<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
(Mark One) FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File No. 0-25057
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NORTHFIELD BANCORP, INC.
---------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
Maryland 52-2098394
- ------------------------------ -------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
8005 Harford Road, Baltimore, Maryland 21234
- --------------------------------------- -------------------------
(Address of Principal Executive Offices) (Zip Code)
Issuer's Telephone Number, Including Area Code: (410) 665-7900
--------------
Securities registered pursuant to Section 12(b) of the Exchange Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common stock, par value, $.01 per share
---------------------------------------
Check whether the issuer: (1) filed all reports required by Section 13 or 15(d)
of the Exchange Act during the past 12 months (or 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 No X
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Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
Registrant's revenues for the fiscal year ended December 31, 1998: $306,785
As of March 17, 1999, the aggregate market value of the 423,942 shares of Common
Stock of the registrant issued and outstanding held by non-affiliates on such
date was approximately $4,557,377 based on the closing sales price of $10.75 per
share of the registrant's Common Stock on March 17, 1999 as reported on the OTC
Electronic Bulletin Board. For purposes of this calculation, it is assumed that
directors, executive officers and beneficial owners of more than 10% of the
registrant's outstanding voting stock are affiliates.
Number of shares of Common Stock outstanding as of March 17, 1999: 475,442
shares
Transitional Small Business Disclosure Format Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
The following lists the documents incorporated by reference and the Part of the
Form 10-KSB into which the document is incorporated:
1. Portions of the Annual Report to Stockholders for the fiscal year ended
December 31, 1998. (Part II)
2. Portions of the Proxy Statement for the 1999 Annual Meeting of
Stockholders. (Part III)
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
- --------------------------------
GENERAL
THE COMPANY. Northfield Bancorp, Inc. (the "Company'), is a Maryland
corporation organized at the direction of the Board of Directors of Northfield
Federal Savings Bank ("us" or "we," etc. or the "Bank") in March 1998 to acquire
all of the capital stock to be issued by the Bank in its conversion from mutual
to stock form (the "Conversion"). The Conversion was completed on November 12,
1998, with the Company issuing 475,442 shares of its common stock, par value
$0.01 per share (the "Common Stock") to the public, and the Bank issuing all of
its issued and outstanding common stock to the Company. Prior to the Conversion,
the Company did not engage in any material operations. The Company does not have
any significant assets other than the capital stock of the Bank, cash and
investment securities and a note receivable from its ESOP. The Company's
principal business is the business of the Bank. At December 31, 1998, the
Company had total assets of $44.3 million, deposits of $36.4 million and
stockholders' equity of $7.1 million.
NORTHFIELD FEDERAL SAVINGS BANK. We are a federal stock savings bank
operating through two offices in Baltimore County, Maryland. The Bank was
founded in 1923 as a federally chartered savings association with the name
"Northfield Federal Savings." Upon completion of the Conversion, the Bank
adopted the name "Northfield Federal Savings Bank." Our deposits are insured up
to applicable limits by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings Association Insurance Fund ("SAIF") and we are a member of the
Federal Home Loan Bank ("FHLB") of Atlanta.
Our executive offices are located at 8005 Harford Road, Baltimore,
Maryland 21234 and the main telephone number is (410) 665-7900.
MARKET AREA
We consider our primary market area to be Baltimore County, Maryland.
In addition, we focus our lending efforts on Harford and Cecil Counties,
Maryland. The principal sources of employment in Baltimore, Harford and Cecil
Counties are the services, retail trade and manufacturing industries.
PROPOSED LEGISLATIVE AND REGULATORY CHANGES
On January 6, 1999, legislation was reintroduced in the U.S. House of
Representatives which calls for the modernization of the banking system and
which would significantly affect the operations and regulatory structure of the
financial services industry, including savings institutions like us. At this
time, we do not know what form final legislation might take, but if enacted into
law, the legislation could affect our competitive environment as well as our
business and operations. See " -- Regulation -- Proposed Legislative and
Regulatory Changes."
2
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LENDING ACTIVITIES
Most of our loans are construction/permanent loans on one- to four-
family residences. We also make multi-family real estate mortgage loans as well
as commercial real estate, home equity and savings account loans. We also
purchase commercial leases from a local leasing company.
The following table sets forth information concerning the types of
loans held by us at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------
1998 1997
---------------- -----------------
AMOUNT % AMOUNT %
------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family residential mortgage loans.. $31,332 81.51% $25,740 81.35%
Land............................................ 123 .32 -- --
Construction loans.............................. 3,664 9.53 2,105 6.65
Commercial real estate loans.................... 2,478 6.45 2,805 8.87
Commercial loans collateralized by lease
finance receivables............................ 643 1.67 741 2.34
Consumer loans:
Home equity lines of credit..................... 125 .33 177 .56
Loans secured by deposits...................... 73 .19 74 .23
------- ------ ------- ------
Total loans............................... 38,438 100.00% 31,642 100.00%
====== ======
Less:
Undisbursed portion of loans in process......... 2,223 1,197
Deferred loan origination fees.................. 316 268
Allowance for losses............................ 197 216
------- -------
Loan portfolio, net........................ $35,702 $29,961
======= =======
</TABLE>
The following table sets forth the estimated maturity of our loan
portfolio at December 31, 1998. The table does not include the effects of
possible prepayments or scheduled repayments. All mortgage loans are shown as
maturing based on the date of the last payment required by the loan agreement.
<TABLE>
<CAPTION>
DUE AFTER
DUE WITHIN 1 THROUGH DUE AFTER
ONE YEAR AFTER 5 YEARS AFTER 5 YEARS AFTER
DECEMBER 31, 1998 DECEMBER 31, 1998 DECEMBER 31, 1998 TOTAL
----------------- ----------------- ----------------- -------
(In thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family............... $271 $ 281 $30,780 $31,332
Land.............................. -- 123 -- 123
Commercial........................ -- 464 2,014 2,478
Construction...................... 290 500 2,874 3,664
Home equity......................... 125 -- -- 125
Passbook............................ 73 -- -- 73
Commercial loans collateralized by
lease finance receivables........ 207 436 -- 643
---- ------ ------- -------
Total.......................... $966 $1,804 $35,668 $38,438
==== ====== ======= =======
</TABLE>
3
<PAGE>
The next table sets forth at December 31, 1998, the dollar amount of
all loans due one year or more after December 31, 1998 which have predetermined
interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
PREDETERMINED FLOATING OR
RATE ADJUSTABLE RATES
------------- ----------------
(In thousands)
<S> <C> <C>
Real estate loans:
One- to four-family............... $31,061 $ --
Construction...................... 3,374 --
Commercial real estate............ 2,216 262
Land.............................. 123 --
Commercial loans collateralized by
lease finance receivables.......... 436 --
------- -------
Total............................ $37,210 $ 262
======= =======
</TABLE>
RESIDENTIAL CONSTRUCTION LOANS. Our most significant loan product is
lending to finance the construction of one- to four-family residential property
to the individuals who will be the owners and occupants upon completion of
construction. Construction/permanent loans account for a majority of our
single-family loan originations. We have historically emphasized these loans
and have established a reputation in our market areas for this type of lending.
We believe that we can continue to respond to the demand for these loans by
borrowers engaged in building and development of single-family residential
properties in the growing communities of our market areas. Virtually all of
these loans are structured to be converted to permanent loans at the end of the
construction phase. Borrowers are required to pay interest during the
construction period. Loan proceeds are disbursed according to a draw schedule
and we inspect the progress of the construction before additional funds are
disbursed. The interest rate we charge is fixed during the construction phase
(based on the prime rate) and fixed thereafter, and these loans generally have
30 year terms.
While we believe we have substantial experience in construction
lending, this type of lending involves a higher degree of credit risk than long
term financing of residential properties. Our risk of loss on a construction
loan is dependent largely upon the accuracy of the initial estimate of the
property's value at completion of construction and the estimated cost of
construction. If the estimate of construction cost and the marketability of the
property upon completion of the project prove to be inaccurate, we may be
compelled to advance additional funds to complete the construction.
Furthermore, if the final value of the completed property is less than the
estimated amount, the value of the property might not be sufficient to assure
the repayment of the loan.
Our underwriting criteria are designed to evaluate and minimize the
risks of each construction loan. Among other things, we consider the amount of
the borrower's equity in the project, independent valuations and reviews of cost
estimates and pre-construction sale, the builder's financial report and the
reputation of the borrower. In addition, we review the builder's financial
reports and other information. We have longstanding relationships with several
builders in our area and do most of our construction lending with them.
ONE- TO FOUR-FAMILY RESIDENTIAL LOANS. We also originate standard
one- to four-family residential mortgage loans secured by property located in
our primary market area. These are made in amounts up to 80% of the lesser of
the appraised value or purchase price, with private mortgage insurance or
additional collateral required on loans with a loan to-value ratio in excess of
80%. Although, all of our one- to four-family loans are underwritten to conform
with secondary market standards, we originate such loans with the intention that
we will hold them in our portfolio rather than sold in the secondary mortgage
market.
Mortgage loans originated and held by us generally include due-on-sale
clauses. This gives us the right to deem the loan immediately due and payable
in the event the borrower transfers ownership of the property securing the
mortgage loan without our consent.
4
<PAGE>
COMMERCIAL REAL ESTATE LOANS. Our commercial real estate loans are
secured primarily by office buildings and multi-family residential investment
properties. Some of our commercial real estate loans are participations with
other financial institutions in our market area. Commercial real estate loans
are made in amounts of up to 75% of the appraised value of the property. Our
commercial real estate loans generally have variable rates with terms of five
years and amortization schedules of up to 30 years. At December 31, 1998, the
largest of our commercial real estate loans was a $852,000 loan participation,
of which our interest totaled $320,000. This loan was secured by an office
building.
Commercial real estate lending, which accounted for approximately
6.45% of our loan portfolio at December 31, 1998, entails significant additional
risks compared to single-family residential property lending. These loans
typically involve large loan balances to single borrowers or groups of related
borrowers. The repayment of these loans typically is dependent on the
successful operation of the real estate project securing the loan. These risks
can be significantly affected by supply and demand conditions in the market for
office and retail space and may also be subject to adverse conditions in the
economy. To minimize these risks, we generally limit this type of lending to
our market area and to borrowers who are otherwise well known to us.
COMMERCIAL AND AUTOMOBILE LEASES. For over ten years, we have
purchased commercial finance leases from a local leasing company. These leases
are primarily on office equipment. We purchase the lease, but all servicing is
conducted by the seller. The average length of the individual leases ranges
from 3.5 to four years and the average size ranges from $1,500 to $5,000. At
December 31, 1998, our portfolio of commercial leases totaled $643,000, or
1.67%, of total loans. Our portfolio includes both recourse and non-recourse
purchases, but in accordance with OTS comments, we are purchasing on a recourse
basis only.
Commercial leases are subject to the same risk of default as direct
commercial loans. Although these loans provide for higher interest rates and
shorter terms than permanent single-family residential real estate loans, they
involve more credit risk because of the type and nature of the collateral.
Commercial business loans are typically made on the basis of the borrower's
ability to make repayment from the cash flow of the borrower's business, and
repayment is therefore substantially dependent on the success of the business
itself.
Since the program began, we have experienced losses of $10,000 in
connection with these leases, all involving non-recourse purchases. As
indicated above, we are purchasing on a recourse basis only. Following the
Conversion, we increased the level of these leases to the amount allowed by the
loans to one borrower regulation, which was approximately $800,000 after receipt
of the Conversion proceeds. Management believes that these commercial leases
represent a sound and profitable investment and is seeking to maintain the
Bank's relationship with the local leasing company.
As of December 31, 1998, we invested $500,000, subject to our Board's
approval, $500,000 in automobile finance leases from another local company.
These lease purchases, in which we participate with other local lenders, are
structured in the same manner as the commercial finance leases discussed above.
All of our purchases from the automobile leasing company are with full recourse.
Automobile finance leases are subject to the same risk of default as direct
automobile loans. These loans involve a higher risk of default than loans
secured by one- to four-family residential loans because they are secured by
automobiles, which are rapidly depreciable assets. The repossessed collateral
for a defaulted automobile loan may not provide an adequate source of repayment
of the outstanding loan balance as a result of the greater likelihood of damage,
loss or depreciation, and the remaining deficiency may not warrant further
substantial collection efforts against the borrower. In addition, automobile
loan collections depend on the borrower's continuing financial stability, and
thus are more likely to be adversely affected by job loss, illness or personal
bankruptcy. The application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may also limit the amount
which can be recovered on such loans.
CONSUMER LOANS. Our consumer loans consist of home equity lines of
credit and savings account loans. We began offering home equity lines of credit
in December 1996. These loans are secured by a real estate mortgage with our
security interest in the borrower's primary residence. These are variable rate
loans indexed to the prime rate with
5
<PAGE>
terms of 20 years. Our savings account loans are made for up to 90% of the
balance on deposit in savings accounts or certificates of deposit. These loans
are secured by an interest in the borrower's account.
NEW LENDING PROGRAMS IMPLEMENTED AS PART OF THE CRA ACTION PLAN. We
are periodically examined by the OTS for our record of meeting the credit needs
of our local communities pursuant to the Community Reinvestment Act ("CRA").
The OTS rates the performance of a savings institution under applicable CRA
performance standards and assigns one of the following ratings: Outstanding,
Satisfactory, Needs to Improve, or Substantial Non-Compliance. In our 1998 CRA
evaluation, we received a "Needs to Improve" CRA rating. In an effort to
improve this rating, our Board of Directors approved and we implemented a CRA
action plan which calls for, among other things, expanding our lending to low-
and moderate-income borrowers. This plan includes: (i) a $380,000 investment
in loans to first time low- and moderate-income home buyers; (ii) offering 97%
loan-to-value ratio loans with private mortgage insurance, no points, and a 1/8%
rate discount below our current rate offering plan; (iii) expanding our
solicitation, advertising and education efforts to reach low- and moderate-
income borrowers; and (iv) purchasing low- and moderate-income loans from
brokers at a premium. See " -- Regulation -- Community Reinvestment Act" for a
discussion of how this rating may affect our operations.
In implementing our CRA plan, we purchased VA and FHA loans in low and
moderate census tracts located in the Baltimore area. We have committed
$863,000 in these census tracts to date. We, also, have purchased a GNMA II
Mortgage Backed Security for $541,000 in low and moderate census tracts located
in Baltimore and Harford counties.
LOAN APPROVAL AUTHORITY AND UNDERWRITING. Our president may approve
all commercial leases that we purchase up to $25,000 and all home equity lines
of credit up to that amount. All other loans are approved by our Board of
Directors.
Upon receipt of a completed loan application from a prospective
borrower, we order a credit report. Income and certain other information is
verified. If necessary, additional financial information may be requested. An
appraisal or other estimate of value of the real estate intended to be used as
security for the proposed loan is obtained. Appraisals are prepared by outside
fee appraisers who are approved by the Board of Directors.
Either title insurance or a title opinion is generally required on all
real estate loans. Borrowers also must obtain fire and casualty insurance.
Flood insurance is also required on loans secured by property which is located
in a flood zone.
LOAN ORIGINATIONS, PURCHASES AND SALES. All of the loans we originate
are intended to be held in our portfolio rather than sold in the secondary
mortgage market. Our one- to four-family residential loans do, however, conform
to secondary market guidelines. We may, therefore, decide to sell loans in the
secondary market in the future. We occasionally purchase loan participations
from other financial institutions. These participation interest purchases are
reflected in the above table. Generally, the purchase of participation
interests involves the same risks as would the origination of the same types of
loans as well as the additional risk that results from the fact that we have
less control over the origination and subsequent administration of such loans.
LOAN COMMITMENTS. Written commitments are given to prospective
borrowers on all approved real estate loans. Generally, the commitment requires
acceptance within 10 days of the date of issuance. At December 31, 1998,
commitments to cover originations of mortgage loans were $1.1 million. We
believe that virtually all of our commitments will be funded.
