarter of fiscal 1999
increased $1.7 million, or 25.2%, as compared to $6.9 million reported for the
same period of fiscal 1998. The increase in non-interest expense was primarily
due to increases in compensation and employee benefits, including senior
management additions, compensation costs associated with the establishment of
the Bank's new Multifamily Lending Department and 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 during
the third quarter of fiscal 1999 and the expected opening of a full-service
branch in Union, New Jersey.
Income taxes. The Company's effective consolidated tax rate for the three month
period ended March 31, 1999 was 37.9% as compared to (46.6)% reported for the
comparable period last year. The three month period ended March 31, 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. The contribution to the Foundation is tax
deductible, subject to an annual limitation based on 10% of the Company's annual
taxable income. The Company, however, will be able to carry forward any unused
portion of the deduction for five years following the contribution. The Company
recognized a $19.6 million expense for the full amount of the contribution to
the Foundation, offset in part by the $8.4 million corresponding tax benefit,
during the three month period ended March 31, 1998
Comparison of Operating Results for the Nine Months Ended March 31, 1999 and
1998
General
The Company reported net income of $16.8 million, or diluted earnings per share
of $0.72 for the nine month period ended March 31, 1999, an increase of $17.7
million as compared to the $(947,000) loss reported for the same period last
year. Core earnings for the nine months ended March 31, 1999 increased 47.3% to
$15.1 million, or core diluted earnings per share of $0.65, as compared to $10.3
million reported for the comparable nine month period in the prior year. Core
earnings excludes the impact of a non-recurring contribution relating to the
funding of Foundation for the nine months ended March 31, 1998 of $19.6 million
($11.2 million after tax) and net gains on sales of securities and loans of
$2.6 million for the nine month periods ended March 31, 1999, respectively. Net
loss per share since the Conversion to a public company on February 18, 1998 to
March 31, 1998 was $0.39.
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 the Bank.
Interest Income. The Company reported total interest income of $87.8 million for
the nine months ended March 31, 1999, representing an increase of $27.2 million,
or 44.8%, as compared to the same period in 1998. The increase in interest
income was primarily attributable to the growth in average interest-earning
assets of $560.0 million, offset in part by a 28 basis point decrease in the
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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 on loans increased $15.2 million, or 47.0%, to $47.4 million for
the nine months ended March 31, 1999, as compared to the $32.2 million reported
for the comparable period in 1998. This increase was the result of growth in the
average balance of real estate loans outstanding, primarily due to increased
originations of multifamily loans, one- to four- family and commercial real
estate loans. The average yield on the overall loan portfolio decreased to 7.58%
from 8.07% for the nine months ended March 31, 1999 and 1998, respectively.
Interest income on debt and equity securities increased $2.8 million, or 28.6%,
from $9.9 million for the nine months ended March 31, 1998 to $12.8 million for
the same period in 1999.
Interest income on mortgage-backed and mortgage-related securities increased
$12.1 million, or 81.6%, from $14.8 million for the nine month period ended
March 31, 1998, to $26.9 million for the nine month period ended March 31, 1999.
This increase was primarily due to an increase in the average balance of
mortgage-backed and mortgage-related securities of $284.0 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 to its securities investment
strategy, whereby it has decreased its emphasis on debt securities by investing
funds from the maturity and sale of debt securities into mortgage-backed and
mortgage-related securities. The yield on the mortgage-backed and mortgage-
related securities decreased by 56 basis points due to the lower rate
environment for new purchases and the repricing of adjustable rate securities
purchased in prior periods.
Interest Expense. Interest expense increased $14.5 million, or 55.6%, from $26.1
million for the nine month period ended March 31, 1998, to $40.7 million for the
nine month period ended March 31, 1999. Interest expense on deposits decreased
$307,000, or 1.3%, from $23.9 million for the nine month period ended March 31,
1998, to $23.6 million for the nine month period ended March 31, 1999. The
decrease is a result of an 11 basis point reduction in the average cost of
deposits, offset in part by a $44.5 million increase in the average balance of
interest-bearing deposits, primarily attributable to a $36.0 million increase in
the average balance of certificates of deposits. The increase in overall
deposits can mainly be attributable to the Bank's strategy of attracting more
certificates of deposit through additional certificate of deposit products, the
related marketing of commercial deposit accounts and the opening of two full-
service banking facilities in Staten Island during the third quarter of fiscal
1999 and the expected opening of a full-service branch in Union, New Jersey.
