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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended September 30, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from
-------- to --------
Commission file number 1-11684
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NEW YORK BANCORP INC.
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(Exact name of registrant as specified in its charter)
Delaware 11-2869250
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
241-02 Northern Boulevard, Douglaston, N. Y. 11362
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (718) 631-8100
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Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
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Common Stock, $.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K of any
amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last reported sales price of such stock
on the New York Stock Exchange on November 30, 1996, was $279,848,137.
The number of shares outstanding of the registrant's Common Stock as of November
30, 1996 was 11,070,943.
Documents Incorporated by Reference
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The following documents are incorporated by reference:
Portions of the Registrant's 1996 Annual Report to Shareholders for the Fiscal
Year Ended September 30, 1996 - Part I, Part II; and Portions of the
Registrant's Proxy Statement for the 1997 Annual Meeting of Shareholders to be
held on January 28, 1997 - Part III.
Exhibit Index on Page 44
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NEW YORK BANCORP INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
Page
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PART I
Item 1. Business................................................. 3
Item 2. Properties............................................... 40
Item 3. Legal Proceedings........................................ 41
Item 4. Submission of Matters to a Vote of Security Holders...... 41
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.................................... 41
Item 6. Selected Financial Data.................................. 41
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 41
Item 8. Financial Statements and Supplementary Data.............. 41
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................... 42
PART III
Item 10. Directors and Executive Officers of the Registrant....... 42
Item 11. Executive Compensation................................... 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................ 42
Item 13. Certain Relationships and Related Transactions........... 42
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K........................................... 43
2
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PART I
ITEM 1 - BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
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New York Bancorp Inc. ("New York Bancorp" or the "Company"), a Delaware business
corporation, is a savings and loan holding company which, together with its
subsidiary, Home Federal Savings Bank ("Home Federal" or the "Bank"), is
headquartered in Douglaston, New York. The Company was organized at the
direction of the Bank in connection with the Bank's conversion from mutual to
stock form of organization. The conversion was completed on February 4, 1988.
The primary activity of the Company at this time is its ownership of all of the
outstanding capital stock of the Bank. At September 30, 1996, the Company had
total assets of $2.9 billion and shareholders' equity of $151.9 million.
Home Federal was organized in 1935 as a federally chartered savings and loan
association. In 1983, Home Federal changed its charter to a federal savings
bank, and in February 1988 converted from a mutual to its current stock form of
ownership. The Bank's business is primarily conducted in New York City, and
Nassau, Suffolk and Westchester Counties. The Bank maintains twenty-nine full
service branch offices located in Kings, Queens, Nassau, Richmond and Suffolk
Counties, and six loan production offices located in Kings, Queens, Nassau,
Westchester, and Suffolk Counties.
In March 1992, New York Bancorp, through its subsidiary, the Bank, acquired
$203.8 million in assets and assumed $52.6 million in liabilities of the former
State Savings, FSB ("State Savings") from the Resolution Trust Corporation
("RTC"), as receiver of State Savings. In August and October 1992, New York
Bancorp, through its subsidiary, the Bank, additionally acquired $273.9 million
in assets and assumed $480.0 million in liabilities of the former Union Savings
Bank ("Union Savings") from the Federal Deposit Insurance Corporation (the
"FDIC"), as receiver of Union Savings. On January 27, 1995, Hamilton Bancorp,
Inc. ("Hamilton"), the parent company of Hamilton Federal Savings F.A.
("Hamilton Savings") with total assets of $721.6 million and shareholders'
equity of $78.1 million, was merged with and into New York Bancorp. This later
transaction has been accounted for as a pooling of interests, and, as a result,
the financial results for the periods prior to the merger reported herein
include the results of Hamilton.
Home Federal has been, and intends to continue to be, a community bank offering
a variety of deposit and lending services designed to meet the needs of the
communities it serves. The Bank's deposit customer base is drawn primarily from
Kings, Queens, Richmond, Nassau and Suffolk Counties, while its loan origination
activity is conducted primarily in the five boroughs of New York City, Nassau,
Suffolk and Westchester Counties, as well as some parts of Connecticut.
3
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Deposits in the Bank are insured up to the applicable limits by the Federal
Deposit Insurance Corporation (the "FDIC") and the Bank is subject to extensive
regulation, supervision and examination by the Office of Thrift Supervision (the
"OTS") and by the FDIC. Additionally, the Bank is a member of the Federal Home
Loan Bank ("FHLB") System.
The Bank's principal business consists of attracting deposits from the general
public and investing these deposits, together with funds from ongoing operations
and borrowings, in the origination and purchase of residential and commercial
mortgage loans, cooperative residential loans and consumer loans. The Bank also
maintains a portion of its assets in mortgage-backed securities and debt and
equity securities, including obligations of the U.S. Government and federal
agencies, corporate notes and other securities.
During the past few years, the Bank has instilled a sales culture within its
twenty-nine branches, creating a team of skilled employees who market the
products offered to customers. During fiscal year 1996 new checking accounts
were emphasized as a means of developing core banking relationships with new
customers. Additionally during fiscal year 1996 the Bank introduced new products
such as the debit card and Savings Bank Life Insurance. Further, the Bank
continued to sell annuity products at record levels, bringing fee income from
such activity up to $1.4 million. The Bank additionally maintains loan
production offices throughout the branch system to provide better loan related
services to present and new customers in the branch community. The Bank has also
opened four full-service branches in supermarkets, and is planning to open
additional branches in supermarkets.
NARRATIVE DESCRIPTION OF BUSINESS
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LENDING ACTIVITIES
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GENERAL. A component of the Bank's overall interest rate risk strategy is
--------
to shorten the maturities and increase the interest rate sensitivity of
its assets primarily through the origination and purchase of adjustable
rate loans. With respect to fixed rate conventional mortgage loans, the
Bank either sells such loans or retains them if (i) they have been funded
with long-term borrowings or (ii) hedging techniques can be used to
protect the Bank against interest rate risk. The loan products offered by
Home Federal are affected by Federal and state laws, the supply of funds
available for lending purposes, market forces, including the demand for
loans, and competition.
4
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LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
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of the Bank's total loan portfolio by dollar amount and percent of total
portfolio as of the dates indicated.
<TABLE>
<CAPTION>
At September 30,
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1996 1995 1994 1993 1992
-------------------- ----------------- ------------------ -------------------- -------------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
---------- -------- ---------- -------- -------- -------- ---------- -------- --------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FIRST MORTGAGE LOANS(1):
One-to four-family
residential............ $1,046,763 55.82% $ 927,529 54.86% $ 719,421 49.16% $ 716,913 50.40% $ 723,647 54.40%
Multifamily residential. 171,099 9.12 101,065 5.98 101,063 6.90 95,070 6.68 110,299 8.29
Commercial real estate.. 383,181 20.43 355,507 21.02 337,468 23.06 296,808 20.86 157,859 11.87
Construction, net of
loans in process....... 4,369 .23 8,902 .52 4,966 .34 -- .-- 8,352 .63
---------- ----- --------- ----- ---------- ----- ---------- ----- ---------- ------
Total first
mortgage loans 1,605,412 85.60 1,393,003 82.38 1,162,918 79.46 1,108,791 77.94 1,000,157 75.19
----- ----- ----- ----- ------
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized premiums,
unearned discounts,
deferred loan fees
and allowance for
possible loan losses... (19,366) (22,828) (28,036) (29,831) (23,140)
---------- --------- ---------- ---------- ----------
Net first mortgage
loans................ 1,586,046 1,370,175 1,134,882 1,078,960 977,017
---------- --------- ---------- ---------- ----------
OTHER LOANS:
Consumer................ 9,227 .49 8,580 .51 13,067 .89 16,944 1.19 19,782 1.49
Cooperative
residential............ 123,034 6.56 141,902 8.39 150,520 10.29 163,431 11.49 165,226 12.42
Home improvement........ 1,035 .05 1,526 .09 9,637 .66 8,101 .57 8,038 .61
Guaranteed Student...... 51,151 2.73 56,673 3.35 54,693 3.74 55,180 3.88 60,274 4.53
Commercial.............. 12,351 .66 11,214 .66 15,336 1.05 7,085 .50 5,842 .44
Secured by deposits..... 8,078 .43 7,917 .47 8,401 .57 7,411 .52 6,292 .47
Second mortgage......... 2,211 .12 2,147 .13 2,605 .18 2,819 .20 6,137 .46
Home equity............. 44,277 2.36 46,845 2.77 36,890 2.52 42,152 2.96 45,410 3.41
Purchased auto
leasing................ 18,702 1.00 21,063 1.25 9,385 .64 10,665 .75 13,073 .98
---------- ----- --------- ----- ----------- ----- ---------- ----- ---------- -----
Total other loans 270,066 14.40 297,867 17.62 300,534 20.54 313,788 22.06 330,074 24.81
----- ----- ----- ----- -----
Unamortized purchase
accounting premiums,
unearned purchase
accounting discounts,
unamortized premiums,
unearned discounts,
deferred loan fees
and allowance for
possible loan losses... (2,950) (3,099) (3,062) (4,331) (7,328)
---------- ---------- ---------- ---------- ----------
Net other loans......... 267,116 294,768 297,472 309,457 322,746
---------- ---------- ---------- ---------- ----------
Total loans............. $1,875,478 100.00% $1,690,870 100.00% $1,463,452 100.00% $1,422,579 100.00% $1,330,231 100.00%
========== ====== ========== ====== ========== ====== ========== ====== ========== ======
Total net loans......... $1,853,162 $1,664,943 $1,432,354 $1,388,417 $1,299,763
========== ========== ========== ========== ==========
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(1) Of the amount in total first mortgage loans, $1,324,063, $1,016,693, $760,951, $695,371 and $566,196 represent adjustable
rate mortgage loans at September 30, 1996, 1995, 1994, 1993 and 1992, respectively.
</TABLE>
5
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ORIGINATION, PURCHASE AND SALE OF LOANS. Set forth below is a table showing
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the Bank's total loan origination, purchase, sale, amortization and repayment
activities for the years indicated.
<TABLE>
<CAPTION>
Year ended September 30,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
FIRST MORTGAGE LOANS
At beginning of year......................... $1,393,003 $1,162,918 $1,108,791
First mortgage loans originated.............. 371,670 332,253 343,020
First mortgage loans purchased............... 199,785 100,314 --
Securitization and transfer to mortgage-
backed securities available for sale........ (65,785) (11,695) (18,817)
Transfer of loans to real estate owned....... (3,692) (3,879) (4,662)
First mortgage loans sold.................... (74,455) (37,942) (109,226)
Amortization, prepayments and other.......... (215,114) (137,927) (156,188)
Hamilton's net activity for the
quarter ended December 31, 1994(1).......... -- (11,039) --
---------- ---------- ----------
At end of year............................... $1,605,412 $1,393,003 $1,162,918
========== ========== ==========
OTHER LOANS
At beginning of year......................... $ 297,867 $ 300,534 $ 313,788
Other loans originated....................... 53,425 57,046 46,901
Other loans purchased........................ 6,174 14,427 2,939
Transfer of loans to real estate owned....... (770) (576) (1,122)
Other loans sold............................. (3,017) (1,499) --
Amortization, prepayments and other.......... (83,613) (69,229) (61,972)
Hamilton's net activity for the
quarter ended December 31, 1994(1).......... -- (2,836) --
--------- ---------- ----------
At end of year............................... $ 270,066 $ 297,867 $ 300,534
========= ========== ==========
(1) Hamilton's net activity for the quarter ended December 31, 1994 reflects an
adjustment to conform Hamilton's calendar-based year-end with that of the Company's.
</TABLE>
Total loan originations increased to $425.1 million in fiscal year 1996 compared
to $389.3 million for fiscal year 1995, which later amount was basically
unchanged from fiscal year 1994. The increase in loan originations in fiscal
year 1996 was primarily attributable to the development of a new multifamily
lending department which increased multifamily loan originations to $80.0
million in fiscal year 1996 from $6.1 million in fiscal year 1995. Loan
purchases totaled $206.0 million for fiscal year 1996, compared to $114.7
million in fiscal year 1995 and $2.9 million in fiscal year 1994. The loan
purchases in fiscal years 1996 and 1995 primarily represent adjustable rate
one-to-four family first mortgage loans.
Loan sales were $77.5 million, $39.4 million and $109.2 million for the years
ended September 30, 1996, 1995 and 1994. The level of loan sales is directly
related to the origination level of fixed rate loans. It is the Company's policy
to retain for portfolio adjustable rate first mortgage loans, while generally
selling fixed rate first mortgage loans.
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LOAN MATURITY. The following table sets forth the estimated contractual
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maturity of the Bank's loan portfolio, assuming no prepayments and
excluding mortgage-backed securities.
<TABLE>
<CAPTION>
At September 30, 1996
--------------------------------------------------------------------------------------------------
First Mortgage Loans
---------------------------------------------------
One-
to Four-
Family Cooperative Consumer
Residential Multifamily Commercial Construction Residential and Other Total
----------- ----------- ---------- ------------ ----------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Amounts due:
Within 1 year............ $ 2,446 $ 7,366 $ 23,451 $ 2,548 $ 358 $ 1,849 $ 38,018
After 1 year(1):
1 to 2 years........... 1,886 4,153 9,503 -- 81 16,234 31,857
2 to 3 years........... 1,671 1,292 12,564 1,821 82 4,499 21,929
3 to 5 years........... 13,887 5,624 25,429 -- 1,072 14,799 60,811
5 to 10 years.......... 63,646 44,513 215,396 -- 6,714 56,763 387,032
10 to 15 years......... 85,139 95,013 90,039 -- 13,204 18,837 302,232
Over 15 years.......... 878,088 13,138 6,799 -- 101,523 34,051 1,033,599
---------- ---------- ---------- ---------- ----------- ----------- ----------
Total after 1 year... 1,044,317 163,733 359,730 1,821 122,676 145,183 1,837,460
---------- ---------- ---------- ---------- ----------- ----------- ----------
Total amounts due.. $1,046,763 $ 171,099 $ 383,181 $ 4,369 $ 123,034 $ 147,032 1,875,478
========== ========== ========== ========== =========== ===========
Less:
Unearned purchase
accounting discounts
and premiums, net....... (348)
Unearned discounts and
premiums, net........... 2,578
Deferred loan fees....... (5,160)
Allowance for possible
loan losses............. (19,386)
----------
Loans receivable, net.. $1,853,162
==========
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(1) Of the $1,837,460 in loans due after one year, $1,483,760 are adjustable rate loans and $353,700 are fixed rate loans.
</TABLE>
ONE-TO-FOUR FAMILY RESIDENTIAL MORTGAGE AND COOPERATIVE RESIDENTIAL
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LENDING. The Bank emphasizes the origination of conventional
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one-to-four family adjustable rate mortgage ("ARM") loans for retention
in its own portfolio. At September 30, 1996, one-to-four family
residential ARM loans outstanding, both originated and purchased by
Home Federal, comprised $843.9 million, or 80.6%, of the total
residential mortgage loan portfolio. The Bank's residential mortgage
loan originations are concentrated in the Bank's market area. Most
local residential loans are originated directly by the Bank. At
September 30, 1996, the Bank offered one, three and five year ARM loans
for a maximum term of 30 years with initial interest rates of 5.50%,
7.25% and 7.95%, respectively. The Bank, at September 30, 1996,
similarly offered a fixed rate one-to-four family loan at 8.125% which
amortizes in approximately 23 years based upon a biweekly payment
structure. At September 30, 1996, the Bank offered conventional 10, 15
and 30 year fixed rate mortgages with interest rates of 7.25%, 7.625%
and 8.125%, respectively, and a maximum loan amount equal to the
applicable Federal National Mortgage Association ("FNMA") and Federal
Home Loan Mortgage Corporation ("FHLMC") maximum loan amounts.
Additionally, the Bank offers convertible mortgage loans, which
typically mature in 15 or 30 years. These loans begin with an
adjustable interest rate and give the mortgagor an option to convert to
a fixed interest rate during years two through five. At September 30,
1996, the Bank offered convertible mortgage loans with an initial
interest rate of 6.00%. A 20% minimum downpayment is typically required
on all residential mortgage loans. Any loan with less than a 20%
downpayment is required to have private mortgage insurance.
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At September 30, 1996, the Bank had $123.0 million of loans secured by
assignment of leases and shares on cooperative residential apartments,
of which $94.8 million, or 77.1%, have adjustable rates. In recent
years, the Bank has curtailed its cooperative lending as a result of
the current real estate market conditions for this type of lending.
For one-to-four family residential mortgage and cooperative residential
adjustable rate loans there is a lifetime adjustment cap not to exceed
6.00% above the initial offered rate. For most adjustable rate loans,
the maximum rate change is 2.00% to 2.75% per adjustment. During the
year ending September 30, 1996, the Bank originated $139.3 million of
residential ARM loans, or 62.9%, of the total residential mortgage loan
originations, which includes $1.7 million of cooperative residential
adjustable rate loans during that period. During the same period, the
Bank originated $82.2 million of fixed rate residential mortgage loans,
or 37.1%, of the total residential mortgage loans originated during
that period. A substantial portion of these fixed rate mortgage loans
were sold into the secondary market.
The Bank's one-to-four family residential mortgage loans customarily
include due-on-sale clauses giving the Bank the right to declare an
outstanding loan immediately due and payable in the event, among other
things, the borrower sells or otherwise disposes of the property. The
Bank has generally enforced due-on-sale clauses in its mortgage
contracts.
One-to-four family residential loan originations are generated by the
Bank's marketing efforts, its depositors, walk-in customers and
referrals from real estate brokers, mortgage brokers, and builders, as
well as the Bank employees. Loan applications are reviewed in
accordance with the underwriting standards approved by the Bank's Board
of Directors. Residential loans in excess of $1.0 million are approved
by the Loan Review Committee of the Bank's Board of Directors.
In underwriting one-to-four family residential real estate loans, the
Bank evaluates both the borrower's ability to make monthly payments and
the value of the property securing the loan. The Bank has adopted a
policy of generally limiting the loan-to-value ratio on originated and
purchased loans to 95% and requiring that loans exceeding 80% of the
appraised value of the property or its purchase price, whichever is
less, be insured by a mortgage insurance company approved by FNMA and
FHLMC in an amount sufficient to reduce the Bank's exposure to no
greater than an 80% level. The Bank requires the mortgagor to maintain
hazard (including fire) insurance on property securing residential real
estate loans. The Bank also requires flood insurance on property
located in designated flood hazard areas.
The Bank offers reverse annuity mortgages to qualified senior citizens
on one family properties up to a total indebtedness of $350,000. These
loans allow seniors the ability to supplement their income by borrowing
against the equity in their home. The loans require a maximum
loan-to-value ratio of 70% and a maximum term of fifteen years. As of
September 30, 1996, the Bank's reverse annuity mortgage portfolio
consisted of 31 loans with a total potential indebtedness of $6.7
million, of which $4.4 million is yet to be disbursed over the
remaining term of these loans.
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There are unquantifiable risks resulting from increased costs to the
borrower as a result of periodic repricing of adjustable rate loans.
Despite the benefits of adjustable rate loans to the Bank's
asset/liability management program, they do pose potential additional
risks, primarily because as interest rates rise, the underlying
payments by the borrower rise, thereby increasing the potential for
default. At the same time, the marketability of the underlying property
may be adversely affected by higher interest rates. However, to reduce
such additional risk, the Bank reviews the borrower's application for
an adjustable rate loan based on the borrower's ability to make future
increased monthly payments assuming a fully indexed interest rate or
7.00%, whichever is greater.
MULTIFAMILY RESIDENTIAL LOANS. During fiscal year 1996, the Bank
-------------------------------
increased its origination of multifamily loans through the
establishment of a separate department staffed by personnel experienced
in the multifamily lending business. During fiscal year 1996,
originations of multifamily loans amounted to $80.0 million, as
compared to $6.1 million and $13.3 million in fiscal years 1995 and
1994, respectively. At September 30, 1996, the Bank had approximately
$171.1 million, or 9.12% of the total loan portfolio invested in
multifamily loans.
Multifamily loans generally involve a greater degree of risk than
one-to-four family residential mortgage loans. Because payments on
loans secured by multifamily properties are often dependent on the
successful operation or management of the properties, repayment of such
loans may be subject to a greater extent to adverse conditions in the
real estate market or the economy. The Bank seeks to minimize these
risks by originating such loans within its market area where it has
knowledge and experience.
Multifamily loans require a debt service coverage ratio of at least
125% and a loan to value ratio of no more than 70%. Generally, these
loans are 5 year ARM loans with a term of 10 to 15 years and an
amortization schedule of 25 years. All multifamily loans have required
approval of the Bank's Executive Committee of the Board of Directors.
This approval policy is currently under review.
COMMERCIAL REAL ESTATE LOANS. Commercial real estate originations
------------------------------
amounted to $75.5 million during fiscal year 1996, as compared to $57.4
million and $74.9 million for fiscal years 1995 and 1994, respectively.
At September 30, 1996, the Bank had approximately $383.2 million, or
20.43% of the total loan portfolio invested in commercial real estate
loans.
Commercial real estate lending entails significant additional risks as
compared with residential property lending. Commercial real estate
loans typically involve large loan balances to single borrowers or
groups of related borrowers. The repayment experience is typically
dependent on the successful operation of the real estate project. Since
these risks can be significantly affected by supply and demand
conditions in the market for office and retail space, and as such may
be subject to a greater extent to adverse conditions in the economy in
general, the Bank generally has limited itself to lending within its
market area where it has knowledge and experience of such items.
9
<PAGE> 10
The majority of commercial real estate loans currently offered by the
Bank are underwritten for a term of ten years with a maximum rate
adjustment period of five years, typically with a maximum amortization
period of twenty years. In setting interest rates and origination fees
on new loans and loan extensions, management considers both current
cost of funds and its analysis of the risk associated with the
particular loan.
The Bank's underwriting policies with respect to commercial real estate
loans are designed to require that actual or anticipated cash flow will
be more than sufficient to cover operating expenses and debt service
payments. A detailed analysis of the project is undertaken by a lending
officer. Furthermore, an independent analysis of the project is
undertaken by the Bank's Credit Administration Department.
Loan-to-value ratios on new commercial real estate loans made by the
Bank generally do not exceed 65%, have personal guarantees from the
individual borrowers, and the net income to debt service coverage ratio
generally is at least 120%. All commercial real estate loans are
appraised by an independent appraiser who must be approved by the Board
of Directors. Commercial real estate loans in excess of $750,000 are
approved by the Loan Review Committee of the Bank's Board of Directors.
Home Federal requires that the borrower obtain title insurance and
hazard insurance in the amount of the loan, naming the Bank as loss
payee.
CONSTRUCTION LOANS. At September 30, 1996 the Bank's construction loan
-------------------
portfolio consisted of 22 loans amounting to $9.8 million of which $5.5
million remains as undisbursed.
Construction loans generally are made with floating interest rates and
maturities not in excess of three years. Progress disbursements are
made on the basis of percentage of completion as determined by an
independent construction consultant. In addition, the Bank conducts an
analysis of the borrower's financial capability.
OTHER LENDING. Federal regulations permit the Bank to engage in most
-------------
types of consumer lending. At September 30, 1996, the Bank's other loan
portfolio, exclusive of cooperative residential loans discussed above,
totaled $147.0 million and was comprised of $17.3 million of both
secured and unsecured personal loans, $18.7 million in purchased
automobile leases, $51.1 million in guaranteed student loans, $12.4
million in commercial business loans, $44.3 million in home equity
loans and $3.2 million in home improvement and second mortgage loans.
Such other loans, including cooperative residential loans, comprised
14.4% of the total loan portfolio.
The Bank's other loans (with the exception of cooperative residential
loans, guaranteed student loans, home equity loans and consumer home
improvement loans) have maturities of not greater than five years.
Consumer home improvement loans may have maturities of up to ten years
and student loans have maturities which vary according to the student's
tenure in school. Student loans are guaranteed by the New York State
Higher Education Services Corporation and the yield to the Bank varies
based upon a spread over U.S. Treasury Bills. Rates offered for
personal and home improvement loans as of September 30, 1996 ranged
from 9.75% to 13.25%. The Bank also offers home equity loans which
permit borrowers to draw down funds over a ten-year period at a
floating rate over prime, amortized over a twenty-year schedule.
10
<PAGE> 11
Additionally, the Bank offers commercial loans to business entities and
individuals primarily in the New York Metropolitan area and generally
on a secured basis. These loans are to fund seasonal and other
short-term needs of business entities. The loans are for a period
usually not to exceed one year and are at a floating rate above the
prime rate. Commercial loans are reviewed in conformity with standards
approved by the Board of Directors.
Commercial business loans historically have had a higher degree of risk
than real estate loans. While real estate mortgage loans are secured by
real property whose value on a relative basis tends to be easily
ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of
its business or the conversion of current assets and are frequently
secured by business assets, such as accounts receivable, equipment and
inventory. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success
of the business itself.
LOAN PURCHASES. The Bank purchased $198.4 million of adjustable rate
---------------
first mortgage loans during the year ended September 30, 1996. Such
loans carried higher rates than could be obtained on purchases of
adjustable rate mortgage-backed securities. The loans were primarily
performing seasoned loans whereby a borrower was not delinquent for
more than 30 days during the year preceding the purchase date. As part
of its due diligence process, the Bank performed detail reviews of
acquired loan pools including various loan file reviews, site
inspections and analysis of payment history information. The purchase
price for such loans reflected management's evaluation of the interest
and credit risks associated with such loans. The Bank also purchased
$6.0 million of auto lease loans during fiscal 1996.
LOAN SERVICING. Mortgage servicing provides a relatively stable source
--------------
of fee income in that such income is a function of the size of the
servicing portfolio and not the interest rate on the related loans. In
addition to servicing fee income, which generally ranges from 0.25% to
0.50% per annum of outstanding principal balances, other fees such as
late charges are collected. The Bank has also benefited from the
generation of a relatively low cost source of funds from escrow
deposits, and the use of principal and interest payments prior to
remittance to investors. At September 30, 1996 and 1995, the Company
was servicing first mortgage loans of approximately $597.0 million and
$523.7 million, respectively, which are either partially or wholly
owned by others. Loan servicing fees amounted to $1.7 million for each
of the years ended September 30, 1996 and 1995.
The Bank's risk at September 30, 1996 with respect to servicing loans
for others is minimized due to the fact that loans serviced for others
are all without recourse to the originator/servicer. However, there are
certain obligations the Bank has as servicer for the loans. To date,
the Bank has not suffered significant losses from its mortgage
servicing activities.
11
<PAGE> 12
DELINQUENCIES. The Bank conducts a regular review and follow-up of all
--------------
loan delinquencies. When a borrower fails to make a scheduled payment
on a loan, the Bank takes steps to have the borrower cure the
delinquency. Most loan delinquencies are cured within 90 days and no
legal action is required. If the delinquency exceeds 90 days and is not
cured through the Bank's normal collection procedures, the Bank will
initiate measures to enforce its remedies resulting from the default,
including, in the case of mortgage loans, commencing foreclosure
action, or in the case of other secured loans, repossessing the
collateral. In certain cases, the Bank will also consider accepting
from the mortgagor a voluntary deed to the mortgaged premises in lieu
of foreclosure. Property acquired by the Bank as a result of
foreclosure or by deed in lieu of foreclosure is classified as "Real
Estate Owned." In the case of unsecured installment loans, the Bank
either commences legal action to collect the balances or negotiates a
"work-out" payment schedule over a period which may exceed the original
term of the loan. In certain instances the Bank will restructure loans
to assist borrowers in meeting their obligations.
It is the Bank's policy to discontinue the accrual of interest when a
mortgage loan, cooperative residential loan, or home equity loan
exceeds 90 days delinquent, and in some cases, before reaching 90 days
delinquent. At September 30, 1996, the Bank's ratio of nonaccrual loans
to total loans was 1.36%. Interest previously recognized as a
receivable on past due loans is charged to the allowance for loan
losses when in the opinion of management such interest is deemed to be
uncollectible.
Additionally, at September 30, 1996, 1995, 1994, 1993 and 1992 the Bank
had $4.4 million, $5.0 million, $4.0 million, $3.3 million and $2.8
million, respectively, of consumer and other loans which are past due
90 days and still accruing interest at the dates indicated. Of the $4.4
million at September 30, 1996, $3.5 million represents loans guaranteed
by the United States Department of Education through the New York State
Higher Education Services Corporation. The following tables set forth
certain information regarding nonaccrual loans, real estate owned and
restructured loans. (See Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the 1996
Annual Report to Shareholders, portions of which are attached as
Exhibit 13, for a discussion on the interest that would have been
earned on nonaccrual loans and the decrease in the ratio of nonaccrual
loans to total loans.)
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis......... $25,552 $30,372 $36,533 $38,808 $35,458
======= ======= ======= ======= =======
Real estate owned.......... $ 3,197 $ 1,967 $ 5,919 $ 6,609 $ 9,336
======= ======= ======= ======= =======
Restructured loans......... $ 5,818 $ 9,104 $ 9,481 $ 6,237 $ 2,309
======= ======= ======= ======= =======
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
Summary of Loan Loss Experience
- -------------------------------
As of and
For the Year Ended September 30,
--------------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance for possible loan
losses, beginning of year........ $21,272 $25,705 $26,828 $19,455 $4,970
Charge-offs:
Commercial real estate.......... (974) (2,889) (879) (682) (348)
Multifamily residential......... -- (546) (853) -- --
Real estate - construction...... -- -- -- -- (2,016)
Residential real estate......... (730) (1,422) (1,572) (1,586) (1,214)
Other loans..................... (1,441) (1,442) (901) (1,731) (604)
------ ------ ------ ------ ------
Total charge-offs............. (3,145) (6,299) (4,205) (3,999) (4,182)
------ ------ ------ ------ ------
Less: Recoveries
Commercial real estate........ -- -- 349 220 --
Residential real estate....... -- 4 47 41 --
Other loans................... 59 75 36 122 22
------ ------ ------ ------ ------
Total recoveries............ 59 79 432 383 22
------ ------ ------ ------ ------
Net charge-offs................... (3,086) (6,220) (3,773) (3,616) (4,160)
Addition to allowance in connection
with the acquisitions of State
Savings and Union Savings........ -- -- -- 6,289 10,241
Hamilton's net activity for the
quarter ended December 31, 1994.. -- 87 -- -- --
Addition to allowance charged to
expense.......................... 1,200 1,700 2,650 4,700 8,404
------- ------- ------- ------- -------
Allowance at end of year.......... $19,386 $21,272 $25,705 $26,828 $19,455
======= ======= ======= ======= =======
Asset Quality Ratios
- --------------------
Net charge-offs to average loans
outstanding during the period.... .18% .40% .27% .25% .39%
Allowance for possible loan
losses to total loans............ 1.03% 1.26% 1.76% 1.89% 1.46%
Allowance for possible loan
losses to nonaccrual loans....... 75.87% 70.04% 70.36% 69.13% 54.87%
Nonaccrual loans to total loans... 1.36% 1.80% 2.50% 2.73% 2.67%
Total loans....................... $1,875,478 $1,690,870 $1,463,452 $1,422,579 $1,330,231
Average loans(1).................. $1,752,878 $1,560,706 $1,411,067 $1,425,134 $1,074,982
Total assets...................... $2,940,907 $2,731,592 $2,583,982 $2,250,605 $2,153,861
- -----------------------
(1) Nonaccruing loans have been included in the average loan amounts.
</TABLE>
13
<PAGE> 14
The allowance for possible loan losses is established and maintained
through provisions for possible loan losses charged to expense. During
the years ended September 30, 1993 and 1992 the Bank also had additions
to its allowance for possible loan losses resulting from its acquisitions
of State Savings and Union Savings. Loans are charged-off against the
allowance for possible loan losses when management believes the
collectibility of the full principal balance is unlikely ("Charge-offs").
As part of the Bank's determination of the adequacy of the allowance for
loan losses, the Bank monitors its loan portfolio through its Asset
Classification Committee. The Committee, which meets no less than
quarterly, consists of employees who are independent of the loan
origination process and members of management. This Committee reviews
individual loans with the lending officers and assesses risks relating to
the collectibility of these loans. The Asset Classification Committee
determines the adequacy of the allowance for possible loan losses through
ongoing analysis of historical loss experience, the composition of the
loan portfolios, delinquency levels, underlying collateral values and
cash flow values. Utilizing these procedures, management believes that
the allowance for possible loan loses at September 30, 1996 is sufficient
to cover anticipated losses inherent in the loan portfolios. (See notes
1(E) and 9 of Notes to Consolidated Financial Statements in the 1996
Annual Report to Shareholders, portions of which are attached as Exhibit
13.)
At September 30, 1996, 1995, 1994, 1993 and 1992 the allowance for
possible loan losses was allocated as follows:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------- --------------------- --------------------- --------------------- ---------------
Percent of Percent of Percent of Percent of Percent of
Loans in Loans in Loans in Loans in Loans in
Category Category Category Category Category
to Total to Total to Total to Total to Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- --------- --------- --------- --------- --------- --------- --------- --------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Construction
loans.......... $ 20 .23% $ 39 .52% $ 25 .34% $ -- . --% $ 118 .63%
Commercial
loans.......... 122 .66 92 .66 71 1.05 61 .50 86 .44
Multifamily
residential
loans.......... 1,008 9.12 505 5.98 1,051 6.90 1,328 6.68 552 8.29
Commercial
real estate
loans.......... 7,192 20.43 8,057 21.02 10,627 23.06 12,035 20.86 9,244 11.87
Residential
and other
loans.......... 4,426 69.56 4,037 71.82 6,270 68.65 6,513 71.96 6,610 78.77
Unallocated 6,618 . -- 8,542 . -- 7,661 . -- 6,891 . -- 2,845 . --
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total......... $19,386 100.00% $21,272 100.00% $25,705 100.00% $26,828 100.00% $19,455 100.00%
======= ====== ======= ====== ======= ====== ======= ====== ======= ======
</TABLE>
14
<PAGE> 15
INVESTMENT ACTIVITIES
- ---------------------
Effective October 1, 1993 the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investment in Debt and Equity
Securities" ("SFAS No. 115"). Under SFAS No. 115, debt and mortgage-backed
securities which the Company has the positive intent and ability to hold until
maturity are carried at cost, adjusted for amortization of premiums and
accretion of discounts. Debt and mortgage-backed securities to be held for
indefinite periods of time and not intended to be held to maturity and
marketable equity securities are classified as available for sale securities and
are recorded at fair value, with unrealized appreciation and depreciation
reported, net of tax, as a separate component of shareholders' equity.
In connection with the adoption of SFAS No. 115, mortgage-backed securities
previously classified as held for sale, and carried at the lower of cost or
market, were classified as available for sale. The carrying value of these
mortgage-backed securities was adjusted to their market value, which resulted in
increasing the carrying value by $826,000, and increasing shareholders' equity
by $449,000, which was net of taxes of $377,000. In addition, the Bank
reclassified $71.5 million of mortgage-backed securities available for sale to
mortgage-backed securities held to maturity, and reclassified $78.1 million of
mortgage-backed securities held to maturity to mortgage-backed securities
available for sale. At the time of the reclassifications, the carrying value of
such mortgage-backed securities approximated market value.
As permitted under guidance issued by the Financial Accounting Standards Board
in November 1995, during the quarter ended December 31, 1995, the Bank
transferred $99.1 million of its mortgage-backed securities and debt securities,
previously classified as held to maturity, to the available for sale
classification. Additionally, mortgage-backed securities with a carrying value
and market value of approximately $15.4 million, previously classified as
available for sale, were transferred to the held to maturity portfolio.
MORTGAGE-BACKED SECURITIES. Home Federal invests a portion of its assets
----------------------------
in mortgage-backed securities. Home Federal considers its investment in
mortgage-backed securities as a separate investment category from mortgage
loans because of the liquidity characteristics of these instruments. At
September 30, 1996, the Bank's portfolios of mortgage-backed securities
totaled $831.2 million, or 28.3% of total assets. Approximately 16.6% of
this portfolio includes mortgage-backed securities with underlying loans
which are guaranteed by either the Federal Home Loan Mortgage Corporation
("FHLMC"), Government National Mortgage Association ("GNMA") or Federal
National Mortgage Association ("FNMA"). The remainder of the portfolio
consists of Real Estate Mortgage Investment Conduit ("REMIC"),
Collateralized Mortgage Obligation ("CMO") and private-issue pass-through
mortgage-backed securities virtually all of which are rated no less than
AAA by nationally recognized rating services. Management anticipates the
full collection of principal balances and contractual interest amounts on
these securities over their lives, as none of these securities are
considered to be residual interests.
15
<PAGE> 16
Included in the Bank's mortgage-backed securities portfolio at September
30, 1996 are REMIC and CMO securities with a principal balance of $665.0
million. This portfolio has an average estimated life of 5.4 years at
September 30, 1996. Changes in interest rates and underlying collateral
values can affect the average life of the REMIC and CMO securities.
Assuming an immediate and parallel shift in the yield curve of 300 basis
points from the rate environment at September 30, 1996, it is estimated
that the average life of this portfolio would be extended to 6.6 years. At
September 30, 1996 the Bank's REMIC and CMO portfolio consisted of 42.6%
in Sequential Payment Securities, 25.5% in Targeted Amortization
Securities, 14.4% in Scheduled Payment Securities, and 17.5% in other
Securities. (See Management's Discussion and Analysis of Financial
Condition and Results of Operations - Asset/Liability Management and notes
6 and 7 to the Notes to Consolidated Financial Statements in the 1996
Annual Report to Shareholders, portions of which are attached as Exhibit
13.)