LOANS TO ONE BORROWER. The maximum amount of loans which we may make
to any one borrower may not exceed the greater of $800,000 or 15% of our
unimpaired capital and unimpaired surplus. We may lend an additional 10% of our
unimpaired capital and unimpaired surplus if the loan is fully secured by
readily marketable collateral. Our loan-to-one borrower limit was approximately
$800,000 at December 31, 1998. At December 31, 1998, our largest loan
outstanding had a balance of $500,000.
6
<PAGE>
NONPERFORMING AND PROBLEM ASSETS
LOAN DELINQUENCIES. Generally when a mortgage loan becomes 30 days
past due, a notice of nonpayment is sent to the borrower. Additional notices
and letters from us are sent if the loan remains delinquent after 45, 60 and 75
days. If the loan continues in a delinquent status for 90 days past due and no
repayment plan is in effect, a notice of right to cure default is sent to the
borrower giving 30 additional days to bring the loan current before foreclosure
is commenced. Our Board meets regularly to determine when foreclosure
proceedings should be initiated. The customer will be notified when foreclosure
is commenced. At December 31, 1998, our loans past due between 30 and 89 days
totaled $429,000.
Loans are reviewed on a monthly basis and are generally placed on a
nonaccrual status when the loan becomes more than 90 days' delinquent or when,
in our opinion, the collection of additional interest is doubtful. Interest
accrued and unpaid at the time a loan is placed on nonaccrual status is charged
against interest income. Subsequent interest payments, if any, are either
applied to the outstanding principal balance or recorded as interest income,
depending on the assessment of the ultimate collectibility of the loan.
7
<PAGE>
NONPERFORMING ASSETS. The following table sets forth information
regarding our nonperforming loans. As of the dates indicated, we had no loans
categorized as troubled debt restructurings within the meaning of SFAS 15 and no
real estate owned.
<TABLE>
<CAPTION>
At December 31,
-------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Loans accounted for on a non-accrual basis:
Real estate:
One- to four-family........................................ $ -- $ --
Commercial real estate..................................... -- 135
------- -------
Total real estate loans................................. -- 135
Commercial loans collateralized by lease finance
receivables.......................................... -- --
Consumer loans:
Loans secured by deposits.................................. -- --
Home improvement........................................... -- --
Automobile................................................. -- --
Other consumer............................................. -- --
------- -------
Total................................................... -- 135
------- -------
Accruing loans delinquent 90 days or more:
Real estate:
One- to four-family........................................ $ -- $ --
Commercial real estate..................................... 263 279
Commercial loans collateralized by lease finance
receivables.............................................. 33 --
Consumer loans............................................... -- --
Loan secured by deposits.................................... -- --
Home equity lines of credit................................. -- --
Automobile.................................................. -- --
Other consumer.............................................. -- --
------- -------
Total................................................... 296 279
------- -------
Total nonperforming loans............................ 296 414
======= =======
Total non-performing loans as a percentage of total net loans.. .83% 1.31%
======= =======
Total non-performing assets as a percentage of total assets.... .67% 1.15%
======= =======
</TABLE>
We had no loans which were not classified as nonaccrual, 90 days past
due or restructured, but where known information causes us to have serious
concerns as to the ability of these borrowers to comply with their current loan
terms.
CLASSIFIED ASSETS. OTS regulations provide for a classification
system for problem assets of savings associations which covers all problem
assets. Under this classification system, problem assets of savings
associations such as ours are classified as "substandard," "doubtful," or
"loss." An asset is considered substandard if it is inadequately protected by
the current net worth and paying capacity of the borrower or of the collateral
pledged, if any. Substandard assets include those characterized by the
"distinct possibility" that the savings association will sustain "some loss" if
the deficiencies are not corrected. Assets classified as doubtful have all of
the weaknesses inherent in those classified substandard, with the added
characteristic that the weaknesses present make "collection or liquidation in
full, on the
8
<PAGE>
basis of currently existing facts, conditions, and, values, highly questionable
and improbable." Assets classified as loss are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets may be
designated "special mention" because of potential weakness that do not currently
warrant classification in one of the aforementioned categories.
When a savings association classifies problem assets as either
substandard or doubtful, it may establish general allowances for loan losses in
an amount deemed prudent by management. General allowances represent loss
allowances which have been established to recognize the inherent risk associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When a savings association classifies
problem assets as loss, it is required either to establish a specific allowance
for losses equal to 100% of that portion of the asset so classified or to charge
off such amount. A savings association's determination as to the classification
of its assets and the amount of its valuation allowances is subject to review by
the OTS, which may order the establishment of additional general or specific
loss allowances. A portion of general loss allowances established to cover
possible losses related to assets classified as substandard or doubtful may be
included in determining a savings association's regulatory capital. Specific
valuation allowances for loan losses generally do not qualify as regulatory
capital.
At December 31, 1998, $296,000 of our assets were classified as
special mention and no assets were classified as doubtful, substandard or loss.
FORECLOSED REAL ESTATE. Real estate acquired by us as a result of
foreclosure is recorded as "real estate owned" until such time as it is sold.
When real estate owned is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair value less estimated disposal
costs. Any write down of real estate owned is charged to operations. At
December 31, 1998, we did not have any real estate owned.
ALLOWANCE FOR LOAN LOSSES. Our policy is to provide for losses on
unidentified loans in our loan portfolio. A provision for loan losses is
charged to operations based on management's evaluation of the losses that may be
incurred in our loan portfolio. The evaluation, including a review of all loans
on which full collectibility of interest and principal may not be reasonably
assured, considers: (i) our past loan loss experience, (ii) known and inherent
risks in our portfolio, (iii) adverse situations that may affect the borrower's
ability to repay, (iv) the estimated value of any underlying collateral, and (v)
current economic conditions.
We monitor our allowance for loan losses and make additions to the
allowance as economic conditions dictate. Although we maintain our allowance
for loan losses at a level that we consider adequate for the inherent risk of
loss in our loan portfolio, actual losses could exceed the balance of the
allowance for loan losses and additional provisions for loan losses could be
required. In addition, our determination as to the amount of its allowance for
loan losses is subject to review by the OTS, as part of its examination process.
After a review of the information available, the OTS might require the
establishment of an additional allowance.
9
<PAGE>
The following table sets forth an analysis of our allowance for loan losses
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997
-------- -------
(In thousands)
<S> <C> <C>
Balance at beginning of period..................... $ 216 $ 100
Charge-offs:
- -----------
Real estate loans:
One- to four-family.............................. (16) --
Commercial real estate........................... -- --
-------- -------
Total real estate loans....................... (16) --
Commercial loans collateralized by lease
finance receivables........................... (3) (7)
-------- -------
(3) (7)
-------- -------
Consumer loans:
Loan secured by deposits........................ -- --
Home equity line of credit...................... -- --
Automobile...................................... -- --
Other consumer.................................. -- --
-------- -------
Recoveries......................................... -- --
-------- -------
Net recoveries (charge-offs)....................... (19) (7)
-------- -------
Additions charged to operations.................... -- 123
-------- -------
Balance at end of period........................... $ 197 $ 216
======== =======
Allowance for loan losses to total
non-performing loans at end of period............ 66.55% 52.17%
======== =======
Allowance for loan losses to net loans
at end of period................................. .55% .72%
======== ========
Net loans charge-offs.............................. (19) (7)
-------- -------
Provision for loan losses.......................... -- 123
-------- -------
Ratio of net charge-offs to average
loans outstanding during the period.............. .06% .03 %
======== =======
</TABLE>
10
<PAGE>
The following table illustrates the allocation of the allowance for
loan losses for each category of loan. The allocation of the allowance to each
category is not necessarily indicative of future loss in any particular category
and does not restrict our use of the allowance to absorb losses in other loan
categories.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1998 1997
---------------------- ------------------------
Percent of Percent of
Loans in Each Loans in Each
Category to Category to
Amount Total Loans Amount Total Loans
------ -------------- ------ -------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Real estate loans:
One- to four-family.......................... $ 80 81.51% $ 96 81.35%
Construction................................. -- 9.53 -- 6.65
Land......................................... -- .32 -- --
Commercial real estate loans................. 60 6.45 60 8.87
Commercial loan collateralized by lease
finance receivables......................... 57 1.67 60 2.34
Consumer loans................................. -- .52 -- .79
------ ------ ------ --------
Total allowance for loan losses............ $ 197 100.00% $ 216 100.00%
====== ====== ====== ========
</TABLE>
Investment Activities
INVESTMENT SECURITIES. We are required under federal regulations to
maintain a minimum amount of liquid assets which may be invested in specified
short-term securities and certain other investments. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources" in the Annual
Report to Stockholders for the year ended December 31, 1998 (the "Annual
Report"), which is filed as Exhibit 13 to this report. The level of liquid
assets varies depending upon several factors, including: (i) the yields on
investment alternatives, (ii) our judgment as to the attractiveness of the
yields then available in relation to other opportunities, (iii) expectation of
future yield levels, and (iv) our projections as to the short-term demand for
funds to be used in loan origination and other activities. We classify our
investment securities as "held to maturity", "available-for-sale" or "trading"
in accordance with SFAS No. 115. At December 31, 1998, our investment portfolio
policy allowed investments in instruments such as: (i) U.S. Treasury
obligations, (ii) U.S. federal agency or federally sponsored agency obligations,
(iii) mortgage-backed securities, (iv) certificates of deposit, (v) federal
funds, including FHLB overnight and term deposits, (vi) A-rated state and local
municipal bonds, and (vii) A-rated corporate bonds.
MORTGAGE-BACKED SECURITIES. To supplement lending activities, we have
invested in residential mortgage-backed securities. Mortgage-backed securities
can serve as collateral for borrowings and, through repayments, as a source of
liquidity. Mortgage-backed securities represent a participation interest in a
pool of single-family or other type of mortgages. Principal and interest
payments are passed from the mortgage originators, through intermediaries
(generally quasi-governmental agencies) that pool and repackage the
participation interests in the form of securities, to investors such as us. Our
mortgage-backed securities portfolio consists of participations or pass-through
certificates issued by the Federal Home Loan Mortgage Corporation (the "FHLMC"),
the Federal National Mortgage Association ("FNMA") and the Government National
Mortgage Association ("GNMA"). GNMA certificates are guaranteed as to principal
and interest by the full faith and credit of the United States, while FHLMC and
FNMA certificates are guaranteed by those agencies only. Our mortgage-backed
securities portfolio was classified as "held to maturity" at December 31, 1998.
Expected maturities will differ from contractual maturities due to scheduled
repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
11
<PAGE>
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed rate or adjustable
mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed rate
or adjustable rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the
life of the underlying mortgages.
We have also in the past made investments in real estate mortgage
investment conduits ("REMICs"). REMICs are securities derived by reallocating
the cash flows from mortgage-backed securities or pools of mortgage loans in
order to create multiple classes, or tranches, of securities with coupon rates
and average lives that differ from the underlying collateral as a whole. At
December 31, 1997, we had a $93,000 investment in a REMIC. During fiscal 1998
this investment paid down and at December 31, 1998, we had no investments in
REMICs.
The following table sets forth the carrying (i.e., amortized cost) value of
our investment securities and mortgage-backed securities, at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------
1998 1997
------ -------
(In thousands)
<S> <C> <C>
Held to Maturity:
Interest-bearing deposits in other banks.. $ 4,834 $ 3,514
Other investments......................... 799 --
Mortgage-backed securities................ 2,123 1,955
Federal Home Loan Bank of Atlanta stock... 273 226
------- -------
Total.................................... $ 8,029 $ 5,695
======= =======
</TABLE>
12
<PAGE>
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for our investment portfolio at December 31,
1998.
<TABLE>
<CAPTION>
One Year or Less One to Five Years Five to Ten Years More than Ten Years
------------------- ------------------- ------------------- -------------------
Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to
maturity:
Interest-bearing deposits $ 4,542 5.15% $ 193 5.67% $ 99 5.50% $ -- --%
Other investments........ -- -- -- -- 299 4.01 500 6.78
Mortgage-backed
securities.............. -- -- 56 8.00 294 8.59 1,773 7.26
FHLB stock............... -- -- -- -- -- -- 273 7.16
-------- -------- ----- -------
Total............... $ 4,542 5.15% $ 249 6.19% $ 692 6.17% $ 2,546 7.16%
======== ======== ===== =======
<CAPTION>
Total Investment Portfolio
--------------------------
Weighted
Carrying Market Average
Value Value Yield
-------- ------ ---------
<S> <C> <C> <C>
Securities held to
maturity:
Interest-bearing deposits.. $ 4,834 $ 4,834 5.18%
Other investments..........
Mortgage-backed 799 794 5.74
securities................ 2,123 2,185 7.46
FHLB stock................. 273 273 7.16
------- -------
Total................. $ 8,029 $ 8,086 5.91%
======= =======
</TABLE>
13
<PAGE>
SOURCES OF FUNDS
Deposits are our major external source of funds for lending and other
investment purposes. Funds are also derived from the receipt of payments on
loans and prepayment of loans and, to a much lesser extent, maturities of
investment securities and mortgage-backed securities, borrowings and operations.
Scheduled loan principal repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and market conditions.
DEPOSITS. Consumer and commercial deposits are attracted principally from
within our primary market area through the offering of a selection of deposit
instruments including regular savings accounts, money market accounts, and term
certificate accounts. IRA accounts are also offered. Deposit account terms
vary according to the minimum balance required, the time period the funds must
remain on deposit, and the interest rate. The interest rates paid by us on
deposits are set weekly at the direction of our senior management. Interest
rates are determined based on our liquidity requirements, interest rates paid by
our competitors, and our growth goals and applicable regulatory restrictions and
requirements. We do not accept brokered deposits.
The following table sets forth information about our average deposit
balances and interest rates during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1998 1997
---------------- -----------------
Average Average Average Average
Balance Rate Balance Rate
------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Now accounts.................... $ 1,870 3.08% $ 1,740 2.89%
Money market deposits........... 8,571 3.76 7,779 3.89
Passbook savings................ 3,243 2.88 2,587 2.97
Certificates of deposit......... 21,380 5.97 17,748 5.88
------- -------
Total..................... $35,064 4.99 $29,854 4.94
======= =======
</TABLE>
The following table indicates the amount of our certificates of
deposit of $100,000 or more by time remaining until maturity as of December 31,
1998.
<TABLE>
<CAPTION>
Certificates
Maturity Period Of Deposit
--------------- ------------
(In thousands)
<S> <C>
Three months or less......................... $ 303
Over three through six months................ 212
Over six through 12 months................... 213
Over 12 months............................... 1,373
------
Total...................................... $2,101
======
</TABLE>
BORROWINGS. Advances (borrowings) may be obtained from the FHLB of
Atlanta to supplement our supply of lendable funds. Advances from the FHLB of
Atlanta are typically secured by a pledge of our stock in the FHLB of Atlanta, a
portion of our first mortgage loans and other assets. Each FHLB credit program
has its own interest rate, which may be fixed or adjustable, and range of
maturities. We had no advances from the FHLB of Atlanta during the year ended
December 31, 1998.
14
<PAGE>
<TABLE>
<CAPTION>
At or for the
Year Ended
December 31,
---------------------
1998 1997
-------- --------
(Dollars in thousands)
<S> <C> <C>
Amounts outstanding at end of period:
FHLB advances ............................
Other short-term borrowings............... $ -- $ --
Weighted average rate paid on:
Other short-term borrowings............... -- --
Maximum amount of borrowings outstanding
at any month end:
FHLB advances............................. $ -- $ 1,600
Other short-term borrowings............... -- --
Approximate average short-term borrowings
outstanding with respect to:
FHLB advances............................. $ -- $ 350
Other short-term borrowings............... -- --
Approximate weighted average rate paid on:
Other short-term borrowings............... -- --
</TABLE>
COMPETITION
We compete for deposits with other insured financial institutions such as
commercial banks, thrift institutions, credit unions, finance companies, and
multi-state regional banks in our market area. Loan competition varies
depending upon market conditions. Our competition in originating real estate
loans comes primarily from commercial banks, thrift institutions, credit unions
and mortgage bankers, many of whom have greater resources than the we have.