Interest expense on borrowed funds was $17.0 million and $2.2 million for the
nine month period ended March 31, 1999 and 1998, respectively. 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. The Bank may increase its utilization 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. Consequently, the average
cost of the Bank's interest-bearing liabilities increased from 3.86% for the
nine month period ended March 31, 1998 to 4.20% for the nine month period ended
March 31, 1999.
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<PAGE>
Provision for Loan Losses. The Bank's provision for loan losses was $2.0
million for the nine month period ended March 31, 1999, as compared to $1.5
million for the nine month period ended March 31, 1998. The provision for the
nine month period ended March 31, 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, as well as the overall level
of 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, non-interest income for the nine month period ended March
31, 1999, increased $828,000, or 31.4%, to $3.5 million from $2.6 million for
the same period in 1998. The increased level of non-interest income is primarily
due to an overall increase in deposit fee income. In particular, during the
second quarter of fiscal 1999, the Bank instituted a charge to non-Bank
customers (i.e. foreign customers), for the use of the Bank's ATM facilities.
Net gains reported for the nine month period ended March 31, 1999 were primarily
due to net gains of $2.2 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, excluding the charitable
contribution recognized in fiscal 1998, for the nine months ended March 31, 1999
increased $6.8 million, or 38.9%, as compared to $17.5 million reported for the
same period of fiscal 1998. The increase in non-interest expense was primarily
due to increases in compensation and employee benefits, including senior
management additions, compensation costs associated with the establishment of
the Bank's new Multifamily Lending Department and 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 during
the third quarter of fiscal 1999.
Income Taxes. The Company's effective consolidated tax rate for the nine month
period ended March 31, 1999 was 37.99% as compared to (29.8)% reported for the
comparable period last year. The nine month period ended March 31, 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
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
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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.
During the three and nine month periods ended March 31, 1999 and 1998, the
Bank's loan originations totaled $142.5 million, $428.8 million, $42.0 million
and $113.3 million, respectively. Purchases of mortgage-backed, mortgage-related
and investment securities totaled $156.7 million, $282.7 million, $511.0
million, and $678.3 million for the three and nine month periods ended March 31,
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, and advances from the
FHLB and the net proceeds received from the Conversion. As of March 31, 1999,
the Bank experienced a net increase in total deposits of $612.1 million, or
64.4%, as compared to the $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 March 31, 1999, the Bank had total borrowings of $656.8 million, of
which $640.0 million were in the form of advances from the FHLB and
approximately $16.8 million were in the form of reverse repurchase agreements.
The Bank may continue to increase such emphasis, which may result in an increase
in the Bank's average cost of funds.
Loan commitments totaled $145.5 million at March 31, 1999, were comprised of
$45.0 million in one- to four- family loan commitments, $21.1 million in
multifamily loan commitments, $12.1 million in commercial real estate loan
commitments, $36.0 million in construction loan commitments, $2.9 million in
commercial loan commitments, $16.8 million in home equity loan commitments and
$11.6 million in other loan commitments. In addition, management estimates that
an increased level of loan commitments will arise as a result of the most recent
formation of 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 March 31, 1999,
totaled $470.9 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 March 31, 1999, the Bank exceeded all of its regulatory capital requirements
with a leverage capital level of $289.7 million, or 21.7% of adjusted assets,
which is above the required level of $105.3 million, or 4.0% of adjusted assets
and risk-based capital of $303.1 million, or 22.7% of adjusted assets, which is
above the required level of $107.0 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 March
31, 1999, cash and due from banks and federal funds sold totaled $140.9 million,
or 5.3% of total assets.
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Year 2000 Compliance
The "Year 2000" Problem, as it is generally referred to, concerns the inability
of certain computer hardware and software systems and associated applications to
correctly recognize and process dates beyond December 31, 1999. Many computer
programs were developed using only six digits to define the date field in their
programs. Computer programs used by the Company, its suppliers or outside
service providers that have date-sensitive software may recognize "00" as the
year 1900, rather than the year 2000. Due to the nature of financial
information, calculations that rely on the integrity of the date field for the
correct processing of information could be significantly misstated, if
corrective action is not timely taken.