The following table sets forth the composition of the Bank's
mortgage-backed securities held to maturity portfolio as of the dates
indicated:
<TABLE>
<CAPTION>
September 30,
-------------------------------------
1996 1995 1994
-------- --------- ---------
(In Thousands)
<S> <C> <C> <C>
CARRYING VALUES:
FHLMC(1)............................... $ 14,595 $ 21,461 $ 27,265
FNMA(2)................................ 6,075 34,148 45,493
GNMA(3)................................ 1,423 -- 55,013
Private-issue pass-through............. 1,258 -- --
REMIC and CMO(4)....................... 525,823 604,722 651,091
--------- ---------- ---------
Total mortgage-backed securities
held to maturity (5)................ 549,174 660,331 778,862
Add: Unamortized premiums............. 2,733 6,519 10,110
Less: Unearned discounts.............. (1,090) (2,124) (3,379)
-------- --------- ---------
Total carrying value................. $550,817 $ 664,726 $ 785,593
======== ========= =========
ESTIMATED MARKET VALUE................... $534,602 $ 637,503 $ 730,500
======== ========= =========
- -------------------------
(1) Includes $3,816,000, $4,736,000 and $7,076,000 of adjustable rate securities
at September 30, 1996, 1995 and 1994, respectively.
(2) Includes $6,075,000, $8,370,000 and $10,688,000 of adjustable rate securities
at September 30, 1996, 1995 and 1994, respectively.
(3) Includes $55,013,000 of adjustable rate securities at September 30, 1994.
(4) Includes $4,111,000 and $5,904,000 of adjustable rate securities at September
30, 1995 and 1994, respectively.
(5) Includes $10,803,000 and $41,897,000 of pools with underlying loans having
five and seven year balloon maturities, at September 30, 1996 and 1995,
respectively.
</TABLE>
16
<PAGE> 17
The following table sets forth the composition of the Bank's
mortgage-backed securities available for sale portfolio as of the dates
indicated:
<TABLE>
<CAPTION>
September 30,
------------------------------------
1996 1995 1994
-------- -------- -------
(In Thousands)
<S> <C> <C> <C>
CARRYING VALUES:
FHLMC....................................... $ 61,125 $ 74,344 $ 49,796
FNMA........................................ 48,583 36,831 35,287
GNMA........................................ 7,596 10,854 2,201
REMIC and CMO .............................. 139,146 56,199 63,277
Private-issue pass-through.................. 25,833 30,295 30,303
-------- --------- ---------
Total mortgage-backed securities
available for sale....................... 282,283 (1) 208,523 180,864
Add: Unamortized premiums.................. 1,836 1,091 1,594
Less: Unearned discounts.................... (4,167) (3,818) (3,479)
Less: Unrealized appreciation (depreciation)
on securities available for sale..... 477 998 (6,996)
-------- --------- ---------
Total carrying and
estimated market value................... $280,429 $ 206,794 $ 171,983
======== ========= =========
- ----------------------
(1) Of the $282,283,000 in MBS at September 30,1996, $23,484,000 represents pools with
underlying loans having five and seven year balloon maturities.
</TABLE>
The following table sets forth, by issuer,the aggregate amortized cost and
estimated fair value of the Company's REMIC, CMO and private-issue
pass-through mortgage-backed securities portfolio, both held to maturity
and available for sale, that at September 30, 1996 exceeded 10% of
stockholders' equity.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
--------- ----------
(In Thousands)
<S> <C> <C>
Residential Funding Mortgage Securities I, Inc..... $ 90,674 $ 89,589
Prudential Home Mortgage Securities Company, Inc... 83,428 80,258
Chase Mortgage Finance Corporation................. 82,726 80,095
Federal National Mortgage Association.............. 67,127 64,703
GE Capital Mortgage Services, Inc.................. 58,947 57,497
Countrywide Funding Corporation.................... 52,067 52,630
Securitized Asset Sales, Inc....................... 48,596 48,070
Housing Securities, Inc............................ 44,397 43,254
Bear Stearns Mortgage Securities, Inc.............. 41,470 39,021
Federal Home Loan Mortgage Corporation............. 17,887 18,016
Saxon Mortgage Securities Corporation.............. 17,351 17,350
Citicorp Mortgage Securities, Inc.................. 15,228 14,798
---------- ---------
$ 619,898 $ 605,281
========== =========
</TABLE>
17
<PAGE> 18
MONEY MARKET INVESTMENTS AND DEBT AND EQUITY SECURITIES. The Bank's
-------------------------------------------------------------
investment policy, which is established by its Board of Directors, is to
invest funds among various categories of investments and maturities based
upon the Bank's asset/liability policies, investment quality and
marketability standards, liquidity needs and performance objectives.
At September 30, 1996, the Company had $10.7 million, or .4% of its total
assets, invested in money market investments. The Company had $136.1
million in debt and equity securities available for sale and $.6 million
in debt securities held to maturity at September 30, 1996, representing
4.7% of total assets. It is the Company's policy to purchase only issues
rated investment grade. An "A" rating, as assigned by several generally
recognized independent rating agencies, is the third highest of the four
rating grades which are considered to be "investment grade" by the rating
agencies and by most financial institutions. "Baa" is the fourth highest
rating. At September 30, 1996, 100% of such issues owned by the Company
were considered to be investment grade by the rating agencies. (See notes
4, 5 and 6 of Notes to Consolidated Financial Statements in the 1996
Annual Report to Shareholders, portions of which are attached as Exhibit
13.)
18
<PAGE> 19
The following table sets forth certain information regarding the Company's
investment portfolio at the dates indicated:
<TABLE>
<CAPTION>
September 30,
----------------------------------
1996 1995 1994
----------------------------------
(Dollars In Thousands)
<S> <C> <C> <C>
DEBT SECURITIES HELD TO MATURITY:
U.S. Government and agency obligations $ -- $ 20,000 $ 51,501
Corporate notes.......................... 643 1,179 1,483
-------- -------- --------
Total debt securities held to
maturity.............................. 643 21,179 52,984
-------- -------- --------
DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE:
U.S. Government and agency obligations.... 131,245 41,740 --
Common stocks ........................... 5,326 4,082 134
Stock in FNMA............................ 2 2 2
Other.................................... 1,028 -- --
-------- -------- --------
Total debt and equity securities
available for sale.................... 137,601 45,824 136
Unrealized appreciation (depreciation)
on securities available for sale........ (1,468) 449 44
-------- -------- --------
Net debt and equity securities
available for sale.................... 136,133 46,273 180
-------- -------- --------
FEDERAL HOME LOAN BANK STOCK............... 27,938 20,288 17,409
-------- -------- --------
MONEY MARKET INVESTMENTS:
Securities purchased under resale
agreements.............................. 10,700 8,400 5,031
Commercial paper......................... -- -- 4,002
FHLB overnight deposits.................. -- 4,997 11,561
Federal funds sold....................... -- 500 1,250
Other.................................... -- 18 --
-------- -------- --------
Total money market investments......... 10,700 13,915 21,844
-------- -------- --------
TOTAL INVESTMENT PORTFOLIO................. $175,414 $101,655 $ 92,417
======== ======== ========
AVERAGE LIFE, IN YEARS, OF TOTAL INVESTMENT
PORTFOLIO, EXCLUDING EQUITY SECURITIES 6.6 3.6 4.0
=== === ===
</TABLE>
The table below sets forth certain information regarding the carrying and
market values, average yields and maturities of the Bank's investment in
debt securities.
<TABLE>
<CAPTION>
At September 30, 1996
--------------------------------------------------------------------------------------------------------------------
One Year 1 to 5 to More than
or Less 5 Years 10 Years 10 Years Total Debt and Equity Securities
----------------- ------------------ ----------------- ----------------- ---------------------------------------
Average
Carrying Average Carrying Average Carrying Average Carrying Average Life Carrying Market Average
Value Yield Value Yield Value Yield Value Yield in Years Value Value Yield
-------- ------- -------- ------- ------- ------- -------- ------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S.
Government
and agency
obligations.. $ -- .--% $ 76,245 6.48% $50,000 8.19% $5,000 7.50% 7.1 $131,245 $130,238 7.17%
==== === ========= ==== ======= ==== ====== ==== ==== ======== ======== ====
Corporate
notes........ $ -- .--% $ -- .--% $ -- .--% $ 643 6.61% 9.2 $ 643 $ 641 6.61%
==== === ========= ==== ======= ==== ====== ==== ==== ======== ======== ====
</TABLE>
19
<PAGE> 20
SUBSIDIARIES OF THE BANK
- ------------------------
The Bank has six wholly owned subsidiaries, three of which are inactive. Of the
active subsidiaries, one subsidiary, Alameda Advantage Corp. ("AAC"), is a
limited partner in the partnership which owns the property used for the Bank's
executive and administrative offices. At September 30, 1996, the Bank's
investment in AAC amounted to $524,000.
Two of the subsidiaries, Home Fed Services, Inc. and HF Investors, Inc., were
primarily established to offer annuities through the Bank's branch system. At
September 30, 1996, the Bank's investment in these subsidiaries amounted to
$77,000.
SOURCES OF FUNDS
- ----------------
The Bank's lending and investment activities are predominately funded by
deposits, Federal Home Loan Bank of New York ("FHLB-NY") advances, reverse
repurchase agreements with primary government securities dealers, scheduled
amortization and prepayments of its loan and investment portfolio, and funds
provided by operations. Although not viewed as a primary source of funds, the
Bank will, from time to time, sell certain of the Bank's mortgages and
securities which have been designated as available for sale. The primary purpose
of these sales has been to reduce the Bank's interest rate risk position.
Further, the Bank utilizes subordinated capital notes as an additional source of
funds.
DEPOSITS. Home Federal has a number of programs designed to attract both
--------
short-term and long-term savings from the general public by providing a
wide assortment of accounts bearing interest rates consistent with federal
regulations and market conditions. Included among these programs are
savings accounts, negotiable order of withdrawal ("NOW") accounts, money
market deposit accounts ("MMDA"), fixed rate and variable rate Individual
Retirement and Keogh Accounts, fixed rate and variable rate certificates
of deposit, and non-interest bearing demand accounts. Additionally, during
the year ended September 30, 1994 Home Federal introduced its MarketSmart
5-year certificates of deposit which enable depositors to earn an annual
percentage yield based on the changes in the Standard & Poor's ("S&P") 500
Composite Stock Price Index during each of the 5 year terms of the CD. The
MarketSmart CD was also available to depositors as an individual
retirement certificate of deposit. Included in deposits at September 30,
1996 is $2.5 million of MarketSmart CD deposit liabilities. The Bank
utilizes Stock Indexed Call options to hedge the risks associated with
this product. The Bank ceased offering the MarketSmart CD during fiscal
year 1995 due to its inability to purchase appropriate Stock Indexed Call
Options.
20
<PAGE> 21
Savings accounts (passbook or statement), which accounted for
approximately 41.77% of the Bank's total deposits at September 30, 1996,
earned interest as of that date at an annual rate of 2.43% with an
effective annual yield of 2.45%. Interest on savings accounts is
compounded daily and credited monthly. A savings account must have a
balance of at least $200 to earn interest. At September 30, 1996,
approximately 40.66% of all deposits were in certificate accounts with
original maturities ranging from three months to seven years. Interest on
certificate accounts of six months or less is based on simple interest and
credited monthly. Interest on all other certificate accounts is compounded
daily and credited quarterly. At September 30, 1996, approximately 7.78%
of all deposits were in MMDAs which bear a fluctuating rate of interest
that is reviewed regularly by the Bank. Additionally, NOW accounts
represented 7.63% of the Bank's total deposits at September 30, 1996.
Interest on NOW accounts is compounded daily and credited monthly.
Non-interest bearing demand accounts represented 2.16% of the Bank's total
deposits at September 30, 1996.
The following table sets forth the distribution of the Bank's deposit
accounts at the dates indicated and the weighted average interest rates,
excluding the effect of interest rate floors, interest rate collars, and
interest rate swaps:
<TABLE>
<CAPTION>
At September 30,
------------------------------------------------------------------------
September 30, 1996 1995 1994
---------------------- ---------------------- -----------------------
1996
Weighted
Average Percent Percent Percent
Nominal of of of
Rate Amount Deposits Amount Deposits Amount Deposits
--------- --------- ----------- --------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing
demand accounts... .--% $ 37,013 2.16% $ 32,821 1.88% $ 34,110 1.91%
NOW accounts....... 1.33 130,831 7.63 116,726 6.67 109,123 6.09
Variable rate money
market deposit
accounts.......... 3.29 133,528 7.78 102,937 5.89 158,413 8.84
Passbook savings and
club accounts..... 2.43 716,827 41.77 751,374 42.96 878,591 49.04
---- ---------- ------ ---------- ------ ---------- ------
2.31 1,018,199 59.34 1,003,858 57.40 1,180,237 65.88
---- ---------- ------ ---------- ------ ---------- ------
Certificate accounts:
With original
maturities of:
3 months....... 3.70 19,382 1.13 15,516 .89 9,043 .50
6 months....... 3.96 83,943 4.89 98,674 5.64 98,814 5.52
7 months....... 3.93 17,967 1.05 37,848 2.16 -- .--
12 months....... 4.79 140,815 8.21 191,469 10.95 181,232 10.12
13 months....... 4.92 93,965 5.47 84,778 4.85 -- .--
30 months....... 5.38 34,784 2.03 46,807 2.68 55,375 3.09
36 months....... 5.59 25,049 1.46 26,762 1.53 22,753 1.27
48 months....... 5.31 6,396 .37 6,404 .37 6,012 .34
60 months....... 6.36 161,180 9.39 173,716 9.93 157,538 8.79
Other........... 5.07 114,279 6.66 63,042 3.60 80,510 4.49
---- ---------- ------ ---------- ------ ---------- ------
5.13 697,760 40.66 745,016 42.60 611,277 34.12
---- ---------- ------ ---------- ------ ---------- ------
Total deposits.. 3.46% $1,715,959 100.00% $1,748,874 100.00% $1,791,514 100.00%
==== ========== ====== ========== ====== ========== ======
</TABLE>
21
<PAGE> 22
The following table presents the deposit activity of the Bank for the
years indicated:
<TABLE>
<CAPTION>
September 30,
----------------------------------------
1996 1995 1994
---------- ------------ -----------
(In Thousands)
<S> <C> <C> <C>
Deposits.................................. $2,847,234 $2,909,582 $2,635,468
Withdrawals............................... (2,943,187) (3,011,924) (2,658,499)
---------- ---------- ----------
Withdrawals in excess of deposits......... (95,953) (102,342) (23,031)
Interest credited......................... 63,038 67,670 56,443
Hamilton's net activity for the
quarter ended December 31, 1994.......... -- (7,968) --
---------- ---------- ----------
Net increase (decrease) in deposits....... $ (32,915) $ (42,640) $ 33,412
========== ========== ==========
</TABLE>
The following table presents the weighted average nominal interest rates
(excluding the effect of related interest rate swaps, interest rate
collars and interest rate floors) on certificate accounts outstanding at
September 30, 1996 by periods of maturity.
<TABLE>
<CAPTION>
Percent of Weighted
Certificates Average Remaining maturity
-----------------------------------------------------------
to Total Nominal 6 months 6 months 1 year 3 years 5 years
Quarter Ended Amount Deposits Rate or less to 1 year to 3 years to 5 years to 10 years
------------- ------ -------- -------- -------- --------- ---------- ---------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1996....... $163,441 23.43% 4.47% $163,441
March 31, 1997.......... 129,388 18.55 4.69 129,388
June 30, 1997........... 98,105 14.06 5.01 $ 98,105
September 30, 1997...... 67,922 9.73 4.97 67,922
December 31, 1997....... 45,302 6.49 5.62 $ 45,302
March 31, 1998.......... 45,733 6.56 5.80 45,733
June 30, 1998........... 22,943 3.29 5.65 22,943
September 30, 1998...... 20,053 2.87 6.00 20,053
December 31, 1998....... 11,641 1.67 5.29 11,641
March 31, 1999.......... 8,992 1.29 5.18 8,992
June 30, 1999........... 19,554 2.80 5.94 19,554
September 30, 1999...... 11,005 1.58 5.56 11,005
December 31, 1999....... 7,551 1.08 6.51 $ 7,551
March 31, 2000.......... 14,053 2.01 7.14 14,053
June 30, 2000........... 17,884 2.56 7.05 17,884
September 30, 2000...... 3,783 .54 5.74 3,783
December 31, 2000....... 3,060 .44 5.73 3,060
March 31, 2001.......... 1,886 .27 5.23 1,886
June 30, 2001........... 1,812 .26 5.10 1,812
September 30, 2001...... 2,794 .40 5.57 2,794
December 31, 2001....... 720 .10 5.63 $ 720
March 31, 2002.......... 138 .02 7.44 138
-------- ------ ---- -------- -------- -------- -------- --------
$697,760 100.00% 5.13% $292,829 $166,027 $185,223 $ 52,823 $ 858
======== ====== ==== ======== ======== ======== ======== ========
</TABLE>
Historically, most of the Bank's certificates of deposit accounts renew
upon maturity. Consequently, and given the sources of funds available to
the Bank, the short-term nature of the maturity for certificate of deposit
accounts should not have a material adverse effect on the Company's
operations or liquidity.
22
<PAGE> 23
At September 30, 1996, the Bank had outstanding certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Quarter Ended Amount
------------- --------
(In Thousands)
<S> <C>
December 31, 1996.......... $ 15,364
March 31, 1997............. 10,783
June 30, 1997.............. 8,013
September 30, 1997......... 5,367
December 31, 1997.......... 11,836
March 31, 1998............. 7,609
June 30, 1998.............. 2,355
September 30, 1998......... 1,948
December 31, 1998.......... 1,821
March 31, 1999............. 546
June 30, 1999.............. 5,261
September 30, 1999......... 1,933
December 31, 1999.......... 690
March 31, 2000............. 2,425
June 30, 2000.............. 4,137
September 30, 2000......... 481
December 31, 2000.......... 432
September 30, 2001......... 367
---------
$ 81,368
=========
</TABLE>
BORROWED FUNDS. Although deposits are the Bank's primary source of funds,
---------------
the Bank's policy has been to utilize borrowed funds when they are a less
costly source of funds or can be invested at a positive interest rate
spread. These borrowings are generally short-term or variable rate and,
therefore, present greater interest rate and liquidity risk to the Bank.
The Bank attempts to manage this risk and utilizes off- balance sheet
financial instruments to a limited extent to manage its risks.
Home Federal obtains advances from the FHLB-NY upon the security of its
residential mortgage loans and mortgage-backed securities. Such advances
are made pursuant to several different credit programs, each of which has
its own interest rate and range of maturities.
Home Federal also employs repurchase agreements as a means of borrowing
funds. It is the Bank's policy to enter into these agreements only with
primary government dealers.
At September 30, 1996, the Bank had outstanding $353.7 million of fixed
rate reverse repurchase agreements with a weighted average interest rate
of 5.61% and remaining maturities of one to twelve months. The Bank may
substitute collateral in the form of U.S. Treasury or mortgage-backed
certificates. At September 30, 1996, the borrowings were collateralized by
FNMA, FHLMC, REMIC and non-agency pass-through certificates having a
carrying value of approximately $378.0 million and a market value of
approximately $372.8 million.
23
<PAGE> 24
At September 30, 1996, the Bank had outstanding a $100.0 million
adjustable rate reverse repurchase agreement with a current interest rate
of 5.09% and a remaining maturity of 16 months. The rate on this reverse
repurchase agreement is subject to repricing by the counterparty in
January 1997 to a LIBOR based rate, with monthly adjustments thereafter.
The Bank may substitute collateral in the form of U.S. Treasury, GNMA,
FNMA, FHLMC, REMIC, CMO or non-agency pass-through certificates rated no
less than AA. At September 30, 1996, this borrowing was collateralized by
REMIC and non-agency pass-through certificates having a carrying value of
approximately $113.7 million and a market value of approximately $111.6
million.
On November 18, 1988, the Bank issued $25.0 million in 10.95% (Series A
Notes) and $5.0 million in 10.52% (Series B Notes) subordinated capital
notes (collectively as the "Notes"). During the years ended September 30,
1991 and 1990, the Bank repaid $6.0 million and $5.0 million,
respectively, of its Series A Notes at prices substantially equal to its
carrying value. Interest on the Notes is payable in semiannual
installments. The remaining principal on the Series A Notes and Series B
Notes is payable in annual installments of $2.8 million and $1.0 million,
respectively. As of September 30, 1996, the Bank had $11.4 million of the
Notes outstanding, which are fully subordinated to savings deposit
accounts and other general liabilities of the Bank. Further, at September
30, 1996, $1.6 million of the Notes qualified as supplemental capital for
purposes of meeting the regulatory risk-based capital requirements. The
Notes are redeemable in whole or in part, with a prepayment premium, at
the option of the Bank, subject to regulatory approval, at any time.
Deferred issuance costs are being amortized over the period to maturity of
the Notes.
On February 3, 1989 the Bank established a Mortgage-Backed Medium-Term
Note, Series A (the "Medium-Term Notes") program. The Medium-Term Notes
can be issued from time to time in designated principal amounts, up to a
total remaining aggregate amount of $180.0 million, with interest rates to
be established at the time of issuance, and with maturities to be set
ranging from nine months to fifteen years from the date of issuance. No
amounts were outstanding under this program at September 30, 1996.
24
<PAGE> 25
The following table sets forth certain information regarding borrowed
funds for the dates indicated:
<TABLE>
<CAPTION>
At September 30,
---------------------------------------
1996 1995 1994
---------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Notes payable--fixed rate advances from the FHLB-NY:
4.470% to 8.450%, due in 1995................................. $ -- $ -- $ 27,500
4.130% to 8.450%, due in 1996................................. -- 22,375 22,375
8.100%, due in 1997........................................... 375 375 375
---------- -------- --------
375 22,750 50,250
---------- -------- --------
Notes payable--variable rate advances from the FHLB-NY:
4.813% to 6.125%, due in 1995................................ -- -- 207,000
5.883% to 6.625%, due in 1996................................ -- 363,000 --
5.000% to 5.986%, due in 1997................................ 542,000 20,000 20,000
4.813%, due in 1998.......................................... -- -- 35,000
---------- -------- --------
542,000 383,000 262,000
---------- -------- --------
Securities sold under agreements to repurchase:
Fixed rate agreements:
4.860% to 5.300%, due in 1995............................... -- -- 90,191
5.790% to 6.000%, due in 1996............................... -- 190,160 --
5.370% to 6.150%, due in 1997............................... 353,698 -- --
---------- -------- --------
353,698 190,160 90,191
---------- -------- --------
Variable rate agreements:
5.793% to 6.025%, due in 1996............................... -- 150,000 --
5.090%, due in 1998......................................... 100,000 -- --
---------- -------- --------
100,000 150,000 --
---------- -------- --------
Other collateralized borrowings:
Fixed rate flexible reverse repurchase agreements:
7.850%, due in 1996......................................... -- 4,700 4,700
---------- -------- --------
Variable rate capped reverse repurchase agreements:
3.920% to 4.250%, due in 1995............................... -- -- 150,000
---------- -------- --------
Subordinated capital notes, fixed rate - 10.84%:
Due in 1995.................................................. -- -- 3,800
Due in 1996.................................................. -- 3,800 3,800
Due in 1997.................................................. 3,800 3,800 3,800
Due in 1998.................................................. 3,800 3,800 3,800
Due in 1999.................................................. 3,800 3,800 3,800
---------- -------- --------
11,400 15,200 19,000
---------- -------- --------
Treasury, tax and loan notes-callable, 5.84%, 5.75% and 5.19%
at September 30, 1996, 1995 and 1994, respectively............ 1,313 1,328 582
---------- -------- --------
Other (ESOP) prime rate, due in 2000........................... -- -- 2,174
---------- -------- --------
Total borrowed funds........................................ $1,008,786 $767,138 $578,897
========== ======== ========
</TABLE>
25
<PAGE> 26
The following table sets forth the maximum month-end balance, average
balance and weighted average interest rate of short-term borrowings based
on remaining maturities for the periods indicated. Average balances and
rates are computed on the basis of daily balances. The rates shown in the
table exclude the effect of related interest rate swaps and interest rate
collars.
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1996 1995 1994
------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB-NY advances--due in one year or less:
Maximum month-end balance....................... $611,875 $385,375 $234,500
Balance at end of year.......................... 542,375 385,375 234,500
Average balance................................. 480,574 293,268 159,724
Weighted average interest rate:
On balance at end of year..................... 5.48% 6.13% 5.44%
On average balance............................ 5.65% 5.75% 4.29%
Other borrowings--principally reverse repurchase
agreements, due in one year or less:
Maximum month-end balance....................... $358,811 $349,988 $240,773
Balance at end of year.......................... 358,811 349,988 240,773
Average balance................................. 262,251 259,685 110,480
Weighted average interest rate:
On balance at end of year..................... 5.66% 5.96% 4.49%
On average balance............................ 5.86% 5.72% 5.52%
Total short-term borrowings:
Maximum month-end balance....................... $901,186 $735,363 $475,273
Balance at end of year.......................... 901,186 735,363 475,273
Average balance................................. 742,825 548,560 270,204
Weighted average interest rate:
On balance at end of year..................... 5.55% 6.05% 4.96%
On average balance............................ 5.72% 5.74% 4.79%
</TABLE>
MARKET AREA AND COMPETITION
- ---------------------------
Home Federal has been, and continues to be, a community-oriented savings bank
offering a variety of financial services to its community. The Bank, however,
has substantial competition for both loans and deposits. The New York City
metropolitan area has a high density of financial institutions, many of which
are substantially larger and have substantially greater financial resources than
the Bank, and all of which are competitors of the Bank to varying degrees. The
Bank faces significant competition, both in making mortgage and consumer loans
and in attracting deposits. The Bank's competition for loans comes principally
from savings and loan associations, savings banks, mortgage banking companies,
insurance companies, and commercial banks. Its most direct competition for
deposits has historically come from savings and loan associations, savings
banks, commercial banks, credit unions and securities dealers. The Bank faces
additional competition for deposits from short-term money market funds and other
corporate and government securities funds.
The Bank competes for loans principally through competitive pricing and the
efficiency and quality of services it provides borrowers and their real estate
brokers. It competes for deposits through pricing and service and by offering a
variety of deposit accounts. New powers for thrift institutions provided by New
York State and Federal legislation enacted in recent years have resulted in
increased competition between savings banks and other financial institutions for
both deposits and loans.
26
<PAGE> 27
EMPLOYEES
- ---------
At September 30, 1996, Home Federal had 569 employees, including 158 part-time
employees. The Bank's employees are not represented by any collective bargaining
group. The Bank considers its employee relations to be excellent.
REGULATION
- ----------
GENERAL. The Company, as a savings and loan holding company, is required
--------
to file certain reports with, and otherwise comply with the rules and
regulations of the OTS, and file certain reports with the Securities and
Exchange Commission ("SEC") under the Federal securities laws. The Bank is
a member of the FHLB System and approximately 80.8% of its deposit
accounts are insured up to applicable limits by the FDIC under the Savings
Association Insurance Fund ("SAIF"). In addition, approximately 19.2%,
representing the remaining deposit accounts, are insured up to applicable
limits by the FDIC under the Bank Insurance Fund ("BIF"). The Bank is
subject to extensive regulation by the OTS, as its chartering agency, and
the FDIC, as the deposit insurer. The Bank must file reports with the OTS
and the FDIC concerning its activities and financial condition, in
addition to obtaining regulatory approvals prior to entering into certain
transactions such as mergers with or acquisitions of other savings
institutions. There are periodic examinations by the OTS and the FDIC to
examine whether the Bank is in compliance with various regulatory
requirements. This regulation and supervision establishes a comprehensive
framework of activities in which an institution can engage and is intended
primarily to ensure the safe and sound operation of the Bank for the
protection of the insurance fund and depositors. The regulatory structure
also gives the regulatory authorities extensive discretion in connection
with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets
and the establishment of an adequate allowance for possible loan losses
for regulatory purposes. Any change in such regulation, whether by the
OTS, the FDIC or the United States Congress could have a material adverse
impact on the Company, the Bank and its operations. Certain of the
regulatory requirements applicable to the Bank and to the Company are
referred to below or elsewhere herein.
HOLDING COMPANY REGULATION. The Company is a unitary savings and loan
-----------------------------
holding company within the meaning of the Home Owners Loan Act of 1933, as
amended ("HOLA"). As such, the Company is required to be registered with
the OTS and is subject to OTS regulations, examinations, supervision and
reporting requirements. Among other things, the OTS has enforcement
authority which permits the OTS to restrict or prohibit activities that
are determined to be a serious risk to the subsidiary savings institution.
The Bank must notify the OTS 30 days before declaring any dividend to the
Company.
27
<PAGE> 28
As a unitary savings and loan holding company, the Company generally is
not restricted under existing laws as to the types of business activities
in which it may engage, provided that the Bank continues to meet the
qualified thrift lender ("QTL") test. Upon any acquisition by the Company,
which would be subject to prior regulatory approval, of another qualifying
institution except for a supervisory acquisition, the Company would become
a multiple savings and loan holding company (if the acquired institution
is held as a separate subsidiary) and would be subject to extensive
limitations on the types of business activities in which it could engage.
In general, such holding company would be limited primarily to activities
permissible for bank holding companies under the Bank Holding Company Act
and other activities authorized by OTS regulations and activities in which
multiple savings and loan holding companies were authorized by regulation
to engage on March 5, 1987. Such activities include, without limitation,
mortgage banking, consumer finance, operation of a trust company, and
certain types of securities brokerage.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than
5% of the voting stock of another savings institution or holding company
thereof, without prior written approval of the OTS. Further, savings and
loan holding companies must receive OTS approval prior to acquiring
another savings association by merger, consolidation or purchase of
assets. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources
and future prospects of the company and institution involved, the effect
of the acquisition on the risk to the insurance funds, the convenience and
needs of the community and competitive factors.
The OTS is prohibited from approving any acquisition that would result in
a multiple savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions: (i) the
approval of interstate supervisory acquisitions by savings and loan
holding companies; and (ii) the acquisition of a savings institution in
another state if the laws of the state of the target savings institution
specifically permit such acquisitions.
Federal law generally provides that no "person" (including a company),
acting directly or indirectly or through or in concert with one or more
other persons, may acquire "control" of a Federally-insured savings
institution without giving at least 60 days' written notice to the OTS and
providing the OTS an opportunity to disapprove the proposed acquisition
(or in the case of a company, complying with OTS holding company
application requirements.) "Control" is defined for this purpose as the
power, directly or indirectly, to direct the management or policies of an
institution or to vote 25% or more of any class of voting securities of a
savings institution. In addition, existing regulations established various
presumptions of control, which, among other things, generally contemplate
that ownership of more than 10% of any class of voting securities of an
insured savings institution (when combined with certain other control
factors) constitute control.
28
<PAGE> 29
On August 26, 1996, Mr. Patrick E. Malloy, III, Chairman of the Board of
the Company, and Mr. Michael A. McManus, Jr., President and Chief
Executive Officer of the Company, received approval from the OTS to extend
the application they had filed to acquire up to 20% of the outstanding
common stock of the Company. As of September 30, 1996, Messrs. Malloy and
McManus beneficially owned a total of 12.40% of the outstanding common
stock of the Company.
On May 13, 1996, Mr. Josiah T. Austin, a Director of the Company, and Mrs.
Valer Austin received approval from the OTS to extend the application they
had filed to acquire up to 20% of the outstanding common stock of the
Company. As of September 30, 1996, Mr. and Mrs. Austin beneficially own a
total of 11.27% of the outstanding common stock.
FEDERAL SAVINGS INSTITUTION REGULATION
- --------------------------------------
BUSINESS ACTIVITIES. The activities of federal savings institutions are
---------------------
governed by the HOLA and, in certain respects, the Federal Deposit
Insurance Act ("FDI Act") and the regulations that have been issued
pursuant to those statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations
may engage. In particular, authority for certain types of loans, e.g.,
commercial, nonresidential real property loans and consumer loans, is
limited to a percentage of the institution's capital or assets. The
description of statutory provisions and regulations applicable to savings
and loan institutions set forth in this Form 10-K do not purport to be a
complete description of such statutes and regulations and their effects on
the Bank.
REGULATORY CAPITAL REQUIREMENT. The Bank is required to meet minimum
---------------------------------
capital standards, promulgated by the OTS, having three components: a
leverage limit or "core capital" requirement, a "tangible capital"
requirement, and a "risk-based capital" requirement. The OTS regulations
require that in meeting the leverage ratio, tangible, and risk-based
capital standards, the institution must deduct investments in and loans to
subsidiaries engaged in certain activities not permissible for national
banks.
The leverage limit requires a savings institution to maintain "core
capital" in an amount not less than 3% of adjusted total assets. Core
capital is defined as common stockholders' equity (including retained
earnings), certain noncumulative perpetual preferred stock and related
surplus, and minority interests in the equity accounts of consolidated
subsidiaries, less intangibles other than certain servicing rights. The
tangible capital requirements call for "tangible capital" in an amount not
less than 1.5% of adjusted total assets. As a result of the phaseout of
the includability of certain intangible assets in core capital, tangible
capital is in most cases the same as core capital.
Generally, savings institutions with a leverage ratio (core capital) of
less than 4.0% will be deemed "undercapitalized" under the prompt
corrective rule and, therefore, the leverage ratio has effectively been
increased to 4.0%. (See Prompt Corrective Action Regulations.)
29
<PAGE> 30
The risk-based capital requirement calls for an institution to maintain
capital in an amount not less than 8% of its risk weighted assets. Under
the risk-based capital standards, assets are categorized and assigned risk
weights by the regulation so that assets which are deemed to involve a
greater credit risk require more capital than assets with less credit
risk. Risk-based capital may include two components, core and
supplementary. Core capital is as defined previously. Supplementary
capital may be included in an amount up to 100% of core capital. The
components of supplementary capital may include cumulative preferred
stock, long-term preferred stock, mandatory convertibles securities,
subordinated debt and intermediate preferred stock and general allowance
for loan and lease losses. General allowance for loan and lease losses
allowable in supplementary capital is limited to a maximum of 1.25% of
risk-adjusted assets.
In August 1993, the OTS adopted a final rule incorporating an interest
rate risk component into the existing risk-based capital standard. Under
the final rule, savings institutions with "above normal" interest rate
risk exposure are subject to a deduction for total capital for purposes of
calculating risk-based capital requirements. A savings institution's
interest rate risk is measured by the decline in the net portfolio value
of its assets (i.e., the difference between incoming and outgoing
discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase
or decrease in market interest rates (except when the 3-month Treasury
bond equivalent yield falls below 4.0%, then the decrease will be equal to
one-half of that Treasury rate) divided by the estimated economic value of
the institution's assets, as calculated in accordance with guidelines set
forth by the OTS. A savings institution whose measured interest rate risk
exposure exceeds 2.0% must deduct an interest rate component in
calculating its total capital under the risk-based capital rule. The
interest rate risk component is an amount equal to one-half of the
difference between the institutions measured interest rate risk and 2.0%,
multiplied by the estimated economic value of the institutions assets. The
dollar amount is deducted from an institutions total capital in
calculating compliance with its risk-based capital requirement. The rule
provides that the director of the OTS may waive or defer an institution's
interest rate risk component on a case-by-case basis. For the present
time, the OTS has delayed implementation of the automatic capital
deduction of the interest rate risk component. The Bank's risk-based
capital requirement would not have been materially affected based on
interest rate risk at September 30, 1996. As of September 30, 1996, the
Bank exceeded all of its regulatory capital requirements. (See note 17 of
Notes to Consolidated Financial Statements contained in the 1996 Annual
Report to Shareholders, portions of which are attached as Exhibit 13.)
30
<PAGE> 31
PROMPT CORRECTIVE REGULATORY ACTION. Under the OTS prompt corrective
---------------------------------------
action regulations, the OTS is required to take certain supervisory
actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a
savings institution is considered "well capitalized" if its ratio of total
capital to risk-weighted assets is at least 10%, its ratio of Tier I
(core) capital to risk-weighted assets is at least 6%, its ratio of core
capital to total assets is at least 5%, and it is not subject to any order
or directive by the OTS to meet a specific capital level. A savings
institution generally is considered "adequately capitalized" if its ratio
of total capital to risk-weighted assets is at least 8%, its ratio of Tier
I (core) capital to risk-weighted assets is at least 4%, and its ratio of
core capital to total assets is at least 4% (3% if the institution
receives the highest CAMEL rating). A savings institution that has a ratio
of total capital to weighted assets of less than 8%, a ratio of Tier I
(core) capital to risk-weighted assets of less than 4% or a ratio of core
capital to total assets of less than 4% (3% or less for institutions with
the highest examination rating) is considered to be "undercapitalized." A
savings institution that has a total risk-based capital ratio less than
6%, a Tier I risk- based capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be "significantly undercapitalized"
and a savings institution that has a tangible capital to assets ratio
equal to or less than 2% is deemed to be "critically undercapitalized."
Subject to a narrow exception, the banking regulator is required to
appoint a receiver or conservator for an institution that is "critically
undercapitalized." The regulation also provides that a capital restoration
plan must be filed with the OTS within 45 days of the date a savings
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the
plan must be guaranteed by any parent holding company. In addition,
numerous mandatory supervisory actions become immediately applicable to an
undercapitalized institution, including, but not limited to, increased
monitoring by regulators and restrictions on growth, capital distributions
and expansion. The OTS could also take any one of a number of
discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
The Bank is considered "adequately capitalized" under the prompt
corrective action regulations.