REGULATION OF THE BANK
GENERAL. As a federally chartered, SAIF-insured savings institution, we
are subject to extensive regulation by the OTS and the FDIC. Our lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements, and the OTS periodically examines us for
compliance with various regulatory requirements. The FDIC also has authority to
conduct periodic examinations of us. We must file reports with the OTS
describing our activities and our financial condition and we must obtain
approvals from regulatory authorities before entering into certain transactions
such as the conversion or mergers with other financial institutions. We are
also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System ("Federal Reserve System"). Our
relationship with our depositors and borrowers is also regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of our mortgage documents. This
supervision and regulation are primarily intended to protect depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in regulations, whether by the OTS, the FDIC or any other government
agency, could have a material adverse impact on our operations.
PROPOSED LEGISLATIVE AND REGULATORY CHANGES. The U.S. Congress is in the
process of drafting legislation which may have a profound effect on the
financial services industry. On January 6, 1999 legislation restructuring the
15
<PAGE>
activities and regulations oversight of the financial services industry ("H.R.
10"), was reintroduced in the U.S. House of Representatives. H.R. 10 would
permit affiliations between commercial banks, securities firms, insurance
companies and, subject to certain limitations, other commercial enterprises.
The stated purposes of the legislation are to enhance consumer choice in the
financial services marketplace, level the playing field among providers of
financial services and increase competition. H.R. 10 removes many of the
statutory restrictions contained in current laws regulating the financial
services industry and calls for a new regulatory framework of financial
institutions and their holding companies. H.R. 10 however, preserves the thrift
charter and all existing thrift powers, but would restrict the activities of new
unitary thrift holding companies. At this time, it is unknown how H.R. 10 will
be modified, enacted into law, or if enacted, what form the final version of
such legislation might take and how such legislation may affect our business and
operations.
INSURANCE OF DEPOSIT ACCOUNTS. The FDIC maintains two separate funds for
the insurance of deposits up to prescribed statutory limits. The Bank Insurance
Fund ("BIF") insures the deposits of commercial banks and the SAIF insures the
deposits of savings institutions. We are a member of the SAIF. The FDIC is
authorized to establish separate annual assessment rates for deposit insurance
for members of the BIF and the SAIF. The FDIC may increase assessment rates for
either fund if necessary to restore the fund's ratio of reserves to insured
deposits to its target level within a reasonable time and may decrease such
assessment rates if such target level has been met. The FDIC has established a
risk-based assessment system for both SAIF and BIF members. Under this system,
assessments are set within a range, based on the risk the institution poses to
its deposit insurance fund. This risk level is determined based on the
institution's capital level and the FDIC's level of supervisory concern about
the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures in the past years, the reserves of the SAIF fell below the level
required by law. As a result, deposit insurance premiums for deposits insured
by the BIF (which met its required reserve level) were substantially less than
premiums for deposits such as ours which are insured by the SAIF. In order to
recapitalize the SAIF and to eliminate the BIF-SAIF premium disparity, in
November 1996 the FDIC imposed a one-time special assessment equal to $0.657 per
$100 of SAIF-assessable deposits held at March 31, 1995, on institutions with
deposits insured by the SAIF. We recognized this special assessment of $182,000
during fiscal 1996.
As a result, beginning January 1, 1997, our annual deposit insurance
premium was reduced from 0.23% to .064% of total assessable deposits. However,
BIF institutions still pay lower assessments than comparable SAIF institutions
because BIF institutions pay only 20% of the rate being paid by SAIF
institutions on their deposits with respect to obligations issued by the
Financing Corp., a federally chartered corporation which provided some of the
financing required to resolve the thrift crisis in the 1980s.
REGULATORY CAPITAL REQUIREMENTS. OTS capital regulations require savings
institutions to meet three capital standards: (i) tangible capital equal to at
least 1.5 % of total adjusted assets, (ii) core capital equal to at least 3% of
total adjusted assets, and (iii) risk-based capital equal to at least 8% of
total risk-weighted assets. In addition, the OTS may require that a savings
institution that has a risk-based capital ratio less than 8%, a ratio of Tier 1
capital to risk-weighted assets of less than 4% or a ratio of Tier 1 capital to
adjusted total assets of less than 4% (3% if the institution has received the
highest rating on its most recent examination) take certain actions to increase
its capital ratios. If the institution's capital is significantly below the
minimum required levels or if it is unsuccessful in increasing its capital
ratios, the OTS may significantly restrict its activities.
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders'
equity (including retained earnings), non-cumulative perpetual preferred stock
and minority interests in the equity accounts of consolidated subsidiaries,
certain non-withdrawable accounts and pledged deposits of mutual savings
associations and qualifying supervisory goodwill, less non-qualifying intangible
assets, certain mortgage servicing rights and certain investments. Tier 1 has
the same definition as core capital.
16
<PAGE>
Risk-based capital equals the sum of core capital plus supplementary
capital. The components of supplementary capital include, among other items,
cumulative perpetual preferred stock, perpetual subordinated debt, mandatory
convertible subordinated debt, intermediate-term preferred stock, the portion of
the allowance for loan losses not designated for specific loan losses and up to
45% of unrealized gains on equity securities. Overall, supplementary capital
is limited to 100% of core capital. A savings institution must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets. At December 31, 1998, we were in compliance with all
regulatory capital requirements as is shown on the table below.
<TABLE>
<CAPTION>
Percent
Amount of Assets
--------- ------------
(Dollars in thousands)
<S> <C> <C>
Tangible capital................ $4,918 11.00%
Tangible capital requirement.... 670 1.50
------ -----
Excess........................ $4,248 9.50%
====== =====
Core capital.................... $4,918 11.00%
Core capital requirement........ 1,341 3.00
------ -----
Excess........................ $3,577 8.00%
====== =====
Risk-based capital.............. $5,116 23.07%
Risk-based capital requirement.. 1,774 8.00
------ -----
Excess........................ $3,342 15.07%
====== =====
</TABLE>
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A
savings institution will be considered to have a "normal" level of interest rate
risk exposure if the decline in its net portfolio value after an immediate 200
basis point increase or decrease in market interest rates (whichever results in
the greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio value
based on data submitted by the institution in a schedule to its quarterly Thrift
Financial Report and using the interest rate risk measurement model adopted by
the OTS. The amount of the interest rate risk component, if any, to be deducted
from an institution's total capital will be based on the institution's Thrift
Financial Report filed two quarters earlier. Savings institutions with less
than $300 million in assets and a risk-based capital ratio above 12% are
generally exempt from filing the interest rate risk schedule with their Thrift
Financial Reports. However, the OTS may require any exempt institution that it
determines may have a high level of interest rate risk exposure to file such
schedule on a quarterly basis and may be subject to an additional capital
requirement based upon its level of interest rate risk as compared to its peers.
Due to our size and risk-based capital level, we are exempt from the interest
rate risk component.
At December 31, 1998, we were "well-capitalized" under applicable
regulations.
17
<PAGE>
DIVIDEND AND OTHER CAPITAL DISTRIBUTION LIMITATIONS. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Company. The OTS may prohibit the payment of dividends by us to
the Company. In addition, we may not declare or pay a cash dividend on our
capital stock if the effect would be to reduce our regulatory capital below the
amount required for the liquidation account to be established at the time of the
Conversion.
OTS regulations set a limit upon all capital distributions by savings
institutions, such as cash dividends, payments to repurchase or otherwise
acquire its shares, payments to stockholders of another institution in a cash-
out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all of its fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, after prior notice but without the approval of
the OTS, make capital distributions during a calendar year equal to the greater
of (i) 100% of its net income to date during the calendar year plus the amount
that would reduce by one-half its "surplus capital ratio" (the excess capital
over its fully phased-in capital requirements) at the beginning of the calendar
year, or (ii) 75% of its net income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
December 31, 1998, we qualified as a Tier 1 institution.
In the event our capital falls below our fully phased-in requirement or the
OTS notifies us that we are in need of more than normal supervision, we would
become a Tier 2 or Tier 3 institution and as a result, our ability to make
capital distributions could be restricted. Tier 2 institutions, which are
institutions that before and after the proposed distribution meet their current
minimum capital requirements, may only make capital distributions of up to 75%
of net income over the most recent four quarter period. Tier 3 institutions,
which are institutions that do not meet current minimum capital requirements and
propose to make a capital distribution, and Tier 2 institutions that propose to
make a capital distribution in excess of the noted safe harbor level, must
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS has
proposed rules relaxing certain approval and notice requirements for well-
capitalized institutions.
A savings institution is prohibited from making a capital distribution if,
after making the distribution, the savings institution would be undercapitalized
(i.e., not meet any one of its minimum regulatory capital requirements).
Further, a savings institution cannot distribute regulatory capital that is
needed for its liquidation account.
QUALIFIED THRIFT LENDER TEST. Savings institutions must meet a Qualified
Thrift Lender test. We must maintain at least 65% of our portfolio assets
(total assets less intangible assets, property we use in conducting our business
and liquid assets in an amount not exceeding 20% of total assets) in Qualified
Thrift Investments to satisfy the test. Qualified Thrift Investments consist
primarily of residential mortgage loans and mortgage-backed and other securities
related to domestic, residential real estate or manufactured housing. The
shares of stock we own in the FHLB of Atlanta also qualify as Qualified Thrift
Investments. Subject to an aggregate limit of 20% of portfolio assets, we may
also count the following as Qualified Thrift Investments: (i) 50% of the dollar
amount of residential mortgage loans originated for sale, (ii) investments in
the capital stock or obligations of any service corporation or operating
subsidiary as long as such subsidiary derives at least 80% of its revenues from
domestic housing related activities, (iii) 200% of the dollar amount of loans
and investments to purchase, construct or develop "starter homes," subject to
certain other restrictions, (iv) 200% of the dollar amount of loans for the
purchase, construction or development of domestic residential housing or
community centers in "credit needy" areas or loans for small businesses located
in such areas, (v) loans for the purchase, construction or development of
community centers, (vi) loans for personal, family, household or educational
purposes, subject to a maximum of 10% of portfolio assets, and (vii) shares of
FHLMC or FNMA stock.
If we satisfy the test, we will continue to enjoy full borrowing privileges
from the FHLB of Atlanta. If we do not satisfy the test we may lose our
borrowing restrictions and be subject to activities and branching restrictions
applicable to national banks. Compliance with the Qualified Thrift Lender test
is determined on a monthly basis in nine
18
<PAGE>
out of every 12 months. As of December 31, 1998, we were in compliance with our
Qualified Thrift Lender requirement with approximately 98.29% of our assets
invested in Qualified Thrift Investments, as currently defined.
COMMUNITY REINVESTMENT ACT. In enacting the CRA, the Congress required
each federal banking regulatory agency to assess an institution's record of
helping to meet the credit needs of the local communities in which the
institution is chartered, consistent with the safe and sound operation of the
institution, and to take this record into account in the agency's evaluation of
an application for a deposit facility by the institution. OTS regulations
provide that the OTS will take into account the record of performance under the
CRA for, among other things, the following applications: (i) the establishment
of branches or other deposit-accepting facilities of a savings institution; (ii)
the relocation of a main office or branch of a savings institution; (iii) the
merger or consolidation of a savings institution with another depository
institution; or (iv) acquisition by a thrift holding company of a savings
institution. A savings institution's record of CRA performance may be the basis
for denying or conditioning approval of any of these types of applications. The
OTS rates the performance of a savings institution under the applicable CRA
performance standards and assigns one of the following ratings: Outstanding,
Satisfactory, Needs to Improve, or Substantial NonCompliance. In its last CRA
evaluation, we received a rating of "Needs to Improve." For a detailed
discussion of the risks associated with this rating and our response to receipt
of the rating, see "Management's Discussion and Analysis and Results of
Operations -- CRA Compliance" in the Annual Report.
TRANSACTIONS WITH AFFILIATES. Generally, transactions between a savings
institution and its affiliates are subject to certain limitations. Our
affiliates include the Company and any company which would be under common
control with us. Such transactions must be on terms as favorable to the
savings institution as comparable transactions with non-affiliates. In
addition, certain of these transactions are restricted to an aggregate
percentage of the savings institution's capital. Collateral in specified
amounts must usually be provided by affiliates in order to receive loans from
the savings institution. In addition, a savings institution may not extend
credit to any affiliate engaged in activities not permissible for a bank holding
company or acquire the securities of any affiliate that is not a subsidiary.
The OTS has the discretion to treat subsidiaries of savings institution as
affiliates on a case-by-case basis.
LOANS TO DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS. Loans
from us to our directors, executive officers and our principal stockholders may
not be made on terms more favorable than those afforded to other borrowers. In
addition, we cannot make loans in excess of certain levels to directors,
executive officers or 10% or greater stockholders (or any of their affiliates)
unless the loan is approved in advance by a majority of our Board of Directors
with any "interested" director not voting. We are also prohibited from paying
any overdraft of any of our executive officers or directors. We are also
subject to certain other restrictions on the amount and type of loans to
executive officers and directors and must annually report such loans to our
regulators.
LIQUIDITY REQUIREMENTS. All savings institutions are required to maintain
an average daily balance of liquid assets equal to a certain percentage of the
sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At December 31, 1998, our required liquid
asset ratio was 4% and our actual ratio was 29.16%. Monetary penalties may be
imposed upon institution for violations of liquidity requirements.
FEDERAL HOME LOAN BANK SYSTEM. We are a member of the FHLB of Atlanta,
which is one of 12 regional FHLBs. Each FHLB serves as a reserve or central
bank for its members within its assigned region. It is funded primarily from
funds deposited by savings institutions and proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB of
Atlanta in an amount equal to at least 1% of our aggregate unpaid residential
mortgage loans, home purchase contracts or similar obligations at the
19
<PAGE>
beginning of each year, or 1/20 of our advances from the FHLB of Atlanta,
whichever is greater. At December 31, 1998, we had $272,900 in FHLB stock, at
cost, which was in compliance with this requirement.
FEDERAL RESERVE SYSTEM. The Federal Reserve System requires all depository
institutions to maintain non-interest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS. At December
31, 1998, our reserve met the minimum level required by the Federal Reserve
System.
REGULATION OF THE COMPANY
GENERAL. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any non-
savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to us. This
regulation is intended primarily for the protection of our depositors and not
for the benefit of you, as stockholders of the Company. The Company is also
required to file certain reports with, and comply with the rules and regulations
of the Securities and Exchange Commission under the federal securities laws.
ACTIVITIES RESTRICTIONS. Since the Company will only own one savings
institution, it will be able to diversify its operations into activities not
related to banking, but only so long as we satisfy the Qualified Thrift Lender
Test. If the Company controls more than one savings institution, it would lose
the ability to diversify its operations into non-banking related activities,
unless such other savings institutions each also qualify as a Qualified Thrift
Lender and were acquired in a supervised acquisition. See "-- Qualified Thrift
Lender Test."
RESTRICTIONS ON ACQUISITIONS. The Company must obtain approval from the
OTS before acquiring control of any other savings institution or savings and
loan holding company, substantially all the assets thereof or in excess of 5% of
the outstanding shares of another savings institution or savings and loan
holding company. The Company's directors and officers or persons owning or
controlling more than 25% of the Company's stock, must also obtain approval of
the OTS before acquiring control of any savings institution or savings and loan
holding company.
The OTS may only approve acquisitions that will result in the formation of
a multiple savings and loan holding company which controls savings institutions
in more than one state if: (i) the multiple savings and loan holding company
involved controls a savings institution which operated a home or branch office
in the state of the institution to be acquired as of March 5, 1987; (ii) the
acquiror is authorized to acquire control of the savings institution pursuant to
the emergency acquisition provisions of the Federal Deposit Insurance Act; or
(iii) the statutes of the state in which the institution to be acquired is
located specifically permit institutions to be acquired by state-chartered
institutions or savings and loan holding companies located in the state where
the acquiring entity is located (or by a holding company that controls such
state-chartered savings institutions).
FEDERAL TAXATION
We are subject to the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), in the same general manner as other corporations.