State of Readiness
The Company has implemented a detailed Year 2000 Plan, according to the
guidelines of the 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 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 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 is participating in testing all products and
services from these vendors. The initial two phases of testing have been
completed. A third and final testing cycle will be completed by the end of the
fourth quarter of fiscal 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
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<PAGE>
has provided the Company with a Year 2000 compliant version of its system. The
Company has been participating with the service provider, in the testing of both
direct and indirect services which commenced in November 1998, and will continue
through 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 June 30, 1999. The cost to remediate these systems is immaterial,
and is being expensed in the period in which it occurs. The majority of the
related expense is expected to be incurred in the Company's fiscal year ended
June 30, 1999 operating results.
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 1998 expense
relative to the Year 2000 issue was approximately $100,000 and anticipates that
in 1999 the 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
21
<PAGE>
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. The Company's internal contingency committee meets monthly to
monitor the plan and to monitor current testing of service providers. Any
changes to be made to the contingency plan will be finalized upon completion of
testing by the end of the fourth quarter of fiscal 1999. 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 are 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.
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
22
<PAGE>
the extent to which the legislation would impact competition or restrict or
disrupt its operations.
ITEM 3. QUANTITATIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosure about market risk is presented at June
30, 1998 in Item 7a. to the Company's Annual Report on Form 10-K, filed with the
Securities and Exchange Commission on August 27, 1998. There have been no
material changes in the Company's market risk at March 31, 1999 as compared to
June 30, 1998. The following is an update of the discussion provided therein:
General. The Company's largest component of market risk continues to be
interest rate risk. Substantially all of this risk continues to reside at the
Bank level. The Bank still is not subject to foreign currency exchange or
commodity price risk. At March 31, 1999, neither the Company nor the Bank owned
any trading assets, nor did they participate in hedging programs, interest rate
swaps or other activities involving the use of off-balance sheet derivative
financial instruments.
Gap Analysis. At March 31, 1999, the Company's estimated one-year "gap"
position, the difference between the amount of interest-earning assets maturing
or repricing within one year and interest-bearing liabilities maturing or
repricing within one year, was a positive $140.0 million, representing a one-
year interest sensitivity gap as a percentage of total assets of 5.3%.
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.
Interest Rate Risk Compliance. The Company continues to monitor the impact of
interest rate volatility upon net interest income and net portfolio value in the
same manner as at June 30, 1998. There have been no changes in the Board of
Directors approved limits of acceptable variance in net interest income and net
portfolio value at March 31, 1999, compared to June 30, 1998, and the projected
changes continue to fall within the Board of Directors approved limits at all
levels of potential interest rate volatility.
23
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
The Company is not involved in any pending legal proceedings other
than routine legal proceedings occurring in the ordinary course of
business. Such routine legal proceedings, in the aggregate, are
believed by management to be immaterial to the Company's financial
condition or results of operation.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- ---------------------------------------------------
Not applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- -----------------------------------------
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -------------------------------------------------------------
On February 25, 1999, the Company held a special meeting of
stockholders to approve and adopt the Agreement and Plan of Merger,
dated as of July 19, 1998, by and between Richmond County Financial
Corp. and Bayonne Bancshares, Inc., as amended and restated as of
October 14, 1998, pursuant to which, among other things, Bayonne
Bancshares, Inc. merged with and into Richmond County Financial Corp.
effective March 22, 1999. The number of votes cast at the meeting was:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTE
----------- ------------- ------------- --------------
<S> <C> <C> <C>
15,983,626 243,978 58,948 4,791,392
</TABLE>
On February 25, 1999, the Company held a special meeting of
stockholders to ratify certain amendments to the Richmond County
Financial Corp. 1998 Stock-Based Incentive Plan. The number of votes
cast at the meeting was:
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
----------- ------------- -------------
<S> <C> <C>
19,941,114 956,065 170,979
</TABLE>
ITEM 5. OTHER INFORMATION
- ---------------------------
Not applicable
ITEM 6. 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).*
3.1 Certificate of Incorporation of Richmond County Financial Corp.*
3.2 Bylaws of Richmond County Financial Corp.*
10.5 Employment Agreement between Richmond County Savings Bank and Michael
J. Gagliardi.
10.6 Employment Agreement between Richmond County Savings Bank and Thomas
R. Lupo.
24
<PAGE>
10.7 Employment Agreement between Richmond County Savings Bank and Michael
A. Nilan.
10.13 Form of Proposed Amended and Restated Richmond County Financial Corp.
1998 Stock Based Incentive Plan.**
11.0 Statements re: Computation of Per Share Earnings.
27.0 Financial Data Schedule.
(b) Report on Form 8-K
------------------
On March 23, 1999, Richmond County filed a Report on Form 8-K to
announce the consummation of 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.
On March 8, 1999, Richmond County filed a Report on Form 8-K to
announce the consummation of 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.
* Incorporated by reference from the Form S-1 (Registration No. 333-37009),
as amended, filed on October 2, 1997.
** Incorporated by reference from document filed pursuant to Rule 424(b)(3)
(Registration No. 333-66749), filed with the SEC on February 1, 1999.
25
<PAGE>
Exhibit Index
-------------
Exhibit Number Identification of Exhibit
- -------------- -------------------------
10.5 Employment Agreement between Richmond County Savings Bank
and Michael J. Gagliardi.
10.6 Employment Agreement between Richmond County Savings Bank
and Thomas R. Lupo.
10.7 Employment Agreement between Richmond County Savings Bank
and Michael A. Nilan.
11.0 Statements re: Computation of Per Share Earnings.
27.0 Financial Data Schedule.
26
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RICHMOND COUNTY FINANCIAL CORP.
(Registrant)
Date: May 17, 1999 By: /s/ Michael F. Manzulli
-------------------------------
Michael F. Manzulli
Chairman of the Board and
Chief Executive Officer
Date: May 17, 1999 By: /s/ Thomas R. Cangemi
-------------------------------
Thomas R. Cangemi
Senior Vice President and
Chief Financial Officer
27
<PAGE>
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of March 5, 1999, by and
among Richmond County Savings Bank (the "Institution"), a New York 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 Michael J.
Gagliardi ("Executive").
WHEREAS, the Institution wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to serve in the employ of the Institution on
a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, Executive agrees to serve as
Executive Vice President of the Institution. Executive shall render
administrative and management services to the Institution such as are
customarily performed by persons situated in a similar capacity.
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 first anniversary date of this Agreement and continuing on each anniversary
date thereafter, the board of directors of the Institution (the "Board") may
extend the Agreement for an additional year such that the remaining term of the
Agreement shall be three (3) years, unless 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 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 the Board, from time to time, Executive may serve, or continue to
serve, on the boards of directors of, and hold any other offices or positions
in, companies or organizations, which, in the Board's judgment, will not present
any conflict of interest with the Institution, or 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 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
$160,000 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) Executive shall be eligible to participate in or receive benefits under
any employee benefit plan, including, but not limited to, any cash incentive or
bonus plan established for similarly situated employees, 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 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 Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other 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.
<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 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 Executive, failure to elect or reelect or to appoint
or reappoint Executive as Executive Vice President, (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 salary or benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, unless such reduction is due to any modification or amendment to
any benefit plan or program which is effective for all participants or is
consented to by Executive, (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 Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at 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 paragraph and
-------- -------
paragraph (c) of this Section 4 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
paragraph (b) would cause the Institution's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred until
such time as the Institution or successor thereto is in capital compliance. At
the election of Executive, which election is to be made prior to an Event of
Termination, such payments shall be made (a) in a lump sum as of 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
<PAGE>
during the remaining term of the Agreement. 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, 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 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 the 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. Section 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 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.
<PAGE>
(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, 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 on account of a 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 Base Salary 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. However, any payment under this
-------
provision and subsection 5(d) below shall not exceed three (3) times 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 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 Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments over a period of thirty-six
(36) months following Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution will cause to be continued life, medical, dental and long-term or
other disability coverage substantially identical to the coverage maintained by
the Institution for Executive prior to his severance at no premium cost to
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 of the Internal Revenue Code of 1986, as amended. The
<PAGE>
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 (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).