INSURANCE OF DEPOSIT ACCOUNTS. Approximately 80.8% of the deposits of the
------------------------------
Bank are presently insured up to applicable limits by the FDIC under the
SAIF. The remainder are insured up to applicable limits by the FDIC under
the BIF, the deposit insurance fund that covers most commercial bank
deposits. Under federal law, both the SAIF and BIF are statutorily
required to be capitalized at 1.25% of insured reserve deposits ratio.
The BIF achieved the 1.25% ratio during the first half of calendar year
1995. As a result, the FDIC has reduced the BIF assessment schedule for
calendar year 1996 so that most BIF members were paying the statutory
minimum annual assessment of $2,000. With respect to SAIF deposits, the
FDIC retained the assessment rate schedule applicable to SAIF deposits of
23 to 31 basis points through September 30, 1996.
31
<PAGE> 32
On September 30, 1996, Congress passed, and the President signed, the
Deposit Insurance Funds Act of 1996 (the "Funds Act") that recapitalized
the SAIF. Under the major provisions of the Funds Act, savings
institutions, such as the Bank, were assessed a one-time assessment of
65.7 basis points per $100 of SAIF-assessable deposits as of March 31,
1995, payable in November 1996. Consequently, the Company recorded a
one-time charge of $9.4 million during the fourth quarter of fiscal year
1996.
As a result of the Funds Act, the FDIC has proposed that beginning January
1, 1997 deposit insurance premiums for SAIF members will be reduced to the
same schedule as BIF members, ranging from 0 to 27 basic points rather
than the previous range of 23 to 31 basis points. In addition, the FDIC
has proposed that SAIF deposits will have their assessment rate for
deposit insurance lowered to 18 to 27 basis points for the quarter ending
December 31, 1996, the amount necessary to cover the Financing Corporation
("FICO") obligations. The FDIC has estimated that effective January 1,
1997, SAIF deposits will also be assessed 6.5 basis points, and BIF
deposits will be assessed 1.3 basis points, to cover the cost of FICO
obligations, until December 31, 1999. Full pro rata sharing of the FICO
payments between SAIF and BIF members will occur on the earlier of January
1, 2000 or the date the SAIF and BIF are merged. The Funds Act specifies
that the SAIF and BIF will be merged on January 1, 1999 provided no
savings association remains as of that time. As a result of this
legislation, the Bank expects to see a significant decrease in future
deposit insurance premiums. However, management cannot predict the level
of FDIC insurance assessments on an on-going basis, whether the savings
association charter will be eliminated, or whether the SAIF and BIF will
eventually be merged.
Under the FDI Act, insurance of deposits may be terminated by the FDIC
upon a finding that the institution has engaged in unsafe or unsound
practices, is in an unsafe or unsound condition to continue operations, or
has violated any applicable law, regulation, rule, order or condition
imposed by the FDIC or the OTS. The management of the Bank does not know
of any practice, condition or violation that might lead to termination of
its deposit insurance.
THRIFT RECHARTERING LEGISLATION. Various bills were introduced in the last
--------------------------------
session of Congress that would eliminate the federal savings association
charter, as contemplated by the SAIF recapitalization legislation. (See
Insurance of Deposit Accounts.) These bills would have required that all
federal savings associations convert to national banks or state-chartered
institutions by January 1, 1998 and would have treated all state savings
associations, for federal regulatory purposes, as state banks. The bills
would have required federal savings associations to divest activities or
investments that do not conform to powers authorized under their new
charter over a specified period. All savings and loan holding companies
would have become bank holding companies under the legislative proposals
and become subject to the activities restrictions (with some limited
grandfathering) applicable to bank holding companies. The legislation
would have abolished OTS and transferred its functions to other federal
bank regulatory agencies. The SAIF recapitalization legislative requires
the U.S. Treasury Department to conduct and present to Congress, by March
31, 1997, a study of issues involved in rechartering along with
recommendations as to rechartering legislation and it is likely that such
legislation will be considered by Congress during 1997. Management is
unable to predict whether such legislation will ultimately be enacted or
to the extent to which any such legislation ultimately enacted would limit
the Bank's activities or otherwise disrupt operations.
32
<PAGE> 33
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
----------------------
subject to the national bank limits on loans to one borrower. The Bank is
generally not permitted, with certain exceptions, to make new loans to a
single or related group of borrowers in excess of 15% of the Bank's
unimpaired capital and unimpaired surplus, plus up to an additional 10%
for loans fully secured by readily marketable collateral. Real estate is
not included in the definition of "readily marketable collateral." At
September 30, 1996, the maximum amount which Home Federal could loan to
one borrower (and related entities) under the limit was approximately
$23.6 million. At September 30, 1996, the Bank's largest aggregate amount
of loans to one borrower was $17.0 million.
QUALIFIED THRIFT LENDER TEST. All savings institutions, including the
-------------------------------
Bank, are required to meet a QTL test to avoid extensive restrictions on
their operations under the HOLA, as amended. Under the QTL test, a savings
institution is required to maintain at least 65% of its "portfolio assets"
(total assets less (i) specified liquid assets up to 20% of total assets,
(ii) specified intangibles, including goodwill, and (iii) the value of
property used to conduct business) in certain "qualified thrift
investments" (primarily residential mortgages and related investments,
including certain mortgage-backed and mortgage-related securities) on a
monthly basis in at least 9 out of every 12 months. A savings institution
that fails the QTL test must either convert to a bank charter or operate
under certain restrictions.
At September 30, 1996, the Bank met the test with qualified thrift
investments equal to approximately 84.2% of its portfolio assets, and has
always met the test since its effectiveness.
LIMITATION ON CAPITAL DISTRIBUTIONS. The OTS regulations impose
----------------------------------------
limitations upon all capital distributions by savings institutions, such
as dividends, payments to repurchase or otherwise acquire their shares,
payments to shareholders 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 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 normal supervision,
could, after prior notice, to 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 capital requirements)
at the beginning of the calendar year, or (ii) 75% of its net income for
the previous four quarters. Any additional capital distributions would
require prior regulatory approval.
The Bank is a Tier I institution. In the event the Bank's capital fell
below its requirement or the OTS notified it that it was in need of more
than normal supervision, the Bank's ability to make capital distributions
could be restricted. In addition, the OTS may 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. Furthermore, federal law prohibits the Bank
from making any capital distribution if, after the distribution, the Bank
would have: (i) a total risk-based capital ratio of less than 8.0%, (ii) a
Tier I risk-based capital ratio of less than 4.0%, or (iii) a leverage
capital ratio of less than 4.0% (3.0% in the event the Bank was assigned a
1 MACRO rating, the highest examination rating of the OTS for rating
institutions).
33
<PAGE> 34
LIQUIDITY. The Bank is required, for each calendar month, to maintain an
----------
average daily balance of liquid assets (as defined in the regulations)
equal to a monthly average of not less than a specified percentage of its
net withdrawable deposit accounts plus short-term borrowings. This
liquidity requirement may be changed from time to time by the OTS to any
amount within the range of 4% to 10%, depending upon economic conditions
and the deposit flows of member savings institutions, and currently is 5%.
OTS regulations also require each member institution to maintain an
average daily balance of short-term liquid assets at a specified
percentage (currently 1%) of the total of its net withdrawable deposit
accounts and borrowings payable in one year or less during the preceding
calendar month. For the month of September 1996, the Bank was in
compliance with the OTS liquidity requirements, having an average daily
liquidity ratio and a short-term liquidity ratio of 5.3% and 1.6%,
respectively. Monetary penalties may be imposed for failure to meet
liquidity requirements. The Bank has never had monetary penalties imposed
for failure to meet its liquidity requirement.
ASSESSMENTS. Savings institutions are required by OTS regulation to pay
------------
assessments to the OTS to fund the operations of the OTS. The general
assessment, to be paid on a semi-annual basis, is computed upon the
savings institution's total assets, including consolidated subsidiaries,
as reported in the institution's latest quarterly thrift financial report.
The Bank's total assessment for the fiscal year 1996 was approximately $.4
million.
TRANSACTIONS WITH RELATED PARTIES. The Bank's authority to engage in
-------------------------------------
transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with Home Federal, including the
Company and the Bank's subsidiaries), or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act
("FRA"). Section 23A limits the aggregate amount of transactions with any
individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Loans
and certain other extensions of credit are required to be secured by
collateral in an amount and of a type described in Section 23A and the
purchase of low quality assets from affiliates, or the receipt of such
assets as collateral, is generally prohibited. Section 23B provides that
certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that
are substantially the same or at least as favorable to the institution as
those prevailing at the time for comparable transactions with
nonaffiliated individuals or entities. In the absence of comparable
transactions, such transactions may only occur under terms and
circumstances, including credit standards, that in good faith would be
offered to or would apply to nonaffiliated individuals or entities.
Notwithstanding Sections 23A and 23B, savings institutions are prohibited
from lending to any affiliate that is engaged in activities that are not
permissible for bank holding companies under Section 4(c) of the Bank
Holding Company Act ("BHC Act"). Further, no savings institution may
invest in the securities of any affiliate other than a subsidiary.
34
<PAGE> 35
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, are
currently governed by Sections 22(g) and 22(h) of the FRA, and Regulation
O thereunder. Among other things, these regulations require that such
loans be made on terms substantially the same as to those offered to
unaffiliated individuals and involve no more than the normal risk of
collectibility, place limits on the amount of loans the Bank may make to
such persons based, in part, on the Bank's capital position, and require
certain approval procedures to be followed. The Bank is currently in
compliance with such regulations. The OTS regulations, with minor
variances, apply Regulation O to savings institutions.
ENFORCEMENT. Under the FDI Act, the OTS has primary enforcement
------------
responsibility over savings institutions and has the authority to bring
enforcement action against any savings institution and all
"institution-related parties," including shareholders, and any attorneys,
appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured
institution. Civil penalties cover a wide range of violations and actions
and can amount to $5,000 per day, or even up to $1.0 million per day for a
finding of knowing or reckless disregard causing substantial loss to the
savings institution. Criminal penalties for most financial institution
crimes include fines of up to $1.0 million and imprisonment for up to 30
years. In addition, regulators have substantial discretion to impose
enforcement action on an institution that fails to comply with its
regulatory requirements. Possible enforcement action ranges from the
requirement for an approved capital plan and the imposition of a
directive, to receivership, conservatorship or the termination of deposit
insurance. Under the FDI Act, the FDIC has the authority to recommend to
the Director of OTS that enforcement action be taken with respect to a
particular savings institution. If action is not taken by the Director,
the FDIC has authority to take such action under certain circumstances.
Management is not aware of any material violations that would trigger any
enforcement action or civil penalties.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking agencies have
-------------------------------------
adopted Interagency Guidelines Prescribing Standards for Safety and
Soundness ("Guidelines") and a final rule to implement safety and
soundness standards required under the FDI Act. The Guidelines set forth
the safety and soundness standards that the federal banking agencies use
to identify and address problems at insured depository institutions before
capital becomes impaired. The standards set forth in the guidelines
address internal controls and information systems; internal audit systems;
credit underwriting; loan documentation; interest rate risk exposure;
asset growth; asset quality; earnings standards; and compensation, fees
and benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the
agency may require the institution to submit to the agency an acceptable
plan to achieve compliance with the standard, as required by the FDI Act.
The final rule establishes deadlines for the submission and review of such
safety and soundness compliance plans when such plans are required.
Management believes that the Bank is in material compliance with the
Guidelines.
35
<PAGE> 36
FEDERAL HOME LOAN BANK SYSTEM
- -----------------------------
The Bank is a member of the FHLB System which consists of 12 regional FHLB
Banks. The FHLB provides a central credit facility primarily for member
institutions. The Bank, as a member of the FHLB-NY, is required to acquire and
hold shares of capital stock of the FHLB-NY in an amount at least equal to 1% of
the aggregate principal amount of its unpaid residential mortgage loans, and
similar obligations at the beginning of each year, or 5% of its advances
(borrowings) from the FHLB-NY, whichever is greater. The Bank is in compliance
with this requirement, with an investment in FHLB-NY stock of $27.9 million at
September 30, 1996. FHLB advances are required to be secured by specific types
of collateral and long-term advances may be obtained primarily for the purpose
of providing funds for residential housing finance.
The FHLBs are required to provide funds out of their earnings for the resolution
of insolvent thrifts and to allocate funds for affordable housing programs. The
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to members. For the year ended September 30, 1996 dividends from the
FHLB-NY to the Bank amounted to $1.7 million, or 3.0%, of the Bank's pre-tax
income. If dividends were reduced, or interest on FHLB advances increased, the
Bank's net interest income would likely also be reduced. Further, there can be
no assurance that future legislation involving the FHLB's will not also cause a
decrease in the amount of dividends or in the value of the FHLB-NY stock held by
the Bank.
FEDERAL RESERVE SYSTEM
- ----------------------
Although the Bank is not a member of the Federal Reserve System, it is subject
to FRB regulations which require it to maintain non-interest earning reserves
against certain of its transaction accounts (primarily NOW and regular checking
accounts). Because reserves must generally be maintained in cash or in
non-interest bearing accounts, the effect of the reserve requirements is to
increase the Bank's cost of funds. FHLB System members are also authorized to
borrow from the Federal Reserve "discount window," but Federal Reserve Board
regulations require institutions to exhaust all FHLB sources before borrowing
from a Federal Reserve Bank. The FRB regulations generally require the
maintenance of reserves of 3% against net transaction accounts of $52.0 million
or less (subject to annual adjustment by the FRB) and reserves of $1.6 million
plus 10% (subject to adjustment by the FRB between 8% and 14%) against that
portion of net transaction accounts in excess of $52.0 million. The first $4.3
million of otherwise reservable balances (subject to adjustment by the FRB) are
exempt from the reserve requirements. The balances maintained to meet the
reserve requirements imposed by the FRB may be used to satisfy liquidity
requirements imposed by the OTS. The Bank is in compliance with the foregoing
requirements.
36
<PAGE> 37
TAXATION
- --------
FEDERAL. New York Bancorp files a calendar year consolidated Federal
--------
income tax return with its subsidiary, Home Federal, and reports its
income and expenses using the accrual method of accounting.
Savings institutions are generally taxed in the same manner as other
corporations. However, unlike other corporations, qualifying savings
institutions such as Home Federal, for tax years beginning prior to
January 1, 1996, were allowed to establish a reserve for bad debts and
were permitted to deduct additions to that reserve for each tax year. For
purposes of computing the deductible addition to the Bank's bad debt
reserve, the loans were separated into "qualifying real property loans"
(in general, loans secured by interests in improved real property) and all
other loans ("non-qualifying loans"). The deduction with respect to
qualifying real property loans was allowed using the most favorable of the
following two methods: (i) a method based on the institution's actual loss
experience (the "experience method"), or (ii) a method based on a
specified percentage of the institution's taxable income (the "percentage
of taxable income method"). The addition to the reserve for non-qualifying
loans was computed under the experience method. The percentage of taxable
income method was allowed only if the Bank maintained at least 60% of its
total assets in qualifying assets, as defined. If qualifying assets fell
below 60%, the Bank would be required to recapture essentially all of its
bad debt reserve for Federal income tax purposes. The Bank's qualifying
assets exceeded 60% for the past five fiscal years. The net effect of this
special bad debt deduction was that the maximum effective Federal income
tax rate on income, computed without regard to actual bad debts and
certain other factors, for qualifying institutions using the percentage of
taxable income method was 32.2%, exclusive of any minimum or environmental
tax, as compared to the generally applicable maximum corporate Federal
income tax rate of 35.0%. The Bank used the experience method for 1995 and
1993 and percentage of taxable income method in calendar years 1994 and
1992. Hamilton used the percentage of taxable income method for 1992, 1993
and 1994. Each tax year, the Bank selected the most favorable method to
calculate the maximum deduction available with respect to an addition to
the tax bad debt reserve.
Under legislation enacted in August 1996, the Bank will no longer be
permitted to use the percentage of taxable income method for Federal tax
purposes, but will be permitted to deduct bad debts only as they are
incurred. The legislation also requires the recapture of the excess of tax
bad debt reserves at December 31, 1995 over those established as of
December 31, 1987 (the "base year"). The Bank's tax bad debt reserves of
$27.9 million as of December 31, 1995 do not exceed those of the base
year. Therefore, the Bank will not be required to recapture any such
excess bad debt reserves. Such reserve reflects the cumulative Federal
income tax bad debt deductions to that date. The base year reserves will
continue to be subject to recapture, and the Bank could be required to
recognize a tax liability, under certain circumstances, including (1) the
Bank fails to qualify as a "bank" for Federal income tax purposes; (2)
certain distributions are made with respect to the stock of the Bank; (3)
the bad debt reserves are used for any purpose other than to absorb bad
debt losses; and (4) there is a change in Federal tax law. However,
management is currently not aware of the occurrence of any such
circumstances.
37
<PAGE> 38
STATE AND LOCAL. The Bank files combined New York State franchise and New
----------------
York City financial corporation tax returns with its subsidiaries and New
York Bancorp on a calendar year basis.
The New York State and City taxes on banking corporations are each imposed
in an annual amount equal to the greater of (i) 9% of the Bank's "Entire
Net Income" allocable to New York State (and to New York City for purposes
of the City tax) during the taxable year; or (ii) the applicable
alternative minimum tax. The applicable alternative minimum tax is
generally the greater of (i) a percentage (.01%, .004%, or .002%, for the
New York State tax, depending upon the nature and mix of the Bank's assets
and on the ratio of its net worth to the average value of its assets, and
.01% for the New York City tax) of the average value of the Bank's assets
allocable to New York State (and to New York City for the City tax) with
certain modifications; (ii) 3% of the Bank's "Alternative Entire Net
Income" allocable to New York State (and to New York City for the City
tax); or (iii) a minimum tax. In addition to the foregoing, the New York
State Tax Law also imposes a 17% metropolitan surcharge on the portion of
the New York State franchise tax otherwise payable which is attributable
to the Bank's activities in New York City and in several other New York
counties.
Further, beginning in calendar year 1990, New York State Tax Law also
imposes a temporary surcharge equal to 15% of that portion of the New York
State franchise tax otherwise payable. The surcharge rate is reduced to 12
1/2% for tax years ending after June 30, 1994 and before July 1, 1995, 7
1/2% for tax years ending after June 30, 1995 and before July 1, 1996, and
2 1/2% for tax years ending after June 30, 1996 and before July 1, 1997.
For tax years beginning before January 1, 1996, New York State and New
York City also allowed a bad debt deduction for thrift institutions, such
as the Bank, provided the same method was used for the thrift's Federal
tax return. However, for the most recent calendar year 1995, the effective
allowable percentage used in computing the bad debt deduction under the
percentage of taxable income method was 32%, rather than the 8% amount for
Federal purposes.
In response to the aforementioned Federal legislation enacted in August
1996, the New York State tax law has been amended to prevent a recapture
of existing tax bad debt reserves and to allow for the continued use of
the percentage of taxable income to determine the bad debt deduction in
computing New York State tax liability. However, no such amendments have
been made to date with respect to the New York City tax law; therefore,
the Company can not predict whether such changes will be made or as to the
form of any changes.
As a Delaware business corporation, New York Bancorp is required to file
annual returns with and pay annual fees to the Secretary of the State of
Delaware. The Company is also subject to a minimal annual Delaware
franchise tax.
38
<PAGE> 39
SUPPLEMENTAL ITEM
- -----------------
The following table sets forth certain information regarding executive officers
of the Company, who are not also directors.
<TABLE>
<CAPTION>
Name Age Position Held
---- --- -------------
<S> <C> <C>
George J. Amentas 48 First Vice President, Treasurer
Robert J. Anrig 48 First Vice President, Lending
Carmine Bracco 58 First Vice President, EDP and Operations
Dennis Hodne 50 First Vice President, Retail Banking
Richard F. Rothschild 49 First Vice President, Marketing
Edward J. Steube 52 First Vice President, Business Development
Terrence S. Walsh 49 First Vice President, Multifamily Lending
</TABLE>
George J. Amentas recently joined the Company in November 1996 as First Vice
President, Treasurer. From 1993 through 1996, Mr. Amentas was Senior Vice
President and Treasurer of Centerbank. Prior to 1993 Mr. Amentas served as
Senior Vice President, Chief Investment Officer and Treasurer for Village Bank.
Robert J. Anrig has been First Vice President, Lending of the Company and the
Bank since May 1992. From April 1990 to May 1992 Mr. Anrig served as a business
and real estate consultant in Long Island, New York.
Carmine Bracco has been First Vice President, EDP and Operations of the Company
and the Bank since October 1995. From December 1993 to October 1995, Mr. Bracco
served as Vice President, Internal Audit of the Bank. From May 1988 to May 1992,
Mr. Bracco served at National Westminster Bank as Senior Vice President,
Internal Audit, and from May 1992 to December 1993 as Senior Vice President,
Financial Services.
Dennis Hodne has been First Vice President, Retail Banking of the Company and
the Bank since October 1995. Previously, from January 1995 through September
1995 he was First Vice President, Strategic Planning for the Company and the
Bank. From September 1992 to January 1995 Mr. Hodne served as Senior Vice
President, Retail Banking for Hamilton Federal Bank. From 1988 to September 1992
Mr. Hodne served as Senior Vice President, Branch Administrator for Crossland
Savings Bank.
Richard F. Rothschild has been First Vice President, Marketing of the Company
and the Bank since October 1995. Previously, from 1987 through 1995 he served as
First Vice President, Banking Services of the Bank and was named to the similar
position in New York Bancorp when it became a publicly traded company in
February 1988.
Edward J. Steube has been First Vice President, Business Development of the
Company and the Bank since September 1992. From 1982 to September 1992, Mr.
Steube served as Vice President for Kidder, Peabody & Co., Inc.
Terrence S. Walsh became First Vice President, Multifamily Lending of the
Company and the Bank in October 1996. From January 1996 through September 1996
Mr. Walsh served as Vice President, Multifamily Lending. Previously, in 1995 Mr.
Walsh was involved in private consulting. Prior to 1995 Mr. Walsh served as
Senior Vice President, Mortgage Lending for Metro Bancshares Inc.
39
<PAGE> 40
ITEM 2 - PROPERTIES
The Bank conducts its business through twenty-nine full-service branch offices,
seven loan production offices, an operations center and one executive office
located in Kings, Queens, Nassau, Westchester, Richmond, and Suffolk Counties.
The following table sets forth information relating to each of the Bank's
offices at September 30, 1996. The total net book value of the Bank's premises
and equipment at September 30, 1996 was $12.9 million.
<TABLE>
<CAPTION>
Date Lease Net
Owned Leased Expiration Book Value
or or Including at
Location Leased Acquired Options Sept. 30, 1996
- -------- ------ -------- ---------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Branch Offices:
70-01 Forest Avenue, Ridgewood, NY (1)............ Owned 1949 -- $ 963
70-24 Myrtle Avenue, Glendale, NY................. Owned 1976 -- 495
83-24 Woodhaven Blvd., Glendale, NY............... Leased 1991 2038 747
155-14 Cross Bay Blvd., Howard Beach, NY.......... Leased 1974 1999 273
248-40 Northern Blvd., Little Neck, NY............ Owned 1963 -- 434
145-15 243rd Street, Rosedale, NY................. Owned 1961 -- 307
7401 13th Avenue, Brooklyn, NY.................... Owned 1979 -- 979
413 86th Street., Brooklyn, NY (1)................ Owned 1948 -- 637
9502 3rd Avenue, Brooklyn, NY..................... Leased 1991 2000 70
420 Court Street, Brooklyn, NY.................... Owned 1930 -- 657
2123 Avenue U, Brooklyn, NY....................... Leased 1990 1998 74
179 Avenue U, Brooklyn, NY........................ Owned 1973 -- 162
6501 11th Avenue, Brooklyn, NY.................... Owned 1976 -- 824
1710 Avenue Y, Brooklyn, NY....................... Leased 1996 2016 301
195 Rockaway Avenue, Valley Stream, NY............ Leased 1974 1999 102
210 Mineola Blvd., Mineola, NY (1)................ Leased 1992 2007 242
41 Forest Avenue, Glen Cove, NY................... Leased 1992 2007 455
35 Merrick Avenue, Merrick, NY 11566.............. Owned 1978 -- 530
77 Lincoln Avenue, Rockville Centre, NY........... Leased 1992 2007 132
155 East Main Street, Huntington, NY.............. Owned 1992 -- 536
143 Alexander Avenue, Lake Grove, NY.............. Leased 1992 2015 45
46 E. Hoffman Avenue, Lindenhurst, NY............. Leased 1994 2009 145
800 Montauk Highway, Shirley, NY.................. Leased 1992 2000 45
356 Middle Country Road, Coram, NY................ Leased 1992 2003 104
62 South Ocean Avenue, Patchogue, NY (1).......... Owned 1992 -- 1,057
366 Route 25A, Rocky Point, NY.................... Leased 1992 2003 40
43 Main Street, Westhampton Beach, NY............. Owned 1992 -- 414
1730 Veterans Memorial Highway, Islandia, NY...... Leased 1995 2015 262
985 Richmond Avenue, Staten Island, NY............ Leased 1995 2015 203
Loan Production Offices:
241-02 Northern Blvd., Douglaston, NY............. Leased 1989 1999 193
One Depot Plaza, Mamaroneck, NY................... Leased 1986 1996 22
100 Jericho Quadrangle, Jericho, NY............... Leased 1996 2002 202
Executive Office:
241-02 Northern Blvd., Douglaston, NY............. Leased 1989 1999 748
Operations Center:
100 Jericho Quadrangle, Jericho, NY (1)........... Leased 1993 2002 527
--------
$ 12,927
========
- -----------------
(1) Loan Centers are also located at these locations.
</TABLE>
40
<PAGE> 41
ITEM 3 - LEGAL PROCEEDINGS
On July 1, 1994, a purported class action complaint was filed in the Delaware
Chancery Court on behalf of the shareholders of Hamilton by Adar Equities, Ltd.
as plaintiff, naming, among others, New York Bancorp as a defendant. An
identical complaint was filed by the Serious Software Corporation on July 7,
1994 in the Delaware Chancery Court. Plaintiffs allege that certain directors
and senior officers of Hamilton breached their fiduciary duties to Hamilton
shareholders. New York Bancorp is alleged to have aided and abetted this breach
by allegedly providing them the promise of continued employment and monetary
incentives in exchange for entering into a merger agreement. Plaintiffs claimed
that if the Merger was approved by shareholders of New York Bancorp and
Hamilton, the consideration that Hamilton shareholders would receive in exchange
for their Hamilton common stock would be "grossly inadequate." Plaintiffs sought
various remedies, including an injunction to prevent the consummation of the
Merger and compensatory damages in an unspecified amount. On September 19, 1994,
defendants moved to dismiss the complaints on the ground that they fail to state
a claim upon which relief could be granted. Such motion is still pending.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information contained on page 50 of the 1996 Annual Report to Shareholders
is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The information contained on page 9 of the 1996 Annual Report to Shareholders
under the caption "Selected Consolidated Financial & Other Data" is incorporated
herein by reference and is contained herein as Exhibit 13.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The information contained on pages 10 through 20 of the 1996 Annual Report to
Shareholders under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is incorporated herein by
reference and is contained herein as Exhibit 13.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Independent Auditors' Report appearing on pages
21 through 48 of the 1996 Annual Report to Shareholders are incorporated herein
by reference and is contained herein as Exhibit 13.
41
<PAGE> 42
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained on pages 3 through 8 of the Proxy Statement for the
Annual Meeting of Shareholders to be held January 28, 1997 under the caption
"Information with Respect to the Nominees, Continuing Directors and Certain
Executive Officers" is incorporated herein by reference. Information concerning
executive officers who are not directors is contained in Part I of this report
under "Supplemental Item" pursuant to paragraph (b) of Item 401 of Regulation
S-K in reliance on Instruction G.
ITEM 11 - EXECUTIVE COMPENSATION
The information contained on pages 10 through 16 (excluding the Stock
Performance Graph and Report of the Compensation Committee on Executive
Compensation) of the Proxy Statement for the Annual Meeting of Shareholders to
be held January 28, 1997 under the captions "Directors Compensation" and
"Executive Compensation" is incorporated herein by reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained on page 3 of the Proxy Statement for the Annual
Meeting of Shareholders to be held January 28, 1997 under the caption "Security
Ownership of Certain Beneficial Owners" is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained on page 18 of the Proxy Statement for the Annual
Meeting of Shareholders to be held January 28, 1997 under the caption
"Transactions with Certain Related Persons" is incorporated herein by reference.
42
<PAGE> 43
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) (1) FINANCIAL STATEMENTS
--------------------
The following financial statements are included in the Company's Annual Report
to Shareholders for the year ended September 30, 1996, portions of which are
attached as an exhibit to this report:
- Consolidated Statements of Financial Condition at September 30, 1996
and 1995
- Consolidated Statements of Income for each of the years in the three-
year period ended September 30, 1996
- Consolidated Statements of Changes in Shareholders' Equity for each of
the years in the three-year period ended September 30, 1996
- Consolidated Statements of Cash Flows for each of the years in the
three-year period ended September 30, 1996
- Notes to Consolidated Financial Statements
- Independent Auditors' Report
(2) FINANCIAL STATEMENT SCHEDULES
-----------------------------
Financial statement schedules are omitted because they are not required or
because the required information is set forth in the consolidated financial
statements or notes thereto.
43
<PAGE> 44
(3) EXHIBITS
--------
The following exhibits are either filed as part of this report or are
incorporated herein by reference to documents previously filed by the Company
with the SEC.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation of New York Bancorp Inc., as amended
3.2 Bylaws of New York Bancorp Inc., as amended(6)
10.2 New York Bancorp Inc. Incentive Stock Option Plan(1)
10.3 New York Bancorp Inc. Option Plan for Outside Directors(2)
10.8 Home Federal Savings Bank Employee Stock Purchase Plan(3)
10.9 New York Bancorp Inc. 1990 Incentive Stock Option Plan(4)
10.10 New York Bancorp Inc. 1990 Option Plan for Outside Directors(5)
10.13 Home Federal Savings Bank Supplemental Executives Benefit Plan, as
amended(8)
10.14 Home Federal Savings Bank Deferred Compensation Plan, as
amended(8)
10.17 New York Bancorp Inc. 1993 Long-Term Incentive Plan(6)
10.18 New York Bancorp Inc. 1993 Stock Option Plan for Outside
Directors(7)
11 Statement re: computation of per share earnings
13 Portions of New York Bancorp Inc.'s Annual Report to
Shareholders for the fiscal year ended September 30, 1996
incorporated herein by reference
21 Subsidiaries of New York Bancorp Inc.
23 Consent of KPMG Peat Marwick LLP
27 Financial Data Schedule
(1) Incorporated by reference to Exhibits filed with Registration Statement on
Form S-8, No. 33-23468
(2) Incorporated by reference to Exhibits filed with Registration Statement on
Form S-8, No. 33-23478
(3) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1989 Form 10-K
(4) Incorporated by reference to Annex A of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 23, 1991
(5) Incorporated by reference to Annex B of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 23, 1991
(6) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1992 Form 10-K
(7) Incorporated by reference to Exhibit A of the Company's Proxy Statement
furnished to shareholders in connection with the Annual Meeting of
Shareholders held on January 25, 1994
(8) Incorporated by reference to Exhibits filed with New York Bancorp Inc.'s
1994 Annual Report on Form 10-K
</TABLE>
(B) REPORTS ON FORM 8-K
-------------------
None
44
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 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.
NEW YORK BANCORP INC.
By: /s/ Michael A. McManus, Jr.
---------------------------------
Michael A. McManus, Jr.
President and
Chief Executive Officer
Date: December 19, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on December 19, 1996 by the following persons on
behalf of the Registrant and in the capacities indicated.
/s/ Patrick E. Malloy, III /s/ John E. D. Grunow, Jr.
- --------------------------------------- ------------------------------------
Patrick E. Malloy, III John E. D. Grunow, Jr.
Chairman of the Board Director
/s/ Josiah T. Austin /s/ Michael A. McManus, Jr.
- --------------------------------------- ------------------------------------
Josiah T. Austin Michael A. McManus, Jr.
Director Director, President
and Chief Executive Officer
/s/ Stan I. Cohen /s/ Walter R. Ruddy
- --------------------------------------- ------------------------------------
Stan I. Cohen Walter R. Ruddy
Director, Senior Vice President, Director
Controller and Secretary
/s/ Geraldine A. Ferraro /s/ Robert A. Simms
- --------------------------------------- -----------------------------------
Geraldine A. Ferraro Robert A. Simms
Director Director
/s/ Peter D. Goodson /s/ Gene A. Washington
- --------------------------------------- ------------------------------------
Peter D. Goodson Gene A. Washington
Director Director
<PAGE> 1
Exhibit 3.1
(Restated as of January 27, 1995)
- ---------------------------------
RESTATED CERTIFICATE OF INCORPORATION
OF
NEW YORK BANCORP INC.
FIRST: The name of the Corporation is New York Bancorp Inc.
-----
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is Corporation Trust Center, 1209 Orange Street, in the
City of Wilmington, County of New Castle. The name of the registered agent at
that address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful
-----
act or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH:
------
A. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is thirty-two million
(32,000,000), consisting of:
(a) two million (2,000,000) shares of Preferred
Stock, par value one cent ($.01) per share (the "Preferred Stock"); and
(b) thirty million (30,000,000) shares of Common Stock,
par value one cent ($.01) per share (the "Common Stock").
<PAGE> 2
January 1994
B. The Board of Directors is authorized, subject to any
limitations prescribed by law, to provide for the issuance of the shares of
preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences, and rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. The
number of authorized shares of Preferred Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of the
holders of the Preferred Stock, or of any series thereof, unless a vote of any
such holders is required pursuant to the terms of any Preferred Stock
Designation.
FIFTH: The following provisions are inserted for the management of
------
the business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
(a) The business and affairs of the Corporation shall be
managed by or under the direction of the Board of Directors. In addition
to the powers and authority expressly conferred upon them by Statute or by
this Certificate of Incorporation or the By-laws of the
2
<PAGE> 3
January 1994
Corporation, the directors are hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation.
(b) The directors of the Corporation need not be
elected by written ballot unless the By-laws so provide.
(c) Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
(d) Special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution
adopted by a majority of the total number of authorized directors (whether
or not there exist any vacancies in previously authorized directorships at
the time any such resolution is presented to the Board for adoption)(the
"Whole Board").
SIXTH:
------
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors shall be divided into three classes,
as nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the 1988 annual meeting of stockholders, the term of
office of the second class to expire at the 1989
3
<PAGE> 4
January 1994
annual meeting of stockholders and the term of office of the third class to
expire at the 1990 annual meeting of stockholders. At each annual meeting
of stockholders following such initial classification and election,
directors elected to succeed those directors whose terms expire shall be
elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election.
B. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, newly created directorships resulting from
any increase in the authorized number of directors or any vacancies in the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires.
No decrease in the number of directors constituting the Board of Directors
shall shorten the term of any incumbent director.
C. Advance notice of stockholder nominations for the
election of directors and of business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the ByLaws of the Corporation.
4
<PAGE> 5
January 1994
D. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at any time, but only for cause and only
by the affirmative vote of the holders of at least 80 percent of the voting
power of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. "Cause" shall be defined as breach of fiduciary duty involving
personal dishonesty, intentional failure to perform stated duties as a director
which results in substantial loss to the company or willful violation of any
law, rule, regulation or final cease and desist order which results in
substantial loss to the Corporation.
SEVENTH: The Board of Directors is expressly empowered to
--------
adopt, amend or repeal By-laws of the Corporation. Any adoption, amendment or
repeal of the By-laws of the Corporation by the Board of Directors shall require
the approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the By-laws of the Corporation. In addition to
any vote of the holders of any class or series of stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 80 percent of the voting power of all of the
then-outstanding shares of the capital stock of the Corporation entitled to vote
generally in the election of directors, voting together as a
5
<PAGE> 6
January 1994
single class, shall be required to adopt, amend or repeal any provisions
of the By-laws of the Corporation.
EIGHTH:
-------
A. In addition to any affirmative vote required by law
or this Certificate of Incorporation, and except as otherwise expressly provided
in this Section:
1. any merger or consolidation of the Corporation or
any Subsidiary (as hereinafter defined) with (i) any Interested
Stockholder (as hereinafter defined) or (ii) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Stockholder, or any Affiliate
of any Interested Stockholder, or 25% or more of the combined assets
of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Stockholder or any Affiliate of any Interested Stockholder in exchange
for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value (as
6
<PAGE> 7
January 1994
hereinafter defined) equaling or exceeding 25% of the combined assets
of the Corporation and its Subsidiaries except pursuant to an
employee benefit plan of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Stockholder or any Affiliate of any Interested
Stockholder; or
5. any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Stockholder) which has the effect,
directly or indirectly, of increasing the proportionate share of the
outstanding shares of any class of equity or convertible securities
of the Corporation or any Subsidiary which is directly or indirectly
owned by any Interested Stockholder or any Affiliate of any
Interested Stockholder;
shall require the affirmative vote of the holders of at least 80% of the voting
power of the then outstanding shares of stock of the Corporation entitled to
vote in the election of directors (the "Voting Stock"), voting together as a
single class. Such affirmative vote shall be required notwithstanding the fact
that no vote may be required, or that a lesser
7
<PAGE> 8
January 1994
percentage may be specified, by law or in any agreement with any national
securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH
shall mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article
EIGHTH shall not be applicable to any particular Business Combination, and
such Business Combination shall require only the affirmative vote of the
majority of the outstanding shares of capital stock entitled to vote, or such
vote as is required by law, if all of the conditions specified in either of the
following paragraphs 1 and 2 are met:
1. The Business Combination shall have been
approved by a majority of the Disinterested Directors (as hereinafter
defined).