However, prior to August 1996, savings institutions such as us, which met
certain definitional tests and certain other conditions prescribed by the Code
could benefit from certain favorable provisions regarding their deductions from
taxable income for annual additions to their bad debt reserve. The amount of
the bad debt deduction that a qualifying savings institution could claim for tax
purposes with respect to additions to its reserve for bad debts for "qualifying
real property loans" could be based upon our actual loss experience (the
"experience method") or as a percentage of our taxable income (the "percentage
of taxable income method"). Historically, we used the method that would allow
us to take the largest deduction.
20
<PAGE>
In August 1996, the Code was revised to equalize the taxation of savings
institutions and banks. Savings institutions, such as us, no longer have a
choice between the percentage of taxable income method and the experience method
in determining additions to bad debt reserves. Thrifts with $500 million of
assets or less may still use the experience method, which is generally available
to small banks currently. Larger thrifts may only take a tax deduction when a
loan is actually charged off. Any reserve amounts added after 1987 will be
taxed over a six year period beginning in 1996; however, bad debt reserves set
aside through 1987 are generally not taxed. A savings institution may delay
recapturing into income its post-1987 bad debt reserves for an additional two
years if it meets a residential-lending test. This law is not expected to have
a material impact on us. At December 31, 1998, we had $102,451 of post-1987 bad
debt reserves.
Earnings appropriated to our bad debt reserve and claimed as a tax
deduction including our supplemental reserves for losses will not be available
for the payment of cash dividends or for distribution (including distributions
made on dissolution or liquidation), unless we include the amount in income,
along with the amount deemed necessary to pay the resulting federal income tax.
If such amount is used for any purpose other than bad debt losses, including a
dividend distribution or a distribution in liquidation, it will be subject to
federal income tax at the then current rate.
The Code imposes a tax ("AMT") on alternative minimum taxable income
("AMTI") at a rate of 20%. AMTI is increased by certain preference items,
including the excess of the tax bad debt reserve deduction using the percentage
of taxable income method over the deduction that would have been allowable under
the experience method. Only 90% of AMTI can be offset by net operating loss
carryovers of which we currently have none. AMTI is also adjusted by
determining the tax treatment of certain items in a manner that negates the
deferral of income resulting from the regular tax treatment of those items.
Thus, our AMTI is increased by an amount equal to 75% of the amount by which our
adjusted current earnings exceeds our AMTI (determined without regard to this
adjustment and prior to reduction for net operating losses). In tax years
beginning after December 31, 1997, a "small" corporation will not be subject to
the AMT because its tentative minimum tax will be treated as zero. For a tax
year beginning in 1998, a corporation that has had average annual gross receipts
of $5,000,000 or less for its 1995-1997 tax years will be a small corporation.
Once a corporation is recognized as a small corporation, it will continue to be
exempt from AMT as long as its average annual gross receipts for the prior 3-
year period is not in excess of $7,500,000. If a corporation ceases to be a
small corporation, the AMT will apply prospectively only.
The Company may exclude from its income 100% of dividends received from us
as a member of the same affiliated group of corporations. A 70% dividends
received deduction generally applies with respect to dividends received from
corporations that are not members of such affiliated group, except that an 80%
dividends received deduction applies if the Company owns more than 20% of the
stock of a corporation paying a dividend. The above exclusion amounts, with the
exception of the affiliated group figure, were reduced in years in which we
availed our self of the percentage of taxable income bad debt deduction method.
Our federal income tax returns have not been audited by the IRS in the last
ten years.
STATE TAXATION
The Company is subject to Maryland corporation income tax which is 7%. The
Company is incorporated under Maryland law.
21
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY
- --------------------------------
The following table sets forth certain information regarding the Bank's
offices and other material property.
<TABLE>
<CAPTION>
Book Value Deposits
Year Owned or at December 31, Approximate at December 31,
Opened Leased 1998 (1) Square Footage 1998
------ ---------- ---------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
(Deposits in thousands)
Main Office:
1844 E. Joppa Road 1983 Leased (2) $ 18,802 3,150 $21,694
Baltimore, Maryland
BRANCH OFFICE:
8705 Harford Road
Baltimore, Maryland 1923 Owned 26,697 750 16,881
EXECUTIVE OFFICES:
8005 Harford Road
Baltimore, Maryland 1998 Leased (3) 81,593 2,915 N/A
- -------------------------
</TABLE>
(1) Cost less accumulated depreciation and amortization.
(2) Lease has been renewed through 03/31/03.
(3) Lease commenced March 10, 1998 and will expire on June 10, 2000.
The book value of the Bank's investment in premises and equipment totaled
$127,092 at December 31, 1998.
PERSONNEL
At December 31, 1998, we had 10 full-time and 1 part-time employees. None
of our employees are represented by a collective bargaining group. We believe
that our relationship with our employees is good.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth information regarding the executive officers
of the Company who do not serve on the Board of Directors.
<TABLE>
<CAPTION>
Age at
December 31,
Name 1998 Title
- ------------------- ------------ -----------------------------------------------------
<S> <C> <C>
Anthony B. Quigley 61 Vice President
John P. Sabol, Jr. 33 Vice President, Chief Financial Officer and Treasurer
</TABLE>
ANTHONY B. QUIGLEY has been employed by us since 1984 and currently
serves as the Company's Vice President and the Bank's Vice President, Security
Officer and Savings Compliance Officer. He is a member of the Glen Burnie Park
Improvement Association and the Holy Trinity Roman Catholic Church.
JOHN P. SABOL, JR. has been employed with us since February 1993. He
began his employment with us as a management trainee and, in November 1997, was
appointed as the Bank's Vice President and Chief Financial Officer. Upon the
formation of the Company in March 1998, he became its Vice President, Chief
Financial Officer and Treasurer. He is a member of the Financial Managers
Society.
22
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
- -------------------------
The Bank is, from time to time, a party to legal proceedings arising in
the ordinary course of the Bank's business, including legal proceedings to
enforce the Bank's rights against borrowers. At December 31, 1998, there were no
legal proceedings to which the Company or the Bank was a party, or to which any
of their property was subject, which were expected by management to result in
material loss to the Company or the Bank.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
There were no matters submitted to a vote of the security holders during
the fourth quarter of the fiscal year ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ----------------------------------------------------------------
(a) The information contained under the sections captioned "Market and
Dividend Information" in the Annual Report, filed as Exhibit 13 hereto, is
incorporated herein by reference.
(b) On November 12, 1998, the Company issued 475,442 shares of its
common stock, par value $.01 per share (the "Common Stock"), pursuant to the
terms of the Plan of Conversion adopted by the Bank on December 17, 1997 and
subsequently amended. The shares were issued in connection with the Bank's
conversion from mutual to stock form as a wholly owned subsidiary of the
Company. As part of the conversion, the Company sold 475,442 shares of Common
Stock to the public.
The following information is provided with respect to the Company's sale
of shares of Common Stock pursuant to its Registration Statement on Form SB-2,
Commission File No. 333-48615, declared effective by the Securities and Exchange
Commission on September 22, 1998. The offering commenced on October 1, 1998 and
terminated on October 29, 1998. The Company retained Trident Securities, Inc.
("Trident Securities"), a broker-dealer registered with the SEC and a member of
the National Association of Securities Dealers, Inc., to provide financial and
sales assistance in connection with the offering. Trident Securities agreed to
use its best efforts to assist the Company with the sale of the Common Stock in
the offering. Trident Securities was not obligated to take or purchase any
shares of Common Stock in the offering. In the offering, the Company registered
502,550 shares of Common Stock with an aggregate offering price of $5,025,500,
all for the account of the Company. On November 12, 1998, the Company sold a
total of 475,442 shares of Common Stock for aggregate consideration of
$4,754,420.
The following table sets forth expenses incurred or estimated to have
been incurred by the Company in connection with the offering. An asterisk
indicates that the amount is an estimate. All of such amounts were paid to
persons or entities who were not officers, directors or 10% stockholders of the
Company or their affiliates or an affiliate of the Company.
<TABLE>
<CAPTION>
Expenses Amount
-------- ------
<S> <C>
Underwriting discounts and commissions....... $ 95,000
Finders' fees................................ --
Expenses paid to or for underwriters......... 410,000
Other expenses............................... 229,000
--------
Total expenses.............................. $334,000
========
</TABLE>
After deducting expenses, the net offering proceeds are estimated to
be $4,420,000.
23
<PAGE>
The following table sets forth the purposes for which the net offering
proceeds were used and the amount of the net offering proceeds used for each
purpose. An asterisk indicates that the amount is an estimate. All of such
amounts were paid to persons or entities who were not officers, directors or 10%
stockholders of the Company of their affiliates or an affiliate of the Company.
<TABLE>
<CAPTION>
Expenses Amount
-------- ----------
<S> <C>
Construction of plant, building and facilities...... $ --
Purchase and installation of machinery
and equipment..................................... --
Purchases of real estate............................ --
Acquisition of other business....................... --
Repayment of Indebtedness........................... --
Working capital..................................... 4,040,000
Loan to Employee Stock Ownership Plan............... 380,000
----------
$4,420,000
==========
</TABLE>
The uses of proceeds described above do not represent a material change
in the use of proceeds described in the Company's Prospectus dated September 22,
1998.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
- -----------------------------------------------------------------
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in the
Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
- ----------------------------
The Consolidated Financial Statements, Notes to Consolidated Financial
Statements and Independent Auditors' Report in the Annual Report are
incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE
- --------------------
Not applicable.
24
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
-------------------------------------------------------------
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
- -------------------------------------------------
For information concerning the directors of the Company, the
information contained under the section captioned "Proposal I -- Election of
Directors" in the Company's definitive Proxy Statement for the Company's 1999
Annual Meeting of Stockholders (the "Proxy Statement") is incorporated herein by
reference. For information concerning the executive officers of the Company, see
"Item 1. Business -- Executive Officers Who Are Not Directors" under Part I of
this report, which is incorporated herein by reference.
For information regarding compliance with Section 16(a) of the Exchange
Act, as required by Section 405 of Regulation S-B, reference is made to the
section captioned in the Proxy Statement, which is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
- -------------------------------
The information contained under the sections captioned "Executive
Compensation -- Summary Compensation Table", "Directors' Compensation" and
"Executive Compensation -- Employment Agreement" in the Proxy Statement is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -----------------------------------------------------------------------
(a) Security Ownership of Certain Beneficial Owners
Information required by this item is incorporated herein by
reference to the section captioned "Voting Securities and Principal
Holders Thereof" in the Proxy Statement.
(b) Security Ownership of Management
Information required by this item is incorporated herein by
reference to the sections captioned "Voting Securities and Principal
Holders Thereof" and "Proposal I -- Election of Directors" in the
Proxy Statement.
(c) Changes in Control
Management of the Company knows of no arrangements, including any
pledge by any person of securities of the Company, the operation of
which may at a subsequent date result in a change in control of the
registrant.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------------------------------------------------------
The information required by this item is incorporated herein by
reference to the section captioned "Transactions with Management" in the Proxy
Statement.
25
<PAGE>
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K.
- ------------------------------------------------
(A) LIST OF DOCUMENTS FILED AS PART OF THIS REPORT
----------------------------------------------
(1) a. Financial Statements. The following financial statements are
incorporated by reference from Item 7 (see Exhibit 13):
Independent Auditor's Report
Consolidated Statements of Financial Condition as of December
31, 1998 and 1997
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997
Notes to Consolidated Financial Statements
b. Financial Statement Schedules. All schedules for which
provision is made in the applicable accounting regulations of the Securities and
Exchange Commission are omitted because of the absence of conditions under which
they are required or because the required information is included in the
consolidated financial statements and related notes thereto.
(2) Exhibits. The following is a list of exhibits filed as part of this
Annual Report on Form 10-KSB and is also the Exhibit Index.
<TABLE>
<CAPTION>
No. Description
--- -----------
<S> <C> <C>
3.1 Articles of Incorporation of Northfield Bancorp, Inc. *
3.2 Bylaws of Northfield Bancorp, Inc. *
4 Form of Common Stock Certificate of Northfield Bancorp, Inc. **
10.1 Northfield Bancorp, Inc. 199__ Stock Option and Incentive Plan *+
10.2 Northfield Bancorp, Inc. Management Recognition Plan *+
10.3 Northfield Federal Savings Deferred Compensation Plan *+
10.4 Employment Agreement between Northfield Federal Savings and G. Ronald Jobson *+
13 Annual Report to Stockholders
27 Financial Data Schedule
</TABLE>
_____________
(*) Incorporated herein by reference from Registration Statement on Form SB-2
filed (File No. 333-48615).
(**) Incorporated herein by reference from Registration Statement on Form 8-A
filed November 12, 1998 (File No. 0-25057).
(+) Management contract or compensatory plan or arrangement.
(B) REPORTS ON FORM 8-K. There were no Current Reports on Form 8-K
-------------------
were filed by the Company during the fourth quarter of the fiscal year ended
December 31, 1998.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NORTHFIELD BANCORP, INC.
March 18, 1999 By: /s/ G. Ronald Jobson
-------------------------------------
G. Ronald Jobson
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ G. Ronald Jobson March 18, 1999
- ------------------------------------------------------
G. Ronald Jobson
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ John P. Sabol, Jr. March 18, 1999
- ------------------------------------------------------
John P. Sabol, Jr.
Vice President, Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
/s/ Gary R. Bozel March 18, 1999
- ------------------------------------------------------
Gary R. Bozel
Chairman of the Board
/s/ J. Thomas Hoffman March 18, 1999
- ------------------------------------------------------
J. Thomas Hoffman
Director
/s/ E. Thomas Lawrence, Jr. March 18, 1999
- ------------------------------------------------------
E. Thomas Lawrence, Jr.
Director
/s/ David G. Rittenhouse March 18, 1999
- ------------------------------------------------------
David G. Rittenhouse
Director
/s/ William R. Rush March 18, 1999
- ------------------------------------------------------
William R. Rush
Director
27
<PAGE>
EXHIBIT 13
NORTHFIELD BANCORP, INC.
ANNUAL
__________
1998
__________
REPORT
<PAGE>
Letter to Our Stockholders
April 9, 1999
Dear Stockholders:
The Directors, Officers and staff of Northfield Bancorp, Inc. are very
pleased to present you our first Annual Report following our public offering on
November 12, 1998. It is my pleasure to report to you the fiscal 1998 financial
consolidated results of Northfield Bancorp, Inc., the parent corporation of
Northfield Federal Savings Bank.
Northfield Federal's assets increased by $8.2 million or 23% from $36.1
million at December 31, 1997 to $44.3 million at December 31, 1998, primarily
due to an increase in construction/permanent loans and proceeds from our stock
offering.
Earnings for the year were $307,000 as compared to $145,000 for the year
ended December 31, 1997. The increase in net earnings was primarily due to an
increase in net interest income of $101,000, a decrease in provision for loan
losses of $123,000, offset in part by an increase in income tax expense of
$105,000, due to our increased profitability.
Northfield Bancorp, Inc. stockholders' equity was $7.128 million or 16% of
total assets at year-end. The book value of the company as of December 31, 1998
was $14.99 per share. Outstanding shares total 475,442.
Regarding the Year 2000 issue, Northfield Federal has developed and is
currently implementing a plan to address this date change. Management expects
that this issue will have no adverse effect on our operations and service to
customers. See "Year 2000 Compliance Disclosure" in the Annual Report.
In summary, the Board, Management and staff remain committed to maximizing
the return on your investment and feel confident that increasing net interest
income and managing operating expenses will achieve this.
Thank you for your support as we look optimistically toward fiscal 1999.
Sincerely,
\s\ G. Ronald Jobson
G. Ronald Jobson
President and Chief Executive Officer
<PAGE>
NORTHFIELD BANCORP, INC.
Northfield Bancorp, Inc. (the "Company") was organized under the laws of
the State of Maryland in March 1998 at the direction of the Board of Directors
of Northfield Federal Savings Bank ("us," "we," etc. or the "Bank") to acquire
all of the capital stock to be issued by the Bank in its conversion from mutual
to stock form (the "Conversion"). The Conversion was completed on November 12,
1998, with the Company issuing 475,422 shares of its common stock, par value
$0.01 per share (the "Common Stock") to the public, and the Bank issuing all of
its issued and outstanding common stock to the Company. Prior to the
Conversion, the Company did not engage in any material operations. The Company
does not have any significant assets other than the outstanding capital stock of
the Bank, cash and investment securities and a note receivable from the Bank's
employee stock ownership plan. The Company's principal business is the
business of the Bank. At December 31, 1998, the Company had total assets of
$44.3 million, deposits of $36.4 million and stockholders' equity of $7.1
million.