<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 Institution 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 Institution has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. 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 Institution and its
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant
to a formal regulatory request. In the event of a breach or threatened breach
by Executive of the provisions of this Section 9, the Institution will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Institution or its affiliates thereof, or from rendering any
services to any person, firm, corporation, other entity to
<PAGE>
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Institution
from pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
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.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
<PAGE>
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. Section 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.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regards to the
principles of conflicts 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 Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of any
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
<PAGE>
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.
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.
<PAGE>
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 5th day of March, 1999.
ATTEST: RICHMOND COUNTY SAVINGS BANK
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- -----------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- -----------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
WITNESS:
/s/ Thomas R. Lupo /s/ Michael J. Gagliardi
- ---------------------- -----------------------------------
Michael J. Gagliardi
Executive
<PAGE>
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of March 5, 1999, by and
among Richmond County Savings Bank (the "Institution"), a New York 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. Lupo
("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 of the Institution. Executive shall render administrative
and management services to the Institution such as are customarily performed by
persons situated in a similar capacity.
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 first anniversary date of this Agreement and continuing on each anniversary
date thereafter, the board of directors of the Institution (the "Board") may
extend the Agreement for an additional year such that the remaining term of the
Agreement shall be three (3) years, unless 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 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 the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Institution, or 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 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
$125,000 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) Executive shall be eligible to participate in or receive benefits under
any employee benefit plan, including, but not limited to, any cash incentive or
bonus plan established for similarly situated employees, 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 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 Executive under any such plan or arrangement will
be deemed to be in lieu of other compensation to which Executive is entitled
under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Institution shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive
<PAGE>
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 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 Executive, failure to elect or reelect or to appoint
or reappoint Executive as Senior Vice President, (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 salary or benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, unless such reduction is due to any modification or amendment to
any benefit plan or program which is effective for all participants or is
consented to by Executive, (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 Executive would have earned if he
had continued his employment with the Institution during the remaining term of
this Agreement at 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 paragraph and
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paragraph (c) of this Section 4 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
paragraph (b) would cause the Institution's capital to be reduced below its
minimum regulatory capital requirements, such payments shall be deferred until
such time as the Institution or successor thereto is in capital compliance. At
the election of Executive, which election is to be made prior to an Event of
Termination, such payments shall be made (a) in a lump sum as of
<PAGE>
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 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 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 the 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. Section 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 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
<PAGE>
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, 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 on account of a 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 Base Salary 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. However, any payment under this
-------
provision and subsection 5(d) below shall not exceed three (3) times 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 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 Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments over a period of thirty-six
(36) months following Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution will cause to be continued life, medical, dental and long-term or
other disability coverage substantially identical to the coverage maintained by
the Institution for Executive prior to his severance at no premium cost to
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
<PAGE>
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 of
the Internal Revenue Code of 1986, as amended. 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 (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.
<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 days from the date such Notice of Termination is given).
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for a
period of one (1) year following such termination in any city, town or county in
which Executive's normal business office is located and the Institution has an
office or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. Executive agrees
that during such period and within said cities, towns and counties, Executive
shall not work for or advise, consult or otherwise serve with, directly or
indirectly, any entity whose business materially competes with the depository,
lending or other business activities of the Institution. The parties hereto,
recognizing that irreparable injury will result to the Institution, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Institution, will be
entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. 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 Institution and its
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant
to a formal regulatory request.
<PAGE>
In the event of a breach or threatened breach by Executive of the provisions of
this Section 9, the Institution will be entitled to an injunction restraining
Executive from disclosing, in whole or in part, the knowledge of the past,
present, planned or considered business activities of the Institution or its
affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the Institution from pursuing any other remedies available to the
Institution for such breach or threatened breach, including the recovery of
damages from Executive.
11. SOURCE OF PAYMENTS.
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.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by
<PAGE>
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. Section 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.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regards to the
principles of conflicts 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.
<PAGE>
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 Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of 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.
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.
<PAGE>
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 5th day of March, 1999.
ATTEST: RICHMOND COUNTY SAVINGS BANK
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- -----------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- -----------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
WITNESS:
/s/ Michael J. Gagliardi /s/ Thomas R. Lupo
- ------------------------ -----------------------------------
Thomas R. Lupo
Executive
<PAGE>
RICHMOND COUNTY SAVINGS BANK
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of March 22, 1999, by and
among Richmond County Savings Bank (the "Institution"), a New York 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 Michael A.