2. All of the following conditions shall have been
met:
(a) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the
Business Combination of consideration other than cash to be
received per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the following:
I. (if applicable) the Highest Per Share price
(as hereinafter defined), including any brokerage
8
<PAGE> 9
January 1994
commission, transfer taxes and soliciting dealers' fees, paid by
the Interested Stockholder for any shares of Common Stock
acquired by it (X) within the two-year period immediately prior
to the first public announcement of the proposal of the Business
Combination (the "Announcement Date"), or (Y) in the transaction
in which it became an Interested Stockholder, whichever is
higher; and
II. the Fair Market Value per share of Common
Stock on the Announcement Date or on the date on which the
Interested Stockholder became an Interested Stockholder (such
latter date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the
Fair Market Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share
by holders of shares of any class of outstanding Voting Stock other
than Common Stock shall be at least equal to the highest of the
following (it being intended that the requirements of this
subparagraph (b) shall be required to be met with respect to every
such class of outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a particular class
of Voting Stock):
9
<PAGE> 10
January 1994
I. (if applicable) the Highest Per Share Price
(as hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the Interested
Stockholder for any shares of such class of Voting Stock acquired by
it (X) within the two-year period immediately prior to the
Announcement Date, or (Y) in the transaction in which it became an
Interested Stockholder, whichever is higher;
II. (if applicable) the highest preferential
amount per share to which the holders of shares of such class of
Voting Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
III. the Fair Market Value per share of such
class of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(c) The consideration to be received by holders
of a particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of Voting
Stock. If the Interested Stockholder has paid for shares of any class
of Voting Stock with varying forms of consideration, the form of
consideration for such class of Voting Stock shall be either cash or
the form used to acquire the largest number
10
<PAGE> 11
January 1994
of shares of such class of Voting Stock previously acquired by it.
The price determined in accordance with subparagraph B.2 of this
Article EIGHTH shall be subject to appropriate adjustment in the
event of any stock dividend, stock split, combination of shares or
similar event.
(d) After such interested Stockholder has become
an Interested Stockholder and prior to the consummation of such
Business Combination:(i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to declare
and pay at the regular date therefor any full quarterly dividends
(whether or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or liquidation;
(ii) there shall have been (X) no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect
any subdivision of the Common Stock), except as approved by a
majority of the Disinterested Directors, and (Y) an increase in such
annual rate of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization, reorganization
or any similar transaction which has the effect of reducing the
number of outstanding shares of the Common Stock, unless the failure
to so increase such annual rate is approved by a majority of the
Disinterested Directors, and (iii) such Interested
11
<PAGE> 12
January 1994
Stockholder shall have not become the beneficial owner of any
additional shares of Voting Stock except as part of the transaction
which results in such Interested Stockholder becoming an Interested
Stockholder.
(e) After such Interested Stockholder has
become an Interested Stockholder, such Interested Stockholder shall
not have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Corporation, whether in
anticipation of or in connection with such Business Combination or
otherwise.
(f) A proxy or information statement describing
the proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to stockholders of the Corporation at
least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group
acting in concert, a corporation, a partnership, an
12
<PAGE> 13
January 1994
association, a joint venture, a pool, a joint stock company, a trust,
an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing
of securities.
2. "Interested Stockholder" shall mean any person
(other than the Corporation or any Holding Company or Subsidiary
thereof) who or which:
(a) is the beneficial owner, directly or
indirectly, of more than 10% of the voting power of the outstanding
Voting Stock ; or
(b) is an Affiliate of the Corporation and at
any time within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10% or
more of the voting power of the then outstanding Voting Stock ; or
(c) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at any time within the
two-year period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933.
3. A person shall be a "beneficial owner" of any
Voting Stock:
13
<PAGE> 14
January 1994
(a) which such person or any of its Affiliates
or Associates (as hereinafter defined) beneficially owns, directly or
indirectly; or
(b) which such person or any of its Affiliates
or Associates has (i) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, warrants or options, or otherwise, or (ii) the
right to vote pursuant to any agreement, arrangement or understanding;
or
(c) which are beneficially owned, directly or
indirectly by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purposes of acquiring, holding, voting or
disposing of any shares of Voting Stock.
4. For the purpose of determining whether a person
is an Interested Stockholder pursuant to paragraph 2 of this
Section C, the number of shares of Voting Stock deemed to be
outstanding shall include shares deemed owned through application of
Paragraph 3 of this Section C but shall not include any other shares
of Voting Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
14
<PAGE> 15
January 1994
5. "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule l2b-2 of the
General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on January 1, 1987.
6. "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation; provided, however, that for the
purposes of the definition of Interested Stockholder set forth in
paragraph 2 of this Section C, the term "Subsidiary" shall mean only
a corporation of which a majority of each class of equity security is
owned, directly or indirectly, by the Corporation.
7. "Disinterested Director" means any member of
the Board of Directors who is unaffiliated with the Interested
Stockholder and was a member of the Board of Directors prior to the
time that the Interested Stockholder became an Interested Stockholder,
and any successor of a Disinterested Director who is unaffiliated with
the Interested Stockholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested Directors then
on the Board of Directors.
8. "Fair Market Value" means: (a) in the case of
stock, the highest closing sales price of the stock during the 30-day
period immediately preceding the date in question of a share of such
stock on the National
15
<PAGE> 16
January 1994
Association of Securities Dealers Automated Quotation System or any
system then in use, or, if such stock is admitted to trading on a
principal United States securities exchange registered under the
Securities Exchange Act of 1934, Fair Market Value shall be the
highest sale price reported during the 30-day period preceding the
date in question. If no such quotations are available, the Fair Market
Value on the date in question of a share of such stock as determined
by the Board of Directors in good faith, in each case with respect to
any class of stock, appropriately adjusted far any dividend or
distribution in shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock, and (b) in the case of property other
than cash or stock, the Fair Market Value of such property on the date
in question as determined by the Board of Directors in good faith.
9. Reference to "Highest Per Share Price" shall in
each case with respect to any class of stock reflect an appropriate
adjustment for any dividend or distribution in shares of such stock or
any stock split or reclassification of outstanding shares of such
stock into a greater number of shares of such stock or any combination
or reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
16
<PAGE> 17
January 1994
10. In the event of any Business Combination in
which the Corporation survives, the phrase "other consideration to be
received" as used in Subparagraphs (a) and (b) of Paragraph 2 of
Section B of this Article EIGHTH shall include the shares of Common
Stock and/or the shares of any other class of outstanding Voting Stock
retained by the holders of such shares.
D. A majority of the Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article EIGHTH, on
the basis of information known to them after reasonable inquiry, (a) whether a
person is an Interested Stockholder; (b) the number of shares of Voting Stock
beneficially owned by any person; (c) whether a person is an Affiliate or
Associate of another; and (d) whether the assets which are the subject of any
Business Combination have, or the consideration to be received for the issuance
or transfer of securities by the Corporation or any Subsidiary in any Business
Combination has an aggregate Fair Market Value equaling or exceeding 25% of the
combined assets of the Corporation and its Subsidiaries. A majority of the
Directors shall have the further power to interpret all of the terms and
provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be
construed to relieve any Interested Stockholder from any fiduciary obligation
imposed by law.
17
<PAGE> 18
January 1994
F. Notwithstanding any other provisions of this
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of any particular class or series of the Voting Stock required by law,
this Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when
------
evaluating any offer of another Person (as defined in Article EIGHTH hereof) to
(A) make a tender or exchange offer for any equity security of the Corporation,
(B) merge or consolidate the Corporation with another corporation or entity or
(C) purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, shall, in connection with the exercise of its
judgment in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof ); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate objectives as a bank holding
18
<PAGE> 19
January 1994
company and on the ability of its subsidiary bank to fulfill the objectives of
a federally-chartered stock form savings bank under applicable statutes and
regulations.
TENTH: A. Each person who was or is made a party or is
------
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of this
Corporation or is or was serving at the request of this Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by this Corporation to the fullest extent
authorized by the General Corporation Law of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits this Corporation to provide broader indemnification
rights than said Law permitted this Corporation to provide prior to such
amendment) against all expenses, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement)
19
<PAGE> 20
January 1994
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that this Corporation shall
-----------------
indemnify any such person seeking indemnity in connection with an action, suit
or proceeding (or part thereof) initiated by such person only if such action,
suit or proceeding (or part thereof) was authorized by the Board of Directors
of this Corporation. Such right shall be a contract right and shall include the
right to be paid by this Corporation expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, the
-----------------
payment of such expenses incurred by a director or officer in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of such proceeding, shall be made only upon delivery to
this Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it should be determined ultimately that such
director or officer is not entitled to be indemnified under this Article or
otherwise.
B. If a claim under Section A is not paid in full by
this Corporation within ninety (90) days after a written claim has been received
by this Corporation, the claimant may at
20
<PAGE> 21
January 1994
any time thereafter bring suit against this Corporation to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expense of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to this
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of Delaware for this
Corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on this Corporation. Neither the failure of this
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of Delaware, nor an actual determination by this
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
C. The rights conferred on any person by Sections A and B
shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute,
21
<PAGE> 22
January 1994
provision of this Certificate of Incorporation, By-law of this Corporation,
agreement, vote of stockholders or disinterested directors or otherwise.
D. This Corporation may maintain insurance, at its
expense, to protect itself and any such director, officer, employee or agent of
this Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not
this Corporation would have the power to indemnify such person against such
expense, liability or loss under the Delaware General Corporation Law.
ELEVENTH: A director of this Corporation shall not be personally
---------
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this article to authorize corporate
action further eliminating or limiting the personal liability of directors,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the Delaware General Corporation Law,
as so amended.
22
<PAGE> 23
January 1994
Any repeal or modification of the foregoing paragraph by the
stockholders of the corporation shall not adversely affect any right or
protection of a director of the corporation existing at the time of such repeal
or modification.
TWELFTH: The Corporation reserves the right to amend or repeal
--------
any provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
-----------------
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to amend or repeal this Article TWELFTH, clauses (c) or (d) of
Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are
-----------
as follows:
Name Mailing Address
- ---- ---------------
John F. Grossbauer 12th & Market Streets
Wilmington, Delaware 19801
23
<PAGE> 1
NEW YORK BANCORP INC.
241-02 Northern Boulevard
Douglaston, New York 11362
Form 10-K
September 30, 1996
Exhibit 11. Statement re: Computation of Per Share Earnings (1)(2)
<TABLE>
<CAPTION>
For the Year Ended
September 30,
--------------------------------------
1996 1995 1994
--------- -------- ---------
(In Thousands,except
per share amounts)
<S> <C> <C> <C>
Income before cumulative effect
of change in accounting principle.............. $ 32,006 $11,562 $27,467
Cumulative effect of change in accounting
for income taxes............................... -- -- 5,685
-------- ------- -------
Net income...................................... $ 32,006 $11,562 $33,152
======== ======= =======
Weighted average common shares outstanding...... 11,649 12,991 12,961
Common stock equivalents due to dilutive
effect of stock options........................ 295 337 649
-------- ------- -------
Total weighted average common shares and
equivalents outstanding........................ 11,944 13,328 13,610
======== ======= =======
Primary earnings per share:
Income before cumulative effect of
change in accounting principle................ $ 2.68 $ .87 $ 2.02
Cumulative effect of change in
accounting for income taxes................... -- -- .42
-------- ------- -------
Net income..................................... $ 2.68 $ .87 $ 2.44
======== ======= =======
- ------------------
(1) Earnings per common share have been calculated to fully reflect the ten percent stock dividend effective
February 14, 1994.
(2) Additional shares using period end market values versus average market values would not be significantly dilutive.
As such, the computation of fully dilutive earnings per share has been omitted.
</TABLE>
<PAGE> 1
<TABLE>
<CAPTION>
New York Bancorp Inc. and Subsidiary
SELECTED CONSOLIDATED FINANCIAL & OTHER DATA
- ----------------------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)
------- --------- --------- ---------- ---------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income...................... $207,491 $196,972 $175,530 $160,752 $152,417
Interest expense..................... 106,746 101,730 79,948 71,385 84,415
-------- -------- -------- -------- --------
Net interest income................ 100,745 95,242 95,582 89,367 68,002
Provision for possible loan losses... (1,200) (1,700) (2,650) (4,700) (8,404)
-------- -------- -------- -------- --------
Net interest income after provision
for possible loan losses.......... 99,545 93,542 92,932 84,667 59,598
-------- -------- -------- -------- --------
Non-interest income:
Loan fees and service charges...... 2,770 2,566 3,292 3,341 3,196
Net gain (loss) on the sales of
mortgage loans and securities
available for sale................ 4,750 (1,088) 214 3,857 13,185
Net loss on financial futures
transactions...................... -- -- -- (495) --
Other.............................. 7,147 5,134 4,494 4,481 2,604
-------- -------- -------- -------- --------
Total non-interest income........ 14,667 6,612 8,000 11,184 18,985
-------- -------- -------- -------- --------
General and administrative expenses.. 47,535 48,968 50,845 48,455 42,374
-------- -------- -------- -------- --------
Merger and restructuring expense..... -- 19,024 -- -- --
-------- -------- -------- -------- --------
Real estate operations, net.......... 463 883 880 1,296 3,413
-------- -------- -------- -------- --------
SAIF recapitalization expense........ 9,432 -- -- -- --
-------- -------- -------- -------- --------
Income before income tax expense
and extraordinary item and
cumulative effect of change in
accounting principle................ 56,782 31,279 49,207 46,100 32,796
Income tax expense................... (24,776) (19,717) (21,740) (20,912) (15,346)
Extraordinary item, early
extinguishment of debt.............. -- -- -- -- (570)
Cumulative effect of change in
accounting for income taxes......... -- -- 5,685 -- --
-------- -------- -------- -------- --------
Net income .......................... $32,006 $11,562 $33,152 $25,188 $16,880
======== ======== ======== ======== ========
Earnings per common share:
Income before extraordinary item
and cumulative effect of change
in accounting principle............ $ 2.68 $ .87 $ 2.02 $ N/M(4) $ N/M(4)
Net income.......................... $ 2.68 $ .87 $ 2.44 $ N/M(4) $ N/M(4)
Book value per share(2)............... $13.69 $12.88 $12.95 $11.75 $ N/M(4)
Dividends per share(2), (3)........... $ .80 $ .80 $ .78 $ .64 $ .45
Dividend payout ratio(2), (3)......... 29.85% 76.92% 24.84% 29.36% 25.71%
</TABLE>
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)
---------- ---------- ---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
FINANCIAL CONDITION DATA:
Total assets......................... $2,940,907 $2,731,592 $2,583,982 $2,250,605 $2,153,861
First mortgage loans, net............ 1,586,046 1,370,175 1,134,882 1,078,960 977,017
Other loans, net..................... 267,116 294,768 297,472 309,457 322,746
Loans receivable, net.............. 1,853,162 1,664,943 1,432,354 1,388,417 1,299,763
Mortgage-backed securities held
to maturity........................ 550,817 664,726 785,593 439,605 448,296
Mortgage-backed securities available
for sale............................ 280,429 206,794 171,983 234,236 76,707
Debt securities held to maturity..... 643 21,179 52,984 4,662 26,620
Debt and equity securities
available for sale.................. 136,133 46,273 180 -- 67
Federal Home Loan Bank stock......... 27,938 20,288 17,409 21,734 20,876
Money market investments............. 10,700 13,915 21,844 77,261 192,758
Trading account securities........... -- 2,003 12,939 12,487 12,242
Deposits............................. 1,715,959 1,748,874 1,791,514 1,758,102 1,782,764
Borrowed funds....................... 1,008,786 767,138 578,897 293,693 222,850
Shareholders' equity................. 151,903 156,386 171,291 153,769 99,933(5)
</TABLE>
<TABLE>
<CAPTION>
September 30,
-----------------------------------------------------------
1996 1995 1994(1) 1993(1) 1992(1)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS & OTHER DATA:
Return on average assets............. 1.16% .44% 1.35% 1.16% .89%
Return on average shareholders'
equity.............................. 20.26 6.81 20.13 18.74 17.81
Shareholders' equity to assets....... 5.17 5.73 6.63 6.83 4.64
Net interest rate spread............. 3.47 3.43 3.73 3.99 3.47
Net interest margin.................. 3.71 3.68 3.95 4.23 3.68
Efficiency ratio (6)................. 42.96 47.57 49.19 49.86 57.42
Nonaccrual loans and real estate
owned, net, as a percentage of
total assets........................ .98 1.18 1.64 2.02 2.08
Allowance for possible loan losses as
a percentage of nonaccrual loans.... 75.87 70.04 70.23 69.02 54.87
Average interest-earning assets
to average interest-bearing
liabilities......................... 105.86 106.47 106.82 107.04 104.67
CUSTOMER SERVICE FACILITIES:
Full service......................... 29 27 26 26 29
Loan production offices.............. 7 6 6 6 7
Executive office..................... 1 1 1 1 1
(1) On January 27, 1995, Hamilton Bancorp, Inc. was merged with and into New
York Bancorp Inc. The merger was accounted for as a pooling of interests
and, accordingly, all prior periods include the consolidated results of
Hamilton Bancorp, Inc.
(2) Per share amounts have been calculated to fully reflect the 3-for-2 stock
splits effective October 22, 1992 and July 29, 1993 and the ten percent
stock dividend effective February 14, 1994.
(3) Dividends per share, and the dividend payout ratio, have not been restated
for the merger with Hamilton Bancorp, Inc.
(4) N/M - Hamilton Bancorp, Inc. converted to stock ownership on April 1, 1993.
Accordingly, restated per share data is not meaningful.
(5) Includes only the retained earnings of Hamilton Bancorp, Inc. which
converted to stock ownership on April 1, 1993.
(6) The efficiency ratio is computed by dividing general and administrative
expenses by the sum of net interest income and non-interest income
(exclusive of gains (losses) on the sales of mortgage loans and securities
available for sale).
</TABLE>
9
<PAGE> 2
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
GENERAL
New York Bancorp Inc. ("New York Bancorp" or the "Company") is a savings and
loan holding company. The Company, through its subsidiary, Home Federal Savings
Bank (the "Bank"), operates as a community savings bank. The Bank's principal
business consists of attracting deposits from the general public and investing
these deposits, together with funds from ongoing operations and borrowings, in
the origination and purchase of residential and commercial mortgage loans,
cooperative residential loans and consumer loans. The Bank also maintains a
portion of its assets in mortgage-backed securities and debt and equity
securities, including obligations of the U.S. Government and federal agencies,
money market investments, corporate notes and other securities.
On January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings") was merged with and into New
York Bancorp. This transaction was accounted for as a pooling of interests, and,
as a result, the financial results for the periods prior to the merger reported
in the accompanying management's discussion and analysis and consolidated
financial statements include the results of Hamilton.
As part of the Company's strategy to find ways to best utilize its available
capital, during fiscal year 1996 New York Bancorp continued its stock repurchase
program by repurchasing 1,214,212 shares of its common stock, bringing the total
number of Treasury shares to 3,648,050 and the total number of outstanding
common shares to 11,098,800 at September 30, 1996.
EARNINGS SUMMARY
New York Bancorp earned net income of $32.0 million, or $2.68 per share, for the
year ended September 30, 1996, representing a 20.26% return on average
stockholders' equity. The results for the year include the recognition of a
one-time charge of $9.4 million representing the Bank's assessment to
recapitalize the Savings Association Insurance Fund (the "SAIF") of the Federal
Deposit Insurance Corporation (the "FDIC"). Excluding the SAIF recapitalization
charge, net income for the year ended September 30, 1996 would have amounted to
$37.4 million, or $3.13 per share, representing a 23.69% return on average
stockholders' equity. Net income for the year ended September 30, 1995 amounted
to $11.6 million, or $.87 per share, which included $16.1 million in after tax
non-recurring costs and $.7 million in an after tax loss on the sale of
securities, both of which were incurred in connection with the Hamilton merger.
Excluding these merger-related charges, net income for the year ended September
30, 1995 would have amounted to $28.4 million, or $2.14 per share.
ASSET/LIABILITY MANAGEMENT
The Company is subject to interest rate risk to the extent that its
interest-bearing liabilities reprice or mature more or less frequently, or on a
different basis, than its interest-earning assets. The Company's primary
approach to controlling interest rate risk and maximizing net interest margin
emphasizes gap management. The Company does not have a mandated targeted gap,
but historically has managed the gap so that it will range from a modest
positive to a modest negative position, which would generally result in
upper-end ranges of positive to negative positions of 15%. The size and
direction of the gap is determined by management, reflecting its views on the
direction of interest rates and general market conditions. The Company's
cumulative one year gap as a percent of total interest-earning assets moved from
a negative 12.51% at September 30, 1995 to a negative 2.85% at September 30,
1996, reflecting the effect of the $700.0 million in interest rate collar
arrangements which reduce the Company's interest rate risk exposure to a rising
interest rate environment.
A negative gap denotes liability sensitivity which in a given period will result
in more liabilities than assets being subject to repricing. Generally, liability
sensitive gaps would result in a net positive effect on net interest margin and,
consequently, net income in a declining interest rate environment.
Alternatively, liability sensitive gaps would generally result in a net negative
effect on net interest margin and, consequently, net income in an increasing
interest rate environment.
The Company manages its interest rate risk exposure by investing in adjustable
rate mortgage and other loans and securities, multi-tranche fixed rate REMIC
securities which generally have an estimated average life of five years, and an
assortment of fixed rate loans and securities. At September 30, 1996, 57.5% of
such interest-earning assets were adjustable rate assets, and the average lives
of the fixed rate REMIC securities was approximately 5.4 years. The Company also
may choose to extend the maturity of its funding source and/or reduce the
repricing mismatches by using interest rate swaps and financial futures
arrangements. Additionally, the Company uses interest rate collar, interest rate
floor, and interest rate cap arrangements to assist in further insulating the
Company from volatile interest rate changes.
Adjustable rate mortgage and mortgage-backed securities generally contain
interim and lifetime caps which limit the amount the interest rate can increase
or decrease at repricing dates. Since the Company's liabilities are not
similarly affected, the Company could be adversely affected in a rising interest
rate environment. Increasing interest rates would also tend to extend the lives
of fixed rate mortgages and mortgage-backed securities, which could adversely
affect net interest income. In a declining interest rate environment, the
Company faces interest rate risk as higher rate fixed rate loans prepay due to
the borrowers refinancing at lower rates. The cash flows from such prepayments
would be reinvested in interest-earning assets at then current market rates.
10
<PAGE> 3
At September 30, 1996, the mortgage-backed securities portfolios had an
estimated average life of approximately 5.3 years. Assuming an immediate and
parallel shift of 300 basis points in the yield curve, the estimated average
life of these portfolios would extend to approximately 6.6 years. The Bank
considers its investment in mortgage-backed securities as a separate investment
category from mortgage loans because of the liquidity characteristics of these
instruments. The Bank further segregates its mortgage-backed securities holdings
as either held to maturity or available for sale. At September 30, 1996, the
Bank's portfolios of mortgage-backed securities represented 28.3% of total
assets. Such mortgage-backed securities are either guaranteed by the FHLMC, GNMA
or FNMA, or constitute REMIC and private-issue pass-through mortgage-backed
securities which are virtually all rated AAA by nationally recognized rating
services.
The Bank is a party to interest rate swap arrangements to extend the repricing
or maturity of its liabilities in order to create a more consistent and
predictable interest rate spread. At September 30, 1996, outstanding notional
amounts of interest rate swap arrangements totaled $600.0 million as follows (in
thousands):
<TABLE>
<CAPTION>
Fixed Variable
Notional Interest Rate Interest Rate
Amount Paying Receiving Maturity
-------- ------------- -------------- ----------
<C> <C> <C> <C>
$ 100,000 5.260% 5.438% December 1996 (1)
100,000 5.265% 5.438% December 1996 (1)
50,000 4.785% 5.438% June 1997 (2)
50,000 4.780% 5.438% June 1997
50,000 4.770% 5.438% June 1997
50,000 4.774% 5.438% June 1997 (2)
50,000 4.748% 5.438% June 1997
50,000 4.743% 5.438% June 1997 (2)
50,000 4.700% 5.438% June 1997
50,000 4.700% 5.438% June 1997 (2)
---------
$ 600,000
=========
____________________
(1)These $200 million in interest rate swaps have been extended through June
1997 whereby the fixed interest pay rate will be 4.69% beginning in December
1996.
(2)In an effort to secure the hedge position provided against interest rate
risk, the Bank in July 1996 terminated its position as a party to $200.0
million of interest rate swaps for the six month period December 1996 through
June 1997. The gain of $1.5 million from these terminated interest rate swaps
is being deferred, and will be amortized as a reduction of interest expense
over the period December 1996 through June 1997.
</TABLE>
Further, at September 30, 1996, the Bank maintained $700.0 million of interest
rate collar arrangements which mature in August 1998. These interest rate
collars provide for the Bank to receive payment when three month LIBOR exceeds
7.5%, and requires the Bank to pay when three month LIBOR is less than 5.00%,
thereby reducing the Bank's exposure to a rising interest rate environment. At
September 30, 1996 three month LIBOR was 5.625%.
Additionally, in an effort to further protect against interest rate risk
associated with the repricing of its interest-bearing deposit liabilities, the
Bank was a party to $1.0 billion of interest rate floor agreements which were
scheduled to expire on February 22, 1998. During the third quarter of fiscal
year 1995, in an effort to secure the hedge position provided against the
aforementioned interest rate risk, the Bank terminated its position as a party
to the $1.0 billion of interest rate floor agreements. Accordingly, and in
conformity with generally accepted accounting principles, the Bank deferred
recognition of the gain on the terminated interest rate floor agreements and is
amortizing such gain as an adjustment to the cost of interest-bearing deposit
liabilities over the original contractual life of the interest rate floor
agreements. At September 30, 1996 the amount of the unamortized gain was $4.3
million.
At September 30, 1996 the Bank had approximately $2.6 million in contracts for
purposes of hedging the "Standard & Poor's 500" index. The call options
maturities range from March 1999 through August 1999. The Bank uses stock
indexed call options for purposes of hedging its MarketSmart CDs and MarketSmart
I.R.A. CDs. The call options hedge the interest rate paid on these 5 year CD
deposits which is an annual percentage yield based on the changes in the
Standard & Poor's 500 Composite Stock Price Index during each of the 5 year
terms of the CDs. Premiums paid on the call options are amortized to interest
expense over the terms of the underlying CD using the straight line method.
Gains and losses, if any, resulting from the early termination of the call
option are deferred and amortized to interest expense over the remaining term of
the underlying CD. The Bank ceased offering MarketSmart CDs during fiscal year
1995 due to its inability to purchase stock indexed call options.
Although the Company's asset/liability plan is intended to protect the Company's
interest rate spread against changes in prepayment speeds caused by changes in
interest rates, there is a risk that during periods of rapidly changing interest
rates, the Company's spread could be reduced or become negative. The following
table sets forth the anticipated repricing or maturity of the Company's assets,
liabilities and yields, including the effect of off-balance sheet financial
instruments, at September 30, 1996 using assumptions based on its historical
experience and other data available to management. This table does not
necessarily indicate the impact of general interest rate movements on the
Company's net interest yield because the repricing of various assets and
liabilities is subject to customer discretion and competitive and other
pressures. As a result, assets and liabilities indicated as repricing within the
same period may in fact reprice at different times and at different rate levels.
11
<PAGE> 4
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
At September 30, 1996
-------------------------------------------------------------------------------------------
More More More
More than than than than Over
6 Months 6 Months 1 Year 3 Years 5 Years 10
or Less to 1 Year to 3 Years to 5 Years to 10 Years Years Total Yield
--------- --------- ---------- ---------- ----------- ------- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
First mortgage loans(1)... $ 380,867 $ 383,942 $ 405,953 $ 272,729 $88,003 $ 72,275 $1,603,769 8.01%
Other loans............... 131,226 29,382 50,376 31,082 19,307 7,406 268,779 8.63
Mortgage-backed
securities(2)............ 114,083 89,508 180,414 121,875 319,272 6,094 831,246 6.62
Debt and equity securities 5,346 4,937 125,300 550 -- 643 136,776 6.83
Federal Home Loan Bank
stock.................... 27,938 -- -- -- -- -- 27,938 6.50
Money market
investments.............. 10,700 -- -- -- -- -- 10,700 5.60
-------- --------- -------- -------- ------- ------- --------
Total interest-earning
assets................ 670,160 507,769 762,043 426,236 426,582 86,418 2,879,208 7.59
-------- --------- -------- -------- ------- ------- ---------
INTEREST-BEARING LIABILITIES:
Demand and NOW
accounts(3).............. 4,201 4,201 15,504 14,004 29,408 100,526 167,844 1.04
Money market deposit
accounts(3).............. 20,034 20,034 47,681 23,340 18,632 3,807 133,528 2.98
Passbook savings and
club accounts(3)......... 71,703 71,703 206,408 132,105 157,906 77,002 716,827 2.36
Certificate accounts...... 292,829 166,027 185,223 52,823 858 -- 697,760 4.86
Borrowed funds............ 952,406 48,780 7,600 -- -- -- 1,008,786 5.25
--------- --------- -------- -------- ------- ------- ---------
Total interest-bearing
liabilities........... 1,341,173 310,745 462,416 222,272 206,804 181,335 2,724,745 4.02
--------- --------- -------- -------- ------- ------- ---------
INTEREST RATE HEDGING (4)... 792,000 (400,000) (392,000) -- -- --
INTEREST SENSITIVITY GAP
PER PERIOD................. 120,987 (202,976) (92,373) 203,964 219,778 (94,917)
--------- --------- -------- -------- ------- -------
CUMULATIVE INTEREST
SENSITIVITY GAP............ $ 120,987 $ (81,989) $(174,362) $ 29,602 $ 249,380 $154,463
========= ========= ========= ========= ========= ========
CUMULATIVE GAP AS A
PERCENT OF TOTAL INTEREST-
EARNING ASSETS............. 4.20% (2.85)% (6.06)% 1.03% 8.66% 5.36%
==== ===== ===== ==== ==== ====
CUMULATIVE NET INTEREST-
SENSITIVE ASSETS AS A
PERCENT OF INTEREST-
SENSITIVE LIABILITIES...... 4.44% (3.01)% (6.40)% 1.09% 9.15% 5.67%
==== ===== ===== ==== ==== ====
- -----------------------
(1) Assumes a prepayment rate for fixed rate mortgage loans of 10% for coupons less than 8.00%, a prepayment rate of 13.00%
for coupons ranging from 8.00% to 8.99%, a prepayment rate of 18.00% for coupons ranging from 9.00% to 9.99%, and
prepayment rates of 22.00% to 26.00% for coupons of 10.00% or higher. These prepayment assumptions are based on actual
prepayments experienced and market assumptions for each interest rate range.
(2) Assumes mortgage-backed securities prepay using actual prepayment rates experienced on the underlying securities.
(3) Assumes NOW accounts, money market deposit accounts and passbook savings and club accounts will be withdrawn at annual
rates of 5.00%, 30.00% and 20.00%, respectively, based on their declining balance, reflecting the Bank's experience.
(4) The effect of the interest rate collars is reflected based upon a distribution table distributed by the Office of Thrift
Supervision for such arrangements when payments are not being remitted due to current interest rates.
</TABLE>
ANALYSIS OF CORE EARNINGS
The Company's profitability is primarily dependent upon net interest income,
which represents the difference between income on interest-earning assets and
expense on interest-bearing liabilities. Net interest income is dependent on the
average balances and rates received on interest-earning assets, the average
balances and rates paid on interest-bearing liabilities, and the effect of the
Bank's off-balance sheet financial instruments which are used to manage the
repricing characteristics of interest-bearing liabilities. Net income is further
affected by the provision for possible loan losses, non-interest income,
non-interest expense and taxes.
The following table sets forth certain information relating to the Company's
average consolidated statement of financial condition and reflects the average
yield on assets and average cost of liabilities for the periods indicated. The
impact of interest rate swaps, interest rate collars, interest rate floors and
interest rate caps are included in the table in the respective category to which
they relate. The yields and costs are derived by dividing income or expense by
the average balance of assets (which include nonaccrual loans) or liabilities,
respectively, for the periods shown.
12
<PAGE> 5
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------------------------------------------------
1996 1995 1994
-------------------------- ----------------------- -----------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------- -------- ------- -------- -------- ----- -------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Interest-earning assets:
First mortgage loans....... $ 1,471,464 $118,792 8.07% $1,257,057 $104,042 8.28% $1,109,571 $93,373 8.42%
Other loans................ 281,414 24,735 8.79 303,649 25,916 8.53 301,496 24,094 7.99
Mortgage-backed
securities............... 854,660 56,921 6.66 921,198 60,331 6.55 894,938 52,521 5.87
Debt and equity
securities - taxable..... 105,190 6,774 6.44 71,158 4,877 6.85 41,876 2,976 7.11
Money market
investments............... 4,776 256 5.36 18,845 1,080 5.73 57,770 2,113 3.66
Trading account securities 220 13 5.70 12,883 726 5.63 12,689 453 3.57
---------- ------- --------- ------- ---------- -------
Total interest-earning
assets.................. 2,717,724 207,491 7.63 2,584,790 196,972 7.62 2,418,340 175,530 7.26
------- ------- -------
Non-interest-earning
assets.................... 47,678 43,442 44,864
---------- ---------- ----------
Total assets............. $2,765,402 $2,628,232 $2,463,204
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY:
Interest-bearing liabilities:
Deposits:
Certificate accounts...... $ 736,896 37,679 5.11 $ 676,290 35,703 5.28 $ 554,676 26,614 4.80
Passbook savings and
club accounts............ 730,165 17,509 2.40 801,630 19,964 2.49 944,152 23,846 2.53
Money market
deposit accounts......... 117,363 3,357 2.86 132,187 4,054 3.07 152,872 3,926 2.57
Demand and
NOW accounts............. 159,793 1,925 1.20 148,594 2,673 1.80 139,285 2,610 1.87
---------- ------- ---------- ------- ---------- -------
Total deposits........... 1,744,217 60,470 3.47 1,758,701 62,394 3.55 1,790,985 56,996 3.18
Borrowed funds............. 822,987 46,276 5.62 669,090 39,336 5.88 472,954 22,952 4.85
---------- ------- ---------- ------- ---------- -------
Total interest-bearing
liabilities............. 2,567,204 106,746 4.16 2,427,791 101,730 4.19 2,263,939 79,948 3.53
------- ------- -------
Other liabilities.......... 40,222 30,720 34,600
---------- --------- ----------
Total liabilities........ 2,607,426 2,458,511 2,298,539
Shareholders' equity....... 157,976 169,721 164,665
---------- --------- ----------
Total liabilities and
shareholders' equity.... $2,765,402 $2,628,232 $2,463,204
========== ========== ==========
NET INTEREST INCOME/INTEREST
RATE SPREAD................. $100,745 3.47% $ 95,242 3.43% $ 95,582 3.73%
======== ====== ======== ====== ======== =====
NET EARNING ASSETS/NET
INTEREST MARGIN............. $ 150,520 3.71% $ 156,999 3.68% $ 154,401 3.95%
========== ====== ========== ====== ========== =====
PERCENTAGE OF INTEREST-
EARNING ASSETS TO
INTEREST-BEARING
LIABILITIES................. 105.86% 106.47% 106.82%
====== ====== ======
</TABLE>
13
<PAGE> 6
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
RATE/VOLUME ANALYSIS
Net interest income can also be analyzed in terms of the impact of changing
interest rates and changing volumes. The following table describes the extent to
which changes in interest rates and changes in the volume of interest-earning
assets and interest-bearing liabilities have affected the Company's interest
income and interest expense during the periods indicated. Information is
provided in each category with respect to (i) increases and decreases
attributable to changes in volume (changes in volume multiplied by prior rate),
(ii) increases and decreases attributable to changes in rates (changes in rates
multiplied by prior volume), and (iii) the net change. The change attributable
to the combined impact of volume and rate has been allocated proportionately to
the change due to volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended September 30, 1996 Year Ended September 30, 1995
Compared to Year Ended Compared to Year Ended
September 30, 1995 September 30, 1994
Increase (Decrease) Increase (Decrease)
------------------------------ ------------------------------
Volume Rate Net Volume Rate Net
-------- -------- -------- -------- --------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME ON INTEREST-EARNING
ASSETS:
First mortgage loans................ $17,235 $ (2,485) $ 14,750 $12,178 $(1,509) $10,669
Other loans......................... (1,993) 812 (1,181) 173 1,649 1,822
Mortgage-backed securities.......... (4,454) 1,044 (3,410) 1,577 6,233 7,810
Debt and equity securities
-- taxable......................... 2,171 (274) 1,897 2,003 (102) 1,901
Money market investments............ (758) (66) (824) (1,828) 795 (1,033)
Trading account securities.......... (722) 9 (713) 7 266 273
------- -------- -------- ------- ------- -------
Total income on interest-
earning assets....................... 11,479 (960) 10,519 14,110 7,332 21,442
------- -------- -------- ------- ------- -------
INTEREST EXPENSE ON INTEREST-
BEARING LIABILITIES:
Deposits:
Certificate accounts............... 3,045 (1,069) 1,976 6,237 2,852 9,089
Passbook savings and club accounts. (1,733) (722) (2,455) (3,554) (328) (3,882)
Money market deposit accounts...... (436) (261) (697) (294) 422 128
Demand and NOW accounts............ 221 (969) (748) 157 (94) 63
------- -------- -------- ------- ------ -------
Total deposits.................. 1,097 (3,021) (1,924) 2,546 2,852 5,398
Borrowed funds...................... 8,561 (1,621) 6,940 10,851 5,533 16,384
------- -------- -------- ------- ------ -------
Total expenses on interest-
bearing liabilities.................. 9,658 (4,642) 5,016 13,397 8,385 21,782
------- -------- -------- ------- ------ -------
Net interest income................... $ 1,821 $ 3,682 $ 5,503 $ 713 $(1,053) $ (340)
======= ======== ======== ======= ======= =======
</TABLE>
Note: Nonaccrual loans are included in the volume variances.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
GENERAL
The Company's net income for the year ended September 30, 1996 was $32.0
million, or $2.68 per share, as compared to $11.6 million, or $.87 per share,
for the year ended September 30, 1995. Comments regarding the components of net
income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1996
increased by $10.5 million, or 5.3%, to $207.5 million as compared with $197.0
million for the year ended September 30, 1995. The increase in interest income
was primarily attributable to a $132.9 million increase in average
interest-earning assets, resulting primarily from an increase in loans.