NORTHFIELD FEDERAL SAVINGS BANK
We are a community and customer oriented federal stock savings bank
operating through two offices located in Baltimore, Maryland. We were
originally founded in 1923 as a federally chartered mutual savings and loan
association with the name "Northfield Federal Savings." Upon completion of the
Conversion, we changed our name to "Northfield Federal Savings Bank." We are a
member of the Federal Home Loan Bank ("FHLB") System. Our primary market area
consists of Baltimore County, Maryland. In addition, we focus our lending
efforts on Harford and Cecil Counties, Maryland. We emphasize residential
construction lending, primarily originating construction/ permanent mortgages on
one- to four-family properties. We also make commercial real estate loans, home
equity loans and limited types of consumer loans. Our deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC") under
the Savings Association Insurance Fund ("SAIF").
Both the Company's and our executive offices are located at 8005 Harford
Road, Baltimore, Maryland 21234, and our telephone number is (410) 665-7900.
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
At December 31,
---------------------------
1998 1997
-------- --------
(In thousands)
<S> <C> <C>
Total assets.............................. $44,310 $36,084
Cash...................................... 166 117
Interest-bearing deposits in other banks.. 4,834 3,514
Investments held to maturity.............. 799 --
Mortgage-backed securities................ 2,123 1,955
Loans receivable - net.................... 35,702 29,961
Federal Home Loan Bank of Atlanta stock... 273 226
Deposit accounts.......................... 36,435 32,622
Total equity.............................. 7,128 2,894
SELECTED OPERATIONS DATA
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997
------- -------
(In thousands)
<S> <C> <C>
Interest income........................... $ 2,984 $ 2,626
Interest expense.......................... 1,750 1,493
------- -------
Net interest income....................... 1,234 1,133
Provision for loan losses................. -- 123
------- -------
Net interest income after provision
for loan losses.......................... 1,234 1,010
Noninterest income (loss)................. 30 (2)
Noninterest expense....................... 761 772
------- -------
Income before taxes....................... 503 236
Income tax expense........................ 196 91
------- -------
Net income................................ $ 307 $ 145
======= =======
</TABLE>
<PAGE>
SELECTED RATIOS
<TABLE>
<CAPTION>
At or for the
Year Ended December 31,
----------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
PERFORMANCE RATIOS:
Return on assets (ratio of net earnings
to average total assets).................... .77% .43% .46%
Return on equity (ratio of net earnings
to average equity).......................... 8.05 4.99 5.50
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 111.57 111.11 109.99
Ratio of net interest income, after provision
for loan losses and noninterest expense..... 162.16 130.83 124.56
Net interest rate spread....................... 2.63 2.88 2.90
Net interest margin............................ 3.15 3.37 3.34
ASSET QUALITY RATIOS:
Nonperforming loans to total loans
at end of period............................ .77 1.31 1.07
Nonperforming loans to total assets............ .67 1.15 .84
Nonperforming assets to total assets
at end of period............................ .67 1.15 .84
Allowance for loan losses to nonperforming
loans at end of period...................... 66.55 52.17 37.04
Allowance for loan losses to total loans, net.. .55 .72 .42
CAPITAL RATIOS:
Equity to total assets at end of period........ 16.09 8.02 8.47
Average equity to average assets............... 9.58 8.52 8.39
OTHER DATA:
Number of full service offices................. 2 2 2
</TABLE>
<PAGE>
MARKET INFORMATION
The Common Stock is listed in the over-the-counter through the OTC
"Electronic Bulletin Board" under the symbol "NFSB". There are currently 475,442
shares of the Common Stock outstanding. The number of registered holders of
Common Stock on March 10, 1999 was 221. The high and low bid prices for the
Common Stock for the quarter ended December 31, 1998 were $10.25 and $10.00,
respectively. No dividends have been declared or paid on the Common Stock.
The income of the Company consists of interest on investment and related
securities and dividends which may periodically be declared and paid by the
Board of Directors of the Bank on the common shares of the Bank held by the
Company.
In addition to certain federal income tax considerations, OTS regulations
impose limitations on the payment of dividends and other capital distributions
by savings institutions. Under OTS regulations applicable to converted savings
institutions, we are not permitted to pay a cash dividend on our common shares
if our regulatory capital would, as a result of the payment of such dividend, be
reduced below the amount required for the liquidation account established in
connection with the Conversion or applicable regulatory capital requirements
prescribed by the OTS.
OTS regulations applicable to all savings associations provide that a
savings association which immediately prior to, and on a pro forma basis after
giving effect to, a proposed capital distribution (including a dividend) has
total capital (as defined by OTS regulations) that is equal to or greater than
the amount of its capital requirements is generally permitted without OTS
approval (but subsequent to 30 days' prior notice to the OTS) to make capital
distributions, including dividends, during a calendar year in an amount not to
exceed the greater of (i) 100% of its net income to date during the calendar
year, plus the amount equal to one-half the amount by which its total capital to
assets ratio exceeded its required capital to assets ratio at the beginning of
the calendar year, or (ii) 75% of its net income for the most recent four-
quarter period. Savings associations with total capital in excess of the capital
requirements that have been notified by the OTS that they are in need of more
than normal supervision will be subject to restrictions on dividends. A savings
association that fails to meet current minimum capital requirements is
prohibited from making any capital distributions without the prior approval of
the OTS.
We currently meet all of our regulatory requirements and, unless the OTS
determines that we are an institution requiring more than normal supervision, we
may pay dividends in accordance with the foregoing provisions of the OTS
regulations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's principal business is that of the Bank. Therefore, this
discussion relates primarily to the Bank. Our profitability depends primarily on
our net interest income, which is the difference between interest and dividend
income on our interest-earning assets, principally loans, mortgage-backed
securities and investment securities, and interest expense on our interest-
bearing deposits and borrowings. Our net earnings also are dependent, to a
lesser extent, on the level of our noninterest income (including servicing fees
and other fees) and our noninterest expenses, such as compensation and benefits,
occupancy and equipment, insurance premiums, and miscellaneous other expenses,
as well as federal income tax expense.
YEAR 2000 COMPUTER READINESS DISCLOSURE
A great deal of information has been disseminated about the global computer
problem that may occur in the year 2000 which would affect the speed and
accuracy of the data processing that is essential to our operations. We have now
completed a thorough review of our internal systems as well as the efforts of
our outside data processing
<PAGE>
service provider. The progress of the plan is monitored by our board of
directors. We began testing our internal PC based applications beginning in
February 1998. As of December 31, 1998, we have spent $8,500 on our year 2000
project. We have replaced several outdated teller terminal units. We expect the
total project to cost us $14,000, due to the replacement of a few more teller
terminal units and the cost of our customer awareness effort. The greatest
potential for problems, however, concerns the data processing provided by our
third party service bureau. The service bureau is providing us with quarterly
updates of its compliance progress and has advised us that it expects to resolve
this problem before the year 2000 and is well on its way to doing so. We
completed testing with our third party data processing service bureau in August
1998. We are in the process of developing a contingency plan to deal with the
potential that if our service bureau is unable to bring its systems into
compliance or we have failures in any other areas despite all of our
preparations, we will be able to continue operating. There can be no assurance
in this regard, however, and it is possible that we could experience data
processing delays, errors or failures, all of which could have a material
adverse impact on our financial condition and results of operations. However, we
also will implement our contingency plan in the event of delays, errors or
failures and expect to be able to continue operating by other means.
CRA COMPLIANCE
We are periodically examined by the OTS for our record of meeting the
credit needs of our local communities pursuant to the Community Reinvestment Act
("CRA"). The OTS rates the performance of a savings institution under
applicable CRA performance standards and assigns one of the following ratings:
Outstanding, Satisfactory, Needs to Improve, or Substantial Non-Compliance. In
our 1998 CRA evaluation, we received a "Needs to Improve" CRA rating. In
response to this rating, our Board of Directors approved and we implemented a
CRA action plan which calls for, among other things, expanding our lending to
low- and moderate-income borrowers. This plan includes: (i) a $380,000
investment in loans to first time low- and moderate-income home buyers; (ii)
offering 97% loan-to-value ratio loans with private mortgage insurance, no
points, and a 1/8% rate discount below our current rate offering plan; (iii)
expanding our solicitation, advertising and education efforts to reach low- and
moderate-income borrowers; and (iv) purchasing low- and moderate-income loans
from brokers at a premium.
In implementing our CRA plan, we purchased VA and FHA loans in low and
moderate census tracts located in the Baltimore area. We have committed
$863,000 in these census tracts to date. We also have purchased a GNMA II
Mortgage Backed Security for $541,000 in low and moderate census tracts located
in Baltimore and Harford counties.
The OTS is required to take a "Needs to Improve" rating into account
in the agency's evaluation of, among other things, applications to relocate a
main office or branch or to establish new branches. Accordingly, our "Needs to
Improve" rating may prevent or delay our plans to lease or purchase new branch
offices and longer term, to build a new main office. Further, our CRA rating
may have additional detrimental effects on our operations. A "Needs to Improve"
rating often prevents an institution from using expedited regulatory application
procedures and is generally viewed by regulatory authorities as an impediment to
approving regulatory applications filed by an institution. For example, the OTS
and other federal banking regulators may consider our CRA rating in any
potential merger or acquisition application and use the CRA rating as a basis
for denying any such application. Finally, community groups and other
interested persons may react unfavorably to our rating, including possibly
protesting branch or other regulatory applications that we file, which is
publicly available.
While our Board and management are committed to improving our CRA
rating as soon as possible, there can be no assurance that our efforts will in
fact result in enhanced CRA performance or an improvement in our rating. While
we have a "Needs to Improve" rating, our planned uses of funds may be impeded
and our CRA rating may, therefore, interfere with our strategic business plans.
<PAGE>
MARKET RISK DISCLOSURE
ASSET/LIABILITY MANAGEMENT. Our assets and liabilities may be
analyzed by examining the extent to which our assets and liabilities are
interest-rate sensitive and by monitoring the expected effects of interest rate
changes on our net portfolio value.
An asset or liability is interest rate sensitive within a specific
time period if it will mature or reprice within that time period. If our assets
mature or reprice more quickly or to a greater extent than our liabilities, our
net portfolio value and net interest income would tend to increase during
periods of rising interest rates but decrease during periods of falling interest
rates. Conversely, if our assets mature or reprice more slowly or to a lesser
extent than our liabilities, our net portfolio value and net interest income
would tend to decrease during periods of rising interest rates but increase
during periods of falling interest rates. Our policy has been to mitigate the
interest rate risk inherent in the historical savings institution business of
originating long-term loans funded by short-term deposits by pursuing certain
strategies designed to decrease the vulnerability of our earnings to material
and prolonged changes in interest rates.
To manage the interest rate risk of this type of loan portfolio, we
are attempting to emphasize loans with shorter terms and variable interest rates
and longer term deposits. Most of the loans in our portfolio, however, have
fixed rates. Unlike many other thrift institutions who offer both adjustable
and fixed rates on single family loans and tend to emphasize adjustable rate
loans under rising interest rate conditions, our policy is to originate all of
our one- to four-family residential loans, representing 81.5% of our total loans
at December 31, 1998, with fixed rates. While we plan to emphasize the
origination of home equity loans with shorter terms and variable rates, our
primary loan product will continue to be long term, fixed rate
construction/permanent loans. Our interest rate risk is, therefore,
significant, and our earnings will continue to be vulnerable to a rise in
prevailing interest rates.
At December 31, 1998, the average weighted term to maturity of our
mortgage loan portfolio was approximately 24 years and the average weighted term
of our fixed maturity deposits was slightly less than 16 months.
Net Portfolio Value. In recent years, we have measured our interest
rate sensitivity by computing the "gap" between the assets and liabilities which
were expected to mature or reprice within certain time periods, based on
assumptions regarding loan prepayment and deposit decay rates formerly provided
by the OTS. However, the OTS now measures an institution's interest rate risk
by computing the amount by which the net present value of cash flow from assets,
liabilities and off balance sheet items (the institution's net portfolio value
or "NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on an institution's NPV
from instantaneous and permanent 1% to 4% (100 to 400 basis points) increases
and decreases in market interest rates. The following table presents the
interest rate sensitivity of our NPV at December 31, 1998, as calculated by the
OTS, which is based upon quarterly information that we voluntarily provided to
the OTS.
<TABLE>
<CAPTION>
Net Portfolio Value NPV as % of Portfolio Value of Assets
Change ------------------------------ --------------------------------------
in Rates $ Amount $ Change % Change NPV Ratio Basis Point Change
-------- -------- ---------- -------- --------- --------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
+ 400 bp $1,392 $(4,560) (77)% 3.42% (948) bp
+ 300 bp 2,552 (3,399) (57) 6.06 (683) bp
+ 200 bp 3,784 (2,167) (36) 8.69 (420) bp
+ 100 bp 4,996 (956) (16) 11.11 (178) bp
0 bp 5,951 12.89
- 100 bp 6,405 454 8 13.66 77 bp
- 200 bp 6,714 763 13 14.14 125 bp
- 300 bp 7,128 1,176 20 14.79 189 bp
- 400 bp 7,478 1,527 26 15.30 241 bp
</TABLE>
<PAGE>
While we cannot predict future interest rates or their effects on our NPV or
net interest income, we do not expect current interest rates to have a material
adverse effect on our NPV or net interest income in the near future.
Computations of prospective effects of hypothetical interest rate changes are
based on numerous assumptions, including relative levels of market interest
rates, prepayments and deposit runoff and should not be relied upon as
indicative of actual results. Certain shortcomings are inherent in such
computations. Although certain assets and liabilities may have similar maturity
or periods of repricing, they may react at different times and in different
degrees to changes in the market interest rates. The interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while rates on other types of assets and liabilities may lag
behind changes in market interest rates. Certain assets, such as variable rate
loans, generally have features which restrict changes in interest rates on a
short-term basis and over the life of the loan. In the event of a change in
interest rates, prepayments and early withdrawal levels could deviate
significantly from those assumed in making calculations set forth above.
Additionally, an increased credit risk may result as the ability of many
borrowers to service their debt may decrease in the event of an interest rate
increase.
Our Board of Directors reviews our asset and liability policies and meets
regularly to review interest rate risk and trends, as well as liquidity and
capital ratios and requirements. The estimated changes of our NPV set forth
above fell within the targets established by our Board of Directors. Management
administers the policies and determinations of our Board of Directors with
respect to our asset and liability goals and strategies. We expect that our
asset and liability policies and strategies will continue as described so long
as competitive and regulatory conditions in the financial institution industry
and market interest rates continue as they have in recent years.
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
The following table sets forth certain information relating to our average
statement of financial condition and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid at the date and for the periods indicated. Such yields
and costs are derived by dividing income or expense by the average monthly
balance of assets or liabilities, respectively, for the periods presented.
Average balances are derived from month-end balances. We do not believe that
the use of month-end balances instead of daily balances has caused any material
difference in the information presented. For the purposes of computing the
average yield, nonaccruing loans have been included in the average balances.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1998 1997
---------------------------- ----------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST COST BALANCE INTEREST COST
------- --------- -------- ------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans..................................... $32,216 $ 2,566 7.97% $27,282 $ 2,209 8.10%
Investment securities available for sale.. -- -- -- 183 15 8.19
Other investments held to maturity........ 66 2 3.03 -- -- --
Mortgage-backed securities................ 1,984 150 7.56 2,167 166 7.66
Other interest-earning assets (1)......... 4,915 266 5.41 4,003 236 5.90
------- ------- ------- -------
Total interest-earning assets............ 39,181 2,984 7.62 33,635 2,626 7.81
Non-interest-earning assets................. 636 433
------- -------
Total assets............................. $39,817 $34,068
======= =======
Interest-bearing liabilities:
Savings deposits.......................... $35,064 $ 1,748 4.99 $29,854 $ 1,474 4.94
Short-term borrowings (2)................. 53 2 3.77 419 19 4.53
------- ------- ------- -------
Total interest-bearing liabilities....... 35,117 1,750 4.99 30,273 1,493 4.93
------- -------
Non-interest-bearing liabilities............ 886 891
------- -------
Total liabilities........................ 36,003 31,164
Retained earnings........................... 3,814 2,904
------- -------
Total liabilities and retained earnings.. $39,817 $34,068
======= =======
Net interest income......................... $ 1,234 $ 1,133
======= =======
Net interest rate spread (3)................ 2.63% 2.88%
==== ====
Net interest-earning assets................. $ 4,064 $ 3,362
======= =======
Net interest margin (4)..................... 3.15% 3.37%
==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities.... 111.57% 111.11%
======= =======
</TABLE>
_________________________
(1) Other interest-earning assets includes interest-bearing deposits and FHLB
of Atlanta stock.