Nilan ("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 of the Institution. Executive shall render administrative
and management services to the Institution such as are customarily performed by
persons situated in a similar capacity.
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 first anniversary date of this Agreement and continuing on each anniversary
date thereafter, the board of directors of the Institution (the "Board") may
extend the Agreement for an additional year such that the remaining term of the
Agreement shall be three (3) years, unless 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 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 the Board, from time to time, Executive may serve,
or continue to serve, on the boards of directors of, and hold any other offices
or positions in, companies or organizations, which, in the Board's judgment,
will not present any conflict of interest with the Institution, or 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 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
$150,000 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) In exchange for Executive's agreement not to compete with the
Institution set forth in Section 10(a) hereof, Executive shall, in addition to
other compensation provided in this Agreement, be entitled to additional
compensation equal to $200,000. Such additional compensation for the agreement
not to compete with the Institution shall be payable in a single lump sum upon
execution of this Agreement.
(c) Executive shall be eligible to participate in or receive benefits under
any employee benefit plan, including, but not limited to, any cash incentive or
bonus plan established for similarly situated employees, 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 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.
<PAGE>
Nothing paid to Executive under any such plan or arrangement will be deemed to
be in lieu of other compensation to which Executive is entitled under this
Agreement.
(d) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (c) 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 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 Executive, failure to elect or reelect or to appoint
or reappoint Executive as Senior Vice President, (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 salary or benefits and
perquisites to Executive from those being provided as of the effective date of
this Agreement, unless such reduction is due to any modification or amendment to
any benefit plan or program which is effective for all participants or is
consented to by 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: (i) the
amount of the remaining payments that Executive would have earned if he had
continued his employment with the Institution during the remaining term of this
Agreement at 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 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
<PAGE>
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 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 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 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 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.
Section 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 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
<PAGE>
in which the Institution or the 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 the 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 Institution or the 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, 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 Base Salary 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. However, any payment under this
-------
provision and subsection 5(d) below shall not exceed three (3) times 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 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 Executive's Date of Termination, (b) on a bi-
weekly basis in approximately equal installments over a period of thirty-six
(36) months following Executive's termination, or (c) on an annual basis in
approximately equal installments over a period of thirty-six (36) months
following Executive's termination. Such payments shall not be reduced in the
event Executive obtains other employment following termination of employment.
(d) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Institution will cause to be continued life, medical, dental and long-term or
other disability coverage substantially identical to the coverage maintained by
the Institution for Executive prior to his severance at no premium cost to
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.
<PAGE>
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 Section 280G
of the Internal Revenue Code of 1986, as amended. 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 (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 a Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of
<PAGE>
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).
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Institution. Executive shall, upon reasonable
notice, furnish such information and assistance to the Institution as may
reasonably be required by the Institution in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Institution for the
remaining term of this Agreement as of the date of such termination in any city,
town or county in which Executive's normal business office is located and the
Institution has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination,
except as agreed to pursuant to a resolution duly adopted by the Board.
Executive agrees that during such period and within said cities, towns and
counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Institution. The
parties hereto, recognizing that irreparable injury will result to the
Institution, its business and property in the event of Executive's breach of
this Subsection 10(a) agree that in the event of any such breach by Executive,
the Institution, will be entitled, in addition to any other remedies and damages
available, to an injunction to restrain the violation hereof by Executive,
Executive's partners, agents, servants, employees and all persons acting for or
under the direction of Executive. 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 Institution and its
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Institution. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Institution or
affiliates thereof to any person, firm, corporation, or other entity for any
reason or purpose whatsoever. Notwithstanding the foregoing, Executive may
<PAGE>
disclose any knowledge of banking, financial and/or economic principles,
concepts or ideas which are not solely and exclusively derived from the business
plans and activities of the Institution. Further, Executive may disclose
information regarding the business activities of the Institution to the
Superintendent of Banks of the State of New York, the New York Banking
Department, OTS and the Federal Deposit Insurance Corporation ("FDIC") pursuant
to a formal regulatory request. In the event of a breach or threatened breach
by Executive of the provisions of this Section 9, the Institution will be
entitled to an injunction restraining Executive from disclosing, in whole or in
part, the knowledge of the past, present, planned or considered business
activities of the Institution or its affiliates thereof, 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 Institution from
pursuing any other remedies available to the Institution for such breach or
threatened breach, including the recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
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.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Institution or any
predecessor of the Institution and Executive, except that this Agreement shall
not affect or operate to reduce any benefit or compensation inuring to Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Institution and their respective successors and assigns.