Interest and fees on loans for the year ended September 30, 1996 increased by
$13.6 million, or 10.4%, to $143.5 million as compared to fiscal year 1995. The
increase in loan income reflects a $192.2 million increase in the average
balance and a 26 basis point increase in the yield on other loans which,
however, were partially offset by a 21 basis point decrease in the yield on
first mortgage loans. The increase in average balance reflects the purchase of
$206.0 million of loans, combined with increased originations. Interest on
mortgage-backed securities held to maturity and mortgage-backed securities
available for sale for the year ended September 30, 1996 decreased by $3.4
million to $56.9 million as compared to fiscal year 1995. The decrease in
mortgage-backed securities income reflects a $66.5 million decrease in the
average balance of the portfolio to $854.7 million which, however, was partially
offset by an 11 basis point increase in yield to
14
<PAGE> 7
6.66%. Interest and dividends on debt and equity securities increased by $1.9
million for the year ended September 30, 1996 to $6.8 million as compared to
fiscal year 1995. The increase in interest and dividends on debt and equity
securities reflects a $34.0 million increase in the average balance of the
portfolio to $105.2 million which, however, was partially offset by a 41 basis
point decline in the yield to 6.44%. Money market investment income declined by
$.8 million to $.3 million as compared to fiscal year 1995. The decline in money
market investment income reflects a $14.1 million decrease in the average
balance of the portfolio, coupled with a 37 basis point decrease in yield to
5.36%. Interest on trading account securities for the year ended September 30,
1996 decreased by $.7 million as compared to fiscal year 1995. This decrease was
the result of a $12.7 million decrease in the average balance of the portfolio.
The decrease in the average balance of money market investments and trading
account securities is due to the Company investing these funds in higher
yielding assets and/or utilizing the funds to reduce certain short-term borrowed
funds.
At September 30, 1996, mortgage-backed securities held to maturity had
unrealized depreciation of $16.2 million. The unrealized depreciation is due to
market yields on similar type securities being above those of the Bank's
securities. As a result of the increase in interest rates since the acquisition
of these securities, the Company earns a below market rate of interest on the
securities, and the estimated average lives of the securities are presently
longer than the estimated lives at the time of acquisition.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1996 increased by $5.0 million, or 4.9%, to $106.7 million as compared with
$101.7 million for the year ended September 30, 1995. The increase in interest
expense reflects a $139.4 million increase in the average balance of total
interest-bearing liabilities to $2,567.2 million. This represents a movement by
depositors from lower costing passbook savings and money market accounts to
higher costing certificate of deposit accounts, and an increase in the Bank's
higher costing borrowings to fund balance sheet growth. Partially offsetting
these factors was a decline in the cost of funds primarily due to the impact of
the Bank's use of interest rate swaps and other off-balance sheet instruments
which decreased interest expense by $3.5 million and $1.2 million for the years
ended September 30, 1996 and 1995, respectively. Further, the impact of the
Bank's use of reverse repurchase agreements with imbedded interest rate caps,
all of which had matured prior to September 30, 1995, was to decrease interest
expense by $1.6 million for the year ended September 30,1995.
Interest expense on deposits decreased $1.9 million, or 3.1%, to $60.5 million
for the year ended September 30, 1996 as compared with the year ended September
30, 1995. This decrease reflects an 8 basis point decrease in the average cost
of deposits from 3.55% in fiscal year 1995 to 3.47% in fiscal year 1996, coupled
with a $14.5 million decrease in the average balance of deposits to $1,744.2
million. Interest expense on borrowed funds increased $6.9 million, or 17.6%, to
$46.3 million for the year ended September 30, 1996 as compared to the year
ended September 30, 1995. This increase reflects a $153.9 million increase in
the average balance of borrowed funds to $823.0 million which, however, was
partially offset by a 26 basis point decrease in the average cost of borrowed
funds from 5.88% in fiscal year 1995 to 5.62% in fiscal year 1996.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $1.2 million and $1.7 million for possible loan losses
during the years ended September 30, 1996 and 1995, respectively. The reduction
in the provision for possible loan losses reflects the improvement of the Bank's
ratio of its allowance for possible loan losses to total nonaccrual loans which
amounted to 75.9% and 70.0% at September 30, 1996 and 1995, respectively.
At September 30, 1996, the Company's recorded investment in impaired loans was
$11.9 million, all of which were on nonaccrual status. Due to charge-offs, or
the crediting of interest payments to principal, the loans do not have an
impairment reserve at September 30, 1996. Interest income recognized on impaired
loans during the year ended September 30, 1996 amounted to approximately $.4
million, which approximated the actual interest payments received. The average
recorded investment in impaired loans during the current year was $14.5 million.
The allowance for possible loan losses contains additional amounts for impaired
loans, as deemed necessary, to maintain reserves at levels considered adequate
by management.
As part of the Bank's determination of the adequacy of the allowance for
possible loan losses, the Bank monitors its loan portfolio through its Asset
Classification Committee. The Committee, which meets no less than quarterly,
consists of employees who are independent of the loan origination process and
members of management. This Committee reviews individual loans with the lending
officers and assesses risks relating to the collectibility of these loans. The
Asset Classification Committee determines the adequacy of the allowance for
possible loan losses through ongoing analysis of historical loss experience, the
composition of the loan portfolios, delinquency levels, underlying collateral
values and cash flow values. Utilizing these procedures, management believes
that the allowance at September 30, 1996 is sufficient to cover anticipated
losses inherent in the loan portfolios.
15
<PAGE> 8
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
As of and For the
Year Ended September 30,
---------------------------------
1996 1995 1994
---------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Allowance for possible loan losses,
beginning of year.......................... $21,272 $25,705 $26,828
Charge-offs:
Commercial real estate.................... (974) (2,889) (879)
Residential real estate................... (730) (1,422) (1,572)
Multifamily residential................... -- (546) (853)
Other loans............................... (1,441) (1,442) (901)
------- ------- -------
Total charge-offs........................ (3,145) (6,299) (4,205)
------- ------- -------
Less recoveries:
Commercial real estate................. -- -- 349
Residential real estate................ -- 4 47
Other loans............................ 59 75 36
------- ------- -------
Total recoveries..................... 59 79 432
------- ------- -------
Net charge-offs.................... (3,086) (6,220) (3,773)
Hamilton's net activity for the quarter
ended December 31, 1994.................... -- 87 --
Addition to allowance, charged to expense... 1,200 1,700 2,650
------- ------- -------
Allowance at end of year.................... $19,386 $21,272 $25,705
======= ======= =======
</TABLE>
The Bank's allowance for possible loan losses at September 30, 1996 was $19.4
million which represented 75.9% of nonaccrual loans, or 1.0% of total loans,
compared to $21.3 million at September 30, 1995 which represented 70.0% of
nonaccrual loans, or 1.3% of total loans.
The following table sets forth information regarding nonaccrual loans, real
estate owned, and restructured loans at the dates indicated:
<TABLE>
<CAPTION>
September 30,
-----------------------------
1996 1995 1994
------- ------- ------
(In Thousands)
<S> <C> <C> <C>
Nonaccrual loans:
First mortgage loans:
One-to-four family conventional
residential............................ $12,092 $13,391 $14,642
Multifamily residential................. 155 131 1,966
Commercial real estate.................. 11,758 14,316 18,208
------- ------- -------
24,005 27,838 34,816
Other loans - cooperative residential
loans.................................... 1,547 2,534 1,717
------- ------- -------
Total nonaccrual loans................ $25,552 $30,372 $36,533
======= ======= =======
Real estate owned........................... $ 3,197 $ 1,967 $ 5,919
======= ======= =======
Restructured loans.......................... $ 5,818 $ 9,104 $ 9,481
======= ======= =======
</TABLE>
At September 30, 1996, 1995 and 1994, total nonaccrual loans as a percentage of
total assets amounted to .87%, 1.11% and 1.42%, respectively. The decrease in
nonaccrual loans at September 30, 1996 reflects the Bank's increased collection
activity and the acceleration of write-offs of delinquent loans.
The amount of interest income on nonaccrual and restructured loans that would
have been recorded had these loans been current in accordance with their
original terms, was $3,252,000, $4,049,000 and $3,940,000 for the years ended
September 30, 1996, 1995 and 1994, respectively. The amount of interest income
that was recorded on these loans was $1,397,000, $1,808,000 and $1,181,000 for
the years ended September 30, 1996, 1995 and 1994, respectively.
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1996 amounted to $99.5 million, representing an increase of $6.0
million, or 6.4%, from the year ended September 30, 1995. Net interest income
for the current year increased $5.5 million due to a $132.9 million increase in
average interest-earning assets and a 3 basis point increase in the net interest
margin. The provision for possible loan losses declined $.5 million, reflecting
the improvement in the Bank's level of nonaccrual loans.
NON-INTEREST INCOME
Non-interest income amounted to $14.7 million for the year ended September 30,
1996 as compared with $6.6 million for the year ended September 30, 1995. The
$8.1 million improvement in non-interest income is primarily attributable to a
$5.8 million improvement in net gain (loss) on the sale of mortgage loans and
securities available for sale, and a $2.0 million increase in banking related
fee income. The growth in banking related fee income primarily reflects an
increase in annuity sales and an increase in NSF fees from checking accounts.
Included in the current year's $4.8 million net gain on the sale of mortgage
loans and securities available for sale, is a gain of $2.9 million realized on
the sale of the Company's investment in the shares of another local savings
bank.
NON-INTEREST EXPENSE
Non-interest expense amounted to $57.4 million during the year ended September
30, 1996 as compared with $68.9 million during the year ended September 30,
1995. The current year includes the one-time SAIF recapitalization assessment of
$9.4 million, while the prior year includes $19.0 million in merger and
restructuring expenses incurred in connection with the merger with Hamilton.
Excluding these one-time charges in both periods, non-interest expense would
have been $48.0 million in fiscal year 1996 as compared to $49.9 million in the
prior fiscal year. This decline of $1.9 million is primarily attributable to
consolidation efficiencies from the merger which, however, were partially offset
by the cost associated with stock appreciation rights as a result of the 62%
increase in the price of the Company's stock during fiscal year 1996, coupled
with staffing and other costs associated with the Bank's newly formed
multifamily lending department and the Bank's continued efforts to expand into
supermarket banking.
16
<PAGE> 9
INCOME TAX EXPENSE
Income taxes totaled $24.8 million for an effective tax rate of 43.6% during
fiscal year 1996 compared to $19.7 million for an effective tax rate of 63.0%
during fiscal year 1995. The higher effective income tax rate during the prior
year resulted from the non-deductibility of certain merger and restructuring
charges.
COMPARISON OF YEARS ENDED SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994
GENERAL
The Company's net income for the year ended September 30, 1995 was $11.6
million, or $.87 per share, as compared to $33.2 million, or $2.44 per share,
for the year ended September 30, 1994. Comments regarding the components of net
income are detailed in the following paragraphs.
INTEREST INCOME
Interest income on interest-earning assets for the year ended September 30, 1995
increased by $21.5 million, or 12.2%, to $197.0 million as compared with $175.5
million for the year ended September 30, 1994. The increase in interest income
was attributable to a $166.5 million increase in average interest-earning
assets, resulting primarily from an increase in mortgage loans, coupled with a
36 basis point increase in yield on interest-earning assets. The increase in
yield on interest-earning assets for the year ended September 30, 1995 resulted
from the increasing interest rate environment experienced in the second half of
fiscal year 1994 through the first half of fiscal year 1995. The second half of
fiscal year 1995 saw interest rates become more stable, and decline slightly.
This interest rate environment resulted in the upward repricing of adjustable
rate loans and the origination of new loans at higher rates.
Interest and fees on loans for the year ended September 30, 1995 increased by
$12.5 million, or 10.6%, to $130.0 million as compared to fiscal year 1994. The
increase in loan income reflects a $149.6 million increase in the average
balance and a 54 basis point increase in the yield on other loans which,
however, were partially offset by a 14 basis point decrease in the yield on
first mortgage loans. The increase in average balance reflects the purchase of
$114.7 million of loans, combined with increased originations. Interest on
mortgage-backed securities held to maturity and mortgage-backed securities
available for sale for the year ended September 30, 1995 increased by $7.8
million to $60.3 million as compared to fiscal year 1994. The increase in
mortgage-backed securities income reflects a 68 basis point increase in yield to
6.55%, coupled with a $26.3 million increase in the average balance of the
portfolio to $921.2 million. Interest and dividends on debt and equity
securities increased by$1.9 million for the year ended September 30, 1995 to
$4.9 million as compared to fiscal year 1994. The increase in interest and
dividends on debt and equity securities reflects a $29.3 million increase in the
average balance of the portfolio to $71.2 million, partially offset by a 26
basis point decline in the yield to 6.85%. Money market investment income
declined by $1.0 million to $1.1 million as compared to fiscal year 1994. The
decline in money market investment income reflects a $38.9 million decrease in
the average balance of the portfolio which, however, was partially offset by a
207 basis point increase in yield to 5.73%. Interest on trading account
securities for the year ended September 30, 1995 increased by $.3 million as
compared to fiscal year 1994. This increase was the result of a 206 basis point
increase in yield, coupled with a $.2 million increase in the average balance of
the portfolio.
INTEREST EXPENSE
Interest expense on interest-bearing liabilities for the year ended September
30, 1995 increased by $21.8 million, or 27.2%, to $101.7 million as compared
with $79.9 million for the year ended September 30, 1994. The increase in
interest expense reflects a $163.9 million increase in the average balance of
total interest-bearing liabilities to $2,427.8 million, coupled with a 66 basis
point increase in the cost of funds. The increase in the cost of
interest-bearing liabilities reflects the increased utilization of short-term
borrowed funds which reprice faster than deposit liabilities. The impact of the
Bank's use of interest rate swaps and other off-balance sheet instruments was to
decrease interest expense by $1.2 million for the year ended September 30, 1995
and increase interest expense by $1.5 million for the year ended September 30,
1994. Further, the impact of the Bank's use of reverse repurchase agreements
with imbedded interest rate caps, all of which had matured during fiscal year
1995, was to decrease interest expense by $1.6 million and $1.1 million for the
years ended September 30, 1995 and 1994, respectively.
Interest expense on deposits increased $5.4 million, or 9.5%, to $62.4 million
for the year ended September 30, 1995 as compared with the year ended September
30, 1994. This increase reflects a 37 basis point increase in the average cost
of deposits from 3.18% in fiscal year 1994 to 3.55% in fiscal year 1995 which
was attributable to both an increase in rates paid for deposits and a shifting
by depositors from lower costing passbook savings and money market accounts to
higher costing certificates of deposit. Interest expense on borrowed funds
increased $16.4 million, or 71.4%, to $39.3 million for the year ended September
30, 1995, as compared to the year ended September 30, 1994. This increase
reflects a $196.1 million increase in the average balance of borrowed funds to
$669.1 million, coupled with a 103 basis point increase in the average cost of
borrowed funds from 4.85% in fiscal year 1994 to 5.88% in fiscal year 1995.
PROVISION FOR POSSIBLE LOAN LOSSES
The Company provided $1.7 million and $2.7 million for possible loan losses
during the years ended September 30, 1995 and 1994, respectively. The reduction
in the provision for possible loan losses reflects the stabilization of the
Bank's ratio of its allowance for possible loan losses to total nonaccrual loans
which amounted to 70.0% and 70.4% at September 30, 1995 and 1994, respectively.
17
<PAGE> 10
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES
Net interest income after provision for possible loan losses for the year ended
September 30, 1995 amounted to $93.5 million, representing an increase of $.6
million, or .7%, from the year ended September 30, 1994. Net interest income for
the year ended September 30, 1995 declined $.3 million from the prior year,
which was more than offset by a $.9 million decline in the provision for
possible loan losses. The decline in net interest income resulted from a 27
basis point decline in the Bank's net interest margin, partially offset by a
$166.5 million increase in average interest-earning assets. The decline in net
interest margin resulted primarily from the increased reliance on short-term
borrowed funds which resulted in a greater upward repricing of the Bank's
interest-bearing liabilities versus interest-earning assets in connection with
the interest rate environment in fiscal year 1995 as compared to fiscal year
1994.
NON-INTEREST INCOME
Non-interest income amounted to $6.6 million for the year ended September 30,
1995 as compared with $8.0 million for the year ended September 30, 1994. The
$1.4 million decline in non-interest income is primarily attributable to a $1.2
million loss on the sale of securities available for sale incurred during the
second quarter of fiscal year 1995 related to the restructuring of the Hamilton
portfolio. Such restructuring and sale were completed in order to make the
acquired portfolio's risk profile more consistent with the Company's.
NON-INTEREST EXPENSE
Non-interest expense amounted to $68.9 million during the year ended September
30, 1995 as compared with $51.7 million during the year ended September 30,
1994. This increase of $17.2 million primarily reflects $19.0 million in merger
and restructuring expenses incurred in connection with the merger with Hamilton.
Compensation and benefits decreased $3.4 million primarily attributable to
consolidation efficiencies from the merger. Excluding the merger and
restructuring expenses, non-interest expense represented 1.90% of average assets
as compared to 2.10% in fiscal year 1994.
INCOME TAX EXPENSE
Income taxes totaled $19.7 million for an effective tax rate of 63.0% during
fiscal year 1995 compared to $21.7 million for an effective tax rate of 44.2%
during fiscal year 1994. The higher effective income tax rate during fiscal year
1995 resulted from the non-deductibility of certain merger and restructuring
charges.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE -- INCOME TAXES
Prior to October 1, 1993, deferred income taxes were provided for timing
differences in the recognition of revenues and expenses for tax reporting and
financial statement purposes (an income statement approach), pursuant to
Accounting Principles Board Opinion No. 11.
On October 1, 1993, New York Bancorp adopted SFAS No. 109 which adopted a
balance sheet approach (or liability method) in place of the income statement
approach. The liability method requires that an asset or a liability, as
appropriate, be recorded for financial statement purposes for the deferred tax
consequences of all temporary differences between the tax basis and financial
statement carrying amounts of existing assets and liabilities, which is measured
by applying enacted tax laws and rates. Additionally, SFAS No. 109 permits the
recognition of net deferred tax assets based upon the likelihood of realization
of tax benefits in the future. The cumulative effect at October 1, 1993 of the
change in accounting for income taxes which was implemented on a prospective
basis amounted to $5.7 million for the year ended September 30, 1994.
ANALYSIS OF FINANCIAL CONDITION
In managing its financial condition, the Company establishes objectives to
maximize the appropriate levels of asset and liability mix to meet profit, risk
and capital goals. Total assets increased $209.3 million to $2.9 billion at
September 30, 1996. The increase in total assets primarily reflects a $188.2
million increase in loans receivable and a $69.3 million increase in debt and
equity securities which, however, were partially offset by a $40.3 million
decrease in mortgage-backed securities.
The growth in assets was primarily funded by a $241.6 million increase in
borrowed funds, as deposits decreased $32.9 million. Although the Bank's
strategy is to fund asset growth with core deposits, the Bank will also continue
to utilize borrowings to fund asset growth when such growth can be conducted
profitably within the Bank's asset/liability management parameters and
regulatory capital constraints.
As permitted under guidance issued by the Financial Accounting Standards Board
in November 1995, during the quarter ended December 31, 1995, the Company
transferred $84.1 million of its mortgage-backed securities and $15.0 million of
its debt securities, previously classified as held to maturity, to available for
sale. Additionally, mortgage-backed securities with a carrying value and market
value of approximately $15.4 million, previously classified as available for
sale, were transferred to the held to maturity portfolio.
Loans serviced for others at September 30, 1996 amounted to $597.0 million as
compared to $523.7 million at September 30, 1995.
LIQUIDITY AND CAPITAL
The Company's current primary sources of funds are dividends from the Bank and
sales of debt and equity securities available for sale. Dividend payments to the
Company from the Bank are subject to the profitability of the Bank, applicable
law and regulations, and provisions under terms of its subordinated capital note
agreements. During fiscal years 1996, 1995 and 1994, the Bank made dividend
payments to the Company amounting to $37.4 million, $26.2 million, and $11.9
million, respectively.
18
<PAGE> 11
The Company's liquidity is also available for, among other things, payments of
dividends or treasury stock repurchases. In this regard, during fiscal years
1996, 1995 and 1994 the Company declared cash dividends of $9.2 million, $9.1
million, and $5.7 million, respectively, and made treasury stock repurchases of
$29.0 million, $28.8 million, and $4.5 million, respectively.
The maintenance of an appropriate level of liquid resources to meet not only
regulatory requirements but also to provide the funding necessary to meet the
institution's business activities and obligations is an integral element in the
successful management of the Company's assets. Federal regulations currently
require that for each calendar month, a savings institution maintain an average
daily balance of cash and cash equivalents and certain uncommitted marketable
securities equal to 5% of net withdrawable accounts and borrowings payable in
one year or less. Under Office of Thrift Supervision ("OTS") regulations, the
percentage of assets which must be liquid assets may vary between 4% and 10% of
the obligation of the savings institution on withdrawable accounts and
borrowings payable on demand or with unexpired maturities of one year or less.
During September 1996, the Bank's liquidity ratio was 5.26% compared to 5.28%
for the month of September 1995. The liquidity levels will vary dependent upon
savings flows, future loan fundings, operating needs and general prevailing
economic conditions. Because of the Bank's diverse available funding sources,
including cash flows from the Bank's regular amortization and interest received
in connection with the loan and mortgage-backed securities portfolios and
borrowings, available on a collateralized basis, the Company does not foresee
any problems in generating liquidity to meet its operational, debt repayment and
other requirements.
During fiscal 1996, the Company's operating activities provided $37.7 million.
These funds, along with $169.9 million provided by financing activities and
funds available at the beginning of the fiscal year, were utilized to fund net
investing activities of $229.0 million. Financing activities primarily provided
borrowings with original maturities greater than three months. Investing
activities were primarily focused on the origination and purchase of first
mortgage loans, which totaled $572.0 million. Funds were also provided by
principal payments on loans and securities, and from the sale of loans and
securities available for sale.
The primary investment activity of the Bank is the origination and purchase of
loans receivable, and the purchase of mortgage-backed securities and debt and
equity securities. During fiscal year 1996, the Bank originated $425.1 million
of loans and purchased $206.0 million of loans. Further, during fiscal year
1996, the Bank purchased $82.4 million of mortgage-backed securities and $142.0
million of debt and equity securities. These activities were primarily funded by
principal and interest payments on loans, mortgage-backed securities and debt
and equity securities, and from deposits, borrowings from the Federal Home Loan
Bank of New York ("FHLB-NY") and reverse repurchase agreements.
At September 30, 1996, the Bank continued to exceed all regulatory capital
requirements. Regulatory capital, which is comprised of "tangible capital,"
"core capital" and "risk-based capital," amounted to approximately $138.5
million, $138.5 million and $157.6 million, respectively, which exceeded the
respective regulatory requirements by $94.4 million, $50.2 million and $45.5
million. (See note 17 to Consolidated Financial Statements.)
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and accompanying notes presented herein
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 changes in the relative
purchasing power of money over time and due to inflation. Unlike most industrial
companies, nearly all the assets and liabilities of the Company are monetary. As
a result, interest rates have a greater impact on the Company's performance than
do the effects of general levels of inflation. Interest rates do not necessarily
move in the same direction or to the same extent as the price of goods and
services.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets To Be Disposed Of" ("SFAS No. 121 "). The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Statement establishes accounting standards for, among other things, the
impairment of long-lived assets. The Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
SFAS No. 121 on October 1, 1996. Adoption of SFAS No. 121 did not have a
significant effect on the Company's financial condition or results of
operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting and reporting standards for stock-based employee
compensation awards granted in fiscal years that begin after December 15, 1994.
Examples of such plans are stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Statement defines a fair value based
method of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting. Entities may
elect, however, to remain with previous accounting standards which do not
require the fair value method of accounting. Those entities electing not to
adopt the fair value method of accounting must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting defined
in the Statement were adopted. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized
19
<PAGE> 12
New York Bancorp Inc. and Subsidiary
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued)
- --------------------------------------------------------------------------------
over the service period, which is usually the vesting period. The Company has
adopted SFAS No. 123 effective October 1, 1996, and has elected to remain with
the previous accounting standard which does not require the fair value method of
accounting. Proforma disclosures as if the fair value method were adopted will
be presented in future financial statements. Based on this method of adoption,
SFAS No. 123 will not have a significant effect on the Company's financial
condition or results of operations.
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). The Statement is effective for
transactions occurring after December 31, 1996. The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Those standards are based on
consistent application of a financial - components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes financial assets when control has been surrendered,
and derecognizes liabilities when extinguished. This Statement provides
consistent standards for distinguishing transfers of financial assets that are
sales from transfers that are secured borrowings. Based on its review of the
Statement, management does not believe that adoption of SFAS No. 125 will have a
material effect on the Company.
RECAPITALIZATION OF THE SAIF
On September 30, 1996, Congress passed, and the President signed, legislation
that recapitalized the SAIF. Under the major provisions of the legislation,
savings institutions, such as the Bank, are being assessed a one-time assessment
of 65.7 basis points per $100 of insured SAIF-assessable deposits as of March
31, 1995. Since approximately 80.8% of the Bank's deposits are insured by the
SAIF (the remainder are insured by the Bank Insurance Fund ("BIF")), the Company
recorded a one-time charge of $9.4 million during the fourth quarter of fiscal
year 1996.
As a result, the disparity of insurance premiums between SAIF and BIF members
will be reduced. The FDIC has proposed that beginning January 1, 1997 deposit
insurance premiums for SAIF members will be reduced to the same schedule as BIF
members, ranging from 0 to 27 basis points rather than the previous range of 23
to 31 basis points. In addition, the FDIC has proposed that SAIF deposits will
have their assessment rate for deposit insurance lowered to 18 to 27 basis
points for the quarter ending December 31, 1996, the amount necessary to cover
Financing Corporation ("FICO") obligations. The FDIC has estimated that,
effective January 1, 1997, SAIF deposits will also be assessed 6.5 basis points,
and BIF deposits will be assessed 1.3 basis points, to cover the cost of FICO
obligations, until December 31, 1999. Full pro rata sharing of the FICO payments
between SAIF and BIF members will occur on the earlier of January 1, 2000 or the
date the SAIF and BIF are merged. The legislation specifies that the SAIF and
BIF will be merged on January 1, 1999 provided no savings associations remain as
of that time. As a result of this legislation, the Bank expects to see a
significant decrease in future deposit insurance premiums. However, management
cannot predict the level of FDIC insurance assessments on an on-going basis,
whether the savings association charter will be eliminated, or whether the SAIF
and BIF will eventually be merged.
TAX BAD DEBT RESERVES
Under Section 593 of the Internal Revenue Code, thrift institutions such as
the Bank, which meet certain definitional tests, primarily relating to their
assets and the nature of their business, were permitted to establish a tax
reserve for bad debts and to make annual additions thereto, which additions may,
within specified limitations, be deducted in arriving at their taxable income.
The Bank's deduction with respect to "qualifying loans," which are generally
loans secured by certain interests in real property, were computed using an
amount based on the Bank's actual loss experience (the "Experience Method"), or
a percentage equal to 8% of the Bank's taxable income (the "PTI Method"),
computed without regard to this deduction and with additional modifications and
reduced by the amount of any permitted addition to the non-qualifying reserve.
Similar deductions for additions to the Bank's bad debt reserve are permitted
under the New York State Bank Franchise Tax and the New York City Banking
Corporation Tax; however, for purposes of these taxes, the effective allowable
percentage under the PTI Method is 32% rather than the 8% amount for Federal
purposes.
Under the Small Business Job Protection Act of 1996 (the "1996 Act"), signed
into law in August, 1996, Section 593 of the Code was amended, and the Bank, as
a "large bank" (one with assets having an adjusted basis of more than $500
million), will be unable to make additions to its tax bad debt reserve, but will
be permitted to deduct bad debts only as they occur. Additionally, the law
required institutions to recapture (that is, take into taxable income) the
excess of the balance of its bad debt reserves as of December 31, 1995 over the
balance of such reserves as of December 31, 1987. As a result of its bad debt
reserves at December 31, 1995 equaling its bad debt reserves at December 31,
1987, the Bank will experience no recapture. The New York State tax law has been
amended to prevent a similar recapture provision of the Bank's bad debt reserve,
and to permit continued future use of the bad debt reserve methods, for purposes
of determining the Bank's New York State tax liability. However, no such
amendments have been made to date with respect to the New York City tax law;
therefore, the Company cannot predict whether such changes will be made or as to
the form of any changes. (See note 16 to Consolidated Financial Statements.)
20
<PAGE> 13
New York Bancorp Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- --------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
September 30,
----------------------
1996 1995
---------- --------
<S> <C> <C>
ASSETS
Cash and due from banks............................. $ 13,045 $31,189
Money market investments (note 3)................... 10,700 13,915
Trading account securities.......................... -- 2,003
Investment in debt and equity securities, net:
Held to maturity (estimated market value of
$641 and $21,107 at September 30, 1996
and 1995, respectively) - (notes 4 and 14)....... 643 21,179
Available for sale (note 5)....................... 136,133 46,273
Mortgage-backed securities, net:
Held to maturity (estimated market value of
$534,602 and $637,503 at September 30, 1996
and 1995, respectively) - (notes 6 and 14)....... 550,817 664,726
Available for sale (notes 7, 14 and 21)........... 280,429 206,794
Federal Home Loan Bank stock (note 14).............. 27,938 20,288
Loans receivable, net (notes 8, 9 and 14):
First mortgage loans.............................. 1,603,769 1,389,776
Other loans....................................... 268,779 296,439
---------- ---------
1,872,548 1,686,215
Less allowance for possible loan losses........... (19,386) (21,272)
---------- ---------
Total loans receivable, net...................... 1,853,162 1,664,943
Accrued interest receivable (note 10)............... 21,862 21,723
Premises and equipment, net (note 11)............... 12,927 12,851
Other assets (notes 12 and 16)...................... 33,251 25,708
---------- ---------
Total assets..................................... $2,940,907 $2,731,592
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (note 13)................................ $1,715,959 $1,748,874
Borrowed funds, including securities sold under
agreements to repurchase of $453,698 and $344,860
at September 30, 1996 and 1995, respectively
(note 14)........................................ 1,008,786 767,138
Mortgagors' escrow payments....................... 14,987 16,520
Accrued expenses and other liabilities
(notes 15 and 18)................................ 49,272 42,674
--------- ---------
Total liabilities................................ 2,789,004 2,575,206
---------- ---------
Commitments, contingencies and contracts
(notes 8, 16 and 20)
SHAREHOLDERS' EQUITY (NOTES 16, 17 AND 19):
Preferred stock, $.01 par value, 2,000,000 shares
authorized; none issued.......................... -- --
Common stock, $.01 par value, 30,000,000 shares
authorized; 14,746,850 shares issued at
September 30, 1996 and 1995;
11,098,800 and 12,138,974 shares outstanding
at September 30, 1996 and 1995, respectively.. 147 147
Additional paid-in capital........................ 65,503 63,575
Retained earnings, substantially restricted....... 145,686 125,593
Treasury stock, at cost, 3,648,050 and 2,607,876
shares at September 30, 1996 and 1995, respectively (58,871) (33,740)
Unrealized appreciation (depreciation) on securities
available for sale, net of tax effect............ (562) 811
---------- ----------
Total shareholders' equity....................... 151,903 156,386
---------- ----------
Total liabilities and shareholders' equity....... $2,940,907 $2,731,592
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
21
<PAGE> 14
New York Bancorp Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended September 30,
---------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans:
First mortgage loans................................... $ 118,792 $ 104,042 $ 93,373
Other loans............................................ 24,735 25,916 24,094
---------- ---------- ---------
Total interest and fees on loans...................... 143,527 129,958 117,467
Mortgage-backed securities.............................. 56,921 60,331 52,521
Debt and equity securities - taxable.................... 6,774 4,877 2,976
Money market investments................................ 256 1,080 2,113
Trading account securities.............................. 13 726 453
---------- ---------- ---------
Total interest income................................. 207,491 196,972 175,530
---------- ---------- ---------
INTEREST EXPENSE:
Deposits (notes 13 and 21).............................. 60,470 62,394 56,996
Borrowed funds (notes 14 and 21)........................ 46,276 39,336 22,952
---------- ---------- ---------
Total interest expense................................ 106,746 101,730 79,948
---------- ---------- ---------
Net interest income................................... 100,745 95,242 95,582
Provision for possible loan losses (note 9)............. (1,200) (1,700) (2,650)
---------- ---------- ---------
Net interest income after provision for
possible loan losses............................... 99,545 93,542 92,932
---------- ---------- ---------
NON-INTEREST INCOME:
Loan fees and service charges........................... 2,770 2,566 3,292
Net gain (loss) on the sales of mortgage loans and
securities available for sale (notes 5, 7 and 8) 4,750 (1,088) 214
Other................................................... 7,147 5,134 4,494
---------- ---------- ---------
Total non-interest income............................. 14,667 6,612 8,000
---------- ---------- ---------
NON-INTEREST EXPENSE:
General and administrative:
Compensation and benefits (notes 18 and 19)............ 22,741 21,809 25,197
Occupancy, net (notes 11 and 20)....................... 8,397 8,751 8,346
Advertising and promotion.............................. 2,565 2,565 2,370
Federal deposit insurance premiums..................... 3,759 4,464 4,756
Other.................................................. 10,073 11,379 10,176
---------- ---------- ---------
Total general and administrative...................... 47,535 48,968 50,845
Merger and restructuring (note 2)....................... -- 19,024 --
Real estate operations, net (note 12)................... 463 883 880
SAIF recapitalization (note 13)......................... 9,432 -- --
---------- ---------- ---------
Total non-interest expense............................ 57,430 68,875 51,725
---------- ---------- ---------
Income before income tax expense and
cumulative effect of change in
accounting principle................................ 56,782 31,279 49,207
---------- ---------- ---------
INCOME TAX EXPENSE (NOTE 16):
Federal expense......................................... 16,676 13,460 14,214
State and local expense................................. 8,100 6,257 7,526
---------- ---------- ---------
Total income tax expense.............................. 24,776 19,717 21,740
---------- ---------- ---------
Income before cumulative effect
of change in accounting principle.................... 32,006 11,562 27,467
Cumulative effect of change in accounting
for income taxes........................................ -- -- 5,685
---------- ---------- ---------
Net income............................................ $ 32,006 $ 11,562 $ 33,152
========== ========== =========
EARNINGS PER COMMON SHARE (NOTE 17):
Income before cumulative effect of change in............
accounting principle................................... $ 2.68 $ .87 $ 2.02
Cumulative effect of change in accounting for
income taxes........................................... $ .-- $ .-- $ .42
Net income............................................ $ 2.68 $ .87 $ 2.44
See accompanying notes to consolidated financial statements.
</TABLE>
22
<PAGE> 15
New York Bancorp Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Unrealized
Common Appreciation
Common Stock (Depreciation)
Additional Stock Acquired on Securities
Common Paid-in Retained Treasury Acquired by Available
Stock Capital Earnings Stock by ESOP RRP for Sale Total
------ --------- -------- -------- ------- --------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1993......... $144 $ 53,854 $111,160 $(7,194) $(2,717) $(1,478) $ -- $153,769
Net income for the year ended
September 30, 1994................... -- -- 33,152 -- -- -- -- 33,152
Dividends declared on common stock.... -- -- (5,720) -- -- -- -- (5,720)
Distribution of 10% stock dividend.... 7 12,133 (12,140) -- -- -- -- --
Cash paid in lieu of 221
fractional shares in the aggregate,
resulting from stock dividend........ -- (3) -- -- -- -- -- (3)
Compensation amortized to expense -- 600 -- -- 543 348 -- 1,491
Purchase of 339,280 shares of
treasury stock....................... -- -- -- (4,544) -- -- -- (4,544)
Purchase and retire 283,030 shares.... (4) (3,772) -- -- -- -- -- (3,776)
Exercise of 92,791 shares of
stock options........................ -- -- (924) 1,743 -- -- -- 819
Unrealized appreciation on securities
available for sale at October 1,
1993, net of taxes of $377........... -- -- -- -- -- -- 449 449
Change in unrealized depreciation
on securities available for
sale, net of taxes of $3,428......... -- -- -- -- -- -- (4,346) (4,346)
---- --------- -------- ------- ------- ------- ------------ --------
Balance at September 30, 1994......... 147 62,812 125,528 (9,995) (2,174) (1,130) (3,897) 171,291
Net income for the year
ended September 30, 1995............. -- -- 11,562 -- -- -- -- 11,562
Dividends declared on common stock.... -- -- (9,114) -- -- -- -- (9,114)
Exercise of 385,464 shares of
stock options........................ 3 -- (603) 1,544 -- -- -- 944
Purchase of 1,453,016 shares of
treasury stock....................... -- -- -- (28,784) -- -- -- (28,784)
Purchase and retire 196,643 shares.... (2) (3,710) -- -- -- -- -- (3,712)
Net proceeds from sale of 298,375
shares of treasury stock (note 2).... -- 1,035 -- 3,495 -- -- -- 4,530
ESOP and RRP activity,
including tax benefit (note 2)....... (1) 3,438 -- -- 2,174 1,130 -- 6,741
Hamilton Bancorp's net income
for the three months ended
December 31, 1994 (note 2)........... -- -- (1,780) -- -- -- -- (1,780)
Change in unrealized appreciation
on securities available for sale,
net of taxes of $3,690............... -- -- -- -- -- -- 4,708 4,708
---- --------- -------- ------- ------- ------- ------------ --------
Balance at September 30, 1995......... 147 63,575 125,593 (33,740) -- -- 811 156,386
Net income for the year
ended September 30, 1996............. -- -- 32,006 -- -- -- -- 32,006
Dividends declared on common stock -- -- (9,218) -- -- -- -- (9,218)
Exercise of 174,038 shares of
stock options........................ -- 1,928 (2,695) 3,897 -- -- -- 3,130
Purchase of 1,214,212 shares of
treasury stock....................... -- -- -- (29,028) -- -- -- (29,028)
Unrealized depreciation on securities
transferred from held to maturity to
available for sale, net of taxes
of $97 (notes 4 and 6)............... -- -- -- -- -- -- (126) (126)
Change in unrealized appreciation
(depreciation) on securities available
for sale, net of taxes of $968....... -- -- -- -- -- -- (1,247) (1,247)
---- --------- -------- -------- ------- ------- ------------ --------
Balance at September 30, 1996......... $147 $ 65,503 $145,686 $(58,871) $ -- $ -- $ (562) $151,903
==== ======== ======== ======== ======= ======= ============ ========
See accompanying notes to consolidated financial statements.