(2) Short-term borrowings includes FHLB advances and advance payments by
borrowers for expenses.
(3) Net interest rate spread represents the difference between the average
yield on interest-earning assets and the average rate on interest-bearing
liabilities.
(4) Net interest margin represents net interest income divided by average
interest-earning assets.
<PAGE>
RATE/VOLUME ANALYSIS
The table shows certain information regarding changes in our interest
income and interest expense for the periods indicated. For each category of
interest-earning asset and interest-bearing liability, information is provided
on changes attributable to: (i) changes in volume (changes in volume multiplied
by old rate); and (ii) changes in rates (change in rate multiplied by old
volume); and (iii) change in rate-volume (changes in rate multiplied by the
changes in volume).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
1998 VS. 1997 1997 VS. 1996
------------------------------------ -------------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO
------------------------------------ -------------------------------------
RATE/ RATE/
VOLUME RATE VOLUME TOTAL VOLUME RATE VOLUME TOTAL
------- ----- ---------- -------- ------- ------ --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans............................... $ 399 $(35) $ (6) $ 358 $ 341 $ (51) $ (9) $ 281
Investment securities available
for sale.......................... (15) -- -- (15) 1 -- (1) --
Investments held to maturity......... 2 -- -- 2 -- -- -- --
Mortgage-backed securities........... (14) (2) -- (16) 9 (4) -- 5
Interest-bearing deposits............ 53 (19) (4) 30 (129) 20 (8) (117)
----- ---- ----- ----- ----- ----- ---- -----
Total interest-earning assets...... 425 (56) (10) 359 222 (35) (18) 169
----- ---- ----- ----- ----- ----- ---- -----
Interest-bearing liabilities:
Deposits............................. 257 15 3 275 49 29 1 79
Short-term borrowings (1)............ (17) (5) 5 (17) 17 -- -- 17
----- ---- ----- ----- ----- ----- ---- -----
240 10 8 258 66 29 1 96
----- ---- ----- ----- ----- ----- ---- -----
Increase (decrease) in net interest
income............................. $ 185 $(66) $ (18) $ 101 $ 156 $ (64) $(19) $ 73
===== ==== ===== ===== ===== ===== ==== =====
</TABLE>
_______________
(1) Includes FHLB of Atlanta advances and advance payments by borrowers for
expenses.
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1998 AND DECEMBER 31, 1997
Total assets increased by $8.2 million, or 22.7%, from $36.1 million
at December 31, 1997 to $44.3 million at December 31, 1998. Total liabilities
increased by $4.0 million, or 12.0%, from $33.2 million at December 31, 1997 to
$37.2 million at December 31, 1998. The increase in assets was primarily due to
increases in interest bearing deposits in other banks of $1.3 million,
investments held to maturity of $.8 million and loans of $5.7 million. The
increases were the result of investing net proceeds from the sale of capital
stock of $4.4 million and new deposits of $3.8 million.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND
1997
NET INCOME. Our net income increased $162,000 from $145,000 for the fiscal
year ended December 31, 1997 to $307,000 for the fiscal year ended December 31,
1998. The primary reasons for the increase were an increase in net interest
income of $101,000 and a decrease in the provision for loan losses of $123,000
offset somewhat by an increase in the provision for income taxes.
<PAGE>
NET INTEREST INCOME. Our net interest income increased from $1.13 million
for fiscal year 1997 to $1.23 million for fiscal year 1998. The $101,000
increase was due to an increase in the level of interest income we received on
our loan and securities portfolio. Total interest expense also increased
$257,000 during 1998 due to an increase in the average dollar amount of deposits
outstanding.
PROVISION FOR LOAN LOSSES. During fiscal year 1998, we made no provision
for loan losses as compared to a $123,000 provision during the previous fiscal
year. Future additions to the loan loss allowance will be based on the analysis
of the loan portfolio, and, accordingly, are not predictable.
NON-INTEREST INCOME. Non-interest income increased from a negative $2,000
for fiscal year 1997 to $30,000 for fiscal year 1998 due primarily to a loss on
sale of securities during fiscal 1997 that was not repeated in fiscal 1998.
NON-INTEREST EXPENSE. For fiscal year 1998, total non-interest expenses
were $761,000 as compared to $772,000 for fiscal year 1997. The decrease was
primarily due to a decrease in compensation and related expenses, which were
affected in 1997 by the implementation and full vesting of a director's
retirement plan. These expenses were offset slightly by increases in occupancy
expense as we moved our corporate offices to a separate building, professional
fees due to increased reporting requirements related to being a stock company
and other expenses. We expect the level of our non-interest expense to increase
in future periods as a result of expenses associated with the employee stock
ownership plan that we implemented in connection with our stock conversion as
well as other stock benefit plans that we intend to implement in the future.
Our deposit insurance premium expense increased slightly during 1998 as the
result of an increase in deposits.
INCOME TAX EXPENSE. Our income tax expense for fiscal year 1998 was
slightly higher for fiscal 1998 as compared to fiscal 1997, rising $105,000.
LIQUIDITY AND CAPITAL RESOURCES
We are required to maintain minimum levels of liquid assets as defined by
OTS regulations. This requirement, which varies from time to time (currently
4%) depending upon economic conditions and deposit flows, is based upon a
percentage of our deposits and short-term borrowings. The required ratio at
December 31, 1998 was 4% and our liquidity ratio for the quarter ended December
31, 1998 was 29.16%.
Our primary sources of funds are deposits, repayment of loans and mortgage-
backed securities, maturities of investments and interest-bearing deposits,
funds provided from operations and advances from the FHLB of Atlanta. While
scheduled repayments of loans and mortgage-backed securities and maturities of
investment securities are predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by the general level of interest rates,
economic conditions and competition. We use our liquidity resources principally
to fund existing and future loan commitments, to fund maturing certificates of
deposit and demand deposit withdrawals, to invest in other interest-earning
assets, to maintain liquidity, and to meet operating expenses.
Liquidity may be adversely affected by unexpected deposit outflows, higher
interest rates paid by competitors, adverse publicity relating to the savings
and loan industry, and similar matters. Management monitors projected liquidity
needs and determines the level desirable, based in part on our commitments to
make loans and management's assessment of our ability to generate funds.
A major portion of our liquidity consists of cash and cash equivalents,
which include cash and interest-bearing deposits in other banks with a maturity
date of less than ninety days. The level of these assets is dependent upon our
operating, investing, lending and financing activities during any given period.
At December 31, 1998, cash and cash equivalents totaled $4.1 million.
Our primary investing activities include origination of loans and purchase
of mortgage-backed securities. During the years ended December 31, 1998 and
1997, purchases of mortgage-backed securities totaled $1.3 million and $0,
respectively, while loan originations and purchases totaled $12.2 million and
$10.6 million, respectively. These
<PAGE>
investments were funded in part by loan and mortgage-backed security repayments
of $7.5 million and $4.4 million, an increase in certificates of deposit
received of $2.3 million and $3.7 million for the years ended December 31, 1998
and 1997, respectively, and $4.4 million of proceeds from the sale of common
stock which occurred in fiscal 1998.
At December 31, 1998, we had $1.1 million in outstanding commitments to
originate fixed-rate loans with rates that ranged from 6.375% to 8.50% and had
no non-recourse commercial finance lease commitments outstanding. We anticipate
that we will have sufficient funds available to meet our current loan
origination commitments. Certificates of deposit which are scheduled to mature
in one year or less totaled $12.3 million at December 31, 1998. Based on
historical experience management believes that a significant portion of such
deposits will remain with us.
We are subject to federal regulations that impose certain minimum capital
requirements. At December 31, 1998 we were in compliance with all applicable
capital requirements.
IMPACT OF INFLATION AND CHANGING PRICES
Our financial statements and the accompanying notes presented elsewhere in
this report, have been prepared in accordance with generally accepted accounting
principles, which require the measurement of financial position and operating
results in terms of historical dollars without considering the change in the
relative purchasing power of money over time and due to inflation. The impact
of inflation is reflected in the increased cost of our operations. As a result,
interest rates have a greater impact on our performance than do the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS
FASB STATEMENT ON ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES. In June 1998, FASB issued SFAS No. 133. This Statement
standardizes the accounting for derivative instruments including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize these items as assets or liabilities in the statement of financial
position and measure them at fair value. This Statement generally provides for
matching the timing of gain or loss recognition on the hedging instrument with
the recognition of the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or the earnings effect of the
hedged forecasted transaction. The Statement is effective for all fiscal
quarters of all fiscal years beginning after June 15, 1999.
The Company implemented SFAS No. 133 on January 1, 1999. In accordance
with the pronouncement's provisions, the Company reclassified all of its
investments and mortgage-backed securities from held to maturity to available
for sale. On January 11, 1999, the Company sold mortgage-backed securities with
an aggregate net book value of $1,033,399 for $1,048,335 and realized a gain of
$14,936.
<PAGE>
INDEPENDENT AUDITOR'S REPORT
----------------------------
To the Stockholders and Board of Directors
Northfield Bancorp, Inc.
Baltimore, Maryland
We have audited the consolidated statements of financial condition of
Northfield Bancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the two years in the two year period ended December 31, 1998.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Northfield Bancorp, Inc. and Subsidiary as of December 31, 1998 and 1997, and
the consolidated results of its operations and cash flows for each of the two
years in the two year period ended December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Anderson Associates LLP
February 22, 1999
Baltimore, Maryland
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
------------ ------------
Assets
------
<S> <C> <C>
Cash $ 166,446 $ 116,900
Interest bearing deposits in other banks 4,833,876 3,513,650
Investments held to maturity 799,256 --
Mortgage backed securities (Note 3) 2,122,590 1,955,008
Loans receivable, net (Note 4) 35,701,656 29,961,032
Accrued interest receivable - loans 163,989 149,536
- investments 19,016 25,000
- mortgage backed securities 13,569 12,693
Premises and equipment, at cost, less
accumulated depreciation (Note 5) 128,325 40,374
Federal Home Loan Bank of Atlanta stock
at cost (Note 6) 272,900 226,400
Deferred income taxes (Note 11) 57,526 26,279
Prepaid expenses and other assets 30,963 57,544
------------ ------------
Total assets $ 44,310,112 $ 36,084,416
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
- -----------
Deposit accounts (Note 7) $ 36,434,786 $ 32,621,766
Advance payments by borrowers for expenses 462,726 371,262
Income taxes payable (Note 11) 18,449 62,964
Other liabilities 266,230 134,667
------------ ------------
Total liabilities 37,182,191 33,190,659
Commitments and contingencies - Notes 4 and 5
Stockholders' Equity (Notes 9 and 10)
- --------------------
Serial Preferred stock $.01 par value; authorized 2,000,000
shares; none issued or outstanding
Common stock $.01 par value; authorized 8,000,000 shares;
issued and outstanding 475,442 shares in 1998 4,754 --
Additional paid-in capital 4,415,682 --
Retained earnings (substantially restricted) 3,200,542 2,893,757
------------ ------------
7,620,978 2,893,757
Stock held by Rabbi Trust (134,650) --
Employee Stock Ownership Plan (358,407) --
------------ ------------
Total stockholders' equity 7,127,921 2,893,757
------------ ------------
Total liabilities and stockholders' equity $ 44,310,112 $ 36,084,416
============ ============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended
December 31,
------------
1998 1997
----------- -----------
<S> <C> <C>
Income
- ------
Interest and fees on loans (Note 4) $2,566,734 $2,209,375
Interest on investments 267,728 250,846
Interest on mortgage backed securities 149,753 166,235
----------- -----------
Total interest income 2,984,215 2,626,456
Interest Expense
- ----------------
Interest on deposits (Note 7) 1,748,825 1,473,588
Interest on short-term borrowings 1,782 19,973
----------- -----------
Total interest expense 1,750,607 1,493,561
----------- -----------
Net interest income 1,233,608 1,132,895
Provision for losses on loans (Note 4) -- 123,270
----------- -----------
Net interest income after provision for losses on loans 1,233,608 1,009,625
Non-Interest Income (Loss)
- --------------------------
Loss on sale of securities available for sale -- (32,321)
Fees on loans 7,803 8,366
Fees on deposits 12,201 14,033
All other income 10,613 7,504
----------- -----------
Net non-interest income (loss) 30,617 (2,418)
Non-Interest Expenses
- ---------------------
Compensation and related expenses 352,880 469,637
Occupancy 87,531 63,201
Deposit insurance 20,485 15,238
Service bureau expense 57,118 56,637
Furniture, fixtures and equipment expense 22,688 28,075
Advertising 26,383 30,013
Professional fees 64,021 19,310
Other 130,096 89,392
----------- -----------
Total non-interest expenses 761,202 771,503
----------- -----------
Income before tax provision 503,023 235,704
Provision for income tax (Note 11) 196,238 91,173
----------- -----------
Net income $ 306,785 $ 144,531
=========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
-----------------------------------------------
FOR YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
-------------------------------------------------------
<TABLE>
<CAPTION>
Net Unrealized
Gains (Losses) Employee
Additional on Investments Stock Held Stock Total
Common Paid-In Retained Available by Rabbi Ownership Stockholders'
Stock Capital Earnings For Sale Trust Plan Equity
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1996.... $ -- $ -- $ 2,749,226 $ (19,521) $ -- $ -- $ 2,729,705
Net change in unrealized loss
on investment securities...... -- -- -- 19,521 -- -- 19,521
Net income for year ended
December 31, 1997............. -- -- 144,531 -- -- -- 144,531
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1997.... -- -- 2,893,757 -- -- -- 2,893,757
Issuance of common stock....... 4,754 4,415,290 -- -- -- -- 4,420,044
Stock purchased by Employee
Stock Ownership Plan.......... -- -- -- -- -- (380,350) (380,350)
Stock held by Rabbi Trust...... -- -- -- -- (134,650) -- (134,650)
Compensation under Stock-
Based Benefit Plan............ -- 392 -- -- -- 21,943 22,335
Net income..................... -- -- 306,785 -- -- -- 306,785
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance - December 31, 1998.... $ 4,754 $ 4,415,682 $ 3,200,542 $ -- $ (134,650) $ (358,407) $ 7,127,921
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1998 1997
------------ ------------
<S> <C> <C>
Operating Activities
- --------------------
Net income $ 306,785 $ 144,531
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities
-----------------------------------------
Net amortization of premiums and accretion of
discounts on certificates of deposit 3,172 7,358
Stock dividends on investments -- (14,637)
Loss on sale of securities available for sale -- 32,321
Net amortization of premiums and accretion of
discounts on mortgage backed and investment securities 735 2,244
Loan fees deferred 99,319 77,225
Amortization of deferred loan fees (51,630) (27,831)
Provision for losses on loans -- 123,270
Non-cash compensation under Stock-Based Benefit Plans 22,335 --
Increase in accrued interest on loans (14,453) (22,356)
Decrease in accrued interest on investments 5,984 16,157
(Increase) decrease in accrued interest on mortgage
backed securities (876) 2,501
Provision for depreciation 28,640 18,049
Increase in deferred income taxes (31,247) (96,173)
Decrease in prepaid income taxes -- 782
Decrease (increase) in prepaid expenses and
other assets 26,581 (22,698)
Increase in accrued interest payable 1,139 1,615
(Decrease) increase in income taxes payable (44,515) 60,364
Increase in other liabilities 131,563 129,338
------------ ------------
Net cash provided by operating activities 483,532 432,060
Cash Flows from Investing Activities
- ------------------------------------
Proceeds from maturing certificates of deposit 926,000 970,154
Purchases of certificates of deposit (981,331) (150,000)
Proceeds from sale of securities available for sale -- 210,891
Purchase of securities held to maturity (799,250) --
Purchases of mortgage backed securities (1,285,283) --
Principal collected on mortgage backed securities 1,116,961 375,867
Longer term loans originated (11,884,678) (10,580,784)
Loans purchased (302,882) --
Principal collected on longer term loans 6,346,139 4,012,325
Net decrease in short-term loans 53,108 276,157
Purchases of premises and equipment (116,591) (6,122)
Purchase of Federal Home Loan Bank stock (46,500) --
------------ ------------
Net cash used by investing activities (6,974,307) (4,891,512)
</TABLE>
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
-------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
Years Ended December 31,
------------------------
1998 1997
---- ----
Cash Flows from Financing Activities
- ------------------------------------
Net increase (decrease) in demand deposits,
money market, passbook accounts and advance
payments by borrowers for taxes and insurance $ 1,588,186 $ (171,777)
Net increase in certificates of deposit 2,315,159 3,730,367
Net proceeds from stock issuance 4,420,044 --
Common shares purchased under ESOP Plan (380,350) --
Common shares purchased under Rabbi Trust (134,650) --
----------- -----------
Net cash provided by financing activities 7,808,389 3,558,590
----------- -----------
Increase (decrease) in cash and cash equivalents 1,317,614 (900,862)
Cash and cash equivalents at beginning of year 2,744,442 3,645,304
----------- -----------
Cash and cash equivalents at end of year $ 4,062,056 $ 2,744,442
=========== ===========
Reconciliation of cash and cash equivalents:
Cash $ 166,446 $ 116,900
Interest bearing accounts in other banks 4,833,876 3,513,650
----------- -----------
5,000,322 3,630,550
Less - Certificates of deposit maturing in
90 days or more included in interest
bearing accounts in other banks (938,266) (886,108)
----------- -----------
Cash and cash equivalents $ 4,062,056 $ 2,744,442
=========== ===========
Supplemental disclosures of cash flows information:
Cash paid during year for:
Interest $ 1,749,522 $ 1,491,949
Income taxes $ 272,000 $ 126,200
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
-------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Note 1 - Summary of Significant Accounting Policies
------------------------------------------
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts of
Northfield Bancorp, Inc. ("the Company") and its wholly owned
subsidiary, Northfield Federal Savings Bank ("the Bank"). All
intercompany accounts and transactions have been eliminated in the
accompanying consolidated financial statements.