<PAGE>
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
Any payments made to Executive pursuant to this Agreement, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 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.
18. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Delaware without regards to the
principles of conflicts 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
<PAGE>
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 Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of 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.
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
include, but are not limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
22. SUCCESSOR TO THE INSTITUTION.
The Institution shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Institution's obligations under this Agreement, in the same manner and to the
same extent that the Institution would be required to perform if no such
succession or assignment had taken place.
<PAGE>
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 22/nd/ day of March, 1999.
ATTEST: RICHMOND COUNTY SAVINGS BANK
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- ----------------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
ATTEST: RICHMOND COUNTY FINANCIAL CORP.
(Guarantor)
/s/ Diane L. DeLillo By: /s/ Anthony E. Burke
- ----------------------- ----------------------------------------
Diane L. DeLillo Anthony E. Burke
Secretary For The Board of Directors
[SEAL]
WITNESS:
/s/ Michael A. Nilan
_______________________ ----------------------------------------
Michael A. Nilan
<PAGE>
EXHIBIT 11
RICHMOND COUNTY FINANCIAL CORP.
STATEMENTS RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------------------------------------------
1999 1998(1) 1999 1998(1)
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net income (loss) $ 5,380 $ (9,461) $ 16,754 $ (947)
----------- ----------- ------------ ------------
Weighted average common shares outstanding 22,515,575 24,310,518 23,431,027 24,310,295
Common stock equivalents due to dilutive effect
of stock options - - - -
----------- ----------- ------------ ------------
Total weighted average common shares and equivalents 22,515,575 24,310,518 23,431,027 24,310,295
----------- ----------- ------------ ------------
Basic earnings (loss) per common and common share equivalents $ 0.24 $ (0.39) $ 0.72 $ (0.39)
----------- ----------- ------------ ------------
Total weighted average common shares and equivalents outstanding 22,515,575 24,310,518 23,431,027 24,310,295
Additional dilutive shares using ending period market value
versus average market value for the period when utilizing
the treasury stock method regarding stock options (157,942) - (192,243) -
----------- ----------- ------------ ------------
Total shares for dilutive earnings per share 22,357,633 24,310,518 23,238,784 24,310,295
----------- ----------- ------------ ------------
Diluted earnings (loss) per common share equivalents $ 0.24 $ (0.39) $ 0.72 $ (0.39)
=========== =========== ============ ============
</TABLE>
/(1)/ Per share amounts are calculated since conversion on February 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 46,255
<INT-BEARING-DEPOSITS> 6,640
<FED-FUNDS-SOLD> 88,050
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,146,094
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 1,249,678
<ALLOWANCE> 13,411
<TOTAL-ASSETS> 2,638,642
<DEPOSITS> 1,562,891
<SHORT-TERM> 0
<LIABILITIES-OTHER> 25,666
<LONG-TERM> 0
0
0
<COMMON> 327
<OTHER-SE> 392,926
<TOTAL-LIABILITIES-AND-EQUITY> 2,638,642
<INTEREST-LOAN> 47,399
<INTEREST-INVEST> 39,704
<INTEREST-OTHER> 689
<INTEREST-TOTAL> 87,792
<INTEREST-DEPOSIT> 23,641
<INTEREST-EXPENSE> 40,653
<INTEREST-INCOME-NET> 47,139
<LOAN-LOSSES> 1,950
<SECURITIES-GAINS> 2,604
<EXPENSE-OTHER> 24,239
<INCOME-PRETAX> 27,019
<INCOME-PRE-EXTRAORDINARY> 27,019
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,754
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<YIELD-ACTUAL> 7.02
<LOANS-NON> 6,723
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 7,276
<CHARGE-OFFS> 183
<RECOVERIES> 43
<ALLOWANCE-CLOSE> 13,411
<ALLOWANCE-DOMESTIC> 7,070
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,341
</TABLE>