</TABLE>
23
<PAGE> 16
New York Bancorp Inc. and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------------
1996 1995 1994
-----------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income before cumulative effect of change in
accounting principle............................... $ 32,006 $ 11,562 $ 27,467
Cumulative effect of change in accounting
for income taxes................................... -- -- 5,685
---------- ---------- ---------
Net income.......................................... 32,006 11,562 33,152
---------- ---------- ---------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization...................... 2,153 2,064 1,817
Amortization and accretion of deferred fees,
discounts and premiums............................ 1,823 1,538 8,414
Provision for possible loan losses................. 1,200 1,700 2,650
Provision for losses on foreclosed real estate..... 346 361 --
Net (gain) loss on sale of foreclosed real estate.. 147 82 (190)
Net (gain) loss on sale of mortgage loans and
securities available for sale..................... (4,750) 1,088 (214)
SAIF recapitalization.............................. 9,432 -- --
Deferred income taxes.............................. (3,520) (1,965) (6,832)
Amortization of ESOP and RRP compensation
expense........................................... -- 464 1,491
Termination of ESOP and RRP........................ -- 4,992 --
Net (increase) decrease in trading account......... 2,003 10,936 (452)
Increase in accrued interest receivable............ (139) (2,579) (5,446)
Increase in accrued interest payable............... 1,476 838 1,161
Increase (decrease) in accrued expenses and
other liabilities................................. (6,290) 3,779 (1,981)
(Increase) decrease in other assets................ 1,806 2,812 (491)
---------- --------- ---------
Total adjustments.................................. 5,687 26,110 (73)
---------- --------- ---------
Net cash provided by operating activities........... 37,693 37,672 33,079
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Principal payments on loans......................... 296,727 201,852 211,300
Principal payments on mortgage-backed securities.... 102,091 80,169 350,694
Principal payments, maturities and calls
on debt and equity securities...................... 56,938 30,987 1,477
Proceeds on sales of loans.......................... 76,349 38,799 109,063
Proceeds on sales of mortgage-backed securities
available for sale................................. 83,766 77,279 39,058
Proceeds on sales of debt and equity securities
available for sale................................. 17,083 7,737 181
Investment in first mortgage loans.................. (571,989) (432,050) (341,555)
Investment in other loans........................... (59,045) (71,057) (49,798)
Investment in mortgage-backed securities
available for sale................................. (82,445) (45,789) (80,978)
Investment in mortgage-backed securities
held to maturity................................... -- -- (589,083)
Investment in debt and equity securities
available for sale................................. (142,048) (52,221) (135)
Investment in debt securities held to maturity...... -- -- (49,985)
Investment in interest rate collar and floor
agreements........................................ (915) (2,265) --
Proceeds on sales of foreclosed real estate......... 2,856 8,035 3,896
Proceeds from sale of interest rate floor and interest
rate swap agreements............................... 1,512 10,835 --
Purchases of Federal Home Loan Bank stock, net...... (7,650) (2,879) 4,325
Net purchases of premises and equipment............. (2,229) (1,374) (2,466)
---------- --------- ----------
Net cash used in investing activities............... (228,999) (151,942) (394,006)
---------- --------- ----------
(Continued)
</TABLE>
24
<PAGE> 17
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1996 1995 1994
-----------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in non-interest bearing
demand, savings, money market,
and NOW accounts.................................... $ 14,341 $ (187,214) $ (56,591)
Net increase (decrease) in time deposits (47,256) 152,542 90,003
Net increase (decrease) in borrowings with original
maturities of three months or less.................. (93,936) 248,715 160,304
Proceeds from long-term borrowings................... 691,459 10,000 200,000
Repayment of long-term borrowings.................... (355,875) (66,517) (75,100)
Purchase of common stock for treasury
or retirement....................................... (29,028) (32,496) (8,320)
Payment of common stock dividends.................... (9,427) (8,156) (5,582)
Exercise of stock options............................ 1,202 872 819
Proceeds from sale of treasury stock................. -- 4,530 --
Cash paid in lieu of fractional shares
resulting from stock dividend....................... -- -- (3)
Increase (decrease) in mortgagors' escrow accounts (1,533) 1,004 (810)
------------ ---------- ------------
Net cash provided by financing activities............ 169,947 123,280 304,720
------------ ---------- ------------
Net increase (decrease) in cash and cash equivalents. (21,359) 9,010 (56,207)
Hamilton's net cash flows for the three months ended
December 31, 1994 (note 2).......................... -- (5,771) --
Cash and cash equivalents at beginning of year....... 45,104 41,865 98,072
------------ ------------ ------------
Cash and cash equivalents at end of year............. $ 23,745 $ 45,104 $ 41,865
============ ============ ============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid........................................ $ 108,096 $ 99,797 $ 78,908
========= ========= =========
Income taxes paid.................................... $ 26,328 $ 20,599 $ 23,992
========= ========= =========
Noncash Investing and Financing Activities:
Transfer of loans to real estate owned.............. $ 4,462 $ 4,455 $ 5,784
========= ======== =========
Transfer of mortgage-backed securities available
for sale to mortgage-backed securities
held to maturity (note 6).......................... $ 15,421 $ -- $ 71,492
========= ======== =========
Transfer of mortgage-backed securities held
to maturity to mortgage-backed securities
available for sale (notes 2 and 6)................. $ 84,109 $ 69,817 $ 78,067
========= ======== =========
Securitization and transfer of loans to
mortgage-backed securities available for sale...... $ 65,364 $ 11,418 $ 18,817
========= ======== =========
Transfer of debt securities held
to maturity to debt and equity securities
available for sale (notes 2 and 4)................. $ 15,000 $ 7,465 $ --
========= ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE> 18
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
New York Bancorp Inc. ("New York Bancorp" or the "Holding Company") is a savings
and loan holding company under the savings and loan holding company act, as
amended ("SLHCA"). The Holding Company, through its savings bank subsidiary,
Home Federal Savings Bank (the "Bank") operates as a community savings bank. On
January 27, 1995, Hamilton Bancorp, Inc. ("Hamilton"), the parent company of
Hamilton Federal Savings F.A. ("Hamilton Savings"), was merged with and into New
York Bancorp (see note 2) and Hamilton Savings was merged into the Bank. The
merger was accounted for as a pooling of interests and, accordingly, all prior
periods include the consolidated accounts of Hamilton. The more significant
accounting and reporting policies are summarized below.
(A) PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements are prepared on the accrual
basis of accounting and include the accounts of New York Bancorp and its wholly
owned subsidiary, Home Federal Savings Bank (collectively the "Company"). All
material intercompany transactions and balances have been eliminated.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. The consolidated financial statements for fiscal year 1995 reflect
Hamilton's year-end conformed with that of the Company. The consolidated
financial statements for fiscal year 1994 reflect the combination of the Company
at and for the year ended September 30 with Hamilton at or for its year ended
December 31.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the consolidated statements of condition and
income for the years presented. Estimates that are susceptible to change
include, among other things, the determination of the allowance for possible
loan losses and the valuation of real estate acquired in connection with
foreclosures. Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks and money market investments.
(B) MONEY MARKET INVESTMENTS
Money market investments represent short-term instruments (generally ninety days
or less), which are generally held to maturity. These investments are carried at
cost or, if applicable, at cost adjusted for accretion of discount or
amortization of premium using a method which approximates the level-yield method
over the period to maturity. Carrying values of these investments approximate
current market values.
(C) TRADING ACCOUNT SECURITIES
Trading account securities are carried at estimated market value. Net realized
and unrealized gains (losses) are included in non-interest income. Interest on
trading account securities is included in interest income.
(D) DEBT AND EQUITY AND MORTGAGE-BACKED SECURITIES
Debt and mortgage-backed securities which the Company has the positive intent
and ability to hold until maturity are carried at cost, adjusted for
amortization of premiums and accretion of discounts on a level yield method.
Debt and mortgage-backed securities to be held for indefinite periods of time
and not intended to be held to maturity and marketable equity securities are
classified as available for sale securities and are recorded at fair value, with
unrealized appreciation and depreciation, net of tax, reported as a separate
component of shareholders' equity.
Gains and losses on the sale of securities are determined using the specific
identification method.
(E) LOANS RECEIVABLE
Loans are carried at amortized cost. Interest on loans is recognized on the
accrual basis. The accrual of income on loans is discontinued when certain
factors, such as contractual delinquency of ninety days or more, indicate
reasonable doubt as to the timely collectibility of such income. Interest
previously recognized on past due loans is charged to the allowance for loan
losses when in the opinion of management such interest is deemed to be
uncollectible. Loans on which the accrual of income has been discontinued are
designated as nonaccrual loans and income is recognized subsequently only in the
period collected.
Loan origination fees, less certain direct origination costs, are deferred and
recognized as an adjustment of the loan's yield over the life of the loan by the
interest method, which results in a constant rate of return. When loans are
sold, any remaining unaccreted deferred fees are recognized as income at the
time of sale.
Discounts (premiums) on mortgage loans purchased are deferred and accreted
(amortized) to income over the life of the loans using the level-yield method.
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS No.
114") and Statement of Financial Accounting Standards No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures" ("SFAS
No. 118") which amended SFAS No. 114 (collectively the "Statements"). Under the
Statements, a loan is considered impaired when it is probable that the Company,
based upon current information, will not collect all amounts due, both principal
and interest, according to the contractual terms of the loan agreement. Certain
loans are exempt from the provisions of the Statements, including large groups
of smaller-balance homogenous loans that are collectively evaluated for
impairment which, for the Company, include one-to-four family first mortgage
26
<PAGE> 19
loans and consumer and commercial loans whose principal balance is less than
$500,000, other than those modified in a troubled debt restructuring (TDR). A
loan is considered a TDR by the Company when modifications of a concessionary
nature are made to the loan's original contractual terms due to the borrower's
financial difficulties. The Statements require that impaired loans that are
within the scope of these Statements be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent.
Loans reviewed for impairment by the Company are limited to one-to-four family
first mortgage loans and consumer and commercial loans in excess of $500,000,
loans modified in a TDR, and commercial real estate loans. At September 30,
1996, the measurement value of the Company's impaired loans was based upon the
estimated market value of the underlying collateral. The Company's impaired loan
identification and measurement processes are conducted in conjunction with the
Company's review of classified assets and adequacy of its allowance for possible
loan losses. Specific factors utilized in the impaired loan identification
process include, but are not limited to, delinquency status, loan-to-value
ratio, and debt coverage. Cash receipts on an impaired loan are applied to
principal and interest in accordance with the contractual terms of the loan
unless full payment of principal is not expected, in which case the full payment
is applied as a reduction of the carrying value of the loan. If the estimated
market value of the underlying collateral, including guarantees, is less than
the principal balance of an impaired loan, a loss is either charged to the
allowance for possible loan losses or an impairment reserve is allocated to
reduce the book value of the loan to the estimated market value of the
underlying collateral.
Interest income on impaired loans is recorded on a cash basis, except for a TDR
which has performed under its restructured terms for at least six months, at
which time the accrual basis is utilized.
The adoption of SFAS Nos. 114 and 118 did not have a significant effect on the
Company's financial condition or results of operations.
Provisions for possible loan losses are charged to operations based on
management's periodic review and evaluation of the loan portfolio in relation to
the Company's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to repay,
overall portfolio quality, and underlying collateral values and cash flow
values. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Bank's allowance for possible loan
losses. Such agencies could require the Bank to recognize additions to the
allowance based on their judgments about information available to them at the
time of their examination. Management believes that the allowance for possible
loan losses is adequate.
(F) LOAN SERVICING
Fees earned for servicing loans owned by investors are reported as income when
the related mortgage loan payments are collected. Loan servicing costs are
charged to expense as incurred.
On October 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 122, "Accounting for Mortgage Servicing Rights" ("SFAS No. 122").
The Statement establishes accounting standards for mortgage servicing rights,
which are the contractual right to service loans owned by others, typically for
a fee. Prior to this Statement, only purchased mortgage servicing rights were
capitalized as an asset. SFAS No. 122 requires originated mortgage servicing
rights ("OMSR") to be capitalized as an asset. OMSR represents mortgage
servicing rights acquired when an institution originates and subsequently sells
or securitizes mortgage loans but retains the servicing rights. The Statement
also requires all capitalized mortgage servicing rights ("MSR") to be evaluated
for impairment based on their value. In evaluating for impairment, the Company
stratifies its MSR by adjustable or fixed rate loans, by interest rate, and by
year of origination. The Company uses current market assumptions for prepayment
speeds and discounts, and a 4.5% annual inflation factor for servicing costs.
The adoption of SFAS No. 122 did not have a significant effect on the Company's
operating results or financial position.
The Company amortizes its MSR in proportion to, and over the period of,
estimated servicing income.
(G) PREMISES AND EQUIPMENT
Land is carried at cost. Buildings and building improvements, leasehold
improvements and furniture, fixtures and equipment are carried at cost, less
accumulated depreciation and amortization. Buildings, building improvements and
furniture, fixtures and equipment are depreciated using the straight-line method
over the estimated useful lives of the respective assets. Leasehold improvements
are amortized using the straight-line method over the terms of the related
leases.
(H) REAL ESTATE OWNED
Real estate owned consists of real estate acquired in satisfaction of loans, and
is carried at the lower of cost or estimated fair value less estimated selling
costs. When a property is acquired in satisfaction of a loan, the excess of the
carrying amount over the fair value, if any, is charged to the allowance for
loan losses. Subsequent to acquisition, an allowance for real estate owned is
established to maintain these properties at the lower of cost or fair value less
estimated costs to sell. Real estate owned is shown net of the allowance.
The allowance is established through charges to income which are included in
real estate operations, net. Operating results of real estate owned, including
rental income, operating expenses, and gains and losses realized from the sales
of properties owned, are also recorded in real estate operations, net.
27
<PAGE> 20
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
(I) REVERSE REPURCHASE AGREEMENTS
Reverse repurchase agreements are accounted for as financing transactions.
Accordingly, the collateral securities continue to be carried as assets and a
borrowing liability is established for the transaction proceeds.
(J) INCOME TAXES
The Holding Company and its subsidiary file consolidated income tax returns. The
subsidiary pays to or receives from the Holding Company, as appropriate, an
allocated portion of the consolidated income taxes or benefits based upon the
effective current income tax rate.
Deferred taxes are provided for temporary differences between the tax basis and
financial statement carrying amounts of existing assets and liabilities, which
is measured by applying enacted tax laws and rates. A valuation allowance is
provided for deferred tax assets which are deemed not likely to be realized.
(K) RETIREMENT PLANS
The Company has a pension plan covering substantially all employees who have
attained minimum service requirements. The Company's policy is to contribute
annually an amount sufficient to meet Employee Retirement Income Security Act
("ERISA") funding standards.
Postretirement and postemployment benefits are recorded on an accrual basis with
an annual provision that recognizes the expense over the service life of the
employee, determined on an actuarial basis.
(L) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
Interest rate swaps, caps, floors, collars, options and financial futures
agreements are periodically used to manage the Company's interest rate risk.
Generally, the net settlements on such transactions used as hedges of
non-trading assets or liabilities are accrued as an adjustment to interest
income or interest expense over the lives of the agreements. Further, gains or
losses on terminated contracts used as hedges of non-trading assets or
liabilities are generally deferred and amortized over the life of the original
hedge. Contracts which are not matched against specific assets, liabilities, or
the repricing of interest rate floor arrangements or do not meet correlation
criteria are accounted for at market value with the resulting gain or loss
recognized in operations.
(M) EARNINGS PER COMMON SHARE
Earnings per common share is computed by dividing net income by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The weighted average number of shares of common stock and common
stock equivalents used in the computation of earnings per common share for the
years ended September 30, 1996, 1995 and 1994 was 11,944,393, 13,327,915 and
13,609,867 respectively.
(2) BUSINESS COMBINATION
On January 27, 1995, New York Bancorp acquired Hamilton in a transaction
accounted for under the pooling of interests method of accounting. Pursuant to
the merger agreement, New York Bancorp issued 1.705 shares of common stock for
each outstanding share of Hamilton common stock and reserved for issuance
182,824 shares of common stock for Hamilton's stock options outstanding as of
the merger consummation date. In addition, 306,392 shares of common stock were
issued to holders of Hamilton stock options who received stock for the options
calculated in accordance with the formula contained in the merger agreement. As
a condition to the merger, Hamilton, immediately prior to the consummation of
the merger, reissued in an underwritten offering 175,000 shares of Hamilton
treasury stock amounting to net proceeds of $4,530,000, after underwriting
commission and offering costs. As a result of the above, 6,224,921 shares of
common stock were issued in connection with the merger.
The Company reports its financial results on a fiscal year basis ending
September 30, whereas Hamilton had reported its financial results on a calendar
year basis. Accordingly, the accompanying Consolidated Statements of Income,
Changes in Shareholders' Equity and Cash Flows for the year ended September 30,
1994 includes the operations of Hamilton for its year ended December 31, 1994.
The consolidated financial statements for 1995 reflect Hamilton's year-end
conformed with that of the Company. The effect on the accompanying consolidated
financial statements arising from the inclusion of the $1,780,000 of net income
of Hamilton for the three months ended December 31, 1994 in the Company's
results of operations for both fiscal year 1995 and 1994 is presented in the
accompanying Consolidated Statement of Changes in Shareholders' Equity as an
adjustment for change in fiscal year of Hamilton. Additionally, the accompanying
Consolidated Statements of Income for both fiscal year 1995 and 1994 each
include $7,948,000 and $1,780,000 representing net interest income after
provision for possible loan losses and net income, respectively, reflecting
those results of Hamilton's operations for the three months ended December 31,
1994.
The following is a summary of Hamilton Bancorp's cash flows for the three months
ended December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Net cash provided by operating activities..................... $ 678
Net cash used by investing activities......................... (4,389)
Net cash provided by financing activities..................... 9,482
-------
Net increase in cash and cash equivalents..................... $ 5,771
=======
</TABLE>
In connection with the merger, during fiscal year 1995 the Company recorded
certain non-recurring merger-related and restructuring expenses of approximately
$19.0 million and reclassified $77.3 million of Hamilton's held to maturity
securities to available for sale securities. Of these securities, $66.8 million
were subsequently sold, resulting in a $1.2 million loss. The non-recurring
merger-related and restructuring
28
<PAGE> 21
charges reflected $4.3 million in investment banking, legal and accounting fees,
$6.3 million in severance costs, $5.1 million related to the termination of
Hamilton's ESOP and the accelerated vesting of shares of the RRP pursuant to the
requirements of such plans upon a change in control, and $3.3 million in certain
back-office and facilities consolidation costs and signage costs.
The following table summarizes the activity with respect to the merger-related
and restructuring expenses, on a pre-tax basis:
<TABLE>
<CAPTION>
Merger-Related
and
Restructuring
Accrual
==============
(In Thousands)
<S> <C>
Balance at December 31, 1994.................................. $ --
Provision charged against operations.......................... 19,024
Cash outlays.................................................. (12,287)
Non-cash items................................................ (6,395)
---------
Balance at September 30, 1995................................. 342
Cash outlays.................................................. (342)
---------
Balance at September 30, 1996................................. $ --
=========
</TABLE>
(3) MONEY MARKET INVESTMENTS
Money market investments are summarized as follows:
<TABLE>
<CAPTION>
September 30,
--------------------------
1996 1995
========== =========
(In Thousands)
<S> <C> <C>
Securities purchased under agreements to resell.......... $ 10,700 $ 8,400
FHLB overnight deposits.................................. -- 4,997
Federal funds sold....................................... -- 500
Other.................................................... -- 18
--------- --------
$ 10,700 $ 13,915
========= ========
</TABLE>
During the years ended September 30, 1996, 1995 and 1994, the Company entered
into purchases of securities under agreements to resell. The amounts advanced
under these agreements represented short-term loans and are reflected as money
market investments in the consolidated statements of financial condition.
Securities representing collateral for these transactions were delivered by
appropriate entry into the Company's account maintained at a third-party
custodian. At September 30, 1996 and 1995, these agreements matured within
thirty days. Securities purchased under agreements to resell averaged $.3
million, $1.2 million and $16.2 million for the years ended September 30, 1996,
1995 and 1994, respectively. The maximum amount of such agreements outstanding
at any month-end during the years ended September 30, 1996, 1995 and 1994 was
$11.4 million, $8.4 million and $30.0 million, respectively.
(4) DEBT SECURITIES HELD TO MATURITY
The amortized cost and estimated market values of debt securities held to
maturity are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
BONDS AND NOTES - corporate notes......... $ 643 $ -- $ (2) $ 641
========= ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ------------ --------- ----------
(In Thousands)
NOTES:
<S> <C> <C> <C> <C>
BONDS AND NOTES:
U.S. Government and Agency Obligations.. $20,000 $ -- $ (75) $19,925
Corporate notes......................... 1,179 5 (2) 1,182
------- ------- ------- -------
Total................................... $21,179 $ 5 $ (77) $21,107
======= ======= ======= =======
</TABLE>
The amortized cost and contractual maturity of debt securities at September 30,
1996 and 1995 are shown below. Expected maturities may differ from contractual
maturities because borrowers have the right to call or prepay obligations
without call or prepayment penalties.
<TABLE>
<CAPTION>
September 30,
--------------------------------------------------
1996 1995
----------------------- ---------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Due in one year or less.................. $ -- $ -- $ 502 $ 507
Due after one year through five years.... -- -- 20,000 19,925
Due after five years through ten years... -- -- -- --
Due after ten years...................... 643 641 677 675
--------- --------- --------- ---------
Total.................................... $ 643 $ 641 $ 21,179 $ 21,107
========= ========= ========= =========
</TABLE>
There were no sales of debt securities held to maturity during the years ended
September 30, 1996, 1995 and 1994. (See note 2 regarding the transfer of
securities in connection with the Hamilton merger.)
As permitted under guidance issued by the Financial Accounting Standards Board
in November 1995, during the quarter ended December 31, 1995, the Company
transferred $15.0 million of its debt securities, previously classified as held
to maturity, to the available for sale classification.
29
<PAGE> 22
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
(5) DEBT AND EQUITY SECURITIES AVAILABLE FOR SALE
The amortized cost and estimated market values of debt and equity securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
========= ========== ========== =========
(In Thousands)
<S> <C> <C> <C> <C>
EQUITY SECURITIES:
Common stocks........................... $ 5,326 $ -- $ (508) $ 4,818
Stock in FNMA........................... 2 40 -- 42
--------- ---------- ---------- ---------
5,328 40 (508) 4,860
--------- ---------- ---------- ---------
BONDS AND NOTES:
U.S. Government and Agency obligations 131,245 -- (1,007) 130,238
Other.................................. 1,028 7 -- 1,035
--------- ---------- ---------- ---------
132,273 7 (1,007) 131,273
--------- ---------- ---------- ---------
$ 137,601 $ 47 $ (1,515) $ 136,133
========= ========== ========== =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
=========== ========== ========== ==========
(In Thousands)
<S> <C> <C> <C> <C>
EQUITY SECURITIES:
Common stocks............................. $ 4,082 $ 407 $ -- $ 4,489
Stock in FNMA............................. 2 29 -- 31
--------- -------- -------- --------
4,084 436 -- 4,520
BONDS AND NOTES -
U.S. Government and Agency obligations... 41,740 13 -- 41,753
--------- -------- -------- --------
$ 45,824 $ 449 $ -- $ 46,273
========= ======== ======== ========
</TABLE>
Gains and losses were realized on sales of debt and equity securities available
for sale as follows:
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------
1996 1995 1994
-------- ---------- ---------
(In Thousands)
<S> <C> <C> <C>
Gross gains............................................... $ 3,143 $ 304 $ --
Gross losses.............................................. (2) (168) (3)
------ --------- --------
Net gains (losses)........................................ $ 3,141 $ 136 $ (3)
======= ========= ========
</TABLE>
(6) MORTGAGE-BACKED SECURITIES HELD TO MATURITY
The amortized cost and the estimated market values of mortgage-backed securities
held to maturity are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC................................ $ 14,710 $ -- $ (59) $ 14,651
FNMA................................. 6,333 -- (129) 6,204
GNMA................................. 1,409 59 -- 1,468
Private-issue pass-through........... 1,264 25 -- 1,289
REMIC & CMO.......................... 527,101 -- (16,111) 510,990
-------- ---------- ---------- --------
Total................................ $550,817 $ 84 $ (16,299) $534,602
======== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
-----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC.............................. $ 21,858 $ 100 $ (137) $ 21,821
FNMA............................... 35,662 20 (618) 35,064
REMIC & CMO........................ 607,206 532 (27,120) 580,618
--------- ---------- --------- --------
Total.............................. $ 664,726 $ 652 $ (27,875) $637,503
========= ========== ========= ========
</TABLE>
The amortized cost and estimated market values of mortgage-backed securities
held to maturity, all of which have prepayment provisions, are distributed to a
maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
<TABLE>
<CAPTION>
September 30,
----------------------------
1996
----------------------------
Estimated
Amortized Market
Losses Value
------------ ---------
(In Thousands)
<S> <C> <C>
Due in one year or less..................................... $ 24,919 $ 24,735
Due after one year through five years....................... 236,722 233,632
Due after five years through ten years...................... 248,864 238,583
Due after ten years......................................... 40,312 37,652
--------- --------
$ 550,817 $534,602
========= ========
</TABLE>
There were no sales of mortgage-backed securities held to maturity during the
years ended September 30, 1996, 1995 and 1994. (See note 2 regarding the
transfer of securities in connection with the Hamilton merger.)
30
<PAGE> 23
In connection with the adoption of SFAS No. 115, effective October 1, 1993,
mortgage-backed securities previously classified as held for sale, and carried
at the lower of cost or market, were classified as available for sale. The
carrying value of these mortgage-backed securities was adjusted to their market
value, which resulted in increasing the carrying value by $826,000, and
increasing shareholders' equity by $449,000, which was net of taxes of $377,000.
In addition, the Bank reclassified $71.5 million of mortgage-backed securities
available for sale to mortgage-backed securities held to maturity, and
reclassified $78.1 million of mortgage-backed securities held to maturity to
mortgage-backed securities available for sale. At the time of the
reclassifications, the carrying value of such mortgage-backed securities
approximated market value.
As permitted under guidance issued by the Financial Accounting Standards Board
in November 1995, during the quarter ended December 31, 1995, the Company
transferred $84.1 million of its mortgage-backed securities previously
classified as held to maturity to the available for sale classification.
Additionally, mortgage-backed securities with a carrying value and market value
of approximately $15.4 million, previously classified as available for sale,
were transferred to the held to maturity portfolio.
At September 30, 1996 and 1995, $10,241,000 and $17,568,000, respectively, of
the mortgage-backed securities held to maturity portfolio consists of securities
with underlying adjustable rate loans. Such securities had an estimated market
value of $10,077,000 and $17,474,000, respectively.
The privately-issued REMICs and CMOs and privately-issued pass-through
mortgage-backed securities contained in the Bank's held to maturity and
available for sale portfolios have generally been underwritten by large
investment banking firms with the timely payment of principal and interest on
these securities supported (credit enhanced) in varying degrees by either
insurance issued by a financial guarantee insurer, letters of credit or
subordination techniques. Substantially all such securities are rated AAA by one
or more of the nationally recognized securities rating agencies. These
securities are subject to certain credit-related risks normally not associated
with U.S. Government Agency mortgage-backed securities. Among such risks is the
limited loss protection generally provided by the various forms of credit
enhancements as losses in excess of certain levels are not protected.
Furthermore, the credit enhancement itself is subject to the creditworthiness of
the enhancer. Thus, in the event a credit enhancer does not fulfill its
obligations, the mortgage-backed securities holder could be subject to risk of
loss similar to a purchaser of a whole loan pool. Management believes that the
credit enhancements are adequate to protect the Company from losses, thus the
Company has not provided an allowance for losses on its privately issued
mortgage-backed securities.
(7) MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
The amortized cost and the estimated market value of mortgage-backed securities
available for sale are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1996
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC.............................. $ 59,872 $ 491 $ (518) $ 59,845
FNMA............................... 47,596 313 -- 47,909
GNMA............................... 7,336 355 -- 7,691
REMIC and CMO...................... 139,262 261 (626) 138,897
Private-issue pass-through......... 25,886 201 -- 26,087
--------- --------- ---------- ---------
Total.............................. $ 279,952 $ 1,621 $ (1,144) $ 280,429
========= ========= ========== =========
</TABLE>
<TABLE>
<CAPTION>
September 30, 1995
----------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
FHLMC.............................. $ 72,968 $ 1,139 $ (695) $ 73,412
FNMA............................... 35,191 901 -- 36,092
GNMA............................... 10,578 486 (7) 11,057
REMIC and CMO...................... 56,676 82 (999) 55,759
Private-issue pass-through......... 30,383 162 (71) 30,474
--------- ---------- --------- ---------
Total.............................. $ 205,796 $ 2,770 $ (1,772) $ 206,794
========= ========== ========= =========
</TABLE>
The amortized cost and estimated market values of mortgage-backed securities
available for sale, all of which have prepayment provisions, are distributed to
a maturity category based on the estimated average life as shown below. These
principal prepayments are not scheduled over the life of the investment, but are
reflected as adjustments to the final maturity distribution.
<TABLE>
<CAPTION>
September 30, 1996
----------------------------
Gross Estimated
Amortized Market
Losses Value
--------- ---------
(In Thousands)
<S> <C> <C>
Due in one year or less................................... $ 27,038 $ 26,980
Due after one year through five years..................... 168,880 169,088
Due after five years through ten years.................... 77,726 77,736
Due after ten years....................................... 6,308 6,625
--------- --------
$ 279,952 $ 280,429
========= =========
</TABLE>
Gains and losses were realized on sales of mortgage-backed securities available
for sale as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------
1996 1995 1994
-------- --------- --------
(In Thousands)
<S> <C> <C> <C>
Gross gains............................................. $ 1,205 $ 60 $ 608
Gross losses............................................ -- (1,044) (3)
-------- -------- --------
Net gains (losses)...................................... $ 1,205 $ (984) $ 605
======== ========= ========
</TABLE>
31
<PAGE> 24
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
(8) LOANS RECEIVABLE
Loans receivable are summarized as follows (in thousands):
<TABLE>
<CAPTION>
September 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
FIRST MORTGAGE LOANS:
One-to-four family conventional residential, including loans
with adjustable rates of $843,860 and $632,036
in 1996 and 1995, respectively....................................... $1,029,636 $ 906,436
Multifamily residential............................................... 171,099 101,065
Commercial real estate................................................ 383,181 355,507
Partially guaranteed by Veterans Administration or insured by
the Federal Housing Administration................................... 14,836 18,812
Participation in loans fully guaranteed by the Agency for
International Development............................................ 26 30
Construction loans, net of undisbursed portion of
approximately $5,470 and $4,025 in 1996 and 1995,
respectively........................................................ 4,369 8,902
Reverse annuity loans, net of undisbursed portion of
approximately $4,416 and $2,734 in 1996
and 1995, respectively............................................... 2,265 2,251
---------- ----------
1,605,412 1,393,003
Unamortized purchase accounting premiums.............................. 1,645 2,426
Unearned purchase accounting discounts................................ (1,993) (2,757)
Unamortized premiums.................................................. 3,677 1,433
Unearned discounts.................................................... (27) (42)
Deferred loan fees.................................................... (4,945) (4,287)
---------- ----------
1,603,769 1,389,776
---------- ----------
OTHER LOANS:
Consumer loans........................................................ 9,227 8,580
Cooperative residential loans......................................... 123,034 141,902
Home improvement loans................................................ 1,035 1,526
Guaranteed student loans ............................................. 51,151 56,673
Commercial business loans............................................. 12,351 11,214
Loans secured by deposit accounts..................................... 8,078 7,917
Second mortgage loans................................................. 2,211 2,147
Home equity loans, net of unused lines of credit of
approximately $9,462 and $12,312 in
1996 and 1995, respectively.......................................... 44,277 46,845
Purchased auto leasing................................................ 18,702 21,063
---------- ----------
270,066 297,867
Unamortized purchase accounting premiums.............................. 52 72
Unearned purchase accounting discounts................................ (52) (70)
Unamortized premiums.................................................. 319 423
Unearned discounts.................................................... (1,391) (1,621)
Deferred loan fees.................................................... (215) (232)
---------- ----------
268,779 296,439
---------- ----------
Less allowance for possible loan losses................................. (19,386) (21,272)
---------- ----------
$1,853,162 $1,664,943
========== ==========
</TABLE>
The yield on the average investment in first mortgage loans was 8.07%, 8.28% and
8.42% for the years ended September 30, 1996, 1995 and 1994, respectively.
At September 30, 1996 and 1995, the Bank had commitments of $80,950,000 and
$61,369,000, respectively, to originate first mortgage, cooperative residential
and home equity loans. Such commitments generally have fixed expiration dates
and may require payment of a fee. Since many of the commitments may expire
without being used, the total commitment amounts do not necessarily represent
future cash requirements. Of the $80,950,000 commitments outstanding at
September 30, 1996, $16,258,000 represent fixed rate loans with interest rates
ranging from 5.25% to 10.25% and $64,692,000 represent adjustable rate loans.
At September 30, 1996 and 1995, the Company had commitments of $6,016,000 and
$5,414,000, respectively, to sell qualified fixed rate first mortgage loans. The
commitment prices approximated the carrying value of the loans.
During the years ended September 30, 1996, 1995 and 1994, the Company recognized
net gains (losses) of $.4 million, $(.2) million and $(.4) million,
respectively, on sales of newly originated first mortgage loans.
Substantially all of the Bank's business activity is through originations of
loans secured by real estate with customers located in the New York metropolitan
area. The risk inherent in this portfolio is dependent not only upon regional
and general economic stability which affects property values, but also financial
well-being and creditworthiness of the borrowers. In order to minimize the
credit risk related to this concentration, the Company utilizes conservative
underwriting standards as well as diversifying the type and locations of real
estate projects underwritten in the area.
32
<PAGE> 25
(9) ALLOWANCE FOR POSSIBLE LOAN LOSSES
Activity in the allowance for possible loan losses is summarized as follows:
<TABLE>
<CAPTION>
As of and For the
Year Ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Allowance for possible loan losses,
beginning of year......................... $ 21,272 $ 25,705 $ 26,828
Charge-offs:
Commercial real estate................... (974) (2,889) (879)
Residential real estate.................. (730) (1,422) (1,572)
Multifamily residential.................. -- (546) (853)
Other loans.............................. (1,441) (1,442) (901)
-------- -------- --------
Total charge-offs...................... (3,145) (6,299) (4,205)
-------- -------- --------
Less recoveries:
Commercial real estate................. -- -- 349
Residential real estate................ -- 4 47
Other loans............................ 59 75 36
-------- -------- --------
Total recoveries...................... 59 79 432
-------- -------- --------
Net charge-offs..................... (3,086) (6,220) (3,773)
Hamilton's net activity for the quarter
ended December 31, 1994.................... -- 87 --
Addition to allowance, charged to expense... 1,200 1,700 2,650
-------- -------- --------
Allowance at end of year.................... $ 19,386 $ 21,272 $ 25,705
======== ======== ========
</TABLE>
The following table sets forth the Bank's nonaccrual loans at the dates
indicated:
<TABLE>
<CAPTION>
September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
First mortgage loans:
One-to-four family conventional residential $ 12,092 $ 13,391 $ 14,642
Multifamily residential................... 155 131 1,966
Commercial real estate.................... 11,758 14,316 18,208
-------- -------- --------
24,005 27,838 34,816
Other loans - cooperative residential loans. 1,547 2,534 1,717
-------- -------- --------
Total nonaccrual loans...................... $ 25,552 $ 30,372 $ 36,533
======== ======== ========
</TABLE>
Additionally, at September 30, 1996, 1995 and 1994 the Bank had $4.4 million,
$5.0 million and $4.0 million, respectively, of consumer and other loans which
are past due 90 days and still accruing interest at the dates indicated. Of the
$4.4 million at September 30, 1996, $3.5 million represents loans guaranteed by
the United States Department of Education through the New York Higher Education
Services Corporation.