Business
--------
The Bank's primary business activity is the acceptance of
deposits from the general public in its market area and using the
proceeds for investments and loan originations. The Bank is subject to
competition from other financial institutions. The Bank is subject to
the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
Basis of Financial Statement Presentation
-----------------------------------------
The consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. In preparing
the financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
as of the date of the statement of financial condition and revenues and
expenses for the period. Actual results could differ significantly from
those estimates. Material estimates that are particularly susceptible
to significant change in the near-term relate to the determination of
the allowance for loan losses. See the discussion below of the
determination of that estimate.
Investments and Mortgage Backed Securities
------------------------------------------
Investments and mortgage backed securities, including real
estate mortgage investment conduits ("REMICs"), are stated at cost,
adjusted for amortization of premium or discount on purchase, since
management has the intention and ability to hold them to maturity.
Amortization is computed using a method which approximates level yield
over the life of the security. Gains and losses on the sale of
investments and mortgage backed securities are determined using the
specific identification method. See Note 3 for discussion of prepayment
risk and recoverability of mortgage backed securities.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
Loans Receivable
----------------
Loans receivable that management has the intent and ability to
hold for the foreseeable future or until maturity or pay-off are
reported at their outstanding principal balance adjusted for any
charge-offs, the allowance for loan losses, and any deferred fees or
costs on originated loans.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield of the related
loan.
An allowance for loan losses is provided through charges to
income in an amount that management believes will be adequate to absorb
losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss
experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current
economic conditions that may affect the borrowers' ability to pay.
Determining the amount of the allowance for loan losses requires the
use of estimates and assumptions. Management believes the allowance for
losses on loans is adequate. While management uses available
information to estimate losses on loans, future additions to the
allowances may be necessary based on changes in economic conditions,
particularly in the State of Maryland. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowances for losses on loans. Such
agencies may require the Bank to recognize additions to the allowances
based on their judgments about information available to them at the
time of their examination. Statement of Financial Accounting Standards
("SFAS") No. 114, as amended by SFAS No. 118 addresses the accounting
by creditors for impairment of certain loans. It is generally
applicable for all loans except large groups of smaller balance
homogeneous loans that are collectively evaluated for impairment,
including residential mortgage loans and consumer installment loans. It
also applies to all loans that are restructured in a troubled debt
restructuring involving a modification of terms. SFAS No. 114 requires
that impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest rate, or
at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. A loan is considered
impaired when, based on current information and events, it is probable
that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
Loans Receivable - Continued
----------------
Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and
collection efforts, that the borrower's financial condition is such
that collection of interest is doubtful. When a payment is received on
a loan on non-accrual status, the amount received is allocated to
principal and interest in accordance with the contractual terms of the
loan.
Premises and Equipment
----------------------
Land is carried at cost, premises and equipment are carried at
cost less accumulated depreciation. Depreciation is computed on the
straight-line method, based on the useful lives of the respective
assets.
Income Taxes
------------
Deferred income taxes are recognized for temporary differences
between the financial reporting basis and income tax basis of assets
and liabilities based on enacted tax rates expected to be in effect
when such amounts are realized or settled. Deferred tax assets are
recognized only to the extent that it is more likely than not that such
amounts will be realized based on consideration of available evidence.
The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Statement of Cash Flows
-----------------------
In the statement of cash flows, cash and equivalents include
cash and interest bearing deposits in other banks with a maturity date
of less than ninety days.
Employee Stock Ownership Plan
-----------------------------
The Company accounts for its Employee Stock Ownership Plan
("ESOP") in accordance with Statement of Position 93-6 of the
Accounting Standards Division of the American Institute of Certified
Public Accountants (See Note 9).
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 1 - Summary of Significant Accounting Policies - Continued
------------------------------------------
Earnings Per Share
------------------
Basic earnings per share data ("EPS") is computed by dividing
net income by the weighted average number of common shares outstanding
for the appropriate period. Unearned ESOP shares are not included in
outstanding shares. Diluted EPS is computed by dividing net income by
the weighted average shares outstanding adjusted for the dilutive
effect of stock options and unvested stock awards based on the
"treasury stock" method.
Earnings per share data is not presented for the year ended
December 31, 1998 and 1997, since the Bank converted to stock form in
November, 1998, and such information would not be meaningful.
Reclassification
----------------
Certain prior year's amounts have been reclassified to conform
to the current year's presentation.
Note 2 - Investments - Held to Maturity
------------------------------
The amortized cost at and fair values of other investments at
December 31, 1998 are as follows:
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
-------- -------- -------- --------
Federal Home Loan Mortgage
Corporation bonds $250,000 $ -- $ -- $250,000
Municipal bonds 299,256 -- 888 298,368
Corporate bonds 250,000 -- 4,141 245,859
-------- -------- -------- --------
$799,256 $ -- $ 5,029 $794,227
======== ======== ======== ========
No gains or losses were realized during the years ended
December 31, 1998 and 1997.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 2 - Investments - Held to Maturity - Continued
------------------------------
The scheduled maturities of other investments at December 31, 1998:
Amortized Fair
Cost Value
-------- --------
Due after five years through ten years $299,256 $298,368
Due after ten years 500,000 495,859
-------- --------
$799,256 $794,227
======== ========
Note 3 - Mortgage Backed Securities
--------------------------
Mortgage backed securities at December 31, 1998 and 1997
consist of the following:
1998 1997
---- ----
GNMA participating certificates $1,102,928 $ 815,950
FNMA participating certificates 525,304 46,305
FHLMC participating certificates 462,981 701,770
REMIC -- 395,071
---------- ----------
2,091,213 1,959,096
Net - unamortized premiums and discounts 31,377 (4,088)
---------- ----------
$2,122,590 $1,955,008
========== ==========
The amortized cost and fair value of mortgage backed
securities are as follows as of December 31, 1998 and 1997,
respectively.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
December 31, 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
GNMA participating certificates $1,125,497 $ 37,469 $ -- $1,162,966
FNMA participating certificates 534,884 12,123 -- 547,007
FHLMC participating certificates 462,209 12,896 -- 475,105
---------- ---------- ---------- ----------
$2,122,590 $ 62,488 $ -- $2,185,078
========== ========== ========== ==========
</TABLE>
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 3 - Mortgage Backed Securities - Continued
--------------------------
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
---------- ---------- ---------- ----------
December 31, 1997
-------------------------------------------------
<S> <C> <C> <C> <C>
GNMA participating certificates $ 812,201 $ 49,580 $ -- $ 861,781
FNMA participating certificates 46,305 1,048 -- 47,353
FHLMC participating certificates 701,431 4,941 2,748 703,624
REMIC 395,071 3,105 -- 398,176
---------- ---------- ---------- ----------
$1,955,008 $ 58,674 $ 2,748 $2,010,934
========== ========== ========== ==========
</TABLE>
No gains or losses were realized during the years ended
December 31, 1998 and 1997.
Certain mortgage backed securities including REMICs are
subject to significant prepayments risks. In periods of declining
interest rates mortgages may be repaid more rapidly than anticipated
resulting in greater amortization of premiums and reduced yields. In
addition, the Bank may be unable to reinvest at an interest rate
comparable to the rate on the prepaying mortgage backed security. In
contrast, in periods of increasing interest rates, market values of
mortgage backed securities, including REMICs, will decline. Since
principal payments on REMICs do not commence upon purchase of the
investment, REMICs are more susceptible to market value fluctuations.
Cash flows from the REMICs include interest only for one or more years
and principal and interest payments thereafter provided by mortgage
backed securities guaranteed by FHLMC or GNMA and backed by residential
mortgages. All interest payments on the Bank's REMICs are at fixed
rates.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 4 - Loans Receivable
----------------
Loans receivable at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
One to four family residential mortgage loans $ 31,332,202 $ 25,739,458
Land 123,442 --
Construction loans 3,663,490 2,104,575
Commercial real estate loans 2,477,792 2,805,693
Commercial loan collateralized by lease
finance receivables 643,217 741,226
Home equity line of credit loans 124,849 177,141
Loans secured by deposits 73,326 74,142
------------ ------------
38,438,318 31,642,235
Less
----
Undisbursed portion of loans in process (2,223,105) (1,197,270)
Deferred loan origination fees (316,122) (268,433)
Allowance for losses on loans (197,435) (215,500)
------------ ------------
(2,736,662) (1,681,203)
------------ ------------
$ 35,701,656 $ 29,961,032
============ ============
</TABLE>
Residential lending is generally considered to involve less
risk than other forms of lending, although payment experience on these
loans is dependent to some extent on economic and market conditions in
the Bank's lending area. Commercial and construction loan repayments
are generally dependent on the operations of the related properties or
the financial condition of its borrower or guarantor. Accordingly,
repayment of such loans can be more susceptible to adverse conditions
in the real estate market and the regional economy.
A substantial portion of the Bank's loans receivable are
mortgage loans secured by residential and commercial real estate
properties located in the State of Maryland. Loans are extended only
after evaluation by management of customers' creditworthiness and other
relevant factors on a case-by-case basis. The Bank generally does not
lend more than 90% of the appraised value of a property and requires
private mortgage insurance on residential mortgages with loan-to-value
ratios in excess of 80%. In addition, the Bank generally obtains
personal guarantees of repayment from borrowers and/or others for
construction, commercial and multifamily residential loans and
disburses the proceeds of construction and similar loans only as work
progresses on the related projects.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 4 - Loans Receivable - Continued
----------------
The commercial loan collateralized by lease finance
receivables represents a loan to a leasing company collateralized by
leases receivable to individuals and businesses secured by personal
property and is primarily dependent upon the financial condition of the
borrower and lessors for repayment.
The following is a summary of the allowance for loan losses
for the years ended December 31:
Balance at December 31, 1996 $ 100,000
Provision for losses on loans 123,270
Charge-offs (7,770)
---------
Balance at December 31, 1997 215,500
Provision for losses on loans --
Charge-offs (18,065)
---------
Balance at December 31, 1998 $ 197,435
=========
A loan is considered impaired when it is probable that the
Bank will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The Bank did not have any
impaired loans at December 31, 1998. Impaired loans are summarized as
follows for the year ended December 31, 1997:
1997
----
Aggregate recorded investment $135,000
Allowance for loan losses 1,350
Interest income recognized during impairment 9,442
The Bank was not committed to advance any additional amounts
on the above loans at December 31, 1998.
The Bank had no non-accrual loans that were not subject to
SFAS No. 114.
The following table presents a summary of the activity with
respect to loans to directors and officers for the years ended December
31, 1998 and 1997, respectively.
1998 1997
---- ----
Balance outstanding - beginning of year $ 728,439 $ 498,213
New loans 18,546 264,387
Principal repayments (241,389) (34,161)
--------- ---------
Balance outstanding - end of year $ 505,596 $ 728,439
========= =========
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 4 - Loans Receivable - Continued
----------------
The Bank is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financial needs of its customers. Mortgage loan commitments, exclusive
of loans in process not reflected in the accompanying statements at
December 31, 1998, approximate $1,095,000. These commitments are for
mortgage loans with fixed rates between 6.375% and 8.5% at December 31,
1998. At December 31, 1998, the Bank did not have any non-recourse
leasing loan commitments.
The credit risk involved in these financial instruments is
essentially the same as that involved in extending loan facilities to
customers. No amount has been recognized in the statement of financial
condition at December 31, 1998, as a liability for credit loss.
Note 5 - Premises and Equipment
----------------------
Premises and equipment at December 31, 1998 and 1997 are as
follows:
1998 1997 Useful Lives
--------- --------- -------------
Land $ 15,000 $ 15,000 --
Office building and improvements 109,297 49,497 5 to 35 years
Furniture, fixtures and equipment 285,547 228,757 5 to 15 years
--------- ---------
409,844 293,254
Less - accumulated depreciation (281,519) (252,880)
--------- ---------
$ 128,325 $ 40,374
========= =========
The Bank has entered into long-term lease agreements for the premises
of its main and administrative offices. Rental expense under the agreements for
the properties for the years ended December 31, 1998 and 1997 were $48,835 and
$39,500, respectively. At December 31, 1998, the minimum rental commitments
under noncancellable operating leases are as follows:
Year Ended December 31,
-----------------------
1999 $ 57,511
2000 48,938
2001 42,000
2002 42,000
2003 28,000
--------
$218,449
========
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 6 - Investment in Federal Home Loan Bank of Atlanta Stock
-----------------------------------------------------
The Bank is required to maintain an investment in the stock of
the Federal Home Loan Bank of Atlanta ("FHLB") in an amount equal to at
least 1% of the unpaid principal balances of the Bank's residential
mortgage loans or 1/20 of its outstanding advances from the FHLB,
whichever is greater. Purchases and sales of stock are made directly
with the FHLB at par value.
Note 7 - Deposit Accounts
----------------
Deposit accounts at December 31, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Demand and NOW accounts including
non-interest bearing deposits of
$715,785 in 1998 and $336,663
in 1997 $ 2,894,912 7.95% $ 2,078,419 6.37%
Money markets 8,199,757 22.51 7,816,045 23.96
Passbook savings 2,901,060 7.96 2,604,543 7.99
Certificates of deposit 22,423,581 61.54 20,108,422 61.64
----------- ------- ----------- -------
36,419,310 99.96 32,607,429 99.96
Accrued interest on deposits 15,476 .04 14,337 .04
----------- ------- ----------- -------
$36,434,786 100.00% $32,621,766 100.00%
=========== ======= =========== =======
</TABLE>
Certificates of deposit mature as follows at December 31:
1999 $12,266,674
2000 5,657,045
2001 1,885,891
2002 1,239,555
2003 & Thereafter 1,374,416
-----------
Total $22,423,581
===========
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 7 - Deposit Accounts - Continued
----------------
Interest expense on deposits is summarized as follows for the
years ended December 31:
1998 1997
---------- ----------
NOW accounts $ 57,696 $ 50,263
Money markets 322,038 302,996
Savings 93,461 76,881
Certificates of deposit 1,275,630 1,043,448
---------- ----------
$1,748,825 $1,473,588
========== ==========
The Bank had deposits of $100,000 or more of approximately
$3,451,755 and $1,456,188 at December 31, 1998 and 1997, respectively.
Deposit Insurance Reform. Currently, there are two deposit
insurance funds maintained by the Federal Deposit Insurance Corporation
("FDIC"), the Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF"). The Bank's deposits are insured by SAIF.
Note 8 - Employee Benefit Plan
---------------------
The Bank has a 401(k) Plan which required until March 31,
1998, under certain conditions, a contribution of up to 5% of eligible
employees' total compensation. The total expense related to this Plan
for the year ended December 31, 1998 and 1997 was $5,126 and $23,769,
respectively.
Note 9 - Common Stock and Stock Benefit Plans
------------------------------------
On November 12, 1998, the Bank converted from a federally
chartered mutual savings bank to a federally chartered stock savings
bank. Simultaneously, the Bank consummated the formation of a new
holding company, Northfield Bancorp, Inc., of which the Bank is a
wholly owned subsidiary. In connection with the conversion, the Company
issued 475,442 shares of its common stock, par value $.01 per share
(the "Common Stock") for gross proceeds of $4,754,420 and net proceeds
of $4,420,044, of which $2,210,022 was contributed to the Bank in
exchange for all of its outstanding common stock.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 9 - Common Stock and Stock Benefit Plans - Continued
------------------------------------
At the time of the Conversion, the Bank established a
liquidation account in the amount of $3,086,506, an amount equal to the
Bank's retained earnings as of June 30, 1998. The liquidation account
is maintained for the benefit of eligible savings account holders who
maintained their savings accounts in the Bank after the Conversion. In
the event of a complete liquidation (and only in such event), each
eligible savings account holder would be entitled to receive a
liquidation distribution from the liquidation account in an amount
equal to the account holder's then interest in the liquidation account
before any liquidation distribution may be made with respect to capital
stock.
The Company has no significant source of income other than
dividends from the Bank. As a result, the Company's dividends will
depend primarily upon receipt of dividends from the Bank.
OTS regulations limit the payment of dividends and other
capital distributions by the Bank. The Bank is able to pay dividends
during a calendar year without regulatory approval to the extent of the
greater of (i) an amount which will reduce by one-half its surplus
capital ratio at the beginning of the year plus all its net income
determined on the basis of generally accepted accounting principles for
that calendar year, or (ii) 75% of net income for the last four
calendar quarters.
The Bank is restricted in paying dividends on its stock to the
greater of the restrictions described in the preceding paragraph, or an
amount that would reduce its retained earnings below its regulatory
capital requirement, the accumulated bad debt deduction, or the
liquidation account described above.
At the time of conversion, the Bank established an Employee
Stock Ownership Plan ("ESOP"), and acquired 38,035 shares of the common
stock. The ESOP borrowed funds used to acquire the shares from the
Company with a direct loan from the Company requiring annual payments
of $29,258.
The ESOP holds the common stock in a Trust for allocation
among participating employees.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 9 - Common Stock and Stock Benefit Plans - Continued
------------------------------------
All employees of the Bank who have completed one year of
service and attained the age of 21 are eligible to participate.
Participants will become 100% vested in their accounts after five years
of service, commencing after January 1, 1998, or earlier upon death,
disability or retirement.
The ESOP is funded by contributions made by the Bank in cash
or common stock and dividends on the shares held in the Trust. The Bank
recognizes compensation expense as shares are committed for release
from collateral at their current market price. Dividends on allocated
shares are recorded as a reduction of retained earnings and dividends
on unallocated shares are recorded as a reduction of debt. Compensation
cost for the year ended December 31, 1998 was $22,335.
The ESOP shares as of December 31, 1998 were as follows:
Allocated shares 2,194
Shares earned, but unallocated -
Unearned shares 35,841
The fair value of the unearned shares was $358,410 at December
31, 1998.
During the year ended December 31, 1997, the Bank entered into
a non-qualified Deferred Compensation ("Rabbi Trust") agreement with
all of its current directors. The Bank recognized compensation expense,
under this agreement, during the years ended December 31, 1998 and 1997
of $69,150 and $115,000, respectively. Liability under this Agreement
is being accrued by charges to operating expense during the term of
employment. On November 12, 1998, the Trustees of the Deferred
Compensation Plan acquired 13,465 shares of the Company's common stock.
Note 10 - Retained Earnings
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 10 - Retained Earnings - Continued
-----------------------------
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure
capital adequacy require the Bank to maintain minimum amounts and
ratios (set forth in the table below) of total and Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined), and
of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1998, that the Bank meets all
capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the
Office of Thrift Supervision has categorized the Bank as well
capitalized under the regulatory framework for prompt corrective
action. To be categorized as well capitalized the Bank must maintain
minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. There have been no conditions or events
since that notification that management believes have changed the
Bank's category.
The following table presents the Bank's capital position based
on the December 31, 1998 financial statements.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- --------------------
Amount % Amount % Amount %
---------- ----- ---------- --- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Tangible (1) $4,918,487 11.0% $ 670,342 1.5% $ N/A N/A%
Tier I capital (2) 4,918,487 22.2% N/A N/A% 1,330,440 6.0%
Core (1) 4,918,487 11.0% 1,340,684 3.0% 2,234,473 5.0%
Risk-weighted (2) 5,115,922 23.1% 1,773,920 8.0% 2,217,400 10.0%
</TABLE>
(1) To adjusted total assets.
(2) To risk-weighted assets.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 10- Retained Earnings - Continued
-----------------
Current Requirements
--------------------
Total stockholders' equity $ 7,127,921
Less: Equity of parent company (2,209,434)
------------
Tangible and core capital 4,918,487
General valuation allowance 197,435
------------
Risk-based capital $ 5,115,922
============
Total assets $ 44,310,112
Receivable from parent company 379,350
------------
Tangible and adjusted tangible assets $ 44,689,462
============
Risk-weighted assets $ 22,174,000
============
Note 11- Income Taxes
------------
The income tax provision consists of the following for the
years ended December 31:
1998 1997
--------- ---------
Current expense $ 227,485 $ 187,346
Deferred expense (benefit) (31,247) (96,173)
--------- ---------
Total tax expense $ 196,238 $ 91,173
========= =========
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 11- Income Taxes - Continued
------------
The income tax provision is reconciled to the amount computed
to the statutory federal income tax rate as follows for December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- ------------------
Amount Rate Amount Rate
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Statutory federal income tax rate $171,028 34.00% $ 80,139 34.00%
State tax net of federal income tax
benefit 23,743 4.72 11,059 4.69
Other 1,467 .29 (25) (.01)
-------- ----- -------- -----
$196,238 39.01% $ 91,173 38.68%
======== ===== ======== =====
</TABLE>
The tax effects of temporary differences between financial
reporting basis and income tax basis of assets and liabilities are as
follows at December 31:
1998 1997
--------- ---------
Deferred Tax Assets:
Deferred loan origination fees $ 12,787 $ 27,571
Deferred compensation 73,695 44,413
Unrealized loss on investment securities 32,160 32,160
Allowance for loan losses 76,249 83,226
--------- ---------
194,891 187,370
Deferred Tax Liabilities:
Federal Home Loan Bank of Atlanta stock dividend (32,595) (32,595)
Depreciation (2,650) (3,510)
Excess of tax bad debt reserve over base year (39,567) (52,756)
Conversion from accrual to cash method
of accounting (62,553) (72,230)
--------- ---------
(137,365) (161,091)
--------- ---------
Net deferred tax assets $ 57,526 $ 26,279
========= =========
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 11- Income Taxes - Continued
------------
The Bank was allowed a special bad debt deduction limited
generally to 8% of otherwise taxable income for the year beginning
December 1, 1987 through December 31, 1995. Beginning January 1, 1996
the percentage of taxable income method of computing the Bank's tax bad
debt deduction is no longer allowed and the amount by which the tax
reserve for bad debts exceeds such amount at December 31, 1987 must be
recaptured over a six year period. A tax liability has been established
for the recapture. If the amounts which qualified as deductions for
federal income tax purposes prior to December 31, 1987 are later used
for purposes other than to absorb loan losses, including distributions
in liquidations, they will be subject to federal income tax at the then
current corporate rate. Retained earnings at December 31, 1998 and 1997
include $577,687, for which no provision for federal income tax has
been provided. The unrecorded deferred income tax liability on the
above amount was approximately $223,875.
Note 12- Disclosures About Fair Value of Financial Instruments
-----------------------------------------------------
The estimated fair values of the Bank's financial instruments
are summarized below. The fair values of a significant portion of these
financial instruments are estimates derived using present value
techniques prescribed by the FASB and may not be indicative of the net
realizable or liquidation values. Also, the calculation of estimated
fair values is based on market conditions at a specific point in time
and may not reflect current or future fair values.
The carrying amount is a reasonable estimate of fair value for
interest bearing deposits in other banks due to the short-term nature
of that investment. Fair value is based upon net asset values for
investment securities. Bid prices published in financial newspapers for
mortgage backed securities were used to estimate fair value for these
investments. The carrying amount of Federal Home Loan Bank of Atlanta
stock is a reasonable estimate of fair value. Loans receivable were
discounted using a single discount rate, comparing the current rates at
which similar loans would be made to borrowers with similar credit
ratings and for the same remaining maturities, except for adjustable
rate mortgages which were considered to be at market rates. These rates
were used for each aggregated category of loans as reported on the
Office of Thrift Supervision Quarterly Report. The fair value of demand
deposits, savings accounts and money market deposits is the amount
payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated using the rates
currently offered on deposits of similar remaining maturities.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 12- Disclosures About Fair Value of Financial Instruments - Continued
-----------------------------------------------------
December 31, 1998
-----------------
Carrying Estimated
Amount Fair Value
------ ----------
(Amounts in Thousands)
Financial Assets
----------------
Interest bearing deposits
in other banks $ 4,834 $ 4,834
Investments 799 794
Mortgage backed securities 2,123 2,185
Loans receivable 35,702 37,113
Federal Home Loan Bank of Atlanta stock 273 273
Financial Liabilities
---------------------
Savings $ 2,901 $ 2,901
NOW and money market deposit accounts 11,095 11,095
Certificates of deposit 22,424 22,584
Advance payment by borrowers for expenses 463 463
Note 13- Recent Accounting Pronouncements
--------------------------------
SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued in June, 1998. This Statement
standardizes the accounting for derivative instruments including
certain derivative instruments embedded in other contracts, by
requiring that an entity recognize these items as assets or liabilities
in the statement of financial position and measure them at fair value.
This Statement generally provides for matching the timing of gain or
loss recognition on the hedging instrument with the recognition of the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or the earnings effect of the hedged
forecasted transaction. The Statement, which is effective for all
fiscal quarters of all fiscal years beginning after June 15, 1999.
The Company early implemented SFAF No. 133 on January 1, 1999.
In accordance with the pronouncement's provisions, the Company
reclassified all of its investments and mortgage backed securities from
held to maturity to available for sale. On January 11, 1999, the
Company sold mortgage backed securities with an aggregate net book
value of $1,033,399 for $1,048,335 and realized a gain of $14,936.
<PAGE>
NORTHFIELD BANCORP, INC.
- ------------------------
AND SUBSIDIARY
--------------
Baltimore, Maryland
- -------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
Note 13- Recent Accounting Pronouncements - Continued
--------------------------------
Statement of Position ("SOP") 98-5, "Reporting on the Costs of
Start-Up Activities". This Statement provides guidance on the financial
reporting of start-up cost and organization cost. It requires costs of
start-up activities and organization cost to be expensed as incurred.
The "SOP" also requires the initial application to be reported as a
cumulative effect of a change in accounting principle. This "SOP" which
is effective for fiscal years beginning after December 15, 1998 will
not affect the Company's financial position or results of operations.
<PAGE>
BOARD OF DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
GARY R. BOZEL C. RONALD JOBSON J. THOMAS HOFFMAN
Chairman of the Board of the Company President and Chief Executive Self-employed Financial Products Sales
and the Bank Officer of the Company and the Consultant
Certified Public Accountant Bank Townson, Maryland
Townson, Maryland
E. THOMAS LAWRENCE, JR. DAVID C. RITTENHOUSE WILLIAM R. RUSH
Painting Contractor CEO, Rittenhouse Fuel Company Teacher,McDonough School
Fallston, Maryland Baltimore, Maryland Owings Mill, Maryland
EXECUTIVE OFFICERS
G.RONALD JOBSON John P. Sabol Jr. ANTHONY B. QUIGLEY
President and Chief Executive Officer of Vice President, Chief Financial Vice President
the Company and the Bank Officer and Treasurer
OFFICE LOCATIONS
EXECUTIVE OFFICES: MAIN OFFICE: BRANCH OFFICE:
8005 Harford Road 1844 E. Joppa Road 8705 Harford Road
Baltimore, Maryland 21234 Baltimore, Maryland 21231 Baltimore, Maryland 21234
(410) 665-7900 (410) 665-5190 (410) 665-5600
GENERAL INFORMATION
INDEPENDENT AUDITORS ANNUAL MEETING Stockholder Inquiries and Availability of
Anderson Associates, LLP The Annual Meeting of 10-KSB Report
7621 Fitch Lane Stockholders will be held on May A COPY OF THE COMPANY'S
Baltimore, Maryland 21236 12, 1999 at 9:00 a.m. at the ANNUAL REPORT ON FORM
executive offices of Northfield 10-KSB FOR THE FISCAL YEAR
Bancorp, Inc. ENDED DECEMBER 31, 1998 AS FILED WITH
SPECIAL COUNSEL 8005 Harford Road WITH THE SECURITIES AND EXCHANGE
Housley Kantarian & Bronstein, P.C. Baltimore, Maryland 21234 COMMISSION WILL BE FURNISHED WITHOUT
1220 19th Street, N.W. Suite 700 CHARGE TO STOCKHOLDERS AS OF THE RECORD
Washington, D.C. 20036 TRANSFER AGENT AND REGISTRAR DATE FOR THE 1999 ANNUAL MEETING
Registrar and Transfer Company UPON WRITTEN REQUEST TO PRESIDENT,
10 Commerce Drive NORTHFIELD BANCORP INC., 8005
Cranford, New Jersey 07106 HARFORD ROAD, BALTIMORE,
MARYLAND 21234.
</TABLE>
<PAGE>
NORTHFIELD BANCORP, INC.
------------------------
8005 HARFORD ROAD
BALTIMORE, MARYLAND 21234
(410)665-7900
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 166
<INT-BEARING-DEPOSITS> 4,834
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 2,922
<INVESTMENTS-MARKET> 2,979
<LOANS> 35,702
<ALLOWANCE> 197
<TOTAL-ASSETS> 44,310
<DEPOSITS> 36,435
<SHORT-TERM> 0
<LIABILITIES-OTHER> 747
<LONG-TERM> 0
0
0
<COMMON> 5
<OTHER-SE> 7,123
<TOTAL-LIABILITIES-AND-EQUITY> 44,310
<INTEREST-LOAN> 2,567
<INTEREST-INVEST> 417
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,984
<INTEREST-DEPOSIT> 1,749
<INTEREST-EXPENSE> 1,751
<INTEREST-INCOME-NET> 1,234
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 761
<INCOME-PRETAX> 503
<INCOME-PRE-EXTRAORDINARY> 503
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 307
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.63
<LOANS-NON> 0
<LOANS-PAST> 296
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 216
<CHARGE-OFFS> 19
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 197
<ALLOWANCE-DOMESTIC> 197
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