The amount of interest income on nonaccrual loans that would have been recorded
had these loans been current in accordance with their original terms, was
$2,654,000, $3,097,000 and $2,972,000 for the years ended September 30, 1996,
1995 and 1994, respectively. The amount of interest income that was recorded on
these loans was $924,000, $1,083,000 and $441,000 for the years ended September
30, 1996, 1995 and 1994, respectively.
At September 30, 1996, 1995 and 1994 the Bank had $5.8 million, $9.1 million and
$9.5 million, respectively, in loans whose terms had been modified in trouble
debt restructurings. The amount of interest income that would have been
recognized for the years ended September 30, 1996, 1995 and 1994 had these loans
remained current in accordance with their original terms was $598,000, $952,000
and $968,000, respectively. The amount of interest income that was recorded on
these loans was $473,000, $725,000 and $740,000 for the years ended September
30, 1996, 1995 and 1994, respectively.
At September 30, 1996, the Bank's recorded investment in impaired loans was
$11.9 million. Due to charge-offs, or the crediting of interest payments to
principal, the loans do not have an impairment reserve at September 30, 1996.
Interest income recognized on impaired loans, which was not materially different
from cash-basis interest income, amounted to approximately $.4 million for the
year ended September 30, 1996. The average recorded investment in impaired loans
during the current fiscal year was approximately $14.5 million. The allowance
for possible loan losses contains additional amounts for impaired loans, as
deemed necessary, to maintain reserves at levels considered adequate by
management.
(10) ACCRUED INTEREST RECEIVABLE
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1995
-------- ---------
(In Thousands)
<S> <C> <C>
Debt and equity securities.............................. $ 1,806 $ 821
Mortgage-backed securities.............................. 5,324 5,978
Loans receivable........................................ 13,554 12,912
Interest rate swap arrangements......................... 1,178 2,012
------- --------
$21,862 $ 21,723
======= ========
</TABLE>
(11) PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1995
-------- ---------
(In Thousands)
<S> <C> <C>
AT COST:
Land.................................................. $ 651 $ 651
Office buildings and improvements..................... 10,395 9,928
Leasehold improvements................................ 5,898 5,320
Furniture, fixtures and equipment..................... 10,970 9,786
------- --------
27,914 25,685
Accumulated depreciation and amortization............... (14,987) (12,834)
------- --------
$12,927 $ 12,851
======= ========
</TABLE>
33
<PAGE> 26
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
Depreciation and amortization of premises and equipment, included in occupancy
expense, was approximately $2,153,000, $2,064,000 and $1,817,000 for the years
ended September 30, 1996, 1995 and 1994, respectively.
(12) OTHER ASSETS
Other assets are summarized as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1995
-------- ---------
(In Thousands)
<S> <C> <C>
Net deferred tax asset.................................. $19,393 $14,806
Mortgage servicing rights............................... 1,088 137
Real estate owned, net of allowance for losses of
$266,000 in 1996 and $220,000 in 1995.................. 3,197 1,967
Investment in the Bank's subsidiaries................... 679 919
Prepaid expenses........................................ 1,270 1,417
Other................................................... 7,624 6,462
------- -------
$33,251 $25,708
======= =======
</TABLE>
At September 30, 1996, 1995 and 1994, the Bank was servicing first mortgage
loans of approximately $597,017,000, $523,664,000 and $530,317,000,
respectively, which are either partially or wholly owned by others.
The Bank's risk at September 30, 1996 with respect to servicing loans for others
is minimized due to the fact that loans serviced for others are all without
recourse to the originator/servicer. To date, the Bank has not suffered
significant losses from its mortgage servicing activities.
An analysis of the changes in the Company's mortgage servicing rights is as
follows:
<TABLE>
<CAPTION>
As of and For the
Year Ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year................ $ 137 $ 248 $ 647
Additions................................... 1,217 -- --
Amortization................................ (266) (111) (399)
-------- -------- --------
Balance at end of year...................... $ 1,088 $ 137 $ 248
======== ======== ========
</TABLE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
As of and For the
Year Ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
Balance at beginning of year................ $ 220 $ 390 $ 750
Provision charged to operations............. 346 361 --
Charge-offs................................. (300) (531) (360)
-------- -------- --------
Balance at end of year...................... $ 266 $ 220 $ 390
======== ======== ========
</TABLE>
The Bank has six wholly owned subsidiaries, three of which are inactive. Of the
active subsidiaries, one subsidiary, Alameda Advantage Corp. ("AAC"), is a
limited partner in the partnership which owns the property used for the Bank's
executive and administrative offices. At September 30, 1996 and 1995, the Bank's
investment in AAC amounted to $524,000 and $455,000, respectively.
Two of the subsidiaries, Home Fed Services, Inc. and HF Investors, Inc., were
primarily established for the Bank's entry into offering annuities and other
insurance products through its branch system. At September 30, 1996 and 1995,
the Bank's investment in these subsidiaries amounted to $77,000 and $386,000,
respectively.
The combined financial condition and results of operations of the Bank's
subsidiaries are not significant to the accompanying consolidated financial
statements.
(13) DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1996 1995
--------------------- --------------------
Amount Percent Amount Percent
---------- -------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand deposits.. $ 37,013 2.16% $ 32,821 1.88%
NOW accounts.......................... 130,831 7.63 116,726 6.67
Passbook accounts..................... 716,827 41.77 751,374 42.96
Variable rate money market
deposit accounts..................... 133,528 7.78 102,937 5.89
---------- ------- ---------- -------
1,018,199 59.34 1,003,858 57.40
---------- ------- ---------- -------
Certificate accounts:
Original term of six months......... 83,943 4.89 98,674 5.64
Original term of 2 1/2years......... 34,784 2.03 46,807 2.68
Other certificates (various
original terms).................... 579,033 33.74 599,535 34.28
---------- ------- ---------- -------
697,760 40.66 745,016 42.60
---------- ------- ---------- -------
$1,715,959 100.00% $1,748,874 100.00%
========== ======= ========== =======
</TABLE>
Included in deposits are accounts with denominations of $100,000 or more
totaling approximately $164,720,000 and $137,337,000 at September 30, 1996 and
1995, respectively. The Bank does not use brokered certificates of deposit as a
funding source.
34
<PAGE> 27
Scheduled remaining maturities of certificate accounts are summarized as
follows:
<TABLE>
<CAPTION>
September 30,
-------------------------------------------
1996 1995
--------------------- --------------------
Amount Percent Amount Percent
---------- -------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Within 12 months..................... $ 458,856 65.76% $ 509,750 68.42%
12 to 24 months...................... 134,031 19.21 86,590 11.62
24 to 36 months...................... 51,192 7.34 64,480 8.66
36 to 48 months...................... 43,271 6.20 41,081 5.52
48 to 60 months...................... 9,552 1.37 41,908 5.63
Over 60 months....................... 858 .12 1,207 .15
---------- ------- ---------- -------
$ 697,760 100.00% $ 745,016 100.00%
========== ======= ========== =======
</TABLE>
Weighted average stated interest rates on interest-bearing deposits, including
the effect of related interest rate floors, interest rate collars, and interest
rate swaps, as of the respective dates were as follows:
<TABLE>
<CAPTION>
September 30,
--------------------
1996 1995
-------- ---------
(In Thousands)
<S> <C> <C>
NOW accounts................................. 1.33% 1.41%
------ ------
Passbook accounts............................ 2.36% 2.29%
------ ------
Variable rate money market deposit accounts.. 2.98% 2.83%
------ ------
Certificate accounts......................... 4.86% 5.50%
------ ------
Total deposits............................... 3.30% 3.59%
====== ======
</TABLE>
The average cost of deposits, including the effect of related interest rate
floors, interest rate collars, and interest rate swaps (net of early withdrawal
penalties) approximated 3.47%, 3.55% and 3.18% for the years ended September 30,
1996, 1995 and 1994, respectively.
Interest expense on deposits, including the effect of related interest rate
floors, interest rate collars, and interest rate swaps, is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended September 30,
------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
<S> <C> <C> <C>
NOW accounts.................................. $ 1,925 $ 2,673 $ 2,610
Passbook accounts............................. 17,509 19,964 23,846
Variable rate money market deposit accounts... 3,357 4,054 3,926
Certificate accounts.......................... 37,679 35,703 26,614
-------- -------- --------
$ 60,470 $ 62,394 $ 56,996
======== ======== ========
</TABLE>
On September 30, 1996, Congress passed, and the President signed, legislation
that recapitalized the Savings Association Insurance Fund (the "SAIF"). Under
the major provisions of the legislation, savings institutions, such as the Bank,
are being assessed a one-time assessment of 65.7 basis points per $100 of
insured SAIF-assessable deposits as of March 31, 1995. Since approximately 80.8%
of the Bank's deposits are insured by the SAIF (the remainder are insured by the
Bank Insurance Fund ("BIF")), the Company recorded a one-time charge of $9.4
million during the fourth quarter of fiscal year 1996 which is payable in the
first quarter of fiscal year 1997.
(14) BORROWED FUNDS
Borrowed funds are summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------
1996 1995
---------- ---------
(In Thousands)
<S> <C> <C>
NOTES PAYABLE - FIXED-RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
4.13% to 8.45%, due in 1996........................... $ -- $ 22,375
8.10%, due in 1997.................................... 375 375
---------- ---------
375 22,750
---------- ---------
NOTES PAYABLE - VARIABLE RATE ADVANCES FROM THE
FEDERAL HOME LOAN BANK OF NEW YORK:
5.883% to 6.625%, due in 1996......................... -- 363,000
5.369% to 5.986%, due in 1997......................... 542,000 20,000
---------- ---------
542,000 383,000
---------- ---------
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE:
FIXED RATE AGREEMENTS:
5.79% to 6.00%, due in 1996.......................... -- 190,160
5.370% to 6.150% due in 1997......................... 353,698 --
---------- ---------
353,698 190,160
---------- ---------
VARIABLE RATE AGREEMENTS -
5.7925% to 6.025%, due in 1996....................... -- 150,000
5.09%, due in 1998................................... 100,000 --
---------- ---------
100,000 150,000
---------- ---------
OTHER COLLATERALIZED BORROWINGS:
FIXED RATE FLEXIBLE REVERSE REPURCHASE AGREEMENTS:
7.85%, due in 1996................................... -- 4,700
---------- ---------
SUBORDINATED CAPITAL NOTES, FIXED RATE - 10.84%:
Due in 1996............................................ -- 3,800
Due in 1997............................................ 3,800 3,800
Due in 1998............................................ 3,800 3,800
Due in 1999............................................ 3,800 3,800
---------- ---------
11,400 15,200
---------- ---------
TREASURY, TAX AND LOAN NOTES - 5.84% CALLABLE........... 1,313 1,328
---------- ---------
$1,008,786 $ 767,138
========== =========
</TABLE>
Under the terms of a collateral agreement, indebtedness to and outstanding
commitments from the Federal Home Loan Bank of New York (the "FHLB-NY") are
secured by qualifying assets principally in the form of first mortgage loans and
mortgage-backed securities having estimated market values at least equal to 125%
of the amount of total indebtedness and outstanding commitments.
At September 30, 1996, all securities sold under agreements to repurchase were
delivered to the primary dealers who arranged the transactions. The securities
remained registered in the name of the Bank and are returned upon maturity of
the agreement. Securities sold under agreements to repurchase averaged
$328,405,000, $307,657,000 and $232,916,000 during the years ended September 30,
1996, 1995 and 1994, respectively. The maximum amounts outstanding at any
35
<PAGE> 28
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
month-end were $453,698,000, $351,855,000 and $271,978,000 during the years
ended September 30, 1996, 1995 and 1994, respectively.
At September 30, 1996, the Bank had outstanding $353.7 million of fixed rate
reverse repurchase agreements with a weighted average interest rate of 5.61% and
remaining maturities of one to twelve months. The Bank may substitute collateral
in the form of U.S. Treasury or mortgage-backed certificates. At September 30,
1996, the borrowings were collateralized by FNMA, FHLMC, REMIC and non-agency
pass-through certificates having a carrying value of approximately $378.0
million and a market value of approximately $372.8 million.
At September 30, 1996, the Bank had outstanding a $100.0 million reverse
repurchase agreement with an interest rate of 5.09% and a remaining maturity of
16 months. The rate on this reverse repurchase agreement is subject to repricing
by the counterparty in January 1997 to a LIBOR based rate, with monthly
adjustments thereafter. The Bank may substitute collateral in the form of U.S.
Treasury, GNMA, FNMA, FHLMC, REMIC, CMO or non-agency pass-through certificates
rated no less than AA. At September 30, 1996, the borrowings were collateralized
by REMIC and non-agency pass-through certificates having a carrying value of
approximately $113.7 million and a market value of approximately $111.6 million.
On November 18, 1988, the Bank issued $25,000,000 in 10.95% (Series A Notes) and
$5,000,000 in 10.52% (Series B Notes) subordinated capital notes (collectively
as the "Notes"). Interest on the Notes is payable in semiannual installments,
commencing May 30, 1989. The remaining principal on the Series A Notes and
Series B Notes is payable in annual installments of $2,800,000 and $1,000,000,
respectively. The Notes are fully subordinated to savings deposit accounts and
other general liabilities of the Bank. Further, a portion of the Notes qualify
as capital for purposes of meeting the regulatory risk-based capital
requirements. The Notes are redeemable in whole or in part, with a prepayment
premium, at the option of the Bank, subject to regulatory approval, at any time.
Deferred issuance costs are being amortized over the period to maturity of the
notes.
On February 3, 1989 the Bank established a Mortgage-Backed Medium-Term Note,
Series A (the "Medium-Term Notes") program. The Medium-Term Notes can be issued
from time to time in designated principal amounts, up to a total remaining
aggregate amount of $180,000,000, with interest rates to be established at the
time of issuance, and with maturities to be set ranging from nine months to
fifteen years from the date of issuance. No amounts were outstanding under this
program at September 30, 1996 and 1995.
Weighted average interest rates on borrowed funds at September 30, 1996 and
1995, including the effect of related interest rate collars, interest rate caps,
and interest rate swaps, amounted to 5.25% and 6.14%, respectively.
The average cost of borrowed funds for the years ended September 30, 1996, 1995
and 1994, including the effect of related interest rate collars, interest rate
caps, and interest rate swaps, was 5.62%, 5.88% and 4.85%, respectively.
Interest expense on borrowed funds, including the effect of related interest
rate collars, interest rate caps, and interest rate swaps, is summarized as
follows:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------
1996 1995 1994
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Notes payable................................... $26,764 $19,920 $ 10,897
Securities sold under agreements to repurchase.. 18,175 17,619 9,812
Subordinated capital notes...................... 1,304 1,716 2,059
Other........................................... 33 81 184
------- ------- --------
$46,276 $39,336 $ 22,952
======= ======= ========
</TABLE>
(15) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities are summarized as follows:
<TABLE>
<CAPTION>
September 30,
---------------------
1996 1995
---------- ---------
(In Thousands)
<S> <C> <C>
Federal, state and local income taxes payable .......... $ 411 $ --
Accrued interest payable................................ 6,633 5,157
Negative goodwill....................................... 1,068 1,262
Deferred gain on interest rate floor and swap agreements 5,819 7,395
Accrued SAIF recapitalization assessment................ 9,432 --
Accrued expenses and other.............................. 25,909 28,860
------- --------
$49,272 $ 42,674
======= ========
</TABLE>
(16) FEDERAL, STATE AND LOCAL TAXES
FEDERAL INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS No. 109") effective October 1, 1993. Prior
to October 1, 1993, deferred income taxes were provided for timing differences
in the recognition of revenues and expenses for tax reporting and financial
statement purposes (an income statement approach), pursuant to Accounting
Principles Board Opinion No. 11.
SFAS No. 109 adopts a balance sheet approach (or liability method) in place of
the income statement approach. The liability method requires that an asset or a
liability, as appropriate, be recorded for financial statement purposes for the
deferred tax consequences of all temporary differences between the tax basis and
financial statement carrying amounts of existing assets and liabilities, which
is measured by applying enacted tax laws and rates. Additionally, SFAS No. 109
permits the recognition of net deferred tax assets based upon the likelihood of
realization of tax benefits in the future. The cumulative effect at October 1,
1993 of the
36
<PAGE> 29
change in accounting for income taxes which was implemented on a prospective
basis amounted to $5.7 million and is included in the consolidated statement of
income for the year ended September 30, 1994.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:
<TABLE>
<CAPTION>
September 30,
---------------------
1996 1995
---------- ---------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for possible loan losses.................... $ 7,976 $ 8,921
SAIF recapitalization................................. 4,020 --
Nonaccrual interest................................... 2,477 2,987
Excess tax over book basis of loans................... 1,009 --
Deferred loan fees.................................... 977 1,831
Real estate owned..................................... 109 742
Premises and equipment................................ 720 445
Unrealized loss on available for sale securities...... 428 --
Other................................................. 2,645 2,972
------- --------
Total gross deferred tax assets..................... 20,361 17,898
------- --------
Deferred tax liabilities:
Excess book over tax basis of loans................... -- 684
Unrealized gain on available for sale securities...... -- 639
Other................................................. 968 1,769
------- --------
Total gross deferred tax liabilities................ 968 3,092
------- --------
Net deferred tax asset.............................. $19,393 $ 14,806
======= ========
</TABLE>
Under SFAS No. 109, the Company has a net deferred tax asset of $19.4 million at
September 30, 1996. This represents the anticipated Federal, state and local tax
benefits expected to be realized in future years upon the utilization of the
underlying tax attributes comprising this balance. The Company has reported
taxable income for Federal, state and local income tax purposes in each of the
past three years and in management's opinion, in view of the Company's previous,
current and projected future earnings trend, such net deferred tax asset will be
fully realized. Accordingly, no valuation allowance was deemed necessary for the
net deferred tax asset at September 30, 1996.
Total income tax expense was allocated as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------
1996 1995 1994
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Income from operations.............................. $24,776 $19,717 $ 21,740
Shareholders' equity - compensation expense for tax
purposes in excess of amounts recognized for
financial reporting purposes....................... (1,928) (1,488) --
Shareholders' equity - unrealized appreciation
(depreciation) on securities available for sale (1,067) 3,690 (3,051)
------- ------- --------
Total............................................... $21,781 $21,919 $ 18,689
======= ======= ========
</TABLE>
The components of income tax expense on operations are as follows:
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------
1996 1995 1994
------- ------- --------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal................................... $ 19,599 $13,917 $ 15,690
State and local........................... 8,697 7,765 7,197
-------- ------- --------
28,296 21,682 22,887
-------- ------- --------
Deferred:
Federal................................... (2,923) (457) (1,476)
State and local........................... (597) (1,508) 329
-------- ------- --------
(3,520) (1,965) (1,147)
-------- ------- --------
Total................................... $ 24,776 $19,717 $ 21,740
======== ======= ========
</TABLE>
The effective income tax rates for the years ended September 30, 1996, 1995 and
1994 were 43.6%, 63.0% and 44.2%, respectively. The reconciliation between the
statutory Federal income tax rate and the effective tax rate is as follows:
<TABLE>
<CAPTION>
Year ended September 30,
---------------------------
1996 1995 1994
------ ------ -------
<S> <C> <C> <C>
Tax on income at statutory rate......................... 35.0% 35.0% 35.0%
Tax effects of:
State and local income tax, net of
Federal income tax benefit.......................... 9.3 13.0 9.9
Nondeductible costs associated with Hamilton merger.. .- 15.0 .-
Other, net........................................... (.7) .- (.7)
------ ------ ------
Tax at effective rate................................... 43.6% 63.0% 44.2%
====== ====== ======
</TABLE>
New York Bancorp files consolidated Federal income tax returns on a
calendar-year basis with the Bank and its subsidiaries. Prior to January 1,
1996, if certain definitional tests and other conditions were met, the Bank was
allowed a special bad debt deduction based on a percentage of taxable income or
on a specified experience formula.
The Bank used the specified experience formula for 1993 and 1995 and the
percentage of taxable income method in 1994. The statutory percentage of the
special bad debt deduction was 8% and was allowable only if the Bank maintained
at least 60% of its total assets in qualifying assets, as defined. If qualifying
assets fall below 60%, the Bank would be required to recapture essentially all
of its bad debt reserve for Federal income tax purposes into taxable income. The
Bank's qualifying assets at September 30, 1996 and 1995 exceeded 60%.
Under legislation enacted in August 1996, the Bank will no longer be permitted
to use the percentage of taxable income method for Federal tax purposes, but
will be permitted to deduct bad debts only as they are incurred. The legislation
also requires the recapture of the excess of tax bad debt reserves at December
31, 1995 over those established as of December 31, 1987 (the "base year"). The
Bank's tax bad debt reserves of $27.9 million as of December 31, 1995 do not
exceed those of the base year. Therefore, the Bank will not be required to
recapture any of its bad debt reserves.
37
<PAGE> 30
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
Such reserve reflects the cumulative Federal income tax bad debt deductions to
that date. The base year reserves will continue to be subject to recapture, and
the Bank could be required to recognize a tax liability, under certain
circumstances, including (1) the Bank fails to qualify as a "bank" for Federal
income tax purposes; (2) certain distributions are made with respect to the
stock of the Bank; (3) the bad debt reserves are used for any purpose other than
to absorb bad debt losses; and (4) there is a change in Federal tax law.
However, management is currently not aware of the occurrence of any such
circumstances.
STATE AND LOCAL TAXES
New York Bancorp files combined New York State franchise and New York City
financial corporation tax returns with the Bank and its subsidiaries on a
calendar-year basis. The Company's annual tax liability for each tax was the
greater of a tax based on "entire net income," "alternative entire net income,"
"taxable assets" or a minimum tax. Further, the Company is subject to a
temporary surcharge based upon New York State tax liability. The Company's
provision for New York State and New York City taxes is based on "entire net
income" for the calendar years 1995, 1994 and 1993 and for the nine months ended
September 30, 1996. New York State and New York City do not allow for the
utilization of net operating loss carrybacks or carryforwards for banks.
In response to the aforementioned Federal legislation enacted in August 1996,
the New York State tax law has been amended to prevent a recapture of existing
tax bad debt reserves and to allow for the continued use of the percentage of
taxable income method to determine the bad debt deduction in computing the New
York State tax liability. However, no such amendments have been made to date
with respect to the New York City tax law; therefore, the Company cannot predict
whether such changes will be made or as to the form of any changes.
(17) SHAREHOLDERS' EQUITY
DIVIDEND RESTRICTIONS
In connection with the Bank's conversion to stock form in February 1988, and
Hamilton Saving's conversion to stock form in April 1993, special liquidation
accounts were established at the time of conversions, pursuant to regulations of
the Federal Home Loan Bank Board (the "FHLBB"), the predecessor to the Office of
Thrift Supervision ("OTS"), based on the amount of the Bank's regulatory capital
as of September 30, 1987 and Hamilton Savings' regulatory capital as of
September 30, 1992. In the unlikely event of a future liquidation, eligible
depositors who continue to maintain accounts would be entitled to receive a
distribution from the liquidation accounts. The total amount of the liquidation
account will be decreased as the balances of eligible deposits are reduced on
annual determination dates subsequent to the conversions. The balance of the
liquidation accounts aggregated to approximately $16.9 million at September 30,
1996.
The ability of New York Bancorp to pay dividends depends upon dividend payments
by the Bank to New York Bancorp, which is New York Bancorp's primary source of
income. The Bank is not permitted to pay dividends on its capital stock or
repurchase shares of its stock if its shareholder's equity would be reduced
below the amount required for the liquidation account or applicable regulatory
capital requirements. The Bank is currently allowed under regulation to pay cash
dividends to New York Bancorp in an amount not to exceed 100% of its net income
to date, during a calendar year, plus an amount not to exceed one-half of its
surplus capital ratio at the beginning of the calendar year. Additionally, under
terms of its subordinated capital note agreements, the Bank is permitted to pay,
on a cumulative basis, cash dividends to New York Bancorp in an amount not to
exceed 75% of its net income from November 30, 1988 to date, plus $5.0 million.
3-FOR-2 STOCK SPLIT AND STOCK DIVIDEND
The Company declared a 3-for-2 common stock split which was distributed on July
29, 1993 in the form of a stock dividend. Additionally, the Company declared a
ten percent stock dividend which became effective on February 14, 1994.
Accordingly, information with respect to shares of common stock fully reflects
the stock split and the stock dividend.
TREASURY STOCK TRANSACTIONS
During the year ended September 30, 1996, New York Bancorp repurchased 1,214,212
shares. On September 26, 1996 the Board of Directors approved the repurchase of
up to an additional 10% of the Company's outstanding common stock, bringing the
total then current authority for repurchase to 1,265,604 shares.
At September 30, 1996, the Company has 3,648,050 shares of Treasury stock which,
among other things, could be held to satisfy obligations under the Company's
stock option plans. Treasury stock is being accounted for using the cost method.
REGULATORY CAPITAL
As required by regulation of the OTS, savings institutions are required to
maintain regulatory capital in the form of a "tangible capital requirement," a
"core capital requirement" and a "risk-based capital requirement."
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
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
38
<PAGE> 31
As of September 30, 1996, the Bank has been categorized as "adequately
capitalized" by the OTS under the prompt corrective action regulations and
continues to exceed all regulatory capital requirements as detailed in the
following table (dollars in thousands):
<TABLE>
<CAPTION>
TANGIBLE CAPITAL CORE CAPITAL(1) RISK-BASED CAPITAL(2)
--------------------- ---------------------- -----------------------
Amount Percentage(3) Amount Percentage(3) Amount Percentage(3)
------- ------------- -------- ------------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Total Bank equity................. $138,195 4.70% $138,195 4.70% $138,195 9.86%
Add:
o Allowable portion of
subordinated capital
notes....................... -- .-- -- .-- 1,634 .11
o Other........................ 278 .01 278 .01 17,806 1.27
-------- ------ -------- ------- -------- --------
Capital for regulatory purposes... 138,473 4.71 138,473 4.71 157,635 11.24
Minimum regulatory requirement.... 44,117 1.50 88,234 3.00 112,180 8.00
-------- ------ -------- ------- -------- --------
Excess............................ $ 94,356 3.21% $ 50,239 1.71% $ 45,455 3.24%
======== ====== ======== ======= ======== ========
______________
(1)Under the OTS's prompt corrective action regulations, the core capital requirement was effectively increased to
4.00% since OTS regulations stipulate that as of that date an institution with less than 4.00% core capital will
be deemed to be classified as "undercapitalized."
(2)The OTS adopted a final regulation which incorporates an interest rate risk component into its existing risk-based
capital standard. The regulation requires certain institutions with more than a "normal level" of interest rate
risk to maintain capital in addition to the 8.0% risk-based capital requirement. The Bank does not anticipate
that its risk-based capital requirement will be materially affected as a result of the new regulation.
(3)For tangible and core capital the ratio is to adjusted total assets. For risk-based capital, the ratio is to total
risk-weighted assets.
</TABLE>
(18) BENEFITS
PENSION PLAN
All eligible employees of the Bank are included in a defined benefit pension
plan (the "Plan"). Benefits contemplated by the Plan are funded through a group
annuity insurance contract. The Bank contributes to the Plan an amount
sufficient to meet ERISA funding standards.
Hamilton had maintained a noncontributory defined benefit plan for all eligible
employees. The plan was funded through a deposit administration contract with an
insurance company. As of May 1, 1994, the plan was curtailed and all future
benefit accruals ceased. The plan curtailment resulted in a net gain of
approximately $181,000. Subsequent to the merger, all former Hamilton employees
retained by the Bank meeting plan requirements became eligible for participation
in the Plan. Effective December 31, 1995, the former Hamilton plan was merged
with that of the Bank.
The following table sets forth the funded status of the Bank's and Hamilton's
plans and amounts recognized in the Company's consolidated financial statements
at September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $10,423 in 1996 and $9,781 in 1995.................. $10,929 $10,352
======= =======
Projected benefit obligations for service rendered to date....... $10,978 $10,380
Plan assets at fair value........................................ 10,166 10,284
------- -------
Projected benefit obligation in excess of plan assets............ (812) (96)
Unrecognized net loss from past experience different from
that assumed and effects of changes in assumptions.............. 1,972 1,246
Unrecognized prior service cost.................................. (971) (1,072)
Unrecognized net obligation at transition being
recognized over fifteen years................................... 261 292
Additional liability............................................. (1,213) (334)
------- -------
Prepaid (accrued) pension cost................................... $ (763) $ 36
======= =======
</TABLE>
Net pension cost for the years ended September 30, 1996, 1995 and 1994 included
the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during the period.... $ 46 $ 131 $ 467
Interest cost on projected benefit obligation....... 838 844 878
Actual return on plan assets........................ (593) (583) (546)
Net amortization and deferral....................... (371) (439) (233)
Additional liability................................ 879 -- --
------ ------ -----
Net pension cost (benefit) included in non-interest
expenses -- compensation and benefits.............. $ 799 $ (47) $ 566
====== ====== =====
</TABLE>
Assumptions used in 1996, 1995 and 1994 to develop the net periodic pension cost
were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average discount rate.................... 8.00% 9.00% 9.00% to 9.25%
Rate of increase in future compensation levels.... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets....... 9.50% 9.50% 9.00%
</TABLE>
In conjunction with its pension plan, the Bank maintains a Supplemental
Executives Retirement Plan (the "SERP Plan") to provide retirement benefits
which would have been provided under the Plan except for limitations imposed by
Section 415 of the Internal Revenue Code.
39
<PAGE> 32
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
The following sets forth the SERP Plan's status and amounts recognized in the
Company's consolidated financial statements at September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $485 in 1996 and $821 in 1995......................... $ 824 $ 1,120
======= ========
Projected benefit obligations for service rendered to date......... $ 950 $ 1,122
Plan assets at fair value.......................................... -- --
------- --------
Projected benefit obligation in excess of plan assets (950) (1,122)
Unrecognized net (gain) loss from past experience different from
that assumed and effects of changes in assumptions................ 50 (500)
Unrecognized prior service cost being
recognized over fifteen years..................................... 322 350
Additional liability............................................... (247) --
------- --------
Accrued SERP Plan cost included in other liabilities............... $ (825) $ (1,272)
======= ========
</TABLE>
Net SERP Plan cost for the years ended September 30, 1996, 1995 and 1994
included the following components (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost - benefits earned during the period.... $ 35 $ 52 $ 271
Interest cost on projected benefit obligation....... 118 90 113
Actual return on plan assets........................ -- -- --
Net amortization and deferral....................... 27 (7) 45
Settlement loss..................................... 49 -- --
----- ----- -----
Net pension cost included in non-interest
expenses -- compensation and benefits.............. $ 229 $ 135 $ 429
===== ===== =====
</TABLE>
Assumptions used in 1996, 1995 and 1994 to develop the net periodic SERP Plan
cost were:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Weighted average discount rate................... 7.50% to 8.00% 7.50% to 8.00% 9.00%
Rate of increase in future compensation levels... 4.00% 4.00% 4.00%
Expected long-term rate of return on assets...... N/A N/A N/A
</TABLE>
Hamilton had also maintained a SERP. On January 27, 1995, as a result of the
merger, Hamilton's SERP was terminated in accordance with the plan's change in
control provision and distributions in the aggregate amount of $307,000 were
made to all eligible participants. Included in compensation and benefit expense
is $179,000 for the year ended September 30, 1994. Fiscal year 1995 includes
$63,000 in merger and restructuring expenses related to the termination of
Hamilton's SERP.
401(k) PLAN
The Bank maintains a 401(k) Savings Plan (the "401(k) Plan") for all qualified
employees. The terms of the 401(k) Plan provide for employee contributions on a
pre-tax basis up to a maximum of 10% of total compensation, with matching
contributions to be made by the Bank equal to a minimum of 50% of employee
contributions.
Hamilton also had a qualified 401(k) savings plan for its employees in which
Hamilton matched a portion of the employee's contribution. Hamilton's employees
immediately became fully vested in Hamilton's contributions at the time they
were made. Effective December 31, 1995, the former Hamilton plan was merged with
that of the Bank.
RETIREE'S BENEFIT PLAN
The Bank, as part of its overall benefits, provides to its eligible retirees
health coverage and life insurance coverage. Eligible participants are retired
employees of the Bank who retire with a minimum age of 55 and 5 years of
service. The Company has elected to defer and amortize to expense over a twenty
year period the accumulated postretirement benefit obligation of $3.2 million at
the October 1, 1993 date of adoption of SFAS No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The plan is non-contributory for
those retirees who retired prior to July 1992. The plan was amended during
fiscal year 1995. The amendment included an increase in the cost for future
retirees and placing a cap on the Bank's share of plan costs. Former Hamilton
employees became covered under this amended plan effective February 1, 1995.
The following table sets forth the plan's status and amounts recognized in the
Company's consolidated financial statements at September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees including covered dependents and beneficiaries........ $ 1,693 $ 2,169
Eligible active participants................................... 100 536
Other active participants...................................... 753 401
------- --------
Total accumulated postretirement benefit obligation........... 2,546 3,106
Plan assets....................................................... -- --
------- --------
Accumulated benefit obligation in excess of plan assets........... (2,546) (3,106)
Unrecognized transition obligation................................ 2,274 2,408
Unrecognized prior service cost................................... (503) (555)
Unrecognized gain................................................. (2,062) (1,538)
------- --------
Accrued benefit obligation........................................ $(2,837) $ (2,791)
======= ========
</TABLE>
Net periodic postretirement benefit cost included the following components for
the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost................................... $ 59 $ 51 $ 247
Interest cost.................................. 190 267 390
Amortization of transition obligation
of $3.2 million over 20 years................. 134 146 162
Amortization of prior service cost............. (52) (39) --
Amortization of gain........................... (131) (87) (293)
------- ------- -------
Total postretirement benefit expense......... $ 200 $ 338 $ 506
======= ======= =======
</TABLE>
40
<PAGE> 33
The above plan does not have any assets and the Company presently intends to
maintain the plan as unfunded. The assumed long-term health care cost trend used
to measure the expected cost of benefits under the plan for 1996 is 5.00%. The
discount rate used in determining the accumulated postretirement benefit
obligation is 8.00%. The effect of raising the health care trend by 1% will
increase the service and interest cost and the accumulated benefit obligation by
approximately $34,400 and $300,000, respectively.
The amounts included in compensation and benefit expense for the above plans are
as follows for the years ended September 30 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Pension plan................................... $ 799 $ (47) $ 566
Supplemental executives retirement plan........ 229 135 608
401(k) plan.................................... 549 408 424
Retirees' benefit plan......................... 200 338 506
------- ------- -------
$ 1,777 $ 834 $ 2,104
======= ======= =======
</TABLE>
Hamilton had also maintained a noncontributory retirement plan for its outside
directors. The plan provided benefits for participants upon reaching age 65, and
required at least 5 years of service, but not exceeding 10 years of service. On
January 27, 1995, the plan was terminated in accordance with the plan's change
in control provisions and distributions, in the aggregate amount of $1,039,600
were made to all eligible participants. Included in compensation and benefit
expense is $25,000 and $100,000 for the years ended September 30, 1995 and 1994,
respectively. Fiscal year 1995 also includes $638,000 in merger and
restructuring expense related to the plan.
(19) STOCK PLANS
STOCK OPTION PLANS
The stock option plans permit New York Bancorp common stock to be issued to key
employees and directors of the Holding Company and its subsidiary. The options
granted under the plans are intended to be either incentive stock options or
non-qualified options.
Options have been granted to purchase common stock at the fair market value of
the stock at the date of grant. Options generally vest over a three year period
from the date of grant and generally expire ten years from the date of grant for
employees and five years from the date of grant for directors.
Hamilton maintained incentive stock option plans for its officers, directors and
other key employees. Generally, these plans granted options to individuals at a
price equivalent to the fair market value at the date of grant and were
exercisable over a ten year period from the date of grant. In accordance with
the plans' change in control provisions, the individuals became fully vested in
their stock option grants on the merger date, January 27, 1995. The options were
exchanged for options of the Company, and are set forth separately in the table
below.
Additionally, stock appreciation rights ("SARs") have been granted to key
employees of the Holding Company and its subsidiary. SARs entitle the grantee to
receive cash equal to the excess of the market value of the shares at the date
the right is exercised over the exercise price. An expense is accrued for the
earned portion of the amount by which the market value of the stock exceeds the
exercise price for each SAR outstanding. The expense related to the SARs for the
years ended September 30, 1996, 1995 and 1994 was approximately $1,775,000,
$171,000 and $360,000 respectively.
The following table summarizes certain information regarding the option plans
and has been prepared after giving effect to the 3-for-2 common stock split and
the ten percent stock dividend.
<TABLE>
<CAPTION>
Number of shares of
---------------------------------------------- Weighted
Non-qualified Average
Incentive Stock Non-statutory Options to Exercise
SARs Options Stock Options Directors Price
------ --------------- ------------- ------------- --------
<S> <C> <C> <C> <C> <C>
Balance outstanding at
September 30, 1993 153,000 155,585 189,630 90,000 $12.11
Effect of 10% stock
dividend............... 15,300 15,559 18,962 9,000 N/A
Forfeited............... -- (2,888) -- -- $ 7.88
Granted................. -- 52,637 152,568 -- $17.95
Exercised............... -- (59,891) (32,900) -- $ 8.02
-------- ------- -------- --------
Balance outstanding at
September 30, 1994 168,300 161,002 328,260 99,000 $13.27
Hamilton options
outstanding at
January 27, 1995....... -- -- 306,392 182,824 $ 2.37
Forfeited............... (9,900) (34,178) (48,033) -- $16.51
Granted................. -- 81,031 148,969 -- $19.34
Exercised............... (19,800) (60,470) (324,994) -- $ 2.08
-------- ------- -------- --------
Balance outstanding at
September 30, 1995 138,600 147,385 410,594 281,824 $13.39
Forfeited............... -- (2,891) -- (24,750) $ 5.88
Granted................. -- 74,238 79,012 24,750 $22.24
Exercised............... -- (31,318) -- (142,720) $ 7.32
-------- ------- -------- --------
Balance outstanding at
September 30, 1996 138,600 187,414 489,606 139,104 $16.36
======== ======= ======== ========
</TABLE>
41
<PAGE> 34
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
RECOGNITION AND RETENTION PLAN ("RRP")
Hamilton maintained a RRP, under which restricted stock awards were made to
officers, directors and other key employees, and an Employee Stock Ownership
Plan (the "ESOP"). In accordance with the plans' change in control provisions,
the participants became fully vested on the merger date, January 27, 1995.
Distributions of the shares in the plans have been made to participants.
Included in compensation and benefit expense is $464,000 and $1,491,000 for the
years ended September 30, 1995 and 1994, respectively. Fiscal year 1995 also
includes $4,992,000 in merger and restructuring expense related to these plans.
(20) COMMITMENTS, CONTINGENCIES AND CONTRACTS
In the normal course of its business, the Company is a defendant in certain
claims and legal actions arising in the ordinary course of business. In
addition, on July 1, 1994, a purported class action complaint was filed in the
Delaware Chancery Court on behalf of the shareholders of Hamilton by Adar
Equities, Ltd. as plaintiff, naming, among others, New York Bancorp as a
defendant. An identical complaint was filed by the Serious Software Corporation
on July 7, 1994 in the Delaware Chancery Court. Plaintiffs allege that certain
directors and senior officers of Hamilton breached their fiduciary duties to
Hamilton shareholders. New York Bancorp is alleged to have aided and abetted
this breach by allegedly providing them the promise of continued employment and
monetary incentives in exchange for entering into a merger agreement. Plaintiffs
claimed that if the merger was approved by shareholders of New York Bancorp and
Hamilton, the consideration that Hamilton shareholders would receive in exchange
for their Hamilton common stock would be "grossly inadequate." Plaintiffs seek
various remedies, including an injunction to prevent the consummation of the
merger and compensatory damages in an unspecified amount. On September 19, 1994,
defendants moved to dismiss the complaints on the ground that they fail to state
a claim upon which relief could be granted. In the opinion of management, after
consultation with legal counsel, the ultimate disposition of these matters will
not have a material adverse effect on the consolidated financial condition of
the Company.
The Company has obligations under a number of noncancellable leases on property
used for banking purposes. These leases contain escalation clauses which provide
for increased rental expense based on a percentage of increases in real estate
taxes. Rental expense under these leases, included in non-interest expense -
occupancy, for the years ended September 30, 1996, 1995 and 1994 approximated
$2,096,000, $2,040,000 and $2,025,000, respectively. The projected minimum
rentals under existing operating leases are as follows:
<TABLE>
<CAPTION>
Year ending
September 30, Amount
------------- --------
(In Thousands)
<S> <C>
1997................................. $ 1,814
1998................................. 1,802
1999................................. 1,632
2000................................. 971
2001................................. 572
Later years.......................... 3,643
-------
$10,434
=======
</TABLE>
(21) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The Company enters into a variety of financial instruments with off-balance
sheet risk in the normal course of business.
INTEREST RATE SWAP ARRANGEMENTS
The Company enters into interest rate swap arrangements to manage the
repricing characteristics of its interest-bearing liabilities. Such
agreements provide for the concurrent exchange of its current and future
interest payments on either short-term money market certificates of
deposit accounts or variable rate borrowed funds for another party's
obligations for interest payments on an equivalent amount of fixed-rate
indebtedness. The principal or notional amounts of these arrangements are
not reflected in the consolidated statements of financial condition. The
incremental revenue or expense associated with interest rate swaps is
recognized over the term of the swap arrangement and is presented as a
component of the interest expense of the related liability. Gains and
losses resulting from the early termination of swap arrangements are
amortized over the remaining term of the swap arrangement.
The effect of interest rate swap arrangements at September 30, 1996 was to
fix the Company's interest cost at a weighted average rate of 4.79% on the
agreed-upon amount of funds for approximately six months, the remaining
weighted average terms of the arrangements. Outstanding notional amounts
of interest rate swap arrangements were $600.0 million and $205.0 million
at September 30, 1996 and 1995, respectively. At September 30, 1996,
mortgage-backed securities with a market value of $10.2 million were
pledged as collateral on these arrangements. The Bank's credit risk with
respect to the interest rate swap agreements is in the risk of
nonperformance by the other party to the agreements. However, the Bank
does not anticipate nonperformance by the counterparty and controls the
risk through its usual monitoring procedures.
42
<PAGE> 35
Interest rate swaps outstanding at September 30, 1996 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
Fixed Variable
Notional Interest Rate Interest Rate
Amount Paying Receiving Maturity
-------- ------------- ------------- ------------
<S> <C> <C> <C>
$ 100,000 5.260% 5.438% December 1996 (1)
100,000 5.265% 5.438% December 1996 (1)
50,000 4.785% 5.438% June 1997 (2)
50,000 4.780% 5.438% June 1997
50,000 4.770% 5.438% June 1997
50,000 4.774% 5.438% June 1997 (2)
50,000 4.748% 5.438% June 1997
50,000 4.743% 5.438% June 1997 (2)
50,000 4.700% 5.438% June 1997
50,000 4.700% 5.438% June 1997 (2)
---------
$ 600,000
=========
</TABLE>
_______________________
(1)These $200 million in interest rate swaps have been extended through
June 1997 whereby the fixed interest pay rate will be 4.69% beginning
in December 1996.
(2)In an effort to secure the hedge position provided against interest
rate risk, the Bank in July 1996 terminated its position as a party to
$200.0 million of interest rate swaps for the six month period
December 1996 through June 1997. The gain of $1.5 million from these
terminated interest rate swaps is being deferred, and will be
amortized as a reduction of interest expense over the period December
1996 through June 1997.
At September 30, 1996 the Company's interest rate swaps had an unrealized
gain amounting to $2.9 million. Further, at September 30, 1996 there was
$1.5 million of net deferred gains relating to terminated interest rate
swap contracts.
INTEREST RATE COLLAR, INTEREST RATE FLOOR,
AND INTEREST RATE CAP ARRANGEMENTS
The Company uses interest rate collar, interest rate floor, and interest
rate cap arrangements to protect the Bank against interest rate risk
associated with the repricing of its interest-bearing liabilities.
Premiums paid for interest rate collar, interest rate floor, and interest
rate cap arrangements are amortized to interest expense of the related
liability over the contractual terms of these arrangements using the
straight-line method. When a liability is prepaid, any related interest
rate collar, interest rate floor, or interest rate cap is re-designated
to another interest-bearing liability at the lower of cost or estimated
market value and the loss, if any, is included in the gain or loss on
early extinguishment of the liability. Interest received or paid under
the terms of these arrangements is accrued and recorded as a reduction or
increase of interest expense of the related interest-bearing liability.
At September 30, 1996, the Bank was a party to $700.0 million of interest
rate collar agreements which mature in August 1998. These agreements are
intended to reduce the interest rate risk associated with certain
short-term borrowings and certificates of deposit. Under the terms of
these agreements, the Bank receives interest when the three month LIBOR
index is in excess of 7.50%, and pays interest when the three month LIBOR
index is less than 5.00%. At September 30, 1996, the three month LIBOR
was 5.625%. At September 30, 1996 mortgage-backed securities with a
market value of $10.5 million were pledged as collateral on these
arrangements. The Bank's credit risk with respect to these interest rate
collar arrangements is in the risk of nonperformance by the other party
to the agreements. However, the Bank does not anticipate nonperformance
by the counterparty and controls the risk through its usual monitoring
procedures. At September 30, 1996, the unamortized premium on the Bank's
interest rate collars amounted to $.8 million which approximated the
current market value.
During fiscal year 1995 the Bank was a party to $1.0 billion of interest
rate floor agreements which were scheduled to expire on February 22,
1998. During fiscal year 1995, in an effort to secure the hedge position
provided against the aforementioned interest rate risk, the Bank
terminated its position as a party to the $1.0 billion of interest rate
floor agreements. Accordingly, and in conformity with generally accepted
accounting principles, the Company deferred recognition of the gain on
the terminated interest rate floor agreements and is amortizing such gain
as an adjustment to the cost of interest-bearing deposit liabilities over
the original contractual life of the interest rate floor agreements. At
September 30, 1996 the amount of the unamortized gain was $4.3 million.
STOCK INDEXED CALL OPTIONS
The Bank uses stock indexed call options for purposes of hedging its
MarketSmart CD's and MarketSmart I.R.A. CD's. The call options hedge the
interest rate paid on these 5 year CD deposits which is an annual
percentage yield based on the changes in the Standard & Poor's 500
Composite Stock Price Index ("S & P Index") during each of the 5 year
terms of the CDs. Premiums paid on the call options are amortized to
interest expense over the terms of the underlying CD using the straight
line method. Gains and losses, if any, resulting from the early
termination of the call option are deferred and amortized to interest
expense over the remaining term of the underlying CD.
At September 30, 1996 the Company had approximately $2.6 million in
contracts for purposes of hedging the S & P Index. The call options
maturities range from March 1999 through August 1999. The Company carries
stock indexed call options at market value. Further, at September 30,
1996 there were no deferred gains or losses relating to terminated
contracts. The Bank ceased offering MarketSmart CDs during fiscal year
1995 due to its inability to purchase stock indexed call options.
43
<PAGE> 36
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
FINANCIAL FUTURES TRANSACTIONS
The Company from time to time may enter into various financial futures contracts
to protect against changes in the market value of various interest-earning
assets and interest-bearing liabilities, including the repricing of interest
rate floor arrangements. Realized gains and losses on these contracts are
deferred and accounted for as premiums or discounts on the related assets,
liabilities or interest rate floor resets to the extent such contracts are
matched against specific assets, liabilities or interest rate floor resets and
meet specific hedge correlation criteria. Contracts which are not matched
against specific assets, liabilities, or the repricing of interest rate floor
arrangements or do not meet correlation criteria are accounted for at market
value with the resulting gain or loss recognized in operations. At September 30,
1996 and 1995 the Company has no outstanding financial future transactions.
During the years ended September 30, 1996, 1995 and 1994, the Bank's net
interest income increased (decreased) by $3.5 million, $1.2 million and $(1.5)
million, respectively, as a net result of off-balance sheet financial
instruments.
(22) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is the amount at which the asset or
obligation could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. Fair value estimates are made at a
specific point in time based on relevant market information and information
about the financial instrument. These estimates do not reflect any premium or
discount that could result from offering for sale at one time the entire
holdings of a particular financial instrument. Because no market value exists
for a significant portion of the financial instruments, fair value estimates are
based on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature, involve uncertainties and
matters of judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are determined for on and off-balance sheet financial
instruments, without attempting to estimate the value of anticipated future
business, and the value of assets and liabilities that are not considered
financial instruments. Additionally, tax consequences related to the realization
of the unrealized gains and losses can have a potential effect on fair value
estimates and have not been considered in many of the estimates.
The following table summarizes the carrying values and estimated fair values of
the Company's on-balance sheet financial instruments:
<TABLE>
<CAPTION>
September 30,
----------------------------------------------------
1996 1995
------------------------ --------------------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----------- ----------- ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Cash and cash equivalents..... $ 23,745 $ 23,745 $ 45,104 $ 45,104
Trading account securities.... -- -- 2,003 2,003
Debt and equity securities.... 136,776 136,774 67,452 67,380
Federal Home Loan Bank stock.. 27,938 27,938 20,288 20,288
Mortgage-backed securities.... 831,246 815,031 871,520 844,297
Loans receivable, net......... 1,853,162 1,872,423 1,664,943 1,690,532
FINANCIAL LIABILITIES:
Deposits...................... 1,715,959 1,721,433 1,748,874 1,755,704
Borrowed funds................ 1,008,786 1,008,136 767,138 767,735
</TABLE>
The following methods and assumptions were utilized in estimating the fair
values of its on-balance sheet financial instruments at September 30, 1996 and
1995:
CASH AND CASH EQUIVALENTS
The estimated fair values are assumed to equal the carrying values as these
financial instruments are either due on demand or mature within 90 days.
DEBT AND EQUITY SECURITIES AND MORTGAGE-BACKED SECURITIES
Estimated fair values of debt and equity securities and mortgage-backed
securities, both available for sale and held to maturity, are generally
predicated upon quoted market prices or dealer quotes, or in the absence of such
quotes, on quoted market prices for securities with similar credit, maturity and
interest rate characteristics.
LOANS RECEIVABLE, NET
Estimated fair values are calculated for pools of loans with similar
characteristics. The loans are first segregated by type, such as one-to-four
family residential, other residential, commercial, and consumer, and then
further segregated into fixed and adjustable rate categories and seasoned and
nonseasoned categories.
Estimated fair values are derived by discounting expected future cash flows.
Expected future cash flows are based on contractual cash flows, adjusted for
prepayments. Prepayment estimates are based on a variety of factors including
the Bank's experience with respect to each loan category, the effect of current
economic and lending conditions, and regional statistics for each loan category,
if available. The
44
<PAGE> 37
discount rates used are based on market rates for new loans of similar type and
purpose, adjusted, when necessary, for factors such as servicing cost, credit
risk, and term.
As mentioned previously, this technique of estimating fair value is extremely
sensitive to the assumptions and estimates used. While management has attempted
to use assumptions and estimates which are the most reflective of the loan
portfolio and the current market, a greater degree of subjectivity is inherent
in these values than those determined in formal trading marketplaces. As such,
readers are cautioned in using this information for purposes of evaluating the
financial condition and/or value of the Company in and of itself or in
comparison with any other company.
DEPOSITS
The fair value of deposit liabilities with no stated maturity (NOW, money
market, savings accounts and non-interest bearing accounts, which represent
59.3% of all deposit liabilities) are equal to the carrying amounts payable on
demand. The fair value of certificates of deposit represent contractual cash
flows discounted using interest rates currently offered on deposits with similar
characteristics and remaining maturities.
Under generally accepted accounting principles, these estimated fair values do
not include the intangible value of core deposit relationships which comprise a
significant portion of the Bank's deposit base. However, management believes
that the Bank's core deposit relationships provide a relatively stable, low cost
funding source which has a substantial intangible value separate from the
deposit balances.
BORROWED FUNDS
The estimated fair value of borrowed funds is calculated based on the discounted
value of contractual cash flows using interest rates currently in effect for
borrowings with similar maturities and collateral requirements.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS
The fair values of interest rate swap agreements, interest rate collars,
interest rate floors, interest rate caps and stock indexed call options are
obtained from dealer quotes and represent the cost of terminating the
agreements. The estimated fair value of open off- balance sheet financial
instruments results in an unrealized gain (loss) of $2.9 million and $(.5)
million at September 30, 1996 and 1995, respectively.
Further, the estimated fair value of commitments to extend credit is estimated
using the fees charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present creditworthiness of the
counterparties. Generally, for fixed-rate loan commitments, fair value also
considers the difference between current levels of interest rates and the
committed interest rates. The fair value of commitments to purchase
mortgage-backed securities is based on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties. The estimated fair
value of these off-balance sheet financial instruments results in no unrealized
gain or loss at September 30, 1996 and 1995.
(23) RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the FASB issued Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets To Be Disposed Of" ("SFAS No. 121 "). The Statement is effective for
financial statements issued for fiscal years beginning after December 15, 1995.
The Statement establishes accounting standards for, among other things, the
impairment of long-lived assets. The Statement requires that long-lived assets
be reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. The Company adopted
SFAS No. 121 on October 1, 1996. Adoption of SFAS No. 121 did not have a
significant effect on the Company's financial condition or results of
operations.
In October 1995, the FASB issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement
is effective for fiscal years beginning after December 15, 1995. The Statement
establishes accounting and reporting standards for stock-based employee
compensation awards granted in fiscal years that begin after December 15, 1994.
Examples of such plans are stock purchase plans, stock options, restricted
stock, and stock appreciation rights. The Statement defines a fair value based
method of accounting for employee stock options or similar equity instruments
and encourages all entities to adopt that method of accounting. Entities may
elect, however, to remain with previous accounting standards which do not
require the fair value method of accounting. Those entities electing not to
adopt the fair value method of accounting must make pro forma disclosures of net
income and earnings per share as if the fair value method of accounting defined
in the Statement were adopted. Under the fair value based method, compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period. The
Company has adopted SFAS No. 123 effective October 1, 1996, and has elected to
remain with the previous accounting standard which does not require the fair
value method of accounting. Proforma disclosures as if the fair value method
were adopted will be presented in future financial statements. Based on this
method of adoption, SFAS No. 123 will not have a significant effect on the
Company's financial condition or results of operations.
In June 1996, the FASB issued Statement of Financial Accounting Standards No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). The Statement is effective for
transactions occurring after December 31, 1996. The Statement provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities. Those standards are based on
consistent application of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes
45
<PAGE> 38
New York Bancorp Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
September 30, 1996, 1995 and 1994
financial assets when control has been surrendered, and derecognizes liabilities
when extinguished. This Statement provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers that
are secured borrowings. The Company plans to adopt SFAS No. 125 on January 1,
1997. Based on its review of the Statement, management does not believe that
adoption of SFAS No. 125 will have a material effect on the Company.
(24) PARENT COMPANY ONLY FINANCIAL INFORMATION
New York Bancorp operates a wholly owned subsidiary, Home Federal Savings Bank.
The earnings of the Bank are recognized by the Holding Company using the equity
method of accounting. Accordingly, earnings of the Bank are recorded as
increases in the Holding Company's investment and any dividends would reduce the
Holding Company's investment in the Bank. The following is the condensed
financial statements for New York Bancorp Inc. (parent company only) as of
September 30, 1996 and 1995 and for the years ended September 30, 1996, 1995 and
1994:
CONDENSED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
-------------------
1996 1995
-------- --------
(In Thousands)
<S> <C> <C>
ASSETS
Cash and due from banks................................. $ 236 $ 112
Money market investments................................ 10,700 8,418
Debt and equity securities available for sale........... 4,841 4,489
Investment in Bank, at equity........................... 138,195 146,169
Other................................................... 195 80
-------- --------
$154,167 $159,268
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued expenses and other liabilities.................. $ 2,264 $ 2,882
Shareholders' equity.................................... 151,903 156,386
-------- --------
$154,167 $159,268
======== ========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended September 30,
-------------------------------
1996 1995 1994
-------- -------- ---------
(In Thousands)
<S> <C> <C> <C>
Dividend from Bank.......................... $ 37,352 $ 26,200 $ 11,879
Interest income............................. 509 720 685
Interest expense............................ -- (48) (182)
Non-interest income (loss).................. 3,141 353 (4)
Non-interest expense........................ (410) (649) (697)
-------- -------- --------
Income before income taxes and equity in
undistributed earnings of Bank............. 40,592 26,576 11,681
Income tax benefit (expense)................ (1,471) (154) 90
-------- -------- --------
Income before equity in undistributed
earnings of Bank........................... 39,121 26,422 11,771
Excess of dividends over current year earnings (7,115) (14,860) --
Equity in undistributed earnings of Bank.... -- -- 21,381
-------- -------- --------
Net income.................................. $ 32,006 $ 11,562 $ 33,152
======== ======== ========
</TABLE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
--------------------------------
1996 1995 1994
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 32,006 $ 11,562 $ 33,152
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings of the Bank........................... 7,115 14,860 (21,381)
Gain on sale of debt and equity securities
available for sale.......................................... (3,141) (295) --
Amortization of premiums..................................... -- 48 150
Amortization of ESOP and RRP................................. -- 464 1,491
Termination of ESOP and RRP.................................. -- 4,992 --
(Increase) decrease in other assets.......................... 281 392 (338)
Increase (decrease) in other liabilities..................... 1,519 (241) (227)
-------- -------- --------
Total adjustments............................................ 5,774 20,220 (20,305)
-------- -------- --------
Net cash provided by operating activities..................... 37,780 31,782 12,847
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of mortgage-backed securities
available for sale............................................ -- 6,957 --
Proceeds from sale of debt and equity securities
available for sale............................................ 16,336 1,159 --
Investment in Bank............................................. -- (105) (1,000)
Investment in mortgage-backed securities
available for sale............................................ -- -- (2,112)
Investment in debt and equity securities available for sale.... (14,457) (4,812) (480)
Principal payments on mortgage-backed securities
available for sale............................................ -- 2,273 5,512
-------- -------- --------
Net cash provided by investing activities..................... 1,879 5,472 1,920
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of common stock for
treasury or retirement........................................ (29,028) (32,496) (8,320)
Proceeds from sale of treasury stock........................... -- 4,530 --
Repayment of long term debt.................................... -- (217) (543)
Payment of common stock dividends.............................. (9,427) (8,156) (5,582)
Cash paid in lieu of fractional shares
resulting from stock split and dividend....................... -- -- (3)
Exercise of stock options...................................... 1,202 872 819
-------- -------- --------
Net cash used by financing activities......................... (37,253) (35,467) (13,629)
-------- -------- --------
Net increase in cash and cash equivalents........................ 2,406 1,787 1,138
Cash and cash equivalents at beginning of year................... 8,530 8,187 7,049
Hamilton's net cash flows for the three months
ended December 31, 1994......................................... -- (1,444) --
-------- -------- --------
Cash and cash equivalents at end of year......................... $ 10,936 $ 8,530 $ 8,187
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES:
Transfer of mortgage-backed securities held to maturity
to mortgage-backed securities available for sale................ $ -- $ -- $ 11,630
======== ======== ========
</TABLE>
46
<PAGE> 39
(25) QUARTERLY FINANCIAL DATA (UNAUDITED)
Selected quarterly financial data for fiscal years ended September 30, 1996 and
1995 is presented below:
<TABLE>
<CAPTION>
FISCAL 1996 Fiscal 1995
------------------------------------------------------------------------------------------------------
Quarter Ended
------------------------------------------------------------------------------------------------------
September 30, June 30, March 31, December 31, September 30, June 30, March 31, December 31,
1996 1996 1996 1995 1995 1995 1995 1994
------------- -------- --------- ---------- ------------- -------- ---------- ------------
(In Thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
QUARTERLY OPERATING DATA:
Interest income................ $54,349 $52,392 $50,091 $50,659 $50,843 $49,714 $48,990 $47,425
Interest expense............... 27,528 26,486 25,741 26,991 27,546 26,514 24,860 22,810
------- ------- ------- ------- ------- ------- ------- -------
Net interest income............ 26,821 25,906 24,350 23,668 23,297 23,200 24,130 24,615
Provision for possible loan
losses........................ (300) (300) (300) (300) (400) (400) (400) (500)
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after
provision for possible
loan losses................... 26,521 25,606 24,050 23,368 22,897 22,800 23,730 24,115
------- ------- ------- ------- ------- ------- ------- -------
Non-interest income
(loss):
Loan fees and service
charges..................... 676 673 790 631 605 610 588 763
Net gain (loss) on sales
of mortgage loans
and securities
available for sale.......... 1,972 742 1,529 507 303 125 (1,177) (339)
Other........................ 1,848 2,008 1,727 1,564 1,421 1,316 1,280 1,117
------- ------- ------- ------- ------- ------- ------- -------
Total non-interest income...... 4,496 3,423 4,046 2,702 2,329 2,051 691 1,541
------- ------- ------- ------- ------- ------- ------- -------
Non-interest expense:
General and administrative.... 12,280 11,714 11,631 11,910 10,720 12,533 12,858 12,857
Merger and restructuring...... -- -- -- -- -- -- 19,024 --
Real estate operations, net... 123 253 (46) 133 223 (59) 345 374
SAIF recapitalization......... 9,432 -- -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total non-interest expense... 21,835 11,967 11,585 12,043 10,943 12,474 32,227 13,231
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax expense............ 9,182 17,062 16,511 14,027 14,283 12,377 (7,806) 12,425
Income tax expense............. 3,810 7,432 7,335 6,199 6,303 5,458 1,998 5,958
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).............. $5,372 $9,630 $ 9,176 $7,828 $7,980 $ 6,919 $(9,804) $6,467
======= ======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
common share.................. $.47 $.81 $.76 $.64 $.63 $.51 $(.73) $.48
- ---------------
Summation of the quarterly earnings per common share, due to the averaging effect of the number of shares and share equivalents
throughout the year, does not necessarily equal the annual amount.
</TABLE>
47
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
To The Board of Directors and Shareholders of New York Bancorp Inc.:
We have audited the accompanying consolidated statements of financial condition
of New York Bancorp Inc. and Subsidiary as of September 30, 1996 and 1995 and
the related consolidated statements of income, changes in shareholders' equity
and cash flows for each of the years in the three-year period ended September
30, 1996. 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 financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New York Bancorp
Inc. and Subsidiary as of September 30, 1996 and 1995 and the results of their
operations and their cash flows for each of the years in the three-year period
ended September 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 16 to the consolidated financial statements, effective
October 1, 1993, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes).
/s/KPMG Peat Marwick LLP
October 29, 1996
Jericho, New York
48
<PAGE> 41
<TABLE>
<CAPTION>
HOME FEDERAL SAVINGS BANK
- ------------------------------------------------------------------------------------------------------------------------------
A New York Bancorp Company
- ------------------------------------------------------------------------------------------------------------------------------
EXECUTIVE OFFICERS
<S> <C> <C> <C>
PATRICK E. MALLOY, III MICHAEL A. MCMANUS, JR. STAN I. COHEN
Chairman President and Senior Vice President,
Chief Executive Officer Chief Financial Officer and
Secretary
- ------------------------------------------------------------------------------------------------------------------------------
First Vice Presidents
GEORGE J. AMENTAS CARMINE BRACCO RICHARD F. ROTHSCHILD TERRENCE S. WALSH
Treasurer EDP & Operations Marketing Multifamily Lending
ROBERT J. ANRIG DENNIS HODNE EDWARD J STEUBE
Lending Retail Banking Business Development
- ------------------------------------------------------------------------------------------------------------------------------
Vice Presidents
CHARLES W. BAKER WILLIAM M. DOWD JOHN M. MORA CAROLINE M. TROISI
Senior Underwriter EDP Asset/Liability Management Market Area Manager
THOMAS J. CAPOBIANCO MICHAEL J. FINK CAROLE L. SCIALDONE KEVIN J. WOLFE
Mortgage Servicing Loan Production Manager Human Resources Accounting
JAMES H. CARTER DAVID W. FRY JAMES SCIOLTO JOSEPH J. ZEGAR
Operations Financial Reporting Branch Administration Internal Audit
JOHN P. CARTER, JR. LOUIS L. HALLISEY JONATHAN D. SEEM CLIFFORD J. ZOLLER
Credit Administration Senior Underwriter-NY Business Development Commercial Lending
DONNA J. DIGIROLAMO SEAN J. HOWLAND MARK E. SHERIDAN
Legal Loan Review Senior Underwriter-NJ Commercial Lending
- -------------------------------------------------------------------------------------------------------------------------------
Assistant Vice Presidents
ROBERT P. CAMMARATA TERI L. GEORGE BIAGIO B. MADAIO LOUIS J. ROSADO
Market Area Manager Market Area Manager Market Area Manager Loan Officer
RICHARD M. CHIN BETTY GERBINO DEBORAH L. MARTIN ALBERT A. TAMER
Cost Accounting Training Consumer Lending Market Area Manager
FRANK J. CLAPS WILLIAM A. GUIDUCCI MICHAEL H. MATTHEWS FRANK J. TRICK
Market Area Manager Market Area Manager Appraisals Loan Production Coordinator
KAREN A. FLANAGAN SUSAN LADONE RAYMOND B. OBIOL JAMES R. WHITEHOUSE
Lending Manager In-Store Banking Loan Center Manager Loan Center Manager
THOMAS B. FORD ROBIN L. LANE LORI PRIEST THERESA A. ZABRANSKY
Commercial Lending Purchasing Mortgage Servicing EDP
- -------------------------------------------------------------------------------------------------------------------------------
Other Officers
VOULA ARIANAS MARY ELLEN DESIDERIO CHARLES R. MAASS ELIZABETH POWELL
Branch Manager Assistant Mortgage Officer EDP Facilities Officer Branch Manager
SUE ANN BECK EILEEN C. DIGNAM JEAN-ALBERT MAISONNEUVE DUILIO RENDE
Branch Manager Assistant Mortgage Officer Marketing Officer Network Officer
LINDA BISHOP CATHERINE L. DITIRRO ANNA MAE MACAVOY FRANCESCA SALATTI
Investor Relations Officer Branch Manager Branch Manager Branch Manager
CHARLES F. BIVONA DIANE M. DODDO ROBERT P. MARONEY ANNE P. SCHULTHEIS
Branch Manager Branch Operations Officer Assistant Mortgage Officer Branch Manager
RONALD P. BRACK BERNARD J. DUFFY THOMAS MCCALL SUDARSHAN SETH
Branch Manager Branch Manager AS 400 Systems Officer Electronic Banking Officer
MICHAEL L. CAPOZIELLO JOHN D. HENNESSEY SUSAN MCKIERNAN MARILYN SILVER
Branch Manager Branch Manager Branch Manager Branch Manager
DAVID J. CARBALLEIRA ELIZABETH A. HOLLAND KATHLEEN M. METZ WILLIAM K. SORIANO
Branch Manager Branch Manager Assistant Mortgage Officer Branch Manager
JANET R. CIAFARDONI GINA KATZ GRACE A. NICOLAOU LOUISE M. TIMMS
Branch Manager Branch Manager Branch Manager Branch Manager
LOUIS DALLOJOCONO HOLLY KIMBALL-TEMPESTA ERIC P. PARAS GORDON WUERTH
Loan Originations Officer Audit Officer Branch Manager PC Systems Officer
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 42
HOME FEDERAL SAVINGS BANK
- --------------------------------------------------------------------------------
A New York Bancorp Company
CORPORATE HEADQUARTERS
New York Bancorp Building
241-02 Northern Boulevard, Douglaston, NY 11362-1061 (718) 631-8100
BRANCH LOCATIONS
QUEENS
70-24 Myrtle Avenue, Glendale, NY 11385 (718) 497-5000
83-24 Woodhaven Boulevard, Glendale, NY 11385 (718) 849-1300
155-14 Cross Bay Boulevard, Howard Beach, NY 11414 (718) 641-6510
248-40 Northern Boulevard, Little Neck, NY 11363 (718) 428-7100
* 70-01 Forest Avenue, Ridgewood, NY 11385 (718) 821-2000
145-15 243rd Street, Rosedale, NY 11422 (718) 527-6100
BROOKLYN
9502 3rd Avenue, Brooklyn, NY 11209 (718) 745-4400
6501 11th Avenue, Brooklyn, NY 11219 (718) 837-9100
7401 13th Avenue, Brooklyn, NY 11228 (718) 232-7200
* 413 86th Street, Brooklyn, NY 11209 (718) 833-4300
179 Avenue U, Brooklyn, NY 11223 (718) 946-5000
2123 Avenue U, Brooklyn, NY 11229 (718) 332-5200
420 Court Street, Brooklyn, NY 11231 (718) 625-4234
o 1710 Avenue Y (Edward's), Brooklyn, NY 11235 (718) 332-6111
STATEN ISLAND
o 985 Richmond Avenue (ShopRite), Staten Island, NY 10314 (718) 370-1999
NASSAU
41 Forest Avenue, Glen Cove, NY 11542 (516) 671-6767
35 Merrick Avenue, Merrick, NY 11566 (516) 623-3900
* 210 Mineola Boulevard, Mineola, NY 11501 (516) 742-1500
77 Lincoln Avenue, Rockville Centre, NY 11570 (516) 766-2100
195 Rockaway Avenue, Valley Stream, NY 11580 (516) 872-0400
SUFFOLK
356 Middle Country Road, Coram, NY 11727 (516) 732-8300
155 East Main Street (Rt. 25A), Huntington, NY 11743 (516) 549-0800
143 Alexander Avenue, Lake Grove, NY 11755 (516) 724-3400
o 46 E. Hoffman Avenue (Waldbaum's), Lindenhurst, NY 11757 (516) 226-3777
* 62 South Ocean Avenue, Patchogue, NY 11772 (516) 447-3400
366 Route 25A, Rocky Point, NY 11778 (516) 744-0100
800 Montauk Highway, Shirley, NY 11967 (516) 281-2200
43 Main Street, Westhampton Beach, NY 11978 (516) 288-3300
o 1730 Veterans Memorial Highway (Edward's), Islandia, NY 11722 (516) 232-6900
LOAN CENTERS
One Depot Plaza, Mamaroneck, NY 10543 (914) 698-4200
241-02 Northern Boulevard, Douglaston, NY 11362 (718) 631-2500
TELEBANKING
24 Hour Banking By Phone (718) 726-HOME (4663)
(516) 827-HOME (4663)
OPERATIONS CENTER
* 100 Jericho Quadrangle, Jericho, NY 11753 (516) 733-5000
* Loan Centers at these locations
o Supermarket branch
- -------------------------------------------------------------------------------
At September 30, 1996 there were 2,141 holders of record of common stock.
The following table shows high and low closing sales prices as reported by the
American Stock Exchange through June 20, 1995 and by the New York Stock Exchange
thereafter. Such prices do not necessarily reflect retail markups, markdowns or
commissions.
<TABLE>
<CAPTION>
Fiscal year ended September 30, 1996 Fiscal year ended September 30, 1995
------------------------------------ ---------------------------------------
Cash Cash
Dividends Dividends
High Low Per Share High Low Per Share(1)
------- ------- ----------- ------- ------- ------------
<S> <C> <C> <C> <S> <C> <C> <C>
4th Quarter $32.125 $25.750 $ .20 4th Quarter $20.750 $19.000 $ .20
3rd Quarter $26.125 $23.750 $ .20 3rd Quarter $20.375 $17.250 $ .20
2nd Quarter $23.500 $21.500 $ .20 2nd Quarter $19.125 $16.250 $ .20
1st Quarter $22.500 $19.750 $ .20 1st Quarter $19.625 $18.250 $ .20
(1) Dividends per share have not been restated for the merger with
Hamilton.
</TABLE>
50
<PAGE> 1
NEW YORK BANCORP INC.
241-02 Northern Boulevard
Douglaston, New York 11362
Form 10-K
September 30, 1996
Exhibit 21. Subsidiary of the Registrant
Home Federal Savings Bank
241-02 Northern Boulevard
Douglaston, New York 11362
Home Federal Savings Bank is Federally chartered.
Subsidiaries of Home Federal Savings Bank:
Home Fed Advantage Corp.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
Alameda Advantage Corp.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
Home Fed Equity Corp.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
Home Fed Properties Corp.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
Home Fed Services, Inc.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
HF Investors, Inc.
241-02 Northern Boulevard
Douglaston, New York 11362
State of incorporation: New York
<PAGE>1
Exhibit 23
Independent Auditors' Consent
-----------------------------
The Shareholders and the Board of Directors of
New York Bancorp Inc.
We consent to incorporation by reference in the Registration Statements (Nos.
33-23468, 33-23478, 33-41107, 33-41108, 33-75754, 33-75756 and 33-90440) on Form
S-8 of New York Bancorp Inc. of our report dated October 29, 1996, relating to
the consolidated statements of financial condition of New York Bancorp Inc. and
Subsidiary as of September 30, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity and cash flows for each of
the years in the three year period ended September 30, 1996, which report is
incorporated by reference in the September 30, 1996 Form 10-K of New York
Bancorp, Inc. Our report includes an explanatory paragraph that describes the
adoption of a new accounting principle as discussed in the notes to those
statements.
/s/ KPMG PEAT MARWICK LLP
Jericho, New York
December 19, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This legend contains summary information extracted from the Form 10-K and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000820068
<NAME> NEW YORK BANCORP INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,045
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,700
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 416,562
<INVESTMENTS-CARRYING> 579,398
<INVESTMENTS-MARKET> 563,181
<LOANS> 1,872,548
<ALLOWANCE> (19,386)
<TOTAL-ASSETS> 2,940,907
<DEPOSITS> 1,715,959
<SHORT-TERM> 1,008,786
<LIABILITIES-OTHER> 64,259
<LONG-TERM> 0
0
0
<COMMON> 147
<OTHER-SE> 151,756
<TOTAL-LIABILITIES-AND-EQUITY> 2,940,907
<INTEREST-LOAN> 143,527
<INTEREST-INVEST> 63,695
<INTEREST-OTHER> 269
<INTEREST-TOTAL> 207,491
<INTEREST-DEPOSIT> 60,470
<INTEREST-EXPENSE> 106,746
<INTEREST-INCOME-NET> 100,745
<LOAN-LOSSES> 1,200
<SECURITIES-GAINS> 4,750
<EXPENSE-OTHER> 57,430
<INCOME-PRETAX> 56,782
<INCOME-PRE-EXTRAORDINARY> 32,006
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,006
<EPS-PRIMARY> 2.68
<EPS-DILUTED> 2.68
<YIELD-ACTUAL> 3.71
<LOANS-NON> 25,552
<LOANS-PAST> 4,400
<LOANS-TROUBLED> 5,818
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 21,272
<CHARGE-OFFS> 3,145
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 19,386
<ALLOWANCE-DOMESTIC> 19,386
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 6,618
</TABLE>
